<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
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. 6 [X]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 8 [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: (302) 407-1717
---------------------
JAMES G. POTTER, JR., ESQ.,
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
1050 WESTLAKES DRIVE
BERWYN, PA 19312
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004
---------------------
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) of Rule 485
Title of Securities Being Registered:
Interests in Flexible Individual Flexible Premium Deferred Variable Annuity
contracts.
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<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO RULE 495
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required By Form N-4.
PART A
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
---------------- ------------------
<C> <S> <C>
1. Cover Page................................. Cover Page
2. Definitions................................ Definitions
3. Synopsis................................... Table of Expenses; Summary
4. Condensed Financial Information............ Financial Highlights
5. General Description of Registrant, PMLIC the Variable Account and the Funds
Depositor and Portfolio Companies......
PMLIC the Variable Account and the Funds--
Provident Mutual Life Insurance Company
a. Depositor...............................
PMLIC the Variable Account and the Funds--
The Provident Mutual Variable Annuity
Separate Account
b. Registrant..............................
PMLIC the Variable Account and the Funds--
c. Portfolio Company.......................
PMLIC the Variable Account and the Funds--
d. Fund Prospectus.........................
PMLIC the Variable Account and the 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
(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--PMLIC the Variable Account
and the 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
PROSPECTUS
MAY 1, 1999
Please read this prospectus carefully before investing and keep it for future
reference. It contains important information about this variable annuity
contract that you should know before investing.
To learn more about this variable annuity contract, you should consult the
Statement of Additional Information ("SAI") dated May 1, 1999. For a free copy
of the SAI, please contact us at:
Provident Mutual Life Insurance Company
300 Continental Drive
Newark, Delaware 19713
Telephone: 1-800-688-5177
Provident Mutual Life Insurance Company ("PMLIC") has filed the SAI with the
Securities and Exchange Commission and incorporates the SAI by reference into
this prospectus. The Table of Contents for the SAI appears on page 39 of this
prospectus. The Securities and Exchange Commission maintains an Internet website
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information.
Variable annuity contracts involve certain risks, and you may lose some or all
of your investment. The investment performance of the subaccounts will vary, and
you bear the entire investment risk of amounts allocated to the subaccounts.
The contract is not a deposit or obligation of any bank, and no bank endorses or
guarantees the contract. Neither the Federal Deposit Insurance Corporation nor
any federal agency insures your investment in the contract.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This variable annuity contract has 32 funding choices -- one fixed account
(paying a guaranteed minimum fixed rate of interest) and 31 subaccounts of the
Provident Mutual Variable Annuity Separate Account which invest in the following
portfolios:
MARKET STREET FUND, INC.
- - Money Market Portfolio
- - Growth Portfolio
- - Bond Portfolio
- - Managed Portfolio
- - Aggressive Growth Portfolio
- - International Portfolio
- - All Pro Large Cap Growth Portfolio
- - All Pro Small Cap Growth Portfolio
- - All Pro Large Cap Value Portfolio
- - All Pro Small Cap Value Portfolio
VARIABLE INSURANCE PRODUCTS FUND
- - VIP High Income Portfolio
- - VIP Equity-Income Portfolio
- - VIP Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND II
- - VIP II Asset Manager Portfolio
- - VIP II Contrafund Portfolio
- - VIP II Index 500 Portfolio
SCUDDER VARIABLE LIFE INVESTMENT FUND
- - Bond Portfolio
- - Growth and Income Portfolio
- - International Portfolio
OCC ACCUMULATION TRUST
- - Equity Portfolio
- - Small Cap Portfolio
- - Managed Portfolio
DREYFUS VARIABLE INVESTMENT FUND
- - Growth and Income Portfolio
- - Zero Coupon 2000 Portfolio
DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
- - Socially Responsible Portfolio
FEDERATED INSURANCE SERIES
- - Fund for U.S. Government Securities II Portfolio
- - Utility Fund II Portfolio
VAN ECK WORLDWIDE INSURANCE TRUST
- - Van Eck Worldwide Hard Assets Portfolio
- - Van Eck Worldwide Bond Portfolio
- - Van Eck Worldwide Emerging Markets Portfolio
- - Van Eck Worldwide Real Estate Portfolio
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions................................................. 1
Table of Expenses........................................... 2
Summary..................................................... 8
PMLIC the Variable Account and the Funds.................... 10
Provident Mutual Life Insurance Company................ 10
The Provident Mutual Variable Annuity Separate
Account............................................... 11
The Funds.............................................. 11
Market Street Fund, Inc........................... 12
Variable Insurance Products Fund and Variable
Insurance Products Fund II........................ 13
Scudder Variable Life Investment Fund............. 14
OCC Accumulation Trust............................ 15
Dreyfus Variable Investment Fund and The Dreyfus
Socially Responsible Growth Fund, Inc. ........... 15
Federated Insurance Series........................ 16
Van Eck Worldwide Insurance Trust................. 16
Resolving Material Conflicts................................ 17
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............................................... 26
Modification........................................... 26
Reports to Contract Owners............................. 26
Contract Inquiries..................................... 26
The Guaranteed Account...................................... 26
Minimum Guaranteed and Current Interest Rates.......... 27
Transfers from Guaranteed Account...................... 27
Payment Deferral....................................... 27
Charges and Deductions...................................... 28
Surrender Charge (Contingent Deferred Sales Charge).... 28
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.......................................... 30
Other Taxes............................................ 30
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.......................................... 33
Introduction........................................... 33
Tax Status of the Contract............................. 33
Treatment of Annuities................................. 34
Taxation of Non-Qualified Contracts.................... 34
Taxation of Qualified Contracts........................ 35
Withholding............................................ 36
Possible Changes in Taxation........................... 36
Other Tax Consequences................................. 36
Distribution of Contracts................................... 37
Preparing for Year 2000..................................... 37
Legal Proceedings........................................... 37
Voting Rights............................................... 37
Financial Statements........................................ 38
Statement of Additional Information Table of Contents....... 39
Appendix A -- Financial Highlights.......................... A-1
Appendix B -- Plan of Conversion............................ B-1
</TABLE>
ii
<PAGE> 8
DEFINITIONS
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 we pay the proceeds payable on
the death of the Owner or the Annuitant.
CASH SURRENDER VALUE....... The Contract Account Value less any applicable
Surrender Charge.
CONTRACT................... The individual flexible premium deferred variable
annuity contract issued by PMLIC and offered in this
prospectus.
CONTRACT ACCOUNT VALUE..... The sum of the Variable Account Value and the
Guaranteed Account Value.
CONTRACT YEARS, MONTHS, AND
ANNIVERSARIES.............. Are measured from the effective date of the
Contract.
FUND....................... A designated mutual fund in which the Variable
Account invests.
GUARANTEED ACCOUNT......... This account is part of our general account and is
not part of nor dependent upon the investment
performance of the Variable Account.
GUARANTEED ACCOUNT VALUE... Net Premiums allocated and Contract Account Value
transferred to the Guaranteed Account, plus interest
credited to the Guaranteed Account, minus amounts
deducted, transferred, or withdrawn from the
Guaranteed Account.
MATURITY DATE.............. The date when we apply the Contract Account Value to
a payment option, unless the Owner has elected to
receive a lump sum payment of the Cash Surrender
Value.
NET PREMIUM................ The premium paid less any premium tax levied for the
year the premium is paid.
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.
PAYMENT OPTION............. One of the three annuity payment options available
under the Contract.
PORTFOLIO.................. An investment portfolio of a Fund.
PMLIC, WE, OUR, US......... Providentmutual Life Insurance Company.
QUALIFIED CONTRACT......... A Contract issued in connection with plans that
qualify for special Federal income tax treatment
under sections 401, 403(b), 408 or 408A of the
Internal Revenue Code of 1986, as amended.
SERVICE CENTER............. Providentmutual's office at 300 Continental Drive,
Newark, Delaware 19713.
SUBACCOUNT................. A subdivision of the Variable Account.
VALUATION DAY.............. Each day on which applicable law requires valuation
of the assets of a Subaccount.
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........... Providentmutual Variable Annuity Separate Account.
VARIABLE ACCOUNT VALUE..... 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 Day by the number of
Subaccount units allocated to the Contract.
WRITTEN NOTICE............. A written request or notice in a form satisfactory
to PMLIC which is signed by the Owner and received
at the Service Center.
YOU........................ The Owner.
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%
Transfer Processing Fee...................... No fee for first twelve transfers in Contract Year.
$25 fee for each transfer thereafter during Contract
Year.
ANNUAL ADMINISTRATION FEE.................... $30 per Contract Year
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of Variable Account Value)
Mortality and Expense Risk Charges........... 1.25%
Account Fees and Expenses(2)................. 0.15%
----
Total Variable Account
Annual Expenses............................ 1.40%
</TABLE>
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND, INC. ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.32% 0.25% 0.35% 0.40% 0.41% 0.75%
Other Expenses............................... 0.15% 0.17% 0.20% 0.18% 0.21% 0.25%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses................... 0.47% 0.42% 0.55% 0.58% 0.62% 1.00%
</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, INC. ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.70% 0.70% 0.90% 0.90%
Other Expenses............................... 0.22% 0.27% 0.35% 0.39%
---- ---- ---- ----
Total Fund Annual Expenses(3)................ 0.92% 0.97% 1.25% 1.29%
</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)................. 0.58% 0.49% 0.59%
Other Expenses
(after reimbursement)...................... 0.12% 0.08% 0.07%
---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(3)................... 0.70% 0.57% 0.66%
</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)................. 0.54% 0.24% 0.59%
Other Expenses
(after reimbursement)...................... 0.09% 0.04% 0.07%
---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(3)................... 0.63% 0.28% 0.66%
</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% 0.46% 0.86%
Other Expenses............................... 0.09% 0.10% 0.18%
---- ---- ----
Total Fund Annual Expenses................... 0.57% 0.56% 1.04%
</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% 0.78%
Other Expenses
(after reimbursement)...................... 0.14% 0.07% 0.04%
---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(3)(3A)............... 0.94% 0.87% 0.82%
</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............................... 0.14% 0.03%
---- ----
Total Fund Annual Expenses................... 0.59% 0.78%
</TABLE>
3
<PAGE> 11
<TABLE>
<CAPTION>
SOCIALLY
RESPONSIBLE
PORTFOLIO
-----------
<S> <C> <C>
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.
Annual Expenses(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.75%
Other Expenses............................... 0.05%
----
Total Fund Annual Expenses................... 0.80%
</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)...................... 0.25% 0.18%
---- ----
Total Fund Annual Expenses
(after reimbursement)(3)................... 0.85% 0.93%
</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
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)...................... 0.15% 0.16% 0.50% 0.50%
---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(3)................... 1.15% 1.16% 1.50% 1.50%
</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 1998 calendar year. For a more complete description of the
various costs and expenses, see "Charges and Deductions."
- ---------------
(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.")
(2) Asset-based administration charge.
4
<PAGE> 12
(3) For certain portfolios, certain expenses were reimbursed or fees waived
during 1998. It is anticipated that expense reimbursement and fee waiver
arrangements will continue past the current year. Absent the expense
reimbursement, the 1998 Total Annual Expenses would have been 1.36% for the
Market Street Fund All-Pro Small Cap Value Portfolio, 0.58% for the VIP
Fund Equity-Income Portfolio, 0.68% for the VIP Fund Growth Portfolio,
0.64% for the VIP II Fund Asset Manager Portfolio, 0.35% for the VIP II
Fund Index 500 Portfolio, 0.70% for the VIP II Fund Contrafund Portfolio,
0.88% for the OCC Small Cap Portfolio, 0.93% for the Federated U.S.
Government Securities II Portfolio, 1.00% for the Federated Utility Fund II
Portfolio, 1.20% for the Van Eck Worldwide Hard Assets Portfolio, 1.61% for
the Van Eck Worldwide Emerging Markets Portfolio and 5.32% for the Van Eck
Worldwide Real Estate Portfolio. Similar expense reimbursement and fee
waiver arrangements were also in place for the other Portfolios and it is
anticipated that such arrangements will continue past the current year.
However, no expenses were reimbursed or fees waived during 1998 for these
Portfolios because the level of actual expenses and fees never exceeded the
thresholds at which the reimbursement and waiver arrangements would have
become operative.
(3A) The Advisers of the OCC Accumulation Trust Equity, Small Cap and Managed
Portfolios are contractually obligated to waive that portion of the
advisory fee and to assume any necessary expense to limit total operating
expenses of the Portfolio to 1.00% of average net assets (net of expense
offset) on an annual basis.
(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 WIT are not affiliated with PMLIC.
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.................................. $68.11 $ 96.41 $125.20 $246.83
MS Money Market............................ 67.64 94.94 122.69 241.70
MS Bond.................................... 68.88 98.75 129.20 254.99
MS Managed................................. 69.16 99.63 130.70 258.03
MS Aggressive Growth....................... 69.54 100.80 132.69 262.08
MS International........................... 73.15 111.86 151.46 299.73
MS All Pro Large Cap Growth................ 72.39 109.53 147.54 291.92
MS All Pro Large Cap Value................. 72.86 110.99 149.99 296.81
MS All Pro Small Cap Growth................ 75.52 119.09 163.66 323.76
MS All Pro Small Cap Value................. 75.90 120.24 165.60 327.55
Fidelity High Income....................... 70.30 103.13 136.67 270.12
Fidelity Equity Income..................... 69.06 99.33 130.20 257.02
Fidelity Growth............................ 69.92 101.96 134.68 266.10
Fidelity Asset Manager..................... 69.63 101.09 133.19 263.08
Fidelity Index 500......................... 66.31 90.83 115.64 227.19
Fidelity Contrafund........................ 69.92 101.96 134.68 266.10
OCC Equity................................. 72.60 110.17 148.61 294.06
OCC Small Cap.............................. 71.96 108.21 145.29 287.44
OCC Managed................................ 71.42 106.58 142.53 281.91
Scudder Bond............................... 69.06 99.33 130.20 257.02
Scudder Growth & Income.................... 68.97 99.04 129.70 256.00
Scudder International...................... 73.53 113.01 153.42 303.61
Dreyfus Zero Coupon 2000................... 69.25 99.92 131.19 259.04
Dreyfus Growth & Income.................... 71.06 105.46 140.63 278.10
Dreyfus Socially Resp...................... 71.25 106.05 141.62 280.08
Federated U.S. Gov't Securities II......... 71.72 107.50 144.09 285.03
Federated Utility Fund II.................. 72.49 109.82 148.03 292.90
Van Eck Worldwide Bond..................... 74.57 116.20 158.79 314.22
Van Eck Worldwide Hard Assets.............. 74.67 116.49 159.28 315.17
Van Eck Worldwide Emerging Mkts............ 77.90 126.28 175.72 347.20
Van Eck Worldwide Real Estate.............. 77.90 126.28 175.72 347.20
</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................................... $21.70 $66.96 $114.82 $246.83
MS Money Market............................. 21.20 65.45 112.28 241.70
MS Bond..................................... 22.50 69.37 118.86 254.99
MS Managed.................................. 22.80 70.28 120.37 258.03
MS Aggressive Growth........................ 23.20 71.48 122.39 262.08
MS International............................ 27.00 82.88 141.35 299.73
MS All Pro Large Cap Growth................. 26.20 80.49 137.39 291.92
MS All Pro Large Cap Value.................. 26.70 81.98 139.87 296.81
MS All Pro Small Cap Growth................. 29.50 90.33 153.67 323.76
MS All Pro Small Cap Value.................. 29.90 91.52 155.63 327.55
Fidelity High Income........................ 24.00 73.89 126.40 270.12
Fidelity Equity Income...................... 22.70 69.98 119.87 257.02
Fidelity Growth............................. 23.60 72.69 124.40 266.10
Fidelity Asset Manager...................... 23.30 71.78 122.89 263.08
Fidelity Index 500.......................... 19.80 61.21 105.16 227.19
Fidelity Contrafund......................... 23.60 72.69 124.40 266.10
OCC Equity.................................. 26.42 81.14 138.47 294.06
OCC Small Cap............................... 25.74 79.12 135.12 287.44
OCC Managed................................. 25.18 77.44 132.33 281.91
Scudder Bond................................ 22.70 69.98 119.87 257.02
Scudder Growth & Income..................... 22.60 69.67 119.36 256.00
Scudder International....................... 27.40 84.07 143.33 303.61
Dreyfus Zero Coupon 2000.................... 22.90 70.58 120.88 259.04
Dreyfus Growth & Income..................... 24.80 76.29 130.41 278.10
Dreyfus Socially Resp....................... 25.00 76.89 131.41 280.08
Federated U.S. Gov't Securities II.......... 25.50 78.39 133.90 285.03
Federated Utility Fund II................... 26.30 80.78 137.88 292.90
Van Eck Worldwide Bond...................... 28.50 87.35 148.76 314.22
Van Eck Worldwide Hard Assets............... 28.60 87.65 149.25 315.17
Van Eck Worldwide Emerging Mkts............. 32.00 97.74 165.86 347.20
Van Eck Worldwide Real Estate............... 32.00 97.74 165.86 347.20
</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
This section is a summary of some of the more important points that you
should know and consider before purchasing this variable annuity contract. We
discuss each of these topics in greater detail further back in this prospectus.
THE CONTRACT
Issuance of a Contract. The Contract is an individual flexible premium
deferred variable annuity issued by us. The Contract allows you to invest on a
tax-deferred basis for your retirement or other long-term purposes. We may sell
these Contracts in connection with retirement plans which qualify for special
tax treatment (Qualified Contracts), as well as those which do not qualify for
special tax treatment (Non-Qualified Contracts).
To purchase a Contract, you must submit an application and pay the minimum
initial premium. We will not begin to make annuity payments until the Maturity
Date.
Free-Look Period. You have the right to return the Contract within 10 days
after you receive it. We treat the returned Contract as if it was never issued.
If you return the Contract within the free-look period, we will return a refund
amount to you. The amount we return is:
- premiums paid, including any contract fees and charges,
minus
- any amounts allocated to the Variable Account
plus
- the Variable Account Value on the date of termination.
Premiums. We require a minimum initial premium of at least $2,000. For
Qualified Contracts, as an alternative to the minimum initial premium, you may
commit to paying premiums of $100 per month. You may make subsequent premiums at
any time. For Non-Qualified Contracts, the minimum subsequent premium is $100.
For Qualified Contracts, the minimum subsequent premium is $50. You may also
select a planned periodic premium schedule, which specifies each planned premium
amount and payment frequency.
Allocation of Net Premiums. We will allocate Net Premiums under a Contract
as designated by you to one or more of the Subaccounts or to the Guaranteed
Account, or to both.
We invest the assets of each Subaccount solely in a corresponding Portfolio. The
Contract Account Value (except for amounts in the Guaranteed Account) will vary
according to the investment performance of the Portfolios in which the chosen
Subaccounts invest. We credit interest to amounts in the Guaranteed Account at a
guaranteed minimum rate of 3% per year, or a higher current interest rate as we
may declare.
Transfers. On or before the Maturity Date, you may request a transfer of
all or part of the amount in a Subaccount or the Guaranteed Account to another
Subaccount or the Guaranteed Account, subject to certain restrictions. Each
transfer must be at least $500 or the entire amount in the Subaccount or
Guaranteed Account, if less. We only allow one transfer out of the Guaranteed
Account each Contract Year. You must make this transfer within 30 days of the
Contract Anniversary. We limit the amount that you can transfer from the
Guaranteed Account. After twelve transfers during a Contract Year, we deduct a
transfer processing fee of $25 for each additional transfer during that Contract
Year.
Withdrawals. At any time before the earlier of the death of the Annuitant
or the Maturity Date, you may withdraw part of the Cash Surrender Value
(Contract Account Value less any applicable Surrender Charge), subject to
certain limitations.
8
<PAGE> 16
Surrender. Upon Written Notice received at the Service Center on or before
the earlier of the death of the Annuitant or the Maturity Date, you may
surrender the Contract in full and receive its Cash Surrender Value (Contract
Account Value less any applicable Surrender Charge).
Death Benefit. If the Annuitant dies before the Maturity Date, we will pay
the Beneficiary a death benefit. During the first six Contract years, the death
benefit equals the greater of:
- premiums paid less any amounts withdrawn (including applicable Surrender
Charges), or
- the Contract Account Value on the date of receipt of due proof of the
Annuitant's death.
After the end of the sixth Contract Year, the death benefit equals the greatest
of:
- the Contract Account Value as of the end of the sixth Contract Year less
subsequent amounts withdrawn, or
- the Contract Account Value on the date of receipt of due proof of the
Annuitant's death, or
- premiums paid less any amounts withdrawn (including applicable Surrender
Charges).
If you die before the Maturity Date, we must generally distribute the Contract
Account Value (or, if you are also the Annuitant, the death benefit) to the
Beneficiary within five years after the date of your death.
Step-Up Rider. You may also elect a Step-up Rider, which provides a
guaranteed minimum death benefit. This guaranteed minimum death benefit
initially equals the Contract Account Value as of the sixth Contract
Anniversary. We will reset or "step-up" the guaranteed minimum death benefit to
the Contract Account Value, if greater, on the next six year Contract
Anniversary. This "step-up" continues until the six year Contract Anniversary on
or before the Annuitant's 85th birthday. We will also "step-up" the guaranteed
death benefit by an amount equal to aggregate Net Premiums paid since the last
six year Contract Anniversary. In the event of a withdrawal at any time, we
reduce the guaranteed minimum death benefit by the same percentage that the
withdrawal reduces the Contract Account Value. At no time will the death benefit
proceeds be less than either:
- the Contract Account Value on the date we receive due proof of the
Annuitant's death, or
- the sum of premiums paid, less any withdrawals (including applicable
Surrender Charges).
