<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 1, 1996
FILE NO. 33-70926
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 3 /X/
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 5 /X/
PROVIDENT MUTUAL VARIABLE
ANNUITY SEPARATE ACCOUNT
(EXACT NAME OF REGISTRANT)
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY
(NAME OF DEPOSITOR)
1050 WESTLAKES DRIVE
BERWYN, PENNSYLVANIA 19312
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 407-1717
---------------------
<TABLE>
<S> <C>
COPY TO:
LINDA E. SENKER STEPHEN E. ROTH, ESQ.
SENIOR ASSOCIATE GENERAL COUNSEL SUTHERLAND, ASBILL & BRENNAN
PROVIDENT MUTUAL LIFE INSURANCE 1275 PENNSYLVANIA AVENUE, N.W.
COMPANY WASHINGTON, DC 20004
1050 WESTLAKES DRIVE (202) 383-0158
BERWYN, PENNSYLVANIA 19312
(NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on May 1, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of rule 485
PURSUANT TO RULE 24F-2(A)(1) UNDER THE INVESTMENT COMPANY ACT OF 1940, THE
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S
MOST RECENT YEAR WAS FILED ON FEBRUARY 27, 1996.
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<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO RULE 495
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required By Form N-4.
PART A
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
-------------------------------------------- --------------------------------------------
<S> <C> <C>
1. Cover Page.................................. Cover Page
2. Definitions................................. Definitions
3. Synopsis.................................... Table of Expenses; Summary
4. Condensed Financial Information............. Condensed Financial Information; Yields and
Total Returns
5. General Description of Registrant, Depositor
and Portfolio Companies..................... The Company, Variable Account and Funds
a. Depositor................................ The Company, Variable Account and Funds--
Provident Mutual Life Insurance Company
b. Registrant............................... The Company, Variable Account and Funds--
The Provident Mutual Variable Annuity
Separate Account
c. Portfolio Company........................ The Company, Variable Account and Funds--
The Market Street Fund, Inc.
d. Fund Prospectus.......................... The Market Street Fund, Inc.
e. Voting Rights............................ The Company, Variable Account and Funds--
Voting Rights
f. Administrators........................... N/A
6. Deductions and Expenses..................... Charges and Deductions
a. General.................................. Charges and Deductions
b. Sales Load %............................. Charges and Deductions--Surrender Chargey
c. Special Purchase Plan.................... N/A
d. Commissions.............................. Distribution of Contracts
e. Expenses--Registrant..................... Charges and Deductions
f. Fund Expenses............................ Charges and Deductions--Other Charges
Including Investment Advisory Fees of the
Fund
g. Organizational Expenses.................. N/A
7. General Description of Variable Annuity
Contracts................................... Description of Annuity Contract
a. (i) Allocation of Premium Payments...... Premiums; Allocation of Premiums
(ii) Transfers.............................. Description of Annuity Contract--Transfer
Privilege; Payments
(iii) Exchanges............................. N/A
b. Changes.................................. Description of Annuity
Contract--Modification
c. Inquiries................................ Description of Annuity Contract--Contract
Inquiries
8. Annuity Period.............................. Payment Options
</TABLE>
<PAGE> 3
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE> 4
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
HOME OFFICE: 1050 WESTLAKES DRIVE, BERWYN, PENNSYLVANIA 19312
TELEPHONE (610) 407-1717
ADMINISTRATIVE OFFICE: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19713
TELEPHONE: 1-800-654-7796
- --------------------------------------------------------------------------------
This Prospectus describes the individual flexible premium deferred variable
annuity contract ("Contract") being offered by Provident Mutual Life Insurance
Company ("Provident Mutual"), a life insurance company domiciled in
Pennsylvania. The Contract may be sold to or in connection with retirement plans
which may or may not qualify for special Federal tax treatment under the
Internal Revenue Code.
Premiums and Contract Values will be allocated, as designated by the Owner,
to one or more of the Subaccounts of the Provident Mutual Variable Annuity
Separate Account (the "Variable Account"), or the Guaranteed Account (which is
part of Provident Mutual's General Account and pays interest at declared rates
guaranteed to equal or exceed 3%), or both. The assets of each Subaccount will
be invested solely in a corresponding Portfolio of a designated mutual fund (the
"Funds"). The Accompanying Prospectuses for the Funds describe the Portfolios of
such Funds. The Contract Account Value prior to the Maturity Date, except for
amounts in the Guaranteed Account, will vary according to the investment
performance of the Portfolios of the Funds in which the selected Subaccounts are
invested. The Owner bears the entire investment risk of amounts allocated to the
Variable Account.
This Prospectus sets forth basic information about the Contract and the
Variable Account that a prospective investor ought to know before investing.
Additional information about the Contract and the Variable Account is contained
in the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission. The Statement of Additional Information is
dated the same as this Prospectus and is incorporated herein by reference. The
Table of Contents for the Statement of Additional Information is on Page 37 of
this Prospectus. You may obtain a copy of the Statement of Additional
Information free of charge by writing to or calling Provident Mutual at the
address or phone number for its Administrative Office shown above.
---------------
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS
PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FUNDS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE DATE OF THIS PROSPECTUS IS MAY 1, 1996
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions.......................................................................... 1
Table of Expenses.................................................................... 2
Summary.............................................................................. 7
Condensed Financial Information...................................................... 9
The Company, Variable Account and Funds.............................................. 10
Provident Mutual Life Insurance Company......................................... 10
The Provident Mutual Variable Annuity Separate Account.......................... 10
The Funds....................................................................... 11
The Market Street Fund, Inc................................................ 11
The Variable Insurance Products Fund and Variable Insurance Products Fund
II......................................................................... 12
The Scudder Variable Life Investment Fund.................................. 13
OCC for Value Accumulation Trust........................................... 14
The Dreyfus Variable Investment Fund....................................... 14
The Insurance Management Series............................................ 15
Resolving Material Conflicts............................................... 15
Addition, Deletion or Substitution of Investments.......................... 16
Description of Annuity Contract...................................................... 16
Issuance of a Contract.......................................................... 16
Premiums........................................................................ 17
Free Look Period................................................................ 17
Allocation of Premiums.......................................................... 17
Variable Account Value.......................................................... 17
Transfer Privilege.............................................................. 18
Withdrawals and Surrender....................................................... 20
Death Benefit Before Maturity Date.............................................. 21
Proceeds on Maturity Date....................................................... 22
Payments........................................................................ 22
Special Exchange Program........................................................ 23
Modification.................................................................... 24
Reports to Contract Owners...................................................... 24
Contract Inquiries.............................................................. 24
The Guaranteed Account............................................................... 24
Minimum Guaranteed and Current Interest Rates................................... 24
Transfers from Guaranteed Account............................................... 25
Payment Deferral................................................................ 25
Charges and Deductions............................................................... 25
Surrender Charge (Contingent Deferred Sales Charge)............................. 25
Administrative Charges.......................................................... 27
Transfer Processing Fee......................................................... 27
Mortality and Expense Risk Charge............................................... 27
Other Charges Including Investment Advisory Fees of the Funds................... 27
Premium Taxes................................................................... 28
Other Taxes..................................................................... 28
Payment Options...................................................................... 28
Election of Options............................................................. 28
Description of Options.......................................................... 28
Yields and Total Returns............................................................. 29
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Federal Tax Status................................................................... 30
Introduction.................................................................... 30
Tax Status of the Contract...................................................... 31
Taxation of Annuities........................................................... 32
Transfers, Assignments or Exchanges of a Contract............................... 33
Withholding..................................................................... 34
Multiple Contracts.............................................................. 34
Taxation of Qualified Plans..................................................... 34
Restrictions under Qualified Contracts.......................................... 35
Possible Charge for Provident Mutual's Taxes.................................... 35
Other Tax Consequences.......................................................... 35
Distribution of Contracts............................................................ 35
Legal Proceedings.................................................................... 36
Voting Rights........................................................................ 36
Financial Statements................................................................. 36
Statement of Additional Information Table of Contents................................ 37
</TABLE>
ii
<PAGE> 7
DEFINITIONS
ADMINISTRATIVE OFFICE....... Provident Mutual's office where annuity contracts
are administered located at 300 Continental
Drive, Newark, Delaware 19713.
ANNUITANT................... The person whose life determines the annuity
benefits payable under the Contract and whose
death determines the death benefit.
BENEFICIARY................. The person to whom the proceeds payable on the
death of the Owner or the Annuitant will be paid.
CASH SURRENDER VALUE........ The Contract Account Value less any applicable
surrender charge and any applicable Premium Tax
Charge.
CONTRACT ACCOUNT VALUE...... The sum of the Variable Account Value and the
Guaranteed Account Value.
CONTRACT YEARS, MONTHS, AND
ANNIVERSARIES.............. Are measured from the Contract Date.
GUARANTEED ACCOUNT.......... This account is part of Provident Mutual's
General Account and is not part of nor dependent
upon the investment performance of the Variable
Account.
MATURITY DATE............... The date when the Contract Account Value will be
applied under a Payment Option, unless the Owner
has elected to receive a lump sum payment of the
Cash Surrender Value.
NON-QUALIFIED CONTRACT...... A Contract that is not a "Qualified Contract."
OWNER....................... The person entitled to exercise all rights and
privileges provided in the Contract.
QUALIFIED CONTRACT.......... A Contract that is issued in connection with
plans that qualify for special Federal income tax
treatment under sections 401, 403, or 408 of the
Internal Revenue Code of 1986, as amended.
SUBACCOUNT.................. The Variable Account has Subaccounts; the assets
of each Subaccount are invested in a
corresponding Portfolio of a designated mutual
fund.
VALUATION DAY............... Each day on which valuation of the assets of a
Subaccount is required by applicable law.
VALUATION PERIOD............ The period that starts at the close of business
on one Valuation Day and ends at the close of
business on the next succeeding Valuation Day.
VARIABLE ACCOUNT............ Provident Mutual Variable Annuity Separate
Account which is not part of Provident Mutual's
General Account. The Variable Account has
Subaccounts each of which is invested in a
corresponding Portfolio of a designated mutual
fund.
WRITTEN NOTICE.............. A written request or notice in a form
satisfactory to Provident Mutual which is signed
by the Owner and received at the Administrative
Office.
1
<PAGE> 8
TABLE OF EXPENSES
The following information regarding expenses assumes that the entire
Contract Account Value is in the Variable Account.
<TABLE>
<S> <C> <C>
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Premiums......... none
Maximum Contingent Deferred Sales
Charge (as a percentage of amount
surrendered or withdrawn)(1)......... 6%
No fee for first twelve transfers in Contract Year;
Transfer Processing Fee................ $25 fee for each transfer thereafter during Contract Year.
ANNUAL ADMINISTRATION FEE.............. $30.00 per Contract Year
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of Variable Account
Value)
Mortality and Expense Risk Charges..... 1.25%
Account Fees and Expenses(2)........... .15%
---
Total Variable Account
Annual Expenses...................... 1.40%
</TABLE>
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------- ------------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND ANNUAL EXPENSES
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)........... 0.35% 0.25% 0.35% 0.40% 0.50% 0.75%
Other Expenses
(after any expense
reimbursement)(3)................. 0.27% 0.25% 0.25% 0.26% 0.27% 0.40%
------ -------- ------ ------- ----- -----
Total Fund Annual Expenses............. 0.62% 0.50% 0.60% 0.66% 0.77% 1.15%
</TABLE>
<TABLE>
<CAPTION>
HIGH EQUITY
INCOME INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------- -------------
<S> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND
ANNUAL EXPENSES(4)
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)........... 0.60% 0.52% 0.61%
Other Expenses
(after any expense
reimbursements)(3)................ 0.11% 0.09% 0.09%
------ -------- ------
Total Fund Annual Expenses............. 0.71% 0.61% 0.70%
</TABLE>
2
<PAGE> 9
<TABLE>
<CAPTION>
ASSET INDEX
MANAGER 500 CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------- -------------
<S> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND II
ANNUAL EXPENSES(4)
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)........... 0.71% 0.00% 0.61%
Other Expenses
(after any expense
reimbursement)(3)................. 0.08% 0.28% 0.11%
------ -------- ------
Total Fund Annual Expenses............. 0.79% 0.28% 0.72%
</TABLE>
<TABLE>
<CAPTION>
GROWTH &
BOND INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------- -------------
<S> <C> <C> <C>
SCUDDER VARIABLE LIFE INVESTMENT FUND
ANNUAL EXPENSES(4)
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)........... 0.475% 0.475% 0.875%
Other Expenses
(after any expense
reimbursement)(3).................... 0.085% 0.275% 0.205%
------ -------- ------
Total Fund Annual Expenses............. 0.56% 0.75% 1.080%
</TABLE>
<TABLE>
<CAPTION>
SMALL
EQUITY CAP MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------- -------------
<S> <C> <C> <C>
OCC ACCUMULATION TRUST
ANNUAL EXPENSES(4)
(as a percentage of average net
assets
Management Fees
(Investment Advisory Fees)........... 0.80% 0.80% 0.80%
Other Expenses
(after any expense
reimbursement)(3A)................... 0.20% 0.20% 0.14%
------ -------- ------
Total Fund Annual Expenses............. 1.00% 1.00% 0.94%
</TABLE>
<TABLE>
<CAPTION>
ZERO COUPON GROWTH SOCIALLY
2000 INCOME RESPONSIBLE
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------- -------------
<S> <C> <C> <C>
DREYFUS VARIABLE INVESTMENT FUND
ANNUAL EXPENSES(4)
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)........... 0.45% 0.75% 0.75%
Other Expenses
(after any expense
reimbursement)(3).................... 0.23% 0.17% 0.52%
------ -------- ------
Total Fund Annual Expenses............. 0.68% 0.92% 1.27%
</TABLE>
3
<PAGE> 10
<TABLE>
<CAPTION>
U.S. GOVERNMENT
BOND FUND UTILITY
PORTFOLIO PORTFOLIO
--------------- --------
<S> <C> <C>
INSURANCE MANAGEMENT SERIES
ANNUAL EXPENSES(4)
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)........... 0.60% 0.75%
Other Expenses
(after any expense
reimbursement)(3)................. 0.20% 0.10%
------ --------
Total Fund Annual Expenses............. 0.80% 0.85%
</TABLE>
Premium taxes may be applicable, depending on various states' laws.
The above tables are intended to assist the Owner in understanding the
costs and expenses that will be borne by the Contract Owner, directly or
indirectly. The tables reflect expenses of the Variable Account as well as for
the Funds for the 1995 calendar year. For a more complete description of the
various costs and expenses, see "Charges and Deductions," Page 25.
- ---------------
(1) A surrender charge is deducted only if a withdrawal or surrender occurs
during the first six Contract Years; no surrender charge is deducted for a
withdrawal or surrender in Contract Years seven and later. For the first
Contract Year, the maximum charge is 6% of the amount withdrawn or
surrendered. Thereafter, the surrender charge decreases by 1% each
subsequent Contract Year until it is zero in Contract Year seven. The
maximum total surrender charge will not exceed 8 1/2% of the total gross
premiums paid under the Contract. Subject to certain restrictions, after
the first Contract Year up to 10% of the Contract Account Value as of the
beginning of a Contract Year may be surrendered or withdrawn without charge
in such Contract Year. (See "Surrender Charge," Page 25.)
(2) Asset-based administration charge.
(3) For certain Portfolios, certain expenses were reimbursed and advisory fees
waived during 1995. It is anticipated that such expense reimbursement and
fee waiver arrangements will continue past the current year. Absent the
expense reimbursement, the 1995 total annual expenses would have been 0.47%
for the Fidelity Index 500 Portfolio; 0.81% for the Fidelity Asset Manager
Portfolio; 0.71% for the Dreyfus Zero Coupon 2000 Portfolio; 0.95% for the
Dreyfus Growth and Income Portfolio; 1.33% for the Dreyfus Socially
Responsible Portfolio; 5.61% for the Insurance Management U.S. Government
Bond Fund Portfolio and 3.09% for the Insurance Management Utility
Portfolio. Similar expense reimbursements 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 1995 for these Portfolios because the
level of actual expenses and fees never exceeded the thresholds at which
the reimbursement and waiver arrangements would have become operative.
(3A) The annual expenses of the OCC Accumulation Trust Equity, Managed and Small
Cap Portfolios as of December 31, 1995 have been restated to reflect new
management fee and expense limitation arrangements in effect as of May 1,
1996. Effective May 1, 1996, the expenses of the Portfolios of the OCC
Accumulation Trust are contractually limited by OpCap Advisors so that
their respective annualized operating expenses do not exceed 1.25% of their
respective average daily net assets. Furthermore, through April 30, 1997,
the annualized operating expenses of the OCC Accumulation Trust Equity,
Managed, and Small Cap Portfolios will be voluntarily limited by OpCap
Advisors so that annualized operating expenses of these Portfolios do not
exceed 1.00% of their respective average daily net assets. Without such
voluntary expense limitations, and taking into account the revised
contractual provisions effective May 1, 1996 concerning management fees and
expense limitations, the Management Fees, Other Expenses and Total
Portfolio Annual Expenses incurred for the fiscal year ended December 31,
1995 would have been: .80%, .45% and 1.25%, respectively, for the Equity
Portfolio; .80%, .14% and .94%, respectively, for the Managed Portfolio;
and .80%, .39% and 1.19%, respectively, for the Small Cap Portfolio.
4
<PAGE> 11
(4) The fee and expense information regarding the Funds was provided by those
Funds. The Variable Insurance Products Fund, the Variable Insurance
Products Fund II, the Scudder Variable Life Investment Fund, the OCC
Accumulation Trust, the Dreyfus Variable Investment Fund and the Insurance
Management Series are not affiliated with Provident Mutual. While Provident
Mutual has no reason to doubt the accuracy of these figures provided by
these non-affiliated Funds, Provident Mutual does not represent that they
are true and complete, and disclaims all responsibility for these figures.
EXAMPLES
An Owner would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets:
1. If the Contract is surrendered at the end of the applicable time period:
<TABLE>
<CAPTION>
10
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS YEARS
---------------------------------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
MS Growth..................................... $68.55 $ 97.74 $127.48 $251.49
MS Money Market............................... 67.35 94.06 121.17 238.59
MS Bond....................................... 68.35 97.13 126.43 249.35
MS Managed.................................... 68.95 98.97 129.58 255.76
MS Aggressive Growth.......................... 70.04 102.34 135.32 267.40
MS International.............................. 73.83 113.92 154.95 306.64
Fidelity High Income.......................... 71.44 106.62 142.59 282.03
Fidelity Equity-Income........................ 70.44 103.56 137.40 271.60
Fidelity Growth............................... 71.34 106.31 142.07 281.00
Fidelity Asset Manager........................ 72.23 109.06 146.73 290.30
Fidelity Contrafund........................... 71.54 106.92 143.11 283.07
Fidelity Index 500............................ 67.15 93.44 120.12 236.42
Quest Equity.................................. 71.54 106.92 143.11 283.07
Quest Small Cap............................... 71.74 107.53 144.14 285.14
Quest Managed................................. 70.94 105.09 140.00 276.83
Scudder Bond.................................. 69.94 102.03 134.80 266.35
Scudder Growth & Inc.......................... 71.84 107.84 144.66 286.18
Scudder International......................... 75.12 117.86 161.60 319.72
Dreyfus Growth & Inc.......................... 73.53 113.01 153.42 303.60
Dreyfus Socially Resp......................... 77.01 123.60 171.24 338.53
Dreyfus Zero Coupon 2000...................... 71.14 105.70 141.04 278.92
Federated Gov't Bond.......................... 72.33 109.36 147.24 291.33
Federated Utility............................. 72.83 110.88 149.82 296.46
</TABLE>
5
<PAGE> 12
2. If the Contract is not surrendered or is annuitized at the end of the
applicable time period:
<TABLE>
<CAPTION>
10
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS YEARS
---------------------------------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
MS Growth..................................... $22.16 $ 68.34 $117.12 $251.49
MS Money Market............................... 20.90 64.54 110.75 238.59
MS Bond....................................... 21.95 67.70 116.07 249.35
MS Managed.................................... 22.58 69.60 119.24 255.76
MS Aggressive Growth.......................... 23.73 73.07 125.04 267.40
MS International.............................. 27.71 85.01 144.88 306.64
Fidelity High Income.......................... 25.20 77.48 132.39 282.03
Fidelity Equity Income........................ 24.15 74.33 127.15 271.60
Fidelity Growth............................... 25.09 77.17 131.87 281.00
Fidelity Asset Manager........................ 26.04 79.99 136.57 290.30
Fidelity Contrafund........................... 25.30 77.79 132.91 283.07
Fidelity Index 500............................ 20.69 63.90 109.69 236.42
Quest Equity.................................. 25.30 77.79 132.91 283.07
Quest Small Cap............................... 25.51 78.42 133.96 285.14
Quest Managed................................. 24.67 75.91 129.77 276.83
Scudder Bond.................................. 23.62 72.76 124.52 266.35
Scudder Growth & Inc.......................... 25.62 78.74 134.48 286.18
Scudder International......................... 29.08 89.07 151.59 319.72
Dreyfus Growth & Inc.......................... 27.40 84.07 143.33 303.60
Dreyfus Socially Resp......................... 31.07 94.98 161.33 338.53
Dreyfus Zero Coupon 2000...................... 24.88 76.54 130.92 278.92
Federated Gov't Bond.......................... 26.14 80.31 137.09 291.33
Federated Utility............................. 26.66 81.87 139.69 296.46
</TABLE>
The Examples provided above assume that no transfer charges or premium
taxes have been assessed. The Examples also assume that the Annual
Administration Fee is $30 and that the Contract Account Value per contract is
$10,000, which translates the Administration Fee into an assumed .30% charged
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 LESSER THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER THAN THE
ASSUMED AMOUNT.
6
<PAGE> 13
SUMMARY
THE CONTRACT
Issuance of a Contract. The Contract is an individual flexible premium
deferred variable annuity issued by Provident Mutual. Contracts may be sold in
connection with retirement plans which may or may not qualify for special
Federal tax treatment under the Internal Revenue Code. In order to purchase a
Contract, application must be made to Provident Mutual through a licensed
Provident Mutual representative, who is also a registered representative of 1717
Capital Management Company ("1717") (formerly PML Securities Company) or a
broker/dealer having a selling agreement with 1717 or a broker/dealer having a
selling agreement with such broker/dealer. The minimum initial premium must be
paid to Provident Mutual. Annuity payments are deferred until the Maturity Date.
(See "Issuance of a Contract," Page 16.)
Free-Look Period. The Owner has the right to return the Contract within 10
days (or longer if required by New York law) after such Owner receives the
Contract. The returned Contract will be treated as if it were never issued.
Provident Mutual will return to the Owner an amount equal to the greater of the
premiums paid or the Contract Account Value plus charges deducted, except the
Mortality and Expense Risk Charge, Asset-Based Administration Charge and the
Funds' advisory fees and operating expenses. (See "Free-Look Period," Page 17.)
Premiums. The minimum amount which Provident Mutual will normally accept
as an initial premium is $2,000. Subsequent premiums of not less than $100 each
for Non-Qualified Contracts and $50 each for Qualified Contracts may be paid
under the Contract. A Planned Periodic Premium schedule may also be selected.
(See "Premiums," Page 16.)
Allocation of Premiums. Premiums under a Contract will be allocated, as
designated by the Owner, to one or more of the Subaccounts of the Variable
Account or to the Guaranteed Account or to both. The portion of the initial
premium which is to be allocated to the Variable Account will be allocated to
the Money Market Subaccount for a 15-day period. At the end of that period, the
amount in the Money Market Subaccount will be allocated to the chosen
Subaccounts. The assets of each Subaccount will be invested solely in a
corresponding Portfolio of a designated Fund. The Contract Account Value, except
for amounts in the Guaranteed Account, will vary according to the investment
performance of the Portfolios of the Fund in which the chosen Subaccounts are
invested. Interest will be credited to amounts in the Guaranteed Account at a
guaranteed minimum rate of 3% per year, or a higher current interest rate
declared by Provident Mutual. (See "Allocation of Premiums," Page 17.)
Transfers. On or before the Maturity Date, the Owner 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.
The total amount transferred each time must be at least $500 or the entire
amount in the Subaccount, if less. Only one transfer out of the Guaranteed
Account is allowed each Contract Year and must be made within 30 days of the
Contract Anniversary and is limited in amount. After twelve transfers during a
Contract Year, a Transfer Processing Fee of $25 will be assessed for each
additional transfer during such Contract Year. (See "Transfer Privilege," Page
18.)
Withdrawals. At any time before the earlier of the death of the Annuitant
or the Maturity Date, the Owner may withdraw part of the Cash Surrender Value
(Contract Account Value less any applicable Surrender Charge and any applicable
Premium Tax Charge), subject to certain limitations. (See "Withdrawals," Page
19.)
Surrender. Upon Written Notice received at the Administrative Office on or
before the earlier of the death of the Annuitant or the Maturity Date, the Owner
may surrender the full Contract value and receive its Cash Surrender Value
(Contract Account Value less any applicable Surrender Charge and any applicable
Premium Tax Charge). (See "Surrender," Page 20.)
7
<PAGE> 14
Death Benefit. If the Annuitant dies before the Maturity Date, the
Beneficiary will receive a death benefit. During the first six Contract years,
the death benefit will be equal to the greater of: the premiums paid less any
withdrawn amounts (including applicable Surrender Charges and Premium Tax
Charges) or the Contract Account Value on the date of receipt of due proof of
the Annuitant's death. After the end of the sixth Contract Year, the death
benefit will be equal to the greatest of:
1. the Contract Account Value as of the end of the sixth Contract Year less
subsequent amounts withdrawn including applicable Premium Tax Charges;
or
2. the Contract Account Value on the date of receipt of due proof of the
Annuitant's death; or
3. the premiums paid less any withdrawn amounts (including applicable
Surrender Charges and Premium Tax Charges).
If the Owner dies before the Maturity Date, the Contract Account Value (or if
the owner is also the Annuitant, the death benefit) must generally be
distributed to the Beneficiary within five years after the date of the Owner's
death. (See "Death Benefit Before Maturity Date," Page 21.)
CHARGES AND DEDUCTIONS
The following charges and deductions are made in connection with the
Contract:
Surrender Charge (Contingent Deferred Sales Charge). No charge for sales
expenses is deducted from premiums at the time premiums are paid. However, if a
Contract has not been in force for six full Contract Years, upon surrender or
for certain withdrawals a surrender charge is deducted from the amount of the
surrender or withdrawal.
For the first Contract Year, the charge is 6% of the amount withdrawn or
surrendered. Thereafter, the Surrender Charge decreases by 1% each subsequent
Contract Year. In no event will the total Surrender Charge on any one Contract
exceed 8 1/2% of the total gross premiums paid under the Contract. (See
"Surrender Charge," Page 25.)
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 during such Contract Year free of the Surrender Charge.
(See "Amounts Not Subject to Surrender Charge," Page 26.)
Annual Administration Fee. On each Contract Anniversary prior to and
including the Maturity Date, and on the Maturity Date if it is not a Contract
Anniversary, Provident Mutual deducts an Annual Administration Fee of $30 from
the Contract Account Value. The charge is also deducted upon surrender if the
surrender occurs on other than the Contract Anniversary. (See "Annual
Administration Fee," Page 26.)
Transfer Processing Fee. The first twelve transfers of amounts in the
Subaccounts and the Guaranteed Account each Contract Year are free. A $25
transfer charge will be assessed for each additional transfer during such
Contract Year. (See "Transfer Processing Fee," Page 27.)
