<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
FILE NO. 33-70926
================================================================================
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. 5 [X]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 7 [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:
ADAM SCARAMELLA, ESQ. STEPHEN E. ROTH, ESQ.
COUNSEL SUTHERLAND, ASBILL & BRENNAN, L.L.P.
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, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of rule 485
Title of Securities Being Registered:
Interests in Flexible Individual Flexible Premium Deferred Variable Annuity
contracts.
================================================================================
<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
---------------- ------------------
<C> <S> <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, The Company, Variable Account and Funds
Depositor and Portfolio Companies......
The Company, Variable Account and Funds--
Provident Mutual Life Insurance Company
a. Depositor...............................
The Company, Variable Account and Funds--
The Provident Mutual Variable Annuity
Separate Account
b. Registrant..............................
The Company, Variable Account and Funds--
c. Portfolio Company.......................
The Company, Variable Account and Funds--
d. Fund Prospectus.........................
The Company, Variable Account and Funds--
Voting Rights
e. Voting Rights...........................
Administrative Charges
f. Administrators..........................
6. Deductions and Expenses.................... Charges and Deductions
Charges and Deductions
a. General.................................
Charges and Deductions--Surrender Charge
b. Sales Load %............................
N/A
c. Special Purchase Plan...................
Distribution of Contracts
d. Commissions.............................
Charges and Deductions
e. Expenses--Registrant....................
Charges and Deductions--Other Charges
Including Investment Advisory Fees of the
Fund
f. Fund Expenses...........................
N/A
g. Organizational Expenses.................
7. General Description of Variable Annuity Description of Annuity Contract
Contracts................................
Premiums; Allocation of Premiums
a. (i) Allocation of Premium Payments.....
Description of Annuity Contract--Transfer
Privilege; Payments
(ii) Transfers.............................
N/A
(iii) Exchanges............................
Description of Annuity
Contract--Modification
b. Changes.................................
Description of Annuity Contract--Contract
Inquiries
c. Inquiries...............................
8. Annuity Period............................. Payment Options
9. Death Benefit.............................. Description of Annuity Contract--Death
Benefit Before Maturity Date; Payments
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
---------------- ------------------
<C> <S> <C>
10. Purchases and Contract Value............... Description of Annuity Contract
Description of Annuity Contract--Premiums
a. Purchases...............................
Description of Annuity Contract--Variable
Account Value
b. Valuation...............................
Description of Annuity Contract--Variable
Account Value
c. Daily Calculation.......................
Distribution of Contracts
d. Underwriter.............................
11. Redemptions................................ Description of Annuity Contract
Description of Annuity Contract--
Withdrawals and Surrenders; Payments
a. --By Owners.............................
Description of Annuity Contract--Proceeds
on Maturity Date; Payment Options
--By Annuitant.............................
N/A
b. Texas ORP...............................
Description of Annuity Contract--Payments
c. Delay in Payment........................
Description of Annuity Contract--Contract
Termination
d. Lapse...................................
Description of Annuity Contract--Free-Look
Period
e. Free Look...............................
12. Taxes...................................... Federal Tax Status
13. Legal Proceedings.......................... Legal Proceedings
14. Table of Contents of the Statement of Statement of Additional Information Table
Additional Information................... of Contents
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM OF FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION
---------------- -------------------------------------------
<C> <S> <C>
15. Cover Page................................. Cover Page
16. Table of Contents.......................... Statement of Additional Information Table
of Contents
17. General Information and History............ See Prospectus--The Company, Variable
Account and Funds
18. Services
N/A
a. Fees and Expenses of Registrant.........
See Prospectus--Administrative Charges
b. Management Contract.....................
Safekeeping of Account Assets
c. Custodian...............................
Experts
d. Independent Public Accountant...........
Safekeeping of Account Assets
e. Assets of Registration..................
N/A
f. Affiliated Persons......................
See Prospectus--Distribution of Contracts
g. Principal Underwriter...................
19. Purchase of Securities Being Offered....... See Prospectus--Distribution of Contracts
20. Underwriter................................ See Prospectus--Distribution of Contracts
21. Calculation of Performance Data............ Calculation of Yields and Total Returns
22. Annuity Payments........................... See Prospectus--Payment Options
23. Financial Statements....................... Financial Statements
</TABLE>
<PAGE> 4
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE> 5
- --------------------------------------------------------------------------------
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: 1-800-688-5177
- --------------------------------------------------------------------------------
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 Funds available under the Contract are: 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; The Dreyfus Socially Responsible Growth Fund, Inc.; Federated
Insurance Series; and Van Eck Worldwide Insurance Trust. 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. Shares of
certain Portfolios of the Funds may not be available for sale in all states. In
addition, the prospectuses of the Funds, which must accompany this Prospectus,
may contain Portfolios not currently available in connection with the Contracts.
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 40 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, 1998
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions................................................. 1
Table of Expenses........................................... 2
Summary..................................................... 8
Condensed Financial Information............................. 10
The Company, Variable Account and Funds..................... 11
Provident Mutual Life Insurance Company................ 11
The Provident Mutual Variable Annuity Separate
Account............................................... 11
The Funds.............................................. 12
Market Street Fund, Inc........................... 13
Variable Insurance Products Fund and Variable
Insurance Products Fund II........................ 14
Scudder Variable Life Investment Fund............. 15
OCC Accumulation Trust............................ 15
Dreyfus Variable Investment Fund and The Dreyfus
Socially Responsible Growth Fund, Inc. ........... 16
Federated Insurance Series........................ 16
Van Eck Worldwide Insurance Trust................. 16
Resolving Material Conflicts................................ 18
Addition, Deletion or Substitution of Investments........... 18
Description of Annuity Contract............................. 19
Issuance of a Contract................................. 19
Premiums............................................... 19
Free Look Period....................................... 19
Allocation of Premiums................................. 19
Variable Account Value................................. 20
Transfer Privilege..................................... 21
Dollar Cost Averaging.................................. 22
Withdrawals and Surrender.............................. 22
Death Benefit Before Maturity Date..................... 24
Proceeds on Maturity Date.............................. 25
Payments............................................... 25
Modification........................................... 26
Reports to Contract Owners............................. 26
Contract Inquiries..................................... 26
The Guaranteed Account...................................... 26
Minimum Guaranteed and Current Interest Rates.......... 26
Transfers from Guaranteed Account...................... 27
Payment Deferral....................................... 27
Charges and Deductions...................................... 27
Surrender Charge (Contingent Deferred Sales Charge).... 27
Administrative Charges................................. 29
Transfer Processing Fee................................ 29
Mortality and Expense Risk Charge...................... 29
Other Charges Including Investment Advisory Fees of the
Funds................................................. 29
Premium Taxes.......................................... 29
Other Taxes............................................ 29
Payment Options............................................. 30
Election of Options.................................... 30
Description of Options................................. 30
Yields and Total Returns.................................... 31
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Federal Tax Status.......................................... 32
Introduction........................................... 32
Tax Status of the Contract............................. 33
Taxation of Annuities.................................. 34
Transfers, Assignments or Exchanges of a Contract...... 35
Withholding............................................ 35
Multiple Contracts..................................... 36
Taxation of Qualified Plans............................ 36
Restrictions under Qualified Contracts................. 37
Possible Charge for Provident Mutual's Taxes........... 38
Other Tax Consequences................................. 37
Distribution of Contracts................................... 37
Preparing for Year 2000..................................... 38
Legal Proceedings........................................... 39
Voting Rights............................................... 39
Financial Statements........................................ 39
Statement of Additional Information Table of Contents....... 40
</TABLE>
ii
<PAGE> 8
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 408A 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> 9
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 per Contract Year
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of Variable Account Value)
Mortality and Expense Risk Charges........... 1.25%
Account Fees and Expenses(2)................. 0.15%
----
Total Variable Account
Annual Expenses............................ 1.40%
</TABLE>
<TABLE>
<CAPTION>
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)................. 0.32% 0.25% 0.35% 0.41% 0.45% 0.75%
Other Expenses............................... 0.11% 0.14% 0.22% 0.17% 0.18% 0.27%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses................... 0.43% 0.39% 0.57% 0.58% 0.63% 1.02%
</TABLE>
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.70% 0.70% 0.90% 0.90%
Other Expenses............................... 0.40% 0.40% 0.40% 0.40%
---- ---- ---- ----
Total Fund Annual Expenses................... 1.10% 1.10% 1.30% 1.30%
</TABLE>
<TABLE>
<CAPTION>
HIGH EQUITY
INCOME INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND
("VIP FUND") ANNUAL EXPENSES(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.59% 0.49% 0.60%
Other Expenses
(after reimbursement)(3)................... 0.12% 0.08% 0.07%
---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(3)................... 0.71% 0.57% 0.67%
</TABLE>
2
<PAGE> 10
<TABLE>
<CAPTION>
ASSET INDEX
MANAGER 500 CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO
----------- --------- -------------
<S> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND II
("VIP II FUND") ANNUAL EXPENSES(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.55% 0.28% 0.59%
Other Expenses
(after reimbursement)(3)................... 0.09% 0.00% 0.09%
---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(3)................... 0.64% 0.28% 0.68%
</TABLE>
<TABLE>
<CAPTION>
GROWTH &
BOND INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO
----------- --------- -------------
<S> <C> <C> <C> <C>
SCUDDER VARIABLE LIFE INVESTMENT FUND
ANNUAL EXPENSES(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.48% 0.47% 0.83%
Other Expenses............................... 0.14% 0.11% 0.17%
---- ---- ----
Total Fund Annual Expenses................... 0.62% 0.58% 1.00%
</TABLE>
<TABLE>
<CAPTION>
SMALL
EQUITY CAP MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO
----------- --------- -------------
<S> <C> <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 reimbursement)(3A).................. 0.19% 0.17% 0.07%
---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(3A).................. 0.99% 0.97% 0.87%
</TABLE>
<TABLE>
<CAPTION>
ZERO COUPON GROWTH &
2000 INCOME
PORTFOLIO PORTFOLIO
----------- ---------
<S> <C> <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%
Other Expenses............................... 0.16% 0.05%
---- ----
Total Fund Annual Expenses................... 0.61% 0.80%
</TABLE>
3
<PAGE> 11
<TABLE>
<CAPTION>
SOCIALLY
RESPONSIBLE
PORTFOLIO
-----------
<S> <C> <C> <C> <C>
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND,
INC.(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.75%
Other Expenses............................... 0.07%
----
Total Fund Annual Expenses................... 0.82%
</TABLE>
<TABLE>
<CAPTION>
FUND FOR
U.S. GOVN'T UTILITY
SECURITIES II FUND II
PORTFOLIO PORTFOLIO
------------- ---------
<S> <C> <C> <C> <C>
FEDERATED INSURANCE SERIES
ANNUAL EXPENSES(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.60% 0.75%
Other Expenses
(after reimbursement)(3)................... 0.20% 0.10%
---- ----
Total Fund Annual Expenses
(after reimbursement)(3)................... 0.80% 0.85%
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
WORLDWIDE HARD EMERGING REAL
BOND ASSETS MARKETS ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE TRUST
ANNUAL EXPENSES(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 1.00% 1.00% 1.00% 1.00%
Other Expenses
(after reimbursement)(3)................... 0.12% 0.17% 0.00% 0.17%
---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(3)................... 1.12% 1.17% 1.00% 1.17%
</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 1997 calendar year. For a more complete description of the
various costs and expenses, see "Charges and Deductions," Page 27.
- ---------------
(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 27.)
(2) Asset-based administration charge.
4
<PAGE> 12
(3) For certain portfolios, certain expenses were reimbursed during 1997. It is
anticipated that expense reimbursement and fee waiver arrangements will
continue past the current year. Absent the expense reimbursement, the 1997
Other Expenses and Total Annual Expenses would have been 0.09%, 0.58%,
respectively, for the VIP Fund Equity Income Portfolio, 0.09%, 0.69%,
respectively, for the VIP Fund Growth Portfolio, 0.10%, 0.65%,
respectively, for the VIP II Fund Asset Manager Portfolio, 0.13%, 0.40%,
respectively, for the VIP II Fund Index 500 Portfolio, 0.11%, 0.71%,
respectively, for the VIP II Fund Contrafund Portfolio, 0.66%, 1.25%,
respectively, for the Federated U.S. Government Securities II Portfolio,
0.37%, 1.12%, respectively, for the Federated Utility Fund II Portfolio and
0.18%, 1.18%, respectively, for the Van Eck Worldwide Hard Assets
Portfolio. Similar expense reimbursement and fee waiver arrangements were
also in place for the other Portfolios and it is anticipated that such
arrangements will continue past the current year. However, no expenses were
reimbursed or fees waived during 1997 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) 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 of these Portfolios 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 have been
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.
(4) The fee and expense information regarding the Funds was provided by those
Funds. The VIP Fund, the VIP II Fund, the Scudder Variable Life Investment
Fund, the OCC Accumulation Trust, the Dreyfus Variable Investment Fund, The
Dreyfus Socially Responsible Growth Fund, Inc., the Federated Insurance
Series and the Van Eck Worldwide Insurance Trust 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.
5
<PAGE> 13
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>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
MS Growth..................................... $67.73 $ 95.23 $123.19 $242.72
MS Money Market............................... 67.35 94.06 121.18 238.60
MS Bond....................................... 69.06 99.33 130.20 257.02
MS Managed.................................... 69.16 99.63 130.70 258.03
MS Aggressive Growth.......................... 69.63 101.09 133.19 263.08
MS International.............................. 73.34 112.44 152.44 301.67
MS All Pro Large Cap Growth................... 74.10 114.75 156.36 309.41
MS All Pro Large Cap Value.................... 74.10 114.75 156.36 309.41
MS All Pro Small Cap Growth................... 76.00 120.53 166.08 328.49
MS All Pro Small Cap Value.................... 76.00 120.53 166.08 328.49
Fidelity High Income.......................... 70.39 103.42 137.16 271.12
Fidelity Equity Income........................ 69.06 99.33 130.20 257.02
Fidelity Growth............................... 70.01 102.26 135.18 267.11
Fidelity Asset Manager........................ 69.73 101.38 133.68 264.09
Fidelity Index 500............................ 66.31 90.83 115.64 227.19
Fidelity Contrafund........................... 70.11 102.55 135.67 268.11
Scudder Bond.................................. 69.54 100.80 132.69 262.08
Scudder Growth & Income....................... 69.16 99.63 130.70 258.03
Scudder International......................... 73.15 111.86 151.46 299.73
OCC Equity.................................... 73.05 111.57 150.97 298.76
OCC Small Cap................................. 72.86 110.99 149.99 296.81
OCC Managed................................... 71.91 108.08 145.07 287.00
Dreyfus Zero Coupon 2000...................... 69.44 100.50 132.19 261.07
Dreyfus Growth & Income....................... 71.25 106.05 141.62 280.08
Dreyfus Socially Resp. ....................... 71.44 106.63 142.61 282.07
Federated U.S. Gov't Securities II............ 71.25 106.05 141.62 280.08
Federated Utility Fund II..................... 71.72 107.50 144.09 285.03
Van Eck Worldwide Bond........................ 74.29 115.33 157.33 311.34
Van Eck Worldwide Hard Assets................. 74.76 116.78 159.77 316.13
Van Eck Worldwide Emerging Mkts............... 73.15 111.86 151.46 299.73
Van Eck Worldwide Real Estate................. 74.76 116.78 159.77 316.13
</TABLE>
6
<PAGE> 14
2. IF THE CONTRACT IS NOT SURRENDERED OR IS ANNUITIZED AT THE END OF THE
APPLICABLE TIME PERIOD:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
MS Growth...................................... $21.30 $65.75 $112.79 $242.72
MS Money Market................................ 20.90 64.54 110.76 238.60
MS Bond........................................ 22.70 69.98 119.87 257.02
MS Managed..................................... 22.80 70.28 120.37 258.03
MS Aggressive Growth........................... 23.30 71.78 122.89 263.08
MS International............................... 27.20 83.47 142.34 301.67
MS All Pro Large Cap Growth.................... 28.00 85.86 146.30 309.41
MS All Pro Large Cap Value..................... 28.00 85.86 146.30 309.41
MS All Pro Small Cap Growth.................... 30.00 91.81 156.12 328.49
MS All Pro Small Cap Value..................... 30.00 91.81 156.12 328.49
Fidelity High Income........................... 24.10 74.19 126.91 271.12
Fidelity Equity Income......................... 22.70 69.98 119.87 257.02
Fidelity Growth................................ 23.70 72.99 124.90 267.11
Fidelity Asset Manager......................... 23.40 72.08 123.39 264.09
Fidelity Index 500............................. 19.80 61.21 105.16 227.19
Fidelity Contrafund............................ 23.80 73.29 125.40 268.11
Scudder Bond................................... 23.20 71.48 122.39 262.08
Scudder Growth & Income........................ 22.80 70.28 120.37 258.03
Scudder International.......................... 27.00 82.88 141.35 299.73
OCC Equity..................................... 26.90 82.58 140.86 298.76
OCC Small Cap.................................. 26.70 81.98 139.87 296.81
OCC Managed.................................... 25.70 78.99 134.90 287.00
Dreyfus Zero Coupon 2000....................... 23.10 71.18 121.88 261.07
Dreyfus Growth & Income........................ 25.00 76.89 131.41 280.08
Dreyfus Socially Resp. ........................ 25.20 77.49 132.41 282.07
Federated U.S. Gov't Securities II............. 25.00 76.89 131.41 280.08
Federated Utility Fund II...................... 25.50 78.39 133.90 285.03
Van Eck Worldwide Bond......................... 28.20 86.46 147.28 311.34
Van Eck Worldwide Hard Assets.................. 28.70 87.95 149.74 316.13
Van Eck Worldwide Emerging Mkts................ 27.00 82.88 141.35 299.73
Van Eck Worldwide Real Estate.................. 28.70 87.95 149.74 316.13
</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.
7
<PAGE> 15
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") 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 19.)
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 19.)
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 19.)
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 19.)
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
21.)
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 and
Surrender," Page 22.)
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 23.)
8
<PAGE> 16
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).
Step-Up Rider. Contract Owner may elect the Step-up Rider, which provides
a guaranteed minimum death benefit equal to the Contract Account Value as of the
six year contract anniversary and is reset every six years to the Contract
Account Value on the next six year contract anniversary, if greater. This reset
continues until the six year contract anniversary on or before the annuitant's
85th birthday. Premiums paid between the six year contract anniversaries are
also included in the death benefit proceeds. A reduction in the guaranteed
minimum death benefit for any withdrawal will be based on the proportion of the
withdrawal to the Contract Account Value. At no time will the death benefit
proceeds be less than either the Contract Account Value on the date Provident
Mutual receives due proof of the Annuitant's death or the sum of premiums paid,
less any withdrawals, including applicable Surrender Charges.
Rising Floor Rider. Contract Owner may elect the Rising Floor Rider, which
provides a guaranteed minimum death benefit equal to the sum of premiums paid
less reductions for withdrawals accumulating at 4 1/2% interest until the
contract anniversary prior to the annuitant's 75th birthday. Thereafter,
premiums are added and reductions for withdrawals are deducted from the
guaranteed death benefit. A reduction in the guaranteed minimum death benefit
for any withdrawal will be based on the proportion of the withdrawal to the
Contract Account Value. At no time will the death benefit proceeds be less than
the Contract Account Value.
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 24.)
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 27.)
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 28.)
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 29.)
9
<PAGE> 17
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 29.)
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 29.)
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 29).
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 29.)
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 29
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 30.)
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 penalty tax may apply. For a further discussion of the
Federal income status of Variable Annuity Contracts, see "Federal Tax Status,"
Page 32.
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 39,
concerning financial statements contained in the Statement of Additional
Information. The All Pro and Van Eck Portfolios are not included because they
were not available under the contracts prior to May 1, 1998.
10
<PAGE> 18
The table below sets forth certain information regarding the Subaccounts as
of December 31, 1997.
<TABLE>
<CAPTION>
UNIT VALUE NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS
AS OF OUTSTANDING AS OF AS OF OUTSTANDING AS OF AS OF OUTSTANDING AS OF
SUBACCOUNT 12/31/97 12/31/97 12/31/96 12/31/96 12/31/95 12/31/95
---------- ---------- ----------------- ---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
MS Growth.................. 950.55 3,848.31 775.34 2,631.88 657.63 1,246.84
MS Money Market............ 575.95 6,625.22 554.47 5,296.64 534.58 3,510.81
MS Bond.................... 597.74 993.30 553.59 730.75 545.35 366.16
MS Managed................. 781.27 1,443.37 653.55 1,070.67 592.07 272.65
MS Aggressive Growth....... 833.15 769.36 697.07 507.30 584.65 376.84
MS International........... 704.02 3,125.55 651.04 2,617.73 595.43 1,329.83
Fidelity High Income....... 788.02 3,296.95 679.15 2,498.16 604.03 1,393.43
Fidelity Equity Income..... 1,011.99 9,404.06 801.08 6,996.28 710.92 2,625.21
Fidelity Growth............ 905.80 6,516.65 743.89 5,412.35 657.74 2,143.41
Fidelity Asset Manager..... 763.46 2,055.09 641.70 1,277.53 567.88 566.68
Fidelity Index 500......... 1,088.42 5,559.85 831.78 2,825.25 686.84 875.69
Fidelity Contrafund........ 879.99 2,353.16 718.85 997.07 -- --
OCC Equity................. 1,071.54 3,150.90 858.13 2,175.67 705.50 995.33
OCC Small Cap.............. 808.05 2,961.17 670.35 2,106.40 572.66 733.25
OCC Managed................ 1,057.94 6,369.66 877.27 4,119.48 724.69 1,152.25
Scudder Bond............... 594.92 1,073.80 553.18 756.19 545.82 175.27
Scudder Growth & Income.... 913.35 2,118.10 709.94 705.75 -- --
Scudder International...... 641.18 1,239.16 596.09 313.71 -- --
Dreyfus Zero Coup. 2000 ... 580.67 712.24 550.29 553.93 544.02 202.47
Dreyfus Growth & Inc....... 884.85 1,799.35 772.15 895.01 -- --
Dreyfus Socially Resp...... 918.99 506.81 725.61 137.32 -- --
Federated Fund for U.S.
Govn't Securities II..... 582.47 317.09 544.01 88.34 -- --
Federated Utility Fund
II....................... 789.26 304.63 632.04 116.78 -- --
<CAPTION>
UNIT VALUE NUMBER OF UNITS
AS OF OUTSTANDING AS OF
SUBACCOUNT 12/31/94 12/31/94
---------- ---------- -----------------
<S> <C> <C>
MS Growth.................. 511.45 298.94
MS Money Market............ 513.30 453.09
MS Bond.................... 459.55 134.18
MS Managed................. 482.84 67.77
MS Aggressive Growth....... 522.44 98.84
MS International........... 528.22 190.49
Fidelity High Income....... 507.88 23.35
Fidelity Equity Income..... 533.64 308.68
Fidelity Growth............ 492.73 173.34
Fidelity Asset Manager..... 492.38 174.09
Fidelity Index 500......... -- --
Fidelity Contrafund........ 507.68 13.31
OCC Equity................. 468.40 17.66
OCC Small Cap.............. 515.26 66.91
OCC Managed................ 503.97 152.34
Scudder Bond............... 504.88 108.98
Scudder Growth & Income.... -- --
Scudder International...... -- --
Dreyfus Zero Coup. 2000 ... 467.73 0.00
Dreyfus Growth & Inc....... -- --
Dreyfus Socially Resp...... -- --
Federated Fund for U.S.
Govn't Securities II..... -- --
Federated Utility Fund
II....................... -- --
</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 1997,
Provident Mutual had total assets of approximately $7.9 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.
Provident Mutual is a member of the Insurance Marketplace Standards
Association ("IMSA"), and as such may include the IMSA logo and information
about IMSA membership in its advertisements. Companies that belong to IMSA
subscribe to a set of ethical standards covering the various aspects of sales
and service for individually sold life insurance and annuities.
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
11
<PAGE> 19
charged with liabilities that arise from any other business Provident Mutual
conducts. Provident Mutual may 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 thirty-one Subaccounts: Growth; Money
Market; Bond; Managed; Aggressive Growth; International; All Pro Large Cap
Growth; All Pro Large Cap Value; All Pro Small Cap Growth; All Pro Small Cap
Value; Fidelity High Income; Fidelity Equity-Income; Fidelity Growth; Fidelity
Asset Manager; Fidelity Index 500; Fidelity Contrafund; Scudder Bond; Scudder
Growth and Income; Scudder International; OCC Equity; OCC Value Small Cap; OCC
Managed; Dreyfus Growth and Income; Dreyfus Socially Responsible; Dreyfus Zero
Coupon 2000; Federated Fund for U.S. Government Securities II; and Federated
Utility Fund II; Van Eck Worldwide Bond; Van Eck Worldwide Hard Assets; Van Eck
Worldwide Emerging Markets; and Van Eck Worldwide Real Estate. 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 nine 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; The Dreyfus Socially
Responsible Growth Fund, Inc.; Federated Insurance Series and Van Eck Worldwide
Fund (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.
12
<PAGE> 20
THE MARKET STREET FUND, INC.
The Growth, Money Market, Bond, Managed, Aggressive Growth, International,
All Pro Large Cap Growth, All Pro Small Cap Growth, All Pro Large Cap Value and
All Pro Small Cap Value 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,
Money Market, Bond, Managed, Aggressive Growth, International, All Pro Large Cap
Growth, All Pro Small Cap Growth, All Pro Large Cap Value and All Pro Small Cap
Value Portfolios. Shares of each Portfolio currently are purchased and redeemed
by the corresponding Subaccount. Shares of the All Pro Portfolios may not be
currently available for sale in all states. If they are not yet available in
your state, you may not allocate premiums to them until such time as they are
available.
The investment objectives 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.
All Pro Large Cap Growth Portfolio seeks to achieve a long-term capital
appreciation. The Portfolio pursues its objective by investing primarily in
common stock and other equity securities of companies among the 750 largest by
market capitalization at the time of purchase, which the Advisers believe show
potential for growth in future earnings.
All Pro Small Cap Growth Portfolio seeks to achieve long-term capital
appreciation. The Portfolio pursues its objective by investing primarily in
common stock and other equity securities of companies that rank between 751 and
1,750 in size measured by market capitalization at the time of purchase, which
the Advisers believe show potential for growth in future earnings.
All Pro Large Cap Value Portfolio seeks to provide long-term capital
appreciation. The Portfolio attempts to achieve this objective by investing
primarily in undervalued common stock and other equity securities of companies
among the 750 largest by market capitalizations at the time of purchase that the
Advisers believe offer above-average potential for growth in future earnings.
All Pro Small Cap Value Portfolio seeks to provide long-term capital
appreciation. The Portfolio pursues this objective by investing primarily in
undervalued common stock and other equity securities of companies that rank
between 751 and 1,750 in size measured by market capitalization at the time of
purchase, which the Advisers believe offer above-average potential for growth in
future earnings.
The Growth, Money Market, Bond, Managed, and Aggressive Growth Portfolios
are advised by Sentinel Advisors Company; and the International Portfolio is
advised by Providentmutual Investment Management Company ("PIMC"). PIMC employs
The Boston Company Asset Management, Inc. to provide investment advisory
services in connection with the International Portfolio. PIMC serves as
investment adviser for the All Pro Portfolios. PIMC uses a "manager of managers"
approach for the All Pro Portfolios under which PIMC allocates each Portfolio's
assets among one or more "specialist" investment sub-advisers. As of the date of
this prospectus, the assets of the All Pro Small Cap Growth Portfolio are
managed in part by Standish, Ayer &
13
<PAGE> 21
Wood and in part by Husic Capital Management, pursuant to separate investment
sub-advisory agreements. The assets of the All Pro Large Cap Growth Portfolio
are managed in part by Cohen, Klingenstein & Marks, Inc.; in part by Geewax,
Terker & Co.; and in part by Oak Associates, Ltd.; pursuant to separate
investment sub-advisory agreements. The assets of the All Pro Small Cap Value
Portfolio are managed in part by 1838 Investment Advisors and in part by Denver
Investment Advisors, pursuant to an investment sub-advisory agreement. The
assets of the All Pro Large Cap Value Portfolio are managed in part by Equinox
Capital Management, Inc.; in part by Harris Associates, Inc.; and in part by
Mellon Equity Associates, pursuant to separate investment sub-advisory
agreements. Each of these advisers is registered with the SEC as an investment
adviser under the Investment Advisers Act of 1940.
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 II Fund"). The VIP Fund and the VIP II
Fund each offer insurance companies a selection of investment vehicles for
variable annuity contracts and variable life insurance policies. The VIP Fund
issues a number of "series" or classes of shares, each of which represents an
interest in a separate portfolio within the VIP Fund or VIP II Fund. Three of
the VIP Fund series are available for investment under the Contracts: VIP High
Income Portfolio; VIP Equity-Income Portfolio; and VIP Growth Portfolio. Three
of the VIP II Fund series are available for investment under the Contracts: VIP
II Asset Manager Portfolio, VIP II Contrafund Portfolio and VIP II Index 500
Portfolio.
The investment objectives of the pertinent Portfolios of the Funds are set
forth below.
VIP 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.
VIP 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.
VIP 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.
VIP II 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 money market instruments.
VIP II Contrafund Portfolio. This Portfolio seeks capital appreciation by
investing in securities of companies where value is not fully recognized by the
public.
VIP II 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 a broad range 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 II Fund are managed by Fidelity
Management & Research Company ("FMR"). On behalf of the Asset Manager Portfolio,
FMR has entered into sub-advisory agreements with Fidelity Management & Research
(U.K.) Inc. ("FMR (U.K.)") and Fidelity Management & Research (Far East) Inc.
("FMR Far East"), 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.
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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 seven 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 Kemper Investments, 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.
OCC ACCUMULATION TRUST
The OCC Equity Subaccount, the OCC Small Cap Subaccount and the OCC 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 seven 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.
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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 PIMCO Advisors L.P. and which is registered as an investment
adviser under the Investment Advisers Act of 1940.
DREYFUS VARIABLE INVESTMENT FUND AND THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.
The Dreyfus Growth and Income Subaccount, and the Dreyfus Zero Coupon 2000
Subaccount invest in shares of their corresponding portfolios of the Dreyfus
Variable Investment Fund and the Dreyfus Socially Responsible Subaccount invests
in shares of the Dreyfus Socially Responsible Growth Fund, Inc. (collectively,
the "Dreyfus Funds"). The Dreyfus Funds are 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 Funds investment objective are 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.
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.
Socially Responsible Portfolio. This Portfolio seeks to provide capital
growth primarily 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, current income is a secondary
goal.
The Dreyfus Corporation ("Dreyfus") serves as investment adviser to the
Dreyfus Funds. Dreyfus supervises and assists in the overall management of each
Dreyfus Funds' affairs subject to the overall authority of the Fund Boards. NCM
Capital Management Group, Inc. serves as sub-investment adviser of the Dreyfus
Socially Responsible Growth Fund, Inc. and provides day-to-day management of the
Fund's portfolio.
FEDERATED INSURANCE SERIES
The Federated Fund for U.S. Government Securities II Subaccount and the
Federated Utility Fund II Subaccount invest in shares of their corresponding
portfolios of the Federated Insurance Series. The Federated Insurance 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 Federated Insurance Series currently consists of two Portfolios. Only
the Fund for U.S. Government Securities II Portfolio and Utility Fund II
Portfolio are available with the Variable Annuity Contract offered by
Providentmutual. Their investment objectives are as follows:
Fund for U.S. Government Securities II 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 II Portfolio. This Portfolio seeks to achieve high current
income and moderate capital appreciation. It invests primarily in equity and
debt securities of utility companies.
VAN ECK WORLDWIDE INSURANCE TRUST
The Van Eck Worldwide Bond, Van Eck Worldwide Hard Assets, Van Eck
Worldwide Emerging Markets and Van Eck Worldwide Real Estate Subaccounts of the
Variable Account invest in shares of the
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Van Eck Worldwide Bond, Van Eck Worldwide Hard Assets, Van Eck Worldwide
Emerging Markets and Van Eck Worldwide Real Estate Portfolios, respectively, of
the Van Eck Worldwide Insurance Trust ("Van Eck Trust"). Shares of the Van Eck
Worldwide Bond, Van Eck Worldwide Hard Assets, Van Eck Worldwide Emerging
Markets and Van Eck Worldwide Real Estate Portfolios are purchased and redeemed
by the Variable Account at net asset value without a sales charge. The Variable
Account purchases shares of the Portfolio from Van Eck Trust in accordance with
a participation agreement between the Van Eck Trust and Providentmutual. Shares
of the Van Eck Worldwide Real Estate Portfolio may not be currently available
for sale in all states. If they are not yet available in your state, you may not
allocate premiums to them until such time as they are available. The termination
provisions of this participation agreement are described below.
The investment objectives of the Portfolios of Van Eck Trust are set forth
below. The investment experience of each Subaccount depends upon the investment
performance of its corresponding Portfolio. There is no assurance that these
Portfolios will achieve their stated objectives.
Van Eck Worldwide Hard Assets Portfolio seeks long-term capital
appreciation by investing globally, primarily in "Hard Assets Securities." Hard
Assets Securities include equity securities of Hard Asset Companies and
securities, including structured notes, whose value is linked to the price of a
Hard Asset commodity or a commodity index. Hard Asset Companies include
companies that are directly or indirectly engaged to a significant extent in the
exploration, development, production or distribution of one or more of the
following (together, Hard Assets); (i) precious metals, (ii) ferrous and
non-ferrous metals, (iii) gas, petroleum, pretochemicals or other hydrocarbons,
(iv) forest products, (v) real estate and (vi) other basic non-agricultural
commodities. Income is a secondary consideration.
Van Eck Worldwide Bond Portfolio seeks high total return through a flexible
policy of investigating globally, primarily in debt securities. Total return is
comprised of current income and capital appreciation. The Portfolio attempts to
achieve its investment objective by taking advantage of investment opportunities
in the United States as well as in other countries throughout the world where
opportunities may be more rewarding and may emphasize either component of total
return.
Van Eck Worldwide Emerging Markets Portfolio seeks long-term capital
appreciation by investing primarily in equity securities in emerging markets
around the world.
Van Eck Worldwide Real Estate Portfolio seeks to maximize total return by
investing primarily in equity securities of domestic and foreign companies which
are principally engaged in the real estate industry or which own significant
real estate assets.
The investment adviser for the Van Eck Worldwide Bond, Worldwide Hard
Assets and Worldwide Real Estate Portfolios is Van Eck Associates Corporation
("Van Eck Associates"). The investment adviser for the Van Eck Worldwide
Emerging Markets Portfolio is Van Eck Global Asset Management (Asia) Limited, a
wholly-owned investment adviser subsidiary of Van Eck Associates.
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 Federated Insurance 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.
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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.
The MS Fund, VIP Fund, VIP II Fund, Scudder Fund, OCC Trust, Dreyfus Funds,
and Van Eck Trust are now, or may be in the future, used as investment vehicles
for variable life insurance 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, as well as registered
separate accounts of other insurance companies offering variable life and
annuity contracts. 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.
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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 1717 Capital Management Company ("1717") or a
broker-dealer having a selling agreement with 1717 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).
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.
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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 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 $500. 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
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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 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 27). 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.
Automatic Asset Rebalancing. Automatic Asset Rebalancing is a feature
which, if elected, authorizes periodic transfers of Variable Account Values
among the Subaccounts in order to achieve a particular percentage allocation of
Variable Account Values among such Subaccounts. Such percentage allocations must
be in whole numbers and must allocate amounts only among the Subaccounts. No
amounts will be transferred to the Guaranteed Account as a part of Automatic
Asset Rebalancing. The percentage allocation of your Contract Account Value for
rebalancing will be based on your premium allocation instructions in effect at
the time of rebalancing. Any allocation instructions that you give us that
differ from your then current allocation instructions will be treated as a
request to change such allocation instructions.
Once elected Automatic Asset Rebalancing begins on the first quarterly or
annual anniversary following election. You may change or terminate Automatic
Asset Rebalancing by written instruction to Provident Mutual, or by telephone if
you have previously authorized us to take telephone instructions. Automatic
Asset Rebalancing transfers do not count as one of the 12 free transfers
available during any Contract Year.
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Provident Mutual reserves the right to suspend Automatic Asset Rebalancing at
any time for any class of contracts for any reason upon written notice to you.
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 a designated 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 designated 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 designated Subaccount each month. The amount required to be allocated
to the designated Subaccount can be made by an initial or subsequent investment
or by transferring amounts into the designated Subaccount from the other
Subaccounts or from the Guaranteed Account (which may be subject to certain
restrictions). (See "Transfers from Guaranteed Account," Page 27.)
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 designated 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 designated Subaccount will be processed
monthly until the number of designated transfers have been completed, or the
value of the designated 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.
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 not 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 27).
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 34.)
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
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<PAGE> 30
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. Distributions will begin on the monthly or quarterly anniversary
following the receipt of the request. 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 27).
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 27), 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.
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.
Charitable Remainder Trust Rider. Contract Owner may elect a Charitable
Remainder Trust Rider, which combines an extended Maturity Date to the contract
anniversary nearest the Annuitant's age 100, unless a lump sum payment of Cash
Surrender Value is elected, with a replacement of the surrender
charge/withdrawal provision for contracts issued in a Charitable Remainder
Trust. A Charitable Remainder Trust allows for income to be distributed and for
the payment of trustee fees and charges. The rider would only apply the
appropriate surrender charge to withdrawals or surrenders during a contract year
that exceed the greater of: (1) 10% of the Contract Account Value as of the
beginning of the contract year; or (2) any amounts in excess of the total
premiums paid. There will be no limit on the number of withdrawals occurring in
any contract year.
Surrender. At any time before the earlier of the death of the Annuitant or
the Maturity Date, 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 27.) 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 34.)
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<PAGE> 31
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
Step-Up Rider. Contract Owner may elect the Step-up Rider, which provides
a guaranteed minimum death benefit equal to the Contract Account Value as of the
six year contract anniversary and is reset every six years to the Contract
Account Value on the next six year contract anniversary, if greater. This reset
continues until the six year contract anniversary on or before the annuitant's
85th birthday. Premiums paid between the six year contract anniversaries are
also included in the death benefit proceeds. A reduction in the guaranteed
minimum death benefit for any withdrawal will be based on the proportion of the
withdrawal to the Contract Account Value. At no time will the death benefit
proceeds be less than either the Contract Account Value on the date
Providentmutual receives due proof of the Annuitant's death or the sum of
premiums paid, less any withdrawals, including applicable Surrender Charges.
Rising Floor Rider. Contract Owner may elect the Rising Floor Rider, which
provides a guaranteed minimum death benefit equal to the sum of premiums paid
less reductions for withdrawals accumulating at 4 1/2% interest until the
contract anniversary prior to the annuitant's 75th birthday. Thereafter,
premiums are added and reductions for withdrawals are deducted from the
guaranteed death benefit. A reduction in the guaranteed minimum death benefit
for any withdrawal will be based on the proportion of the withdrawal to the
Contract Account Value. At no time will the death benefit proceeds be less than
the Contract Account Value.
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
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<PAGE> 32
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.
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
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<PAGE> 33
the amount paid from the date of receipt of documentation at 3% or such higher
rate required for a particular state.
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 quarterly, 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
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<PAGE> 34
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
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.
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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> 36
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. 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%.
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.
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.
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.
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.
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<PAGE> 37
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.
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.
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<PAGE> 38
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, historic performance data for the variable accounts, including
yields, effective yields, standard annual total returns and nonstandard measures
of performance for the Subaccounts. These figures are based on historical
earnings and do not indicate or project future performance. Each Subaccount may,
from time to time, advertise or include in sales literature performance relative
to certain performance rankings and indices compiled by independent
organizations. More detailed information as to the calculation of performance
information, as well as comparisons with unmanaged market indices, appears in
the 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
investment income generated by an investment in the Subaccount over a specified
seven-day period. The yield is calculated by assuming that the income generated
for that seven-day period is generated each seven-day period over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, the income earned by an investment in
the Subaccount is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
The yield of a Subaccount (except the Money Market Subaccount) refers to
the annualized income generated by an investment in the Subaccount over a
specified 30-day or one-month period. The yield is calculated by assuming that
the income generated by the investment during that 30-day or one-month period is
generated each period over a 12-month period and is shown as a percentage of the
investment.
