<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 2000
FILE NO. 333-88163
811-6484
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 1 [X]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 1 [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.
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<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 below; or
-- the Guaranteed Account, which credits a specified rate of interest.
A prospectus for each of the portfolios available through the Variable Account
(the "Portfolios") must accompany this prospectus. Please read these documents
before investing and save them for future reference.
To learn more about the Contract, you should read the Statement of Additional
Information ("SAI") dated May 1, 2000. For a free copy of the SAI, please call
or write to us at our Service Center.
The SAI has been filed with the Securities and Exchange Commission ("SEC") and
is incorporated by reference into this prospectus. The Table of Contents for the
SAI appears on page 45 of this prospectus. The SEC maintains an Internet website
(http://www.sec.gov) that contains the SAI and other information.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PLEASE NOTE THAT THE CONTRACT AND THE PORTFOLIOS:
-- ARE NOT GUARANTEED TO ACHIEVE THEIR GOALS;
-- ARE NOT FEDERALLY INSURED;
-- ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY; AND
-- ARE SUBJECT TO RISKS, INCLUDING LOSS OF THE AMOUNT INVESTED.
It may not be advantageous to replace existing insurance with the Contract.
Also, please note that we offer other variable annuity contracts with features
different from this Contract. We offer variable annuity contracts that do not
have Credit Amounts or Renewal Credits, and therefore have lower fees. You
should carefully consider whether or not this Contract is the best product for
you. Generally, this Contract is most suited to owners who intend to hold it for
a relatively long time. There may be other situations where an Owner could be
disadvantaged by the application of a Credit Amount or Renewal Credit, such as
in the event of a recapture of Credit Amounts or Renewal Credits during a period
of market decline.
The following Portfolios are available under the Contract:
-- MARKET STREET FUND, INC.
All Pro Large Cap Growth Portfolio
All Pro Large Cap Value Portfolio
All Pro Small Cap Growth Portfolio
All Pro Small Cap Value Portfolio
Equity 500 Index Portfolio
International Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Managed Portfolio
Bond Portfolio
Money Market Portfolio
<PAGE> 4
-- MFS VARIABLE INSURANCE TRUST
MFS Emerging Growth Series
MFS Growth with Income Series
MFS New Discovery Series
MFS Research Series
-- OCC ACCUMULATION TRUST
Equity Portfolio
Managed Portfolio
-- PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Portfolio
PIMCO Total Return Bond Portfolio
-- STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II
-- STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II
-- VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Portfolio
Worldwide Emerging Markets Portfolio
Worldwide Hard Assets Portfolio
Worldwide Real Estate Portfolio
-- VARIABLE INSURANCE PRODUCTS FUND III
VIP III Contrafund(R) Portfolio
VIP III Growth Portfolio
VIP III Growth Opportunities Portfolio
VIP III Overseas Portfolio
<PAGE> 5
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<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........ 21
Addition, Deletion or Substitution
of Investments................... 21
DESCRIPTION OF ANNUITY CONTRACT....... 22
Purchasing a Contract............... 22
Cancellation (Free-Look) Period..... 22
Premiums............................ 22
Allocation of Net Premiums.......... 23
Credit Amounts...................... 23
Variable Account Value.............. 24
Transfer Privilege.................. 25
Dollar Cost Averaging............... 26
Withdrawals and Surrender........... 27
Death Benefit Before Annuity Date... 29
Alternate Death Benefit Riders...... 30
The Annuity Date.................... 31
Payments............................ 31
Modification........................ 32
Reports to Contract Owners.......... 32
Contract Inquiries.................. 32
THE GUARANTEED ACCOUNT................ 32
Minimum Guaranteed and Current
Interest Rates................... 32
Calculation of Guaranteed Account
Value............................
Transfers from Guaranteed Account... 33
Payment Deferral.................... 33
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CHARGES AND DEDUCTIONS................ 33
Surrender Charge (Contingent
Deferred Sales Charge)........... 33
Death Benefit Charge................ 34
Administrative Charges.............. 34
Daily Annuity Charge................ 35
Investment Advisory Fees and Other
Expenses of the Portfolios....... 35
Premium Taxes....................... 35
Other Taxes......................... 35
Charge Discounts For Sales to
Certain Groups................... 36
Charges For Optional Death Benefit
Riders........................... 36
PAYMENT OPTIONS....................... 36
Election of Payment Options......... 36
Description of Payment Options...... 37
YIELDS AND TOTAL RETURNS.............. 37
FEDERAL TAX STATUS.................... 39
Introduction........................ 39
Tax Status of the Contracts......... 39
Taxation of Annuities -- In
General.......................... 40
Taxation of Non-Qualified
Contracts........................ 40
Taxation of Qualified Contracts..... 41
Withholding......................... 42
Possible Changes in Taxation........ 42
Other Tax Consequences.............. 42
DISTRIBUTION OF CONTRACTS............. 43
LEGAL PROCEEDINGS..................... 43
VOTING PORTFOLIO SHARES............... 43
FINANCIAL STATEMENTS.................. 44
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS................... 45
APPENDIX A -- FINANCIAL HIGHLIGHTS.... A-1
</TABLE>
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GLOSSARY
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ACCUMULATION UNIT
A unit of measure used to calculate Subaccount Value.
ANNUITANT
The person whose life determines the annuity payments payable under the
Contract.
ANNUITY CHARGE
The fee we charge for assuming mortality and risk expenses and administrative
expenses.
ANNUITY DATE
The date as of which Surrender Value is applied to a Payment Option. The last
possible Annuity Date is the Maturity Date.
APPLICATION
The application you must complete to purchase a Contract plus all forms required
by us or applicable law.
BENEFICIARY
The person to whom we pay the death benefit 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.
CREDIT AMOUNT
An additional amount that we add to your Contract Account Value when we apply
Net Premiums under a Contract.
FREE WITHDRAWAL AMOUNT
During the first Contract Year, an amount equal to 10% of the premium payments
in the first Contract Year. For all other Contract Years, an amount equal to 10%
of the Contract Account Value at the start of that Contract Year.
FUND
Any mutual fund in which a Subaccount invests.
GENERAL ACCOUNT
The assets that belong to us other than those allocated to the Variable Account
or any of our other separate accounts.
GUARANTEED ACCOUNT
An account that is part of our General Account and is not part of, or dependent
upon, the investment performance of the Variable Account.
GUARANTEED ACCOUNT OPTION
An allocation option under the Contract supported by the General Account.
GUARANTEED ACCOUNT VALUE
The Net Premiums and associated Credit Amounts allocated, and other amounts
transferred, to the Guaranteed Account, plus interest credited to the Guaranteed
Account, minus amounts deducted, transferred, or withdrawn from the Guaranteed
Account. The Guaranteed Account Value is calculated separately for each
Guaranteed Account Option.
MATURITY DATE
The last date as of which the Contract Account Value may be applied to a Payment
Option. The latest possible Maturity Date, in most states, is the later of the
Contract Anniversary on or following the Annuitant's age 90, or 10 years after
the Contract Date (unless we consent to a later Maturity Date). Notwithstanding
the Maturity Date, Qualified Contracts may require that distributions begin at
an earlier date.
MONEY MARKET SUBACCOUNT
The Subaccount that holds shares of 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
1
<PAGE> 8
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.
OWNER (YOU, YOUR)
The person who owns the Contract. The Owner is entitled to exercise all rights
and privileges provided in the Contract. Provisions relating to action by the
Owner mean, in the case of joint Owners, both Owners acting jointly. Joint
Owners must be spouses.
PAYEE
The person entitled to receive annuity payments under the Contract. The
Annuitant is the Payee unless the Owner designates a different person as Payee.
PAYMENT OPTION
One of the annuity payment options available under the Contract.
PORTFOLIO
An investment portfolio of a Fund.
PLACA (WE, OUR, US)
Providentmutual Life and Annuity Company of America.
QUALIFIED CONTRACT
A Contract issued in connection with retirement plans that qualify for special
federal income tax treatment under the Code.
RENEWAL CREDIT
An additional amount that we may add to your Contract Account Value as of the
9th, 18th, 27th and 36th Contract Anniversaries and every 9th Contract
Anniversary thereafter until ten years prior to the Maturity Date.
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 service office at 300 Continental Drive, Newark, Delaware 19713.
SUBACCOUNT
A subdivision of the Variable Account.
SUBACCOUNT VALUE
Before the Annuity Date, the amount equal to that part of any Net Premium and
associated Credit Amounts allocated to a Subaccount plus any amounts transferred
to that Subaccount as adjusted by any interest income, dividends, net capital
gains or losses, realized or unrealized, and decreased by withdrawals (including
any applicable Surrender Charges and premium tax charges), other charges and any
amounts transferred out of that Subaccount.
SURRENDER CHARGE
A charge we deduct if a withdrawal or surrender occurs during the first nine
Contract Years after a premium payment is received. The Surrender Charge is
separately calculated and applied to each premium payment at the time a portion
of that premium payment is surrendered, withdrawn, or applied to a Payment
Option on the Annuity Date. This charge is sometimes called a "contingent
deferred sales charge."
SURRENDER VALUE
The Contract Account Value less: (1) any applicable Surrender Charge, (2)
premium tax charges not previously deducted, (3) the amount of any applicable
Renewal Credit subject to recapture, and (4) the annual contract maintenance
fee.
TRANSFER PROCESSING FEE
The fee we charge for additional Subaccount amounts transferred after the
twelfth transfer of Subaccount amounts within one Contract Year.
VALUATION DAY
For each Subaccount, each day that the New York Stock Exchange is open for
business and on days when trading of shares within a Subaccount is sufficient to
affect materially the value of the Subaccount.
VALUATION PERIOD
The period beginning at the close of business on one Valuation Day (usually 4:00
p.m. Eastern time) and continuing to the close of business on the next Valuation
Day.
VARIABLE ACCOUNT
Providentmutual Variable Annuity Separate Account.
VARIABLE ACCOUNT VALUE
The sum of all Subaccount Values.
2
<PAGE> 9
TABLE OF EXPENSES
The following information regarding expenses assumes that the entire
Contract Account Value is in the Variable Account.
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on Premiums... None
Maximum Contingent Deferred Sales
Charge (as a percentage of each
premium payment surrendered,
withdrawn, or annuitized)(1)... 8%
Death Benefit Charge (as a
percentage of each premium
payment)(2).................... 8% (up to the amount of Credit Amounts received during the prior
12 months)
Optional Death Benefit Rider
Charges (as a percentage of
Contract Account Value)
Step-Up Rider.................. 0.25%
Rising Floor Rider............. 0.40%
Transfer Processing Fee.......... No fee for first twelve transfers in Contract Year.
$25 fee for each transfer thereafter during Contract Year.
Annual Administrative Fee(3)..... $40 per Contract Year
Variable Account Annual Expenses
(as a percentage of Variable
Account Value)
Annual Annuity Charge............ 1.40% (the Annual Annuity Charge includes mortality and expense
risk fees and administrative fees and expenses)
</TABLE>
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <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%
Other Expenses (after reimbursement)................... 0.19% 0.21% 0.21% 0.30%
---- ---- ---- ----
Total Fund Annual Expenses (after reimbursement)(4).... 0.89% 0.91% 1.11% 1.20%
</TABLE>
<TABLE>
<CAPTION>
EQUITY
500 AGGRESSIVE MONEY
INDEX INTERNATIONAL GROWTH GROWTH MANAGED BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND
ANNUAL EXPENSES
(as a percentage of average
net assets)
Management Fees
(Investment Advisory Fees)... 0.24% 0.75% 0.32% 0.41% 0.40% 0.35% 0.25%
Other Expenses (after
reimbursement)(5)............ 0.04% 0.23% 0.16% 0.16% 0.17% 0.17% 0.15%
---- ---- ---- ---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(4)..... 0.28% 0.98% 0.48% 0.57% 0.57% 0.52% 0.40%
</TABLE>
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<TABLE>
<CAPTION>
EMERGING GROWTH WITH NEW
GROWTH INCOME DISCOVERY RESEARCH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
MFS VARIABLE INSURANCE TRUST
("MFS TRUST") ANNUAL EXPENSES(6)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......................... 0.75% 0.75% 0.90% 0.75%
12b-1 Fee............................................ 0.20% 0.20% 0.20% 0.20%
Other Expenses (after reimbursement)................. 0.08% 0.12% 0.15% 0.10%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(4).................................. 1.03% 1.07% 1.25% 1.05%
</TABLE>
<TABLE>
<CAPTION>
EQUITY MANAGED
PORTFOLIO PORTFOLIO
--------- -----------
<S> <C> <C> <C> <C>
OCC ACCUMULATION TRUST
("OCC TRUST") ANNUAL EXPENSES(6)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......................... 0.80% 0.77%
Other Expenses....................................... 0.11% 0.06%
---- ----
Total Fund Annual Expenses........................... 0.91% 0.83%
</TABLE>
<TABLE>
<CAPTION>
HIGH TOTAL
YIELD RETURN
BOND BOND
PORTFOLIO PORTFOLIO
--------- -----------
<S> <C> <C> <C> <C>
PIMCO VARIABLE INSURANCE TRUST
("PIMCO TRUST") ANNUAL EXPENSES(6)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......................... 0.25% 0.25%
Other Expenses (after reimbursement)................. 0.50% 0.40%
---- ----
Total Fund Annual Expenses (after
reimbursement)(4).................................. 0.75% 0.65%
</TABLE>
<TABLE>
<CAPTION>
MID CAP
GROWTH
FUND II
PORTFOLIO
---------
<S> <C> <C> <C> <C>
STRONG VARIABLE INSURANCE FUND, INC.
("STRONG FUND") ANNUAL EXPENSES(6)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......................... 1.00%
Other Expenses (after reimbursement)................. 0.15%
----
Total Fund Annual Expenses (after
reimbursement)(4).................................. 1.15%
</TABLE>
<TABLE>
<CAPTION>
OPPORTUNITY
FUND II
PORTFOLIO
-----------
<S> <C> <C> <C> <C>
STRONG OPPORTUNITY FUND II, INC.
("STRONG OPPORTUNITY FUND") ANNUAL EXPENSES(6)
(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>
4
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<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(6)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......................... 1.00% 1.00% 1.00% 1.00%
Other Expenses (after reimbursement)................. 0.22% 0.34% 0.26% 0.44%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(4).................................. 1.22% 1.34% 1.26% 1.44%
</TABLE>
<TABLE>
<CAPTION>
GROWTH
CONTRAFUND(R) GROWTH OPPORTUNITIES OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND III
("VIP III FUND") ANNUAL EXPENSES(6)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees).......................... 0.58% 0.58% 0.58% 0.73%
12b-1 Fee............................................. 0.25% 0.25% 0.25% 0.25%
Other Expenses........................................ 0.12% 0.10% 0.13% 0.18%
---- ---- ---- ----
Total Fund Annual Expenses(7)......................... 0.95% 0.93% 0.96% 1.16%
</TABLE>
Premium taxes may be applicable, depending on the laws of your state.
The above Table of Expenses is intended to assist you in understanding the
costs and expenses that you will bear directly or indirectly. Except as stated
in the footnotes below, the Table reflects expenses of the Variable Account and
the Funds for the 1999 calendar year. The Contract described in this Prospectus
was first offered in year 2000. For a more complete description of costs and
expenses, see "Charges and Deductions" and the prospectus for each Portfolio.
- ---------------
(1) A Contingent Deferred Sales Charge (also called a Surrender Charge) is
deducted only if a premium payment is withdrawn or surrendered or applied to
a Payment Option within 9 years of its being made. The maximum total
Surrender Charge will not exceed 8 1/2% of the 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 (10% of
the premium payments during the first Contract Year). (See "Surrender
Charge.")
(2) The Death Benefit Charge is only deducted if a death benefit is paid. This
charge is limited to the amount of Credit Amounts during the 12 months prior
to the Owner's death.
(3) The Annual Administrative Fee is waived where Contract Account Value is
$50,000 or more.
(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 Fund All
Pro Small Cap Value Portfolio, 1.04% for the MFS Emerging Growth Portfolio,
1.08% for the MFS Growth with Income Portfolio, 2.49% for the MFS New
Discovery Portfolio, 1.06% for the MFS Research Portfolio, 0.69% for the
PIMCO Total Return Bond Portfolio, 1.17% for the Strong Mid Cap Growth Fund
II Portfolio, and 3.23% for the Van Eck Worldwide Real Estate Portfolio.
Similar expense reimbursement and fee waiver arrangements were also in place
for the other Portfolios and it is anticipated that such arrangements will
continue past the current year. However, no expenses were reimbursed or fees
waived during 1999 for these Portfolios because the level of actual expenses
and fees did not exceed the thresholds at which the reimbursement and waiver
arrangements would have become operative.
(5) 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
5
<PAGE> 12
anticipates an expense reimbursement or fee waiver arrangement for year
2000. Absent this arrangement, estimated Total Fund Annual Expenses would be
0.39%.
(6) 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.
(7) Because the VIP III Contrafund(R) Portfolio, VIP III Growth Portfolio, VIP
III Growth Opportunities Portfolio, and VIP III Overseas Portfolio Service
Class 2 shares were not in existence during 1999, expenses are based on
estimated expenses for the first year.
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets, assuming that no optional death benefit rider was
selected, and assuming the addition of a 3% Credit Amount added to the $1,000
investment for the purpose of determining asset-based expenses. These examples
do not show the offsetting effect of the Credit Amount on illustrated expenses.
The Credit Amount has the effect of offsetting some of the expenses reflected in
the illustrations.
1. If you surrender or annuitize your Contract at the end of the applicable
time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Market Street All Pro Large Cap Growth.............. $101.17 $155.80 $209.68 $277.19
Market Street All Pro Large Cap Value............... 101.36 156.41 210.71 279.25
Market Street All Pro Small Cap Growth.............. 103.25 162.40 221.00 299.66
Market Street All Pro Small Cap Value............... 104.11 164.96 225.60 308.72
Market Street Equity 500 Index...................... 95.39 136.79 177.77 212.32
Market Street International......................... 102.02 158.58 214.32 286.44
Market Street Growth................................ 97.28 143.05 188.32 234.01
Market Street Aggressive Growth..................... 98.14 145.86 193.04 243.63
Market Street Managed............................... 98.14 145.86 193.04 243.63
Market Street Bond.................................. 97.66 144.30 190.42 238.30
Market Street Money Market.......................... 96.52 140.55 184.11 225.38
MFS Emerging Growth................................. 102.49 160.12 216.89 291.55
MFS Growth with Income.............................. 102.87 161.27 218.95 295.61
MFS New Discovery................................... 104.58 166.37 228.14 313.72
MFS Research........................................ 102.68 160.70 217.92 293.58
OCC Equity.......................................... 101.36 156.41 210.71 279.25
OCC Managed......................................... 100.60 153.94 206.58 270.98
PIMCO High Yield Bond............................... 99.84 151.45 202.43 262.64
PIMCO Total Return Bond............................. 98.89 148.35 197.22 252.12
Strong Mid Cap Growth Fund II....................... 103.63 163.54 223.04 303.70
Strong Opportunity Fund II.......................... 103.54 163.26 222.53 302.69
Van Eck Worldwide Bond.............................. 104.29 165.52 226.61 310.72
Van Eck Worldwide Emerging Markets.................. 105.43 168.92 232.72 322.65
Van Eck Worldwide Hard Assets....................... 104.67 166.66 228.65 314.72
Van Eck Worldwide Real Estate....................... 106.38 171.75 237.78 332.49
VIP III Contrafund(R)............................... 101.74 157.65 212.78 283.37
VIP III Growth...................................... 101.55 157.03 211.74 281.31
VIP III Growth Opportunities........................ 101.83 157.96 213.29 284.39
VIP III Overseas.................................... 103.73 163.82 223.55 304.71
</TABLE>
6
<PAGE> 13
2. If you do not surrender or annuitize your Contract at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Market Street All Pro Large Cap Growth................ $24.62 $75.80 $129.68 $277.19
Market Street All Pro Large Cap Value................. 24.82 76.41 130.71 279.25
Market Street All Pro Small Cap Growth................ 26.88 82.59 141.00 299.66
Market Street All Pro Small Cap Value................. 27.81 85.36 145.60 308.72
Market Street Equity 500 Index........................ 18.33 56.79 97.77 212.32
Market Street International........................... 25.54 78.58 134.32 286.44
Market Street Growth.................................. 20.39 63.05 108.32 234.01
Market Street Aggressive Growth....................... 21.32 65.86 113.04 243.63
Market Street Managed................................. 21.32 65.86 113.04 243.63
Market Street Bond.................................... 20.81 64.30 110.42 238.30
Market Street Money Market............................ 19.57 60.55 104.11 225.38
MFS Emerging Growth................................... 26.06 80.12 136.89 291.55
MFS Growth with Income................................ 26.47 81.36 138.95 295.61
MFS New Discovery..................................... 28.32 86.90 148.14 313.72
MFS Research.......................................... 26.26 80.74 137.92 293.58
OCC Equity............................................ 24.82 76.41 130.71 279.25
OCC Managed........................................... 24.00 73.94 126.58 270.98
PIMCO High Yield Bond................................. 23.18 71.45 122.43 262.64
PIMCO Total Return Bond............................... 22.14 68.35 117.22 252.12
Strong Mid Cap Growth Fund II......................... 27.29 83.82 143.04 303.70
Strong Opportunity Fund II............................ 27.19 83.52 142.53 302.69
Van Eck Worldwide Bond................................ 28.02 85.98 146.61 310.72
Van Eck Worldwide Emerging Markets.................... 29.25 89.67 152.72 322.65
Van Eck Worldwide Hard Assets......................... 28.43 87.21 148.65 314.72
Van Eck Worldwide Real Estate......................... 30.28 92.73 157.78 332.49
VIP III Contrafund(R)................................. 25.23 77.65 132.78 283.37
VIP III Growth........................................ 25.03 77.03 131.74 281.31
VIP III Growth Opportunities.......................... 25.34 77.96 133.29 284.39
VIP III Overseas...................................... 27.40 84.13 143.55 304.71
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets, assuming that the rising floor optional death benefit
rider was selected, and assuming the addition of a 3% Credit Amount added to the
$1,000 investment for the purpose of determining asset-based expenses:
3. If you surrender or annuitize your Contract at the end of the applicable
time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Market Street All Pro Large Cap Growth.............. $104.96 $167.51 $230.18 $317.70
Market Street All Pro Large Cap Value............... 105.15 168.07 231.19 319.68
Market Street All Pro Small Cap Growth.............. 107.04 173.72 241.31 339.32
Market Street All Pro Small Cap Value............... 107.90 176.25 245.83 348.03
Market Street Equity 500 Index...................... 99.18 149.28 198.78 255.29
Market Street International......................... 105.81 170.05 234.74 326.60
Market Street Growth................................ 101.07 155.49 209.16 276.16
Market Street Aggressive Growth..................... 101.93 158.27 213.81 285.42
Market Street Managed............................... 101.93 158.27 213.81 285.42
Market Street Bond.................................. 101.45 156.72 211.23 280.28
Market Street Money Market.......................... 100.31 153.01 205.02 267.86
MFS Emerging Growth................................. 106.28 171.46 237.27 331.51
MFS Growth with Income.............................. 106.66 172.59 239.29 335.42
</TABLE>
7
<PAGE> 14
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
MFS New Discovery................................... 108.37 177.66 248.34 352.84
MFS Research........................................ 106.47 172.03 238.28 333.47
OCC Equity.......................................... 105.15 168.07 231.19 319.68
OCC Managed......................................... 104.39 165.81 227.12 311.72
PIMCO High Yield Bond............................... 103.63 163.54 223.04 303.70
PIMCO Total Return Bond............................. 102.68 160.70 217.92 293.58
Strong Mid Cap Growth Fund II....................... 107.42 174.85 243.32 343.20
Strong Opportunity Fund II.......................... 107.33 174.56 242.82 342.23
Van Eck Worldwide Bond.............................. 108.09 176.81 246.84 349.96
Van Eck Worldwide Emerging Markets.................. 109.22 180.18 252.84 361.43
Van Eck Worldwide Hard Assets....................... 108.46 177.94 248.84 353.80
Van Eck Worldwide Real Estate....................... 110.17 182.98 257.82 370.89
VIP III Contrafund(R)............................... 105.53 169.20 233.22 323.64
VIP III Growth...................................... 105.34 168.64 232.21 321.67
VIP III Growth Opportunities........................ 105.62 169.49 233.73 324.63
VIP III Overseas.................................... 107.52 175.13 243.82 344.17
</TABLE>
The above Examples assume no transfer charges or premium taxes have been
assessed. The Examples also assume that the Annual Administrative Fee is $40 and
that the estimated average Contract Account Value per Contract is $40,000, which
translates the Annual Administrative Fee into an assumed 0.10% charge for
purposes of the Examples based on a $1,000 investment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE MORE OR LESS THAN THE ASSUMED
AMOUNT.
8
<PAGE> 15
CONTRACT SUMMARY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS SECTION IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU
SHOULD KNOW AND CONSIDER BEFORE PURCHASING A CONTRACT. WE DISCUSS 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 Annuity
Date.
- - CANCELLATION (FREE-LOOK) PERIOD. You have the right to return the Contract
within 10 days (or any longer period required by the laws of your state) after
you receive it. If you return the Contract within the Cancellation Period, we
will return a refund amount to you. In most states, the amount we return is:
-- the Contract Account Value as of the date that we receive the returned
Contract
minus
-- any Credit Amounts applied to the Contract
plus
-- any charges that we may have deducted from premium payments or Contract
Account Value.
In states where required, we will return the premiums that you paid.
- - PREMIUMS. We require a minimum initial premium of $10,000. You may pay
subsequent premiums at any time. For Non-Qualified Contracts, the minimum
subsequent premium is $100. For Qualified Contracts, the minimum subsequent
premium is $50. You may also select a planned periodic premium schedule, which
specifies each planned premium amount and payment frequency.
- - CREDIT AMOUNTS. We credit your Contract Account Value with an additional
amount in most circumstances when a Net Premium is applied to the Contract. The
Credit Amount is a percentage of the premium that you pay (ranging from 1.5% to
5.0%) and is determined by the total amount of premiums received under a
Contract less the total amount of all withdrawals (including surrender charges).
The amount of the Credit Amount is calculated by multiplying this percentage by
the excess of (a) over (b) where:
(a) is the total of the premiums paid under the Contract (including
the current premium payment) less the total withdrawals (including any
Surrender Charges); and
(b) is the amount computed for (a) at the time that the most recent
previous Credit Amount calculation was made that resulted in a Credit
Amount being applied.
On each of the first three Contract Anniversaries, we determine a
Calculated Credit Amount (as described below). To the extent that the Calculated
Credit Amount exceeds the amount of the actual Credit Amounts, we increase the
Contract Account Value by the amount of such excess.
Upon receipt of regulatory approval, we also may offer you a rider during
the 9th Contract Year through which you may elect a Renewal Credit, which is an
additional amount to be added to your Contract Account Value as of the 9th,
18th, 27th and 36th Contract Anniversaries and every 9th Contract Anniversary
thereafter until ten years prior to the Maturity Date.
The Credit Amount, the Calculated Credit Amount and the Renewal Credit are
explained in more detail later in this prospectus.
- - ALLOCATION OF NET PREMIUMS. We will allocate Net Premiums and associated
Credit Amounts under a Contract as designated by you to one or more of the
Subaccounts or to the Guaranteed Account, or to
9
<PAGE> 16
both. In states where you are guaranteed the return of your premium if you
cancel during the Cancellation Period, all Net Premiums and associated Credit
Amounts 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 Annuity Date, you may request a transfer of all or part
of the amount in a Subaccount or the Guaranteed Account to another Subaccount or
the Guaranteed Account, subject to certain restrictions. Each transfer must be
at least $500 or the entire amount in the Subaccount or Guaranteed Account, if
less. After twelve transfers during a Contract Year, we deduct a Transfer
Processing Fee of $25 for each additional transfer during that Contract Year. We
allow only one transfer out of the Guaranteed Account each Contract Year. You
must make this transfer within 30 days of the Contract Anniversary. We limit the
amount that you can transfer from the Guaranteed Account to 25% or less of the
Guaranteed Account Value on the date of the transfer, unless the balance after
transfer is less than $500, in which case the entire amount will be transferred.
- - WITHDRAWALS. At any time before the Annuity Date, you may withdraw part of
the Surrender Value, subject to certain limitations.
- - SURRENDER. Upon Notice received at our Service Center before the Annuity
Date, you may surrender the Contract in full and receive its Surrender Value.
This Notice must include the proper form, which you may obtain by contacting our
Service Center.
- - DEATH BENEFIT. If an Owner dies before the Annuity Date, we will pay the
Beneficiary a death benefit. During the first nine Contract Years, the death
benefit equals the greater of:
-- Contract Account Value less the Death Benefit Charge, or
-- aggregate premiums paid reduced by the amount of all withdrawals
(including Surrender Charges) prior to the date of death.
In Contract Years ten and later, the death benefit equals the greatest of:
-- Contract Account Value less the Death Benefit Charge,
-- aggregate premiums paid as of the ninth Contract Anniversary reduced by
the amount of all withdrawals prior to the ninth Contract Anniversary
plus aggregate premiums paid since that Anniversary reduced, for each
withdrawal since that Anniversary, by the Withdrawal Adjustment Amount
(as described below), or
-- Contract Account Value on the ninth Contract Anniversary plus aggregate
premiums paid since that Anniversary reduced, for each withdrawal since
that Anniversary, by the Withdrawal Adjustment Amount.
The Withdrawal Adjustment Amount is determined by multiplying the death benefit
prior to the withdrawal by the ratio of the amount of the withdrawal (including
any Surrender Charge) to the Contract Account Value immediately prior to the
withdrawal.
Notwithstanding the foregoing, if the Owner is 90 years old or older at the date
of death, the death benefit is the Contract Account Value less the Death Benefit
Charge.
If an Owner dies before the Annuity Date, we must generally distribute the death
benefit to the Beneficiary within five years after the date of death.
If an Owner dies on or after the Annuity Date, any remaining payments must be
distributed at least as rapidly as under the Payment Option in effect on the
date of death.
- - STEP-UP RIDER. You may also elect a Step-up Rider, which provides a
guaranteed minimum death benefit. This guaranteed minimum death benefit
initially equals the Contract Account Value as of the first
10
<PAGE> 17
Contract Anniversary. We will reset or "step-up" the guaranteed minimum death
benefit to the Contract Account Value, if greater, on the next Contract
Anniversary. This "step-up" continues until the Contract Anniversary on or
before the Owner'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
the Contract Account Value on the date we receive due proof of the Owner's
death.
- - RISING FLOOR RIDER. You may also elect a Rising Floor Rider, which provides a
guaranteed minimum death benefit. This guaranteed minimum death benefit equals
the sum of premiums paid less reductions for withdrawals, with interest
accumulating at an annual rate of 5% until the Contract Anniversary prior to the
Owner's 75th birthday. Thereafter, we add premiums to and deduct withdrawals
from the guaranteed death benefit. We reduce the guaranteed minimum death
benefit for a withdrawal by the same percentage that the withdrawal reduces
Contract Account Value. The guaranteed minimum death benefit proceeds will be an
amount equal to the Contract Account Value (less any Death Benefit Charge, as
described below). The guaranteed maximum death benefit proceeds will be an
amount equal to 200% of premium payments less 200% of withdrawals (including any
Surrender Charge).
CHARGES AND DEDUCTIONS
$ SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE). We do not deduct any
charge for sales expenses from premiums. However, if you surrender or annuitize
your Contract or make certain withdrawals within nine years of making a premium
payment, we will deduct a Surrender Charge from the premium payment when it is
surrendered, withdrawn or applied to a Payment Option. The Surrender Charge is a
percentage of each such premium payment ranging from 8% to 2% (8% to 1.5% in
Alabama) during the first nine years after the payment is made. The Surrender
Charge applicable to each premium payment diminishes as the payment ages. A
premium payment ages by Contract Year, such that it is in "year" 1 during the
Contract Year in which it is received and in "year" 2 throughout the subsequent
Contract Year and in "year" 3 throughout the Contract Year after that, etc.
Notwithstanding the foregoing, no Surrender Charge is applied to Contract
Account Value withdrawn or surrendered during any Contract Year up to an amount
equal to the Free Withdrawal Amount. For the first Contract Year, the Free
Withdrawal Amount is 10% of the premium payments in the first Contract Year. For
all other Contract Years, the Free Withdrawal Amount is 10% of the Contract
Account Value at the start of that Year. Also, no Surrender Charge applies if
you annuitize your Contract as of the Maturity Date.
$ DEATH BENEFIT CHARGE. A Death Benefit Charge is deducted when computing the
death benefit upon the death of any Owner prior to the Annuity Date. The Free
Withdrawal Amount does not apply to the Death Benefit Charge. The Death Benefit
Charge is the same as the Surrender Charge except that it is capped at an amount
equal to the dollar amount of Credit Amounts granted under the Contract during
the twelve months preceding the Owner's death.
$ ANNUAL ADMINISTRATIVE FEE. On each Contract Anniversary prior to and
including the Annuity Date, we deduct an Annual Administrative Fee of $40 from
the Contract Account Value. We also deduct this charge on the Annuity Date if it
is not a Contract Anniversary and upon surrender if the surrender occurs at any
time other than on a Contract Anniversary. We currently do not charge this fee
when the Contract Account Value is $50,000 or more as of the date that the fee
would have been charged.
$ TRANSFER PROCESSING FEE. The first twelve transfers of amounts in the
Subaccounts each Contract Year are free. We assess a $25 transfer charge for
each additional transfer during a Contract Year.
$ DAILY ANNUITY CHARGE. We deduct a daily Annuity Charge to compensate us for
assuming certain mortality and expense risks and to cover some of the expense of
administering the Contracts. On or prior to the Annuity Date, we deduct the
charge from the assets of the Variable Account at an annual rate of 1.40%.
11
<PAGE> 18
$ 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.
$ CHARGES FOR OPTIONAL DEATH BENEFIT RIDERS. If you elect a Step-up Rider or
Rising Floor Rider, we deduct a charge from Contract Account Value on the
Contract Date and on the same day of each month thereafter. The charge is a
percent of Contract Account Value and is deducted proportionately from
Subaccount Values and Guaranteed Account Value under the Contract. The monthly
charge is equal to 1/12 of the following annual rates: Step-up Rider, 0.25%;
Rising Floor Rider, 0.40%.
$ PREMIUM TAXES. If state or other premium taxes apply to a Contract, we deduct
such taxes either:
-- from premiums as they are received, or
-- from the Contract Account Value, upon a withdrawal from or surrender of
the Contract, or upon application of the Surrender Value to a Payment
Option, or upon payment of a death benefit.
ANNUITY PROVISIONS
- - ANNUITY DATE. We will apply the Surrender Value to a Payment Option on the
Annuity Date. You may instead elect to receive the Surrender Value on the
Annuity Date.
- - PAYMENT OPTIONS. The Contract offers three Payment Options. The amount of the
payments under them does not vary with the Variable Account's performance. They
are:
-- Life Annuity,
-- Life Annuity with 10 Years Guaranteed, and
-- Alternate Income Option.
In addition, instead of choosing one of the Payment Options listed above,
you may elect to receive payments in any other manner that is acceptable to us
and permissible under applicable law.
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> 19
PLACA, THE VARIABLE ACCOUNT AND THE PORTFOLIOS
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA (PLACA)
We are a stock life insurance company and the issuer of the Contract. We
were originally incorporated under Pennsylvania law in 1958 under the name
Washington Square Life Insurance Company. Our name was changed in 1991, and we
were redomiciled as a Delaware insurance company on October 28, 1992. The
address of our corporate headquarters is 1000 Chesterbrook Boulevard, Berwyn, PA
19312. We are currently licensed to transact life insurance business in 49
states and the District of Columbia. As of December 31, 1999, we had total
assets of approximately $1.7 billion.
We are a wholly-owned subsidiary of Provident Mutual Life Insurance Company
("PMLIC"). PMLIC was chartered by the Commonwealth of Pennsylvania in 1865 and
at the end of 1999 had total assets of approximately $9.2 billion. On December
31, 1997, we entered into a Support Agreement with PMLIC. Under this agreement,
PMLIC agrees to ensure that our total adjusted capital will remain at the level
of 200% of the company action level for risk-based capital ("RBC") at the end of
each calendar quarter during the term of the agreement. PMLIC agrees to
contribute to us an amount of capital sufficient to attain this level of total
adjusted capital. RBC requirements are used to monitor sufficient capitalization
of insurance companies based upon the types and mixtures of risk inherent in
their operations.
PMLIC also agrees to cause us to maintain cash or cash equivalents from
time to time as may be necessary during the term of the agreement in an amount
sufficient for the payment of benefits and other contractual claims pursuant to
policies and other contracts issued by us. This agreement will remain in effect
provided we remain a subsidiary of PMLIC. Before any material modification or
termination of the agreement, a determination must be made that 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> 20
The Variable Account currently has forty-eight Subaccounts, twenty-nine of
which are available under the Contracts. They are: All Pro Large Cap Growth; All
Pro Large Cap Value; All Pro Small Cap Growth; All Pro Small Cap Value; Equity
500 Index; International; Growth; Aggressive Growth; Managed; Bond; Money
Market; MFS Emerging Growth; MFS Growth with Income; MFS New Discovery; MFS
Research; OCC Equity; OCC Managed; PIMCO High Yield Bond; PIMCO Total Return
Bond; Strong Mid Cap Growth 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; VIP III Contrafund(R); VIP III Growth;
VIP III Growth Opportunities; and VIP III Overseas. The assets of each
Subaccount are invested exclusively in shares of a corresponding Portfolio of a
designated Fund.
The income, gains, or losses, realized or unrealized, on the assets of each
Subaccount of the Variable Account are credited to or charged against that
Subaccount without regard to any other income, gains, or losses of PLACA. The
assets of each Subaccount may not be charged with liabilities arising out of any
other business of PLACA. PLACA may accumulate in the Variable Account the charge
for mortality expense and expense risks, gains and losses, and investment
results applicable to those assets that are in excess of the net assets
supporting the Contracts.
THE FUNDS
The Variable Account currently invests in Portfolios of various series-type
Funds, eight of which are available under the Contracts: Market Street Fund; MFS
Trust; OCC Trust; PIMCO Trust; Strong Fund; Strong Opportunity Fund; Van Eck
Trust; and VIP III Fund (collectively, the "Funds"). Each of these Funds is
registered with the SEC under the 1940 Act as an open-end investment company.
The SEC does not, however, supervise the management or the investment practices
and policies of the Funds.
The assets of each Portfolio are separate from the assets of the other
Portfolios, and each Portfolio has separate investment objectives and policies.
Each Portfolio therefore operates as a separate investment Portfolio and the
investment performance of one Portfolio has no effect on the investment
performance of any other Portfolio. The investment experience of each of the
Subaccounts of the Variable Account depends on the investment performance of its
corresponding Portfolio.
Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between the Fund and us. The
termination provisions of these agreements vary. A summary of the termination
provisions may be found in the SAI. If a participation agreement is terminated,
the Variable Account will no longer be able to purchase additional shares of
that Fund. In that event, you will not be able to allocate Contract Account
Values or premium payments to Subaccounts investing in Portfolios of that Fund.
In certain circumstances a Fund or a Portfolio may also refuse to sell its
shares to the Variable Account for other reasons. If a Fund or a Portfolio
refuses to sell its shares to the Variable Account, we will not be able to honor
your request to allocate your Contract Account Value or premium payments to
Subaccounts investing in shares of that Fund or Portfolio.
Certain Subaccounts invest in Portfolios that have similar investment
objectives and/or policies. Before choosing Subaccounts, you should carefully
read the individual prospectuses for the Funds along with this prospectus.
Some of the Portfolios available under the Contract present greater
investment risks than other Portfolios because they invest in high yield
securities (commonly known as junk bonds), foreign securities, small company
stocks, or other types of investments that present speculative risks. You should
read the risk disclosure in the prospectuses for the Portfolios and be sure that
your investment choice is appropriate in light of your investment goals.
MARKET STREET FUND
The All Pro Large Cap Growth, All Pro Large Cap Value, All Pro Small Cap
Growth, All Pro Small Cap Value, Equity 500 Index, International, Growth,
Aggressive Growth, Managed, Bond, and Money
14
<PAGE> 21
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>
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<PAGE> 22
Market Street Investment Management Company ("MSIM") serves as investment
adviser for the All Pro Portfolios. The subadvisers for the All Pro Portfolios
are as follows:
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISERS
--------- -----------
<S> <C>
ALL PRO LARGE CAP GROWTH - Cohen Klingenstein & 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 uses a "manager of managers" approach for the All Pro Portfolios under
which MSIM allocates each Portfolio's assets among one or more "specialist"
investment subadvisers.
