<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
FILE NO. 33-83138
811-8722
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 4
---------------------
PROVIDENTMUTUAL VARIABLE LIFE
SEPARATE ACCOUNT
(EXACT NAME OF REGISTRANT)
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
(NAME OF DEPOSITOR)
300 CONTINENTAL DRIVE
NEWARK, DE 19713
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 454-5260
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<TABLE>
<S> <C>
ADAM SCARAMELLA, ESQ. COPY TO:
COUNSEL STEPHEN E. ROTH, ESQ.
PROVIDENT MUTUAL LIFE SUTHERLAND, ASBILL & BRENNAN, L.L.P.
INSURANCE COMPANY 1275 PENNSYLVANIA AVENUE, N.W.
1050 WESTLAKES DRIVE WASHINGTON, D.C. 20004
BERWYN, PA 19312 (202) 383-0158
(NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
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It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of rule 485
Title of Securities Being Registered:
Interests in Flexible Premium Adjustable Variable Life Insurance Policies
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<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-3B-2
ITEM CAPTION IN PROSPECTUS
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<S> <C>
1 Cover Page
2 Cover Page
3 Not Applicable
4 Distribution of Policies
5 Providentmutual Variable Life Separate Account
6(a) Providentmutual Variable Life Separate Account
6(b) Not Applicable
9 Legal Proceeding
10(a) and (b) Not Applicable
10(c) and (d) Death Benefit; Transfers; Loan Privileges; Surrender
Privilege; Partial Withdrawal of Net Cash Surrender Value;
Free-Look Privileges; Special Transfer and Conversion
Rights; Accelerated Death Benefit
10(e) Payment and Allocation of Premiums; Accelerated Death
Benefit
10(f), (g), and (h) Voting Rights, Changes in Applicable Law, Funding and
Otherwise
10(i) Other Policy Provisions
11 Providentmutual Life and Annuity Company of America:
Providentmutual Variable Life Separate Account; The Funds
12 Providentmutual Variable Life Separate Accounts; The Funds
13(a), (b), and (c) Payment and Allocation of Premiums; Charges and Deductions;
Accelerated Death Benefit
13(d), (e), (f), and (g) Not Applicable
13(h) Charges Against the Separate Account
14 Payment and Allocation of Premiums; Distribution of
Policies; Accelerated Death Benefit
15 Payment and Allocation of Premiums
16 Providentmutual Variable Life Separate Account; The Funds
17 See items 10(c), (d), and (e)
18(a), (b), and (c) Providentmutual Variable Life Separate Account; Death
Benefit; Policy Account Value
18(d) Not Applicable
19 Policy Reports
20 Not Applicable
21(a) and (b) Loan Privileges; Accelerated Death Benefit
21(c) Not Applicable
22 Not Applicable
23 Officers and Directors of PLACA
24 Not Applicable
25 PLACA
26 See Item 13(a), (b) and (c)
27 Providentmutual Life and Annuity Company of America
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
N-3B-2
ITEM CAPTION IN PROSPECTUS
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28 Officers and Directors of PLACA
29 Providentmutual Life and Annuity Company of America
30 Not Applicable
31 Not Applicable
32 Not Applicable
33(a) Not Applicable
33(b) Distribution of Policies
34 Not Applicable
35 Providentmutual Life and Annuity Company of America; State
Regulation; Accelerated Death Benefit
36 Not Applicable
37 Not Applicable
38 Distribution of Policies
39 Distribution of Policies
40(a) Distribution of Policies
40(b) The Funds
41 Distribution of Policies
42 Not Applicable
43 Not Applicable
44(a) Death Benefit; Policy Account Value; Accelerated Death
Benefit
44(b) and (c) Not Applicable
45 Not Applicable
46(a) Death Benefit; Policy Account Value; Accelerated Death
Benefit
46(b) Not Applicable
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 Providentmutual Variable Life Separate Account
51 Not Applicable
52(a), (b), and (c) Voting Rights, Changes in Applicable Law, Funding and
Otherwise
52(d) Not Applicable
53(a) Federal Income Tax Considerations
53(b) Not Applicable
54 Not Applicable
55 Not Applicable
</TABLE>
<PAGE> 4
PROSPECTUS
FOR
FLEXIBLE PREMIUM
ADJUSTABLE VARIABLE
LIFE INSURANCE
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
<TABLE>
<S> <C>
LOGO
OPTIONSVL PROVIDENTMUTUAL LIFE AND ANNUITY
FORM 5.98 COMPANY OF AMERICA
16071
</TABLE>
<PAGE> 5
LOGO
PROSPECTUS
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
HOME OFFICE: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19173
ADMINISTRATIVE OFFICE: 1050 WESTLAKES DRIVE, BERWYN, PENNSYLVANIA 19312
TELEPHONE: (302) 452-4000
- --------------------------------------------------------------------------------
This Prospectus describes a flexible premium adjustable variable life
insurance policy (the "Policy") offered by Providentmutual Life and Annuity
Company of America ("PLACA"). The Policy has an insurance component and an
investment component. The primary intended purpose of the Policy is to provide
insurance coverage until the Insured's Attained Age 100. It is designed to
provide considerable flexibility in connection with premium payments, investment
options, and death benefits. It does so by giving the Policyowner (the "Owner")
the right to vary the frequency and amount of premium payments (after the
initial premium), to allocate Net Premiums among investment alternatives with
different investment objectives and to increase or decrease the Death Benefit
payable under the Policy.
After certain deductions are made, Net Premiums are allocated to one or more
Subaccounts of the Providentmutual Variable Life Separate Account, or the
Guaranteed Account (which is part of PLACA's General Account and pays interest
at declared rates guaranteed to equal or exceed 4%) or both. The Providentmutual
Variable Life Separate Account has twenty-eight Subaccounts, the assets of which
are used to purchase shares of a designated corresponding mutual fund portfolio
(each, a "Portfolio") that is part of one of the following funds: The Market
Street Fund, Inc.; The Alger American Fund; Neuberger & Berman Advisers
Management Trust; American Century Variable Portfolio, Inc.; Variable Insurance
Products Fund; Variable Insurance Products Fund II; and Van Eck Worldwide
Insurance Trust (the "Funds"). The portion of the Policy Account Value in the
Subaccounts will vary with the investment experience of the corresponding
portfolios. The Owner bears the entire investment risk for all amounts allocated
to the Subaccounts; there is no guaranteed minimum account value for the
Subaccounts.
The accompanying Prospectuses for the Funds describe the investment
objectives and the attendant risks of the Portfolios. The Policy Account Value
will reflect the Monthly Deductions and certain other fees and charges such as
the Mortality and Expense Risk Charge. Also, a surrender charge may be imposed
if, during the first 10 Policy Years or within 10 years after a Face Amount
increase, the Policy lapses or if the Owner effects a decrease in Face Amount.
Generally, during the first three Policy Years, the Policy will remain in force
as long as the Minimum Guarantee Premium is paid or the Net Cash Surrender Value
is sufficient to pay certain monthly charges imposed in connection with the
Policy. After the third Policy Year, whether the Policy remains in force depends
upon whether the Net Cash Surrender Value is sufficient to pay the monthly
charges under the Policy.
It may not be advantageous to purchase a Policy as a replacement for another
type of life insurance or as a means to obtain additional protection if the
purchaser already owns an adjustable variable life insurance policy.
------------------------
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES FOR THE
FUNDS.
------------------------
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Prospectus dated May 1, 1998
<PAGE> 6
TABLE OF CONTENTS
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Definitions................................................. 1
Summary Description of the Policy........................... 4
The Policy Offered..................................... 4
Availability of Policy................................. 4
The Death Benefit...................................... 5
Flexibility to Adjust Amount of Death Benefit.......... 5
Policy Account Value................................... 5
Allocation of Net Premiums............................. 6
Transfers.............................................. 6
Free-Look Privilege.................................... 6
Charges Assessed in Connection with the Policy......... 6
Premium Expense Charge............................ 6
Monthly Deductions................................ 7
Surrender Charge and Additional Surrender
Charge............................................ 7
Face Amount Increase Charge....................... 7
Transfer Charge................................... 8
Partial Withdrawal Charge......................... 8
Daily Charges Against the Subaccounts............. 8
Table of Fund Fees and Expenses........................ 8
Policy Lapse and Reinstatement......................... 10
Loan Privilege......................................... 10
Partial Withdrawal of Net Cash Surrender Value......... 11
Surrender of the Policy................................ 11
Accelerated Death Benefit.............................. 11
Tax Treatment.......................................... 11
Unisex Policies........................................ 12
Illustrations of Death Benefits, Policy Account Value
and Net Cash Surrender Value.......................... 12
The Company, Variable Account and Funds..................... 12
Providentmutual Life and Annuity Company of America.... 12
The Providentmutual Variable Life Separate Account..... 13
The Funds.............................................. 13
The Market Street Fund, Inc. ..................... 14
The Alger American Fund........................... 16
Variable Insurance Product Fund and Variable
Insurance Products Fund II........................ 17
Neuberger & Berman Advisers Management Trust...... 20
Van Eck Worldwide Insurance Trust................. 20
Termination of Participation Agreements................ 22
Resolving Material Conflicts........................... 23
The Guaranteed Account................................. 23
Detailed Description of Policy Provisions................... 23
Death Benefit.......................................... 23
General........................................... 23
Death Benefit Options............................. 23
Option A..................................... 24
Option B..................................... 24
Which Death Benefit Option to Choose.............. 24
Change in Death Benefit Option.................... 25
How the Death Benefit May Vary.................... 25
Ability to Adjust Face Amount.......................... 25
Increase.......................................... 26
Decrease.......................................... 26
Insurance Protection................................... 26
</TABLE>
i
<PAGE> 7
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How the Duration of the Policy May Vary................ 27
Policy Account Value................................... 27
Calculation of Policy Account Value............... 27
Determination of Number of Units for the
Subaccounts....................................... 28
Determination of Unit Value....................... 28
Net Investment Factor............................. 28
Payment and Allocation of Premiums..................... 28
Issuance of a Policy.............................. 28
Amount and Timing of Premiums..................... 29
Premium Limitations............................... 29
Allocation of Net Premiums........................ 29
Transfers......................................... 30
Policy Lapse...................................... 30
Reinstatement..................................... 30
Charges and Deductions...................................... 31
Premium Expense Charge................................. 31
Premium Tax Charge................................ 31
Percent of Premium Sales Charge................... 31
Federal Tax Charge................................ 31
Surrender Charges...................................... 31
Deferred Administrative Charge.................... 32
Deferred Sales Charge............................. 32
Additional Surrender Charge....................... 32
Surrender Charge Upon Decrease in Face Amount..... 33
Allocation of Surrender Charges................... 33
Monthly Deductions..................................... 33
Cost of Insurance................................. 33
Cost of Insurance Rate....................... 33
Premium Class................................ 34
Monthly Administrative Charges.................... 34
Additional Benefit Charges........................ 34
Face Amount Increase Charge............................ 34
Partial Withdrawal Charge.............................. 34
Transfer Charge........................................ 34
Charges Against the Separate Accounts.................. 35
Mortality and Expense Risk Charge................. 35
Other Charges.......................................... 35
Contract Rights............................................. 35
Loan Privileges........................................ 35
General........................................... 35
Interest Rate Charged............................. 35
Allocation of Loans and Collateral................ 35
Interest Credited to Loan Account................. 35
Effect of Policy Loan............................. 36
Loan Repayments................................... 36
Tax Considerations................................ 36
Surrender Privilege.................................... 36
Partial Withdrawal of Net Cash Surrender Value......... 36
Accelerated Death Benefit.............................. 38
Tax Consequences of the ADBR...................... 38
Amount of the Accelerated Death Benefit........... 38
Conditions for Receipt of the Accelerated Death
Benefit........................................... 39
Operation of the ADBR............................. 39
Effect on Existing Policy......................... 39
</TABLE>
ii
<PAGE> 8
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Free-Look Privileges................................... 39
Free-Look for Policy.............................. 39
Free-Look for Increase in Face Amount............. 40
Special Transfer and Conversion Rights................. 40
Transfer Right for Policy......................... 40
Conversion Privilege for Increase in Face
Amount............................................ 40
Transfer Right for Change in Investment Policy of
a Subaccount...................................... 40
Telephone Transfers............................... 40
Automatic Asset Rebalancing....................... 40
The Guaranteed Account...................................... 41
Minimum Guaranteed and Current Interest Rates.......... 41
Calculation of Guaranteed Account Value........... 41
Transfers from Guaranteed Account...................... 42
Other Policy Provisions..................................... 42
Amount Payable on Final Policy Date.................... 42
Payment of Policy Benefits............................. 42
The Contract........................................... 43
Ownership.............................................. 43
Beneficiary............................................ 43
Change of Owner and Beneficiary........................ 43
Split Dollar Arrangements.............................. 43
Assignments............................................ 43
Misstatement of Age and Sex............................ 43
Suicide................................................ 44
Incontestability....................................... 44
Settlement Options..................................... 44
Proceeds at Interest Option............................ 44
Installments of a Specified Amount Option.............. 44
Life Income Option..................................... 44
Joint and Survivor Life Income......................... 44
Supplementary Benefits...................................... 44
Disability Waiver Benefit......................... 44
Disability Waiver of Premium Benefit.............. 44
Change of Insured................................. 45
Children's Term Rider............................. 45
Convertible Term Life Insurance................... 45
Final Policy Date Extension....................... 45
Dollar Cost Averaging............................. 46
Federal Income Tax Considerations........................... 46
Introduction........................................... 46
Tax Status of the Policy............................... 46
Tax Treatment of Policy Benefits....................... 48
In General........................................ 48
Modified Endowment Contracts...................... 48
Distributions from Policies Classified as Modified
Endowment Contracts............................... 48
Distributions from Policies Not Classified as
Modified Endowment Contracts...................... 49
Policy Loan Interest.............................. 49
Investment in the Policy.......................... 49
Multiple Policies................................. 49
Possible Tax Law Changes............................... 49
Special Rules for Pension and Profit-Sharing Plans..... 50
Possible Charge for PLACA's Taxes...................... 50
Policies Issued in Conjunction with Employee Benefit
Plans..................................................... 50
Legal Developments Regarding Unisex Actuarial Tables........ 51
</TABLE>
iii
<PAGE> 9
<TABLE>
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PAGE
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<S> <C>
Voting Rights............................................... 51
Changes in Applicable Law, Funding and Otherwise............ 52
Officers and Directors of PLACA............................. 52
Distribution of Policies.................................... 53
Policy Reports.............................................. 54
Preparing for Year 2000..................................... 54
State Regulation............................................ 54
Legal Proceedings........................................... 55
Experts..................................................... 55
Legal Matters............................................... 55
Appendix A--Illustration of Death Benefits, Policy Account
Values and Net Cash
Surrender Values.......................................... A-1
Appendix B--Long Term Market Trends......................... B-1
Financial Statements........................................ F-1
</TABLE>
THE POLICY MAY NOT BE AVAILABLE IN ALL JURISDICTIONS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. IF GIVEN, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE
RELIED ON.
THE PRIMARY PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE
INSURANCE PROTECTION. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR
COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.
iv
<PAGE> 10
DEFINITIONS
ADDITIONAL SURRENDER
CHARGE..................... The separately determined deferred sales charge
deducted from the Policy Account Value upon
surrender or lapse of the Policy within 10 years
of the effective date of an increase in Face
Amount. A pro-rata Additional Surrender Charge
will be deducted for a reduction in Face Amount
within 10 years of the effective date of a Face
Amount increase. The Maximum Additional Surrender
Charge will be shown in the Policy Schedule Pages
reflecting the Face Amount increase.
ATTAINED AGE............... The Issue Age of the Insured plus the number of
full Policy Years since the Policy Date.
BENEFICIARY................ The person(s) or entity(ies) designated to receive
all or some of the Insurance Proceeds when the
Insured dies. The Beneficiary is designated in the
application or if subsequently changed, as shown
in the latest change filed with PLACA. If no
Beneficiary survives and unless otherwise
provided, the Insured's estate will be the
Beneficiary.
CASH SURRENDER VALUE....... The Policy Account Value minus any applicable
Surrender Charge or Additional Surrender Charge.
DEATH BENEFIT.............. Under Option A, the greater of the Face Amount or
a percentage of the Policy Account Value on the
date of death; under Option B, the greater of the
Face Amount plus the Policy Account Value on the
date of death, or a percentage of the Policy
Account Value on the date of death. The Death
Benefit Option is selected at time of application
but may be later changed.
DURATION................... The number of full years the insurance has been in
force -- for the Initial Face Amount, measured
from the Policy Date; for any increase in Face
Amount, measured from the effective date of such
increase.
FACE AMOUNT................ The Initial Face Amount plus any increases in Face
Amount and minus any decreases in Face Amount.
FINAL POLICY DATE.......... The Policy Anniversary nearest Insured's Attained
Age 100 at which time the Policy Account Value, if
any, (less any outstanding Policy loan and accrued
interest) will be paid to the Owner if the Insured
is living. The Policy will end on the Final Policy
Date.
GRACE PERIOD............... The 61-day period allowed for payment of a premium
following the date PLACA mails notice of the
amount required to keep the Policy in force.