Rising Floor Rider. You may also elect a Rising Floor Rider, which
provides a guaranteed minimum death benefit. This guaranteed minimum death
benefit equals the sum of premiums paid less reductions for withdrawals, with
interest accumulating at an annual rate of 4 1/2% until the Contract Anniversary
prior to the Annuitant's 75th birthday. Thereafter, we add premiums and deduct
withdrawals from the guaranteed death benefit. We reduce the guaranteed minimum
death benefit for a withdrawal by the same percentage that the withdrawal
reduces Contract Account Value. At no time will the death benefit proceeds be
less than the Contract Account Value.
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge). We do not deduct any
charge for sales expenses from premiums. However, if you surrender your Contract
or make certain withdrawals before the sixth Contract Anniversary, we will
deduct a Surrender Charge from the amount surrendered or withdrawn.
For the first Contract Year, the charge is 6% of the amount withdrawn or
surrendered. Thereafter, the Surrender Charge decreases by 1% each subsequent
Contract Year. In no event is the total Surrender Charge on any Contract in
excess of 8 1/2% of the total gross premiums paid under the Contract.
During each Contract Year after the first Contract Year, you may, subject to
certain restrictions, withdraw up to 10% of the Contract Account Value (as of
the beginning of a Contract Year) free of the Surrender Charge.
9
<PAGE> 17
Annual Administration Fee. On each Contract Anniversary prior to and
including the Maturity Date, we deduct an Annual Administration Fee of $30 from
the Contract Account Value. We also deduct this charge on the Maturity Date if
it is not a Contract Anniversary and upon surrender if the surrender occurs at
any time other than on a Contract Anniversary.
Transfer Processing Fee. The first twelve transfers of amounts in the
Subaccounts and the Guaranteed Account each Contract year are free. We assess a
$25 transfer charge for each additional transfer during such Contract Year.
Mortality and Expense Risk Charge. We deduct a daily Mortality and Expense
Risk Charge to compensate us for assuming certain mortality and expense risks.
On or prior to the Maturity Date, we deduct the charge from the assets of the
Variable Account at an annual rate of 1.25% (approximately 0.70% for mortality
risk and 0.55% for expense risks).
Asset-Based Administration Charge. We deduct a daily administration charge
to compensate us for certain expense we incur in administration of the
Contracts. On or prior to the Maturity Date, we deduct the charge from the
assets of the Variable Account at an annual rate of 0.15%.
Premium Taxes. If state or other Premium Taxes apply to a Contract, we
deduct such taxes. Depending upon when we must pay such taxes to the taxing
authority, we deduct those taxes either:
- from premiums as they are received, or
- from the Contract Account Value, upon a withdrawal from or surrender of
the Contract or upon application of the Contract Account Value to a
Payment Option.
Investment Advisory Fees and Other Expenses of the Funds. Because each
Subaccount holds shares of a Portfolio, its net assets reflect the investment
advisory fee incurred by the Portfolio. Each Portfolio pays a daily investment
advisory fee to its investment adviser based on its average daily net assets. As
a result, the amount of the fee depends upon the size of the Portfolio. Each
Portfolio also pays other of its own expenses. Currently, the investment adviser
may waive part of the investment advisory fee and the Company may reimburse
certain expenses of the Portfolios.
ANNUITY PROVISIONS
Maturity Date. We will apply the Contract Account Value (less any
applicable Premium Tax) to a Payment Option on the Maturity Date unless you
elect to receive the Cash Surrender Value at that time.
Payment Options. The Contract offers three Payment Options. The amount of
the payments under them does not vary with the Variable Account's performance.
They are:
- Life Annuity,
- Life Annuity with 10 Years Guaranteed, and
- Alternate Income Option.
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.
PMLIC, THE VARIABLE ACCOUNT AND THE FUNDS
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
The Contracts are issued by Provident Mutual Life Insurance Company
("PMLIC"). PMLIC 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 1998, PMLIC had total assets of
approximately $8.7 billion.
10
<PAGE> 18
PMLIC 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. PMLIC 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.
PMLIC 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 PMLIC, established by the Board of Directors of PMLIC on
October 19, 1992, under Pennsylvania law. PMLIC 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 PMLIC. However, these
assets are held separate from other assets and are not part of PMLIC's General
Account. The portion of the assets of the Variable Account equal to the reserves
or other contract liabilities of the Variable Account will not be charged with
liabilities that arise from any other business PMLIC conducts. PMLIC 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. PMLIC 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-six Subaccounts, thirty-one of
which are available under the Contracts. They are: 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
11
<PAGE> 19
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 PMLIC. 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 PMLIC 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 PMLIC has
not been terminated. Should a Fund or a portfolio of a Fund decide not to sell
its shares to PMLIC, PMLIC will not be able to honor requests of Owners to
allocate their Account Values or premium payments to Subaccounts investing in
shares of that Fund or portfolio.
Certain Subaccounts invest in portfolios that have similar investment
objectives and/or policies; therefore before choosing Subaccounts, carefully
read the individual prospectuses for the Funds along with this prospectus.
THE MARKET STREET FUND, INC.
The Growth, Money Market, Bond, Managed, Aggressive Growth, 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
12
<PAGE> 20
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 included in the Wilshire
4500 Equity Index 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 included in
the Wilshire 4500 Equity Index 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 each All Pro Portfolio are managed in part by the
following:
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISERS
<S> <C>
All Pro Large Cap Growth.................. Cohen, Klingenstein & Marks; Geewax, Terker & Co.
All Pro Small Cap Growth.................. Standish, Ayer & Wood; Husic Capital Management.
All Pro Large Cap Value................... Equinox Capital Management, Inc.; Harris Associates,
Inc.; Mellon Equity Associates.
All Pro Small Cap Value................... 1838 Investment Advisors; Denver Investment Advisors.
</TABLE>
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.
13
<PAGE> 21
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.
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 PMLIC 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 PMLIC. 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.
14
<PAGE> 22
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 PMLIC are described
below.
Equity Portfolio. Long term capital appreciation through investment in a
diversified portfolio of primarily equity securities selected on the basis of a
value-oriented approach to investing.
Small Cap Portfolio. Capital appreciation through investment in a
diversified portfolio of primarily equity securities of companies which market
capitalizations of under $1 billion.
Managed Portfolio. Growth of capital over time through investment in a
portfolio consisting of common stocks, bonds, and cash equivalents, the
percentages of which will vary over time based on the investment manager's
assessments of relative investment values.
The OCC Trust receives investment advice with respect to each of its
Portfolios from OpCap Advisors, a subsidiary of Oppenheimer Capital which is a
subsidiary of 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
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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 ("Federated 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 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.
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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,
PMLIC 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, PMLIC
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.
PMLIC has entered into agreements with the investment advisers of several
of the Funds pursuant to which each such investment adviser will pay PMLIC a
service fee based upon an annual percentage of average net assets invested by
PMLIC on behalf of the Variable Account. These agreements cover administrative
services provided to the Funds by PMLIC. Payments of such amounts by an
investment adviser do not increase the fees paid by the Portfolios or Owners
invested in the Portfolios.
Certain Portfolios may have investment objectives and policies similar to
other investment portfolios or mutual funds managed by the same investment
adviser or manager. The investment results of the Portfolios, however, may be
higher or lower than those of such other investment portfolios or mutual funds.
PMLIC does not guarantee or make any representation that the investment results
of any Portfolio will be comparable to that of any other investment portfolio or
mutual fund, even those with the same investment adviser or manager.
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.
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The MS Fund, VIP Fund, VIP II Fund, Scudder Fund, OCC Trust, Dreyfus Funds,
Federated Series 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 PMLIC and Providentmutual Life and Annuity Company of
America ("PLACA"), a wholly-owned subsidiary of PMLIC, as well as registered
separate accounts of other insurance companies offering variable life and
annuity contracts. PMLIC currently does not foresee any disadvantages to Owners
resulting from the Funds selling shares to fund products other than PMLIC
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, PMLIC will take any necessary steps,
including removing the Variable Account from that Fund, to resolve the matter.
The Board of Directors of each Fund also 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
PMLIC 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 PMLIC's judgment
further investment in any Portfolio should become inappropriate in view of the
purposes of the Variable Account, PMLIC may redeem the shares, if any, of that
Portfolio and substitute shares of another registered open-end management
company. PMLIC 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.
PMLIC 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, PMLIC 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 PMLIC.
If any of these substitutions or changes are made, PMLIC may by appropriate
endorsement change the Contract to reflect the substitution or change. If PMLIC
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 PMLIC separate accounts.
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DESCRIPTION OF ANNUITY CONTRACT
ISSUANCE OF A CONTRACT
In order to purchase a Contract, application must be made to PMLIC through
a licensed representative of PMLIC, 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). See "Federal Tax Status -- Taxation of Qualified
Contracts" for important information about purchasing a Qualified Contract.
PREMIUMS
The minimum initial premium which PMLIC will normally accept is $2,000. For
Qualified Contracts, as an alternative to the minimum initial premium, the owner
may commit to paying $100 per month during the first Contract Year. 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 after such Owner receives the
Contract. When PMLIC receives the returned Contract at its Service Center, it
will be canceled and, PMLIC will refund to the Owner an amount equal to the sum
of: (a) the difference between the premiums paid, including any contract fees
and charges, and the amounts, if any, allocated to the Variable Account under
the Contract; and (b) the Variable Account Value.
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 Net Premium (premium less deduction of any required premium
tax) will be allocated among the Subaccounts and the Guaranteed Account (as
designated by the Owner in the application) within two business days of receipt
of such premium by PMLIC at its Service Center. If the application is not
properly completed, PMLIC 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, PMLIC will inform the applicant of the
reason for the delay and the initial premium will be returned immediately,
unless the applicant specifically consents to PMLIC retaining the premium until
the application is complete. Once the application is complete, the initial Net
Premium will be allocated within two business days.
The Owner designates in the application how the initial Net Premium is to
be allocated among the Subaccounts and the Guaranteed Account. Any subsequent
Net Premiums will be allocated at the end of the Valuation Period in which the
subsequent premium is received by PMLIC, 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.
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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
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.
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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 PMLIC. 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 PMLIC. PMLIC reserves the
right to suspend telephone transfer privileges at any time, for any class of
Contracts, for any reason.
PMLIC 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.
PMLIC, however, may be liable for such losses if it does not follow those
reasonable procedures. The procedures PMLIC 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 PMLIC, 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. PMLIC reserves the right to suspend Automatic Asset
Rebalancing at any time for any class of contracts for any reason upon written
notice to you.
Advance Orders of Transfers. Owners may elect to request transfers of
amounts in a Subaccount (other than the Money Market Subaccount) out of that
Subaccount to the Money Market Subaccount in advance of the time that they want
the transfer executed. To make this election, Owners must submit a written
Advance Order to the Service Center specifying the percentage amount by which
they want their Variable Account Value in a specific Subaccount in increase (or
decrease) above (below) the value as of the Valuation Period next ended after
receipt of the Advance Order at the Service Center. PMLIC will measure the
percentage change in such Variable Account Value by reference to the Net
Investment Factor
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for the Specified Subaccount and execute the transfer when the unit value for
that Subaccount increases or decreases by at least the percentage specified by
the Owner, as measured using the unit value as of the Valuation Period next
ended after receipt of the Advanced Order at the Service Center.
Once received at the Service Center, an Advance Order remains in effect
until executed, cancelled, or superseded by subsequent Advance Order for a
transfer out of the same Subaccount. PMLIC does not currently assess a charge
for Advance Orders, but reserves the right to charge for this service. In
addition, Providentmutual may terminate the Advance Order privilege or change
its terms at any time by providing written notice to Owners at least 15 days in
advance of such termination or modification.
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. PMLIC, 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;
18 months -- $9,000; 24 months -- $12,000; 30 months -- $15,000; 36
months -- $18,000. At least $500 must be transferred from the designated
Subaccount each month. The amount required to be allocated to the designated
Subaccount can be made 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 PMLIC 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. PMLIC 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. PMLIC 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
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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 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 PMLIC 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. PMLIC 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 PMLIC to reduce the withdrawal amount for that year so that it
does not exceed the 10% limit, PMLIC will continue to process withdrawals for
the designated amount. Once the amount of the withdrawals exceeds the 10% limit,
PMLIC will deduct the applicable Surrender Charge from the remaining payments
made during that Contract Year (See "Surrender Charge," Page 27).
PMLIC 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, PMLIC 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 PMLIC. PMLIC 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.
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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). The proceeds paid to the Contract Owner will equal the Cash Surrender
Value less 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 PMLIC'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.)
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. PMLIC 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.
PMLIC 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 PMLIC 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. At issue, a Contract Owner may elect the Step-up Rider for
an Annuitant who is age 0-70. The Rider provides a guaranteed minimum death
benefit equal to the Contract Account Value as of the six year contract
anniversary and is reset every six years to the Contract Account Value on the
next six year contract anniversary, if greater. This reset continues until the
six year contract anniversary on or before the annuitant's 85th birthday.
Premiums paid between the six year contract anniversaries are also included in
the death benefit proceeds. A reduction in the guaranteed minimum death benefit
for any withdrawal will be based on the proportion of the withdrawal to the
Contract Account Value. At no time will the death benefit proceeds be less than
either the Contract Account Value on the date PMLIC receives due proof of the
Annuitant's death or the sum of premiums paid, less any withdrawals, including
applicable Surrender Charges. The Rider is automatically included with all
contracts issued in New York for Annuitants age 0-70.
Rising Floor Rider. At issue, a Contract Owner also may elect the Rising
Floor Rider for an Annuitant who is age 0-70, 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 for 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. This Rider is
not available in New York.
Death of Annuitant. If the Annuitant dies before the Maturity Date, PMLIC
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
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and Premium Tax Charges); or the Contract Account Value less any Premium Tax
Charges on the date PMLIC 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
PMLIC receives due proof of the Annuitant's death; or
3. the premiums paid, less any withdrawals (including applicable
Surrender Charges and Premium Tax Charges).
There is no death benefit payable if the Annuitant dies after the Maturity Date.
The proceeds will be paid to the Beneficiary in a lump sum unless the Owner or
Beneficiary elects a Payment Option. If the Annuitant is the Owner, the proceeds
must be distributed in accordance with the rules set forth below in "Death of
Owner" for the death of an Owner before the Maturity Date.
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 PMLIC'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
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<PAGE> 33
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, PMLIC has the right to defer
payment until such check or draft has been honored.
PMLIC has the right to defer payment of any withdrawal, cash surrender, or
transfer from the Guaranteed Account for up to six months from the date of
receipt of Written Notice for a withdrawal, surrender, or transfer. If payment
is not made within 30 days after receipt of documentation necessary to complete
the transaction, or such shorter period required by a particular jurisdiction,
interest will be added to the amount paid from the date of receipt of
documentation at 3% or such higher rate required for a particular state.
MODIFICATION
Upon notice to the Owner, PMLIC 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 PMLIC
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, PMLIC will make appropriate
endorsement to the Contract.
REPORTS TO CONTRACT OWNERS
At least quarterly, PMLIC 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 PMLIC 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
PMLIC'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. PMLIC'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 PMLIC's General Account has been
registered as an investment company under the Investment Company Act of 1940.
Therefore, neither PMLIC'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.
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<PAGE> 34
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 PMLIC's General Account, PMLIC assumes the risk of
investment gain or loss on this amount. All assets in the General Account are
subject to PMLIC'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%. PMLIC 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
PMLIC, in its sole discretion, anticipates changing the current interest rate
from time to time, different allocations to and from the Guaranteed Account
Value will be credited with different current interest rates. The interest rate
to be credited to each amount allocated or transferred to the Guaranteed Account
will apply to the end of the calendar year in which such amount is received or
transferred. At the end of the calendar year, PMLIC 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 PMLIC. 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.
PMLIC 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 PMLIC receives the Written Notice at its Administrative
Office.
PAYMENT DEFERRAL
PMLIC 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
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expenses, the loss will be borne by PMLIC; conversely, if the amount of such
charges proves more than enough, the excess will be retained by PMLIC. PMLIC
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
PMLIC's general assets.
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
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<PAGE> 36
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.
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), PMLIC 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 PMLIC for costs
associated with administration of the Contracts, prior to the Maturity Date
PMLIC 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 PMLIC for assuming mortality and expense risks, prior to the
Maturity Date PMLIC deducts a daily Mortality and Expense Risk Charge from the
assets of the Variable Account. PMLIC 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 PMLIC 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 PMLIC assumes also includes a guarantee to pay a death benefit if the
Annuitant dies before the Maturity Date. The expense risk PMLIC 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
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<PAGE> 37
contract imposes a premium tax on contracts sold in that state. Premium tax
rates are subject to change from time to time by legislative and other
governmental action.
If premium taxes are applicable to a Contract, they will be deducted from
the Contract proceeds upon (i) a withdrawal from or surrender of the Contract or
(ii) application of the proceeds to a Payment Option or (iii) payment of death
benefit proceeds.
OTHER TAXES
Currently, no charge will be made against the Variable Account for Federal
income taxes. PMLIC 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 PMLIC. 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 PMLIC'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 PMLIC. 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
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<PAGE> 38
be paid in one sum to the executors or administrators of the Beneficiary unless
otherwise provided in writing. Calculation of such present value shall be at 3%
which is the rate of interest assumed in computing the amount of annuity
payments.
The amount of each payment will be determined from the Tables in the
Contract which apply to the particular option using the Payee's age and sex. If
the Contract is sold in a group or employer-sponsored arrangement, the amount of
the payments will be based on the Payee's age only. Age will be determined from
the nearest birthday at the due date of the first payment.
Alternate Income Option. In lieu of one of the above options, the Contract
Account Value, Cash Surrender Value or death benefit, as applicable, may be
settled under an Alternate Income Option based on PMLIC'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, PMLIC 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
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<PAGE> 39
investment as of the last day of each of the periods for which total return
quotations are provided. Average annual total return information shown the
average percentage change in the value of an investment in the Subaccount from
the beginning date of the measuring period to the end of that period. This
standardized version of average annual total return reflects all historical
investment results, less all charges and deductions applied against the
Subaccount (including any surrender charge that would apply if an Owner
terminated the Contract at the end of each period indicated, but excluding any
deductions for premium taxes).
In addition to the standard version described above, total return
performance information computed on two different non-standard bases may be used
in advertisements. Average total return information may be presented, computed
on the same basis as described above, except deductions will not include the
Surrender Charge. In addition, PMLIC 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.
PMLIC may also report other information including the effect of
tax-deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by tables, graphs, or charts. All income and
capital gains derived from Subaccount investments are reinvested and can lead to
substantial long-term accumulation of assets, provided that the underlying
Portfolio's investment experience is positive.
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<PAGE> 40
FEDERAL TAX STATUS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
The following summary provides a general description of the federal income
tax considerations associated with the Contract and does not purport to be
complete or to cover all tax situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisers should be consulted for more
complete information. This discussion is based upon PMLIC's understanding of the
present Federal income tax laws. No representation is made as to the likelihood
of continuation of the present federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service (the "IRS").
The Contract may be purchased on a tax-qualified basis or on a
non-tax-qualified basis. Qualified Contracts are designed for use by individuals
whose premium payments are comprised solely of proceeds from and/or
contributions under retirement plans that are intended to qualify as plans
entitled to special income tax treatment under Sections 401(a), 403(b), 408, or
408A of the Code. The ultimate effect of federal income taxes on the amounts
held under a Contract, or annuity payments, depends on the type of retirement
plan, on the tax and employment status of the individual concerned, and on
PMLIC's tax status. In addition, certain requirements must be satisfied in
purchasing a Qualified Contract with proceeds from a tax-qualified plan and
receiving distributions from a Qualified Contract in order to continue receiving
favorable tax treatment. Some retirement plans are subject to distribution and
other requirement that are not incorporated into our Contract administration
procedures. Owners, participants, Beneficiaries, and Payees are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. Therefore, purchasers of
Qualified Contracts should seek competent legal and tax advice regarding the
suitability of a Contract for their situation. The following discussion assumes
that Qualified Contracts are purchased with proceeds from and/or contributions
under retirement plans that qualify for the intended special federal income tax
treatment.
TAX STATUS OF THE CONTRACTS
Diversification Requirements. The Code requires that the investments of
the Variable Account be "adequately diversified" in order for the Contracts to
be treated as annuity contracts for federal income tax purposes. It is intended
that the Variable Account, through the Funds, will satisfy these diversification
requirements.
Owner Control. In certain circumstances, owners of variable annuity
contracts have been considered for federal income tax purposes to be the owners
of the assets of the Variable Account supporting their contracts due to their
ability to exercise investment control over those assets. When this is the case,
the contract owners have been currently taxed on income and gains attributable
to the variable account assets. There is little guidance in this area, and some
features of the Contracts, such as the flexibility of an Owner to allocate
premium payments and transfer Contract Account Value, have not been explicitly
addressed in published rulings. While PMLIC believes that the Contracts do not
give Owners investment control over Variable Account assets, PMLIC reserves the
right to modify the Contracts as necessary to prevent an Owner from being
treated as the owner of the Variable Account assets supporting the Contract.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, the Code requires any Non-Qualified Contract to
contain certain provisions specifying how your interest in the Contract will be
distributed in the event of your death. The Non-Qualified Contracts contain
provisions that are intended to comply with these Code requirements, although no
regulations interpreting these requirements have yet been issued. We intend to
review such provisions and modify them if necessary to assure that they comply
with the applicable requirements when such requirements are clarified by
regulation or otherwise.
Other rules may apply to Qualified Contracts.
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<PAGE> 41
The following discussion assumes that the Contracts will qualify as annuity
contracts for federal income tax purposes.