MSIM also serves as investment adviser for the Equity 500 Index Portfolio
and the International Portfolio. MSIM has employed State Street Global Advisers
("State Street") to provide investment subadvisory services in connection with
the Equity 500 Index Portfolio. MSIM has employed The Boston Company Asset
Management, Inc. ("Boston Company") to provide investment subadvisory services
in connection with the 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 Contracts 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
Contracts. 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, each Portfolio
of the Market Street Fund pays its own expenses generally, including brokerage
costs, administrative costs, custodial costs, and legal, accounting, and
printing costs. However, PMLIC has entered into an agreement with the Market
Street Fund whereby it will reimburse each Portfolio for all ordinary operating
expenses, excluding advisory fees, in excess of an annual rate of 0.40% of the
average daily net assets of each Portfolio, except the Equity 500 Index
Portfolio and the International Portfolio. PMLIC will reimburse the Equity 500
Index Portfolio and the International Portfolio for all ordinary operating
expenses, excluding advisory fees, in excess of an annual rate of 0.04% and
0.75%, respectively. It is anticipated that this agreement will continue. If it
is terminated, Portfolio expenses may increase.
Each of the advisers and subadvisers discussed above is registered with the SEC
as an investment adviser under the Investment Advisers Act of 1940 (the
"Investment Advisers Act").
MFS VARIABLE INSURANCE TRUST
The MFS Emerging Growth Series, MFS Growth with Income Series, MFS New
Discovery Series, and MFS Research Series Subaccounts invest in shares of
corresponding Portfolios of MFS Trust. MFS Trust offers insurance companies a
selection of investment vehicles for variable annuity contracts and variable
life insurance policies.
MFS Trust issues a number of "series" or classes of shares, each of which
represents an interest in a separate investment portfolio within MFS Trust. Four
of the series are available for investment under the
16
<PAGE> 23
Contract: MFS Emerging Growth Series, MFS Growth with Income Series, MFS New
Discovery Series, and MFS Research Series.
The investment objectives/policies of each of these Portfolios are
summarized below:
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
MFS EMERGING GROWTH - Seeks to provide long-term growth of capital
by investing 65% of its total assets in
common stocks and related securities, such as
preferred stocks, convertible securities and
depositary receipts for those securities, of
emerging growth companies.
MFS GROWTH WITH INCOME - Seeks to provide reasonable current income
and long-term growth of capital and income by
investing at least 65% of its total assets in
common stocks and related securities, such as
preferred stocks, convertible securities and
depositary receipts for those securities,
focusing on companies with larger
capitalizations that have sustainable growth
prospects and attractive valuations based on
current and expected earnings or cash flow.
MFS NEW DISCOVERY - Seeks to provide capital appreciation by
investing at least 65% of its total assets in
equity securities of emerging growth
companies.
MFS RESEARCH - Seeks to provide long-term growth of capital
and future income by investing at least 80%
of its total assets in common stocks and
related securities, such as preferred stocks,
convertible securities and depositary
receipts, focusing on companies that the
adviser believes have favorable prospects for
long-term growth, attractive valuations based
on current and expected earnings or cash
flow, dominant or growing market share, and
superior management.
The Portfolios of MFS Trust are managed by Massachusetts Financial Services
Company. This adviser is registered with the SEC as an investment adviser under
the Investment Advisers Act.
OCC ACCUMULATION TRUST
The OCC Equity Subaccount and the OCC Managed Subaccount invest in shares
of corresponding Portfolios of OCC Trust. Shares of OCC Trust are sold to
separate accounts of life insurance companies established to fund variable
annuity contracts.
OCC Trust currently has seven investment Portfolios. Only the Equity
Portfolio and Managed Portfolio are available for investment under the
Contracts. Their investment objectives/policies are summarized below.
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
EQUITY - Seeks long-term capital appreciation through
investment in a diversified portfolio
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.
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<PAGE> 24
OCC Trust receives investment advice with respect to each of these
Portfolios from OpCap Advisors, a subsidiary of Oppenheimer Capital. Oppenheimer
Capital is a subsidiary of PIMCO Advisors L.P. OpCap Advisors is registered as
an investment adviser under the Investment Advisers Act.
PIMCO VARIABLE INSURANCE TRUST
The PIMCO High Yield Bond Subaccount and the PIMCO Total Return Bond
Subaccount invest in shares of corresponding Portfolios of PIMCO Trust. PIMCO
Trust currently has thirteen investment portfolios, two of which are available
for investment under the Contracts: High Yield Bond and Total Return Bond. Their
investment objectives/policies are summarized below.
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
HIGH YIELD BOND - Seeks to maximize total return, consistent
with preservation of capital and prudent
investment management.
TOTAL RETURN BOND - Seeks to maximize total return, consistent
with preservation of capital and prudent
investment management.
PIMCO Trust receives investment advice with respect to each of these
Portfolios from Pacific Investment Management Company ("PIMCO"). PIMCO is
registered as an investment adviser under the Investment Advisers Act.
STRONG VARIABLE INSURANCE FUNDS, INC.
The Strong Mid Cap Growth Fund II Subaccount invests in shares of a
corresponding Portfolio of the Strong Fund. Strong Fund offers insurance
companies a selection of investment vehicles for variable annuity contracts and
variable life insurance policies.
Strong Fund issues a number of "series" or classes of shares, each of which
represents an interest in a separate investment portfolio within the Strong
Fund. One of the series is available for investment under the Contract: Strong
Mid Cap Growth Fund II.
The investment objectives/policies of this Portfolio are summarized below:
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
STRONG MID CAP GROWTH FUND II - Seeks capital growth by investing at least
65% of its assets in stocks of
medium-capitalization companies that the
Portfolio's managers believe have favorable
prospects for accelerating growth of
earnings, but are selling at reasonable
valuations based on earnings, cash flow, or
asset value.
Strong Mid Cap Growth Fund II is managed by Strong Capital Management, Inc.
This adviser is registered with the SEC as an investment adviser under the
Investment Advisers Act.
STRONG OPPORTUNITY FUND II, INC.
The Strong Opportunity Fund II Subaccount invests in shares of a
corresponding Portfolio of the Strong Opportunity Fund. Strong Opportunity Fund
offers insurance companies a selection of investment vehicles for variable
annuity contracts and variable life insurance policies.
The investment objectives/policies of the Strong Opportunity Fund II are
summarized below:
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
STRONG OPPORTUNITY FUND II - Seeks capital growth by investing primarily
in stocks of medium-capitalization companies
that the Portfolio's managers believe are
underpriced, yet have attractive growth
prospects.
Strong Opportunity Fund II is managed by Strong Capital Management, Inc.
18
<PAGE> 25
VAN ECK WORLDWIDE INSURANCE TRUST
The Van Eck Worldwide Bond, Worldwide Emerging Markets, Worldwide Hard
Assets and Worldwide Real Estate Subaccounts of the Variable Account invest in
shares of corresponding Portfolios of the Van Eck Trust.
The investment objectives/policies of the Portfolios of Van Eck Trust are
summarized below.
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
WORLDWIDE BOND - Seeks high total return through a flexible
policy of investing globally, primarily in
debt securities. Total return consists of
current income and capital appreciation. This
Portfolio attempts to achieve its investment
objective by taking advantage of investment
opportunities in the United States as well as
in other countries throughout the world where
opportunities may be more rewarding and may
emphasize either component of total return.
WORLDWIDE EMERGING - Seeks long-term capital appreciation by
MARKETS investing primarily in equity securities in
emerging markets around the world.
WORLDWIDE HARD ASSETS - Seeks long-term capital appreciation by
investing globally, primarily in "Hard Assets
Securities." Hard Assets Securities include
equity securities of Hard Asset Companies and
securities, including structured notes, whose
value is linked to the price of a Hard Asset
commodity or a commodity index. Hard Asset
Companies include companies that are directly
or indirectly engaged to a significant extent
in the exploration, development, production,
or distribution of one or more of the
following (together, Hard Assets): (a)
precious metals, (b) ferrous and non-ferrous
metals, (c) gas, petroleum, petrochemicals,
or other hydrocarbons, (d) forest products,
(e) real estate, and (f) other basic
non-agricultural commodities. Income is a
secondary consideration.
WORLDWIDE REAL ESTATE - Seeks to maximize total return by investing
primarily in equity securities of domestic
and foreign companies which are principally
engaged in the real estate industry or which
own significant real estate assets.
The investment adviser for the Van Eck Worldwide Bond, Worldwide Hard
Assets, and Worldwide Real Estate Portfolios is Van Eck Associates Corporation
("Van Eck Associates"). The investment adviser for the Van Eck Worldwide
Emerging Markets Portfolio is Van Eck Global Asset Management (Asia) Limited, a
wholly-owned investment adviser subsidiary of Van Eck Associates. Each of these
advisers is registered with the SEC as an investment adviser under the
Investment Advisers Act.
VARIABLE INSURANCE PRODUCTS FUND III
The VIP III Contrafund(R) Subaccount, VIP III Growth Subaccount, VIP III
Growth Opportunities Subaccount, and VIP III Overseas Subaccount invest in
shares of corresponding Portfolios of the VIP III Fund. VIP III Fund offers
insurance companies a selection of investment vehicles for variable annuity
contracts and variable life insurance policies.
VIP III Fund issues a number of "series" or classes of shares, each of
which represents an interest in a separate Portfolio within the VIP III Fund.
Four of the VIP III Fund series are available for investment under the
Contracts: VIP III Contrafund(R) Portfolio, VIP III Growth Portfolio, VIP III
Growth Opportunities Portfolio, and VIP III Overseas Portfolio.
19
<PAGE> 26
The investment objectives/policies of these Portfolios are summarized
below.
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
VIP III CONTRAFUND(R) - Seeks long-term capital appreciation by
investing primarily in common stocks. Its
investments may include securities of
companies whose value it believes are not
fully recognized by the public, securities of
domestic and foreign issuers, growth stocks,
and value stocks.
VIP III GROWTH - Seeks to achieve capital appreciation by
investing primarily in common stocks. Its
investments may include securities of
companies it believes have above-average
growth potential and securities of domestic
and foreign issuers, growth stocks, and value
stocks.
VIP III GROWTH OPPORTUNITIES - Seeks to provide capital growth by investing
primarily in common stocks, although its
investments may also include other types of
securities, such as: bonds, which may be
lower-quality debt securities; securities of
domestic and foreign issuers; growth stocks;
and value stocks.
VIP III OVERSEAS - Seeks long-term growth of capital by
investing at least 65% of total assets in
foreign securities and investing primarily in
common stocks. This Portfolio allocates its
investments across countries and regions,
considering the size of the market in each
country and region relative to the size of
the international market as a whole.
The Portfolios of VIP III are managed by Fidelity Management & Research
Company ("FMR"). On behalf of the VIP III Contrafund(R) Portfolio, VIP III
Growth Opportunities Portfolio, and VIP III Overseas Portfolio, FMR has entered
into sub-advisory agreements with Fidelity Management & Research (U.K.) Inc.
("FMR (U.K.)") and Fidelity Management & Research (Far East) Inc. ("FMR Far
East"). FMR (U.K.) and FMR Far East provide research and investment
recommendations with respect to companies based outside the United States. FMR
(U.K.) primarily focuses on companies based in Europe; FMR Far East focuses
primarily on companies based in Asia and the Pacific Basin. Fidelity
International Investment Advisers (U.K.) and Fidelity International Investment
Advisers ("FIIA") serve as subadvisers for the Overseas Portfolio.
Each of these advisers is registered with the SEC as an investment adviser
under the Investment Advisers Act.
Each of these Portfolios utilizes Fidelity Investments Institutional
Operations Company ("FIIOC"), an affiliate of FMR, to maintain the master
accounts of the participating insurance companies. Under the transfer agent
agreement with FIIOC, each Portfolio pays fees based on the type, size, and
number of accounts in each Portfolio and the number of transactions made by
shareholders of each Portfolio.
Each 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,
20
<PAGE> 27
investment advisory services, charges, and investment risks in the current
prospectus for each Fund which accompanies this prospectus and the current SAI
for each Fund.
Certain Portfolios may have investment objectives and policies similar to
other investment portfolios or mutual funds managed by the same investment
adviser or manager. The investment results of the Portfolios may be higher or
lower than those of such other investment portfolios or mutual funds. We do not
guarantee or make any representation that the investment results of any
Portfolio will be comparable to that of any other investment portfolio or mutual
fund, even those with the same investment adviser or manager.
Some of the investment portfolios described in the prospectuses for the
Funds are not available with the Contracts. We cannot guarantee that each
Portfolio will always be available for the Contracts. In the unlikely event that
a Portfolio is not available, we will do everything reasonably practicable to
secure the availability of a comparable Portfolio. Shares of each Portfolio are
purchased and redeemed at net asset value, without a sales charge.
We may receive significant compensation from the investment adviser of a
Fund (or affiliates thereof) in connection with administrative, distribution, or
other services provided with respect to the Funds and their availability through
the Contracts. The amount of this compensation is based upon a percentage of the
assets of the Fund attributable to the Contracts and other contracts issued by
us. These percentages differ, and some advisers (or affiliates) may pay us more
than others.
Some of the Portfolios offered under the Contract also pay 12b-1 fees to
PLACA or its affiliates. (See "Table of Expenses.") These fees may be paid in
connection with the sale of shares of these Portfolios or in connection with the
provision of shareholder support services. The payment of 12b-1 fees will reduce
the Portfolio's performance. Additional information is provided in the Fund's
prospectuses.
RESOLVING MATERIAL CONFLICTS
The Funds are used as investment vehicles for variable life insurance
policies and variable annuity contracts issued by PLACA or PMLIC, as well as
other insurance companies offering variable life and annuity contracts. In
addition, certain Funds available with the Contract may sell shares to
retirement plans qualifying under section 401 of the Code. As a result, there is
a possibility that a material conflict may arise between the interests of owners
of variable life or variable annuity contracts, generally, or certain classes of
owners, and the interests of 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 a 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.
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<PAGE> 28
Furthermore, we may close Subaccounts to allocations of premiums or
Contract Account Value, or both, at any time in our sole discretion. The Funds,
which sell their shares to the Subaccounts pursuant to participation agreements,
also may terminate these agreements and discontinue offering their shares to the
Subaccounts.
We also reserve the right to establish additional Subaccounts, each of
which would invest in shares corresponding to an existing or new Portfolio.
Subject to applicable law and any required SEC approval, we may, in our sole
discretion, establish new Subaccounts or eliminate one or more Subaccounts if
marketing needs, tax considerations, or investment conditions warrant. Any new
Subaccounts may be made available to existing Owners on a basis to be determined
by us.
If any of these substitutions or changes are made, we may by appropriate
endorsement change the Contract to reflect the substitution or change. If we
deem it to be in the best interest of Owners and Annuitants, subject to any
approvals that may be required under applicable law, the Variable Account may be
operated as a management company under the 1940 Act, deregistered under the 1940
Act if registration is no longer required, or combined with our other separate
accounts.
DESCRIPTION OF ANNUITY CONTRACT
PURCHASING A CONTRACT
To purchase a Contract, you must submit a completed Application with an
initial premium payment to us at our Service Center. You may send the
Application and initial premium to us through any licensed representative who is
appointed by us and who is also a registered representative of 1717 Capital
Management Company ("1717"), the principal underwriter for the Contract (as well
as for other variable contracts). You may also send the Application and initial
premium to us through a broker-dealer that has a selling agreement with respect
to the Contract.
We may sell a Contract in connection with retirement plans. These
retirement plans may, or may not, qualify for special tax treatment under the
Code. See "Federal Tax Status -- Taxation of Qualified Contracts" for important
information about purchasing a Qualified Contract.
CANCELLATION (FREE-LOOK) PERIOD
The Contract provides for an initial Cancellation Period. You have the
right to return the Contract within 10 days (or any longer period required by
the laws of your state) after you receive it. When we receive the returned
Contract at our Service Center, it will be canceled and, in most states, we will
refund to the Owner an amount equal to: (1) your Contract Account Value as of
the date that we receive the returned Contract, minus (2) any Credit Amounts
applied to the Contract, plus (3) any charges that we may have deducted from
premium payments or Contract Account Value. In states that require it, we will
refund the premiums paid.
PREMIUMS
We require a minimum initial premium of $10,000. You may pay subsequent
premiums under the Contract at any time during the Annuitant's lifetime and
before the Annuity Date. Any subsequent premium must be at least $100 for
Non-Qualified Contracts and $50 for Qualified Contracts. We reserve the right,
however, to not accept subsequent premium payments at any time for any reason.
In your Application, you may select a planned periodic premium schedule
based on a periodic billing mode of annual, semi-annual, or quarterly payment.
You will receive a premium reminder notice at the specified interval. You may
change the planned periodic premium frequency and amount. Also, under the
automatic payment plan, you may select a monthly payment schedule under which
premium payments will be automatically deducted from a bank account or other
source rather than being "billed."
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<PAGE> 29
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 and
associated Credit Amounts are 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 Premiums and associated Credit
Amounts are allocated at the end of the Valuation Period in which the subsequent
premium is received by us in the same manner, unless the allocation percentages
are changed. Premiums and associated Credit Amounts are allocated in accordance
with the allocation schedule in effect at the time the premium payment is
received.
Subaccount Values vary with the investment experience of the Subaccounts,
and you bear the entire investment risk. You should periodically review your
allocation schedule for Net Premiums and associated Credit Amounts in light of
market conditions and your overall financial objectives.
CREDIT AMOUNTS
Credit Amounts. We credit your Contract Account Value with an additional
amount in most circumstances when a Net Premium is applied to the Contract. The
Credit Amount is a percentage of the premium that you pay as shown in the table
below. The percentage is determined by the total amount of premiums received
under a Contract less the total amount of all withdrawals (including any
Surrender Charges). The Credit Amount is calculated by multiplying the
percentage by the excess of (a) over (b), where:
(a) equals total premiums paid under the Contract (including the
current premium payment) less the total withdrawals (including any
Surrender Charges); and
(b) equals the amount computed for (a) at the time that the most
recent previous Credit Amount calculation was made that resulted in a
Credit Amount being applied.
<TABLE>
<CAPTION>
TOTAL PREMIUM (INCLUDING CURRENT PREMIUM PAYMENT)
LESS WITHDRAWALS (INCLUDING SURRENDER CHARGES) CREDIT AMOUNT
- ------------------------------------------------- -------------
<S> <C>
From $10,000 to $24,999..................................... 1.5%
From $25,000 to $99,999..................................... 3.0%
From $100,000 to $499,999................................... 4.0%
From $500,000 to $999,999................................... 4.5%
$1,000,000 or more.......................................... 5.0%
</TABLE>
The Credit Amount is allocated among the Subaccounts and the Guaranteed Account
Options based on the premium allocation in effect at the time of the Credit
Amount.
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<PAGE> 30
Look Back Provision. On each of the first three Contract Anniversaries, we
determine a Calculated Credit Amount. To the extent that the Calculated Credit
Amount exceeds the amount of actual Credit Amounts, we increase the Contract
Account Value by a Credit Amount for such excess. The excess Credit Amount is
allocated among the Subaccounts and the Guaranteed Account Options based on the
premium allocation in effect at the time of the Credit Amount.
The Calculated Credit Amount is determined by multiplying (1) by (2) where:
(1) the aggregate premiums paid under the Contract minus the amount of
withdrawals (including any Surrender Charges);
(2) the Credit Amount percentage for (1) as shown in the table.
In the event that you cancel the Contract during the Cancellation Period,
we recapture or retain the Credit Amount. (See "Cancellation Period.") Upon
receipt of regulatory approval, the Death Benefit Charge is calculated in a
manner that recaptures any Credit Amount applied within one year of the Owner's
death. (See "Death Benefit Charge.") Upon recapture, we deduct from the amount
refunded or the death benefit paid the initial dollar amount of the Credit
Amount that was first applied to the Contract Account Value. Consequently, there
may be situations where you could be disadvantaged in the event of such a
recapture. For example, if we recapture a Credit Amount during a period of
market decline, the dollar amount we recapture would represent a greater percent
of Contract Account Value than it did when applied.
Renewal Credits. Upon receipt of regulatory approval, we may offer you a
rider during the 9th Contract Year through which you may elect an additional
amount to be added to Your Contract Account Value as of the 9th, 18th, 27th and
36th Contract Anniversaries and every 9th Contract Anniversary thereafter until
10 years prior to the Maturity Date.
In the event that you withdraw part or all of Your Contract Account Value
on which a Renewal Credit is based within 9 Contract Years of the Renewal Credit
being applied, we intend to recapture some or all of the Renewal Credit.
VARIABLE ACCOUNT VALUE
The Variable Account Value reflects the investment experience of the
Subaccounts selected by you, any Net Premium payments, any Credit Amounts, 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 and associated
Credit Amounts allocated to a Subaccount, and amounts transferred to a
Subaccount, are converted into Accumulation Units. The number of Accumulation
Units credited to a Contract is determined by dividing the dollar amount
directed to each Subaccount by the value of the Accumulation Unit for that
Subaccount for the Valuation Day as of which the allocation or transfer is made.
Allocations and transfers to a Subaccount increase the number of Accumulation
Units of that Subaccount credited to a Contract.
Certain events reduce the number of Accumulation Units of a Subaccount
credited to a Contract. Withdrawals or transfers from a Subaccount result in the
cancellation of an appropriate number of Accumulation Units of that Subaccount,
as do surrender of the Contract, payment of a death benefit, the application of
Variable Account Value to a Payment Option on the Annuity Date, and the
deduction of
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the Annual Administrative Fee or other charges. Accumulation Units are canceled
as of the end of the Valuation Period in which we receive Notice regarding the
event.
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 applied to
measure the investment performance of a Subaccount from one Valuation Period to
the next. Each Subaccount has its own net investment factor, which may be
greater or less than one. The net investment factor for each Subaccount for any
Valuation Period is determined by dividing (1) by (2) and subtracting (3) from
the result, where:
(1) is the result of:
(a) the Net Asset Value Per Share of the Portfolio held in the
Subaccount, determined at the end of the current Valuation Period;
plus
(b) the per share amount of any dividend or capital gain distributions
made by the Portfolio held in the Subaccount, if the "ex-dividend"
date occurs during the current Valuation Period; plus or minus
(c) a per share charge or credit for any taxes reserved for, which is
determined by us to have resulted from the operations of the
Subaccount.
(2) is the Net Asset Value Per Share of the Portfolio held in the
Subaccount, determined at the end of the last prior Valuation Period.
(3) is a daily factor representing the Annual Annuity Charge deducted from
the Subaccount, adjusted for the number of days in the Valuation
Period.
TRANSFER PRIVILEGE
Before the Annuity Date, you may request a transfer of all or a part of the
amount in a Subaccount to another Subaccount or to the Guaranteed Account, or
transfer a part of an amount in the Guaranteed Account to one or more
Subaccounts, subject to the restrictions below. The minimum transfer amount 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.
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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 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 canceled 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
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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 are processed
monthly until the number of designated transfers have been completed, the value
of the Subaccount is completely depleted, or you instruct us in writing to
cancel the monthly transfers.
Transfers made under the Dollar Cost Averaging program will not count
toward the twelve transfers permitted each Contract Year without the Transfer
Processing Fee. We reserve the right to discontinue offering automatic transfers
upon 30 days' written notice to you.
WITHDRAWALS AND SURRENDER
Withdrawals. At any time before the Annuity Date, you may withdraw part of
the Surrender Value. With Qualified Contracts, the terms of the related
retirement plan may impose additional withdrawal restrictions on participants.
For information regarding these additional restrictions, you should consult your
plan administrator.
The minimum amount which may be withdrawn under a Contract is $500; the
maximum amount is that which would leave a Surrender Value of not less than
$10,000. We will treat a withdrawal request which would reduce the amount in a
Subaccount or in the Guaranteed Account below $500 as a request for full
withdrawal of the amount in that Subaccount or the Guaranteed Account. We will
withdraw the amount requested 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
Guaranteed Account Option for the withdrawal. If you do not so specify or if the
amount in the designated Subaccounts or Guaranteed Account Options is inadequate
to comply with the request, the withdrawal is made from each Subaccount and
Guaranteed Account Option based on the proportion that the value in such account
bears to the Contract Account Value immediately before the withdrawal.
A withdrawal may have adverse federal income tax consequences. (See
"Federal Tax Status.")
Systematic Withdrawals. Through the Systematic Withdrawal Plan, you may
pre-authorize a periodic exercise of the withdrawal right described in the
Contract. You may elect the plan at the time of your Application by completing
the authorization on the Application form and making a minimum initial premium
payment of $15,000. After the Contract is issued, you may elect the plan by
properly completing the election form if the Contract Account Value is at least
$15,000. Certain federal income tax consequences may apply to systematic
withdrawals from the Contract. You should, therefore, consult with your tax
adviser before participating in the Systematic Withdrawal Plan.
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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 is subject to the Surrender Charge.
If an additional withdrawal is made from a Contract participating in the plan,
systematic withdrawals will automatically terminate and may only be reinstated
on or after the beginning of the next Contract Year pursuant to a new request.
You may discontinue systematic withdrawals at any time upon Notice to us.
We reserve the right to discontinue offering systematic withdrawals upon 30
days' notice to you.
Charitable Remainder Trust Rider. You may elect a Charitable Remainder
Trust Rider, which combines: (1) an extended Maturity Date to the Contract
Anniversary nearest the Annuitant's age 100, unless a lump sum payment of
Surrender Value is elected; and (2) a revised Surrender Charge/withdrawal
provision. A Charitable Remainder Trust Rider allows income to be distributed
and the payment of trustee fees and charges. The Rider only applies the
appropriate Surrender Charge to withdrawals or surrenders during a Contract Year
that exceed the greater of: (1) 10% of the Contract Account Value as of the
beginning of the Contract Year; or (2) any amounts in excess of the total
premiums paid. There is no limit on the number of withdrawals occurring in any
Contract Year.
Surrender. At any time before the Annuity Date, you may request a
surrender of the Contract for its Surrender Value. (See "Surrender Charge.") The
surrender request must be on the proper form which can be requested from our
Service Center. The proceeds paid to you will equal the Surrender Value less any
withholding 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
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Qualified Contracts also may impose restrictions on the ability of participants
to take distributions from the Contracts.
Contract Termination. We may end your Contract and pay the Surrender Value
to you if, before the Annuity Date, all of these events simultaneously exist;
1. no premiums have been paid for at least two years;
2. the Contract Account Value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, are less than
$2,000.
We will mail you a notice of our intention to end your Contract at least
six months in advance. The Contract will automatically terminate on the date
specified in the notice, unless we receive an additional premium payment before
the termination date specified in the notice. This additional premium payment
must be equal to at least the minimum additional amount required by us.
(Termination of the Contract under this provision is not permitted in New
Jersey.)
DEATH BENEFIT BEFORE ANNUITY DATE
Death of Annuitant. If an Annuitant dies before the Annuity Date, the
Owner becomes the new Annuitant. If more than one individual owns the Contract,
the youngest Owner becomes the Annuitant. If any Owner is not an individual,
then the death of an Annuitant is treated as the death of an Owner (see below).
Death of Owner. If an Owner dies on or after the Annuity Date, any
surviving joint Owner becomes the sole Owner. If there is no surviving Owner,
the Beneficiary becomes the new Owner. If an Owner dies on or after the Annuity
Date, any remaining payments must be distributed at least as rapidly as under
the Payment Option in effect on the date of such death.
If an Owner dies before the Annuity Date, any surviving joint Owner becomes
the Beneficiary. We pay the Beneficiary a death benefit. Beneficiaries have the
following options with regard to the death benefit:
1. elect to receive the death benefit in a single lump sum within 5 years
of the deceased Owner's death; or
2. elect to have the death benefit paid under a Payment Option provided
that: (a) annuity payments begin within one year of the deceased
Owner's death, and (b) annuity payments are made in substantially equal
installments over the life of the Beneficiary or over a period not
greater than the life expectancy of the Beneficiary; or
3. if the Beneficiary is the spouse of the deceased Owner, he or she may
(by Notice within one year of the Owner's death), elect to continue the
Contract as the new Owner. If the spouse so elects, all his or her
rights as a Beneficiary cease and if the deceased Owner was also the
sole Annuitant, he or she becomes the Annuitant. The spouse is deemed
to have made the election to continue the Contract if he or she makes
no election before the expiration of the one year period or if he or
she makes any premium payments under the Contract.
If a Beneficiary is not the spouse of the deceased Owner: (1) options 1 and 2
apply even if the Annuitant is alive at the time of the deceased Owner's death;
(2) if the new Owner is not a natural person, only option 1 is available; (3) if
no election is made within 60 days of the deceased Owner's death, option 1 is
deemed to have been elected; and (4) if the Beneficiary dies before the payments
required by options 1 or 2 are complete, the entire remaining Contract Account
Value is distributed in one sum immediately.
If there is more than one Beneficiary, the foregoing provisions apply
independently to each Beneficiary.
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If the Owner is not an individual, the Annuitant, as determined in
accordance with section 72(s) of the Code, is treated as Owner for purposes of
these distribution requirements, and any changes in the Annuitant are treated as
the death of the Owner.
Other rules may apply to a Qualified Contract.
Death Benefit. Upon the death of any Owner before the Annuity Date, if the
Owner is less than 90 years old, we will pay the Beneficiary a death benefit.
During the first nine Contract Years, the death benefit equals the greater of:
- Contract Account Value less the Death Benefit Charge, or
- aggregate premiums paid reduced by the amount of all withdrawals
(including Surrender Charges) prior to the date of death.
In Contract Years ten and later, the death benefit equals the greatest of:
- Contract Account Value less the Death Benefit Charge,
- aggregate premiums paid as of the ninth Contract Anniversary reduced by
the amount of all withdrawals prior to the ninth Contract Anniversary
plus aggregate premiums paid since that Anniversary reduced, for each
withdrawal since that Anniversary, by the Withdrawal Adjustment Amount
(as described below), or
- Contract Account Value on the ninth Contract Anniversary plus aggregate
premiums paid since that Anniversary reduced, for each withdrawal since
that Anniversary, by the Withdrawal Adjustment Amount.
The Withdrawal Adjustment Amount is determined by multiplying the death benefit
prior to the withdrawal by the ratio of the amount of the withdrawal (including
any Surrender Charge) to the Contract Account Value immediately prior to the
withdrawal.
Notwithstanding the foregoing, if the Owner is 90 years old or older at the
date of death, the death benefit is the Contract Account Value less the Death
Benefit Charge.
If there are multiple Owners, then the age of the oldest Owner is used to
determine the death benefit. Also, if there are multiple Owners, then upon the
death of one Owner before the Annuity Date, the surviving Owner becomes the
Beneficiary. Where a Contract has only one Owner, and either the designated
Beneficiary has died before that Owner or that Owner did not designate a
Beneficiary, then the Owner's estate is the Beneficiary.
The death benefit is computed as of the date on which we receive Notice and
proof of death and all necessary claim forms at the Service Center. Any excess
of the death benefit over the Contract Account Value is allocated among the
Subaccounts and the Guaranteed Account Options according to the premium
allocation schedule in effect until the Beneficiary elects option 1, 2, or 3
above.
ALTERNATE DEATH BENEFIT RIDERS
In lieu of the death benefit described above, for an additional charge, an
Owner may, when the Contract is issued, elect one of the following optional
death benefit riders.
Step-up Rider. At the time a Contract is issued you may elect the Step-up
Rider for 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 Contract Anniversary and is reset every year to the Contract Account
Value on the next Contract Anniversary, if greater. This reset continues until
the Contract Anniversary on or before the Owner's 85th birthday. Premiums paid
since the last Contract Anniversaries are also included in the death benefit
proceeds. A reduction in the guaranteed minimum death benefit for any withdrawal
will be based on the proportion of the withdrawal to the Contract Account Value.
At no time will the death benefit proceeds be less than either the Contract
Account Value
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on the date we receive due proof of the Owner's death or the sum of premiums
paid, less any withdrawals, including applicable Surrender Charges.
Rising Floor Rider. At the time a Contract is issued you also may elect
the Rising Floor Rider for an Annuitant who is age 0-70. The Rising Floor Rider
provides a guaranteed minimum death benefit equal to the sum of premiums paid
less reductions for withdrawals accumulating at an effective annual rate of
interest of 5% until the Contract Anniversary prior to the Owner's 75th
birthday. Thereafter, premiums are added to, and reductions for withdrawals are
deducted from, the guaranteed death benefit. A reduction in the guaranteed
minimum death benefit for any withdrawal will be based on the proportion of the
withdrawal to the Contract Account Value. At no time will the guaranteed death
benefit proceeds be less than the Contract Account Value on the date we receive
due proof of the Owner's death or more than 200% of the premium payments less
200% of any withdrawals, including any applicable Surrender Charges.
THE ANNUITY DATE
Subject to our approval and state law you select the Annuity Date. You may
select any Annuity Date except that the latest Annuity Date is the Maturity
Date. If you do not select an Annuity Date, the Maturity Date is the Annuity
Date.
Surrender Value is applied to purchase a Payment Option as of the Annuity
Date. If, however, the Maturity Date is the Annuity Date, then Contract Account
Value is applied to purchase a Payment Option. In the event that you do not
select a Payment Option, Surrender Value (or the Contract Account Value of the
Annuity Date is the Maturity Date) is applied under the Life Annuity with Ten
Year Certain Payment Option. (See "Payment Options.")
You may change the Annuity Date subject to these limitations:
1. Notice is received at least 30 days before the Maturity Date;
2. The new Annuity Date is at least 30 days after we receive the change
request;
3. The new Annuity Date is not the 29th, 30th, or 31st day of a month; and
4. The new Annuity Date is not later than the Maturity Date.
PAYMENTS
Any withdrawal, the Surrender Value, or the death benefit will usually be
paid within seven calendar days of receipt of written request or receipt and
filing of 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.
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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 and applicable law or
regulation.
CONTRACT INQUIRIES
Inquiries regarding a Contract may be made by writing to us at our Service
Center.
THE GUARANTEED ACCOUNT
You may allocate some or all of the Net Premiums and transfer some or all
of the amounts in the Subaccounts to the Guaranteed Account, which is part of
our General Account. The Guaranteed Account pays interest at declared rates that
are guaranteed for each calendar year and must be at least 3%. The principal,
after deductions, is also guaranteed. Our General Account supports our insurance
and annuity obligations. The Guaranteed Account has not, and is not required to
be, registered with the SEC under the Securities Act of 1933, and neither the
Guaranteed Account nor our General Account has been registered as an investment
company under the 1940 Act. Neither our General Account, the Guaranteed Account,
nor any interests therein are generally subject to regulation under these laws.
The disclosures relating to these accounts which are included in this prospectus
are for your information and have not been reviewed by the SEC. These
disclosures, however, may be subject to certain generally applicable provisions
of federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
The portion of the Contract Account Value allocated to the Guaranteed
Account will be credited with rates of interest, as described below. Since the
Guaranteed Account is part of our General Account, we assume the risk of
investment gain or loss on this amount. All assets in the General Account are
subject to our general liabilities from business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Guaranteed Account Value is guaranteed to accumulate at a minimum
effective annual interest rate of 3%. We intend to credit the Guaranteed Account
Value with current rates in excess of this minimum guarantee, but we are not
obligated to do so. These current interest rates are influenced by, but do not
necessarily correspond to, prevailing general market interest rates. Since we
anticipate changing the current interest rate in our discretion from time to
time, different allocations to the Guaranteed Account Value are credited with
different current interest rates. The interest rate credited to each amount
allocated or transferred to the Guaranteed Account will apply to the earlier of
(1) the time remaining for the Guaranteed Account Option selected, or (2) 12
months. At the end of this period, we will determine a new current interest rate
on the amount and any accrued interest thereon (which may be a different current
interest rate from the current interest rate on new allocations to the
Guaranteed Account on that date). The rate declared on this amount and any
accrued interest thereon at the end of the period of a
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Guaranteed Account Option will be guaranteed for a subsequent specified period.
Any interest credited on the amounts in the Guaranteed Account in excess of the
minimum guaranteed effective annual interest rate of 3% 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 Credit Amounts and for transfers of
Contract Account Value.
TRANSFERS FROM GUARANTEED ACCOUNT
Within 30 days before or after any Contract Anniversary, you may make one
transfer from the Guaranteed Account 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.
PAYMENT DEFERRAL
We may defer payment of any withdrawal, cash surrender, or transfer from
the Guaranteed Account for up to six months from the date of our receipt of the
Notice for withdrawal, surrender, or transfer.
CHARGES AND DEDUCTIONS
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
General. We do not deduct a charge for sales expense from premiums at the
time they are paid. Within certain time limits described below, however, a
Surrender Charge (contingent deferred sales charge) is deducted from the
Contract Account Value if a withdrawal is made or a Contract is surrendered
before the Annuity Date or if Contract Account Value is applied to a Payment
Option. If the Surrender Charge is insufficient to cover sales expenses, the
loss will be borne by us; conversely, if the amount of the Surrender Charge is
more than our sales expenses, the excess will be retained by us. We do not
currently believe that the Surrender Charges will cover the expected costs of
distributing the Contracts. Any shortfall will be made up from our general
assets, which may include proceeds derived from Annuity Charges.
Charges For Withdrawal or Surrender. The Surrender Charge is equal to the
percentage of each premium payment surrendered or withdrawn (or applied to a
Payment Option on the Annuity Date) as specified in the table below. The
Surrender Charge is separately calculated and applied to each premium payment at
any time that the payment (or part of the payment) is surrendered or withdrawn
(or applied to a Payment Option on the Annuity Date). No Surrender Charge
applies to premium payments applied to a Payment Option on the Maturity Date. No
Surrender Charge applies to Contract Account Value representing the Free
Withdrawal Amount or to Contract Value in excess of aggregate premium payments
(less prior withdrawals of premium payments). The Surrender Charge is calculated
using the assumption that Contract Account Value is withdrawn in the following
order: (1) the Free Withdrawal Amount (as described below) for that Contract
Year, (2) a pro-rata share of the amount of any remaining Renewal Credit, (3)
premium payments, and (4) any remaining Contract Account Value. In addition, the
Surrender Charge is calculated using the assumption that premium payments are
withdrawn on a first-in, first-out basis.
The Surrender Charge applicable to each premium payment diminishes as the
payment ages. A premium payment ages by Contract Year, such that it is in "year"
1 during the Contract Year in which it is received and in "year" 2 throughout
the subsequent Contract Year and in "year" 3 throughout the
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Contract Year after that, etc. A different surrender charge schedule applies to
Contracts issued in Alabama, as set forth below.
<TABLE>
<CAPTION>
AGE OF EACH PREMIUM CHARGE
PAYMENT IN CONTRACT YEARS CHARGE (ALABAMA ONLY)
- ------------------------- ------ --------------
<S> <C> <C>
1 8.0% 8.0%
2 8.0% 8.0%
3 8.0% 8.0%
4 8.0% 8.0%
5 8.0% 7.0%
6 6.5% 5.5%
7 5.0% 4.5%
8 3.5% 3.0%
9 2.0% 1.5%
10 and over 0.0% 0.0%
</TABLE>
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. During the first Contract Year, the Free
Withdrawal Amount is 10% of the premium payments. For all other Contract Years,
the Free Withdrawal Amount is 10% of the Contract Account Value at the start of
that year.
The Free Withdrawal Amount is not cumulative from Contract Year to Contract
Year. If the Contract is surrendered and there have been no prior withdrawals
during such Contract Year, no Surrender Charge applies to the amount of the
surrender up to 10% of the Contract Value as of the beginning of that Contract
Year. If a withdrawal is made during a Contract Year in which one or more
withdrawals have been made, the remaining Free Withdrawal Amount is equal to 10%
of the Contract Value as of the beginning of the Contract Year less the total
amount previously withdrawn during such Contract Year without imposition of the
Surrender Charge.
DEATH BENEFIT CHARGE
A Death Benefit Charge is deducted when computing the death benefit upon
the death of any Owner prior to the Annuity Date. The Free Withdrawal Amount
does not apply to the Death Benefit Charge. The Death Benefit Charge is the same
as the Surrender Charge except that it is capped at an amount equal to the
dollar amount of Credit Amounts granted under the Contract during the twelve
months preceding the Owner's death.
ADMINISTRATIVE CHARGES
Annual Administrative Fee. On each Contract Anniversary prior to and
including the Annuity Date, and upon surrender of a Contract or on the Annuity
Date (other than on a Contract Anniversary), we deduct from the Contract Account
Value an Annual Administrative Fee of $40 for our administrative expenses
relating to the Contract. We currently do not charge this fee when Contract
Account Value is $50,000 or more as of the date that the fee would have been
charged. The charge is deducted from each Subaccount and Guaranteed Account
Option based on the proportion that the value in each Subaccount bears to the
total Contract Account Value. Some states may limit the amount of the Annual
Administrative Fee. No Annual Administrative Fee is payable after the Annuity
Date.
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
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<PAGE> 41
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.