INITIAL FACE AMOUNT........ The Face Amount of the Policy on the Issue Date.
The Face Amount may be increased or decreased
after issue.
INSURANCE PROCEEDS......... The net amount to be paid to the Beneficiary when
the Insured dies.
INSURED.................... The person upon whose life the Policy is issued.
ISSUE AGE.................. The age of the Insured at his or her birthday
nearest the Policy Date. The Issue Age is stated
in the Policy.
LOAN ACCOUNT............... The account to which the collateral for the amount
of any Policy loan is transferred from the
Subaccounts and/or the Guaranteed Account.
MINIMUM ANNUAL PREMIUM..... The annual amount which is used to determine the
Minimum Guarantee Premium. This amount is stated
in each Policy.
1
<PAGE> 11
MINIMUM FACE AMOUNT........ The Minimum Face Amount is $50,000 for all Premium
Classes except preferred. For the preferred
Premium Class, the Minimum Face Amount is
$100,000.
MINIMUM GUARANTEE
PREMIUM.................... The Minimum Annual Premium multiplied by the
number of months since the Policy Date (including
the current month) divided by 12.
MINIMUM INITIAL PREMIUM.... Equal to the Minimum Annual Premium multiplied by
the following factor for the specified premium
mode at issue: Annual -- 1.0; Semi-annual -- 0.5;
Quarterly -- 0.25; Monthly -- 0.167.
MONTHLY DEDUCTIONS......... The amount deducted from the Policy Account Value
on each Policy Processing Day. It includes the
Monthly Administrative Charge, the Monthly Cost of
Insurance Charge, and the monthly cost of any
benefits provided by riders.
NET AMOUNT AT RISK......... The amount by which the Death Benefit exceeds the
Policy Account Value.
NET CASH SURRENDER VALUE... The Policy Account Value minus any applicable
contingent surrender charges, minus any
outstanding Policy loans and accrued interest.
NET PREMIUMS............... The remainder of a premium after the deduction of
the Premium Expense Charge.
OWNER...................... The person(s) or entity(ies) entitled to exercise
the rights granted in the Policy.
PLANNED PERIODIC PREMIUM... The premium amount which the Owner plans to pay at
the frequency selected. The Owner is entitled to
receive a reminder notice and change the amount of
the Planned Periodic Premium. The Owner is not
required to pay the designated amount.
POLICY ACCOUNT VALUE....... The sum of the Policy's values in the Subaccounts,
the Guaranteed Account, and the Loan Account.
POLICY ANNIVERSARY......... The same day and month as the Policy Date in each
later year.
POLICY DATE................ The date set forth in the Policy that is used to
determine Policy Years and Policy Processing Days.
The Policy Date is generally the same as the Issue
Date but may be another date mutually agreed upon
by PLACA and the proposed Insured.
POLICY ISSUE DATE.......... The date on which the Policy is issued. It is used
to measure suicide and contestable periods.
POLICY PROCESSING DAY...... The day in each calendar month which is the same
day of the month as the Policy Date. The first
Policy Processing Day is the Policy Date.
POLICY YEAR................ A year that starts on the Policy Date or on a
Policy Anniversary.
PREMIUM CLASS.............. The classification of the Insured for cost of
insurance purposes. The classes are: standard;
nonsmoker; with extra rating, nonsmoker with extra
rating, and preferred.
PREMIUM EXPENSE CHARGE..... The amount deducted from a premium payment which
consists of the Premium Tax Charge, the Percent of
Premium Sales Charge and the Federal Tax Charge.
2
<PAGE> 12
SUBACCOUNT................. A division of the Providentmutual Variable Life
Separate Account. The assets of each Subaccount
are invested exclusively in a corresponding mutual
fund Portfolio that is part of one of the Funds.
SURRENDER CHARGE........... The amount deducted from the Policy Account Value
upon lapse or surrender of the Policy during the
first 10 Policy Years. A pro-rata Surrender Charge
will be deducted upon a decrease in the Initial
Face Amount during the first 10 Policy Years. The
Maximum Surrender Charge is shown in the Policy.
The Surrender Charge is determined separately from
the Additional Surrender Charge.
VALUATION DAY.............. Each day that the New York Stock Exchange is open
for business and any other day on which there is a
sufficient degree of trading with respect to a
Subaccount's portfolio of securities to materially
affect the value of that Subaccount.
VALUATION PERIOD........... The time between two successive Valuation Days.
Each Valuation Period includes a Valuation Day and
any non-Valuation Day or consecutive non-Valuation
Days immediately preceding it.
3
<PAGE> 13
SUMMARY DESCRIPTION OF THE POLICY
The following summary of the Policy provisions should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus.
THE POLICY OFFERED
The Flexible Premium Adjustable Variable Life Insurance Policy (the
"Policy") offered by this Prospectus is issued by Providentmutual Life and
Annuity Company of America ("PLACA"). The Policy allows the Owner, subject to
certain limitations, to make premium payments in any amount and at any
frequency. As long as the Policy remains in force, it will provide for:
(1) Life insurance coverage on the named Insured up to the Insured's
Attained Age 100;
(2) A Cash Surrender Value;
(3) Surrender and withdrawal rights and Policy loan privileges; and
(4) A variety of additional insurance benefits.
The Policy described in this Prospectus is designed to provide insurance
coverage to help lessen the economic loss resulting from the death of the
Insured. It is not primarily offered as an investment. A potential Owner should
evaluate the need for insurance and long term investment potential before
purchasing a Policy.
The Policy is called "flexible premium" because there is no fixed schedule
for premium payments, even though the Owner may establish a schedule of Planned
Periodic Premiums. The Policy is described as "adjustable" because the Owner
may, within limits, increase or decrease the Face Amount and may change the
Death Benefit Option. The Policy is called "variable" because, unlike a fixed
benefit whole life insurance policy, the Death Benefit under the Policy may, and
its Account Value will, vary to reflect the investment performance of the chosen
Subaccounts, and the crediting of interest to the Guaranteed Account, as well as
other factors.
The failure to pay Planned Periodic Premiums will not itself cause the
Policy to lapse. Conversely, the payment of premiums in any amount or frequency
will not necessarily guarantee that the Policy will remain in force. In general,
the Policy will lapse if the Net Cash Surrender Value is insufficient to pay the
Monthly Deduction for cost of insurance and administrative charges. During the
first three Policy Years the Policy will not lapse if the Minimum Guarantee
Premium has been paid, even if the Net Cash Surrender Value is insufficient.
After deduction of the Premium Expense Charge, Net Premiums are allocated
to one or more of the Subaccounts and/or the Guaranteed Account as selected by
the Owner. The Guaranteed Account is part of PLACA's General Account.
Providentmutual Variable Life Separate Account consists of twenty-eight
Subaccounts, the assets of which are used to purchase shares of a designated
corresponding mutual fund portfolio (each, a "Portfolio") that is part of one of
the following funds: The Market Street Fund, Inc.; The Alger American Fund;
Neuberger & Berman Advisers Management Trust; American Century Variable
Portfolios, Inc.; Van Eck Worldwide Insurance Trust; Variable Insurance Products
Fund; and Variable Insurance Products Fund II (the "Funds", each, a "Fund").
There is no assurance that the investment objectives of a particular Portfolio
will be met. The Owner bears the entire investment risk of amounts allocated to
the Subaccounts.
Before purchasing a Policy, a prospective Owner should ask his or her PLACA
representative whether changing, or adding to, current insurance coverage would
be advantageous. Generally, it is not advisable to purchase another policy as a
replacement for existing coverage.
AVAILABILITY OF POLICY
This Policy can be issued for Insureds from Issue Ages 1 to 80. The Minimum
Face Amount is generally $50,000 ($100,000 if the Premium Class is preferred).
Before issuing a Policy, PLACA will require that the
4
<PAGE> 14
proposed Insured meet certain underwriting standards satisfactory to PLACA. The
Premium Classes available are Standard, Nonsmoker, with extra rating, Nonsmoker
with extra rating, and preferred. (See "Issuance of a Policy," Page 28.)
THE DEATH BENEFIT
As long as the Policy remains in force, PLACA will pay the Insurance
Proceeds to the Beneficiary upon receipt of due proof of the death of the
Insured. The Insurance Proceeds will consist of the Policy's Death Benefit, plus
any relevant additional benefits provided by a supplementary benefit rider, less
any outstanding Policy loan and accrued interest, less any unpaid Monthly
Deductions.
There are two Death Benefit Options available. Death Benefit Option A
provides for the greater of (a) the Face Amount and (b) the applicable
percentage of the Policy Account Value. Death Benefit Option B provides for the
greater of (a) the Face Amount plus the Policy Account Value and (b) the
applicable percentage of the Policy Account Value. (See "Death Benefit Options,"
Page 23.)
FLEXIBILITY TO ADJUST AMOUNT OF DEATH BENEFIT
After the first Policy Year, the Owner has significant flexibility to
adjust the Death Benefit by changing the Death Benefit Option or by increasing
or decreasing the Face Amount of the Policy. (See "Change in Death Benefit
Option," Page 25, and "Ability to Adjust Face Amount," Page 25.) The minimum
amount of a requested increase in Face Amount is $25,000 (or such lesser amount
required in a particular state) and any requested increase may require evidence
of insurability. Any decrease in Face Amount must be for at least $25,000 (or
such lesser amount required in a particular state) and cannot result in a Face
Amount less than the Minimum Face Amount available. PLACA reserves the right to
establish different Minimum Face Amounts for Policies issued in the future.
Any change in Death Benefit Options or in the Face Amount may affect the
charges under the Policy. Any increase in the Face Amount will result in an
increase in the Monthly Deductions and any increase in Face Amount will also
increase the surrender charges which are imposed upon lapse or surrender of the
Policy or the pro-rata surrender charges imposed upon a decrease in Face Amount
within the relevant ten-year period. For any decrease in Face Amount, that part
of the surrender charges attributable to the decrease will reduce the Policy
Account Value, and the surrender charges will be reduced by this amount. A
decrease in Face Amount may also affect cost of insurance charges. (See "Cost of
Insurance," Page 33.)
To the extent that a requested decrease in Face Amount would result in
cumulative premiums exceeding the maximum premium limitations applicable under
the Internal Revenue Code for life insurance, PLACA will not effect the
decrease.
POLICY ACCOUNT VALUE
The Policy Account Value is the total amount of value held under the Policy
at any time. It equals the sum of the amounts held in the Subaccounts, the
Guaranteed Account and the Loan Account. (See "Calculation of Policy Account
Value," Page 27.)
The Policy Account Value in the Subaccounts will reflect the investment
performance of the chosen Subaccounts, any Net Premiums paid, any transfers, any
partial withdrawals, any loans, any loan repayments, any loan interest paid or
credited and any charges assessed in connection with the Policy. The Owner bears
the entire investment risk for amounts allocated to the Subaccounts. There is no
guaranteed minimum for the portion of the Policy Account Value in the
Subaccounts.
The Guaranteed Account earns interest at rates PLACA declares in advance
for specific periods. The rates are guaranteed to equal or exceed 4%. The
principal, after deductions, is also guaranteed. The value of the Guaranteed
Account will reflect any amounts allocated or transferred to it plus interest
credited to it, less amounts deducted, transferred or withdrawn from it. (See
"The Guaranteed Account," Page 41.)
5
<PAGE> 15
The Loan Account will reflect any amounts transferred from the Subaccounts
and/or Guaranteed Account as collateral for Policy loans plus interest of at
least 4% credited to such amount. (See "Loan Privileges," Page 35.)
The Policy Account Value is relevant to the computation of the Death
Benefit and cost of insurance charges.
ALLOCATION OF NET PREMIUMS
Except as described below, Net Premiums will generally be allocated to the
Subaccounts and the Guaranteed Account in accordance with the allocation
percentages which are in effect for such premium when received by PLACA's
Administrative Office. These percentages will be those specified in the
application or as subsequently changed by the Owner or as specified for a
particular premium payment.
Where state law requires a return of gross premiums paid when a Policy is
returned under the Free-Look provision (see "Free-Look for Policy," Page 39) any
portion of the Initial Net Premium and any Net Premiums received before the
expiration of a 15-day period beginning on the later of the Policy Issue Date or
the date PLACA receives the Minimum Initial Premium, which are to be allocated
to the Subaccounts will be allocated to the Money Market Subaccount. At the end
of the 15-day period, the amount in the Money Market Subaccount (including
investment experience) will be allocated to each of the chosen Subaccounts based
on the proportion that the allocation percentage for such Subaccount bears to
the sum of the Subaccount premium allocation percentages. (See "Allocation of
Net Premiums," Page 29.)
TRANSFERS
The Owner may make transfers of the amounts in the Subaccounts and
Guaranteed Account between and among such accounts. Transfers between and among
the Subaccounts or into the Guaranteed Account will be made on the date we
receive the request. PLACA requires a minimum amount for each such transfer,
usually $1,000. Transfers out of the Guaranteed Account may only be made within
30 days of a Policy Anniversary and are limited in amount. If the Owner makes
more than four transfers in a Policy Year, a Transfer Charge of $25 will be
deducted from the amount being transferred. (See "Transfers," Page 30.)
FREE-LOOK PRIVILEGE
The Policy provides for an initial Free-Look period. The Owner may cancel
the Policy before the latest of: (a) 45 days after Part I of the Application for
the Policy is signed; (b) 10 days after the Owner receives the Policy; and (c)
10 days after PLACA mails or personally delivers a Notice of Withdrawal Right to
the Owner. Upon returning the Policy to PLACA or to an agent of PLACA within
such time with a written request for cancellation, the Owner will receive a
refund equal to the sum of: (i) the Policy Account Value as of the date PLACA
receives the returned Policy; plus (ii) the amount deducted for premium taxes;
plus (iii) any Monthly Deductions charged against the Policy Account Value; plus
(iv) an amount reflecting other charges directly or indirectly deducted under
the Policy. Where state law requires a minimum refund equal to gross premiums
paid, the refund will instead equal the gross premium paid on the Policy and
will not reflect the investment experience of the Subaccounts. (See "Free-Look
Privileges," Page 39.)
A Free-Look privilege also applies after a requested increase in Face
Amount. (See "Free-Look For Increase in Face Amount," Page 39.)
CHARGES ASSESSED IN CONNECTION WITH THE POLICY
Premium Expense Charge. A Premium Charge will be deducted from each
premium payment. This charge consists of:
(i) Premium Tax Charge for state and local premium taxes based on the rate
for the Insured's residence at the time the premium is paid. PLACA reserves the
right to change the amount of the charge deducted from future premiums if the
Insured's residence changes or the applicable law is changed;
6
<PAGE> 16
(ii) Percent of Premium Sales Charge which is equal to 2% of the amount of
the premium payment. (See "Premium Expense Charge," Page 30.) PLACA currently
intends to stop deducting this charge once the aggregate amount collected equals
or exceeds a specified amount.
(iii) Federal Tax Charge equal to 1.25% of the amount of the premium
payment. PLACA reserves the right to change the amount of this charge if the
applicable Federal Tax law changes PLACA's tax burden. (See "Premium Expense
Charge," Page 31.)
Monthly Deductions. On the Policy Date and on each Policy Processing Date
thereafter, the Policy Account Value will be reduced by a Monthly Deduction
equal to the sum of the monthly Cost of Insurance Charge, Monthly Administrative
Charge and a charge for additional benefits added by rider. The monthly Cost of
Insurance Charge will be determined by multiplying the Net Amount at Risk (that
is the Death Benefit less Policy Account Value) by the applicable cost of
insurance rate(s), which will depend upon the Attained Age, Sex, Premium Class
of the Insured and Duration and on PLACA's expectations as to future mortality
and expense experience, but which will not exceed the guaranteed maximum cost of
insurance rates set forth in the Policy based on the Insured's Attained Age,
Sex, Premium Class, and the "1980 Commissioners Standard Ordinary Smoker and
Nonsmoker Mortality Table." (See "Cost of Insurance," Page 33.) The Monthly
Administrative Charge is currently $7.50; the maximum permissible Monthly
Administrative Charge is $12. (See "Monthly Administrative Charge," Page 34.)
Surrender Charge and Additional Surrender Charge. A Surrender Charge is
imposed if the Policy is surrendered or lapses at any time before the end of the
tenth Policy Year. The Surrender Charge consists of a Deferred Administrative
Charge and a Deferred Sales Charge. A portion of this Surrender Charge will be
deducted if the Owner decreases the Initial Face Amount before the end of the
tenth Policy Year. (See "Surrender Charges," Page 31.) An Additional Surrender
Charge which is a Deferred Sales Charge, will be imposed if the Policy is
surrendered or lapses at any time within ten years after the effective date of
an increase in Face Amount. (See "Additional Surrender Charge," Page 32.) A
portion of an Additional Surrender Charge will be deducted if the related
increment of Face Amount is decreased within ten years after such increase took
effect. (See "Surrender Charge Upon Decrease in Face Amount," Page 33.)
The Deferred Administrative Charge is equal to an amount per $1,000 of Face
Amount (shown below) in Policy Years 1 to 6 declining by 20% each year in Policy
Years 7 to 10 until it is zero in Policy Year 11.