Mortality and Expense Risk Charge. Provident Mutual deducts a daily
mortality and expense risk charge to compensate it for assuming certain
mortality and expense risks. On or prior to the Maturity Date, the charge is
deducted from the assets of the Variable Account at an annual rate of 1.25%
(approximately 0.70% for mortality risk and 0.55% for expense risks). (See
"Mortality and Expense Risk Charge," Page 27.)
Asset-Based Administration Charge. Provident Mutual deducts a daily
administration charge to compensate it for certain expenses it incurs in
administration of the Contract. On or prior to the Maturity Date, the charge is
deducted from the assets of the Variable Account at an annual rate of 0.15%.
(See "Asset-Based Administration Charge," Page 26).
Premium Taxes. If state premium taxes are applicable to a Contract, they
will be deducted from the Contract Account Value upon a withdrawal from or
surrender of the Contract, upon application of the Contract Account Value to a
Payment Option, or upon the payment of death benefit proceeds. (See "Premium
Taxes," Page 27.)
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<PAGE> 15
Investment Advisory Fees and Other Expenses of the Funds. Because the
Variable Account purchases shares of the Funds, the net assets of each
Subaccount of the Variable Account will reflect the investment advisory fee
incurred by the corresponding Portfolio of the Funds. For each Portfolio, an
investment advisor is paid a daily fee by the Funds for its investment advisory
services. The advisory fees are based on the average daily net assets of the
Portfolio, and, as a result, the amount of the advisory fee will depend upon the
Portfolio and the assets of such Portfolio. Each Portfolio of the Fund in which
the Variable Account invests is also responsible for its own expenses.
Presently, certain fees and expenses of the Funds are waived and reimbursed.
(See "Other Charges Including Investment Advisory Fees of the Funds," Page 27
and the Funds' Prospectuses.)
ANNUITY PROVISIONS
Maturity Date. On the Maturity Date, the Contract Account Value (less any
applicable Premium Tax Charge) will be applied under a Payment Option, unless
the Owner chooses to receive the Cash Surrender Value in a lump sum.
Payment Options. Payments under these options do not depend upon the
Variable Account's performance. The Payment Options are: Life Annuity; Life
Annuity with 10 Years Guaranteed; and Alternate Income Option. (See "Payment
Options," Page 28.)
FEDERAL TAX STATUS
Generally, a distribution (including a surrender, withdrawal or death
benefit payment) may result in adverse Federal income tax consequences. In
certain circumstances, a 10% penalty tax may apply. For a further discussion of
the Federal income status of Variable Annuity Contracts, see "Federal Tax
Status," Page 30.
CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the financial
statements of the Variable Account. The data should be read in conjunction with
the financial statements, related notes and other financial information included
in the Statement of Additional Information. See "Financial Statements," Page 36,
concerning financial statements contained in the Statement of Additional
Information.
The table below sets forth certain information regarding the Subaccounts as
of December 31, 1995.
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<PAGE> 16
<TABLE>
<CAPTION>
UNIT VALUE NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS
AS OF OUTSTANDING AS OF AS OF OUTSTANDING AS OF
SUBACCOUNT 12/31/95 12/31/95 12/31/94 12/31/94
- ---------------------------------------- ---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
MS Growth............................... 657.63 1246.84 511.45 298.94
MS Money Market......................... 534.58 3510.81 513.30 453.09
MS Bond................................. 545.35 366.16 459,55 134.18
MS Managed.............................. 592.07 272.65 482.84 67.77
MS Aggressive Growth.................... 584.65 376.84 522.44 98.84
MS International........................ 595.43 1329.83 528.22 190.49
Fidelity High Income.................... 604.03 1393.43 507.88 23.35
Fidelity Equity-Income.................. 710.92 2625.21 533.64 308.68
Fidelity Growth......................... 657.74 2143.41 492.73 173.34
Fidelity Asset Manager.................. 567.88 566.68 492.38 174.09
Fidelity Contrafund..................... -- -- -- --
Fidelity Index 500...................... 686.84 875.69 507.68 13.31
Quest Equity............................ 705.50 995.33 468.40 17.66
Quest Small Cap......................... 572.66 733.25 515.26 66.91
Quest Managed........................... 724.69 1152.25 503.97 152.34
Scudder Bond............................ 545.82 175.27 504.88 108.98
Scudder Growth & Inc.................... -- -- -- --
Scudder International................... -- -- -- --
Dreyfus Growth & Inc. .................. -- -- -- --
Dreyfus Socially Responsible............ -- -- -- --
Dreyfus Zero Coupon 2000................ 544.02 202.47 467.73 0.00
Federated Government Bond............... -- -- -- --
Federated Utility....................... -- -- -- --
</TABLE>
THE COMPANY, VARIABLE ACCOUNT AND FUNDS
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
The Contracts are issued by Provident Mutual Life Insurance Company
("Provident Mutual"). Provident Mutual was chartered by the Commonwealth of
Pennsylvania in 1865 and is currently licensed to transact life insurance
business in all states and the District of Columbia. At the end of 1995,
Provident Mutual had total assets of approximately $4.9 billion.
Provident Mutual is subject to regulation by the Insurance Department of
the Commonwealth of Pennsylvania as well as by the insurance departments of all
other states and jurisdictions in which it does business. Provident Mutual
submits annual statements on its operations and finances to insurance officials
in such states and jurisdictions. The forms for the Contact described in this
Prospectus are filed with and (where required) approved by insurance officials
in each state and jurisdiction in which Contracts are sold.
THE PROVIDENT MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT
The Provident Mutual Variable Annuity Separate Account is a separate
investment account of Provident Mutual, established by the Board of Directors of
Provident Mutual on October 19, 1992, under Pennsylvania law. Provident Mutual
has caused the Variable Account to be registered with the Securities and
Exchange Commission ("SEC") as a unit investment trust under the Investment
Company Act of 1940 ("1940 Act"). Such registration does not involve supervision
by the SEC of the management or investment policies or practices of the Variable
Account.
The assets of the Variable Account are owned by Provident Mutual. However,
these assets are held separate from other assets and are not part of Provident
Mutual's 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 Provident
Mutual conducts. Provident Mutual may
10
<PAGE> 17
transfer to its 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 value allocated to the
Variable Account under the Contracts).
The income, gains or losses, whether or not realized, from the assets of
each Subaccount of the Variable Account are credited to or charged against that
Subaccount without regard to any other income, gains or losses. Provident Mutual
may accumulate in the Variable Account the charge for expenses, mortality gains
and losses and investment results applicable to those assets that are in excess
of the net assets supporting the Contracts.
The Variable Account currently has twenty-three Subaccounts: Growth; Money
Market; Bond; Managed; Aggressive Growth; International; Fidelity High Income;
Fidelity Equity-Income; Fidelity Growth; Fidelity Asset Manager; Fidelity Index
500; Scudder Bond; Scudder Growth and Income; Scudder International; Quest for
Value Equity; Quest for Value Small Cap; Quest for Value Managed; Dreyfus Growth
and Income; Dreyfus Socially Responsible; Dreyfus Zero Coupon 2000; Federated
U.S. Government Bond; and Federated Utility. The assets of each Subaccount are
invested exclusively in shares of a corresponding Portfolio of a designated
Fund.
THE FUNDS
The Variable Account currently invests in portfolios of seven series-type
mutual funds; Market Street Fund, Inc.; Variable Insurance Products Fund;
Variable Insurance Products Fund II; Scudder Variable Life Investment Fund; OCC
Accumulation Trust; Dreyfus Variable Investment Fund; and Insurance Management
Series (collectively, the "Funds"). Each of these Funds are registered with the
SEC under the 1940 Act as an open-end diversified investment company. The SEC
does not, however, supervise the management or the investment practices and
policies of the Funds.
The assets of each Fund portfolio are separate from other portfolios of
that Fund and each portfolio has separate investment objectives and policies. As
a result, each portfolio operates as a separate investment portfolio and the
investment performance of one portfolio has no effect on the investment
performance of any other portfolio. Some of the Funds may, in the future, create
additional portfolios. The investment experience of each of the Subaccounts of
the Variable Account depends on the investment performance of its corresponding
portfolio.
Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between the Fund and Provident
Mutual. The termination provisions of those agreements vary. A summary of these
termination provisions may be found in the Statement of Additional Information.
Should an agreement between Provident Mutual and a Fund terminate, the Variable
Account will not be able to purchase additional shares of that Fund. In that
event, Owners will no longer be able to allocate Account Values or premium
payments to Subaccounts investing in portfolios of that Fund.
Additionally, in certain circumstances, it is possible that a Fund or a
portfolio of a Fund may refuse to sell its shares to the Variable Account
despite the fact that the participation agreement between the Fund and Provident
Mutual has not been terminated. Should a Fund or a portfolio of a Fund decide
not to sell its shares to Provident Mutual, Provident Mutual will not be able to
honor requests of Owners to allocate their Account Values or premium payments to
Subaccounts investing in shares of that Fund or portfolio.
Certain Subaccounts invest in portfolios that have similar investment
objectives and/or policies; therefore before choosing Subaccounts, carefully
read the individual prospectuses for the Funds along with this prospectus.
THE MARKET STREET FUND, INC.
The Growth, Money Market, Bond, Managed, Aggressive Growth and
International Subaccounts invest in shares of The Market Street Fund, Inc. The
Fund currently issues six "series" or classes of shares, each of which
represents an interest in a separate Portfolio within the Fund: the Growth
Portfolio, the Money Market
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<PAGE> 18
Portfolio, the Bond Portfolio, the Managed Portfolio, the Aggressive Growth
Portfolio and the International Portfolio. Shares of each Portfolio currently
are purchased and redeemed by the corresponding Subaccount.
The investment objectives of the Portfolios are set forth below.
The Growth Portfolio. This Portfolio seeks intermediate and long-term
growth of capital by investing in common stocks of companies believed to offer
above-average growth potential over both the intermediate and the long-term.
Current income is a secondary consideration.
The Money Market Portfolio. The Money Market Portfolio seeks to provide
maximum current income consistent with capital preservation and liquidity by
investing in high-quality money market instruments.
The Bond Portfolio. The Bond Portfolio seeks to generate a high level of
current income consistent with prudent investment risk by investing in a
diversified portfolio of marketable debt securities.
The Managed Portfolio. The Managed Portfolio seeks to realize as high a
level of long-term rate of return as is consistent with prudent investment risk
by investing in stocks, bonds, money market instruments or a combination
thereof.
The Aggressive Growth Portfolio. The Aggressive Growth Portfolio seeks to
achieve a high level of long-term capital appreciation by investing in
securities of a diverse group of smaller emerging companies.
The International Portfolio. The International Portfolio seeks long-term
growth of capital principally through investments in a diversified portfolio of
marketable equity securities of established non-United States companies.
The Growth Portfolio is advised by Newbold's Asset Management, Inc.; the
Bond, Managed, and Aggressive Growth Portfolios are advised by Sentinel Advisors
Company; and the Money Market and International Portfolios are advised by
Providentmutual Investment Management Company ("PIMC"). Each of these advisers
is registered with the SEC as an investment adviser under the Investment
Advisers Act of 1940. PIMC employs The Boston Company Asset Management, Inc. to
provide investment advisory services in connection with the International
Portfolio.
VARIABLE INSURANCE PRODUCTS AND VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity High Income Subaccount, the Fidelity Equity-Income Subaccount
and the Fidelity Growth Subaccount invest in shares of their corresponding
portfolios of the Variable Insurance Products Fund ("VIP Fund"); the Fidelity
Asset Manager Subaccount, Fidelity Contrafund Subaccount and the Fidelity Index
500 Subaccount invest in shares of their corresponding portfolios of the
Variable Insurance Products Fund II ("VIP Fund II"). The VIP Fund and the VIP
Fund II each offer insurance companies a selection of investment vehicles for
variable annuity contracts and variable life insurance policies. The VIP Fund
issues six "series" or classes of shares, each of which represents an interest
in a separate portfolio within the VIP Fund. Three of these series are available
for investment under the Contracts: High Income Portfolio; Equity-Income
Portfolio; and Growth Portfolio. The VIP Fund II issues four "series", three of
which are available for investment under the Contracts: Asset Manager Portfolio,
Contrafund Portfolio and Index 500 Portfolio.
The investment objectives of the pertinent Portfolios of the Funds are set
forth below.
High Income Portfolio. This Portfolio seeks to obtain a high level of
current income by investing primarily in high-yielding, lower-rated,
fixed-income securities, while also considering growth of capital.
Equity-Income Portfolio. This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the Portfolio considers the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield of the
securities comprising the Standard and Poor's 500 Composite Stock Price Index.
Growth Portfolio. This Portfolio seeks to achieve capital appreciation.
The Portfolio normally purchases common stock, although its investments are not
restricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
12
<PAGE> 19
Asset Manager Portfolio. This Portfolio seeks to obtain high total return
with reduced risk over the long-term by allocating its assets among stocks,
bonds and short-term fixed-income instruments.
Contrafund Portfolio. This Portfolio seeks to achieve capital
appreciation. It invests primarily in equity securities of companies that are
undervalued or out-of-favor.
Index 500 Portfolio. This Portfolio seeks to provide investment results
that correspond to the total return (i.e., the combination of capital changes
and income) of common stocks publicly traded in the United States. In seeking
this objective, the Portfolio attempts to duplicate the composition and total
return of the Standard and Poor's 500 Composite Stock Price Index while keeping
transaction costs and other expenses low. The Portfolio is designed as a
long-term investment option.
The Portfolios of the VIP Fund and VIP Fund II are managed by Fidelity
Management & Research Company ("FMR"). On behalf of the Asset Manager Portfolio,
FMR has entered into sub-advisory agreements with Fidelity Management & Research
(U.K.) Inc. ("FMR (U.K.)") and Fidelity Management & Research (Far East) Inc.
("FMR Far East"), pursuant to which these entities provide research and
investment recommendations with respect to companies based outside the United
States. FMR (U.K.) primarily focuses on companies based in Europe while FMR Far
East focuses primarily on companies based in Asia and the Pacific Basin.
Each Portfolio utilizes Fidelity Investments Institutional Operations
Company ("FIIOC"), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each Portfolio pays fees based on the type, size, and number of accounts
in each Portfolio and the number of transactions made by shareholders of each
Portfolio.
Each Portfolio also has an agreement with Fidelity Service Co. ("Service"),
an affiliate of FMR under which each Portfolio pays Service to calculate its
daily share prices and to maintain the portfolio and general accounting records
of each Portfolio and to administer each Portfolio's securities lending program.
THE SCUDDER VARIABLE LIFE INVESTMENT FUND
The Scudder Bond Subaccount, the Scudder Growth and Income Subaccount and
the Scudder International Subaccount will invest in shares of their
corresponding portfolios of the Scudder Variable Life Investment Fund ("Scudder
Fund"). The Scudder Fund is designed to provide an investment vehicle for
variable annuity contracts and variable life insurance policies. Therefore,
shares of the Scudder Fund are sold only to insurance company separate accounts
including the Provident Mutual Variable Annuity Separate Account.
The Scudder Fund currently consists of six Portfolios. Only the Bond
Portfolio, Growth and Income Portfolio and International Portfolios are
available under the variable annuity Contracts offered by Provident Mutual.
Their investment objectives are as follows:
Bond Portfolio. This Portfolio pursues a policy of investing for a high
level of income consistent with a high quality portfolio of securities. It
primarily invests in U.S. Government, corporate, and other notes and bonds.
Growth and Income Portfolio. This Portfolio seeks long-term growth of
capital, current income and growth of income. It primarily invests in common
stocks, preferred stocks and securities convertible into common stocks.
International Portfolio. This Portfolio seeks long-term growth of capital
primarily through diversified holdings of marketable foreign equity investments.
The Portfolio invests in companies wherever organized, which do business
primarily outside the United States.
Scudder, Stevens & Clark, Inc., an investment adviser registered with the
SEC under the Investment Advisers Act of 1940, as amended, manages daily
investments and business affairs of the Scudder Fund, subject to policies
established by the Trustees of the Scudder Fund.
13
<PAGE> 20
OCC FOR VALUE ACCUMULATION TRUST
The Quest for Value Equity Subaccount, the Quest for Value Small Cap
Subaccount and the Quest for Value Managed Subaccount will invest only in shares
of their corresponding portfolios of the OCC Accumulation Trust ("OCC Trust").
Shares of the OCC Trust are sold only to separate accounts of life insurance
companies established to fund variable annuity contracts.
The OCC Trust currently has five Portfolios, three of which are available
for investment under the Contracts. The investment objectives of the Portfolios
available with the variable annuity Contracts issued by Provident Mutual are
described below.
Equity Portfolio. Long term capital appreciation through investment in a
diversified portfolio of primarily equity securities selected on the basis of a
value-oriented approach to investing.
Small Cap Portfolio. Capital appreciation through investment in a
diversified portfolio of primarily equity securities of companies which market
capitalizations of under $1 billion.
Managed Portfolio. Growth of capital over time through investment in a
portfolio consisting of common stocks, bonds, and cash equivalents, the
percentages of which will vary over time based on the investment manager's
assessments of relative investment values.
The OCC Trust receives investment advice with respect to each of its
Portfolios from OpCap Advisors, a subsidiary of Oppenheimer Capital which is a
subsidiary of Oppenheimer Financial Corp and which is registered as an
investment adviser under the Investment Advisers Act of 1940.
DREYFUS VARIABLE INVESTMENT FUND
The Dreyfus Growth and Income Subaccounts, the Dreyfus Socially Responsible
Subaccount and the Dreyfus Zero Coupon 2000 Subaccount invest in shares of their
corresponding portfolios of the Dreyfus Variable Investment Fund ("Dreyfus
Fund"). The Dreyfus Fund is intended to be a funding vehicle for variable
annuity contracts and variable life insurance policies offered by the separate
accounts of various life insurance companies.
The Dreyfus Fund currently consists of six Portfolios. Only the Zero Coupon
2000 Portfolio is available with the variable annuity Contract offered by
Provident Mutual. Its investment objective is as follows:
Growth and Income Portfolio. This Portfolio seeks long-term capital
growth, current income and growth of income, consistent with reasonable
investment risk. The Portfolio invests in equity and debt securities and money
market instruments of domestic and foreign issuers.
Socially Responsible Portfolio. This Portfolio seeks to provide capital
growth through equity investments in companies that, in the opinion of the
Portfolio's management, not only meet traditional investment standards but which
also show evidence that they conduct their business in a manner that contributes
to the quality of life in America.
Zero Coupon 2000 Portfolio. The Zero Coupon 2000 Portfolio's goal is to
provide as high an investment return as is consistent with the preservation of
capital. This Portfolio invests primarily in debt obligations of the U.S.
Treasury that have been stripped of their unmatured interest coupons, interest
coupons that have been stripped from debt obligations issued by the U.S.
Treasury, receipts and certificates for such stripped debt obligations, and
stripped coupons and zero coupon securities issued by domestic corporations.
This Portfolio will consist primarily of portfolio securities which will mature
on or about December 31, 2000.
The Dreyfus Corporation ("Dreyfus") serves as investment adviser to the
Dreyfus Fund. Dreyfus supervises and assists in the overall management of the
Dreyfus Fund's affairs under an Investment Advisory Agreement with the Dreyfus
Fund, subject to the overall authority of the Board of Directors of the Dreyfus
Fund.
14
<PAGE> 21
INSURANCE MANAGEMENT SERIES
The Federated U.S. Government Bond Fund Subaccount and the Federated
Utility Subaccount invest in shares of their corresponding portfolios of the
Insurance Management Series. The Insurance Management Series is intended to be a
funding vehicle for variable annuity contracts and variable life insurance
policies offered by the separate accounts of various life insurance companies.
The Insurance Management Series currently consists of two Portfolios. Only
the U.S. Government Bond Fund Portfolio and Utility Fund Portfolio are available
with the Variable Annuity Contract offered by Providentmutual. Their investment
objectives are as follows:
U.S. Government Bond Fund Portfolio. This Portfolio seeks to provide
current income. It invests primarily in securities which are guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities.
Utility Fund Portfolio. This Portfolio seeks to achieve high current
income and moderate capital appreciation. It invests primarily in equity and
debt securities of utility companies.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED.
More detailed information concerning the investment objectives, policies
and restrictions pertaining to the Funds and the expenses, investment advisory
services and charges and the risks attendant to investing in the Portfolios and
other aspects of their operations can be found in the current Prospectus for
each Fund which accompanies this prospectus and the current Statement of
Additional Information for each Fund. The Fund prospectuses should be read
carefully before any decision is made concerning the allocation of premium
payments or transfers among the Subaccounts.
You should note that not all of the Portfolios described in the
Prospectuses for the VIP Fund, VIP Fund II, Scudder Fund, OCC Trust, Dreyfus
Fund and Insurance Management Series are available with the Contract. Moreover,
Provident Mutual cannot guarantee that each Fund will always be available for
its variable annuity contracts, but in the unlikely event that a Fund is not
available, Provident Mutual will do everything reasonably practicable to secure
the availability of a comparable fund. Shares of each Portfolio are purchased
and redeemed at net asset value, without a sales charge.
RESOLVING MATERIAL CONFLICTS
Certain Funds available with the Contract may sell Shares to retirement
plans qualifying under Section 401 of the Code (including cash or deferred
arrangements under Section 401(k) of the Code) ("Retirement Plans"). As a
result, there is a possibility that a material conflict may arise between the
interests of Owners of Contracts, generally, or certain classes of Owners, and
such Retirement Plans or participants in such Retirements Plans.
In addition, the Market Street Fund presently serves as an investment
medium for variable life policies and variable annuity contracts issued by
Provident Mutual and Providentmutual Life and Annuity Company of America
(PLACA), a wholly-owned subsidiary of Provident Mutual. At some later date that
Fund may serve as an investment medium for other variable life policies and
variable annuity contracts issued by Provident Mutual or PLACA and may be made
available as an investment medium for variable contracts issued by other
insurance companies, including affiliated and unaffiliated companies of
Provident Mutual.
The VIP Fund and VIP Fund II are also used as investment vehicles for
variable life insurance policies and variable annuity contracts issued by
Provident Mutual and PLACA. The Scudder Fund, OCC Trust, Dreyfus Fund and
Insurance Management Series are used as investment vehicles for variable annuity
contracts issued by PLACA. In addition, the Funds, other than Market Street
Fund, are available to registered separate accounts of insurance companies,
other than Provident Mutual or its affiliates, offering variable annuity
contracts and variable life insurance policies.
15
<PAGE> 22
Provident Mutual currently does not foresee any disadvantages to Owners
resulting from the Funds selling shares to fund products other than Provident
Mutual contracts or to Retirement Plans. However, there is a possibility that a
material conflict may arise between Owners whose policy values are allocated to
the Variable Account and the owners of variable life insurance policies and
variable annuity contracts issued by such other companies whose values are
allocated to one or more other separate accounts investing in any one of the
Funds. In the event of a material conflict, Provident Mutual will take any
necessary steps, including removing the Variable Account from that Fund, to
resolve the matter. The Board of Directors of each Fund will monitor events in
order to identify any material conflicts that possibly may arise and determine
what action, if any, should be taken in response to those events or conflicts.
If a material irreconcilable conflict does arise between or among separate
accounts, a separate account may be required to withdraw from participation in a
Fund. See each individual Fund prospectus for more information.
A full description of the Portfolios of the Funds, their investment
objectives and policies, their risks, expenses and all other aspects of their
operations is contained in the attached Prospectuses for the Funds, which should
be read carefully together with this Prospectus before investing.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
Provident Mutual reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Variable Account or that the Variable Account may purchase. If the shares of
a Portfolio of the Fund are no longer available for investment or if in
Provident Mutual's judgment further investment in any Portfolio should become
inappropriate in view of the purposes of the Variable Account, Provident Mutual
may redeem the shares, if any, of that Portfolio and substitute shares of
another registered open-end management company. Provident Mutual 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.
Provident Mutual also reserves the right to establish additional
Subaccounts of the Variable Account, each of which would invest in shares
corresponding to a new Portfolio of the Fund or in shares of another investment
company having a specified investment objective. Subject to applicable law and
any required SEC approval, Provident Mutual may, in its sole discretion,
establish new Subaccounts or eliminate one or more Subaccounts if marketing
needs, tax considerations or investment conditions warrant. Any new Subaccounts
may be made available to existing Contract Owners on a basis to be determined by
Provident Mutual.
If any of these substitutions or changes are made, Provident Mutual may by
appropriate endorsement change the Contract to reflect the substitution or
change. If Provident Mutual deems it to be in the best interest of Contract
Owners and Annuitants, and subject to any approvals that may be required under
applicable law, the Variable Account may be operated as a management company
under the 1940 Act, it may be deregistered under that Act if registration is no
longer required, or it may be combined with other Provident Mutual separate
accounts.
DESCRIPTION OF ANNUITY CONTRACT
ISSUANCE OF A CONTRACT
In order to purchase a Contract, application must be made to Provident
Mutual through a licensed representative of Provident Mutual, who is also a
registered representative of PML Securities Company ("PML") or a broker-dealer
having a selling agreement with PML or a broker/dealer having a selling
agreement with such broker/dealer. Contracts may be sold to or in connection
with retirement plans which do not qualify for special tax treatment
(Non-Qualified Plans) as well as retirement plans that qualify for special tax
treatment under the Internal Revenue Code (Qualified Plans).
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PREMIUMS
The minimum initial premium which Provident Mutual will normally accept is
$2,000. Subsequent premium payments may be paid under the Contract at any time
during the Annuitant's lifetime and before the Maturity Date and must be for at
least $100 each for Non-Qualified Contracts and $50 each for Qualified
Contracts.
At the time of application, a Planned Periodic Premium schedule may be
selected based on a periodic billing mode of annual, semi-annual, or quarterly
payment. The Owner will receive a premium reminder notice at the specified
interval. The Owner may change the Planned Periodic Premium frequency and
amount. Also, under the Automatic Payment Plan, the Owner can select a monthly
payment schedule pursuant to which premium payments will be automatically
deducted from a bank account or other source rather than being "billed."
FREE-LOOK PERIOD
The Contract provides for an initial "free-look" period. The Owner has the
right to return the Contract within 10 days (or longer if required by New York
law) after such Owner receives the Contract. When Provident Mutual receives the
returned Contract at its Administrative Office, it will be canceled and
Provident Mutual will refund to the Owner an amount equal to the greater of: (a)
the premiums paid under the Contract; and (b) the sum of (i) the Contract
Account Value as of the earlier of the date the returned Contract is received by
Provident Mutual at its Administrative Office or by the Provident Mutual
representative through whom the Contract was purchased; plus (ii) the amount of
any charges deducted from the Variable Account except the Mortality and Expense
Risk Charge, Asset-Based Administration Charge and the Funds' advisory fees and
operating expenses.
ALLOCATION OF PREMIUMS
If the application for a Contract is properly completed and is accompanied
by all the information necessary to process it, including payment of the initial
premium, the initial premium will be allocated between the Money Market
Subaccount and the Guaranteed Account within two business days of receipt of
such premium by Provident Mutual at its Administrative Office. If the
application is not properly completed, Provident Mutual will retain the premium
for up to five business days while it attempts to complete the application. If
the application is not complete at the end of the 5-day period, Provident Mutual
will inform the applicant of the reason for the delay and the initial premium
will be returned immediately, unless the applicant specifically consents to
Provident Mutual retaining the premium until the application is complete. Once
the application is complete, the initial premium will be allocated within two
business days.