DAILY ANNUITY CHARGE
To compensate us for assuming mortality and expense risks and for
administering the Contracts, prior to the Annuity Date we deduct a daily Annuity
Charge from the assets of the Variable Account. We will impose a charge in an
amount that is equal to an annual rate of 1.40% (daily rate of .003835616%).
The mortality risk we assume is that Annuitants may live for a longer
period of time than estimated when the guarantees in the Contract were
established. Because of these guarantees, each Payee is assured that longevity
will not have an adverse effect on the annuity payments received. The mortality
risk we assume also includes a guarantee to pay a death benefit if an Owner dies
before the Annuity Date. The expense risk we assume is the risk that the
Surrender Charges, administrative fees, and Transfer Processing Fees may be
insufficient to cover actual future expenses. In the event that there are any
profits from fees and charges deducted under the Contract, including but not
limited to the Annuity Charge, such profits could be used to finance the
distribution of the Contracts.
The Contracts are administered by PMLIC pursuant to a service agreement
between us and PMLIC. Under the agreement, PMLIC also maintains records of
transactions relating to the Contracts and provides other services.
INVESTMENT ADVISORY FEES AND OTHER EXPENSES OF THE PORTFOLIOS
Because the Variable Account purchases shares of the Portfolios, the
performance of each Subaccount reflects the investment advisory fees and other
expenses incurred by the Portfolios. For each Portfolio, an investment adviser
is paid a fee that is a percentage of a Portfolio's average daily net assets,
and thus the actual fee paid depends on size of the Portfolio. Each Portfolio
also pays most or all of its operating expenses. See the accompanying current
prospectuses for the Portfolios for further details.
PREMIUM TAXES
Various states and other governmental entities levy a premium tax on
annuity contracts issued by insurance companies. Premium tax rates are subject
to change from time to time by legislative and other governmental action, and
currently range from 0.0% to 4.0%. In addition, other governmental units within
a state may levy these taxes.
The timing of tax levies varies from one taxing authority to another. If
premium taxes are applicable to a Contract, they will be deducted, depending on
when the taxes are paid to the taxing authority, either (1) from premiums as
they are received, or (2) from the Contract proceeds upon withdrawal or
surrender, application of the proceeds to a Payment Option, or payment of a
death benefit.
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.
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CHARGE DISCOUNTS FOR SALES TO CERTAIN GROUPS
We may reduce or waive charges under Contracts sold to certain groups of
purchasers where such sales entail lower than normal expenses and/or fewer risks
to us. Generally, we reduce or waive charges based on factors such as the
following:
- the size of the group of purchasers;
- the total amount of premium anticipated from the group; and/or
- the nature of the group and/or the purpose for which the Contracts are
purchased (e.g., Contracts purchased by an employer to fund an employee
benefit plan, usually have fewer surrenders and are less expensive to
administer than individually sold Contracts).
We also may reduce or waive charges on Contracts sold to officers, directors,
and employees of PLACA and its affiliates. Reductions or waivers of charges will
not discriminate unfairly among applicants. Contact your sales representative
for more information about charge reductions or waivers.
CHARGES FOR OPTIONAL DEATH BENEFIT RIDERS
We deduct a monthly charge from Contract Account Value for both the Step-up
Rider and the Rising Floor Rider. The charge is deducted on the Contract Date
and on the same day of each month thereafter. The charge is a percent of
Contract Account Value and is deducted proportionately from the Subaccount
Values, by canceling Accumulation Units, and the Guaranteed Account Value under
the Contract. The monthly charge is equal to 1/12 of the following annual rates:
Step-up Rider, 0.25%; Rising Floor Rider, 0.40%.
PAYMENT OPTIONS
ELECTION OF PAYMENT OPTIONS
Before the Annuity Date, you can have the Surrender Value applied under a
Payment Option, unless you elect to receive the Surrender Value in a single sum.
In the event that you do not select a Payment Option, Surrender Value is applied
to Option B, described below. In addition, a Beneficiary can have the death
benefit applied under a Payment Option, unless you have already selected an
option for the Beneficiary.
Before beginning annuity payments under a Payment Option, we require that
you return the Contract to the Service Center. We will issue a supplementary
contract stating the terms of payment under the Payment Option selected. We also
reserve the right to require satisfactory evidence of the identity, birth date,
and sex of any Annuitant, and satisfactory evidence that any Annuitant is still
alive. Before making each annuity payment under a life-contingent Payment
Option, we reserve the right to require satisfactory evidence that any Annuitant
is still alive.
A Payment Option may be elected, revoked, or changed at any time before the
Annuity Date while the Owner is living. If the Payee is other than the Owner,
the election of a Payment Option requires our consent. An election of an option
and any revocation or change must be made by Notice. Notice must be filed with
our Service Center.
An option may not be elected if any periodic payment under the election
would be less than $50. Subject to this condition, payments may be made
annually, semi-annually, quarterly, or monthly and are made at the beginning of
the period.
The available Payment Options are described below. The Payment Options are
fixed, which means that each option has a fixed and guaranteed amount to be paid
during the annuity period that is not in any way dependent upon the investment
experience of the Variable Account.
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Instead of choosing one of the Payments 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 Annuitant's lifetime with payments
ceasing with the last payment prior to the death of the Annuitant. No amounts
are payable after the Annuitant dies. Therefore, if the Annuitant dies
immediately following the date of the first payment, the Payee will receive one
monthly payment only.
Option B -- Life Annuity Option with 10 Years Guaranteed. Under this
Payment Option, payments are made in equal amounts each month during the
Annuitant's lifetime with the guarantee that payments will be made for a period
of not less than ten years. Under this option, if any Beneficiary dies while
receiving payment, the present value of the current dollar amount on the date of
death of any remaining guaranteed payments will be paid in one sum to the
executors or administrators of the Beneficiary unless otherwise provided in
writing. Calculation of this present value will be at 3% which is the rate of
interest assumed in computing the amount of annuity payments.
The amount of each payment will be determined from the tables in the
Contract which apply to either Option A or Option B based upon the Annuitant's
age and sex. If the Contract is sold in a group or employer-sponsored
arrangement, the amount of the payments will be based on the Annuitant's age
only. Age is determined from the nearest birthday at the due date of the first
payment.
Alternate Income Option. Instead of one of the above Payment Options, the
Surrender Value or death benefit, as applicable, may be settled under an
Alternate Income Option based on our single premium immediate annuity rates in
effect at the time of settlement. These rates will be adjusted so that the first
payment 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.
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The total return of a Subaccount refers to return quotations assuming an
investment under a Contract has been held in the Subaccount for various periods
of time including, but not limited to, a period measured from the date the
Subaccount commenced operations. When a Subaccount has been in operation for
one, five, and ten years, respectively, the total returns, for these periods are
provided. For periods prior to the date a Subaccount commenced operations,
performance information for Contracts funded by that Subaccount may also be
calculated based on the performance of the corresponding Portfolio and the
assumption that the Subaccount was in existence for the same periods as those
indicated for the Portfolio, with the current level of Contract charges.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which total return quotations are provided. Average
annual total return information shows the average percentage change in the value
of an investment in the 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. In addition to the foregoing, we may present
average annual total returns with and without deductions for Surrender Charges,
computed to reflect the effect of a Credit Amount and Renewal Credit. In such
presentations, the Credit Amount and Renewal Credit may be of any percentage
currently available under the Contract.
Non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed. For additional
information regarding the calculation of 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.
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FEDERAL TAX STATUS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
The following summary provides a general description of the federal income
tax considerations associated with the Contract and does not purport to be
complete or to cover all tax situations. This discussion is not intended as tax
advice. You should consult your tax adviser for more complete information. This
discussion is based upon our understanding of the present federal income tax
laws. No representation is made as to the likelihood of continuation of the
present federal income tax laws or how they may be interpreted by the Internal
Revenue Service (the "IRS").
The Contract may be purchased on a tax-qualified basis or on a
non-tax-qualified basis. Qualified Contracts are designed for use by individuals
whose premium payments consist solely of proceeds from and/or contributions
under retirement plans that are intended to qualify as plans entitled to special
income tax treatment under sections 401(a), 403(b), 408, or 408A of the Code.
The ultimate effect of federal income taxes on the amounts held under a
Contract, or annuity payments, depends on the type of retirement plan, on the
tax and employment status of the individual concerned, and on PLACA's tax
status. In addition, certain requirements must be satisfied in purchasing a
Qualified Contract with proceeds from a tax-qualified plan and receiving
distributions from a Qualified Contract in order to continue receiving favorable
tax treatment. Some retirement plans are subject to distribution and other
requirements that are not incorporated into our Contract administration
procedures. Owners, participants, Beneficiaries, and Payees are responsible for
determining that contributions, distributions, and other transactions with
respect to the Contracts comply with applicable law. Therefore, purchasers of
Qualified Contracts should seek tax advice regarding the suitability of a
Contract for their situation. The following discussion assumes that Qualified
Contracts are purchased with proceeds from and/or contributions under retirement
plans that qualify for the intended special federal income tax treatment.
TAX STATUS OF THE CONTRACTS
Diversification Requirements. The Code requires that the investments of
the Variable Account be "adequately diversified" in order for the Contract to be
treated as an annuity contract for federal income tax purposes. It is intended
that the Variable Account, through the Funds, will satisfy these diversification
requirements.
Owner Control. In certain circumstances, owners of variable annuity
contracts have been considered for federal income tax purposes to be the owners
of the assets of the variable account supporting their contracts because of
their ability to exercise investment control over those assets. When this is the
case, the contract owners have been currently taxed on income and gains
attributable to the variable account assets. There is little guidance in this
area, and some features of the Contracts, such as the flexibility of an Owner to
allocate premium payments and transfer Contract Account Value, have not been
explicitly addressed in published rulings. While we believe that the Contract
does not give Owners investment control over Variable Account assets, we reserve
the right to modify the Contract as necessary to prevent an Owner from being
treated as the owner of the Variable Account assets supporting the 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.
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The following discussion assumes that the Contracts will qualify as annuity
contracts for federal income tax purposes.
TAXATION OF ANNUITIES -- IN GENERAL
We believe that if an Owner is a natural person, the Owner will not be
taxed on increases in the value of a Contract until a distribution occurs or
until annuity payments begin. (For these purposes, an agreement to assign or
pledge any portion of the Contract Account Value and, in the case of a Qualified
Contract, any portion of an interest in retirement generally is treated as a
distribution.)
TAXATION OF NON-QUALIFIED CONTRACTS
Non-Natural Person. The Owner of 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.
Other penalties may apply to Qualified Contracts.
Annuity Payments. Although tax consequences may vary depending on the
Payment Option elected under a Contract, a portion of each annuity payment is
generally not taxed and the remainder is taxed as ordinary income. The
non-taxable portion of an annuity payment is generally determined in a manner
that is designed to allow an Owner to recover his or her investment in the
Contract ratably on a tax-free basis over the expected stream of annuity
payments, as determined when annuity payments start. Once an investment in the
Contract has been fully recovered, however, the full amount of each annuity
payment is subject to tax as ordinary income.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a
Contract because of the Owner's or an Annuitant's death. Generally, these
amounts are includible in the income of the recipient as follows: (1) if
distributed in a lump sum, the amounts are taxed in the same manner as a
surrender of the Contract; or (2) if distributed under a Payment Option, the
amounts are taxed in the same way as annuity payments.
Transfers, Assignments or Exchanges of a Contract. A transfer or
assignment of ownership of a Contract, the designation of an Annuitant, the
selection of certain Maturity Dates, or the exchange of a Contract may result in
tax consequences to an Owner that are not discussed here. An Owner
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<PAGE> 47
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 previously been includible in the 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"
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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) on or after the owner reaches age 59 1/2;
(2) to the beneficiary of the owner after the owner's death; (3) on account of
the owner's disability; or (4) to pay for first-time home-buying expenses.
Federal income tax, as well as a 10% penalty tax, will generally apply to
distributions that are not "qualified distributions."
Tax Sheltered Annuities. Section 403(b) of the Code allows employees of
certain section 501(c)(3) organizations and public schools to exclude from their
gross income the premium payments made, within certain limits, on a Contract
that will provide an annuity for the employee's retirement. These premium
payments may be subject to FICA (social security) tax.
The following amounts may not be distributed from Code section 403(b)
annuity contracts prior to the employee's death, attainment of age 59 1/2,
separation from service, disability, or financial hardship: (1) elective
contributions made in years beginning after December 31, 1988; (2) earnings on
those contributions; and (3) earnings in such years on amounts held as of the
last year beginning before January 1, 1989. In addition, earnings on elective
contributions may not be distributed in the case of hardship.
WITHHOLDING
Distributions from a Contract generally are subject to withholding for the
Owner's federal income tax liability. The withholding rate varies according to
the type of distribution and the Owner's tax status. The Owner will be provided
the opportunity to elect not to have tax withheld from distributions.
"Eligible rollover distributions" from section 401(a) plans and section
403(b) tax-sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. Generally, an eligible rollover distribution is the taxable
portion of any distribution from these plans, except for certain distributions
such as minimum distributions required by the Code, distributions paid in the
form of an annuity, and certain hardship withdrawals. The 20% withholding does
not apply, however, if the Owner chooses a "direct rollover" from the plan to
another section 401(a) or section 403(b) plan (as applicable) or to an IRA.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always
the possibility that the tax treatment of the Contract could change by
legislation or other means. It is also possible that any change could be
retroactive (that is, effective prior to the date of the change). A tax adviser
should be consulted with respect to legislative developments and their effect on
the Contract.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax consequences
under the Contract are not exhaustive, and special rules are provided with
respect to other tax situations not discussed in this prospectus. Further, the
federal income tax consequences discussed herein reflect our understanding of
current law, and the law may change. Federal estate and state and local estate,
inheritance, and other tax consequences of ownership or receipt of distributions
under a Contract depend on the individual circumstances of each Owner or
recipient of the distribution. A tax adviser should be consulted for further
information.
42
<PAGE> 49
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 6% of premiums plus 0.60% of the Contract Account Value beginning
in the tenth Contract Year. Alternative commission scales are available with a
lower percent of premiums and a percentage of Contract Account Value beginning
in Contract Year 2.
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 Annuity Date or surrender of the Contract.
The number of votes of a Portfolio you may vote will be determined as of
the record date. Before a vote of a Portfolio's shareholders occurs, you will
receive voting materials. We will ask you to instruct us on how to vote and to
return your proxy to us in a timely manner. You will have the right to instruct
us on the number of Portfolio shares that corresponds to the amount of Contract
Account Value you have in that Portfolio (as of a date set by the Portfolio).
43
<PAGE> 50
If we do not receive voting instructions from you on time, we will vote
your shares in the same proportion as the timely voting instructions we receive
from other Owners. Should federal securities laws, regulations, or
interpretations change, we may elect to vote Portfolio shares in our own right.
If required by state insurance officials, or if permitted under federal
regulation, under certain circumstances we may disregard certain Owner voting
instructions. If we disregard voting instructions, we will send you a summary in
the next annual report to Owners advising you of the action and the reasons we
took such action.
Portfolio shares held by us in a Subaccount as to which Owners do not have
voting interest will be voted in proportion to the voting instructions we
receive from Owners with respect to the shares they do vote. If you instruct us
to abstain on any item to be voted upon, we will apply your abstention
instruction on a pro rata basis to reduce the votes eligible to be cast by us.
FINANCIAL STATEMENTS
Our audited statements of financial condition as of December 31, 1999 and
1998 and the related statements of operations, equity, and cash flows for each
of the three years in the period ended December 31, 1999, as well as the Report
of Independent Accountants, are contained in the SAI. The audited statements of
assets and liabilities for the Variable Account as of December 31, 1999, and the
related statements of operations for the year then ended and the statements of
changes in net assets for each of the two years in the period then ended, are
also included in the SAI.
44
<PAGE> 51
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
Additional Contract Provisions.............................. S-2
The Contract........................................... S-2
Incontestability....................................... S-2
Misstatement of Age or Sex............................. S-2
Non-Participation...................................... S-2
Calculation of Yields and Total Returns..................... S-2
Money Market Subaccount Yields......................... S-3
Other Subaccount Yields................................ S-4
Average Annual Total Returns........................... S-4
Other Total Returns.................................... S-7
Effect of the Administration Fee on Performance Data... S-12
Termination of Participation Agreements..................... S-12
Standard & Poor's........................................... S-15
Safekeeping of Account Assets............................... S-15
State Regulation............................................ S-16
Records and Reports......................................... S-16
Legal Matters............................................... S-16
Experts..................................................... S-16
Other Information........................................... S-16
Financial Information....................................... S-17
Financial Statements........................................ F-1
</TABLE>
45
<PAGE> 52
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, MFS Emerging Growth Series
Subaccount, MFS Growth with Income Series Subaccount, MFS New Discovery Series
Subaccount, MFS Research Series Subaccount, PIMCO High Yield Bond Subaccount,
PIMCO Total Return Bond Subaccount, Strong Mid Cap Growth Fund II Subaccount,
Strong Opportunity Fund II Subaccount, VIP III Contrafund(R) Subaccount, VIP III
Growth Subaccount, VIP III Growth Opportunities Subaccount, and VIP III Overseas
Subaccount had not commenced operations. Accordingly, condensed financial
information is not available for these Subaccounts.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
UNITS UNITS UNITS
UNIT VALUE OUTSTANDING UNIT VALUE OUTSTANDING UNIT VALUE OUTSTANDING
AS OF AS OF AS OF AS OF AS OF AS OF
SUBACCOUNT 12/31/99 12/31/99 12/31/98 12/31/98 12/31/97 12/31/97
- ------------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Market Street All Pro Large Cap Growth..... 721.62 16,594.64 583.02 3,398.61
Market Street All Pro Large Cap Value...... 490.76 10,251.06 490.39 3,752.20
Market Street All Pro Small Cap Growth..... 919.80 15,683.15 485.44 2,787.56
Market Street All Pro Small Cap Value...... 370.54 8,460.21 408.65 2,343.81
Market Street Equity 500 Index (formerly
Fidelity Index 500)....................... 1,636.75 91,709.23 1,377.32 61,689.14 1,088.42 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
OCC Equity................................. 1,195.14 18,277.71 1,181.96 19,823.89 1,071.54 19,067.19
OCC Managed................................ 1,157.06 42,989.61 1,117.54 53,641.58 1,057.94 54,119.40
Van Eck Worldwide Bond..................... 535.14 3,677.74 588.75 430.59
Van Eck Worldwide Emerging Markets......... 587.10 11,368.57 345.27 791.04
Van Eck Worldwide Hard Assets.............. 411.96 1,882.22 297.26 1,094.81
Van Eck Worldwide Real Estate.............. 411.36 1,158.87 425.72 396.85
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
UNITS UNITS UNITS
UNIT VALUE OUTSTANDING UNIT VALUE OUTSTANDING UNIT VALUE OUTSTANDING
AS OF AS OF AS OF AS OF AS OF AS OF
SUBACCOUNT 12/31/96 12/31/96 12/31/95 12/31/95 12/31/94 12/31/94
- ------------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Market Street All Pro Large Cap Growth.....
Market Street All Pro Large Cap Value......
Market Street All Pro Small Cap Growth.....
Market Street All Pro Small Cap Value......
Market Street Equity 500 Index (formerly
Fidelity Index 500)....................... 831.78 22,336.06 686.84 10,498.25 507.68 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
OCC Equity................................. 858.13 12,563.72 572.66 11,392.30 515.26 2,813.10
OCC Managed................................ 877.27 43,626.63 545.82 6,615.25
Van Eck Worldwide Bond.....................
Van Eck Worldwide Emerging Markets.........
Van Eck Worldwide Hard Assets..............
Van Eck Worldwide Real Estate..............
<CAPTION>
NUMBER OF
UNITS
UNIT VALUE OUTSTANDING
AS OF AS OF
SUBACCOUNT 12/31/93 12/31/93
- ------------------------------------------- ---------- -----------
<S> <C> <C>
Market Street All Pro Large Cap Growth.....
Market Street All Pro Large Cap Value......
Market Street All Pro Small Cap Growth.....
Market Street All Pro Small Cap Value......
Market Street Equity 500 Index (formerly
Fidelity Index 500)....................... 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
OCC Equity................................. 503.29 313.68
OCC Managed................................
Van Eck Worldwide Bond.....................
Van Eck Worldwide Emerging Markets.........
Van Eck Worldwide Hard Assets..............
Van Eck Worldwide Real Estate..............
</TABLE>
A-1
<PAGE> 53
PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT
(REGISTRANT)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
(DEPOSITOR)
300 CONTINENTAL DRIVE
NEWARK, DELAWARE 19713
1-800-688-5177
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
This Statement of Additional Information ("SAI") contains additional
information regarding the individual flexible premium deferred variable annuity
contract (the "Contract") offered by Providentmutual Life and Annuity Company of
America ("PLACA").
This SAI is not a prospectus, and should be read together with the
prospectus for the Contract dated May 1, 2000 and the prospectuses for Market
Street Fund, Inc.; MFS Variable Insurance Trust; OCC Accumulation Trust; PIMCO
Variable Insurance Trust; Strong Variable Insurance Funds, Inc.; Strong
Opportunity Fund II, Inc.; Van Eck Worldwide Insurance Trust; and Variable
Insurance Products Fund III. You may obtain a copy of these prospectuses by
writing or calling us at our address or phone number shown above. Capitalized
terms in the SAI have the same meanings as in the prospectus for the Contract.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MAY 1, 2000
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS*
<TABLE>
<S> <C>
ADDITIONAL CONTRACT PROVISIONS (22-32)...................... S-2
The Contract........................................... S-2
Incontestability....................................... S-2
Misstatement of Age or Sex............................. S-2
Non-Participation...................................... S-2
CALCULATION OF YIELDS AND TOTAL RETURNS (37-39)............. S-2
Money Market Subaccount Yields......................... S-3
Other Subaccount Yields................................ S-4
Average Annual Total Returns........................... S-4
Other Total Returns.................................... S-7
Effect of the Annual Administrative Fee on Performance
Data.................................................. S-12
TERMINATION OF PARTICIPATION AGREEMENTS..................... S-12
STANDARD & POOR'S (16)...................................... S-15
SAFEKEEPING OF ACCOUNT ASSETS............................... S-15
STATE REGULATION............................................ S-16
RECORDS AND REPORTS......................................... S-16
LEGAL MATTERS (43).......................................... S-16
EXPERTS..................................................... S-16
OTHER INFORMATION........................................... S-16
FINANCIAL INFORMATION....................................... S-17
FINANCIAL STATEMENTS (44)................................... F-1
</TABLE>
- ---------------
* Numbers in parentheses refer to corresponding pages of the prospectus for the
Contract.
<PAGE> 54
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The entire Contract between you and us is made up of the Contract, and your
Application. The statements made in the Application are deemed representations
and not warranties. We cannot use any statement in defense of a claim or to void
a Contract unless it is contained in the Application and a copy of the
Application is attached to the Contract at issue.
INCONTESTABILITY
We will not contest the Contract after it has been in force during the
Annuitant's lifetime for two years from the Contract Date.
MISSTATEMENT OF AGE OR SEX
If the age or sex of any Annuitant has been misstated, we will pay the
amount which the proceeds would have purchased at the correct age and sex.
If we make an overpayment because of an error in age or sex, the
overpayment plus interest at 3% compounded annually will be a debt against the
Contract. If the debt is not repaid, future payments will be reduced
accordingly.
If we make an underpayment because of an error in age or sex, any annuity
payments will be recalculated at the correct age and sex and future payments
will be adjusted. The underpayment with interest at 3% compounded annually will
be paid in a single sum.
NON-PARTICIPATION
The Contract is not eligible for dividends and will not participate in
PLACA's divisible surplus.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, we may disclose historical performance data for the
Subaccounts including yields, effective yields, annual total returns, and other
measures of performance. This performance data will be computed, or accompanied
by performance data computed, in accordance with SEC standards.
Because of the charges and deductions imposed under a Contract, performance
data for the Subaccounts will be lower than the performance data for their
corresponding Portfolios. The performance of a Subaccount will be affected by
expense reimbursements and fee waivers applicable to their corresponding
Portfolios. Without these reimbursements and waivers, performance would be
lower. In addition, the calculations of yields, total returns, and other
performance data do not reflect the effect of any premium tax that may be
applicable to a particular Contract. Premium taxes currently range from 0% to
4.0% of premium depending on the state in which the Contract is sold.
The Funds have provided all performance information for the Portfolios,
including the Portfolio total return information used to calculate the total
returns of the Subaccounts for periods prior to the inception of the
Subaccounts. Market Street Fund, Inc. ("Market Street Fund") is affiliated with
PLACA. None of the other Funds is affiliated with PLACA. While PLACA has no
reason to doubt the accuracy of the figures provided by these non-affiliated
Funds, PLACA does not represent that they are true and complete, and disclaims
all responsibility for these figures.
PERFORMANCE FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR
REPRESENTATION OF FUTURE PERFORMANCE. THE PERFORMANCE OF EACH SUBACCOUNT WILL
FLUCTUATE ON A DAILY BASIS.
S-2
<PAGE> 55
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 Administrative Fee and (2) the
Annual Annuity Charge. For purposes of calculating current yields for a
Contract, an average per unit administrative fee is used based on the $40
administrative fee deducted at the end of each Contract Year. Current Yield will
be calculated according to the following formula:
7-DAY CURRENT YIELD
<TABLE>
<C> <S> <C>
CURRENT YIELD = ((NCS - ES)/UV/7) x 365
where NCS = the net change in the value of the Portfolio (exclusive of
realized gains or losses on the sale of securities and
unrealized appreciation and depreciation) for the 7-day
period attributable to a hypothetical account having a
balance of 1 Subaccount unit
ES = AAC + ADMIN
where ES = per unit expenses of the Subaccount for the 7-day period
AAC = per unit Annual Annuity Charges deducted for the 7-day
period
ADMIN = per unit Administration Charges deducted for the 7-day
period
= (40/AAV/365 )
where AAV = average account value of Contracts on the last day of the
7-day period
= $40,000
UV = the unit value on the first day of the 7-day period
= 10.0000
</TABLE>
<TABLE>
<CAPTION>
DATE NCS AAC ADMIN
- ---- --------- --------- ---------
<S> <C> <C> <C>
Dec 31.......................................... .00145279 .00003836 .00000274
Dec 30.......................................... .00154151 .00003836 .00000274
Dec 29.......................................... .00149846 .00003836 .00000274
Dec 28.......................................... .00157104 .00003836 .00000274
Dec 27.......................................... .00152850 .00011507 .00000822
Dec 26.......................................... -- -- --
Dec 25.......................................... -- -- --
--------- --------- ---------
.00759230 .00026851 .00001918
</TABLE>
((.00759230 - .00026851 - .00001918)/10/7) x 365 = 3.81% = 7-day Current
Yield at December 31, 1999
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> 56
Yield calculations do not take into account the Surrender Charge under the
Contract equal to 2% to 8% of premiums paid during the nine years prior to the
surrender or withdrawal (including the year in which the surrender is made) on
premiums surrendered or withdrawn under the Contract. A Surrender Charge will
not be imposed in any Contract Year on an amount up to 10% of the Contract
Account Value as of the beginning of such year (10% of the premium payments in
the first Contract Year).
The current yield and effective yield for the Money Market Subaccount for
the seven days ended December 31, 1999 were 3.81% and 3.88%, respectively.
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 Administrative Fee and the Annual Annuity Charge. The yield calculation
assumes an Annual Administrative Fee of $40 per year per Contract deducted at
the end of each Contract Year. For purposes of calculating the 30-day or one-
month yield, an average administrative fee per dollar of the Variable Account
Value is used to determine the amount of the charge attributable to the
Subaccount for the 30-day or one-month period. The 30-day or one-month yield is
calculated according to the following formula:
Yield = 2 (((NI - ES)/(U X UV)) + 1)(6)
Where:
NI = net investment income of the Portfolio for the 30-day or one-month
period attributable to the Subaccount's Accumulation Units.
ES = expenses of the Subaccount for the 30-day or one-month period.
U = the average number of Accumulation Units outstanding.
UV = the unit value at the close of the last day in the 30-day or
one-month period.
A Subaccount's yield is affected by changes in interest rates, average
portfolio maturity of a Portfolio, the types and quality of portfolio securities
held by the Portfolio, and a Portfolio's operating expenses.
Yield calculations do not take into account the Surrender Charge under the
Contract equal to 2% to 8% of premiums paid during the nine years prior to the
surrender or withdrawal (including the year in which the surrender is made) on
premiums surrendered or withdrawn under the Contract. A Surrender Charge will
not be imposed in any Contract Year on an amount up to 10% of the Contract
Account Value as of the beginning of such year (10% of the premium payments in
the first Contract Year).
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns for one or more of the Subaccounts for various
periods of time.
Until a Subaccount has been in operation for 10 years, PLACA will include
quotes of average annual total return for the period measured from the
Subaccount's inception. When a Subaccount has been in operation for 1, 5, and 10
years, respectively, the average annual total return for these periods will be
provided. Average annual total returns for other periods of time may, from time
to time, also be disclosed.
S-4
<PAGE> 57
Average annual total return for the Market Street Fund International, Growth,
Aggressive Growth, Managed, Bond, and Money Market Subaccounts may include
information for the period before any contracts were registered under the
Securities Act of 1933, as amended, from the inception of these Subaccounts
(April 14, 1992) to December 31, 1992, with the level of Contract charges
currently in effect.
Average annual total returns represent the average annual compounded rates
of return that would equate an initial investment of $1,000 under a Contract to
the redemption value of that investment as of the last day of each of the
periods. The ending date for each period for which total return quotations are
provided will normally be for the most recent calendar quarter, considering the
type and media of the communication and will be stated in the communication.
Average annual total returns will be calculated using Subaccount unit
values based on the performance of the Subaccount's underlying Portfolio, the
deductions for the Annual Annuity Charge, and the Annual Administrative Fee. The
calculation assumes that the administrative fee is $40 per year per Contract
deducted at the end of each Contract Year. For purposes of calculating average
annual total return, an average administrative fee per dollar of the Variable
Account Value is used to determine the amount of the charge attributable to the
Subaccount for the period. The calculation also assumes surrender of the
Contract at the end of the period for the return quotation during the first nine
Contract Years. The total return will therefore reflect a deduction of the
Surrender Charge for any period less than nine years. The total return will then
be calculated according to the following formula:
TR = ((ERV/P)1/N) - 1
Where:
TR = the average annual total return.
ERV = the ending redeemable value (net of Subaccount recurring charges and
applicable Surrender Charge) of the hypothetical account at the end
of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
Based on the foregoing calculations and assuming no Credit Amount addition,
average annual total return for the Subaccounts is as follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF SUBACCOUNT) 12/31/1999 12/31/1999 THAN 10 YEARS)
- ----------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 29, 1998).......... 15.67% 25.32%
All Pro Large Cap Value (May 22, 1998)........... (7.22)% (4.98)%
All Pro Small Cap Growth (May 29, 1998).......... 81.38% 49.08%
All Pro Small Cap Value (May 29, 1998)........... (15.87)% (18.30)%
Equity 500 Index (October 1, 1993)(1)............ 10.74% 25.71% 20.57%
International (April 14, 1992)................... 19.44% 11.98% 11.40%
Growth (April 14, 1992).......................... (5.86)% 15.22% 11.55%
Aggressive Growth (April 14, 1992)............... 6.25% 13.18% 9.48%
Managed (April 14, 1992)......................... (7.89)% 11.18% 9.55%
Bond (April 14, 1992)............................ (11.58)% 4.37% 4.15%
Money Market (April 14, 1992).................... (4.11)% 2.30% 2.60%
OCC ACCUMULATION TRUST
Equity (September 15, 1994)...................... (6.27)% 17.45% 16.00%
Managed (September 15, 1994)..................... (4.04)% 17.15% 15.22%
</TABLE>
S-5
<PAGE> 58
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF SUBACCOUNT) 12/31/1999 12/31/1999 THAN 10 YEARS)
- ----------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (July 5, 1996).................... (15.67)% (0.29)%
Worldwide Emerging Markets (July 5, 1996)........ 89.41% 2.52%
Worldwide Hard Assets (July 5, 1996)............. 11.22% (7.52)%
Worldwide Real Estate (May 1, 1998).............. (10.40)% (15.04)%
</TABLE>
- ---------------
(1) As of February 7, 2000, shares of the Market Street Fund Equity 500 Index
Portfolio were substituted for shares of the Variable Insurance Products
Fund II Index 500 Portfolio.
From time to time, sales literature or advertisements may also quote
average annual total returns for periods prior to the date a Subaccount
commenced operations. This performance information for the Subaccounts will be
calculated based on the performance of the Portfolios and the assumption that
the Subaccounts were in existence for the same periods as those indicated for
the Portfolios, with the level of Contract charges currently in effect.
Based on the performance of the Portfolios and these assumptions, and
assuming no Credit Amount addition, average annual total return information for
the Subaccounts is as follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF PORTFOLIO) 12/31/1999 12/31/1999 THAN 10 YEARS)
- ---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 4, 1998)........... 15.67% 20.49%
All Pro Large Cap Value (May 4, 1998)............ (7.22)% (5.58)%
All Pro Small Cap Growth (May 4, 1998)........... 81.38% 40.59%
All Pro Small Cap Value (May 4, 1998)............ (15.87)% (20.29)%
International (November 7, 1991)................. 19.44% 11.98% 9.91%
Growth (December 12, 1985)....................... (5.86)% 15.22% 10.92%
Aggressive Growth (May 1, 1989).................. 6.25% 13.18% 12.93%
Managed (December 12, 1985)...................... (7.89)% 11.18% 8.38%
Bond (December 12, 1985)......................... (11.58)% 4.37% 5.21%
Money Market (December 12, 1985)................. (4.11)% 2.30% 3.42%
MFS VARIABLE INSURANCE TRUST
Emerging Growth (July 24, 1995).................. 66.16% 33.88%
Growth with Income (October 9, 1995)............. (2.50)% 18.31%
New Discovery (April 29, 1998)................... 62.91% 34.89%
Research (July 26, 1995)......................... 14.23% 20.17%
OCC ACCUMULATION TRUST
Equity (September 15, 1994)...................... (6.27)% 17.45% 16.00%
Managed (September 15, 1994)..................... (4.04)% 17.15% 15.22%
PIMCO VARIABLE INSURANCE TRUST
High Yield Bond (April 30, 1998)................. (5.84)% (3.09)%
Total Return Bond (December 31, 1997)............ (9.10)% (1.38)%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II
(December 31, 1996)........................... 79.14% 43.53%
</TABLE>
S-6
<PAGE> 59
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF PORTFOLIO) 12/31/1999 12/31/1999 THAN 10 YEARS)
- ---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II (May 8, 1992)......... 24.94% 20.85% 19.18%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... (15.67)% 2.08% 3.91%
Worldwide Emerging Markets (December 27, 1995)... 89.41% 6.76%
Worldwide Hard Assets (September 1, 1989)........ 11.22% (1.50)% 1.54%
Worldwide Real Estate (June 23, 1997)............ (10.40)% (2.08)%
</TABLE>
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote total
returns that do not reflect the Surrender Charge. These are calculated in
exactly the same way as average annual total returns described above, except
that the ending redeemable value of the hypothetical account for the period is
replaced with an ending value for the period that does not take into account the
Surrender Charge.
Based on this method of calculation and assuming no Credit Amount addition,
average annual total return information is as follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF SUBACCOUNT) 12/31/1999 12/31/1999 THAN 10 YEARS)
- ----------------------------------------- --------------- --------------- -----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 29, 1998)....... 23.67% 29.68%
All Pro Large Cap Value (May 22, 1998)........ (0.02)% (0.46)%
All Pro Small Cap Growth (May 29, 1998)....... 89.38% 53.03%
All Pro Small Cap Value (May 29, 1998)........ (9.43)% (14.41)%
Equity 500 Index (October 1, 1993)(1)......... 18.74% 26.34% 20.87%
International (April 14, 1992)................ 27.44% 12.98% 11.62%
Growth (April 14, 1992)....................... 1.45% 16.12% 11.77%
Aggressive Growth (April 14, 1992)............ 14.25% 14.14% 9.72%
Managed (April 14, 1992)...................... (0.75)% 12.21% 9.79%
Bond (April 14, 1992)......................... (4.76)% 5.68% 4.49%
Money Market (April 14, 1992)................. 3.36% 3.72% 2.98%
OCC ACCUMULATION TRUST
Equity (September 15, 1994)................... 1.02% 18.28% 16.65%
Managed (September 15, 1994).................. 3.44% 17.99% 15.88%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (July 5, 1996)................. (9.20)% 1.87%
Worldwide Emerging Markets (July 5, 1996)..... 97.41% 4.62%
Worldwide Hard Assets (July 5, 1996).......... 19.22% (5.52)%
Worldwide Real Estate (May 1, 1998)........... (3.47)% (11.17)%
</TABLE>
- ---------------
(1) As of February 7, 2000, shares of the Market Street Fund Equity 500 Index
Portfolio were substituted for shares of the Variable Insurance Products
Fund II Index 500 Portfolio.
S-7
<PAGE> 60
Based on the foregoing method of calculation and assuming no Credit Amount
addition, average annual total return information is as follows assuming that
the Subaccounts were in existence during the same periods as those indicated for
the Portfolios.
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF PORTFOLIO) 12/31/1999 12/31/1999 THAN 10 YEARS)
- ---------------------------------------- --------------- --------------- -----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 4, 1998)........ 23.67% 24.72%
All Pro Large Cap Value (May 4, 1998)......... (0.02)% (1.22)%
All Pro Small Cap Growth (May 4, 1998)........ 89.38% 44.42%
All Pro Small Cap Value (May 4, 1998)......... (9.43)% (16.66)%
International (November 7, 1991).............. 27.44% 12.98% 10.03%
Growth (December 12, 1985).................... 1.45% 16.12% 10.92%
Aggressive Growth (May 1, 1989)............... 14.25% 14.14% 12.93%
Managed (December 12, 1985)................... (0.75)% 12.21% 8.38%
Bond (December 12, 1985)...................... (4.76)% 5.68% 5.21%
Money Market (December 12, 1985).............. 3.36% 3.72% 3.42%
MFS VARIABLE INSURANCE TRUST
Emerging Growth (July 24, 1995)............... 74.16% 34.53%
Growth with Income (October 9, 1995).......... 5.11% 19.39%
New Discovery (April 29, 1998)................ 70.91% 38.77%
Research (July 26, 1995)...................... 22.23% 21.12%
OCC ACCUMULATION TRUST
Equity (September 15, 1994)................... 1.02% 18.28% 16.65%
Managed (September 15, 1994).................. 3.44% 17.99% 15.88%
PIMCO VARIABLE INSURANCE TRUST
High Yield Bond (April 30, 1998).............. 1.47% 1.35%
Total Return Bond (December 31, 1997)......... (2.07)% 2.37%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II (December 31,
1996)...................................... 87.14% 44.81%
STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II (May 8, 1992)...... 32.94% 21.60% 19.32%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............ (9.20)% 3.51% 3.91%
Worldwide Emerging Markets (December 27,
1995)...................................... 97.41% 8.36%
Worldwide Hard Assets (September 1, 1989)..... 19.22% (0.02)% 1.54%
Worldwide Real Estate (June 23, 1997)......... (3.47)% 0.87%
</TABLE>
S-8
<PAGE> 61
From time to time, sales literature or advertisements may also quote
average annual total returns that do reflect the impact of Credit Amounts at
various percentage rates available at the time of publication. These are
calculated in exactly the same way as average annual total returns described
above (with and without Surrender Charges), except that Credit Amounts are
reflected as an increase in Contract Account Value immediately after such
amounts are applied. No Renewal Credit is reflected. Assuming the addition of a
3% Credit Amount, such information is as follows (with Surrender Charges):
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF SUBACCOUNT) 12/31/1999 12/31/1999 THAN 10 YEARS)
- ----------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 29, 1998)...... 19.38% 27.81%
All Pro Large Cap Value (May 22, 1998)....... (4.46)% (3.21)%
All Pro Small Cap Growth (May 29, 1998)...... 87.06% 52.00%
All Pro Small Cap Value (May 29, 1998)....... (13.37)% (16.76)%
Equity 500 Index (October 1, 1993)(1)........ 14.30% 26.47% 21.15%
International (April 14, 1992)............... 23.26% 12.68% 11.84%
Growth (April 14, 1992)...................... (3.06)% 15.94% 11.99%
Aggressive Growth (April 14, 1992)........... 9.68% 13.88% 9.91%
Managed (April 14, 1992)..................... (5.15)% 11.87% 9.98%
Bond (April 14, 1992)........................ (8.95)% 5.03% 4.56%
Money Market (April 14, 1992)................ (1.26)% 2.95% 3.01%
OCC ACCUMULATION TRUST
Equity (September 15, 1994).................. (3.47)% 18.17% 16.67%
Managed (September 15, 1994)................. (1.18)% 17.87% 15.89%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (July 5, 1996)................ (13.16)% 0.56%
Worldwide Emerging Markets (July 5, 1996).... 95.33% 3.46%
Worldwide Hard Assets (July 5, 1996)......... 14.80% (6.72)%
Worldwide Real Estate (May 1, 1998).......... (7.73)% (13.51)%
</TABLE>
- ---------------
(1 )As of February 7, 2000, shares of the Market Street Fund Equity 500 Index
Portfolio were substituted for shares of the Variable Insurance Products
Fund II Index 500 Portfolio.