<TABLE>
<CAPTION>
CHARGE PER $1,000
ISSUE AGE OF FACE AMOUNT
- --------- -----------------
<S> <C>
1-5 $2
15 3
25 4
35-80 5
</TABLE>
For Issue Ages not shown the charge will increase by a ratable portion for
each full year.
The Deferred Sales Charge is equal to 28% of the premiums received during
the first Policy Year (or, for the Additional Surrender Charge, the first twelve
policy months after an increase) up to one target premium (which is an amount,
based on the age, Sex and Premium Class of the Insured, used solely for the
purpose of calculating the Surrender Charge) plus 7% of all other premiums
received to the date of surrender, lapse or decrease. The Deferred Sales Charge
and any Deferred Additional Sales Charges, however, will not exceed the Maximum
Deferred Sales Charge and Maximum Deferred Additional Sales Charges,
respectively. During Policy Years one through six (or for six years following
the effective date of an increase in Face Amount), this maximum equals 60% of
the target premium for the Initial Face Amount (or 60% of the target premium for
the increase, as the case may be). The maximum declines to 48% of the relevant
target premiums during the seventh year, 36% during the eighth year, 24% during
the ninth year and 12% during the tenth year.
Face Amount Increase Charge. A charge, currently $100 plus $1.00 per
$1,000 Face Amount increase, will be deducted from the Policy Account Value on
the effective date of an increase in Face Amount to compensate PLACA for
administrative expenses in connection with the increase. This charge may be
7
<PAGE> 17
increased in the future but in no event will it exceed $100 plus $3.00 per
$1,000 Face Amount increase. (See "Face Amount Increase Charge," Page 34.)
Transfer Charge. After the fourth transfer between accounts in a Policy
Year, a $25 charge for each additional transfer will be deducted from the amount
transferred to compensate PLACA for administrative costs in handling such
transfers. (See "Transfer Charge," Page 34.)
Partial Withdrawal Charge. A charge equal to $25 will be deducted by PLACA
from the Policy Account Value to compensate it for its costs. (See "Partial
Withdrawal Charge," Page 34.)
Daily Charges Against the Subaccounts. A daily charge for PLACA's
assumption of certain mortality and expense risks incurred in connection with
the Policy will be imposed at an annual rate which is currently 0.65% of the
average daily net assets of the Separate Account. This charge may be increased
in the future but in no event will it exceed an annual rate of 0.90%. (See
"Charges Against the Separate Accounts," Page 35.)
Shares of the Portfolios are purchased by the Subaccounts at net asset
value which reflects management fees and expenses deducted from the assets of
the Portfolios.
TABLE OF FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND ANNUAL
EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fees (Investment
Advisory Fees ).............. 0.32% 0.25% 0.35% 0.41% 0.45% 0.75%
Other Expenses................. 0.11% 0.14% 0.22% 0.17% 0.18% 0.27%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses..... 0.43% 0.39% 0.57% 0.58% 0.63% 1.02%
</TABLE>
<TABLE>
<CAPTION>
ALL-PRO LARGE ALL-PRO ALL-PRO ALL-PRO
CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND ANNUAL
EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fees (Investment
Advisory Fees)............... 0.70% 0.70% 0.90% 0.90%
Other Expenses................. 0.40% 0.40% 0.40% 0.40%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses..... 1.10% 1.10% 1.30% 1.30%
</TABLE>
<TABLE>
<CAPTION>
SMALL
CAPITALIZATION
PORTFOLIO
--------------
<S> <C> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND ANNUAL
EXPENSES(2) (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Management Fees (Investment
Advisory Fees)............... 0.85%
Other Expenses................. 0.04%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses..... 0.89%
</TABLE>
8
<PAGE> 18
<TABLE>
<CAPTION>
HIGH EQUITY
INCOME INCOME GROWTH OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS
FUND ("VIP FUND") ANNUAL
EXPENSES(2) (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Management Fees (Investment
Advisory Fees)............... 0.59% 0.49% 0.60% 0.74%
Other Expenses (after
reimbursement)(1)............ 0.12% 0.08% 0.07% 0.16%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(1)..... 0.71% 0.57% 0.67% 0.90%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT
ASSET INDEX GRADE
MANAGER 500 BOND CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS
FUND II ("VIP II FUND") ANNUAL
EXPENSES(2) (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Management Fees (Investment
Advisory Fees)............... 0.55% 0.28% 0.44% 0.59%
Other Expenses (after
reimbursement)(1)............ 0.09% 0.00% 0.14% 0.09%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(1)..... 0.64% 0.28% 0.58% 0.68%
</TABLE>
<TABLE>
<CAPTION>
LIMITED
MATURITY
BOND PARTNERS
PORTFOLIO PORTFOLIO
-------------- ---------
<S> <C> <C> <C> <C> <C> <C>
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST ANNUAL
EXPENSES(2) (AS A PERCENTAGE
OF AVERAGE NET ASSETS)
Management Fees (Investment
Advisory Fees)............... 0.65% 0.80%
Other Expenses................. 0.12% 0.06%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses..... 0.77% 0.86%
</TABLE>
9
<PAGE> 19
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
WORLDWIDE HARD EMERGING REAL
BOND ASSETS MARKETS ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE
TRUST ANNUAL EXPENSES(2) (AS
A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees (Investment
Advisory Fees)............... 1.00% 1.00% 1.00% 1.00%
Other Expenses (after
reimbursement)(1)............ 0.12% 0.17% 0.00% 0.17%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(1)..... 1.12% 1.17% 1.00% 1.17%
</TABLE>
- ---------------
(1) For certain portfolios, certain expenses were reimbursed during 1997. It is
anticipated that expense reimbursement and fee waiver arrangements will
continue past the current year. Absent the expense reimbursement, the 1997
Other Expenses and Total Annual Expenses would have been 0.09%, 0.58%,
respectively, for the VIP Fund Equity Income Portfolio, 0.09%, 0.69%,
respectively, for the VIP Fund Growth Portfolio, 0.17%, 0.91%,
respectively, for the VIP II Fund Overseas Portfolio, 0.10%, 0.65%,
respectively, for the VIP II Fund Asset Manager Portfolio, 0.13%, 0.40%,
respectively, for the VIP II Fund Index 500 Portfolio, 0.11%, 0.71%,
respectively, for the VIP II Fund Contrafund Portfolio, and 0.18%, 1.18%,
respectively, for the Van Eck Worldwide Hard Assets Portfolio. Similar
expense reimbursement and fee waiver arrangements were also in place for
the other Portfolios and it is anticipated that such arrangements will
continue past the current year. However, no expenses were reimbursed or
fees waived during 1997 for these Portfolios because the level of actual
expenses and fees never exceeded the thresholds at which the reimbursement
and waiver arrangements would have become operative.
(2) The fee and expense information regarding the Funds was provided by those
Funds. The Alger American Fund, the VIP Fund, the VIP II Fund, the
Neuberger & Berman ATM Fund, and the Van Eck WIT Fund are not affiliated
with PLACA.
POLICY LAPSE AND REINSTATEMENT
During the first three Policy Years, the Policy will lapse if the Minimum
Guarantee Premium has not been paid and if the Net Cash Surrender Value is
insufficient to cover the Monthly Deductions and a 61-day Grace Period expires
without a sufficient premium payment. After the third Policy Year the Policy
will lapse if the Net Cash Surrender Value is insufficient and the Grace Period
lapses without a sufficient premium payment. The failure to pay a Planned
Periodic Premium will not itself cause a Policy to lapse. (See "Policy Lapse,"
Page 30.)
Subject to certain conditions, including evidence of insurability
satisfactory to PLACA and the payment of a sufficient premium, a Policy may be
reinstated at any time within three years (or such longer period as may be
required in a particular state) after the expiration of the Grace Period and
before the Final Policy Date. (See "Reinstatement," Pages 30.)
LOAN PRIVILEGE
The Owner may obtain Policy loans in a minimum amount of $500 (or such
lesser minimum as may be required in a particular state) but not exceeding, in
the aggregate, the Net Cash Surrender Value.
Policy loans will bear interest at a fixed rate of 6% per year, payable at
the end of each Policy Year. If interest is not paid when due, it will be added
to the outstanding loan balance. Policy loans may be repaid at any time and in
any amount prior to the Final Policy Date.
Policy loans are allocated to the Subaccounts and the Guaranteed Account
based on the proportion that each account's value bears to the total unloaned
Policy Account Value. Based on this allocation, the collateral
10
<PAGE> 20
for the loan is deducted from each account and transferred to the Loan Account.
This amount in the Loan Account will earn interest at an effective annual rate
PLACA will determine prior to each calendar year. This rate will not be less
than 4%. (See "Loan Privileges," Page 35.)
Depending upon the investment performance of the Subaccounts and the
amounts borrowed, loans may cause a Policy to lapse. Lapse of the Policy with
outstanding loans may result in adverse tax consequences. (See "Tax Treatment of
Policy Benefits," Page 48.)
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After the first Policy Year, the Owner may, subject to certain
restrictions, request a partial withdrawal of Net Cash Surrender Value. The
minimum amount for such withdrawal is $1,500. An expense charge of $25 will be
deducted from the Policy Account Value for each withdrawal. The withdrawal
amount and expense charge will be allocated to the Subaccounts and the
Guaranteed Account based on the proportion that the value in each account bears
to the total unloaned Policy Account Value. If Death Benefit Option A is in
effect, PLACA will reduce the Face Amount by the amount of the withdrawal. (See
"Partial Withdrawal of Net Cash Surrender Value," Page 36.)
SURRENDER OF THE POLICY
The Owner may at any time fully surrender the Policy and receive the Net
Cash Surrender Value, if any. The Net Cash Surrender Value will equal the Policy
Account Value less any Policy loan and any applicable surrender charges. (See
"Surrender Privilege," Page 36.)
ACCELERATED DEATH BENEFIT
Under the Accelerated Death Benefit Rider, an Owner may receive, at his or
her request and upon approval by PLACA, accelerated payment of part of the
Policy's Death Benefit if the Insured develops a Terminal Illness or is
permanently confined to a Nursing Care Facility (see "Accelerated Death
Benefit," Page 38.)
TAX TREATMENT
PLACA believes (based upon Notice 88-128 and the proposed Regulations under
Section 7702, issued on July 5, 1991) that a Policy issued on a standard premium
class basis generally should meet the Section 7702 definition of a life
insurance contract. With respect to a Policy issued on an extra rating (i.e.,
substandard) basis, there is insufficient guidance to determine if such a Policy
would satisfy the Section 7702 definition of a life insurance contract,
particularly if the Owner pays the full amount of premiums permitted under such
a Policy. An Owner of a Policy issued on an extra rating basis may, however,
adopt certain self-imposed limitations on the amount of premiums paid for such a
Policy which should cause the Policy to meet the Section 7702 definition of a
life insurance contract. Any Owner contemplating the adoption of such
limitations should do so only after consulting a tax adviser.
Assuming that a Policy qualifies as a life insurance contract for Federal
income tax purposes, a Policyowner should not be deemed to be in constructive
receipt of Policy Account Value under a Policy until there is a distribution
from the Policy. Moreover, death benefits payable under a Policy should be
completely excludable from the gross income of the Beneficiary. As a result, the
Beneficiary generally should not be taxed on these proceeds. (See "Tax Status of
the Policy," Page 46.)
Under certain circumstances, a Policy may be treated as a "Modified
Endowment Contract." If the Policy is a Modified Endowment Contract, then all
pre-death distributions, including Policy loans, will be treated first as a
distribution of taxable income and then as a return of basis or investment in
the contract. In addition, prior to age 59 1/2 any such distributions generally
will be subject to a 10% penalty tax. (For further discussion on the
circumstances under which a Policy will be treated as a Modified Endowment
Contract, See "Tax Treatment of Policy Benefits," Page 48.)
If the Policy is not a Modified Endowment Contract, distributions generally
will be treated first as a return of basis or investment in the contract and
then as disbursing taxable income. Moreover, loans will not be treated as
distributions. Finally, neither distributions nor loans from a Policy that is
not a Modified
11
<PAGE> 21
Endowment Contract are subject to the 10% penalty tax. (See "Distributions from
Policies Not Classified as Modified Endowment Contracts," Page 49.)
UNISEX POLICIES
Policies issued in states which require "unisex" policies (currently
Montana) provide for policy values which do not vary by the sex of the Insured.
(See "Cost of Insurance," Page 33.) In addition, Policies issued in conjunction
with employee benefit plans provide for policy values which do not vary by the
sex of the Insured. (See "Policies Issued in Conjunction with Employee Benefit
Plans," Page 50.) Thus, references in this Prospectus to sex-distinct and any
values that vary by the sex of the Insured are not applicable to Policies issued
in states which require "unisex" policies or to Policies issued in conjunction
with employee benefit plans. Illustrations of the effect of these unisex rates
on premiums, cash surrender values, and Death Benefits are available from PLACA
on request.
ILLUSTRATIONS OF DEATH BENEFITS, POLICY ACCOUNT VALUE AND NET CASH SURRENDER
VALUE
Illustrations of how investment performance of the Subaccounts may cause
Death Benefits, the Policy Account Value and the Net Cash Surrender Value to
vary are included in Appendix A commencing on page A-1. Illustrations in this
Prospectus or used in connection with the purchase of the Policy are based on
hypothetical investment rates of return. These rates are not guaranteed. They
are illustrative only and should not be deemed a representation of past or
future performance. Actual rates of return may be more or less than those
reflected in the illustrations and, therefore, actual values will be different
than those illustrated.
THE COMPANY, VARIABLE ACCOUNT AND FUNDS
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
The Contracts are issued by PLACA which is a stock life insurance company
originally incorporated under the name of Washington Square Life Insurance
Company in the Commonwealth of Pennsylvania in 1958. The name of the Company was
changed from Washington Square to PLACA in 1991 and the Company was redomiciled
as a Delaware insurance company in December, 1992. PLACA is currently licensed
to transact life insurance business in 48 states and the District of Columbia.
As of December 31, 1997, PLACA had total assets of approximately $1.2 billion.
PLACA is a wholly-owned subsidiary of Provident Mutual Life Insurance
Company ("PMLIC"). PMLIC was chartered by the Commonwealth of Pennsylvania in
1865 and at the end of 1997 had total assets of approximately $7.9 billion. On
December 31, 1997, Providentmutual and PMLIC entered into a Support Agreement
whereby PMLIC agrees to ensure that Providentmutual's total adjusted capital
will remain at the level of 200% of the company action level for risk-based
capital ("RBC") at the end of each calendar quarter during the term of the
agreement, agreeing to contribute to Providentmutual an amount of capital
sufficient to attain such level of total adjusted capital. RBC requirements are
used to monitor sufficient capitalization of insurance companies based upon the
types and mixtures of risk inherent in such companies' operations.
Further, PMLIC agrees to cause Providentmutual to maintain cash or cash
equivalents from time to time as may be necessary during the term of the
agreement in an amount sufficient for the payment of benefits and other
contractual claims pursuant to policies and other contracts issued by
Providentmutual. This agreement will remain in effect provided Providentmutual
is, and remains, a subsidiary of PMLIC. Prior to any material modification or
termination of the agreement, a determination must be made that such
modification of termination will not have an adverse impact on the policyholders
of Providentmutual. Such determination shall be based on the ability of
Providentmutual at the time of such determination to maintain its own financial
stability according to the standards contained in the agreement.
Other than this Support Agreement, PMLIC is under no obligation to invest
money in PLACA nor is it in any way a guarantor of PLACA's contractual
obligations or obligations under the Contract.
PLACA is subject to regulation by the Insurance Department of the State of
Delaware as well as by the insurance departments of all other states and
jurisdictions in which it does business. PLACA submits annual statements on its
operations and finances to insurance officials in such states and jurisdictions.
The forms for
12
<PAGE> 22
the Contract described in this Prospectus are filed with and (where required)
approved by insurance officials in each state and jurisdiction in which
Contracts are sold.
PLACA 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 PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT
The Providentmutual Variable Life Separate Account (the "Variable Account")
is a separate investment account of PLACA, established by the Board of Directors
of PLACA, under Delaware law to support the operation of the Policy and to
support other variable life insurance policies. PLACA has caused the Variable
Account to be registered with the Securities and Exchange Commission (the "SEC")
as a unit investment trust under the Investment Company Act of 1940 (the "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 PLACA. However, these
assets are held separate from other assets and are not part of PLACA'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 PLACA conducts. PLACA may
transfer to its General Account any assets of the Variable Account that 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 and losses, realized or unrealized, from assets allocated
to the Variable Account are credited to or charged against the Variable Account
without regard to other income, gains or losses of PLACA. PLACA may accumulate
in the Variable Account the charge for mortality and expense risks, mortality
gains and losses and investment results applicable to those assets that are in
excess of the net assets supporting the Contracts. An Owner will share only in
the income, gains and losses of the particular Subaccounts to which his or her
Net Premium payments have been allocated or to which portions of the Policy
Account Value have been transferred.