The total return of a Subaccount refers to return quotations assuming an
investment under a Contract has been held in the Subaccount for various periods
of time including, but not limited to, a period measured from the date the
Subaccount commenced operations. When a Subaccount has been in operation for
one, five, and ten years, respectively, the total 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.
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
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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 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 408A 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
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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.
Owner Control. 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.
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
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"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 (including Systematic Withdrawals) 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.
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. If Annuity
payments cease as a result of an Annuitant's death before full recovery of the
"investment in the contract," consult a competent tax adviser regarding
deductibility of the unrecovered amount.
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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.
Although the likelihood of legislative change is uncertain, there is always
the possibility that the tax treatment of the Contracts could change by
legislation or other means. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely modify the federal
taxation of the Contracts. It is also possible that any change could be
retroactive (that is, effective prior to the date of the change). A tax adviser
should be consulted with respect to legislative developments and their effect on
the Contract.
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.
WITHHOLDING
Distributions from Contracts generally are subject to withholding for the
Owner's federal income tax liability. The withholding rate varies according to
the type of distribution and the Owner's tax status. The Owner will be provided
the opportunity to elect not to have tax withheld from distributions.
"Eligible rollover distributions" from section 401(a) plans and section
403(b) tax-sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. An eligible rollover distribution is the taxable portion of
any distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity form.
The 20% withholding does not apply, however, if the Owner chooses a "direct
rollover" from the plan to another tax-qualified plan or IRA.
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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. The
Contract includes a Death Benefit that in some cases may exceed the greater of
the Purchase Payments or the Contract Value. The Death Benefit could be
characterized as an incidental benefit, the amount of which is limited in any
pension or profit-sharing plan. Because the Death Benefit may exceed this
limitation, employers using the Contract in connection with such plans should
consult their tax adviser.
Individual Retirement Annuities. Sections 408 and 408A of the Code permit
eligible individuals to contribute to an individual retirement program known as
an "Individual Retirement Annuity" or "IRA." All IRAs are subject to limits on
the amount that may be contributed, the persons who are eligible, and on the
time when distributions may commence. Section 408 governs "ordinary" IRAs.
Subject to certain income limits, contributions to an ordinary IRA may be tax
deductible. Distributions from an ordinary IRA, if attributable to deductible
contributions, are generally subject to income tax. Distributions from certain
other types of qualified retirement plans may be "rolled over" on a tax-deferred
basis into an ordinary IRA. Distributions from an ordinary IRA prior to age 59
1/2 (unless certain exceptions apply) are subject to a 10% penalty tax.
Section 408A of the Code permits individuals to contribute to a special
type of IRA called a Roth IRA. The IRA must be designated as a "Roth IRA" at the
time it is established, in accordance with IRS rules.
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Contributions to a Roth IRA are not deductible. If certain conditions are met,
qualified distributions from a Roth IRA are tax free. Subject to special
limitations, a distribution from an ordinary IRA or another Roth IRA may be
rolled over to a Roth IRA and an ordinary IRA may be converted to a Roth IRA.
You should consult a tax adviser before combining any converted amounts with any
other Roth IRA contributions, including any other conversion amounts from other
tax years. Distributions from a Roth IRA generally are not taxed, except that,
once aggregate distributions exceed contributions to the Roth IRA, income tax
and a 10% penalty tax may apply to distributions made (1) before age 59 1/2
(subject to certain exceptions) or (2) during the five taxable years starting
with the year in which the first contribution is made to the Roth IRA.
Sales of a Contract for use with an ordinary or Roth IRA may be subject to
special requirements of the IRS. The IRS has not reviewed the contract for
qualification as a IRA, and has not addressed in a ruling of general
applicability whether a death benefit provision, such as the provision in the
Contract, comports with IRS qualification requirements.
SIMPLE Retirement Accounts. Beginning January 1, 1997, certain small
employers may establish Simple Retirement Accounts as provided by Section 408(p)
of the Code, under which employees may elect to defer up to $6,000 (as increased
for cost of living adjustments) as a percentage of compensation. The sponsoring
employer is required to make a matching contribution on behalf of contributing
employees. Distributions from a Simple Retirement Account are subject to the
same restrictions that apply to IRA distributions and are taxed as ordinary
income. Subject to certain exceptions, premature distributions prior to age
59 1/2 are subject to a 10% penalty tax, which is increased to 25% if the
distribution occurs within the first two years after the commencement of the
employee's participation in the plan.
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. Code section 403(b)(11)
restricts the distribution under Code section 403(b) annuity contracts of: (1)
elective contributions made in years beginning after December 31, 1988; (2)
earnings on those contributions; and (3) earnings in such years on amounts held
as of the last year beginning before January 1, 1989. Distribution of those
amounts may only occur upon 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.
The Contract includes a Death Benefit that in some cases may exceed the
greater of the Purchase Payments or the Contract Value. The Death Benefit could
be characterized as an incidental benefit, the amount of which is limited in any
tax-sheltered annuity under section 403(b). Because the Death Benefit may exceed
this limitation, employers using the Contract in connection with such plans
should consult their tax adviser.
Required Distributions. For qualified plans under Section 401(a) and
403(b), the Code requires that distributions generally must commence no later
than the later of April 1 of the calendar year following the calendar year in
which the Owner (or plan participant) (i) reaches age 70 1/2 or (ii) retires,
and must be made in a specified form or manner. If the plan participant is a "5
percent owner" (as defined in the Code), distributions generally must begin no
later than April 1 of the calendar year following the calendar year in which the
Owner (or plan participant) reaches age 70 1/2. For ordinary IRAs,
distributions generally must commence no later than April 1 of the calendar year
following the calendar year in which the Owner (or plan participant) reaches age
70 1/2. Roth IRAs do not require distributions at any time prior to the Owner's
death.
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.
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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") 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.
PREPARING FOR YEAR 2000
Like all financial services providers, Provident Mutual and its affiliates
utilize systems that may be affected by Year 2000 transition issues and they
rely on service providers, including banks, custodians, administrators, and
investment managers that also may be affected. Provident Mutual and its
affiliates have developed, and are in the process of implementing, a Year 2000
transition plan, and are confirming that its service providers are also so
engaged. The resources that are being devoted to this effort are substantial. It
is difficult to predict with precision whether the amount of resources
ultimately devoted, or the outcome of these efforts, will have any negative
impact on Provident Mutual and its affiliates. However, as of the date of this
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prospectus, it is not anticipated that Owners will experience negative effects
on their investment, or on the services provided in connection therewith, as a
result of Year 2000 transition implementation. Provident Mutual and its
affiliates currently anticipate that their systems will be Year 2000 compliant
on or about January 1, 1999 but there can be no assurance that Provident Mutual
and its affiliates will be successful, or that interaction with other service
providers will not impair Provident Mutual or its affiliates' services at that
time.
LEGAL PROCEEDINGS
Provident Mutual and its subsidiaries, like other life insurance companies,
are involved in lawsuits, including class action lawsuits. In some class action
and other lawsuits involving insurers, substantial damages have been sought
and/or material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, Provident Mutual believes that at
the present time there are not pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Separate Account or
Provident Mutual.
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, 1997 and 1996 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, 1997, 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, 1997, 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.
39
<PAGE> 47
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-8
Termination of Participation Agreements..................... S-8
Safekeeping of Account Assets............................... S-10
State Regulation............................................ S-10
Records and Reports......................................... S-10
Legal Matters............................................... S-10
Experts..................................................... S-10
Other Information........................................... S-10
Financial Statements........................................ S-11
</TABLE>
40
<PAGE> 48
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
HOME OFFICE: 1050 WESTLAKES DRIVE, BERWYN, PENNSYLVANIA 19312
(610) 407-1717
ADMINISTRATIVE OFFICE: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19713
1-800-688-5177
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, the Dreyfus Variable Investment Fund and the
Federated Insurance Series. 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, 1998.
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-8
TERMINATION OF PARTICIPATION AGREEMENTS (12)................ S-8
SAFEKEEPING OF ACCOUNT ASSETS............................... S-10
STATE REGULATION (8)........................................ S-10
RECORDS AND REPORTS......................................... S-10
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> 49
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 historic performance data
for the subaccounts including yields, standard annual, total returns, and other
non standard measures of performance. 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 or income other than investing income, on shares of the Money
Market Portfolio or on its portfolio securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation and exclusive of income other than investment
income) at the end of the seven-day period in the value of a hypothetical
account under a Contract having a balance of 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
S-2
<PAGE> 50
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 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 and exclusive of income other than investment
income) 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 and exclusive of income other than
investment income) 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.
S-3
<PAGE> 51
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 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
S-4
<PAGE> 52
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 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, the Dreyfus Variable Investment Fund and the Federated
Insurance 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.
S-5
<PAGE> 53
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 12/31/97
PERIOD ENDED PERIOD ENDED (OR DATE OF INCEPTION
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/97 12/31/97 IF LESS THAN 10 YEARS)
--------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985)....................... 16.79% 14.95% 14.00%
Money Market (December 12, 1985)................. (1.09)% 2.59% 3.87%
Bond (December 12, 1985)......................... 2.83% 5.23% 6.35%
Managed (December 12, 1985)...................... 13.88% 11.12% 9.46%
Aggressive Growth (May 1, 1989).................. 13.86% 9.88% 12.73%
International (November 1, 1991)................. 2.98% 11.69% 7.51%
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE
INSURANCE PRODUCT FUND II
High Income (September 19, 1985)................. 10.52% 11.94% 11.13%
Equity Income (October 9, 1986).................. 20.36% 18.13% 15.02%
Growth (October 9, 1986)......................... 16.00% 15.99% 15.48%
Asset Manager (September 6, 1989)................ 13.33% 11.02% 11.05%
Index 500 (August 27, 1992)...................... 24.68% 17.88% 17.88%
Contrafund (July 3, 1995)........................ 16.62% 24.70%
OCC ACCUMULATION TRUST
Equity (August 1, 1988).......................... 18.96% 19.27%
Small Cap (August 1, 1988)....................... 14.83% 11.23%
Managed (August 1, 1988)......................... 14.88% 19.11%
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond (July 16, 1985)............................. 2.42% 5.31% 6.87%
Growth & Income (May 2, 1994).................... 22.58% 21.26%
International (May 1, 1987)...................... 2.44% 11.75% 10.13%
DREYFUS VARIABLE INVESTMENT FUND
Zero Coupon 2000 ( August 31, 1990).............. 0.49% 5.45% 8.15%
Growth & Income ( May 2, 1994)................... 9.15% 21.89%
Socially Responsible ( October 7, 1993).......... 20.67% 19.18%
FEDERATED INSURANCE SERIES
Fund for US Gov't Securities II (March 29,
1994)......................................... 1.96% 3.88%
Utility Fund II (April 14, 1994)................. 18.97% 11.95%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... (3.87)% 3.64% 4.48%
Worldwide Hard Assets (September 1, 1989)........ (7.70)% 13.15% 5.31%
Worldwide Emerging Markets (December 27, 1995)... (17.04)% 1.70%
Worldwide Real Estate (June 23, 1997)............ 24.53%
</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> 54
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 12/31/97
PERIOD ENDED PERIOD ENDED (OR DATE OF INCEPTION
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/97 12/31/97 IF LESS THAN 10 YEARS)
- --------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985)..................... 22.30% 15.15% 14.00%
Money Market (December 12, 1985)............... 3.58% 2.78% 3.87%
Bond (December 12, 1985)....................... 7.68% 5.42% 6.35%
Managed (December 12, 1985).................... 19.24% 11.32% 9.46%
Aggressive Growth (May 1, 1989)................ 19.22% 10.08% 12.73%
International (November 1, 1991)............... 7.84% 11.89% 7.51%
VARIABLE INSURANCE PRODUCT FUND AND VARIABLE
INSURANCE PRODUCT FUND II
High Income (September 19, 1985)............... 15.73% 12.14% 11.13%
Equity Income (October 9, 1986)................ 26.03% 18.34% 15.02%
Growth (October 9, 1986)....................... 21.47% 16.20% 15.48%
Asset Manager (September 6, 1989).............. 18.67% 11.22% 11.05%
Index 500 (August 27, 1992).................... 30.55% 18.09% 18.08%
Contrafund (July 3, 1995)...................... 22.12% 26.23%
OCC ACCUMULATION TRUST
Equity (August 1, 1988)........................ 24.57% 19.79%
Small Cap (August 1, 1988)..................... 20.24% 11.72%
Managed (August 1, 1988)....................... 20.30% 19.63%
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond (July 16, 1985)........................... 7.25% 5.50% 6.87%
Growth & Income (May 2, 1994).................. 28.35% 22.17%
International (May 1, 1987).................... 7.27% 11.95% 10.13%
DREYFUS VARIABLE INVESTMENT FUND
Zero Coupon 2000 ( August 31, 1990)............ 5.22% 5.64% 8.15%
Growth & Income ( May 2, 1994)................. 14.30% 22.80%
Socially Responsible ( October 7, 1993)........ 26.35% 19.69%
FEDERATED INSURANCE SERIES
Fund for US Gov't Securities II (March 29,
1994)....................................... 6.77% 4.64%
Utility Fund II (April 14, 1994)............... 24.58% 12.74%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............. 0.66% 3.82% 4.48%
Worldwide Hard Assets (September 1, 1989)...... (3.35)% 13.35% 5.31%
Worldwide Emerging Markets (December 27,
1995)....................................... (13.13)% 3.57%
Worldwide Real Estate (June 23, 1997).......... 38.46%
</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.
S-7
<PAGE> 55
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 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
S-8
<PAGE> 56
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.
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.
Federated Insurance 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.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Worldwide
Insurance Trust ("Van Eck Trust") provides for termination 1) by
Providentmutual, Van Eck Trust or Van Eck Trust's Distributor upon six months
prior written notice or in the event that formal proceedings are initiated
against the other party by the SEC or another regulator, 2) by Providentmutual
or Van Eck Trust in the event that shares of Van Eck Trust subject to the
agreement are not registered, offered or sold in conformity with applicable law
or if such law precludes the use of Trust shares, 3) by Providentmutual upon
reasonable notice if shares of one of the then available Portfolios of Van Eck
Trust are no longer available or upon sixty days notice if Providentmutual
should substitute shares of another fund or Fund for those of Van Eck Trust, 4)
by PMLIC if a Portfolio fails to meet the diversification and other requirements
of the Internal Revenue Code, or PMLIC reasonably believes it may fail to do so,
5) upon assignment of the agreement unless both parties agree to the assignment
in writing.
Should an agreement between Providentmutual and a Fund terminate, the
Subaccounts which invest in that Fund will not be able to purchase additional
shares of such Fund. In that event, Owners will no longer be able to allocate
cash values or net premiums to Subaccounts investing in Portfolios of such Fund.
Additionally, in certain circumstances, it is possible that a Fund or a
portion of a Fund may refuse to sell its shares to a Subaccount despite the fact
that the participation agreement between the Fund and Providentmutual has not
been terminated. Should a Fund or portfolio of such Fund decide not to sell its
shares to Providentmutual, Providentmutual will not be able to honor requests by
Owners to allocate cash values or net premiums to Subaccounts investing in
shares of that Fund or portfolio.
S-9
<PAGE> 57
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 Aetna Casualty and Surety Company 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.
LEGAL MATTERS
Adam Scaramella, Esquire, Counsel of Provident Mutual, has provided advice
on certain matters relating to the laws of Pennsylvania regarding the Contracts
and Provident Mutual's issuance of the Contracts. Sutherland, Asbill & Brennan
L.L.P., 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, 1997 and 1996 and the related statements of operations, capital and surplus,
and cash flows for each of the three years in the period ended December 31, 1997
and the audited statement of assets and liabilities of the Provident Mutual
Variable Annuity Separate Account as of December 31, 1997 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
S-10
<PAGE> 58
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 Provident Mutual Variable Annuity Separate Account
as of December 31, 1997 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 Provident Mutual Variable Annuity Separate Account.
Provident Mutual's statements of financial condition as of December 31,
1997 and 1996 and the related statements of operations, capital and surplus, and
cash flows for each of the three years in the period ended December 31, 1997,
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 Provident Mutual Variable Annuity Separate
Account.
S-11
<PAGE> 59
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Provident Mutual Variable Annuity Separate Account
Report of Independent Accountants......................... F-2
Statements of Assets and Liabilities, December 31, 1997... F-3
Statements of Operations for the Year Ended December 31,
1997................................................... F-7
Statements of Changes in Net Assets for the Year Ended
December 31, 1997...................................... F-11
Statements of Changes in Net Assets for the Year Ended
December 31, 1996...................................... F-15
Notes to Financial Statements............................. F-19
Provident Mutual Life Insurance Company and Subsidiaries
Report of Independent Accountants......................... F-31
Consolidated Statements of Financial Condition as of
December 31, 1997 and 1996............................. F-32
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996, and 1995...................... F-33
Consolidated Statements of Capital and Surplus for the
Years Ended December 31, 1997, 1996, and 1995.......... F-34
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995...................... F-35
Notes to Consolidated Financial Statements................ F-36
</TABLE>
F-1
<PAGE> 60
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Contractholders and
Board of Directors of
Provident Mutual Life Insurance
Company
We have audited the accompanying statements of assets and liabilities of the
Provident Mutual Variable Annuity Separate Account (comprising twenty-three
subaccounts) as of December 31, 1997, 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 Provident Mutual 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 securities owned as of December 31, 1997 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, 1997, 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.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1998
F-2
<PAGE> 61
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<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................. $3,976,433
Money Market Portfolio........... $3,722,866
Bond Portfolio................... $625,394
Managed Portfolio................ $1,231,040
Aggressive Growth Portfolio...... $694,580
International Portfolio.......... $2,338,744
Dividends receivable............... 15,785
Receivable from Provident Mutual
Life Insurance Company........... 121,174
---------- ---------- -------- ---------- -------- ----------
NET ASSETS......................... $3,976,433 $3,859,825 $625,394 $1,231,040 $694,580 $2,338,744
========== ========== ======== ========== ======== ==========
Held for the benefit of
contractholders.................. $3,926,690 $3,852,170 $593,727 $1,189,679 $649,676 $2,299,550
Attributable to Provident Mutual
Life Insurance Company........... 49,743 7,655 31,667 41,361 44,904 39,194
---------- ---------- -------- ---------- -------- ----------
$3,976,433 $3,859,825 $625,394 $1,231,040 $694,580 $2,338,744
========== ========== ======== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 62
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY ASSET FIDELITY FIDELITY
INCOME INCOME GROWTH MANAGER INDEX 500 CONTRAFUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable
Insurance Products Fund, at
market value:
High Income Portfolio............ $2,638,208
Equity-Income Portfolio.......... $9,566,580
Growth Portfolio................. $5,953,388
Investment in the Variable
Insurance Products Fund II, at
market value:
Asset Manager Portfolio.......... $1,608,020
Index 500 Portfolio.............. $6,107,563
Contrafund Portfolio............. $2,106,096
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS......................... $2,638,208 $9,566,580 $5,953,388 $1,608,020 $6,107,563 $2,106,096
========== ========== ========== ========== ========== ==========
Held for the benefit of
contractholders.................. $2,598,063 $9,516,832 $5,902,777 $1,568,979 $6,051,454 $2,070,759
Attributable to Provident Mutual
Life Insurance Company........... 40,145 49,748 50,611 39,041 56,109 35,337
---------- ---------- ---------- ---------- ---------- ----------
$2,638,208 $9,566,580 $5,953,388 $1,608,020 $6,107,563 $2,106,096
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 63
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER
OCC OCC OCC SCUDDER GROWTH AND SCUDDER
EQUITY SMALL CAP MANAGED BOND INCOME INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the OCC Accumulation
Trust, at market value:
Equity Portfolio................. $3,430,049
Small Cap Portfolio.............. $2,434,904
Managed Portfolio................ $6,790,985
Investment in the Scudder Variable
Life Investment Fund, at market
value:
Bond Portfolio................... $672,300
Growth and Income Portfolio...... $1,971,882
International Portfolio.......... $823,606
---------- ---------- ---------- -------- ---------- --------
NET ASSETS......................... $3,430,049 $2,434,904 $6,790,985 $672,300 $1,971,882 $823,606
========== ========== ========== ======== ========== ========
Held for the benefit of
contractholders.................. $3,376,325 $2,392,764 $6,738,746 $638,831 $1,934,572 $794,530
Attributable to Provident Mutual
Life
Insurance Company................ 53,724 42,140 52,239 33,469 37,310 29,076
---------- ---------- ---------- -------- ---------- --------
$3,430,049 $2,434,904 $6,790,985 $672,300 $1,971,882 $823,606
========== ========== ========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 64
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED
DREYFUS DREYFUS FUND FOR U.S.
DREYFUS ZERO GROWTH SOCIALLY GOVERNMENT FEDERATED
COUPON 2000 AND INCOME RESPONSIBLE SECURITIES II UTILITY FUND II
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Dreyfus Variable
Investment Fund, at market value:
Zero Coupon 2000 Portfolio.............. $445,966
Growth and Income Portfolio............. $1,624,260
Socially Responsible Portfolio.......... $501,455
Investment in the Federated Insurance
Series, at market value:
Fund for U.S. Government Securities II
Portfolio............................. $213,276
Utility Fund II Portfolio............... $275,384
-------- ---------- -------- -------- --------
NET ASSETS.................................. $445,966 $1,624,260 $501,455 $213,276 $275,384
======== ========== ======== ======== ========
Held for the benefit of contractholders..... $413,573 $1,592,157 $465,753 $184,695 $240,431
Attributable to Provident Mutual Life
Insurance Company......................... 32,393 32,103 35,702 28,581 34,953
-------- ---------- -------- -------- --------
$445,966 $1,624,260 $501,455 $213,276 $275,384
======== ========== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 65
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<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.......................... $ 61,501 $159,565 $31,087 $ 33,477 $ 3,811 $ 15,413
EXPENSES
Mortality and expense risks........ 41,632 44,055 7,029 13,876 7,237 29,115
-------- -------- ------- -------- ------- --------
Net investment income (loss)....... 19,869 115,510 24,058 19,601 (3,426) (13,702)
-------- -------- ------- -------- ------- --------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions
reinvested....................... 271,577 6,605 756 120,669
Net realized gain from redemption
of investment shares............. 24,262 7,582 21,822 7,557 48,464
-------- -------- ------- -------- ------- --------
Net realized gain on investments... 295,839 7,582 28,427 8,313 169,133
-------- -------- ------- -------- ------- --------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year................ 297,288 12,282 71,129 41,064 126,164
End of year...................... 596,608 23,966 209,114 135,842 115,950
-------- -------- ------- -------- ------- --------
Net unrealized appreciation
(depreciation) during the year... 299,320 11,684 137,985 94,778 (10,214)
-------- -------- ------- -------- ------- --------
Net realized and unrealized gain on
investments...................... 595,159 19,266 166,412 103,091 158,919
-------- -------- ------- -------- ------- --------
Net increase in net assets
resulting from operations........ $615,028 $115,510 $43,324 $186,013 $99,665 $145,217
======== ======== ======= ======== ======= ========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 66
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY ASSET FIDELITY FIDELITY
INCOME INCOME GROWTH MANAGER INDEX 500 CONTRAFUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.......................... $129,191 $ 99,308 $ 27,898 $ 33,141 $ 29,251 $ 7,331
EXPENSES
Mortality and expense risks........ 30,194 106,591 70,341 16,719 56,539 19,581
-------- ---------- ---------- -------- ---------- --------
Net investment income (loss)....... 98,997 (7,283) (42,443) 16,422 (27,288) (12,250)
-------- ---------- ---------- -------- ---------- --------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain distributions
reinvested....................... 15,967 499,300 124,877 83,133 59,353 19,375
Net realized gain from redemption
of investment shares............. 37,926 139,456 52,561 11,018 108,251 27,317
-------- ---------- ---------- -------- ---------- --------
Net realized gain on investments... 53,893 638,756 177,438 94,151 167,604 46,692
-------- ---------- ---------- -------- ---------- --------
Net unrealized appreciation of
investments:
Beginning of year................ 116,189 545,542 188,126 80,938 270,807 65,818
End of year...................... 287,455 1,674,929 1,033,866 177,568 1,112,827 310,410
-------- ---------- ---------- -------- ---------- --------
Net unrealized appreciation during
the year......................... 171,266 1,129,387 845,740 96,630 842,020 244,592
-------- ---------- ---------- -------- ---------- --------
Net realized and unrealized gain on
investments...................... 225,159 1,768,143 1,023,178 190,781 1,009,624 291,284
-------- ---------- ---------- -------- ---------- --------
Net increase in net assets
resulting from operations........ $324,156 $1,760,860 $ 980,735 $207,203 $ 982,336 $279,034
======== ========== ========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 67
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER
OCC OCC SCUDDER GROWTH AND SCUDDER
OCC EQUITY SMALL CAP MANAGED BOND INCOME INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.......................... $ 18,486 $ 8,799 $ 45,645 $34,794 $ 26,749 $ 4,486
EXPENSES
Mortality and expense risks........ 36,443 26,722 75,244 7,325 16,463 7,347
-------- -------- -------- ------- -------- -------
Net investment income (loss)....... (17,957) (17,923) (29,599) 27,469 10,286 (2,861)
-------- -------- -------- ------- -------- -------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions
reinvested....................... 65,808 62,049 140,190 1,374 29,363 2,350
Net realized gain (loss) from
redemption of investment
shares........................... 67,973 18,514 100,436 (5,573) 15,366 6,146
-------- -------- -------- ------- -------- -------
Net realized gain (loss) on
investments...................... 133,781 80,563 240,626 (4,199) 44,729 8,496
-------- -------- -------- ------- -------- -------
Net unrealized appreciation of
investments:
Beginning of year................ 247,016 105,576 454,153 1,252 44,149 12,762
End of year...................... 732,342 386,430 1,187,351 20,981 266,839 19,909
-------- -------- -------- ------- -------- -------
Net unrealized appreciation during
the year......................... 485,326 280,854 733,198 19,729 222,690 7,147
-------- -------- -------- ------- -------- -------
Net realized and unrealized gain on
investments...................... 619,107 361,417 973,824 15,530 267,419 15,643
-------- -------- -------- ------- -------- -------
Net increase in net assets
resulting from operations........ $601,150 $343,494 $944,225 $42,999 $277,705 $12,782
======== ======== ======== ======= ======== =======
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 68
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED
DREYFUS DREYFUS FUND FOR U.S.
DREYFUS ZERO GROWTH SOCIALLY GOVERNMENT FEDERATED
COUPON 2000 AND INCOME RESPONSIBLE SECURITIES II UTILITY FUND II
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................... $21,349 $ 15,851 $ 1,752 $3,362 $ 3,555
EXPENSES
Mortality and expense risks................. 4,783 15,517 3,617 1,224 2,059
------- -------- ------- ------ -------
Net investment income (loss)................ 16,566 334 (1,865) 2,138 1,496
------- -------- ------- ------ -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested...... 4,088 104,378 13,770 3,368
Net realized gain (loss) from redemption of
investment shares......................... (4,446) (4,230) 4,094 51 3,571
------- -------- ------- ------ -------
Net realized gain (loss) on investments..... (358) 100,148 17,864 51 6,939
------- -------- ------- ------ -------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year......................... (3,544) (42,177) 1,738 433 6,757
End of year............................... 1,448 5,182 45,495 6,978 44,214
------- -------- ------- ------ -------
Net unrealized appreciation during the
year...................................... 4,992 47,359 43,757 6,545 37,457
------- -------- ------- ------ -------
Net realized and unrealized gain on
investments............................... 4,634 147,507 61,621 6,596 44,396
------- -------- ------- ------ -------
Net increase in net assets resulting from
operations................................ $21,200 $147,841 $59,756 $8,734 $45,892
======= ======== ======= ====== =======
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 69
- --------------------------------------------------------------------------------
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, 1997
- --------------------------------------------------------------------------------
<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)..... $ 19,869 $ 115,510 $ 24,058 $ 19,601 $ (3,426) $ (13,702)
Net realized gain on
investments.................... 295,839 7,582 28,427 8,313 169,133
Net unrealized appreciation
(depreciation) of investments
during the year................ 299,320 11,684 137,985 94,778 (10,214)
---------- ------------ -------- ---------- -------- ----------
Net increase in net assets from
operations..................... 615,028 115,510 43,324 186,013 99,665 145,217
---------- ------------ -------- ---------- -------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums.... 147,332 16,389,737 39,753 8,186 20,365 93,615
Administrative charges........... (1,755) (1,097) (254) (550) (471) (1,086)
Surrenders and forfeitures....... (105,737) (60,330) (64,493) (79,602) (15,927) (97,595)
Net repayments (withdrawals) due
to policy loans................ 430 (10,381)
Transfers between investment
portfolios..................... 978,577 (15,554,611) 138,936 284,626 193,066 361,526
---------- ------------ -------- ---------- -------- ----------
Net increase in net assets
derived from contract
transactions................... 1,018,847 763,318 113,942 212,660 197,033 356,460
---------- ------------ -------- ---------- -------- ----------
Total increase in net assets..... 1,633,875 878,828 157,266 398,673 296,698 501,677
---------- ------------ -------- ---------- -------- ----------
NET ASSETS
Beginning of year.............. 2,342,558 2,980,997 468,128 832,367 397,882 1,837,067
---------- ------------ -------- ---------- -------- ----------
End of year.................... $3,976,433 $ 3,859,825 $625,394 $1,231,040 $694,580 $2,338,744
========== ============ ======== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 70
- --------------------------------------------------------------------------------
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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY ASSET FIDELITY FIDELITY
INCOME INCOME GROWTH MANAGER INDEX 500 CONTRAFUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....... $ 98,997 $ (7,283) $ (42,443) $ 16,422 $ (27,288) $ (12,250)
Net realized gain on investments... 53,893 638,756 177,438 94,151 167,604 46,692
Net unrealized appreciation of
investments during the year...... 171,266 1,129,387 845,740 96,630 842,020 244,592
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets from
operations....................... 324,156 1,760,860 980,735 207,203 982,336 279,034
---------- ---------- ---------- ---------- ---------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums...... 92,073 787,568 341,978 113,128 398,075 130,333
Administrative charges............. (1,008) (3,703) (3,462) (825) (2,118) (728)
Surrenders and forfeitures......... (51,256) (332,621) (185,560) (55,406) (101,918) (42,282)
Net repayments due to policy
loans............................ 414 1,930 400 1,202
Transfers between investment
portfolios....................... 543,587 1,711,447 751,193 491,731 2,438,930 993,451
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets derived
from contract transactions....... 583,396 2,163,105 906,079 548,628 2,733,369 1,081,976
---------- ---------- ---------- ---------- ---------- ----------
Total increase in net assets....... 907,552 3,923,965 1,886,814 755,831 3,715,705 1,361,010
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS
Beginning of year................ 1,730,656 5,642,615 4,066,574 852,189 2,391,858 745,086
---------- ---------- ---------- ---------- ---------- ----------
End of year...................... $2,638,208 $9,566,580 $5,953,388 $1,608,020 $6,107,563 $2,106,096
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 71
- --------------------------------------------------------------------------------
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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER
OCC OCC SCUDDER GROWTH AND SCUDDER
OCC EQUITY SMALL CAP MANAGED BOND INCOME INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....... $ (17,957) $ (17,923) $ (29,599) $ 27,469 $ 10,286 $ (2,861)
Net realized gain (loss) on
investments...................... 133,781 80,563 240,626 (4,199) 44,729 8,496
Net unrealized appreciation of
investments during the year...... 485,326 280,854 733,198 19,729 222,690 7,147
---------- ---------- ---------- -------- ---------- --------
Net increase in net assets from
operations....................... 601,150 343,494 944,225 42,999 277,705 12,782
---------- ---------- ---------- -------- ---------- --------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums...... 117,110 77,900 306,081 70,287 122,176 38,345
Administrative charges............. (1,467) (959) (2,735) (279) (424) (169)
Surrenders and forfeitures......... (68,816) (36,984) (231,554) (66,695) (12,045) (9,645)
Net repayments due to policy
loans............................ 432 1,246
Withdrawals due to death
benefits......................... (21,980) (8,498)
Transfers between investment
portfolios....................... 872,838 605,003 2,118,246 177,147 1,075,758 577,112
---------- ---------- ---------- -------- ---------- --------
Net increase in net assets derived
from contract transactions....... 919,665 644,960 2,190,470 180,460 1,164,731 597,145
---------- ---------- ---------- -------- ---------- --------
Total increase in net assets....... 1,520,815 988,454 3,134,695 223,459 1,442,436 609,927
---------- ---------- ---------- -------- ---------- --------
NET ASSETS
Beginning of year................ 1,909,234 1,446,450 3,656,290 448,841 529,446 213,679
---------- ---------- ---------- -------- ---------- --------
End of year...................... $3,430,049 $2,434,904 $6,790,985 $672,300 $1,971,882 $823,606
========== ========== ========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-13
<PAGE> 72
- --------------------------------------------------------------------------------
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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED
DREYFUS DREYFUS FUND FOR U.S.
DREYFUS ZERO GROWTH SOCIALLY GOVERNMENT FEDERATED
COUPON 2000 AND INCOME RESPONSIBLE SECURITIES II UTILITY FUND II
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................ $ 16,566 $ 334 ($ 1,865) $ 2,138 $ 1,496
Net realized gain (loss) on investments..... (358) 100,148 17,864 51 6,939
Net unrealized appreciation of investments
during the year........................... 4,992 47,359 43,757 6,545 37,457
-------- ---------- -------- -------- --------
Net increase in net assets from
operations................................ 21,200 147,841 59,756 8,734 45,892
-------- ---------- -------- -------- --------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums............... 78,315 88,764 50,497 29,231 31,975
Administrative charges...................... (217) (649) (76) (27) (42)
Surrenders and forfeitures.................. (32,229) (10,585) (1,026) (1,656) (120)
Net repayments due to policy loans.......... 852
Withdrawals due to death benefits........... (16,868)
Transfers between investment portfolios..... 43,829 676,579 264,603 102,582 113,107
-------- ---------- -------- -------- --------
Net increase in net assets derived from
contract transactions..................... 89,698 754,961 313,998 130,130 128,052
-------- ---------- -------- -------- --------
Total increase in net assets................ 110,898 902,802 373,754 138,864 173,944
NET ASSETS
Beginning of year......................... 335,068 721,458 127,701 74,412 101,440
-------- ---------- -------- -------- --------
End of year............................... $445,966 $1,624,260 $501,455 $213,276 $275,384
======== ========== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-14
<PAGE> 73
- --------------------------------------------------------------------------------
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, 1996
- --------------------------------------------------------------------------------
<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)..... $ 19,592 $ 88,858 $ 14,571 $ 10,147 $ (1,052) $ (7,775)
Net realized gain on
investments.................... 82,041 2,584 14,055 31,659 65,870
Net unrealized appreciation
(depreciation) of investments
during the year................ 199,081 (6,349) 38,595 24,258 69,204
---------- ------------ -------- -------- -------- ----------
Net increase in net assets from
operations..................... 300,714 88,858 10,806 62,797 54,865 127,299
---------- ------------ -------- -------- -------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums.... 129,062 16,804,454 12,235 39,161 14,105 145,209
Administrative charges........... (755) (677) (128) (314) (263) (541)
Surrenders and forfeitures....... (17,602) (89,015) (30,257) (11,678) (3,305) (44,567)
Net withdrawals due to policy
loans.......................... (5,145)
Transfers between investment
portfolios..................... 871,145 (15,761,942) 211,574 454,616 75,631 710,269
---------- ------------ -------- -------- -------- ----------
Net increase in net assets
derived from contract
transactions................... 976,705 952,820 193,424 481,785 86,168 810,370
---------- ------------ -------- -------- -------- ----------
Total increase in net assets..... 1,277,419 1,041,678 204,230 544,582 141,033 937,669
---------- ------------ -------- -------- -------- ----------
NET ASSETS
Beginning of year.............. 1,065,139 1,939,319 263,898 287,785 256,849 899,398
---------- ------------ -------- -------- -------- ----------
End of year.................... $2,342,558 $ 2,980,997 $468,128 $832,367 $397,882 $1,837,067
========== ============ ======== ======== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-15
<PAGE> 74
- --------------------------------------------------------------------------------
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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY ASSET FIDELITY FIDELITY
INCOME INCOME GROWTH MANAGER INDEX 500 CONTRAFUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....... $ 49,726 $ (47,115) $ (34,021) $ 6,143 $ (11,174) $ (2,884)
Net realized gain on investments... 40,421 190,000 199,679 19,038 52,964 925
Net unrealized appreciation of
investments during the year...... 58,073 349,452 134,470 49,544 240,034 65,818
---------- ---------- ---------- -------- ---------- --------
Net increase in net assets from
operations....................... 148,220 492,337 300,128 74,725 281,824 63,859
---------- ---------- ---------- -------- ---------- --------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums...... 71,047 509,613 377,186 55,203 162,323 37,596
Administrative charges............. (553) (1,182) (1,307) (372) (452) (7)
Surrenders and forfeitures......... (120,197) (80,556) (79,931) (5,689) (35,688) (10,198)
Net withdrawals due to policy
loans............................ (5,143) (10,366) (5,279) (5,169)
Transfers between investment
portfolios....................... 760,735 2,827,984 2,036,210 378,238 1,353,488 634,005
---------- ---------- ---------- -------- ---------- --------
Net increase in net assets derived
from contract transactions....... 711,032 3,250,716 2,321,792 427,380 1,474,392 656,227
---------- ---------- ---------- -------- ---------- --------
Capital contribution from Provident
Mutual Life Insurance Company.... 25,000
---------- ---------- ---------- -------- ---------- --------
Total increase in net assets....... 859,252 3,743,053 2,621,920 502,105 1,756,216 745,086
---------- ---------- ---------- -------- ---------- --------
NET ASSETS
Beginning of year................ 871,404 1,899,562 1,444,654 350,084 635,642 --
---------- ---------- ---------- -------- ---------- --------
End of year...................... $1,730,656 $5,642,615 $4,066,574 $852,189 $2,391,858 $745,086
========== ========== ========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-16
<PAGE> 75
- --------------------------------------------------------------------------------
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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUEST FOR QUEST FOR SCUDDER
QUEST FOR VALUE VALUE SCUDDER GROWTH AND SCUDDER
VALUE EQUITY SMALL CAP MANAGED BOND INCOME INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)...... $ (9,808) $ (4,902) $ (15,867) $ 19,255 $ 1,407 $ (637)
Net realized gain on
investments..................... 103,592 111,813 117,411 1,379 668 27
Net unrealized appreciation
(depreciation) of investments
during the year................. 176,948 61,410 359,175 (5,750) 44,149 12,762
---------- ---------- ---------- -------- -------- --------
Net increase in net assets from
operations...................... 270,732 168,321 460,719 14,884 46,224 12,152
---------- ---------- ---------- -------- -------- --------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums..... 105,006 122,662 368,883 69,708 58,154 7,467
Administrative charges............ (549) (369) (695) (102)
Surrenders and forfeitures........ (71,953) (11,402) (134,004) (5,560) (2,370) (184)
Net withdrawals due to policy
loans........................... (5,163) (7,717)
Transfers between investment
portfolios...................... 869,522 718,444 2,097,375 244,557 410,155 169,244
---------- ---------- ---------- -------- -------- --------
Net increase in net assets derived
from contract transactions...... 902,026 829,335 2,326,396 308,603 458,222 176,527
---------- ---------- ---------- -------- -------- --------
Capital contribution from
Provident Mutual Life Insurance
Company......................... 25,000 25,000
---------- ---------- ---------- -------- -------- --------
Total increase in net assets...... 1,172,758 997,656 2,787,115 323,487 529,446 213,679
---------- ---------- ---------- -------- -------- --------
NET ASSETS
Beginning of year............... 736,476 448,794 869,175 125,354 -- --
---------- ---------- ---------- -------- -------- --------
End of year..................... $1,909,234 $1,446,450 $3,656,290 $448,841 $529,446 $213,679
========== ========== ========== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE> 76
- --------------------------------------------------------------------------------
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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS DREYFUS FEDERATED U.S.