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF PORTFOLIO) 12/31/1999 12/31/1999 THAN 10 YEARS)
- ---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 4, 1998)....... 19.38% 22.79%
All Pro Large Cap Value (May 4, 1998)........ (4.46)% (3.87)%
All Pro Small Cap Growth (May 4, 1998)....... 87.06% 43.24%
All Pro Small Cap Value (May 4, 1998)........ (13.37)% (18.85)%
International (November 7, 1991)............. 23.26% 12.68% 10.31%
Growth (December 12, 1985)................... (3.06)% 15.94% 11.25%
Aggressive Growth (May 1, 1989).............. 9.68% 13.88% 13.26%
Managed (December 12, 1985).................. (5.15)% 11.87% 8.71%
Bond (December 12, 1985)..................... (8.95)% 5.03% 5.52%
Money Market (December 12, 1985)............. (1.26)% 2.95% 3.73%
</TABLE>
S-9
<PAGE> 62
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF PORTFOLIO) 12/31/1999 12/31/1999 THAN 10 YEARS)
- ---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MFS VARIABLE INSURANCE TRUST
Emerging Growth (July 24, 1995).............. 71.39% 34.79%
Growth with Income (October 9, 1995)......... 0.41% 19.17%
New Discovery (April 29, 1998)............... 68.04% 37.42%
Research (July 26, 1995)..................... 17.90% 21.00%
OCC ACCUMULATION TRUST
Equity (September 15, 1994).................. (3.47)% 18.17% 16.67%
Managed (September 15, 1994)................. (1.18)% 17.87% 15.89%
PIMCO VARIABLE INSURANCE TRUST
High Yield Bond (April 30, 1998)............. (3.04)% (1.36)%
Total Return Bond (December 31, 1997)........ (6.39)% 0.09%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II (December 31,
1996)..................................... 84.76% 44.99%
STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II (May 8, 1992)..... 28.93% 21.59% 19.64%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)........... (13.16)% 2.73% 4.22%
Worldwide Emerging Markets (December 27,
1995)..................................... 95.33% 7.60%
Worldwide Hard Assets (September 1, 1989).... 14.80% (0.92)% 1.84%
Worldwide Real Estate (June 23, 1997)........ (7.73)% (0.92)%
</TABLE>
Assuming the addition of a 3% Credit Amount, average annual total return
information for the Subaccounts is as follows (without Surrender Charges):
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF SUBACCOUNT) 12/31/1999 12/31/1999 THAN 10 YEARS
- ----------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 29, 1998) 27.38% 32.12%
All Pro Large Cap Value (May 22, 1998) 2.98% 1.39%
All Pro Small Cap Growth (May 29, 1998) 95.06% 55.91%
All Pro Small Cap Value (May 29, 1998) (6.71)% (12.80)%
Equity 500 Index (October 1, 1993)(1) 22.30% 27.09% 21.44%
International (April 14, 1992) 31.26% 13.65% 12.05%
Growth (April 14, 1992) 4.50% 16.81% 12.20%
Aggressive Growth (April 14, 1992) 17.68% 14.81% 10.15%
Managed (April 14, 1992) 2.23% 12.88% 10.21%
Bond (April 14, 1992) (1.90)% 6.31% 4.89%
Money Market (April 14, 1992) 6.46% 4.34% 3.38%
OCC ACCUMULATION TRUST
Equity (September 15, 1994) 4.05% 18.98% 17.30%
Managed (September 15, 1994) 6.54% 18.69% 16.53%
</TABLE>
S-10
<PAGE> 63
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF SUBACCOUNT) 12/31/1999 12/31/1999 THAN 10 YEARS
- ----------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (July 5, 1996) (6.48)% 2.74%
Worldwide Emerging Markets (July 5, 1996) 103.33% 5.52%
Worldwide Hard Assets (July 5, 1996) 22.80% (4.71)%
Worldwide Real Estate (May 1, 1998) (0.58)% (9.58)%
</TABLE>
- ---------------
(1 )As of February 7, 2000, shares of the Market Street Fund Equity 500 Index
Portfolio were substituted for shares of the Variable Insurance Products
Fund II Index 500 Portfolio.
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF PORTFOLIO) 12/31/1999 12/31/1999 THAN 10 YEARS
- ---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 4, 1998) 27.38% 26.96%
All Pro Large Cap Value (May 4, 1998) 2.98% 0.56%
All Pro Small Cap Growth (May 4, 1998) 95.06% 47.02%
All Pro Small Cap Value (May 4, 1998) (6.71)% (15.16)%
International (November 7, 1991) 31.26% 13.65% 10.44%
Growth (December 12, 1985) 4.50% 16.81% 11.25%
Aggressive Growth (May 1, 1989) 17.68% 14.81% 13.26%
Managed (December 12, 1985) 2.23% 12.88% 8.71%
Bond (December 12, 1985) (1.90)% 6.31% 5.52%
Money Market (December 12, 1985) 6.46% 4.34% 3.73%
MFS VARIABLE INSURANCE TRUST
Emerging Growth (July 24, 1995) 79.39% 35.43%
Growth with Income (October 9, 1995) 8.27% 20.23%
New Discovery (April 29, 1998) 76.04% 41.25%
Research (July 26, 1995) 25.90% 21.93%
OCC ACCUMULATION TRUST
Equity (September 15, 1994) 4.05% 18.98% 17.30%
Managed (September 15, 1994) 6.54% 18.69% 16.53%
PIMCO VARIABLE INSURANCE TRUST
High Yield Bond (April 30, 1998) 4.52% 3.17%
Total Return Bond (December 31, 1997) 0.88% 3.90%
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II (December 31,
1996) 92.76% 46.25%
STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II (May 8, 1992) 36.93% 22.32% 19.78%
</TABLE>
S-11
<PAGE> 64
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/1999
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF PORTFOLIO) 12/31/1999 12/31/1999 THAN 10 YEARS
- ---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989) (6.48)% 4.13% 4.22%
Worldwide Emerging Markets (December 27,
1995) 103.33% 9.17%
Worldwide Hard Assets (September 1, 1989) 22.80% 0.58% 1.84%
Worldwide Real Estate (June 23, 1997) (0.58)% 2.07%
</TABLE>
We may also disclose cumulative total returns in conjunction with the
standard formats described above. The cumulative total returns will be
calculated using the following formula:
CTR = (ERV/P)-1
Where:
CTR = the Cumulative Total Return for the period.
ERV = the ending redeemable value (net of Subaccount recurring charges) of
the hypothetical investment at the end of the period.
P = a hypothetical initial payment of $1,000.
EFFECT OF THE ANNUAL ADMINISTRATIVE FEE ON PERFORMANCE DATA
The Contract provides for a $40 Annual Administrative Fee to be deducted
annually at the end of each Contract Year from the Subaccounts and the
Guaranteed Account based on the proportion that the value of each account bears
to the total Contract Account Value. For purposes of reflecting the Annual
Administrative Fee in yield and total return quotations, the annual charge is
converted into a per-dollar per-day charge based on a Contract Account Value in
the Variable Account of $40,000 on the last day of the period for which
quotations are provided. The per-dollar per-day average charge will then be
adjusted to reflect the basis upon which the particular quotation is calculated.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares
to the Variable Account contain varying provisions regarding termination. The
following summarizes those provisions:
Market Street Fund, Inc. This agreement provides for termination: (1) on
one year's advance notice by any party; (2) at our option if shares of the Fund
are not reasonably available to meet the requirements of the Contracts; (3) at
the option of the Fund or us if certain enforcement proceedings are instituted
against the other; (4) upon receipt of regulatory approvals and/or the vote of
the Owners of Contracts to substitute shares of another mutual fund; (5) at our
option if the Fund ceases to qualify as a regulated investment company under the
Code or fails to meet the diversification requirements thereunder; (6) at the
option of the Fund or us upon a determination that an irreconcilable material
conflict exists between Owners of variable insurance products of all the
separate accounts or the interests of participating insurance companies
investing in the Fund; (7) at our option if we have withdrawn the Variable
Account's investment in the Fund; or (8) at the option of any party upon another
party's material breach of any provision of the agreement.
MFS Variable Insurance Trust. This agreement provides for termination: (1)
on six (6) months' advance written notice by any party; (2) at our option if the
shares of Portfolios are not reasonably available to meet the requirements of
the Policies or are not appropriate funding vehicles for the Policies; (3) at
the option of any party if certain enforcement proceedings are instituted
against another party; (4) upon receipt of regulatory approvals and/or the vote
of the Policy owners to substitute shares of another mutual fund; (5) at the
option of any party upon a determination that another party has suffered a
S-12
<PAGE> 65
material adverse change in its business, operations, financial condition, or
prospects or is the subject of material adverse publicity; (6) at the option of
any party upon another party's material breach of any provision of the
agreement; or (7) upon assignment of the agreement if made without the written
consent of the other parties.
OCC Accumulation Trust. This agreement provides for termination: (1) on
one year's advance notice by any party; (2) at our option if shares of the Fund
are not reasonably available to meet the requirements of the Contracts; (3) at
the option of the Fund or us if certain enforcement proceedings are instituted
against the other; (4) upon vote of the Owners of Contracts to substitute shares
of another mutual fund; (5) at our option if the Fund ceases to qualify as a
regulated investment company under the Code or fails to meet the diversification
requirements thereunder; (6) at the option of the Fund or us upon a
determination that an irreconcilable material conflict exists between Owners of
variable insurance products of all the separate accounts or the interests of
participating insurance companies investing in the Fund; (7) at our option if we
have withdrawn the Variable Account's investment in the Fund; (8) at the option
of any party upon another party's material breach of any provision of the
agreement; or (9) at our option or the Fund's option if it determines that the
other party has suffered a material adverse change in its business, operations
or financial condition or is the subject of material adverse publicity.
PIMCO Variable Insurance Trust. The agreement provides for termination:
(1) by any party with three months' advance written notice; (2) by us if shares
of PIMCO Trust are not reasonably available to meet the requirements of the
Contracts; (3) by us if Portfolio shares are not registered, issued, or sold in
accordance with applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment media of the Contracts; (4) by
PIMCO Trust or PIMCO Funds Distributor LLC (the "Underwriter") if formal
administrative proceedings are instituted against us by the NASD, the SEC, the
insurance commissioner, or like official of any state or any other regulatory
body regarding our duties under the agreement or related to the sale of the
Contracts, the operation of any account, or the purchase of Portfolio shares so
long as PIMCO Trust or the Underwriter determines in its sole judgment exercised
in good faith that any administrative proceedings will have a material adverse
effect upon our ability to perform our obligations under the agreement; (5) by
us if formal administrative proceedings are instituted against PIMCO Trust or
the Underwriter by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body so long as we determine in our sole
judgment exercised in good faith that any administrative proceedings will have a
material adverse effect upon the ability of PIMCO Trust or the Underwriter to
perform its obligations under the agreement; (6) by us if a Portfolio ceases to
qualify as a regulated investment company under Subchapter M of the Code or
fails to comply with the section 817(h) diversification requirements specified
in the Code, or if we reasonably believe that a Portfolio may fail to so qualify
or comply; (7) by PIMCO Trust or the Underwriter if the Contracts fail to meet
the qualifications of annuity contracts specified in the Code; (8) by either
PIMCO Trust or the Underwriter if either one or both determine, in their sole
judgment exercised in good faith, that we have suffered a material adverse
change in our business, operations, financial condition, or prospects since the
date of the agreement or are the subject of material adverse publicity; (9) by
us if we determine, in our sole judgment exercised in good faith, that PIMCO
Trust, its investment adviser, or the Underwriter has suffered a material
adverse change in its business, operations, financial condition or prospects
since the date of the agreement or is the subject of material adverse publicity;
(10) by PIMCO Trust or the Underwriter if we give PIMCO Trust and the
Underwriter written notice and at the time such notice was given there was no
notice of termination outstanding under any other provision of the agreement;
provided, however, any termination is effective forty-five days after the notice
was given; (11) by us upon any substitution of the shares of another investment
company or series thereof for shares of a designated Portfolio of PIMCO Trust in
accordance with the terms of the Contracts, provided that we have given at least
45 days prior written notice to PIMCO Trust and the Underwriter of the date of
substitution; (12) by any party if PIMCO Trust's Board of Trustees determines
that a material irreconcilable conflict exists; (13) by us if PIMCO Trust or the
Underwriter is in material breach of a provision of the agreement, which breach
has not been cured to our satisfaction within 10 days after written notice of
such breach has been delivered to PIMCO Trust or the Underwriter; or (14) by
PIMCO Trust or the Underwriter if we are in material breach of a provision of
the agreement, which breach has not been cured
S-13
<PAGE> 66
to the satisfaction of PIMCO Trust or the Underwriter within 10 days after
written notice of such breach has been delivered to us.
Strong Variable Insurance Funds, Inc. and Strong Opportunity Fund II,
Inc. This agreement provides for termination during the initial one (1) year
term on thirty (30) days prior written notice by any party and, assuming
renewal, thereafter on six (6) months advance written notice by any party; (2)
at the Adviser's, Funds', or Distributor's option upon a determination that we
have suffered a material adverse change in our business, operations, financial
condition, or prospects or are the subject of material adverse publicity; (3) at
the Adviser's, Funds', or Distributor's option if any of the Contracts are not
registered, issued, or sold in accordance with applicable law or such law
precludes the use of Fund shares as the underlying investment media of the
Contracts issued or to be issued by us; (4) at our option if any of a Fund's
shares are not registered, issued, or sold in accordance with applicable law or
such law precludes the use of such shares as the underlying investment media of
the Contracts issued or to be issued; (5) at our option if the Funds cease to
qualify as regulated investment companies under the Code or if we reasonably
believe that the Funds may fail to so qualify; (6) at our option if a Fund fails
to meet the diversification requirements specified in the Code; (7) at our
party's option upon 30 days written notice in the event of a material breach of
the agreement; (8) at any party's option if certain enforcement proceedings are
instituted against another party; (9) at any party's option if the agreement is
assigned without the other parties' written consent; or (10) as is required by
law, order or instruction of a court, regulatory body, or self-regulatory
organization with jurisdiction over the terminating party.
Van Eck Worldwide Insurance Trust. This agreement provides for
termination: (1) by Van Eck Trust or Van Eck Trust's Distributor or us upon six
months prior written notice; (2) at our option if Fund shares are not available
for any reason to meet the requirements of Contracts as determined by us and
reasonable advance notice of election to terminate is furnished by us; (3) at
the option of the Fund, its principal underwriter, or us upon institution of
formal proceedings against the broker-dealer marketing the Contracts, the
Variable Account, or the Fund by any regulatory body; (4) upon our decision, in
accordance with regulations of the SEC, to substitute Fund shares with the
shares of another Fund selected to serve as the underlying investment medium for
the Contracts on 60 days' written notice; (5) upon assignment of the agreement
unless made with the written consent of each other party; (6) in the event Fund
shares are not registered, issued, or sold in conformance with federal law or
such law precludes the use of Fund shares as an underlying investment medium of
Contracts issued or to be issued by us; (7) at our option by written notice to
the Fund and its principal underwriter with respect to any Portfolio in the
event that the Portfolio fails to meet specified diversification requirements or
if we reasonably believe that the Portfolio may fail to meet those requirements;
(8) at our option by written notice to the Fund and its principal underwriter,
if we determine, in our sole judgment exercised in good faith, that the Fund or
its principal underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of the
agreement or is the subject of material adverse publicity; or (9) at the option
of the Fund or its principal underwriter by written notice to us, if the Fund or
its principal underwriter shall determine, in its sole judgment exercised in
good faith, that the Fund or underwriter has suffered a material adverse change
in its business operations, financial condition or prospects since the date of
the agreement or is the subject of material adverse publicity.
Variable Insurance Products Fund III. This agreement provides for
termination: (1) on six months' advance notice by any party; (2) at our option
if shares of the Fund are not reasonably available to meet the requirements of
the Contracts; (3) at our option if shares of the Fund are not registered,
issued, or sold in accordance with applicable laws, if the Fund ceases to
qualify as a regulated investment company under the Code or fails to meet the
diversification requirements thereunder; (4) at the option of the Fund or its
principal underwriter if it determines that we have suffered material adverse
changes in our business or financial conditions or are the subject to material
adverse publicity; (5) at our option if the Fund has suffered material adverse
changes in its business or financial condition or is the subject of material
adverse publicity; or (6) at the option of the Fund or its principal underwriter
if we decide to make another mutual fund available as a funding vehicle for the
Contracts; (7) by our written notice to the Fund and its principal underwriter
with respect to any Portfolio in the event that the Portfolio ceases to qualify
as a
S-14
<PAGE> 67
regulated investment company under Subchapter M of the Code or any successor or
similar provision, or if we reasonably believe that we may fail to so qualify;
(8) termination by our written notice to the Fund and its principal underwriter
with respect to any Portfolio in the event that the Portfolio fails to meet
specified diversification requirements.
Should an agreement between a Fund and ourselves terminate, the Subaccounts
which invest in that Fund will not be able to purchase additional shares of that
Fund. In that event, Owners will no longer be able to allocate cash values or
Net Premiums to Subaccounts investing in Portfolios of that Fund.
Additionally, in certain circumstances, a Fund or a Portfolio may refuse to
sell its shares to a Subaccount even though its participation agreement with us
has not been terminated. Should a Fund or Portfolio decide not to sell its
shares to the Variable Account we will not be able to honor requests by Owners
to allocate cash values or Net Premiums to Subaccounts investing in shares of
that Fund or Portfolio.
STANDARD & POOR'S
Standard & Poor's(R), S&P 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. 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 the Market Street Fund is the licensing of certain trademarks and
trade names of S&P and of the S&P 500 Index which is determined, composed, and
calculated by S&P without regard to PLACA, the Market Street Fund, the
Contracts, or the Equity 500 Index Portfolio. S&P has no obligation to take the
needs of PLACA, the Market Street Fund, the Owners of the 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, THE MARKET STREET FUND, OWNERS
OF THE CONTRACT, AND THE EQUITY 500 INDEX PORTFOLIO, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES
NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
SAFEKEEPING OF ACCOUNT ASSETS
We hold the title to the assets of the Variable Account. The assets in the
Variable Account are legally segregated from our General Account assets and from
the assets in any other separate account.
S-15
<PAGE> 68
Records are maintained of all purchases and redemptions of Portfolio shares
held by each of the Subaccounts.
Our officers and employees are covered by a financial institution bond
issued by Reliance Insurance Company to Provident Mutual Life Insurance Company
("PMLIC") with limits of $10 million per occurrence and $20 million in the
aggregate. The bond insures against dishonest and fraudulent acts of officers
and employees.
STATE REGULATION
We are subject to regulation and supervision by the Insurance Department of
the State of Delaware, which periodically examines our affairs. We are subject
to the insurance laws and regulations of all jurisdictions where we are
authorized to do business. A copy of the Contract form has been filed with, and
where required approved by, insurance officials in each jurisdiction where the
Contracts are sold. We are required to submit annual statements of our
operations, including financial statements, to the insurance departments of the
various jurisdictions in which we do business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
RECORDS AND REPORTS
We will maintain all records and accounts relating to the Variable Account.
PLACA may contract with another party to maintain these records and accounts. As
presently required by the Investment Company Act of 1940, as amended (the "1940
Act"), and the regulations thereunder, reports containing information required
under the 1940 Act or by any other applicable law or regulation, will be sent to
Owners semi-annually at their last known address.
LEGAL MATTERS
James G. Potter, Jr., Esquire, General Counsel and Secretary of PMLIC, has
provided advice on certain matters relating to the laws of Delaware regarding
the Contracts and our issuance of the Contracts. Drinker Biddle & Reath LLP, of
Philadelphia, PA has provided advice on certain matters relating to the federal
securities laws.
EXPERTS
The financial statements listed on page F-1 have been included in this SA1,
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 the prospectus and this SAI. Statements contained in this
SAI concerning the content of the Contracts and other legal instruments are
intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC at 450
Fifth Street, N.W., Washington, DC 20549.
S-16
<PAGE> 69
FINANCIAL INFORMATION
This SAI contains the audited statements of assets and liabilities of the
Variable Account as of December 31, 1999 and the related statements of
operations for the year then ended and the statements of changes in net assets
for each of the two years in the period then ended. PricewaterhouseCoopers LLP
serves as independent accountants for the Providentmutual Variable Annuity
Separate Account.
Our statements of financial condition as of December 31, 1999 and 1998 and
the related statements of operations, equity, and cash flows for each of the
three years in the period ended December 31, 1999, which are included in this
SAI, should be considered only as bearing our ability to meet our obligations
under the Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Variable Annuity Separate Account.
S-17
<PAGE> 70
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> 71
- --------------------------------------------------------------------------------
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> 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>
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> 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>
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> 74
- --------------------------------------------------------------------------------
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> 75
- --------------------------------------------------------------------------------
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> 76
- --------------------------------------------------------------------------------
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> 77
- --------------------------------------------------------------------------------
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> 78
- --------------------------------------------------------------------------------
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> 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>
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> 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>
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> 81
- --------------------------------------------------------------------------------
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> 82
- --------------------------------------------------------------------------------
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> 83
- --------------------------------------------------------------------------------
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> 84
- --------------------------------------------------------------------------------
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> 85
- --------------------------------------------------------------------------------
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> 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>
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> 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>
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> 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, 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> 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, 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> 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, 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> 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, 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> 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, 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> 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>
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> 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>
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> 95
- --------------------------------------------------------------------------------
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> 96
- --------------------------------------------------------------------------------
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> 97
- --------------------------------------------------------------------------------
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> 98
- --------------------------------------------------------------------------------
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> 99
- --------------------------------------------------------------------------------
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> 100
- --------------------------------------------------------------------------------
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> 101
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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> 102
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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> 103
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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> 104
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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> 105
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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> 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>
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> 107
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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> 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>
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> 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>
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> 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>
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> 111
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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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 117
- --------------------------------------------------------------------------------
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> 118
- --------------------------------------------------------------------------------
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> 119
- --------------------------------------------------------------------------------
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> 120
- --------------------------------------------------------------------------------
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> 121
- --------------------------------------------------------------------------------
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> 122
- --------------------------------------------------------------------------------
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> 123
[This Page Intentionally Left Blank]
<PAGE> 124
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> 125
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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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> 133
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> 134
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> 135
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> 136
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> 137
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> 138
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> 139
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> 140
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> 141
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> 142
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> 143
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> 144
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) 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)
(c) Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Annuity Separate
Account (authorizing the establishment of the All Pro Large
Cap Value; All Pro Large Cap Growth; All Pro Small Cap
Value; All Pro Small Cap Growth and Van Eack Worldwide Real
Estate Investment Trust 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) Individual Flexible Premium Deferred Variable Annuity
Contract (VA210).(3)
(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" (R2547).(3)
(f) Death Benefit Rider "Rising Floor" (R2548).(3)
(g) Simple IRA Rider (PL549).(2)
(h) SEP IRA Rider (PL550).(2)
(i) Amendment to Qualify Deferred Annuity Contract as an IRA
Rider (PL553).(2)
(j) Amendment to Qualify Deferred Annuity Contract as a TSA
Under 403(b) Rider (PL554).(2)
(k) Amendment for a Charitable Remainder Trust Rider (PL558).(2)
(l) Form of Endorsement Renewal Credit Rider (R2210).(3)
(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)
</TABLE>
C-1
<PAGE> 145
<TABLE>
<S> <C> <C> <C>
(7) Acceptance by Provident Mutual of Guaranteed Minimum Death Benefit Reinsurance arrangement by CNA Life
Re.(3)
(8) (a) Participation Agreement among Market Street Fund, Inc., Providentmutual Life and Annuity
Company of America and PML Securities, Inc.(2)
(b) Form of Fund Participation Agreement among OCC Trust, OpCap Advisors and Providentmutual
Life and Annuity Company of America.(4)
(c) Participation Agreement between Van Eck Investment Trust and Providentmutual Life and
Annuity Company of America.(2)
(d) Service Agreement between Providentmutual Life and Annuity Company of America and Provident
Mutual Life Insurance Company of Philadelphia.(2)
(e) Participation Agreement among Providentmutual Life and Annuity Company of America, PIMCO
Variable Insurance Trust and PIMCO Funds Distributors LLC.(3)
(f) Participation Agreement among OCC Accumulation Trust, Providentmutual Life and Annuity
Company of America and OCC Distributors.(3)
(g) Participation Agreement among Variable Insurance Products Fund III, Providentmutual Life
and Annuity Company of America and Fidelity Distributors Corporation.(3)
(h) Form of Fund Participation Agreement among Strong Variable Insurance Funds, Inc.,
Providentmutual Life and Annuity Company of America and Strong Investments, Inc.(1)
(i) Fund Participation Agreement among MFS Variable Insurance Trust, Providentmutual Life and
Annuity Company of America and Massachusetts Financial Services Company.(3)
(j) Support Agreement between Provident Mutual Life Insurance Company and Providentmutual Life
and Annuity Company of America.(2)
(k) Services Agreement between Pacific Investment Management Company and Providentmutual Life
and Annuity Company of America.(3)
(9) Consent of James G. Potter, Jr., Esquire.
(10) (a) Consent of Drinker Biddle & Reath LLP.
(b) Consent of PricewaterhouseCoopers LLP.
(11) No financial statements are omitted from Item 23.
(12) Not applicable.
(13) (a) Schedule for computation of performance data.(3)
</TABLE>
- ---------------
(1) Incorporated herein by reference to post-effective amendment No. 8 to the
Form N-4 registration statement for Providentmutual Variable Annuity
Separate Account, filed on April 25, 2000, File No. 33-65512.
(2) Incorporated herein by reference to post-effective amendment No. 5 to the
Form N-4 registration statement for Providentmutual Variable Annuity
Separate Account, filed on May 1, 1998, File No. 33-65512.
(3) Filed herewith.
(4) Incorporated herein by reference to this Registration Statement filed
December 20, 1999, File No. 33-88163.
C-2
<PAGE> 146
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> 147
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
Four P Finance Company Pennsylvania Ownership of all voting
securities by PHC
</TABLE>
C-4
<PAGE> 148
<TABLE>
<CAPTION>
PERCENT OF VOTING
NAME JURISDICTION SECURITIES OWNED PRINCIPAL BUSINESS
---- ------------ ----------------- ------------------
<S> <C> <C> <C>
Covenant Financial Services, Delaware Ownership of all voting
Inc. securities by PHC
1717 Advisory Services, Inc. Pennsylvania Ownership of all voting
securities by Covenant
Financial Services
Providentmutual Distributors, Pennsylvania Ownership of all voting
Inc. 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 Financial Pennsylvania Ownership of all voting
Services, Inc. securities by
Providentmutual
Financial Services,
Inc.
</TABLE>
Item 27. Number of Policyowners
As of February 29, 2000, there was one Contract outstanding.
Item 28. Indemnification
The By-Laws of Providentmutual Life and Annuity Company of America provide,
in part in Article XII, as follows:
ARTICLE XII
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS
Section 12.01. To the fullest extent permitted by law, the Company shall
indemnify any present, former, or future Director, officer,
or employee of the Company or any person who may serve or
has served at its request as officer or Director of another
corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including
attorneys' fees, necessarily incurred in connection with the
defense of any action, suit or other proceeding to which any
of them is made a party because of service as Director,
officer, or employee of the Company or such other
corporation, or in connection with any appeal therein, and
against any amounts paid by such Director, officer, or
employee in settlement of, or in satisfaction of a judgment
or fine in any 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.
C-5
<PAGE> 149
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 various separate accounts of Provident Mutual Life
Insurance Company 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
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>
C-6
<PAGE> 150
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 Contracts, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by Providentmutual Life and Annuity Company of
America.
C-7
<PAGE> 151
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 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 REQUIRED BY THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS
BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <C> <S>
/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> 152
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <C> <S>
* 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> 153
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> 154
/s/ LINDA M. SPRINGER
--------------------------------------
Linda M. Springer
/s/ MEHRAN ASSADI
--------------------------------------
Mehran Assadi
<PAGE> 155
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------- ----
<C> <S> <C> <C>
(4) (a) Individual Flexible Premium Deferred Variable Annuity
Contract (VA210).
(e) Death Benefit Rider "Step Up" (R2547).
(f) Death Benefit Rider "Rising Floor" (R2548).
(l) Form of Endorsement Renewal Credit Rider (R2210).
(7) Acceptance by Provident Mutual of Guaranteed Minimum Death
Benefit Reinsurance arrangement by CNA Life Re.
(8) (e) Participation Agreement among PIMCO Variable Insurance
Trust, Providentmutual Life and Annuity Company of America
and PIMCO Funds Distributors LLC.
(f) Participation Agreement among OCC Accumulation Trust,
Providentmutual Life and Annuity Company of America and OCC
Distributors.
(g) Participation Agreement among Variable Insurance Products
Fund III, Providentmutual Life and Annuity Company of
America and Fidelity Distributors Corporation.
(i) Form of Fund Participation Agreement among MFS Variable
Insurance Trust, Providentmutual Life and Annuity Company of
America and Massachusetts Financial Services Company.
(k) Services Agreement between Pacific Investment Management
Company and Providentmutual Life and Annuity Company of
America.
(9) Consent of James G. Potter, Jr., Esquire.
(10) (a) Consent of Drinker Biddle & Reath LLP.
(b) Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
(13) Schedule for computation of performance data.
</TABLE>
<PAGE> 1
Exhibit (4)(a)
BONUS CREDIT
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A Stock Life Insurance Company
Newark, Delaware
ANNUITANT: JOHN DOE CONTRACT DATE: 01/01/2000
CONTRACT NO.: 9000000 MATURITY DATE: 01/01/2055
In this Contract, Providentmutual Life and Annuity Company of America
is referred to as "We," "Us," "Our," or the "Company," "You" and "Your" refer to
the Owner of the Contract.
We agree to pay the benefits as described in this Contract in
accordance with its provisions.
PLEASE READ THIS CONTRACT CAREFULLY
It is a legal contract between You and Us
NOTICE OF 10-DAY CANCELLATION PERIOD
If for any reason You are not satisfied with this Contract, You may
return it to Us for cancellation by delivering or mailing it to:
1. Providentmutual Life and Annuity Company of America, Service
Center, 300 Continental Drive, Newark, DE 19713, or
2. the agent through whom it was purchased.
To cancel this Contract, You must return it to Us no later then 10 days
after You first receive it. This Contract will be void as of the date We receive
Your Contract and Your request for cancellation. We will refund Your Contract
Account Value (as of the date the returned Contract is received by Us) minus any
Credit Amounts plus any charges that We have deducted from either premium
payments or Contract Account Value.
Signed for Providentmutual Life and Annuity Company of America in
Newark, Delaware.
Secretary President
ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT INCLUDING ANY DEATH
BENEFIT THAT MAY BE PAYABLE, WHEN BASED ON THE INVESTMENT PERFORMANCE OF THE
VARIABLE ACCOUNT, MAY INCREASE OR DECREASE DAILY AS A FUNCTION OF THE INVESTMENT
PERFORMANCE OF SUBACCOUNTS SELECTED BY THE OWNER AND ARE NOT
<PAGE> 2
GUARANTEED AS TO DOLLAR AMOUNT, NO MINIMUM CONTRACT ACCOUNT VALUE IS GUARANTEED
EXCEPT FOR ANY AMOUNTS IN THE GUARANTEED ACCOUNT OPTIONS.
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
FLEXIBLE PREMIUMS AS STATED IN THE GENERAL PROVISIONS.
CONTRACT ACCOUNT VALUES ARE VARIABLE, EXCEPT FOR AMOUNTS IN THE
GUARANTEED ACCOUNT OPTIONS.
NON-PARTICIPATING CONTRACT.
FOR INQUIRIES, INFORMATION AND RESOLUTION OF COMPLAINTS CALL: 1-800-688-5177
-2-
<PAGE> 3
CONTRACT SCHEDULE
OWNER: JASON AND JANE DOE
ANNUITANT: JOHN DOE
DATE OF BIRTH - SEX: 01/01/1965 - MALE CONTRACT DATE: 01/01/2000
CONTRACT NUMBER: 9000000 MATURITY DATE: 01/01/2055
INITIAL PREMIUM PAYMENT: $10,000.00
CREDIT AMOUNT PERCENTAGES
<TABLE>
<CAPTION>
TOTAL PREMIUMS LESS WITHDRAWALS
(INCLUDING SURRENDER CHARGES) CHARGES
--------------------------- -------
<S> <C>
From $10,000 to $24,999 1.5%
From $25,000 to $98,999 3.0%
From $100,000 to $499,999 4.0%
From $500,000 to $999,999 4.5%
$1,000,000 and more 5.0%
</TABLE>
<TABLE>
<CAPTION>
MINIMUM REQUIREMENTS:
<S> <C>
Minimum Withdrawal Amount: $500
Minimum Transfer Amount: $500
Minimum Remaining Amount after Transfer: $500
Minimum Remaining Contract Account Value after Withdrawal: $10,000
CHARGES AND FEES:
Annual Annuity Charge: 1.40%
Annual Administrative Fee: $40.00
This fee may be waived if the Contract Account Value,
on the date the fee is assessed, is at least $50,000
Transfer Processing Fee: $25.00
This fee is waived on the first twelve transfers in a
Contract Year
</TABLE>
-3-
<PAGE> 4
CONTRACT SCHEDULE
(CONTINUED)
SURRENDER CHARGE:
<TABLE>
<CAPTION>
AGE OF EACH PREMIUM PAYMENT IN
CONTRACT YEARS CHARGE
-------------- ------
<S> <C>
1 8.0%
2 8.0%
3 8.0%
4 8.0%
5 8.0%
6 6.5%
7 5.0%
8 3.5%
9 2.0%
10 and over 0.0%
</TABLE>
DEATH BENEFIT CHARGE:
THE SAME AMOUNT AS THE SURRENDER CHARGE ABOVE, BUT NOT TO EXCEED THE DOLLAR
AMOUNT OF CREDIT AMOUNTS GRANTED UNDER THE CONTRACT DURING THE 12 MONTHS
PRECEDING THE OWNER'S DEATH.
RIDERS:
Renewal Credit Endorsement - Form R2210
Death Benefit Rider - Form R2547
Death Benefit Rider - Form R2548
Amendment of Contract Provisions (For Unisex Contracts) - Form
PL470.13B
Qualified Plan Rider - Form PL471
403(b) Annuity Loan Rider - Form PL515
Amendment to Qualify Deferred Annuity Contract as a SIMPLE IRA - Form
PL549
Amendment to Qualify Deferred Annuity Contract as a SIMPLE Employee
Pension (SEP) IRA - Form PL550
Amendment to Qualify Deferred Annuity Contract as an IRA - Form PL553
Amendment to Qualify Deferred Annuity Contract as a TSA Under Section
403(b) of the IRC - Form PL554
-4-
<PAGE> 5
SECTION 1: DEFINITIONS
ACCUMULATION UNIT: A unit of measure used to calculate Variable Account
Value.
ACT: Investment Company Act of 1940, as amended.
ANNUITANT: The person or persons upon whose life (or lives) the Annuity
Payments payable under the Contract is determined.
ANNUITY DATE: The date as of which Surrender Value is applied to a
Payment Option. The Annuity Date will be the Maturity Date unless the Owner
designates a different date.
ANNUITY PAYMENT: One of several periodic payments made by Us to the
Payee under a Payment Option.
BENEFICIARY: The person(s) to whom the death benefit will be paid on
the death OF an Owner or Annuitant. If the Contract has joint Owners, the
surviving joint Owner will be the designated Beneficiary.
CALCULATED CREDIT AMOUNT: The amount calculated on the first three
Contract Anniversaries to determine if an additional Credit Amount will be
applied under the Look-back provision of the Credits Section.
CANCELLATION PERIOD: The period described on the cover page of this
Contract during which the Owner may return the Contract for a refund.
CODE: The Internal Revenue Code of 1986, as amended.
COMPANY, WE, US OR OUR: Providentmutual Life and Annuity Company of
America, a Delaware corporation.
CONTRACT: This flexible premium deferred variable annuity contract,
including any attached endorsements or riders, and the attached copy of the
application.
CONTRACT ANNIVERSARY: The same day and month in each Contract Year as
the Contract Date. Contract Years and Months are measured from the Contract Date
shown in the Contract Schedule.
CONTRACT DATE: The date on which We issue the Contract, shown in the
Contract Schedule, and upon which the Contract becomes effective, The Contract
Date is used to determine Contract Years and Contract Anniversaries.
CONTRACT ACCOUNT VALUE: The total amount invested under the Contract.
It is the sum of Variable Account Value and the Guaranteed Account Value.
-5-
<PAGE> 6
CONTRACT YEAR: A twelve-month period beginning on the Contract Date or
on a Contract Anniversary.
CREDIT AMOUNT: An amount calculated in accordance with the percentages
shown in the Contract Schedule as further defined in the Credits Section.
DUE PROOF OF DEATH: Proof of death satisfactory to Us. Due Proof of
Death may consist of the following:
(a) A CERTIFIED COPY OF THE DEATH RECORD;
(b) A CERTIFIED COPY OF A COURT DECREE RECITING A FINDING OF
DEATH; OR
(c) ANY OTHER PROOF SATISFACTORY TO US.
FREE WITHDRAWAL AMOUNT: During the first Contract Year, an amount equal
to 10% of the premium payments in the first Contract Year. For all other
Contract Years, an amount equal to 10% of the Contract Account Value at the
start of that year.
FUND: Any open-end management investment company or investment
portfolio thereof or any unit investment trust or series thereof, in which a
Subaccount invests.
GENERAL ACCOUNT: The assets of the Company other than those allocated
to the Variable Account or any other Separate Account of the Company.
GUARANTEED ACCOUNT OPTION: An allocation option available under the
Contract as further defined in the Guaranteed Account Options Section. Amounts
allocated to the Guaranteed Account Options are Invested in the General Account.
GUARANTEED ACCOUNT VALUE: The total amount in all Guaranteed Account
Options being used under the Contract.
HOME OFFICE: Our office at 300 Continental Drive, Newark, DE 19713.
MATURITY DATE: The last date as of which Contract Account Value may be
applied to purchase a Payment Option. It is the later of the Contract
Anniversary on or following the Annuitant's age 90, or 10 years after the
Contract Date (unless We consent to a later Maturity Date).
NET ASSET VALUE: The value per share of any Fund on any Valuation Day.
The method of computing the Net Asset Value is described in the prospectus for
each Fund.
NET PREMIUM PAYMENT: Your premium payment less any Premium Tax Charge
deducted from the premium payment.
-6-
<PAGE> 7
NOTICE: A notice or request submitted by You in writing or otherwise to
Us in a form satisfactory to Us that is signed by the Owner and received at the
Service Center.
OWNER: The person (or persons) who owns (or own) the Contract and who
is (are) entitled to exercise all rights and privileges provided in the
Contract, also referred to herein as "You" or "Your." The maximum number of
joint Owners is two. Provisions, relating to action by the Owner mean, in the
case of joint Owners, both Owners acting jointly under procedures acceptable to
Us.
PAYEE: The Person entitled to receive Annuity Payments under the
Contract. The Annuitant is the Payee unless the Owner designates a different
Person as Payee.
PAYMENT OPTION: An elected option resulting in a series of periodic
payments beginning on the Annuity Date as further defined in the Annuity
Provisions and Payment Option Section.
PROCEEDS: The amount, if any, that We pay when the first of the
following events occur: (1) the Maturity Date; (2) the Contract is surrendered;
(3) We receive Due Proof of Death of an Owner; or (4) the election of a Payment
Option.
SEC: The U.S. Securities and Exchange Commission.
SEPARATE ACCOUNT: An account of the Company other than the General
Account.
SERVICE CENTER: Any office designated by Us for the receipt of premium
payments and processing of Owner requests.
SUBACCOUNT: A subdivision of the Variable Account the assets of which
are invested in a designated Fund.
SUBACCOUNT VALUE: For this Contract, the amount equal to that part of
any Net Premium Payment and Credit Amounts allocated to the Subaccount and any
Contract Account Value transferred to that Subaccount, adjusted by any interest
income, dividends, net capital gains or losses, realized or unrealized, and
decreased by withdrawals (including any applicable Surrender Charges and Premium
Tax Charge), charges and any Contract Account Value transferred out of that
Subaccount. Subaccount Value is determined by calculating the Accumulation Unit
Value as described in the Variable Account Section.