The Variable Account currently has twenty-five Subaccounts: Growth, Money
Market, Bond, Managed, Aggressive Growth, International, All Pro Large Cap
Growth, All Pro Large Cap Value, All Pro Small Cap Growth, All Pro Small Cap
Value, Alger American Small Capitalization, Fidelity Asset Manager, Fidelity
Contrafund, Fidelity Equity Income, Fidelity Growth, Fidelity High Income,
Fidelity Index 500, Fidelity Investment Grade Bond, Fidelity Overseas, Neuberger
& Berman Balanced, Neuberger & Berman Growth, Neuberger & Berman Limited
Maturity Bond, Neuberger & Berman Partners American Century Growth, Van Eck
Worldwide Bond, Van Eck Worldwide Hard Assets, Van Eck Worldwide Emerging
Markets, and VanEck Worldwide Real Estate Investment Trust. 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 for new business in portfolios of
six series-type mutual funds: Market Street Fund, Inc.; The Alger American Fund;
Neuberger & Berman Advisers Management Trust; Van Eck Investment Trust; Variable
Insurance Products Fund; and Variable Insurance Products Fund II (collectively,
the "Funds"). Each of the Funds are registered with the SEC under the 1940 Act
as an open-end diversified investment company. The SEC does not, however,
supervise the management or the investment practices and policies of the Funds.
The assets of each Fund portfolio are separate from other portfolios of
that Fund and each portfolio has separate investment objectives and policies. As
a result, each portfolio operates as a separate investment portfolio and the
investment performance of one portfolio has no effect on the investment
performance of any other portfolio. Some of the Funds may, in the future, create
additional portfolios. The investment experience of each of the Subaccounts of
the Variable Account depends on the investment performance of its corresponding
portfolio.
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Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between the Fund and PLACA. The
termination provisions of those agreements vary (see "Termination of
Participation Agreements," Page 22). Should an agreement between PLACA 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 PLACA has
not been terminated. Should a Fund or a portfolio of a Fund decide not to sell
its shares to PLACA, PLACA 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 Variable Account has ten Subaccounts that invest exclusively in shares
of The Market Street Fund, Inc., a "series" type of mutual fund which is
registered with the SEC under the 1940 Act as a diversified open-end management
investment company. The Fund currently issues eleven "series" or classes of
shares, each of which represents an interest in a separate Portfolio within the
Fund. Shares of 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 Portfolios currently are purchased and
redeemed by the corresponding Subaccount. The Fund sells and redeems its shares
at net asset value without a sales charge.
The Fund presently serves as an investment medium for other variable life
and variable annuity contracts issued both by PLACA and Provident Mutual Life
Insurance Company ("PMLIC") which wholly-owns PLACA. At some later date, the
Fund may serve as an investment medium for other variable life policies and
variable annuity contracts issued by PLACA and may be made available as an
investment medium for variable contracts issued by other insurance companies,
including affiliated and unaffiliated companies of PLACA. PLACA currently does
not foresee any disadvantages to Owners arising out of the fact that the Fund
will offer its shares to fund products other than PLACA's policies. However, the
Fund's Board of Directors intends to monitor events in order to identify any
material irreconcilable conflicts that possibly may arise and to determine what
action, if any, should be taken in response to those events or conflicts.
The investment objectives of the Fund's portfolios are set forth below. The
investment experience of each of the Subaccounts depends on the investment
performance of the corresponding portfolio. There is no assurance that any
portfolio will achieve its stated objective.
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 total 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.
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All Pro Large Cap Growth Portfolio. The All Pro Large 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 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. The All Pro Small Cap Growth Portfolio
seeks to achieve long-term capital appreciation. The Portfolio pursues its
objective by investing primarily in common stock and other equity securities of
companies that rank between 751 and 1,750 in size measured by market
capitalization at the time of purchase, which the Advisers believe show
potential for growth in future earnings.
All Pro Large Cap Value Portfolio. The 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. The All Pro Small Cap Value Portfolio
seeks to provide long-term capital appreciation. The Portfolio pursues this
objective by investing primarily in undervalued common stock and other equity
securities of companies that rank between 751 and 1,750 in size measured by
market capitalization at the time of purchase, which the Advisers believe offer
above-average potential for growth in future earnings.
With respect to the Growth, Money Market, Bond, Managed and Aggressive
Growth Portfolios, the Fund is advised by Sentinel Advisors Company (SAC), which
is registered with the SEC as an investment adviser under the Investment
Advisers Act of 1940. As compensation for its services, SAC receives monthly
compensation as follows:
Growth Portfolio -- 0.50% of the first $20 million of the average
daily net assets of the Growth Portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio, and 0.30% of the average
daily net assets in excess of $40 million.
Money Market Portfolio -- 0.25% of the average daily net assets of the
portfolio.
Bond Portfolio -- 0.35% of the first $100 million of the average daily
net assets of the portfolio and 0.30% of the average daily net assets in
excess of $100 million.
Managed Portfolio -- 0.40% of the first $100 million of the average
daily net assets of the portfolio and 0.35% of the average daily net assets
in excess of $100 million.
Aggressive Growth Portfolio -- 0.50% of the first $20 million of the
average daily net assets of the portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio and 0.30% of the average
daily net assets in excess of $40 million.
With respect to the International Portfolio, the Fund is advised by
Providentmutual Investment Management Company ("PIMC") which receives monthly
compensation at an effective annual rate of 0.75% of the first $500 million of
the average daily net assets of the portfolio and 0.60% of the average daily net
assets in excess of $500 million. PIMC has employed The Boston Company Asset
Management, Inc. ("Boston Company") to provide investment advisory services in
connection with the portfolio. As compensation for the investment advisory
services rendered, PIMC pays The Boston Company a monthly fee at an effective
rate of 0.375% of the first $500 million of the average daily net assets of the
portfolio and 0.30% of the average daily net assets in excess of $500 million.
PIMC serves as investment adviser for the All Pro Portfolios. As
compensation for its services, PIMC receives .70% of the daily net assets of the
All Pro Large Cap Growth and All Pro Large Cap Value Portfolios, and .90% of the
daily net assets of the All Pro Small Cap Growth and All Pro Small Cap Value
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.
Additionally, PIMC has retained Wilshire Associates Incorporated
("Wilshire") to assist it in identifying potential sub-advisers and performing
the quantitative analysis necessary to assess such sub-advisers' styles
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<PAGE> 25
and performance. As compensation for these services, PIMC pays Wilshire from its
investment advisory fees, .05% of the average daily net assets of the All Pro
Portfolios.
All Pro Large Cap Growth. As of the date of this prospectus, the assets of
the All Pro Large Cap Growth Portfolio are managed in part by Cohen,
Klingenstein & Marks, Inc. ("CKM"); in part by Geewax, Terker & Co. ("Geewax");
and in part by Oak Associates, Ltd. ("Oak"); pursuant to separate investment
sub-advisory agreements. As compensation for their services PIMC pays from its
investment advisory fees the following percentages of the daily net assets of
the Portfolio: CKM -- .35%; Geewax -- .30%; Oak -- .35%.
All Pro Small Cap Growth. As of the date of this prospectus, the assets of
the All Pro Small Cap Growth Portfolio are managed in part by Standish, Ayer &
Wood ("SAW"), and in part by Husic Capital Management ("Husic"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: SAW -- .50%; Husic -- .50%.
All Pro Large Cap Value. As of the date of this prospectus, the assets of
the All Pro Large Cap Value Portfolio are managed in part by Equinox Capital
Management, Inc. ("Equinox"); in part by Harris Associates, Inc. ("Harris"); and
in part by Mellon Equity Associates ("Mellon"), pursuant to separate investment
sub-advisory agreements. As compensation for their services PIMC pays from its
investment advisory fees the following percentages of the daily net assets of
the Portfolio: Equinox -- .30% of the first $50 million of assets and .25% of
the remaining assets; Harris -- .65% of the first $50 million of assets, .60% of
the next $50 million of assets and .55% of the remaining assets; Mellon -- .30%.
All Pro Small Cap Value. As of the date of this prospectus, the assets of
the All Pro Small Cap Value Portfolio are managed in part by 1838 Investment
Advisors ("1838") and in part by Denver Investment Advisors ("DIA"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: 1838 -- .55%; DIA -- .75% of the first $25
million of assets and .65% on the remaining assets.
In addition to the fee for the investment advisory services, the Fund pays
its own expenses generally, including brokerage costs, administrative costs,
custodial costs, and legal, accounting and printing costs. However, PMLIC has
entered into an agreement with the Fund whereby it will reimburse the Fund for
all ordinary operating expenses, excluding advisory fees in excess of an annual
rate of 0.40% of the average daily net assets of each portfolio except the
International Portfolio, and 0.75% for the International Portfolio. It is
anticipated that this agreement will continue; if it is terminated, Fund
expenses may increase.
A more extensive description of the Fund, its investment objectives and
policies, its risks, expenses, and all other aspects of its operations is
contained in the Prospectus for the Fund, which accompanies this Prospectus and
should be read together with this Prospectus.
THE ALGER AMERICAN FUND
The Variable Account has one Subaccount that invests exclusively in shares
of a Portfolio of The Alger American Fund ("Alger American"). Alger American is
a "series" type mutual fund registered with the SEC as a diversified open-end
management investment company issuing a number of series or classes of shares,
each of which represents an interest in a Portfolio of Alger American.
The Alger American Small Capitalization Subaccount of the Variable Account
invests in shares of the Alger American Small Capitalization Portfolio of Alger
American. (Alger American has other investment portfolios that are not offered
to the Variable Account or under the Policies.) Shares of the Alger American
Small Capitalization Portfolio are purchased and redeemed by the Variable
Account at net asset value without a sales charge. The Variable Account
purchases shares of Alger American Small Capitalization Portfolio from Alger
American in accordance with a participation agreement between Alger American and
PLACA. The termination provisions of this participation agreement is described
below.
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Alger American Small Capitalization Portfolio seeks long-term capital
appreciation by focusing on small, fast-growing companies that offer innovative
products, services or technologies to a rapidly expanding marketplace.
The investment adviser for the Alger American Small Capitalization
Portfolio is Fred Alger Management, Inc. ("Alger Management"), which is
registered with the SEC as an Investment Adviser under the Investment Advisors
Act of 1940. As compensation for its services, Alger Management receives a fee
at the end of each month at an annual rate of .85% of the average net assets of
the Alger American Small Capitalization Portfolio.
A more extensive description of Alger American and the Alger American Small
Capitalization Portfolio, including the Portfolio's investment objectives and
policies, risks, expenses and other aspects of its operations are contained in
the Prospectus for Alger American which accompanies this Prospectus.
VARIABLE INSURANCE PRODUCT FUND AND VARIABLE INSURANCE PRODUCTS FUND II
Variable Account has eight Subaccounts that invest exclusively in shares of
Portfolios of the Variable Insurance Products Fund (the "VIP Fund") or of the
Variable Insurance Products Fund II (the "VIP II Fund"). The VIP Fund and the
VIP II Fund are each "series" type mutual funds registered with the SEC as
diversified open-end management investment companies issuing a number of series
or classes of shares, each of which represents an interest in a Portfolio of the
Fund.
The Fidelity Equity-Income Subaccount, Fidelity Growth Subaccount, Fidelity
High Income Subaccount and Fidelity Overseas Subaccount of the Variable Account
invest in shares of the VIP Equity-Income Portfolio, VIP Growth Portfolio, VIP
High Income Portfolio and VIP Overseas Portfolio, respectively, of the VIP Fund.
The Fidelity Asset Manager Subaccount, Contrafund Subaccount, Fidelity Index 500
Subaccount and Fidelity Investment Grade Bond Subaccount of the Variable Account
invest in shares of the VIP II Asset Manager Portfolio, VIP II Contrafund
Portfolio, VIP II Index 500 Portfolio and VIP II Investment Grade Bond
Portfolio, respectively, of the VIP II Fund. (The VIP Fund and VIP II Fund have
other investment portfolios that are not offered to the Variable Account or
under the Policies.) Shares of these Portfolios are purchased and redeemed by
the Variable Account at net asset value without a sales charge. The Variable
Account purchases shares of the Portfolios from the VIP Fund and the VIP II Fund
in accordance with a participation agreement between each Fund and PLACA. The
termination provisions of these participation agreements are described below.
The investment objectives of the Portfolios of the VIP Fund and the VIP II
Fund in which the Subaccounts will invest are set forth below. The investment
experience of each Subaccount depends upon the investment performance of the
corresponding Portfolio. There is no assurance that any Portfolio will achieve
its stated objective.
VIP Fund
VIP Equity-Income Portfolio. This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the VIP Equity-Income 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 VIP Growth Portfolio normally purchases common stocks,
although its investments are not restricted to any one type of security. Capital
appreciation may also be found in other types of securities, including bonds and
preferred stocks.
VIP High Income Portfolio. This Portfolio seeks to obtain a high level of
current income by investing primarily in high-yielding, lower-rated,
fixed-income securities, while also considering growth of capital.
VIP Overseas Portfolio. This Portfolio seeks long term growth of capital
primarily through investments in foreign securities. The VIP Overseas Portfolio
provides a means for diversification by participating in companies and economies
outside of the United States.
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VIP II Fund
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 VIP II Index 500 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.
VIP II Investment Grade Bond Portfolio. This Portfolio seeks as high a
level of current income as is consistent with the preservation of capital by
investing in a broad range of investment-grade fixed-income securities. The
Portfolio will maintain a dollar-weighted average portfolio maturity of ten
years or less.
The VIP Equity-Income, VIP Growth, VIP High Income, and VIP Overseas
Portfolios of the VIP Fund and the VIP II Asset Manager, VIP II Contrafund, VIP
II Index 500 and VIP II Investment Grade Bond Portfolios of the VIP II Fund are
managed by Fidelity Management & Research Company ("FMR"). For managing its
investments and business affairs, each Portfolio pays FMR a monthly fee.
For the VIP Equity-Income, VIP Growth, VIP Overseas VIP II Contrafund and
VIP II Asset Manager Portfolios, the annual fee rate is the sum of two
components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.52% and it
drops (to as low as a marginal rate of 0.30% when average group assets
exceed $174 billion) as total assets in all these funds rise.
2. An individual fund fee rate of 0.20% for the VIP Equity-Income
Portfolio, 0.30% for the VIP Contrafund, VIP Growth and VIP II Asset
Manager Portfolios and 0.45% for the VIP Overseas Portfolio.
One-twelfth of the combined annual fee rate is applied to each Portfolio's
net assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
The VIP II Index 500 Portfolio pays FMR a monthly management fee at the
annual rate of 0.28% of the Portfolio's average net assets. One-twelfth of this
annual fee rate is applied to the net assets averaged over the most recent
month, giving a dollar amount which is the fee for that month.
For the VIP High Income and VIP II Investment Grade Bond Portfolios, the
annual fee rate is the sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
drops (to as low as a marginal rate of 0.14%) as total assets in all
these funds rise.
2. An individual fund fee rate of 0.45% for the VIP High Income Portfolio
and 0.30% for the VIP II Investment Grade Bond Portfolio.
One twelfth of the combined annual fee rate is applied to the
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.
On behalf of the VIP II Asset Manager Portfolio and the VIP II
Contrafund 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. Under the sub-advisory
agreements, FMR and not the Portfolios pay FMR (U.K.) and FMR Far East fees
equal to 100% and 105%, respectively, of each sub-advisor's costs incurred
in connection with its sub-advisory agreement.
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On behalf of the VIP Overseas Portfolio, FMR has entered into
sub-advisory agreements with FMR (U.K.), FMR Far East, and Fidelity
International Investment Advisors ("FIIA"). FIIA, in turn, has entered into
a sub-advisory agreement with its wholly owned subsidiary Fidelity
International Investment Advisors (U.K.) Limited (FIIAL U.K.). Under the
sub-advisory agreements, FMR may receive investment advice and research
services with respect to companies based outside the U.S. and may grant
them investment management authority as well as the authority to buy and
sell securities if FMR believes it would be beneficial to the Portfolio.
Currently, FMR (U.K.), FMR Far East, FIIA and FIIAL U.K. each focus on
investment opportunities in countries other than the U.S., including
countries in Europe, Asia and the Pacific Basin.
Under the sub-advisory agreements FMR pays the fees of FMR (U.K.), FMR
Far East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors
are compensated as follows:
- FMR pays FMR (U.K.) and FMR Far East fees equal to 110% and 105%,
respectively, of FMR (U.K.)'s and FMR Far East's costs incurred in
connection with providing investment advice and research services.
- FMR pays FIIA 30% of its monthly management fee with respect to the
average market value of investments held by the Portfolio for which FIIA
has provided FMR with investment advice.
- FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred
in connection with providing investment advice and research services.
For providing investment management services, the sub-advisors are
compensated according to the following formulas:
- FMR pays FMR (U.K.), FMR Far East, and FIIA 50% of its monthly management
fee with respect to the Portfolio's average net assets managed by the
sub-advisor on a discretionary basis.
- FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection
with providing investment management.
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 fees for pricing and bookkeeping services are based on each Portfolio's
average net assets but must fall within a range of $45,000 to $750,000. The fees
for securities lending services are based on the number and duration of
individual securities loans.
FMR may, from time to time, agree to reimburse a Portfolio for management
fees and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without notice,
will increase a Portfolio's yield. If FMR discontinues a reimbursement
arrangement, each Portfolio's expenses will go up and its yield will be reduced.