THE TREATMENT OF ANNUITIES
In General. PMLIC believes that if you are a natural person you will not
be taxed on increases in the value of a Contract until a distribution occurs or
until annuity payments begin. (For these purposes, an agreement to assign or
pledge any portion of the Contract Account Value, and, in the case of a
Qualified Contract, any portion of an interest in the qualified plan, generally
is treated as a distribution.)
TAXATION OF NON-QUALIFIED CONTRACTS
Non-Natural Person. 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" (generally, the
premiums or other consideration paid for the contract) during the taxable year.
There are some exceptions to this rule and a prospective Owner that is not a
natural person may wish to discuss these with a tax adviser. The following
discussion generally applies to Contracts owned by natural persons.
Withdrawals. When a withdrawal from a Non-Qualified Contract occurs, the
amount received will be treated as ordinary income subject to tax up to an
amount equal to the excess (if any) of the Contract Account Value immediately
before the distribution over the Owner's investment in the Contract at that
time. In the case of a surrender under a Non-Qualified Contract, the amount
received generally will be taxable only to the extent it exceeds the Owner's
investment in the Contract.
Penalty Tax on Certain Withdrawals. In the case of a distribution from a
Non-Qualified Contract, there may be imposed a federal tax penalty equal to ten
percent of the amount treated as income. In general, however, there is no
penalty on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of an Owner;
- attributable to the taxpayer's becoming disabled; or
- made as part of a series of substantially equal periodic payments for the
life (or life expectancy) of the taxpayer.
Other exceptions may be applicable under certain circumstances and special
rules may be applicable in connection with the exceptions enumerated above. A
tax adviser should be consulted with regard to exceptions from the penalty tax.
Other penalties may apply to Qualified Contracts.
Annuity Payments. Although tax consequences may vary depending on the
Payment Option elected under an annuity contract, a portion of each annuity
payment is generally not taxed and the remainder is taxed as ordinary income.
The non-taxable portion of an annuity payment is generally determined in a
manner that is designed to allow an Owner to recover his or her investment in
the Contract ratably on a tax-free basis over the expected stream of annuity
payments, as determined when annuity payments start. Once an investment in the
Contract has been fully recovered, however, the full amount of each annuity
payment is subject to tax as ordinary income.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a
Contract because of the Owner's or Annuitant's death. Generally, such amounts
are includible in the income of the recipient as follows: (a) if distributed in
a lump sum, they are taxed in the same manner as a surrender of the Contract, or
(b) if distributed under a Payment Option, they are taxed in the same way as
annuity payments.
Transfers, Assignments or Exchanges of a Contract. A transfer or
assignment of ownership of a Contract, the designation of an Annuitant, the
selection of certain Maturity Dates, or the exchange of a Contract may result in
certain tax consequences to Owners that are not discussed herein. An Owner
34
<PAGE> 42
contemplating any such transfer, assignment or exchange, should consult a tax
adviser as to the tax consequences.
Multiple Contracts. All annuity contracts that are issued by PMLIC (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 such
Owner's income when a taxable distribution occurs.
TAXATION OF QUALIFIED CONTRACTS
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; 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. Owners,
Annuitants, Beneficiaries and Payees are cautioned that the rights of any person
to any benefits under these qualified retirement plans may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the Contract, but PMLIC is not bound by the terms and conditions
of such plans to the extent such terms contradict the Contract, unless PMLIC
consents.
The Owner may wish to consult a qualified tax and/or financial adviser
regarding the use of the Contract within a qualified plan or in connection with
other employee benefit plans or arrangements that receive favorable tax
treatment, since many such plans or arrangements provide the same type of tax
deferral as provided by the Contract. The Contract provides a number of extra
benefits and features not provided by employee benefit plans or arrangements
alone, although there are costs and expenses under the Contract related to these
benefits and features. Owners should carefully consider these benefits and
features in relation to their costs as they apply to the Owner's particular
situation.
Distributions. Annuity payments are generally taxed in the same manner as
under a Non-Qualified Contract. When a withdrawal from a Qualified Contract
occurs, a pro rata portion of the amount received is taxable, generally based on
the Owner's investment in the Contract to the participant's total accrued
benefit balance under the retirement plan. For Qualified Contracts, the
investment in the contract can be zero.
Brief descriptions follow of the various types of qualified retirement
plans in connection with a Contract. PMLIC will endorse the Contract as
necessary to conform it to the requirements of such plan.
Corporate and Self-Employed Pension and Profit Sharing Plans. Section
401(a) of the Code permits corporate employers to establish various types of
retirement plans for employees, and permits self-employed individuals to
establish these plans for themselves and their employees. These retirement plans
may permit the purchase of the Contracts to accumulate retirement savings under
the plans. Adverse tax or other legal consequences to the plan, to the
participant, or to both may result if this Contract is assigned or transferred
to any individual as a means to provide benefit payments, unless the plan
complies with all legal requirements applicable to such benefits prior to
transfer of the Contract. Employers intending to use the Contract with such
plans should seek competent tax advice.
Individual Retirement Annuities. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA." These IRAs are subject to limits on
the amount that can be contributed, the deductible amount of the contribution,
the persons who may be eligible, and the time when distributions commence. Also,
distributions from certain other types of qualified retirement plans may be
"rolled over" or transferred on a tax-deferred basis into an IRA. There are
significant restrictions on rollover or transfer contributions from Savings
Incentive Match Plans (SIMPLE), under which certain employers may, provide
contributions to IRAs on behalf of their employees, subject to special
restrictions. Employers may establish Simplified Employee Pension
35
<PAGE> 43
(SEP) Plans to provide IRA contributions on behalf of their employees. Sales of
the Contract for use with IRAs may be subject to special requirements of the
IRS.
Roth IRAs. Effective January 1, 1998, section 408A of the Code permits
certain eligible individuals to contribute to a Roth IRA. Contributions to a
Roth IRA, which are subject to certain limitations, are not deductible, and must
be made in cash or as a rollover or transfer from another Roth IRA or other IRA.
A rollover from or conversion of an IRA to a Roth IRA may be subject to tax, and
other special rules may apply. 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.
Tax Sheltered Annuities. Section 403(b) of the Code allows employees of
certain Section 501(c)(3) organizations and public schools to exclude from their
gross income the premium payments made, within certain limits, on a Contract
that will provide an annuity for the employee's retirement. These premium
payments may be subject to FICA (social security ) tax.
The following amounts may not be distributed from Code section 403(b)
annuity contracts prior to the employee's death, attainment of age 59 1/2,
separation from service, disability, or financial hardship: (1) elective
contributions made in years beginning after December 31, 1988; (2) earnings on
those contributions; and (3) earnings in such years on amounts held as of the
last year beginning before January 1, 1989. In addition, income attributable to
elective contributions may not be distributed in the case of hardship.
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 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 minimum
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.
POSSIBLE CHANGES IN TAXATION
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. It is also possible that any change could be
retroactive (that is, effective prior to the date of the change). A tax adviser
should be consulted with respect to legislative developments and their effect on
the Contract.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax consequences
under the 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 PMLIC'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 adviser should be
consulted for further information.
36
<PAGE> 44
DISTRIBUTION OF CONTRACTS
The Contracts will be offered to the public on a continuous basis, and
PMLIC does not anticipate discontinuing the offering of the Contracts. However,
PMLIC reserves the right to discontinue the offering. Applications for Contracts
are solicited by agents who are licensed by applicable state insurance
authorities to sell PMLIC'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 PMLIC 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 PMLIC 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 receives the full commissions on Contracts
sold by its registered representatives. Nonaffiliated broker-dealers receive
full commissions on Contracts sold by their registered representatives, less a
nominal charge by 1717 for expenses incurred. The commissions paid are no
greater than 7% of premiums.
PREPARING FOR YEAR 2000
Like all financial services providers, PMLIC 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. PMLIC 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 PMLIC and its
affiliates. However, as of the date of this 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. PMLIC 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 PMLIC and its affiliates will be successful, or that interaction
with other service providers will not impair PMLIC or its affiliates' services
at that time.
LEGAL PROCEEDINGS
PMLIC 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, PMLIC 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 PMLIC.
VOTING RIGHTS
In accordance with its view of present applicable law, PMLIC 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 PMLIC determines that it is allowed to
vote the Portfolio shares in its own right, it may elect to do so.
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<PAGE> 45
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 PMLIC 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 PMLIC as of December 31,
1998 and 1997 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, 1998, 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, 1998, 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.
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<PAGE> 46
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-11
Financial Statements........................................ F-1
</TABLE>
39
<PAGE> 47
APPENDIX A
FINANCIAL HIGHLIGHTS
The following condensed financial information is derived from the financial
statements of the Variable Account. The data should be read in conjunction with
the financial statements, related notes and other financial information included
in the Statement of Additional Information. See "Financial Statements"
concerning financial statements contained in the Statement of Additional
Information.
The table below sets forth certain information regarding the Subaccounts as
of December 31, 1998.
<TABLE>
<CAPTION>
UNIT VALUE NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS UNIT VALUE
AS OF OUTSTANDING AS OF AS OF OUTSTANDING AS OF AS OF
SUBACCOUNT 12/31/98 12/31/98 12/31/97 12/31/97 12/31/96
---------- ---------- ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
MS Growth......................................... 1,065.67 4,945.24 950.55 3,848.31 775.34
MS Money Market................................... 598.06 8,576.56 575.95 6,625.22 554.47
MS Bond........................................... 637.92 1,670.46 597.74 993.30 553.59
MS Managed........................................ 866.94 1,696.49 781.27 1,443.37 653.55
MS Aggressive Growth.............................. 887.21 1,174.22 833.15 769.36 697.07
MS International.................................. 764.54 3,016.56 704.02 3,125.55 651.04
MS All Pro Large Cap Growth....................... 583.02 11.63
MS All Pro Large Cap Value........................ 490.39 12.01
MS All Pro Small Cap Growth....................... 485.44 10.62
MS All Pro Small Cap Value........................ 408.65 11.18
Fidelity High Income.............................. 743.43 4,385.78 788.02 3,296.95 679.15
Fidelity Equity Income............................ 1,113.96 11,763.02 1,011.99 9,404.06 801.08
Fidelity Growth................................... 1,245.95 7,706.38 905.80 6,516.65 743.89
Fidelity Asset Manager............................ 866.16 2,408.49 763.46 2,055.09 641.70
Fidelity Index 500................................ 1,377.32 9,006.00 1,088.42 5,559.85 831.78
Fidelity Contrafund............................... 1,127.92 3,848.82 879.99 2,353.16 718.85
OCC Equity........................................ 1,181.96 3,477.76 1,071.54 3,150.90 858.13
OCC Small Cap..................................... 724.89 3,315.72 808.05 2,961.17 670.35
OCC Managed....................................... 1,117.54 7,153.80 1,057.94 6,369.66 877.27
Scudder Bond...................................... 625.13 1,577.09 594.92 1,073.80 553.18
Scudder Growth & Income........................... 962.07 4,042.74 913.35 2,118.10 709.94
Scudder International............................. 748.08 1,695.38 641.18 1,239.16 596.09
Dreyfus Zero Coup. 2000 .......................... 614.21 1,318.02 580.67 712.24 550.29
Dreyfus Growth & Inc.............................. 975.63 2,289.14 884.85 1,799.35 772.15
Dreyfus Socially Resp............................. 1,172.49 1,330.85 918.99 506.81 725.61
Federated Fund for U.S. Govn't Securities II...... 618.36 1,067.47 582.47 317.09 544.01
Federated Utility Fund II......................... 886.67 470.16 789.26 304.63 632.04
Van Eck Worldwide Bond............................ 588.75 2.93
Van Eck Worldwide Hard Assets..................... 345.27 1.27
Van Eck Worldwide Emerging Mkts................... 297.26 0.00
Van Eck Worldwide Real Estate..................... 425.72 0.00
<CAPTION>
NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS UNIT VALUE
OUTSTANDING AS OF AS OF OUTSTANDING AS OF AS OF
SUBACCOUNT 12/31/96 12/31/95 12/31/95 12/31/94
---------- ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
MS Growth......................................... 2,631.88 657.63 1,246.84 511.45
MS Money Market................................... 5,296.64 534.58 3,510.81 513.30
MS Bond........................................... 730.75 545.35 366.16 459.55
MS Managed........................................ 1,070.67 592.07 272.65 482.84
MS Aggressive Growth.............................. 507.30 584.65 376.84 522.44
MS International.................................. 2,617.73 595.43 1,329.83 528.22
MS All Pro Large Cap Growth.......................
MS All Pro Large Cap Value........................
MS All Pro Small Cap Growth.......................
MS All Pro Small Cap Value........................
Fidelity High Income.............................. 2,498.16 604.03 1,393.43 507.88
Fidelity Equity Income............................ 6,996.28 710.92 2,625.21 533.64
Fidelity Growth................................... 5,412.35 657.74 2,143.41 492.73
Fidelity Asset Manager............................ 1,277.53 567.88 566.68 492.38
Fidelity Index 500................................ 2,825.25 686.84 875.69 --
Fidelity Contrafund............................... 997.07 -- -- 507.68
OCC Equity........................................ 2,175.67 705.50 995.33 468.40
OCC Small Cap..................................... 2,106.40 572.66 733.25 515.26
OCC Managed....................................... 4,119.48 724.69 1,152.25 503.97
Scudder Bond...................................... 756.19 545.82 175.27 504.88
Scudder Growth & Income........................... 705.75 -- -- --
Scudder International............................. 313.71 -- -- --
Dreyfus Zero Coup. 2000 .......................... 553.93 544.02 202.47 467.73
Dreyfus Growth & Inc.............................. 895.01 -- -- --
Dreyfus Socially Resp............................. 137.32 -- -- --
Federated Fund for U.S. Govn't Securities II...... 88.34 -- -- --
Federated Utility Fund II......................... 116.78 -- -- --
Van Eck Worldwide Bond............................
Van Eck Worldwide Hard Assets.....................
Van Eck Worldwide Emerging Mkts...................
Van Eck Worldwide Real Estate.....................
<CAPTION>
NUMBER OF UNITS
OUTSTANDING AS OF
SUBACCOUNT 12/31/94
---------- -----------------
<S> <C>
MS Growth......................................... 298.94
MS Money Market................................... 453.09
MS Bond........................................... 134.18
MS Managed........................................ 67.77
MS Aggressive Growth.............................. 98.84
MS International.................................. 190.49
MS All Pro Large Cap Growth.......................
MS All Pro Large Cap Value........................
MS All Pro Small Cap Growth.......................
MS All Pro Small Cap Value........................
Fidelity High Income.............................. 23.35
Fidelity Equity Income............................ 308.68
Fidelity Growth................................... 173.34
Fidelity Asset Manager............................ 174.09
Fidelity Index 500................................ --
Fidelity Contrafund............................... 13.31
OCC Equity........................................ 17.66
OCC Small Cap..................................... 66.91
OCC Managed....................................... 152.34
Scudder Bond...................................... 108.98
Scudder Growth & Income........................... --
Scudder International............................. --
Dreyfus Zero Coup. 2000 .......................... 0.00
Dreyfus Growth & Inc.............................. --
Dreyfus Socially Resp............................. --
Federated Fund for U.S. Govn't Securities II...... --
Federated Utility Fund II......................... --
Van Eck Worldwide Bond............................
Van Eck Worldwide Hard Assets.....................
Van Eck Worldwide Emerging Mkts...................
Van Eck Worldwide Real Estate.....................
</TABLE>
A-1
<PAGE> 48
APPENDIX B
PLAN OF CONVERSION
It is anticipated that, at some point in the future, a Plan of Conversion
("Plan") will become effective pursuant to which Provident Mutual Life Insurance
Company, a Pennsylvania mutual life insurance corporation ("PMLIC"), will be
reorganized and continue its corporate existence ("Conversion") as Provfirst
America Life Insurance Company, a Pennsylvania stock life insurance corporation
("Provfirst Life"). The Plan was adopted by PMLIC's board of directors on
October 13, 1998. The Plan was approved by the Pennsylvania Deputy Insurance
Commissioner by a Decision and Order dated November 6, 1998 ("Order"). The PMLIC
policyholders entitled to vote on the Plan duly adopted the Plan at a special
meeting held on February 9, 1999. On February 11, 1999, the Court of Common
Pleas of Philadelphia County issued an order granting a preliminary injunction,
Butler, et al. v. Provident Mutual Life Insurance Company, et al., Philadelphia
County Court of Common Pleas, Civil Trial Division, No. 9901-00780, which has
postponed completion of the Conversion until the court conducts a hearing and
completes such other procedures as the court may deem appropriate. The primary
basis of the complaint is the Provident Mutual's Plan of Conversion is unfair to
current policyholders. In addition, plaintiffs allege that the disclosures
contained in Provident Mutual's Policyholder Information Statement (the document
sent to policyholders prior to their vote on the Plan) were inadequate. The
Company believes the Plan and related disclosure documents meet all applicable
legal requirements. PMLIC petitioned the Pennsylvania Commonwealth Court to stay
the lower court's preliminary injunction. That petition was denied and
proceedings are continuing in the Court of Common Pleas.
The current and future rights and interest of owners of PMLIC insurance and
annuity contracts, including the Policies will not change as a result of the
Conversion, and the Conversion will not increase premiums or reduce Policy
benefits, values, guarantees or other Policy obligations to Owners. If the
Conversion occurs, all PMLIC insurance policies and annuity contracts in force
on the date of the Conversion, including the Policies, will continue, after the
Conversion, as policies of Provfirst Life. The Conversion will not change the
operations of the Variable Account and will not result in any material
disruption of the services provided to Owners.
Before the Conversion, PMLIC will continue to conduct business in all
jurisdictions under the name "Provident Mutual Life Insurance Company." After
the Conversion, it is anticipated that PMLIC will conduct business in all
jurisdictions under the name "Provfirst America Life Insurance Company," except
in those jurisdictions in which regulators have not yet approved use of this
name. In those jurisdictions, Provfirst Life will continue to do business using
the name "Provident Mutual Life Insurance Company" until it receives approval to
use the new name.
Likewise, each Variable Account of PMLIC will continue, after the
Conversion, as a Variable Account of Provfirst Life. If the Conversion occurs,
it will not change the operations of any Variable Account supporting a policy or
contract. However, after the Conversion, the names of the Variable Accounts will
be changed by replacing the words "PMLIC" with "Provfirst America" in each name.
Use of the new Variable Account names in each jurisdiction will generally begin
concurrently with the use of Provfirst Life's new name. Nevertheless, some
jurisdictions require separate approval of the new Variable Account names, and
in those jurisdictions, Provfirst Life will not use such new name until it
receives such approval.
Pursuant to the Plan, PMLIC will also form Provident Mutual Holding
Company, a Pennsylvania nonstock corporation, and Provfirst America Corporation,
a Pennsylvania business corporation. If the Conversion occurs, all the shares of
voting stock of Provfirst Life will be issued to the Provfirst America
Corporation, and all the shares of voting stock of Provfirst America Corporation
will be issued to Provident Mutual Holding Company, except for approximately 1%
of the then-issued shares of voting stock of Provfirst America Corporation,
which will be issued to an employee stock ownership plan to be formed by
Provfirst Life. Pursuant to the Order and as set forth in the Plan, Provident
Mutual Holding Company will at all times, directly or indirectly, control
Provfirst Life through the ownership of at least a majority of the voting
authority of Provfirst America Corporation, which will hold, directly or
indirectly, all the
B-1
<PAGE> 49
outstanding voting stock of Provfirst Life. If the Conversion occurs, the
directors and executive officers of Provfirst Life serving immediately prior to
the Effective Date will remain as the directors and executive officers of each
of Provident Mutual Holding Company, Provfirst America Corporation and Provfirst
Life after the Effective Date.
Before the Conversion, PMLIC policyholders have (1) contract rights under
their insurance policies and annuity contracts, and (2) certain membership
rights in PMLIC. The principal contract right of policyholders is the right to
receive the type and amount of benefits specified in their policies or contracts
in accordance with their terms and conditions, including the right to receive
policy dividends, when, if, and as declared by the board of directors of PMLIC
in accordance with the terms and conditions of such policies. The membership
rights of policyholders include the right to vote at annual or special meetings
of PMLIC, and certain rights as provided by law in any remaining surplus of
PMLIC in the event of the insolvency, winding-up or liquidation of PMLIC, after
the discharge of all other liabilities.
If the Conversion occurs, the contract rights and the membership rights of
policyholders of PMLIC policies will be separated. The contract rights will
remain with Provfirst Life and the membership rights in PMLIC will be
extinguished. Each policyholder will then receive, by operations law, membership
rights in Provident Mutual Holding Company. Each future policyholder of
Provfirst Life will become a member of Provident Mutual Holding Company, and
each member will remain a member of Provident Mutual Holding Company as long as
the policy or policies conferring such membership remain in force.
B-2
<PAGE> 50
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 ("PMLIC"). 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, the Federated Insurance Series and the Van Eck Worldwide Insurance Trust.
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, 1999.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS*
<TABLE>
<S> <C>
ADDITIONAL CONTRACT PROVISIONS (19-26)...................... 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 (31)................ 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 (10)....................................... S-10
RECORDS AND REPORTS......................................... S-10
LEGAL MATTERS (37).......................................... S-10
EXPERTS..................................................... S-10
OTHER INFORMATION........................................... S-11
FINANCIAL STATEMENTS (Appendix A)........................... F-1
</TABLE>
- ---------------
* Numbers in parentheses refer to corresponding pages of the Prospectus.
<PAGE> 51
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. PMLIC 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
PMLIC 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. PMLIC 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, PMLIC 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, PMLIC 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
S-2
<PAGE> 52
period, dividing such net change in account value by the value of the
hypothetical account at the beginning of the period to determine the base period
return, and annualizing this quotient on a 365-day basis. The net change in
account value reflects: 1) net income from the Portfolio 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> 53
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, PMLIC 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 PMLIC 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> 54
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 PMLIC. While PMLIC has no reason to
doubt the accuracy of these figures provided by these non-affiliated Funds,
PMLIC does not represent that they are true and complete, and disclaims all
responsibility for these figures.