SURRENDER VALUE: The Contract Account Value less: (1) any applicable
Surrender Charges; (2) Premium Tax Charges not previously deducted; and (3) the
Annual Administrative Fee.
VALUATION DAY: For each Subaccount, each day on which the New York
Stock Exchange is open for business except for certain holidays listed in the
prospectus and days that a Subaccount's corresponding Fund does not value its
shares.
-7-
<PAGE> 8
VALUATION PERIOD: The period that starts at the close of regular
trading on the New York Stock Exchange and ends at the close of regular trading
on next succeeding Valuation Date.
VARIABLE ACCOUNT: Providentmutual Variable Annuity Separate Account.
VARIABLE ACCOUNT VALUE: The sum of all Subaccount Values.
SECTION 2: GENERAL PROVISIONS
THE CONTRACT: We have issued this Contract in consideration of Your
application and Your payment of the Initial Premium Payment. The entire Contract
is made up of this Contract, any attached endorsements or riders, and the
attached copy of the application. In the absence of fraud, We consider
statements made in the application to be representations and not warranties. We
will not use any statement in defense of a claim or to void this Contract unless
it is contained in the attached application. Only our President, a Vice
President or Secretary may modify this Contract or waive any of Our rights or
requirements under this Contract. Any modification or waiver must be in writing.
No agent may bind Us by making any promise not contained in this Contract.
INCONTESTABILITY: We will not contest this Contract after it has been
in force during the Owner's lifetime for two years from the Contract Date.
MISSTATEMENT OF AGE OR SEX: If the age or sex has been misstated, We
will adjust the benefits We pay under this Contract to the amount that would
have been payable at the correct age and sex. If we made any underpayments
because of any such misstatement, We shall pay the amount of such underpayment
plus interest at an annual effective rate of 3%, immediately to the Payee or
Beneficiary in one sum. If We make any overpayment because of a misstatement of
age or sex. We shall deduct from current or future payments due under this
Contract, the amount of such overpayment plus interest at an annual effective
rate of 3%.
PERIODIC REPORTS: At least annually, or more often as required by law.
We will mail to Owners at their last known address a report showing the
following items as of a date shown on the report:
1. THE NUMBER OF ACCUMULATION UNITS CREDITED TO THIS CONTRACT AND
THE DOLLAR VALUE OF SUCH UNITS;
2. THE CONTRACT ACCOUNT VALUE AND SURRENDER VALUE;
3. ANY PREMIUM PAYMENTS, WITHDRAWALS, OR SURRENDERS MADE, DEATH
BENEFITS PAID AND CHARGES DEDUCTED SINCE THE LAST REPORT; AND
4. ANY OTHER INFORMATION REQUIRED BY LAW.
-8-
<PAGE> 9
MODIFICATION: Upon notice to the Owner, We may modify the Contract to:
1. CONFORM THE CONTRACT, THE OPERATIONS OF THE COMPANY, OR THE VARIABLE
ACCOUNT TO THE REQUIREMENTS OF ANY LAW (OR REGULATION OR PRONOUNCEMENT ISSUED BY
A GOVERNMENT AGENCY) TO WHICH THE CONTRACT, THE COMPANY, OR THE VARIABLE ACCOUNT
IS SUBJECT;
2. ASSURE CONTINUED QUALIFICATION OF THE CONTRACT AS AN ANNUITY
CONTRACT UNDER THE CODE;
3. REFLECT A CHANGE (AS PERMITTED IN THIS CONTRACT) IN THE
OPERATION OF THE VARIABLE ACCOUNT; OR
4. PROVIDE ADDITIONAL SUBACCOUNTS AND/OR GUARANTEED ACCOUNT
OPTIONS.
In the event of any such modification, We may make appropriate
endorsements to the Contract.
NON-PARTICIPATING: This Contract does not participate in the surplus or
profits of the Company and We do not pay dividends under this Contract.
PROTECTION OF PROCEEDS: To the extent permitted by applicable law, no
right or benefit payable under this Contract are subject to the claims of
creditors except as may be provided in an assignment in a form acceptable to Us.
No Beneficiary or Payee may commute, encumber, or alienate any payments under
this Contract before they are due.
DISCHARGE OF LIABILITY: Any payments made by Us under any Payment
Option in connection with the payment of any withdrawal, surrender or death
benefit, shall discharge Our liability to the extent of each such payment.
INITIAL PREMIUM PAYMENT: The Initial Premium Payment is shown on the
Contract Schedule and is payable on or before the Contract Date.
SUBSEQUENT PREMIUM PAYMENTS: Owners may make an additional premium
payment of at least the minimum amount shown in the current prospectus.
Notwithstanding the foregoing, We reserve the right to not accept additional
premium payments at any time for any reason.
PROOF OF AGE, SEX AND SURVIVAL: We reserve the right to require proof
of age, sex or survival of any person upon whose age, sex or survival any
payments depend. In addition, for life contingent Payment Options, We reserve
the right to require proof of the Annuitant's survival before any Annuity Date.
INSTRUCTIONS AND REQUESTS: All instructions and requests are effective
as of the end of the Valuation Period in which We receive them in a form
satisfactory to Us, unless the event is scheduled to occur on a later date. We
may require that You provide signature guarantees or other safeguards for any
instruction, request or document You send to Our Service Center. You acknowledge
and agree that We are not liable for any loss, liability, cost or expense
-9-
<PAGE> 10
of any kind for acting on Instructions or requests submitted to Us that We
reasonably believe to be genuine.
SECTION 3: OWNERSHIP
OWNERSHIP: This Contract belongs to the Owner. The Owner, as shown on
the Contract Schedule, or as subsequently changed, may exercise all rights under
this Contract. Subject to more specific provisions elsewhere herein, these
rights include the right to: (1) select or change an Owner; (2) select or change
any Beneficiary; (3) select or change the Payee; (4) before the Annuity Date,
select or change the Payment Option; (5) before the Annuity Date and Maturity
Date, select or change the Annuity Date; (6) allocate Net Premium Payments among
and between the Subaccounts and Guaranteed Account Options; and (7) transfer
amounts among and between the Subaccounts and Guaranteed Account options.
ASSIGNMENT: At any time before the Maturity Date the Owner may assign
this Contract by Notice. We are not responsible for the validity or sufficiency
of any assignment. Your rights and the rights of any Beneficiary or Payee may be
affected by an assignment. We are not bound by the assignment until We receive a
copy of the assignment at the Service Center.
CHANGING THE BENEFICIARY OR OWNER: The Owner may change the Beneficiary
or Owner by Notice at any time before a death benefit is paid. If, however, the
Owner previously irrevocably named a Beneficiary, that Beneficiary's consent in
a form acceptable to Us, must be provided to the Service Center before the
change is effective. Any change of Beneficiary is effective as of the date
Notice and the Beneficiary's consent, if necessary, is received at the Service
Center. We are not liable for any payments made under the Contract prior to the
effectiveness of any Beneficiary change.
SECTION 4: THE VARIABLE ACCOUNT
VARIABLE ACCOUNT: The Variable Account is registered with the SEC as a
unit investment trust under the Act. The Variable Account is also subject to the
laws of the State of Delaware.
Although We own the assets in the Variable Account, these assets are
hold separately from Our other assets and are not part of Our General Account.
The assets in the Variable Account are used to support the operation of and
provide the variable values and benefits for this Contract and similar
contracts. The portion of the assets of the Variable Account equal to the
reserves and other contract liabilities of the Variable Account are not
chargeable with liabilities that arise from any other business that We conduct.
We have the right to transfer to Our General Account any assets of the Variable
Account that are in excess of such reserves and other liabilities.
SUBACCOUNTS: The Variable Account consists of Subaccounts. Each
Subaccount invests in shares of a corresponding Fund. Shares of a Fund are
purchased and redeemed for a
-10-
<PAGE> 11
Subaccount at their Net Asset Value. Any amounts of income, dividends and gains
distributed from the shares of a Fund are reinvested in additional shares of
that Fund at Net Asset Value. Income, gains and losses, realized or unrealized,
from the assets allocated to a Subaccount are credited to or charged against
that Subaccount without regard to other income, gains or losses of the Company.
The dollar amounts of values and benefits of this Contract provided by
the Variable Account vary as a function of the investment performance of the
Fund in which the Subaccount that You have selected invests. We do not guarantee
the investment performance of the Funds or Subaccounts. You bear the full
investment risk for fluctuations in the Subaccount Value in the Subaccounts You
have selected.
CHANGES TO THE VARIABLE ACCOUNT: Where permitted by applicable law, We
may:
1. CREATE NEW SEPARATE ACCOUNTS;
2. COMBINE SEPARATE ACCOUNTS, INCLUDING THE VARIABLE ACCOUNT;
3. ADD NOW SUBACCOUNTS TO OR REMOVE EXISTING SUBACCOUNTS FROM THE
VARIABLE ACCOUNT OR COMBINE SUBACCOUNTS;
4. MAKE SUBACCOUNTS (INCLUDING NEW SUBACCOUNTS) AVAILABLE TO SUCH
CLASSES OF CONTRACTS OR INSURANCE CONTRACTS AS WE MAY
DETERMINE;
5. ADD NEW FUNDS OR REMOVE EXISTING FUNDS;
6. SUBSTITUTE NEW FUNDS FOR ANY EXISTING FUND;
7. REREGISTER THE VARIABLE ACCOUNT UNDER THE ACT IF SUCH
REGISTRATION IS NO LONGER REQUIRED; AND
8. OPERATE THE VARIABLE ACCOUNT AS A MANAGEMENT INVESTMENT
COMPANY UNDER THE ACT OR AS ANY OTHER FORM PERMITTED BY LAW.
CHANGE IN INVESTMENT POLICY: The investment policy of a Subaccount may
not be changed unless:
1. THE CHANGE IS APPROVED, IF REQUIRED, BY THE DELAWARE INSURANCE
DEPARTMENT; AND
2. A STATEMENT A OF SUCH APPROVAL IS FILED, IF REQUIRED, WITH THE
INSURANCE DEPARTMENT OF THE STATE IN WHICH THIS CONTRACT IS
DELIVERED.
VARIABLE ACCOUNT VALUE: The Variable Account Value is the sum of the
Subaccount Values, and reflects the investment experience of the Subaccounts,
any Net Premium Payments and Credit Amounts allocated to the Subaccounts,
transfers in or out of the
-11-
<PAGE> 12
Subaccounts, any charges deducted from the Subaccounts or any withdrawals from
the Subaccount. There is no guaranteed minimum Variable Account Value.
ACCUMULATION UNITS: Net Premium Payments and Credit Amounts allocated
to a Subaccount or amounts of Contract Account Value transferred to a Subaccount
are converted into Accumulation Units. The number of Accumulation Units credited
to a Contract is determined by dividing the dollar amount allocated to each
Subaccount by the Accumulation Unit Value for that Subaccount for the Valuation
Day as of which the allocation or transfer is invested in the Subaccount.
Allocations and transfers to a Subaccount increase the number of Accumulation
Units of that Subaccount.
Certain events or fees reduce the number of Accumulation Units of a
Subaccount credited to a Contract which result in the cancellation of an
appropriate number of Accumulation Units of that Subaccount including (a)
withdrawals or transfers of Subaccount Value from a Subaccount; (b) surrender of
the Contract; (c) payment of a death benefit; (d) the application of Variable
Account Value to a Payment Option on the Annuity Date; and (e) the deduction of
the Annual Administrative Fee or other charges. The number of Accumulation Units
cancelled is determined by dividing the dollar amount of each event or fee
deducted from each Subaccount by the Accumulation Unit value for that Subaccount
for the Valuation Day as of which the event or fee is deducted from the
Subaccount.
ACCUMULATION UNIT VALUE: The Accumulation Unit Value for each
Subaccount was set initially when the subaccount began operations. Thereafter,
the Accumulation Unit Value at the end of every Valuation Day is the
Accumulation Unit Value at the end of the previous Valuation Day multiplied by
the Net Investment Factor, as described below. Each Subaccount Value for a
Contract is determined on any day by multiplying the number of Accumulation
Units attributable to the Contract in that Subaccount by the Accumulation Unit
Value for that Subaccount.
NET INVESTMENT FACTOR: The Net Investment Factor is an index applied to
measure the investment performance of a Subaccount from one Valuation Period to
the next. The Net Investment Factor for any Subaccount for any Valuation Period
is determined by dividing (1) by (2) and subtracting (3) from the result, where:
(1) IS THE RESULT OF:
a. THE NET ASSET VALUE OF THE FUND HELD IN THE
SUBACCOUNT, DETERMINED AT THE END OF THE
CURRENT VALUATION PERIOD; PLUS
b. THE PER SHARE AMOUNT OF ANY DIVIDEND OR
CAPITAL GAIN DISTRIBUTIONS MADE BY THE FUND
HELD IN THE SUBACCOUNT, IF THE "EX-DIVIDEND"
DATE OCCURS DURING THE CURRENT VALUATION
PERIOD; PLUS OR MINUS
-12-
<PAGE> 13
c. A PER SHARE CHARGE OR CREDIT FOR ANY TAXES
RESERVED FOR, WHICH IS DETERMINED BY US TO
HAVE RESULTED FROM THE OPERATIONS OF THE
SUBACCOUNT.
(2) IS THE NET ASSET VALUE OF THE FUND HOLD IN THE
SUBACCOUNT, DETERMINED AT THE END OF THE LAST PRIOR
VALUATION PERIOD.
(3) IS A DAILY AMOUNT REPRESENTING THE ANNUAL ANNUITY
CHARGE DEDUCTED FROM THE SUBACCOUNT ADJUSTED FOR THE
NUMBER OF DAYS IN THE VALUATION PERIOD.
SECTION 5: GUARANTEED ACCOUNT OPTIONS
GUARANTEED ACCOUNT OPTIONS: The Guaranteed Account Options are part of
Our General Account. The Guaranteed Account Options are not part of and do not
depend on the investment performance of the Variable Account. We may offer one
or more Guaranteed Account Options under the Contract at any time.
We credit interest to Contract Account Value allocated to the
Guaranteed Account Options at rates We determine. We guarantee that the
effective annual interest rate will not be less then 3%. We may credit a higher
interest rate under one or more Guaranteed Account Options from time to time.
We may credit an annual effective rate in excess of 3% for the lesser
of: (a) the time remaining for the Guaranteed Account Option selected: or (b) 12
months. Such excess interest rates are declared by Us in advance for each
Guaranteed Account Option made available from time to time under the Contract.
Generally, We credit different rates of excess interest for different available
Guaranteed Account Options. Also, Guaranteed Account Options are generally
available only for specific periods of time and certain Guaranteed Account
Options may only be available subject to restrictions. At the expiration of any
Guaranteed Account Option, We will seek Your instructions as to the reallocation
of Guaranteed Account Value from that option. Nevertheless, We reserve the right
to allocate such Guaranteed Account Value to another available Guaranteed
Account Option if We do not receive Your instructions within a specified time
period.
GUARANTEED ACCOUNT VALUE: We determine Guaranteed Account Value for any
Valuation Period before the Annuity Date, separately for each Guaranteed Account
Option as: the initial allocation of Net Premium Payments or Credit Amounts to
that Option and transfers into the Option, increased by credited interest, and
decreased by any transfers out of the Option and charges deducted. For purposes
of crediting interest and deducting charges, all Guaranteed Account Options use
a last-in, first-out method of accounting for allocations of Net Premium
Payments and Credit Amounts and for transfers of Contract Account Value.
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<PAGE> 14
SECTION 6: ALLOCATIONS AND TRANSFERS
NET PREMIUM ALLOCATION: In the application, the Owner must select how
the initial Net Premium Payment is to be allocated among the Subaccounts and the
Guaranteed Account Options.
We allocate the initial Net Premium Payment to the Subaccounts and the
Guaranteed Account Options based on the Premium allocation schedule in Your
application.
You may change the allocation schedule from that shown in the
application by providing Notice to Us. Any additional Net Premium Payments and
Credit Amounts are allocated in accordance with the allocation schedule in
effect when such Net Premium Payments are received at the Service Center, unless
it is accompanied by Notice directing a different allocation for that premium
payment. The portion of a Net Premium Payment that may be applied to a
Subaccount or a Guaranteed Account Option must be a whole percentage.
TRANSFER PRIVILEGE: Before the Annuity Date, You may transfer all or
part of any Subaccount Value to another Subaccount(s) or a Guaranteed Account
Option (subject to its availability) or transfer a part of any Guaranteed
Account Value to any Subaccount(s), (subject to its availability) subject to
these restrictions:
1. the Minimum Transfer Amount is shown in the Contract Schedule
(or, the entire Subaccount Value or amount in any Guaranteed
Account Option, if less than the Minimum Transfer Amount); and
2. a transfer request that would reduce a Subaccount Value or
amount remaining in a Guaranteed Account Option below the
amount shown on the Contract Schedule is treated as a transfer
request for the entire amount in that Subaccount or Guaranteed
Account Option; and
3. additional restrictions on transfers from the Guaranteed
Account Options described below.
A Transfer Processing Fee will be deducted from the transferred amount for
certain transfers. See "Transfer Processing Fee" below. Transfers are made as of
the date that Your request is received at the Service Center.
RESTRICTIONS ON TRANSFERS FROM GUARANTEED ACCOUNT OPTIONS: You may transfer a
part of the amount in a Guaranteed Account Option to the Subaccounts, subject to
these additional restrictions:
1. We allow only one transfer, each year and this transfer must
be requested within the period that is 30 days before and 30
days after the Contract Anniversary. An unused transfer does
not carry over to the next year; and
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<PAGE> 15
2. the maximum transfer amount from any Guaranteed Account Option
is 25% of the portion of the Guaranteed Account Value
attributable to that Option on the date of transfer, unless
the balance after the transfer is less than $500.00,
We will make the transfer on the Contract Anniversary if Your Notice is received
prior to the Contract Anniversary; if Your Notice is received after the Contract
Anniversary, We will make the transfer as of the date We receive Your Notice at
Our Service Center.
TRANSFER PROCESSING FEE: The first twelve transfers during each Contract Year
are free. We will assess a Transfer Processing Fee for each transfer in excess
of twelve transfers during a Contract Year. The amount of the Transfer
Processing Fee is shown on the Contract Schedule. For the purpose of assessing
the Transfer Processing Fee, each Notice of transfer is considered to be one
transfer, regardless of the number of Subaccounts or Guaranteed Account Options
affected by the transfer. The Transfer Processing Fee is deducted from the
amount being transferred.
SECTION 7: CONTRACT ACCOUNT VALUES
SURRENDER: You may surrender this Contract for its Surrender Value at any time
before the Annuity Date. You may elect to have the Surrender Value paid in a
single sum or under a Payment Option. The Contract ends when We pay the
Surrender Value or apply such sum to a Payment Option. The Surrender Value is
determined as of the date We receive Your Notice for surrender and this Contract
at Our Service Center.
WITHDRAWALS: You may withdraw part of the Surrender Value at any time before the
Annuity Date, subject to these limits:
1. the minimum withdrawal amount is shown on the Contract Schedule;
2. the maximum withdrawal (including applicable Surrender Charges) is the
amount that would leave a minimum remaining Contract Account Value of
the amount shown on the Contract Schedule.
We withdraw the amount You request from the Contract Account Value as of the day
that We receive Your Notice, and send to You that amount. We then deduct any
applicable Surrender Charge and any applicable Premium Tax Charge from the
remaining Contract Account Value.
Your Notice must specify the amount to be withdrawn from each Subaccount or
Guaranteed Account Option. If the Notice does not specify this information, or
if any Subaccount Value or amount in a particular Guaranteed Account Option is
inadequate to comply with Your request, We will make the withdrawal based on the
proportion that each Subaccount Value and amount allocated to each Guaranteed
Account Option bears to the Contract Account Value as of the day of the
withdrawal.
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<PAGE> 16
TERMINATION: We may terminate this Contract and pay You the Surrender Value if,
before the Annuity Date, all of the following simultaneously exist:
1. You have not made any premium payment for at least two
Contract Years;
2. Your Contract Account Value is less than $2,000; and
3. total premium payments paid less withdrawals (including
Surrender Charges) are less than $2,000.
We will mail You a notice of Our intent to terminate this Contract at least six
months in advance of such termination. This Contract will automatically
terminate an 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 for at least the minimum additional premium
amount acceptable to Us.
BASIS OF VALUES: Any paid-up annuity, surrender or Death Benefits that may be
available are at least equal to the minimum required by law in the jurisdiction
in which this Contract is delivered. A detailed statement of the method used to
compute the minimum values has been filed, where required, with the insurance
officials of the jurisdiction in which this Contract is delivered.
SECTION 8: CREDITS
CREDIT AMOUNTS. We will credit your Contract Account Value with an additional
Credit Amount, in most circumstances, when a Net Premium Payment is applied to
the Contract. The Credit Amount will be applied on the date the Net Premium
Payment is received. The Credit Amount is a percentage of the premium payments
that You pay and these percentages are shown in the Contract Schedule. The
percentage is determined by the total amount of premium payments received on
this Contract less the total amount of all withdrawals (including any Surrender
Charges). The Credit Amount is calculated by multiplying the percentage
(expressed as a decimal) by the excess of (a) over (b), where:
1. EQUALS TOTAL PREMIUM PAYMENTS APPLIED UNDER THIS CONTRACT
(INCLUDING THE CURRENT PREMIUM PAYMENT) LESS THE TOTAL
WITHDRAWALS (INCLUDING ANY SURRENDER CHARGES); AND
2. EQUALS THE AMOUNT COMPUTED UNDER (a) ABOVE AT THE TIME THAT
THE MOST RECENT PREVIOUS CREDIT CALCULATION WAS MADE THAT
RESULTED IN A CREDIT AMOUNT BEING APPLIED.
The Credit Amount is allocated among the Subaccounts and Guaranteed Account
Options based on the premium allocation.
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<PAGE> 17
LOOK-BACK: On each of the first three Contract Anniversaries, We will determine
a Calculated Credit Amount. To the extent that the Calculated Credit Amount
exceeds the actual Credit Amounts applied to this Contract, We will increase the
Contract Account Value by the amount of such excess and allocate such excess as
a Credit Amount based on the premium allocation.
The Calculated Credit Amount is determined by multiplying (1) by (2) where:
(1) EQUALS THE AMOUNT OF TOTAL PREMIUM PAYMENTS RECEIVED ON THIS
CONTRACT LESS THE AMOUNT OF WITHDRAWALS (INCLUDING ANY
SURRENDER CHARGES);
(2) EQUALS THE CREDIT PERCENTAGE (EXPRESSED AS A DECIMAL) AS SHOWN
ON THE CONTRACT SCHEDULE FOR THE AMOUNT CALCULATED UNDER (1)
ABOVE.
SECTION 9: FEES AND CHARGES
SURRENDER CHARGE: The Surrender Charge is equal to the percentage of each
premium payment surrendered or withdrawn as specified in the table on the
Contract Schedule. The Surrender Charge is separately calculated and applied to
each premium payment at any time that the payment is surrendered or withdrawn.
No Surrender Charge applies to the portion of the Contract Account Value equal
to the Free Withdrawal Amount or to Contract Account Value in excess of
aggregate premium payments (less prior withdrawals of premium payments). The
Surrender Charge is calculated using the assumption that Contract Account Value
is withdrawn in the following order: (1) the Free Withdrawal Amount for the
Contract Year; (2) premium payments; and (3) any remaining Contract Account
Value. In addition, the Surrender Charge is calculated using the assumption that
premium payments are withdrawn on a first-in first-out basis.
The Surrender Charge applicable to each premium payment diminishes as the
payment ages. A premium payment ages by Contract Year, such that it is in "year"
1 (on the table in the Contract Schedule) during the Contract Year in which it
is received and in "year" 2 throughout the subsequent Contract Year and in
"year" 3 throughout the Contract Year after that, etc. In addition, there is no
Surrender Charge on or after the Maturity Date.
DEATH BENEFIT CHARGE: In computing the death benefit upon the death of any Owner
prior to the Annuity Date, a Death Benefit Charge is deducted. The amount of the
Death Benefit Charge is shown on the Contract Schedule. The Free Withdrawal
Amount does not apply to the Death Benefit Charge.
ANNUAL ANNUITY CHARGE: We assess an Annual Annuity Charge on a daily basis
against the assets of the Variable Account. The amount of the charge is shown on
the Contract Schedule.
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<PAGE> 18
ANNUAL ADMINISTRATIVE FEE: We will assess the Annual Administrative Fee shown on
the Contract Schedule:
1. for prior Contract Year, as of the Contract Anniversary; or
2. for the current Contract Year (a) as of the date of any
surrender or (b) as of the Annuity Date.
The fee is deducted from Subaccount Values and Guaranteed Account Options based
on the proportion that each bears to the Contract Account Value.
When the Annual Administrative Fee is deducted from Subaccount Values, We will
cancel the appropriate number of Accumulation Units. Where the fee is deducted
from a Guaranteed Account Option, We will reduce the Guaranteed Account Value by
the amount of the fee.
TRANSFER PROCESSING FEE: We will assess a Transfer Processing Fee for each
transfer in excess of twelve transfers during a Contract Year. The amount of
this fee is shown on the Contract Schedule.
PREMIUM TAX CHARGE: We reserve the right to deduct any premium tax assessed
against Us from the Proceeds to the extent that the premium tax has not been
recovered from a deduction from premium payments.
OTHER TAXES: If a tax is assessed against the operation of the Variable Account,
We reserve the right to adjust the Net Investment Factor to provide for any
taxes attributable to the operation of the Variable Account.
CHARGE FOR OPTIONAL BENEFITS: If optional benefits have been added to this
Contract, the method and amount of the charges for the optional benefits shall
be as specified in the Rider, Endorsement or Contract Schedule.
SECTION 10: PAYMENT OF BENEFITS
PAYMENT OF BENEFITS: We usually pay the Proceeds of any surrender, withdrawals,
death benefit, or any Annuity Payments within 7 business days after receipt of
all applicable Notices and/or Due Proof of Death. However, We can postpone such
payments if:
1. the York Stock Exchange is closed other than customary weekend
and holiday closing, or trading on the exchange is restricted
as determined by the SEC; or
2 the SEC permits, by an order, the postponement of payment for
the protection of Owners; or
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<PAGE> 19
3. the SEC determines that an emergency exists that would make
the disposal of securities held in the Variable Account or the
determination of their value not reasonably practicable.
If a recent check or draft has been submitted, We have the right to defer
payment of surrenders, withdrawals, Death Benefits, or Annuity Payments until
such check or draft has been honored,
We have the right to defer payment of any surrender, withdrawal, or transfer of
Guaranteed Account Value for up to six months from the date We receive Your
Notice.
INTEREST ON DELAYED PAYMENTS: We will pay interest on the amount of any payment
that is delayed pursuant to this section.
This interest will accrue from the date that the payment becomes payable to the
date of payment, but not for more than one year, at an annual rate of 3%, or the
rate and time required by law, if greater.
SECTION 11: DEATH BENEFITS
DEATH BENEFITS ON OR AFTER THE ANNUITY DATE: If an Owner dies on or after the
Annuity Date, any surviving joint Owner becomes the sole Owner. If there is no
surviving Owner, the Beneficiary becomes the new Owner. If an Owner dies on or
after the Annuity Date, any remaining payments must be distributed at least as
rapidly as under the Payment Option in effect on the date of such death.
DEATH BENEFIT BEFORE THE ANNUITY DATE:
1. DEATH OF AN OWNER:
If there are multiple Owners named, the age of the oldest
Owner will be used to determine the applicable death benefit.
If a sole Owner dies prior to the Annuity Date, We will pay
the Beneficiary the death benefit then due. If the sole Owner
is not an individual, We will treat the Annuitant as Owner for
the purpose of determining when the Owner dies and the
Annuitant's age will determine the applicable death benefit
payable to the Beneficiary. The sole Owner's estate will be
the Beneficiary if no Beneficiary designation is in effect, or
if the designated Beneficiary has predeceased the Owner. In
the case of a joint Owner dying prior to the Annuity Date, the
surviving Owner will be deemed as the Beneficiary.
A death benefit is determined as of the date on which Notice
and Due Proof of Death and all required claim or other forms
are received at the Service Center.
The following options are available to the Beneficiary:
(1) ELECT TO RECEIVE THE DEATH BENEFIT IN A
SINGLE LUMP SUM WITHIN 5 YEARS OF THE
DECEASED OWNER'S DEATH; OR
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<PAGE> 20
(2) ELECT TO RECEIVE THE DEATH BENEFIT PAID
UNDER A PAYMENT OPTION PROVIDED THAT: (a)
ANNUITY PAYMENTS BEGIN WITHIN 1 YEAR OF THE
DECEASED OWNER'S DEATH; AND (b) ANNUITY
PAYMENTS ARE MADE IN SUBSTANTIALLY EQUAL
INSTALLMENTS OVER THE LIFE OF THE
BENEFICIARY OR OVER A PERIOD NOT GREATER
THAN THE LIFE EXPECTANCY OF THE BENEFICIARY;
OR
(3) IF THE BENEFICIARY IS THE SPOUSE OF THE
DECEASED OWNER, HE OR SHE MAY BY WRITTEN
NOTICE WITHIN ONE YEAR OF THE OWNER'S DEATH,
IN LIEU OF RECEIVING THE DEATH BENEFIT ELECT
TO CONTINUE THE CONTRACT AS THE NEW OWNER.
IF THE SPOUSE SO ELECTS, ALL HIS OR HER
RIGHTS AS A BENEFICIARY CEASE AND IF THE
DECEASED OWNER WAS ALSO THE ANNUITANT, HE OR
SHE WILL BECOME THE ANNUITANT. THE SPOUSE
WILL BE DEEMED TO HAVE ELECTED TO CONTINUE
THE CONTRACT IF HE OR SHE MAKE NO ELECTION
BEFORE THE EXPIRATION OF THE ONE YEAR PERIOD
AFTER THE OWNER'S DEATH OR IF HE OR SHE MAKE
ANY PREMIUM PAYMENTS UNDER THE CONTRACT.
With regard to a Beneficiary who is not the spouse of the deceased Owner: (a)
options (1) and (2) apply even if the Annuitant is alive at the time of the
deceased Owner's death; (b) if the new Owner is not a natural person only option
(1) is available; (c) if no election is made within 60 days of the decreased
Owner's death option (1) will be deemed to have been elected.
If the Beneficiary dies before the payments required by options (1) or (2) are
complete, the entire remaining Contract Account Value must be distributed in a
lump sum immediately.
If there is more than one Beneficiary, the foregoing provisions will
independently apply to each Beneficiary.
2. DEATH OF THE ANNUITANT:
On the death of the Annuitant before the Annuity Date, the
Owner becomes the new Annuitant if the Owner is an individual.
If there is more than one Owner, the youngest Owner will
become the Annuitant. If any Owner is not an individual, the
death of an Annuitant will be treated as the death of an Owner
and the death benefit will be determined as if the Annuitant
were the Owner. If the Annuitant is changed and the Owner is
not a natural person, the entire interest in the Contract must
be distributed to the Owner within 5 years of the change.
3. THE DEATH BENEFIT:
If the Owner is less than age 90 on the date of death, the death benefit during
the first 9 Contract Years will be equal to the greater of:
2. THE CONTRACT ACCOUNT VALUE LESS THE DEATH BENEFIT CHARGE; OR
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<PAGE> 21
3. THE PREMIUMS PAYMENTS PAID REDUCED BY THE AMOUNT OF ALL WITHDRAWALS
(INCLUDING ANY APPLICABLE SURRENDER CHARGE)
The death benefit after the first 9 Contract Years will be equal to the greater
of:
(1) (a) AS DEFINED ABOVE; OR
(2) AS OF THE END OF CONTRACT YEAR 9 THE GREATER OF (b)
AS DEFINED ABOVE OR THE CONTRACT ACCOUNT VALUE. THIS
AMOUNT IS SUBSEQUENTLY INCREASED BY PREMIUM PAYMENTS
AND REDUCED BY AN AMOUNT FOR EACH WITHDRAWAL
(DESCRIBED BELOW).
REDUCTION FOR A WITHDRAWAL: When part of the Surrender Value is withdrawn, the
withdrawal will reduce the death benefit in the same proportion that the
Contract Account Value was reduced on the date of withdrawal. For each
withdrawal, the death benefit reduction is calculated by multiplying the death
benefit on the date of withdrawal by a fraction, the numerator of which is the
amount of the withdrawal including any applicable Surrender Charge and the
denominator of which is the Contract Account Value, immediately prior the
withdrawal.
If the Owner is at least age 90 on the date of death, the death benefit is equal
to the Contract Account Value less the Death Benefit Charge.
Any excess of the death benefit over the Contract Account Value will be
allocated to the Subaccounts. and Guaranteed Account Options according to the
premium allocation. schedule in effect at the time that the distribution option
is chosen or is deemed to have been chosen.
SECTION 12: ANNUITY PROVISIONS AND PAYMENT OPTIONS
ANNUITY DATE AND MATURITY DATE: The Surrender Value is applied to purchase a
Payment Option as of the Annuity Date. The Owner may designate or change the
Annuity Date. The latest Annuity Date is the Maturity Date.
ELECTION OF OPTION: The following Payment Options are available to You during
Your lifetime. They are also available to the Beneficiary after Your death if
You have not selected an option for such Beneficiary.
You may elect to have the Proceeds paid in accordance with any one of the
options described below or in any other manner acceptable to us and permissible
under applicable law. If no election has been made, the automatic Payment Option
shall be Option B. The amount paid under these options is fixed and does not
depend on the investment performance of the Variable Account.
OPTION A - LIFE ANNUITY: An income payable during the lifetime of the Annuitant
ceasing with the last payment due prior to the death of the Annuitant, according
to the Option Table, Life Only column.
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<PAGE> 22
OPTION B - LIFE ANNUITY WITH 10 YEARS PERIOD CERTAIN: An income payable during
the lifetime of the Annuitant with the guarantee that payments shall be made for
a period of not less than 10 years according to the Option Table, 10 Year Period
Certain column.
Under Option B, 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 shall be paid in one sum to the executors or administrators
of the Beneficiary unless otherwise provided in writing. Calculation of such
present value shall be at 3%, which is the rate of interest assumed in computing
the amount of Annuity Payments.
OPTION C - ALTERNATIVE INCOME OPTION: In lieu of one of the above options, You
may elect to settle Proceeds under an alternative income option acceptable to
Us.
GENERAL PROVISIONS. Annuity Payments shall commence and continue subject to the
following Provisions:
1. We shall issue a supplementary contract stating the
terms of payment under the option elected. We may
require the return of this Contract to Our Service
Center.
2. Proof satisfactory to us of the identity, birth date
and sex of any Annuitant and that the Annuitant is
living.
3. Notice is received at least 30 days before the
Maturity Date. The requested option must begin at
least 30 days after We receive Notice, on or before
the Maturity Date, and cannot be the 29th, 30th, or
31st day of a calendar month.
No election of any option may be made under this Contract for any Annuitant
unless such election would produce a periodic payment of at least $50 to that
Annuitant. If at any time payments to be made become less than $50 each, We
shall have the right to change the frequency of payment to such interval as
shall result in the payment of at least $50. Subject to this condition, payments
may be made annually, semi-annually, quarterly or monthly.
ANNUITY PAYMENT RATES
The annuity payment rates shown in the Option Table are based on the 1983 Table
A with interest at the rate of 3% per annum. The amount of each annuity payment
will depend on the sex and age of the Annuitant.
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<PAGE> 23
Option Table
GUARANTEED AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF ANNUITY VALUE APPLIED
<TABLE>
<CAPTION>
GUARANTEED MONTHLY PAYMENTS GUARANTEED MONTHLY PAYMENTS
- -----------------------------------------------------------------------------------------------------------------
Age of Payee Life Only 10 Year Period Age of Payee Life Only (Option A) 10 Year Period
(Option A) Certain (Option B) Certain (Option B)
- ------------------------ ---------------
Male Female Male Female
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5* $2.70 $2.70 45 50 $3.59 $3.58
6 2.71 2.71 46 51 3.63 3.62
7 2.72 2.72 47 52 3.68 3.67
8 2.72 2.73 48 53 3.73 3.72
9 2.73 2.73 49 54 3.78 3.76
5* 10 2.74 2.74 50 55 3.83 3.82
6 11 2.75 2.75 51 56 3.89 3.87
7 12 2.76 2.76 52 57 3.95 3.93
8 13 2.77 2.77 53 58 4.01 3.99
9 14 2.78 2.78 54 59 4.07 4.05
10 15 2.79 2.78 55 60 4.14 4.11
11 16 2.80 2.80 56 61 4.21 4.18
12 17 2.81 2.81 57 62 4.29 4.25
13 18 2.82 2.83 58 63 4.37 4.33
14 19 2.83 2.84 59 64 4.46 4.41
15 20 2.85 2.85 60 65 4.55 4.50
16 21 2.86 2.86 61 66 4.64 4.58
17 22 2.87 2.88 62 76 4.75 4.68
18 23 2.89 2.89 63 68 4.86 4.78
19 24 2.90 2.90 64 69 4.97 4.88
20 25 2.92 2.92 65 70 5.09 4.99
21 26 2.93 2.93 66 71 5.22 5.10
22 27 2.95 2.95 67 72 5.36 5.21
23 28 2.96 2.97 68 73 5.51 5.34
24 29 2.98 2.98 69 74 5.67 5.46
25 30 3.00 3.00 70 75 5.83 5.60
26 31 3.02 3.02 71 76 6.01 5.73
27 32 3.04 3.04 72 77 6.19 5.87
28 33 3.06 3.06 73 78 6.39 6.02
29 34 3.08 3.08 74 79 6.60 6.17
30 35 3.10 3.10 75 80 6.82 6.32
31 36 3.13 3.13 76 81 7.06 6.48
32 37 3.15 3.15 77 82 7.31 6.64
33 38 3.18 3.18 78 83 7.58 6.80
34 39 3.20 3.20 79 84 7.87 6.97
35 40 3.23 3.23 80 85** 8.17 7.13
36 41 3.26 3.26 81 8.49 7.29
37 42 3.29 3.29 82 8.83 7.45
38 43 3.32 3.32 83 9.19 7.61
39 44 3.35 3.35 84 9.57 7.77
40 45 3.39 3.39 85** 9.96 7.92
41 46 3.42 3.42
42 47 3.46 3.46
43 48 3.50 3.50
44 49 3.54 3.54
</TABLE>
*Payment shown applies to all younger ages. **Payment shown applies to all older
ages.
The dollar amount of Annuity Payment for any age not shown, any other frequency
of payment, or any other income option agreed to by us will be quoted on
request.
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<PAGE> 24
BONUS CREDIT
A GUIDE TO THE PROVISIONS OF THIS CONTRACT
<PAGE> 25
<TABLE>
<CAPTION>
BONUS CREDIT
------------
<S> <C>
SECTION 1. DEFINITIONS............................................................ 5
SECTION 2. GENERAL PROVISIONS..................................................... 8
SECTION 3. OWNERSHIP.............................................................. 10
SECTION 4. THE VARIABLE ACCOUNT................................................... 10
SECTION 5. GUARANTEED ACCOUNT OPTIONS............................................. 13
SECTION 6. ALLOCATIONS AND TRANSFERS.............................................. 14
SECTION 7. CONTRACT ACCOUNT VALUES................................................ 15
SECTION 8. CREDITS................................................................ 16
SECTION 9. FEES AND CHARGES....................................................... 17
SECTION 10. PAYMENT OF BENEFITS.................................................... 18
SECTION 11. DEATH BENEFITS......................................................... 19
SECTION 12. ANNUITY PROVISIONS AND PAYMENT OPTIONS................................. 21
</TABLE>
A COPY OF THE APPLICATION AND ANY ENDORSEMENTS OR RIDERS ARE INCLUDED BEFORE THE
LAST PAGE.
<PAGE> 26
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
Flexible premiums as stated in the General Provisions.
Contract Account Values are variable, except for amounts in the Guaranteed
Account Options.
Non-participating Contract.
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A Stock life Insurance Company
300 Continental Drive, Newark, DE 19713
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<PAGE> 1
Exhibit (4)(e)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A Stock Life Insurance Company
RIDER
DEATH BENEFIT
OWNER:
CONTRACT NUMBER:
The following Death Benefit provision replaces THE DEATH BENEFIT provision found
under the DEATH BENEFITS Section of your Contract. Capitalized terms are defined
in the Contract.
PROCEEDS ON DEATH BEFORE ANNUITY DATE. If the Owner dies before the Annuity
Date, the Proceeds we will pay to the Beneficiary is the Death Benefit.
If the Owner dies during the first Contract Year, the Death Benefit will equal
the greater of:
1. the premium payments, less any withdrawals including any
applicable Surrender Charge; or
2. the Contract Account Value less any Death Benefit Charge, if
applicable.