At the time of application, the Owner selects how the initial premium is to
be allocated among the Subaccounts and the Guaranteed Account. The portion of
the initial premium which is to be allocated to the Subaccounts of the Variable
Account will be allocated to the Money Market Subaccount for a 15-day period.
After the expiration of such 15-day period, the amount in the Money Market
Subaccount will be allocated to the chosen Subaccounts based on the proportion
that the allocation percentage for such Subaccount bears to the sum of the
Subaccount allocation percentages. Any subsequent premiums will be allocated at
the end of the Valuation Period in which the subsequent premium is received by
Provident Mutual in the same manner, unless the allocation percentages are
changed. Premiums will be allocated in accordance with the allocation schedule
in effect at the time the premium payment is received.
The values of the Subaccounts of the Variable Account will vary with the
investment experience of the Subaccounts, and the Owner bears the entire
investment risk. Owners should periodically review their allocation schedule for
premiums in light of market conditions and the Owner's overall financial
objectives.
VARIABLE ACCOUNT VALUE
The Variable Account Value will reflect the investment experience of the
chosen Subaccounts of the Variable Account, any premiums paid, any withdrawals,
any surrenders, any transfers, and any charges
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<PAGE> 24
assessed in connection with the Contract. There is no guaranteed minimum
Variable Account Value, and, because a Contract's Variable Account Value on any
future date depends upon a number of variables, it cannot be predetermined.
Calculation of Variable Account Value. The Variable Account Value is
determined on each Valuation Date. The value will be the aggregate of the values
attributable to the Contract in each of the Subaccounts, determined for each
Subaccount by multiplying the Subaccount's Unit Value on the relevant Valuation
Date by the number of Subaccount units allocated to the Contract.
Determination of Number of Units. Any amounts allocated to the Subaccounts
will be converted into units of the Subaccount. The number of units to be
credited to the Contract is determined by dividing the dollar amount being
allocated to the Subaccount by the Unit Value for that Subaccount at the end of
the Valuation Period during which the amount was allocated. The number of units
in any Subaccount will be increased at the end of the Valuation Period by any
premiums allocated to the Subaccount during the current Valuation Period and by
any transfers to the Subaccount from another Subaccount or from the Guaranteed
Account during the current Valuation Period. The number of units in any
Subaccount will be decreased at the end of the Valuation Period by any amounts
transferred from the Subaccount to another Subaccount or the Guaranteed Account
during the current Valuation Period and any Surrender Charge and any Premium Tax
Charge deducted upon a withdrawal or surrender and the Annual Administration Fee
assessed in connection with the Contract during the current Valuation Period.
Determination of Unit Value. The Unit Value for each Subaccount's first
Valuation Period is set at $50. The Unit Value for a Subaccount is calculated
for each subsequent Valuation Period by multiplying the Unit Value at the end of
the immediately preceding Valuation Period by the Net Investment Factor for the
Valuation Period for which the value is being determined.
Net Investment Factor. The Net Investment Factor is an index that measures
the investment performance of a Subaccount from one Valuation Period to the
next. Each Subaccount has its own Net Investment Factor, which may be greater or
less than one. The Net Investment Factor for each Subaccount for a Valuation
Period equals 1 plus the fraction obtained by dividing (a) by (b) where:
(a) is the net result of:
1. the investment income, dividends, and capital gains, realized or
unrealized, credited during the current Valuation Period; plus
2. any amount credited or released from reserves for taxes attributable
to the operation of the Subaccount; minus
3. the capital losses, realized or unrealized, charged during the
current Valuation Period; minus
4. any amount charged for taxes or any amount set aside during the
Valuation Period as a reserve for taxes attributable to the operation
or maintenance of the Subaccount; minus
5. the amount charged for mortality and expense risk for that Valuation
Period; minus
6. the amount charged for administration for that Valuation Period; and
(b) is the value of the assets in the Subaccount at the end of the
preceding Valuation Period, adjusted for allocations and transfers to
and withdrawals and transfers from the Subaccount occurring during that
preceding Valuation Period.
TRANSFER PRIVILEGE
Before the Maturity Date, an Owner may transfer all or a part of an amount
in the Subaccount(s) to another Subaccount(s) or to the Guaranteed Account, or
transfer a part of an amount in the Guaranteed Account to the Subaccount(s),
subject to these general restrictions and the additional restrictions below. The
minimum transfer amount must be the lesser of $500 or the entire amount in that
Subaccount or the Guaranteed Account. A transfer request that would reduce the
amount in a Subaccount or the Guaranteed
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Account below $500 will be treated as a transfer request for the entire amount
in that Subaccount or the Guaranteed Account.
The transfer will be made on the day Written Notice requesting such
transfer is received by Provident Mutual. There is no limit on the number of
transfers which can be made between Subaccounts or to the Guaranteed Account.
However, only one transfer may be made from the Guaranteed Account each Contract
Year (See "Transfers from Guaranteed Account," Page 25). 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 written request is considered to be one
transfer, regardless of the number of Subaccounts or the Guaranteed Account
affected by the transfer. The processing fee will be deducted from the amount
being transferred.
Telephone Transfers. Transfers will be made based upon instructions given
by telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to Provident Mutual. Provident
Mutual reserves the right to suspend telephone transfer privileges at any time,
for any class of Contracts, for any reason. Telephone transfers are not
permitted for Contracts sold to residents of New York State.
Provident Mutual will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine and if it follows such
procedures it will not be liable for any losses due to unauthorized or
fraudulent instructions. Provident Mutual, however, may be liable for such
losses if it does not follow those reasonable procedures. The procedures
Provident Mutual will 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.
Dollar Cost Averaging. Dollar Cost Averaging is a program which, if
elected, enables the Owner of a Contract to systematically and automatically
transfer, on a monthly basis, specified dollar amounts from the Money Market
Subaccount to the Contract's other Subaccounts. By allocating on a regularly
scheduled basis as opposed to allocating the total amount at one particular
time, an Owner may be less susceptible to the impact of market fluctuations.
Provident Mutual, however, makes no guarantee that Dollar Cost Averaging will
result in a profit or protect against loss.
Dollar Cost Averaging may be elected for a period from 6 to 36 months. To
qualify for Dollar Cost Averaging, the following minimum amount must be
allocated to the Money Market Subaccount: 6 months -- $3,000; 12
months -- $6,000; 24 months -- $12,000; 36 months -- $18,000. At least $500 must
be transferred from the Money Market Subaccount each month. The amount required
to be allocated to the Money Market Subaccount can be made by an initial or
subsequent investment or by transferring amounts into the Money Market
Subaccount from the other Subaccounts or from the Guaranteed Account (which may
be subject to certain restrictions). (See "Transfers from Guaranteed Account,"
Page 25.)
Election into this program may occur at the time of application by
completing the authorization on the application or at any time after the
Contract is issued by properly completing the election form and returning it to
the Company by the beginning of the month and ensuring that the required minimum
amount is in the Money Market Subaccount. Dollar Cost Averaging transfers may
not commence until the later of (a) 30 days after the Contract Date and (b) five
days after the end of the free-look period.
Once elected, transfers from the Money Market Subaccount will be processed
monthly until the number of designated transfers have been completed, or the
value of the money Market Subaccount is completely depleted, or the Owner
instructs Provident Mutual 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 imposing the
Transfer Charge. Provident Mutual reserves the right to discontinue offering
automatic transfers upon 30 days' written notice to the Owner.
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WITHDRAWALS AND SURRENDER
Withdrawals. At any time before the earlier of the death of the Annuitant
or the Maturity Date, an Owner may withdraw part of the Cash Surrender Value.
The minimum amount which may be withdrawn is $500; the maximum amount is that
which would leave a Cash Surrender Value of less than $2,000. A withdrawal
request which would reduce the amount in a Subaccount or in the Guaranteed
Account below $500 will be treated as a request for a full withdrawal of the
amount in that Subaccount or the Guaranteed Account. Provident Mutual will
withdraw the amount requested from the Contract Account Value on the day Written
Notice for the withdrawal is received at its Administrative Office. Any
applicable Surrender Charge and Premium Tax Charge will be deducted from the
amount withdrawn. (See "Surrender Charge," Page 25).
The Owner may specify the amount to be withdrawn from certain Subaccounts
or the Guaranteed Account for the withdrawal. If the Owner does not so specify
or the amount in the designated Subaccounts or Guaranteed Account is inadequate
to comply with the request, the withdrawal will be made from each Subaccount and
the Guaranteed Account based on the proportion that the value in such account
bears to the Contract Account Value immediately prior to the withdrawal.
A withdrawal may have adverse Federal income tax consequences. (See
"Taxation of Annuities," Page 32.)
Systematic Withdrawals. The Systematic Withdrawal Plan enables the Owner
of a Contract to pre-authorize a periodic exercise of the withdrawal right
described in the Contract. The Owner may elect the plan at the time of
application by completing the authorization on the application form and making a
minimum initial premium payment of $15,000 or by properly completing the
election form after a Contract is issued if it has a Contract Account Value of
$15,000. Certain Federal income tax consequences may apply to systematic
withdrawals from the Contract and the Owner should, therefore, consult with his
or her tax advisor before requesting any systematic withdrawals.
Contract Owners entering into the plan instruct Provident Mutual to
withdraw a level dollar amount from the Contract on a monthly or quarterly
basis. The minimum distribution requested must be for at least $100 monthly or
at least $300 quarterly. The maximum amount which can be withdrawn under the
plan each year is 10% of the Contract Account Value as of the beginning of the
Contract Year in which the plan is elected or 10% of the initial premium paid if
elected at the time of application. Provident Mutual will notify the Owner if
the total amount to be withdrawn in a subsequent Contract Year will exceed 10%
of the Contract Account Value as of the beginning of such Contract Year. Unless
the Owner instructs Provident Mutual to reduce the withdrawal amount for that
year so that it does not exceed the 10% limit, Provident Mutual will continue to
process withdrawals for the designated amount. Once the amount of the
withdrawals exceeds the 10% limit, Provident Mutual will deduct the applicable
Surrender Charge from the remaining payments made during that Contract Year (See
"Surrender Charge," Page 25).
Provident Mutual will pay the Owner the amount requested each month or
quarter and cancel units equal to the amount withdrawn from the Subaccounts and
the Guaranteed Account based on the proportion that the value in such Subaccount
or Guaranteed Account bears to the Contract Account Value immediately prior to
the withdrawal. In the event that the amount to be withdrawn exceeds the
Subaccount's Value, Provident Mutual will process the withdrawal for the amount
available and will contact the Owner for further instructions.
Each payment under the systematic withdrawal plan of less than 10% of the
Contract Account Value as of the beginning of such Contract Year is not subject
to a Surrender Charge. However, notwithstanding the rules ordinarily governing
the imposition of a Surrender Charge (see "Surrender Charge," Page 25), any
other withdrawal in a year when the Systematic Withdrawal Plan has been utilized
will be subject to the Surrender Charge. If an additional withdrawal is made
from a Contract participating in the plan, systematic withdrawals will
automatically terminate and may only be reinstated on or after the beginning of
the next Contract Year pursuant to a new request.
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Systematic withdrawals may be discontinued by the Owner at any time upon
written request to Provident Mutual. Provident Mutual reserves the right to
discontinue offering systematic withdrawals upon 30 days' written notice to
Owners.
Surrender. At any time before the earlier of the death of the Annuitant or
the Maturity Date, the Owner may request a surrender of the Contract for its
Cash Surrender Value (Contract Account Value less any applicable Surrender
Charge and any applicable Premium Tax Charge). The proceeds paid to the Contract
Owner will equal the amount of the surrender less the Surrender Charge, any
applicable Premium Tax Charge, and any withholding taxes. (See "Surrender
Charge," Page 25.) The Cash Surrender Value will be determined on the date
Written Notice of Surrender and the Contract are received at Provident Mutual's
Administrative Office. The Cash Surrender Value will be paid in a lump sum
unless the Owner requests payment under a Payment Option. A surrender may have
adverse Federal income tax consequences. (See "Taxation of Annuities," Page 32.)
Restrictions on Distributions from Certain Contracts. There are certain
restrictions on surrenders of and withdrawals from Contracts used as funding
vehicles for Internal Revenue Code Section 403(b) retirement plans. Section
403(b)(11) of the Internal Revenue Code of 1986, as amended, restricts the
distribution under Section 403(b) annuity contracts of: (i) elective
contributions made in years beginning after December 31, 1988; (ii) earnings on
those contributions; and (iii) earnings in such years on amounts held as of the
last year beginning before January 1, 1989. Distributions of those amounts may
only occur upon the death of the employee, attainment of age 59 1/2, separation
from service, disability, or financial hardship. In addition, income
attributable to elective contributions may not be distributed in the case of
hardship.
Contract Termination. Provident Mutual may end this Contract and pay the
Cash Surrender Value to the Owner if, before the Maturity Date, all of these
events simultaneously exist:
1. no premiums have been paid for at least two years;
2. the Contract Account Value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, is less than
$2,000.
Provident Mutual will mail the Owner a notice of its intention to end the
Contract at least six months in advance. The Contract will automatically
terminate on the date specified in the notice, unless Provident Mutual receives
an additional premium payment before the termination date specified in the
notice. This additional premium payment must be for at least the required
minimum amount.
DEATH BENEFIT BEFORE MATURITY DATE
Death of Annuitant. If the Annuitant dies before the Maturity Date,
Provident Mutual will pay the death benefit under the Contract to the
Beneficiary. During the first six Contract Years, the death benefit is equal to
the greater of: the premiums paid, less any withdrawals (including applicable
Surrender Charges and Premium Tax Charges); or the Contract Account Value less
any Premium Tax Charges on the date Provident Mutual receives due proof of
Annuitant's death. After the end of the sixth Contract Year, the death benefit
is equal to the greatest of:
1. the Contract Account Value as of the end of the sixth Contract Year
less subsequent amounts withdrawn and any Premium Tax Charges; or
2. the Contract Account Value less any Premium Tax Charges on the date
Provident Mutual receives due proof of the Annuitant's death; or
3. the premiums paid, less any withdrawals (including applicable
Surrender Charges and Premium Tax Charges).
There is no death benefit payable if the Annuitant dies after the Maturity Date.
The proceeds will be paid to the Beneficiary in a lump sum unless the Owner or
Beneficiary elects a Payment Option. If the Annuitant is the Owner, the proceeds
must be distributed in accordance with the rules set forth below in "Death of
Owner" for the death of an Owner before the Maturity Date.
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Death of Owner. If an Owner dies before the Maturity Date, Federal tax law
requires (for a Non-Qualified Contract) that the Contract Account Value (less
any Premium Tax Charges) (or if the Owner is the Annuitant, the proceeds payable
upon the Annuitant's death) be distributed to the Beneficiary within five years
after the date of the Owner's death. If an Owner dies on or after the Maturity
Date, any remaining payments must be distributed at least as rapidly as under
the Payment Option in effect on the date of such Owner's death.
These distribution requirements will be considered satisfied as to any
portion of the proceeds payable to or for the benefit of a designated
Beneficiary, and which is distributed over the life (or a period not exceeding
the life expectancy) of that Beneficiary, provided that such distributions begin
within one year of the Owner's death. However, if the Owner's spouse is the
designated Beneficiary, the Contract may be continued with such surviving spouse
as the new Owner. If the Contract has joint owners, the surviving joint owner
will be the designated Beneficiary. Joint owners must be husband and wife as of
the Contract Date.
If the Owner is not an individual, the Annuitant, as determined in
accordance with Section 72(s) of the Internal Revenue Code, will be treated as
Owner for purposes of these distribution requirements, and any changes in the
Annuitant will be treated as the death of the Owner.
Other rules may apply to a Qualified Contract.
PROCEEDS ON MATURITY DATE
The Maturity Date is selected by the Owner subject to Provident Mutual's
approval and state law.
On the Maturity Date, the proceeds will be applied under the Life Annuity
with Ten Year Certain Payment Option, unless the Owner chooses to have the
proceeds paid under another Payment Option or in a lump sum. If a Payment Option
is elected, the amount which will be applied is the Contract Account Value; if a
lump sum payment is chosen, the amount paid will be the Cash Surrender Value on
the Maturity Date.
The Maturity Date may be changed subject to these limitations: the Owner's
Written Notice must be received at the Administrative Office at least 30 days
before the current Maturity Date; the requested Maturity Date must be a date
that is at least 30 days after receipt of the Written Notice; and the requested
Maturity Date must be not later than the first day of the month after the
Annuitant's 90th birthday, or any earlier date required by law.
PAYMENTS
Any withdrawal, Cash Surrender Value, or death benefit will usually be paid
within seven days of receipt of written request or receipt and filing of due
proof of death. However, payments may be postponed if:
1. the New York Stock Exchange is closed, other than customary weekend
and holiday closings, or trading on the exchange is restricted as
determined by the SEC; or
2. the SEC permits by an order the postponement for the protection of
policyowners; or
3. the SEC determines that an emergency exists that would make the
disposal of securities held in the Variable Account or the
determination of the value of the Variable Account's net assets not
reasonably practicable.
If a recent check or draft has been submitted, Provident Mutual has the
right to defer payment until such check or draft has been honored.
Provident Mutual has the right to defer payment of any withdrawal, cash
surrender, or transfer from the Guaranteed Account for up to six months from the
date of receipt of Written Notice for a withdrawal, surrender, or transfer. If
payment is not made within 30 days after receipt of documentation necessary to
complete the transaction, or such shorter period required by a particular
jurisdiction, interest will be added to the amount paid from the date of receipt
of documentation at 3% or such higher rate required for a particular state.
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SPECIAL EXCHANGE PROGRAM
The owner of a variable annuity contract issued by Provident Mutual between
October 1, 1993 and the date the Contract becomes available in the applicable
state (the "Other Variable Annuity Contract"), may exchange the Other Variable
Annuity Contract for the Contract described in this Prospectus under the terms
described below.
1. The application for the new Contract must be received by Provident
Mutual at its Administrative Office within 60 days of the date the
Contract becomes available in the applicable state.
2. The "Contract Date" for the new Contract will be the "Issue Date" of
the Other Annuity Contract.
3. The exchange will be made without imposition of the Surrender Charge
applicable to the Other Variable Annuity Contract. The Contract
Account Value of the Other Variable Annuity Contract will become the
Contract Account Value for the new Contract and will be applied to
the Contract as is (i.e., without reallocation or changes until after
the Contract has been issued).
4. The Surrender Charge period for the Contract will begin on its
Contract Date (the Issue Date of the Other Variable Annuity
Contract).
5. The amount of the premium subject to the Surrender Charge will be the
premium(s) paid for the Other Variable Annuity Contract.
6. No premium tax will be deducted at the time the Contract is issued.
After the issuance of the Contract, the amount of the premium tax due
will be based upon the premium(s) paid under the Other Variable
Annuity Contact less amounts withdrawn including premium tax
previously paid thereon.
7. The Annual Administration Fee will not be deducted upon surrender of
the Other Variable Annuity Contract but on the Contract Anniversary
(the yearly anniversary of the Issue Date of the Other Variable
Annuity Contract).
8. Any other charges under the Contract will only be deducted beginning
from the date the Contract is issued.
Summary Comparison of the Contract to the Other Variable Annuity
Contract. The Mortality and Expense Risk Charge for the Contract is 1.25% while
the Charge for Other Variable Annuity Contract is currently 1.20%, subject to a
maximum of 1.25%. In addition, the Contract includes an Asset-Based
Administration Charge of 0.15%. However, the Contract also includes additional
investment options and other features not available with the Other Variable
Annuity Contract. The Contract has 16 Subaccounts available for investment while
the Other Variable Annuity Contract has six. The Contract has Dollar Cost
Averaging and Systematic Withdrawals as added features. Twelve transfers under
the Contract may be made in each Contract Year without the imposition of a
Transfer Charge compared to four under the Other Variable Annuity Contract.
Finally, in addition to the death benefit paid upon the Annuitant's death
provided in the Other Variable Annuity Contract, the Contract provides a change
in the death benefit if the Annuitant dies after the sixth Contract Year (See
"Death Benefit Before Maturity Date," Page 21.).
Tax Considerations. Provident Mutual believes that an exchange of an Other
Variable Annuity Contract for a Contract generally should be treated as a
nontaxable exchange of annuity contracts within the meaning of Section 1035 of
the Internal Revenue Code of 1986, as amended. The Contract received in the
exchange will, however, generally be treated as a newly issued annuity contract
as of the date of the exchange. Accordingly, Other Variable Annuity Contract
owners should consult counsel or other competent tax advisors before effecting
an exchange to determine whether there are any tax consequences resulting from
the Contract being treated as issued on the date of the exchange (e.g., loss of
grandfathering or aggregation with other annuity contracts issued during the
same calendar year as the exchange).
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MODIFICATION
Upon notice to the Owner, Provident Mutual may modify the Contract, but
only if such modification:
1. is necessary to make the Contract or the Variable Account comply with
any law or regulation issued by a governmental agency to which
Provident Mutual is subject; or
2. is necessary to assure continued qualification of the Contract under
the Internal Revenue 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 additional Variable Account and/or fixed accumulation
options.
In the event of any such modifications, Provident Mutual will make
appropriate endorsement to the Contract.
REPORTS TO CONTRACT OWNERS
At least annually, Provident Mutual will mail to each Contract Owner, at
such Owner's last known address of record, a report containing the Contract
Account Value and Cash Surrender Value of the Contract and any further
information required by any applicable law or regulation. The information will
be as of a date not more than two months prior to the date of the mailing.
CONTRACT INQUIRIES
Inquiries regarding a Contract may be made by writing to Provident Mutual
at its Administrative Office, 300 Continental Drive, Newark, Delaware 19713.
THE GUARANTEED ACCOUNT
An Owner may allocate some or all of the premiums and transfer some or all
of the Contract Account Value to the Guaranteed Account, which is part of
Provident Mutual's General Account and pays interest at declared rates
guaranteed for each calendar year (subject to a minimum guaranteed interest rate
of 3%). The principal, after deductions, is also guaranteed. Provident Mutual's
General Account supports its 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 Provident
Mutual's General Account has been registered as an investment company under the
Investment Company Act of 1940. Therefore, neither Provident Mutual's General
Account, the Guaranteed Account, nor any interests therein are generally subject
to regulation under the 1933 Act or the 1940 Act. The disclosures relating to
these accounts which are included in this Prospectus are for your information
and have not been reviewed by the SEC. However, such disclosures may be subject
to certain generally applicable provisions of Federal securities laws relating
to the accuracy and completeness of statements made in prospectuses.
The portion of the Contract Account Value allocated to the Guaranteed
Account will be credited with rates of interest, as described below. Since the
Guaranteed Account is part of Provident Mutual's General Account, Provident
Mutual assumes the risk of investment gain or loss on this amount. All assets in
the General Account are subject to Provident Mutual's general liabilities from
business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Guaranteed Account Value is guaranteed to accumulate at a minimum
effective annual interest rate of 3%. Provident Mutual intends to credit the
Guaranteed Account Value with current rates in excess of the minimum guarantee
but is not obligated to do so. These current interest rates are influenced by,
but do not necessarily correspond to, prevailing general market interest rates.
Since Provident Mutual, in its sole discretion, anticipates changing the current
interest rate from time to time, different allocations to and from the
Guaranteed Account Value will be credited with different current interest rates.
The interest rate to be credited to each amount allocated or transferred to the
Guaranteed Account will apply to the end of the calendar year in which such
amount is received or transferred. At the end of the calendar year, Provident
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<PAGE> 31
Mutual will determine a new current interest rate on such amount and accrued
interest thereof (which may be a different current interest rate from the
current interest rate on new allocations to the Guaranteed Account on that
date). The rate declared on such amount and accrued interest thereon at the end
of each calendar year will be guaranteed for the following calendar year. Any
interest credited on the amounts in the Guaranteed Account in excess of the
minimum guaranteed rate of 3% per year will be determined in the sole discretion
of Provident Mutual. The Owner assumes the risk that interest credited may not
exceed the guaranteed minimum rate.
Amounts deducted from the Guaranteed Account for the administration fee,
withdrawals, transfers to the Subaccounts, or other charges are currently, for
the purpose of crediting interest, accounted for on a last-in, first-out
("LIFO") method.
Provident Mutual reserves the right to change the method of crediting
interest from time to time, provided that such changes do not have the effect of
reducing the guaranteed rate of interest below 3% per annum or shorten the
period for which the interest rate applies to less than a calendar year (except
for the year in which such amount is received or transferred).
Calculation of Guaranteed Account Value. The Guaranteed Account Value at
any time is equal to amounts allocated and transferred to it plus interest
credited to it, minus amounts deducted, transferred, or withdrawn from it.
TRANSFERS FROM GUARANTEED ACCOUNT
Within 30 days prior to or following any Contract Anniversary, one transfer
is allowed from the Guaranteed Account to any or all of the Subaccounts. The
amount transferred from the Guaranteed Account may not exceed 25% of the
Guaranteed Account Value on the date of transfer, unless the balance after the
transfer is less than $500 in which case the entire amount will be transferred.
If the Written Notice of such transfer is received prior to the Contract
Anniversary, the transfer will be made as of the Contract Anniversary; if the
Written Notice is received after the Contract Anniversary, the transfer will be
made as of the date Provident Mutual receives the Written Notice at its
Administrative Office.
PAYMENT DEFERRAL
Provident Mutual has the right to defer payment of any withdrawal, cash
surrender, or transfer from the Guaranteed Account for up to six months from the
date of receipt of the Written Notice for withdrawal, surrender, or transfer.
CHARGES AND DEDUCTIONS
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
General. No charge for sales expense is deducted from premiums at the time
premiums are paid. However, within certain time limits described below, a
Surrender Charge (contingent deferred sales charge) is deducted from the
Contract Account Value if a withdrawal is made or a Contract is surrendered
before annuity payments begin. In the event surrender charges are not sufficient
to cover sales expenses, the loss will be borne by Provident Mutual; conversely,
if the amount of such charges proves more than enough, the excess will be
retained by Provident Mutual. Provident Mutual does not currently believe that
the surrender charges imposed will cover the expected costs of distributing the
Contracts. Any shortfall will be made up from Provident Mutual's general assets
which may include amounts derived from the Mortality and Expense Risk Charge.
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Charges for Withdrawals or Surrender. If a withdrawal is made or a
Contract is surrendered, the applicable Surrender Charge will be as follows:
<TABLE>
<CAPTION>
CONTRACT YEAR IN WHICH CHARGES AS PERCENTAGE OF
WITHDRAWAL OR AMOUNT
SURRENDER OCCURS WITHDRAWN OR SURRENDERED
- ----------------------- -------------------------
<S> <C>
1 6%
2 5
3 4
4 3
5 2
6 1
7 and after 0
</TABLE>
No Surrender Charge is deducted if the withdrawal or surrender occurs after
six full Contract Years. In addition, no Surrender Charge is deducted on the
Maturity Date if the Contract proceeds are applied under a Payment Option.
In no event will the total Surrender Charges assessed under a Contract
exceed 8 1/2% of the total gross premiums paid under that contract.