DREYFUS ZERO GROWTH SOCIALLY GOVERNMENT FEDERATED
COUPON 2000 AND INCOME RESPONSIBLE BOND FUND UTILITY FUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income....................... $ 11,830 $ 1,857 $ 70 $ 1,446 $ 1,318
Net realized gain on investments............ 2,135 65,239 4,885 1 14
Net unrealized appreciation (depreciation)
of investments during the year............ (8,002) (42,177) 1,738 433 6,757
-------- -------- -------- ------- --------
Net increase in net assets from
operations................................ 5,963 24,919 6,693 1,880 8,089
-------- -------- -------- ------- --------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums............... 9,992 60,256 10,114 19,222 15,094
Administrative charges...................... (115) (4)
Surrenders and forfeitures.................. (1,363) (3,432) (289)
Net withdrawals due to policy loans......... (7,534)
Transfers between investment portfolios..... 180,966 622,253 86,183 28,310 53,257
-------- -------- -------- ------- --------
Net increase in net assets derived from
contract transactions..................... 189,480 671,539 96,008 47,532 68,351
-------- -------- -------- ------- --------
Capital contribution from Provident Mutual
Life Insurance Company.................... 25,000 25,000 25,000 25,000
-------- -------- -------- ------- --------
Total increase in net assets................ 195,443 721,458 127,701 74,412 101,440
-------- -------- -------- ------- --------
NET ASSETS
Beginning of year......................... 139,625 -- -- -- --
-------- -------- -------- ------- --------
End of year............................... $335,068 $721,458 $127,701 $74,412 $101,440
======== ======== ======== ======= ========
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE> 77
- --------------------------------------------------------------------------------
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 principally through career agents and
brokers.
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
twenty-three 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, Fidelity Index 500
and Fidelity Contrafund Subaccounts invest in the corresponding portfolios of
the Variable Insurance Products Fund II; the OCC Equity (formerly Quest for
Value Equity), OCC Small Cap (formerly Quest for Value Small Cap) and OCC
Managed (formerly Quest for Value Managed) Subaccounts invest in the
corresponding portfolios of the OCC Accumulation Trust; the Scudder Bond,
Scudder Growth and Income and Scudder International Subaccounts invest in the
corresponding portfolios of the Scudder Variable Life Investment Fund; the
Dreyfus Zero Coupon 2000, Dreyfus Growth and Income and Dreyfus Socially
Responsible Subaccounts invest in the corresponding portfolios of the Dreyfus
Variable Investment Fund; and the Federated Fund for U.S. Government Securities
II (formerly Federated U. S. Government Bond Fund) and Federated Utility Fund II
(formerly Federated Utility Fund) Subaccounts invest in the corresponding
portfolios of the Federated Insurance Series (formerly Insurance Management
Series).
The Growth, Money Market, Bond, Managed, Aggressive Growth and
International Subaccounts are available to owners of a Market Street VIP
contract. All twenty-three 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 contractholder instructions and are recorded as variable annuity
contract transactions in the statements of changes in net assets. Such amounts
are used to provide money to pay contract values under the Contracts (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-19
<PAGE> 78
- --------------------------------------------------------------------------------
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 exdividend 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 and the reported amounts from operations and contract
transactions during the period. Actual results could differ from those
estimates.
F-20
<PAGE> 79
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1997, the investments of the respective Subaccounts are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market Street Fund, Inc.:
Growth Portfolio....................................... 204,339 $3,379,825 $3,976,433
Money Market Portfolio................................. 3,722,866 $3,722,866 $3,722,866
Bond Portfolio......................................... 56,958 $601,428 $625,394
Managed Portfolio...................................... 72,159 $1,021,926 $1,231,040
Aggressive Growth Portfolio............................ 31,301 $558,738 $694,580
International Portfolio................................ 171,840 $2,222,794 $2,338,744
Variable Insurance Products Fund:
High Income Portfolio.................................. 194,272 $2,350,753 $2,638,208
Equity-Income Portfolio................................ 394,011 $7,891,651 $9,566,580
Growth Portfolio....................................... 160,469 $4,919,522 $5,953,388
Variable Insurance Products Fund II:
Asset Manager Portfolio................................ 89,285 $1,430,452 $1,608,020
Index 500 Portfolio.................................... 53,392 $4,994,736 $6,107,563
Contrafund Portfolio................................... 105,622 $1,795,686 $2,106,096
OCC Accumulation Trust:
Equity Portfolio....................................... 93,922 $2,697,707 $3,430,049
Small Cap Portfolio.................................... 92,336 $2,048,474 $2,434,904
Managed Portfolio...................................... 160,240 $5,603,634 $6,790,985
Scudder Variable Life Investment Fund:
Bond Portfolio......................................... 97,860 $651,319 $672,300
Growth and Income Portfolio............................ 171,767 $1,705,043 $1,971,882
International Portfolio................................ 58,370 $803,697 $823,606
Dreyfus Variable Investment Fund:
Zero Coupon 2000 Portfolio............................. 36,257 $444,518 $445,966
Growth and Income Portfolio............................ 78,165 $1,619,078 $1,624,260
Socially Responsible Portfolio......................... 20,082 $455,960 $501,455
Federated Insurance Series:
Fund for U.S. Government Securities II Portfolio....... 20,235 $206,298 $213,276
Utility Fund II Portfolio.............................. 19,271 $231,170 $275,384
</TABLE>
F-21
<PAGE> 80
- --------------------------------------------------------------------------------
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, 1997 and 1996, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ----------------------------------------------------------------------------------------------------------------------
MONEY MARKET
GROWTH PORTFOLIO PORTFOLIO BOND PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 61,002 69,249 15,940,030 9,172,217 19,000 21,420
Shares received from reinvestment of:
Dividends............................... 3,548 2,541 143,780 122,507 2,225 1,823
Capital gain distributions.............. 17,059 3,268
---------- ---------- ------------ ----------- -------- --------
Total shares acquired..................... 81,609 75,058 16,083,810 9,294,724 21,225 23,243
Total shares redeemed..................... (6,693) (10,741) (14,891,923) (8,675,470) (8,140) (3,361)
---------- ---------- ------------ ----------- -------- --------
Net increase in shares owned.............. 74,916 64,317 1,191,887 619,254 13,085 19,882
Shares owned, beginning of year........... 129,423 65,106 2,530,979 1,911,725 43,873 23,991
---------- ---------- ------------ ----------- -------- --------
Shares owned, end of year................. 204,339 129,423 3,722,866 2,530,979 56,958 43,873
========== ========== ============ =========== ======== ========
Cost of shares acquired................... $1,429,486 $1,231,085 $ 16,083,810 $ 9,294,724 $225,160 $244,010
========== ========== ============ =========== ======== ========
Cost of shares redeemed................... $ 94,931 $ 152,747 $ 14,891,923 $ 8,675,470 $ 79,578 $ 33,431
========== ========== ============ =========== ======== ========
</TABLE>
F-22
<PAGE> 81
- --------------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------------------------------------------------
AGGRESSIVE
MANAGED PORTFOLIO GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................................. 17,915 35,733 11,411 7,983 46,827 81,109
Shares received from reinvestment of:
Dividends....................................... 2,162 1,247 208 181 1,249 878
Capital gain distributions...................... 457 871 41 1,822 9,779 3,560
-------- -------- -------- -------- -------- ----------
Total shares acquired............................. 20,534 37,851 11,660 9,986 57,855 85,547
Total shares redeemed............................. (5,076) (1,431) (1,843) (3,280) (23,007) (18,493)
-------- -------- -------- -------- -------- ----------
Net increase in shares owned...................... 15,458 36,420 9,817 6,706 34,848 67,054
Shares owned, beginning of year................... 56,701 20,281 21,484 14,778 136,992 69,938
-------- -------- -------- -------- -------- ----------
Shares owned, end of year......................... 72,159 56,701 31,301 21,484 171,840 136,992
======== ======== ======== ======== ======== ==========
Cost of shares acquired........................... $321,786 $523,485 $231,280 $167,866 $782,785 $1,086,191
======== ======== ======== ======== ======== ==========
Cost of shares redeemed........................... $ 61,098 $ 17,498 $ 29,360 $ 51,091 $270,894 $ 217,726
======== ======== ======== ======== ======== ==========
</TABLE>
F-23
<PAGE> 82
- --------------------------------------------------------------------------------
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
PORTFOLIO PORTFOLIO GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................ 66,009 77,760 123,211 200,553 38,162 91,860
Shares received from reinvestment of:
Dividends................................. 10,958 5,960 5,015 173 884 161
Capital gain distributions................ 1,354 1,166 25,217 4,932 3,957 4,065
-------- ---------- ---------- ---------- ---------- ----------
Total shares acquired....................... 78,321 84,886 153,443 205,658 43,003 96,086
Total shares redeemed....................... (22,280) (18,971) (27,745) (35,921) (13,124) (14,970)
-------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned................ 56,041 65,915 125,698 169,737 29,879 81,116
Shares owned, beginning of year............. 138,231 72,316 268,313 98,576 130,590 49,474
-------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year................... 194,272 138,231 394,011 268,313 160,469 130,590
======== ========== ========== ========== ========== ==========
Cost of shares acquired..................... $982,034 $1,005,014 $3,282,492 $3,962,136 $1,433,785 $2,841,783
======== ========== ========== ========== ========== ==========
Cost of shares redeemed..................... $245,748 $ 203,835 $ 487,914 $ 568,535 $ 392,711 $ 354,333
======== ========== ========== ========== ========== ==========
</TABLE>
F-24
<PAGE> 83
- --------------------------------------------------------------------------------
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 CONTRAFUND PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................... 35,383 31,189 29,044 20,895 66,945 45,949
Shares received from reinvestment of:
Dividends.................................... 2,148 899 319 108 446
Capital gain distributions................... 5,388 740 646 279 1,177
-------- -------- ---------- ---------- ---------- --------
Total shares acquired.......................... 42,919 32,828 30,009 21,282 68,568 45,949
Total shares redeemed.......................... (3,970) (4,663) (3,452) (2,843) (7,939) (956)
-------- -------- ---------- ---------- ---------- --------
Net increase in shares owned................... 38,949 28,165 26,557 18,439 60,629 44,993
Shares owned, beginning of year................ 50,336 22,171 26,835 8,396 44,993
-------- -------- ---------- ---------- ---------- --------
Shares owned, end of year...................... 89,285 50,336 53,392 26,835 105,622 44,993
======== ======== ========== ========== ========== ========
Cost of shares acquired........................ $714,524 $516,480 $3,128,140 $1,707,951 $1,231,237 $693,349
======== ======== ========== ========== ========== ========
Cost of shares redeemed........................ $ 55,323 $ 63,919 $ 254,455 $ 191,769 $ 114,819 $ 14,081
======== ======== ========== ========== ========== ========
</TABLE>
F-25
<PAGE> 84
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------
SMALL CAP
EQUITY PORTFOLIO PORTFOLIO MANAGED PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................ 34,467 42,807 30,085 65,607 62,513 80,900
Shares received from reinvestment of:
Dividends................................. 618 319 404 387 1,265 473
Capital gain distributions................ 2,202 638 2,847 993 3,886 302
---------- ---------- -------- ---------- ---------- ----------
Total shares acquired....................... 37,287 43,764 33,336 66,987 67,664 81,675
Total shares redeemed....................... (6,858) (9,671) (4,974) (25,554) (8,399) (9,538)
---------- ---------- -------- ---------- ---------- ----------
Net increase in shares owned................ 30,429 34,093 28,362 41,433 59,265 72,137
Shares owned, beginning of year............. 63,493 29,400 63,974 22,541 100,975 28,838
---------- ---------- -------- ---------- ---------- ----------
Shares owned, end of year................... 93,922 63,493 92,336 63,974 160,240 100,975
========== ========== ======== ========== ========== ==========
Cost of shares acquired..................... $1,193,237 $1,187,893 $806,239 $1,399,244 $2,630,801 $2,652,701
========== ========== ======== ========== ========== ==========
Cost of shares redeemed..................... $ 157,748 $ 192,083 $ 98,639 $ 462,998 $ 229,304 $ 224,761
========== ========== ======== ========== ========== ==========
</TABLE>
F-26
<PAGE> 85
- --------------------------------------------------------------------------------
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 INVESTMENT FUND
- ---------------------------------------------------------------------------------------------------------------------
GROWTH AND
BOND INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................................. 43,001 58,485 119,224 57,128 44,838 16,200
Shares received from reinvestment of:
Dividends....................................... 4,111 3,517 2,596 397 339
Capital gain distributions...................... 207 3,056 177
-------- -------- ---------- -------- -------- --------
Total shares acquired............................. 47,319 62,002 124,876 57,525 45,354 16,200
Total shares redeemed............................. (16,152) (12,792) (9,613) (1,021) (3,111) (73)
-------- -------- ---------- -------- -------- --------
Net increase in shares owned...................... 31,167 49,210 115,263 56,504 42,243 16,127
Shares owned, beginning of year................... 66,693 17,483 56,504 16,127
-------- -------- ---------- -------- -------- --------
Shares owned, end of year......................... 97,860 66,693 171,767 56,504 58,370 16,127
======== ======== ========== ======== ======== ========
Cost of shares acquired........................... $317,678 $414,413 $1,299,585 $493,834 $641,233 $201,830
======== ======== ========== ======== ======== ========
Cost of shares redeemed........................... $113,948 $ 85,176 $ 79,839 $ 8,537 $ 38,453 $ 913
======== ======== ========== ======== ======== ========
</TABLE>
F-27
<PAGE> 86
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS VARIABLE INVESTMENT FUND
- ---------------------------------------------------------------------------------------------------------------------
GROWTH
AND SOCIALLY
ZERO COUPON 2000 INCOME RESPONSIBLE
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................................. 17,242 23,636 46,348 34,826 14,428 6,129
Shares received from reinvestment of:
Dividends....................................... 1,598 1,234 770 237 71 14
Capital gain distributions...................... 337 88 5,183 3,285 552 237
-------- -------- ---------- -------- -------- --------
Total shares acquired............................. 19,177 24,958 52,301 38,348 15,051 6,380
Total shares redeemed............................. (10,183) (8,689) (11,039) (1,445) (1,325) (24)
-------- -------- ---------- -------- -------- --------
Net increase in shares owned...................... 8,994 16,269 41,262 36,903 13,726 6,356
Shares owned, beginning of year................... 27,263 10,994 36,903 6,356
-------- -------- ---------- -------- -------- --------
Shares owned, end of year......................... 36,257 27,263 78,165 36,903 20,082 6,356
======== ======== ========== ======== ======== ========
Cost of shares acquired........................... $235,127 $309,524 $1,077,698 $793,353 $354,771 $126,413
======== ======== ========== ======== ======== ========
Cost of shares redeemed........................... $129,221 $106,079 $ 222,255 $ 29,718 $ 24,774 $ 450
======== ======== ========== ======== ======== ========
</TABLE>
F-28
<PAGE> 87
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED INSURANCE SERIES
- --------------------------------------------------------------------------------------------------------
FUND FOR
U.S. GOVERNMENT UTILITY
SECURITIES II FUND II
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 12,659 7,227 12,273 8,476
Shares received from reinvestment of:
Dividends................................................. 334 156 298 148
Capital gain distributions................................ 291
-------- ------- -------- -------
Total shares acquired....................................... 12,993 7,383 12,862 8,624
Total shares redeemed....................................... (133) (8) (2,180) (35)
-------- ------- -------- -------
Net increase in shares owned................................ 12,860 7,375 10,682 8,589
Shares owned, beginning of year............................. 7,375 8,589
-------- ------- -------- -------
Shares owned, end of year................................... 20,235 7,375 19,271 8,589
======== ======= ======== =======
Cost of shares acquired..................................... $133,638 $74,062 $160,307 $95,064
======== ======= ======== =======
Cost of shares redeemed..................................... $ 1,319 $ 83 $ 23,820 $ 381
======== ======= ======== =======
</TABLE>
F-29
<PAGE> 88
- --------------------------------------------------------------------------------
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. Premiums adjusted for these deductions are
recorded as net premiums in the statement of changes in net assets. See original
policy documents for specific charges assessed.
There are no sales expenses deducted from premiums at the time the premiums
are paid. If a contract has not been in force for six full years, 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 contractholders and the first twelve transfers by Market Street VIP/2
contractholders of amounts in the Subaccounts are free of charge. A fee of $25
is assessed for each additional transfer. No transfer fees were incurred during
the years ended December 31, 1997 and 1996.
The Policies provide for an initial free-look period. If a policy is
cancelled within certain time constraints, the policyholder will receive a
refund equal to the policy account value plus certain deductions made under the
policy. Where state law requires a minimum refund equal to gross premiums paid,
the refund will instead equal the gross premiums paid on the policy and will not
reflect investment experience.
The Separate Account is charged a daily mortality and expense risk charge
at an annual rate of 1.20% for the Market Street VIP contracts and 1.25% for the
Market Street VIP/2 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-30
<PAGE> 89
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors of
Provident Mutual Life Insurance
Company
We have audited the accompanying consolidated statements of financial condition
of Provident Mutual Life Insurance Company and Subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations, capital
and surplus, and cash flows for each of the three years in the period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Provident Mutual
Life Insurance Company and Subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted in 1996 Statement of Financial Accounting Standards No. 120 (SFAS 120)
and Financial Accounting Standards Board Interpretation No. 40 (FIN 40) which
required implementation of several accounting pronouncements not previously
adopted. The effects of adopting SFAS 120 and FIN 40 were retroactively applied
to the Company's previously issued financial statements, consistent with the
implementation guidance of those standards.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 20, 1998
F-31
<PAGE> 90
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Consolidated Statements of Financial Condition (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
- --------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: 1997-$2,647,954;
1996-$2,513,377)....................................... $2,758,069 $2,564,903
Held to maturity, at amortized cost (market:
1997-$455,776; 1996-$518,665).......................... 436,181 510,874
Equity securities, at market (cost: 1997-$22,706;
1996-$27,770)............................................. 23,818 23,809
Mortgage loans.............................................. 663,285 708,982
Real estate................................................. 52,543 71,444
Policy loans and premium notes.............................. 358,670 358,522
Other invested assets....................................... 14,546 20,781
Short-term investments...................................... 18,519 60,407
---------- ----------
Total Investments........................................... 4,325,631 4,319,722
---------- ----------
Cash........................................................ 17,985 5,551
Premiums due and deferred................................... 12,960 13,106
Investment income due and accrued........................... 73,997 74,212
Deferred acquisition costs.................................. 629,635 602,587
Reinsurance recoverable..................................... 499,488 530,326
Separate account assets..................................... 2,284,118 1,510,101
Other assets................................................ 77,059 68,045
---------- ----------
Total Assets................................................ $7,920,873 $7,123,650
========== ==========
LIABILITIES
Policy Liabilities:
Future policyholder benefits.............................. $4,344,591 $4,426,517
Policyholders' funds...................................... 146,871 149,106
Policyholder dividends payable............................ 33,258 32,697
Other policy obligations.................................. 16,638 20,332
---------- ----------
Total Policy Liabilities.................................. 4,541,358 4,628,652
---------- ----------
Expenses payable............................................ 45,013 38,540
Taxes payable............................................... 3,047 2,129
Federal income taxes payable:
Current................................................... 39,114 35,157
Deferred.................................................. 64,216 51,029
Separate account liabilities................................ 2,279,124 1,505,990
Other liabilities........................................... 104,719 104,876
---------- ----------
Total Liabilities........................................... 7,076,591 6,366,373
---------- ----------
COMMITMENTS AND CONTINGENCIES -- NOTE 9
CAPITAL AND SURPLUS
Unassigned surplus.......................................... 813,618 746,567
Net unrealized appreciation on securities................... 30,664 10,710
---------- ----------
Total Capital and Surplus................................... 844,282 757,277
---------- ----------
Total Liabilities, Capital and Surplus...................... $7,920,873 $7,123,650
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-32
<PAGE> 91
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Consolidated Statements of Operations (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $220,952 $235,615 $255,509
Policy and contract charges................................. 106,449 73,873 63,387
Net investment income....................................... 331,524 333,938 336,827
Other income................................................ 47,520 43,839 37,084
Net realized gains on investments........................... 2,360 7,873 3,691
-------- -------- --------
Total Revenues.............................................. 708,805 695,138 696,498
-------- -------- --------
BENEFITS AND EXPENSES
Policy and contract benefits................................ 234,117 241,042 228,143
Change in future policyholder benefits...................... 122,463 130,147 145,545
Operating expenses.......................................... 82,310 94,786 88,880
Amortization of deferred acquisition costs.................. 73,582 56,092 63,666
Policyholder dividends...................................... 65,736 65,184 64,943
Noninsurance commissions and expenses....................... 24,962 20,520 15,903
-------- -------- --------
Total Benefits and Expenses................................. 603,170 607,771 607,080
-------- -------- --------
Income Before Income Taxes.................................. 105,635 87,367 89,418
Income tax expense (benefit):
Current................................................... 35,971 (6,613) 39,817
Deferred.................................................. 2,613 12,441 (725)
-------- -------- --------
Total Income Tax Expense.................................... 38,584 5,828 39,092
-------- -------- --------
Net Income.................................................. $ 67,051 $ 81,539 $ 50,326
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-33
<PAGE> 92
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Consolidated Statements of Capital and Surplus for the Years Ended December 31,
1997, 1996 and 1995 (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION TOTAL
UNASSIGNED (DEPRECIATION) CAPITAL AND
SURPLUS ON SECURITIES SURPLUS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1995.................................. $614,702 $(32,089) $582,613
Net income................................................ 50,326 -- 50,326
Change in unrealized appreciation (depreciation).......... -- 62,390 62,390
-------- -------- --------
Balance at December 31, 1995................................ 665,028 30,301 695,329
Net income................................................ 81,539 -- 81,539
Change in unrealized appreciation (depreciation).......... -- (19,591) (19,591)
-------- -------- --------
Balance at December 31, 1996................................ 746,567 10,710 757,277
Net income................................................ 67,051 -- 67,051
Change in unrealized appreciation (depreciation).......... -- 19,954 19,954
-------- -------- --------
Balance at December 31, 1997................................ $813,618 $ 30,664 $844,282
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-34
<PAGE> 93
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Consolidated Statements of Cash Flows (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 67,051 $ 81,539 $ 50,326
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to variable universal life and
investment products................................... 108,773 117,038 117,873
Policy fees assessed on variable universal life and
investment products................................... (106,449) (73,873) (63,387)
Amortization of deferred policy acquisition costs....... 73,582 56,092 63,666
Capitalization of deferred policy acquisition costs..... (127,593) (119,031) (100,480)
Deferred Federal income taxes........................... 2,613 12,441 (725)
Depreciation and amortization expense................... 4,309 5,292 6,088
Realized gains on investments........................... (2,360) (7,873) (3,691)
Change in investment income due and accrued............. 215 991 4,719
Change in premiums due and deferred..................... 146 2,757 903
Change in reinsurance recoverable....................... 30,838 14,173 (85,199)
Change in policy liabilities and other policyholders'
funds of traditional life products.................... (44,638) (18,335) 86,570
Change in other liabilities............................. 100 1,933 (6,047)
Change in current Federal income taxes payable.......... 3,786 (43,161) 13,934
Other, net.............................................. (2,777) (6,819) (4,747)
--------- --------- ---------
Net cash provided by operating activities........... 7,596 23,164 79,803
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities........................... 370,224 285,514 249,231
Equity securities....................................... 8,288 8,147 11,170
Real estate............................................. 17,347 21,902 22,879
Other invested assets................................... 7,424 6,078 7,210
Proceeds from maturities of investments:
Held to maturity securities............................. 96,045 109,582 84,601
Available for sale securities........................... 207,455 165,980 146,547
Mortgage loans.......................................... 99,673 124,190 106,257
Purchases of investments:
Held to maturity securities............................. (21,721) (76,730) (71,937)
Available for sale securities........................... (705,348) (533,650) (504,337)
Equity securities....................................... (7,052) (2,966) (4,966)
Mortgage loans.......................................... (54,659) (94,254) (102,632)
Real estate............................................. (1,823) (11,449) (13,172)
Other invested assets................................... (1,807) (127) (3,976)
Net withdrawals of separate account seed money............ 29 5,985 --
Policy loans and premium notes, net....................... (148) 7,580 12,152
Net sales (purchases) of short-term investments........... 41,888 35,983 (22,365)
--------- --------- ---------
Net cash provided by (used in) investing
activities........................................ 55,815 51,765 (83,338)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits... 836,694 668,437 578,441
Variable universal life and investment product
withdrawals............................................. (887,671) (740,686) (573,177)
--------- --------- ---------
Net cash (used in) provided by financing
activities........................................ (50,977) (72,249) 5,264
--------- --------- ---------
Net change in cash.................................. 12,434 2,680 1,729
Cash, beginning of year..................................... 5,551 2,871 1,142
--------- --------- ---------
Cash, end of year........................................... $ 17,985 $ 5,551 $ 2,871
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes................ $ 31,805 $ 36,329 $ 24,109
========= ========= =========
Foreclosure of mortgage loans............................. $ 1,744 $ 7,665 $ 14,766
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-35
<PAGE> 94
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Provident Mutual Life Insurance Company (Provident Mutual) is organized as
a mutual life insurance company which conducts its business for the benefit of
its policyholders.
Provident Mutual'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) and, in
aggregate, are defined as the "Company."
The Company sells individual traditional and variable life insurance
products, annuities, and a variety of pension products and maintains a block of
direct response-marketed life and health insurance products. The Company
distributes its products through a variety of distribution channels, principally
career agents, personal producing general agents and brokers. The Company is
licensed to operate in 50 states, which are responsible for product regulation.
Sales in 10 states accounted for 72% of the Company's sales for the year ended
December 31, 1997. For many of the life and annuity products, the insurance
departments of the states in which the Company conducts business must approve
products and policy forms in advance of sales. In addition, benefits are
determined by statutes and regulations in each of these states.
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.
Basis of Presentation
The consolidated financial statements include the accounts of Provident
Mutual and its wholly-owned subsidiaries. Intercompany transactions have been
eliminated.
As of January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 120, "Accounting and Reporting by Mutual Life
Insurance Enterprises for Certain Long-Duration Participating Contracts," an
amendment to Financial Accounting Standards Board Interpretation 40 (FIN 40),
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises." The initial effect of applying this statement
has been reported retroactively through restatement of previously issued
financial statements presented herein for comparative purposes. SFAS 120
requires financial statements referred to as prepared in accordance with
generally accepted accounting principles (GAAP) to apply to all applicable
authoritative GAAP pronouncements. Prior to the
F-36
<PAGE> 95
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
adoption of SFAS 120, statutory financial statements were permitted to be
referred to as being prepared in accordance with GAAP. The significant GAAP
authoritative pronouncements requiring initial application were as follows:
-- SFAS 60, "Accounting and Reporting by Insurance Enterprises,"
-- SFAS 87, "Employers' Accounting for Pensions,"
-- SFAS 94, "Consolidation of All Majority-Owned Subsidiaries,"
-- SFAS 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investments,"
-- SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions,"
-- SFAS 109, "Accounting for Income Taxes,"
-- SFAS 113, "Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts,"
-- SFAS 114, "Accounting by Creditors for Impairment of a Loan,"
-- Statement of Position (SOP) 95-1, "Accounting for Certain Insurance
Activities of Mutual Life Insurance Enterprises,"
-- SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities" and
-- SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long- Lived Assets to Be Disposed Of."
The cumulative effective on policyholders' equity of adopting the above
pronouncements primarily consists of the initial deferral of acquisition costs,
the establishment of deferred taxes, the accrual of postretirement benefits, the
elimination of the statutory asset valuation reserve and the establishment of
investment valuation allowances.
F-37
<PAGE> 96
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
As a result of the change in accounting principles, net income for 1995 as
previously reported, has been restated as follows (in millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
<S> <C>
Net income, as previously reported.......................... $ 37.4
Effect of changing to a different basis of accounting:
Deferred acquisition costs................................ 36.8
Net policyholder liabilities.............................. (32.2)
Deferred income taxes..................................... .7
Adjustment in valuation of investments.................... 8.5
Retirement benefits....................................... 3.6
Termination of real estate lease.......................... (8.9)
Net income (SAP) of unconsolidated subsidiaries........... 4.5
Other, net................................................ (.1)
------
Net income, as adjusted..................................... $ 50.3
======
</TABLE>
As a result of the change in accounting principles, capital and surplus as
of December 31, 1995 as previously reported, has been restated as follows (in
millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
<S> <C>
Balance at beginning of year, as previously reported........ $268.4
Add adjustment for the cumulative effect on prior years of
applying retroactively the new basis of accounting:
Deferred acquisition costs................................ 530.0
Net policyholder liabilities.............................. (161.1)
Deferred income taxes..................................... (34.0)
Adjustment in valuation of investments.................... (12.2)
Asset valuation reserve................................... 44.9
Retirement benefits....................................... (21.8)
Other, net................................................ .5
------
Balance at beginning of year, as adjusted................... 614.7
Net income.................................................. 50.3
Add adjustment for the cumulative effect on prior years of
applying accounting change -- securities.................. (32.1)
Change in unrealized gains (losses) on investment
securities................................................ 62.4
------
Balance at end of year...................................... $695.3
======
</TABLE>
The Company prepares financial statements for filing with regulatory
authorities in conformity with the accounting practices prescribed or permitted
by the Insurance Departments of the Commonwealth of
F-38
<PAGE> 97
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
Pennsylvania and the State of Delaware (SAP). Practices under SAP vary from GAAP
primarily with respect to the initial deferral of acquisition costs, the
establishment of deferred taxes, the accrual of postretirement benefits, the
elimination of the statutory asset valuation reserve and the establishment of
investment valuation allowances.
Statutory net income was $58.4 million, $34.4 million and $37.4 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Statutory
surplus was $374.4 million and $343.1 million as of December 31, 1997 and 1996,
respectively.
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
The Company is subject to interest rate risk to the extent its investment
portfolio cash flows are not matched to its insurance liabilities. Management
believes it manages this risk through modeling of the cash flows under
reasonable scenarios.
Invested Assets
Fixed maturity securities (bonds) which may be sold are designated as
"available for sale" and are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in capital
and surplus net of related Federal income taxes and amortization of deferred
acquisition costs. Fixed maturity securities that the Company has the intent and
ability to hold to maturity are designated as "held to maturity" and are
reported at amortized cost.
Equity securities (common stocks, redeemable preferred stocks and
nonredeemable preferred stocks) are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in capital
and surplus net of related Federal income taxes and amortization of deferred
acquisition costs.
Fixed maturity and equity securities that have experienced an other than
temporary decline in value are written down to fair value by a charge to
realized losses. This fair value becomes the new cost basis of the particular
security.
Mortgage loans are carried at unpaid principal balances, less impairment
reserves. For mortgage loans considered impaired, a specific reserve is
established. A general reserve is also established for probable losses arising
from the portfolio but not attributable to specific loans. Mortgage loans are
considered impaired when it is probable that the Company will be unable to
collect amounts due according to the contractual terms of the loan agreement.
When a mortgage loan has been determined to be impaired, a reserve is
established for the difference between the unpaid principal of the mortgage loan
F-39
<PAGE> 98
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Invested Assets -- continued
and its fair value. Fair value is based on either the present value of expected
future cash flows discounted at the mortgage loan's effective interest rate or
the fair value of the underlying collateral. The reserve is charged to realized
capital losses.
Policy loans and premium notes are reported at unpaid principal balances.
Real estate is carried at cost, less encumbrances and accumulated
depreciation. The straight-line method of depreciation is used for all real
estate.
Other invested assets consist primarily of real estate joint ventures
carried on the equity basis and limited partnerships carried at the lower of
cost or market value.
Cash includes demand deposits and cash on hand.
Short-term investments include money market funds, certificates of deposit
and short-term investments whose maturities at the time of acquisition were one
year or less. These investments are carried at amortized cost which approximates
market value.
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. Derivatives utilized by the Company are long and short positions on
United States Treasury notes and bond futures and certain interest rate swaps.
The net interest effect of futures transactions is settled on a daily
basis. Cash paid or received is recorded daily, along with a receivable/payable,
to settle the futures contract prior to the contract termination. The
receivable/payable is carried until the contract is terminated and the remaining
balance is included in either net investment income or realized gain or loss.
Upon termination of a futures contract that is identified to a specific
security, any gain or loss is deferred and amortized to net investment income
over the expected remaining life of the hedged security. If the futures contract
is not identified to a specific security, any gain or loss on termination is
reported as a realized gain or loss.
Interest rate swaps are settled on the contract date. Cash paid or received
is reported as an adjustment to net investment income.
Investment Valuation Reserves
Investment valuation reserves have been provided for impairments of
mortgage loans and totalled $13.1 million and $14.4 million at December 31, 1997
and 1996, respectively. Changes in the reserves are reflected as realized
capital gains and losses.
F-40
<PAGE> 99
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Benefit Reserves and Policyholder Contract Deposits
Traditional Life Insurance Products
Traditional life insurance products include those contracts with fixed and
guaranteed premiums and benefits, and consist principally of whole life and
term insurance policies, limited-payment life insurance policies and
certain annuities with life contingencies. Most traditional life insurance
policies are participating: in addition to guaranteed benefits, they pay
dividends, as declared annually by the Company based on its experience.
Reserves on traditional life insurance products are calculated by using the
net level premium method. For participating traditional life insurance
policies, the assumptions are based on mortality rates consistent with the
cash values and investment rates consistent with the Company's dividend
practices. For most such policies, reserves are based on the 1958 or 1980
Commissioners' Standard Ordinary (CSO) mortality table at interest rates
ranging from 3.5% to 4.5%.
Variable Life and Investment-Type Products
Variable life products include fixed premium variable life and flexible
premium variable universal life. Investment-type products consist primarily
of guaranteed investment contracts (GICs) and single premium and flexible
premium annuity contracts.
Benefit reserves and policyholder contract deposits on these products are
determined following the retrospective deposit method and consist of policy
values that accrue to the benefit of the policyholder, before deduction of
surrender charges.
Premiums, Charges and Benefits
Traditional Life Insurance and Accident and Health Insurance Products
Premiums for individual life policies are recognized when due; premiums for
accident and health and all other policies are reported as earned
proportionately over their policy terms.
Benefit claims (including an estimated provision for claims incurred but
not reported), benefit reserve changes, and expenses (except those
deferred) are charged to income as incurred.
Variable Life and Investment-Type Products
Revenues for variable life and investment-type products consist of policy
charges for the cost of insurance, policy initiation, administration and
surrenders during the period. Expenses include interest credited to policy
account balances and benefit payments made in excess of policy account
balances. Many of these policies are variable life or variable annuity
policies, in which investment performance credited to the account balance
is based on the investment performance of separate
F-41
<PAGE> 100
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Premiums, Charges and Benefits -- continued
Variable Life and Investment-Type Products -- continued
accounts chosen by the policyholder. For other account balances, credited
interest rates ranged from 3.8% to 9.1% in 1997.
Deferred Policy Acquisition Costs
The costs that vary with and are directly related to the production of new
business, have been deferred to the extent deemed recoverable. Such costs
include commissions and certain costs of underwriting, policy issue and
marketing.
Deferred policy acquisition costs on traditional participating life
insurance policies are amortized in proportion to the present value of
expected gross margins. Gross margins include margins from mortality,
investments and expenses, net of policyholder dividends. Expected gross
margins are redetermined regularly, based on actual experience and current
assumptions of mortality, persistency, expenses, and investment experience.
The average investment yield, before realized capital gains and losses, in
the calculation of expected gross margins was 8.0% for 1997.
Deferred policy acquisition costs for variable life and investment-type
products are amortized in relation to the incidence of expected gross
profits, including realized investment gains and losses, over the expected
life of the policies.
The costs deferred during 1997, 1996 and 1995 were $127.6 million, $119.0
million, and $100.5 million, respectively. Amortization of deferred policy
acquisition costs was $73.6 million, $56.1 million and $63.7 million during
1997, 1996 and 1995, respectively.
Capital Gains and Losses
Realized capital gains and losses on sales of investments are based upon
specific identification of the investments sold and do not include amounts
allocable to separate accounts. A realized capital loss is recorded at the time
a decline in the value of an investment is determined to be other than
temporary.
Policyholder Dividends
As of December 31, 1997, approximately 98% of the Company's in force life
insurance business was written on a participating basis. Dividends are earned by
the policyholders ratably over the policy year. Dividends are included in the
accompanying financial statements as a liability and as a charge to operations.
F-42
<PAGE> 101
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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.
Separate Accounts
Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the benefit of pension and annuity
contractholders, variable life insurance policyholders and several of the
Company's retirement plans.
Premiums received and the accumulated value portion of benefits paid are
excluded from the amounts reported in the consolidated statements of operations.
Fees charged on policyholder and contractholder account values are reported as
revenues.
The contractholders/policyholders bear the investment risk on separate
account assets except in instances where the Company guarantees a fixed return.
When the contractholder/policyholder bears the investment risk, separate account
assets and liabilities are carried at fair value.
For guaranteed contracts, the separate account assets and liabilities are
carried at historical cost. The guaranteed contracts are maintained in a
separate account for statutory purposes. Due to the guaranteed return, this
separate account is included in the general account assets and liabilities for
GAAP purposes.
Federal Income Taxes
Deferred income tax assets and liabilities have been recorded for temporary
differences between the reported amounts of assets and liabilities in the
accompanying financial statements and those in the Company's income tax returns.
F-43
<PAGE> 102
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the fair values and carrying values of the
Company's financial instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
(IN MILLIONS) (IN MILLIONS)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale........................ $2,758.1 $2,758.1 $2,564.9 $2,564.9
Held to maturity.......................... $455.8 $436.2 $518.7 $510.9
Equity securities........................... $23.8 $23.8 $23.8 $23.8
Commercial mortgage loans................... $726.0 $662.8 $740.6 $708.2
Residential mortgage loans.................. $.6 $.5 $.9 $.8
LIABILITIES FOR INVESTMENT-TYPE INSURANCE
CONTRACTS
Guaranteed interest contracts............... $240.7 $234.3 $321.8 $316.9
Group annuities............................. $1,345.8 $1,353.2 $1,101.8 $1,118.3
Supplementary contracts without life
contingencies............................. $30.8 $30.6 $31.4 $31.4
Individual annuities........................ $1,740.3 $1,799.6 $1,544.6 $1,597.5
</TABLE>
The underlying investment risk of the Company's variable life and variable
annuity contracts is assumed by the policyholder. These reserve liabilities are
primarily reported in the separate accounts. The liabilities in the separate
accounts are recorded at amounts equal to the related assets at fair value.
Fair values for the Company's insurance contracts other than
investment-type contracts are not required to be disclosed under Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." However, the estimated fair value and future cash flows
of liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts. The estimated fair value of all assets
without a corresponding revaluation of all liabilities associated with insurance
contracts can be misinterpreted.
F-44
<PAGE> 103
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
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 5% to 8%. For loans with variable interest
rates, the interest rates are primarily adjusted quarterly based upon changes in
a corporate bond index. Future cash flows of policy loans are uncertain and
difficult to predict. As a result, management deems it impractical to calculate
the fair value of policy loans.
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 $237.1 million and $240.9 million,
respectively, at December 31, 1997 and $319.4 million and $322.4 million,
respectively, at December 31, 1996.
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.
F-45
<PAGE> 104
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Individual Annuities and Supplementary Contracts
The fair value of individual annuities and supplementary contracts without
life contingencies is based primarily on surrender values. For those individual
annuities and supplementary contracts that are not surrenderable, discounted
future cash flows are used for calculating fair value.