If the Owner dies after the end of the first Contract Year and prior to the
Annuity Date, the Death Benefit will equal the greatest of:
1. the Guaranteed Minimum Death Benefit described below, plus
subsequent premium payments, less any reduction for a
subsequent withdrawal described below; or
2. the premium payments less any withdrawals including any
applicable Surrender Charge; or
3. the Contract Account Value less any Death Benefit Charge, if
applicable.
The Proceeds will be paid in a lump sum or under a Payment Option. The Proceeds
must be distributed in accordance with the rules set forth in the provision
entitled "Death Benefit Before the Annuity Date: Death of an Owner." No Death
Benefit is payable if this Contract is surrendered before the Owner's death.
GUARANTEED MINIMUM DEATH BENEFIT. On each Contract Anniversary on or before the
Owner's 85th birthday, the Guaranteed Minimum Death Benefit is recalculated and
will equal the greater of:
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<PAGE> 2
(a) the Guaranteed Minimum Death Benefit as of the previous
Contract Anniversary less any reduction for a subsequent
withdrawal described below; or
(b) the Contract Account Value on the current Contract
Anniversary.
After the Contract Anniversary on or before the Owner's 85th birthday, the
Guaranteed Minimum Death Benefit will not be recalculated under this provision.
REDUCTION FOR A WITHDRAWAL. When part of the Surrender Value is withdrawn, the
withdrawal will reduce the Death Benefit in the same proportion that the
Contract Account Value was reduced on the date of withdrawal. For each
withdrawal, the Death Benefit reduction is calculated by multiplying the Death
Benefit on the date of withdrawal by a fraction, the numerator of which is the
amount of the withdrawal including any applicable Surrender Charge and the
denominator of which is the Contract Account Value immediately prior to the
withdrawal.
RIDER CHARGE. A separate monthly charge is made for this rider. On the Contract
Date and the same day of each month thereafter, a charge is deducted from the
Contract Account Value. The monthly charge is equal to the Contract Account
Value multiplied by 0.25% (expressed as a decimal) divided by 12. The charge is
deducted from each Subaccount Value and Guaranteed Account Options based on the
proportion that each account bears to the Contract Account Value. The monthly
charge for this rider will cease upon payment of Proceeds.
This Rider does not change any other provisions of the Contract except as stated
above.
Attached by the Company on the issue date of the Contract.
President
-4-
<PAGE> 1
Exhibit (4)(f)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A Stock Life Insurance Company
RIDER
DEATH BENEFIT
OWNER:
CONTRACT NUMBER:
The following Death Benefit provision replaces THE DEATH BENEFIT provision found
under the DEATH BENEFITS Section of your Contract. Capitalized items are defined
in the Contract.
PROCEEDS ON DEATH BEFORE ANNUITY DATE. If the Owner dies before the Annuity
Date, the Proceeds we will pay to the Beneficiary is the Death Benefit.
The Death Benefit will equal the greater of:
1. the Guaranteed Minimum Death Benefit; or
2. the Contract Account Value less any Death Benefit Charge, if
applicable.
The Proceeds will be paid in a lump sum or under a Payment Option. The Proceeds
must be distributed in accordance with the rules set forth in the provision
entitled "Death Benefit Before the Annuity Date: Death of an Owner." No Death
Benefit is payable if this Contract is surrendered before the Owner's death.
GUARANTEED MINIMUM DEATH BENEFIT. The Guaranteed Minimum Death Benefit on or
prior to the Contract Anniversary before the Owner's 75th birthday will be the
sum of the premium payments less any Reduction For A Withdrawal described below.
These amounts will be accumulated with interest at an effective annual rate of
5%.
The Guaranteed Minimum Death Benefit after the Contract Anniversary before the
Owner's 75th birthday will be:
1. the Guaranteed Minimum Death Benefit on the Contract
Anniversary before the Owner's 75th birthday; plus
2. the sum of the premium payments after the Contract Anniversary
before the Owner's 75th birthday; less
3. any Reduction For A Withdrawal described below after the
Contract Anniversary before the Owner's 75th birthday.
-5-
<PAGE> 2
In no event will the Guaranteed Minimum Death Benefit exceed 200% of the sum of
premium payments less 200% of any withdrawals including any applicable Surrender
Charge.
REDUCTION FOR A WITHDRAWAL. When part of the Surrender Value is withdrawn, the
withdrawal will reduce the Death Benefit in the same proportion that the
Contract Account Value was reduced on the date of withdrawal. For each
withdrawal, the Death Benefit reduction is calculated by multiplying the Death
Benefit on the date of withdrawal by a fraction, the numerator of which is the
amount of the withdrawal including any applicable Surrender Charge and the
denominator of which is the Contract Account Value immediately prior to the
withdrawal.
-6-
<PAGE> 1
Exhibit (4)(l)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A Stock Life Insurance Company
ENDORSEMENT
RENEWAL CREDIT
<TABLE>
<S> <C>
CONTRACT NUMBER: OWNER:
RENEWAL CREDIT AMOUNT: DATE OF ENDORSEMENT:
DATE OF RENEWAL CREDIT:
RENEWAL CREDIT RECAPTURE BASE:
</TABLE>
RENEWAL CREDIT PERCENTAGES
<TABLE>
<CAPTION>
AGE IN YEARS PERCENT AGE IN YEARS PERCENT
- ------------ ------- ------------ -------
<S> <C> <C> <C>
1 100% 6 80%
2 100% 7 60%
3 100% 8 40%
4 100% 9 20%
5 100% 10 0%
</TABLE>
As more fully set forth herein:
(1) Pursuant to this Endorsement, You are entitled to receive a
Renewal Credit Amount.
(2) This amount is paid back to Us as part of the Surrender Charge
if You surrender or withdraw Your Contract Account Value
during the next 9 Contract Years.
The contract is amended as of the Date of Endorsement as follows:
IN SECTION 8: CREDITS, THE FOLLOWING PARAGRAPH IS ADDED:
RENEWAL CREDIT: A Renewal Credit Amount, shown above, is allocated as of the
Date of Renewal Credit, shown above. The Renewal Credit Amount is allocated
among the Subaccounts and Guaranteed Account Options according to the premium
allocation schedule in effect on the Date of Renewal Credit.
<PAGE> 2
IN SECTION 9: FEES AND CHARGES, THE FIRST PARAGRAPH IS REPLACED BY THE
FOLLOWING:
SURRENDER CHARGE: The Surrender Charge is equal to the Renewal Credit
Percentage, shown above, of the Renewal Credit Amount and to a percentage of
each premium payment that is surrendered or withdrawn. The percentages
applicable to a Renewal Credit Amount are shown above. The Surrender Charge is
separately calculated and applied to the Renewal Credit Amount and to each
premium payment at any time that a Renewal Credit Amount or premium payment is
surrendered or withdrawn. No Surrender Charge applies to that portion of the
Contract Account Value equal to the Free Withdrawal Amount or to the Contract
Account Value in excess of the sum of the Renewal Credit Amount and aggregate
premium payments as of the date of withdrawal or surrender, adjusted for prior
withdrawals of either Renewal Credit Amount or premium payments.
The Surrender Charge is calculated using the assumption that Contract Account
Value is withdrawn in the following order: (1) the Free Withdrawal Amount for
the Contract Year; (2) a pro-rata share of the Renewal Credit Amount; (3)
aggregate premium payments (assuming a first-in, first-out basis); and (4) any
remaining Contract Account Value. We determine the amount of the Renewal Credit
Amount that is being withdrawn as the product of (a) and (b) where:
(a) equals a fraction where the numerator is the amount being
withdrawn in excess of any remaining Free Withdrawal Amount
and the denominator is the lessor of the Renewal Credit
Recapture Base or the Contract Account Value.
(b) equals the amount of the Renewal Credit Amount that has not
been previously withdrawn.
IN SECTION 9: FEES AND CHARGES, THE FOLLOWING IS ADDED TO DEATH BENEFIT CHARGE:
In determining the maximum amount of the Death Benefit Charge, the Renewal
Credit Amount shall not be counted as a Credit Amount granted under the Contract
during the 12 months preceding the Owner's death.
This Rider does not change any other provisions of the Contract except as stated
above.
Attached by the Company.
President
-2-
<PAGE> 1
Exhibit (7)
GUARANTEED MINIMUM DEATH BENEFIT REINSURANCE
PROVIDENT MUTUAL
ACCEPTANCE
Provident Mutual agrees to accept the reinsurance arrangement offered by CNA
Life Re. Upon execution of this agreement, all parties will be bound by its
terms and conditions until the agreement is replaced by a Reinsurance Treaty
executed by both parties. Upon execution of the Reinsurance Treaty, this
agreement shall become null and void.
5% ROLLUP DEATH BENEFIT
For new business written on Provident Mutual's variable annuity with age at
issue less than or equal to 70, CNA Life Re is able to reinsure the 5% Rollup
Death Benefit minimum death benefit guarantee at a rate of 38 basis points. This
premium will be charged monthly at the monthly rate of 3.1667 basis points times
account value at the end of each calendar month.
The guaranteed minimum death benefit (GMDB) will be the greatest of:
1) The total of all purchase payments paid, less any partial
withdrawals and any applicable surrender charges and any incurred
taxes, accumulated at 5% interest from the date of each purchase
payment or surrender to the most recent contract anniversary date prior
to the annuitant's 76th birthday and accumulated at 0% thereafter, less
an adjustment for amounts surrendered, plus purchase payments received
after that contract anniversary. Such total accumulated amount shall
not exceed 200% of the net purchase payments and amounts surrendered.
The adjustment for amounts subsequently surrendered after the most
recent contract anniversary will reduce the 5% rollup benefit in the
same proportion that the contract value was reduced on the date of the
partial surrender.
2) The contract value on the date that proof of death is received by
the Company.
<PAGE> 2
ANNUAL RATCHET DEATH BENEFIT
For new business written on Provident Mutual's variable annuity with age at
issue less than or equal to 70, CNA Life Re is able to reinsure the Annual
Ratchet Death Benefit minimum death benefit guarantee at an annual rate of 22
basis points. This premium will be charged monthly at the monthly rate of 1.8333
basis points times account value at the end of each calendar month.
The guaranteed minimum death benefit (GMDB) will be the greatest of:
1) The purchase payments paid, less any partial withdrawals and any
applicable surrender charges and any incurred taxes.
2) The maximum anniversary value, defined as the highest amount based
on the account value at each anniversary reduced proportionally for any
partial surrenders and incurred taxes, plus purchase payments received
after the most recent contract anniversary. Maximum anniversary value
does not increase after age 85. The GMDB at age 85 and later will equal
the GMDB as of the annuitant's 85th birthday plus subsequent premiums
and proportional reductions for any partial surrenders.
3) The contract value on the date that proof of death is received by
the Company.
-2-
<PAGE> 3
ONE TIME (8TH YEAR) RATCHET DEATH BENEFIT
For new business written on Provident Mutual's variable annuity with age at
issue less than or equal to 85, CNA Life Re is able to reinsure the One Time
(8th Year) Ratchet Death Benefit minimum death benefit guarantee at an annual
rate of 12 basis points. This premium will be charged monthly at the monthly
rate of 1.0000 basis points times account value at the end of each calendar
month.
The guaranteed minimum death benefit (GMDB) for death prior to the 7th contract
anniversary and age 90 will be the greatest of:
1) The purchase payments paid, less any partial withdrawals and
any applicable surrender charges and any incurred taxes.
2) The contract value on the date that proof of death is received
by the Company.
The guaranteed minimum death benefit (GMDB) for death on or after the 7th
contract anniversary and prior to age 90 will be the greatest of:
1) The purchase payments paid, less any partial withdrawals any
applicable surrender charges and any incurred taxes.
2) The contract value at the 7th contract anniversary adjusted by
any subsequent purchase payments and reduced proportionally
for any partial surrenders and incurred taxes, plus purchase
payments received after the most recent contract anniversary.
3) The Contract Value on the date that proof of death is received
by the Company.
The GMDB ceases at attained age 90.
-3-
<PAGE> 4
ONE TIME (9TH YEAR) RATCHET DEATH BENEFIT
For new business written on Provident Mutual's variable annuity with age at
issue less than or equal to 85, CNA Life Re is able to reinstate the One Time
(9th Year) Ratchet Death Benefit minimum death benefit guarantee at an annual
rate of 11.5 basis points. This premium will be charged monthly at the monthly
rate of 0.9583 basis points times account value at the end of each calendar
month.
The guaranteed minimum death benefit (GMDB) for death prior to the 8th contract
anniversary and age 90 will be the greatest of:
1) The purchase payments paid, less any partial withdrawals and
any applicable surrender charges and any incurred taxes.
2) The contract value on the date that proof of death is received
by the Company.
The guaranteed minimum death benefit (GMDB) for death on after the 8th contract
anniversary and prior to age 90 will be the greatest of:
4) The purchase payments paid, less any partial withdrawals any
applicable surrender charges and any incurred taxes.
5) The contract value at the 8th contract anniversary adjusted by
any subsequent purchase payments and reduced proportionally
for any partial surrenders and incurred taxes, plus purchase
payments received after the most recent contract anniversary.
6) The Contract Value on the date that proof of death is received
by the Company.
The GMDB ceases at attained age 90.
-4-
<PAGE> 5
CNA Life Re provides capacity of $400 million of total deposits, regardless of
the split of business among the benefits outlined above.
Coverage under terms of this agreement will be the greater of zero or the GMDB
less the Account Value, payable as of the date that proof of death is received
by the Company. In the event of lapse or other policy termination, no benefit is
payable under this coverage.
The above rates are guaranteed for one year from the effective date, January 15,
2000, of the reinsurance contract, with the following caveat. If the benefits or
charges to the policyholder are changed (includes contract charges, M&E charges,
and admin fees), CNA Life Re reserves the right to adjust the premium rates.
Fund fees are allowed to fluctuate.
Subject to a 90-day notice, CNA Life Re reserves the right to change these rates
for both inforce and new business on the reinsurance anniversary date. For
inforce business, the rates will not be increased above 1.5 times the initial
rates.
CNA Life Re reserves the right to accept the risk associated with more than $3.0
million in initial value per policy subject to individual consideration.
The above rates are effective for all contracts with contract dates on or prior
to January 15, 2001. Subject to 90 days prior notice, CNA Life Re reserves the
right to reset the reinsurance capacity for contracts with effective dates of
January 15, 2001 or later.
Recapture is not permitted unless the rates are raised.
All business will be administered by Provident Mutual or designee thereof.
CNA Life Re will require monthly seriatim report (see attached reporting
requirements) of all GMDB business. The first seriatim report shall be provided
by Provident Mutual by the end of April 2000.
Reserves are to follow Actuarial Guideline 34 but not less than statutory
required reserves.
CNA Life Re will not be responsible for any taxes incurred now or in future,
directly or indirectly, by Provident Mutual.
This agreement is subject to any required state approvals. Any such required
approvals will be obtained by Provident Mutual.
<TABLE>
<S> <C>
Acceptance:
/s/ Illegible Dated: 10/27/99
- ----------------------------------------
CNA Life Re
/s/ Scott V. Carney Dated: 11/3/99
- ----------------------------------------
Provident Mutual
</TABLE>
-5-
<PAGE> 6
ATTACHMENT
GMDB Monthly Reporting Requirements
<TABLE>
<CAPTION>
FIELD# FIELD NAME DESCRIPTION
- ------ ---------- -----------
<S> <C> <C>
1 Report Date Report date is the last day of the reporting month (mm/dd/yyyy)
2 Direct Writing Company Name of your company
3 Policy Number Policy or contract number
4 Policyholder Name of the policyholder (last name_MI_first name)
5 Current Age Age of the policyholder as of the report date
6 Issue Date Date of the policy issued (mm/dd/yyyy)
7 Sex Gender of the policyholder (M or F)
8 Plan Code 0001 - Annual Ratchet
0002 - Rollup
0003 - One Time (8th Year) Ratchet
0004 - One Time (9th Year) Ratchet
9 Date of Last Ratchet or Rollup Last ratchet or Rollup date (mm/dd/yyyy)
10 Current, Ratchet or Rollup Value Ratchet or Rollup value as of the report date ($xx.xx)
11 Current Guaranteed Minimum Death GMDB as of the report date ($xx.xx)
Benefit
12 Current Total Account Value Total account value as of the report date ($xx.xx)
13 Current Account Value by Fund Account value by individual fund as of the report date. The sum of Field
13 should equal Field 12. Note that you may want to store this information
in a separate file. ($xx.xx)
14 Total Death Benefits Paid Total death benefits paid for this reporting month ($xx.xx)
15 Death Benefits Paid by CNA Death benefits paid by CNA for this reporting month ($xx.xx)
16 Total Death Benefits Due and Unpaid Total death benefits due and unpaid for this reporting month ($xx.xx)
17 Death Benefits Due and Unpaid by CNA Death benefits due and unpaid by CNA for this reporting month ($xx.xx)
18 Current Premium Premium paid in this reporting month ($xx.xx)
19 ITD Premium Premium paid since inception ($xx.xx)
20 Current Withdrawal Amount Total withdrawal amount in this reporting month ($xx.xx)
21 ITD Withdrawal Amount Total withdrawal amount since inception ($xx.xx)
</TABLE>
-6-
<PAGE> 1
Exhibit (8)(e)
PARTICIPATION AGREEMENT
AMONG
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA,
PIMCO VARIABLE INSURANCE TRUST,
AND
PIMCO FUNDS DISTRIBUTORS LLC
THIS AGREEMENT, dated as of the 1st day of December 1999 by and among
Providentmutual Life and Annuity Company of America, (the "Company"), a stock
life insurance company organized under Delaware law, on its own behalf and on
behalf of each segregated asset account of the Company set forth on Schedule A
hereto as may be amended from time to time (each account hereinafter referred to
as the "Account"), PIMCO Variable Insurance Trust (the "Fund"), a Delaware
business trust, and PIMCO Funds Distributors LLC (the "Underwriter"), a Delaware
limited liability company.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter ("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are divided into
several series of shares, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order dated February 9, 1998, (File
No. 812-10822) from the Securities and Exchange Commission (the "SEC") granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended (the
"1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, if and to the
extent necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (the "Mixed and Shared Funding Exemptive
Order");
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (the "1933 Act");
<PAGE> 2
WHEREAS, Pacific Investment Management Company (the "Adviser"), which
serves as investment adviser to the Fund, is duly registered as an investment
adviser under the Investment Advisers Act of 1940, as amended;
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by the
Account (the "Contracts"), and said Contracts are, listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement;
WHEREAS, the Account is duly established and maintained as a segregated
asset account, duly established by the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid Contracts;
WHEREAS, the Underwriter, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
Article I. Sale and Redemption of Fund Shares
1.1 The Fund has granted to the Underwriter exclusive authority to
distribute the Fund's shares, and has agreed to instruct, and has so instructed,
the Underwriter to make available to the Company for purchase on behalf of the
Account Fund shares of those Designated Portfolios selected by the Underwriter.
Pursuant to such authority and instructions, and subject to Article X hereof,
the Underwriter agrees to make available to the Company for purchase on behalf
of the Account, shares of those Designated Portfolios listed on Schedule A to
this Agreement, such purchases to be effected at net asset value in accordance
with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) Fund
series (other than those listed on Schedule A) in existence now or that may be
established in the future will be made available to the Company only as the
Underwriter may so provide, and (ii) the Board of Trustees of the Fund (the
"Board") may suspend or terminate the offering of Fund shares of any Designated
Portfolio or class thereof, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, suspension or termination is necessary in the best
interests of the shareholders of such Designated Portfolio.
-2-
<PAGE> 3
1.2 The Fund shall redeem, at the Company's request, any full or
fractional Designated Portfolio shares held by the Company on behalf of the
Account, such redemptions to be effected at net asset value in accordance with
Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) the Company
shall not redeem Fund shares attributable to Contract owners except in the
circumstances permitted in Section 10.3 of this Agreement, and (ii) the Fund may
delay redemption of Fund shares of any Designated Portfolio to the extent
permitted by the 1940 Act, and any rules, regulations or orders thereunder.
1.3 Purchase and Redemption Procedures
(a) The Fund hereby appoints the Company as an agent of the Fund for
the limited purpose of receiving purchase and redemption requests on behalf of
the Account (but not with respect to any Fund shares that may be held in the
general account of the Company) for shares of those Designated Portfolios made
available hereunder, based on allocations of amounts to the Account or
subaccounts thereof under the Contracts and other transactions relating to the
Contracts or the Account. Receipt of any such request (or relevant transactional
information therefor) on any day the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the SEC (a "Business Day") by the Company as such limited agent of the Fund
prior to the time that the Fund ordinarily calculates its net asset value as
described from time to time in the Fund Prospectus (which as of the date of
execution of this Agreement is 4:00 p.m. Eastern Time) shall constitute receipt
by the Fund on that same Business Day, provided that the Fund receives notice of
such request by 9:30 a.m. Eastern Time on the next following Business Day.
(b) The Company shall pay for shares of each Designated Portfolio on
the same day that it notifies the Fund of a purchase request for such shares.
Payment for Designated Portfolio shares shall be made in federal funds
transmitted to the Fund by wire to be received by the Fund by 4:00 p.m. Eastern
Time on the day the Fund is notified of the purchase request for Designated
Portfolio shares (unless the Fund determines and so advises the Company that
sufficient proceeds are available from redemption of shares of other Designated
Portfolios effected pursuant to redemption requests tendered by the Company on
behalf of the Account). If federal funds are not received on time, such funds
will be invested, and Designated Portfolio shares purchased thereby will be
issued, as soon as practicable and the Company shall promptly, upon the Fund's
request, reimburse the Fund for any charges, costs, fees, interest or other
expenses incurred by the Fund in connection with any advances to, or borrowing
or overdrafts by, the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon such purchase
request. Upon receipt of federal funds so wired, such funds shall cease to be
the responsibility of the Company and shall become the responsibility of the
Fund.
(c) Payment for Designated Portfolio shares redeemed by the Account or
the Company shall be made in federal funds transmitted by wire to the Company or
any other designated person on the next Business Day after the Fund is properly
notified of the redemption order of such shares (unless redemption proceeds are
to be applied to the purchase of shares of other Designated Portfolios in
accordance with Section 1.3(b) of this Agreement), except that the Fund reserves
the right to redeem Designated Portfolio shares in assets other than cash and to
-3-
<PAGE> 4
delay payment of redemption proceeds to the extent permitted under Section 22(e)
of the 1940 Act and any Rules thereunder, and in accordance with the procedures
and policies of the Fund as described in the then current prospectus. The Fund
shall not bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds by the Company; the Company alone shall be
responsible for such action.
(d) Any purchase or redemption request for Designated Portfolio
shares held or to be held in the Company's general account shall be effected at
the net asset value per share next determined after the Fund's receipt of such
request, provided that, in the case of a purchase request, payment for Fund
shares so requested is received by the Fund in federal funds by 9:00 a.m.
Eastern Time on the next following Business Day.
1.4 The Fund shall use its best efforts to make the net asset value per
share for each Designated Portfolio available to the Company by 7:00 p.m.
Eastern Time each Business Day, and in any event, as soon as reasonably
practicable after the net asset value per share for such Designated Portfolio is
calculated, and shall calculate such net asset value in accordance with the
Fund's Prospectus. Any material errors in the calculation of net asset value,
dividends or capital gain information shall be reported immediately upon
discovery to the Company. An error shall be deemed "material" based on the
parties' interpretation of the SEC's position and policy with regard to
materiality, as it may be modified from time to time. Neither the Fund, any
Designated Portfolio, the Underwriter, nor any of their affiliates shall be
liable for any information provided to the Company pursuant to this Agreement
which information is based on incorrect information supplied by the Company or
any other Participating Insurance Company to the Fund or the Underwriter.
1.5 The Fund shall furnish notice (by wire or telephone followed by
written confirmation) to the Company as soon as reasonably practicable of any
income dividends or capital gain distributions payable on any Designated
Portfolio shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any Designated Portfolio shares in the form of additional shares of that
Designated Portfolio. The Company reserves the right, on its behalf and on
behalf of the Account, to revoke this election and to receive all such dividends
and capital gain distributions in cash. The Fund shall notify the Company
promptly of the number of Designated Portfolio shares so issued as payment of
such dividends and distributions.
1.6 Issuance and transfer of Fund shares shall be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares shall be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.7 (a) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive; the Fund's shares may be sold
to other insurance companies (subject to Section 1.8 hereof) and the cash value
of the Contracts may be invested in other investment companies, provided,
however, that until this Agreement is terminated pursuant to Article X, the
Company shall promote the Designated Portfolios on the same basis as other
funding vehicles available under the Contracts. Funding vehicles other than
those listed on Schedule A to this
-4-
<PAGE> 5
Agreement may be available for the investment of the cash value of the
Contracts, provided, however, the Company gives the Fund and the Underwriter 45
days written notice of its intention to make such other investment vehicle
available as a funding vehicle for the Contracts.
(b) The Company shall not, without prior notice to the Underwriter
(unless otherwise required by applicable law), take any action to operate the
Account as a management investment company under the 1940 Act.
(c) The Company shall not, without prior notice to the Underwriter
(unless otherwise required by applicable law), induce Contract owners to change
or modify the Fund or change the Fund's distributor or investment adviser.
(d) The Company shall not, without prior notice to the Fund, induce
Contract owners to vote on any matter submitted for consideration by the
shareholders of the Fund in a manner other than as recommended by the Board of
Trustees of the Fund.
1.8 The Underwriter and the Fund shall sell Fund shares only to
Participating Insurance Companies and their separate accounts and to persons or
plans ("Qualified Persons") that communicate to the Underwriter and the Fund
that they qualify to purchase shares of the Fund under Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
thereunder without impairing the ability of the Account to consider the
portfolio investments of the Fund as constituting investments of the Account for
the purpose of satisfying the diversification requirements of Section 817(h).
The Underwriter and the Fund shall not sell Fund shares to any insurance company
or separate account unless an agreement complying with Article VI of this
Agreement is in effect to govern such sales, to the extent required. The Company
hereby represents and warrants that it and the Account are Qualified Persons.
The Fund reserves the right to cease offering shares of any Designated Portfolio
in the discretion of the Fund.
Article II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts (a) are, or
prior to issuance will be, registered under the 1933 Act, or (b) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act. The Company further represents and warrants
that the Contracts will be issued and sold in compliance in all material
respects with all applicable federal securities and state securities and
insurance laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law, that it has legally and validly established
the Account prior to any issuance or sale thereof as a segregated asset account
under Delaware insurance laws, and that it (a) has registered or, prior to any
issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, or alternatively (b) has not
registered the Account in proper reliance upon an exclusion from registration
under the 1940 Act. The Company shall register and qualify the Contracts or
interests therein as securities in
-5-
<PAGE> 6
accordance with the laws of the various states only if and to the extent deemed
advisable by the Company.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with applicable state and federal securities
laws and that the Fund is and shall remain registered under and will comply in
all material respects with the 1940 Act. The Fund shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter. Upon request, the Fund shall inform the Company regarding the
jurisdictions in which shares of the Fund have been qualified or registered for
sale.
2.3 The Fund may make payments to finance distribution expenses
pursuant to Rule 12b-1 under the 1940 Act. Prior to financing distribution
expenses pursuant to Rule 12b-1, the Fund will have the Board, a majority of
whom are not interested persons of the Fund, formulate and approve a plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including, but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states.
2.5 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC and in
accordance with applicable state securities laws. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance with
any applicable state and federal securities laws.
2.7 The Fund and the Underwriter represent and warrant that all of
their trustees/directors, officers, employees, investment advisers, and other
individuals or entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimum coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.8 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Account are covered
by a blanket fidelity bond or similar coverage for the benefit of the Account,
in an amount not less than $5 million. The aforesaid bond includes coverage for
larceny and embezzlement and is issued by a reputable bonding company. The
Company agrees to hold for the benefit of the Fund and to pay to the Fund any
amounts lost from
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<PAGE> 7
larceny, embezzlement or other events covered by the aforesaid bond to the
extent such amounts properly belong to the Fund pursuant to the terms of this
Agreement. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and the Underwriter in the event that such coverage no longer
applies.
2.9 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
Article III. Prospectus and Proxy Statements; Voting
3.1 The Underwriter shall provide the Company with as many copies of
the Fund's current prospectus (describing only the Designated Portfolios listed
on Schedule A) and statement of additional information or, to the extent
permitted, the Fund's profiles as the Company may reasonably request. The Fund
shall bear the expense of printing copies of the current prospectus and profiles
for the Contracts that will be distributed to existing Contract owners, and the
Company shall bear the expense of printing copies of the Fund's prospectus and
profiles that are used in connection with offering the Contracts issued by the
Company. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus on diskette at
the Fund's expense) and other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the prospectus for the Fund is
amended) to have the prospectus for the Contracts and the Fund's prospectus or
profile printed together in one document (the payment of such printing costs to
be governed by the provisions of Section 5.3 of this Agreement).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available, and the Underwriter
(or the Fund), at its expense, shall provide a reasonable number of copies of
such SAI free of charge to the Company for itself and for any owner of a
Contract who requests such SAI.
3.3 The Fund shall provide the Company with information regarding the
Fund's expenses, which information may include a table of fees and related
narrative disclosure for use in any prospectus or other descriptive document
relating to a Contract. The Company agrees that it will use such information in
the form provided. The Company shall provide prior written notice of any
proposed modification of such information, which notice will describe in detail
the manner in which the Company proposes to modify the information, and agrees
that it may not modify such information in any way without the prior consent of
the Fund.
3.4 The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
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<PAGE> 8
3.5 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.6 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt and provide
in writing.
3.7 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(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's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the SEC
may promulgate with respect thereto.
Article IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops and in which the Fund (or a Designated
Portfolio thereof) or the Adviser or the Underwriter is named at least fifteen
Business Days prior to its use. The Fund or its designee reserves the right to
reasonably object to the continued use of any such sales literature or other
promotional material in which the Fund (or a Designated Portfolio thereof) or
the Adviser or the Underwriter is named within fifteen Business Days after
receipt, and no such material shall be used if the Fund or its designee so
object.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund or
the Adviser or the Underwriter in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement or prospectus or SAI for the Fund shares, as such registration
statement and prospectus or SAI may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in sales literature or
other promotional material
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<PAGE> 9
approved by the Fund or its designee or by the Underwriter, except with the
permission of the Fund or the Underwriter or the designee of either.
4.3 The Fund and the Underwriter, or their designee, shall furnish, or
cause to be furnished, to the Company, each piece of sales literature or other
promotional material that it develops and in which the Company, and/or its
Account, is named at least fifteen Business Days prior to its use. The Company
reserves the right to reasonably object to the continued use of any such sales
literature or other promotional material in which the Company and/or its Account
is named within fifteen Business Days after receipt, and no such material shall
be used if the Company so objects.
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, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus (which shall include an
offering memorandum, if any, if the Contracts issued by the Company or interests
therein are not registered under the 1933 Act), or SAI for the Contracts, as
such registration statement, prospectus, or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, promptly after the filing of such document(s)
with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses (which shall include an offering
memorandum, if any, if the Contracts issued by the Company or interests therein
are not registered under the 1933 Act), SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, promptly after the filing of
such document(s) with the SEC or other regulatory authorities. The Company shall
provide to the Fund and the Underwriter any complaints received from the
Contract owners pertaining to the Fund or the Designated Portfolio.
4.7 The Fund will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Designated Portfolio,
and of any material change in the Fund's registration statement, particularly
any change resulting in a change to the registration statement or prospectus for
any Account. The Fund will work with the Company so as to enable the Company to
solicit proxies from Contract owners, or to make changes to its prospectus or
registration statement, in an orderly manner. The Fund will make reasonable
efforts to attempt to have changes affecting Contract prospectuses become
effective simultaneously with the annual updates for such prospectuses.
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<PAGE> 10
4.8 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Fund.
Article V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule l2b-1 to finance distribution
expenses, then the Fund or Underwriter may make payments to the Company or to
the underwriter for the Contracts if and in amounts agreed to by the Underwriter
in writing, and such payments will be made out of existing fees otherwise
payable to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3 The Fund shall contribute a maximum of $5,000 annually in aggregate
towards the expenses of printing and distributing the Fund's prospectus to
owners of Contracts issued by the Company and of distributing the Fund's proxy
materials and reports to such Contract owners, and prospectus supplements to
prospective contract holders (unless determined by the Fund to also be
distributed to existing contract holders) with any additional expenses to be
borne by the Company.
Article VI. Diversification and Qualification; Regulatory Matters
6.1 The Fund will invest its assets in such a manner as to ensure that
the Contracts will be treated as annuity or life insurance contracts, whichever
is appropriate, under the Code and the regulations issued thereunder (or any
successor provisions). Without limiting the scope
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<PAGE> 11
of the foregoing, each Designated Portfolio has complied and will continue to
comply with Section 817(h) of the Code and Treasury Regulation Section 1.817-5,
and any Treasury interpretations thereof, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts, and
any amendments or other modifications or successor provisions to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation Section 1.817-5.
6.2 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is a
"modified endowment contract" as that term is defined in Section 7702A of the
Code (or any successor or similar provision), shall identify such contract as a
modified endowment contract.
6.3 (a) The Fund and/or the Underwriter shall immediately notify the
Company of: (i) the issuance by any court or regulatory body of any stop order,
cease and desist order, or other similar order (but not including an order of a
regulatory body exempting or approving a proposed transaction or arrangement)
with respect to the Fund's registration statement or the prospectus; (ii) any
request by the SEC for any amendment to the Fund's registration statement or the
prospectus of any series or class; (iii) the initiation of any proceedings for
that purpose or for any other purposes relating to the registration or offering
of the Fund shares; or (iv) any other action or circumstances that may prevent
the lawful offer or sale of Fund shares or any class or series in any state or
jurisdiction, including, without limitation, any circumstance in which (A) such
shares are not registered and, in all material respects, issued and sold in
accordance with applicable state and federal law or (B) such law precludes the
use of such shares as an underlying investment medium for the Contracts. The
Fund will make every reasonable effort to prevent the issuance of any such stop
order, cease and desist order or similar order and, if any such order is issued,
to obtain the lifting thereof at the earliest possible time.
(b) The Company shall immediately notify the Fund and the Underwriter
of: (i) the issuance by any court or regulatory body of any stop order, cease
and desist order, or other similar order (but not including an order of a
regulatory body exempting or approving a proposed transaction or arrangement)
with respect to the Contracts' registration statement or the Contracts'
prospectus; (ii) any request by the SEC for any amendment to the Contracts'
registration statement or prospectus; (iii) the initiation of any proceedings
for that purpose or for any other purposes relating to the registration or
offering of the Contracts; or (iv) any other action or circumstances that may
prevent the lawful offer or sale of the Contracts or any class of Contracts in
any state or jurisdiction, including, without limitation, any circumstance in
which such Contracts are not registered, qualified and approved, and, in all
material respects, issued and sold in accordance with applicable state and
federal laws. The Company will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
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<PAGE> 12
(c) Each party shall immediately notify the other parties when it
receives notice, or otherwise becomes aware of, the commencement of any
litigation proceeding against such party or a person affiliated therewith in
connection with the issuance or sale of Fund shares or the Contracts.
6.4 Each party hereto shall cooperate with the other parties and all
appropriate government authorities (including without limitation the SEC, the
NASD and state securities and insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry by any such authority relating to the Agreement or the
transactions contemplated hereby. However, such access shall not extend to
attorney-client privileged information.
Article VII. Potential Conflicts
The following provisions shall apply only upon issuance of the Mixed and Shared
Funding Order and the sale of shares of the Fund to variable life insurance
separate accounts, and then only to the extent required under the 1940 Act.
7.1 The Board of Directors/Trustees of the Fund (the "Board") will
monitor the Fund for the existence of any material irreconcilable conflict
between the interests of the Contract owners of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a decision
by an insurer to disregard the voting instructions of contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2 The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Board whenever Contract owner voting instructions
are disregarded.
7.3 If it is. determined by a majority of the Board, or a majority of
its disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be
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<PAGE> 13
implemented to a vote of all affected contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contract owners the option of making such a change; and
(2) establishing a new registered management investment company or managed
separate account.
7.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to each Account; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the Company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 If and to the extent the Mixed and Shared Funding Exemption Order
or any amendment thereto contains terms and conditions different from Sections
3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund
and/or the Participating Insurance Companies,
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<PAGE> 14
as appropriate, shall take such steps as may be necessary to comply with the
Mixed and Shared Funding Exemptive Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2,
7.3, 7.4 and 7.5 of this Agreement shall continue in effect only to the extent
that terms and conditions substantially identical to such Sections are contained
in the Mixed and Shared Funding Exemptive Order or any amendment thereto. If and
to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is
adopted, to provide exemptive relief from any provision of the 1940 Act or the
rules promulgated thereunder with respect to mixed or shared funding (as defined
in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
Article VIII. Indemnification
8.1 Indemnification by the Company
8.1(a) The Company agrees to indemnify and hold harmless the Fund and
the Underwriter and each of its trustees/directors and officers, and each
person, if any, who controls or is affiliated with the Fund or Underwriter
within the meaning of the 1933 Act or the 1940 Act or who is under common
control with the Underwriter (collectively, the "Indemnified Parties" for
purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation (including reasonable legal and other expenses), to
which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement, prospectus (which shall include a written description of a
Contract that is not registered under the 1933 Act), or SAI for the
Contracts or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Company by or on behalf of the Fund or the Underwriter for use in
the registration statement, prospectus or SAI for the Contracts or in
the Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund
shares; or
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<PAGE> 15
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus, SAI, or sales literature of the Fund not
supplied by the Company or persons under its control) or wrongful
conduct of the Company or its agents or persons under the Company's
authorization or control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, SAI,
or sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith
or otherwise, to comply with the qualification requirements specified
in Section 2.9 of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company; or
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b) The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of its obligations or
duties under this Agreement.
8.1(c) The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party named in the action. After notice from the Company to such party of
the Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Company will not be liable to such party under this Agreement for any legal
or other
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expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.1(d) The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the Contracts or the
operation of the Fund.
8.2 Indemnification by the Underwriter
8.2(a) The Underwriter agrees to indemnify and hold harmless
the Company and each of its directors and officers and each person, if any, who
controls or is affiliated with the Company within the meaning of the 1933 Act or
the 1940 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities (including
reasonable amounts paid in settlement with the written consent of the
Underwriter) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or SAI or sales
literature of the Fund (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the registration statement,
prospectus or SAI for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct
of the Fund or Underwriter or persons under their control,
with respect to the sale or distribution of the Contracts or
Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, SAI or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund or the
Underwriter; or
-16-
<PAGE> 17
(iv) arise as a result of any material failure by the Fund or
the Underwriter to provide the services and furnish the
materials under the terms of this Agreement (including a
failure of the Fund, whether unintentional or in good faith or
otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this
Agreement); or
(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;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b) The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c) The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification by the Fund
8.3(a) The Fund agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls or is affiliated with the Company within the meaning of the 1933 Act or
the 1940 Act (collectively, the "Indemnified
-17-
<PAGE> 18
Parties" for purposes of this Section 8.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Fund) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may be required to pay or may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereof) or settlements, are related to the sale or acquisition of the
Fund's shares or the operations of the Fund and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or SAI or sales
literature of the Fund (or any amendment of supplement to any
of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the registration statement,
prospectus or SAI for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI or
sales literature for the Contracts not supplied by the Fund or
persons under its control) or wrongful conduct of the Fund or
Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, SAI or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms
of this Agreement (including a failure of the Fund, whether
unintentional or in good faith or otherwise, to comply with
the diversification and other qualification requirements
specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation an/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund.
as limited by and in accordance with the provisions of Sections 83(b) and 8-3(c)
hereof.
-18-
<PAGE> 19
8.3(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the Fund to such party of the Fund's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Fund will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d) The Company and the Underwriter agree promptly to
notify the Fund of the commencement of any litigation or proceeding against it
or any of its respective officers or directors in connection with the Agreement,
the issuance or sale of the Contracts, the operation of the Account, or the sale
or acquisition of shares of the Fund.
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 California.
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, any Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
If, in the future, applicable law should render Article VII or the Mixed and
Shared Funding Exemptive Order no longer necessary, then Article VII shall no
longer apply.