S-5
<PAGE> 55
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 12/31/98 (OR
PERIOD ENDED PERIOD ENDED DATE OF INCEPTION IF
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/98 12/31/98 LESS THAN 10 YEARS)
- --------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET
Fund Growth (December 12, 1985).................. 6.78% 15.67% 13.52%
Money Market (December 12, 1985)................. (1.12)% 3.14% 3.68%
Bond (December 12, 1985)......................... 1.63% 4.82% 6.53%
Managed (December 12, 1985)...................... 5.68% 11.30% 9.72%
Aggressive Growth (May 1, 1989).................. 1.41% 10.46% 12.06%
International (November 1, 1991)................. 3.42% 7.01% 7.65%
MARKET STREET FUND
All Pro Large Cap Growth (May 4, 1998)........... 11.07% 9.35%
All Pro Large Cap Value (May 4, 1998)............ (6.62)% (8.06)%
All Pro Small Cap Growth (May 4, 1998)........... (7.57)% (8.99)%
All Pro Small Cap Value (May 4, 1998)............ (22.23)% (23.43)%
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE
INSURANCE PRODUCTS FUND II
High Income (September 19, 1985)................. (10.19)% 6.86% 9.41%
Equity Income (October 9, 1986).................. 4.84% 16.75% 13.93%
Growth (October 9, 1986)......................... 31.08% 19.68% 17.69%
Asset Manager (September 6, 1989)................ 8.06% 9.85% 11.30%
Index 500 (August 27, 1992)...................... 20.56% 21.65% 19.39%
Contrafund (July 3, 1995)........................ 22.12% 25.84%
OCC ACCUMULATION TRUST
Equity (August 1, 1988).......................... 5.05% 18.25% 17.67%
Small Cap (August 1, 1988)....................... (14.62)% 6.60% 6.83%
Managed (August 1, 1988)......................... 0.59% 17.13% 16.56%
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond (July 16, 1985)............................. 0.06% 4.18% 6.99%
Growth & Income (May 2, 1994).................... 0.31% 17.86%
International (May 1, 1987)...................... 11.13% 8.35% 10.27%
DREYFUS VARIABLE INVESTMENT FUND
Zero Coupon 2000 (August 31, 1990)............... 0.73% 4.03% 7.85%
Growth & Income (May 2, 1994).................... 5.01% 19.51%
DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND
Socially Responsible (October 7, 1993)........... 21.56% 20.38% 20.96%
FEDERATED INSURANCE SERIES
Fund for US Gov't Securities II (March 29,
1994)......................................... 1.10% 4.52%
Utility Fund II (April 14, 1994)................. 7.00% 12.22%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... 5.90% 4.58% 5.03%
Worldwide Hard Assets (September 1, 1989)........ (35.24)% (5.14)% 0.38%
Worldwide Emerging Markets (December 27, 1995)... (38.27)% (11.47)%
Worldwide Real Estate (June 23, 1997)............ (16.80)% 0.43%
</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
S-6
<PAGE> 56
returns described above, except that the ending redeemable value of the
hypothetical account for the period is replaced with an ending value for the
period that does not take into account 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 12/31/98 (OR
PERIOD ENDED PERIOD ENDED DATE OF INCEPTION IF
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/98 12/31/98 LESS THAN 10 YEARS)
- --------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985)................... 11.81% 15.88% 13.52%
Money Market (December 12, 1985)............. 3.54% 3.32% 3.68%
Bond (December 12, 1985)..................... 6.42% 5.01% 6.53%
Managed (December 12, 1985).................. 10.66% 11.50% 9.72%
Aggressive Growth (May 1, 1989).............. 6.19% 10.66% 12.06%
International (November 1, 1991)............. 8.30% 7.21% 7.65%
MARKET STREET FUND
All Pro Large Cap Growth (May 4, 1998)....... 16.30% 16.33%
All Pro Large Cap Value (May 4, 1998)........ (2.22)% (2.19)%
All Pro Small Cap Growth (May 4, 1998)....... (3.21)% (3.18)%
All Pro Small Cap Value (May 4, 1998)........ (18.57)% (18.54)%
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE
INSURANCE PRODUCTS FUND II
High Income (September 19, 1985)............. (5.96)% 7.06% 9.41%
Equity Income (October 9, 1986).............. 9.78% 16.96% 13.93%
Growth (October 9, 1986)..................... 37.25% 19.90% 17.69%
Asset Manager (September 6, 1989)............ 13.15% 10.05% 11.30%
Index 500 (August 27, 1992).................. 26.24% 21.87% 19.39%
Contrafund (July 3, 1995).................... 27.87% 26.71%
OCC ACCUMULATION TRUST
Equity (August 1, 1988)...................... 10.00% 18.47% 17.88%
Small Cap (August 1, 1988)................... (10.59)% 6.79% 7.02%
Managed (August 1, 1988)..................... 5.33% 17.34% 16.77%
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond (July 16, 1985)......................... 4.78% 4.36% 6.99%
Growth & Income (May 2, 1994)................ 5.03% 18.32%
International (May 1, 1987).................. 16.37% 8.55% 10.27%
DREYFUS VARIABLE INVESTMENT FUND
Zero Coupon 2000 ( August 31, 1990).......... 5.48% 4.22% 7.85%
Growth & Income (May 2, 1994)................ 9.96% 19.98%
DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND
Socially Responsible (October 7, 1993)....... 27.28% 20.59% 21.16%
FEDERATED INSURANCE SERIES
Fund for US Gov't Securities II (March 29,
1994)..................................... 5.86% 4.92%
Utility Fund II (April 14, 1994)............. 12.04% 12.64%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)........... 10.89% 4.77% 5.03%
Worldwide Hard Assets (September 1, 1989).... (32.19)% (4.97)% 0.38%
Worldwide Emerging Markets (December 27,
1995)..................................... (35.36)% (10.72)%
Worldwide Real Estate (June 23, 1997)........ (12.88)% 3.08%
</TABLE>
S-7
<PAGE> 57
PMLIC may disclose Cumulative Total Returns in conjunction with the
standard formats described above. The Cumulative Total Returns will be
calculated using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = the Cumulative Total Return net of Subaccount recurring charges for
the period.
ERV = the ending redeemable value of the hypothetical investment at the end
of the period.
P = a hypothetical single payment of $1,000.
EFFECT OF THE ADMINISTRATION FEE ON PERFORMANCE DATA
The Contract provides for a $30 Annual Administration Fee to be deducted
annually at the end of each Contract Year, from the Subaccounts and the
Guaranteed Account based on the proportion that the value of each such account
bears to the total Contract Account Value. For purposes of reflecting the
administration fee in yield and total return quotations, the annual charge is
converted into a per-dollar per-day charge based on 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 PMLIC'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 PMLIC 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 PMLIC'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 PMLIC 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 PMLIC 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 PMLIC's option if shares of the Fund are not reasonably
available to meet the requirements of the Contracts; (3) at PMLIC'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
PMLIC has suffered material adverse changes in its business or financial
conditions or is the subject of material adverse publicity; (5) at the option of
PMLIC 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 PMLIC 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 PMLIC fail within sixty days after such renegotiation date to agree to
continue or amend the agreement; (2) at the option of PMLIC or the Fund if no
shares of the Fund are owned by PMLIC, the Variable Account, an affiliated
insurance company or a separate account of such affiliated insurance company;
(3) upon determination that an irreconcilable
S-8
<PAGE> 58
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 PMLIC'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 PMLIC 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 PMLIC'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 PMLIC 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 PMLIC 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 PMLIC'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 PMLIC or the Fund; (b) at PMLIC's option if shares of
the Fund are not reasonably available to meet the requirements of the contracts;
(c) at the option of PMLIC or the Fund if certain enforcement proceedings are
instituted against the other; (d) at the option of the Fund if it determines
that PMLIC 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 PMLIC or the Fund; (b) at PMLIC's option if shares of the
Portfolios are not reasonably available to meet the requirements of the
Contracts; (c) at the option of PMLIC 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 PMLIC 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 PMLIC 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 PMLIC, 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 PMLIC 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 PMLIC 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
PMLIC 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.
S-9
<PAGE> 59
Should an agreement between PMLIC 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 PMLIC has not been
terminated. Should a Fund or portfolio of such Fund decide not to sell its
shares to PMLIC, PMLIC 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.
SAFEKEEPING OF ACCOUNT ASSETS
PMLIC 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 PMLIC are covered by an insurance company
blanket bond issued by Aetna Casualty and Surety Company to PMLIC in the amount
of ten million dollars. The bond insures against dishonest and fraudulent acts
of officers and employees.
STATE REGULATIONS
PMLIC 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. PMLIC 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
PMLIC 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
James G. Potter, Jr., Esquire, Counsel of PMLIC, has provided advice on
certain matters relating to the laws of Pennsylvania regarding the Contracts and
PMLIC's issuance of the Contracts. Sutherland Asbill & Brennan LLP, of
Washington, D.C. has provided advice on certain matters relating to the federal
securities laws.
EXPERTS
The statements of financial condition for PMLIC as of December 31, 1998 and
1997 and the related statements of operations, capital and surplus, and cash
flows for each of the three years in the period ended December 31, 1998 and the
audited statement of assets and liabilities of the PMLIC Variable Annuity
Separate Account as of December 31, 1998 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
S-10
<PAGE> 60
which are included in this Statement of Additional Information and in the
registration statement have been audited by PricewaterhouseCoopers, LLP as set
forth in their report included herein, and are included herein in reliance upon
such report and upon the authority of such firm as experts in accounting and
auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities
Act of 1933 as amended, with respect to the Contracts discussed in this
Statement of Additional Information. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Statement of Additional Information. Statements contained in this Statement
of Additional Information concerning the content of the Contracts and other
legal instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed with
the SEC at 450 Fifth Street, N.W., Washington, DC 20549.
FINANCIAL STATEMENTS
This Statement of Additional Information contains the audited statements of
assets and liabilities of the PMLIC Variable Annuity Separate Account as of
December 31, 1998 and the related statements of operations for the year then
ended and the statements of changes in net assets for each of the two years in
the period then ended. PricewaterhouseCoopers, LLP serves as independent
accountants for the PMLIC Variable Annuity Separate Account.
PMLIC's statements of financial condition as of December 31, 1998 and 1997
and the related statements of operations, capital and surplus, and cash flows
for each of the three years in the period ended December 31, 1998, which are
included in this Statement of Additional Information, should be considered only
as bearing on PMLIC'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 PMLIC Variable Annuity Separate Account.
S-11
<PAGE> 61
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, 1998... F-3
Statements of Operations for the Year Ended December 31,
1998................................................... F-9
Statements of Changes in Net Assets for the Year Ended
December 31, 1998...................................... F-15
Statements of Changes in Net Assets for the Year Ended
December 31, 1997...................................... F-21
Notes to Financial Statements............................. F-25
Provident Mutual Life Insurance Company and Subsidiaries
Report of Independent Accountants......................... F-42
Consolidated Statements of Financial Condition, December
31, 1998 and 1997...................................... F-43
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997, and 1996...................... F-44
Consolidated Statements of Equity for the Years Ended
December 31, 1998, 1997, and 1996...................... F-45
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997, and 1996...................... F-46
Notes to Consolidated Financial Statements................ F-47
</TABLE>
F-1
<PAGE> 62
- --------------------------------------------------------------------------------
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:
In our opinion, the accompanying statements of assets and liabilities of the
Provident Mutual Variable Annuity Separate Account (comprising thirty-one
subaccounts, hereafter collectively referred to as the "Separate Account") and
the related statements of operations and changes in net assets present fairly,
in all material respects, the financial position of the Separate Account at
December 31, 1998, 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. These
financial statements are the responsibility of the management of the Separate
Account; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities owned at
December 31, 1998 by correspondence with the transfer agents, provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 26, 1999
F-2
<PAGE> 63
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc.,
at market value:
Growth Portfolio........................... $5,583,308
Money Market Portfolio..................... $5,348,239
Bond Portfolio............................. $1,099,805
Managed Portfolio.......................... $1,560,935
Aggressive Growth Portfolio................ $1,096,413
International Portfolio.................... $2,439,353
Dividends receivable......................... 22,149
---------- ---------- ---------- ---------- ---------- ----------
Total Assets................................. 5,583,308 5,370,388 1,099,805 1,560,935 1,096,413 2,439,353
---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES
Payable to Provident Mutual Life Insurance
Company.................................... 147,004
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS................................... $5,583,308 $5,223,384 $1,099,805 $1,560,935 $1,096,413 $2,439,353
========== ========== ========== ========== ========== ==========
Held for the benefit of contractholders...... $5,525,961 $5,171,147 $1,065,622 $1,513,784 $1,047,904 $2,396,807
Attributable to Provident Mutual Life
Insurance Company.......................... 57,347 52,237 34,183 47,151 48,509 42,546
---------- ---------- ---------- ---------- ---------- ----------
$5,583,308 $5,223,384 $1,099,805 $1,560,935 $1,096,413 $2,439,353
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 64
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO LARGE ALL PRO LARGE ALL PRO SMALL ALL PRO SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc., at market value:
All Pro Large Cap Growth Portfolio........................ $34,597
All Pro Large Cap Value Portfolio......................... $30,668
All Pro Small Cap Growth Portfolio........................ $28,316
All Pro Small Cap Value Portfolio......................... $26,486
------- ------- ------- -------
NET ASSETS.................................................. $34,597 $30,668 $28,316 $26,486
======= ======= ======= =======
Held for the benefit of contractholders..................... $ 6,783 $ 5,891 $ 5,156 $ 4,567
Attributable to Provident Mutual Life Insurance Company..... 27,814 24,777 23,160 21,919
------- ------- ------- -------
$34,597 $30,668 $28,316 $26,486
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 65
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<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....................... $3,298,968
Equity-Income Portfolio..................... $13,161,440
Growth Portfolio............................ $9,645,207
Investment in the Variable Insurance Products
Fund II, at market value:
Asset Manager Portfolio..................... $2,131,322
Index 500 Portfolio......................... $12,443,823
Contrafund Portfolio........................ $4,388,249
---------- ----------- ---------- ---------- ----------- ----------
NET ASSETS.................................... $3,298,968 $13,161,440 $9,645,207 $2,131,322 $12,443,823 $4,388,249
========== =========== ========== ========== =========== ==========
Held for the benefit of contractholders....... $3,260,508 $13,103,505 $9,601,775 $2,086,140 $12,404,158 $4,341,139
Attributable to Provident Mutual Life
Insurance Company........................... 38,460 57,935 43,432 45,182 39,665 47,110
---------- ----------- ---------- ---------- ----------- ----------
$3,298,968 $13,161,440 $9,645,207 $2,131,322 $12,443,823 $4,388,249
========== =========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 66
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER
GROWTH
OCC OCC OCC SCUDDER 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........................ $4,140,763
Small Cap Portfolio..................... $2,441,845
Managed Portfolio....................... $8,026,782
Investment in the Scudder Variable Life
Investment Fund, at market value:
Bond Portfolio.......................... $1,021,846
Growth and Income Portfolio............. $3,931,598
International Portfolio................. $1,304,034
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS................................ $4,140,763 $2,441,845 $8,026,782 $1,021,846 $3,931,598 $1,304,034
========== ========== ========== ========== ========== ==========
Held for the benefit of contractholders... $4,110,561 $2,403,520 $7,994,662 $ 985,886 $3,889,380 $1,268,282
Attributable to Provident Mutual Life
Insurance Company....................... 30,202 38,325 32,120 35,960 42,218 35,752
---------- ---------- ---------- ---------- ---------- ----------
$4,140,763 $2,441,845 $8,026,782 $1,021,846 $3,931,598 $1,304,034
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 67
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS FEDERATED
GROWTH DREYFUS FUND FOR U.S.
DREYFUS ZERO AND SOCIALLY GOVERNMENT FEDERATED
COUPON 2000 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...................... $844,314
Growth and Income Portfolio..................... $2,269,938
Investment in the Dreyfus Socially Responsible
Growth Fund, Inc., at market value:
Socially Responsible Portfolio.................. $1,607,088
Investment in the Federated Insurance Series, at
market value:
Fund for U.S. Government Securities II
Portfolio..................................... $691,064
Utility Fund II Portfolio....................... $456,833
-------- ---------- ---------- -------- --------
NET ASSETS........................................ $844,314 $2,269,938 $1,607,088 $691,064 $456,833
======== ========== ========== ======== ========
Held for the benefit of contractholders........... $809,535 $2,233,357 $1,560,403 $660,080 $416,875
Attributable to Provident Mutual Life Insurance
Company......................................... 34,779 36,581 46,685 30,984 39,958
-------- ---------- ---------- -------- --------
$844,314 $2,269,938 $1,607,088 $691,064 $456,833
======== ========== ========== ======== ========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 68
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK
VAN ECK VAN ECK WORLDWIDE VAN ECK
WORLDWIDE WORLDWIDE EMERGING WORLDWIDE
BOND HARD ASSETS MARKETS REAL ESTATE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Van Eck Worldwide Insurance Trust Fund, at
market value:
Van Eck Worldwide Bond Portfolio.......................... $29,078
Van Eck Worldwide Hard Assets Portfolio................... $17,626
Van Eck Worldwide Emerging Markets Portfolio.............. $51,048
Van Eck Worldwide Real Estate Portfolio................... $21,486
------- ------- ------- -------
NET ASSETS.................................................. $29,078 $17,626 $51,048 $21,486
======= ======= ======= =======
Held for the benefit of contractholders..................... $ 1,490 $ 439
Attributable to Provident Mutual Life Insurance Company..... 27,588 17,187 $51,048 $21,486
------- ------- ------- -------
$29,078 $17,626 $51,048 $21,486
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 69
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................................... $ 72,480 $240,274 $44,305 $ 43,817 $ 5,603 $ 17,356
EXPENSES
Mortality and expense risks..................... 66,477 65,331 11,225 18,581 11,491 33,180
--------- -------- ------- -------- -------- --------
Net investment income (loss).................... 6,003 174,943 33,080 25,236 (5,888) (15,824)
--------- -------- ------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions reinvested.......... 529,882 96 59,278 53,487 162,432
Net realized gain from redemption of investment
shares........................................ 96,775 6,667 41,163 31,508 32,713
--------- -------- ------- -------- -------- --------
Net realized gain on investments................ 626,657 6,763 100,441 84,995 195,145
--------- -------- ------- -------- -------- --------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year............................. 596,608 23,966 209,114 135,842 115,950
End of year................................... 490,770 39,647 230,301 113,092 120,601
--------- -------- ------- -------- -------- --------
Net unrealized appreciation (depreciation)
during the year............................... (105,838) 15,681 21,187 (22,750) 4,651
--------- -------- ------- -------- -------- --------
Net realized and unrealized gain on
investments................................... 520,819 22,444 121,628 62,245 199,796
--------- -------- ------- -------- -------- --------
Net increase in net assets resulting from
operations.................................... $ 526,822 $174,943 $55,524 $146,864 $ 56,357 $183,972
========= ======== ======= ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 70
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE LARGE SMALL SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends
EXPENSES
Mortality and expense risks................................. $ 30 $ 29 $ 21 $ 20
------ ---- ------- -------
Net investment loss......................................... (30) (29) (21) (20)
------ ---- ------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions reinvested
Net realized gain (loss) from redemption of investment
shares.................................................... 3 (4)
------ ---- ------- -------
Net realized gain (loss) on investments..................... 3 (4)
------ ---- ------- -------
Net unrealized appreciation (depreciation) of investments:
Beginning of year.........................................