Policyholder Dividends and Coupon Accumulations
The policyholders' 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. MARKETABLE SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investments in fixed maturity securities and equity
securities as of December 31, 1997 and 1996 are as follows (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies... $ 53.4 $ 2.0 $ .1 $ 55.3
Obligations of states and political
subdivisions................................ 66.7 3.3 .2 69.8
Debt securities issued by foreign
governments................................. 1.0 .1 -- 1.1
Corporate securities.......................... 2,257.1 104.2 10.8 2,350.5
Mortgage-backed securities.................... 269.8 11.7 .1 281.4
-------- ------ ----- --------
Subtotal -- fixed maturities............. 2,648.0 121.3 11.2 2,758.1
Equity securities............................. 22.7 4.8 3.7 23.8
-------- ------ ----- --------
Total............................... $2,670.7 $126.1 $14.9 $2,781.9
======== ====== ===== ========
</TABLE>
F-46
<PAGE> 105
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies... $ 17.3 $ 1.1 $ -- $ 18.4
Obligations of states and political
subdivisions................................ 9.1 .6 .1 9.6
Debt securities issued by foreign
governments................................. 6.5 .8 -- 7.3
Corporate securities.......................... 393.9 19.1 2.5 410.5
Mortgage-backed securities.................... 9.4 .6 -- 10.0
-------- -------- --------- --------
Total............................... $436.2 $22.2 $ 2.6 $455.8
======== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies... $ 62.6 $ 2.2 $ .4 $ 64.4
Obligations of states and political
subdivisions................................ 79.5 2.4 1.1 80.8
Debt securities issued by foreign
governments................................. 12.4 .1 .7 11.8
Corporate securities.......................... 2,070.2 66.4 23.9 2,112.7
Mortgage-backed securities.................... 288.7 8.5 2.0 295.2
-------- -------- --------- --------
Subtotal -- fixed maturities............. 2,513.4 79.6 28.1 2,564.9
Equity securities............................. 27.8 4.5 8.5 23.8
-------- -------- --------- --------
Total............................... $2,541.2 $84.1 $36.6 $2,588.7
======== ======== ========= ========
</TABLE>
F-47
<PAGE> 106
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies... $ 17.6 $ .8 $ .1 $ 18.3
Obligations of states and political
subdivisions................................ 11.3 .3 .1 11.5
Debt securities issued by foreign
governments................................. 6.8 .5 -- 7.3
Corporate securities.......................... 464.8 10.1 4.2 470.7
Mortgage-backed securities.................... 10.4 .5 -- 10.9
-------- -------- ------- --------
Total............................... $510.9 $12.2 $4.4 $518.7
======== ======== ======= ========
</TABLE>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1997, by contractual maturity, are as follows (in millions):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less..................................... $ 110.2 $ 110.6
Due after one year through five years....................... 653.3 674.2
Due after five years through ten years...................... 739.8 768.8
Due after ten years......................................... 1,144.7 1,204.5
-------- --------
Total............................................. $2,648.0 $2,758.1
======== ========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less..................................... $ 23.0 $ 23.0
Due after one year through five years....................... 110.7 114.2
Due after five years through ten years...................... 181.3 190.5
Due after ten years......................................... 121.2 128.1
-------- --------
Total............................................. $436.2 $455.8
======== ========
</TABLE>
F-48
<PAGE> 107
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are included based on their
contractual maturity.
Realized gains (losses) on investments for the years ended December 31,
1997, 1996 and 1995 are summarized as follows (in millions):
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------
Fixed maturities........................................... $ 7.9 $ 6.0 $ 2.0
Equity securities.......................................... (3.8) .3 .7
Mortgage loans............................................. 1.1 (1.4) .2
Real estate................................................ (2.2) 2.8 2.9
Policy loans and premium notes............................. -- .9 .1
Other invested assets...................................... (.6) (.7) (2.2)
----- ----- -----
$ 2.4 $ 7.9 $ 3.7
===== ===== =====
</TABLE>
Net unrealized appreciation (depreciation) on available for sale securities
as of December 31, 1997 and 1996 is summarized as follows (in millions):
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) before
adjustments for the following:............................ $111.2 $47.5
Amortization of deferred policy acquisition costs......... (64.0) (31.0)
Deferred Federal income taxes............................. (16.5) (5.8)
------ -----
Net unrealized appreciation................................. $ 30.7 $10.7
====== =====
</TABLE>
In late 1995, the Financial Accounting Standards Board issued "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." This report permits a one-time reclassification of
securities from held to maturity to available for sale. In response to this
report, the Company transferred fixed income securities with a combined
amortized cost of $172.3 million from the held to maturity portfolio to the
available for sale portfolio. An additional transfer of fixed income securities
with a combined cost of $24.2 million and an estimated fair value of $24.6
million was made from the available for sale portfolio to the held to maturity
portfolio. The $.4 million difference between the amortized cost and the
estimated fair value has been amortized to realized capital gains/losses.
F-49
<PAGE> 108
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
Net investment income, by type of investment, is as follows for the years
ending December 31, 1997, 1996 and 1995 (in millions):
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
Gross investment income:
Fixed maturities:
Available for sale................................... $201.2 $193.5 $194.1
Held to maturity..................................... 39.6 45.1 47.1
Equity securities...................................... .8 1.2 2.1
Mortgage loans......................................... 62.9 69.0 72.2
Real estate............................................ 10.7 11.4 11.8
Policy loans and premium notes......................... 23.4 23.4 24.0
Other invested assets.................................. 8.0 5.5 4.9
Short-term investments................................. 2.5 3.8 2.0
Other, net............................................. (.2) .5 .5
------ ------ ------
348.9 353.4 358.7
Less investment expenses............................... (17.4) (19.5) (21.9)
------ ------ ------
Net investment income.................................. $331.5 $333.9 $336.8
====== ====== ======
</TABLE>
4. MORTGAGE LOANS
Impaired mortgage loans and the related reserves are as follows at December
31, 1997 and 1996 (in millions):
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
Impaired mortgage loans..................................... $ 54.3 $65.5
Reserves.................................................... (6.4) (7.2)
------ -----
Net impaired mortgage loans................................. $ 47.9 $58.3
====== =====
</TABLE>
F-50
<PAGE> 109
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
4. MORTGAGE LOANS, CONTINUED
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1997 and 1996 is as follows (in millions):
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
Balance at January 1........................................ $ 14.4 $16.2
Losses charged, net of recoveries........................... (1.3) (.5)
Releases due to foreclosures................................ -- (1.3)
------ -----
Balance at December 31...................................... $ 13.1 $14.4
====== =====
</TABLE>
The average recorded investment in impaired loans was $59.9 million and
$66.7 million during 1997 and 1996, respectively. Interest income recognized on
impaired loans during 1997, 1996 and 1995 was $4.9 million, $6.9 million and
$7.3 million, respectively. All interest income on impaired mortgage loans was
recognized on the cash basis.
5. REAL ESTATE
Real estate holdings are as follows at December 31, 1997 and 1996 (in
millions):
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
Occupied by the Company..................................... $ 32.0 $38.0
Foreclosed.................................................. 18.8 28.0
Investment.................................................. 1.7 5.4
------ -----
$ 52.5 $71.4
====== =====
</TABLE>
Depreciation expense was $3.0 million, $3.2 million and $4.7 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Accumulated
depreciation for real estate totalled $12.6 million and $15.2 million at
December 31, 1997 and 1996, respectively. Permanent impairment writedowns were
$6.1 million, $1.3 million and $1.9 million for the years ended December 31,
1997, 1996 and 1995.
6. BENEFIT PLANS
The Company maintains a funded noncontributory defined benefit pension plan
that covers substantially all of its employees and a funded noncontributory
defined contribution plan that covers substantially all of its agents. The
Company's funding policy is to contribute annually the maximum amount deductible
for Federal income tax purposes. The Company provides a contributory defined
F-51
<PAGE> 110
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
6. BENEFIT PLANS, CONTINUED
contribution plan qualified under Section 401(k) of the Internal Revenue Code.
The pension cost of the defined contribution plans was $3.4 million, $2.6
million and $2.8 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
The status of the funded defined benefit pension plan and the amounts
recognized on the balance sheets as of December 31, 1997 and 1996 are as follows
(in millions):
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested................................................. $(73.7) $(72.7)
Nonvested.............................................. (3.6) (2.7)
------ ------
Accumulated benefit obligation......................... (77.3) (75.4)
Additional obligation for future salary increases...... (18.7) (19.2)
------ ------
Projected benefit obligation......................... (96.0) (94.6)
Plan assets at fair value................................... 165.8 148.7
------ ------
Plan assets in excess of projected benefit
obligation............................................ 69.8 54.1
Unrecognized transition asset.......................... (21.4) (23.7)
Unrecognized prior service cost........................ .5 .5
Unrecognized net gain.................................. (31.0) (16.4)
------ ------
Prepaid pension cost................................. $ 17.9 $ 14.5
====== ======
</TABLE>
The Company also sponsors several unfunded nonqualified defined benefit
excess benefit, supplemental executive retirement and deferred compensation
plans. The status of these unfunded defined
F-52
<PAGE> 111
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
6. BENEFIT PLANS, CONTINUED
benefit plans and the amounts recognized on the balance sheets as of December
31, 1997 and 1996 are as follows (in millions):
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested.................................................... $ (9.1) $ (8.6)
Nonvested................................................. (4.1) (2.9)
------ ------
Accumulated benefit obligation......................... (13.2) (11.5)
Additional obligation for future salary increases......... (7.4) (5.2)
------ ------
Projected benefit obligation........................... (20.6) (16.7)
Unrecognized transition obligation........................ 3.8 4.2
Unrecognized prior service cost........................... 3.2 3.4
Unrecognized net loss..................................... 4.3 2.7
Other, net................................................ (3.9) (5.1)
------ ------
Accrued pension cost................................... $(13.2) $(11.5)
====== ======
</TABLE>
The following assumptions were used to determine the projected benefit
obligation at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Discount rate............................................... 7.0% 7.5%
Expected rate of return on assets........................... 9.0% 9.0%
Rate of increase in salaries................................ 5.0% 5.5%
</TABLE>
Net periodic pension benefit included the following components for the
years ended December 31, 1997, 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost........................................... $ 4.3 $ 4.6 $ 4.2
Interest cost.......................................... 8.3 8.1 8.0
Actual return on assets................................ (31.8) (21.9) (10.8)
Net amortization (deferral)............................ 17.1 8.1 (1.6)
------ ------ -----
Net pension benefit.................................. $ (2.1) $ (1.1) $ (.2)
====== ====== =====
</TABLE>
F-53
<PAGE> 112
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
6. BENEFIT PLANS, CONTINUED
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 postretirement benefits if they
reach normal retirement age while still working for the Company.
The status of the postretirement benefit plans and the amounts recognized
on the balance sheets as of December 31, 1997 and 1996 are as follows (in
millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and surviving spouses............................ $(23.4) $(28.2)
Fully eligible active employees........................... (1.0) (1.1)
Other active employees.................................... (5.4) (4.9)
------ ------
Total.................................................. (29.8) (34.2)
Unrecognized amounts:
Net gain.................................................. (16.0) (12.1)
Prior service cost........................................ 7.0 7.5
------ ------
Total.................................................. (9.0) (4.6)
------ ------
Accrued postretirement benefit cost......................... $(38.8) $(38.8)
====== ======
</TABLE>
The following assumptions were used to determine the projected benefit
obligation at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Discount rate............................................... 7.0% 7.5%
Rate of increase in salaries................................ 5.0% 5.5%
</TABLE>
Net periodic postretirement benefit cost included the following components
for the years ended December 31, 1997, 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost................................................ $ .5 $ .4 $ .4
Interest cost............................................... 2.0 1.9 2.1
Net amortization and deferral............................... (.4) (.4) (.5)
---- ---- ----
Net periodic postretirement benefit cost.................. $2.1 $1.9 $2.0
==== ==== ====
</TABLE>
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rate by one percentage point in each year
F-54
<PAGE> 113
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
6. BENEFIT PLANS, CONTINUED
would increase the postretirement benefit obligation as of December 31, 1997 by
$1.7 million and the estimated eligibility cost and interest cost components of
net periodic postretirement benefit cost for 1997 by $.1 million.
In January 1991, the Company established a retiree health account under the
provisions of Section 401(h) of the Internal Revenue Code. In December 1997, the
Company transferred $1.6 million of excess assets from the defined benefit
pension plan to pay for 1997 qualified retiree health benefits. A transfer of
excess assets in the amount of $1.6 million was made in December 1996 to pay for
1996 qualified retiree health benefits. In December 1995, excess assets
totalling $1.6 million were transferred to pay for 1995 qualified retiree health
benefits.
7. FEDERAL INCOME TAXES
Beginning in 1996, the Company began filing a consolidated Federal income
tax return with its life insurance and non-insurance subsidiaries. Prior to
1996, the Company filed separate consolidated Federal income tax returns for its
life insurance and non-insurance subsidiaries. Each tax provision is accrued on
a separate company basis. The life company tax provisions include an equity tax.
The provision for Federal income taxes from operations differs from the
normal relationship of Federal income tax to pretax income as follows (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate..................... $ 37.0 $30.6 $31.3
Current year equity tax................................ 8.8 8.5 8.0
True down of prior years' equity tax................... (8.0) (5.1) --
Tax settlement......................................... -- (28.3) --
Other.................................................. .8 .1 (.2)
------ ----- -----
Provision for Federal income tax from operations......... $ 38.6 $ 5.8 $39.1
====== ===== =====
</TABLE>
In 1996, the Company settled various tax issues with the IRS, including an
issue relating to the tax treatment of certain traditional life insurance policy
updates. As a result of the settlements, the 1996 Federal income tax expense in
the Statement of Operations was decreased by approximately $28.3 million which
includes $15.9 million of interest, net of taxes.
Deferred income tax assets and liabilities reflect the income tax effects
of cumulative temporary differences between the reported values of assets and
liabilities for financial statement purposes and
F-55
<PAGE> 114
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
7. FEDERAL INCOME TAXES, CONTINUED
income tax return purposes. Components of the Company's net deferred income tax
liability are as follows at December 31, 1997 and 1996 (in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX LIABILITY
Deferred policy acquisition costs........................... $196.5 $186.5
Prepaid pension asset....................................... 6.3 5.1
Net unrealized gain on available for sale securities........ 16.5 5.8
------ ------
Total deferred tax liability........................... 219.3 197.4
------ ------
DEFERRED TAX ASSET
Reserves.................................................... 123.8 112.4
Employee benefit accruals................................... 14.1 14.1
Invested assets............................................. 8.3 4.3
Policyholder dividends...................................... 8.1 7.9
Deferred rent............................................... 1.4 2.8
Other....................................................... (.6) 4.9
------ ------
Total deferred tax asset............................... 155.1 146.4
------ ------
Net deferred tax liability.................................. $ 64.2 $ 51.0
====== ======
</TABLE>
Under current law, stock life insurance companies are taxed at current
rates on distributions from the special surplus account for the benefit of
policyholders designated "Policyholder Surplus" (the Account). The Tax Reform
Act of 1984 eliminated further additions to the Account after December 31, 1983.
PLACA's aggregate accumulation at December 31, 1983 was $2 million. The Company
has no present plans to make any distributions which would subject the Account
to current taxation.
The Company's Federal income tax returns have been audited through 1992.
All years through 1985 are closed. Years 1986 through 1992 have been audited and
are closed with the exception of several issues for which claims for refund have
been filed. Years 1993 through the present remain open. In the opinion of
management, adequate provision has been made for the possible effect of
potential assessments related to prior years' taxes.
8. REINSURANCE
In the normal course of business, the Company assumes risks from and cedes
certain parts of its risks with other insurance companies. The primary purposes
of ceded reinsurance is to limit losses from large exposures. For life
insurance, the Company retains no more than $1,500,000 on any single life. A
portion on individual fixed rate annuity business is also reinsured.
F-56
<PAGE> 115
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
8. REINSURANCE, CONTINUED
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company would be liable for these
obligations. The Company evaluates the financial condition of its reinsurers and
limits its exposure to any one reinsurer.
At December 31, 1997, there were $352.7 million of individual fixed annuity
account values coinsured by the Company, or approximately 29.7% of total
individual fixed annuity account values outstanding.
The tables below highlight the amounts shown in the accompanying financial
statements which are net of reinsurance activity (in millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
CEDED TO ASSUMED
GROSS OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997:
Life insurance in force.................... $36,961.7 $7,549.1 $238.6 $29,651.2
========= ======== ====== =========
Premiums................................... $ 232.7 $ 15.0 $ 3.2 $ 220.9
========= ======== ====== =========
Future policyholder benefits............... $ 499.5 $ 3.9
======== ======
December 31, 1996:
Life insurance in force.................... $33,695.9 $6,559.3 $208.9 $27,345.5
========= ======== ====== =========
Premiums................................... $ 247.8 $ 15.2 $ 3.0 $ 235.6
========= ======== ====== =========
Future policyholder benefits............... $ 530.3 $ 5.1
======== ======
December 31, 1995:
Life insurance in force.................... $30,558.1 $5,829.8 $230.0 $24,958.3
========= ======== ====== =========
Premiums................................... $ 267.3 $ 12.7 $ .9 $ 255.5
========= ======== ====== =========
Future policyholder benefits............... $ 544.5 $ 5.3
======== ======
</TABLE>
F-57
<PAGE> 116
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space, data processing equipment and certain
other equipment under operating leases expiring on various dates between 1998
and 2003. Most of the leases contain renewal and purchase options based on
prevailing fair market values.
Future minimum rent payments required and related sublease rentals
receivable under non-cancelable operating leases in effect at December 31, 1997,
and which have initial or remaining terms of one year or more, are summarized as
follows (in millions):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
RENTAL SUBLEASE RENTALS
PAYMENTS RECEIVABLE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
YEAR ENDING DECEMBER 31:
1998................................................... $13.9 $2.7
1999................................................... 7.1 .5
2000................................................... 4.1 .3
2001................................................... 2.2 --
2002................................................... 1.3 --
Thereafter............................................. .4 --
----- ----
$29.0 $3.5
===== ====
</TABLE>
Total related rent expense was $12.7 million, $18.4 million and $26.5
million in 1997, 1996 and 1995, respectively, which were net of sublease income
of $1.9 million, $.5 million and $.3 million in 1997, 1996 and 1995,
respectively.
During 1995 the Company recorded a charge to operations for certain unused
leased facilities in the amount of $8.9 million, net of anticipated sublease
income.
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 the amount recognized in the statements of financial condition.
At December 31, 1997, the Company had outstanding mortgage loan, real
estate and limited partnership commitments of approximately $18.2 million. The
mortgage loan commitments, which expire
F-58
<PAGE> 117
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED
Financial Instruments With Off-Balance-Sheet Risk -- continued
through April 1998, totalled $14.4 million and were issued during 1997 at
interest rates consistent with rates applicable on December 31, 1997. 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 or writedowns.
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 239 treasury futures contracts with a dollar value of $25.2 million in 1997,
162 treasury futures contracts with a dollar value of $17.3 million in 1996, and
568 treasury futures contracts with a dollar value of $56.8 million in 1995. The
approximate net losses generated from the hedge positions were $(.1) million for
the year ended December 31, 1997, $(.3) million for the year ended December 31,
1996 and $(.1) million for the year ended December 31, 1995. There were no open
hedge positions at December 31, 1997. 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 no swaps outstanding as of
December 31, 1997.
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. For bonds, cash collateral
totalling 105% of market value plus accrued interest is required. For equities,
cash collateral totalling 105% of market value is required. There were no
securities lending positions at December 31, 1997.
Investment Portfolio Credit Risk
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1997 and 1996, approximately
$164.6 million and $162.2 million, respectively, in debt security
investments (5.3% and 5.4%, respectively, of the total debt security
portfolio) are considered "below investment grade." Securities are
classified as "below investment grade" primarily by utilizing rating
criteria established by independent bond rating agencies.
Debt security investments with a carrying value at December 31, 1997 of $5.7
million were non-income producing for the year ended December 31, 1997.
The Company had debt security investments in the financial services industry
at both December 31, 1997 and 1996 that exceeded 5% of total assets.
F-59
<PAGE> 118
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- concluded
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED
Investment Portfolio Credit Risk -- continued
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, 1997, there was one significant mortgage loan totaling $3.2
million in which payments on principal and/or interest were over 90 days
past due. There were no delinquent mortgage loans at December 31, 1996.
The Company had no loans outstanding in any state where principal balances
in the aggregate exceeded 20% of the Company's surplus.
Lines of Credit
The Company has approximately $50 million of available unused lines of
credit at December 31, 1997.
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, including sales
practices, and as a result of the merger with Covenant which, in the opinion of
management and legal counsel, will not have a material adverse effect on the
Company's financial position or its operations.
Insurance companies are subject to assessments, up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of management, the outcome of the proceedings and
assessments will not have a material adverse effect on the financial statements.
Guaranty fund assessments totalled $1.1 million, $1.6 million and $2.6 million
in 1997, 1996 and 1995, respectively. Of those amounts, $.8 million, $.9 million
and $1.8 million in 1997, 1996 and 1995, respectively, are creditable against
future years' premium taxes.
10. SUBSEQUENT EVENT
On January 5, 1998, the Board of Directors of Provident Mutual unanimously
approved and adopted a Plan of Conversion to reorganize Provident Mutual Life
Insurance Company, utilizing a mutual holding company structure. The proposed
conversion plan has been submitted to the Insurance Department of the
Commonwealth of Pennsylvania and is awaiting approval.
F-60
<PAGE> 119
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part A and Part B of
this Registration Statement.
(b) Exhibits
<TABLE>
<S> <C> <C>
(1) (a) Resolution adopted by the Board of Directors of Provident
Mutual Life Insurance Company 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
authorizing establishment of additional Subaccounts of the
Provident Mutual Variable Annuity Separate Account.
(1) (c) Resolution of the Board of Directors of Provident Mutual
Life Insurance Company Approving Creation of additional
Subaccounts of Provident Mutual Variable Annuity Separate
Account.
(1)(2) Not applicable.
(1)(3) (a) Underwriting Agreement
(1)(3) (b) Form of Selling Agreement between 1717 Capital Management
Company and Broker/Dealers(1)
(4) Flexible Premium Deferred Variable Annuity Contract (Form
PM512)
(4) (a) Amendment of Contract Provisions Rider (PM470.13A)
(4) (b) Qualified Plan Rider (PM471)
(4) (c) 403(b) Annuity Loan Rider (PM515)
(4) (d) Death Benefit Rider -- "Step Up" (PM547)
(4) (e) Death Benefit Rider -- "Rising Floor" (PM548)
(4) (f) SIMPLE IRA Rider (PM549)
(4) (g) SEP IRA Rider (PM550)
(4) (h) Qualify as an IRA Rider (PM553)
(4) (I) Qualify as a TSA under 403(b) Rider (PM554)
(4) (j) Amendment for a Charitable Remainder Trust Rider (PM558)
(4) (k) Systematic Withdraw Plan Rider (PM600)
(5) Form of Application and 1717 Capital Management Company
Suitability Statement
(6) (a) Charter of Provident Mutual Life Insurance Company(1)
(6) (b) By-Laws of Provident Mutual Life Insurance Company(1)
(7) Not applicable
(8) (a) Participation Agreement by and among Market Street Fund,
Inc., Provident Mutual Life Insurance Company and PML
Securities, Inc.(1)
(8) (b) Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Provident Mutual
Life Insurance Company(1)
</TABLE>
C-1
<PAGE> 120
<TABLE>
<S> <C> <C>
(8) (c) Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and Provident
Mutual Life Insurance Company(1)
(8) (d) Participation Agreement among Scudder Variable Life
Investment Fund, Provident Mutual Life Insurance Company and
Providentmutual Life and Annuity Company of America
(8) (e) Reimbursement Agreement among Scudder, Stevens & Clark, Inc.
and Provident Mutual Life Insurance Company of Philadelphia
and Providentmutual Life and Annuity Company of America
(8) (f) Participating Contract and Policy Agreement between Scudder
Investor Services, Inc. and PML Securities, Inc.
(8) (g) Fund Participation Agreement between Provident Mutual Life
Insurance Company of Philadelphia and Dreyfus Variable
Investment Fund
(8) (h) Participation Agreement by and among Quest for Value
Accumulation Trust, Provident Mutual Life Insurance Company
of Philadelphia and Quest for Value Distributors
(8) (i) Service Agreement between Providentmutual Life and Annuity
Company of America and Provident Mutual Life Insurance
Company of Philadelphia(2)
(9) Consent of Adam Scaramella, Esquire
(10) (a) Consent of Sutherland, Asbill & Brennan, L.L.P.
(10) (b) Consent of Scott V. Carney, FSA, MAAA.
(10) (c) Consent of Coopers & Lybrand, L.L.P., Independent
Accountants.
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Schedule for computation of performance data.
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 18, filed
on May 1, 1998, File No. 33-2625.
(2) Incorporated herein by reference to Post-Effective Amendment No. 5, filed
on May 1, 1998, File No. 33-65512.
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
------------------------------------ -----------------------------------
<S> <C>
Robert W. Kloss....................................... Director, President and CEO
Dorothy M. Brown...................................... Director
16 Meredith Road
Wynnewood, PA 19096
Edward R. Book........................................ Director
1100 New York Avenue N.W., Suite 450
Washington, D.C. 20005
Robert J. Casale...................................... Director
Brokerage Ins. Svcs. Group
2 Journal Square
Jersey City, NJ 07306
Nicholas DeBenedictus................................. Director
Philadelphia Suburban Corp.
762 Lancaster Avenue
Bryn Mawr, PA 19010
</TABLE>
C-2
<PAGE> 121
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
------------------------------------ -----------------------------------
<S> <C>
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 P. Neafsey....................................... Director
13 Valley Road
So. Norwalk, CT 06854
Charles L. Orr........................................ Director
Shaklee Corporation
Shaklee Terrace
444 Market Street
San Francisco, CA 94111
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
Joan C. Tucker........................................ Executive Vice President --
Individual Insurance Operations
Mary Lynn Finelli..................................... Executive Vice President
and Chief Financial Officer
Alan F. Hinkle........................................ Executive Vice President -- Chief Actuary
James Potter.......................................... Executive Vice President, General Counsel and
Secretary
Linda M. Springer..................................... Vice President and Controller
Rosanne Gatta......................................... Vice President and Treasurer
</TABLE>
- ---------------
* The principal business address for each officer and director is 1050 Westlakes
Drive, Berwyn, PA 19312, unless otherwise indicated.
C-3
<PAGE> 122
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
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
1717 Brokerage Services Inc. Pennsylvania Ownership of all voting Insurance Agency
securities by PHC
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, New York 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 and Advisory Services
PHC and 19.8% by
Provident Mutual
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, 1997 there were a total of 1345 individual flexible
premium deferred variable annuity contracts (File No. 33-70926) in force--536
non-qualified and 809 qualified.
C-4
<PAGE> 123
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 settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 29. Principal Underwriter
(a) 1717 Capital Management Company ("1717") is the principal underwriter
of the Contracts as defined in the investment Company 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.
C-5
<PAGE> 124
(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 DEPOSITOR
------------------ --------------------- ---------------------
<S> <C> <C>
Mary Lynn Finelli**........... Director Director
Alan F. Hinkle**.............. Director Director, Vice President and Actuary
Robert W. Kloss**............. Director President and Director
J. Kevin McCarthy**........... Director Director
James Potter**................ Director Director, Secretary and Legal Officer
Joan C. Tucker................ Director Director and Vice President
Louise A. Aviola, Jr.......... Vice President and Manager None
of Operations
Rosanne Gatta**............... Treasurer Treasurer
Anthony Giampietro**.......... Assistant Treasurer Assistant Treasurer
Deborah Thiel Hall**.......... Insurance Compliance Officer Compliance Officer
Michael Krulikowski........... Senior Compliance Officer None
William P. Loesche**.......... Assistant Secretary Assistant Secretary
Anthony Mastrangelo**......... Assistant Financial None
Reporting Officer
Todd R. Miller**.............. Assistant Financial Financial Reporting Officer
Reporting Officer
Alison Naylor................. Compliance Officer None
Linda M. Springer**........... Financial Reporting Officer Director
Adam Scaramella**............. Legal Officer and Secretary None
</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.
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
C-6
<PAGE> 125
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.
REPRESENTATION OF REASONABLENESS
Provident Mutual Life Insurance Company hereby represents that the fees and
charges deducted under the Contract in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by Provident Mutual Life Insurance Company.
C-7
<PAGE> 126
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 BERWYN, COMMONWEALTH OF
PENNSYLVANIA ON THIS 1ST DAY OF MAY, 1998.
PROVIDENT MUTUAL VARIABLE ANNUITY
SEPARATE ACCOUNT (REGISTRANT)
<TABLE>
<S> <C>
Attest: /s/ JAMES POTTER By: /s/ ROBERT W. KLOSS
---------------------------------------------- -------------------------------------------------
ROBERT W. KLOSS
President and CEO
</TABLE>
By: PROVIDENT MUTUAL LIFE INSURANCE
COMPANY (DEPOSITOR)
<TABLE>
<S> <C>
Attest: /s/ JAMES POTTER By: /s/ ROBERT W. KLOSS
---------------------------------------------- -------------------------------------------------
ROBERT W. KLOSS
President 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
---------- ----- ----
<C> <S> <C>
/s/ ROBERT W. KLOSS President and Chief May 1, 1998
- ----------------------------------------------------- Executive Officer
ROBERT W. KLOSS (Principal Executive
Officer)
/s/ MARY LYNN FINELLI Executive Vice President and May 1, 1998
- ----------------------------------------------------- Chief Financial Officer
MARY LYNN FINELLI (Principal Financial
Officer)
/s/ LINDA M. SPRINGER Vice President and Controller May 1, 1998
- ----------------------------------------------------- (Principal Accounting
LINDA M. SPRINGER Officer)
* Director May 1, 1998
- -----------------------------------------------------
EDWARD R. BOOK
* Director May 1, 1998
- -----------------------------------------------------
DOROTHY M. BROWN
</TABLE>
C-8
<PAGE> 127
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director May 1, 1998
- -----------------------------------------------------
ROBERT J. CASALE
* Director May 1, 1998
- -----------------------------------------------------
NICHOLAS DEBENEDICTUS
* Director May 1, 1998
- -----------------------------------------------------
PHILIP C. HERR
* Director May 1, 1998
- -----------------------------------------------------
J. RICHARD JONES
* Director May 1, 1998
- -----------------------------------------------------
JOHN P. NEAFSEY
* Director May 1, 1998
- -----------------------------------------------------
CHARLES L. ORR
* Director May 1, 1998
- -----------------------------------------------------
DONALD A. SCOTT
* Director May 1, 1998
- -----------------------------------------------------
JOHN J. F. SHERRERD
* Director May 1, 1998
- -----------------------------------------------------
HAROLD A. SORGENTI
By: /s/ William P. Loesche
-------------------------------------------------
William P. Loesche
Attorney-in-Fact
Pursuant to Power of Attorney
</TABLE>
C-9
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<C> <S> <C> <C>
(1) (a) Resolution adopted by the Board of Directors of Provident
Mutual Life Insurance Company authorizing establishment of
the Provident Mutual Variable Annuity Separate Account.
(b) Resolution of the Executive Committee of the Board of
Directors of Provident Mutual Life Insurance Company
authorizing establishment of additional Subaccounts of the
Provident Mutual Variable Annuity Separate Account.
(1)(3) (a) Underwriting Agreement
(4) Flexible Premium Deferred Variable Annuity Contract (Form
PM512)
(a) Amendment of Contract Provisions Rider (PM470.13A)
(b) Qualified Plan Rider (PM471)
(c) 403(b) Annuity Loan Rider (PM515)
(d) Death Benefit Rider -- "Step Up" (PM547)
(e) Death Benefit Rider -- "Rising Floor" (PM548)
(f) SIMPLE IRA Rider (PM549)
(g) SEP IRA Rider (PM550)
(h) Qualify as an IRA Rider (PM553)
(I) Qualify as a TSA under 403(b) Rider (PM554)
(j) Amendment for a Charitable Remainder Trust Rider (PM558)
(k) Systematic Withdraw Plan Rider (PM600)
(5) Form of Application and 1717 Capital Management Company
Suitability Statement
(d) Participation Agreement among Scudder Variable Life
Investment Fund, Provident Mutual Life Insurance Company and
Providentmutual Life and Annuity Company of America
(e) Reimbursement Agreement among Scudder, Stevens & Clark, Inc.
and Provident Mutual Life Insurance Company of Philadelphia
and Providentmutual Life and Annuity Company of America
(f) Participating Contract and Policy Agreement between Scudder
Investor Services, Inc. and PML Securities, Inc.
(g) Fund Participation Agreement between Provident Mutual Life
Insurance Company of Philadelphia and Dreyfus Variable
Investment Fund
(h) Participation Agreement by and among Quest for Value
Accumulation Trust, Provident Mutual Life Insurance Company
of Philadelphia and Quest for Value Distributors
(9) Consent of Adam Scaramella, Esquire
(10) (a) Consent of Sutherland, Asbill & Brennan, L.L.P.
(b) Consent of Scott V. Carney, FSA, MAAA.
(c) Consent of Coopers & Lybrand, L.L.P., Independent
Accountants.
(13) Schedule for computation of performance data.
</TABLE>
<PAGE> 1
Exhibit 1(a)
May 4, 1993
I hereby certify the following to be a true and correct copy of an extract from
the minutes of the Provident Mutual Life Insurance Company of Philadelphia held
on October 19, 1992:
"Adopted were resolutions establishing a separate account designated as the
Provident Mutual Variable Annuity Separate Account, a copy of which is filed
with these minutes." (See Attached)
/s/ Joseph A. Kenney, Jr.
--------------------------------
Joseph A. Kenney, Jr., Secretary
9
<PAGE> 2
RESOLUTIONS
1. BE IT RESOLVED, that Provident Mutual Life Insurance Company of
Philadelphia, pursuant to the provisions of Section 406.2 of the
Pennsylvania Insurance Code hereby establishes a separate account
designated as the Provident Mutual Variable Annuity Separate Account
(Separate Account) with the following investment divisions: Growth, Money
Market, Bond, Managed, Aggressive Growth and International.
FURTHER RESOLVED, that the President, a Vice President, Secretary,
Treasurer, or Counsel each be authorized to take all necessary and
appropriate action to accomplish the registration of the Separate Account
as an investment company under the Investment Company Act of 1940 and the
registration of the variable annuity contracts in connection with the
Separate Account as securities under the Securities Act of 1933, and to
take all action necessary to comply with the Acts, including but not
limited to the execution and filing of registration statements and
amendments thereto, applications for exemptions from the provisions of the
Acts as may be necessary or desirable, and agreements for the management
of the Separate Account and the distribution of variable annuity contracts
carrying an interest in the Separate Account assets;
FURTHER RESOLVED, that the President or a Vice President be, and hereby
are, authorized to adopt Rules and Regulations for the administration of
the Separate Account;
FURTHER RESOLVED, that the President or a Vice President be, and hereby
are, authorized to take all necessary and appropriate action to effect an
agreement with the Market Street Fund, Inc., for the provision of services
to the Separate Account.
2. BE IT RESOLVED, that the following Standards of Conduct with respect to
investments of the above Separate Account and variable annuity operations
are hereby adopted:
Unless otherwise approved in writing by the insurance commissioner of the
applicable state in advance of the transaction, with respect to the
Separate Account, the Company shall not:
1. Sell to, or purchase from, such Separate Account established by the
company any securities or other property, other than variable
annuity contracts.
2. Purchase, or allow to be purchased, for such Separate Account, any
securities of which the Company or an affiliate is the issuer.
3. Accept any compensation, other than a regular salary or wages from
the Company or affiliate, for the sale or purchase of securities to
or from such Separate Account other than as provided by law.
4. Engage in any joint transaction, participation or common undertaking
whereby the Company or an affiliate participates with such Separate
Account in any transaction in which the Company or any of its
affiliates obtain an advantage in the price or quality of the item
purchased, in the service received, or in the cost of such service
or is disadvantaged in any of these respects by the same
transaction.
<PAGE> 3
5. Borrow money or securities from such Separate Account other than
under a policy loan provision.
3. BE IT RESOLVED, that the following Standards of Suitability shall apply to
Provident Mutual Life Insurance Company of Philadelphia, its officers,
directors, employees, affiliates and agents with respect to the
suitability of a variable annuity contract for an applicant for such
contract:
No recommendation shall be made to an applicant to purchase a variable
annuity contract, and no variable annuity contract shall be issued, in the
absence of reasonable grounds to believe that the purchase of such a
contract is not unsuitable for such applicant on the basis of information
furnished after reasonable inquiry into the following subjects of concern
to the applicant:
1) the applicant's insurance and investment objectives;
2) the applicant's financial situation and needs; and
3) other relevant information known to Provident Mutual Life
Insurance Company of Philadelphia or the agent making the
recommendation.
A copy of this resolution shall be distributed to the officers, employees,
affiliates and agents of this Company.
AND BE IT FURTHER RESOLVED, that the President, a Vice President,
Secretary or other appropriate officer of the Company be, and hereby are,
authorized and directed to carry into full force and effect the purposes
and provisions of this resolution.
4. RESOLVED, that the Certificate of Authority for Provident Mutual Life
Insurance Company of Philadelphia be amended, where required, to enable
the Company to sell variable annuity contracts;
FURTHER RESOLVED, that the President, Vice President, Secretary, or
Counsel of the Company each be, and hereby are, authorized to take all
necessary and appropriate action to effectuate such amendment.
<PAGE> 1
Exhibit 1(A1)(b)
May 4, 1993
I hereby certify the following to be a true and correct copy of an extract from
the minutes of the Provident Mutual Life Insurance Company of Philadelphia held
on October 19, 1992:
"Adopted were resolutions establishing a separate account designated as
the Provident Mutual Variable Annuity Separate Account, a copy of which is filed
with these minutes." (See Attached)
/s/ Joseph A. Kenney, Jr.
-----------------------------------------
Joseph A. Kenney, Jr., Secretary
<PAGE> 2
RESOLUTIONS
1. BE IT RESOLVED, that Provident Mutual Life Insurance Company of
Philadelphia, pursuant to the provisions of Section 406.2 of the
Pennsylvania Insurance Code hereby establishes a separate account
designated as the Provident Mutual Variable Annuity Separate Account
(Separate Account) with the following investment divisions: Growth, Money
Market, Bond, Managed, Aggressive Growth and International.
FURTHER RESOLVED, that the President, a Vice President, Secretary,
Treasurer, or Counsel each be authorized to take all necessary and
appropriate action to accomplish the registration of the Separate Account
as an investment company under the Investment Company Act of 1940 and the
registration of the variable annuity contracts in connection with the
Separate Account as securities under the Securities Act of 1933, and to
take all action necessary to comply with the Acts, including but not
limited to the execution and filing of registration statements and
amendments thereto, applications for exemptions from the provisions of the
Acts as may be necessary or desirable, and agreements for the management
of the Separate Account and the distribution of variable annuity contracts
carrying an interest in the Separate Account assets;
FURTHER RESOLVED, that the President or a Vice President be, and hereby
are, authorized to adopt Rules and Regulations for the administration of
the Separate Account;
FURTHER RESOLVED, that the President or a Vice President be, and hereby
are, authorized to take all necessary and appropriate action to effect an
agreement with the Market Street Fund, Inc., for the provision of services
to the Separate Account.
2. BE IT RESOLVED, that the following Standards of Conduct with respect to
investments of the above Separate Account and variable annuity operations
are hereby adopted:
Unless otherwise approved in writing by the insurance commissioner of the
applicable state in advance of the transaction, with respect to the
Separate Account, the Company shall not:
1. Sell to, or purchase from, such Separate Account established by the
company any securities or other property, other than variable
annuity contracts.
2. Purchase, or allow to be purchased, for such Separate Account, any
securities of which the Company or an affiliate is the issuer.
3. Accept any compensation, other than a regular salary or wages from
the Company or affiliate, for the sale or purchase of securities to
or from such Separate Account other than as provided by law.
4. Engage in any joint transaction, participation or common undertaking
whereby the Company or an affiliate participates with such Separate
Account in any transaction in which the Company or any of its
affiliates obtain an advantage in the price or quality of the item
purchased, in the service received, or in the cost of such service
or is disadvantaged in any of these respects by the same
transaction.
<PAGE> 3
5. Borrow money or securities from such Separate Account other than
under a policy loan provision.
3. BE IT RESOLVED, that the following Standards of Suitability shall apply to
Provident Mutual Life Insurance Company of Philadelphia, its officers,
directors, employees, affiliates and agents with respect to the
suitability of a variable annuity contract for an applicant for such
contract:
No recommendation shall be made to an applicant to purchase a variable
annuity contract, and no variable annuity contract shall be issued, in the
absence of reasonable grounds to believe that the purchase of such a
contract is not unsuitable for such applicant on the basis of information
furnished after reasonable inquiry into the following subjects of concern
to the applicant:
1) the applicant's insurance and investment objectives;
2) the applicant's financial situation and needs; and
3) other relevant information known to Provident Mutual Life
Insurance Company of Philadelphia or the agent making the
recommendation.
A copy of this resolution shall be distributed to the officers, employees,
affiliates and agents of this Company.
AND BE IT FURTHER RESOLVED, that the President, a Vice President,
Secretary or other appropriate officer of the Company be, and hereby are,
authorized and directed to carry into full force and effect the purposes
and provisions of this resolution.