-19-
<PAGE> 20
Article X. Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with
respect to some or all Designated Portfolios, by
three (3) months advance written notice delivered to
the other parties; or
(b) termination by the Company by written notice to
the Fund and the Underwriter based upon the Company's
determination that shares of the Fund are not
reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to
the Fund and the Underwriter in the event any of the
Designated Portfolio's shares are not registered,
issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of
such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the
event that formal administrative proceedings are
instituted against the Company by the NASD, the SEC,
the Insurance Commissioner or like official of any
state or any other regulatory body regarding the
Company's duties under this Agreement or related to
the sale of the Contracts, the operation of any
Account, or the purchase of the Fund's shares;
provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good
faith, that any such administrative proceedings will
have a material adverse effect upon the ability of
the Company to perform its obligations under this
Agreement; or
(e) termination by the Company in the event that
formal administrative proceedings are instituted
against the Fund or Underwriter by the NASD, the SEC,
or any state securities or insurance department or
any other regulatory body; provided, however, that
the Company determines in its sole judgment exercised
in good faith, that any such administrative
proceedings will have a material adverse effect upon
the ability of the Fund or Underwriter to perform its
obligations under this Agreement; or
(f) termination by the Company by written notice to
the Fund and the Underwriter with respect to any
Designated Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company
under Subchapter M or fails to comply with the
Section 817(h) diversification requirements specified
in Article VI hereof, or if the Company reasonably
believes that such Portfolio may fail to so qualify
or comply; or
-20-
<PAGE> 21
(g) termination by the Fund or Underwriter by written
notice to the Company in the event that the Contracts
fail to meet the qualifications specified in Article
6.2 thereof; or
(h) termination by either the Fund or the Underwriter
by written notice to the Company, if either one or
both of the Fund or the Underwriter respectively,
shall determine, in their sole judgment exercised
good faith, that the Company has suffered a material
adverse change in its business, operations, financial
condition, or prospects since the date of this
Agreement or is the subject of material adverse
publicity; or
(i) termination by the Company by written notice to
the Fund and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good
faith, that the Fund, Adviser, or the Underwriter has
suffered a material adverse change in its business,
operations, financial condition or prospects since
the date of this Agreement or is the subject of
material adverse publicity; or
(j) termination by the Fund or the Underwriter by
written notice to the Company, if the Company gives
the Fund and the Underwriter the written notice
specified in Section 1.7(a) hereof and at the time
such notice was given there was no notice of
termination outstanding under any other provision of
this Agreement; provided, however, any termination
under this Section 10.1(j) shall be effective
forty-five days after the notice specified in Section
1.7(a) was given; or
(k) termination by the Company upon any substitution
of the shares of another investment company or series
thereof for shares of a Designated Portfolio of the
Fund in accordance with the terms of the Contracts,
provided that the Company has given at least 45 days
prior written notice to the Fund and Underwriter of
the date of substitution; or
(l) termination by any party in the event that the
Fund's Board of Trustees determines that a material
irreconcilable conflict exists as provided in Article
VII; or
(m) termination by the Company if the Fund or
Underwriter is in material breach of a provision of
this Agreement, which breach has not been cured to
the satisfaction of the Company within 10 days after
written notice of such breach has been delivered to
the Fund or the Underwriter, as the case may be; or
(n) termination by the Fund or Underwriter if the
Company is in material breach of a provision of this
Agreement, which breach has not been cured to the
satisfaction of the Fund or Underwriter within 10
days after written
-21-
<PAGE> 22
notice of such breach has been delivered to the
Company, as the case may be.
10.2 Notwithstanding any termination of this Agreement, the Fund and
the Underwriter shall, at the option of the Company, continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"), unless the
Underwriter requests that the Company seek an order pursuant to Section 26(b) of
the 1940 Act to permit the substitution of other securities for the shares of
the Designated Portfolios. The Underwriter agrees to pay the cost of seeking
such an order, and the Company agrees that it shall reasonably cooperate with
the Underwriter and seek such an order upon request. If the Company determines
that it will seek an order pursuant to Section 26(b) of the 1940 Act to permit
the substitution of other securities for the shares of the Designated
Portfolios, it will pay the cost of seeking the order. Specifically, the owners
of the Existing Contracts may be permitted to reallocate investments in the
Fund, redeem investments in the Fund and/or invest in the Fund upon the making
of additional purchase payments under the Existing Contracts (subject to any
such election by the Underwriter). The parties agree that this Section 10.2
shall not apply to any terminations under Article VII and the effect of such
Article VII terminations shall be governed by Article VII of this Agreement. The
parties further agree that this Section 10.2 shall not apply to any terminations
under Section 10.1(g) of this Agreement. The provisions of Article VIII and
Section 12.2 shall survive the termination of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), (iii) upon 45 days
prior written notice to the Fund and Underwriter, as permitted by an order of
the SEC pursuant to Section 26(b) of the 1940 Act, but only if a substitution of
other securities for the shares of the Designated Portfolios is consistent with
the terms of the Contracts, (iv) as permitted under the terms of the Contract,
or (v) at any time after six months of the date of this Agreement upon 60 days
notice. Upon request, the Company will promptly furnish to the Fund and the
Underwriter reasonable assurance that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
45 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
Article XI. 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.
-22-
<PAGE> 23
If to the Fund: PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
If to the Company: Providentmutual Life and Annuity Company of
America
1000 Chesterbrook Boulevard
Berwyn, PA 19312
If to Underwriter: PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
Article XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property
of the Fund, and in the case of a series company, the respective Designated
Portfolios listed on Schedule A hereto as though each such Designated Portfolio
had separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither the
Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or on behalf of the
Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information has come into the
public domain without the written consent of the affected party. Notwithstanding
anything here to the contrary, the names and addresses and other information
concerning the Contract owners are and shall remain the Company's sole property,
and neither the Fund nor the Underwriter nor their affiliates shall use such
names, addresses or other information for any purpose except in connection with
the performance of their duties and responsibilities hereunder and except for
servicing and informational mailings relating to the Fund.
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.
-23-
<PAGE> 24
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Delaware Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Delaware variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies, and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally accepted
accounting principles) filed with any state or federal regulatory body or
otherwise made available to the public, as soon as practicable and in any event
within 90 days after the end of each fiscal year; and
(b) any registration statement (without exhibits) and
financial reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulatory, as soon as practicable after the
filing thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA:
By its authorized officer
By: /s/ Alan F. Hinkle
----------------------
Name: Alan F. Hinkle
----------------------
Title: Vice President &
Actuary
----------------------
Date: 12/23/99
----------------------
-24-
<PAGE> 25
PIMCO VARIABLE INSURANCE TRUST
By its authorized officer
By: /s/ Brent R. Harris
---------------------------
Name: Brent R. Harris
-------------------------
Title: Chairman
------------------------
Date: 12/30/99
-------------------------
PIMCO FUNDS DISTRIBUTORS LLC
By its authorized officer
By: /s/ Newton B. Schott, Jr.
---------------------------
Name: Newton B. Schott, Jr.
------------------------
Title: Executive Vice President
------------------------
Date: 12/29/99
-------------------------
-25-
<PAGE> 26
Schedule A
PIMCO VARIABLE INSURANCE TRUST PORTFOLIOS:
1. High Yield Bond Portfolio
2. Total Return Bond Portfolio
SEGREGATED ASSET ACCOUNTS OF PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF
AMERICA:
DATE ESTABLISHED: MAY 9, 1991
CONTRACTS OF PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA:
DATE ESTABLISHED:
<PAGE> 1
Exhibit 8(f)
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
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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
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<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
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<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
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(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.
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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.
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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
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<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
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<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
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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
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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
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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
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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.
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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,
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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.
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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
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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.
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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(g)
PARTICIPATION AGREEMENT
-----------------------
Among
VARIABLE INSURANCE PRODUCTS FUND III,
------------------------------------
FIDELITY DISTRIBUTORS CORPORATION
---------------------------------
and
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
---------------------------------------------------
THIS AGREEMENT, made and entered into as of the 13th day of
January, 2000 (the "Agreement") by and among PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA (hereinafter the "Company"), a Pennsylvania corporation, on
its own behalf and on behalf of each segregated asset account of the Company set
forth on Schedule A hereto as may be amended from time to time (each such
account hereinafter referred to as the "Account"), and the VARIABLE INSURANCE
PRODUCTS FUND III, an unincorporated business trust organized under the laws of
the Commonwealth of Massachusetts (hereinafter the "Fund") and FIDELITY
DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a Massachusetts
corporation.
WHEREAS, the Fund engaged in business as an open-end
management investment company and is available to act as the investment vehicle
for separate accounts established for variable life insurance policies and
variable annuity contracts (collectively, the "Variable Insurance Products") to
be offered by insurance companies which have entered into participation
agreements with the Fund and the Underwriter (hereinafter "Participating
Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(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 and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
<PAGE> 2
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, Fidelity Management & Research Company (the
"Adviser") is duly registered as an investment adviser under the federal
Investment Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain
variable life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to the aforesaid variable annuity
contracts; and
WHEREAS, the Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with
the Securities and Exchange Commission ("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 on
behalf of each Account to fund certain of the aforesaid variable life and
variable annuity contracts and the Underwriter is authorized to sell such shares
to unit investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
Article I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares
of the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee 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. Boston 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 Securities and Exchange
Commission.
-2-
<PAGE> 3
1.2 The Fund agrees to make its shares available indefinitely
for purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") 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 Board
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 such Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund
will be sold only to Participating Insurance Companies and their separate
accounts. No shares of any Portfolio will be sold to the general public.
1.4 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, VII and Section 2.5 of
Article II of this Agreement is in effect to govern such sales.
1.5 The Fund agrees to redeem for cash, on 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 by the Fund or its designee of the request for redemption. For
purposes of this Section 1.5, 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 that the Fund receives
notice of such request for redemption on the next following Business Day.
Payment for Fund shares redeemed by the Company and its Accounts shall be made
in federal funds transmitted by wire to the Company or any person properly
designated in writing by the Company, such funds to be transmitted by 6:00 p.m.
Boston time on the next Business Day after the Fund receives actual notice of
the redemption order for the shares, except that the Fund reserves the right to
delay payment of redemption proceeds to the extent permitted by the 1940 Act,
any rules or regulations or orders thereunder, or the Fund's prospectus.
1.6 The Company agrees that purchases and redemptions of
Portfolio shares offered by the then current prospectus of the Fund shall be
made in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the variable annuity contracts with the
form number(s) which are listed on Schedule A attached hereto and incorporated
herein by this reference, as such Schedule A may be amended from time to time
hereafter by mutual written agreement of all the parties hereto, (the
"Contracts") shall be invested in the Fund, in such other Funds advised by the
Adviser as may be mutually agreed to in writing by the parties hereto, or in the
Company's general account, provided that such amounts may also be invested in an
investment company other than the Fund or other funds advised by the Adviser.
-3-
<PAGE> 4
1.7 The Company shall pay for Fund shares on the next Business
Day after an order to purchase Fund shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. For purposes of Sections 2.10 and 2.11, upon receipt by the Fund of the
federal funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Fund.
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.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or
telephone, followed by written confirmation) to the Company or any income,
dividends or capital gain distributions payable on the Fund's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain 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 (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
1.11 Any material errors in the calculation of net asset
value, dividends or capital gain information shall be reported immediately upon
discovery to the Company. An error shall be deemed "material" based on the
Fund's interpretation of the SEC's position and policy with regard to
materiality, as it may be modified from time to time.
Article II. Representations and Warranties
2.1 The Company represents and warrants that the variable
annuity contracts with the form number(s) which are listed on Schedule A
attached hereto and incorporated herein by reference, as such Schedule A may be
amended from time to time hereafter by mutual agreement of all the parties
hereto (the "Contracts") are or will be registered under the 1933 Act or will be
exempt from registration under the 1933 Act; that the Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Title 40, Section 506.2 of the Pennsylvania Statute and has
registered or, prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts, or will
be exempt from such registration.
-4-
<PAGE> 5
2.2 The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the Commonwealth
of Pennsylvania and all applicable federal and state securities laws and that
the Fund is and shall remain registered under the 1940 Act during the term of
the Agreement. 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.
2.3 The 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 qualifications (under Subchapter M or any successor or similar 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.
2.4 The Company represents that the Contracts are currently
treated as endowment or annuity insurance contracts, under applicable provisions
of the Code and that it will make every effort to maintain such treatment and
that it will notify the Fund and the Underwriter immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
2.5 (a) With respect to Initial Class shares, the Fund
currently does not intend to make any payments to finance distributions expenses
pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it may make
such payments in the future. The Fund has adopted a "no fee" or "defensive" Rule
12b-1 Plan under which it makes no payments for distribution expenses. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
the Fund undertakes to have a 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.
(b) With respect to Service Class shares and Service Class
2 shares, the Fund has adopted a Rule 12b-1 under which it makes payments to
finance distribution expenses. The Fund represents and warrants that it has a
board of trustees, a majority of whom are not interested persons of the Fund,
which has formulated and approved the Fund's Rule 12b-1 Plan to finance
distribution expenses of the Fund and that any changes to the Fund's Rule 12b-1
Plan will be approved by a similarly constituted board of trustees.
2.6 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 or regulations of the
various states except that the Fund represents that the Fund's investment
policies, fees and expenses are and shall at all times remain in compliance with
the laws of the Commonwealth of Pennsylvania and the Fund and the Underwriter
represent that their respective operations are and shall at all times remain in
material compliance with the laws of the Commonwealth of Pennsylvania to the
extent required to perform this Agreement.
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<PAGE> 6
2.7 The Underwriter represents and warrants that it is a
member in good standing of the NASD and is registered as a broker-dealer with
the SEC. The Underwriter further represents that it will sell and distribute the
Fund shares in accordance with the laws of the Commonwealth of Pennsylvania and
all applicable state and federal 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 the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act.
2.9 The Underwriter represents and warrants that the Adviser
is and shall remain duly registered in all material respects under all
applicable federal and state securities laws and that the Adviser shall perform
its obligations for the Fund in compliance in all material respects with the
laws of the Commonwealth of Pennsylvania 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 dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(a) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
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, and that said bond is issued by a reputable bonding company, includes
coverage for larceny and embezzlement, and is in an amount not less than $5
million. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
Article III. Prospectuses and Proxy Statements; Voting
3.1 The Underwriter shall provide the Company with as many
printed copies of the Fund's current prospectus and Statement of Additional
Information as the Company may reasonably request. If requested by the Company
in lieu thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have the
Statement of Additional Information for the Fund and the Statement of Additional
Information for the Contracts printed together in one document.
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<PAGE> 7
Alternatively, the Company may print the Fund's prospectus and/or its Statement
of Additional Information in combination with other fund companies' prospectuses
and statements of additional information. Except as provided in the following
three sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall be
borne by the Fund. If the Company chooses to receive camera-ready film in lieu
of receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.
The Company agrees to provide the Fund or its designee with
such information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of printing any prospectuses or
Statements of Additional Information other than those actually distributed to
existing owners of the Contracts.
3.2 The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3 The Fund, at its expense, shall provide the Company with
copies of its proxy statements, reports to shareholders, and other
communications (except for prospectuses and Statements of Additional
Information, which are covered in Section 3.1) to shareholders in such quantity
as the Company shall reasonably require for distributing to Contract owners.
3.4 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with
instructions received from Contract owners; and
(iii) vote Fund shares for which no instructions have
been received in a particular separate account in
the same proportion as Fund shares of such
portfolio for which instructions have been received
in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. 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 the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
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<PAGE> 8
3.5 The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(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 Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees 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 its designee, each piece of sales literature or other promotional
material in which the Fund or its investment 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 its designee reasonably objects 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 its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee 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 and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
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 Contract
owners, or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company.
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
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<PAGE> 9
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 Securities and Exchange Commission 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 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, any
of the following that refer to the Fund or any affiliate of the Fund:
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, 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, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
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 the Underwriter may make payments to the Company or
to the underwriter for the Contracts if and in amounts agreed to by the
Underwriter in writing and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter or other
resources available to the Underwriter. No such payments shall be made directly
by the Fund.
5.2 All expenses incident to performance by the Fund under
this Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
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<PAGE> 10
5.3 The Company shall bear the expenses of distributing the
Fund's prospectus, proxy materials and reports to owners of Contracts issued by
the Company.
Article VI. Diversification; Regulatory Matters
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 Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the 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 the event of a breach of this Article VI by the Fund, it 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 Regulation 1.817-5.
6.2 The Fund and/or the Underwriter shall immediately notify
the Company of (i) the issuance by any court or regulatory body of any stop
order, cease and desist order, or other similar order (but not including an
order of a regulatory body exempting or approving a proposed transaction or
arrangement) with respect to the Fund's registration statement or the prospectus
of any series or class of shares; (ii) the initiation of any proceedings for
that purpose or for any other purposes relating to the registration or offering
of the Fund shares; or (iii) any other action or circumstances that may prevent
the lawful offer or sale of Fund shares of any class or series in any state or
jurisdiction, including, without limitation, any circumstance in which (A) such
shares are not registered and, in all material respects, issued and sold in
accordance with applicable federal law or (B) such law precludes the use of such
shares as an underlying investment medium for the Contracts. The Fund will make
every reasonable effort to prevent the issuance of any such stop order, cease
and desist order or similar order and, if any such order is issued, to obtain
the lifting thereof at the earliest possible time.
Article VII. Potential Conflicts
7.1 The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed, (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
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<PAGE> 11
7.2 The Company will report any potential or existing
conflicts of which it is aware to the Board. The Company will assist the Board
in carrying out its responsibilities under the Shared Funding Exemptive Order,
by providing the Board with all information reasonably necessary for the Board
to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever contract owner voting
instructions are disregarded.
7.3 If it is determined by a majority of the Board, or a
majority of its disinterested trustees, that a material irreconcilable conflict
exists, the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority of
the disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the 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 material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
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<PAGE> 12
7.6 For purposes of Sections 7.3 through 7.6 of this
Agreement, a majority of the disinterested members of the Board shall determine
whether any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new funding
medium for the Contracts. The Company shall not be required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 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 Shared Funding Exemptive Order) on terms and
conditions materially different from those. contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 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.
Article VIII. Indemnification
8.1 Indemnification By The Company
8.1 (a) The Company agrees to indemnify and hold harmless the
Fund and each trustee of the Board and officers and each person, if any, who
controls or is affiliated with the Fund within the meaning of the 1933 Act or
the 1940 Act (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 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 are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any
material fact contained in the registration
statement or prospectus for the Contracts or
contained in the Contracts or sales literature for
the Contracts (or any amendment or supplement to
any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to
state therein a material fact required to be
stated therein or necessary to make the statements
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<PAGE> 13
therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Company by or on behalf of the
Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts
or sales literature (or any amendment or
supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature 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 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 Company; or
(iv) arise as a result of any failure by the Company 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
Company in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8.1(b)
and 8.1(c) hereof.
8.1 (b) The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from 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 or to the Fund, whichever is applicable.
8.1 (c) The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any
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<PAGE> 14
such action is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with counsel
reasonably satisfactory to the party named in the action. After notice from the
Company to such party of the Company's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.1 (d) The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the Contracts or the
operation of the Fund.
8.2 Indemnification by the Underwriter
8.2 (a) The Underwriter agrees to indemnify and hold harmless
the Company and each of its directors and officers and each person, if any, who
controls or is affiliated with the Company within the meaning of the 1933 Act or
the 1940 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Underwriter) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any
material fact contained in the registration
statement 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 Underwriter or Fund by or on behalf of the
Company 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 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 registration
statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or
persons under its control) or wrongful conduct of
the Fund, Adviser or Underwriter or persons under
their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
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<PAGE> 15
(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 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
Underwriter or 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 specified in Article VI 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; as limited by and in
accordance with the provisions of Sections 8.2(b)
and 8.2(c) hereof.
8.2 (b) The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or asserted against an Indemnified Party, as
such may arise from 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 or to each Company or the Account, whichever is applicable.
8.2 (c) The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense of such action. The Underwriter
also shall be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the party named in the action. After notice from the Underwriter
to such party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2 (d) The Company agrees promptly to notify the Underwriter
of the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of each Account.
-15-
<PAGE> 16
8.3 Indemnification By the Fund
8.3 (a) The Fund agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(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
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith or willful misconduct of the Board
or any member thereof, are related to the operations of the Fund and:
(i) 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 to comply with the diversification
requirements specified in Article VI of this
Agreement);or
(ii) 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;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3 (b) The Fund shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Fund, the Underwriter or each
Account, whichever is applicable.
8.3 (c) The Fund shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to. notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
-16-
<PAGE> 17
8.3 (d) The Company and the Underwriter agree promptly to
notify the Fund of the commencement of any litigation or proceedings against it
or any of its respective officers or directors in connection with this
Agreement, the issuance or sale of the Contracts, with respect to the operation
of either Account, or the sale or acquisition of shares of the Fund.
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 Commonwealth of
Massachusetts.
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
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
Article X. Termination
10.1 This Agreement shall continue in full force and effect
until the first to occur of:
(a) termination by any party for any reason by sixty (60)
days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to meet
the requirements of the Contracts; or
(c) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M
of the Code or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in Article VI
hereof, or
-17-
<PAGE> 18
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment exercised in
good faith, that the Company has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the
Fund and the Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material adverse
publicity; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at the time such notice
was given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given; or
(i) termination by the Company upon institution of formal
proceedings against the Fund or the Underwriter (but only with regard to the
Fund) by the NASD, the SEC or any state securities or insurance commission or
any other regulatory body; or
(j) termination by the Company if the Fund or Underwriter
is in material breach of a provision of this Agreement, which breach has not
been cured to the satisfaction of the Company within 10 days after written
notice of such breach has been delivered to the Fund or the Underwriter, as the
case may be.
10.2 Effect of Termination. Notwithstanding any termination of
this Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). 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 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement. The provisions of Article VIII and Section 12.2 shall survive any
termination of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to
the Contracts (as opposed to Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request the Company will promptly
-18-
<PAGE> 19
furnish to the Fund and the Underwriter the opinion of counsel for the Company
(which counsel shall be reasonably satisfactory to the Fund and the Underwriter)
to the effect that any redemption pursuant to clause (H) above is a Legally
Required Redemption. Furthermore, except in cases where permitted under the
terms of the Contracts, the Company shall not prevent Contract Owners from
allocating payments to a Portfolio that was otherwise available under the
Contracts without first giving the Fund or the Underwriter 90 days notice of its
intention to do so.
Article XI. 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:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Providentmutual Life and Annuity Company of America
1000 Chesterbrook Boulevard
Berwyn, Pennsylvania 19312
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
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 Board, officers, agents nor shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as confidential all
information reasonably identified as confidential in writing by any other party
hereto and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such confidential information until such time as it may
come into the public domain without the express written consent of the affected
party. Notwithstanding anything herein to the contrary, the names and addresses
and other information concerning the Contractholders, are and shall remain the
Company's sole property, and neither the Funds, the Underwriter nor their
affiliates shall use such names, addresses or other information for any
-19-
<PAGE> 20
purpose except in connection with the performance of their duties and
responsibilities hereunder and except for servicing and informational mailing
relating to the Fund.
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 Each party hereto shall cooperate with each other party
and all appropriate governmental authorities (including without limitation the
SEC, the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8 This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written consent of
all parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
The Company shall promptly notify the Fund and the Underwriter of any change in
control of the Company.
12.9 The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report (prepared under generally
accepted accounting principles ("GAAP"), if any), as soon as practical and in
any event within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 45 days after the
end of each quarterly period;
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
-20-
<PAGE> 21
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as practical after the
filing thereof;
(e) any other report submitted to the Company by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Company, as soon as practical after the receipt
thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative.
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
By: /s/Alan F. Hinkle
-----------------------------------------
Name: Alan F. Hinkle
---------------------------------------
Title: VP and Actuary
--------------------------------------
VARIABLE INSURANCE PRODUCTS FUND III
By: /s/Robert C. Pozen
-----------------------------------------
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/Kevin J. Kelly
-----------------------------------------
Kevin J. Kelly
Vice President
-21-
<PAGE> 22
Schedule A
Separate Accounts and Associated Contracts
<TABLE>
<CAPTION>
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors Funded by Separate Account
-------------------------------------- --------------------------
<S> <C>
Providentmutual Variable Annuity Separate Flexible Premium Deferred Variable Annuity
Account - (May 9, 1991) Contract (VIP Extra Credit) - Form VA210
Flexible Premium Deferred Variable Annuity
Contract (VIP Premier) - Form VA211
</TABLE>
-22-
<PAGE> 23
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the
Underwriter as early as possible before the date set by the Fund for
the shareholder meeting to facilitate the establishment of tabulation
procedures. At this time the Underwriter will inform the Company of the
Record, Mailing and Meeting dates. This will be done verbally
approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run,"
or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by
the Company either before or together with the Customers' receipt of a
proxy statement. Underwriter will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which
this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Legal Department of the Underwriter or its affiliate ("Fidelity
Legal") must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed by
the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
-23-
<PAGE> 24
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to
Company for insertion into envelopes (envelopes and return envelopes
are provided and paid for by the Insurance Company). Contents of
envelope sent to Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company)
addressed to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is
a small, single sheet of paper that requests
Customers to vote as quickly as possible and that
their vote is important. One copy will be supplied by
the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes
-24-
<PAGE> 25
of vote tabulation. Any Cards that have "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to
why they did not complete the system. Any questions on those Cards are
usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. Fidelity Legal will provide a standard form for each
Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
-25-
<PAGE> 1
Exhibit (8)(i)
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this 17th day of April, 2000, by
and among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA, a Delaware
corporation (the "Company") on its own behalf and on behalf of each of the
segregated asset accounts of the Company set forth in Schedule A hereto, as may
be amended from time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL
SERVICES COMPANY, a Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, certain series of shares of the Trust are divided into two
separate share classes, an Initial Class and a Service Class, and the Trust on
behalf of the Service Class has adopted a Rule 12b-1 plan under the 1940 Act
pursuant to which the Service Class pays a distribution fee;
WHEREAS, the series of shares of the Trust (each, a "Portfolio," and,
collectively, the "Portfolios") and the classes of shares of those Portfolios
(the "Shares") offered by the Trust to the Company and the Accounts are set
forth on Schedule A attached hereto;
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
<PAGE> 2
WHEREAS, the Company will issue certain variable annuity and/or
variable life insurance contracts (individually, the "Policy" or, collectively,
the "Policies") which, if required by applicable law, will be registered under
the 1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolution of the Board of Directors of the
Company, to set aside and invest assets attributable to the aforesaid variable
annuity and/or variable life insurance contracts that are allocated to the
Accounts (the Policies and the Accounts covered by this Agreement, and each
corresponding Portfolio covered by this Agreement in which the Accounts invest,
is specified in Schedule A attached hereto as may be modified from time to
time);
WHEREAS, the Company has registered or will register the Accounts as
unit investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered
as a broker-dealer with the Securities and Exchange Commission (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. (the "NASD");
WHEREAS, 1717 Capital Management Company ("1717"), the underwriter for
the individual variable annuity and the variable life policies, is registered as
a broker-dealer with the SEC under the 1934 Act and is a member in good standing
of the NASD; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase the Shares of the Portfolios as
specified in Schedule A attached hereto on behalf of the Accounts to fund the
Policies, and the Trust intends to sell such Shares to the Accounts at net asset
value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
MFS, and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1 The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that
Business Day, as defined below) and which are available for purchase by
such Accounts, executing such orders on a daily basis at the net asset
value next computed after receipt by the Trust or its designee of the
order for the Shares. For purposes of this Section 1.1, the Company
shall be the designee of the Trust for receipt of such orders from
Policy owners and receipt by such designee shall constitute receipt by
the Trust; provided that the Trust receives notice of such orders by
10:00 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange, Inc. (the
"NYSE") is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the SEC.
-2-
<PAGE> 3
1.2 The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and
the Accounts on those days on which the Trust calculates its net asset
value pursuant to rules of the SEC and the Trust shall calculate such
net asset value on each day which the NYSE is open for trading.
Notwithstanding the foregoing, the Board of Trustees of the Trust (the
"Board") may refuse to sell any Shares to the Company and the Accounts,
or suspend or terminate the offering of the Shares 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 in the best interest of the Shareholders of such Portfolio.
1.3 The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements
with the Trust and MFS (the "Participating Insurance Companies") and
their separate accounts, qualified pension and retirement plans and MFS
or its affiliates. The Trust and MFS will not sell Trust shares to any
insurance company or separate account unless an agreement containing
provisions substantially the same as Articles III and VII of this
Agreement is in effect to govern such sales. The Company will not
resell the Shares except to the Trust or its agents.
1.4 The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed
by Policy owners on that Business Day), executing such requests on a
daily basis at the net asset value next computed after receipt by the
Trust or its designee of the request for redemption. For purposes of
this Section 1.4, the Company shall be the designee of the Trust for
receipt of requests for redemption from Policy owners and receipt by
such designee shall constitute receipt by the Trust; provided that the
Trust receives notice of such request for redemption by 10:00 a.m. New
York time on the next following Business Day.
1.5 Each purchase, redemption and exchange order placed by the Company
shall be placed separately for each Portfolio and shall not be netted
with respect to any Portfolio. However, with respect to payment of the
purchase price by the Company and of redemption proceeds by the Trust,
the Company and the Trust shall net purchase and redemption orders with
respect to each Portfolio and shall transmit one net payment for all of
the Portfolios in accordance with Section 1.6 hereof.
1.6 In the event of net purchases, the Company shall pay for the Shares
by 4:00 p.m. New York time on the next Business Day after an order to
purchase the Shares is made in accordance with the provisions of
Section 1.1 hereof. In the event of net redemptions, the Trust shall
pay the redemption proceeds by 4:00 p.m. New York time on the next
Business Day after an order to redeem the shares is made in accordance
with the provisions of Section 1.4 hereof. All such payments shall be
in federal funds transmitted by wire.
1.7 Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts.
The Shares ordered from the Trust
-3-
<PAGE> 4
will be recorded in an appropriate title for the Accounts or the
appropriate subaccounts of the Accounts.
1.8 The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any dividends or
capital gain distributions payable on the Shares. The Company hereby
elects to receive all such dividends and distributions as are payable
on a Portfolio's Shares in additional Shares of that Portfolio. The
Trust shall notify the Company of the number of Shares so issued as
payment of such dividends and distributions.
1.9 The Trust or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day 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 6:30 p.m. New York time. In the event that the
Trust is unable to meet the 6:30 p.m. time stated herein, it shall
provide additional time for the Company to place orders for the
purchase and redemption of Shares. Such additional time shall be equal
to the additional time which the Trust takes to make the net asset
value available to the Company. If the Trust provides materially
incorrect share net asset value information, the Trust shall make an
adjustment to the number of shares purchased or redeemed for the
Accounts to reflect the correct net asset value per share. Any material
error in the calculation or reporting of net asset value per share,
dividend or capital gains information shall be reported promptly upon
discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1 The Company represents and warrants that the Policies are or will
be registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold,
and distributed in compliance in all material respects with all
applicable state and federal laws, including without limitation the
1933 Act, the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the 1940 Act. 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
the Account as a segregated asset account under applicable law and has
registered or, prior to any issuance or sale of the Policies, will
register the Accounts as unit investment trusts in accordance with the
provisions of the 1940 Act (unless exempt therefrom) to serve as
segregated investment accounts for the Policies, and that it will
maintain such registration for so long as any Policies are outstanding.
The Company shall amend the registration statements under the 1933 Act
for the Policies and the registration statements under the 1940 Act for
the Accounts from time to time as required in order to effect the
continuous offering of the Policies or as may otherwise be required by
applicable law. The Company shall register and qualify the Policies for
sales 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 and warrants that the Policies are currently
and at the time of issuance will be treated as life insurance,
endowment or annuity contract under
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applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), that it will maintain such treatment and that it will
notify the Trust or MFS immediately upon having a reasonable basis for
believing that the Policies have ceased to be so treated or that they
might not be so treated in the future.
2.3 The Company represents and warrants that 1717, the underwriter for
the individual variable annuity and the variable life policies, is a
member in good standing of the NASD and is a registered broker-dealer
with the SEC. The Company represents and warrants that the Company and
1717 will sell and distribute such policies in accordance in all
material respects with all applicable state and federal securities
laws, including without limitation the 1933 Act, the 1934 Act, and the
1940 Act.
2.4 The Trust and MFS represent and warrant that the Shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of The
Commonwealth of Massachusetts and all applicable federal and state
securities laws and that the Trust is and shall remain registered under
the 1940 Act. The Trust 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
Trust shall register and qualify the Shares for sale in accordance with
the laws of the various states only if and to the extent deemed
necessary by the Trust.
2.5 MFS represents and warrants that the Underwriter is a member in
good standing of the NASD and is registered as a broker-dealer with the
SEC. The Trust and MFS represent that the Trust and the Underwriter
will sell and distribute the Shares in accordance in all material
respects with all applicable state and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940
Act.
2.6 The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that
it does and will comply in all material respects with the 1940 Act and
any applicable regulations thereunder.
2.7 MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it
shall perform its obligations for the Trust in compliance in all
material respects with any applicable federal securities laws and with
the securities laws of The Commonwealth of Massachusetts. MFS
represents and warrants that it is not subject to state securities laws
other than the securities laws of The Commonwealth of Massachusetts and
that it is exempt from registration as an investment adviser under the
securities laws of The Commonwealth of Massachusetts.
2.8 No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably
request so that it may carry out fully the obligations imposed upon it
by the conditions contained in the exemptive application pursuant to
which the SEC has granted exemptive relief to permit mixed and shared
funding (the "Mixed and Shared Funding Exemptive Order").
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ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1 At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the
Shares as the Company may reasonably request for distribution to
existing Policy owners whose Policies are funded by such Shares. The
Trust or its designee shall provide the Company, at the Company's
expense, with as many copies of the current prospectus for the Shares
as the Company may reasonably request for distribution to prospective
purchasers of Policies. If requested by the Company in lieu thereof,
the Trust or its designee shall provide such documentation (including a
"camera ready" copy of the new prospectus as set in type or, at the
request of the Company, as a diskette in the form sent to the financial
printer) and other assistance as is reasonably necessary in order for
the parties hereto once each year (or more frequently if the prospectus
for the Shares is supplemented or amended) to have the prospectus for
the Policies and the prospectus for the Shares printed together in one
document; the expenses of such printing to be apportioned between (a)
the Company and (b) the Trust or its designee in proportion to the
number of pages of the Policy and Shares' prospectuses, taking account
of other relevant factors affecting the expense of printing, such as
covers, columns, graphs and charts; the Trust or its designee to bear
the cost of printing the Shares' prospectus portion of such document
for distribution to owners of existing Policies funded by the Shares
and the Company to bear the expenses of printing the portion of such
document relating to the Accounts; provided, however, that the Company
shall bear all printing expenses of such combined documents where used
for distribution to prospective purchasers or to owners of existing
Policies not funded by the Shares. In the event that the Company
requests that the Trust or its designee provides the Trust's prospectus
in a "camera ready" or diskette format, the Trust shall be responsible
for providing the prospectus in the format in which it or MFS is
accustomed to formatting prospectuses and shall bear the expense of
providing the prospectus in such format (e.g., typesetting expenses),
and the Company shall bear the expense of adjusting or changing the
format to conform with any of its prospectuses.
3.2 The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or
its designee. The Trust or its designee, at its expense, shall print
and provide such statement of additional information to the Company (or
a master of such statement suitable for duplication by the Company) for
distribution to any owner of a Policy funded by the Shares. The Trust
or its designee, at the Company's expense, shall print and provide such
statement to the Company (or a master of such statement suitable for
duplication by the Company) for distribution to a prospective purchaser
who requests such statement or to an owner of a Policy not funded by
the Shares.
3.3 The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Trust's
proxy materials, reports to Shareholders and other communications to
Shareholders in such quantity as the Company shall reasonably require
for distribution to Policy owners.
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<PAGE> 7
3.4 Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above,
or of Article V below, the Company shall pay the expense of printing or
providing documents to the extent such cost is considered a
distribution expense. Distribution expenses would include by way of
illustration, but are not limited to, the printing of the Shares'
prospectus or prospectuses for distribution to prospective purchasers
or to owners of existing Policies not funded by such Shares.
3.5 The Trust hereby notifies the Company that it may be appropriate to
include in the prospectus pursuant to which a Policy is offered
disclosure regarding the potential risks of mixed and shared funding.
3.6 If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions
received from Policy owners; and
(c) vote the Shares for which no instructions have been
received in the same proportion as the Shares of such
Portfolio for which instructions have been received
from Policy owners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass through voting privileges for variable
contract owners. The Company will in no way recommend action in
connection with or oppose or interfere with the solicitation of proxies
for the Shares held for such Policy owners. The Company reserves the
right to vote 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 holding Shares calculates voting privileges in the manner
required by the Mixed and Shared Funding Exemptive Order. The Trust and
MFS will notify the Company of any changes of interpretations or
amendments to the Mixed and Shared Funding Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other
promotional material in which the Trust, MFS, any other investment
adviser to the Trust, or any affiliate of MFS are named, at least three
(3) Business Days prior to its use. No such material shall be used if
the Trust, MFS, or their respective designees reasonably objects to
such use within three (3) Business Days after receipt of such material.
4.2 The Company shall not give any information or make any
representations or statement on behalf of the Trust, MFS, any other
investment adviser to the Trust, or any affiliate of MFS or concerning
the Trust or any other such entity in connection with the sale of the
Policies other than the information or representations contained in the
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<PAGE> 8
registration statement, prospectus or statement of additional
information for the Shares, as such registration statement, prospectus
and statement of additional information may be amended or supplemented
from time to time, or in reports or proxy statements for the Trust, or
in sales literature or other promotional material approved by the
Trust, MFS or their respective designees, except with the permission of
the Trust, MFS or their respective designees. The Trust, MFS or their
respective designees each agrees to respond to any request for approval
on a prompt and timely basis. The Company shall adopt and implement
procedures reasonably designed to ensure that information concerning
the Trust, MFS or any of their affiliates which is intended for use
only by brokers or agents selling the Policies (i.e., information that
is not intended for distribution to Policy owners or prospective Policy
owners) is so used, and neither the Trust, MFS nor any of their
affiliates shall be liable for any losses, damages or expenses relating
to the improper use of such broker only materials.
4.3 The Trust or its designee 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 and/or
the Accounts is named, at least three (3) Business Days prior to its
use. No such material shall be used if the Company or its designee
reasonably objects to such use within three (3) Business Days after
receipt of such material.
4.4 The Trust and MFS shall not give, and agree that the Underwriter
shall not give, any information or make any representations on behalf
of the Company or concerning the Company, the Accounts, or the Policies
in connection with the sale of the Policies other than the information
or representations contained in a registration statement, prospectus,
or statement of additional information for the Policies, as such
registration statement, prospectus and statement of additional
information may be amended or supplemented from time to time, or in
reports for the Accounts, or in sales literature or other promotional
material approved by the Company or its designee, except with the
permission of the Company. The Company or its designee agrees to
respond to any request for approval on a prompt and timely basis. The
parties hereto agree that this Section 4.4 is neither intended to
designate nor otherwise imply that MFS is an underwriter or distributor
of the Policies.
4.5 The Company and the Trust (or its designee in lieu of the Company
or the Trust, as appropriate) will each provide to the other 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 Policies, or to the Trust or its
Shares, prior to or contemporaneously with the filing of such document
with the SEC or other regulatory authorities. The Company and the Trust
shall also each promptly inform the other of the results of any
examination by the SEC (or other regulatory authorities) that relates
to the Policies, the Trust or its Shares, and the party that was the
subject of the examination shall provide the other party with a copy of
relevant portions of any "deficiency letter" or other correspondence or
written report regarding any such examination.
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<PAGE> 9
4.6 The Trust and MFS will provide the Company with as much notice as
is reasonably practicable of any proxy solicitation for any Portfolio,
and of any material change in the Trust's registration statement,
particularly any change resulting in change to the registration
statement or prospectus or statement of additional information for any
Account. The Trust and MFS will cooperate with the Company so as to
enable the Company to solicit proxies from Policy owners or to make
changes to its prospectus, statement of additional information or
registration statement, in an orderly manner. The Trust and MFS will
make reasonable efforts to attempt to have changes affecting Policy
prospectuses become effective simultaneously with the annual updates
for such prospectuses.
4.7 For purpose of this Article IV and Article VIII, 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), and sales literature (such as
brochures, circulars, reprints or excerpts or any other advertisement,
sales literature, or published articles), distributed or made generally
available to customers or the public, educational or training materials
or communications distributed or made generally available to some or
all agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1 The Trust shall pay no fee or other compensation to the Company
under this Agreement, and the Company shall pay no fee or other
compensation to the Trust, except that, to the extent the Trust or any
Portfolio has adopted and implemented a plan pursuant to Rule 12b-1
under the 1940 Act to finance distribution and for Shareholder
servicing expenses, then the Trust may make payments to the Company or
to the underwriter for the Policies in accordance with such plan. Each
party, however, shall, in accordance with the allocation of expenses
specified in Articles III and V hereof, reimburse other parties for
expenses initially paid by one party but allocated to another party. In
addition, nothing herein shall prevent the parties hereto from
otherwise agreeing to perform, and arranging for appropriate
compensation for, other services relating to the Trust and/or to the
Accounts.