FMR retains the right to be repaid by a Portfolio for expense reimbursements if
expenses fall below the limit prior to the end of a fiscal year. Repayment by a
Portfolio will lower its yield. FMR has voluntarily agreed to reimburse the
management fees and all other expenses (excluding taxes, interest and
extraordinary expenses) in excess of 1.50% of the average net assets of the VIP
Equity-Income and VIP Growth Portfolios, 1.25% of the average net assets of the
VIP II Asset Manager Portfolio and 0.28% of the average net assets of the VIP II
Index 500 Portfolio.
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A more extensive description of the VIP Fund and the VIP II Fund, the
investment of objectives and policies of the Portfolios, the risks, expenses and
all other aspects of their operation is contained in the prospectuses for the
VIP Fund and VIP II Fund which accompany this Prospectus. You should note that
the VIP Fund and VIP II Fund have other investment portfolios that are not
available with the variable life insurance policies issued by PLACA.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
The Variable Account has two Subaccounts that invest exclusively in shares
of Portfolios of the Neuberger & Berman Advisers Management Trust ("AMT") for
new business. AMT is a "series" type mutual fund registered with the SEC as a
diversified open-end management investment company issuing a number of series or
classes of shares, each of which represents an interest in a Portfolio of AMT.
The Neuberger & Berman Limited Maturity Bond Subaccount and Neuberger &
Berman Partners Subaccount of the Variable Account invest in shares of the
Limited Maturity Bond Portfolio and Partners Portfolio, respectively, of AMT.
(AMT has other investment portfolios that are not offered to the Variable
Account or under the Policies.) Shares of these Portfolios are purchased and
redeemed by the Variable Account at net asset value without a sales charge. The
Variable Account purchases shares of the Portfolios from AMT in accordance with
a participation agreement between AMT and PLACA. The termination provisions of
this participation agreement is described below.
Each Portfolio of AMT invests all of its net investable assets in its
corresponding Series (each, a "Series") of Advisers Managers Trust ("Managers
Trust"), an open-end management investment company. Each Series invests in
securities in accordance with an investment objective, policies and limitations
identical to those of its corresponding Portfolio. This "master/feeder fund"
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities. For more
information regarding this structure, see the prospectus for AMT.
In that the investment objective of each Portfolio matches that of its
corresponding Series, the following describes the investment objective of each
Series underlying the Portfolio of AMT in which the Subaccounts will invest. The
investment objectives of the Portfolios of AMT in which the Subaccounts will
invest are set forth below. The investment experience of each Subaccount depends
upon the investment performance of its corresponding Portfolio. There is no
assurance that any Portfolio will achieve its stated objective.
Limited Maturity Bond Portfolio. The Series corresponding to this
Portfolio seeks the highest current income consistent with low risk to principal
and liquidity and secondarily, total return, through investment in short to
intermediate term debt securities, primarily investment grade.
Partners Portfolio. The Series corresponding to this Portfolio seeks
capital growth through investment in common stocks and other equity securities
of medium to large capitalization established companies.
The Investment Adviser for the Series of Managers Trust corresponding to
the Limited Maturity Bond and Partners Portfolios of AMT is Neuberger & Berman
Management Incorporated ("N&B Management"). As compensation for its services, N
& B Management receives a monthly fee from AMT at the following percentages of
daily net assets of the corresponding Portfolio: Limited Maturity Bond
Portfolio -- 0.25% of first $500 million, 0.225% of next $500 million, 0.20% of
next $500 million, 0.175% of next $500 million and 0.15% of over $2 billion;
Partners Portfolio -- 0.55% of first $250 million, 0.525% of next $250 million,
0.50% of next $250 million, 0.475 of next $250 million, 0.45% of next $500
million, and 0.425% of over $1.5 billion.
A more extensive description of AMT, the investment objectives of the
available Portfolios, the risks, expenses and all other aspects of their
operation is contained in the prospectuses for the Limited Maturity Bond and
Partners Portfolios of AMT, which accompany this Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
The Variable Account has four Subaccounts that invest exclusively in shares
of Portfolios of Van Eck Worldwide Insurance ("Van Eck Trust"). The Van Eck
Trust is a "series" type mutual fund registered with
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the SEC as a diversified open-end management investment company issuing a number
of series or classes of shares, each of which represents an interest in a
Portfolio of Van Eck 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 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 Portfolios from the Van Eck Trust in accordance
with a participation agreement between the Van Eck Trust and PLACA. 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, petrochemicals or other hydrocarbons,
(iv) forest products, (v) real estate and (vi) other basic non-agricultural
commodities. Income is a secondary consideration
Van Eck Worldwide Bond Portfolio seeks high total return through a flexible
policy of investing globally, primarily in debt securities.
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 Hard Assets, Van Eck
Worldwide Bond and Van Eck 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. As compensation for its services to the Worldwide Hard Assets and
Worldwide Bond Portfolios, Van Eck Associates receives a monthly fee at an
annual rate of 1.0% of the first $500 million of the average daily net assets of
the Portfolios, 0.90% of the next $250 million of the daily net assets of the
Portfolios, and 0.70% of the average daily net assets of the Portfolios in
excess of $750 million. As compensation for its services to the Worldwide
Emerging Markets and Van Eck Worldwide Real Estate Portfolios, Van Eck
Associates or its affiliate receives a monthly fee at an annual rate of 1.00% of
the Portfolio's average daily net assets.
A more extensive description of Van Eck Trust, Van Eck Worldwide Hard
Assets Portfolio, Van Eck Worldwide Bond Portfolio, Van Eck Worldwide Emerging
Markets Portfolio and Van Eck Worldwide Real Estate Portfolio, including each
Portfolio's investment objectives and policies, risks, expenses and other
aspects of its operations are contained in the Prospectus for the Trust which
accompanies this Prospectus.
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<PAGE> 31
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares
to Subaccounts of the Variable Account contain varying provisions regarding
termination. The following summarizes those provisions:
The Alger American Fund. The Agreement with The Alger American Fund
provides for termination: 1) by either party on 60 days written notice to
the other; 2) by Alger if the Policies cease to qualify as annuity
contracts or life insurance policies under the Code or the Policies are not
registered, issued or sold in accordance with applicable laws; 3) by any
party in the event of a material irreconcilable conflict; 4) by PLACA in
the event that formal proceedings are initiated against Alger or the
distributor by the SEC or another regulator; 5) by PLACA in the event the
Portfolio or trust fails to meet the diversification requirements; 6) by
PLACA if shares are not reasonably available; 7) by PLACA if shares of the
Portfolio are not registered, issued or sold in accordance with applicable
laws or applicable law precludes the use of such shares; 8) by PLACA if
Alger fails to qualify as a regulated investment company under Subchapter M
of the Code; or 9) by Alger's principal underwriter if it determines that
PLACA has suffered a material adverse change in its business, operation,
financial condition or prospects.
Fidelity Variable Insurance Products Fund and Variable Insurance
Products Fund II. The Agreements provide for termination 1) upon six
months' advance notice by either party, 2) at PLACA's option if shares of
the Fund are not reasonably available to meet requirements of the policies,
3) at PLACA'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 for a Portfolio of the Fund
in the event such Portfolio fails to meet diversification requirements
under the Code, 4) at the option of the Fund or its principal underwriter
if it determines that PLACA has suffered material adverse changes in its
business or financial condition or is subject to material adverse
publicity, 5) at the option of PLACA if the Fund has suffered material
adverse changes in its business or financial condition or is a subject of
material adverse publicity, or 6) at the option of the Fund or its
principal underwriter if PLACA decides to make another mutual fund
available as a funding vehicle for its policies.
Neuberger & Berman Advisers Management Trust. This Agreement may be
terminated by either party on six months' written notice to the other.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Trust
provides for termination 1) by PLACA, 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 PLACA 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 such law precludes the use of Trust
shares, 3) by PLACA upon reasonable notice if shares of one of the then
available Portfolios of Van Eck Trust are not longer available or upon
sixty days notice if PLACA should substitute shares of another fund or Fund
for those of Van Eck Trust, 4) by PMLIC if a Portfolio fails to meet the
diversification and other requirements of the Internal Revenue Code, or
PMLIC reasonably believes it may fail to do so, 5) upon assignment of the
agreement unless both parties agree to the assignment in writing.
Should an agreement between PLACA and a Fund terminate, the subaccounts
that invest in that Fund may 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
portfolio of a Fund may refuse to sell its shares to a Subaccount despite the
fact that the participation agreement between the Fund and PLACA has not been
terminated. Should a Fund or portfolio of such Fund decide not to sell its
shares to PLACA, PLACA 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.
The Company has entered into agreements with the investment advisers of
several of the Funds pursuant to which each such investment adviser will pay the
Company a servicing fee based upon an annual percentage of the average aggregate
net assets invested by the Company on behalf of the Variable Account. These
22
<PAGE> 32
agreements reflect administrative services provided to the Funds by the Company.
Payments of such amounts by an adviser will not increase the fees paid by the
Funds or their shareholders.
RESOLVING MATERIAL CONFLICTS
The MS Fund, Alger American, VIP Fund, VIP Fund II, AMT, and Van Eck Trust
are used as investment vehicles for variable life insurance policies and
variable annuity contracts issued by PMLIC and PLACA, as well as registered
separate accounts of other insurance companies offering variable life and
annuity contracts. As a result, there is a possibility that a material conflict
may arise between the interest of Owners whose policy values are allocated to
the Variable Account and the owners of life insurance policies and variable
annuities issued by such other companies whose values are allocated to one or
more other separate accounts investing in any one of the Funds.
In addition, certain Funds may sell shares to certain retirement plans
qualifying under Section 401 of the Code (including cash or deferred
arrangements under Section 401(k) of the Code). As a result, there is a
possibility that a material conflict may arise between the interests of Owners
of policies generally, or certain classes of Owners, and such retirement plans
or participants in such retirement plans.
In the event of a material conflict, PLACA will take any necessary steps,
including removing the Variable Account from that Fund, to resolve the matter.
The Board of Directors or Trustees of the Funds intend to monitor events in
order to identify any material conflicts that possible may arise and to
determine what action, if any, should be taken in response to those events or
conflicts. See the Individual Fund Prospectuses for more information.
THE GUARANTEED ACCOUNT
For information on the Guaranteed Account, see page 41.
DETAILED DESCRIPTION OF POLICY PROVISIONS
DEATH BENEFIT
General. As long as the Policy remains in force, the Insurance Proceeds of
the Policy will, upon due proof of the Insured's death (and fulfillment of
certain other requirements), be paid to the named Beneficiary in accordance with
the designated Death Benefit Option. The Insurance Proceeds will be determined
as of the date of the Insured's death and will be equal to:
1. the Death Benefit;
2. plus any additional benefits due under a supplementary benefit rider
attached to the Policy;
3. less any loan and accrued loan interest on the Policy;
4. less any overdue deductions if the death of the Insured occurs during
the Grace Period.
The Insurance Proceeds may be paid in cash or under one of the Settlement
Options set forth in the Policy. The amount payable under the designated Death
Benefit Option will be increased by any additional benefits, and will be
decreased by any outstanding Policy loan and accrued interest and by any unpaid
Monthly Deductions.
Death Benefit Options. The Policy provides two Death Benefit Options:
Option A and Option B. The Owner designates the Death Benefit Option in the
application and may change it as described in "Change in Death Benefit Option,"
Page 24. Under either Option, the duration of the Death Benefit coverage depends
upon the Policy's Net Cash Surrender Value. (See "How the Duration of the Policy
May Vary," Page 27.)
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<PAGE> 33
Option A. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy and (b) the Policy Account Value on the Valuation Date on
or next following the Insured's date of death multiplied by the specified
percentage shown in the table below:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
- ------------ ---------- ------------ ----------
<S> <C> <C> <C>
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 through 99 100%
</TABLE>
For Attained Ages not shown, the percentages will decrease by a ratable portion
for each full year.
Illustration of Option A -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no Policy loan outstanding.
Under Option A, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000. The specified percentage for an Insured under
Attained Age 40 on the Policy Anniversary prior to the date of death is 250%.
Because the Death Benefit must be equal to or be greater than 2.50 times the
Policy Account Value, any time the Policy Account Value exceeds $80,000 the
Death Benefit will exceed the Face Amount. Each additional dollar added to the
Policy Account Value will increase the Death Benefit by $2.50. Thus, a 35 year
old Insured with a Policy Account Value of $150,000 will have a Death Benefit of
$375,000 (2.50 X $150,000); a Policy Account Value of $300,000 will yield a
Death Benefit of $750,000 (2.50 X $300,000); a Policy Account Value of $400,000
will yield a Death Benefit of $1,000,000 (2.50 X $400,000).
Similarly, any time the Policy Account Value exceeds $80,000, each dollar
taken out of the Policy Account Value will reduce the Death Benefit by $2.50. If
at any time, however, the Policy Account Value multiplied by the specified
percentage is less than the Face Amount, the Death Benefit will be the Face
Amount of the Policy.
Option B. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy plus the Policy Account Value and (b) the Policy Account
Value multiplied by the specified percentage shown in the table above. (The
Policy Account Value in each case is determined on the Valuation Day on or next
following the Insured's date of death.)
Illustration of Option B -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no outstanding Policy loan.
Under Option B, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000 plus the Policy Account Value. Thus, for example, a
Policy with a $50,000 Policy Account Value will have a Death Benefit of $250,000
($200,000 plus $50,000); and a Policy Account Value of $100,000 will yield a
Death Benefit of $300,000. Since the specified percentage is 250%, the Death
Benefit will be at least 2.50 times the Policy Account Value. As a result, if
the Policy Account Value exceeds $133,333, the Death Benefit will be greater
than the Face Amount plus the Policy Account Value. Each additional dollar added
to the Policy Account Value above $133,333 will increase the Death Benefit by
$2.50. An Insured with a Policy Account Value of $150,000 will therefore have a
Death Benefit of $375,000 (2.50 X $150,000); a Policy Account Value of $300,000
will yield a Death Benefit of $750,000 (2.50 X $300,000); and a Policy Account
Value of $500,000 will yield a Death Benefit of $1,250,000 (2.50 X $500,000).
Similarly, any time the Policy Account Value exceeds $133,333, each dollar taken
out of the Policy Account Value will reduce the Death Benefit by $2.50. If at
any time, however, the Policy Account Value multiplied by the applicable
percentage is less than the Face Amount plus the Policy Account Value, the Death
Benefit will be the Face Amount plus the Policy Account Value.
Which Death Benefit Option to Choose. If an Owner prefers to have premium
payments and favorable investment performance reflected partly in the form of an
increasing Death Benefit, the Owner should choose Option B. If an Owner is
satisfied with the amount of the Insured's existing insurance coverage and
prefers to
24
<PAGE> 34
have premium payments and favorable investment performance reflected to the
maximum extent in the Policy Account Value, the Owner should choose Option A.
Change in Death Benefit Option. After the first Policy Year, at any time
while the Policy is in force, the Death Benefit Option in effect may be changed
by sending PLACA a completed application for change. No charges will be imposed
to make a change in the Death Benefit Option. The effective date of any such
change will be the Policy Processing Day on or next following the date PLACA
receives the completed application for change.
If the Death Benefit Option is changed from Option A to Option B, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be decreased by the Policy Account Value on that date. However, this
change may not be made if it would reduce the Face Amount to less than the
Minimum Face Amount.
If the Death Benefit Option is changed from Option B to Option A, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be increased by the Policy Account Value on that date.
A change in the Death Benefit Option may affect the Net Amount at Risk over
time which, in turn, would affect the monthly Cost of Insurance Charge. Changing
from Option A to Option B will generally result in a Net Amount at Risk that
remains level. Such a change will result in a relative increase in the cost of
insurance charges over time because the Net Amount at Risk will, unless the
Death Benefit is based on the applicable percentage of Policy Account Value,
remain level rather than decreasing as the Policy Account Value increases.
Unless the Death Benefit is based on the applicable percentage of Policy Account
Value, changing from Option B to Option A will, if the Policy Account Value
increases, decrease the Net Amount at Risk over time, thereby reducing the cost
of insurance charge.
The effects of these Death Benefit Option changes on the Face Amount, Death
Benefit and Net Amount at Risk can be illustrated as follows. Assume that a
contract under Option A has a Face Amount of $500,000 and a Policy Account Value
of $100,000 and, therefore, a Death Benefit of $500,000 and a Net Amount at Risk
of $400,000 ($500,000 - $100,000). If the Death Benefit Option is changed from
Option A to Option B, the Face Amount will decrease from $500,000 to $400,000
and the Death Benefit and Net Amount at Risk would remain the same. Assume that
a contract under Option B has a Face Amount of $500,000 and a Policy Account
Value of $50,000 and, therefore, the Death Benefit is $550,000
($500,000 + $50,000) and a Net Amount at Risk of $500,00 ($550,000 - $50,000).
If the Death Benefit Option is changed from Option B to Option A, the Face
Amount will increase to $550,000, and the Death Benefit and Net Amount at Risk
would remain the same.
If a change in the Death Benefit Option would result in cumulative premiums
exceeding the maximum premium limitations under the Internal Revenue Code for
life insurance, PLACA will not effect the change.
A change in the Death Benefit Option may have Federal income tax
consequences. (See "Tax Treatment of Policy Benefits," Page 46.)