If the Contract is being surrendered, the applicable Surrender Charge and
Premium Tax Charge will be deducted from the Contract Account Value in
determining the Cash Surrender Value. For a partial withdrawal, any applicable
Surrender Charge and Premium Tax Charge will be deducted from the amount
withdrawn, unless the Contract Owner requests in advance that the Surrender
Charge and Premium Tax Charge be deducted from the remaining Contract Account
Value. In this case, the amount that will be withdrawn from the Contract Account
Value will equal the amount of the withdrawal request plus any Surrender Charge
and Premium Tax Charge. If the requested amount is withdrawn from the Guaranteed
Account and one or more of the Subaccounts, or is withdrawn from more than one
Subaccount, then the Surrender Charge and Premium Tax Charge will be deducted
form each Subaccount and/or from the Guaranteed Account based on the percentage
of the withdrawal amount deducted from each Subaccount and/or from the
Guaranteed Account. However, where such a withdrawal request would reduce the
amount in a Subaccount or the Guaranteed Account below $500 and is therefore
treated as a withdrawal of the entire amount of Contract Account Value in the
Subaccount or the Guaranteed Account, then the Surrender charge and Premium Tax
Charge that otherwise would be allocated to that account will be deducted from
the amount withdrawn.
Amounts Not Subject to Surrender Charge. Subject to certain restrictions,
up to 10% of the Contract Account Value as of the beginning of a Contract Year
may be withdrawn or surrendered in that Contract Year without a Surrender
Charge. Specifically, after the first Contract Year, the otherwise applicable
Surrender Charge will not be applied to the first and second withdrawals during
a Contract Year to the extent that the amount withdrawn is not in excess of 10%
of the Contract Account Value as of the beginning of such Contract Year. During
the first Contract Year, the full amount of all withdrawals (and any surrender)
will be subject to the Surrender Charge.
After the first Contract Year, any amounts withdrawn in excess of 10% or
subsequent to the second withdrawal in a Contract Year will be assessed a
Surrender Charge. This right 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 will apply to the amount of the
surrender up to 10% of the Contract Account Value as of the beginning of that
Contract Year. If a surrender is made during a Contract Year in which there has
not been more than one withdrawal made, the Contract Owner may surrender free of
charge an amount equal to 10% of the Contract Account 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. In the event that a
surrender is made in excess of the amount which may be surrendered free of
charge, only the excess amount will be subject to the Surrender Charge.
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<PAGE> 33
ADMINISTRATIVE CHARGES
Annual Administration Fee. On each Contract Anniversary prior to and
including the Maturity Date, and upon surrender of the Contract or on the
Maturity Date (if other than on a Contract Anniversary), Provident Mutual
deducts from the Contract Account Value an Annual Administration Fee of $30 to
reimburse it for administrative expenses relating to the Contract. The charge
will be deducted from each Subaccount and the Guaranteed Account based on the
proportion that the value in each such account bears to the total Contract
Account Value. Provident Mutual does not expect to make a profit on this fee. No
Annual Administrative Fee is payable during the annuity period.
Asset-Based Administration Charge. To compensate Provident Mutual for
costs associated with administration of the Contracts, prior to the Maturity
Date Provident Mutual deducts a daily asset-based administration charge from the
assets of the Variable Account equal to an annual rate of 0.15%. Provident
Mutual does not expect to make a profit from this charge.
TRANSFER PROCESSING FEE
The first twelve transfers during each Contract Year are free. A $25
Transfer Processing Fee will be assessed for each additional transfer during
such Contract Year. For the purpose of assessing the fee, each Written Notice of
transfer is considered to be one transfer, regardless of the number of
Subaccounts or accounts affected by the transfer. The processing fee will be
deducted from the amount being transferred. Provident Mutual does not expect to
make a profit from this fee.
MORTALITY AND EXPENSE RISK CHARGE
To compensate Provident Mutual for assuming mortality and expense risks,
prior to the Maturity Date Provident Mutual deducts a daily Mortality and
Expense Risk Charge from the assets of the Variable Account. Provident Mutual
will impose a charge in an amount that is equal to an annual rate of 1.25%
(daily rate of .00342466%) (approximately 0.70% for mortality risk and 0.55% for
expense risk).
The mortality risk Provident Mutual assumes is that Annuitants may live for
a longer period of time than estimated when the guarantees in the contract were
established. Because of these guarantees, each Payee is assured that longevity
will not have an adverse effect on the annuity payments received. The mortality
risk Provident Mutual assumes also includes a guarantee to pay a death benefit
if the Annuitant dies before the Maturity Date. The expense risk Provident
Mutual assumes is the risk that the surrender charges, administration fees, and
transfer fees may be insufficient to cover actual future expenses.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual cost of the mortality and expense risks undertaken by Provident Mutual,
Provident Mutual will bear the loss. Conversely, if the charge proves more than
sufficient, the excess will be profit to Provident Mutual and will be available
for any proper corporate purpose including, among other things, payment of sales
expenses.
OTHER CHARGES INCLUDING INVESTMENT ADVISORY FEES OF THE FUNDS
Because the Variable Account purchases shares of the Funds, the net assets
of each Subaccount of the Variable Account will reflect the investment advisory
fees and operating expenses incurred by the Funds. For each Portfolio, an
investment advisor is paid a daily fee by the Funds for its investment advisory
services. Each advisory fee is a percentage of a Portfolio's average daily net
assets, and thus the actual fee paid depends on the Portfolio and the assets of
such Portfolio. Each Portfolio of the Funds is also responsible for its
operating expenses. At the present time, certain expenses are being reimbursed
and advisory fees waived. The expense reimbursement and fee waiver agreements
are expected to continue past the current year. However, these agreements are
subject to termination and, if any of the agreements are terminated, Fund
expenses will increase. See the accompanying current Prospectuses for the Funds
for further details.
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<PAGE> 34
PREMIUM TAXES
Various states levy a premium tax on annuity contracts issued by insurance
companies. Other states levy a premium tax on contracts sold in its state only
if the state of domicile of the Company issuing such contract imposes a premium
tax on contracts sold in that state. Premium tax rates are subject to change
from time to time by legislative and other governmental action.
If premium taxes are applicable to a Contract, they will be deducted from
the Contract proceeds upon (i) a withdrawal from or surrender of the Contract or
(ii) application of the proceeds to a Payment Option or (iii) payment of death
benefit proceeds.
OTHER TAXES
Currently, no charge will be made against the Variable Account for Federal
income taxes. Provident Mutual 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 Provident Mutual. Charges for other taxes attributable to the
Variable Account, if any, may also be made.
PAYMENT OPTIONS
The Contract ends on the Maturity Date, at which time the Contract Account
Value will be applied under a Payment Option, unless the Owner elects to receive
the Cash Surrender Value in a single sum. If an election of a Payment Option has
not been filed at Provident Mutual's Administrative Office on the Maturity Date,
the proceeds will be paid as a life annuity with payments for ten years
guaranteed. Prior to the Maturity Date, the Owner can have the Cash Surrender
Value applied under a Payment Option, or a Beneficiary can have the death
benefit applied under a Payment Option. Any premium tax applicable will be
deducted from the Cash Surrender Value or the Contract Account Value at the time
payments commence. The Contract must be surrendered so that the applicable
amount can be paid in a lump sum or a supplemental contract for the applicable
Payment Option can be issued.
The Payment Options available are described below. The term "Payee" means a
person who is entitled to receive payment under that option. The Payment Options
are fixed, which means that each option has a fixed and guaranteed amount to be
paid during the annuity period that is not in any way dependent upon the
investment experience of the Variable Account.
ELECTION OF OPTIONS
An option may be elected, revoked, or changed at any time before the
Maturity Date while the Annuitant is living. If the Payee is other than the
Owner, the election of a Payment Option requires the consent of Provident
Mutual. If an election is not in effect at the Annuitant's death or if payment
is to be made in one sum under an existing election, the Beneficiary may elect
one of the options after the death of the Annuitant.
An election of option and any revocation or change must be made by Written
Notice. It must be filed with the Administrative Office.
An option may not be elected if any periodic payment under the election
would be less than $50. Subject to this condition, payments may be made
annually, semi-annually, quarterly, or monthly and are made at the beginning of
such period.
DESCRIPTION OF OPTIONS
Option A -- Life Annuity Option. To have the proceeds paid in equal
amounts each month during the Payee's lifetime with payments ceasing with the
last payment prior to the death of the Payee. No amounts are payable after the
Payee dies. Therefore, if the Payee dies immediately following the date of the
first payment, the Payee will receive one monthly payment only.
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<PAGE> 35
Option B -- Life Annuity Option with 10 Years Guaranteed. To have the
proceeds paid in equal amounts each month during the Payee's lifetime with the
guarantee that payments will be made for a period of not less than ten years.
Under this option, if any Beneficiary dies while receiving payment, the present
value of the current dollar amount on the date of death of any remaining
guaranteed payments will be paid in one sum to the executors or administrators
of the Beneficiary unless otherwise provided in writing. Calculation of such
present value shall be at 3% which is the rate of interest assumed in computing
the amount of annuity payments.
The amount of each payment will be determined from the Tables in the
Contract which apply to the particular option using the Payee's age and sex. If
the Contract is sold in a group or employer-sponsored arrangement, the amount of
the payments will be based on the Payee's age only. Age will be determined from
the nearest birthday at the due date of the first payment.
Alternate Income Option. In lieu of one of the above options, the Contract
Account Value, Cash Surrender Value or death benefit, as applicable, may be
settled under an Alternate Income Option based on Provident Mutual's single
premium immediate annuity rates in effect at the time of settlement. Such rates
will be adjusted to a due basis. 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 receiving one additional payment. The income will then be
increased by 4%. In no case will the income be less than that which would be
payable if the amount were used to purchase a single premium immediate annuity
adjusted to a due basis.
YIELDS AND TOTAL RETURNS
From time to time, Provident Mutual may advertise or include in sales
literature yields, effective yields, and total returns for the Subaccounts.
These figures are based on historical earnings and do not indicate or project
future performance. Each Subaccount may, from time to time, advertise or include
in sales literature performance relative to certain performance rankings and
indices compiled by independent organizations. More detailed information as to
the calculation of performance information, as well as comparisons with
unmanaged market indices, appears in the Statement of Additional Information.
Effective yields and total returns for the Subaccounts are based on the
investment performance of the corresponding Portfolio of the Funds. The Funds'
performance in part reflects the Funds' expenses. See the Prospectuses for the
Funds.
The yield of the Money Market Subaccount refers to the annualized income
generated by an investment in the Subaccount over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-day
period is generated each seven-day period over a 52-week period and is shown as
a percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment in the Subaccount is assumed
to be reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
The yield of a Subaccount (except the Money Market Subaccount) refers to
the annualized income generated by an investment in the Subaccount over a
specified 30-day or one-month period. The yield is calculated by assuming that
the income generated by the investment during that 30-day or one-month period is
generated each period over a 12-month period and is shown as a percentage of the
investment.
The total return of a Subaccount refers to return quotations assuming an
investment under a Contract has been held in the Subaccount for various periods
of time including, but not limited to, a period measured from the date the
Subaccount commenced operations. When a Subaccount has been in operation for
one, five, and ten years, respectively, the total return for these periods will
be provided. For periods prior to the date the Variable Account commenced
operations, performance information for Contracts funded by the Subaccounts will
be calculated based on the performance of the Funds' Portfolios and the
assumption that the Subaccounts were in existence for the same periods as those
indicated for the Funds' Portfolios, with the level of Contract charges that
were in effect at the inception of the Subaccounts for the Contracts.
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<PAGE> 36
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 shown the average percentage change in the value
of an investment in the Subaccount from the beginning date of the measuring
period to the end of that period. This standardized version of average annual
total return reflects all historical investment results, less all charges and
deductions applied against the Subaccount (including any surrender charge that
would apply if an Owner terminated the Contract at the end of each period
indicated, but excluding any deductions for premium taxes).
In addition to the standard version described above, total return
performance information computed on two different non-standard bases may be used
in advertisements. Average total return information may be presented, computed
on the same basis as described above, except deductions will not include the
Surrender Charge. In addition, Provident Mutual may from time to time disclose
average annual total return in non-standard formats and cumulative total return
for Contracts funded by the Subaccounts.
Non-standard performance date will only be disclosed if the standard
performance date for the required periods is also disclosed. For additional
information regarding the calculation of other performance data, please refer to
the Statement of Additional Information.
In advertising and sales literature, the performance of each Subaccount may
be compared to the performance of other variable annuity issuers in general or
to the performance of particular types of variable annuities investing in mutual
funds, or investment series of mutual funds with investment objectives similar
to each of the Subaccounts. Lipper Analytical Services, Inc. ("Lipper") and the
Variable Annuity Research Data Service ("VARDS") are independent services which
monitor and rank the performance of variable annuity issuers in each of the
major categories of investment objectives on an industry-wide basis.
Lipper's rankings include variable life insurance issuers as well as
variable annuity issuers. VARDS rankings compare only variable annuity issuers.
The performance analyses prepared by Lipper and VARDS each rank such issuers on
the basis of total return, assuming reinvestment of distributions, but do not
take sales charges, redemption fees, or certain expense deductions at the
separate account level into consideration. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance. This type of ranking provide data as to which funds provide the
highest total return within various categories of funds defined by the degree of
risk inherent in their investment objectives.
Advertising and sales literature may also compare the performance of each
Subaccount to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and indices
may also be used as a source of performance comparison.
Provident Mutual may also report other information including the effect of
tax-deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by tables, graphs, or charts. All income and
capital gains derived from Subaccount investments are reinvested and can lead to
substantial long-term accumulation of assets, provided that the underlying
Portfolio's investment experience is positive.
FEDERAL TAX STATUS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
This discussion is not intended to address the tax consequences resulting
from all of the situations in which a person may be entitled to or may receive a
distribution under the annuity contract issued by Provident Mutual. Any person
concerned about these tax implications should consult a competent tax advisor
before initiating any transaction. This discussion is based upon Provident
Mutual's understanding of the present
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<PAGE> 37
Federal income tax laws, as they are currently interpreted by the Internal
Revenue Service. No representation is made as to the likelihood of the
continuation of the present Federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws.
The Contract may be purchased on a non-qualified basis ("Non-Qualified
Contract") or purchased and used in connection with plans qualifying for
favorable tax treatment ("Qualified Contract"). The Qualified Contract is
designed for use by individuals whose premium payments are comprised solely of
proceeds from and/or contributions under retirement plans which are intended to
qualify as plans entitled to special income tax treatment under Sections 401(a),
403(b), or 408 of the Internal Revenue Code of 1986, as amended (the "Code").
The ultimate effect of Federal income taxes on the amounts held under a
Contract, or annuity payments, and on the economic benefit to the Owner, the
Annuitant, or the Beneficiary depends on the type of retirement plan, on the tax
and employment status of the individual concerned, and on Provident Mutual'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. Therefore, purchasers of Qualified Contracts should seek
competent legal and tax advice regarding the suitability of a Contract for their
situation, the applicable requirements, and the tax treatment of the rights and
benefits of a Contract. 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 CONTRACT
Diversification Requirements. Section 817(h) of the Code provides that
separate account investments underlying a contract must be "adequately
diversified" in accordance with Treasury regulations in order for the contract
to qualify as an annuity contract under Section 72 of the Code. The Variable
Account, through each Portfolio of the Funds, intends to comply with the
diversification requirements prescribed in regulations under Section 817(h) of
the Code, which affect how the assets in the various Subaccounts may be
invested. Although Provident Mutual does not have control over the Funds in
which the Variable Account invest, we believe that each Portfolio in which the
Variable Account owns shares will meet the diversification requirements and that
therefore the Contract will be treated as an annuity contract under the Code.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includable in the variable
annuity contractowner's gross income. Several years ago, the IRS stated in
published rulings that a variable contractowner will be considered the owner of
separate account assets if the contractowner possesses incidents of ownership in
those assets, such as the ability to exercise investment control over the
assets. More recently, the Treasury Department announced, in connection with the
issuance of regulations concerning investment diversification, that those
regulations "do not provide guidance concerning the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor, rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of the underlying assets."
The ownership rights under the contract are similar to, but difference in
certain respects from, those described by the Service in rulings in which it was
determined that contractowners were not owners of separate account assets. For
example, the Owner of the Contract has the choice of one or more Subaccounts in
which to allocate premiums and Contract values, and may be able to transfer
among Subaccounts more frequently than in such rulings. These differences could
result in the contractowner's being treated as the owner of the assets of the
Variable Account. In addition, Provident Mutual does not know what standards
will be set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. Provident Mutual therefore reserves
the right to modify the Contract as necessary to attempt to prevent the
contractowner from being considered the owner of the assets of the Variable
Account.
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<PAGE> 38
Required Distributions. In addition to the requirements of Section 817(h)
of the Code, in order to be treated as an annuity contract for Federal income
tax purposes, Section 72(s) of the Code requires any Non-Qualified Contract to
provide that: (a) if any Owner dies on or after the Maturity Date but prior to
the time the entire interest in the Contract has been distributed, the remaining
portion of such interest will be distributed at least as rapidly as under the
method of distribution being used as of the date of that Owner's death; and (b)
if any Owner dies prior to the annuity commencement date, the entire interest in
the Contract will be distributed within five years after the date of the Owner's
death. These requirements will be considered satisfied as to any portion of the
Owner's interest which is payable to or for the benefit of a "designated
beneficiary" and which is distributed over the life of such Beneficiary or over
a period not extending beyond the life expectancy of that Beneficiary, provided
that such distributions begin within one year of that Owner's death. The Owner's
"designated beneficiary" is the person designated by such owner as a Beneficiary
and to whom ownership of the Policy passes by reason of death and must be a
natural person. However, if the owner's "designated beneficiary" is the
surviving spouse of the Owner, the Contract may be continued with the surviving
spouse as the new Owner.
The Non-Qualified Contracts contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. Provident Mutual intends
to review such provisions and modify them if necessary to assure that they
comply with the requirements of Code Section 72(s) when clarified by regulation
or otherwise.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as annuity
contracts for Federal income tax purposes.
TAXATION OF ANNUITIES
In General. Section 72 of the Code governs taxation of annuities in
general. Provident Mutual believes that an Owner who is a natural person
generally is not taxed on increases in the value of a Contract until
distribution occurs by withdrawing all or part of the Contract Account Value
(e.g., partial withdrawals and complete surrenders) or as annuity payments under
the Payment Option elected. For this purpose, the assignment, pledge, or
agreement to assign or pledge any portion of the Contract Account Value (and in
the case of a Qualified Contract, any portion of an interest in the qualified
plan) generally will be treated as a distribution. The taxable portion of a
distribution (in the form of a single sum payment or an annuity) is taxable as
ordinary income.
The Owner of any annuity 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" during the taxable year. There are some
exceptions to this rule, and a prospective Owner is not a natural person may
wish to discuss these with a competent tax advisor.
The following discussion generally applies to Contracts owned by natural
persons.
Withdrawals. In the case of a withdrawal from a Qualified Contract, under
Section 72(e) of the Code a ratable portion of the amount received is taxable,
generally based on the ratio of the "investment in the contract" to the
participant's total accrued benefit or balance under the retirement plan. The
"investment in the contract" generally equals the portion, if any, of any
premium payments paid by or on behalf of any individual under a Contract which
was not excluded from the individual's gross income. For Contracts issued in
connection with qualified plans, the "investment in the contract" can be zero.
Special tax rules may be available for certain distributions from Qualified
Contracts.
In the case of a withdrawal from a Non-Qualified Contract before the
Maturity Date, under Code Section 72(e) amounts received are generally first
treated as taxable income to the extent that the accumulation value immediately
before the withdrawal exceeds the "investment in the contract" at that time. Any
additional amount withdrawn is not taxable.
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<PAGE> 39
In the case of a full surrender under a Qualified or Non-Qualified
Contract, the amount received generally will be taxable only to the extent it
exceeds the "investment in the contract."
Annuity Payments. Although tax consequences may vary depending on the
Payment Option elected under an annuity contract, under Code Section 72(b),
generally (prior to recovery of the investment in the contract) gross income
does not include that part of any amount received as an annuity under an annuity
contract that bears the same ratio to such amount as the investment in the
contract bears to the expected return at the annuity starting date. Stated
differently, prior to recovery of the investment in the contract, in general,
there is no tax on the amount of each payment which represents the same ratio
that the "investment in the contract" bears to the total expected value of the
annuity payments for the term of the payments; however, the remainder of each
income payment is taxable. After the "investment in the contract" is recovered,
the full amount of any additional annuity payments is taxable.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a
Contract because of the death of the Owner or an Annuitant. Generally, such
amounts are includible in the income of the recipient as follows: (i) if
distributed in a lump sum, they are taxed in the same manner as a full surrender
of the contract; or (ii) if distributed under a Payment Option, they are taxed
in the same way as annuity payments. For these purposes, the investment in the
contract is not affected by the owner's or annuitant's death. That is, the
investment in the contract remains the amount of any purchase payments paid
which were not excluded from gross income.
Penalty Tax on Certain Withdrawals. In the case of a distribution pursuant
to a Non-Qualified Contract, there may be imposed a Federal penalty tax equal to
10% of the amount treated as taxable income. In general, however, there is no
penalty on distributions:
1. made on or after the taxpayer reaches age 59 1/2;
2. made on or after the death of the holder (or if the holder is not an
individual, the death of the primary annuitant);
3. attributable to the taxpayer's becoming disabled;
4. a part of a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the taxpayer
and his or her designated beneficiary;
5. made under an annuity contract that is purchased with a single premium
when the annuity starting date is no later than a year from purchase of
the annuity and substantially equal periodic payments are made, not less
frequently than annually, during the annuity period; and
6. made under certain annuities issued in connection with structured
settlement agreements.
Other tax penalties may apply to certain distributions under a Qualified
Contract, as well as to certain contributions, loans, and other circumstances.
Possible Tax Changes. In recent years, legislation has been proposed that
would have adversely modified the federal taxation of certain annuities. For
example, one such proposal would have changed the tax treatment of non-qualified
annuities that did not have "substantial life contingencies" by taxing income as
it is credited to the annuity. Although as of the date of this prospectus
Congress is not considering any legislation regarding the taxation of annuities,
there is always the possibility that the tax treatment of annuities could change
by legislation or other means (such as IRS regulations, revenue rulings, and
judicial decisions). Moreover, it is also possible that any legislative change
could be retroactive (that is, effective prior to the date of such change).
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer of ownership of a Contract, the designation of an Annuitant,
Payee or other Beneficiary who is not also the Owner, the selection of certain
Maturity Dates or the exchange of a Contract may result in certain tax
consequences to the Owner that are not discussed herein. An Owner contemplating
any such transfer, assignment, or exchange of a Contract should contact a
competent tax advisor with respect to the potential effects of such a
transaction.
33
<PAGE> 40
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for
the recipient's Federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Effective January 1, 1993, distribution from certain qualified
plans are generally subject to mandatory withholding.
MULTIPLE CONTRACTS
All non-qualified deferred annuity contracts entered into after October 21,
1988 that are issued by Provident Mutual (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 gross income under Code Section 72(e). The
effects of this rule are not yet clear; however, it could affect the time when
income is taxable and the amount that might be subject to the 10% penalty tax
described above. In addition, the Treasury Department has specific authority to
issue regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. There may also be other situations
in which the Treasury may conclude that it would be appropriate to aggregate two
or more annuity contracts purchased by the same Owner. Accordingly, a Contract
Owner should consult a competent tax advisor before purchasing more than one
annuity contract.
TAXATION OF QUALIFIED PLANS
The Contracts are designed for use with several types of qualified plans.
The tax rules applicable to participants in these qualified plans vary according
to the type of plan and the terms and conditions of the plan itself. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; aggregate distributions in excess of a specified
annual amount; and in other specified circumstances. Therefore, no attempt is
made to provide more than general information about the use of the Contracts
with the various types of qualified retirement plans. Contract Owners, the
Annuitants, and Beneficiaries 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 Provident Mutual shall not be bound by the terms and
conditions of such plans to the extent such terms contradict the Contract,
unless Provident Mutual consents. Some retirement plans are subject to
distribution and other requirements that are not incorporated in the
administration of the Contracts. Owners are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts satisfy applicable law. Brief descriptions follow of the various types
of qualified retirement plans in connection with a Contract. Provident Mutual
will amend the Contract as necessary to conform it to the requirements of the
Code.
Corporate Pension and Profit Sharing Plans. Section 401(a) of the Code
permits corporate employers to establish various types of retirement plans for
employees. Such retirement plans may permit the purchase of the Contract to
provide benefits under the plans. Adverse tax consequences to the plan, to the
participant or to both may result if this Contract is assigned or transferred to
any individual as a means to provide benefit payments. Corporate employers
intending to use the Contract with such plans should seek competent advice.
Individual Retirement Annuities. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA". These IRAs are subject to limits on
the amount that may be contributed, the persons who may be eligible, and on the
time when distributions may commence. Also, distributions from certain other
types of qualified retirement plans may be "rolled over" on a tax-deferred basis
into an IRA. Sales of the Contract for use with IRAs may be subject to special
requirements on the Internal Revenue Service.
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 premiums paid, within certain limits, on a Contract that will
provide an annuity for the employee's retirement. The Internal Revenue Service
has
34
<PAGE> 41
not reviewed the Contract for qualification as an IRA, and has not generally
ruled whether a death benefit provision such as the provision in the Contract
comports with IRA qualification requirements.
RESTRICTIONS UNDER QUALIFIED CONTRACTS
Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Contracts or under the terms
of the plans in respect of which Qualified Contracts are issued.
POSSIBLE CHARGE FOR PROVIDENT MUTUAL'S TAXES
At the present time, the Company makes no charge to the Subaccounts for any
Federal, state, or local taxes that the Company incurs which may be attributable
to such Subaccounts or to the Contracts. The Company, however, reserves the
right in the future to make a charge for any such tax or other economic burden
resulting from the application of the tax laws that it determines to be properly
attributable to the Subaccounts or to the Contracts.
If any tax charges are made in the future, they will be accumulated daily
and transferred from the applicable Subaccount to Provident Mutual's General
Account. Any investment earnings on tax charges accumulated in a Subaccount will
be retained by Provident Mutual.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the Federal tax consequences
under these Contracts are not exhaustive, and special rules are provided with
respect to other tax situations not discussed in this Prospectus. Further, the
Federal income tax consequences discussed herein reflect Provident Mutual's
understanding of current law and the law may change. Federal estate and state
and local estate, inheritance, and other tax consequences of ownership or
receipt of distributions under a Contract depend on the individual circumstances
of each Owner or recipient of the distribution. A competent tax advisor should
be consulted for further information.
DISTRIBUTION OF CONTRACTS
The Contracts will be offered to the public on a continuous basis, and
Provident Mutual does not anticipate discontinuing the offering of the
Contracts. However, Provident Mutual reserves the right to discontinue the
offering. Applications for Contracts are solicited by agents who are licensed by
applicable state insurance authorities to sell Provident Mutual's variable
annuity contracts and who are also registered representatives of 1717 Capital
Management Company ("1717") (formerly PML Securities Company) or broker/dealers
having selling agreements with 1717 or broker/dealers having selling agreements
with such broker/dealers. 1717 is a wholly owned indirect subsidiary of
Provident Mutual and is registered with the SEC under the Securities Exchange
Act of 1934 as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc.