4. RESOLVED, that the Certificate of Authority for Provident Mutual Life
Insurance Company of Philadelphia be amended, where required, to enable
the Company to sell variable annuity contracts;
FURTHER RESOLVED, that the President, Vice President, Secretary, or
Counsel of the Company each be, and hereby are, authorized to take all
necessary and appropriate action to effectuate such amendment.
<PAGE> 1
EXHIBIT 1(c)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
Investment Committee
RESOLUTION
---------
WHEREAS, on June 7, 1993 Provident Mutual Life Insurance Company (the "Company")
established a separate account pursuant to the provisions of Section 406.2 of
the Pennsylvania Insurance Code designated as the "Provident Mutual Variable
Separate Account" (the "Account") for use in conjunction with certain variable
life insurance policies (the "Policies"); and
WHEREAS, on that same date the Company also established several investment
subaccounts with authority expressly reserved for the addition of, removal of,
or substitution of any investment subaccount of the Account as may be deemed
necessary or appropriate;
NOW, THEREFORE, BE IT RESOLVED, that the following investment subaccounts are
hereby established within the Account: the ALL-PRO LARGE CAP VALUE SUBACCOUNT,
the ALL-PRO SMALL CAP VALUE SUBACCOUNT, the ALL-PRO LARGE CAP GROWTH SUBACCOUNT,
the ALL-PRO SMALL CAP GROWTH SUBACCOUNT, the NEUBERGER & BERMAN PARTNERS
SUBACCOUNT and the VAN ECK WORLDWIDE REAL ESTATE INVESTMENT TRUST SUBACCOUNT
(the "Subaccounts")
FURTHER RESOLVED, that the portion of the assets of the Account and the
Subaccounts equal to the reserves and other contract liabilities with respect to
the Account and the Subaccounts shall not be chargeable with liabilities arising
out of any other business the Company may conduct; and
FURTHER RESOLVED, that the income, gains and losses, realized or unrealized,
from assets allocated to the Account or the Subaccounts shall, in accordance
with the Policies, be credited to or charged against such Account or Subaccounts
without regard to other income, gains or losses of the Company; and
FURTHER RESOLVED, that the President or a Vice President are hereby authorized
to take all necessary and appropriate action to effectuate the use of the
Subaccount, to adopt Rules and Regulations for the administration of the
Subaccounts, and to execute any and all agreements, including but not limited
to, an agreement with the Market Street Fund, Inc,. for the provision of
services with the Subaccounts.
<PAGE> 1
Exhibit 1(3a)
UNDERWRITING AGREEMENT
AGREEMENT made this ____ day of ________, 1993, by and among Provident
Mutual Life Insurance Company of Philadelphia, a Pennsylvania corporation
("Provident Mutual"), PML Securities Company, a Pennsylvania corporation
("PML"), and the Provident Mutual Variable Annuity Separate Account, ("Variable
Account"), a separate investment account of Provident Mutual.
WITNESSETH:
WHEREAS, Provident Mutual has established and maintains the Variable
Account pursuant to the laws of the Commonwealth of Pennsylvania, for the
purpose of selling variable annuity contracts ("Contracts"), the sale of which
is to commence after the effective date of the Registration Statement filed with
the Securities and Exchange Commission ("Commission") on Form N-4 pursuant to
the Securities Act of 1933 ("1933 Act"); and
WHEREAS, the Variable Account is registered as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"); and
WHEREAS, PML is registered as a broker-dealer under the Securities
Exchange Act of 1934 ("1934 Act") and is a member of the National Association
of Securities Dealers, Inc. ("NASD"); and
WHEREAS, Provident Mutual, the Variable Account and PML wish to enter into
an agreement to have PML act as Provident Mutual's principal underwriter for the
sale of the Contracts through the Variable Account;
NOW, THEREFORE, the parties agree as follows:
A. DISTRIBUTION SERVICES
1. PML represents that it is duly registered as a broker-dealer under
the 1934 Act and is a member in good standing of the NASD and, to the extent
necessary to offer the Contracts, shall be duly registered or otherwise
qualified under the securities laws of any state or other jurisdiction.
2. PML shall act as the principal underwriter for the sale of Contracts
to the public, during the term of this Agreement, in each state and other
jurisdictions in which such Contracts may lawfully be sold. PML shall offer the
Contracts for sale and distribution under guidelines established by Provident
Mutual. PML agrees to use its best efforts to solicit applications for the
Contracts at its own expense, and otherwise perform all duties and functions
which are necessary and proper for the distribution of the Contracts; provided,
however, PML shall not be obligated to sell any specific number of Contracts.
Completed applications for Contracts shall be transmitted directly to Provident
Mutual for acceptance or rejection in accordance with underwriting rules
established by Provident Mutual. All premium payments under the Contracts shall
be made by check payable to Provident Mutual and shall be transmitted promptly
in full by PML or its representatives to Provident Mutual.
<PAGE> 2
3. PML shall be fully responsible for training, supervising, and
controlling its representatives soliciting applications for Contracts, for
taking all necessary and appropriate steps to ensure compliance by PML and its
representatives on a continuous basis with the NASD Rules of Fair Practice,
federal and state securities law requirements and all other applicable laws and
regulations concerning the offer and sale of Contracts (and the riders and other
contracts offered in connection therewith), and for ensuring that its
representatives are duly and appropriately licensed or otherwise qualified for
the offer and sale of the Contracts under the federal securities laws and any
applicable securities, insurance or other laws of each state or other
jurisdiction in which the Contracts may be lawfully sold.
4. Provident Mutual agrees that during the term of this Agreement it
will take any action which is required to cause the Contracts to comply as an
insurance product and a registered security with all applicable federal and
state laws and regulations.
5. PML agrees that it will execute such papers and do such acts as
shall from time to time be reasonably requested by Provident Mutual for the
purpose of (a) maintaining the registration of the Contracts under the 1933 Act
and the Variable Account under the 1940 Act, and (b) qualifying and maintaining
qualification of the Contracts for sale under the applicable laws of any state.
6. PML is hereby authorized to enter into separate written
agreements, on such terms and conditions as PML may determine which are not
inconsistent with this Agreement, with one or more organizations which agree to
participate in the distribution of the Contracts. Such organization (hereafter
"Broker") shall be registered both as a broker-dealer under the 1934 Act and as
a member of the NASD. All such sales agreements shall provide that each Broker
will assume full responsibility for continued compliance by itself and its
representatives with applicable federal and state securities laws, including but
not limited to training, supervision and control of its representatives engaged
in the distribution of the Contracts. PML shall obtain the approval of Provident
Mutual prior to entering into an agreement with any such organization. All
Brokers shall act as independent contractors and nothing herein shall constitute
such Brokers or their agents or employees as employees of Provident Mutual in
connection with the sale of the Contracts.
7. PML shall take reasonable steps to ensure that any Broker and its
representatives soliciting applications for Contracts shall be duly and
appropriately licensed, registered or otherwise qualified for the sale of such
Contracts (and the riders and other contracts offered in connection therewith)
under the state insurance laws, the federal securities laws, and any applicable
blue-sky laws of each state or other jurisdiction in which Provident Mutual is
licensed to sell the Contracts.
8. PML shall take reasonable steps to ensure that each Broker trains,
supervises and controls its representatives in compliance with applicable laws
and regulations including, but not limited to (a) conducting such training
(including the preparation and utilization of training materials as in the
opinion of PML is necessary to accomplish the purposes of this Agreement and (b)
establish and implement reasonable written procedures for supervision of sales
practices
- 2 -
<PAGE> 3
of agents, representatives or brokers selling the Contracts. Each Broker shall
assume any legal responsibilities of Provident Mutual for the acts, commissions,
omissions, or defalcations of such representatives insofar as they relate to the
sale of the Contracts. Applications for Contracts solicited by a Broker through
its agents or representatives shall be transmitted directly to Provident
Mutual, and if received by PML, shall be forwarded to Provident Mutual. All
premium payments under the Contracts shall be made by check payable to Provident
Mutual and remitted promptly to Provident Mutual as agent for PML
9. Provident Mutual shall undertake to appoint the qualified
representatives of PML or any Broker appointed by PML as life insurance agents
of Provident Mutual and shall apply for proper licenses in the appropriate
states or jurisdictions for these proposed agents. Provident Mutual reserves the
right to refuse to appoint any proposed agent, or once appointed to terminated
the same.
B. COMPLIANCE AND RECORDKEEPING
1. PML is authorized to appoint the organizations described in
paragraph 6 of Article A above as independent general agents of Provident Mutual
for the sale of the Contracts. PML is responsible for ensuring that Brokers are
duly qualified, under the insurance laws of the applicable jurisdictions, to
sell the Contracts.
2. Provident Mutual and PML wish to ensure that Contracts sold by
PML will be issued to purchasers for whom the Contracts will be suitable. PML
shall take reasonable steps to ensure that the various representatives appointed
by it shall not make recommendations to an applicant to purchase a Contract in
the absence of reasonable grounds to believe that the purchase of the Contracts
is suitable for such applicant. While not limited to the following, a
determination of suitability shall be based on information furnished to a
representative after reasonable inquiry of such applicant concerning the
applicant's retirement and financial needs, objectives and situation. PML is not
authorized to give any information or to make any representations concerning the
Contracts other than those contained in the current prospectus filed with the
Commission or in such sales literature as may be authorized by Provident Mutual.
3. Provident Mutual, at its sole expense, shall have the
responsibility for furnishing PML and its representatives with prospectuses,
financial statements, sales promotion materials as well as individual sales
proposals related to the sale of the Contracts, and other documents which PML
reasonably requests for use in connection with the distribution of the
Contracts. Provident Mutual shall have responsibility for preparing, filing with
the appropriate federal and state regulatory authorities and printing all
required prospectuses and/or registration statements in connection with the
Contracts and the payments of all related expenses. PML shall not use any sales
materials that have not been approved by Provident Mutual; provided, however,
that PML shall have responsibility for approving and filing all sales literature
and advertisements with the NASD and the Commission as required by law or rule.
4. On behalf of PML, Provident Mutual shall cause to be maintained
and preserved, for the periods prescribed, such accounts, books and other
documents as are required of
- 3 -
<PAGE> 4
Provident Mutual and PML by the 1934 Act, any applicable releases issued by the
Commission under the federal securities laws, and any other applicable laws and
regulations in connection with the offer and sale of the Contracts. The books,
accounts and records of Provident Mutual, the Variable Account and PML as to all
transactions hereunder shall be maintained so as to disclose clearly and
accurately the nature and details of the transactions. Provident Mutual shall
maintain, on behalf of and as agent for PML, such books and records of PML
pertaining to the offer and sale of the Contracts and required by the 1934 Act
as may be mutually agreed upon from time to time by Provident Mutual and PML,
including but not limited to maintaining a record of representatives licensed,
registered and otherwise qualified under the federal securities laws to sell the
Contracts and of the payments of commissions and service fees made to such
representatives; provided that such books and records shall be the property of
PML and shall at all times be subject to such reasonable periodic, special or
other inspection or examination by the Commission and all other regulatory
bodies having jurisdiction. Provident Mutual, on behalf of and as agent for PML,
shall be responsible for sending all required confirmations on customer
transactions upon or before completion thereof in compliance with applicable
laws and regulations, as modified by an exemption or other relief obtained by
Provident Mutual, and any applicable releases issued by the Commission under the
federal securities laws. Such confirmation, unless modified by an exemption or
other relief obtained by Provident Mutual, shall reflect the facts of the
transaction, and the form thereof will show that it is being sent on behalf of
PML acting in the capacity of agent for Provident Mutual.
5. Provident Mutual and the Variable Account shall own and control
all pertinent records relating to the variable annuity operations required to be
prepared and maintained under the 1940 Act and applicable rules and regulations
thereunder. PML agrees that all accounts and records which it maintains for
Provident Mutual and the Variable Account shall be the property of Provident
Mutual and the Variable Account and that it will surrender promptly to the
designated officers of Provident Mutual, any or all such accounts and records
upon request. Provident Mutual, the Variable Account or the authorized
representative of said parties shall have the right to copy any such records in
the possession of PML. Such accounts and records shall be available to properly
constituted governmental authorities as required by federal and state law and/or
regulation. PML shall cause Provident Mutual to be furnished with such reports
as Provident Mutual may reasonably request for the purpose of meeting its
reporting and recordkeeping requirements under the insurance laws of the
Commonwealth of Pennsylvania and any other applicable states or jurisdictions.
6. PML and Provident Mutual agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with Contracts contributed under this Agreement. PML and Provident
Mutual further agree to cooperate fully in any securities regulatory inspection,
inquiry, investigation or proceeding or judicial proceeding with respect to
Provident Mutual, PML, their affiliates and their agents or representatives to
the extent that such inspection, inquiry, investigation or proceeding is in
connection with Contracts distributed under this Agreement. Without limitation:
(a) PML will be notified promptly of any customer complaint or
notice of any regulatory inspection, inquiry, investigation or
proceeding or judicial
- 4 -
<PAGE> 5
proceeding received by Provident Mutual with respect to PML or any
agent or representative or which may affect Provident Mutual's issuance
of any Contract marketed under this Agreement.
(b) PML will promptly notify Provident Mutual of any customer
complaint or notice of any regulatory inspection, inquiry,
investigation or proceeding received by PML or its affiliates with
respect to PML or any agent or representative in connection with any
Contract distributed under this Agreement or any activity in connection
with any such Contract.
(c) In the case of a substantive customer complaint, PML and
Provident Mutual will cooperate in investigating such complaint and any
response to such complaint will be sent to the other party to this
Agreement for approval not less than five business days prior to its
being sent to the customer or regulatory authority, except that, if a
more prompt response is required, the proposed response shall be
communicated by telephone or telecopy.
C. COMPENSATION
1. On behalf of PML, Provident Mutual shall arrange for the payment
of commissions directly to those registered representatives of PML who are
entitled thereto in connection with the sale of the Contracts in the amounts and
on such terms and conditions as Provident Mutual and PML shall determine.
Provident Mutual will pay the difference between the amount of the commissions
payable with respect to a Contract and the amount paid to the registered
representative for such Contract to PML for expenses associated with
distribution and marketing of Contracts and supervision of its registered
representatives. (See Schedule A.)
2. Provident Mutual shall arrange for the payment of commissions
directly to those Brokers who sell Contracts under Agreements entered into
pursuant to paragraph 6 of Article A above, in amounts as may be agreed to by
Provident Mutual and specified in such written agreements.
3. Provident Mutual shall reimburse PML for the costs and expenses
incurred by PML in furnishing or obtaining the services, materials and supplies
required by the terms of this Agreement in the initial sales efforts and the
continuing obligations hereunder.
4. Notwithstanding anything in this Agreement to the contrary, no
representative of PML or any Broker shall have an interest in any deductions or
other fees payable to PML.
D. MISCELLANEOUS
1. This Agreement shall be effective upon the execution hereof. This
Agreement:
(a) shall automatically be terminated in the event of its
assignment, unless prior written consent of Provident Mutual to such
assignment is obtained;
- 5 -
<PAGE> 6
(b) may be terminated by any party at any time upon 60 days'
written notice to the other parties hereto;
(c) may be terminated upon written notice of a party to another
party hereto in the event of bankruptcy or insolvency of such party to
which notice is given;
(d) may be terminated at any time upon the mutual written consent
of the parties hereto; and
(e) may be terminated for "cause" at any time by Provident
Mutual. "Cause" is defined and limited for this purpose to mean willful
misfeasance, bad faith, or gross negligence by PML in the performance
of its duties or reckless disregard by it of its obligations and duties
under this Agreement.
Upon termination of this Agreement, all authorizations, rights, and obligations
shall cease except the obligations to settle accounts hereunder, including
payments or premiums or contributions subsequently received for Contracts in
effect at the time of termination or issued pursuant to applications received by
Provident Mutual prior to termination, and all commissions attributable thereto.
2. In the event of termination for any reason, all records shall
promptly be returned to Provident Mutual free from any claim or retention of
rights by PML.
3. PML shall not disclose or use any records of information obtained
pursuant to this Agreement in any manner whatsoever except as expressly
authorized herein and, further, PML will keep confidential any information
obtained pursuant to the service relationship set forth herein and disclose such
information only if Provident Mutual has authorized such disclosure or such
disclosure is expressly required by applicable federal or state regulatory
authorities.
4. PML shall submit to all regulatory and administrative bodies
having jurisdiction over the operations of Provident Mutual and/or the Variable
Account, present or future, any materials reasonably related to the
administrative and marketing services provided hereunder and any other
information, reports or other material, as may be requested or required by any
governmental agency having jurisdiction.
5. PML shall act as an independent contractor and nothing herein
contained shall constituted PML or its agents or employees as employees of
Provident Mutual in connection with the sale of the Contracts.
6. PML shall be liable for its own misconduct and negligence.
7. The services of PML hereunder are not to be deemed exclusive and
PML shall be free to render similar services to others so long as its services
hereunder are not impaired or interfered with thereby.
- 6 -
<PAGE> 7
8. This Agreement shall be subject to the provisions of the 1940 Act
and the 1934 Act and the rules, regulations, and rulings thereunder and of the
applicable rules and regulations of the NASD, from time to time in effect
including such exemptions from the 1940 Act as the Commission may grant, and the
terms hereof shall be interpreted and construed in accordance therewith. Without
limiting the foregoing, the terms "assign" or "assignment" shall not include any
transaction exempted from section 15(b)(2) of the 1940 Act.
9. A copy of this Agreement shall be furnished to the Commission.
10. This Agreement shall be construed and enforced in accordance with
and governed by the laws of the Commonwealth of Pennsylvania.
11. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PML SECURITIES COMPANY
ATTEST: __________________________ BY: ________________________________
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY OF PHILADELPHIA
ATTEST: __________________________ BY: ________________________________
THE PROVIDENT MUTUAL VARIABLE
ANNUITY SEPARATE ACCOUNT
ATTEST: __________________________ BY: ________________________________
- 7 -
<PAGE> 1
EXHIBIT (4)(a)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
PHILADELPHIA, PENNSYLVANIA
RIDER
AMENDMENT OF CONTRACT PROVISIONS
(FOR UNISEX CONTRACTS)
The Contract is amended as follows:
1. The MISSTATEMENT OF AGE AND SEX Provision is deleted and replaced by
the following:
MISSTATEMENT OF AGE. If the age of the Annuitant has been misstated, we
will pay the amount which the proceeds would have purchased at the
correct age.
If we make an overpayment because of an error in age, the
overpayment plus interest at 3% compounded annually will be a debt
against this contract. If the debt is not repaid, future payments will
be reduced accordingly.
If we make an underpayment because of an error in age, any
annuity payments will be recalculated at the correct age, and future
payments will be adjusted. The underpayment with interest at 3%
compounded annually will be paid in a single sum.
2. Item B of the GENERAL PROVISIONS under PAYMENT OPTIONS is deleted and
replaced by the following:
B. Proof satisfactory to us of the identity and birth date of any
person on whose life an annuity depends shall be provided to
us before any annuity payments will be made.
3. The OPTION TABLE is deleted and replaced by
the following table:
(continued on reverse side)
<PAGE> 2
OPTION TABLE
GUARANTEED AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF
ANNUITY VALUE APPLIED
<TABLE>
<CAPTION>
GUARANTEED MONTHLY PAYMENTS GUARANTEED MONTHLY PAYMENTS
Age 10 Year Age 10 Year
of Life Only Period Certain of Life Only Period Certain
Payee (Option A) (Option B) Payee (Option A) (Option B)
----- ---------- ---------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C>
5 $2.70 $2.70 45 $3.39 $3.39
6 2.71 2.71 46 3.42 3.42
7 2.72 2.72 47 3.46 3.46
8 2.72 2.73 48 3.50 3.50
9 2.73 2.73 3.54 3.54
10 2.74 2.74 50 3.59 3.58
11 2.75 2.75 51 3.63 3.62
12 2.76 2.76 52 3.68 3.67
13 2.77 2.77 33 3.73 3.72
14 2.79 2.78 54 3.78 3.76
15 2.79 2.79 55 3.83 3.82
16 2.80 2.80 56 3.89 3.87
17 2.81 2.81 57 3.95 3.93
18 2.82 2.83 58 4.01 3.99
is 2.83 2.84 59 4.07 4.05
20 2.85 2.85 60 4.14 4.11
21 2.86 2.86 61 4.21 4.18
22 2.87 2.88 62 4.29 4.25
23 2.89 2.89 63 4.37 4.33
24 2.90 2.90 64 4.46 4.41
25 2.92 2.92 65 4.55 4.50
26 2.93 2.93 66 4.64 4.58
27 2,95 2.95 67 4.75 4.68
28 2.96 2.97 68 4.86 4.78
29 2.98 2.98 69 4.97 4.88
30 3.00 3.00 70 5.09 4.99
31 3.02 3.02 71 5.22 5.10
32 3.04 3.04 72 5.36 5.21
33 3.06 3.06 73 5.51 5.34
34 3.08 3.08 74 5.67 5.46
35 3.10 3.10 75 5.83 5.60
36 3.13 3.13 76 6.01 5.73
37 3.15 3.15 77 6.19 5.87
38 3.18 3.18 78 6.39 6.02
39 3.20 3.20 79 6.60 6.17
40 3.23 3.23 80 6.82 6.32
41 3.26 3.26 81 7.06 6.48
42 3.29 3.29 82 7.31 6.64
43 3.32 3.32 83 7.58 6.80
44 3.35 3.35 84 7.87 6.97
85* 8.17 7.13
</TABLE>
*Payment shown applies to all younger ages.
**Payment shown applies to all older ages.
Attached by Provident Mutual Life Insurance Company of Philadelphia on the Issue
Date of the contract.
ROBERT W. KLOSS
President and Chief Executive Officer
<PAGE> 1
EXHIBIT (4)(b)
Provident Mutual Life Insurance Company of Philadelphia
Philadelphia, Pennsylvania
QUALIFIED PLAN RIDER
This Rider is pan of the Contract. The Contract. is issued to or purchased by
the trustee of a pension or profit-sharing plan intended to qualify under
section 401(a) of the Internal Revenue Code of 1986, as amended (the 'Code").
The following provisions apply and replace any contrary Contract provisions:
1. Except as allowed by the qualified pension or profit-sharing
plan of which this Contract is a part, the Contract may not be
transferred, sold, assigned, discounted or pledged, either as
collateral for a loan or as security for the performance of an
obligation or for any other purpose, to any person other than
Provident Mutual.
2. The Contract shall be subject to the provisions, terms and
conditions of the qualified pension or profit-sharing plan of
which the Contract is a part. Any payment, distribution or
transfer under the Contract shall comply with the provisions,
terms and conditions of such plan as determined by the plan
administrator, trustee or other designated plan fiduciary.
Provident Mutual shall be under no obligation either: a) to
determine whether any such payment, distribution or transfer
is inconsistent with the provisions, terms and conditions of
such plan; or b) to administer such plan, including any
provisions required by the Retirement Equity Act of 1984.
3. Notwithstanding any provision to the contrary in the Contract
or the qualified pension or profit-sharing plan of which the
Contract is a part, we reserve the right to amend or modifv
the Contract or Rider to the extent necessary to comply with
any law, regulation, ruling or other requirement necessary to
establish or maintain the qualified status of such pension or
profit-sharing plan.
Attached by Provident Mutual life Insurance Company of Philadelphia on the Issue
Date of this Contract.
ROBERT W. KLOSS
L. J. Rowell, Jr.
President and Chief
Executive Officer
<PAGE> 1
EXHIBIT (4)(c)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
PHILADELPHIA, PENNSYLVANIA
403(b) ANNUITY LOAN RIDER
This Rider is attached to and forms a part of the Contract. This Rider takes
effect on the later of the Issue Date of the Contract or the date specified
herein. This Rider will terminate on the earliest of:
(1) the date the Contract is surrendered for the Cash Surrender
Value;
(2) the Maturity Date;
(3) the death of the Annuitant prior to the Maturity Date; or
(4) the first day that Indebtedness as defined below, equals or
exceeds the Cash Surrender Value.
Any Indebtedness will become due and payable on the date of the termination of
this Rider. No provisions in the Contract will change except as expressly stated
herein.
CONTRACTLOANS
After this Rider has been in effect for at least six (6) months, a 403(b)
Contract Loan may be made by the Annuitant by sending a signed written request
to our Administrative Office: 300 Continental Drive, Newark, Delaware 19713.
MAXIMUM CONTRACT LOAN
The maximum Contract Loan value will be determined in accordance with the
withdrawals and surrender provisions of the contract. The amount of the Contract
Loan, when added to the outstanding balance of a policy loan against a life
insurance policy that is purchased as part of the same section 403(b)
arrangement as the contract, if any, and the outstanding balance of any other
loans from qualified employer plans, may not be more than the lesser of:
(1) $50,000 reduced by the excess if any of (a) the highest
outstanding balance of loans from the section 403(b)
arrangement. and any other qualified employer plans during the
one year period ending on the day before the date on which the
Contract Loan was made, over (b) the outstanding balance of
loans from the section 403(b) arrangement and any other
qualified employer plans on the date on which the Contract
Loan was made; or
(2) the greater of (a) fifty percent of the sum of the Cash
Surrender Value of the annuity contract, the Cash Value of any
life insurance policy purchased as part of the section 403(b)
arrangement, and the nonforfeitable accrued benefit of the
Owner under any other qualified employer plan, or (b) $10,000
provided that the Cash Surrender Value is at least $10,500;
provided, however, that at least $10,000 may be borrowed if the Cash Surrender
Value is at least $10,500.
OTHER CONTRACT LOAN RESTRICTIONS
The following restrictions apply to all 403(b) Contract Loans:
(1) Only one Contract Loan may be outstanding at a time.
(2) Only one Contract Loan may be taken out in any one contract
year.
(3) The Annuity Value and Cash Surrender Value of this contract
are the security for the Contract Loan.
(4) The Contract Loan amount must be at least $500 and the Cash
Surrender Value not securing the Contract Loan must be at
least $500 on the day the Contract Loan is made.
(5) The Company has the right to postpone making a Contract Loan
for not more than 6 months.
INDEBTEDNESS
Indebtedness is the entire unpaid balance of a Contract Loan plus all unpaid
interest accrued on the Contract Loan.
PAYMENT OF CONTRACT VALUES WHEN THERE IS INDEBTEDNESS
Before payment of either the Cash Surrender Value or the Annuity Value under any
of the contract provisions,, the entire indebtedness as of the payment date will
be deducted.
(continued on reverse side)
<PAGE> 2
INTEREST CHARGED AND CREDITED
interest at a rate of no more than 8% per year will be charged on the
Indebtedness from the date the Contract Loan is made. During the period of any
Contract Loan under the contract, the interest rate credited to the Annuity
Value on amounts securing the Indebtedness may be reduced, but not to less than
3% per year.
CONTRACT LOAN PAYMENTS
A Contract Loan must be repaid as follows, or as may otherwise be required by
federal law or regulation. Substantially equal Contract Loan Payments must be
made at least quarterly to completely repay all Indebtedness within 5 years from
the date of the Contract Loan. However, if the Contract Loan is to be used to
acquire a dwelling that is to be used within a reasonable time as a principal
residence by the Annuitant, then the Contract Loan Payment period may be
increased to as long as 30 years. Contract Loan Payments shall be not less than
the minimum amount as determined by the Company. The Company reserves the right
to change the required minimum amount at any time.
LATE CONTRACT LOAN PAYMENTS AND DEFAULT
If a Contract Loan Payment is not paid when due, the entire loan will be
declared in default, In the event of a default on a contract loan, the Company
shall make every effort to collect on the loan and shall charge interest on the
unpaid portion of the loan until the earlier of the date the loan is repaid in
full or the date the note evidencing the loan can be distributed to the Owner in
accordance with Section 403(b) of the Internal Revenue Code (the "Code"). The
Cash Surrender Value and the Annuity Value of the contract shall not be reduced
until such time as such a reduction would constitute a permissible distribution
under Section 403(b) of the Code. The Owner shall have 31 days in which to
submit a late payment and cure the default, Furthermore, if the default has not
been cured prior to December 31 of the calendar year in which the incidence of
default occurred, any portion of the loan that has not previously been treated
as a distribution for federal income tax purposes shall be deemed to be
distributed to the Owner and federal taxes on such deemed distribution may be
due and payable.
EXTRA CONTRACT LOAN PAYMENTS
Extra Contract Loan Payments and Contract Loan Payments greater than the
scheduled payment amount will be accepted and will be applied to reduce the
remaining term of the scheduled Contract Loan Payment period and/or the amount
of the final payment. Such Contract Loan Payments may not be applied to reduce
the payment amount, change a scheduled payment date, Or miss a due date for any
scheduled payment due before the final payment.
TERMINATION DUE TO INSUFFICIENT CONTRACT VALUE
This Rider and the contract to which it is attached will terminate without value
on the first day that Indebtedness equals or exceeds the Cash Surrender Value
and the Annuitant has reached age 59 1/2, separated from service, died, or
become disabled within the meaning of Section 72(m)(7) of the Internal Revenue
Code. Federal taxes may become due and payable by the Annuitant upon termination
of the contract. Notice will be mailed to the Annuitant's last known address at
least thirty-one days before such termination. The termination may be avoided by
making a Contract Loan Payment sufficient for the contract to have a Cash
Surrender Value at least $500 greater than the Indebtedness within thirty-one
days of receiving the notice.
Effective date of this Rider, if later than the Issue Date of the contract:
Attached by Provident Mutual Life Insurance Company of Philadelphia.
ROBERT W. KLOSS
President and Chief Executive Officer
<PAGE> 1
EXHIBIT (4)(d)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
DEATH BENEFIT
ANNUITANT
CONTRACT NUMBER
The following Death Benefit provision replaces the PROCEEDS ON DEATH OF
ANNUITANT BEFORE MATURITYDATE provision found under the PAYMENT OF PROCEEDS
Section of your Contract.
PROCEEDS ON DEATH OF ANNUITANT BEFORE MATURITY DATE. If the Annuitant dies
before the Maturity Date, the proceeds we will pay to the Beneficiary is the
Death Benefit.
If the Annuitant dies during the first six Contract Years, the Death Benefit
will equal the greater of:
1. the Premiums paid, less any withdrawals including any
applicable Surrender Charge; or
2. the Contract Account Value on the date we receive due proof of
the Annuitant's death.
If the Annuitant dies after the end of the sixth Contract Year and
prior to the Maturity Date, the Death Benefit will equal the greatest of:
1. the Guaranteed Minimum Death Benefit described below, plus
subsequent premiums paid, less any reduction for a subsequent
withdrawal described below; or
2. the Premiums paid less any withdrawals including any
applicable Surrender Charge; or
3. the Contract Account Value on the date we receive due proof of
the Annuitant's death.
The proceeds will be paid in a lump sum or under a Payment Option. If
you are the Annuitant, the proceeds must be distributed in accordance with the
rules set forth in "Proceeds on Death of an Owner" for an Owner's death before
the Maturity Date. No Death Benefit is payable if this Contract is surrendered
before the Annuitant's death.
GUARANTEED MINIMUM DEATH BENEFIT. On each six year Contract Anniversary on or
before the Annuitant's 85th birthday, the Guaranteed Minimum Death Benefit will
equal the greater of:
(a) the Guaranteed Minimum Death Benefit as of the previous six
year Contract Anniversary less any reduction for a subsequent
withdrawal described below, or
(b) the Contract Account Value on the current Contract
Anniversary,
After the six year Contract Anniversary on or before the Annuitant's
85th birthday, the Guaranteed Minimum Death Benefit will not he recalculated
under this Provision.
REDUCTION FOR A WITHDRAWAL When part of the Cash Surrender Value is withdrawn,
the withdrawal will reduce the Death Benefit in the same proportion that the
Contract Account Value was reduced on the date of withdrawal, For each
withdrawal, the Death Benefit reduction is calculated by multiplying the Death
Benefit on the date of withdrawal by a fraction, the numerator of which is the
amount of the withdrawal including any applicable Surrender Charge and the
denominator of which is the Contract Account Value immediately prior to the
withdrawal.
This Rider does not change any other provisions of the Contract except as stated
above.
Attached by Provident Mutual Life Insurance Company.
ROBERT W. KLOSS
President
<PAGE> 1
EXHIBIT (4)(e)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
DEATH BENEFIT
ANNUITANT
CONTRACT NUMBER
The following Death Benefit provision replaces the PROCEEDS ON DEATH OF
ANNUITANT BEFORE MATURITYDATE provision found under the PAYMEnt OF PROCEEDS
Section of your Contract.
PROCEEDS ON DEATH OF ANNUITANT BEFORE MATURITY DATE. If the Annuitant dies
before the Maturity Date, the proceeds we will pay to the Beneficiary is the
Death Benefit.
The Death Benefit will equal the greater of:
1. the Guaranteed Minimum Death Benefit; or
2. the Contract Account Value on the date we receive due proof of
the Annuitant's death.
The proceeds will be paid in a lump sum or under a Payment Option. if
you are the Annuitant, the proceeds must be distributed in accordance with the
rules set forth in "Proceeds on Death of an Owner" for an Owner's death before
the Maturity Date. No Death Benefit is payable if this Contract is surrendered
before the Annuitant's death.
GUARANTEED MINIMUM DEATH BENEFIT. The Guaranteed Minimum Death Benefit on or
prior to the Contract Anniversary before the Annuitant's 75th birthday will be
the sum of the Premiums paid less any Reduction for A Withdrawal described
below. These amounts will be accumulated with interest at an effective annual
rate of 4.5%,
The Guaranteed Minimum Death Benefit after the Contract Anniversary
before the Annuitant's 75th birthday will be:
1. the Guaranteed Minimum Death Benefit on the Contract
Anniversary before the Annuitant's 75th birthday; plus
2. the sum of the Premiums paid after the Contract Anniversary
before the Annuitant's 75th birthday; less
3. any Reduction For A Withdrawal described below after the
Contract Anniversary before the Annuitant's 75th birthday.
REDUCTION FOR A WITHDRAWAL When part of the Cash Surrender Value is withdrawn,
the withdrawal will reduce the Death Benefit in the same proportion that the
Contract Account Value was reduced on the date of withdrawal. For each
withdrawal, the Death Benefit reduction is calculated by multiplying the Death
Benefit on the date of withdrawal by a fraction, the numerator of which is the
amount of the withdrawal including any applicable Surrender Charge and the
denominator of which is the Contract Account Value immediately prior to the
withdrawal.
This Rider does not change any other provisions of the Contract except
as stated above.
Attached by Provident Mutual Life Insurance Company.
ROBERT W. KLOSS
President
<PAGE> 1
EXHIBIT (4)(f)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
AMENDMENT TO QUALIFY DEFERRED ANNUITY CONTRACT
AS A SIMPLE INDIVIDUAL RETIREMENT ANNUITY
This Rider is attached to and made a part of the Annuity Contract (the
"Contract") to qualify the Contract as a SIMPLE IRA under Section 408(p) of the
Internal Revenue Code (the "Code"), as the same may be amended or supplemented
from time to time. AU references to Code Sections are to those Sections as they
may be amended and/or renumbered from time to time. If any provisions of the
Contract conflict with this Rider, the provisions of the Rider will apply.
1. The Owner must be the Annuitant. A Contingent Owner may not be
designated.
2. The Contract is established for the exclusive benefit of the
Owner or his/her Beneficiaries and the interest of the Owner
is nonforfeitable.
3. This Contract may not be transferred, sold, assigned,
discounted, or pledged as collateral for a loan.
4. The only premiums permitted under this Contract are cash
premiums under a qualified salary reduction arrangement as
defined in Code Section 408(p), rollover contributions under
Code Section 408(d)(3) and such other types of contributions
as the law or regulations may permit under a SIMPLE IRA, Both
elective deferrals and employer contributions may be
permitted. Payments shall not exceed the limits specified in
Code Section 408(p) and other applicable sections of the
Internal Revenue Code and related regulations.
5. The entire interest of the Owner from a qualified retirement
plan will be distributed or commence to be distributed, no
later than the first day of April following the calendar year
in which -such individual attains age 70 1/2 (required
beginning date), in equal or substantially equal amounts, over
(a) the life of such individual (Owner) and his or her
designated Beneficiary, or (b) a period not extending beyond
the life expectancy of such individual (Owner) or the joint
and last survivor expectancy of such individual (Owner) and
his or her designated Beneficiary.
Minimum Amounts to be distributed from a qualified retirement
plan: If the Owner's entire interest is to be distributed in
other than a lump sum, then the amount to be distributed each
year (commencing with the required beginning date and each
year thereafter) must be at least an amount equal to the
quotient obtained by dividing the Owner's entire interest by
the life expectancy of the Owner or joint and last survivor
expectancy of the Owner and designated Beneficiary.
Life expectancy and joint and last survivor expectancy are
computed by use of the return multiples contained in Section
1.72-9 of the Income Tax Regulations. For purposes of this
computation, the Owner's life expectancy may be recalculated
no more frequently than annually; however, the life expectancy
of a nonspouse Beneficiary may not be recalculated.
6. If the Owner dies before the entire interest is distributed,
the following distribution provisions shall apply:
a. If the Owner dies after distribution of his or her
interest has commenced, the remaining portion of such
interest will continue to be distributed at least as
rapidly as under the method of distribution being
used prior to the Owner's death.
(continued on reverse side)
<PAGE> 2
b. If the Owner dies before distribution of his or her
interest commences, the Owner's entire interest will
be distributed in accordance with one of the
following three provisions:
(1) The Owner's entire interest will be paid by
December 31 of the year containing the fifth
anniversary of the date of the Owner's
death.
(2) lf the Owner's interest is payable to a
Beneficiary designated by the Owner and the
Owner has not elected (1) above, then the
entire interest will be distributed in equal
or substantially equal payments over the
life or life expectancy of the designated
Beneficiary or Beneficiaries starting by
December 31 of the year following the yew of
the Owner's death. If, however, the
Beneficiary is the Owner's surviving spouse,
then this distribution is not required to
begin before December 31 of the year in
which the Owner would have turned 70 1/2.
(3) If the Beneficiary is the Owner's surviving
spouse, the spouse may treat the account
(Contract) as his or her own SIMPLE
Individual Retirement Annuity.
c. For the purposes of the above, life expectancy is
computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax
Regulations. For purposes of distributions beginning
after the Owner's death, unless otherwise elected by
the surviving spouse by the time distributions are
required to begin, life expectancies shall be
recalculated annually. Such election shall be
irrevocable by the surviving spouse and shall apply
to all subsequent years. In the case of any other
designated Beneficiary, life expectancies shall be
calculated using the attained age of such Beneficiary
during the calendar year in which distributions are
required to begin pursuant to this Section, and
payments for any subsequent calendar year shall be
calculated based on such life expectancy reduced by
one for each calendar Year which has elapsed since
the calendar year life expectancy was first
calculated.
Distributions under this Section are considered to
have begun if distributions are made on account of
the Owner reaching his or her required beginning date
or if prior to the required beginning date
distributions irrevocably commence to an Owner over a
period permitted and in an annuity form acceptable
under Section 1.401(a)(9) of the Regulations.
d. For purposes of this requirement, an amount paid to a
child of the Owner will be treated as if it had been
paid to the surviving spouse if the remainder of the
interest becomes payable to the surviving spouse when
the child Teaches the age of majority.
7. Refund of premiums (other than those attributable to excess
contributions) will be applied before the close of the
calendar year following the year of refund toward the payment
of future premiums or the purchase of additional benefits.
8. This Contract does not require fixed premiums.
9. In order to retain its qualification under Section 408(p), we
may amend this contract as required by changes in the I.R.C.
Regulations and Published Rulings, Any such amendment will be
issued to all Section 408(p) annuitants.
The Rider is subject to all the exclusions, definitions, and provisions
of the Contract which are not inconsistent herewith.
Attached by Provident Mutual Life Insurance Company on the Issue Date
of the Contract.
ROBERT W. KLOSS
President
<PAGE> 1
EXHIBIT (4)(g)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
AMENDMENT TO QUALIFY DEFERRED ANNUITY CONTRACT AS
A SIMPLE EMPLOYEE PENSION (SEP) INDIVIDUAL RETIREMENT ANNUITY
This Rider is attached to and made a part of the Annuity Contract (the
"Contract") to qualify the Contract as a SEP IRA under Section 408(k) of the
Internal Revenue Code (the "Code"), as the Code may be amended or supplemented
from time to time. All references to Code Sections are to those Sections as they
may be amended and/or renumbered from time to time. If any provisions of the
Contract conflict with this Endorsement, the provisions of the Endorsement will
apply.