5.2 The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable
federal and state laws, including preparation and filing of the Trust's
registration statement, and payment of filing fees and registration
fees; preparation and filing of the Trust's proxy materials and reports
to Shareholders; setting in type and printing its prospectus and
statement of additional information (to the extent provided by and as
determined in accordance with Article III above); setting in type and
printing the proxy materials and reports to Shareholders (to the extent
provided by and as determined in accordance with Article III above);
the preparation of all statements and notices required of the Trust by
any federal or state law with respect to its Shares; all taxes on the
issuance or transfer of the Shares; and the costs of distributing the
Trust's prospectuses and proxy materials to owners of Policies funded
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by the Shares and any expenses permitted to be paid or assumed by the
Trust pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act.
The Trust shall not bear any expenses of marketing the Policies.
5.3 The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies
and of distributing the Trust's Shareholder reports to Policy owners.
The Company shall bear all expenses associated with the registration,
qualification, and filing of the Policies under applicable federal
securities and state insurance laws; the cost of preparing, printing
and distributing the Policy prospectus and statement of additional
information; and the cost of preparing, printing and distributing
annual individual account statements for Policy owners as required by
state insurance laws.
5.4 MFS will quarterly reimburse the Company certain of the
administrative costs and expenses incurred by the Company as a result
of operations necessitated by the beneficial ownership by Policy owners
of shares of the Portfolios in the Trust, equal to 0.20% per annum of
the aggregate net assets of the Trust attributable to such Policy
owners. In no event shall such fee be paid by the Trust, its
shareholders or by the Policy holders.
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1 The Trust and MFS represent and warrant that each Portfolio of the
Trust will meet the diversification requirements of Section 817(h)(1)
of the Code and Treas. Reg. 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance
contracts, as they may be amended from time to time (and any revenue
rulings, revenue procedures, notices, and other published announcements
of the Internal Revenue Service interpreting these sections), as if
those requirements applied directly to each such Portfolio.
6.2 The Trust and MFS represent that each Portfolio will elect to be
qualified as a Regulated Investment Company under Subchapter M of the
Code and that they will maintain such qualification (under Subchapter M
or any successor or similar provision).
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1 The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for
the existence of any material irreconcilable conflict between the
interests of the variable annuity contract owners and the variable life
insurance policy owners of the Company and/or affiliated companies
("contract owners") investing in the Trust. The Board shall have the
sole authority to determine if a material irreconcilable conflict
exists, and such determination shall be binding on the Company only if
approved in the form of a resolution by a majority of the Board, or a
majority of the disinterested trustees of the Board. The Board will
give prompt notice of any such determination to the Company.
7.2 The Company agrees that it will be responsible for assisting the
Board in carrying out its responsibilities under the conditions set
forth in the Trust's exemptive application pursuant to which the SEC
has granted the Mixed and Shared Funding Exemptive Order by providing
the Board, as it may reasonably request, with all information necessary
for the Board to consider any issues raised and agrees that it will be
responsible for promptly reporting any potential or existing conflicts
of which it is aware to the Board including, but not limited to, an
obligation by the Company to inform the Board whenever contract
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<PAGE> 11
owner voting instructions are disregarded. The Company also agrees
that, if a material irreconcilable conflict arises, it will at its own
cost remedy such conflict up to and including (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or
submitting to a vote of all affected contract owners whether to
withdraw assets from the Trust or any Portfolio and reinvesting such
assets in a different investment medium and, as appropriate,
segregating the assets attributable to any appropriate group of
contract owners that votes in favor of such segregation, or offering to
any of the affected contract owners the option of segregating the
assets attributable to their contracts or policies, and (b)
establishing a new registered management investment company and
segregating the assets underlying the Policies, unless a majority of
Policy owners materially adversely affected by the conflict have voted
to decline the offer to establish a new registered management
investment company.
7.3 A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately
remedies any material irreconcilable conflict. In the event that the
Board determines that any proposed action does not adequately remedy
any material irreconcilable conflict, the Company will withdraw from
investment in the Trust each of the Accounts designated by the
disinterested trustees and terminate this Agreement within six (6)
months after the Board informs the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination
shall be limited to the extent required to remedy any such material
irreconcilable conflict as determined by a majority of the
disinterested trustees of the Board.
7.4 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the 1940 Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Mixed and Shared Funding
Exemptive Order) on terms and conditions materially different from
those contained in the Mixed and Shared Funding Exemptive Order, then
(a) the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with
Rule 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2,
7.3 and 7.4 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.
ARTICLE VIII. INDEMNIFICATION
8.1 Indemnification by the Company
The Company agrees to indemnify and hold harmless the Trust,
MFS, any affiliates of MFS, and each of their respective
directors/trustees, officers and each person, if any, who controls the
Trust or MFS within the meaning of Section 15 of the 1933 Act, and any
agents or employees of the foregoing (each an "Indemnified Party," or
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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 expenses (including reasonable counsel fees) to which any
Indemnified Party 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
are related to the sale or acquisition of the Shares or the Policies
and:
(a) 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
Policies or contained in the Policies or sales
literature or other promotional material for the
Policies (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 reasonable reliance upon and in
conformity with information furnished to the Company
or its designee by or on behalf of the Trust or MFS
for use in the registration statement, prospectus or
statement of additional information for the Policies
or in the Policies or sales literature or other
promotional material (or any amendment or supplement)
or otherwise for use in connection with the sale of
the Policies or Shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus, statement of additional
information or sales literature or other promotional
material of the Trust not supplied by the Company or
its designee, or persons under its control and on
which the Company has reasonably relied) or wrongful
conduct of the Company or persons under its control,
with respect to the sale or distribution of the
Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the
registration statement, prospectus, statement of
additional information, or sales literature or other
promotional literature of the Trust, 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 Trust by or on
behalf of the Company; or
(d) arise out of or result from any material breach of
any representation and/or warranty made by the
Company in this Agreement or arise out of or result
from any other material breach of this Agreement by
the Company; or
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(e) arise as a result of any failure by the Company to
provide the services and furnish the materials under
the terms of this Agreement;
as limited by and in accordance with the provisions of this Article
VIII.
8.2 Indemnification by the Trust
The Trust 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 1933 Act, and any agents or employees of
the foregoing (each an "Indemnified Party," or 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 Trust) or expenses (including reasonable counsel fees) to which
any Indemnified Party may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement, prospectus,
statement of additional information or sales
literature or other promotional material of the Trust
(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 statement 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 reasonable reliance upon and in
conformity with information furnished to the Trust,
MFS, the Underwriter or their respective designees by
or on behalf of the Company for use in the
registration statement, prospectus or statement of
additional information for the Trust or in sales
literature or other promotional material for the
Trust (or any amendment or supplement) or otherwise
for use in connection with the sale of the Policies
or Shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus, statement of additional
information or sales literature or other promotional
material for the Policies not supplied by the Trust,
MFS, the Underwriter or any of their respective
designees or persons under their respective control
and on which any such entity has reasonably relied)
or wrongful conduct of the Trust or persons under its
control, with respect to the sale or distribution of
the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the
registration statement, prospectus, statement of
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additional information, or sales literature or other
promotional literature of the Accounts or relating to
the Policies, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statement or statements
therein not misleading, if such statement or omission
was made in reliance upon information furnished to
the Company by or on behalf of the Trust, MFS or the
Underwriter; or
(d) arise out of or result from any material breach of
any representation and/or warranty made by the Trust
in this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to
comply with the diversification requirements
specified in Article VI of this Agreement) or arise
out of or result from any other material breach of
this Agreement by the Trust; or
(e) arise out of or result from the materially incorrect
or untimely calculation or reporting of the daily net
asset value per share or dividend or capital gain
distribution rate; or
(f) arise as a result of any failure by the Trust to
provide the services and furnish the materials under
the terms of the Agreement;
as limited by and in accordance with the provisions of this Article
VIII.
8.3 In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including without limitation, the Company, or any Participating
Insurance Company or any Policy holder, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result
from (i) a breach of any representation, warranty, and/or covenant made
by the Company hereunder or by any Participating Insurance Company
under an agreement containing substantially similar representations,
warranties and covenants; (ii) the failure by the Company or any
Participating Insurance Company to maintain its segregated asset
account (which invests in any Portfolio) as a legally and validly
established segregated asset account under applicable state law and as
a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom); or (iii) the failure by the Company
or any Participating Insurance Company to maintain its variable annuity
and/or variable life insurance contracts (with respect to which any
Portfolio serves as an underlying funding vehicle) as life insurance,
endowment or annuity contracts under applicable provisions of the Code.
8.4 Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to
any losses, claims, damages, liabilities or expenses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, willful misconduct, 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.
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8.5 Promptly after receipt by an Indemnified Party under this Section
8.5 of notice of commencement of any action, such Indemnified Party
will, if a claim in respect thereof is to be made against the
indemnifying party under this section, notify the indemnifying party of
the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any Indemnified Party otherwise than under this section. 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.
8.6 Each of the parties agrees promptly to notify the other parties of
the commencement of any litigation or proceeding against it or any of
its respective officers, directors, trustees, employees or 1933 Act
control persons in connection with the Agreement, the issuance or sale
of the Policies, the operation of the Accounts, or the sale or
acquisition of Shares.
8.7 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.
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 Commonwealth
of Massachusetts.
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 and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall
promptly notify the other parties to this Agreement, in writing, of the
institution of any formal proceedings brought against such party or its
designees by the NASD, the SEC, or any insurance department or any other
regulatory body regarding such party's duties under this Agreement or related to
the sale of the Policies, the operation of the Accounts, or the purchase of the
Shares.
-15-
<PAGE> 16
ARTICLE XI. TERMINATION
11.1 This Agreement shall terminate with respect to the Accounts, or
one, some, or all Portfolios:
(a) at the option of any party upon six (6) months'
advance written notice to the other parties; or
(b) at the option of the Company to the extent that the
Shares of Portfolios are not reasonably available to
meet the requirements of the Policies or are not
"appropriate funding vehicles" for the Policies, as
reasonably determined by the Company. Without
limiting the generality of the foregoing, the Shares
of a Portfolio would not be "appropriate funding
vehicles" if, for example, such Shares did not meet
the diversification or other requirements referred to
in Article VI hereof; or if the Company would be
permitted to disregard Policy owner voting
instructions pursuant to Rule 6e-2 or 6e-3(T) under
the 1940 Act. Prompt notice of the election to
terminate for such cause and an explanation of such
cause shall be furnished to the Trust by the Company;
or
(c) at the option of the Trust or MFS upon institution of
formal proceedings against the Company by the NASD,
the SEC, or any insurance department or any other
regulatory body regarding the Company's duties under
this Agreement or related to the sale of the
Policies, the operation of the Accounts, or the
purchase of the Shares; or
(d) at the option of the Company upon institution of
formal proceedings against the Trust by the NASD, the
SEC, or any state securities or insurance department
or any other regulatory body regarding the Trust's or
MFS' duties under this Agreement or related to the
sale of the Shares; or
(e) at the option of the Company, the Trust or MFS upon
receipt of any necessary regulatory approvals and/or
the vote of the Policy owners having an interest in
the Accounts (or any subaccounts) to substitute the
shares of another investment company for the
corresponding Portfolio Shares in accordance with the
terms of the Policies for which those Portfolio
Shares had been selected to serve as the underlying
investment media. The Company will give thirty (30)
days' prior written notice to the Trust of the Date
of any proposed vote or other action taken to replace
the Shares; or
(f) termination by either the Trust or MFS by written
notice to the Company, if either one or both of the
Trust or MFS respectively, shall determine, in their
sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its
business, operations, financial condition,
-16-
<PAGE> 17
or prospects since the date of this Agreement or is
the subject of material adverse publicity; or
(g) termination by the Company by written notice to the
Trust and MFS, if the Company shall determine, in its
sole judgment exercised in good faith, that the Trust
or MFS has suffered a material adverse change in this
business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) at the option of any party to this Agreement, upon
another party's material breach of any provision of
this Agreement; or
(i) upon assignment of this Agreement, unless made with
the written consent of the parties hereto.
11.2 The notice shall specify the Portfolio or Portfolios, Policies
and, if applicable, the Accounts as to which the Agreement is to be
terminated.
11.3 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised
for cause or for no cause.
11.4 Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations,
the Company shall not redeem the Shares attributable to the Policies
(as opposed to the Shares attributable to the Company's assets held in
the Accounts), and the Company shall not prevent Policy owners from
allocating payments to a Portfolio that was otherwise available under
the Policies, until thirty (30) days after the Company shall have
notified the Trust of its intention to do so.
11.5 Notwithstanding any termination of this Agreement the Trust and
MFS shall, at the option of the Company, continue to make available
additional shares of the Portfolios pursuant to the terms and
conditions of this Agreement, for all Policies in effect on the
effective date of termination of this Agreement (the "Existing
Policies"), except as otherwise provided under Article VII of this
Agreement. Specifically, without limitation, the owners of the Existing
Policies shall be permitted to transfer or reallocate investment under
the Policies, redeem investments in any Portfolio and/or invest in the
Trust upon the making of additional purchase payments under the
Existing Policies.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail, overnight courier or facsimile 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.
-17-
<PAGE> 18
If to the Trust:
MFS VARIABLE INSURANCE TRUST
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, Secretary
If to the Company:
PROVIDENT MUTUAL
1050 West Lakes Drive
Berwyn, PA 19312-2419
Facsimile No.: (610) 407-1528
Attn: Nancy Mitchell
If to MFS:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. MISCELLANEOUS
13.1 Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and,
except as permitted by this Agreement or as otherwise required by
applicable law or regulation, shall not disclose, disseminate or
utilize such names and addresses and other confidential information
without the express written consent of the affected party until such
time as it may come into the public domain.
13.2 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.
13.3 This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the
same instrument.
13.4 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.
-18-
<PAGE> 19
13.5 The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6 Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state insurance
regulators) relating to this Agreement or the transactions contemplated
hereby.
13.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws.
13.8 A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument
are not binding upon any of the Trust's trustees, officers, employees,
agents or shareholders individually, but are binding solely upon the
assets and property of the Trust in accordance with its proportionate
interest hereunder. The Company further acknowledges that the assets
and liabilities of each Portfolio are separate and distinct and that
the obligations of or arising out of this instrument are binding solely
upon the assets or property of the Portfolio on whose behalf the Trust
has executed this instrument. The Company also agrees that the
obligations of each Portfolio hereunder shall be several and not joint,
in accordance with its proportionate interest hereunder, and the
Company agrees not to proceed against any Portfolio for the obligations
of another Portfolio.
-19-
<PAGE> 20
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
PROVIDENT MUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
--------------------------------
By its authorized officer,
By: /s/ Alan F. Hinkle
--------------------------------
Title: Executive Vice President & Chief Actuary
--------------------------------
MFS VARIABLE INSURANCE TRUST,
ON BEHALF OF THE PORTFOLIOS
By its authorized officer and not individually,
By: /s/ James R. Bordewick, Jr.
--------------------------------
James R. Bordewick, Jr.
Assistant Secretary
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: /s/ Jeffrey L. Shames
--------------------------------
Jeffrey L. Shames
Chairman and Chief Executive Officer
-20-
<PAGE> 21
As of ____________________
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
Name of Separate Account and
Date Established by Board of Policies Funded by Share Class (Initial or Portfolios Applicable to
Directors Separate Account Service Class) Policies
- -------------------------------- ------------------------- ----------------------- ------------------------
<S> <C> <C> <C>
Providentmutual Variable Annuity Flexible Premium Deferred Service Class MFS Emerging Growth
Separate Account Variable Annuity Contract MFS Growth with Income
May 9, 1991 (VIP Extra Credit) - MFS Research
Form VA210 MFS New Discovery
Flexible Premium Deferred
Variable Annuity Contract
(VIP Premier) -
Form VA211
</TABLE>
<PAGE> 1
Exhibit 8(k)
SERVICES AGREEMENT
The terms and conditions of this Services Agreement between Pacific
Investment Management Company ("PIMCO") and Providentmutual Life and Annuity
Company of America (the "Company") are effective as of December 1, 1999.
WHEREAS, the Company, PIMCO Funds Distributors LLC and PIMCO Variable
Insurance Trust (the "Trust") have entered into a Fund Participation Agreement
dated December 1, 1999, as may be amended from time to time (the "Participation
Agreement"), pursuant to which the Company, on behalf of certain of its separate
accounts (the "Separate Accounts"), purchases shares ("Shares") of certain
Portfolios of the Trust ("Portfolios") to serve as an investment vehicle under
certain variable annuity and/or variable life insurance contracts ("Variable
Contracts") offered by the Company, which Portfolios may be one of several
investment options available under the Variable Contracts; and
WHEREAS, PIMCO recognizes that it will derive substantial savings in
administrative expenses by virtue of having a sole shareholder rather than
multiple shareholders in connection with each Separate Account's investments in
the Portfolios, and that in the course of soliciting applications for Variable
Contracts issued by the Company and in servicing owners of such Variable
Contracts, the Company will provide information about the Trust and its
Portfolios from time to time, answer questions concerning the Trust and its
Portfolios, including questions respecting Variable Contract owners' interests
in one or more Portfolios, and provide services respecting investments in the
Portfolios; and
WHEREAS, PIMCO wishes to compensate the Company for the efforts of the
Company in providing written and oral information and services regarding the
Trust to Variable Contract owners; and
WHEREAS, the following represents the collective intention and
understanding of the service fee agreement between PIMCO and the Company.
NOW, THEREFORE, in consideration of their mutual promises, the Company
and PIMCO agree as follows:
1. Services. The Company and/or its affiliates agree to provide
services ("Services") to owners of Variable Contracts including, but not limited
to: teleservicing support in connection with the Portfolios; delivery of current
Trust prospectuses, reports, proxies and proxy statements and other
informational materials; facilitation of the tabulation of Variable Contract
owners' votes in the event of a Trust shareholder vote; maintenance of Variable
Contract records reflecting Shares purchased and redeemed and Share balances,
and the conveyance of that information to the Trust or PIMCO as may be
reasonably requested; provision of support services, including providing
information about the Trust and its Portfolios and answering questions
concerning the Trust and its Portfolios, including questions respecting Variable
Contract owners' interests in one or more Portfolios; provision and
administration of Variable Contract features for the benefit of Variable
Contract owners in connection with the Portfolios, which may include fund
transfers, dollar cost averaging, asset allocation, portfolio rebalancing,
<PAGE> 2
earnings sweep, and pre-authorized deposits and withdrawals; and provision of
other services as may be agreed upon from time to time.
2. Compensation. In consideration of the Services, PIMCO agrees to pay
to the Company a service fee at an annual rate equal to twenty-five (25) basis
points (0.25%) of the average daily value of the Shares held in the Separate
Accounts. Such payments will be made monthly in arrears. For purposes of
computing the payment to the Company under this paragraph 2, the average daily
value of Shares held in the Separate Accounts over a monthly period shall be
computed by totaling such Separate Accounts' aggregate investment (Share net
asset value multiplied by total number of Shares held by such Separate Accounts)
on each business day during the calendar month, and dividing by the total number
of business days during such month. The payment to the Company under this
paragraph 2 shall be calculated by PIMCO at the end of each calendar month and
will be paid to the Company within 30 days thereafter. Payment will be
accompanied by a statement showing the calculation of the monthly amounts
payable by PIMCO and such other supporting data as may be reasonably requested
by the Company.
3. Term. This Services Agreement shall remain in full force and effect
for an initial term of one year, and shall automatically renew for successive
one year periods. This Services Agreement may be terminated by either party
hereto upon 30 days written notice to the other. This Services Agreement shall
terminate automatically upon the redemption of all Shares held in the Separate
Accounts, upon termination of the Participation Agreement, upon a material,
unremedied breach of the Participation Agreement, as to a Portfolio upon
termination of the investment advisory agreement between the Trust, on behalf of
such Portfolio and PIMCO, or upon assignment of the Participation Agreement by
either the Company or PIMCO. Notwithstanding the termination of this Services
Agreement, PIMCO will continue to pay the service fees in accordance with
paragraph 2 so long as net assets of the Separate Accounts remain in a
Portfolio, provided such continued payment is permitted in accordance with
applicable law and regulation.
4. Amendment. This Services Agreement may be amended only upon mutual
agreement of the parties hereto in writing.
5. Effect on Other Terms, Obligations and Covenants. Nothing herein
shall amend, modify or supersede any contractual terms, obligations or covenants
among or between any of the Company, PIMCO or the Trust previously or currently
in effect, including those contractual terms, obligations or covenants contained
in the Participation Agreement.
-2-
<PAGE> 3
In witness whereof, the parties have caused their duly authorized
officers to execute this Services Agreement.
PACIFIC INVESTMENT MANAGEMENT COMPANY
/s/Brent R. Harris
By: Brent R. Harris
Title: Chairman
Date: 12/30/99
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
/s/Alan F. Hinkle
By: Alan F. Hinkle
Title: Vice President and Actuary
Date: 12/23/99
-3-
<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. 1 of the Registration Statement on
Form N-4 (File No.333-88163) 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. 1 to the Registration Statement
(Nos. 333-88163/811-6484) 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. 1 to the Registration Statement under the Securities Act of 1933, as
amended, filed on Form N-4 (File No. 333-88163) for the Providentmutual Variable
Annuity Separate Account, of the following reports:
1. Our report dated February 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 Information".
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
April 24, 2000
<PAGE> 1
Exhibit (13)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
Variable Annuity Separate Account
MONEY MARKET SUBACCOUNT
7-DAY CURRENT YIELD
CURRENT YIELD = (( NCS-ES)/UV /7) x 365
where NCS = the net change in the value of the
Portfolio (exclusive of realized gains or losses
on the sale of securities and unrealized
appreciation and depreciation) for the 7-day
period attributable to a hypothetical account
having a balance of 1 Subaccount unit
ES = AAC + ADMIN
where ES = per unit expenses of the Subaccount for the
7-day period
AAC = per unit Annual Annuity Charges deducted for the
7-day period
ADMIN = per unit Administration Charges deducted for the
7-day period
= (40 / AAV / 365 )
where AAV = average account value of contracts on the last
day of the 7-day period
= $40,000
UV = the unit value on the first day of the 7-day
period
= 10.0000
<TABLE>
<CAPTION>
DATE NCS AAC ADMIN
- ---- --- ---- -----
<S> <C> <C> <C>
Dec 31 .00145279 .00003836 .00000274
Dec 30 .00154151 .00003836 .00000274
Dec 29 .00149846 .00003836 .00000274
Dec 28 .00157104 .00003836 .00000274
Dec 27 .00152850 .00011507 .00000822
Dec 26 - - -
Dec 25 - - -
------------ ----------------- ---------
.00759230 .00026851 .00001918
</TABLE>
((.00759230 - .00026851 - .00001918)/10 / 7) x 365 = 3.81% = 7-day Current Yield
at December 31, 1999
7-DAY EFFECTIVE YIELD
EFFECTIVE YIELD = (1 + (NCS - ES) /UV) (365/7) - 1
= 3.88% = 7-Day Effective Yield at December 31, 1999
<PAGE> 2
Average Annual Total Return
Total Return = ((ERV/P) (1/n) - 1)
where P = a hypothetical initial investment of $1,000
n = number of years
ERV = the ending redeemable value, reflecting surrender charges.
= EV - SC
EV = the ending value, at the end of the applicable period, of a
hypothetical $1,000 investment made at the beginning of the
applicable period. It is assumed all dividends and capital
gains distributions are reinvested.
= 1,000 x (EUV / BUV - ADMIN)
EUV = Unit value at the end of the period
BUV = Unit value at the beginning of the period
ADMIN = Annual Administrative Fee attributable to the hypothetical
account for the period
= (40 / AAV / 365) x No. of days in the period
AAV = Average Account Value of contracts on last day of the period
= $40,000
SC = Surrender Charge assuming surrender at the end of the
applicable period = SC% x (Minimum of P and (EV - FPA% x
CAVSY))
SC% = Surrender Charge percentage assuming surrender at the end of
the applicable period (See Surrender Charge.)
FPA% = Free Partial Amount percentage assuming surrender at the end
of the applicable period (See Free Partial Amount.)
CAVSY = Contact Account Value at start of Contract Year (P in year 1)
= EV / DF
DF = Discount Factor
= (( EV / P ) (1/n)) (m)
m = number of years from the start of the Contract Year to the end
of the applicable period
MARKET STREET FUND GROWTH SUBACCOUNT
1 Year (12/31/98 to 12/31/99)
EV = 1,000 x (1082.2247 / 1065.6727 - .001) = 1,014.53
SC = .08 x (Minimum of $1,000 and (1,014.53 - .1 x 1,000.00))
= 73.16
CAVSY = 1,000.00
ERV = 1,014.53 - 73.16 = 941.37
Total Return = (941.37 / 1,000) - 1 = -5.86%
5 Year (12/31/94 to 12/31/99)
EV = 1,000 x (1082.2247 / 511.4457 - .005) = 2,111.01
SC = .08 x (Minimum of $1,000 and (2,111.01 - .1 x 1,817.99))
= 80.00
CAVSY = 2,111.01 / 1.1612
= 1,817.99
DF = (( 2,111.01 / 1,000.00 ) (1/5)) (1)
= 1.1612
ERV = 2,111.01 - 80.00 = 2,031.01
Total Return = (2,031.01 /1,000)(1/5) - 1 = 15.22%
<PAGE> 3
Since Inception (4/14/92 to 12/31/99)
EV = 1,000 x (1082.2247 / 457.3651 - .00771) = 2,358.51
SC = .035 x (Minimum of $1,000 and (2,358.51 - .1 x 2,179.16))
= 35.00
CAVSY = 2,358.51 / 1.0823
= 2,179.16
DF = (( 2,358.51 / 1,000.00 ) (1/7.7111)) (.7111)
= 1.0823
ERV = 2,358.51 - 35.00 = 2,323.51
Total Return = (2,323.51 / 1,000)(1/7.7111) - 1 = 11.55%
MARKET STREET FUND BOND SUBACCOUNT
1 Year (12/31/98 to 12/31/99)
EV = 1,000 x (608.1934 / 637.9203 - .001) = 952.40
SC = .08 x (Minimum of $1,000 and (952.40 - .1 x 1,000.00))
= 68.19
CAVSY = 1,000.00
ERV = 952.40 - 68.19 = 884.21
Total Return = (884.21 / 1,000) - 1 = -11.58%
5 Year (12/31/94 to 12/31/99)
EV = 1,000 x (608.1934 / 459.5487 - .005) = 1,318.46
SC = .08 x (Minimum of $1,000 and (1,318.46 - .1 x 1,247.48))
= 80.00
CAVSY = 1,318.46 / 1.0569
= 1,247.48
DF = (( 1,318.46 / 1,000.00 ) (1/5)) (1)
= 1.0569
ERV = 1,318.46 - 80.00 = 1,238.46
Total Return = (1,238.46 /1,000)(1/5) - 1 = 4.37%
Since Inception (4/14/92 to 12/31/99)
EV = 1,000 x (608.1934 / 431.1657 - .00771) = 1,402.87
SC = .035 x (Minimum of $1,000 and (1,402.87 - .1 x 1,359.77))
= 35.00
CAVSY = 1,402.87 / 1.0317
= 1,359.77
DF = (( 1,402.87 / 1,000.00 ) (1/7.7111)) (.7111)
= 1.0317
ERV = 1,402.87 - 35.00 = 1,367.87
Total Return = (1,367.87 / 1,000)(1/7.7111) - 1 = 4.15%
<PAGE> 4
MARKET STREET FUND MONEY MARKET SUBACCOUNT
1 Year (12/31/98 to 12/31/99)
EV = 1,000 x (618.7272 / 598.0598 - .001) = 1,033.56
SC = .08 x (Minimum of $1,000 and (1,033.56 - .1 x 1,000.00))
= 74.68
CAVSY = 1,000.00
ERV = 1,033.56 - 74.68 = 958.88
Total Return = (958.88 / 1,000) - 1 = -4.11%
5 Year (12/31/94 to 12/31/99)
EV = 1,000 x (618.7272 / 513.3015 - .005) = 1,200.39
SC = .08 x (Minimum of $1,000 and (1,200.39 - .1 x 1,157.34))
= 80.00
CAVSY = 1,200.39 / 1.0372
= 1,157.34
DF = (( 1,200.39 / 1,000.00 ) (1/5)) (1)
= 1.0372
ERV = 1,200.39 - 80.00 = 1,120.39
Total Return = (1,120.39 /1,000)(1/5) - 1 = 2.30%
Since Inception (4/14/92 to 12/31/99)
EV = 1,000 x (618.7272 / 490.3156 - .00771) = 1,254.19
SC = .035 x (Minimum of $1,000 and (1,254.19 - .1 x 1,228.27))
= 35.00
CAVSY = 1,254.19 / 1.0211
= 1,228.27
DF = (( 1,254.19 / 1,000.00 ) (1/7.7111)) (.7111)
= 1.0211
ERV = 1,254.19 - 35.00 = 1,219.19
Total Return = (1,219.19 / 1,000)(1/7.7111) - 1 = 2.60%
<PAGE> 5
Other Average Annual Total Return
Total Return = ((EV/P) (1/n) - 1)
where P = a hypothetical initial investment of $1,000
n = number of years
EV = the ending value, at the end of the applicable period, of a
hypothetical $1,000 investment made at the beginning of the
applicable period. It is assumed all dividends and capital
gains distributions are reinvested.
= 1,000 x (EUV / BUV - ADMIN)
EUV = Unit value at the end of the period
BUV = Unit value at the beginning of the period
ADMIN = Annual Administrative Fee attributable to the hypothetical
account for the period
= (40 / AAV / 365) x No. of days in the period
AAV = Average Account Value of contracts on last day of the
period
= $40,000
MARKET STREET FUND GROWTH SUBACCOUNT
1 Year (12/31/98 to 12/31/99)
EV = 1,000 x (1082.2247 / 1065.6727 - .001) = 1,014.53
Total Return = (1,014.53 / 1,000) - 1 = 1.45%
5 Year (12/31/94 to 12/31/99)
EV = 1,000 x (1082.2247 / 511.4457 - .005) = 2,111.01
Total Return = (2,111.01 / 1,000)(1/5) - 1 = 16.12%
Since Inception (4/14/92 to 12/31/99)
EV = 1,000 x (1082.2247 / 457.3651 - .00771) = 2,358.51
Total Return = (2,358.51 / 1,000)(1/7.7111) - 1 = 11.77%
MARKET STREET FUND BOND SUBACCOUNT
1 Year (12/31/98 to 12/31/99)
EV = 1,000 x (608.1934 / 637.9203 - .001) = 952.40
Total Return = (952.40 / 1,000) - 1 = -4.76%
5 Year (12/31/94 to 12/31/99)
EV = 1,000 x (608.1934 / 459.5487 - .005) = 1,318.46
Total Return = (1,318.46 / 1,000)(1/5) - 1 = 5.68%
Since Inception (4/14/92 to 12/31/99)
EV = 1,000 x (608.1934 / 431.1657 - .00771) = 1,402.87
Total Return = (1,402.87 / 1,000)(1/7.7111) - 1 = 4.49%
<PAGE> 6
MARKET STREET FUND MONEY MARKET SUBACCOUNT
1 Year (12/31/98 to 12/31/99)
EV = 1,000 x (618.7272 / 598.0598 - .001) = 1,033.56
Total Return = (1,033.56 / 1,000) - 1 = 3.36%
5 Year (12/31/94 to 12/31/99)
EV = 1,000 x (618.7272 / 513.3015 - .005) = 1,200.39
Total Return = (1,200.39 / 1,000)(1/5) - 1 = 3.72%
Since Inception (4/14/92 to 12/31/99)
EV = 1,000 x (618.7272 / 490.3156 - .00771) = 1,254.19
Total Return = (1,254.19 / 1,000)(1/7.7111) - 1 = 2.98%
<PAGE> 7
Average Annual Total Return
Total Return = ((ERV/P) (1/n) - 1)
where P = a hypothetical initial investment of $1,000
n = number of years
ERV = the ending redeemable value, reflecting surrender charges.
= EV - SC
CREDRT = 3.00%
CRED = P x CREDRT
= $30.00
EV = the ending value, at the end of the applicable period, of a
hypothetical $1,000 investment made at the beginning of the
applicable period. It is assumed all dividends and capital
gains distributions are reinvested.
= (P + CRED) x (EUV / BUV - ADMIN)
EUV = Unit value at the end of the period
BUV = Unit value at the beginning of the period
ADMIN = Annual Administrative Fee attributable to the hypothetical
account for the period
= (40 / AAV / 365) x No. of days in the period
AAV = Average Account Value of contracts on last day of the period
= $40,000
SC = Surrender Charge assuming surrender at the end of the
applicable period = SC% x (Minimum of P and (EV - FPA% x
CAVSY))
SC% = Surrender Charge percentage assuming surrender at the end of
the applicable period (See Surrender Charge.)
FPA% = Free Partial Amount percentage assuming surrender at the end of
the applicable period (See Free Partial Amount.)
CAVSY = Contact Account Value at start of Contract Year (P in year 1)
= EV / DF
DF = Discount Factor
= (( EV / (P + CRED)) (1/n)) (m)
m = number of years from the start of the Contract Year to the end
of the applicable period
MARKET STREET FUND GROWTH SUBACCOUNT
1 Year (12/31/98 to 12/31/99)
EV = (1,000.00 + 30.00) x (1082.2247 / 1065.6727 - .001) = 1,044.97
SC = .08 x (Minimum of $1,000 and (1,044.97 - .1 x 1,000.00))
= 75.60
CAVSY = 1,000.00
ERV = 1,044.97 - 75.60 = 969.37
Total Return = (969.37 / 1,000) - 1 = -3.06%
5 Year (12/31/94 to 12/31/99)
EV = (1,000.00 + 30.00) x (1082.2247 / 511.4457 - .005) = 2,174.34
SC = .08 x (Minimum of $1,000 and (2,174.34 - .1 x 1,872.53))
= 80.00
CAVSY = 2,174.34 / 1.1612
= 1,872.53
DF = (( 2,174.34 / (1,000.00 + 30.00)) (1/5)) (1)
= 1.1612
ERV = 2,174.34 - 80.00 = 2,094.34
Total Return = (2,094.34 / 1,000)(1/5) - 1 = 15.94%
<PAGE> 8
Since Inception (4/14/92 to 12/31/99)
EV = (1,000.00 + 30.00) x (1082.2247 / 457.3651 - .00771)
= 2,429.26
SC = .035 x (Minimum of $1,000 and (2,429.26 - .1 x 2,244.45))
= 35.00
CAVSY = 2,429.26 / 1.0823
= 2,244.45
DF = (( 2,429.26 / (1,000.00 + 30.00) ) (1/7.7111)) (.7111)
= 1.0823
ERV = 2,429.26 - 35.00 = 2,394.26
Total Return = (2,394.26 / 1,000)(1/7.7111) - 1 = 11.99%
MARKET STREET FUND BOND SUBACCOUNT
1 Year (12/31/98 to 12/31/99)
EV = (1,000.00 + 30.00) x (608.1934 / 637.9203 - .001) = 980.97
SC = .08 x (Minimum of $1,000 and (980.97 - .1 x 1,000.00))
= 70.48
CAVSY = 1,000.00
ERV = 980.97 - 70.48 = 910.49
Total Return = (910.49 / 1,000) - 1 = -8.95%
5 Year (12/31/94 to 12/31/99)
EV = (1,000.00 + 30.00) x (608.1934 / 459.5487 - .005) = 1,358.01
SC = .08 x (Minimum of $1,000 and (1,358.01 - .1 x 1,284.96))
= 80.00
CAVSY = 1,358.01 / 1.0569
= 1,284.96
DF = (( 1,358.01 / (1,000.00 + 30.00) ) (1/5)) (1)
= 1.0569
ERV = 1,358.01 - 80.00 = 1,278.01
Total Return = (1,278.01 / 1,000)1/5 - 1 = 5.03%
Since Inception (4/14/92 to 12/31/99)
EV = (1,000.00 + 30.00) x (608.1934 / 431.1657 - .00771) = 1,444.95
SC = .035 x (Minimum of $1,000 and (1,444.95 - .1 x 1,400.54))
= 35.00
CAVSY = 1,444.95 / 1.0317
= 1,400.54
DF = (( 1,444.95 / (1,000.00 + 30.00) ) (1/7.7111)) (.7111)
= 1.0317
ERV = 1,444.95 - 35.00 = 1,409.95
Total Return = (1,409.95 / 1,000)(1/7.7111) - 1 = 4.56%
<PAGE> 9
MARKET STREET FUND MONEY MARKET SUBACCOUNT
1 Year (12/31/98 to 12/31/99)
EV = (1,000.00 + 30.00) x (618.7272 / 598.0598 - .001) = 1,064.56
SC = .08 x (Minimum of $1,000 and (1,064.56 - .1 x 1,000.00))
= 77.17
CAVSY = 1,000.00
ERV = 1,064.56 - 77.17 = 987.39
Total Return = (987.39 / 1,000) - 1 = -1.26%
5 Year (12/31/94 to 12/31/99)
EV = (1,000.00 + 30.00) x (618.7272 / 513.3015 - .005) = 1,236.40
SC = .08 x (Minimum of $1,000 and (1,236.40 - .1 x 1,192.05))
= 80.00
CAVSY = 1,236.40 / 1.0372
= 1,192.05
DF = (( 1,236.40 / (1,000.00 + 30.00) ) (1/5)) (1)
= 1.0372
ERV = 1,236.40 - 80.00 = 1,156.40
Total Return = (1,156.40 /1,000)(1/5) - 1 = 2.95%
Since Inception (4/14/92 to 12/31/99)
EV = (1,000.00 + 30.00) x (618.7272 / 490.3156 - .00771) = 1,291.81
SC = .035 x (Minimum of $1,000 and (1,291.81 - .1 x 1,265.11))
= 35.00
CAVSY = 1,291.81 / 1.0211
= 1,265.11
DF = (( 1,291.81 / (1,000.00 + 30.00) ) (1/7.7111)) (.7111)
= 1.0211
ERV = 1,291.81 - 35.00 = 1,256.81
Total Return = (1,256.81 / 1,000)(1/7.7111) - 1 = 3.01%
<PAGE> 10
Other Average Annual Total Return
Total Return = ((EV/P) (1/n) - 1)
where P = a hypothetical initial investment of $1,000
n = number of years
CREDRT = 3.00%
CRED = P x CREDRT
= $30.00
EV = the ending value, at the end of the applicable period, of a
hypothetical $1,000 investment made at the beginning of the
applicable period. It is assumed all dividends and capital
gains distributions are reinvested.
= (P + CRED) x (EUV / BUV - ADMIN)
EUV = Unit value at the end of the period
BUV = Unit value at the beginning of the period
ADMIN = Annual Administrative Fee attributable to the hypothetical
account for the period
= (40 / AAV / 365) x No. of days in the period
AAV = Average Account Value of contracts on last day of the period
= $40,000
MARKET STREET FUND GROWTH SUBACCOUNT
1 Year (12/31/98 to 12/31/99)
EV = (1,000.00 + 30.00) x (1082.2247 / 1065.6727 - .001)
= 1,044.97
Total Return = (1,044.97 / 1,000) - 1 = 4.50%
5 Year (12/31/94 to 12/31/99)
EV = (1,000.00 + 30.00) x (1082.2247 / 511.4457 - .005)
= 2,174.34
Total Return = (2,174.34 / 1,000)(1/5) - 1 = 16.81%
Since Inception (4/14/92 to 12/31/99)
EV = (1,000.00 + 30.00) x (1082.2247 / 457.3651 - .00771)
= 2,429.26
Total Return = (2,429.26 / 1,000)(1/7.7111) - 1 = 12.20%
MARKET STREET FUND BOND SUBACCOUNT
1 Year (12/31/98 to 12/31/99)
EV = (1,000.00 + 30.00) x (608.1934 / 637.9203 - .001) = 980.97
Total Return = (980.97 / 1,000) - 1 = -1.90%
5 Year (12/31/94 to 12/31/99)
EV = (1,000.00 + 30.00) x (608.1934 / 459.5487 - .005)
= 1,358.01
Total Return = (1,358.01 / 1,000)(1/5) - 1 = 6.31%
Since Inception (4/14/92 to 12/31/99)
EV = (1,000.00 + 30.00) x (608.1934 / 431.1657 - .00771)
= 1,444.95
Total Return = (1,444.95 / 1,000)(1/7.7111) - 1 = 4.89%
<PAGE> 11
MARKET STREET FUND MONEY MARKET SUBACCOUNT
1 Year (12/31/98 to 12/31/99)
EV = (1,000.00 + 30.00) x (618.7272 / 598.0598 - .001) = 1,064.56
Total Return = (1,064.56 / 1,000) - 1 = 6.46%
5 Year (12/31/94 to 12/31/99)
EV = (1,000.00 + 30.00) x (618.7272 / 513.3015 - .005) = 1,236.40
Total Return = (1,236.40 / 1,000)(1/5) - 1 = 4.34%
Since Inception (4/14/92 to 12/31/99)
EV = (1,000.00 + 30.00) x (618.7272 / 490.3156 - .00771) = 1,291.81
Total Return = (1,291.81 / 1,000)(1/7.7111) - 1 = 3.38%