1717 acts as the Principal Underwriter, as defined in the Investment
Company Act of 1940, of the Contracts for the Variable Account pursuant to an
Underwriting Agreement between Provident Mutual and 1717. 1717 is not obligated
to sell any specific number of Contracts. 1717's principal business address is
Christiana Executive Campus, P.O. Box 15626, Wilmington, Delaware 19850. The
Contracts may also be sold through other broker-dealers registered under the
Securities Exchange Act of 1934 whose representatives are authorized by
applicable law to sell variable annuity contracts. 1717 has entered into a
Selling Agreement with Equity Services, Inc. (ESI), a registered broker-dealer
affiliated with 1717. Under the terms of the Selling Agreement registered
representatives of ESI will solicit applications and ESI will also enter into
selling agreements with other broker-dealers with respect to distribution of the
Contracts. 1717 and ESI receive the full commissions on Contracts sold by their
registered representatives. Nonaffiliated broker-dealers receive full
commissions on Contracts sold by their registered representatives, less a
nominal charge by 1717 or ESI for expenses incurred. The commissions paid are no
greater than 6 1/2% of premiums.
35
<PAGE> 42
LEGAL PROCEEDINGS
There are at present no legal proceedings to which the Variable Account is
a party or the assets of the Variable Account are subject. Provident Mutual is
not involved in any litigation that is of material importance in relation to its
total assets or that relates to the Variable Account.
VOTING RIGHTS
In accordance with its view of present applicable law, Provident Mutual
will vote the Portfolio shares held in the Variable Account at special
shareholder meetings of the Funds in accordance with instructions received from
persons having voting interests in the corresponding Subaccounts. If, however,
the Investment Company Act of 1940 or any regulation thereunder should be
amended, or if the present interpretation thereof should change, or Provident
Mutual determines that it is allowed to vote the Portfolio shares in its own
right, it may elect to do so.
The number of votes which are available to an Owner will be calculated
separately for each Subaccount of the Variable Account, and may include
fractional votes. The number of votes attributable to a Subaccount will be
determined by applying an Owner's percentage interest, if any, in a particular
Subaccount to the total number of votes attributable to that Subaccount. An
Owner holds a voting interest in each Subaccount to which the Variable Account
Value is allocated. The Owner only has voting interest prior to the Maturity
Date.
The number of votes of a Portfolio which are available to the Contract
Owner will be determined as of the date coincident with the date established by
that Portfolio for determining shareholders eligible to vote at the relevant
meeting of each Fund. Voting instructions will be solicited by written
communication prior to such meeting in accordance with procedures established by
the Funds.
Fund shares as to which no timely instructions are received and shares held
by Provident Mutual in a Subaccount as to which an Owner has no beneficial
interest will be voted in proportion to the voting instructions which are
received with respect to all Contracts participating in that Subaccount. Voting
instructions to abstain on any item to be voted upon will be applied on a pro
rata basis to reduce the votes eligible to be cast.
Each person having a voting interest in a Subaccount will receive proxy
materials, reports, and other material relating to the appropriate Portfolio.
FINANCIAL STATEMENTS
The audited statements of financial condition for Provident Mutual as of
December 31, 1995 and 1994 and the related statements of operations, changes in
unassigned surplus and cash flows for each of the three years in the period
ended December 31, 1995, as well as the Report of Independent Accountants are
contained in the Statement of Additional Information. The audited statement of
assets and liabilities of the Variable Account as of December 31, 1995, and the
related statements of operations for the year then ended and the statements of
changes in net assets for each of the two years in the period then ended are
included in the Statement of Additional Information.
36
<PAGE> 43
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Additional Contract Provisions...................................................... S-2
The Contract................................................................... S-2
Incontestability............................................................... S-2
Misstatement of Age or Sex..................................................... S-2
Dividends...................................................................... S-2
Calculation of Yields and Total Returns............................................. S-2
Money Market Subaccount Yields................................................. S-2
Other Subaccount Yields........................................................ S-3
Average Annual Total Returns................................................... S-4
Other Total Returns............................................................ S-6
Effect of the Administration Fee on Performance Data........................... S-7
Termination of Participation Agreements............................................. S-8
Safekeeping of Account Assets....................................................... S-9
State Regulation.................................................................... S-9
Records and Reports................................................................. S-9
Legal Matters....................................................................... S-9
Experts............................................................................. S-10
Other Information................................................................... S-10
Financial Statements................................................................ S-10
</TABLE>
37
<PAGE> 44
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
HOME OFFICE: 1050 WESTLAKES DRIVE, BERWYN, PENNSYLVANIA 19312
(215) 636-5000
ADMINISTRATIVE OFFICE: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19713
1-800-654-7796
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY SEPARATE ACCOUNT
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
This Statement of Additional Information contains information in addition
to the information described in the Prospectus for the flexible premium deferred
variable annuity contract (the "Contract") offered by Provident Mutual Life
Insurance Company. This Statement of Additional Information is not a Prospectus,
and it should be read only in conjunction with the Prospectuses for the Contract
and the Market Street Fund, Inc., the Variable Insurance Products Fund, the
Variable Insurance Products Fund II, the Scudder Variable Life Investment Fund,
the OCC Accumulation Trust and the Dreyfus Variable Investment Fund. The
Prospectus is dated the same as this Statement of Additional Information. You
may obtain a copy of the Prospectus by writing or calling us at our address or
phone number shown above.
The date of this Statement of Additional Information is May 1, 1996.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS*
<TABLE>
<S> <C>
ADDITIONAL CONTRACT PROVISIONS (13-27)............................................... S-2
The Contract.................................................................... S-2
Incontestability................................................................ S-2
Misstatement of Age or Sex...................................................... S-2
Dividends....................................................................... S-2
CALCULATION OF YIELDS AND TOTAL RETURNS (27-28)...................................... S-2
Money Market Subaccount Yields.................................................. S-2
Other Subaccount Yields......................................................... S-3
Average Annual Total Returns.................................................... S-4
Other Total Returns............................................................. S-6
Effect of the Administration Fee on Performance Data............................ S-7
TERMINATION OF PARTICIPATION AGREEMENTS (12)......................................... S-8
SAFEKEEPING OF ACCOUNT ASSETS........................................................ S-9
STATE REGULATION (8)................................................................. S-9
RECORDS AND REPORTS.................................................................. S-9
LEGAL MATTERS (33)................................................................... S-10
EXPERTS.............................................................................. S-10
OTHER INFORMATION.................................................................... S-10
FINANCIAL STATEMENTS (34)............................................................ S-10
</TABLE>
- ---------------
* Numbers in parentheses refer to corresponding pages of the Prospectus.
<PAGE> 45
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The entire contract is made up of the policy and the application. The
statements made in the application are deemed representations and not
warranties. Provident Mutual cannot use any statement in defense of a claim or
to void the Contract unless it is contained in the application and a copy of the
application is attached to the Contract at issue.
INCONTESTABILITY
Provident Mutual will not contest the Contract after it has been in force
during the Annuitant's lifetime for two years from the Contract Date.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the annuitant has been misstated, the amount which
will be paid is that which the proceeds would have purchased at the correct age
and sex.
If an overpayment is made because of an error in age or sex, the
overpayment plus interest at 3% compounded annually will be a debt against the
Contract. If the debt is not repaid, future payments will be reduced
accordingly.
If an underpayment is made because of an error in age or sex, any annuity
payments will be recalculated at the correct age and sex and future payments
will be adjusted. The underpayment with interest at 3% compounded annually will
be paid in a single sum.
DIVIDENDS
The Contract is eligible for dividends. Provident Mutual will determine the
share of its divisible surplus to be apportioned to the Contract on a yearly
basis. Since this Contract will probably not contribute to surplus, Provident
Mutual does not expect to credit dividends to it. If a dividend is credited, it
will be paid to the Owner in cash.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, Provident Mutual may disclose yields, total returns, and
other performance data pertaining to the Contracts for a Subaccount. Such
performance data will be computed, or accompanied by performance data computed,
in accordance with the standards defined by the Securities and Exchange
Commission.
Because of the charges and deductions imposed under a Contract, the yield
for the Subaccounts will be lower than the yield for their respective
Portfolios. The calculations of yields, total returns, and other performance
data do not reflect the effect of any premium tax that may be applicable to a
particular Contract.
MONEY MARKET SUBACCOUNT YIELDS
From time to time, advertisements and sales literature may quote the
current annualized yield of the Money Market Subaccount for a seven-day period
in a manner which does not take into consideration any realized or unrealized
gains or losses 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) at the end of the seven-day period in the value
of a hypothetical account under a Contract having a balance of 1 unit of the
Money Market Subaccount at the beginning of the period, dividing such net change
in account value by the value of the hypothetical account at the beginning of
the period to determine the base period return, and annualizing this quotient on
a 365-day basis. The net change in account value reflects: 1) net income from
the Portfolio
S-2
<PAGE> 46
attributable to the hypothetical account; and 2) charges and deductions imposed
under the Contract which are attributable to the hypothetical account. The
charges and deductions include the per unit charges for the hypothetical account
for: 1) the Annual Administration Fee; 2) the Asset-Based Administration Charge;
and 3) the Mortality and Expense Risk Charge. For purposes of calculating
current yields for a Contract, an average per unit administration fee is used
based on the $30 administration fee deducted at the end of each Contract Year.
Current Yield will be calculated according to the following formula:
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains or losses on the sale of securities and unrealized appreciation
and depreciation) for the seven-day period attributable to a
hypothetical account having a balance of 1 Subaccount unit.
ES = per unit expenses attributable to the hypothetical account for the
seven-day period.
UV = the unit value on the first day of the seven-day period.
The effective yield of the Money Market Subaccount determined on a
compounded basis for the same seven-day period may also be quoted.
The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
Effective Yield = (1 + ((NCS - ES)/UV))365/7 - 1
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation) for the seven-day period attributable
to a hypothetical account having a balance of 1 Subaccount unit.
ES = per unit expenses attributable to the hypothetical account for the
seven-day period.
UV = the unit value for the first day of the seven-day period.
Because of the charges and deductions imposed under the Contract, the yield
for the Money Market Subaccount will be lower than the yield for the Money
Market Portfolio.
The current and effective yields on amounts held in the Money Market
Subaccount normally will fluctuate on a daily basis. THEREFORE, THE DISCLOSED
YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE
YIELDS OR RATES OF RETURN. The Money Market Subaccount's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the Money Market Portfolio, the types and quality of
portfolio securities held by the Money Market Portfolio and the Money Market
Portfolio's operating expenses. Yields on amounts held in the Money Market
Subaccount may also be presented for periods other than a seven-day period.
OTHER SUBACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Subaccounts (except the Money Market
Subaccount) for a Contract for 30-day or one-month periods. The annualized yield
of a Subaccount refers to income generated by the Subaccount over a specific
30-day or one-month period. Because the yield is annualized, the yield generated
by a Subaccount during a 30-day or one-month period is assumed to be generated
each period over a 12-month period.
The yield is computed by: 1) dividing the net investment income of the
Portfolio attributable to the Subaccount units less Subaccount expenses for the
period; by 2) the maximum offering price per unit on the last day of the period
times the daily average number of units outstanding for the period; by 3)
compounding that yield for a six-month period; and by 4) multiplying that result
by 2. Expenses attributable to the Subaccount include the Annual Administration
Fee, the Asset-Based Administration Charge and the
S-3
<PAGE> 47
Mortality and Expense Risk Charge. The yield calculation assumes an
administration fee of $30 per year per Contract deducted at the end of each
Contract Year. For purposes of calculating the 30-day or one-month yield, an
average administration fee per dollar of Contract value in the Variable Account
is used to determine the amount of the charge attributable to the Subaccount for
the 30-day or one-month period. The 30-day or one-month yield is calculated
according to the following formula:
Yield = 2 X (((NI - ES)/(U X UV)) + 1)6-1
Where:
NI = net income of the Portfolio for the 30-day or one-month period
attributable to the Subaccount's units.
ES = expenses of the Subaccount for the 30-day or one-month period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last day in the 30-day
or one-month period.
Because of the charges and deductions imposed under the Contracts, the
yield for the Subaccount will be lower than the yield for the corresponding Fund
Portfolio.
The yield on the amounts held in the Subaccounts normally will fluctuate
over time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN
INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. The
Subaccount's actual yield is affected by the types and quality of portfolio
securities held by the Portfolio and its operating expenses.
Yield calculations do not take into account the Surrender Charge under the
Contract equal to 1% to 6% of premiums paid during the six years prior to the
surrender or withdrawal (including the year in which the surrender is made) on
amounts surrendered or withdrawn under the contract. A Surrender Charge will not
be imposed on the first or second withdrawal in any Contract Year on an amount
up to 10% of the Contract Account Value as of the beginning of such 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, Provident Mutual
will always include quotes of average annual total return for the period
measured from the date the Contracts were first offered for sale. When a
Subaccount has been in operation for 1, 5, and 10 years, respectively, the
average annual total return for these periods will be provided. Average annual
total returns for other periods of time may, from time to time, also be
disclosed.
Average annual total returns represent the average annual compounded rates
of return that would equate an initial investment of $1,000 under a Contract to
the redemption value of that investment as of the last day of each of the
periods. The ending date for each period for which total return quotations are
provided will be for the most recent month-end practicable, considering the type
and media of the communication and will be stated in the communication.
Average annual total returns will be calculated using Subaccount unit
values which Provident Mutual calculates on each Valuation Day based on the
performance of the Subaccount's underlying Portfolio, the deductions for the
Mortality and Expense Risk Charge, the Asset-Based Administration Charge, and
the Annual Administration Fee. The calculation assumes that the Administration
Fee is $30 per year per contract deducted at the end of each Contract Year. For
purposes of calculating average annual total return, an average per dollar
administration fee attributable to the hypothetical account for the period is
used. The calculation also assumes surrender of the Contract at the end of the
period for the return quotation. Total returns will
S-4
<PAGE> 48
therefore reflect a deduction of the Surrender Charge for any period less than
seven 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 net of Subaccount recurring charges
ERV = the ending redeemable value (net of any applicable Surrender Charge)
of the hypothetical account at the end of the period
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
From time to time, sales literature or advertisements may also quote
average annual total returns for periods prior to the date the Variable Account
commenced operations. Such performance information for the Subaccounts will be
calculated based on the performance of the Portfolios and the assumption that
the Subaccounts were in existence for the same periods as those indicated for
the Portfolios, with the level of Contract charges currently in effect. In
addition, sales literature or advertisements may quote average annual total
return for the Subaccounts for the period before the Contracts were registered
under the 1933 Act, with the level of Contract charges currently in effect.
The Funds have provided the total return information for the Portfolios,
including the Portfolio total return information used to calculate the total
returns of the Subaccounts for periods prior to the Subaccounts' inception of
the Subaccounts. The Variable Insurance Products Fund, the Variable Insurance
Products Fund II, the Scudder Variable Life Investment Fund, the OCC
Accumulation Trust and the Dreyfus Variable Investment Fund are not affiliated
with Provident Mutual. While Provident Mutual has no reason to doubt the
accuracy of these figures provided by these non-affiliated Funds, Provident
Mutual does not represent that they are true and complete, and disclaims all
responsibility for these figures.
S-5
<PAGE> 49
Such average annual total return information for the Subaccounts is as
follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
FOR THE 1-YEAR FOR THE 5-YEAR ENDED 12/31/95
PERIOD ENDED PERIOD ENDED (OR DATE OF INCEPTION
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/95 12/31/95 IF LESS THAN 10 YEARS
- --------------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET
Growth (December 12, 1985)....................... 21.83% 10.75% 10.94%
Money Market (December 12, 1983.................. -1.35% 2.22% 4.02%
Bond (December 12, 1985)......................... 12.43% 6.63% 6.53%
Managed (December 12, 1985)...................... 16.17% 10.89% 7.20%
Aggressive Growth (May 1, 1989).................. 6.01% 11.80% 10.71%
International (November 1, 1991)................. 6.78% -- 6.43%
FIDELITY
High Income (September 19, 1985)................. 12.67% 16.79% 10.04%
Equity-Income (October 9, 1986).................. 26.23% 19.16% 11.55%
Growth (October 9, 1986)......................... 26.48% 18.62% 13.03%
Asset Manager (September 6, 1989)................ 9.26% 10.72% 9.46%
Index 500 (August 27, 1992)...................... 28.19% -- 12.56%
Contrafund (July 3, 1995)........................ 30.85% -- 30.85%
QUEST FOR VALUE
Equity (August 1, 1988).......................... 29.75% -- 14.54%
Small Cap (August 1, 1988)....................... 7.64% -- 3.72%
Managed (August 1, 1988)......................... 36.01% -- 16.36%
SCUDDER
Bond July 16, 1985).............................. 10.39% 7.73% 7.31%
Growth & Inc. (May 2, 1994)...................... 23.11% -- 15.88%
International (May 1, 1987)...................... 3.80% 8.39% 7.63%
DREYFUS
Zero 2000 Bond (August 31, 1990)................. 10.19% 9.17% 9.81%
Growth & Inc. May 2, 1994)....................... 51.34% -- 26.55%
Socially Resp. (October 7, 1993)................. 25.75% -- 14.66%
FEDERATED
Bond (March 29, 1994)............................ 1.61% -- 1.61%
Utility (April 18, 1994)......................... 16.03% -- 9.02%
</TABLE>
OTHER TOTAL RETURN
From time to time, sales literature or advertisements may also quote
average annual total returns that do not reflect the Surrender Charge. These are
calculated in exactly the same way as average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is
S-6
<PAGE> 50
replaced with an ending value for the period that does not take into account any
charges on amounts surrendered or withdrawn. Such information is as follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
FOR THE 1-YEAR FOR THE 5-YEAR ENDED 12/31/95
PERIOD ENDED PERIOD ENDED (OR DATE OF INCEPTION
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/95 12/31/95 IF LESS THAN 10 YEARS)
- ----------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET
Growth (December 12, 1985)................... 28.24% 10.97% 10.94%
Money Market (December 12, 1983)............. 3.84% 2.43% 4.02%
Bond (December 12, 1985)..................... 18.34% 6.84% 6.53%
Managed (December 12, 1985).................. 22.29% 11.11% 7.20%
Aggressive Growth (May 1, 1989).............. 11.59% 12.02% 10.71%
International (November 1, 1991)............. 12.40% -- 6.95%
FIDELITY
High Income (September 19, 1985)............. 18.60% 17.03% 10.04%
Equity-Income (October 9, 1986).............. 32.87% 19.40% 11.55%
Growth (October 9, 1986)..................... 33.14% 18.86% 13.03%
Asset Manager (September 6, 1989)............ 15.01% 10.94% 9.46%
Index 500 (August 27, 1992).................. 34.94% -- 13.59%
Contrafund (July 3, 1995).................... 37.74% -- 37.74%
QUEST FOR VALUE
Equity (August 1, 1988)...................... 36.57% -- 16.72%
Small Cap (August 1, 1988)................... 13.31% -- 5.68%
Managed (August 1, 1988)..................... 43.17% -- 18.57%
SCUDDER
Bond (July 16, 1985)......................... 16.20% 7.95% 7.31%
Growth & Inc. (May 2, 1994).................. 29.59% -- 19.52%
International (May 1, 1987).................. 9.27% 8.60% 7.63%
DREYFUS
Zero 2000 Bond (August 31, 1990)............. 15.99% 9.39% 10.01%
Growth & Inc. (May 2, 1994).................. 59.30% -- 30.52%
Socially Resp. (October 7, 1995)............. 32.36% -- 16.77%
FEDERATED
Bond (March 29, 1994)........................ 6.96% -- 4.63%
Utility (April 18, 1994)..................... 22.14% -- 12.34%
</TABLE>
Provident Mutual may disclose Cumulative Total Returns in conjunction with
the standard formats described above. The Cumulative Total Returns will be
calculated using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = the Cumulative Total Return net of Subaccount recurring charges for
the period.
ERV = the ending redeemable value of the hypothetical investment at the end
of the period.
P = a hypothetical single payment of $1,000.
EFFECT OF THE ADMINISTRATION FEE ON PERFORMANCE DATA
The Contract provides for a $30 Annual Administration Fee to be deducted
annually at the end of each Contract Year, from the Subaccounts and the
Guaranteed Account based on the proportion that the value of each such account
bears to the total Contract Account Value. For purposes of reflecting the
administration fee in yield and total return quotations, the annual charge is
converted into a per-dollar per-day charge based on
S-7
<PAGE> 51
the average contract value in the Variable Account of all Contracts on the last
day of the period for which quotations are provided. The per-dollar per-day
average charge will then be adjusted to reflect the basis upon which the
particular quotation is calculated.
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 Provident Mutual's option if
shares of the Fund are not reasonably available to meet the requirements of the
contracts; (3) at the option of the Fund or Provident Mutual 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
Provident Mutual's option if the Fund ceases to qualify as a regulated
investment company under the Code or fails to meet the diversification
requirements thereunder; (6) at the option of Provident Mutual or the Fund upon
a determination that an irreconcilable material conflict exists between owners
of variable insurance products of all the separate accounts or the interests of
participating insurance companies investing in the Fund; (7) at the option of
Provident Mutual if it has 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.
Variable Insurance Products Fund and Variable Insurance Products Fund
II. These agreements provide for termination: (1) on six months' advance notice
by any party; (2) at Provident Mutual's option if shares of the Fund are not
reasonably available to meet the requirements of the Contracts; (3) at Provident
Mutual's option if shares of the Fund are not registered, issued or sold in
accordance with applicable laws, if the Fund ceases to qualify as a regulated
investment company under the Code or fails to meet the diversification
requirements thereunder; (4) at the option of the Fund or its principal
underwriter if it determines that Provident Mutual has suffered material adverse
changes in its business or financial conditions or is the subject of material
adverse publicity; (5) at the option of Provident Mutual 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 Provident Mutual decides to make another mutual
fund available as a funding vehicle for its Contracts.
Scudder Variable Life Investment Fund. This agreement provides for
termination: (1) one hundred twenty days after the renegotiation date if the
Fund and Provident Mutual fail within sixty days after such renegotiation date
to agree to continue or amend the agreement; (2) at the option of Provident
Mutual or the Fund if no shares of the Fund are owned by Provident Mutual, the
Variable Account, an affiliated insurance company or a separate account of such
affiliated insurance company; (3) upon determination that an irreconcilable
conflict exists between the interests of owners of the Contracts and variable
insurance products of all separate accounts or the interests of participating
insurance companies investing in the Fund.
OCC Accumulation Trust. This agreement provides for termination: (1) on
one year's advance notice by any party; (2) at Provident Mutual's option if
shares of the Fund are not reasonably available to meet the requirements of the
Contracts; (3) at the option of the Fund or Provident Mutual 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
Provident Mutual's option if the Fund ceases to qualify as a regulated
investment company under the Code or fails to meet the diversification
requirements thereunder; (6) at the option of Provident Mutual or the Fund upon
a determination that an irreconcilable material conflict exists between owners
of variable insurance products of all the separate accounts or the interests of
participating insurance companies investing in the Fund; (7) at the option of
Provident Mutual if it has withdrawn the Variable Account's investment in the
Fund; (8) at the option of any party upon another party's material breach of any
provision of the agreement; or (9) at Provident Mutual's option if it determines
that the Fund or its principal underwriter has suffered a material adverse
change in its business, operations or financial condition or is the subject of
material adverse publicity.
S-8
<PAGE> 52
Dreyfus Variable Investment Fund. This agreement provides for termination:
(a) on 180 days' notice by Provident Mutual or the Fund; (b) at Provident
Mutual's option if shares of the Fund are not reasonably available to meet the
requirements of the contracts; (c) at the option of Provident Mutual or the Fund
if certain enforcement proceedings are instituted against the other; (d) at the
option of the Fund if it determines that Provident Mutual has suffered a
material adverse change in its business or financial condition or is the subject
of material adverse publicity; (e) upon termination of the Investment Advisory
Agreement between the Fund and Dreyfus; (f) in the event the Fund's shares are
not registered, issued or sold in accordance with applicable laws; (g) at the
option of the Fund upon a determination that it is no longer advisable and in
the interests of shareholders to continue the agreement; (h) at the option of
the Fund if the contracts cease to qualify as annuity contracts under the Code;
(i) at the option of either party upon another's breach of any material
provision of the agreement; (j) at the option of the Fund, if the contracts are
not registered, issued or sold in accordance with applicable law; or (k) upon
assignment of the agreement.
Insurance Management Series. This agreement provides for termination: (a)
on 180 days' notice by Providentmutual or the Fund; (b) at Providentmutual's
option if shares of the Portfolios are not reasonably available to meet the
requirements of the Contracts; (c) at the option of Providentmutual or the Fund
if certain enforcement proceedings are instituted against the other; (d) upon
the vote of Owners having an interest in a subaccount investing in a Fund
Portfolio to substitute shares of another investment company for corresponding
shares of the Portfolio of the Fund; (e) in the event the Fund's shares are not
registered, issued or sold in accordance with applicable law; (f) at the option
of Providentmutual or the Fund upon a determination that an irreconcilable
conflict exists between Owners of variable insurance products of all separate
accounts and the interests of participating insurance companies investing in the
Fund; and (g) at the option of Providentmutual if the Fund or a Portfolio ceases
to qualify as a regulated investment company under the Code or fails to meet the
diversification requirements thereunder.
SAFEKEEPING OF ACCOUNT ASSETS
Provident Mutual holds the title to the assets of the Variable Account. The
assets are kept physically segregated and held separate and apart from the
Company's General Account assets and from the assets in any other separate
account.
Records are maintained of all purchases and redemptions of Portfolio shares
held by each of the Subaccounts.
The officers and employees of Provident Mutual are covered by an insurance
company blanket bond issued by National Union Fire Insurance Company of
Pittsburgh, PA to Provident Mutual in the amount of ten million dollars. The
bond insures against dishonest and fraudulent acts of officers and employees.
STATE REGULATIONS
Provident Mutual is subject to regulation and supervision by the Insurance
Department of the Commonwealth of Pennsylvania which periodically examines its
affairs. It is also subject to the insurance laws and regulations of all
jurisdictions where it is authorized to do business. A copy of the Contract form
has been filed with, and where required approved by, insurance officials in each
jurisdiction where the Contracts are sold. Provident Mutual is required to
submit annual statements of its operations, including financial statements, to
the insurance departments of the various jurisdictions in which it does business
for the purposes of determining solvency and compliance with local insurance
laws and regulations.
RECORDS AND REPORTS
Provident Mutual will maintain all records and accounts relating to the
Variable Account. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, reports containing such information as
may be required under the Act or by any other applicable law or regulation will
be sent to Contract Owners semi-annually at the last address known to the
Company.
S-9
<PAGE> 53
LEGAL MATTERS
All matters relating to Pennsylvania law pertaining to the Contracts,
including the validity of the Contracts and Provident Mutual's authority to
issue the Contracts, have been passed upon by Linda E. Senker, Esquire, Senior
Associate General Counsel for Provident Mutual. Sutherland, Asbill & Brennan of
Washington, D.C. has provided advice on certain matters relating to the Federal
securities laws.
EXPERTS
The statements of financial condition for Provident Mutual as of December
31, 1995 and 1994 and the related statements of operations, changes in
unassigned surplus and cash flows for each of the three years in the period
ended December 31, 1995 and the audited statement of assets and liabilities of
the Variable Account as of December 31, 1995 and the related statements of
operations for the year then ended and the statements of changes in net assets
for each of the two years in the period then ended which are included in this
Statement of Additional Information and in the registration statement have been
audited by Coopers & Lybrand L.L.P. as set forth in their report included
herein, and are included herein in reliance upon such report and upon the
authority of such firm as experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities
Act of 1933 as amended, with respect to the Contracts discussed in this
Statement of Additional Information. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Statement of Additional Information. Statements contained in this Statement
of Additional Information concerning the content of the Contracts and other
legal instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed with
the SEC at 450 Fifth Street, N.W., Washington, DC 20549.