End of year............................................... 4,123 196 (1,162) (2,990)
------ ---- ------- -------
Net unrealized appreciation (depreciation) during the
year...................................................... 4,123 196 (1,162) (2,990)
------ ---- ------- -------
Net realized and unrealized gain (loss) on investments...... 4,126 196 (1,162) (2,994)
------ ---- ------- -------
Net increase (decrease) in net assets resulting from
operations................................................ $4,096 $167 ($1,183) ($3,014)
====== ==== ======= =======
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 71
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
HIGH FIDELITY FIDELITY ASSET FIDELITY FIDELITY
INCOME EQUITY-INCOME GROWTH MANAGER INDEX 500 CONTRAFUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends..................................... $ 188,991 $ 135,750 $ 30,623 $ 50,602 $ 74,769 $ 14,984
EXPENSES
Mortality and expense risks................... 42,986 159,695 100,674 24,710 123,920 41,463
--------- ---------- ---------- -------- ---------- --------
Net investment income (loss).................. 146,005 (23,945) (70,051) 25,892 (49,151) (26,479)
--------- ---------- ---------- -------- ---------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions reinvested........ 120,008 483,111 801,033 151,807 173,178 110,238
Net realized gain from redemption of
investment shares........................... 1,855 163,603 102,307 24,862 443,504 98,146
--------- ---------- ---------- -------- ---------- --------
Net realized gain on investments.............. 121,863 646,714 903,340 176,669 616,682 208,384
--------- ---------- ---------- -------- ---------- --------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year........................... 287,455 1,674,929 1,033,866 177,568 1,112,827 310,410
End of year................................. (210,228) 2,080,228 2,636,305 209,636 2,599,106 926,957
--------- ---------- ---------- -------- ---------- --------
Net unrealized appreciation (depreciation)
during the year............................. (497,683) 405,299 1,602,439 32,068 1,486,279 616,547
--------- ---------- ---------- -------- ---------- --------
Net realized and unrealized gain (loss) on
investments................................. (375,820) 1,052,013 2,505,779 208,737 2,102,961 824,931
--------- ---------- ---------- -------- ---------- --------
Net increase (decrease) in net assets
resulting from operations................... ($229,815) $1,028,068 $2,435,728 $234,629 $2,053,810 $798,452
========= ========== ========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 72
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER
GROWTH
OCC OCC OCC SCUDDER AND SCUDDER
EQUITY SMALL CAP MANAGED BOND INCOME INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................................... $ 37,538 $ 8,102 $ 53,757 $51,655 $ 66,116 $ 14,938
EXPENSES
Mortality and expense risks..................... 54,250 33,823 105,473 11,711 42,526 14,986
-------- --------- ---------- ------- --------- --------
Net investment income (loss).................... (16,712) (25,721) (51,716) 39,944 23,590 (48)
-------- --------- ---------- ------- --------- --------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions reinvested.......... 162,037 88,472 214,762 2,546 155,080 98,244
Net realized gain (loss) from redemption of
investment shares............................. 188,798 26,305 186,363 13,676 95,562 (5,732)
-------- --------- ---------- ------- --------- --------
Net realized gain on investments................ 350,835 114,777 401,125 16,222 250,642 92,512
-------- --------- ---------- ------- --------- --------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year............................. 732,342 386,430 1,187,351 20,981 266,839 19,909
End of year................................... 745,843 8,992 1,198,746 11,092 81,742 38,107
-------- --------- ---------- ------- --------- --------
Net unrealized appreciation (depreciation)
during the year............................... 13,501 (377,438) 11,395 (9,889) (185,097) 18,198
-------- --------- ---------- ------- --------- --------
Net realized and unrealized gain (loss) on
investments................................... 364,336 (262,661) 412,520 6,333 65,545 110,710
-------- --------- ---------- ------- --------- --------
Net increase (decrease) in net assets resulting
from operations............................... $347,624 ($288,382) $ 360,804 $46,277 $ 89,135 $110,662
======== ========= ========== ======= ========= ========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 73
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS FEDERATED
DREYFUS GROWTH DREYFUS FUND FOR U.S.
ZERO AND SOCIALLY GOVERNMENT FEDERATED
COUPON 2000 INCOME RESPONSIBLE SECURITIES II UTILITY FUND II
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................................ $39,378 $ 18,936 $ 2,489 $ 5,562 $ 2,761
EXPENSES
Mortality and expense risks.......................... 9,600 26,552 13,949 5,436 4,295
------- -------- -------- ------- -------
Net investment income (loss)......................... 29,778 (7,616) (11,460) 126 (1,534)
------- -------- -------- ------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions reinvested............... 30,859 57,708 246 16,863
Net realized gain (loss) from redemption of
investment
shares............................................. 4,222 (6,965) 15,725 18,442 17,268
------- -------- -------- ------- -------
Net realized gain on investments..................... 4,222 23,894 73,433 18,688 34,131
------- -------- -------- ------- -------
Net unrealized appreciation of investments:
Beginning of year.................................. 1,448 5,182 45,495 6,978 44,214
End of year........................................ 8,315 164,023 239,249 11,654 55,982
------- -------- -------- ------- -------
Net unrealized appreciation during the year.......... 6,867 158,841 193,754 4,676 11,768
------- -------- -------- ------- -------
Net realized and unrealized gain on investments...... 11,089 182,735 267,187 23,364 45,899
------- -------- -------- ------- -------
Net increase in net assets resulting from
operations......................................... $40,867 $175,119 $255,727 $23,490 $44,365
======= ======== ======== ======= =======
</TABLE>
See accompanying notes to financial statements
F-13
<PAGE> 74
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK VAN ECK VAN ECK
VAN ECK WORLDWIDE WORLDWIDE WORLDWIDE
WORLDWIDE HARD EMERGING REAL
BOND ASSETS MARKETS ESTATE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends...................................................
EXPENSES
Mortality and expense risks................................. $ 4
------ ------- ------- -------
Net investment loss......................................... (4)
------ ------- ------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions reinvested......................
Net realized gain (loss) from redemption of investment
shares....................................................
------ ------- ------- -------
Net realized gain (loss) on investments.....................
------ ------- ------- -------
Net unrealized appreciation (depreciation) of investments:
Beginning of year.........................................
End of year............................................... 2,362 ($7,844) ($8,952) ($3,514)
------ ------- ------- -------
Net unrealized appreciation (depreciation) during the
year...................................................... 2,362 (7,844) (8,952) (3,514)
------ ------- ------- -------
Net realized and unrealized gain (loss) on investments...... 2,362 (7,844) (8,952) (3,514)
------ ------- ------- -------
Net increase (decrease) in net assets resulting from
operations................................................ $2,358 ($7,844) ($8,952) ($3,514)
====== ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-14
<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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............. $ 6,003 $ 174,943 $ 33,080 $ 25,236 $ (5,888) $ (15,824)
Net realized gain on investments......... 626,657 6,763 100,441 84,995 195,145
Net unrealized appreciation
(depreciation) of investments during
the year............................... (105,838) 15,681 21,187 (22,750) 4,651
---------- ------------ ---------- ---------- ---------- ----------
Net increase in net assets from
operations............................. 526,822 174,943 55,524 146,864 56,357 183,972
---------- ------------ ---------- ---------- ---------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums............ 409,270 18,155,739 96,183 28,840 122,786 87,721
Administrative charges................... (2,529) (1,545) (312) (636) (671) (1,337)
Surrenders and forfeitures............... (143,430) (109,166) (18,309) (83,242) (49,485) (104,525)
Transfers between investment
portfolios............................. 816,742 (16,901,412) 341,325 238,069 272,846 (65,222)
---------- ------------ ---------- ---------- ---------- ----------
Net increase (decrease) in net assets
derived from contract transactions..... 1,080,053 1,143,616 418,887 183,031 345,476 (83,363)
---------- ------------ ---------- ---------- ---------- ----------
Capital contribution from Provident
Mutual Life Insurance Company.......... 45,000
---------- ------------ ---------- ---------- ---------- ----------
Total increase in net assets............. 1,606,875 1,363,559 474,411 329,895 401,833 100,609
NET ASSETS
Beginning of year...................... 3,976,433 3,859,825 625,394 1,231,040 694,580 2,338,744
---------- ------------ ---------- ---------- ---------- ----------
End of year............................ $5,583,308 $ 5,223,384 $1,099,805 $1,560,935 $1,096,413 $2,439,353
========== ============ ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-15
<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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE LARGE SMALL SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment loss........................................ $ (30) $ (29) $ (21) $ (20)
Net realized gain (loss) on investments.................... 3 (4)
Net unrealized appreciation (depreciation) of investments
during the year.......................................... 4,123 196 (1,162) (2,990)
------- ------- ------- -------
Net increase (decrease) in net assets from operations...... 4,096 167 (1,183) (3,014)
------- ------- ------- -------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Transfers between investment portfolios.................... 5,501 5,501 4,499 4,500
------- ------- ------- -------
Net increase in net assets derived from contract
transactions............................................. 5,501 5,501 4,499 4,500
------- ------- ------- -------
Capital contribution from Provident Mutual Life Insurance
Company.................................................. 25,000 25,000 25,000 25,000
------- ------- ------- -------
Total increase in net assets............................. 34,597 30,668 28,316 26,486
NET ASSETS
Beginning of year........................................ -- -- -- --
------- ------- ------- -------
End of year.............................................. $34,597 $30,668 $28,316 $26,486
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-16
<PAGE> 77
- --------------------------------------------------------------------------------
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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
HIGH FIDELITY FIDELITY ASSET FIDELITY FIDELITY
INCOME EQUITY-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).................. $ 146,005 $ (23,945) $ (70,051) $ 25,892 $ (49,151) $ (26,479)
Net realized gain on investments.............. 121,863 646,714 903,340 176,669 616,682 208,384
Net unrealized appreciation (depreciation) of
investments during the year................. (497,683) 405,299 1,602,439 32,068 1,486,279 616,547
---------- ----------- ---------- ---------- ----------- ----------
Net increase (decrease) in net assets from
operations.................................. (2,815) 1,028,068 2,435,728 234,629 2,053,810 798,452
---------- ----------- ---------- ---------- ----------- ----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums................. 164,774 643,873 478,671 80,846 1,154,032 331,019
Administrative charges........................ (1,408) (5,427) (4,663) (1,160) (4,629) (1,862)
Surrenders and forfeitures.................... (92,923) (423,087) (224,051) (69,817) (246,981) (187,746)
Transfers between investment portfolios....... 820,132 2,351,433 1,036,134 278,804 3,415,028 1,342,290
---------- ----------- ---------- ---------- ----------- ----------
Net increase in net assets derived from
contract transactions....................... 890,575 2,566,792 1,286,091 288,673 4,317,450 1,483,701
---------- ----------- ---------- ---------- ----------- ----------
Return of capital to Provident Mutual Life
Insurance Company........................... (30,000) (35,000)
---------- ----------- ---------- ---------- ----------- ----------
Total increase in net assets.................. 660,760 3,594,860 3,691,819 523,302 6,336,260 2,282,153
NET ASSETS
Beginning of year........................... 2,638,208 9,566,580 5,953,388 1,608,020 6,107,563 2,106,096
---------- ----------- ---------- ---------- ----------- ----------
End of year................................. $3,298,968 $13,161,440 $9,645,207 $2,131,322 $12,443,823 $4,388,249
========== =========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE> 78
- --------------------------------------------------------------------------------
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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER
GROWTH
OCC OCC OCC SCUDDER AND SCUDDER
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).............. $ (16,712) $ (25,721) $ (51,716) $ 39,944 $ 23,590 $ (48)
Net realized gain on investments.......... 350,835 114,777 401,125 16,222 250,642 92,512
Net unrealized appreciation (depreciation)
of investments during the year.......... 13,501 (377,438) 11,395 (9,889) (185,097) 18,198
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets from
operations.............................. 347,624 (288,382) 360,804 46,277 89,135 110,662
---------- ---------- ---------- ---------- ---------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums............. 181,536 163,923 363,379 88,377 296,169 52,293
Administrative charges.................... (2,254) (1,277) (4,325) (365) (1,525) (500)
Surrenders and forfeitures................ (114,897) (69,213) (252,893) (48,990) (130,521) (41,347)
Transfers between investment portfolios... 328,705 201,890 793,832 264,247 1,706,458 359,320
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets derived from
contract transactions................... 393,090 295,323 899,993 303,269 1,870,581 369,766
---------- ---------- ---------- ---------- ---------- ----------
Return of capital to Provident Mutual Life
Insurance Company....................... (30,000) (25,000)
---------- ---------- ---------- ---------- ---------- ----------
Total increase in net assets.............. 710,714 6,941 1,235,797 349,546 1,959,716 480,428
NET ASSETS
Beginning of year....................... 3,430,049 2,434,904 6,790,985 672,300 1,971,882 823,606
---------- ---------- ---------- ---------- ---------- ----------
End of year............................. $4,140,763 $2,441,845 $8,026,782 $1,021,846 $3,931,598 $1,304,034
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE> 79
- --------------------------------------------------------------------------------
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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS FEDERATED
DREYFUS GROWTH DREYFUS FUND FOR U.S.
ZERO AND SOCIALLY GOVERNMENT FEDERATED
COUPON 2000 INCOME RESPONSIBLE SECURITIES II UTILITY FUND II
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).................... $ 29,778 $ (7,616) $ (11,460) $ 126 $ (1,534)
Net realized gain on investments................ 4,222 23,894 73,433 18,688 34,131
Net unrealized appreciation of investments
during the year............................... 6,867 158,841 193,754 4,676 11,768
-------- ---------- ---------- -------- --------
Net increase in net assets from operations...... 40,867 175,119 255,727 23,490 44,365
-------- ---------- ---------- -------- --------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums................... 110,869 292,636 178,167 51,718 22,192
Administrative charges.......................... (281) (1,360) (500) (140) (116)
Surrenders and forfeitures...................... (39,302) (116,934) (13,302) (4,926) (3,478)
Transfers between investment portfolios......... 286,195 296,217 685,541 407,646 118,486
-------- ---------- ---------- -------- --------
Net increase in net assets derived from contract
transactions.................................. 357,481 470,559 849,906 454,298 137,084
-------- ---------- ---------- -------- --------
Total increase in net assets.................... 398,348 645,678 1,105,633 477,788 181,449
NET ASSETS
Beginning of year............................. 445,966 1,624,260 501,455 213,276 275,384
-------- ---------- ---------- -------- --------
End of year................................... $844,314 $2,269,938 $1,607,088 $691,064 $456,833
======== ========== ========== ======== ========
</TABLE>
See accompanying notes to financial statements
F-19
<PAGE> 80
- --------------------------------------------------------------------------------
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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK VAN ECK VAN ECK
VAN ECK WORLDWIDE WORLDWIDE WORLDWIDE
WORLDWIDE HARD EMERGING REAL
BOND ASSETS MARKETS ESTATE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment loss......................................... $ (4)
Net realized gain (loss) on investments
Net unrealized appreciation (depreciation) of investments
during the year........................................... 2,362 $(7,844) $(8,952) $(3,514)
------- ------- ------- -------
Net increase (decrease) in net assets from operations....... 2,358 (7,844) (8,952) (3,514)
------- ------- ------- -------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Transfers between investment portfolios..................... 1,720 470
------- ------- ------- -------
Net increase in net assets derived from contract
transactions.............................................. 1,720 470
------- ------- ------- -------
Capital contribution from Provident Mutual Life Insurance
Company................................................... 25,000 25,000 60,000 25,000
------- ------- ------- -------
Total increase in net assets................................ 29,078 17,626 51,048 21,486
NET ASSETS
Beginning of year......................................... -- -- -- --
------- ------- ------- -------
End of year............................................... $29,078 $17,626 $51,048 $21,486
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE> 81
- --------------------------------------------------------------------------------
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-21
<PAGE> 82
- --------------------------------------------------------------------------------
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-22
<PAGE> 83
- --------------------------------------------------------------------------------
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
GROWTH
OCC OCC SCUDDER 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-23
<PAGE> 84
- --------------------------------------------------------------------------------
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>
DREYFUS FEDERATED
DREYFUS GROWTH DREYFUS FUND FOR U.S.
ZERO AND SOCIALLY GOVERNMENT FEDERATED
COUPON 2000 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-24
<PAGE> 85
- --------------------------------------------------------------------------------
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
thirty-one Subaccounts: the Growth, Money Market, Bond, Managed, Aggressive
Growth, International, All Pro Large Cap Growth, All Pro Large Cap Value, All
Pro Small Cap Growth and All Pro Small Cap Value Subaccounts invest in the
corresponding portfolios of the Market Street Fund, Inc.; the Fidelity High
Income, Fidelity Equity-Income 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 and Dreyfus Growth and Income Subaccounts
invest in the corresponding portfolios of the Dreyfus Variable Investment Fund;
the Dreyfus Socially Responsible Subaccount invests in the Dreyfus Socially
Responsible Growth Fund, Inc.; the Federated Fund for U.S. Government Securities
II (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); and the Van Eck Worldwide Bond, Van Eck Worldwide Hard Assets, Van Eck
Worldwide Emerging Markets and Van Eck Worldwide Real Estate Subaccounts invest
in the corresponding portfolios of the Van Eck Worldwide Insurance Trust.
The Growth, Money Market, Bond, Managed, Aggressive Growth and
International Subaccounts are available to owners of a Market Street VIP
contract. All thirty-one 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-25
<PAGE> 86
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes To Financial Statements -- continued
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Separate Account in the financial statements.
Investment Valuation:
Investment shares are valued at the net asset values of the respective
Portfolios. Transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date.
Realized Gains and Losses:
Realized gains and losses on sales of investment shares are determined
using the specific identification basis for financial reporting and income tax
purposes.
Federal Income Taxes:
The operations of the Separate Account are included in the Federal income
tax return of Provident Mutual. Under the provisions of the Contracts, Provident
Mutual has the right to charge the Separate Account for Federal income tax
attributable to the Separate Account. No charge is currently being made against
the Separate Account for such tax.
Estimates:
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities and the reported amounts from operations and contract
transactions during the period. Actual results could differ from those
estimates.
F-26
<PAGE> 87
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1998, the investments of the respective Subaccounts are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market Street Fund, Inc.:
Growth Portfolio........................................ 296,669 $5,092,538 $5,583,308
Money Market Portfolio.................................. 5,348,239 $5,348,239 $5,348,239
Bond Portfolio.......................................... 98,022 $1,060,158 $1,099,805
Managed Portfolio....................................... 88,288 $1,330,634 $1,560,935
Aggressive Growth Portfolio............................. 50,042 $983,321 $1,096,413
International Portfolio................................. 176,127 $2,318,752 $2,439,353
All Pro Large Cap Growth Portfolio...................... 2,939 $30,474 $34,597
All Pro Large Cap Value Portfolio....................... 3,098 $30,472 $30,668
All Pro Small Cap Growth Portfolio...................... 2,889 $29,478 $28,316
All Pro Small Cap Value Portfolio....................... 3,210 $29,476 $26,486
Variable Insurance Products Fund:
High Income Portfolio................................... 286,120 $3,509,196 $3,298,968
Equity-Income Portfolio................................. 517,759 $11,081,212 $13,161,440
Growth Portfolio........................................ 214,959 $7,008,902 $9,645,207
Variable Insurance Products Fund II:
Asset Manager Portfolio................................. 117,364 $1,921,686 $2,131,322
Index 500 Portfolio..................................... 88,098 $9,844,717 $12,443,823
Contrafund Portfolio.................................... 179,552 $3,461,292 $4,388,249
OCC Accumulation Trust:
Equity Portfolio........................................ 106,996 $3,394,920 $4,140,763
Small Cap Portfolio..................................... 105,708 $2,432,853 $2,441,845
Managed Portfolio....................................... 183,511 $6,828,036 $8,026,782
Scudder Variable Life Investment Fund:
Bond Portfolio.......................................... 148,524 $1,010,754 $1,021,846
Growth and Income Portfolio............................. 350,410 $3,849,856 $3,931,598
International Portfolio................................. 89,563 $1,265,927 $1,304,034
Dreyfus Variable Investment Fund:
Zero Coupon 2000 Portfolio.............................. 67,545 $835,999 $844,314
Growth and Income Portfolio............................. 100,307 $2,105,915 $2,269,938
Dreyfus Socially Responsible Growth Fund, Inc.:
Socially Responsible Portfolio.......................... 51,708 $1,367,839 $1,607,088
Federated Insurance Series:
Fund for U.S. Government Securities II Portfolio........ 61,979 $679,410 $691,064
Utility Fund II Portfolio............................... 29,917 $400,851 $456,833
Van Eck Worldwide Insurance Trust:
Van Eck Worldwide Bond Portfolio........................ 2,368 $26,716 $29,078
Van Eck Worldwide Hard Assets Portfolio................. 1,916 $25,470 $17,626
Van Eck Worldwide Emerging Markets Portfolio............ 7,170 $60,000 $51,048
Van Eck Worldwide Real Estate Portfolio................. 2,252 $25,000 $21,486
</TABLE>
F-27
<PAGE> 88
- --------------------------------------------------------------------------------
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, 1998, 1997 and 1996, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................... 102,982 61,002 69,249 12,844,343 15,940,030 9,172,217
Shares received from reinvestment of:
Dividends................................ 3,261 3,548 2,541 200,484 143,780 122,507
Capital gain distributions............... 32,114 17,059 3,268
---------- ---------- ---------- ------------ ------------ -----------
Total shares acquired...................... 138,357 81,609 75,058 13,044,827 16,083,810 9,294,724
Total shares redeemed...................... (46,027) (6,693) (10,741) (11,419,454) (14,891,923) (8,675,470)
---------- ---------- ---------- ------------ ------------ -----------
Net increase in shares owned............... 92,330 74,916 64,317 1,625,373 1,191,887 619,254
Shares owned, beginning of year............ 204,339 129,423 65,106 3,722,866 2,530,979 1,911,725
---------- ---------- ---------- ------------ ------------ -----------
Shares owned, end of year.................. 296,669 204,339 129,423 5,348,239 3,722,866 2,530,979
========== ========== ========== ============ ============ ===========
Cost of shares acquired.................... $2,405,362 $1,429,486 $1,231,085 $ 13,044,828 $ 16,083,810 $ 9,294,724
========== ========== ========== ============ ============ ===========
Cost of shares redeemed.................... $ 692,649 $ 94,931 $ 152,747 $ 11,419,455 $ 14,891,923 $ 8,675,470
========== ========== ========== ============ ============ ===========
</TABLE>
F-28
<PAGE> 89
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO MANAGED PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......................................... 47,550 19,000 21,420 19,640 17,915 35,733
Shares received from reinvestment of:
Dividends.............................................. 4,004 2,225 1,823 2,647 2,162 1,247
Capital gain distributions............................. 8 3,700 457 871
-------- -------- -------- -------- -------- --------
Total shares acquired.................................... 51,562 21,225 23,243 25,987 20,534 37,851
Total shares redeemed.................................... (10,498) (8,140) (3,361) (9,858) (5,076) (1,431)
-------- -------- -------- -------- -------- --------
Net increase in shares owned............................. 41,064 13,085 19,882 16,129 15,458 36,420
Shares owned, beginning of year.......................... 56,958 43,873 23,991 72,159 56,701 20,281
-------- -------- -------- -------- -------- --------
Shares owned, end of year................................ 98,022 56,958 43,873 88,288 72,159 56,701
======== ======== ======== ======== ======== ========
Cost of shares acquired.................................. $569,677 $225,160 $244,010 $433,277 $321,786 $523,485
======== ======== ======== ======== ======== ========
Cost of shares redeemed.................................. $110,947 $ 79,578 $ 33,431 $124,569 $ 61,098 $ 17,498
======== ======== ======== ======== ======== ========
</TABLE>
F-29
<PAGE> 90
- --------------------------------------------------------------------------------
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 GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................................ 25,361 11,411 7,983 32,621 46,827 81,109
Shares received from reinvestment of:
Dividends............................................. 278 208 181 1,297 1,249 878
Capital gain distributions............................ 2,655 41 1,822 12,810 9,779 3,560
-------- -------- -------- -------- -------- ----------
Total shares acquired................................... 28,294 11,660 9,986 46,728 57,855 85,547
Total shares redeemed................................... (9,553) (1,843) (3,280) (42,441) (23,007) (18,493)
-------- -------- -------- -------- -------- ----------
Net increase in shares owned............................ 18,741 9,817 6,706 4,287 34,848 67,054
Shares owned, beginning of year......................... 31,301 21,484 14,778 171,840 136,992 69,938
-------- -------- -------- -------- -------- ----------
Shares owned, end of year............................... 50,042 31,301 21,484 176,127 171,840 136,992
======== ======== ======== ======== ======== ==========
Cost of shares acquired................................. $582,394 $231,280 $167,866 $622,021 $782,785 $1,086,191
======== ======== ======== ======== ======== ==========
Cost of shares redeemed................................. $157,811 $ 29,360 $ 51,091 $526,063 $270,894 $ 217,726
======== ======== ======== ======== ======== ==========
</TABLE>
F-30
<PAGE> 91
- --------------------------------------------------------------------------------
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.