1. The Owner must be the Annuitant. A Contingent Owner may not be
designated.
2. The Contract is established for the exclusive benefit of the
Owner or his/her Beneficiaries and the interest of the Owner
is nonforfeitable.
3. This Contract may not be transferred, sold, assigned,
discounted, or pledged as collateral for a loan.
4. The only premiums permitted under this Contract are cash
premiums made by the employer. The employer must make
contributions for each employee who has satisfied the
eligibility requirements of Section 408(k)(2) of the Internal
Revenue Code. The maximum amount an employer may contribute
annually on behalf of each eligible employee is the lesser of
15% of compensation (subject to compensation cap) or $30,000.
5. The entire interest of the Owner from a qualified retirement
plan will be distributed or commence to be distributed no
later than the first day of April following the calendar year
in which such individual attains age 70 1/2 (required
beginning date), in equal or substantially equal amounts, over
(a) the life of such individual (Owner) and his or her
designated Beneficiary, or (b) a period not extending beyond
the life expectancy of such individual (Owner) or the joint
and last survivor expectancy of such individual (Owner) and
his or her designated Beneficiary.
Minimum Amounts to be distributed from a qualified retirement
plan: If the Owner's entire interest is to be distributed in
other than a lump sum, then the amount to be distributed each
year (commencing with the required beginning date and each
year thereafter) must be at least an amount equal to the
quotient obtained by dividing the Owner's entire interest by
the life expectancy of the Owner or joint and last survivor
expectancy of the Owner and designated Beneficiary.
Life expectancy and joint and last survivor expectancy are
computed by use of the return multiples contained in Section
1.72-9 of the Income Tax Regulations. For purposes of this
computation, the Owner's life expectancy may be recalculated
no more frequently than annually-, however, the life
expectancy of a nonspouse Beneficiary may not be recalculated.
6. If the Owner dies before the entire interest is distributed,
the following distribution provisions shall apply:
a. If the Owner dies after distribution of his or her
interest has commenced, the remaining portion of such
interest will continue to be distributed at least as
rapidly as under the method of distribution being
used prior to the Owner's death.
(continued on reverse side)
<PAGE> 2
b. If the Owner dies before distribution of his or her
interest commences, the Owner's entire interest will
be distributed in accordance with one of the
following three provisions:
(1) The Owner's entire interest will be paid by
December 31 of the year containing the fifth
anniversary of the date of the Owner's
death.
(2) If the Owner's interest is payable to a
Beneficiary designated by the Owner and the
Owner has not elected (1) above, then the
entire interest will be distributed in equal
or substantially equal payments over the
life or life expectancy of the designated
Beneficiary or Beneficiaries commencing by
December 31 of the year following the year
of the Owner's death. If, however, the
Beneficiary is the Owner's surviving spouse,
then this distribution is not required to
begin before December 31 of the year in
which the Owner would have turned 70 1/2.
(3) If the Beneficiary is the Owner's surviving
spouse, the spouse may treat the account
(Contract) as his or her own SEP Individual
Retirement Annuity.
C. For the purposes of the above, life expectancy is
computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax
Regulations. For purposes of distributions beginning
after the Owner's death, unless otherwise elected by
the surviving spouse by the time distributions are
required to begin, life expectancies shall be
recalculated annually. Such election shall be
irrevocable by the surviving spouse and shall apply
to all subsequent years. In the case of any other
designated Beneficiary, life expectancies shall be
calculated using the attained age of such Beneficiary
during the calendar year in which distributions are
required to begin pursuant to this Section, and
payments for any subsequent calendar year shall be
calculated based on such life expectancy reduced by
one for each calendar year which has elapsed since
the calendar year life expectancy was first
calculated.
Distributions under this Section are considered to
have begun if distributions are made on account of
the Owner reaching his or her required beginning date
or if prior to the required beginning date
distributions irrevocably commence to an Owner over a
period permitted and in an annuity form acceptable
under Section 1.401(a)(9) of the Regulations.
d. For purposes of this requirement, an amount paid to a
child of the Owner will be treated as if it had been
paid to the surviving spouse if the remainder of the
interest becomes payable to the surviving spouse when
the child reaches the age of majority.
7. Refund of premiums (other than those attributable to excess
contributions) will be applied before the close of the
calendar year following the year of refund toward the payment
of future premiums or the purchase of additional benefits.
8. This Contract does not require fixed premiums.
9. In order to retain its qualification under Section 408(k), we
may amend this contract as required by changes in the I.R.C.
Regulations and Published Rulings. Any such amendment will be
issued to all Section 408(k) annuitants.
The Rider is subject to all the exclusions, definitions, and provisions
of the Contract which are not inconsistent herewith.
Attached by Provident Mutual Life Insurance Company on the Issue Date
of the Contract.
ROBERT W. KLOSS
President
<PAGE> 1
EXHIBIT (4)(h)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
AMENDMENT TO QUALIFY
DEFERRED ANNUITY CONTRACT AS
AN INDIVIDUAL RETIREMENT ANNUITY
Your Contract is amended as follows:
(1) The Owner must be Annuitant. A Contingent Owner may not be
designated.
(2) The Contract is established for the exclusive benefit of the
Owner or his/her Beneficiaries and the interest of the Owner
is nonforfeitable.
(3) This Contract may not be transferred, sold, assigned,
discounted, or pledged as collateral for a loan.
(4) Unless such payment qualifies as a rollover contribution
described in Section 402(a)(5), 402(a)(7), 403(a)(4),
403(b)(8), 405(d)(3)(C) or 408(d)(3) of the Internal Revenue
Code of 1986, as amended from time to time, the maximum annual
Purchase Payment must be in cash and shall not exceed the
lesser of 100% of compensation or $2,000 or such greater
amount as may be permitted by amendment to the Internal
Revenue Code. For a Spousal IRA, the maximum annual
contribution shall not exceed the lesser of S4,000 or 100% of
compensation, with no more than $2,000 being contributed to
either spouse's IRA, or such greater amounts as may be
permitted by amendment to the Internal Revenue Code.
(5) The entire interest of the Owner from a qualified retirement
plan will be distributed or commence to be distributed, no
later than the first day of April following the calendar year
in which such individual attains age 70 1/2 (required
beginning date), in equal or substantially equal amounts, over
(a) the life of such individual (Owner) and his or her
designated Beneficiary, or (b) a period not extending beyond
the life expectancy of such individual (Owner) or the joint
and last survivor expectancy of such individual (Owner) and
his or her designated Beneficiary.
Minimum Amounts to be distributed from a qualified retirement
plan: If the Owner's entire interest is to be distributed in
other than a lump sum, then the amount to be distributed each
year (commencing with the required beginning date and each
year thereafter) must be at least an amount equal to the
quotient obtained by dividing the Owner's entire interest by
the life expectancy of the Owner or joint and last survivor
expectancy of the Owner and designated Beneficiary.
Life expectancy and joint and last survivor expectancy are
computed by use of the return multiples contained in section
1.72-9 of the Income Tax Regulations. For purposes of this
computation, the Owner's life expectancy may be recalculated
no more frequently than annually; however, the life expectancy
of a nonspouse Beneficiary may not be recalculated.
(6) If the Owner dies before the entire interest is distributed,
the following distribution provisions shall apply-
(a) If the Owner dies after distribution of his or her
interest has commenced, the remaining portion of such
interest will continue to be distributed at least as
rapidly as under the method of distribution being
used prior to the Owner's death.
(continued on reverse side)
<PAGE> 2
(b) If the Owner dies before distribution of his or her interest
commences, the Owner's entire interest will be distributed in
accordance with one of the following four provisions:
(1) The Owner's entire interest will be paid by December
31 of the year containing the fifth anniversary of
the date of the Owner's death.
(2) If the Owner's interest is payable to a Beneficiary
designated by the Owner and the Owner has not elected
(1) above, then the entire interest will be
distributed in equal or substantially equal
installments over the life or life expectancy of the
designated Beneficiary or Beneficiaries commencing by
December 31 of the year following the date of the
Owner's death. If the individual spouse is not the
designated Beneficiary the method of distribution
selected must assure that at least 50% of the present
value of the amount available for distribution is
paid within the life expectancy of the participant.
(3) If the designated Beneficiary is the Owner's
surviving spouse, the spouse may elect during the
period ending on December 31 of the year containing
the fifth anniversary of the Owner's date of death to
receive equal or substantially equal payments over
the life or life expectancy of the surviving spouse,
commencing at any date prior to December 31 of the
year in which the deceased Owner would have attained
age 70 1/2.
(4) If the designated Beneficiary is the Owner's
surviving spouse, the spouse may treat the account
(Contract) as his or her own individual retirement
arrangement (IRA). This election will be deemed to
have been made if such surviving spouse makes a
regular IRA contribution to such account (Contract),
makes a rollover to or from such account (Contract),
or fails to elect any of the above three provisions.
(c) For the purposes of the above, payments will be calculated by
use of the return multiples specified in section 1.72-9 of the
Regulations. Life expectancy of a surviving spouse may be
recalculated annually. In the case of any other designated
Beneficiary, life expectancy will be calculated at the time
payment first commences and payments for any 12-consecutive
month period will be based on such life expectancy minus the
number of whole years passed since distribution first
commenced.
(d) For purposes of this requirement, an amount paid to a child of
the Owner will be treated as if it had been paid to the
surviving spouse if the remainder of the interest becomes
payable to the surviving spouse when the child reaches the age
of majority,
(7) Refund of premiums (other than those attributable to excess
contributions) will be applied before the close of the calendar year
following the year of refund toward the payment of future premiums or
the purchase of additional benefits.
(8) This Contract does not require fixed premiums.
(9) In order to retain its qualification under Section 408(b), we may amend
this policy as required by changes in the I.R.C. Regulations and
Published Rulings. Any such amendment will be issued to all Section
408(b) annuitants.
The Rider is subject to all the exclusions, definitions, and provisions
of the Contract which are not inconsistent herewith.
Attached by Provident Mutual Life Insurance Company on the Issue Date
of the Contract.
ROBERT W KLOSS
President
<PAGE> 1
EXHIBIT (4)(i)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
AMENDMENT TO QUALIFY DEFERRED ANNUITY CONTRACT
AS A TAX SHELTERED ANNUITY CONTRACT
UNDER SECTION 403(B) OF THE INTERNAL REVENUE CODE
The Contract is amended as follows, provided the Contract is purchased
for you by your employer and you are: (1) a public school employee; or (2) an
employee of a tax-exempt organization described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended from time to time (the Code).
For purposes of qualifying the Contract applied for as a Tax Sheltered
Annuity under Section 403(b) of the Code, the Contract herein is amended by the
addition of the provisions listed below.
1. The Owner must be the Annuitant. A Contingent Owner may not be
designated.
2. The Contract is established for the exclusive benefit of the
Owner or his Beneficiaries and the interest of the Owner is
nonforfeitable.
3. This Contract may not be transferred, sold, assigned,
discounted, or pledged as collateral for a loan or as security
for the performance of an obligation or for any other purpose,
to any person other than the Company.
4. The entire interest of the Owner will not be distributed or
commence to be distributed before such individual attains age
59-1/2, separates from service, dies or becomes disabled and
not later than the first day of April following the calendar
year in which such individual attains age 70-1/2 or the
calendar year in which such individual retires, if later
(required beginning date). However, in the case of a 5% or
more Owner of the employer, distributions are required to
begin no later than the first day of April following the
calendar year in which the 5% Owner attains age 70 1/2. The
entire interest will be in equal or substantially equal
amounts, over: (a) the life of such individual (Owner) and his
or her designated Beneficiary-, or (b) a period not extending
beyond the life expectancy of such individual (Owner) or the
joint and last survivor expectancy of such individual (Owner)
and his or her designated Beneficiary.
5. Minimum Amounts to be distributed. If the Owner's entire
interest is to be distributed in other than a lump sum, then
the amount to be distributed each year (commencing with the
required beginning date and each year thereafter) must be at
least an amount equal to the quotient obtained by dividing the
Owner's entire interest by the life expectancy of the Owner or
joint and last survivor expectancy of the Owner and designated
Beneficiary, in accordance with Code Section 403(b)(10).
Life expectancy and joint and last survivor expectancy are
computed, in accordance with Code Section 403(b)(10), by use
of the return multiples contained in Tables V and VI of
section 1.72-9 of the Income Tax Regulations. For purposes of
this computation, the Owner's life expectancy and, if
applicable, the Owner's spouse's fife expectancy may be
recalculated no more frequently than annually; however, the
life expectancy of a nonspouse Beneficiary may not be
recalculated.
6. If the Owner dies before the entire interest is distributed,
the following distribution provisions shall apply:
a. If the Owner dies after distribution of his or her
interest has commenced, the remaining portion of such
interest will continue to be distributed at least as
rapidly as under the method of distribution being
used prior to the Owner's death.
(continued on reverse side)
<PAGE> 2
b. If the Owner dies before distribution of his or her
interest commences, the Owner's entire interest will
be distributed in accordance with one of the
following three provisions:
(1) The Owner's entire interest will be paid
within five (5) years after the date of the
Owner's death.
(2) If the Owner's interest is payable to a
Beneficiary designated by the Owner and the
Owner has not elected (1) above, then the
entire interest will be distributed in
substantially equal installments over the
life or life expectancy of the designated
Beneficiary commencing no later than one (1)
year after the date of the Owner's death. If
the individual spouse is not the designated
Beneficiary the method of distribution
selected must assure that at least 50% of
the present value of the amount available
for distribution is paid within the life
expectancy of the participant, in accordance
with Code Section 403(b)(10).
(3) If the designated Beneficiary is the Owner's
surviving spouse, the spouse may elect
within the five year period commencing with
the Owner's date of death to receive equal
or substantially equal payments over the
life or life expectancy of the surviving
spouse commencing at any date prior to the
date on which the deceased Owner would have
attained age 70-1/2.
c. For the purposes of the above, payments will be
calculated in accordance with Code Section
403(b)(10), by the use of the return multiples
specified in Tables V and VI of section 1.72-9 of the
regulations. Life expectancy of a surviving spouse
may be recalculated annually. In the case of any
other designated Beneficiary, life expectancy will be
calculated at the time payment first commences and
payments for any 12-consecutive month period will be
based on such life expectancy minus the number of
whole years passed since distribution first
commenced.
d. For purposes of this requirement, an amount paid to a
child of the Owner will be treated as if it had been
paid to the surviving spouse if the remainder of the
interest becomes payable to the surviving spouse when
the child reaches the age of majority.
7. This Contract shall be subject to and interpreted in
conformity with the provisions, terms and conditions of the
tax-sheltered annuity plan document of which this Contract is
a part, if any and with the terms and conditions of section
403(b) of the Code, the regulations thereunder, and other
applicable law (including without limitation the Employee
Retirement Income Security Act of 1974, as amended, if
applicable), as determined by the plan administrator or other
designated plan fiduciary or, if none, the Owner. The Company
shall be under no obligation either (a) to determine whether
any contribution, distribution or transfer under the Contract
complies with the provisions, terms and conditions of such
plan or with applicable law, or (b) to administer such plan,
including, without limitation, any provisions required by the
Retirement Equit Act of 1984. The Owner shall be responsible
for determining that contributions made, distributions elected
and transfers made under this Contract comply with applicable
law and the terms of this Rider.
8. In order to retain its qualification under Code Section
403(b), we may amend this Contract as required by changes in
the Code, Regulations and Published Rulings. Any such
amendment will be issued to all Section 403(b) annuitants.
The Rider is subject to ail the exclusions, definitions, and provisions
of the Contract which are not inconsistent herewith.
Attached by Provident Mutual Life Insurance Company on the Issue Date
of the Contract.
ROBERT W. KLOSS
President
<PAGE> 1
EXHIBIT (4)(j)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
AMENDMENT FOR A CHARITABLE REMAINDER TRUST
ANNUITANT
CONTRACT NUMBER
The following definition replaces the MATURITY DATE definition found under the
DEFINITIONS Section of your Contract.
MATURITY DATE. The date when the Contract Account Value will be applied
under a Payment Option unless you have elected to receive a lump sum
payment of the Cash Surrender Value. The latest Maturity Date is the
Contract Anniversary nearest Annuitant's age 1 00.
The following provision replaces the SURRENDER CHARGE provision found under the
CONTRACTVALUES Section of your Contract.
SURRENDER CHARGE. The applicable percentage from the Surrender Charge
Table in the Contract Schedule will be deducted upon any withdrawal or
surrender and will be applied to that portion of the total of the
withdrawals or surrender during a Contract Year which exceeds the
greater of,
1. 10% of the Contract Account Value as of the beginning of the
Contract Year; or
2. any amounts in excess of the total Premiums paid.
There is no limit on the number of withdrawals occurring in any
Contract Year.
If the Contract is being surrendered, the applicable Surrender
Charge will be deducted from the Contract Acount Value in determining
the Cash Surrender Value.
For a partial withdrawal, any applicable Surrender Charge will
be deducted from the amount withdrawn, unless you request in advance
that the Surrender Charge be deducted from the remaining Contract
Account Value.
In no event will the Surrender Charge exceed 8.5% of the total
premiums received under the Contract.
This Rider does not change any other provisions of the Contract except as stated
above.
Attached by Provident Mutual Life Insurance Company.
ROBERT W. KLOSS
President
<PAGE> 1
EXHIBIT (4)(k)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER - SYSTEMATIC WITHDRAWAL PLAN
ANNUITANT: ISSUE DATE:
CONTRACT NUMBER:
The following optional Plan is added to Section 5. WITHDRAWALS AND SURRENDERS of
the Contract:
SYSTEMATIC WITHDRAWAL PLAN. The Systematic Withdrawal Plan may be elected
whereby preauthorized automatic withdrawals of a level dollar amount will be
made from the Contract on a monthly or quarterly basis, The limitations in the
Surrender Charge provision of the Contract concerning number of withdrawals or
timing of withdrawals are waived for withdrawals made under the Systematic
Withdrawal Plan.
In order to elect the Systematic Withdrawal Plan, the Contract must have an
Annuity Value of at least $15,000. The minimum amount which may be withdrawn is
$100 per month or $300 per quarter. The maximum amount which can be withdrawn
free of a Surrender Charge each year is 10% of the Annuity Value as of the
beginning of the Contract Year.
We will notify you if the total amount to be withdrawn in a Contract Year will
result in any Surrender Charge. Unless we are instructed to reduce the
withdrawal amount for that year so that it does not exceed the maximum limit, we
will continue to process withdrawals for the designated amount. Once the total
amount of the withdrawals made during the Contract Year exceeds the maximum
limit, we, will apply the applicable Surrender Charge to the remaining payments
made during that Contract Year. If a withdrawal that is not part of the
Systematic Withdrawal Plan is requested and the Systematic Withdrawal Plan is
then in effect, the withdrawal will be subject to the Surrender Charge and we
will then stop making automatic withdrawals under the Plan. 'Me Plan may only be
reinstated after the beginning of the next Contract Year upon Written Notice to
us.
Withdrawals under this Plan will cease upon our receipt of Written Notice.
This Rider does not change any other provisions of the Contract except as stated
above.
Attached by Provident Mutual Life Insurance Company on the above date.
ROBERT W. KLOSS
President
<PAGE> 1
PC 0124
1717 Capital Management Company
A Provident Mutual Life Insurance Company Subsidiary
P.O. Box 15626, Wilmington, DE 19850-5626, (800) 828-9765
CUSTOMER ACCOUNT QUESTIONNAIRE
FE _________ Code __________
___ New Account ___ Update Information Only - Existing Account No. _______
I. Account Type
___ Individual
___ Joint
___ UGMA/UTMA
___ IRA
___ TSA/403(b)
___ Keogh
___ Power of Attorney (attach written Power)
___ SEP
___ SIMPLE
___ Pension Plan
___ Profit Sharing
___ 401(k)
___ Other __________________
Name of Custodian/Trustee/Authorized Person (attach written documentation)
_____________________________________________________________________________
Title of Account: ___________________________________________________________
II. Customer Information
Owner Name: _________________________________________________________________
Date of Birth: _______________________
___ Male ___ Female
S.S. or Tax ID No.:___________________
Residence:
Street _______________________________________________________________________
City _______________________________________ State _______ Zip Code __________
Mailing Address:
Street _______________________________________________________________________
City _____________________________________ State _________ Zip Code __________
E-mail Address:______________________________
Home Phone No. ______________________________
Business Phone No. __________________________
Fax No. _____________________________________
Marital Status:
___ Single
<PAGE> 2
___ Married
___ Divorced/Separated
___ Widowed
No. of Dependents: ______
Customer Citizenship:
___ U.S.
___ Non-Resident Alien
___ Resident Alien
Country ___________________________________
Name of Employer: (former Employer if retired)
______________________________________________________________________________
Occupation: (Profession, Title, etc.)_________________________________________
III. Financial Information and Needs Assessment
A. Approximate Annual Household Income:
___ <$50,000
___ $50,000-$100,000
___ $100,000-$250,000
___ $250,000-$500,000
___ $500,000-$1,000,000
___ $1,000,000+
Approximate Net Worth: (exclusive of home, furniture and automobiles)
___ <$100,000
___ $100,000-$250,000
___ $250,000-$500,000
___ $500,000-$1,000,000
___ $1,000,000-$5,000,000
___ $5,000,000+
Estimated Federal Income Tax Bracket:
___ 15%
___ 28%
___ 31%
___ 36%
___ 39.6%
B. Current Investment Holdings: $______________________
$___________ Bank Accounts, CD's, Money Market
$___________ Stocks
$___________ IRA
$___________ Mutual Funds and UIT's
$___________ Bonds
$___________ Limited Partnerships
$___________ Qualified Plan Assets
$___________ Real Estate (excluding residence)
$___________ Other (specify) ____________________________
Bank References: ________________________________________
C. Financial Goals: (check all that apply)
___ Retirement
___ Education
<PAGE> 3
___ Tax Shelter
___ Diversification
___ Other ________________________
Insurance Needs:
___ Survivor Income
___ Estate Planning
___ Business Objective
___ Debt Protection
___ Retirement Planning
___ Other ________________________
Investment Objectives:
___ Capital Appreciation
___ Income
___ Tax Reduction
___ Safety of Principal
___ Speculative
Risk Tolerance:
___ Low ___ Medium ___ High
Prior Investment Experience: ____ years
Life Insurance In Force: $______________
Variable Life Insurance/Annuity Objectives:
___ Life Insurance
___ Retirement Fund
___ Tax Advantage
___ Long-Term Accumulation
___ Other _______________________
IV. Source Information
How was account acquired:
___ Relative
___ Insurance Client
___ Solicited
___ Personal Acquaintance
___ Walk-In
___ Referred By
___ Other (specify) ______________________
How long have you known the customer? ____ years
Is customer or immediate family member employed by Broker/Dealer:
___No ___Yes (give name) _____________________________________
Source of Funds:
___ Current Income
___ Mutual Fund Redemption
___ IRA Rollover
___ Personal Savings
___ Life Ins./Annuity Values (Surrender or Loan)
___ Qualified Plan Distribution
<PAGE> 4
___ CD/Money Market Fund
___ Other (specify) __________________________
V. Joint Accounts Only (if other than spouse, complete separate CAQ)
Name of Joint Account Holder: ________________________________________________
Date of Birth: ____________________
___ Male ___ Female
Social Security No. _________________
Employer: ____________________________________________________________________
Occupation: __________________________________________________________________
<PAGE> 5
VI. Comments or Additional Information
___ Additional comments attached
12300 3.98
Page 1 of 2
ARBITRATION DISCLOSURES:
I/We understand that:
(A) Arbitration is final and binding on the parties.
(B) The parties are waiving their right to seek remedies in court, including the
right to jury trial.
(C) Pre-arbitration discovery is generally more limited than and different from
court proceedings.
(D) The arbitrator's award is not required to include factual findings or legal
reasoning and any party's right to appeal or to seek modification of rulings by
the arbitrators is strictly limited.
(E) The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
ARBITRATION AGREEMENT:
It is agreed that any controversy between the undersigned and 1717 Capital
Management Company that may arise between us concerning any aspect of your
business or this agreement, shall be submitted to arbitration conducted before
the National Association of Securities Dealers, Inc. Arbitration must be
commenced by service upon the other party of a proper written demand or notice.
No person shall bring a putative or certified class action to arbitration, nor
seek to enforce any pre-dispute Arbitration Agreement against any person who has
initiated in court a putative class action; or who is a member of a putative
class who has not opted out of the class with respect to any claims encompassed
by the putative action until:
(i) the class certification is denied; or
(ii) the class is decertified; or
(iii) the customer is excluded from the class by the court. Such forbearance to
enforce an agreement to arbitrate shall not constitute a waiver of any rights
under this agreement except to the extent stated herein.
This agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
The information provided on this CAQ (12300) accurately reflects my/our
financial background and investment objectives. I/We understand that the
Registered Representative/Agent is required to make a reasonable effort to
obtain this information prior to the purchase, sale or exchange of any security
and that the Company will rely on the information contained on this
<PAGE> 6
form in making a suitability determination. This information will be kept
confidential. I/We acknowledge that I/we have read, understand and agree to the
terms of the Arbitration Agreement found above and have received a completed
copy of this questionnaire.
Owner Signature: _________________________________________ Date: ____________
Joint Signature: _________________________________________ Date: ____________
Name of Registered
Representative/Agent: (please print)_________________________________________
Registered Representative/
Agent Signature(s): ______________________________________ Date: ____________
Name of Registered
Representative/Agent: (please print)_________________________________________
Registered Representative/
Agent Signature(s): ______________________________________ Date: ____________
Authorized Signature of
Field Management: ________________________________________ Date: ____________
Signature of Home Office
Principal: ________________________________________________Date: ____________
Page 2 of 2
CUSTOMER ACCOUNT QUESTIONNAIRE (CAQ) INSTRUCTIONS
In recommending to a customer, the purchase, sale, or exchange of any security
for another, the registered representative/agent must demonstrate "grounds for
believing that the recommendation is suitable for such customer upon the basis
of the facts, if any, disclosed by such customer as to his security holdings and
as to his financial situation and needs." (NASD Rule 2310 of the Rules of Fair
Practice). With this in mind, we have developed this CAQ for the purpose of
assisting 1717 Capital Management Company (1717), Provident Mutual Life
Insurance Company (PMLIC) and Providentmutual Life and Annuity Company of
America (PLACA) in the determination of the suitability of each transaction.
Before any security transaction can be accepted, the registered
representative/agent must provide a fully completed and appropriately signed CAQ
prior to, or in concert with, the first security application. This includes all
mutual fund, UIT, variable annuity and variable life insurance applications
submitted to 1717 (not to include Pershing accounts), PMLIC and PLACA. The
registered representative/agent must make every reasonable effort to obtain this
information prior to the sale of any security and the company will rely on this
information in making a suitability judgment. Use of a client privacy privilege
is not an acceptable reason to omit any information on the CAQ. Refusal on the
part of the owner/customer to provide information should be a "red-flag" of
potential problems for the registered representative/agent. Keep in mind, that
1717 reserves the right to return the business, if proper suitability cannot be
determined based upon omission of information. All information provided is
viewed as strictly confidential.
<PAGE> 7
You may submit a copy of a previously submitted CAQ, provided the original in
file is dated within 12 months of the current transaction. However, the
information must be updated relative to the current transaction and the
owner/customer must acknowledge the changes or additions by full signature.
I. Account Type - Check the box for the purchase being made with the CAQ. If you
are attaching a copy of a previously submitted CAQ, update the information to
include the current account type for the accompanying investment. (Where
applicable, complete a whole new CAQ. For institutional accounts (trusts,
corporations, profit sharing, pensions, 401(k), etc.) and court appointed
custodial accounts, the appropriate documentation must accompany the CAQ,
providing the authority to the person identified to transact investments for the
account.
Title of Account - For other than individual, list full legal title of the
account.
II. Customer Information
Owner Name - For joint account, the primary account holder. For UGMA/UTMAs, the
owner is the child, however, provide information about the relationship to the
custodian in Section VI. For institutional accounts, the name of the company
and/or plan (must include a copy of the plan documents).
SSN or Tax ID No. - For individual or joint accounts, the named owner/customer
in Section II. For UGMAs, the minor. For institutions, corporate plans and
trusts, the number assigned by the IRS for tax reporting purposes for the
particular plan.
Residence Address - For individuals, the street address of their residence no
P.O. Boxes or business addresses. We must be able to determine the legal state
of residence for the owner/customer. For businesses or institutional plans,
provide the address for the entity. The registered representative/agent's
address must never be used as a residence or mailing address. In most cases, the
registered representative/agent of record will automatically receive a
statement.
Mailing Address - Provide only if other than residence address. This is where
the owner/customer's copy of investment statements will be mailed. Again, this
must not be the registered representative/agent's address - see above.
Citizenship - If other than a U.S. citizen, provide the name of the country of
citizenship.
III. Financial Information and Needs Assessment - Must be fully completed for
each owner/customer, institution or entity named in Section II above. For
accounts where there is a minor as owner (UGMA/UTMAs), be sure to provide
minor's information, as well as, household information. Must include all Current
Investment Holdings in (B) and all Financial Goals in (C), where applicable.
This information, in its entirety, is pertinent to determining the suitability
of the purchase. All information is confidential.
IV. Source Information - Complete for all accounts.
<PAGE> 8
V. Joint Accounts Only - For our purposes, the "Joint Account Holder" pertains
to spouses and custodians for minors. In all other cases where the joint account
holder is of a separate household, provide a separate CAQ for each. Any
additional information may be provided in the "Comments or Additional
Information" section.
Arbitration Agreement and Signatures (page 2 of 2)
Make sure that the owner/customer reads and fully understands the Arbitration
Agreement prior to signing the CAQ. Each owner/customer must acknowledge his/her
agreement with the information contained on pages 1 of 2 and 2 of 2 of form
12300 3.98.
Each owner/customer to the account must sign and date the CAQ under the
Arbitration Agreement on page 2 of 2. For minor accounts (Custodial, UGMA/UTMA)
only the custodian must sign. For institutional accounts, the designated person
authorized to transact business for the institution must sign under the
agreement.
The registered representative/agent(s) who solicited the sale must sign and
print their name to the agreement, and date the form at the time of completion
of the form. For split cases, please add the name of each additional registered
representative/agent. The Supervisory Principal, or designee, must sign and date
the CAQ where indicated thus acknowledging review and approval of the sale.
A copy of this completed and executed agreement must be left with the
owner/customer at the time of signing.
<PAGE> 9
Provident Mutual Life Insurance Company
Berwyn, Pennsylvania
APPLICATION FOR VARIABLE ANNUITY
Contract Type (select one): ___ Options VIP ___ VIP/2
1. Proposed Annuitant: First Name - Middle Initial - Last Name
________________________________________________________________________________
Date of Birth: _____________________ ___ Female ___ Male
Address:Street________________________________________________________________
City ____________________________________ State ________ Zip Code ____________
Telephone Number: ( )________________________
S.S. or Tax ID Number: _________________________
2. Contract Owner (if other than Annuitant):
First Name - Middle Initial - Last Name
________________________________________________________________________________
Date of Birth: _____________________ ___ Female ___ Male
Address:Street________________________________________________________________
City ____________________________________ State ________ Zip Code ____________
Telephone Number: ( )________________________
S.S. or Tax ID Number: _________________________
3. Beneficiary Information: Name Relationship
Primary: _____________________________________________________________________
Contingent: __________________________________________________________________
Owner's Beneficiary
if Owner is not Annuitant): __________________________________________________
4. Type of Annuity (check appropriate boxes):
___ Non-Qualified
___ 1035(a) Exchange
___ HR10/Keogh
___ 403(b)
___ 403(b) 90-24 Transfer
___ 457 Plan
___ IRA Transfer
___ IRA Rollover
___ SIMPLE IRA
___ IRA/SEP Regular (Tax Year: _______)
___ Pension
___ Profit Sharing
<PAGE> 10
___ Charitable Remainder Trust ($100,000 minimum premium)
5. Death Benefit Option (choose only one):
(available for Issue Ages 0-70 only)
___ Step Up - Account value every sixth year
___ Rising Floor - Cumulative premiums plus interest
6. Is this annuity now applied for intended to replace any insurance or annuity
in this or any other company? ___ Yes ___ No
If yes, give name of company, amount, plan and policy numbers of
insurance/annuity being replaced.
7. Premium Payments:
a. Amount Submitted with Application: $ ___________
b. Planned Subsequent Premium Payments: $ __________
___ Annually
___ Semiannually
___ APP
___ Quarterly
___ Monthly
8. SERVICE CENTER ENDORSEMENTS
9. Initial Allocation Percentages. Complete Form PMA17.
I (we) represent that my (our) answers to the above questions are correct and
true to the best of my (our) knowledge, information and belief and agree that
this application shall be a part of any annuity contract issued by the Company.
I (we) understand that contract account values and surrender values under any
contract issued pursuant to this Application, when based upon assets allocated
to the Provident Mutual Variable Annuity Separate Account, are variable in
nature and are NOT guaranteed as to their dollar amount by the Company or any
other insurance company, are NOT guaranteed by the U.S. Government or any state
government, and are NOT federally insured by the FDIC, the Federal Reserve Board
or any other federal or state agency. I (we) acknowledge that the variable
annuity applied for is not unsuitable for my (our) insurance investment
objectives, financial situation and needs.
I (we) hereby certify or affirm (under penalty of perjury as provided under
Federal Law) that the social security or taxpayer identification number I (we)
am (are) providing is (are) correct and I (we) am (are) not currently subject to
backup withholding.
Any person who knowingly and with intent to defraud any insurance company or
other person files an application for insurance or statement of claim containing
any materially false information or conceals for the purpose of misleading,
information concerning any fact material thereto commits a fraudulent insurance
act, which is a crime and subjects such person to criminal and civil penalties.
Signed at (City and State) ___________________________________________________
On (Date)_____________________________________________________________________
<PAGE> 11
Signature of Owner ___________________________________________________________
Signature of Proposed Annuitant ______________________________________________
The undersigned agent certifies that the information supplied by the applicant
has been truly and accurately recorded on this application.
Agent's Name (print) _________________________________________________________
Signature of Agent ___________________________________________________________
PMA16 12.97
If the full first initial premium is paid when application is made, this receipt
must be used. This receipt is void if altered. No other form of receipt will be
recognized by the Company.
IMPORTANT: RECEIPT FOR ADVANCE PAYMENT OF PREMIUM
Received, in connection with an application to Provident Mutual Life Insurance
Company, $____________, which represents the initial premium for a flexible
premium deferred variable annuity. If this application is not approved, no
liability on the part of the Company will exist and the sum paid will be
returned. If any check or draft given in exchange for this receipt is not paid
on presentation, this receipt is void.
Signed at (City, State) ______________________________________________________
on (Month, Day, Year) ________________________________________________________
Signature of Agent ___________________________________________________________
ALL PREMIUM CHECKS MUST BE PAYABLE TO THE COMPANY; DO NOT MAKE CHECKS PAYABLE TO
THE AGENT OR LEAVE THE PAYEE BLANK.
PMA16 12.97
TO BE COMPLETED BY THE AGENT
10. a) Do you have knowledge or reason to believe that replacement of existing
insurance or annuities may be involved? ___Yes ___No
b) If the annuity now applied for is intended to replace insurance or
annuities in this or any other company, have you submitted to the applicant a
written proposal setting forth all the facts, advantages and disadvantages in
making this replacement? ___ Yes ___ No
11. Has settlement been obtained with this application? ___ Yes ___ No
12. Is the premium to be paid from the proceeds of an insurance policy in this
or any other company? ___ Yes ___ No
<PAGE> 12
If yes, give full details in space provided here or below.
PAYMENT INSTRUCTIONS
Make payments to "Provident Mutual Life Insurance Company."
F.E./AGENT INFORMATION
F.E. Name ____________________________________________________________________
Agent(s) Name(s) (please print) ______________________________________________
Telephone ( )____________________
Agent's Address for Mailing Contract
Street________________________________________________________________________
City _________________________________________ State ______ Zip Code _________
Signature of Agent ___________________________________________________________
S.S.N. ____________Agent's Code ________
Broker/Dealer ________________________________________________________________
Please submit Allocation Form (#PMA17) and, if applicable, Optional Features
Election Form (#16098).
Remarks or Special Instructions:
PMA16 12.97
<PAGE> 1
Exhibit 8(d)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with a
principal place of business in Boston, Massachusetts, PROVIDENT MUTUAL LIFE
INSURANCE COMPANY OF PHILADELPHIA ("PMLIC"), a Pennsylvania corporation, with a
principal place of business in Philadelphia, Pennsylvania, and PROVIDENTMUTUAL
LIFE AND ANNUITY COMPANY OF AMERICA ("PLACA"), a Delaware corporation, with a
principal place of business in Newark, Delaware (together, the "Company"), on
behalf of the Provident Mutual Variable Annuity Separate Account, a separate
account of PMLIC, and Providentmutual Variable Annuity Separate Account, a
separate account of PLACA, and any other separate account of the Company as
designated by the Company from time to time, upon written notice to the Fund in
accordance with Section 10 herein (the "Account").
WHEREAS, PLACA is a wholly-owned subsidiary of PMLIC; and
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable annuity
contracts (collectively referred to herein as "Variable Insurance Products") to
be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies") and their affiliated insurance companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and
<PAGE> 2
additional series of Shares may be established, each designated a "Portfolio"
and representing the interest in a particular managed portfolio of securities;
and
WHEREAS, it is in the best interest of Participating Insurance
Companies to make capital contributions if required so that the annual expenses
of each Portfolio of the Fund in which a Participating Insurance Company is a
shareholder will not exceed a fixed percentage of the Portfolio's average annual
net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean the
expenses for such fiscal year as shown in the Statement of Operations (or
similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal year shall
mean the sum of the net asset values determined throughout the year for the
purpose of determining net asset value per Share, divided by the number of such
determinations during such year;
(c) The Company's "Required Contribution" on behalf of the Account in
respect of a Portfolio for any fiscal year shall mean an amount equal to the
expenses of that Portfolio for such
2
<PAGE> 3
year minus the below-indicated percentage of that Portfolio's
average daily net assets for the year:
<TABLE>
<S> <C>
International Portfolio ................................ 1.50%
Each other Portfolio ................................... 0.75%
</TABLE>
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily net
asset value of the Shares of that Portfolio owned by the Account (referred to
herein as a "Participating Shareholder"). The Company's Required Contribution in
respect of a Portfolio shall be pro-rated based on the number of business days
on which this Agreement is in effect for periods of less than a fiscal year.
(d) The "average daily net asset value of the Shares of the Portfolio"
owned by the Account for any fiscal year of the Fund shall mean the greater of
(i) $500,000 or (ii) the sum of the aggregate net asset values of the Shares so
owned determined during the fiscal year, as of each determination of the net
asset value per Share, divided by the total number of determinations of net
asset value during such year.
(e) "Shares" means shares of beneficial interest, without par value, of
any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after the
end of each fiscal year of the Fund, make a capital contribution to the Fund in
respect of each Portfolio equal to the Required Contribution for that Portfolio
for such year; provided, however, that in the event that both clauses (i) and
(ii) of
3
<PAGE> 4
paragraph (d) of Section 1 of this Agreement or similar agreements are
applicable to different Participating Insurance Companies during the same fiscal
year, there shall be a proportionate reduction of the Required Contribution of
each Participating Insurance Company to which said clause (ii) is applicable so
that the total of all required capital contributions to the Fund on behalf of
any Portfolio is not greater than the excess of the expenses of that Portfolio
for that fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the applicable
net asset value per Share by Participating Insurance Companies and their
affiliates and separate accounts on those days on which the Fund calculates its
net asset value pursuant to rules of the Securities and Exchange Commission;
provided, however, that the Trustees of the Fund may refuse to sell Shares of
any Portfolio to any person, or suspend or terminate the offering of Shares of
any Portfolio, if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees, necessary in
the best interest of the shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph
4
<PAGE> 5
10, to each Participating Insurance Company which has executed an Agreement and
which Agreement has not been terminated pursuant to Paragraph 8 (i) a list of
all other Participating Insurance Companies, and (ii) a copy of the Agreement as
executed by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has not
been terminated pursuant to Paragraph 8, the net asset value of any Portfolio of
the Fund as of any date upon which the Fund calculates the net asset value of
its Portfolios for the purpose of purchase and redemption of Shares.