FINANCIAL STATEMENTS
This Statement of Additional Information contains the audited statements of
assets and liabilities of the Variable Account as of December 31, 1995 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.
Coopers & Lybrand L.L.P. serves as independent accountants for the Variable
Account.
Provident Mutual's statements of financial condition as of December 31,
1995 and 1994 and the related statements of operations, changes in unassigned
surplus and cash flows for each of the three years in the period ended December
31, 1995, which are included in this Statement of Additional Information, should
be considered only as bearing on Provident Mutual's ability to meet its
obligations under the Contracts. They should not be considered as bearing on the
investment performance of the assets held in the Variable Account.
S-10
<PAGE> 54
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Contractowners and
Board of Directors of
The Provident Mutual Life Insurance
Company
Philadelphia, Pennsylvania
We have audited the accompanying statements of assets and liabilities of the
Provident Mutual Variable Annuity Separate Account (comprising the sixteen
subaccounts) as of December 31, 1995, 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. These financial statements are the
responsibility of the management of the Variable Annuity Separate Account. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. Our procedures included
confirmation of shares owned as of December 31, 1995 by correspondence with the
transfer agents. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Provident Mutual Variable
Annuity Separate Account as of December 31, 1995, and the results of its
operations for the year then ended and the changes in its net assets for each of
the two years in the period then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 14, 1996
F-2
<PAGE> 55
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1995
- --------------------------------------------------------------------------------
<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................. $1,065,139
Money Market Portfolio........... $1,911,725
Bond Portfolio................... $263,898
Managed Portfolio................ $287,785
Aggressive Growth Portfolio...... $256,849
International Portfolio.......... $ 899,398
Dividends receivable............... 7,062
Receivable from Provident Mutual
Life Insurance Company........... 20,532
---------- ---------- -------- -------- -------- ---------
NET ASSETS......................... $1,065,139 $1,939,319 $263,898 $287,785 $256,849 $ 899,398
========== ========== ======== ======== ======== =========
Held for the benefit of contract
owners........................... $1,031,747 $1,910,575 $235,515 $256,934 $226,403 $ 868,699
Attributable to Provident Mutual
Life Insurance Company........... 33,392 28,744 28,383 30,851 30,446 30,699
---------- ---------- -------- -------- -------- ---------
$1,065,139 $1,939,319 $263,898 $287,785 $256,849 $ 899,398
========== ========== ======== ======== ======== =========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 56
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY ASSET FIDELITY
INCOME INCOME GROWTH MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance
Products Fund, at market value:
High Income Portfolio.................... $871,404
Equity-Income Portfolio.................. $1,899,562
Growth Portfolio......................... $1,444,654
Investment in the Variable Insurance
Products Fund II, at market value:
Asset Manager Portfolio.................. $350,084
Index 500 Portfolio...................... $635,642
-------- ---------- ---------- -------- --------
NET ASSETS................................. $871,404 $1,899,562 $1,444,654 $350,084 $635,642
======== ========== ========== ======== ========
Held for the benefit of contractowners..... $841,680 $1,866,319 $1,409,809 $321,807 $601,460
Attributable to Provident Mutual Life
Insurance Company........................ 29,724 33,243 34,845 28,277 34,182
-------- ---------- ---------- -------- --------
$871,404 $1,899,562 $1,444,654 $350,084 $635,642
======== ========== ========== ======== ========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 57
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUEST FOR QUEST FOR DREYFUS
QUEST FOR VALUE VALUE SCUDDER ZERO
VALUE EQUITY SMALL CAP MANAGED BOND COUPON 2000
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Quest for Value
Accumulation Trust, at market value:
Equity Portfolio....................... $736,476
Small Cap Portfolio.................... $448,794
Managed Portfolio...................... $869,175
Investment in the Scudder Variable Life
Investment Fund, at market value:
Bond Portfolio......................... $125,354
Investment in the Dreyfus Variable
Investment Fund, at market value:
Zero Coupon 2000 Portfolio............. $ 139,625
-------- -------- -------- -------- --------
NET ASSETS............................... $736,476 $448,794 $869,175 $125,354 $ 139,625
======== ======== ======== ======== ========
Held for the benefit of contractowners... $702,205 $419,903 $835,019 $ 95,667 $ 110,148
Attributable to Provident Mutual Life
Insurance Company...................... 34,271 28,891 34,156 29,687 $ 29,477
-------- -------- -------- -------- --------
$736,476 $448,794 $869,175 $125,354 $ 139,625
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 58
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<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................................ $ 17,398 $43,296 $ 9,658 $13,281 $ 1,587
EXPENSES
Mortality and expense risks.............. 7,827 9,844 1,803 3,370 $ 2,164 7,010
-------- ------- ------- ------- ------- -------
Net investment income (loss)............. 9,571 33,452 7,855 9,911 (2,164) (5,423)
-------- ------- ------- ------- ------- -------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized gain distributions reinvested... 35,425 345 966 7,497
Net realized gain from redemption of
investment shares...................... 9,896 160 14,611 10,117 767
-------- ------- ------- ------- ------- -------
Net realized gain on investments......... 45,321 160 14,956 11,083 8,264
-------- ------- ------- ------- ------- -------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year...................... (473) (3,196) (3,260) 4,363 (6,428)
End of year............................ 98,207 18,631 32,534 16,806 56,960
-------- ------- ------- ------- ------- -------
Net unrealized appreciation during the
year................................... 98,680 21,827 35,794 12,443 63,388
-------- ------- ------- ------- ------- -------
Net realized and unrealized gain
on investments......................... 144,001 21,987 50,750 23,526 71,652
-------- ------- ------- ------- ------- -------
Net increase in net assets resulting
from operations........................ $153,572 $33,452 $29,842 $60,661 $21,362 $66,229
======== ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 59
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY ASSET FIDELITY
INCOME INCOME GROWTH MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................................ $ 3,561 $ 21,103 $ 741 $ 2,298 $ 536
EXPENSES
Mortality and expense risks.......................... 5,635 11,250 6,398 3,134 1,576
------- -------- ------- ------- -------
Net investment income (loss)......................... (2,074) 9,853 (5,657) (836) (1,040)
------- -------- ------- ------- -------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain distributions reinvested............... 18,254 73
Net realized gain from redemption of investment
shares............................................. 916 5,682 12,032 6,351 6,101
------- -------- ------- ------- -------
Net realized gain on investments..................... 916 23,936 12,032 6,351 6,174
------- -------- ------- ------- -------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year.................................. (199) (505) 2,214 (1,913) 61
End of year........................................ 58,116 196,090 53,656 31,394 30,773
------- -------- ------- ------- -------
Net unrealized appreciation during the year.......... 58,315 196,595 51,442 33,307 30,712
------- -------- ------- ------- -------
Net realized and unrealized gain on investments...... 59,231 220,531 63,474 39,658 36,886
------- -------- ------- ------- -------
Net increase in net assets resulting from
operations......................................... $57,157 $230,384 $57,817 $38,822 $35,846
======= ======== ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 60
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUEST FOR QUEST FOR DREYFUS
QUEST FOR VALUE VALUE SCUDDER ZERO
VALUE EQUITY SMALL CAP MANAGED BOND COUPON 2000
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.......................................... $ 288 $ 316 $ 553 $ 4,097 $4,008
EXPENSES
Mortality and expense risks........................ 3,372 3,998 4,962 562 562
------- ------- -------- ------- ------
Net investment income (loss)....................... (3,084) (3,682) (4,409) 3,535 3,446
------- ------- -------- ------- ------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain distributions reinvested............. 281
Net realized gain from redemption of investment
shares........................................... 3,468 12,497 12,571 28 739
------- ------- -------- ------- ------
Net realized gain on investments................... 3,468 12,778 12,571 28 739
------- ------- -------- ------- ------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year................................ (210) 2,741 (738) (183) (540)
End of year...................................... 70,068 44,166 94,978 7,002 4,458
------- ------- -------- ------- ------
Net unrealized appreciation during the year........ 70,278 41,425 95,716 7,185 4,998
------- ------- -------- ------- ------
Net realized and unrealized gain on investments.... 73,746 54,203 108,287 7,213 5,737
------- ------- -------- ------- ------
Net increase in net assets resulting from
operations....................................... $70,662 $50,521 $103,878 $10,748 $9,183
======= ======= ======== ======= ======
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 61
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<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)....... $ 9,571 $ 33,452 $ 7,855 $ 9,911 $ (2,164) $ (5,423)
Net realized gain on investments... 45,321 160 14,956 11,083 8,264
Net unrealized appreciation of
investments during the year...... 98,680 21,827 35,794 12,443 63,388
--------- ---------- -------- -------- -------- --------
Net increase in net assets
from operations.................. 153,572 33,452 29,842 60,661 21,362 66,229
--------- ---------- -------- -------- -------- --------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractowners' net premiums....... 30,285 8,277,788 11,089 2,043 13,061 67,030
Administrative charges............. (312) (196) (66) (190) (60) (162)
Surrenders and forfeitures......... (23,011) (4,381) (2,723) (17,408) (5,030) (3,697)
Transfers between investment
portfolios....................... 436,550 (6,659,462) 93,995 (63,542) 114,636 489,394
---------- ---------- -------- -------- -------- --------
Net increase (decrease) in net
assets derived from contract
transactions..................... 443,512 1,613,749 102,295 (79,097) 122,607 552,565
---------- ---------- -------- -------- -------- --------
Total increase (decrease) in
net assets....................... 597,084 1,647,201 132,137 (18,436) 143,969 618,794
NET ASSETS
Beginning of year................ 468,055 292,118 131,761 306,221 112,880 280,604
---------- ---------- -------- -------- -------- --------
End of year...................... $1,065,139 $1,939,319 $263,898 $287,785 $256,849 $899,398
========== ========== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 62
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY ASSET FIDELITY
INCOME INCOME GROWTH MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)......................... $ (2,074) $ 9,853 $ (5,657) $ (836) $ (1,040)
Net realized gain on investments..................... 916 23,936 12,032 6,351 6,174
Net unrealized appreciation
of investments during the year..................... 58,315 196,595 51,442 33,307 30,712
-------- --------- ---------- -------- --------
Net increase in net assets from operations........... 57,157 230,384 57,817 38,822 35,846
-------- --------- ---------- -------- --------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractowners' net premiums......................... 31,698 169,149 110,921 61,229 4,360
Administrative charges............................... (29) (165) (148) (73) (21)
Surrenders and forfeitures........................... (8,207) (634) (8,909) (2,483) (447)
Transfers between investment portfolios.............. 754,221 1,303,751 1,181,641 142,676 564,167
-------- --------- ---------- -------- --------
Net increase in net assets derived from
contract transactions.............................. 777,683 1,472,101 1,283,505 201,349 568,059
-------- --------- ---------- -------- --------
Total increase in net assets......................... 834,840 1,702,485 1,341,322 240,171 603,905
NET ASSETS
Beginning of year.................................. 36,564 197,077 103,332 109,913 31,737
-------- --------- ---------- -------- --------
End of year........................................ $871,404 $1,899,562 $1,444,654 $350,084 $635,642
======== ========== ========== ======== ========
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 63
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUEST FOR QUEST FOR DREYFUS
QUEST FOR VALUE VALUE SCUDDER ZERO
VALUE EQUITY SMALL CAP MANAGED BOND COUPON 2000
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....................... $ (3,084) $ (3,682) $ (4,409) $ 3,535 $ 3,446
Net realized gain on investments................... 3,468 12,778 12,571 28 739
Net unrealized appreciation of investments
during the year.................................. 70,278 41,425 95,716 7,185 4,998
-------- -------- -------- -------- --------
Net increase in net assets from operations......... 70,662 50,521 103,878 10,748 9,183
-------- -------- -------- -------- --------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractowners' net premiums....................... 17,047 56,295 44,576 5,284 13,365
Administrative charges............................. (69) (89) (125) (17) (4)
Surrenders and forfeitures......................... (8,381) (9,833)
Transfers between investment portfolios............ 597,919 240,396 651,090 75,949 92,077
-------- -------- -------- -------- --------
Net increase in net assets derived from
contract transactions............................ 606,516 296,602 685,708 81,216 105,438
-------- -------- -------- -------- --------
Total increase in net assets....................... 677,178 347,123 789,586 91,964 114,621
NET ASSETS
Beginning of year................................ 59,298 101,671 79,589 33,390 25,004
-------- -------- -------- -------- --------
End of year...................................... $736,476 $448,794 $869,175 $125,354 $139,625
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 64
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<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)............. $ 3,327 $ 2,849 $ 2,946 $ 3,726 $ (473) $ (1,222)
Net realized gain (loss) on
investments............................ 1,417 (2,743) (2,056) 1,177 2,864
Net unrealized appreciation
(depreciation) of investments during
the year............................... (510) (2,583) (2,999) 2,817 (8,211)
-------- ---------- -------- -------- -------- --------
Net increase (decrease) in net assets
from operations........................ 4,234 2,849 (2,380) (1,329) 3,521 (6,569)
-------- ---------- -------- -------- -------- --------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractowners' net premiums............. 7,776 1,952,633 16,865 (2,100) 8,376
Surrenders and forfeitures............... (3,290) (1,311) (6,507) (48) (2,670)
Transfers between investment
portfolios............................. 434,121 (1,688,526) 110,742 272,262 84,961 254,684
-------- ---------- -------- -------- -------- --------
Net increase in net assets derived from
contract transactions.................. 438,607 264,107 109,431 282,620 82,813 260,390
-------- ---------- -------- -------- -------- --------
Total increase in net assets............. 442,841 266,956 107,051 281,291 86,334 253,821
NET ASSETS
Beginning of year...................... 25,214 25,162 24,710 24,930 26,546 26,783
-------- ---------- -------- -------- -------- --------
End of year............................ $468,055 $ 292,118 $131,761 $306,221 $112,880 $280,604
======== ========== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 65
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY ASSET FIDELITY
INCOME INCOME GROWTH MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).................... $ (24) $ 583 $ (131) $ (80) $ (12)
Net realized gain (loss) on investments......... (121) (139) 62 1
Net unrealized appreciation (depreciation) of
investments during the year................... (199) (505) 2,214 (1,913) 61
------- -------- -------- -------- -------
Net increase (decrease) in net assets
from operations............................... (344) (61) 2,145 (1,992) 49
------- -------- -------- -------- -------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractowners' net premiums.................... 200 200 101 40
Transfers between investment portfolios......... 11,708 171,938 76,086 86,865 6,688
------- -------- -------- -------- -------
Net increase in net assets derived from
contract transactions......................... 11,908 172,138 76,187 86,905 6,688
------- -------- -------- -------- -------
Capital contribution from Provident Mutual Life
Insurance Company............................. 25,000 25,000 25,000 25,000 25,000
------- -------- -------- -------- -------
Total increase in net assets.................... 36,564 197,077 103,332 109,913 31,737
NET ASSETS
Beginning of year............................. -- -- -- -- --
------- -------- -------- -------- -------
End of year................................... $36,564 $197,077 $103,332 $109,913 $31,737
======= ======== ======== ======== =======
</TABLE>
See accompanying notes to financial statements
F-13
<PAGE> 66
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUEST FOR QUEST FOR
QUEST FOR VALUE VALUE SCUDDER DREYFUS ZERO
VALUE EQUITY SMALL CAP MANAGED BOND COUPON 2000
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..................... $ (42) $ (126) $ (66) $ 388 $ 544
Net realized gain (loss) on investments.......... (49) 22 (27)
Net unrealized appreciation (depreciation) of
investments during the year.................... (210) 2,741 (738) (183) (540)
-------- -------- ------- ------- -------
Net increase (decrease) in net assets
from operations................................ (252) 2,566 (782) 178 4
-------- -------- ------- ------- -------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractowners' net premiums..................... 402 403
Transfers between investment portfolios.......... 34,148 74,105 54,968 8,212
-------- -------- ------- ------- -------
Net increase in net assets derived from
contract transactions.......................... 34,550 74,105 55,371 8,212
-------- -------- ------- ------- -------
Capital contribution from Provident Mutual Life
Insurance Company.............................. 25,000 25,000 25,000 25,000 25,000
-------- -------- ------- ------- -------
Total increase in net assets..................... 59,298 101,671 79,589 33,390 25,004
NET ASSETS
Beginning of year.............................. -- -- -- -- --
-------- -------- ------- ------- -------
End of year.................................... $ 59,298 $101,671 $79,589 $33,390 $25,004
======== ======== ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-14
<PAGE> 67
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes To Financial Statements
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Provident Mutual Variable Annuity Separate Account (Separate Account)
was established on October 19, 1992 by Provident Mutual Life Insurance Company
(Provident Mutual) under the provisions of Pennsylvania law. 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.
Provident Mutual 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
sixteen Subaccounts: the Growth, Money Market, Bond, Managed, Aggressive Growth
and International Subaccounts invest in the corresponding portfolios of the
Market Street Fund, Inc.; the Fidelity High Income, Fidelity Equity-Income and
Fidelity Growth Subaccounts invest in the corresponding portfolios of the
Variable Insurance Products Fund; the Fidelity Asset Manager and Fidelity Index
500 Subaccounts invest in the corresponding portfolios of the Variable Insurance
Products Fund II; the Quest for Value Equity, Quest for Value Small Cap and
Quest for Value Managed Subaccounts invest in the corresponding portfolios of
the Quest for Value Accumulation Trust; the Scudder Bond Subaccount invests in
the Bond Portfolio of the Scudder Variable Life Investment Fund; and the Dreyfus
Zero Coupon 2000 Subaccount invests in the Zero Coupon 2000 Portfolio of the
Dreyfus Variable Investment Fund.
The Growth, Money Market, Bond, Managed, Aggressive Growth and
International Subaccounts are available to owners of a Market Street VIP
contract. All sixteen Subaccounts are available to owners of a Market Street
VIP/2 contract.
Net premiums from the Contracts are allocated to the Subaccounts in
accordance with contractowner 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 (Note 4).
The Separate Account's assets are the property of Provident Mutual.
Transfers between investment portfolios include transfers between the
Subaccounts and the Guaranteed Account (not shown), which is part of Provident
Mutual's General Account.
F-15
<PAGE> 68
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
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 Provident Mutual. Under the provisions of the Contracts, Provident
Mutual 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 as of December 31, 1995 and the reported amounts from
operations and contract transactions during 1995 and 1994. Actual results could
differ from those estimates.
F-16
<PAGE> 69
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1995, 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.................................. 65,106 $966,932 $1,065,139
Money Market Portfolio............................ 1,911,725 $1,911,725 $1,911,725
Bond Portfolio.................................... 23,991 $245,267 $263,898
Managed Portfolio................................. 20,281 $255,251 $287,785
Aggressive Growth Portfolio....................... 14,778 $240,043 $256,849
International Portfolio........................... 69,938 $842,438 $899,398
Variable Insurance Products Fund:
High Income Portfolio............................. 72,316 $813,288 $871,404
Equity-Income Portfolio........................... 98,576 $1,703,472 $1,899,562
Growth Portfolio.................................. 49,474 $1,390,998 $1,444,654
Variable Insurance Products Fund II:
Asset Manager Portfolio........................... 22,171 $318,690 $350,084
Index 500 Portfolio............................... 8,396 $604,869 $635,642
Quest for Value Accumulation Trust:
Equity Portfolio.................................. 29,400 $666,408 $736,476
Small Cap Portfolio............................... 22,541 $404,628 $448,794
Managed Portfolio................................. 28,838 $774,197 $869,175
Scudder Variable Life Investment Fund:
Bond Portfolio.................................... 17,483 $118,352 $125,354
Dreyfus Variable Investment Fund:
Zero Coupon 2000 Portfolio........................ 10,994 $135,167 $139,625
</TABLE>
F-17
<PAGE> 70
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the years ended December 31, 1995 and 1994, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET BOND PORTFOLIO
PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................. 38,671 39,805 6,294,574 1,710,083 12,319 12,751
Shares received from reinvestment of:
Dividends...................................... 1,202 418 44,361 2,816 948 349
Capital gain distributions..................... 2,735 1 56
-------- -------- ----------- ----------- -------- --------
Total shares acquired............................ 42,608 40,224 6,338,935 1,712,899 13,267 13,156
Total shares redeemed............................ (10,953) (8,562) (4,576,169) (1,589,046) (2,822) (1,814)
-------- -------- ----------- ----------- -------- --------
Net increase in shares owned..................... 31,655 31,662 1,762,766 123,853 10,445 11,342
Shares owned, beginning of year.................. 33,451 1,789 148,959 25,106 13,546 2,204
-------- -------- ----------- ----------- -------- --------
Shares owned, end of year........................ 65,106 33,451 1,911,725 148,959 23,991 13,546
======== ======== =========== =========== ======== ========
Cost of shares acquired.......................... $648,886 $562,343 $6,338,935 $1,712,899 $140,018 $130,514
======== ======== =========== =========== ======== ========
Cost of shares redeemed.......................... $150,738 $118,736 $4,576,169 $1,589,046 $ 29,747 $ 20,841
======== ======== =========== =========== ======== ========
</TABLE>
F-18
<PAGE> 71
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
------------------------------------------------------------------------------------------------------------------
INTERNATIONAL
MANAGED PORTFOLIO AGGRESSIVE PORTFOLIO
GROWTH PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................................... 10,956 27,114 12,699 8,622 55,062 32,119
Shares received from reinvestment of:
Dividends......................................... 1,049 446 142 7
Capital gain distributions........................ 29 90 64 672 46
-------- -------- -------- -------- -------- --------
Total shares acquired............................... 12,034 27,650 12,763 8,622 55,876 32,172
Total shares redeemed............................... (17,402) (3,880) (5,297) (3,028) (10,078) (10,288)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in shares owned............. (5,368) 23,770 7,466 5,594 45,798 21,884
Shares owned, beginning of year..................... 25,649 1,879 7,312 1,718 24,140 2,256
-------- -------- -------- -------- -------- --------
Shares owned, end of year........................... 20,281 25,649 14,778 7,312 69,938 24,140
======== ======== ======== ======== ======== ========
Cost of shares acquired............................. $155,989 $333,840 $209,103 $128,628 $674,316 $381,808
======== ======== ======== ======== ======== ========
Cost of shares redeemed............................. $210,244 $ 49,525 $ 77,665 $ 45,023 $119,053 $119,633
======== ======== ======== ======== ======== ========
</TABLE>
F-19
<PAGE> 72
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
------------------------------------------------------------------------------------------------------------------
HIGH INCOME EQUITY INCOME GROWTH PORTFOLIO
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................................. 69,781 3,865 86,058 13,124 46,058 4,858
Shares received from reinvestment of:
Dividends....................................... 351 1,173 49 34
Capital gain distributions...................... 1,208
-------- ------- ----------- -------- ----------- --------
Total shares acquired............................. 70,132 3,865 88,439 13,173 46,092 4,858
Total shares redeemed............................. (1,216) (465) (2,713) (323) (1,388) (88)
-------- ------- ----------- -------- ----------- --------
Net increase in shares owned...................... 68,916 3,400 85,726 12,850 44,704 4,770
Shares owned, beginning of year................... 3,400 12,850 4,770
-------- ------- ----------- -------- ----------- --------
Shares owned, end of year......................... 72,316 3,400 98,576 12,850 49,474 4,770
======== ======= =========== ======== =========== ========
Cost of shares acquired........................... $789,745 $41,846 $1,547,970 $202,796 $1,319,208 $103,111
======== ======= =========== ======== =========== ========
Cost of shares redeemed........................... $ 13,244 $ 5,059 $ 42,255 $ 5,039 $ 29,459 $ 1,862
======== ======= =========== ======== =========== ========
</TABLE>
F-20
<PAGE> 73
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
------------------------------------------------------------------------------------------------------------------
ASSET MANAGER INDEX 500
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased.......................................................... 19,640 8,109 8,192 565
Shares received from reinvestment of:
Dividends............................................................... 170 9
Capital gain distributions.............................................. 1
-------- -------- -------- -------
Total shares acquired..................................................... 19,810 8,109 8,202 565
Total shares redeemed..................................................... (5,615) (133) (371)
-------- -------- -------- -------
Net increase in shares owned.............................................. 14,195 7,976 7,831 565
Shares owned, beginning of year........................................... 7,976 565
-------- -------- -------- -------
Shares owned, end of year................................................. 22,171 7,976 8,396 565
======== ======== ======== =======
Cost of shares acquired................................................... $286,108 $113,801 $594,048 $31,688
======== ======== ======== =======
Cost of shares redeemed................................................... $ 79,324 $ 1,895 $ 20,867
======== ======== ======== =======
</TABLE>
F-21
<PAGE> 74
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUEST FOR VALUE ACCUMULATION TRUST
------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIO SMALL CAP MANAGED PORTFOLIO
PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased...................................... 26,755 3,275 22,251 5,968 26,602 3,914
Shares received from reinvestment of:
Dividends........................................... 15 19 24
Capital gain distributions.......................... 17
-------- ------- -------- -------- -------- -------
Total shares acquired................................. 26,770 3,275 22,287 5,968 26,626 3,914
Total shares redeemed................................. (645) (5,603) (111) (1,612) (90)
-------- ------- -------- -------- -------- -------
Net increase in shares owned.......................... 26,125 3,275 16,684 5,857 25,014 3,824
Shares owned, beginning of year....................... 3,275 5,857 3,824
-------- ------- -------- -------- -------- -------
Shares owned, end of year............................. 29,400 3,275 22,541 5,857 28,838 3,824
======== ======= ======== ======== ======== =======
Cost of shares acquired............................... $618,621 $59,550 $400,418 $100,991 $727,971 $82,304
======== ======= ======== ======== ======== =======
Cost of shares redeemed............................... $ 11,763 $ 94,846 $ 1,935 $ 34,167 $ 1,911
======== ======= ======== ======== ======== =======
</TABLE>
F-22
<PAGE> 75
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER VARIABLE LIFE DREYFUS VARIABLE
INVESTMENT FUND INVESTMENT FUND
------------------------------------------------------------------------------------------------------------------
ZERO COUPON
BOND PORTFOLIO 2000 PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased.......................................... 11,797 5,289 9,272 2,149
Shares received from reinvestment of dividends............ 606 62 324 46
------- ------- -------- -------
Total shares acquired..................................... 12,403 5,351 9,596 2,195
Total shares redeemed..................................... (75) (196) (797)
------- ------- -------- -------
Net increase in shares owned.............................. 12,328 5,155 8,799 2,195
Shares owned, beginning of year........................... 5,155 2,195
------- ------- -------- -------
Shares owned, end of year................................. 17,483 5,155 10,994 2,195
======= ======= ======== =======
Cost of shares acquired................................... $85,256 $34,872 $118,897 $25,544
======= ======= ======== =======
Cost of shares redeemed................................... $ 490 $ 1,286 $ 9,274
======= ======= ======== =======
</TABLE>
F-23
<PAGE> 76
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- concluded
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
Certain deductions are made from the Subaccounts and/or the premiums by
Provident Mutual. The deductions may include (1) surrender charges, (2)
administration fees, (3) transfer processing fees, (4) mortality and expense
risk charges and (5) premium taxes.
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, 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.
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 contracts, Provident Mutual 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 contractowners and the first twelve transfers by Market Street VIP/2
contractowners 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
1995 and 1994.