- -----------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE LARGE SMALL SMALL
CAP CAP CAP CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
1998 1998 1998 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 2,942 3,101 2,891 3,213
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................
------- ------- ------- -------
Total shares acquired....................................... 2,942 3,101 2,891 3,213
Total shares redeemed....................................... (3) (3) (2) (3)
------- ------- ------- -------
Net increase in shares owned................................ 2,939 3,098 2,889 3,210
Shares owned, beginning of year.............................
------- ------- ------- -------
Shares owned, end of year................................... 2,939 3,098 2,889 3,210
======= ======= ======= =======
Cost of shares acquired..................................... $30,501 $30,501 $29,500 $29,500
======= ======= ======= =======
Cost of shares redeemed..................................... $ 27 $ 29 $ 22 $ 24
======= ======= ======= =======
</TABLE>
F-31
<PAGE> 92
- --------------------------------------------------------------------------------
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 PORTFOLIO EQUITY-INCOME PORTFOLIO
- ----------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......... 109,166 66,009 77,760 130,125 123,211 200,553
Shares received from
reinvestment of:
Dividends............... 15,265 10,958 5,960 5,799 5,015 173
Capital gain
distributions......... 9,700 1,354 1,166 20,637 25,217 4,932
---------- -------- ---------- ---------- ---------- ----------
Total shares acquired.... 134,131 78,321 84,886 156,561 153,443 205,658
Total shares redeemed.... (42,283) (22,280) (18,971) (32,813) (27,745) (35,921)
---------- -------- ---------- ---------- ---------- ----------
Net increase in shares
owned................... 91,848 56,041 65,915 123,748 125,698 169,737
Shares owned, beginning
of year................. 194,272 138,231 72,316 394,011 268,313 98,576
---------- -------- ---------- ---------- ---------- ----------
Shares owned, end of
year.................... 286,120 194,272 138,231 517,759 394,011 268,313
========== ======== ========== ========== ========== ==========
Cost of shares
acquired................ $1,652,525 $982,034 $1,005,014 $3,796,380 $3,282,492 $3,962,136
========== ======== ========== ========== ========== ==========
Cost of shares
redeemed................ $ 494,082 $245,748 $ 203,835 $ 606,819 $ 487,914 $ 568,535
========== ======== ========== ========== ========== ==========
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- ------------------------- ------------------------------------
GROWTH PORTFOLIO
- ------------------------- ------------------------------------
1998 1997 1996
- ------------------------- ------------------------------------
<S> <C> <C> <C>
Shares purchased......... 43,794 38,162 91,860
Shares received from
reinvestment of:
Dividends............... 910 884 161
Capital gain
distributions......... 23,805 3,957 4,065
---------- ---------- ----------
Total shares acquired.... 68,509 43,003 96,086
Total shares redeemed.... (14,019) (13,124) (14,970)
---------- ---------- ----------
Net increase in shares
owned................... 54,490 29,879 81,116
Shares owned, beginning
of year................. 160,469 130,590 49,474
---------- ---------- ----------
Shares owned, end of
year.................... 214,959 160,469 130,590
========== ========== ==========
Cost of shares
acquired................ $2,516,413 $1,433,785 $2,841,783
========== ========== ==========
Cost of shares
redeemed................ $ 427,033 $ 392,711 $ 354,333
========== ========== ==========
</TABLE>
F-32
<PAGE> 93
- --------------------------------------------------------------------------------
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 PORTFOLIO INDEX 500 PORTFOLIO
- ----------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............. 25,098 35,383 31,189 43,613 29,044 20,895
Shares received from
reinvestment of:
Dividends................... 3,130 2,148 899 651 319 108
Capital gain
distributions............. 9,388 5,388 740 1,506 646 279
-------- -------- -------- ---------- ---------- ----------
Total shares acquired........ 37,616 42,919 32,828 45,770 30,009 21,282
Total shares redeemed........ (9,537) (3,970) (4,663) (11,064) (3,452) (2,843)
-------- -------- -------- ---------- ---------- ----------
Net increase in shares
owned....................... 28,079 38,949 28,165 34,706 26,557 18,439
Shares owned, beginning of
year........................ 89,285 50,336 22,171 53,392 26,835 8,396
-------- -------- -------- ---------- ---------- ----------
Shares owned, end of year.... 117,364 89,285 50,336 88,098 53,392 26,835
======== ======== ======== ========== ========== ==========
Cost of shares acquired...... $629,153 $714,524 $516,480 $5,707,647 $3,128,140 $1,707,951
======== ======== ======== ========== ========== ==========
Cost of shares redeemed...... $137,919 $ 55,323 $ 63,919 $ 857,666 $ 254,455 $ 191,769
======== ======== ======== ========== ========== ==========
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- ----------------------------- ----------------------------------
CONTRAFUND PORTFOLIO
- ----------------------------- ----------------------------------
1998 1997 1996
- ----------------------------- ----------------------------------
<S> <C> <C> <C>
Shares purchased............. 86,578 66,945 45,949
Shares received from
reinvestment of:
Dividends................... 774 446
Capital gain
distributions............. 5,697 1,177
---------- ---------- --------
Total shares acquired........ 93,049 68,568 45,949
Total shares redeemed........ (19,119) (7,939) (956)
---------- ---------- --------
Net increase in shares
owned....................... 73,930 60,629 44,993
Shares owned, beginning of
year........................ 105,622 44,993
---------- ---------- --------
Shares owned, end of year.... 179,552 105,622 44,993
========== ========== ========
Cost of shares acquired...... $1,941,714 $1,231,237 $693,349
========== ========== ========
Cost of shares redeemed...... $ 276,108 $ 114,819 $ 14,081
========== ========== ========
</TABLE>
F-33
<PAGE> 94
- --------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------
EQUITY PORTFOLIO SMALL CAP PORTFOLIO
- ----------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased..... 23,423 34,467 42,807 24,374 30,085 65,607
Shares received from
reinvestment of:
Dividends.......... 1,019 618 319 303 404 387
Capital gain
distributions.... 4,400 2,202 638 3,309 2,847 993
---------- ---------- ---------- -------- -------- ----------
Total shares
acquired........... 28,842 37,287 43,764 27,986 33,336 66,987
Total shares
redeemed........... (15,768) (6,858) (9,671) (14,614) (4,974) (25,554)
---------- ---------- ---------- -------- -------- ----------
Net increase in
shares owned....... 13,074 30,429 34,093 13,372 28,362 41,433
Shares owned,
beginning of
year............... 93,922 63,493 29,400 92,336 63,974 22,541
---------- ---------- ---------- -------- -------- ----------
Shares owned, end of
year............... 106,996 93,922 63,493 105,708 92,336 63,974
========== ========== ========== ======== ======== ==========
Cost of shares
acquired........... $1,085,567 $1,193,237 $1,187,893 $681,891 $806,239 $1,399,244
========== ========== ========== ======== ======== ==========
Cost of shares
redeemed........... $ 388,354 $ 157,748 $ 192,083 $297,512 $ 98,639 $ 462,998
========== ========== ========== ======== ======== ==========
<CAPTION>
OCC ACCUMULATION TRUST
- --------------------- ------------------------------------
MANAGED PORTFOLIO
- --------------------- ------------------------------------
1998 1997 1996
- --------------------- ------------------------------------
<S> <C> <C> <C>
Shares purchased..... 31,523 62,513 80,900
Shares received from
reinvestment of:
Dividends.......... 1,241 1,265 473
Capital gain
distributions.... 4,964 3,886 302
---------- ---------- ----------
Total shares
acquired........... 37,728 67,664 81,675
Total shares
redeemed........... (14,457) (8,399) (9,538)
---------- ---------- ----------
Net increase in
shares owned....... 23,271 59,265 72,137
Shares owned,
beginning of
year............... 160,240 100,975 28,838
---------- ---------- ----------
Shares owned, end of
year............... 183,511 160,240 100,975
========== ========== ==========
Cost of shares
acquired........... $1,652,686 $2,630,801 $2,652,701
========== ========== ==========
Cost of shares
redeemed........... $ 428,284 $ 229,304 $ 224,761
========== ========== ==========
</TABLE>
F-34
<PAGE> 95
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares purchased.......... 100,463 43,001 58,485 197,684 119,224 57,128 61,504 44,838 16,200
Shares received from
reinvestment of:
Dividends............... 7,610 4,111 3,517 5,978 2,596 397 1,124 339
Capital gain
distributions......... 374 207 13,652 3,056 7,392 177
-------- -------- -------- ---------- ---------- -------- -------- -------- --------
Total shares acquired..... 108,447 47,319 62,002 217,314 124,876 57,525 70,020 45,354 16,200
Total shares redeemed..... (57,783) (16,152) (12,792) (38,671) (9,613) (1,021) (38,827) (3,111) (73)
-------- -------- -------- ---------- ---------- -------- -------- -------- --------
Net increase in shares
owned................... 50,664 31,167 49,210 178,643 115,263 56,504 31,193 42,243 16,127
Shares owned, beginning of
year.................... 97,860 66,693 17,483 171,767 56,504 58,370 16,127
-------- -------- -------- ---------- ---------- -------- -------- -------- --------
Shares owned, end of
year.................... 148,524 97,860 66,693 350,410 171,767 56,504 89,563 58,370 16,127
======== ======== ======== ========== ========== ======== ======== ======== ========
Cost of shares acquired... $741,377 $317,678 $414,413 $2,474,783 $1,299,585 $493,834 $979,973 $641,233 $201,830
======== ======== ======== ========== ========== ======== ======== ======== ========
Cost of shares redeemed... $381,942 $113,948 $ 85,176 $ 329,970 $ 79,839 $ 8,537 $517,743 $ 38,453 $ 913
======== ======== ======== ========== ========== ======== ======== ======== ========
</TABLE>
F-35
<PAGE> 96
- --------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------
ZERO COUPON 2000 PORTFOLIO GROWTH AND INCOME PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................................ 51,358 17,242 23,636 40,811 46,348 34,826
Shares received from reinvestment of:
Dividends............................................. 3,167 1,598 1,234 883 770 237
Capital gain distributions............................ 337 88 1,365 5,183 3,285
-------- -------- -------- -------- ---------- --------
Total shares acquired................................... 54,525 19,177 24,958 43,059 52,301 38,348
Total shares redeemed................................... (23,237) (10,183) (8,689) (20,917) (11,039) (1,445)
-------- -------- -------- -------- ---------- --------
Net increase in shares owned............................ 31,288 8,994 16,269 22,142 41,262 36,903
Shares owned, beginning of year......................... 36,257 27,263 10,994 78,165 36,903
-------- -------- -------- -------- ---------- --------
Shares owned, end of year............................... 67,545 36,257 27,263 100,307 78,165 36,903
======== ======== ======== ======== ========== ========
Cost of shares acquired................................. $676,052 $235,127 $309,524 $931,244 $1,077,698 $793,353
======== ======== ======== ======== ========== ========
Cost of shares redeemed................................. $284,571 $129,221 $106,079 $444,407 $ 222,255 $ 29,718
======== ======== ======== ======== ========== ========
</TABLE>
F-36
<PAGE> 97
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
- --------------------------------------------------------------------------------------------
SOCIALLY RESPONSIBLE PORTFOLIO
- --------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 31,900 14,428 6,129
Shares received from reinvestment of:
Dividends................................................. 80 71 14
Capital gain distributions................................ 1,859 552 237
-------- -------- --------
Total shares acquired....................................... 33,839 15,051 6,380
Total shares redeemed....................................... (2,213) (1,325) (24)
-------- -------- --------
Net increase in shares owned................................ 31,626 13,726 6,356
Shares owned, beginning of year............................. 20,082 6,356
-------- -------- --------
Shares owned, end of year................................... 51,708 20,082 6,356
======== ======== ========
Cost of shares acquired..................................... $954,849 $354,771 $126,413
======== ======== ========
Cost of shares redeemed..................................... $ 42,970 $ 24,774 $ 450
======== ======== ========
</TABLE>
F-37
<PAGE> 98
- --------------------------------------------------------------------------------
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
SECURITIES II PORTFOLIO UTILITY FUND II PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................................... 66,759 12,659 7,227 14,494 12,273 8,476
Shares received from reinvestment of:
Dividends................................................ 528 334 156 195 298 148
Capital gain distributions............................... 23 1,189 291
-------- -------- ------- -------- -------- -------
Total shares acquired...................................... 67,310 12,993 7,383 15,878 12,862 8,624
Total shares redeemed...................................... (25,566) (133) (8) (5,232) (2,180) (35)
-------- -------- ------- -------- -------- -------
Net increase in shares owned............................... 41,744 12,860 7,375 10,646 10,682 8,589
Shares owned, beginning of year............................ 20,235 7,375 19,271 8,589
-------- -------- ------- -------- -------- -------
Shares owned, end of year.................................. 61,979 20,235 7,375 29,917 19,271 8,589
======== ======== ======= ======== ======== =======
Cost of shares acquired.................................... $736,176 $133,638 $74,062 $227,305 $160,307 $95,064
======== ======== ======= ======== ======== =======
Cost of shares redeemed.................................... $263,064 $ 1,319 $ 83 $ 57,624 $ 23,820 $ 381
======== ======== ======= ======== ======== =======
</TABLE>
F-38
<PAGE> 99
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK WORLDWIDE INSURANCE TRUST
- ----------------------------------------------------------------------------------------------------------------------
VAN ECK VAN ECK VAN ECK VAN ECK
WORLDWIDE WORLDWIDE WORLDWIDE WORLDWIDE
BOND HARD ASSETS EMERGING MARKETS REAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1998 1998 1998 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 2,368 1,916 7,170 2,252
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................
------- ------- ------- -------
Total shares acquired....................................... 2,368 1,916 7,170 2,252
Total shares redeemed.......................................
------- ------- ------- -------
Net increase in shares owned................................ 2,368 1,916 7,170 2,252
Shares owned, beginning of year.............................
------- ------- ------- -------
Shares owned, end of year................................... 2,368 1,916 7,170 2,252
======= ======= ======= =======
Cost of shares acquired..................................... $26,717 $25,472 $60,000 $25,000
======= ======= ======= =======
Cost of shares redeemed..................................... $ 1 $ 2
======= ======= ======= =======
</TABLE>
F-39
<PAGE> 100
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
Provident Mutual makes certain deductions from premiums before amounts are
allocated to each separate account selected by the contractholder. 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 statements of changes in net assets. See original contract 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, 1998 and 1997.
The Contracts provide for an initial free-look period. If a contract is
cancelled within certain time constraints, the contractholder will receive a
refund equal to the contract account value plus certain deductions made under
the contract. Where state law requires a minimum refund equal to gross premiums
paid, the refund will instead equal the gross premiums paid on the contract and
will not reflect investment experience.
The Separate Account is charged a daily mortality and expense risk charge
at an annual rate of 1.20% for the Market Street VIP contracts and 1.25% for the
Market Street VIP/2 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-40
<PAGE> 101
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
AND SUBSIDIARIES
REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996
<PAGE> 102
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of
Provident Mutual Life Insurance Company:
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations, equity, and
cash flows present fairly, in all material respects, the financial position of
Provident Mutual Life Insurance Company and Subsidiaries, at December 31, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 5, 1999
F-42
<PAGE> 103
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost:
1998 -- $2,924,713; 1997 -- $2,647,954)............... $3,030,942 $2,758,069
Held to maturity, at amortized cost (market:
1998 -- $405,108; 1997 -- $455,776)................... 379,184 436,181
Equity securities, at market (cost: 1998 -- $30,317;
1997 -- $22,706)....................................... 29,420 23,818
Mortgage loans............................................ 641,568 663,285
Real estate............................................... 39,468 52,543
Policy loans and premium notes............................ 362,381 358,670
Other invested assets..................................... 9,428 14,546
Short-term investments.................................... 96,141 18,519
---------- ----------
Total investments................................. 4,588,532 4,325,631
Cash........................................................ 14,424.... 17,985
Premiums due................................................ 11,754 12,960
Investment income due and accrued........................... 75,729 73,997
Deferred policy acquisition costs........................... 705,183 629,635
Reinsurance recoverable..................................... 152,831 499,488
Separate account assets..................................... 3,115,352 2,284,118
Other assets................................................ 73,716 77,059
---------- ----------
Total Assets...................................... $8,737,521 $7,920,873
========== ==========
LIABILITIES
Policy liabilities:
Future policyholder benefits.............................. $4,243,117 $4,344,591
Policyholder funds........................................ 146,948 146,871
Policyholder dividends payable............................ 33,428 33,258
Other policy obligations.................................. 18,321 16,638
---------- ----------
Total policy liabilities.......................... 4,441,814 4,541,358
Expenses payable............................................ 29,670 23,775
Taxes payable............................................... 6,308 5,856
Federal income taxes payable:
Current................................................... 30,721 39,114
Deferred.................................................. 57,790 64,216
Separate account liabilities................................ 3,088,933 2,279,124
Other liabilities........................................... 147,162 123,148
---------- ----------
Total liabilities................................. 7,802,398 7,076,591
---------- ----------
COMMITMENTS AND CONTINGENCIES NOTE 9
EQUITY
Retained earnings........................................... 901,158 813,618
Accumulated other comprehensive income:
Net unrealized appreciation on securities................. 33,965 30,664
---------- ----------
Total equity...................................... 935,123 844,282
---------- ----------
Total Liabilities and Equity...................... $8,737,521 $7,920,873
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE> 104
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums................................................... $206,376 $220,952 $235,615
Policy and contract charges................................ 126,282 106,449 73,873
Net investment income...................................... 352,690 331,524 333,938
Other income............................................... 55,596 47,520 43,839
Net realized gains on investments.......................... 6,780 2,360 7,873
-------- -------- --------
Total revenues................................... 747,724 708,805 695,138
-------- -------- --------
BENEFITS AND EXPENSES
Policy and contract benefits............................... 226,802 234,117 241,042
Change in future policyholder benefits..................... 138,001 122,463 130,147
Operating expenses......................................... 82,290 82,310 94,786
Amortization of deferred policy acquisition costs.......... 72,926 73,582 56,092
Policyholder dividends..................................... 65,648 65,736 65,184
Noninsurance commissions and expenses...................... 35,649 24,962 20,520
-------- -------- --------
Total benefits and expenses...................... 621,316 603,170 607,771
-------- -------- --------
Income before income taxes....................... 126,408 105,635 87,367
-------- -------- --------
Income tax expense (benefit):
Current.................................................. 46,953 35,971 (6,613)
Deferred................................................. (8,085) 2,613 12,441
-------- -------- --------
Total income tax expense......................... 38,868 38,584 5,828
-------- -------- --------
Net Income....................................... $ 87,540 $ 67,051 $ 81,539
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE> 105
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
RETAINED APPRECIATION TOTAL
EARNINGS ON SECURITIES EQUITY
-------- ------------- --------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1996................................ $665,028 $30,301 $695,329
--------
Comprehensive income
Net income.............................................. 81,539 -- 81,539
Other comprehensive income, net of tax:
Change in unrealized appreciation.................... -- (19,591) (19,591)
--------
Total comprehensive income................................ 61,948
-------- ------- --------
BALANCE AT DECEMBER 31, 1996.............................. 746,567 10,710 757,277
--------
Comprehensive income
Net income.............................................. 67,051 -- 67,051
Other comprehensive income, net of tax:
Change in unrealized appreciation.................... -- 19,954 19,954
--------
Total comprehensive income................................ 87,005
-------- ------- --------
BALANCE AT DECEMBER 31, 1997.............................. 813,618 30,664 844,282
--------
Comprehensive income
Net income.............................................. 87,540 -- 87,540
Other comprehensive income, net of tax:
Change in unrealized appreciation.................... -- 3,301 3,301
--------
Total comprehensive income................................ 90,841
-------- ------- --------
BALANCE AT DECEMBER 31, 1998.............................. $901,158 $33,965 $935,123
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-45
<PAGE> 106
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 87,540 $ 67,051 $ 81,539
Adjustments to reconcile net income to net cash provided by
operating activities:
Interest credited to variable universal life and
investment products..................................... 124,693 108,773 117,038
Amortization of deferred policy acquisition costs......... 72,926 73,582 56,092
Capitalization of deferred policy acquisition costs....... (140,052) (127,593) (119,031)
Deferred Federal income taxes............................. (8,085) 2,613 12,441
Depreciation, amortization and accretion.................. (701) 4,309 5,292
Net realized gains on investments......................... (6,780) (2,360) (7,873)
Change in investment income due and accrued............... (1,732) 215 991
Change in premiums due.................................... 1,206 146 2,757
Change in reinsurance recoverable......................... 346,657 30,838 14,173
Change in policy liabilities and other policyholder
funds................................................... (342,412) (44,638) (18,335)
Change in other liabilities............................... 24,014 5,093 8,899
Change in current Federal income taxes payable............ (8,393) 3,786 (43,161)
Other, net................................................ 4,262 (7,770) (13,785)
----------- --------- ---------
Net cash provided by operating activities............... 153,143 114,045 97,037
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities............................. 290,037 370,224 285,514
Held to maturity securities............................... 4,806 -- --
Equity securities......................................... 27,543 8,288 8,147
Real estate............................................... 27,740 17,347 21,902
Other invested assets..................................... 25,080 7,424 6,078
Proceeds from maturities of investments:
Available for sale securities............................. 348,101 207,455 165,980
Held to maturity securities............................... 76,483 96,045 109,582
Mortgage loans............................................ 121,076 99,673 124,190
Purchases of investments:
Available for sale securities............................. (922,201) (705,348) (533,650)
Held to maturity securities............................... (23,624) (21,721) (76,730)
Equity securities......................................... (32,339) (7,052) (2,966)
Mortgage loans............................................ (107,728) (54,659) (94,254)
Real estate............................................... (856) (1,823) (11,449)
Other invested assets..................................... (11,342) (1,807) (127)
Contributions of separate account seed money................ (20,826) -- (601)
Withdrawals of separate account seed money.................. 1,954 29 6,586
Policy loans and premium notes, net......................... (3,711) (148) 7,580
Net (purchases) sales of short-term investments............. (77,622) 41,888 35,983
----------- --------- ---------
Net cash (used in) provided by investing activities..... (277,429) 55,815 51,765
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits..... 1,228,552 836,694 668,437
Variable universal life and investment product
withdrawals............................................... (1,107,827) (994,120) (814,559)
----------- --------- ---------
Net cash provided by (used in) financing activities..... 120,725 (157,426) (146,122)
----------- --------- ---------
Net change in cash...................................... (3,561) 12,434 2,680
Cash, beginning of year..................................... 17,985 5,551 2,871
----------- --------- ---------
Cash, end of year........................................... $ 14,424 $ 17,985 $ 5,551
=========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes................ $ 54,863 $ 31,805 $ 36,329
=========== ========= =========
Foreclosure of mortgage loans............................. $ 8,848 $ 1,744 $ 7,665
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-46
<PAGE> 107
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.