How the Death Benefit May Vary. The amount of the Death Benefit may vary
with the Policy Account Value. The Death Benefit under Option A will vary with
the Policy Account Value whenever the specified percentage of Policy Account
Value exceeds the Face Amount of the Policy. The Death Benefit under Option B
will always vary with the Policy Account Value because the Death Benefit equals
the greater of (a) the Face Amount plus the Policy Account Value and (b) the
Policy Account Value multiplied by the specified percentage.
ABILITY TO ADJUST FACE AMOUNT
Subject to certain limitations, an Owner may generally, at any time after
the first Policy Year, increase or decrease the Policy's Face Amount by
submitting a written application to PLACA. The effective date of the increase or
decrease will be the Policy Processing Day on or next following PLACA's approval
of the request. An increase or decrease in Face Amount may have tax
consequences. (See "Tax Treatment of Policy
25
<PAGE> 35
Benefits," Page 48.) The effect of changes in Face Amount on Policy charges, as
well as other considerations, are described below.
Increase. A request for an increase in Face Amount may not be for less
than $25,000 (or such lesser amount required in a particular state). The Owner
may not increase the Face Amount after the Insured's Attained Age 75 or if the
Face Amount was increased during the prior 12-month period. To obtain the
increase, the Owner must submit an application for the increase and provide
evidence satisfactory to PLACA of the Insured's insurability.
On the effective date of an increase, and taking the increase into account,
the Net Cash Surrender Value must be equal to the Monthly Deductions then due
and the expense charge for the increase in Face Amount. If the Net Cash
Surrender Value is not sufficient, the increase will not take effect until the
Owner makes a sufficient additional premium payment to increase the Net Cash
Surrender Value.
An increase in the Face Amount will generally affect the total Net Amount
at Risk which will increase the monthly Cost of Insurance Charges. An increase
in Face Amount will increase the amount of any Additional Surrender Charge. A
Face Amount increase expense charge will also be deducted. (See "Face Amount
Increase Charge," Page 34.) In addition, different cost of insurance rates may
apply to the increase in insurance coverage. (See "Cost of Insurance," Page 33.)
After increasing the Face Amount, the Owner will have the right: (i) during
the Free-Look Period following the effective date of the increase, to have the
increase cancelled and receive a credit or refund; and (ii) during the first 24
months following the increase, to exchange the increase in Face Amount for a
fixed benefit permanent life insurance policy issued by PLACA. (See "Conversion
Privilege for Increase in Face Amount," Page 40.)
Decrease. The amount of a Face Amount decrease must be for at least
$25,000 (or such lesser amount required in a particular state). The Face Amount
after any decrease may not be less than the Minimum Face Amount. A decrease in
Face Amount will not be permitted if the Face Amount was increased during the
prior 12-month period. To the extent a decrease in the Face Amount could result
in cumulative premiums exceeding the maximum premium limitations applicable for
life insurance under the Internal Revenue Code, PLACA will not effect the
decrease.
A decrease in the Face Amount generally will decrease the total Net Amount
at Risk which will decrease an Owner's monthly insurance charges. A decrease in
the Face Amount may result in the imposition of a surrender charge as of the
Policy Processing Day on which the decrease becomes effective. (See "Surrender
Charge Upon Decrease in Face Amount," Page 33.)
Any surrender charge applicable to a decrease will be deducted from the
Policy Account Value and the remaining surrender charge will be reduced by the
amount deducted. The surrender charge will be deducted from the Subaccounts and
the Guaranteed Account based on the proportion that the value in such account
bears to the total unloaned Policy Account Value.
For purposes of determining the cost of insurance charge and surrender
charges, any decrease in the Face Amount will reduce the Face Amount in the
following order: (a) the Face Amount provided by the most recent increase; (b)
the next most recent increases, successively; and (c) the Initial Face Amount.
INSURANCE PROTECTION
An Owner may increase or decrease the insurance protection provided by the
Policy (i.e, the Net Amount at Risk) in one of several ways, as insurance needs
change. These ways include increasing or decreasing the Face Amount, changing
the level of premium payments, and, to a lesser extent, by making a partial
withdrawal of Net Cash Surrender Value. The consequences of each are summarized
below.
A decrease in Face Amount will, subject to applicable percentage
limitations, decrease the insurance protection. It will not reduce the Policy
Account Value, except for the deduction of any surrender charge applicable to
the decrease. The Monthly Deductions will generally be correspondingly lower
following the decrease.
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<PAGE> 36
An increase in Face Amount will generally increase the amount of insurance
protection, depending on the Policy Account Value and applicable percentage. If
the insurance protection is increased, Monthly Deductions will increase as well.
Under Death Benefit Option A, until the applicable percentage of Policy
Account Value exceeds the Face Amount, then (i) if the Owner increases the
premium payments from the current level, the amount of insurance protection will
generally be reduced, and (ii) if the Owner reduced the premium payments from
the current level, the amount of insurance protection will generally be
increased.
Under Death Benefit Option B, until the applicable percentage of Policy
Account Value exceeds the Face Amount plus the Policy Account Value, the level
of premium payments will not affect the amount of insurance protection.
(However, both the Policy Account Value and Death Benefit will be increased if
premium payments are increased and reduced if premium payments are reduced.)
Under either Death Benefit Option, if the Death Benefit is the applicable
percentage of Policy Account Value, then (i) if the Owner increases premium
payments from the current level, the amount of insurance protection will
increase and (ii) if the Owner reduces the premium payments from the current
level, the amount of insurance protection will be lower.
A partial withdrawal of Net Cash Surrender Value will reduce the Death
Benefit. It will not reduce the amount of insurance protection unless the Death
Benefit is based on the applicable percentage of Policy Account Value. This is
because if the Death Benefit is based on the applicable percentage, the decrease
in the Death Benefit will be greater than the amount of a withdrawal. Since the
primary use of a partial withdrawal is to withdraw cash which reduced the Policy
Account Value, the Net Cash Surrender Value is reduced, thereby increasing the
likelihood that the Policy will lapse. (See "Policy Lapse," Page 30.)
HOW THE DURATION OF THE POLICY MAY VARY
The Policy will remain in force as long as the Net Cash Surrender Value of
the Policy is sufficient to pay the Monthly Deductions and the charges under the
Policy. When the Net Cash Surrender Value is insufficient to pay the charges and
the Grace Period expires without an adequate premium payment by the Owner, the
Policy will lapse and terminate without value. Notwithstanding the foregoing,
during the first three Policy Years the Policy will not lapse if the Minimum
Guarantee Premium has been paid. The Owner has certain rights to reinstate the
Policy. (See "Reinstatement," Page 30.)
POLICY ACCOUNT VALUE
The Policy Account Value is the total amount of value held under the Policy
at any time. It is equal to the sum of the Policy's values in the Subaccounts,
the Guaranteed Account and the Loan Account. The Policy Account Value minus any
applicable Surrender Charge or Additional Surrender Charge is equal to the Cash
Surrender Value. There is no guaranteed minimum for the portion of the Policy
Account Value in any of the Subaccounts and, because the Policy Account Value on
any future date depends upon a number of variables, it cannot be predetermined.
The Policy Account Value and Cash Surrender Value will reflect the
investment performance of the chosen Subaccounts, the crediting of interest in
excess of 4% (the guaranteed minimum) for the Guaranteed Account and the Loan
Account, any Net Premiums paid, any transfers, any partial withdrawals, any
loans, any loan repayments, any loan interest paid, and any charges assessed in
connection with the Policy.
Calculation of Policy Account Value. The Policy Account Value is
determined first on the Policy Date and thereafter at the close of each
Valuation Day. On the Policy Date, the Policy Account Value will be the Net
Premiums received less any Monthly Deductions due on the Policy Date. On each
Valuation Day after the Policy Date, the Policy Account Value will be:
(1) The aggregate of the values attributable to the Policy in each
Subaccount, determined by multiplying the number of units the Policy has in
the Subaccount by the Subaccount's Unit Value on that date;
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<PAGE> 37
(2) The value attributable to the Policy in the Guaranteed Account
(See "The Guaranteed Account," Page 41); plus
(3) The value attributable to the Policy in the Loan Account. (See
"Loan Privileges," Page 35.)
Determination of Number of Units for the Subaccounts. Amounts allocated,
transferred or added to a Subaccount under a Policy are used to purchase units
of that Subaccount; units are redeemed when amounts are deducted, transferred or
withdrawn. The number of units a Policy has in a Subaccount at any time equals
the number of units purchased minus the number of units redeemed up to such
time. For each Subaccount, the number of units purchased or redeemed in
connection with a particular transaction is determined by dividing the dollar
amount by the unit value.
Determination of Unit Value. The unit value of a Subaccount on any
Valuation Day is equal to the unit value on the immediately preceding Valuation
Day multiplied by the Net Investment Factor for that Subaccount on that
Valuation Day.
Net Investment Factor. Each Subaccount has its own Net Investment Factor.
The Net Investment Factor measures the daily investment performance of a
Subaccount. The factor will increase to reflect investment income and capital
gains, realized and unrealized, for the securities of the underlying portfolio
or series. The factor will decrease to reflect any capital losses, realized or
unrealized, for the securities of the underlying portfolio or series.
The asset charge for mortality and expense risks will be deducted in
determining the applicable Net Investment Factor.
PAYMENT AND ALLOCATION OF PREMIUMS
Issuance of a Policy. In order to purchase a Policy, an individual must
make application to PLACA through a licensed PLACA agent 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 a broker/dealer. If PLACA accepts the application, a
Policy will be issued in consideration of payment of the Minimum Initial Premium
set forth in the Policy. The Minimum Face Amount of a Policy under PLACA's rules
is $50,000 for all Premium Classes except preferred. For the preferred Premium
Class, the Minimum Face Amount is $100,000.
PLACA reserves the right to revise its rules from time to time to specify a
different Minimum Face Amount for subsequently issued policies. A Policy will be
issued only with respect to Insureds who have an Issue Age of 80 or less and who
provide PLACA with satisfactory evidence of insurability. Acceptance is subject
to PLACA's underwriting rules. PLACA reserves the right to reject an application
for any reason permitted by law. (See "Distribution of Policies," Page 53.)
At the time the application for a Policy is signed, an applicant can,
subject to PLACA's underwriting rules, obtain temporary insurance protection,
pending issuance of the Policy, by answering "no" to the Health Questions of the
Temporary Agreement and submitting payment of the Minimum Initial Premium with
the Application. The Minimum Initial Premium will equal the Minimum Annual
Premium multiplied by the following factor:
<TABLE>
<CAPTION>
PREMIUM BILLING MODE
SELECTED AT ISSUE FACTOR
-------------------- ------
<S> <C>
Annual.................................... 1.000
Semi-annual............................... 0.500
Quarterly................................. 0.250
Monthly................................... 0.167
</TABLE>
The amount of coverage under the agreement is the lesser of the Face Amount
applied for or $500,000. Coverage under the agreement will end on the earliest
of: (a) the 90th day from the date of the agreement; (b) the date that insurance
takes effect under the Policy; (c) the date a policy, other than as applied for,
is offered to the Applicant; or (d) five days from the date PLACA mails a notice
of termination of coverage.
28
<PAGE> 38
Amount and Timing of Premiums. The Minimum Initial Premium is due on or
before the date the Policy is delivered. No insurance will take effect until the
Minimum Initial Premium is paid while the health and other conditions of the
Insured stay the same as described in the application for the Policy. Prior to
the Final Policy Date and while the Policy is in force an Owner may make
additional premium payments at any time and in any amount, subject to the
limitation set forth below. Each premium payment must be for at least $20. PLACA
may increase this minimum amount upon 90 days written notice to Owners of such
increase, but the minimum amount will never exceed $500. Subject to certain
limitations described below, an Owner has considerable flexibility in
determining the amount and frequency of premium payments.
At the time of application, each Owner will select a Planned Periodic
Premium schedule, based on a periodic billing mode of annual, semi-annual, or
quarterly payment. The Owner is entitled to receive a premium reminder notice
from PLACA 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".
Any payments made while there is an outstanding Policy loan will be applied
as loan repayments, unless PLACA is notified in writing that the amount is to be
applied as a premium payment. The Owner is not required to pay the Planned
Periodic Premiums in accordance with the specified schedule. The Owner has the
flexibility to alter the amount, frequency and time period over which premiums
are paid. Payment of the Planned Periodic Premiums will not, however, guarantee
that the Policy will remain in force. Instead, the duration of the Policy
depends upon the Policy's Net Cash Surrender Value. Thus, even if Planned
Periodic Premiums are paid, the Policy will lapse whenever the Net Cash
Surrender Value is insufficient to pay the Monthly Deductions and any other
charges under the Policy and if a Grace Period expires without an adequate
payment by the Owner.
Premium Limitations. With regard to a Policy's inside build-up, the
Internal Revenue Code of 1986 (the "Code") provides for exclusion of the Death
Benefit from gross income if total premium payments do not exceed certain stated
limits. In no event can the total of all premiums paid under a Policy exceed
such limits. PLACA has established adequate safeguards to monitor whether
aggregate premiums paid under a Policy exceed those limits. If at any time a
premium is paid which would result in total premiums exceeding such limits,
PLACA will only accept that portion of the premium which would make total
premiums equal the maximum amount which may be paid under the Policy. The excess
will be refunded. Even if total premiums were to exceed the maximum premium
limitations established by the Code, the excess of a Policy's Death Benefit over
the Policy's Cash Surrender Value would still be excludable from gross income
under the Code.
The maximum premium limitations set forth in the Code depend in part upon
the amount of the Death Benefit at any time. As a result, any Policy changes
which affect the amount of the Death Benefit may affect whether cumulative
premiums paid under the Policy exceed the maximum premium limitations. To the
extent that any such change would result in cumulative premiums exceeding the
maximum premium limitations, PLACA will not effect such change. (See "Federal
Income Tax Considerations," Page 46.)
Unless the Insured provides satisfactory evidence of insurability, PLACA
reserves the right to limit the amount of any premium payment if it increases
the Death Benefit more than it increases the Policy Account Value.
Allocation of Net Premiums. The Net Premium equals the premium paid less
the Premium Expense Charge. The application for the Policy will indicate how Net
Premiums should be allocated among the Subaccounts and/or the Guaranteed
Account. The percentages of each Net Premium that may be allocated to any
account must be in whole numbers and the sum of the allocation percentages must
be 100%. PLACA will allocate the Net Premiums on the date it receives such
premium at its Administrative Office.
Where state law requires a refund of premiums paid when a policy is
returned under the Free-Look provisions (See "Free-Look for Policy," Page 39)
any portion of the Initial Premium and any subsequent premiums received by PLACA
before the expiration of a 15-day period beginning on the later of the Policy
Issue Date or the date PLACA receives the Minimum Initial Premium, which are to
be allocated to the
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<PAGE> 39
Subaccounts will be allocated to the Market Subaccount. At the end of the 15-day
period PLACA will allocate the amount in the Money Market Subaccount to each of
the chosen Subaccounts based on the proportion that the allocation percentage
for such Subaccount bears to the sum of the Subaccount premium allocation
percentages.
For example, assume a Policy was issued with Net Premiums allocated 25% to
the Growth Subaccount, 25% to the Bond Subaccount and 50% to the Guaranteed
Account. During the 15-day period stated above, 50% (25% + 25%) of the premiums
will be allocated to the Money Market Subaccount. At the end of the 15-day
period, 50% (25% / 50%) of the amount in the Money Market Subaccount will be
transferred to the Growth Subaccount and 50% to the Bond Subaccount.
For premium payments received after the 15-day period, Net Premiums will be
allocated based on the allocation percentages then in effect. The allocation
schedules may be changed at any time by providing PLACA with written notice.
The values of the Subaccounts will vary with their investment experience
and the Owner bears the entire investment risk. Owners should periodically
review their allocation schedule in light of market conditions and the Owner's
overall financial objectives.
Transfers. The Owner may transfer the Policy Account Value between and
among the Subaccounts of the Variable Account and the Guaranteed Account by
making a written transfer request to PLACA. The amount transferred each time
must be at least $1,000, unless the total value in an account is less than
$1,000, in which case the entire amount will be transferred.
The Owner may, at any time, transfer all or part of the amount in one of
the Subaccounts to another Subaccount and/or to the Guaranteed Account. (For
transfers from the Guaranteed Account to the Subaccounts, see "Transfers from
Guaranteed Account," Page 42.)
After four transfers have been made in any Policy Year, a $25 transfer
charge will be deducted from each transfer during the remainder of such Policy
Year. All transfers included in a request are treated as one transfer
transaction. Transfers (other than transfers from Guaranteed Account Value) will
be made as of the date PLACA receives a written request at its Administrative
Office. Transfers resulting from Policy loans, the exercise of exchange
privileges, and the reallocation from the Money Market Subaccount following the
15-day period after the Issue Date, will not be subject to a transfer charge and
will not count against the four free transfers in any Policy Year. Under present
law, transfers are not taxable transactions.
Policy Lapse. The failure to make a premium payment will not itself cause
a Policy to lapse. Lapse will only occur when the Net Cash Surrender Value is
insufficient to cover the Monthly Deductions and other charges under the Policy
and the Grace Period expires without a sufficient payment. During the first
three Policy Years, the Policy will not lapse if the Minimum Guarantee Premium
has been paid.