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 contracts. Provident Mutual 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-24
<PAGE> 77
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors of Provident Mutual
Life Insurance Company
We have audited the accompanying statements of financial condition of Provident
Mutual Life Insurance Company as of December 31, 1995 and 1994, and the related
statements of operations, changes in surplus and cash flows for each of the
three years in the period ended December 31, 1995. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Provident Mutual Life Insurance
Company as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with accounting principles prescribed or permitted by the
Insurance Department of the Commonwealth of Pennsylvania, which are considered
generally accepted accounting principles for mutual life insurance companies.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 6, 1996
F-25
<PAGE> 78
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Statements of Financial Condition
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
- ---------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ADMITTED ASSETS
Bonds.......................................................... $2,312,791 $2,257,935
Preferred stocks............................................... 14,675 16,831
Common stocks.................................................. 11,864 9,651
Investments in unconsolidated subsidiaries..................... 36,784 36,993
Investment in real estate...................................... 37,988 41,398
Real estate occupied by the company............................ 31,544 28,912
Policy loans................................................... 357,810 369,373
Mortgage loans................................................. 649,351 664,663
Other long-term investments.................................... 38,475 41,750
Cash and short-term investments................................ 81,195 55,973
---------- ----------
Total cash and invested assets............................ 3,572,477 3,523,479
Premiums due and deferred...................................... 67,403 69,388
Investment income due and accrued.............................. 62,853 66,807
Other assets................................................... 18,832 13,253
Separate account assets........................................ 1,210,583 969,112
---------- ----------
Total admitted assets..................................... $4,932,148 $4,642,039
========== ==========
LIABILITIES
Aggregate policy and claim reserves............................ $2,996,817 $2,978,388
Policyowners dividends payable................................. 65,174 63,502
Other policyowner obligations.................................. 164,623 169,120
Other liabilities.............................................. 141,153 153,632
Asset valuation reserve........................................ 42,366 40,596
Interest maintenance reserve................................... 7,278 8,071
Separate account liabilities................................... 1,202,644 960,360
---------- ----------
Total liabilities......................................... 4,620,055 4,373,669
---------- ----------
SURPLUS
Unassigned surplus............................................. 306,684 263,212
Contingency reserve............................................ 5,409 5,158
---------- ----------
Total surplus............................................. 312,093 268,370
---------- ----------
Total liabilities and surplus............................. $4,932,148 $4,642,039
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 79
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Premium and annuity income.......................... $687,004 $677,740 $607,421
Net investment income............................... 278,732 230,542 218,150
Other income........................................ 16,036 14,044 15,811
-------- -------- --------
Total income................................... 981,772 922,326 841,382
-------- -------- --------
BENEFITS AND EXPENSES
Life, accident and health, and other policy
benefits......................................... 576,349 561,967 532,488
Increase in aggregate policy reserves............... 48,990 84,628 81,537
Transfers to (from) separate account, net........... 53,593 20,951 (27,551)
-------- -------- --------
678,932 667,546 586,474
-------- -------- --------
Commissions......................................... 38,586 37,563 34,513
General insurance expenses.......................... 106,030 106,175 97,477
Insurance taxes, licenses and fees.................. 14,836 13,775 12,547
Federal income taxes................................ 34,346 18,668 21,531
-------- -------- --------
Total benefits and expenses.................... 872,730 843,727 752,542
-------- -------- --------
Net income before dividends to policyowners
and realized capital losses................. 109,042 78,599 88,840
Dividends to policyowners........................... 65,439 57,288 60,388
-------- -------- --------
Net income before realized capital losses...... 43,603 21,311 28,452
Realized capital losses, net of tax................. (6,210) (7,227) (8,694)
-------- -------- --------
Net income....................................... $ 37,393 $ 14,084 $ 19,758
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 80
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Statements of Changes in Surplus
For the Years Ended December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SURPLUS
- ----------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C>
Balance, January 1, 1993.................................................... $191,321
Net income.................................................................. 19,758
Net unrealized capital loss on investments.................................. (1,340)
Change in asset valuation reserve........................................... (3,868)
Other changes, net of decrease in non-admitted assets....................... 2,099
--------------
Balance, December 31, 1993.................................................. 207,970
Net income.................................................................. 14,084
Net unrealized capital loss on investments.................................. (2,274)
Surplus received in merger.................................................. 45,110
Change in asset valuation reserve........................................... 195
Other changes, net of increase in non-admitted assets....................... 3,285
--------------
Balance, December 31, 1994.................................................. 268,370
Net income.................................................................. 37,393
Net unrealized capital gain on investments.................................. 3,533
Change in asset valuation reserve........................................... (1,770)
Other changes, net of decrease in non-admitted assets....................... 4,567
--------------
Balance, December 31, 1995.................................................. $312,093
============
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 81
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH PROVIDED
Net cash provided by operations:
Premiums and annuity considerations...................... $ 674,497 $ 657,954 $ 595,275
Other deposits received.................................. 14,381 12,604 14,880
Allowances and reserve adjustments received on
reinsurance............................................ 4,366 7,508 1,252
Investment income received, net of expenses.............. 284,470 231,401 210,533
Other income received.................................... 11,915 9,196 2,051
Life, accident and health claims paid.................... (78,638) (67,241) (78,411)
Surrender benefits paid.................................. (236,450) (279,727) (223,730)
Other benefits paid to policyowners...................... (258,037) (209,564) (220,065)
Commissions, insurance expenses and other taxes paid..... (172,318) (167,698) (144,628)
Funds transferred from (to) separate accounts............ (73,313) 13,142 (20,700)
Dividends paid to policyowners........................... (63,615) (62,700) (67,196)
Federal income taxes paid................................ (23,723) (15,950) (15,369)
Net decrease in policy loans and premium notes........... 13,141 19,047 18,268
-------- ------- -------
Net cash provided by operations........................ 96,676 147,972 72,160
-------- ------- -------
Investments sold, matured or repaid:
Bonds.................................................... 370,526 327,229 922,024
Stocks................................................... 9,303 18,407 19,229
Mortgage loans........................................... 94,292 90,777 78,218
Real estate and other invested assets.................... 26,647 39,933 26,118
-------- ------- -------
Total investments sold, matured or repaid.............. 500,768 476,346 1,045,589
Cash and short-term investments of merged companies........ -- 18,591 18,613
Other cash provided........................................ 4,348 11,056 6,360
-------- ------- -------
Total cash provided.................................... 601,792 653,965 1,142,722
-------- ------- -------
CASH APPLIED
Cost of investments acquired:
Bonds.................................................... 426,569 526,143 1,070,410
Stocks................................................... 4,286 9,855 17,201
Mortgage loans........................................... 80,812 81,787 58,226
Real estate and other invested assets.................... 31,036 20,218 16,557
-------- ------- -------
Total investments acquired............................. 542,703 638,003 1,162,394
Other cash applied......................................... 33,867 5,631 4,433
-------- ------- -------
Total cash applied..................................... 576,570 643,634 1,166,827
-------- ------- -------
Net change in cash and short-term investments.......... 25,222 10,331 (24,105)
Cash and short-term investments:
Beginning of year.......................................... 55,973 45,642 69,747
-------- ------- -------
End of year................................................ $ 81,195 $ 55,973 $ 45,642
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 82
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Provident Mutual Life Insurance Company (the Company) is organized as a
mutual life insurance company which conducts its business for the benefit of its
policyowners.
The Company sells life, annuity and pension products directly and through
its wholly-owned subsidiaries. The Company distributes its products principally
through a career distribution sales force. The Company is licensed to operate in
50 states, which are responsible for product regulation. Sales in 14 states
accounted for 83% of the Company's sales for the year ended December 31, 1995.
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.
The Company's wholly-owned subsidiaries are Providentmutual Life and
Annuity Company of America (PLACA), Provident Mutual International Life
Insurance Company (PMILIC) and Providentmutual Holding Company (PHC).
PLACA specializes primarily in the development and sale of various annuity
products and sells certain traditional and variable life products, also sold by
Provident Mutual, through a personal producing general agency sales force.
PMILIC's business consists of life insurance assumed from Provident Mutual.
PHC is a downstream holding company whose major subsidiary is Sigma
American Corporation (Sigma). Sigma is a general partner in a joint venture that
provides investment advisory, mutual fund distribution, trust and administrative
services to a group of mutual funds and other parties.
Effective November 1, 1994, Covenant Life Insurance Company (Covenant), a
Pennsylvania mutual life insurance company, was merged into Provident Mutual.
The transaction was accounted for similar to a pooling of interests, whereby the
assets, liabilities and surplus of each company were combined at their
respective book values. The statement of operations for the year ended December
31, 1994 includes the activity of Covenant since November 1, 1994. Surplus of
Covenant as of November 1, 1994 has been included as an addition to surplus. The
Covenant policyowners became entitled to the same rights and privileges as
Provident Mutual's policyowners. Costs of completing the merger were
approximately $3,225, net of related income taxes.
F-30
<PAGE> 83
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Organization, continued
Covenant sold traditional and universal life insurance products and
individual annuities primarily to the religious community. Summary financial
information of Covenant is as follows (in thousands):
<TABLE>
<CAPTION>
TEN MONTHS ENDED YEAR ENDED
OCTOBER 31, 1994 DECEMBER 31, 1993
---------------- -----------------
<S> <C> <C>
Statement of Operations Data:
Revenues, excl. capital gains (losses)............... $ 78,802 $ 105,397
-------- --------
Net income (loss).................................... $ (8,889) $ 5,543
======== ========
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, 1994 DECEMBER 31, 1993
---------------- -----------------
<S> <C> <C>
Statement of Financial Condition Data:
Assets............................................... $630,917 $ 627,157
Liabilities.......................................... 585,807 574,776
-------- --------
Surplus.............................................. $ 45,110 $ 52,381
======== ========
</TABLE>
Continental American Life Insurance Company (CALIC) was a wholly-owned
stock life insurance company until January 31, 1993, at which time it was
converted to a mutual company and merged into Provident Mutual, whereby the
CALIC policyowners became entitled to the same rights and privileges as
Provident Mutual's policyowners. CALIC provided life and health insurance
products primarily through direct response marketing. The transaction was
accounted for similar to a pooling of interests, whereby the assets, liabilities
and surplus of each company were combined at their respective book values. Costs
of completing the merger were approximately $3,137, including related taxes. As
a result of the merger, PMILIC became a direct subsidiary of the Company. The
statement of operations and statement of cash flows for the year ended December
31, 1993 include the activity of CALIC since January 31, 1993, the date of the
merger.
Basis of Presentation
The accompanying financial statements have been prepared on the basis of
accounting principles prescribed or permitted by the National Association of
Insurance Commissioners (NAIC) and the Insurance Department of the Commonwealth
of Pennsylvania. The financial statements vary from those filed for statutory
purposes only as to presentation. In accordance with Pennsylvania Insurance Law
and Regulations, the Company's subsidiaries are not consolidated for statutory
filing purposes.
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities as of December 31, 1995 and 1994 and the reported amounts
of revenues and expenses during 1995, 1994 and 1993. Actual results could differ
from those estimates.
F-31
<PAGE> 84
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation, continued
In January 1995, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standards No. 120, "Accounting and Reporting
by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts" (SFAS 120). SFAS 120 extends the
requirements of FASB Statements No. 60, "Accounting and Reporting by Insurance
Enterprises", No. 97, "Accounting and Reporting by Insurance Enterprises for
Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investments", and No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," to mutual life insurance companies.
The American Institute of Certified Public Accountants has established
accounting for certain participating life insurance contracts of mutual life
insurance enterprises in its Statement of Position 95-1, "Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises" (SOP 95-1).
SFAS 120 is effective for financial statements issued for fiscal years beginning
after December 15, 1995 and will be applied retroactively to the earliest year
presented when adopted.
SFAS 120 also amends FASB Interpretation No. 40, "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises" (Interpretation No. 40), to defer the effective date of the general
provisions of that Interpretation to fiscal years beginning after December 15,
1995, so that Interpretation No. 40, SFAS 120, and SOP 95-1 are concurrently
effective. When the Company prepares financial statements in conformity with
Interpretation No. 40, the accounting treatment for certain items, such as
policy reserves, new business acquisition costs, asset valuation reserves and
income taxes will be different than for financial statements issued in
conformity with statutory accounting principles. In addition, the Company
believes surplus presented in accordance with Interpretation No. 40 will be
greater than surplus presented in accordance with statutory accounting
principles.
Invested Assets
Bonds are stated at amortized cost, except bonds in default which are
stated at market value as prescribed by the NAIC. Private placements are stated
as prescribed by the NAIC or at amortized cost.
Common stocks are carried at market value. The cost of common stocks was
$13,848 and $12,936 at December 31, 1995 and 1994, respectively. Preferred
stocks are carried at cost if designated "in good standing", otherwise at market
value as prescribed by the NAIC.
Short-term investments include those investments whose maturities at the
time of acquisition were one year or less. These investments are carried at
amortized cost which approximates market value.
Investments in unconsolidated subsidiaries are carried on the equity
method. Changes in the investments in unconsolidated subsidiaries, excluding
additional amounts invested and return of capital distributions, are included in
unrealized capital gains or losses. Dividends received from these subsidiaries
are included in net investment income.
F-32
<PAGE> 85
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Invested Assets, continued
Mortgage and policy loans are stated primarily at unpaid principal
balances.
Real estate investments are carried at cost, less encumbrances and
accumulated depreciation. The Company uses the constant yield method of
depreciation for real estate investments acquired before December 31, 1990 and
the straight-line method for acquisitions made thereafter. Foreclosed real
estate is carried at lower of cost or market value and is held for sale.
Foreclosed real estate is depreciated using the straight-line method. Real
estate occupied by the Company is depreciated using the straight-line and
constant yield methods of depreciation. Accumulated depreciation for real estate
totalled $9,914 and $9,080 at December 31, 1995 and 1994, respectively.
Effective January 1, 1996, properties previously depreciated using the constant
yield method will prospectively be depreciated using the straight-line method
over the remaining useful lives of the properties.
Other invested assets consist primarily of real estate joint ventures
carried on the equity basis and limited partnerships carried at lower of cost or
market value.
Investment Valuation Reserves
The asset valuation reserve (AVR) is designed to mitigate the effect of
valuation and credit-related losses on surplus. The interest maintenance reserve
(IMR) is designed to reduce fluctuations in surplus resulting from market
interest rate movements. The AVR covers all invested asset classes with risk of
loss, including bonds, common stocks, mortgage loans and real estate. The IMR
captures realized gains on the sale of all types of fixed income securities
which resulted from changes in the overall level of interest rates. These gains
are amortized into income over the remaining life of each investment sold.
Separate investment valuation reserves in addition to the AVR have been
provided for impairments of real estate, mortgage loans and other invested
assets and totalled $25,341 and $33,877 at December 31, 1995 and 1994,
respectively. Changes in these reserves are reflected as charges or credits to
surplus in unrealized capital gains and losses.
Policy Reserves
Reserves for traditional life insurance policies are computed principally
on the net level premium method and the Commissioners' Reserve Valuation Method
using the 1941, 1958 and 1980 Commissioners' Standard Ordinary (CSO) mortality
tables and the American Experience mortality tables with assumed interest rates
ranging from 2.25% to 6%. Reserves for variable life insurance policies are
computed principally on the preliminary term method using the 1958 and 1980 CSO
mortality tables with assumed interest rates ranging from 4% to 5.5%.
Reserves for deferred annuities are computed principally on the
Commissioners' Annuity Reserve Valuation Method (CARVM) using the 1951 Group
Annuity Mortality (GAM) Table, the 1955 American
F-33
<PAGE> 86
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Policy Reserves, continued
Annuity Mortality (AAM) Table and the 1971 and 1983 Individual Annuity Mortality
(IAM) Table at assumed interest rates ranging from 2% to 8.5%. Reserves for
variable annuities are computed principally on the CARVM using the 1983 IAM
mortality table with assumed interest rates ranging from 5.5% to 6.25%. Reserves
for immediate annuities and supplementary contracts with life contingencies are
based principally on the 1951 GAM mortality table, the 1955 AAM mortality table
and the 1983 IAM mortality table at assumed interest rates ranging from 2% to
8.25%. Reserves for deposit funds, including immediate participation guarantee
funds and guaranteed interest contracts, are based upon the accumulated balance
values, including accrued interest.
Premium and Expense Recognition
Life insurance premiums are recognized as income when due. Annuity and
pension fund deposits are recognized as income when received. Policy acquisition
costs, such as commissions, marketing and policy issuance costs incurred in
connection with acquiring new business, are charged to operations as incurred.
Capital Gains and Losses
Realized capital gains and losses on sales of investments, net of related
Federal income taxes, resulting from changes in interest rates are included in
the IMR and are amortized into operating income over the remaining lives of the
investments sold. Credit-related realized gains and losses are recorded as
capital gains and losses in the statements of operations. Capital gains and
losses are recognized on a specific identification basis.
Unrealized gains and losses on investments are reflected as a change in
unassigned surplus and represent the difference between cost and market values
as prescribed by the NAIC.
Policyowner Dividends
A significant amount of the Company's life insurance business is written on
a participating basis. Annually, the Board of Directors declares the amount of
dividends to be paid in the following calendar year. At December 31, 1995 and
1994, the Company had guaranteed the payment of $10,000 in policyowner dividends
payable in 1996 and 1995, respectively. Bonds have been placed in trust to
secure this guarantee. Declared 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-34
<PAGE> 87
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Separate Accounts
Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the benefit of pension and annuity
contractowners, variable life insurance policyowners, several of the Company's
retirement plans and guaranteed interest contractowners (GIC). With the
exception of GIC-related assets, separate account assets are primarily carried
at market values determined as of the balance sheet date. Assets related to
GIC's are held at values prescribed by the NAIC, primarily amortized cost.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the fair values and statement values of the
Company's financial instruments at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------- -------------------------
FAIR STATEMENT FAIR STATEMENT
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Bonds.............................. $2,435,653 $2,312,791 $2,152,129 $2,257,935
Common stock....................... $11,864 $11,864 $9,651 $9,651
Redeemable preferred stocks........ $8,744 $8,036 $7,780 $8,128
Nonredeemable preferred stocks..... $5,784 $6,639 $8,004 $8,703
Commercial mortgage loans.......... $700,677 $648,251 $669,737 $663,146
Residential mortgage loans......... $1,186 $1,100 $1,506 $1,517
LIABILITIES FOR INVESTMENT-TYPE
INSURANCE CONTRACTS
Guaranteed interest contracts...... $386,454 $374,893 $378,462 $387,898
Group annuities.................... $1,005,040 $1,003,843 $853,590 $899,353
Supplementary contracts without
life contingencies............... $26,333 $26,183 $27,683 $27,695
Individual annuities............... $477,154 $480,788 $463,797 $467,678
</TABLE>
The underlying investment risk of the Company's variable life and variable
annuity contracts is assumed by the owner. 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 market 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 Values of
Financial Instruments." However, the estimated fair value and future cash flows
of
F-35
<PAGE> 88
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
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).
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 4% 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.
Guaranteed Interest Contracts
The fair value of guaranteed interest contract liabilities is based upon
discounted future cash flows. Contract account balances are accumulated to the
maturity dates at the guaranteed rate of interest. Accumulated values are
discounted using interest rates for which liabilities with similar durations
could be sold. The statement value and fair value of the assets backing up the
guaranteed interest contract liabilities were $378,493 and $386,748,
respectively, at December 31, 1995 and $387,112 and $378,444, respectively, at
December 31, 1994.
F-36
<PAGE> 89
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Group Annuities
The fair value of group annuities is primarily based upon termination
value, which is calculated by applying contractual market value adjustments to
the account balances. For those contracts not subject to market value
adjustments at termination, book value represents fair value.
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.
Policyowner Dividends and Coupon Accumulations
The policyowners' dividend and coupon accumulation liabilities will
ultimately be settled in cash, applied towards 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. DEBT SECURITIES AND REDEEMABLE PREFERRED STOCKS
The statement value and estimated fair value of investments in debt
securities and redeemable preferred stocks as of December 31, 1995 and 1994 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies............ $ 102,901 $ 5,415 $ 275 $ 108,041
Obligations of states and political
subdivisions......................... 102,143 4,034 653 105,524
Debt securities issued by foreign
governments.......................... 22,116 1,073 64 23,125
Corporate securities including
mortgage-backed securities........... 2,085,631 128,857 15,525 2,198,963
---------- -------- -------- ----------
Subtotal--bonds................. 2,312,791 139,379 16,517 2,435,653
Redeemable preferred stocks............ 8,036 715 7 8,744
---------- -------- -------- ----------
Total........................... $2,320,827 $ 140,094 $ 16,524 $2,444,397
========== ======== ======== ==========
</TABLE>
F-37
<PAGE> 90
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. DEBT SECURITIES AND REDEEMABLE PREFERRED STOCKS, CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies............ $ 103,041 $ 723 $ 2,848 $ 100,916
Obligations of states and political
subdivisions......................... 94,918 1,226 5,812 90,332
Debt securities issued by foreign
governments.......................... 36,983 495 2,970 34,508
Corporate securities including
mortgage-backed securities........... 2,022,993 16,790 113,410 1,926,373
---------- -------- -------- ----------
Subtotal--bonds................. 2,257,935 19,234 125,040 2,152,129
Redeemable preferred stocks............ 8,128 49 397 7,780
---------- -------- -------- ----------
Total........................... $2,266,063 $ 19,283 $ 125,437 $2,159,909
========== ======== ======== ==========
</TABLE>
The statement value and estimated fair value of debt securities and
redeemable preferred stocks at December 31, 1995, by contractual maturity, are
as follows:
<TABLE>
<CAPTION>
STATEMENT ESTIMATED
VALUE FAIR VALUE
---------- ----------
<S> <C> <C>
Due in one year or less......................................... $ 62,132 $ 63,823
Due after one year through five years........................... 461,412 478,517
Due after five years through ten years.......................... 816,306 868,775
Due after ten years............................................. 972,941 1,024,538
---------- ----------
Subtotal--bonds.......................................... 2,312,791 2,435,653
Redeemable preferred stocks..................................... 8,036 8,744
---------- ----------
Total.................................................... $2,320,827 $2,444,397
========== ==========
</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
final maturity.
Proceeds from sales and maturities of investments in debt securities during
1995, 1994 and 1993 were $370,526, $327,229 and $922,024, respectively. Gross
gains of $2,781, $6,513 and $15,803 and gross losses of $2,356, $11,334 and
$5,088 were realized on those sales in 1995, 1994 and 1993, respectively.
F-38
<PAGE> 91
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
The Company's common stock values of its wholly-owned subsidiaries are
summarized as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
CAPITAL LOSSES AND
DECEMBER 31, OTHER SURPLUS DECEMBER 31,
1994 NET INCOME TRANSACTIONS 1995
------------ ---------- ------------------ ------------
<S> <C> <C> <C> <C>
Provident Mutual International Life
Insurance Company.................... $ 1,637 $ 140 $ 1,777
Providentmutual Holding Company........ 5,974 1,746 $ (3,350) 4,370
Providentmutual Life and Annuity
Company of America................... 29,382 1,581 (326) 30,637
------- ------ ------- -------
$ 36,993 $3,467 $ (3,676) $ 36,784
======= ====== ======= =======
</TABLE>
The Company's unconsolidated subsidiaries had combined assets of $640,745
and $520,846 and liabilities of $603,961 and $483,853 at December 31, 1995 and
1994, respectively.
Effective with the Covenant merger on November 1, 1994, the common stock of
Covenant Financial Services, Inc., with a value of $558, was contributed by the
Company to PHC.
5. BENEFIT PLANS
The Company has two non-contributory pension plans (one defined benefit and
one defined contribution) covering substantially all of its employees and
agents. Pension expense for these plans was $1,590, $2,151 and $2,374 in 1995,
1994 and 1993, respectively. The Company's funding policy is to contribute
annually the maximum amount deductible for Federal income tax purposes.
A comparison of the accumulated plan benefits and assets for the defined
benefit plan, determined as of the most recent actuarial valuation dates, is
presented below:
<TABLE>
<CAPTION>
JANUARY 1,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of accumulated plan benefits at 8%:
Vested........................................................... $ 67,731 $ 58,549
Nonvested........................................................ 2,242 1,941
------- -------
$ 69,973 $ 60,490
======= =======
Net assets available for benefits................................ $123,586 $106,456
======= =======
</TABLE>
Effective January 1, 1995, the Covenant Life Insurance Company Pension Plan
was merged into the Company's defined benefit plan. The actuarial present value
of accumulated plan benefits at 7.5% as of
F-39
<PAGE> 92
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
5. BENEFIT PLANS, CONTINUED
January 1, 1994, the most recent actuarial valuation date, was $17,868 for
vested participants and $831 for non-vested participants. The net assets
available for plan benefits as of January 1, 1994 was $31,228.
The Company also sponsors several non-qualified unfunded excess benefit,
supplemental executive retirement and deferred compensation plans and
contributory investment plans qualified under Section 401(k) of the Internal
Revenue Code. Total expense recorded for these plans was $3,619, $3,411 and
$2,829 in 1995, 1994 and 1993, respectively. At December 31, 1995 and 1994, the
actuarially determined accrued liability of the unfunded plans was $9,419 and
$10,130, respectively.
Effective November 1, 1994, the Covenant Life Insurance Company Profit
Sharing and 401(k) Plan was merged into the Company's corresponding plan.
In addition, the Company provides certain health care and life insurance
benefits (postretirement benefits) for retired employees. Substantially all of
the Company's employees may become eligible for post-retirement benefits if they
reach normal retirement age while still working for the Company.
On January 1, 1993, the Company changed its method of accounting for the
costs of its retiree benefit plans to the accrual method, and elected to
amortize its transition obligation of $31,681 over 20 years. As of December 31,
1995 and 1994, the unamortized transition obligation was $26,929 and $28,513,
respectively.
Net postretirement benefit costs for the years ended December 31, 1995,
1994 and 1993 were $3,168, $3,416 and $4,072, respectively, and include the
expected costs of such benefits for newly eligible or vested employees,
including interest costs, the amortization of the transition obligation, offset
by the expected return on plan assets.
At December 31, 1995 and 1994, the unfunded postretirement benefit
obligation for retirees and other fully eligible or vested plan participants was
$33,262 and $33,321, respectively. The obligation at December 31, 1994 included
$2,519 attributable to Covenant which had been fully recognized prior to 1993.
The estimated cost of the benefit obligation for active non-vested employees was
$4,187 and $3,609, respectively. The discount rate used in determining the
accumulated postretirement benefit obligation as of December 31, 1995 was 7.0%,
and the health care cost trend rate was 8.3%, graded to 5.1% over 7 years.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the postretirement
benefit obligation as of December 31, 1995 by $1,985 and the estimated
eligibility cost and interest cost components of net periodic postretirement
benefit cost for 1995 by $142.
In January 1991, the Company established a retiree health account under the
provisions of Section 401(h) of the Internal Revenue Code. In December 1995, the
Company transferred $1,573 of
F-40
<PAGE> 93
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
5. BENEFIT PLANS, CONTINUED
excess assets from the defined benefit pension plan to pay for 1995 qualified
retiree health benefits. An additional transfer of excess assets in the amount
of $1,600 was made in December 1994 to pay for 1994 qualified retiree health
benefits. In December 1993, $1,384 of excess assets were transferred to pay 1993
qualified retiree health benefits.