5. Indemnification.
a. The Company agrees to indemnify and hold harmless the Fund and each
of its Trustees and officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the Securities Act of 1933 (the "Act")
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), arising out of the acquisition of any
Shares by any person, to which the Fund or such Trustees, officers or
controlling person may become subject under the Act, under any other statute, at
common law or otherwise, which (i) may be based upon any wrongful act by the
Company, any of its employees or representatives, any affiliate of or any person
acting on behalf of the Company or a principal underwriter of its insurance
products, or (ii) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement thereto or the omission
or alleged omission to state
5
<PAGE> 6
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by the Company, or (iii) may be
based on any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering insurance products
sold by the Company or any insurance company which is an affiliate thereof, or
any amendments or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or such
affiliate by or on behalf of the Fund; provided, however, that in no case (i) is
the Company's indemnity in favor of a Trustee or officer or any other person
deemed to protect such Trustee or officer or other person against any liability
to which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his duties or
by reason of his reckless disregard of obligations and duties under this
Agreement or (ii) is the Company to be liable under its indemnity agreement
contained in this Paragraph 5 with respect to any claim made against the Fund or
any person indemnified unless the Fund or such person, as the case may be, shall
have notified the Company in writing pursuant to Paragraph 10 within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the Fund or
upon such person (or after the Fund or such person shall have received notice of
such service on any designated
6
<PAGE> 7
agent), but failure to notify the Company of any such claim shall not relieve
the Company from any liability which it has to the Fund or any person against
whom such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph 5. The Company shall be entitled to participate, at
its own expense, in the defense, or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but, if it elects to assume the
defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Fund, to its officers and Trustees, or to any controlling
person or persons, defendant or defendants in the suit. In the event that the
Company elects to assume the defense of any such suit and retain such counsel,
the Fund, such officers and Trustees or controlling person or persons, defendant
or defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume the
defense of any such suit, the Company will reimburse the Fund, such officers and
Trustees or controlling person or persons, defendant or defendants in such suit,
for the reasonable fees and expenses of any counsel retained by them. The
Company agrees promptly to notify the Fund pursuant to Paragraph 10 of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any Shares.
b. The Fund agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the Act against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
it or such
7
<PAGE> 8
directors, officers or controlling person may become subject under the Act,
under any other statute, at common law or otherwise, arising out of the
acquisition of any Shares by any person which (i) may be based upon any wrongful
act by the Fund, any of its employees or representatives or a principal
underwriter of the Fund, or (ii) may be based upon any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering Shares or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance upon
information furnished to the Fund by the Company or (iii) may be based on any
untrue statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering insurance products sold by the
Company, or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished to the
Company by or on behalf of the Fund; provided, however, that in no case (i) is
the Fund's indemnity in favor of a director or officer or any other person
deemed to protect such director or officer or other person against any liability
to which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his duties or
by reason of his reckless disregard of obligations and duties under this
Agreement or (ii) is the Fund to be liable under its indemnity agreement
8
<PAGE> 9
contained in this Paragraph 5 with respect to any claims made against the
Company or any such director, officer or controlling person unless it or such
director, officer or controlling person, as the case may be, shall have notified
the Fund in writing pursuant to Paragraph 10 within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any designated
agent), but failure to notify the Fund of any claim shall not relieve it from
any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
Paragraph. The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Fund elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Company, its directors, officers or controlling person or persons, defendant or
defendants, in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Company, its directors, officers or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Fund does not elect to assume the defense of any such suit, it will
reimburse the Company or such directors, officers or controlling person or
persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Fund agrees
9
<PAGE> 10
promptly to notify the Company pursuant to Paragraph 10 of the commencement of
any litigation or proceedings against it or any of its officers or Trustees in
connection with the issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the Fund
for the existence of any material irreconcilable conflict among the interests of
all the contract holders and policy owners of Variable Insurance Products (the
"Participants") of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise, among other things, from: (a) an
action by any state insurance regulatory authority; (b) a change in applicable
insurance laws or regulations; (c) a tax ruling or provision of the Internal
Revenue Code or the regulations thereunder; (d) any other development relating
to the tax treatment of insurers, contract holders or policy owners or
beneficiaries of Variable Insurance Products; (e) the manner in which the
investments of any Portfolio are being managed; (f) a difference in voting
instructions given by variable annuity contract holders, on the one hand, and
variable life insurance policy owners, on the other hand, or by the contract
holders or policy owners of different participating insurance companies; or (g)
a decision by an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or
existing conflicts to the Trustees of the Fund. The Company will be responsible
for assisting the Trustees in carrying out their responsibilities under this
Paragraph 6(b) and Paragraph 6(a), by providing the Trustees with all
information reasonably
10
<PAGE> 11
necessary for the Trustees to consider the issues raised. The Fund will also
request its investment adviser to report to the Trustees any such conflict which
comes to the attention of the adviser.
(c) If it is determined by a majority of the Trustees of the Fund, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists involving the Company, the Fund shall promptly inform the Company that a
material irreconcilable conflict exists. The Company shall, at its expense, and
to the extent reasonably practicable (as determined by a majority of the
disinterested Trustees), take whatever steps are necessary to eliminate the
irreconcilable material conflict, including withdrawing the assets allocable to
some or all of the separate accounts from the Fund or any Portfolio and
reinvesting such assets in a different investment medium, including another
Portfolio of the Fund, offering to the affected Participants the option of
making such a change or establishing a new funding medium including a registered
investment company.
For purposes of this Paragraph 6(c), the Trustees, or the disinterested
Trustees, shall determine whether or not any proposed action adequately remedies
any irreconcilable material conflict. In the event of a determination of the
existence of an irreconcilable material conflict, the Trustees shall cause the
Fund to take such action, such as the establishment of one or more additional
Portfolios, as they in their sole discretion determine to be in the interest of
all shareholders and Participants in view of all applicable factors, such as
cost, feasibility, tax, regulatory and other considerations. In no event will
the Fund be
11
<PAGE> 12
required by this Paragraph 6(c) to establish a new funding medium for any
variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish a
new funding medium for any variable contract or policy if an offer to do so has
been declined by a vote of a majority of the Participants materially adversely
affected by the material irreconcilable conflict. The Company will recommend to
its Participants that they decline an offer to establish a new funding medium
only if the Company believes it is in the best interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to all
Participating Insurance Companies by written notice thereof delivered or mailed,
first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate account
or accounts participating in the Fund shall use a calculation method of voting
procedures substantially the same as the following: those Participants permitted
to give instructions and the number of Shares for which instructions may be
given will be determined as of the record date for the Fund shareholders'
meeting, which shall not be more than 60 days before the date of the meeting.
Whether or not voting instructions are actually given by a particular
Participant, all Fund shares held in any separate account or sub-account thereof
and attributable to policies will be voted for, against, or withheld from voting
on any proposition in the same proportion as (i) the aggregate record date cash
value
12
<PAGE> 13
held in such sub-account for policies giving instructions, respectively, to vote
for, against, or withhold votes on such proposition, bears to (ii) the aggregate
record date cash value held in the sub-account for all policies for which voting
instructions are received. Participants continued in effect under lapse options
will not be permitted to give voting instructions. Shares held in any other
insurance company general or separate account or sub-account thereof will be
voted in the proportion specified in the second preceding sentence for shares
attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date being
hereinafter called a "Renegotiation Date"), and from year to year thereafter
provided that neither the Company nor the Fund shall have given written notice
to the other within thirty (30) days prior to a Renegotiation Date that it
desires to renegotiate the amount of contribution to capital due hereunder
("Renegotiation Notice"). If a Renegotiation Notice is properly given as
aforesaid and the Fund and the Company shall fail, within sixty (60) days after
the Renegotiation Date, either to enter into an amendment to this Agreement or a
written acknowledgment that the Agreement shall continue in effect, this
Agreement shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at any
time thereafter, redeem the Shares of ant Portfolio held by a Participating
Shareholder. The Fund agrees that it will not effect such redemption during the
period following
13
<PAGE> 14
the Company's filing of a notice with the Securities and Exchange Commission
(the "SEC") to obtain approval to make a substitution for the Shares provided,
however, the Company has filed such notice with the SEC promptly following the
sixtieth day after the Renegotiation Date. This Agreement may be terminated at
any time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a Participating
Insurance Company own any Shares of the Fund or may be terminated by either
party to the Agreement upon a determination by a majority of the Trustees of the
Fund, or a majority of its disinterested Trustees, following certification
thereof by a Participating Insurance Company given in accordance with Paragraph
10 that an irreconcilable conflict exists among the interests of (i) all
contract holders and policyholders of Variable Insurance Products of all
separate accounts or (ii) the interests of the Participating Insurance Companies
investing in the Fund. Notwithstanding anything to the contrary in this
Agreement or its termination as provided herein, the Company's obligation to
make a capital contribution to the Fund in accordance with this Agreement at the
time in effect shall continue (i) following a properly given Renegotiation
Notice, in the absence of agreement otherwise, until termination of this
Agreement, and (ii) (except termination due to the existence of an
irreconcilable conflict), following termination of this Agreement, until the
later of the fifth anniversary of the date of this Agreement or the date on
which the Company, its separate account(s) or the separate account(s) of any
affiliated insurance company owns no Shares.
14
<PAGE> 15
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), relating
to diversification requirements for variable annuity, endowment and life
insurance contracts. Specifically, each Portfolio will comply with either (i)
the requirement of Section 817(h)(1) of the Code that its assets be adequately
diversified, or (ii) the "Safe Harbor for Diversification" specified in Section
817(h)(2) of the Code, or (iii) the diversification requirement of Section
817(h)(1) of the Code by having all or part of its assets invested in U.S.
Treasury securities which qualify for the "Special Rule for Investments in
United States Obligations" specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities and
Exchange commission under the Investment Company Act of 1940, as amended,
applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
15
<PAGE> 16
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
Provident Mutual Life Insurance Company of Philadelphia
P.O. Box 7378
Philadelphia, Pennsylvania 19109
Attn:
and
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, Delaware 19713
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March 15,
1985, as amended, and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. No Portfolio shall
be liable for any obligations properly attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more
16
<PAGE> 17
counterparts, each of which taken together shall constitute one and the same
instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all understandings and
agreements between the parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 21 day of
July , 1993.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/ Illegible Signature
---------------------------------
President
---------------------------------
SEAL PROVIDENT MUTUAL LIFE INSURANCE
COMPANY 0f PHILADELPHIA
By: /s/ Illegible Signature
---------------------------------
Its: Chairman, President & CEO
---------------------------------
SEAL PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
By: /s/ Alfred F. Wilmouth
---------------------------------
Its: President
---------------------------------
17
<PAGE> 1
EXHIBIT 8(e)
REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT (the "Agreement") made by and between SCUDDER,
STEVENS & CLARK, INC., a Delaware corporation ("SS&C"), with a principal place
of business in Boston, Massachusetts, PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF
PHILADELPHIA ("PMLIC"), a Pennsylvania corporation, with a principal place of
business in Philadelphia, Pennsylvania, and PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA ("PLACA"), a Delaware corporation, with a principal place of
business in Newark, Delaware (together, the "Company"), on behalf of the
Provident Mutual Variable Annuity Separate Account, a separate account of PMLIC,
and Providentmutual Variable Annuity Separate Account, a separate account of
PLACA, and any other separate account of the Company as designated by the
Company from time to time, upon written notice to the Fund in accordance with
Section 9 herein (the "Account").
WHEREAS, PLACA is a wholly-owned subsidiary of PMLIC; and
WHEREAS, SS&C has caused to be organized Scudder Variable Life
Investment Fund (the "Fund"), a Massachusetts business trust created under a
Declaration of Trust dated March 15, 1985, as amended, the beneficial interest
in which is divided into several series, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities; and
WHEREAS, the purpose of the Fund is to act as the investment vehicle
for the separate accounts established for variable life insurance policies and
variable annuity contracts to be offered by insurance companies which have
entered into reimbursement
<PAGE> 2
agreements substantially identical to this Agreement
("Participating Insurance Companies"); and
WHEREAS, it is in the best interest of the parties hereto for
Participating Insurance companies, including the Company, to assume a portion of
the organization and other expenses incurred by SS&C in connection with the Fund
during the term of this agreement; and
WHEREAS, the parties desire to express their agreement as to certain
other matters;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For purposes of this Agreement, the following definitions shall apply:
(a) The "average annual net asset value of the Shares of each
Portfolio of the Fund" shall mean the sum of the aggregate net
asset values of the Shares of such Portfolio owned by the
Account (referred to herein as the "Participating
Shareholder") determined as of each determination of the net
asset value per Share of the Fund during the fiscal year,
divided by the number of such determinations during such year.
(b) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the
Fund.
2. Initial Reimbursement Fee.
Simultaneously with the execution of this Agreement, the Company on
behalf of the Account has paid to SS&C a fee
2
<PAGE> 3
("Reimbursement Fee") in the amount of $10,000 in order partially to defray
expenses incurred by SS&C in connection with the organization of the Fund.
3. Access to Other Products.
SS&C shall permit a Participating Shareholder to participate in any
registered investment company other than the Fund which is intended as the
funding vehicle for insurance products and for which SS&C or an affiliate of
SS&C acts as investment adviser, on the same basis as other insurance companies
are permitted to participate in such a registered investment company. This
provision shall not require SS&C to make available to the Company shares of any
investment company which is organized solely as the funding vehicle for
insurance products offered by a single insurance company or a group of
affiliated insurance companies.
4. Right to Review and Approve Sales Materials.
The Company shall furnish, or shall cause to be furnished, to SS&C or
its designee, at least twenty days prior to its intended use, each piece of
promotional material in which SS&C or the Fund is named. No such material shall
be used unless SS&C or its designee shall have approved such use in writing, or
twenty days shall have elapsed without approval, rejection or objection since
receipt by SS&C or its designee of such material.
SS&C shall furnish, or shall cause to be furnished, to the Company or
its designee, at least twenty days prior to its intended use, each piece of
promotional material in which the Company or its separate account(s) is named.
No such material shall be used unless the Company or its designee shall have
approved such use in writing, or twenty days shall have elapsed without
approval,
3
<PAGE> 4
rejection or objection since receipt by the Company or its designee of such
material.
5. Sales Organization Meetings.
Representatives of SS&C or its designee shall meet with the sales
organizations of the Company at such reasonable times and places as may be
agreed upon by the Company and SS&C or its designee for the purpose of educating
sales personnel about the Fund.
6. Duration.
This Agreement shall continue in effect as long as the Company owns
shares of any Portfolio, except that the obligation of each party hereto to
indemnify the other party hereto shall continue with respect to all losses,
claims, damages, liabilities or litigation based upon the acquisition of Shares
purchased as the funding vehicle for any variable life insurance policy or
variable annuity contract issued by the Company or any affiliated insurance
company.
7. Indemnification.
a. The Company agrees to indemnify and hold harmless SS&C and each of
its Directors and officers and each person, if any, who controls SS&C within the
meaning of Section 15 of the Securities Act of 1933 (the "Act") or any person,
controlled by or under common control with SS&C ("affiliate") against any and
all losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which SS&C or such Directors, officers or controlling person
may become subject under the Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon
4
<PAGE> 5
any wrongful act by the Company, any of its employees or representatives, any
affiliate of or any person acting on behalf of the Company or a principal
underwriter of its insurance products, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in reliance upon
information furnished to SS&C or the Fund by the Company, provided, however,
that in no case (i) is the Company's indemnity in favor of a Director or officer
or any other person deemed to protect such Director or officer or other person
against any liability to which any such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of his duties or by reason of his reckless disregard of obligations and duties
under this Agreement or (ii) is the Company to be liable under its indemnity
agreement contained in this Paragraph 7 with respect to any claim made against
SS&C or any person indemnified unless SS&C or such person, as the case may be,
shall have notified the Company in writing pursuant to Paragraph 9 within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon SS&C or upon
such person (or after SS&C or such person shall have received notice of such
service on any designated agent), but failure to notify the Company of any such
claim shall not relieve the Company from any liability which it has to SS&C or
any person against whom such
5
<PAGE> 6
action is brought otherwise than on account of the indemnity agreement contained
in this Paragraph 7. The Company shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if it elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to
SS&C, to its officers and Directors, or to any controlling person or persons,
defendant or defendants in the suit. In the event that the Company elects to
assume the defense of any such suit and retain such counsel, SS&C, such officers
and Directors or controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained by
them, but, in case the Company does not elect to assume the defense of any such
suit, the Company will reimburse SS&C, such officers and Directors or
controlling person or persons, defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by them. The Company agrees
promptly to notify SS&C pursuant to Paragraph 9 of the commencement of any
litigation or proceedings against it in connection with the issue and sale of
any Shares.
b. SS&C agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the Act against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
it or such directors, officers or controlling persons may become subject under
the Act, under any other statute, at common law or otherwise, arising out of the
acquisition of any Shares by any person which
6
<PAGE> 7
(i) may be based upon any wrongful act by SS&C, any of its employees or
representatives or a principal underwriter of the Fund, or (ii) may be based
upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering Shares or any
amendment thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such statement or omission was made in
reliance upon information furnished to the Company by SS&C; provided, however,
that in no case (i) is SS&C's indemnity in favor of a director or officer or any
other person deemed to protect such director or officer or other person against
any liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement or (ii) is SS&C to be liable under its indemnity agreement
contained in this Paragraph 7 with respect to any claims made against the
Company or any such director, officer or controlling person unless it or such
director, officer or controlling person, as the case may be, shall have notified
SS&C in writing pursuant to Paragraph 9 within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any designated
agent), but failure to notify SS&C of any claim shall not relieve it from any
liability which it may have to the person against whom
7
<PAGE> 8
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph 7. SS&C will be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but if SS&C elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to the
Company, its directors, officers or controlling person or persons, defendant or
defendants, in the suit. In the event SS&C elects to assume the defense of any
such suit and retain such counsel, the Company, its directors, officers or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
SS&C does not elect to assume the defense of any such suit, it will reimburse
the Company or such directors, officers or controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of any
counsel retained by them. SS&C agrees promptly to notify the Company pursuant to
Paragraph 9 of the commencement of any litigation or proceedings against it or
any of its officers or Directors in connection with the issuance or sale of any
Shares.
8. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
9. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party
8
<PAGE> 9
set forth below or at such other address as such party may from time to time
specify in writing to the other party.
If to SS&C:
Scudder, Stevens & Clark, Inc.
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
Provident Mutual Life Insurance Company of Philadelphia
P.O. Box 7378
Philadelphia, Pennsylvania 19109
Attn:
and
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, Delaware 19713
Attn:
10. Miscellaneous.
The captions in the Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly
9
<PAGE> 10
authorized representative and its seal to be hereunder affixed hereto as of the
21 day of July, 1993.
SEAL SCUDDER, STEVENS & CLARK, INC.
By /s/ Illegible
---------------------------
Managing Director
SEAL PROVIDENT MUTUAL LIFE INSURANCE
COMPANY OF PHILADELPHIA
By /s/ Illegible
---------------------------
Its Chairman, President & CEO
-------------------------
SEAL PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
By /s/ /Alfred f. Wilmouth
---------------------------
Its President
--------------------------
10
<PAGE> 1
Exhibit 8(f)
Scudder Investor Services, Inc.
175 Federal Street
Boston, Massachusetts 02110
PARTICIPATING CONTRACT AND POLICY AGREEMENT
Ladies and Gentlemen:
We (sometimes hereinafter referred to as "Investor Services") are the
Principal Underwriter of shares of Scudder Variable Life Investment Fund (the
"Fund"), a no-load, open-end, diversified registered management investment
company established in 1985 as a Massachusetts business trust. The Fund is a
series fund consisting of the Money Market Portfolio, Bond Portfolio, Capital
Growth Portfolio, Balanced Portfolio and the International Portfolio
(individually or collectively hereinafter referred to as the "Portfolio" or the
"Portfolios"). Additional Portfolios may be created from time to time. The Fund
is the funding vehicle for variable annuity contracts and variable life
insurance policies ("Participating Contracts and Policies") to be offered to the
separate accounts (the "Accounts") of certain life insurance companies
("Participating Insurance Companies"). Owners of Participating Contracts and
Policies will designate a portion of their premium to be invested in insurance
company separate accounts or sub-accounts which invest in, or represent an
investment in, directly or indirectly, shares of beneficial interest ("Shares")
of the Portfolios of the Fund. You are a registered broker-dealer which intends
to offer and sell Participating Contracts and Policies. In connection with such
offer and sale you will be obligated to deliver the prospectuses of such
Participating Contracts and Policies and, contemporaneously therewith, the
prospectus of the Fund. Sales of Shares to Participating Insurance
<PAGE> 2
Companies or their affiliates or the separate accounts of either shall be
effected solely by us as principal underwriter of the Fund, and not by you;
provided, however, that you shall be our agent in connection with the receipt of
purchase orders for Fund Shares and not in connection with their offer and sale.
The relationship between us shall be further governed by the following terms and
conditions:
1. To the extent, if any, that your activities or the activities
of the Participating Insurance companies in connection with
the sale of Participating Contracts and Policies may
constitute the sale of Shares, you and we agree that (i) we
are the sole "principal underwriter" of the Fund and the sole
"underwriter" of the Shares as those terms are defined in the
Investment Company Act of 1940 (the "1940 Act") and the
Securities Act of 1933 (the "1933 Act"), respectively, and
(ii) neither you nor the Participating Insurance Companies or
the Accounts shall be deemed to be "principal underwriters" of
the Fund or "underwriters" of the Fund within the meaning of
the 1940 Act and the 1933 Act, respectively.
2. You hereby represent and warrant to us as follows:
(a) You are a corporation duly organized and validly
existing in good standing under the laws of the State
of Pennsylvania and have full power and authority to
enter into this Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by you and is a valid and binding
obligation enforceable against you in accordance with
its terms.
(c) Your compliance with the provisions of this Agreement
will not conflict with or result in a violation of
the provisions of your charter or by-laws, or any
statute or any judgment, decree, order, rule or
regulation of any court or governmental agency or
body having jurisdiction.
3. We hereby represent and warrant to you as follows:
(a) A registration statement (File No. 2-96461) on Form N-1A with
respect to the Shares (x) has been prepared by the Fund in
conformity with the requirements of the 1940 Act and the 1933
Act and all applicable published instructions, rules and
regulations (the "Rules and Regulations") of the
2
<PAGE> 3
Securities and Exchange Commission (the "Commission"), (y) has
been filed with the Commission, and (z) is currently
effective. The registration statement, including financial
statements and exhibits, and the final prospectus, including
the statement of additional information, as subsequently
amended and supplemented, are herein respectively referred to
as the "Registration Statement" and the "Prospectus".
(b) The Registration Statement and the Prospectus and any
amendment or supplement thereto will contain all statements
required to be stated therein and will comply in all material
respects with the requirements of the 1940 Act, the 1933 Act
and the Rules and Regulations, and the Registration Statement
and any post-effective amendment thereto will not contain or
incorporate by reference any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading, and the Prospectus and any amendment or supplement
thereto will not contain or incorporate by reference any
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) We are a corporation duly organized and validly existing in
good standing under the laws of The Commonwealth of
Massachusetts and have full power and authority to enter into
this Agreement.
(d) This Agreement has been duly authorized, executed and
delivered by us and is a valid and binding obligation
enforceable against us in accordance with its terms.
(e) Our compliance with all of the provisions of this Agreement
will not conflict with or result in a violation of the
provisions of our charter or by-laws, or any statute or any
judgment, decree, order, rule or regulation of any court or
governmental agency or body having jurisdiction over us.
4. You hereby covenant and agree with us as follows:
(a) You shall be an independent contractor and neither you nor any
of your directors, partners, officers or employees as such, is
or shall be an employee of us or of the Fund. You are
responsible for your own conduct and the employment, control
and conduct of
3
<PAGE> 4
your agents and employees and for injury to such agents or
employees or to others through your agents or employees.
(b) You or one or more Participating Insurance Companies will be
responsible for insuring compliance with all applicable laws
and regulations of any regulatory body having jurisdiction
over you or Participating Contracts and Policies.
(c) No person is authorized to make any representations concerning
Shares except those contained in the prospectus and statement
of additional information relating thereto and in such
printed information as issued by us for use as information
supplemental to the prospectus. In offering Participating
Contracts and Policies you shall, with respect to the Fund and
the Shares, rely solely on the representations contained in
the prospectus and statement of additional information and in
the above-mentioned supplemental information.
(d) You are not entitled to any compensation whatsoever from us or
the Fund with respect to offers of Participating Contracts and
Policies.
5. We hereby covenant and agree with you as follows:
(a) If, at any time when a prospectus relating to the Shares is
required to be delivered under the 1940 Act, the 1933 Act or
the Rules and Regulations, we become aware of the occurrence
of any event as a result of which the Prospectus as then
amended or supplemented would include any untrue statement of
a material fact, or omit to state a material fact necessary to
make the statements therein, in light of the circumstances
under which made, not misleading, or if we become aware that
it has become necessary at any time to amend or supplement the
Prospectus to comply with the 1940 Act, the 1933 Act or the
Rules and Regulations, we will promptly notify you and
promptly request the Fund to prepare and to file with the
Commission an amendment to the Registration Statement or
supplement to the Prospectus which will correct such statement
or omission or an amendment or supplement which will effect
such compliance, and deliver to you copies of any such
amendment or supplement.
(b) We will cooperate with you in taking such action as may be
necessary to qualify the Shares for offering and sale under
the securities or Blue Sky laws of any state or jurisdiction
as you may request and will continue such qualification in
effect so long
4
<PAGE> 5
as is required by applicable law in connection with the
distribution of Shares.
6. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Shares entirely, as
to any person or generally. We reserve the right to amend this
agreement at any time and you agree that the sale of
Participating Contracts and Policies, after notice of any such
amendment has been sent to you, shall constitute your
agreement to any such amendment.
7. If we elect to provide to you for the purpose of your offering
Participating Contracts and Policies copies of any prospectus
and statement of additional information relating to the Shares
and printed information supplemental thereto, we shall furnish
you with such copies as you reasonably request upon the
payment of reasonable charges therefor by you or one or more
Participating Insurance Companies. If we elect not to provide
such copies of such documents, you or one or more
Participating Insurance Companies shall bear the entire cost
of printing copies for your use. You shall not use such copies
of such documents printed by you or one or more Participating
Insurance Companies until you shall have furnished us with a
copy thereof and we either have given you written approval for
use or twenty days shall have elapsed following our receipt
thereof and we have not objected thereto in writing. We agree
not to favor one Participating Insurance Company over another,
and will have a reasonable basis for treating Participating
Insurance Companies in a different manner.
8. (a) You will indemnify and hold harmless Investor
Services and each of its directors and officers and
each person, if any, who controls Investor Services
within the meaning of Section 15 of the 1933 Act,
against any loss, liability, damages, claim or
expense (including the reasonable cost of
investigating or defending any alleged loss,
liability, damages, claim or expense and reasonable
counsel fees incurred in connection therewith),
arising by reason of any person's acquiring any
Shares, which may be based upon the 1933 Act or any
other statute or common law, and which (i) may be
based upon any wrongful act by you, any of your
employees or representatives, any affiliate of or
any person acting on behalf of you, or (ii) may be
based upon any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement or prospectus covering Shares
or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading if such a statement or omission was made
5
<PAGE> 6
in reliance upon information furnished to us or the
Fund by you, or (iii) may be based on any untrue
statement or alleged untrue statement of a material
fact contained in a registration statement or
prospectus covering insurance products sold by you,
or any amendments or supplement thereto, or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading, unless such statement or omission was
made in reliance upon information furnished to you or
a Participating Insurance Company by or on behalf of
Investor Services or the Fund; provided, however,
that in no case (i) is the indemnity by you in favor
of any person indemnified to be deemed to protect
Investor Services or any such person against any
liability to which Investor Services or any such
person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in
the performance of its or his duties or by reason of
its or his reckless disregard of its obligations and
duties under this Agreement, or (ii) are you to be
liable under your indemnity agreement contained in
this paragraph with respect to any claim made against
Investor Services or any person indemnified unless
Investor Services or such person, as the case may be,
shall have notified you in writing within a
reasonable time after the summons or other first
legal process giving information of the nature of the
claim shall have been served upon Investor Services
or upon such person (or after Investor Services or
such person shall have received notice of such
service on any designated agent), but failure to
notify you of any such claim shall not relieve you
from any liability which you may have to Investor
Services or any person against whom such action is
brought otherwise than on account of your indemnity
agreement contained in this paragraph. You shall be
entitled to participate, at your own expense, in the
defense, or, if you so elect, to assume the defense
of any suit brought to enforce any such liability,
but, if you elect to assume the defense, such defense
shall be conducted by counsel chosen by you and
satisfactory to Investor Services, or to its officers
or directors, or to any controlling person or
persons, defendant or defendants in the suit. In the
event that you assume the defense of any such suit
and retain such counsel, Investor Services or such
officers or directors or controlling person or
persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel
retained by them, but, in case you do not elect to
assume the defense or any such suit, you shall
reimburse Investor Services and such officers,
6
<PAGE> 7
directors or controlling person or persons, defendant
of defendants in such suit, for the reasonable fees
and expenses of any counsel retained by them. You
agree promptly to notify Investor Services of the
commencement of any litigation or proceedings against
it in connection with the offer, issue and sale of
any shares.
(b) Investor Services will indemnify and hold harmless
you and each of your directors and officers and each
person, if any, who controls you within the meaning
of Section 15 of the 1933 Act, against any loss,
liability, damages, claim or expense (including the
reasonable cost of investigating or defending any
alleged loss, liability, damages, claim or expense
and reasonable counsel fees incurred in connection
therewith), arising by reason of any person's
acquiring any Shares, which may be based upon the
1933 Act or any other statute or common law, and
which (i) may be based upon any wrongful act by
Investor Services, any of its employees or
representatives, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material
fact contained in a registration statement or
prospectus covering Shares or any amendment thereof
or supplement thereto or the omission or alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading unless such statement or
omission was made in reliance upon information
furnished to Investor Services or the Fund by you or
(iii) may be based on any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement or prospectus covering
insurance products sold by you, or any amendment or
supplement thereto, or the omission or alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statement
or statements therein not misleading, if such
statement or omission was made in reliance upon
information furnished to you by or on behalf of
Investor Services or the Fund; provided, however,
that in no case (i) is the indemnity by Investor
Services in favor of any person indemnified to be
deemed to protect you or any such person against any
liability to which you or any such person would
otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the
performance of your or his duties by reason of your
or his reckless disregard of your or his obligations
and duties under this Agreement, or (ii) is Investor
Services to be liable under its indemnity agreement
contained in this paragraph with respect to any claim
made against you or any person indemnified unless you
or
7
<PAGE> 8
such person, as the case may be, shall have notified
Investor Services in writing within a reasonable time
after the summons or other first legal process giving
information of the nature of the claim shall have
been served upon you or upon such person (or after
you or such person shall have received notice of such
service on any designated agent), but failure to
notify Investor Services of any such claim shall not
relieve Investor Services from any liability to which
Investor Services may have to you or any person
against whom such action is brought otherwise than on
account of its indemnity agreement contained in this
paragraph. Investor Services shall be entitled to
participate, at its own expense, in the defense, or,
if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if it
elects to assume the defense, such defense shall be
conducted by counsel chosen by Investor Services and
satisfactory to you, or to your officers or
directors, or to any controlling person or persons,
defendant or defendants in the suit. In the event
that Investor Services assumes the defense of any
such suit and retains such counsel, you or such
officers or directors or controlling person or
persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel
retained by it, but, in case Investor Services does
not elect to assume the defense of any such suit,
Investor Services shall reimburse you and such
officers, directors or controlling person or persons,
defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained
by it. Investor Services agrees promptly to notify
you of the commencement of any litigation or
proceedings against it in connection with the offer,
issue and sale of any Shares.
9. The indemnities, representations, warranties, covenants and
agreements of each party to this Agreement as set forth in
this Agreement will remain in full force and effect regardless
of any investigation made by or on behalf of either of such
parties or any of their respective officers, directors,
partners or any controlling person, and will survive delivery
of and payment for the Shares.
10. Any provision of this Agreement which may be determined by
competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
8
<PAGE> 9
jurisdiction. To the extent permitted by applicable law, each
party hereto waives any provision of law which renders any
provision hereof prohibited or unenforceable in any respect.
11. This Agreement constitutes the entire agreement among the
parties concerning the subject matter hereof, and supersedes
any and all prior understandings.
12. This Agreement shall automatically terminate in the event of
its assignment. This Agreement may be terminated at any time
by either party by written notice given to the other party,
provided that the obligation of each party to indemnify the
other party pursuant to paragraph 8 hereof shall apply with
respect to any Shares sold before or after such termination.
13. Any notice hereunder shall be duly given if mailed or
telegraphed to the other party hereto at the address specified
below. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts.
14. This Agreement may be executed in any number of counterparts
which, taken together shall constitute one and the same
instrument. This Agreement shall become effective upon receipt
by us of your acceptance hereof.
15. This Agreement may not be modified or amended except by a
written instrument duly executed by the parties hereto.
SCUDDER INVESTOR SERVICES, INC.
By:_____________________________
Authorized Officer
175 Federal Street
Boston, Massachusetts 02110
The undersigned hereby accepts the
offer set forth in the above letter.
PML SECURITIES COMPANY
Dated:_______________ By:______________________________________
Authorized Representative
300 Continental Drive
Newark, Delaware 19713
9
<PAGE> 1
EXHIBIT 8(g)
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 30th day of September, 1993, between
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA ("Insurance Company"), a
life insurance company organized under the laws of the Commonwealth of
Pennsylvania, and DREYFUS VARIABLE INVESTMENT FUND ("Fund"), an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts.
ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as
amended.
1.2 "Board" shall mean the Board of Trustees of the Fund having the
responsibility for management and control of the Fund.
1.3 "Business Day" shall mean any day for which the Fund calculates
net asset value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange
Commission.
1.5 "Contract" shall mean a variable annuity contract that uses the
Fund as an underlying investment medium. Individuals who
participate under a group Contract are "Participants".
1.6 "Contractholder" shall mean any entity that is a party to a
Contract with a Participating Company.
1.7 "Disinterested Board Members" shall mean those members of the
Board that are not deemed to be "interested persons" of the Fund,
as defined by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates,
including Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company
(including Insurance Company), which offers variable annuity
and/or variable life insurance contracts to the public and which
has entered into an agreement with the Fund for the purpose of
making Fund shares available to serve as the underlying
investment medium for the aforesaid Contracts.
1.10 "Prospectus" shall mean the Fund's current prospectus and
statement of additional information, as most recently filed with
the Commission.
<PAGE> 2
1.11 "Separate Account" shall mean The Provident Mutual Variable
Annuity Separate Account, a separate account established by
Insurance Company in accordance with the laws of the
Commonwealth of Pennsylvania.
1.12 "Software Program" shall mean the software program used by the
Fund for providing Fund and account balance information
including net asset value per share. Such Program may include
the Lion System. In situations where the Lion System or any
other Software Program used by the Fund is not available, such
information may be provided by telephone. The Lion System shall
be provided to Insurance Company at no charge.
1.13 Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates which invest
in the Fund.
ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an
insurance company duly organized and in good standing under
applicable law; (b) it has legally and validly established the
Separate Account pursuant to the Pennsylvania Insurance Code
for the purpose of offering to the public certain individual
variable annuity contracts; and (c) it has registered the
Separate Account as a unit investment trust under the Act to
serve as the segregated investment account for the Contracts.
2.2 Insurance Company represents and warrants that (a) the
Contracts will be described in a registration statement filed
under the Securities Act of 1933, as amended ("1933 Act"); (b)
the Contracts will be issued and sold in compliance in all
material respects with all applicable federal and state laws;
and (c) the sale of the Contracts shall comply in all material
respects with state insurance law requirements. Insurance
Company agrees to inform the Fund promptly of any investment
restrictions imposed by state insurance law and applicable to
the Fund.
2.3 Insurance Company represents and warrants that the income,
gains and losses, whether or not realized, from assets
allocated to the Separate Account are, in accordance with the
applicable Contracts, to be credited to or charged against such
Separate Account without regard to other income, gains or
losses from assets allocated to any other accounts of Insurance
Company. Insurance Company represents and warrants that the
assets of the Separate Account are and will be kept separate
from Insurance Company's General
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<PAGE> 3
Account and any other separate accounts Insurance Company may
have, and will not be charged with liabilities from any business
that Insurance Company may conduct or the liabilities of any
companies affiliated with Insurance Company.
2.4 Fund represents that the Fund is registered with the Commission
under the Act as an open-end, diversified management investment
company and possesses, and shall maintain, all legal and
regulatory licenses, approvals, consents and/or exemptions
required for Fund to operate and offer its shares as an
underlying investment medium for Participating Companies. The
Fund has established six series of shares (each, a "Series") and
may in the future establish other series of shares.
2.5 Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make
every effort to maintain such qualification (under Subchapter M
or any successor or similar provision) and that it will notify
Insurance Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not
so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are
currently, and at the time of issuance will be, treated as life
insurance policies or annuity contracts, whichever is
appropriate, under applicable provisions of the Code, and that it
will make every effort to maintain such treatment and that it
will notify the Fund and Dreyfus immediately upon having a
reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
Insurance Company agrees that any prospectus offering a Contract
that is a "modified endowment contract," as that term is defined
in Section 7702A of the Code, will identify such Contract as a
modified endowment contract (or policy).
2.7 Fund agrees that the Fund's assets shall be managed and invested
in a manner that complies with the requirements of Section 817(h)
of the Code.
2.8 Insurance Company agrees that the Fund shall be permitted
(subject to the other terms of this Agreement) to make Series'
shares available to other Participating Companies and
contractholders.
2.9 Fund represents and warrants that any of its trustees, officers,
employees, investment advisers, and other individuals/entities
who deal with the money and/or
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<PAGE> 4
securities of the Fund are and shall continue to be at all times
covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund in an amount not less than that required by
Rule 17g-1 under the Act. The aforesaid Bond shall include
coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.10 Insurance Company represents and warrants that all of its
employees and agents who deal with the money and/or securities
of the Fund are and shall continue to be at all times covered by
a blanket fidelity bond or similar coverage in an amount not
less than the coverage required to be maintained by the Fund.
The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.11 Insurance Company agrees that Dreyfus shall be deemed a third
party beneficiary under this Agreement and may enforce any and
all rights conferred by virtue of this Agreement.
ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide
for the investment of certain amounts in the Series' shares.
3.2 Fund agrees to make the shares of its Series available for
purchase at the then applicable net asset value per share by
Insurance Company and the Separate Account on each Business Day
pursuant to rules of the Commission. Notwithstanding the
foregoing, the Fund may refuse to sell the shares of any Series
to any person, or suspend or terminate the offering of the
shares of any Series if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole
discretion of the Board, acting in good faith and in light of
its fiduciary duties under federal and any applicable state
laws, necessary and in the best interests of the shareholders of
such Series.
3.3 Fund agrees that shares of the Fund will be sold only to
Participating Companies and their separate accounts and to the
general accounts of those Participating Companies and their
affiliates. No shares of any Series will be sold to the general
public.
3.4 Fund shall use its best efforts to provide closing net asset
value, dividend and capital gain information for each Series
available on a per-share and Series basis to Insurance Company
by 6:00 p.m. Eastern Time on each Business Day. Any material
errors in the calculation of net asset value,
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<PAGE> 5
dividend and capital gain information shall be reported
immediately upon discovery to Insurance Company. Non-material
errors will be corrected in the next Business Day's net asset
value per share for the Series in question.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the
Separate Account unit values for the day. Using this unit value,
Insurance Company will process the day's Separate Account
transactions received by it by the close of trading on the floor
of the New York Stock Exchange (currently 4:00 p.m. Eastern time)
to determine the net dollar amount of Series shares which will be
purchased or redeemed at that day's closing net asset value per
share for such Series. The net purchase or redemption orders will
be transmitted to the Fund by Insurance Company by 11:00 a.m.
Eastern Time on the Business Day next following Insurance
Company's receipt of that information. Subject to Sections 3.6
and 3.8, all purchase and redemption orders for Insurance
Company's General Accounts shall be effected at the net asset
value per share of the relevant Series next calculated after
receipt of the order by the Fund or its Transfer Agent.