The Policy provides for a 61-day Grace Period that is measured from the
date on which notice is sent by PLACA. Thus, the Policy does not lapse, and the
insurance coverage continues, until the expiration of this Grace Period. In
order to prevent lapse, the Owner must during the Grace Period make a premium
payment equal to three Monthly Deductions. The notice sent by PLACA will specify
the payment required to keep the Policy in force. Failure to make a sufficient
payment within the Grace Period will result in lapse of the Policy without
value.
Reinstatement. A Policy that lapses without value may be reinstated at any
time within three years (or longer period required in a particular state) after
the expiration of the Grace Period and before the Final Policy Date by
submitting evidence of the Insured's insurability satisfactory to PLACA and
payment of an amount sufficient to keep the Policy in force for at least three
months following the effective date of reinstatement, which is the date the
reinstatement application is approved. Upon reinstatement, the Policy Account
Value will be based upon the premium paid to reinstate the Policy and the Policy
will be reinstated with the same Policy Date as it had prior to the lapse.
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<PAGE> 40
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate PLACA
for (a) providing the insurance benefits set forth in the Policy; (b)
administering the Policy; (c) assuming certain risks in connection with the
Policy; and (d) incurring expenses in distributing the Policy. In the event that
there are any profits from fees and charges deducted under the Policy, including
but not limited to mortality and expense risk charges, such profits could be
used to finance the distribution of the contracts.
PREMIUM EXPENSE CHARGE
Prior to allocation of Net Premiums, premiums paid are reduced by a Premium
Expense Charge which consists of:
Premium Tax Charge. Various states and some of their subdivisions impose a
tax on premiums received by insurance companies. Premium taxes vary from state
to state. A deduction of a percentage of the premium will be made from each
premium payment. The applicable percentage will be based on the rate for the
Insured's residence.
Percent of Premium Sales Charge. A 2% percent of premium charge will be
deducted from each premium payment to partially compensate PLACA for the cost of
selling the Policy. Currently, PLACA deducts the percent of premium sales charge
from each premium payment until the cumulative amount deducted equals PLACA's
current maximum premium sales charge. The current maximum sales charge is equal
to 20% of one sales load target premium established at issue. The sales load
target premium varies by Issue Age and Sex of the Insured and the Policy's Face
Amount at issue. However, if an Owner increases the Face Amount, PLACA will
establish a new maximum amount corresponding to the amount of the increase.
Currently the 2% charge will be deducted from a portion of each premium payment
until the maximum amount is collected. Premium payments made on or after the
effective date of the increase are allocated between the Initial Face Amount and
the increase using the ratio of the SEC guideline premiums as described under
Additional Surrender Charge, (page 32). However, PLACA reserves the right to
deduct the entire 2% charge from each premium payment at any time during the
life of the policy.
Federal Tax Charge. PLACA will deduct 1.25% from each premium payment to
cover the cost of Federal taxes resulting from its receipt of such premium
payment under the Policy. Section 848 of the Internal Revenue Code (enacted by
the Omnibus Budget Reconciliation Act of 1990) ties PLACA's corporate tax
liability (i.e., "tax burden"), in part, to the receipt of such premium
payments. PLACA represents that this charge is reasonable in relation to its
increased tax burden under Section 848 of the code. In addition, PLACA reserves
the right to change the amount of this charge if the applicable Federal tax law
changes PLACA's tax burden.
SURRENDER CHARGES
A Surrender Charge, which consists of a Deferred Administrative Charge and
a Deferred Sales Charge, is imposed if the Policy is surrendered or lapses at
any time before the end of the tenth Policy Year. A portion of this Surrender
Charge will be deducted if the Owner decreases the Initial Face Amount before
the end of the tenth Policy Year. An Additional Surrender Charge, which is a
Deferred Additional Sales Charge, will be imposed if the Policy is surrendered
or lapses at any time within ten years after the effective date of an increase
in Face Amount. A portion of an Additional Surrender Charge also will be
deducted if the related increment of Face Amount is decreased within ten years
after such increase took effect.
These surrender charges are designed partially to compensate PLACA for the
cost of administering, issuing and selling the Policy, including agent sales
commissions, the cost of printing the prospectuses and sales literature, any
advertising costs, medical exams, review of applications for insurance,
processing of the applications, establishing policy records and Policy issue.
PLACA does not expect the surrender charges to cover all of these costs. To the
extent that they do not, PLACA will cover the short-fall from its general
account assets, which may include profits from the mortality and expense risk
charge.
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<PAGE> 41
Deferred Administrative Charge. The Deferred Administrative Charge is as
follows:
<TABLE>
<CAPTION>
CHARGE PER $1,000 FACE AMOUNT
-----------------------------
POLICY YEAR ISSUE AGES
- ----------- -----------------------------
1-5 15 25 35-80
----- ----- ----- -----
<S> <C> <C> <C> <C>
1-6 $2.00 $3.00 $4.00 $5.00
7 1.60 2.40 3.20 4.00
8 1.20 1.80 2.40 3.00
9 0.80 1.20 1.60 2.00
10 0.40 0.60 0.80 1.00
11 0 0 0 0
</TABLE>
For Issue Ages not shown, the charge will increase by a ratable portion for
each full year. The actual Deferred Administrative Charge will be the charge
described above less the amount of any Deferred Administrative Charge previously
paid at the time of a decrease in Face Amount.
Deferred Sales Charge. The Deferred Sales Charge will not exceed the
Maximum Deferred Sales Charge specified in the Policy. During Policy Years 1
through 6, this maximum equals 60% of the Surrender Charge target premium (which
is an amount, based on the Initial Face Amount, Issue Age, Sex and Premium Class
of the Insured, used solely for the purpose of calculating the Deferred Sales
Charge) for the Face Amount. It equals 48% of that target premium during Policy
Year 7, 36% during Policy Year 8, 24% during Policy Year 9, 12% during Policy
Year 10, and 0% during Policy Years 11 and later. The Deferred Sales Charge
actually imposed will equal the lesser of this maximum and an amount equal to
28% of the premiums actually received during the first Policy Year up to one
Surrender Charge target premium plus 7% of all other premiums paid to the date
of surrender or lapse, less any Deferred Sales Charge previously paid at the
time of a decrease in Face Amount.
Additional Surrender Charge. A Deferred Additional Sales Charge is
associated with each increase in Face Amount. Each Additional Surrender Charge
is calculated in a manner similar to the Deferred Sales Charge associated with
the Initial Face Amount. The Maximum Additional Surrender Charge for an increase
in Face Amount is 60% of the target premium for that increase (which in an
amount based upon the amount of the increase, Attained Age, Sex and Premium
Class of the Insured at the time of such increase). This maximum remains level
for six years following the effective date of an increase. It equals 48% of that
target premium during the seventh year, and declines by 12% per year to 0% by
the beginning of the eleventh year after the effective date of the increase. The
Deferred Additional Sales Charge actually deducted will equal the lesser of this
maximum and 28% of premiums received, up to the first target premium for that
increase, during the first twelve policy months after an increase and 7% of all
premiums thereafter, less any Deferred Additional Sales Charge for such increase
previously paid at the time of a decrease in Face Amount. As explained below,
only a portion of premiums received after the effective date of an increase will
be counted for this purpose. However, a portion of the Policy Account Value on
the effective date of an increase also will be considered a "premium" for
purposes of calculating the amount of each Deferred Additional Sales Charge.
Additional premium payments may not be required to fund a requested
increase in Face Amount. Instead, a special method, based on a guideline annual
premium calculated according to SEC rules, is used to allocate a portion of the
existing Policy Account Value to the increase and to allocate subsequent premium
payments between the Initial Face Amount and the increase. The Policy Account
Value is allocated according to the ratio between the SEC guideline annual
premium for the Initial Face Amount and the SEC guideline annual premium for the
total Face Amount on the effective date of the increase before any deductions
are made. For example, if the guideline annual premium is equal to $4,500 before
an increase and is equal to $6,000 after an increase, the Policy Account Value
on the effective date of the increase would be allocated 75% ($4,500/$6,000) to
the Initial Face Amount and 25% to the increase. Premium payments made on or
after the effective date of the increase are allocated between the Initial Face
Amount and the increase using the same ratio as is used to allocate the Policy
Account Value. In the event there is more than one increase in Face Amount, SEC
guideline annual premiums for each increment of Face Amount are used to allocate
Policy Account Values and premium payments among the various increments of Face
Amounts.
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<PAGE> 42
Surrender Charge Upon Decrease in Face Amount. A surrender charge may be
deducted on a decrease in Face Amount. In the event of a decrease, the surrender
charge deducted is a fraction of the charge that would apply to a full surrender
of the Policy. If there have been no increases in Face Amount, the fraction will
be determined by dividing the amount of the decrease by the current Face Amount
and multiplying the result by the Surrender Charge. If more than one Surrender
Charge is in effect (i.e., pursuant to one or more increases in Face Amount),
the surrender charge will be applied in the following order: (1) the most recent
increase followed by (2) the next most recent increases, successively, and (3)
the Initial Face Amount. Where a decrease causes a partial reduction in an
increase or in the Initial Face Amount, a proportionate share of the Surrender
Charge for that increase or for the Initial Face Amount will be deducted.
Allocation of Surrender Charges. The Surrender Charge and any Additional
Surrender Charge will be deducted from the Policy Account Value. For surrender
charges resulting from Face Amount decreases, that part of any such surrender
charge will reduce the Policy Account Value and will be allocated among the
accounts based on the proportion that the value in each of the Subaccounts and
the Guaranteed Account Value bear to the total unloaned Policy Account Value.
MONTHLY DEDUCTIONS
Charges will be deducted from the Policy Account Value on the Policy Date
and on each Policy Processing Day to compensate PLACA for administrative
expenses and for the insurance coverage provided by the Policy. The Monthly
Deduction consists of three components -- (a) the cost of insurance, (b) monthly
administrative charges, and (c) the cost of any additional benefits provided by
rider. Because portions of the Monthly Deduction, such as the cost of insurance,
can vary from month to month, the Monthly Deduction may vary in amount from
month to month. The Monthly Deduction will be deducted from the Subaccounts and
the Guaranteed Account in accordance with the allocation percentages for Monthly
Deductions chosen by the Owner at the time of application, or as later changed
by PLACA pursuant to the Owner's written request. If PLACA cannot make a monthly
deduction on the basis of the allocation schedule then in effect, PLACA will
make such deduction and future deductions based on the proportion that the
Owner's Guaranteed Account Value and the value in the Owner's Subaccounts bear
to the total unloaned Policy Account Value.
Cost of Insurance. Because the cost of insurance depends upon several
variables, the cost for each Policy Month can vary. PLACA will determine the
monthly Cost of Insurance Charge by multiplying the applicable cost of insurance
rate or rates by the Net Amount at Risk for each Policy Month.
The Net Amount at Risk on any Policy Processing Day is the amount by which
the Death Benefit exceeds the Policy Account Value. The Net Amount at Risk is
determined separately for the Initial Face Amount and any increases in Face
Amount. In determining the Net Amount at Risk for each increment of Face Amount,
the Policy Account Value is first considered part of the Initial Face Amount. If
the Policy Account Value exceeds the Initial Face Amount, it is considered as
part of any increases in Face Amount in the order such increases took effect.
A cost of insurance is also determined separately for the Initial Face
Amount and any increases in Face Amount. In calculating the cost of insurance
charge, the rate for the Premium Class on the Policy Date is applied to the Net
Amount at Risk for the Initial Face Amount. For each increase in Face Amount,
the rate for the Premium Class applicable to the increase is used. If, however,
the Death Benefit is calculated as the Policy Account Value times the specified
percentage, the rate for the Premium Class for the Initial Face Amount will be
used for the amount of the Death Benefit in excess of the total Face Amount.
Any change in the Net Amount at Risk will affect the total cost of
insurance charges paid by the Owner.
Cost of Insurance Rate. The cost of insurance rate will be based on the
Attained Age, Sex, Premium Class of the Insured and Duration. The actual monthly
cost of insurance rates will be based of PLACA's expectations as to future
mortality and expense experience. They will not, however, be greater than the
guaranteed maximum cost of insurance rates set forth in the Policy. These
guaranteed maximum rates are based on the Insured's Attained Age, Sex, Premium
Class, and the 1980 Commissioners Standard Ordinary Smoker and Nonsmoker
Mortality Table. For Policies issued in states which require "unisex" policies
33
<PAGE> 43
(currently Montana) or in conjunction with employee benefit plans, the maximum
cost of insurance charge depends only on the Insured's Age, Premium Class and
the 1980 Commissioners Standard Ordinary Mortality Table NB and SB. Any change
in the cost of insurance rates will apply to all persons of the same Attained,
Age, Sex, and Premium Class and Duration.
Premium Class. The Premium Class of the Insured will affect the cost of
insurance rates. PLACA currently places Insureds into standard classes and
classes with extra ratings, which reflect higher morality risks. In an otherwise
identical Policy, an Insured in the standard class will have a lower cost of
insurance than an Insured in a class with extra ratings. The standard Premium
Class is divided into three categories: smoker, nonsmoker and preferred. The
preferred Premium Class is only available if the Face Amount equals or exceeds
$100,000. Nonsmoking insureds will generally incur lower cost of insurance rates
than Insureds who are classified as smokers in the same Premium Class. Preferred
Insureds will generally incur lower cost of insurance rates than Insureds who
are classified as nonsmokers.
Since the nonsmoker designation is not available for Insureds under
Attained Age 21, shortly before an Insured attains age 21, PLACA will notify the
Insured about possible classification as a nonsmoker and will send the Insured
an Application for Change in Premium Class. If the Insured does not qualify as a
nonsmoker or does not return the application, cost of insurance rates will
remain as shown in the Policy. However, if the insured returns the application
and qualifies as a nonsmoker, the cost of insurance rates will be changed to
reflect the nonsmoker classification.
Monthly Administrative Charges. A Monthly Administrative Charge (presently
$7.50) will be deducted from the Policy Account Value on the Policy Date and
each Policy Processing Day as part of the Monthly Deduction. This charge may be
increased, but in no event will it be greater than $12 per month. This charge is
intended to reimburse PLACA for ordinary administrative expenses expected to be
incurred, including record keeping, processing claims and certain Policy
changes, preparing and mailing reports, and overhead costs.
Additional Benefit Charges. The Monthly Deduction will include charges for
any additional benefits added to the Policy. The monthly charges will be
specified in the applicable Rider.
FACE AMOUNT INCREASE CHARGE
If the Face Amount is increased, an increase charge will be deducted from
the Policy Account Value on the effective date of such increase. This charge,
equal to $100 plus $1.00 per $1,000 Face Amount increase, will be deducted from
the accounts based on the allocation schedule for Monthly Deductions in effect
at such time. This charge may be increased, but in no event will it be greater
than $100 plus $3.00 per $1,000 Face Amount increase. This charge is intended to
reimburse PLACA for administrative expenses in connection with the Face Amount
increase, including medical exams, review of the application for the increase,
underwriting decisions and processing of the application, and changing Policy
records and the Policy.
PARTIAL WITHDRAWAL CHARGE
A charge of $25 will be deducted from the Policy Account Value for each
partial withdrawal of Net Cash Surrender Value. This charge is intended to
compensate PLACA for the administrative costs in effecting the requested payment
and in making all calculations which may be required by reason of the partial
withdrawal.
TRANSFER CHARGE
After four transfers have been made in any Policy Year, a transfer charge
of $25 will be deducted for each transfer during the remainder of such Policy
Year to compensate PLACA for the costs of processing such transfers.
The transfer charge will be deducted from the amount being transferred. The
transfer charge will not apply to transfers resulting from Policy loans, the
exercise of special transfer rights and the initial reallocation of account
values from the Money Market Subaccount to other Subaccounts. These transfers
will not count against the four free transfers in any Policy Year.
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<PAGE> 44
CHARGES AGAINST THE SEPARATE ACCOUNTS
Mortality and Expense Risk Charge. A daily charge will be deducted from
the value of the net assets of the Separate Accounts to compensate PLACA for
mortality and expense risks assumed in connection with the Policy. This charge
will be deducted at an annual rate of 0.65% (or a daily rate of .001781%) of the
average daily net assets of each Subaccount. This charge may be increased, but
in no event will it be greater than an annual rate of 0.90% of the average daily
net assets of each Separate Account. The mortality risk assumed by PLACA is that
Insureds may live for a shorter time than projected and, therefore, greater
death benefits than expected will be paid in relation to the amount of premiums
received. The expense risk assumed is that expenses incurred in issuing and
administering the Policies will exceed the administrative charges provided in
the Policy.
If the Mortality and Expense Risk Charge proves insufficient, PLACA will
provide for all death benefits and expenses and any loss will be borne by PLACA.
Conversely, PLACA will realize a gain from this charge to the extent all money
collected from this charge is not needed to provide for benefits and expenses
under the Policies.
OTHER CHARGES
The Subaccounts purchase shares of the Funds at net asset value. The net
asset value of those shares reflect management fees and expenses already
deducted from the assets of the Fund's Portfolios. The fees and expenses for the
Funds and their Portfolios are described briefly in connection with a general
description of each Fund.