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."
On October 13, 1998, the Board of Directors of Provident Mutual unanimously
approved and adopted a Plan of Conversion (Plan) to reorganize Provident Mutual
Life Insurance Company, utilizing a mutual holding company structure. The Plan
amended and replaced the proposed plan of conversion adopted January 5, 1998.
The Plan would result in Provident Mutual converting to a stock life insurance
company and being renamed Provfirst America Life Insurance Company (Provfirst
America). Provfirst America will have a newly created parent company, Provfirst
America Corporation, a stock holding company. Additionally, Provfirst America
Corporation will have a newly created parent company, Provident Mutual Holding
Company, a mutual holding company. PLACA will be renamed Provfirst America Life
and Annuity Company. PMILIC will be renamed Provfirst America International Life
Insurance Company. PHC will be renamed Provfirst America Holding Company.
The Insurance Department of the Commonwealth of Pennsylvania reviewed the
Plan and rendered its Decision and Order approving the Plan, subject to certain
conditions, on November 6, 1998.
The Plan requires the approval of at least two-thirds of the votes cast by
voting policyholders. A Special Meeting of policyholders to consider and vote
upon the Plan has been scheduled for February 9, 1999.
The Company sells individual variable and traditional life insurance
products and a variety of individual and group annuity 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 12 states accounted for 79% of the Company's sales for the
year ended December 31, 1998. 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
regulated by statutes and regulations in each of these states.
PLACA specializes primarily in the development and sale of various annuity
products and sells certain variable and traditional 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. The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting principles (GAAP).
Certain prior year amounts have been reclassified to conform with the current
year presentation.
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 Pennsylvania and the State
of Delaware (SAP). Practices under SAP vary from GAAP primarily with respect to
the initial deferral of acquisition costs, the accounting for deferred taxes,
the accrual of postretirement
F-47
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
benefits, the elimination of the statutory asset valuation reserve and the
establishment of investment valuation allowances.
Statutory net income was $74.8 million, $62.7 million and $39.9 million for
the years ended December 31, 1998, 1997 and 1996, respectively. Statutory
surplus was $382.4 million and $374.4 million as of December 31, 1998 and 1997,
respectively. During 1998, the Company adopted the accounting requirements of
the National Association of Insurance Commissioners' codification of statutory
accounting principles. The effect of this reduced surplus by $46.8 million.
The preparation of the accompanying consolidated financial statements
required management to make estimates and assumptions that affect the reported
values of assets and liabilities and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.
The Company is subject to interest rate risk to the extent its investment
portfolio cash flows are not matched to its insurance liabilities. Management
believes it manages this risk through modeling of the cash flows under
reasonable scenarios.
INVESTED ASSETS
Fixed maturity securities (bonds) which may be sold are designated as
"available for sale" and are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in equity,
net of related Federal income taxes and amortization of deferred acquisition
costs. Fixed maturity securities that the Company has the intent and ability to
hold to maturity are designated as "held to maturity" and are reported at
amortized cost.
Equity securities (common and preferred stocks) are reported at market
value. Unrealized appreciation/depreciation on these securities is recorded
directly in equity, net of related Federal income taxes and amortization of
deferred acquisition costs.
Fixed maturity and equity securities that have experienced an other than
temporary decline in value are written down to fair value by a charge to
realized losses. This fair value becomes the new cost basis of the particular
security.
Mortgage loans are carried at unpaid principal balances, less impairment
reserves. For mortgage loans considered impaired, a specific reserve is
established. A general reserve is also established for probable losses arising
from the portfolio but not attributable to specific loans. Mortgage loans are
considered impaired when it is probable that the Company will be unable to
collect amounts due according to the contractual terms of the loan agreement.
Upon impairment, a reserve is established for the difference between the unpaid
principal of the mortgage loan and its fair value. Fair value is based on either
the present value of expected future cash flows discounted at the mortgage
loan's effective interest rate or the fair value of the underlying collateral.
Changes in the reserve are charged to realized capital losses. Reserves totaled
$10.7 million and $13.1 million at December 31, 1998 and 1997, respectively.
Policy loans are reported at unpaid principal balances.
Real estate occupied by the Company is carried at cost less accumulated
depreciation. Foreclosed real estate is carried at the lower of cost or fair
market value, 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 fair market value. The Company receives preferred returns and interest
on loans/capital advances made to the real estate joint ventures.
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
F-48
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from a specific underlying index or commodity) for the purpose of reducing
exposure to interest rate fluctuations, but not for income generation or
speculative purposes. Derivatives utilized by the Company are long and short
positions on United States Treasury notes and bond futures and certain interest
rate swaps.
The net interest effect of futures transactions is settled on a daily
basis. Cash paid or received is recorded daily, along with a receivable/payable,
to settle the futures contract prior to the contract termination. The
receivable/payable is carried until the contract is terminated and the remaining
balance is included in either net investment income or realized gain or loss.
Upon termination of a futures contract that is identified to a specific
security, any gain or loss is deferred and amortized to net investment income
over the expected remaining life of the hedged security. If the futures contract
is not identified to a specific security, any gain or loss on termination is
reported as a realized gain or loss.
Interest rate swaps are settled on the contract date. Cash paid or received
is reported as an adjustment to net investment income.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement requires that all
derivatives be recorded at fair value in the statement of financial condition as
either assets or liabilities. The accounting for changes in the fair value of a
derivative depends on its intended use and its resulting designation. This
Statement is effective for fiscal years beginning after June 15, 1999. The
Company is currently reviewing this Statement and has not yet determined its
impact on the consolidated financial statements.
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position No. 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." The adoption of this statement,
which is effective for fiscal years beginning after December 15, 1998, is not
expected to have a material effect on the Company's consolidated financial
statements.
BENEFIT RESERVES AND POLICYHOLDER CONTRACT DEPOSITS
Traditional Life Insurance Products
Traditional life insurance products include those contracts with fixed and
guaranteed premiums and benefits, and consist principally of whole life and term
insurance policies, limited-payment life insurance policies and certain
annuities with life contingencies. Most traditional life insurance policies are
participating. In addition to guaranteeing benefits, they pay dividends, as
declared annually by the Company based on experience.
Reserves on traditional life insurance products are calculated by using the
net level premium method. For participating traditional life insurance policies,
reserve assumptions are based on mortality rates consistent with those
underlying the cash values and investment rates consistent with the Company's
dividend practices. For most policies, reserves are based on the 1958 or 1980
Commissioners' Standard Ordinary (CSO) mortality tables 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.
F-49
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Premiums received and the accumulated value
portion of benefits paid are excluded from the amounts reported in the
consolidated statements of operations. Expenses include interest credited to
policy account balances and benefit payments made in excess of policy account
balances. Many of these policies are variable life or variable annuity policies,
in which investment performance credited to the account balance is based on the
investment performance of separate accounts chosen by the policyholder. For
other account balances, credited interest rates ranged from 3.47% to 9.07% in
1998.
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 8.25% for 1998, 8.0% for 1997 and 8.15% for 1996.
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 1998, 1997 and 1996 were $140.1 million, $127.6
million, and $119.0 million, respectively. Amortization of deferred policy
acquisition costs was $72.9 million, $73.6 million and $56.1 million during
1998, 1997 and 1996, respectively.
CAPITAL GAINS AND LOSSES
Realized capital gains and losses on sales of investments are based upon
specific identification of the investments sold. A realized capital loss is
recorded at the time a decline in the value of an investment is determined to be
other than temporary.
POLICYHOLDER DIVIDENDS
Annually, the Board of Directors declares the amount of dividends to be
paid in the following calendar year. Dividends are earned by the policyholders
ratably over the policy year. Dividends are included in the accompanying
consolidated financial statements as a liability and as a charge to operations.
REINSURANCE
Premiums, benefits and expenses are recorded net of experience refunds,
reserve adjustments and amounts assumed from or ceded to reinsurers, including
commission and expense allowances.
SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the benefit of variable life
insurance policyholders, variable annuity contractholders and several of the
Company's retirement plans.
The contractholders/policyholders bear the investment risk on separate
account assets except in instances where the Company guarantees a fixed return
and on the Company's seed money. The separate account assets are carried at fair
value.
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
F-50
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 consolidated financial statements and those in the Company's income
tax returns.
COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for the reporting and presentation
of comprehensive income and its components.
Comprehensive income encompasses all changes in equity, excluding
transactions with owners, and includes net income and the change in unrealized
appreciation/depreciation on securities. This new standard requires additional
disclosures in the consolidated financial statements and does not affect results
of operations or financial condition.
The components of other comprehensive income are as follows (in millions):
<TABLE>
<CAPTION>
TAX
BEFORE TAX (EXPENSE) NET OF TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Unrealized appreciation (depreciation) on
securities.................................... $ 11.9 $ (4.2) $ 7.7
Less: reclassification adjustment for gains
realized in net income........................ (6.8) 2.4 (4.4)
------ ------ ------
Net change in unrealized appreciation on
securities.................................... $ 5.1 $ (1.8) $ 3.3
====== ====== ======
YEAR ENDED DECEMBER 31, 1997:
Unrealized appreciation (depreciation) on
securities.................................... $ 33.1 $(11.6) $ 21.5
Less: reclassification adjustment for gains
realized in net income........................ (2.4) .9 (1.5)
------ ------ ------
Net change in unrealized appreciation on
securities.................................... $ 30.7 $(10.7) $ 20.0
====== ====== ======
YEAR ENDED DECEMBER 31, 1996:
Unrealized appreciation (depreciation) on
securities.................................... $(24.7) $ 10.2 $(14.5)
Less: reclassification adjustment for gains
realized in net income........................ (7.9) 2.8 (5.1)
------ ------ ------
Net change in unrealized appreciation on
securities.................................... $(32.6) $ 13.0 $(19.6)
====== ====== ======
</TABLE>
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, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale...................... $3,030.9 $3,030.9 $2,758.1 $2,758.1
Held to maturity........................ $ 405.1 $ 379.2 $ 455.8 $ 436.2
Equity securities......................... $ 29.4 $ 29.4 $ 23.8 $ 23.8
Mortgage loans............................ $ 697.2 $ 641.6 $ 726.6 $ 663.3
</TABLE>
F-51
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
LIABILITIES FOR INVESTMENT-TYPE INSURANCE
CONTRACTS
Guaranteed interest contracts............. $ 178.6 $ 172.3 $ 240.7 $ 234.3
Group annuities........................... $1,596.4 $1,595.9 $1,345.8 $1,353.2
Supplementary contracts without life
contingencies........................... $ 30.4 $ 29.8 $ 30.8 $ 30.6
Individual annuities...................... $1,907.1 $1,961.8 $1,740.3 $1,799.6
</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 SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." However, the estimated
fair value and future cash flows of liabilities under all insurance contracts
are taken into consideration in the Company's overall management of interest
rate risk, which minimizes exposure to changing interest rates through the
matching of investment maturities with amounts due under insurance contracts.
The estimated fair value of all assets without a corresponding revaluation of
all liabilities associated with insurance contracts can be misinterpreted.
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments:
INVESTMENT SECURITIES
Bonds, common stocks and preferred stocks are valued based upon quoted
market prices, where available. If quoted market prices are not available, as in
the case of private placements, fair values are based on quoted market prices of
comparable instruments (see Note 3).
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 GIC 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 the guaranteed interest contract
liabilities were $172.5 million and $175.9 million, respectively, at December
31, 1998 and $237.1 million and $240.9 million, respectively, at December 31,
1997.
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
F-52
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subject to market value adjustments at termination, book value represents fair
value.
INDIVIDUAL ANNUITIES AND SUPPLEMENTARY CONTRACTS
The fair value of individual annuities and supplementary contracts without
life contingencies is based primarily on surrender values. For those individual
annuities and supplementary contracts that are not surrenderable, discounted
future cash flows are used for calculating fair value.
POLICYHOLDER DIVIDENDS AND COUPON ACCUMULATIONS
The policyholders' dividend and coupon accumulation liabilities will
ultimately be settled in cash, applied toward the payment of premiums, or left
on deposit with the Company at interest. Management deems it impractical to
calculate the fair value of these liabilities due to valuation difficulties
involving the uncertainties of final settlement.
3. MARKETABLE SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair
value of investments in fixed maturity securities and equity securities as of
December 31, 1998 and 1997 are as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies........... $ 41.7 $ 1.7 $ -- $ 43.4
Obligations of states and political
subdivisions................................... 57.8 2.9 -- 60.7
Debt securities issued by foreign governments.... 1.0 .1 -- 1.1
Corporate securities............................. 2,537.1 124.4 33.3 2,628.2
Mortgage-backed securities....................... 287.1 11.0 .6 297.5
-------- ------ ----- --------
Subtotal -- fixed maturities..................... 2,924.7 140.1 33.9 3,030.9
Equity securities................................ 30.3 1.8 2.7 29.4
-------- ------ ----- --------
Total....................................... $2,955.0 $141.9 $36.6 $3,060.3
======== ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- ---------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies........... $ 16.7 $ 1.5 $ -- $ 18.2
Obligations of states and political
subdivisions................................... 7.9 .7 .1 8.5
Debt securities issued by foreign governments.... 6.2 1.0 -- 7.2
Corporate securities............................. 339.6 22.4 .2 361.8
Mortgage-backed securities....................... 8.8 .6 -- 9.4
------ ----- ----- ------
Total....................................... $379.2 $26.2 $ .3 $405.1
====== ===== ===== ======
</TABLE>
F-53
<PAGE> 114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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>
<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>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1998, 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... $ 145.1 $ 146.6
Due after one year through
five years.............. 768.8 791.8
Due after five years
through ten years....... 734.1 766.9
Due after ten years....... 1,276.7 1,325.6
-------- --------
Total................ $2,924.7 $3,030.9
======== ========
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE
- ---------------- --------- ----------
<S> <C> <C>
Due in one year or less... $ 10.2 $ 10.2
Due after one year through
five years.............. 109.1 113.6
Due after five years
through ten years....... 156.3 168.7
Due after ten years....... 103.6 112.6
------ ------
Total................ $379.2 $405.1
====== ======
</TABLE>
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are included based on their
contractual maturity.
Realized gains (losses) on investments for the years ended December 31,
1998, 1997 and 1996 are summarized as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Fixed maturities......... $(9.2) $ 7.9 $ 6.0
Equity securities........ 2.8 (3.8) .3
Mortgage loans........... .7 1.1 (1.4)
Real estate.............. 6.6 (2.2) 2.8
Policy loans and premium
notes.................. -- -- .9
Other invested assets.... 8.9 (.6) (.7)
Other assets............. (3.0) -- --
----- ----- -----
Total............... $ 6.8 $ 2.4 $ 7.9
===== ===== =====
</TABLE>
During 1998, the Company sold held to maturity securities with an amortized
cost of $5.6 million, resulting in a realized loss of $.8 million.
F-54
<PAGE> 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The securities were sold in response to significant deterioration in the
creditworthiness of the issuers.
Net unrealized appreciation on available for sale securities as of December
31, 1998 and 1997 is summarized as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Net unrealized appreciation
before adjustments for the
following:.................. $105.3 $111.2
Amortization of deferred
policy acquisition
costs.................... (53.0) (64.0)
Deferred Federal income
taxes.................... (18.3) (16.5)
------ ------
Net unrealized appreciation... $ 34.0 $ 30.7
====== ======
</TABLE>
Net investment income, by type of investment, is as follows for the years
ending December 31, 1998, 1997 and 1996 (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Gross investment
income:
Fixed maturities:
Available for
sale............. $225.2 $201.2 $193.5
Held to maturity.... 34.4 39.6 45.1
Equity securities..... .5 .8 1.2
Mortgage loans........ 59.1 62.9 69.0
Real estate........... 6.6 10.7 11.4
Policy loans and
premium notes....... 24.2 23.4 23.4
Other invested
assets.............. 15.3 8.0 5.5
Short-term
investments......... 3.3 2.5 3.8
Other, net............ -- (.2) .5
------ ------ ------
368.6 348.9 353.4
Less investment
expenses............ (15.9) (17.4) (19.5)
------ ------ ------
Net investment
income.............. $352.7 $331.5 $333.9
====== ====== ======
</TABLE>
On May 13, 1998, the Company purchased two structured notes at par value
totaling $55 million for settlement on June 2, 1998. The notes were acquired
from separate unaffiliated issuers and were categorized as available for sale.
The notes carried opposite interest rate characteristics and were reset on June
29, 1998 as a result of the 10-year USD swap rate being less than the trigger
rate of 6.14%. The notes were accounted for as separate notes in accordance with
the provisions of FASB Emerging Issues Task Force (EITF) Issue No. 96-12,
"Recognition of Interest Income and Balance Sheet Classification of Structured
Notes".
The note with a par value of $32 million and a stated coupon rate of 5.777%
was reset to a coupon rate of 11.554%. Interest earned on this note during 1998
was $.1 million for 27 days at 5.777% and $1.9 million for 185 days at 11.554%.
A note with a par value of $23 million and a stated coupon rate of 5.878%
was reset to a coupon rate of 0% and was sold on June 29, 1998 at a loss of
$10.6 million. Interest earned on this note during 1998 was $.1 million for 27
days at 5.878%.
The unrealized gain on the remaining note is $10.1 million at December 31,
1998.
In November 1998, the EITF released Issue No. 98-15, "Structured Notes
Acquired for a Specified Investment Strategy", which requires that structured
notes transactions entered into after September 24, 1998 be accounted for as a
unit. If the Company had accounted for the notes as a unit, the realized loss of
$10.6 million would have been reversed and applied as an adjustment to the cost
of the remaining note. Interest earned for 1998 on both notes would have totaled
$1.5 million. Interest earned over the lives of the notes would be $8.7 million
less had the notes been accounted for as a unit.
4. MORTGAGE LOANS
The carrying value of impaired loans was $33.9 million and $47.9 million,
which are net of reserves of $4.3 million and $6.4 million as of December 31,
1998 and 1997, respectively.
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1998 and 1997 is as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
BALANCE AT JANUARY 1......... $13.1 $14.4
Recoveries................... (.6) (1.3)
Releases due to
foreclosure................ (1.8) --
----- -----
BALANCE AT DECEMBER 31....... $10.7 $13.1
===== =====
</TABLE>
The average recorded investment in impaired loans was $46.3 million and
$59.9 million during 1998 and 1997, respectively. Interest income recognized on
impaired loans during 1998, 1997 and 1996 was $3.9 million, $4.9 million and
$6.9
F-55
<PAGE> 116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million, respectively. All interest income on impaired loans was recognized on
the cash basis.
5. REAL ESTATE
Real estate holdings are as follows at December 31, 1998 and 1997 (in
millions):
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Occupied by the Company...... $31.1 $32.0
Foreclosed................... 8.2 18.8
Investment................... .2 1.7
----- -----
Total................... $39.5 $52.5
===== =====
</TABLE>
Depreciation expense was $1.8 million, $3.0 million and $3.2 million for
the years ended December 31, 1998, 1997 and 1996, respectively. Accumulated
depreciation for real estate totaled $6.9 million and $12.6 million at December
31, 1998 and 1997, respectively. Permanent impairment writedowns were $.5
million, $6.1 million and $1.3 million for the years ended December 31, 1998,
1997 and 1996, respectively.