3.6 Fund appoints Insurance Company as its agent for the limited
purpose of accepting orders for the purchase and redemption of
shares of each Series for the Separate Account. Fund will execute
orders for any Series at the applicable net asset value per share
determined as of the close of trading on the day of receipt of
such orders by Insurance Company acting as agent ("effective
trade date"), provided that the Fund receives notice of such
orders by 11:00 a.m. Eastern Time on the next following Business
Day and, if such orders request the purchase of Series shares,
the conditions specified in Section 3.8, as applicable, are
satisfied. A redemption or purchase request for any Series that
does not satisfy the conditions specified above and in Section
3.8, as applicable, will be effected at the net asset value
computed for such Series on the Business Day immediately
preceding the next following Business Day upon which such
conditions have been satisfied.
3.7 Insurance Company will make its best efforts to notify Fund in
advance of any unusually large purchase or redemption orders.
3.8 If Insurance Company's order requests the purchase of Series
shares, Insurance Company will pay for such purchases by wiring
Federal Funds to Fund or its designated custodial account on the
day the order is transmitted. Insurance Company shall make all
reasonable efforts to transmit to the Fund payment in Federal
Funds by 12:00 noon Eastern Time on
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<PAGE> 6
the Business Day the Fund receives the notice of the order
pursuant to Section 3.5. Fund will execute such orders at the
applicable net asset value per share determined as of the close
of trading on the effective trade date if Fund receives payment
in Federal Funds by 12:00 midnight Eastern Time on the Business
Day the Fund receives the notice of the order pursuant to
Section 3.5. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 12:00 noon Eastern
Time on such Business Day, Insurance Company shall promptly upon
the Fund's request, reimburse the Fund for any charges, costs,
fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowings or overdrafts by,
the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon
such purchase request. If Insurance Company's order requests the
redemption of Series shares valued at or greater than $1 million
dollars, the Fund will wire such amount to Insurance Company
within seven days of the order.
3.9 Fund has the obligation to ensure that Series shares are
registered with applicable federal agencies at all times.
3.10 Fund will confirm each purchase or redemption order made by
Insurance Company. Transfer of Series shares will be by book
entry only. No share certificates will be issued to Insurance
Company. Insurance Company will record shares ordered from Fund
in an appropriate title for the corresponding account.
3.11 Fund shall credit Insurance Company with the appropriate number
of shares.
3.12 On each ex-dividend date of the Fund or, if not a Business Day,
on the first Business Day thereafter, Fund shall communicate to
Insurance Company the amount of dividend and capital gain, if
any, per share of each Series. All dividends and capital gains
of any Series shall be automatically reinvested in additional
shares of the relevant Series at the applicable net asset value
per share of such Series on the payable date. Fund shall, on the
day after the payable date or, if not a Business Day, on the
first Business Day thereafter, notify Insurance Company of the
number of shares so issued.
ARTICLE IV
STATEMENTS AND REPORTS
4.1 Fund shall provide monthly statements of account as of the end
of each month for all of Insurance Company's accounts by the
fifteenth (15th) Business Day of the following month.
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<PAGE> 7
4.2 Fund shall distribute to Insurance Company copies of the Fund's
Prospectuses, proxy materials, notices, periodic reports and other
printed materials (which the Fund customarily provides to its
shareholders) in quantities as Insurance Company may reasonably
request for distribution to each Contractholder and Participant.
4.3 Fund will provide to Insurance Company at least one complete copy
of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Fund or its
shares, contemporaneously with the filing of such document with
the Commission or other regulatory authorities.
4.4 Insurance Company will provide to the Fund at least one copy of
all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Contracts
or the Separate Account, contemporaneously with the filing of such
document with the Commission.
ARTICLE V
EXPENSES
5.1 The charge to the Fund for all expenses and costs of the Series,
including but not limited to management fees, administrative
expenses and legal and regulatory costs, will be made in the
determination of the relevant Series' daily net asset value per
share so as to accumulate to an annual charge at the rate set
forth in the Fund's Prospectus. Excluded from the expense
limitation described herein shall be brokerage commissions and
transaction fees and extraordinary expenses.
5.2 Except as provided in this Article V and, in particular in the
next sentence, Insurance Company shall not be required to pay
directly any expenses of the Fund or expenses relating to the
distribution of its shares. Insurance Company shall pay the
following expenses or costs:
a. Such amount of the production expenses of any Fund materials,
including the cost of printing the Fund's Prospectus, or
marketing materials for prospective Insurance Company
Contractholders and Participants as Dreyfus and Insurance
Company shall agree from time to
time.
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<PAGE> 8
b. Distribution expenses of any Fund materials or
marketing materials for prospective Insurance Company
Contractholders and Participants.
c. Distribution expenses of Fund materials or marketing
materials for Insurance Company Contractholders and
Participants.
Except as provided herein, all other Fund expenses shall not be
borne by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated December
23, 1987 of the Securities and Exchange Commission under Section
6(c) of the Act and, in particular, has reviewed the conditions to
the relief set forth in the related Notice. As set forth therein,
Insurance Company agrees to report any potential or existing
conflicts promptly to the Board, and in particular
whenever contract voting instructions are disregarded, and
recognizes that it will be responsible for assisting the Board in
carrying out its responsibilities under such application.
Insurance Company agrees to carry out such responsibilities with a
view to the interests of existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists
with regard to Contractholder investments in the Fund, the Board
shall give prompt notice to all Participating Companies. If the
Board determines that Insurance Company is responsible for causing
or creating said conflict, Insurance Company shall at its sole
cost and expense, and to the extent reasonably practicable (as
determined by a majority of the Disinterested Board Members), take
such action as is necessary to remedy or eliminate the
irreconcilable material conflict. Such necessary action may
include, but shall not be limited to:
a. withdrawing the assets allocable to the Separate Account from
the Series and reinvesting such assets in a different
investment medium, or submitting the question of whether such
segregation should be implemented to a vote or all affected
Contractholders; and/or
b. Establishing a new registered management investment
company.
6.3 If a material irreconcilable conflict arises as a result of
a decision by Insurance Company to disregard Contractholder
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<PAGE> 9
voting instructions and said decision represents a minority
position or would preclude a majority vote by all Contractholders
having an interest in the Fund, Insurance Company may be required,
at the Board's election, to withdraw the Separate Account's
investment in the Fund.
6.4 For the purpose of this Article, a majority of the Disinterested
Board Members shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to bear the expense of
establishing a new funding medium for any Contract. Insurance
Company shall not be required by this Article to establish a new
funding medium for any Contract if an offer to do so has been
declined by vote of a majority of the Contractholders materially
adversely affected by the irreconcilable material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by
the Separate Account or the Fund taken or omitted as a result of
any act or failure to act by Insurance Company pursuant to this
Article VI shall relieve Insurance Company of its obligations
under, or otherwise affect the operation of, Article V.
ARTICLE VII
VOTING OF FUND SHARES
7.1 Fund shall provide Insurance Company with copies at no cost to
Insurance Company, of the Fund's proxy material, reports to
shareholders and other communications to shareholders in such
quantity as Insurance, Company shall reasonably require for
distributing to Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or
Participants on a timely basis and in accordance with
applicable law;
(b) vote the Series shares in accordance with instructions
received from Contractholders or Participants; and
(c) vote Series shares for which no instructions have been
received in the same proportion as Series shares for which
instructions have been received.
Insurance Company agrees at all times to votes its General Account
shares in the same proportion as Series shares for which
instructions have been received from Contractholders or
Participants. Insurance Company further agrees to be responsible
for assuring that voting Fund shares for the
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<PAGE> 10
Separate Account is conducted in a manner consistent with other
Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior
written consent of the Fund and Dreyfus, solicit, induce or
encourage Contractholders to (a) change or supplement the Fund's
current investment adviser or (b) change, modify, substitute, add
to or delete the Fund from the current investment media for the
Contracts.
ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 The Fund or its underwriter shall periodically furnish Insurance
Company with the following documents, in quantities as Insurance
Company may reasonably request:
a. Current Prospectus and any supplements thereto;
b. other marketing materials.
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this
Agreement.
8.2 Insurance Company shall designate certain persons or entities
which shall have the requisite licenses to solicit applications
for the sale of Contracts. No representation is made as to the
number or amount of Contracts that are to be sold by Insurance
Company. Insurance Company shall make reasonable efforts to
market the Contracts and shall comply with all applicable federal
and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished,
to the Fund, each piece of sales literature or other promotional
material in which the Fund, its investment adviser or the
administrator is named, at least fifteen Business Days prior to
its use. No such material shall be used unless the Fund approves
such material. Such approval (if given) must be in writing and
shall be presumed not given if not received within ten Business
Days after receipt of such material. The Fund shall use all
reasonable efforts to respond within ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning
the Fund or any Series in connection with the sale of the
Contracts other than the information or representations contained
in the registration statement or Prospectus, as may be amended or
supplemented from time to
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<PAGE> 11
time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund.
8.5 Fund shall furnish, or shall cause to be furnished, to Insurance
Company, each piece of the Fund's sales literature or other
promotional material in which Insurance Company or the Separate
Account is named, at least fifteen Business Days prior to its
use. No such material shall be used unless Insurance Company
approves such material. Such approval (if given) must be in
writing and shall be presumed not given if not received within
ten Business Days after receipt of such material. Insurance
Company shall use all reasonable efforts to respond within ten
days of receipt.
8.6 Fund shall not, in connection with the sale of Series shares,
give any information or make any representations on behalf of
Insurance Company or concerning Insurance Company, the Separate
Account, or the Contracts other than the information or
representations contained in a registration statement or
prospectus for the Contracts, as may be amended or supplemented
from time to time, or in published reports for the Separate
Account which are in the public domain or approved by Insurance
Company for distribution to Contractholders or Participants, or
in sales literature or other promotional material approved by
Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include,
without limitation, advertisements (such as material published,
or designed for use, in a newspaper, magazine or other
periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other
public media), sales literature (such as any written
communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints
or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other
communications distributed or made generally available to some or
all agents or employees, registration statements prospectuses,
statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales
literature or advertising under National Association of
Securities Dealers, Inc. rules, the Act or the 1933 Act.
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<PAGE> 12
ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless the Fund,
Dreyfus, any sub-investment adviser of a Series, and their affiliates,
and each of their directors, trustees, officers, employees, agents and
each person, if any, who controls or is associated with any of the
foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted)
for which the Indemnified Parties may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect to thereof) (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in information furnished by Insurance Company
for use in the registration statement or Prospectus or sales literature
or advertisements of the Fund or with respect to the Separate Account
or Contracts, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(ii) arise out of or as a result of conduct, statements or
representations (other than statements or representations contained in
the Prospectus and sales literature or advertisements of the Fund) of
Insurance Company or its agents, with respect to the sale and
distribution of Contracts for which Series' shares are an underlying
investment; (iii) arise out of the wrongful conduct of Insurance
Company or persons under its control with respect to the sale or
distribution of the Contracts or Series' shares; (iv) arise out of
Insurance Company's incorrect calculation and/or untimely reporting of
net purchase or redemption orders; or (v) arise out of any breach by
Insurance Company of a material term of this Agreement or as a result
of any failure by Insurance Company to provide the services and furnish
the materials or to make any payments provided for in this Agreement.
Insurance Company will reimburse any Indemnified Party in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that with respect to clauses (i) and (ii)
above Insurance Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon any untrue statement or omission or alleged omission made
in such registration statement, prospectus, sales literature, or
advertisement in conformity with written information furnished to
Insurance Company by the Fund
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<PAGE> 13
specifically for use therein. This indemnity agreement will be in
addition to any liability which Insurance Company may otherwise have.
9.2 The Fund agrees to indemnify and hold harmless Insurance Company, PML
Securities Company ("PML")(an affiliate of Insurance Company) and each
of their directors, officers, employees, agents and each person, if
any, who controls Insurance Company or PML within the meaning of the
1933 Act against any losses, claims, damages or liabilities to which
Insurance Company, PML or any such director, officer, employee, agent
or controlling person may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) (1) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the registration statement or Prospectus or sales
literature or advertisements of the Fund; (2) arise out of or are based
upon the omission to state in the registration statement or Prospectus
or sales literature or advertisements of the Fund any material fact
required to be stated therein or necessary to make the statements
therein not misleading; or (3) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the registration statement or Prospectus or sales
literature or advertisements with respect to the Separate Account or
the Contracts and such statements were based on information provided to
Insurance Company or PML by the Fund; and the Fund will reimburse any
legal or other expenses reasonably incurred by Insurance Company, PML
or any such director, officer, employee, agent or controlling person in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Fund will not
be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or omission or alleged omission made in such Registration Statement,
Prospectus, sales literature or advertisements in conformity with
written information furnished to the Fund by Insurance Company or PML
specifically for use therein. This indemnity agreement will be in
addition to any liability which the Fund may otherwise have.
9.3 The Fund shall indemnify and hold Insurance Company and PML harmless
against any and all liability, loss, damages, costs or expenses which
Insurance Company or PML may incur, suffer or be required to pay due to
the Fund's (1) incorrect calculation of the daily net asset value,
dividend rate or capital gain distribution rate of a Series; (2)
incorrect reporting of the daily net asset value, dividend rate or
capital gain distribution rate; and (3) untimely reporting of the net
asset value, dividend rate or capital gain
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<PAGE> 14
distribution rate; provided that the Fund shall have no obligation to
indemnify and hold harmless Insurance Company or PML if the incorrect
calculation or incorrect or untimely reporting was the result of
incorrect information furnished by Insurance Company or PML or
information furnished untimely by Insurance Company or PML or otherwise
as a result of or relating to a breach of this Agreement by Insurance
Company.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this
Article IX, except to the extent that the omission results in a failure
of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give such notice. In
case any such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
satisfactory to such indemnified party, and to the extent that the
indemnifying party has given notice to such effect to the indemnified
party and is performing its obligations under this Article, the
indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation.
Notwithstanding the foregoing, in any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX.
9.5 Insurance Company shall indemnify and hold the Fund, Dreyfus and any
sub-investment adviser of a Series harmless against
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<PAGE> 15
any tax liability incurred by the Fund under Section 851 of the Code
arising from purchases or redemptions by Insurance Company's General
Accounts or the account of its affiliates.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate without penalty as to one or more Series
at the option of the terminating party:
a. At the option of Insurance Company or the Fund at any time
from the date hereof upon 180 days' notice, unless a shorter
time is agreed to by the parties;
b. At the option of Insurance Company, if shares of any Series
are not reasonably available to meet the requirements of the
Contracts as determined by Insurance Company. Prompt notice of
election to terminate shall be furnished by Insurance Company,
said termination to be effective ten days after receipt of
notice unless the Fund makes available a sufficient number of
shares to meet the requirements of the Contracts within said
ten-day period;
c. At the option of Insurance Company, upon the institution of
formal proceedings against the Fund by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in Insurance Company's reasonable
judgment, materially impair the Fund's ability to meet and
perform the Fund's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
Insurance Company with said termination to be effective upon
receipt of notice;
d. At the option of the Fund, upon the institution of formal
proceedings against Insurance Company by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in the Fund's reasonable judgment,
materially impair Insurance Company's ability to meet and
perform Insurance Company's obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by
the Fund with said termination to be effective upon receipt of
notice;
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<PAGE> 16
e. At the option of the Fund, if the Fund shall determine, in its
sole judgment reasonably exercised in good faith, that
Insurance Company has suffered a material adverse change in
its business or financial condition or is the subject of
material adverse publicity and such material adverse change or
material adverse publicity is likely to have a material
adverse impact upon the business and operation of the Fund or
Dreyfus, the Fund shall notify Insurance Company in writing of
such determination and its intent to terminate this Agreement,
and after considering the actions taken by Insurance Company
and any other changes in circumstances since the giving of
such notice, such determination of the Fund shall continue to
apply on the sixtieth (60th) day following the giving of such
notice, which sixtieth day shall be the effective date of
termination;
f. Upon termination of the Investment Advisory Agreement between
the Fund and Dreyfus or its successors unless Insurance
Company specifically approves the selection of a new Fund
investment adviser. The Fund shall promptly furnish notice of
such termination to Insurance Company;
g. In the event the Fund's shares are not registered, issued or
sold in accordance with applicable federal law, or such law
precludes the use of such shares as the underlying investment
medium of Contracts issued or to be issued by Insurance
Company. Termination shall be effective immediately upon such
occurrence without notice;
h. At the option of the Fund upon a determination by the Board in
good faith that it is no longer advisable and in the best
interests of shareholders for the Fund to continue to operate
pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by the Fund to
Insurance Company of such termination;
i. At the option of the Fund if the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable,
under the Code, or if the Fund reasonably believes that the
Contracts may fail to so qualify;
j. At the option of either party to this Agreement, upon another
party's breach of any material provision of this Agreement;
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<PAGE> 17
k. At the option of the Fund, if the Contracts are not
registered, issued or sold in accordance with applicable
federal and/or state law; or
l. Upon assignment of this Agreement, unless made with the
written consent of the non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, the Fund and Dreyfus may, at the option of the Fund,
continue to make available additional Series shares for so long as the
Fund desires pursuant to the terms and conditions of this Agreement as
provided below, for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, if the Fund or Dreyfus
so elects to make additional Series shares available, the owners of the
Existing Contracts or Insurance Company, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in the
Series, redeem investments in the Fund and/or invest in the Fund upon
the making of additional purchase payments under the Existing
Contracts. In the event of a termination of this Agreement pursuant to
Section 10.2 hereof, the Fund and Dreyfus, as promptly as is
practicable under the circumstances, shall notify Insurance Company
whether Dreyfus and the Fund will continue to make Series shares
available after such termination. If Series shares continue to be made
available after such termination, the provisions of this Agreement
shall remain in effect and thereafter either the Fund or Insurance
Company may terminate the Agreement, as so continued pursuant to this
Section 10.3, upon prior written notice to the other party, such notice
to be for a period that is reasonable under the circumstances but, if
given by the Fund, need not be for more than six months.
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement shall be made by
agreement in writing between Insurance Company and Fund.
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<PAGE> 18
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified
mail, return receipt requested, to the appropriate parties at the
following addresses:
Insurance Company: Provident Mutual Life Insurance Company
of Philadelphia
1600 Market Street
Philadelphia, Pennsylvania 19103
Attn:
Fund: Dreyfus Variable Investment Fund
200 Park Avenue
New York, New York 10166
Attn: Daniel C. Maclean, Secretary
with copies to: Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.
ARTICLE XIV
LAW
14.1 This Agreement shall be construed in accordance with the internal laws
of the State of New York, without giving effect to principles of
conflict of laws.
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY OF PHILADELPHIA
By: /s/ Illegible Signature
------------------------------------
Its: Chairman, President & CEO
------------------------------------
Attest: /s/ Illegible Signature
----------------------------
DREYFUS VARIABLE INVESTMENT FUND
By: /s/ Illegible Signature
------------------------------------
Its: Secretary
------------------------------------
Attest: /s/ Illegible Signature
----------------------------
Assistant Secretary
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<PAGE> 1
EXHIBIT 8(h)
PARTICIPATION AGREEMENT
By and Among
QUEST FOR VALUE ACCUMULATION TRUST
And
PROVIDENT/MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
And
QUEST FOR VALUE DISTRIBUTORS
THIS AGREEMENT, made and entered into this 30th day of September 1993
by and among PROVIDENT/MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA, a
Pennsylvania Corporation (hereinafter the "Company"), on its own behalf and on
behalf of PROVIDENT/MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT (hereinafter, the
"Account"), a segregated asset account of the Company, the QUEST FOR VALUE
ACCUMULATION TRUST, an open-end diversified management investment company
organized under the laws of the State of Massachusetts (hereinafter the "Fund")
and QUEST FOR VALUE DISTRIBUTORS, a Delaware general partnership (hereinafter
the "Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and is available to act as the investment vehicle
for separate accounts established for variable life insurance contracts and
variable annuity contracts to be offered by insurance companies which have
entered into participation agreements substantially identical to this Agreement
(hereinafter "Participating Insurance Companies"); and
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in
<PAGE> 2
a particular managed portfolio of securities and other assets (the
"Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission (the "SEC"), dated September 30, 1993 (File No. 812-8470),
granting Participating Insurance Companies and variable annuity and variable
life insurance separate accounts exemptions from the provisions of sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of Pennsylvania, to set aside and invest assets
attributable to the Contracts; and
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<PAGE> 3
WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of the Account to fund the Contracts and the Underwriter is authorized to sell
such shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which the Company orders on behalf of the Account, executing such orders on
a daily basis at the net asset value next computed after receipt and acceptance
by the Fund or its agent of the order for the shares of the Fund. For purposes
of this Section 1.1 , the Company shall be the designee of the Fund for receipt
of such orders from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such order by
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<PAGE> 4
10:00 a.m. on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the SEC.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter the "Directors") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, and VII of this Agreement is in
effect to govern such sales. The Fund shall make available upon written request
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<PAGE> 5
from the Company (i) a list of all other Participating Insurance Companies and
(ii) a copy of the Participation Agreement executed by any other Participating
Insurance Company.
1.5. The Fund agrees to redeem for cash, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.5, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided the Fund receives notice of request for
redemption on the next following Business Day. Payment shall be in federal funds
transmitted by wire to the Company's account as designated by the Company in
writing from time to time, on the same Business Day the Fund receives the
redemption order from the Company.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund in accordance with
the provisions of such prospectus. The Company agrees that all net amounts
available under the Contracts shall be invested in the Fund, or in the Company's
general account; provided that such amounts may also be invested in an
investment company other than the Fund if (a) such other investment company, or
series thereof, has investment objectives or policies that are substantially
different from the investment objectives and policies of all the Portfolios of
the Fund; or (b)
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<PAGE> 6
the Company gives the Fund and the Underwriter 45 days written notice of its
intention to make such other investment company available as a funding vehicle
for the Contracts; or (c) such other investment company was available as a
funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement; or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after that it places an order to purchase Fund shares in accordance with Section
1.1 hereof. Payment shall be in federal funds transmitted by wire.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such dividends and distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such dividends and
distributions in cash. The Fund shall notify the
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<PAGE> 7
Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act and that the Contracts will be issued and sold
in compliance with all applicable federal and state laws. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment accounts
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company shall amend the registration
statement under the 1933 Act for the Contracts and the registration statement
under the 1940 Act for the Account from time to time as required in order to
effect the continuous offering of the Contracts or as may otherwise be required
by
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<PAGE> 8
applicable law. The Company shall register and qualify the Contracts for sale in
accordance with the securities laws of the various states only if and to the
extent deemed necessary by the Company.
2.2. The Company represents that it believes that the Contracts are
currently and at the time of issuance will be treated as annuity contracts under
applicable provisions of the Internal Revenue Code of 1986, and that it will
make every effort to maintain such treatment and that it will notify the Fund
and the Underwriter immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for as long as the Fund shares are sold. The Fund
shall amend the registration statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
2.4. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, and
that it will make every
-8-
<PAGE> 9
effort to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. To the extent feasible and consistent with market conditions, the Fund
will adjust its investments to comply with requirements of the Company's
domiciliary state upon written notice from the Company of such requirements and
proposed adjustments, it being agreed and understood that in any such case the
Fund shall be allowed a reasonable period of time under the circumstances after
receipt of such notice to make any such adjustment.
2.6. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have its board of trustees, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents
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<PAGE> 10
that it will sell and distribute the Fund shares in accordance with all
applicable federal and state securities laws, including without limitation the
1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.9. The Underwriter represents and warrants that its affiliated
company, Quest For Value Advisors (the "Advisor") is and will remain duly
registered under all applicable federal and state securities laws and that the
Advisor will perform its obligations to the Fund in accordance with the laws of
Massachusetts and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
trustees, officers, employees, investment advisers, and other individuals/
entities having access to the funds and/or securities of the Fund are and
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimal
coverage as required currently by Rule 17g-(1) of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid Bond includes
coverage for larceny and embezzlement and is issued by a reputable bonding
company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or
-10-
<PAGE> 11
securities of the Fund are covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund, in an amount not less $5 million. The
aforesaid includes coverage for larceny and embezzlement and is issued by a
reputable bonding company. The Company agrees to make all reasonable efforts to
see that this bond or another bond containing these provisions is always in
effect, and agrees to notify the Fund and the Underwriter in the event that such
coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company, at the Company's
expense, with as many copies of the Fund's current prospectus as the Company may
reasonably request for use with prospective Contract owners and applicants. The
Underwriter shall print and distribute, at the Fund's or Underwriter's expense,
as many copies of said prospectus as necessary for distribution to existing
Contract owners or participants. If requested by the Company in lieu thereof,
the Fund shall provide such documentation including a final copy of a current
prospectus set in type at the Fund's expense and other assistance as is
reasonably necessary in order for the Company at least annually (or more
frequently if the Fund prospectus is amended more frequently) to have the new
prospectus for the Contracts and the Fund's new prospectus printed together in
one document, in such case the Fund shall bear its share of expenses as
described above.
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<PAGE> 12
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or, in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Underwriter (or the Fund) shall provide such Statement, at its
expense, to the Company and to any owner of or participant under a Contract who
requests such Statement or, at the Company's expense, to any prospective
Contract owner and applicant who requests such statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy material, if any, reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require and shall
bear the costs of distributing them to existing Contract owners or participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners or
participants;
(ii) vote the Fund shares held in the Account in
accordance with instructions received from Contract
owners or participants; and
(iii) vote Fund shares held in the Account for which no
timely instructions have been received, in the same
proportion as Fund shares of such Portfolio for which
instructions have been received;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contract owners. The Company
reserves the right to vote
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<PAGE> 13
Fund shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular as required, the Fund will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund will act in accordance with the SEC interpretation of the requirements
of Section 16(a) with respect to periodic elections of directors and with
whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Underwriter is named, at least fifteen
business days prior to its use. No such material shall be used if the Fund or
the Underwriter reasonably objects to such use within fifteen business days
after receipt of such material.
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<PAGE> 14
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, except with the permission of the Fund or the Underwriter. The
Fund and the Underwriter agree to respond to any request for approval on a
prompt and timely basis.
4.3. The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account(s) is
named, at least fifteen business days prior to its use. No such material shall
be used if the Company reasonably objects to such use within fifteen business
days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are
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<PAGE> 15
in the public domain or approved by the Company for distribution to Contract
owners or participants, or in sales literature or other promotional material
approved by the Company, except with the written permission of the Company. The
Company agrees to respond to any request for approval on a prompt and timely
basis.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical,
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<PAGE> 16
radio, television, telephone or tape recording, videotape display, signs or
billboards, motion pictures, or other public media), sales literature (i.e., any
written communication distributed or made generally available to customers or
the public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy materials and any other
material constituting sales literature or advertising under NASD rules, the 1940
Act or the 1933 Act.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then, subject to obtaining any required exemptive orders or other
regulatory approvals, the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this Agreement
shall be paid by the Fund to the extent permitted
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<PAGE> 17
by law. All Fund shares will be duly authorized for issuance and registered in
accordance with applicable federal law and to the extent deemed advisable by the
Fund, in accordance with applicable state law, prior to sale. The Fund shall
bear the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting in type, printing and
distributing the prospectuses, the proxy materials and reports to existing
shareholders and Contract owners, the preparation of all statements and notices
required by any federal or state law, all taxes on the issuance or transfer of
the Fund's shares, and any expenses permitted to be paid or assumed by the Fund
pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will comply with Section 817(h) of the Code and
Treasury Regulation 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulations. In the event of a breach of
this Article VI by the Fund, it will take all reasonable steps (a) to notify
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<PAGE> 18
the Company of such breach and (b) to adequately diversify the Fund so as to
achieve compliance with the grace period afforded by Regulation 817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board of Trustees of the Fund (the "Board") will monitor the
Fund for the existence of any material irreconcilable conflict between the
interests of the contract owners of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions of contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Board shall consist of persons who are
not "interested" persons of the Fund.
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<PAGE> 19
7.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. As set forth in the Mixed and Shared Funding Exemptive
Order, the Company will report any potential or existing conflicts of which it
is aware to the Board. The Company agrees to assist the Board in carrying out
its responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Board whenever contract owner voting instructions
are disregarded. The Board shall record in its minutes or other appropriate
records, all reports received by it and all action with regard to a conflict.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested Directors, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a
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<PAGE> 20
vote of all affected contract owners and, as appropriate, segregating the assets
of any appropriate group (i.e., variable annuity contract owners or variable
life insurance contract owners, of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If the Company's disregard of voting instructions could conflict
with the majority of Contract owner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company is permitted to withdraw the Account's investment in the Fund. The
Underwriter and Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund until the
Company notifies the Underwriter and the Fund that it is withdrawing the
Account's investment in the Fund pursuant to this Section 7.4.
7.5. If a particular state insurance regulator's decision applicable to
the Company conflicts with the majority of other state insurance regulators,
then the Company is permitted to withdraw the Account's investment in the Fund.
The Underwriter and Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund until the
Company notifies the Underwriter and the Fund that
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<PAGE> 21
it is withdrawing the Account's investment in the Fund pursuant to this Section
7.5.
7.6. For purposes of Section 7.3 of this Agreement, a majority of the
disinterested members of the Board shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Fund be required to establish a new funding medium for the Contracts. The
Company shall not be required by Section 7.3 to establish a new funding medium
for the Contracts if an offer to do so has been declined by vote of a majority
of Contract owners materially adversely affected by the irreconcilable material
conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
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<PAGE> 22
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund,
the Underwriter, and each of the Fund's or the Underwriter's directors,
officers, employees or agents and each person, if any, who controls or is
associated with the Fund or the Underwriter within the meaning of such terms
under the federal securities laws (collectively, the "indemnified parties" for
purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation (including legal and other expenses), to which the
indemnified parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus for the Contracts
or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that this
agreement to indemnify shall not apply as to any indemnified
party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity
with information furnished to the Company by or on behalf of
the Fund for use in the registration statement or prospectus
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<PAGE> 23
for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
by or on behalf of the Company (other than statements or
representations contained in the Contract or Fund registration
statement, the Contract or Fund prospectus or sales literature
for the Contracts or the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were
made, if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials or to make any payments
under the terms of this Agreement; or
(v) arise out of any material breach of any representation and/or
warranty made by the Company in this Agreement or arise out of
or result from any other material breach by the Company of
this Agreement;
except to the extent provided in Sections 8.1(b) and 8.4 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
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<PAGE> 24
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an indemnified party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his or her
duties or by reason of his or her reckless disregard of obligations or duties
under this Agreement or to the Fund.
8.1(c). The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. Indemnification By the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors, officers, employees or agents and each
person, if any, who controls or is associated with the Company within the
meaning of such terms under the federal securities laws (collectively, the
"indemnified parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the indemnified parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares and:
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<PAGE> 25
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of
the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which
they were made; provided that this agreement to indemnify
shall not apply as to any indemnified party if such statement
or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
the Underwriter or Fund by or on behalf of the Company for use
in the registration statement or prospectus for the Fund or in
sales literature for the Fund (or any amendment or supplement
thereto) or otherwise for use in connection with the sale of
the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Contracts or in the Contract or Fund registration statement,
the Contract or Fund prospectus or sales literature for the
Contracts or the Fund not supplied by the Underwriter or
persons under its control) or wrongful conduct of the
Underwriter or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts (or any
amendment thereof or supplement thereto), or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement or
statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the
Underwriter; or
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<PAGE> 26
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter.
except to the extent provided in Sections 8.2(b) and 8.4 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an indemnified party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his or her
duties or by reason of his or her reckless disregard of obligations and duties
under this Agreement or to the Company or the Account.
8.2(c). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
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<PAGE> 27
8.3. Indemnification by the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company and
each of its directors, officers, employees or agents and each person, if any,
who controls or is associated with the Company within the meaning of such terms
under the federal securities laws (collectively, the "indemnified parties" for
the purpose of this Section 8.3) against any and all losses, claims, damages or
liabilities (including amounts paid in settlement with the written consent of
the Fund) or litigation (including legal and other expenses) to which they or
any of them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus for the Fund or sales
literature of the Fund (or any amendment or supplement
thereto), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which
they were made; provided that this agreement to indemnify
shall not apply if such statement or omission or alleged
statement or alleged omission was made in reliance upon and in
conformity with information furnished to the Fund by or on
behalf of the Company for use in the registration statement or
prospectus for the Fund or sales literature for the Fund (or
any amendment or supplement thereto) or otherwise for use in
connection with the sale or distribution of the Contracts or
Fund shares; or
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<PAGE> 28
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Contracts or the Contract or Fund registration statement or
the Contract or Fund prospectus or sales literature for the
Contract or the Fund not supplied by the Fund or persons under
its control) or wrongful conduct of the Fund or persons under
the Fund's control, with respect to the sale or distribution
of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the registration statement or
prospectus or sales literature covering the Contracts (or any
amendment or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were
made, if such statement or omission was made in reliance upon
and in conformity with information furnished by or on behalf
of the Fund to the Company; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this
Agreement by the Fund.
except to the extent provided in Section 8.3(b) and 8.4 hereof. This
indemnification shall be in addition to any liability which the Fund may
otherwise have.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an indemnified party would
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<PAGE> 29
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his or her duties or by reason of his or her
reckless disregard of obligations or duties under this Agreement or to the
Company or the Account.
8.3(c). The indemnified parties will promptly notify the Fund of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.4. Indemnification Procedure
Any person obligated to provide indemnification under this Article VIII
("indemnifying party" for the purpose of this Section 8.4) shall not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("indemnified party" for the purpose of this Section 8.4) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this
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<PAGE> 30
Article VIII, except to the extent that the failure to notify results in the
failure of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of failure to give such notice. In case any such
action is brought against the indemnified party, the indemnifying party will be
entitled to participate, at its own expense, in the defense thereof. The
indemnifying party also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
indemnifying party to the indemnified party of the indemnifying party's election
to assume the defense thereof, the indemnified party shall bear the fees and
expenses of any additional counsel retained by it, and the indemnifying party
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation, unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the
- 30 -
<PAGE> 31
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. Applicable Law.
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advance written
notice to the other parties; or
(b) at the option of the Company if shares of all Portfolios
are not reasonably available to meet the requirements
- 31 -
<PAGE> 32
of the Contracts as determined by the Company. Prompt notice of the election to
terminate for such cause shall be furnished by the Company; or
(c) at the option of the Fund upon institution of formal proceedings
against the Company by the NASD, the SEC, the Pennsylvania Insurance
Commissioner or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the operation of the
Account, or the purchase of the Fund shares; or
(d) at the option of the Company upon institution of formal proceedings
against the Fund by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the Contract owners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the Corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will give
30 day's prior written notice to the Fund of the date of any proposed vote or
other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a determination by a
majority of the Directors of the Fund, or a majority of its disinterested
Directors, that an irreconcilable
- 32 -
<PAGE> 33
material conflict exists among the interests of (i) all contract owners of
variable insurance products of all separate accounts or (ii) the interests of
the Participating Insurance Companies investing in the Fund; or
(g) at the option of the Company if the Company has withdrawn the
Account's investment in the Fund because the Company's disregard of voting
instructions could conflict with the majority of contract owner voting
instructions and if the Company's judgment represents a minority position or
would preclude a majority vote; or
(h) at the option of the Company if the Company has withdrawn the
Account's investment in the Fund because a particular state insurance
regulator's decision applicable to the Company conflicts with the majority of
other state insurance regulators;
(i) at the option of the Company if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, or under any successor or similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
(j) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(k) at the option of any party to this Agreement, upon another party's
material breach of any provision of this Agreement.
- 33 -
<PAGE> 34
(l) at the option of the Company, if the Company determines in
its sole judgement exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is the subject of
material adverse publicity.
10.2. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.3. Notwithstanding any termination of this Agreement, the Fund and
the Underwriter shall at the option of the Company, continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Fund, redeem investments in the Fund and/or invest
in the Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.3 shall not apply to any
terminations under Article VII and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement.
10.4. Except as necessary to implement Contract owner initiated or
approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem Fund
- 34 -
<PAGE> 35
shares attributable to the Contracts (as opposed to Fund shares attributable to
the Company's assets held in the Account), and the Company shall not prevent
Contract owners from allocating payments to a Portfolio that was otherwise
available under the Contracts, until 90 days after the Company shall have
notified the Fund or Underwriter of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Mr. Joseph M. La Motta
President
Quest For Value Accumulation Trust
Quest For Value Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Edward W. Diffin, Jr., Esq.
Counsel
Provident Mutual Life Insurance
Company of Philadelphia
1600 Market Street
Philadelphia, PA 19103
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
Quest for Value Distributors
200 Liberty Street
New York, NY 10281
- 35 -
<PAGE> 36
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Directors, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto shall
treat as confidential all information reasonably identified as such in writing
by any other party hereto (including without limitation the names and addresses
of the owners of the Contracts) and, except as contemplated by this Agreement,
shall not disclose, disseminate or utilize such confidential information until
such time as it may come into the public domain without the express prior
written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
- 36 -
<PAGE> 37
12.6. This Agreement shall not be assigned by any party hereto without
the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate action, as applicable, by such party
and when so executed and delivered this Agreement will be the valid and binding
obligation of such party enforceable in accordance with its terms.
- 37 -
<PAGE> 38
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
Company:
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY OF PHILADELPHIA
SEAL By: /s/ illegible
----------------------------
Date: September 30, 1993
----------------------------
Fund:
QUEST FOR VALUE ACCUMULATION TRUST
SEAL By: /s/ Thomas E. Duggan
----------------------------
Date: 9/30/93
----------------------------
Underwriter:
QUEST FOR VALUE DISTRIBUTORS
SEAL By: /s/ Thomas E. Duggan
----------------------------
Date: 9/30/93
----------------------------
- 38 -
<PAGE> 1
EXHIBIT 9
PROVIDENT MUTUAL
1050 WESTLAKES DRIVE, BERWYN, PA 19312-2419
P.O. BOX 1717, VALLEY FORGE, PA 19482-1717
(610) 407-1239, (800) 523-4681, FAX: (610) 407-1379
ADAM SCARAMELLA
COUNSEL
April 30, 1998
Provident Mutual Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
RE: Provident Mutual Life Insurance Company
Provident Mutual Variable Growth Separate Account, et al.
(File No. 33-70926)
Gentlemen:
I hereby consent to the use of my name under the heading "Legal Matters"
filed as part of Post-Effective Amendment No. 5 to the Registration
Statement on Form N-4 (File No. 33-70926) for the Provident Mutual Variable
Annuity Separate Account.
Very truly yours,
/s/ ADAM SCARAMELLA
-------------------------------
Adam Scaramella
A HERITAGE OF STRENGTH FOR TOMORROW'S FINANCIAL NEEDS
<PAGE> 1
EXHIBIT 3.B
SUTHERLAND, ASBILL & BRENNAN
Atlanta - Austin - New York - Washington
1275 PENNSYLVANIA AVENUE, N.W. TEL: (202) 383-0100
WASHINGTON, D.C. 20004-2404 FAX: (202) 637-3593
April 29, 1998
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
Provident Mutual Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
Re: Provident Mutual Life Insurance Company
Variable Annuity Separate Account.
Provident Mutal
(File No. 33-70926)
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of post-effective amendment number 5
to the Form N-4 registration statement (File No. 33-70926) for the Provident
Mutual Variable Growth Separate Account, et. al. 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.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: /s/ Stephen E. Roth
------------------------
Stephen E. Roth
<PAGE> 1
EXHIBIT 10B
LOGO
PROVIDENT MUTUAL
1050 WESTLAKES DRIVE, BERWYN, PA 19312-2419
TELEPHONE (610) 407-1717, FAX (610) 407-1438
April 30, 1998
Provident Mutual Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
Gentlemen:
I hereby consent to the use of my name under the heading "Experts" in the
Prospectus filed as part of Post-Effective Amendment No. 5 on Form N-4 (File
No. 33-70926) for the Provident Mutual Variable Annuity Separate Account.
Very truly yours,
/s/ SCOTT V. CARNEY
--------------------------
Scott V. Carney, FSA, MAAA
Vice President & Actuary
A HERITAGE OF STRENGTH FOR TOMORROW'S FINANCIAL NEEDS
<PAGE> 1
EXHIBIT 10C
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Post-Effective Amendment
No. 5 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 20, 1998 on our audits of the financial
statements of Provident Mutual Life Insurance Company and
Subsidiaries as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997.
2. Our report dated March 4, 1998 on our audits of the financial
statements of Provident Mutual Variable Separate Account
(comprising twent-three subaccounts) as of December 31, 1997, and
the related 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".
COOPERS & LYBRAND, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 30, 1998