6. POLICY AND CLAIMS RESERVES
The withdrawal characteristics of the Company's annuity actuarial reserves
and deposit liabilities as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
Reserves
Subject to discretionary withdrawal--with adjustment:
--with market value adjustment.............................................. $ 999,058
--at book value less surrender charges...................................... 393,246
----------
Subtotal............................................................... 1,392,304
Subject to discretionary withdrawal--without adjustment:
--at book value (minimal or no charge or adjustment)........................ 632,068
Not subject to discretionary withdrawal provision........................... 444,834
----------
Total annuity actuarial reserves and deposit liabilities (gross)....... 2,469,206
Less: reinsurance........................................................... 393,888
----------
Total annuity actuarial reserves and deposit liabilities (net)......... $2,075,318
==========
</TABLE>
The amounts above are included in the statement of financial condition as
aggregate policy and claim reserves totalling $1,268,967 and separate account
liabilities totalling $806,351.
F-41
<PAGE> 94
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
7. REINSURANCE
The Company has assumed and ceded reinsurance on certain life, accident and
health and annuity contracts under various agreements. The tables below
highlight the amounts shown in the accompanying financial statements which are
net of reinsurance activity:
<TABLE>
<CAPTION>
CEDED ASSUMED
GROSS TO OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1995:
Life insurance in force.......... $29,415,103 $11,295,744 $921,414 $19,040,773
=========== ========== ======== ===========
Premiums......................... $ 778,274 $ 95,149 $ 3,879 $ 687,004
=========== ========== ======== ===========
Reserves......................... $ 3,477,099 $ 481,719 $ 1,437 $ 2,996,817
=========== ========== ======== ===========
December 31, 1994:
Life insurance in force.......... $27,633,503 $ 8,803,212 $536,150 $19,366,530
=========== ========== ======== ===========
Premiums......................... $ 804,175 $ 130,760 $ 4,325 $ 677,740
=========== ========== ======== ===========
Reserves......................... $ 3,384,945 $ 415,467 $ 8,910 $ 2,978,388
=========== ========== ======== ===========
December 31, 1993:
Life Insurance in force.......... $23,138,172 $ 9,914,609 $332,243 $13,555,806
=========== ========== ======== ===========
Premiums......................... $ 621,265 $ 16,506 $ 2,662 $ 607,421
=========== ========== ======== ===========
Reserves......................... $ 2,709,467 $ 320,529 $ 1,249 $ 2,390,187
=========== ========== ======== ===========
</TABLE>
The Company is party to various coinsurance, modified coinsurance and
yearly renewable term agreements which provide for reinsurance ceded of selected
individual traditional and variable life insurance and annuity policies.
The Company also has assumed a small amount of yearly renewable term
reinsurance from unaffiliated insurers.
The Company has a reinsurance agreement with a third party to cede 65
percent of the premiums and reserves related to its single premium deferred
annuity (SPDA) product. Total premiums ceded and reserve credits taken related
to this treaty were $55,437 and $312,875 respectively, at December 31, 1995,
$99,888 and $278,573, respectively, at December 31, 1994, and $24,413 and
$193,039, respectively, at December 31, 1993.
A coinsurance agreement exists between the Company and PLACA with respect
to annuities issued after 1984. The agreement includes SPDA's, single premium
immediate annuities and supplementary
F-42
<PAGE> 95
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
7. REINSURANCE, CONTINUED
contracts. PLACA retains full statutory minimum reserves on all policies and
supplementary contracts covered. Pursuant to this agreement, PLACA has taken no
reserve credits at December 31, 1995, 1994 and 1993.
Approximately $733,258, $235,712 and $133,489 of PLACA's life insurance in
force was assumed by the Company under reinsurance agreements at December 31,
1995, 1994 and 1993, respectively.
The Company remains contingently liable with respect to ceded insurance
should any reinsurer be unable to meet its contractual obligations.
8. FEDERAL INCOME TAXES
The Company files a consolidated Federal income tax return with its
wholly-owned life insurance subsidiaries. The tax liability is accrued on a
separate company basis and includes an equity tax, a portion of which is
allocated to the subsidiaries. In accordance with statutory accounting
practices, no deferred taxes are provided for timing differences between pretax
accounting income and taxable income.
The provision for Federal income tax includes an equity tax of $7,375, $158
and $5,755 for the years ended December 31, 1995, 1994 and 1993, respectively,
and includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
Gross current year equity tax expense....................... $8,000 $ 6,375 $6,175
Subsidiary equity tax allocation............................ (625) (550) (420)
True down of prior years' equity tax........................ -- (5,667) --
------ ------- ------
$7,375 $ 158 $5,755
====== ======== ======
</TABLE>
The provision for Federal income taxes from operations differs from the
normal relationship of Federal income tax to pretax income as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal income tax at statutory rate...................... $27,282 $13,993 $17,495
Equity tax................................................ 7,375 158 5,755
Specified policy acquistion costs......................... 4,135 4,804 4,624
Difference between statutory and tax reserves............. (807) 1,215 (57)
Policyholder dividends.................................... 588 (1,798) (5,918)
Bad debt.................................................. (2,999) (922) --
Other..................................................... (1,228) 1,218 (368)
------- ------- -------
Provision for Federal income tax from operations.......... $34,346 $18,668 $21,531
======= ======= =======
</TABLE>
F-43
<PAGE> 96
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
8. FEDERAL INCOME TAXES, CONTINUED
The Company's Federal income tax returns through the year 1982 have been
audited by the Internal Revenue Service (IRS) and are closed; years 1983 through
1987 are at the appeals office of the IRS and are still open; and years 1988
through the present are still open. In the opinion of management, adequate
provision has been made for the possible effect of potential assessments related
to prior years' taxes.
9. RELATED PARTY TRANSACTIONS
Agreements
The contractual obligations under PLACA's SPDA contracts in force and
issued before September 1988 are guaranteed by the Company. Total annuity
contracts affected by this guarantee in force at December 31, 1995 and 1994
totaled approximately $117,169 and $134,097, respectively.
The Company provides various administrative services to its subsidiaries
under service agreements which provide for the allocation of costs to the
subsidiaries. Fees for services charged to subsidiaries by the Company totaled
$12,377, $9,457 and $9,740 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Lease Guarantee
The Company is the guarantor of payments required under a lease in the
event of default by its indirect subsidiary, Sigma. The lease period is for ten
years commencing January 1990, with an average annual rent cost of approximately
$555.
10. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space, data processing equipment and certain
other equipment under operating leases expiring on various dates between 1996
and 2003. Most of the leases contain renewal and purchase options based on
prevailing fair market values.
F-44
<PAGE> 97
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES, CONTINUED
Future minimum rent payments required and related sublease rentals
receivable under non-cancelable operating leases in effect at December 31, 1995,
and which have initial or remaining terms of one year or more, are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER RENTAL SUBLEASE RENTALS
31: PAYMENTS RECEIVABLE
----------------------- -------- ----------------
<S> <C> <C>
1996................... $11,789 $ 183
1997................... 10,552 1,547
1998................... 9,428 1,968
1999................... 3,257 --
2000................... 1,931 --
Thereafter............. 2,264 --
------- -------
$39,221 $3,698
======= =======
</TABLE>
Rent expense for the years ended December 31, 1995, 1994 and 1993 relating
to these leases amounted to $17,382, $18,032 and $16,732, respectively.
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
real estate and mortgage loans, financial guarantees of indebtedness, marketable
securities lending and interest rate futures contracts. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of amounts recognized in the statements of financial condition.
At December 31, 1995, the Company had outstanding mortgage loan, real
estate and limited partnership commitments of approximately $30,461. The
mortgage loan commitments, which expire through April 1996, were issued during
1995 at interest rates consistent with rates applicable on December 31, 1995. As
a result, the fair value of these commitments approximates the face amount.
The Company guarantees indebtedness of certain real estate partnerships of
which it is an investor. Any estimated deficiencies between the amount of debt
guaranteed and the partnerships' ability to service the debt is provided for in
the asset valuation process through reserves.
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, and not for income generation or speculative
purposes. Derivative options utilized by the Company are long and short
positions on United States Treasury notes and bond futures and certain interest
rate swaps.
F-45
<PAGE> 98
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES, CONTINUED
Financial Instruments With Off-Balance-Sheet Risk, continued
Derivatives are used for hedging existing bonds (including cash reserves)
against adverse price or interest rate movements and for fixing liability costs
at the time of product sales. The Company closed out hedge positions consisting
of 160 treasury futures contracts with a dollar value of $16,000 in 1995, 2,253
treasury futures contracts with a dollar value of $225,300 in 1994, and 711
treasury futures contracts with a dollar value of $71,100 in 1993. The
approximate net (losses) gains generated from the hedge positions were $(153),
$1,121 and $439 for the years ended December 31, 1995, 1994 and 1993,
respectively. The Company uses interest rate swaps to synthetically convert a
floating rate bond into a fixed rate bond and thereby match fixed rate
liabilities. The Company had two swaps outstanding with a notional principal
amount of $8,000 as of December 31, 1995 and 1994, respectively. The average
unexpired term of the swaps outstanding was .9 years as of December 31, 1995.
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, 1995.
Investment Portfolio Credit Risk
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1995 and 1994, approximately
$101,001 and $92,026, respectively, in debt security investments (4.4% and
4.0%, respectively, of the total debt security portfolio) were considered
"below investment grade". Securities are classified as "below investment
grade" by utilizing rating criteria established by the NAIC. These criteria
are not necessarily equivalent to the rating criteria employed by
independent bond rating agencies.
The Company had debt security investments in the financial services
industry at both December 31, 1995 and 1994 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, 1995, there were no delinquent mortgage loans (i.e.,
loans where payments on principal and/or interest are over 90 days past
due). At December 31, 1994, delinquent mortgage loans totalled $11,571, or
1.7%, of the mortgage loan portfolio.
F-46
<PAGE> 99
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES, CONTINUED
The Company had loans outstanding in California, Pennsylvania and
Virginia (1994 only) where principal balances in the aggregate exceeded 20%
of the Company's surplus.
Lines of Credit
The Company has approximately $42.0 million of available unused lines of
credit at December 31, 1995.
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 and as a result
of the merger with Covenant and which, in the opinion of management and legal
counsel, will not have a material effect on the Company's financial position.
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 position of
the Company. Guaranty fund assessments totalled $2,230, $2,174 and $1,442 in
1995, 1994 and 1993, respectively. Of those amounts, $1,522, $1,653 and $700 in
1995, 1994 and 1993, respectively, are creditable against future years' premium
taxes.
F-47
<PAGE> 100
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
<TABLE>
<S> <C> <C> <C>
(a) Financial Statements
All required financial statements are included in Part A and Part B of this
Registration Statement.
(b) Exhibits
(1) (a) Resolution of the Board of Directors of Provident Mutual Life Insurance
Company of Philadelphia authorizing establishment of the Provident Mutual
Variable Annuity Separate Account.1
(b) Resolution of the Executive Committee of the Board of Directors of
Provident Mutual Life Insurance Company of Philadelphia authorizing
establishment of additional Subaccounts of the Provident Mutual Variable
Annuity Separate Account.5
(2) Not applicable.
(3) (a) Form of Underwriting Agreement among Provident Mutual Life Insurance
Company of Philadelphia, PML Securities Company and the Provident Mutual
Variable Annuity Separate Account.1
(b) Form of Selling Agreement between PML Securities Company and Equity
Services, Inc.2
(4) (a) Flexible Premium Deferred Variable Annuity Contract (Forms PM512N (Non-
Qualified) and PM512Q (Qualified)).5
(b) Qualified Plan Rider, IRA Rider, TSA Rider, Unisex Rider. 1
(5) Form of Application
(a) Application for Flexible Premium Deferred Variable Annuity
(Form PMA10 9.93).
(b) Suitability Statement.1
(6) (a) Charter of Provident Mutual Life Insurance Company of Philadelphia.1
(b) By-Laws of Provident Mutual Life Insurance Company of Philadelphia.1
(7) Not applicable.
(8) (a) Participation Agreement by and among Market Street Fund, Inc., Provident
Mutual Life Insurance Company of Philadelphia and PML Securities Company.
1
(b) Participation Agreement among Variable Insurance Products, Fidelity
Distributors Corporation and Provident Mutual Life Insurance Company of
Philadelphia. 5
(c) Participation Agreement among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and Provident Mutual Life Insurance
Company of Philadelphia.5
(d) Participation Agreement among Scudder Variable Life Investment Fund,
Provident Mutual Life Insurance Company of Philadelphia and
Providentmutual Life and Annuity Company of America.2
</TABLE>
C-1
<PAGE> 101
<TABLE>
<S> <C> <C> <C>
(e) Reimbursement Agreement among Scudder, Stevens & Clark, Inc. and
Provident Mutual Life Insurance Company of Philadelphia and
Providentmutual Life and Annuity Company of America.2
(f) Participating Contract and Policy Agreement between Scudder Investor
Services, Inc. and PML Securities Company.3
(g) Fund Participation Agreement between Provident Mutual Life Insurance
Company of Philadelphia and Dreyfus Variable Investment Fund.5
(h) Participation Agreement by and among Quest for Value Accumulation Trust,
Provident Mutual Life Insurance Company of Philadelphia and Quest for
Value Distributors.5
(i) Service Agreement between Providentmutual Life and Annuity Company of
America and Provident Mutual Life Insurance Company of Philadelphia.4
(9) Opinion and Consent of Counsel.4
(10) (a) Consent of Counsel.
(b) Consent of Counsel.
(c) Consent of Independent Accountants.
(d) Consent of Actuary.
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Schedule for computation of performance data. 5
(14) Powers of Attorney.1
</TABLE>
- ---------------
1 Incorporated by reference to the Registration Statement by Provident Mutual
Life Insurance Company of Philadelphia on Form N-4 (33-62588) filed on May
12, 1993.
2 Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement by Providentmutual Life and Annuity Company of America
on Form N-4 (33-65512) filed on September 16, 1993.
3 Incorporated by reference to the Registration Statement by Providentmutual
Life and Annuity Company of America on Form N-4 (33-65512) filed on July 2,
1993.
4 Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement by Providentmutual Life and Annuity Company of America
on Form N-4 (33-44180) filed on March 17, 1992.
5 Incorporated by reference to the Registration Statement by Provident Mutual
Life Insurance Company of Philadelphia on Form N-4 (33-70926) filed on April
29, 1994.
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
- ------------------------------------------------------ ------------------------------------
<S> <C>
L. J. Rowell, Jr. .................................... Chairman and CEO
Robert W. Kloss....................................... President and COO
Dr. Dorothy M. Brown.................................. Director
16 Meredith Road
Wynnewood, PA 19096
Robert J. Casale...................................... Director
Brokerage Ins. Svcs. Group
2 Journal Square
Jersey City, NJ 07306
</TABLE>
C-2
<PAGE> 102
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
- ------------------------------------------------------ ------------------------------------
<S> <C>
Nicholas DeBenedictus................................. Director
Philadelphia Suburban Corp.
762 Lancaster Avenue
Bryn Mawr, PA 19010
Dr. Claire M. Fagin................................... Director
School of Nursing
Nursing Education Bldg., Suite 304
University of Pennsylvania
Philadelphia, PA 19104
Philip C. Herr III.................................... Director
Herr, Potts & Herr
100 Matsonford Rd., Suite 446
Radnor, PA 19087
J. Richard Jones...................................... Director
Jackson Cross Co.
100 North 20th Street
Philadelphia, PA 19103
John A. Miller........................................ Director
1946 Montgomery Avenue
Villanova, PA 19085
John P. Neafsey....................................... Director
765 Hollow Tree Ridge Road
Darien, CT 06820
Charles L. Orr........................................ Director
Shaklee Corporation
Shaklee Terrace
444 Market Street
San Francisco, CA 94111
William A. Pollard.................................... Director
26 Main Street
Essex, CT 06426
Donald A. Scott....................................... Director
2000 One Logan Square
Philadelphia, PA 19103
John J. F. Sherrerd................................... Director
One Tower Bridge
West Conshohocken, PA 19428
Harold A. Sorgenti.................................... Director
Mellon Center, Suite 3905
1735 Market Street
Philadelphia, PA 19103
William R. Wilson..................................... Director
Oaklands Business Parks, Inc.
600 West Lincoln Highway
Exton, PA 19341
Gerald B. Beam........................................ Executive Vice President --
Individual Insurance Operations
</TABLE>
C-3
<PAGE> 103
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
- ------------------------------------------------------ ------------------------------------
<S> <C>
Stanley R. Reber...................................... Executive Vice President
and Chief Investment Officer
John R. McClelland.................................... Executive Vice President
and Chief Financial Officer
Charlene Parsons...................................... Executive Vice
President -- Corporate
Mary Lynn Finelli..................................... Vice President and Controller
Rosanne Gatta......................................... Assistant Vice President
and Treasurer
William P. Loesche.................................... Counsel and Secretary
</TABLE>
- ---------------
* The principal business address for each officer and director is 1050 Westlakes
Drive, Berwyn, PA 19312, unless otherwise indicated.
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*
(Provident Mutual)
Providentmutual Life and Delaware Ownership of all Life & Health Insurance
Annuity Company voting securities
of America* by Provident Mutual
Provident Mutual Delaware Ownership of all voting Life & Health Insurance
International securities by
Life Insurance Company Provident Mutual
</TABLE>
<TABLE>
<S> <C> <C> <C>
Providentmutual Pennsylvania Ownership of all Holding Company
Holding Company (PHC)* voting securities
by Provident Mutual
1717 Capital Management Pennsylvania Ownership of all voting Broker/Dealer
Company* securities by PHC
(formerly, PML Securities
Company)
Providentmutual Investment Pennsylvania Ownership of all voting Investment Adviser
Management Company* securities by PHC
Washington Square Pennsylvania Ownership of all voting Administrative Services
Administrative Services, securities by PHC
Inc.*
Institutional Concepts, Pennsylvania Ownership of all voting Insurance Agency
Inc.* securities by PHC
Provestco, Inc.* Delaware Ownership of all voting Real Estate Investment
securities by PHC
PNAM, Inc.* Delaware Ownership of all voting Holding Company
securities by PHC
Sigma American Delaware Ownership of 80.2% Investment Management
Corporation* voting securities by PHC and Advisory Services
and 19.8% by Provident
Mutual
</TABLE>
C-4
<PAGE> 104
<TABLE>
<CAPTION>
PERCENT OF VOTING
NAME JURISDICTION SECURITIES OWNED PRINCIPAL BUSINESS
- ---------------------------- ------------- ------------------------ ------------------------
<S> <C> <C> <C>
Provident Mutual Delaware Ownership of all voting Investment Management
Management Co., Inc.* securities by Sigma and Advisory Services
American Corporation
Software Development Pennsylvania Ownership of all Development and
Corporation* voting securities Marketing of Computer
by PHC Software
Market Street Fund, Inc.** Maryland Mutual Fund
</TABLE>
- ---------------
* File Consolidated Financial Statements.
** File Separate Financial Statements.
Item 27. Number of Policyowners
As of December 31, 1995 there were a total of 290 individual flexible
premium deferred variable annuity contracts (File No. 33-70926) in force--91
non-qualified and 199 qualified.
Item 28. Indemnification
The By-Laws of Provident Mutual Life Insurance Company provide, in part in
Article VIII, as follows:
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS
Section 1. 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 have
served at its request as a Director, officer, employee, member,
fiduciary, trustee, or agent of another corporation,
partnership, joint venture, trust or other enterprise or
association, against the reasonable expenses, including
attorney's fees, actually incurred in connection with the
defense of any threatened, pending or completed action, suit or
other proceeding whether civil, criminal, administrative or
investigative to which any of them is made a party because of
service as Director, officer, or employee of the Company or such
other corporation, partnership, joint venture, trust or other
enterprise or association, 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,
penalty, damage, settlement amount, excise tax assessed with
respect to an employee benefit plan or fine in any such action,
suit or other proceeding, including one by or in the right of
the Company, a class of members or otherwise; except expenses
incurred in defense of or amount paid in connection with any
action, suit or other proceeding in which such Director,
officer, or employee shall be adjudged to be liable for willful
misconduct, or recklessness in the performance of his or her
duty. The termination of any such action, suit or other
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere shall not itself be deemed an
adjudication of willful misconduct or recklessness.
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
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<PAGE> 105
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") (formerly PML Securities
Company) is the principal underwriter of the Contracts as defined in the
investment Company of 1940. 1717 is also principal underwriter for the Fund and
the variable life separate accounts of Provident Mutual and the Providentmutual
Variable Annuity Separate Account.
(b) The following information is furnished with respect to the officers and
directors of 1717 Company:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH 1717 WITH REGISTRANT
- ------------------------------- ---------------------------- -----------------------------------
<S> <C> <C>
L.J. Rowell, Jr.**............. Director Chairman and CEO
Robert W. Kloss**.............. Director President and COO
Gerald B. Beam**............... Director Executive Vice President --
Individual Insurance Operations
John R. McClelland**........... Director Executive Vice President and
Chief Financial Officer
Charlene Parsons**............. Director Executive Vice President --
Corporate
Stanley R. Reber**............. Director Executive Vice President and
Chief Investment Officer
Lance A. Reihl................. President None
Louis A. Aviola, Jr............ Vice President & None
Manager of Operations
Mary Lynn Finelli**............ Financial Reporting Officer Vice President & Controller
Anthony Mastrangelo**.......... Financial Officer None
Linda E. Senker**.............. Legal Officer Senior Associate General Counsel
Rosanne Gatta**................ Treasurer Assistant Vice President and
Treasurer
William P. Loesche**........... Assistant Secretary Counsel and Secretary
Anthony Giampetro**............ Assistant Treasurer Assistant Treasurer
</TABLE>
- ---------------
* Unless otherwise indicated, principal business address is Christiana
Executive Campus, P.O. Box 15626, Wilmington, DE 19850.
** Principal business address is 1050 Westlakes Drive, Berwyn, PA 19312.
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder are maintained by
Provident Mutual Life Insurance Company at 300 Continental Drive, Newark, DE
19713 or at 1050 Westlakes Drive, Berwyn, PA 19312.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
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<PAGE> 106
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.
Provident Mutual 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.
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<PAGE> 107
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AND THE
INVESTMENT COMPANY ACT OF 1940 THE REGISTRANT, PROVIDENT MUTUAL VARIABLE ANNUITY
SEPARATE ACCOUNT CERTIFIES THAT IT MEETS ALL THE REQUIREMENTS FOR EFFECTIVENESS
OF THIS POST-EFFECTIVE AMENDMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES
ACT OF 1933 AND, HAS CAUSED THIS POST-EFFECTIVE AMENDMENT TO REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF, IN THE CITY OF PHILADELPHIA, COMMONWEALTH
OF PENNSYLVANIA ON THIS DAY OF APRIL, 1996.
PROVIDENT MUTUAL VARIABLE ANNUITY
SEPARATE ACCOUNT (REGISTRANT)
<TABLE>
<S> <C>
Attest: /s/ LINDA E. SENKER By: /s/ L. J. ROWELL, JR.
L. J. ROWELL, JR.
Chairman and CEO
</TABLE>
By: PROVIDENT MUTUAL LIFE INSURANCE
COMPANY (DEPOSITOR)
<TABLE>
<S> <C>
Attest: /s/ LINDA E. SENKER By: /s/ L. J. ROWELL, JR.
L. J. ROWELL, JR.
Chairman and CEO
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------- ------------------------------ ---------------
<S> <C> <C>
/s/ L. J. ROWELL, JR. Chairman of the Board and April , 1996
Chief Executive Officer
- ------------------------------------------- (Principal Executive
L. J. ROWELL, JR. Officer)
/s/ JOHN R. MCCLELLAND Executive Vice President and April , 1996
- ------------------------------------------- Chief Financial Officer
JOHN R. MCCLELLAND (Principal Financial
Officer)
/s/ MARY LYNN FINELLI Vice President and Controller April , 1996
- ------------------------------------------- (Principal Accounting
MARY LYNN FINELLI Officer)
</TABLE>
<TABLE>
<S> <C> <C>
DOROTHY M. BROWN* Director April , 1996
ROBERT J. CASALE* Director April , 1996
NICHOLAS DEBENEDICTUS* Director April , 1996
</TABLE>
C-8
<PAGE> 108
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------- ------------------------------ ---------------
<C> <S> <C>
CLAIRE M. FAGIN* Director April , 1996
PHILIP C. HERR* Director April , 1996
J. RICHARD JONES* Director April , 1996
ROBERT W. KLOSS* Director April , 1996
JOHN A. MILLER* Director April , 1996
JOHN P. NEAFSEY* Director April , 1996
CHARLES L. ORR Director April , 1996
WILLIAM A. POLLARD Director April , 1996
DONALD A. SCOTT* Director April , 1996
JOHN J. F. SHERRERD* Director April , 1996
HAROLD A. SORGENTI Director April , 1996
WILLIAM R. WILSON* Director April , 1996
</TABLE>
*By: /s/ LINDA E. SENKER
-------------------------------------
LINDA E. SENKER
Attorney-in-fact,
Pursuant to Power of Attorney
C-9
<PAGE> 1
EXHIBIT 10(a)
[SUTHERLAND, ASBILL & BRENNAN LETTERHEAD]
April 29, 1996
Provident Mutual Life Insurance
Company of Philadelphia
Provident Mutual Variable Annuity
Separate Account
1600 Market Street
Philadelphia, Pennsylvania 19103
Gentlemen:
We hereby consent to the reference of our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of
Post-Effective Amendment No. 3 to the Registration Statement on Form N-4 filed
by Provident Mutual Life Insurance Company of Philadelphia and Provident Mutual
Variable Annuity Separate Account for certain individual flexible premium
deferred annuity contracts (File No. 33-70926). In giving this consent, we do
not admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By: /s/
---------------------------------
Stephen E. Roth
<PAGE> 1
EXHIBIT 10(b)
April 19, 1996
Provident Mutual Life Insurance Company
1600 Market Street
Philadelphia, PA 19103
Gentlemen:
I hereby consent to the use of my name in the Prospectus under the heading
"Legal Matters" filed as part of the Post-Effective Amendment No. 3 on Form N-4
(File No. 33-70926) for the Providentmutual Variable Annuity Separate Account.
Sincerely,
Linda E. Senker
Legal Officer
LES/ja
<PAGE> 1
EXHIBIT 10(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Post-Effective Amendment
No. 3 to the Registration Statement under the Securities Act of 1933, as
amended, filed on Form N-4 (File No. 33-70926) for the Provident Mutual
Variable Annuity Separate Account, of the following reports:
1. Our report dated February 6, 1996 on our audits of the financial
statements of Provident Mutual Life Insurance Company as of December
31, 1995 and 1994 and for each of the three years in the period ending
December 31, 1995.
2. Our report dated February 14, 1996 on our audits of the financial
statements of the Provident Mutual Variable Annuity Separate Account
(comprising the sixteen Subaccounts) as of December 31, 1995, 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".
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 24, 1996
<PAGE> 1
EXHIBIT 10(d)
April 19, 1996
Provident Mutual Life Insurance Company
1600 Market Street
Philadelphia, PA 19103
Gentlemen:
I hereby consent to the use of my name in the Prospectus under the heading
"Experts" filed as part of the Post-Effective Amendment No. 3 on Form N-4 (File
No. 33-70926) for the Providentmutual Variable Annuity Separate Account.
Sincerely,
Scott V. Carney, FSA, MAAA
Assistant Vice President & Actuary
SVC/LES/ja