6. BENEFIT PLANS
The Company maintains a qualified defined benefit pension plan and several
nonqualified defined benefit, supplemental executive retirement, excess benefit
and deferred compensation plans. In addition, the Company maintains other
postretirement benefit plans which include medical benefits for retirees and
their spouses (and Medicare Part B reimbursement for certain retirees) and
retiree life insurance.
The following tables present a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ended December 31,
1998 and 1997, as well as, the funded status as of December 31, 1998 and 1997
(in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- ----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Net benefit obligation at beginning of year..... $116.6 $111.4 $ 29.8 $ 34.2
Service cost.................................... 4.5 4.3 .5 .5
Interest cost................................... 7.8 8.3 1.9 2.0
Plan participants' contributions................ -- -- .1 .2
Plan amendments................................. .4 -- -- --
Actuarial (gain) loss........................... (3.2) 6.6 (1.9) (4.7)
Gross benefits paid............................. (9.4) (14.0) (2.1) (2.4)
------ ------ ------ ------
Net benefit obligation at end of year........... 116.7 116.6 28.3 29.8
------ ------ ------ ------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year.......................................... 165.8 148.7 -- --
Actual return on plan assets.................... 26.8 31.7 -- --
Employer contributions.......................... -- -- 1.7 1.6
401(h) transfer................................. (1.7) (1.6) -- --
Gross benefits paid............................. (8.5) (13.0) (1.7) (1.6)
------ ------ ------ ------
Fair value of plan assets at end of year........ 182.4 165.8 -- --
------ ------ ------ ------
Funded status................................... 65.7 49.2 (28.3) (29.8)
Unrecognized actuarial gain..................... (41.2) (26.7) (17.0) (16.0)
Unrecognized prior service cost................. 3.9 3.7 6.5 7.0
Unrecognized net transition obligation.......... (15.7) (17.5) -- --
------ ------ ------ ------
Net amount recognized........................... $ 12.7 $ 8.7 $(38.8) $(38.8)
====== ====== ====== ======
</TABLE>
F-56
<PAGE> 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the amounts recognized in the consolidated
statements of financial condition as of December 31, 1998 and 1997 (in
millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------- ----------------
1998 1997 1998 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
Prepaid benefit cost............................. $ 24.0 $17.9 $ -- $ --
Accrued benefit liability........................ (11.3) (9.2) (38.8) (38.8)
Additional minimum liability..................... (1.8) (3.9) -- --
Intangible asset................................. 1.8 3.9 -- --
------ ----- ------ ------
Net amount recognized............................ $ 12.7 $ 8.7 $(38.8) $(38.8)
====== ===== ====== ======
</TABLE>
The components of net periodic benefit (income) cost for the years ended
December 31, 1998, 1997 and 1996 are as follows (in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------------- --------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost....................... $ 4.5 $ 4.3 $ 4.6 $ .5 $ .5 $ .5
Interest cost...................... 7.8 8.3 8.1 1.9 2.0 2.4
Expected return on assets.......... (14.6) (13.0) (12.4) -- -- (.6)
Amortization of:
Transition asset................. (1.9) (1.9) (1.9) -- -- --
Prior service cost............... .3 .3 .7 .4 .4 --
Actuarial (gain) loss............ (.9) (.1) .1 (.9) (.8) (.4)
------ ------ ------ ---- ---- ----
Net periodic benefit (income)
cost............................. $ (4.8) $ (2.1) $ (.8) $1.9 $2.1 $1.9
====== ====== ====== ==== ==== ====
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $15.9 million, $13.1 million, and $0, respectively,
at December 31, 1998, and $20.6 million, $13.2 million, and $0, respectively, at
December 31, 1997.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the medical plan. A 1% change in assumed health care cost
trend rates would have the following effects (in millions):
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest cost components of
net periodic postretirement benefit cost.................. $ .1 $ (.1)
Effect on the health care component of the accumulated
postretirement benefit obligation......................... $1.3 $(1.2)
</TABLE>
The following weighted-average assumptions were used in the measurement of
the Company's benefit obligations as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
PENSION
BENEFITS OTHER BENEFITS
------------ --------------
1998 1997 1998 1997
---- ---- ----- -----
<S> <C> <C> <C> <C>
Discount rate........................................... 6.75% 7.0% 6.75% 7.0%
Expected return on plan assets.......................... 9.0% 9.0% N/A N/A
Rate of compensation increase........................... 4.75% 5.0% 4.75% 5.0%
</TABLE>
A 5.5% annual rate of increase in the cost of covered health care benefits
was assumed for 1998, decreasing to an ultimate trend of 5.1% in 2001.
F-57
<PAGE> 118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1991, the Company established a retiree health account under the
provisions of Section 401(h) of the Internal Revenue Code. In December 1998, the
Company transferred $1.7 million of excess assets from the defined benefit
pension plan to pay for 1998 qualified retiree health benefits. A transfer of
excess assets in the amount of $1.6 million was made in December 1997 to pay for
1997 qualified retiree health benefits. In December 1996, excess assets totaling
$1.6 million were transferred to pay for 1996 qualified retiree health benefits.
The Company also provides a funded noncontributory defined contribution
plan that covers substantially all of its agents and a contributory defined
contribution plan qualified under section 401(k) of the Internal Revenue Code.
The pension cost of the defined contribution plans was $3.4 million, $3.4
million, and $2.6 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
7. FEDERAL INCOME TAXES
The Company files a consolidated Federal income tax return with 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,
-------------------------
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Federal income tax at
statutory rate..... $44.2 $37.0 $ 30.6
Current year equity
tax............. 6.3 8.8 8.5
True down of prior
years' equity
tax............. (7.0) (8.0) (5.1)
Tax settlement..... (4.7) -- (28.3)
Other.............. .1 .8 .1
----- ----- ------
Provision for Federal
income tax from
operations......... $38.9 $38.6 $ 5.8
===== ===== ======
</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 consolidated statement of operations was decreased by approximately $28.3
million which includes $15.9 million of interest, net of taxes. In 1998, the
Company settled open tax years which resulted in the reduction of income tax
expense by $4.7 million.
Deferred income tax assets and liabilities reflect the income tax effects
of cumulative temporary differences between the reported values of assets and
liabilities for financial statement purposes and income tax return purposes.
Components of the Company's net deferred income tax liability are as follows at
December 31, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
DEFERRED TAX LIABILITY
Deferred policy acquisition
costs...................... $214.2 $196.5
Prepaid pension asset........ 8.4 6.3
Net unrealized gain on
available for sale
securities................. 18.3 16.5
------ ------
Total deferred tax
liability............. 240.9 219.3
------ ------
DEFERRED TAX ASSET
Reserves..................... 145.8 123.8
Employee benefit accruals.... 18.2 17.5
Invested assets.............. 6.4 8.3
Policyholder dividends....... 8.2 8.1
Deferred rent................ -- 1.4
Other........................ 4.5 (4.0)
------ ------
Total deferred tax
asset................. 183.1 155.1
------ ------
Net deferred tax liability... $ 57.8 $ 64.2
====== ======
</TABLE>
The Company's Federal income tax returns have been audited through 1994.
All years through 1985 are closed. Years 1986 through 1994 have been audited and
are closed with the exception of several issues for which claims for refund have
been filed. Years 1995 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.
Recently, the Internal Revenue Service issued Revenue Ruling 99-3 which
provided, in general, that a mutual life insurance company that converts to a
stock life insurance company in a
F-58
<PAGE> 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
mutual holding company structure will no longer be subject to the equity tax. As
a result, the Company believes that it will no longer be subject to the equity
tax upon completion of its conversion to a stock life insurance company pursuant
to the pending mutual holding company conversion.
8. REINSURANCE
In the normal course of business, the Company assumes risks from and cedes
certain parts of its risks to other insurance companies. The primary purpose of
ceded reinsurance is to limit losses from large exposures. For life insurance,
the Company retains no more than $1,500,000 on any single life.
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company would be liable for these
obligations. The Company evaluates the financial condition of its reinsurers and
limits its exposure to any one reinsurer.
On January 1, 1998, the Company terminated its reinsurance agreement with
Metropolitan Life Insurance Company (Metropolitan). Prior to 1998, the Company
had ceded 65 percent of the premiums and reserves related to its single premium
deferred annuity (SPDA) product to Metropolitan. The Company recaptured $352.7
million in reserves and received cash totaling $343.7 million. The $9.0 million
cost of recapturing the contracts has been deferred and will be amortized in
relation to the incidence of expected gross profits over the expected life of
the contracts.
The tables below highlight the amounts shown in the accompanying
consolidated 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, 1998:
Life insurance in force............... $40,139.8 $8,550.4 $167.4 $31,756.8
========= ======== ====== =========
Premiums.............................. $ 217.1 $ 14.2 $ 3.5 $ 206.4
========= ======== ====== =========
Future policyholder benefits.......... $ 4,243.1 $ 152.8 $ 3.1 $ 4,093.4
========= ======== ====== =========
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.......... $ 4,344.6 $ 499.5 $ 3.9 $ 3,849.0
========= ======== ====== =========
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.......... $ 4,426.5 $ 530.3 $ 5.1 $ 3,901.3
========= ======== ====== =========
</TABLE>
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 1999
and 2004. Most of the leases contain renewal and purchase options based on
prevailing fair market values.
Future minimum rental payments required and related sublease rentals
receivable under non-cancelable operating leases in effect at December 31, 1998,
and which have initial or
F-59
<PAGE> 120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
remaining terms of one year or more, are summarized as follows (in millions):
<TABLE>
<CAPTION>
SUBLEASE
RENTAL RENTALS
PAYMENTS RECEIVABLE
YEARS ENDING DECEMBER 31: -------- ----------
<S> <C> <C>
1999.................... $ 8.9 $ .8
2000.................... 6.7 .3
2001.................... 4.6 --
2002.................... 3.5 --
2003.................... 1.9 --
Thereafter.............. 1.0 --
----- ----
Total.............. $26.6 $1.1
===== ====
</TABLE>
Total related rent expense was $13.6 million, $12.7 million and $18.4
million in 1998, 1997 and 1996, respectively, which was net of sublease income
of $2.6 million, $1.9 million and $.5 million in 1998, 1997 and 1996,
respectively.
During 1998, the Company recorded a charge to income in the amount of $3.0
million for the termination of a lease obligation for furniture and equipment.
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 consolidated statements of financial condition.
At December 31, 1998, the Company had outstanding mortgage loan, real
estate and limited partnership commitments of approximately $42.0 million. The
mortgage loan commitments, which expire through August 1999, totaled $19.4
million and were issued during 1998 at interest rates consistent with rates
applicable on December 31, 1998. As a result, the fair value of these
commitments approximates the face amount.
Derivatives are used for hedging existing bonds (including cash reserves)
against adverse price or interest rate movements and for fixing liability costs
at the time of product sales. The Company closed out hedge positions consisting
of 939 treasury futures contracts with a dollar value of $108.8 million in 1998,
239 treasury futures contracts with a dollar value of $25.2 million in 1997, and
162 treasury futures contracts with a dollar value of $17.3 million in 1996. The
approximate net gains (losses) generated from the hedge positions were $.1
million for the year ended December 31, 1998, $(.1) million for the year ended
December 31, 1997 and $(.3) million for the year ended December 31, 1996. There
were no open hedge positions at December 31, 1998.
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, 1998.
Periodically, the Company enters securities lending agreements to earn
additional investment income on its securities. The borrower must provide cash
collateral prior to or at the inception of the loan. For bonds, cash collateral
totaling 105% of market value plus accrued interest is required. For equities,
cash collateral totaling 105% of market value is required. There were no
securities lending positions at December 31, 1998.
INVESTMENT PORTFOLIO CREDIT RISK
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1998 and 1997, approximately $210.4
million and $164.6 million, respectively, in debt security investments (6.4% and
5.3%, respectively, of the total debt security portfolio) were 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, 1998 of
$6.6 million were
F-60
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
non-income producing for the year ended December 31, 1998.
The Company had debt security investments in the financial services
industry at both December 31, 1998 and 1997 that exceeded 5% of total assets.
Mortgage Loans
The Company originates mortgage loans either directly or through mortgage
correspondents and brokers throughout the country. Loans are primarily related
to underlying real property investments in office and apartment buildings and
retail/commercial and industrial facilities. Mortgage loans are collateralized
by the related properties and such collateral generally approximates a minimum
133% of the original loan value at the time the loan is made.
There were two mortgage loans totaling $3.7 million and one mortgage loan
totaling $3.2 million in which payments on principal and/or interest were over
90 days past due as of December 31, 1998 and 1997, respectively.
The Company had loans outstanding in Pennsylvania where principal balances
in the aggregate exceeded 20% of the Company's equity.
Lines of Credit
The Company has approximately $50 million of available unused lines of
credit at December 31, 1998.
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, sales practices,
and as a result of the merger with Covenant Life Insurance Company in 1994,
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 consolidated
financial statements. Guaranty fund assessments totaled $2.2 million, $1.1
million and $1.6 million in 1998, 1997 and 1996, respectively. Of those amounts,
$1.6 million, $.8 million and $.9 million in 1998, 1997 and 1996, respectively,
are creditable against future years' premium taxes.
F-61
<PAGE> 122
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.(3)
(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(3)
(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)(3)
(4) (a) Amendment of Contract Provisions Rider (PM470.13A)(3)
(4) (b) Qualified Plan Rider (PM471)(3)
(4) (c) 403(b) Annuity Loan Rider (PM515)(3)
(4) (d) Death Benefit Rider -- "Step Up" (PM547)(3)
(4) (e) Death Benefit Rider -- "Rising Floor" (PM548)(3)
(4) (f) SIMPLE IRA Rider (PM549)(3)
(4) (g) SEP IRA Rider (PM550)(3)
(4) (h) Qualify as an IRA Rider (PM553)(3)
(4) (i) Qualify as a TSA under 403(b) Rider (PM554)(3)
(4) (j) Amendment for a Charitable Remainder Trust Rider (PM558)(3)
(4) (k) Systematic Withdraw Plan Rider (PM600)(3)
(5) Form of Application and 1717 Capital Management Company
Suitability Statement(3)
(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> 123
<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(3)
(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(3)
(8) (f) Participating Contract and Policy Agreement between Scudder Investor Services, Inc. and
PML Securities, Inc.(3)
(8) (g) Fund Participation Agreement between Provident Mutual Life Insurance Company of
Philadelphia and Dreyfus Variable Investment Fund(3)
(8) (h) Participation Agreement by and among Quest for Value Accumulation Trust, Provident Mutual
Life Insurance Company of Philadelphia and Quest for Value Distributors(3)
(8) (i) Service Agreement between Providentmutual Life and Annuity Company of America and
Provident Mutual Life Insurance Company of Philadelphia(2)
(9) Consent of James G. Potter, Jr., Esquire
(10) (a) Consent of Sutherland, Asbill & Brennan LLP
(10) (b) Consent of PricewaterhouseCoopers LLP, Independent Accountants.
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Schedule for computation of performance data.(4)
</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.
(3) Incorporated herein by reference to Post-Effective Amendment No. 5, filed
on May 1, 1998, File No. 33-70926.
(4) Incorporated herein by reference to Post-Effective Amendment No. 7, filed
on April 30, 1999, File No. 33-65512.
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
------------------------------------ -----------------------------------
<S> <C>
Robert W. Kloss....................................... Director, President and CEO
Dorothy M. Brown...................................... Director
16 Meredith Road
Wynnewood, PA 19096
Edward R. Book........................................ Director
342 Lake Meade
East Berlin, PA 17316
Robert J. Casale...................................... Director
Brokerage Ins. Svcs. Group
2 Journal Square
Jersey City, NJ 07306
</TABLE>
C-2
<PAGE> 124
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
------------------------------------ -----------------------------------
<S> <C>
Nicholas DeBenedictis................................. Director
Philadelphia Suburban Corp.
762 Lancaster Avenue
Bryn Mawr, PA 19010
Philip C. Herr II..................................... Director
Herr, Potts & Herr
Strafford Office Buildings, Building #4
175 Strafford Avenue, Ste. 314
Wayne, PA 19087
J. Richard Jones...................................... Director
Insignia/ESG Jackson Cross
1800 JFK Boulevard, 10th Floor
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
714 West Mt. Airy Avenue
Philadelphia, PA 19119
John J. F. Sherrerd................................... Director
One Tower Bridge
West Conshohocken, PA 19428
Harold A. Sorgenti.................................... Director
Mellon Center, Suite 1313
1735 Market Street
Philadelphia, PA 19103
Joan C. Tucker........................................ Executive Vice President and
Individual Insurance Operations
Mary Lynn Finelli..................................... Executive Vice President
and Chief Financial Officer
Alan F. Hinkle........................................ Executive Vice President and Chief Actuary
James G. Potter, Jr................................... Executive Vice President, General Counsel and
Secretary
J. Kevin McCarthy..................................... Executive Vice President and Chief Marketing
Officer
Mehran Assadi......................................... Executive Vice President and Chief
Information Officer
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> 125
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
(PMLIC)
Providentmutual Life and Delaware Ownership of all Life & Health Insurance
Annuity Company voting securities
of America by PMLIC
Provident Mutual Delaware Ownership of all voting Life & Health Insurance
International securities by
Life Insurance Company PMLIC
Providentmutual Pennsylvania Ownership of all Holding Company
Holding Company (PHC) voting securities
by PMLIC
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, Inc. New York Ownership of all voting Insurance Agency
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 PMLIC
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>
Item 27. Number of Policyowners
As of December 31, 1998 there were a total of 1,883 individual flexible
premium deferred variable annuity contracts (File No. 33-70926) in force -- 787
non-qualified and 1,096 qualified.
C-4
<PAGE> 126
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 Market Street Fund, Inc. and the variable life
separate accounts of PMLIC and the Providentmutual Variable Annuity Separate
Account and Providentmutual Variable Life Insurance Separate Account.
C-5
<PAGE> 127
(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
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
</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 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-6
<PAGE> 128
(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.
PMLIC 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> 129
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 28TH DAY OF APRIL, 1999.
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 April 28, 1999
- ----------------------------------------------------- Executive Officer
ROBERT W. KLOSS (Principal Executive
Officer)
/s/ MARY LYNN FINELLI Executive Vice President and April 28, 1999
- ----------------------------------------------------- Chief Financial Officer
MARY LYNN FINELLI (Principal Financial
Officer)
/s/ LINDA M. SPRINGER Vice President and Controller April 28, 1999
- ----------------------------------------------------- (Principal Accounting
LINDA M. SPRINGER Officer)
* Director April 28, 1999
- -----------------------------------------------------
EDWARD R. BOOK
* Director April 28, 1999
- -----------------------------------------------------
DOROTHY M. BROWN
</TABLE>
C-8
<PAGE> 130
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director April 28, 1999
- -----------------------------------------------------
ROBERT J. CASALE
* Director April 28, 1999
- -----------------------------------------------------
NICHOLAS DEBENEDICTIS
* Director April 28, 1999
- -----------------------------------------------------
PHILIP C. HERR
* Director April 28, 1999
- -----------------------------------------------------
J. RICHARD JONES
* Director April 28, 1999
- -----------------------------------------------------
JOHN P. NEAFSEY
* Director April 28, 1999
- -----------------------------------------------------
CHARLES L. ORR
* Director April 28, 1999
- -----------------------------------------------------
DONALD A. SCOTT
* Director April 28, 1999
- -----------------------------------------------------
JOHN J. F. SHERRERD
* Director April 28, 1999
- -----------------------------------------------------
HAROLD A. SORGENTI
By: /s/ JAMES G. POTTER, JR.
-------------------------------------------------
James G. Potter, Jr.
Attorney-in-Fact
Pursuant to Power of Attorney
</TABLE>
C-9
<PAGE> 131
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
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<C> <S> <C> <C>
(9) Consent of James G. Potter, Jr., Esquire
(10) (a) Consent of Sutherland Asbill & Brennan LLP
(b) Consent of PricewaterhouseCoopers, LLP, Independent
Accountants.
</TABLE>
<PAGE> 1
April 30, 1999
Provident Mutual Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
Directors:
I hereby consent to the reference to my name under the caption "Legal Matters"
in the Statement of Additional Information filed as part of the Post-Effective
Amendment No. 6 of the Registration Statement on Form N-4 (File No. 33-70926)
for the Provident Mutual Variable Annuity Separate Account.
Sincerely,
James G. Potter, Jr.
<PAGE> 1
Exhibit 10(a)
[SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]
April 28, 1999
Board of Directors
Provident Mutual Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
RE: PROVIDENT MUTUAL LIFE INSURANCE COMPANY
PROVIDENT MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT
(FILE NO. 33-70926)
Directors:
We hereby consent to the reference to our name under the
caption "Legal Matters" in the statement of additional information filed as part
of post-effective amendment number 6 to the Form N-4 registration statement
(File No. 33-70926) for Provident Mutual Life Insurance Company and Provident
Mutual Variable Annuity Separate Account. 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 LLP
By: \s\ David S. Goldstein
----------------------------
David S. Goldstein
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Post-Effective Amendment
No. 6 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 5, 1999 on our audits of the
financial statements of Provident Mutual Life Insurance
Company and Subsidiaries as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31,
1998.
2. Our report dated February 26, 1999 on our audits of the
financial statements of the Provident Mutual Variable Annuity
Separate Account (comprising thirty-one subaccounts) as of
December 31, 1998, and the related statements of operations
for the year then ended and the statements of changes in net
assets for each of the two years in the period then ended.
We also consent to the reference to our Firm under the caption
"Experts".
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
April 29, 1999