More detailed information is contained in the Funds Prospectuses which are
attached to or accompany this Prospectus.
CONTRACT RIGHTS
LOAN PRIVILEGES
General. The Owner may at any time after the Issue Date borrow money from
PLACA using the Policy as the only security for the loan. The Owner may obtain
Policy loans in a minimum amount of $500 (or such lesser minimum required in a
particular state) but not exceeding the Policy's Net Cash Surrender Value on the
date of the loan. While the Insured is living, the Owner may repay all or a
portion of a loan and accrued interest.
Interest Rate Charged. The interest rate charged on Policy loans will be
at the fixed rate of 6% per year. Interest is due at the end of each Policy
Year. If interest is not paid when due, it will be added to the loan balance and
bear interest at the same rate. Unpaid interest will be allocated based on the
proportion that the Guaranteed Account Value and the Value of the Subaccounts
under a Policy bear to the total unloaned Policy Account Value.
Allocation of Loans and Collateral. PLACA will allocate the amount of a
Policy loan among the Subaccounts and/or the Guaranteed Account based upon the
proportion that the value of the Subaccounts and/or the Guaranteed Account Value
bear to the total unloaned Policy Account Value at the time the loan is made.
The collateral for a Policy loan will be the loan amount plus accrued
interest to the next Policy Anniversary, less interest at 4% per annum which
will be earned to such Policy Anniversary. PLACA will deduct the collateral for
the loan from each account based on the loan allocation and transfer this amount
to the Loan Account. The collateral for any existing loan will be
recalculated: (a) when loan interest is repaid or treated as part of the loaned
amount; (b) when a new loan is made; and (c) when a loan repayment is made. A
transfer to or from the Loan Account will be made to reflect any recalculation
of collateral. At any time, the amount of the outstanding loan under a Policy
equals the sum of all loans (including due and unpaid interest added to the loan
balance) minus any loan repayments.
Interest Credited to Loan Account. As long as the Policy is in force,
PLACA will credit the amount in the Loan Account with interest at effective
annual rates it determines, but not less than 4% or such higher
35
<PAGE> 45
minimum rate required under state law. The rate will apply to the calendar year
which follows the date of determination. Loan interest credited will be
transferred to the accounts: (1) when loan interest is paid or treated as part
of the loaned amount; (2) when a loan repayment is made; and (3) when a new loan
is made. PLACA currently credits 4% interest annually to the amount in the Loan
Account until the policy's 10th anniversary or until Attained Age 65, whichever
is later, and 5.75% annually thereafter.
Effect of Policy Loan. Policy loans, whether or not repaid, will have a
permanent effect on the Policy Account Value, the Cash Surrender Value, and Net
Cash Surrender Value and may permanently affect the Death Benefit under the
Policy. The effect on the Policy Account Value and Death Benefit could be
favorable or unfavorable, depending on whether the investment performance of the
Subaccounts and the interest credited to the Guaranteed Account is less than or
greater than the interest being credited on the assets in the Loan Account while
the loan is outstanding. Compared to a Policy under which no loan is made,
values under a Policy will be lower when the credited interest rate is less than
the investment experience of assets held in the Subaccounts and interest
credited to the Guaranteed Account. The longer a loan is outstanding, the
greater the effect of a Policy loan is likely to be. The Death Proceeds will be
reduced by the amount of any outstanding Policy loan.
Loan Repayments. An Owner may repay all or part of a Policy loan at any
time while the Insured is alive and the Policy is in force. Unless prohibited by
a particular state, PLACA will assume that any payments made while there is an
outstanding loan on the Policy is a loan repayment, unless it receives written
instructions that it is a premium payment. Repayments up to the amount of the
outstanding loan will be allocated to the accounts based on the amount of the
outstanding loan allocated to each account as of the date of repayment; any
repayment in excess of the amount of the outstanding loan will be allocated to
the accounts based on the amount of interest due on the portion of the
outstanding loan allocated to each account. For this purpose, the amount of the
interest due is determined as of the next Policy Anniversary. Failure to repay a
loan or to pay loan interest will not cause the Policy to lapse unless the Net
Cash Surrender Value on the Policy Processing Day is less than the monthly
deduction due. In that event, the Grace Period provision will apply. (See
"Payment and Allocation of Premiums -- Policy Lapse," Page 30.)
Tax Considerations. Any loans taken from a "Modified Endowment Contract"
will be treated as a taxable distribution. In addition, with certain exceptions,
a 10% additional income tax penalty will be imposed on the portion of any loan
that is included in income. (See "Distributions from Policies Classified as
Modified Endowment Contracts," Page 48.) Depending upon the investment
performance of the Subaccounts and the amounts borrowed, loans may cause the
Policy to lapse. If the Policy is not a modified endowment contract, lapse of
the Policy with outstanding loans may result in adverse tax consequences. (See
"Distributions from Policies Not Classified as Modified Endowment Contracts,"
Page 49.)
SURRENDER PRIVILEGE
At any time before the earlier of the death of the Insured and the Final
Policy Date, the Owner may surrender the Policy for its Net Cash Surrender
Value. The Net Cash Surrender Value is the Policy Account Value minus any Policy
loan and accrued interest and less any surrender charges. The Net Cash Surrender
Value will be determined by PLACA on the date it receives, as its Administrative
Office, a surrender request signed by the Owner. Coverage under the Policy will
end on the day the Owner mails or otherwise sends the written surrender request
to PLACA.
A surrender may have Federal income tax consequences. (See "Tax Treatment
of Policy Benefits," Page 48.)
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After the first Policy Year, at any time before the earlier of the death of
the Insured and the Final Policy Date, the Owner may withdraw a portion of the
Policy's Net Cash Surrender Value. The minimum amount which may be withdrawn is
$1,500. A withdrawal charge will be deducted from the Policy Account Value. A
partial withdrawal will not result in the imposition of pro-rata surrender
charges.
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<PAGE> 46
The withdrawn amount and expense charge will be allocated based on the
proportion that the value in the Subaccounts and the Guaranteed Account Value
bear to the total unloaned Policy Account Value.
The effect of a partial withdrawal on the Death Benefit and Face Amount
will vary depending upon the Death Benefit Option in effect and whether the
Death Benefit is based on the applicable percentage of Policy Account Value.
(See "Death Benefit Options," Page 23.)
Option A. The effect of a partial withdrawal on the Face Amount and Death
Benefit under Option A can be described as follows:
If the Death Benefit equals the Face Amount, a partial withdrawal will
reduce the Face Amount and the Death Benefit by the amount of the partial
withdrawal.
For the purposes of this illustration (and the following illustrations
of partial withdrawals), assume that the Attained Age of the Insured is
under 40 and there is no indebtedness. The applicable percentage is 250%
for an Insured with an Attained Age under 40.
Under Option A, a contract with a Face Amount of $300,000 and a Policy
Account Value of $30,000 will have a Death Benefit of $300,000. Assume that
the policyowner takes a partial withdrawal of $10,000. The partial
withdrawal will reduce the Policy Account Value to $19,975
($30,000 - $10,000 - $25) and the Death Benefit and Face Amount to $290,000
($300,000 - $10,000).
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, the Face Amount
will be reduced by an amount equal to the amount of the partial withdrawal.
The Death Benefit will be reduced to equal the greater of (a) the Face
Amount after the partial withdrawal, and (b) the applicable percentage of
the Policy Account Value after deducting the amount of the partial
withdrawal and expense charge.
Under Option A, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000. Assume
that the policyowner takes a partial withdrawal of $49,975. The partial
withdrawal will reduce the Policy Account Value to $250,000 ($300,000 -
$49,975 - $25) and the Face Amount to $250,025 ($300,000 - $49,975). The
Death Benefit is the greater of (a) the Face Amount of $250,025 and (b) the
applicable percentage of the Policy Account Value $625,000
($250,000 X 2.5). Therefore, the Death Benefit will be $625,000.
Option B. The Face Amount will never be decreased by a partial withdrawal.
A partial withdrawal will, however, always decrease the Death Benefit.
If the Death Benefit equals the Face Amount plus the Policy Account
Value, a partial withdrawal will reduce the Policy Account Value by the
amount of the partial withdrawal and expense charge and thus the Death
Benefit will also be reduced by the amount of the partial withdrawal and
the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $90,000 will have a Death Benefit of $390,000
($300,000 + $90,000). Assume the policyowner takes a partial withdrawal of
$20,000. The partial withdrawal will reduce the Policy Account Value to
$69,975 ($90,000 - $20,000 - $25) and the Death Benefit to $369,975
($300,000 + $69,975). The Face Amount is unchanged.
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, The Death
Benefit will be reduced to equal the greater of (a) the Face Amount plus
the Policy Account Value after deducting the partial withdrawal and expense
charge and (b) the applicable percentage of Policy Account Value after
deducting the amount of the partial withdrawal and the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000
($300,000 X 2.5). Assume the policyowner takes a partial withdrawal of
$149,975. The partial withdrawal will reduce the Policy Account Value to
$150,000 ($300,000 - $149,975 - $25) and the Death Benefit to the greater
of (a) the Face Amount plus the
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Policy Account Value $450,000 ($300,000 + $150,000) and (b) the Death
Benefit based on the applicable percentage of the Policy Account Value
$375,000 ($150,000 X 2.5). Therefore, the Death Benefit will be $450,000.
The Face Amount is unchanged.
Any decrease in Face Amount due to a partial withdrawal will first reduce
the most recent increase in Face Amount, then the most recent increases,
successively, and lastly, the Initial Face Amount.
Because a partial withdrawal can affect the Face Amount and the Death
Benefit as described above, a partial withdrawal may also affect the Net Amount
at Risk which is used to calculate the cost of insurance charge under the
Policy. (See "Cost of Insurance," Page 33.) A request for partial withdrawal may
not be allowed if or to the extent such withdrawal would reduce the Face Amount
below the Minimum Face Amount for the Policy. Also, if a partial withdrawal
would result in cumulative premiums exceeding the maximum premium limitations
applicable under the Code for life insurance, PLACA will not allow such partial
withdrawal.
A partial withdrawal of Net Cash Surrender Value may have Federal income
tax consequences. (See "Tax Treatment of Policy Benefits," Page 48.)
ACCELERATED DEATH BENEFIT
Applicants residing in states that have approved the Accelerated Death
Benefit Rider (the "ADBR") may elect to add it to their Policy at issue, subject
to PLACA receiving satisfactory additional evidence of insurability. The ADBR is
not yet available in all states and the terms under which it is available may
vary from state-to-state. There is no assurance that the ADBR will be approved
in all states or that it will be approved under the terms described herein.
The ADBR permits the Owner to receive, at his or her request and upon
approval by PLACA, an accelerated payment of part of the Policy's Death Benefit
when one of the following two events occurs:
1. Terminal Illness. The Insured develops a non-correctable medical
condition which is expected to result in his or her death within 12
months; or
2. Permanent Confinement to a Nursing Care Facility. The Insured has been
confined to a Nursing Care Facility for 180 days and is expected to
remain in such a facility for the remainder of his or her life.
There is no charge for adding the ADBR to a Policy. However, an
administrative charge, currently $100 and not to exceed $250, will be deducted
from the accelerated death benefit at the time it is paid.
Tax Consequences of the ADBR. The Federal Income tax consequences
associated with adding the ADBR or receiving the accelerated death benefit are
uncertain. Accordingly, we urge you to consult a tax adviser before adding the
ADBR to your Policy or requesting an accelerated death benefit.
Amount of the Accelerated Death Benefit. The ADBR provides for a minimum
accelerated death benefit payment of $10,000 and a maximum benefit payment equal
to 75% of the Eligible Death Benefit less 25% of any outstanding policy loans
and accrued interest. The ADBR also restricts the total of the accelerated death
benefits paid from all life insurance policies issued to an Owner by PLACA and
its subsidiaries to $250,000. This $250,000 maximum may be increased, as
provided in the ADBR, to reflect inflation. The term Eligible Death Benefit
under the ADBR means:
The Insurance Proceeds payable under a Policy if the Insured died at the
time a claim for an accelerated death benefit is approved by PLACA, minus:
1. any Premium Refund payable at death if the Insured died at such time;
and
2. any insurance payable under the terms of any other rider attached to
a Policy.
An Owner may request only one accelerated death benefit payment (except to
pay premiums and policy loan interest) and there are no restrictions on the
Owner's use of the benefit. An Owner may elect to receive the accelerated death
benefit payment in a lump sum or in 12 or 24 equal monthly installments. If
installments
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are elected and the Insured dies before all of the payments have been made, the
present value (at the time of the Insured's death) of the remaining payments and
the remaining Insurance Proceeds at Death under the Policy will be paid to the
Beneficiary in a lump sum.
Conditions for Receipt of the Accelerated Death Benefit. In order to
receive an accelerated death benefit payment, a Policy must be in force other
than as Extended Term Insurance and an Owner must submit Due Proof of
Eligibility and a completed claim form to PLACA at its Home Office. Due Proof of
Eligibility means a written certification (described more fully in the ADBR) in
a form acceptable to PLACA, from a treating physician stating that the Insured
has a Terminal Illness or is expected to be permanently confined in a Nursing
Care Facility.
PLACA may request additional medical information from an Owner's physician
and/or may require an independent physical examination (at its expense) before
approving the claim for payment of the accelerated death benefit. PLACA will not
approve a claim for an accelerated death benefit payment if a Policy is assigned
in whole or in part, if the Terminal Illness or Permanent Confinement is the
result of intentionally self-inflicted injury or if the Owner is required to
elect it in order to meet the claims of creditors or to obtain a government
benefit.
Operation of the ADBR. The ADBR provides that the accelerated death
benefit be made in the form of a policy loan up to the amount of the maximum
loan available under a Policy at the time the claim is approved. Therefore, a
request for an accelerated death benefit payment in an amount less than or equal
to the maximum loan available at that time will result in a policy loan being
made in the amount of the requested benefit. This policy loan operates as would
any loan under the Policy.
To the extent that the amount of a requested accelerated death benefit
payment exceeds the maximum available loan amount, the benefit will be advanced
to the Owner and a lien will be placed on the Death Benefit payable under the
Policy (the "death benefit lien") in the amount of this advance. Under the ADBR,
interest will accrue daily, at a rate determined as described in the ADBR, on
the amount of this advance and upon the death of the Insured the amount of the
advance and accrued interest thereon will be subtracted from the amount of
Insurance Proceeds at Death.
Effect on Existing Policy. The Insurance Proceeds at Death otherwise
payable under a Policy at the time of an Insured's death will be reduced by the
amount of any death benefit lien and accrued interest thereon. If the Owner
makes a request for a surrender, a policy loan or a withdrawal, the Policy's Net
Cash Surrender Value and Loan Value will be reduced by the amount of any
outstanding death benefit lien plus accrued interest. Therefore, depending upon
the size of the death benefit lien, this may result in the Net Cash Surrender
Value and the Loan Value being reduced to zero.
Premiums and policy loan interest must be paid when due. However, if
requested with the accelerated death benefit claim, future premiums and policy
loan interest may be paid through additional accelerated death benefits. If
future premiums and policy loan interest are to be paid through additional
accelerated death benefits, Periodic Planned Premiums and policy loan interest
will be paid in this manner automatically.
In addition to lapse under the applicable provisions of the Policy, a
Policy will also terminate on any Policy Anniversary when the death benefit lien
exceeds the Insurance Proceeds at Death.
FREE-LOOK PRIVILEGES
Free-Look for Policy. The Policy provides for an initial Free-Look Period.
The Owner may cancel the Policy until the latest of: (a) 45 days after Part I of
the application for the Policy is signed; (b) 10 days after the Owner receives
the Policy; and (c) 10 days after PLACA mails the Notice of Withdrawal Right to
the Owner. Upon giving written notice of cancellation and returning the Policy
to PLACA's Administrative Office, to one of PLACA's other offices, or to the
PLACA representative from whom it was purchased, the Owner will receive a refund
equal to the sum of: (i) the Policy Account Value as of the date the returned
Policy is received by PLACA at its Administrative Office or the PLACA
representative through whom the Policy was purchased; plus (ii) any Premium
Expense Charges deducted from premiums paid; plus (iii) any Monthly Deductions
charged against the accounts; plus (iv) any Mortality and Expense Risk charges
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<PAGE> 49
deducted from the value of the net assets of the Subaccounts attributable to the
Policy; plus (v) any advisory fees and any other fees and expenses of the Fund.
When state law requires a refund equal to gross premiums paid, the refund
will instead equal the gross premiums paid on the Policy and will not reflect
the investment experience of the Subaccounts or interest earnings for the
Guaranteed Account.
Free-Look for Increase in Face Amount. Any requested increase in Face
Amount is also subject to a Free-Look privilege. The Owner may cancel a
requested increase in Face Amount until the latest of: (a) 45 days after the
application for the increase is signed; (b) 10 days after the Owner receives the
new Policy Schedule pages reflecting the increase; and (c) 10 days after PLACA
mails a Notice of Withdrawal Right to the Owner.
Upon requesting cancellation of the increase, an amount equal to all cost
of insurance charges attributable to the increase plus the increase expense
charge will be reallocated to the accounts in the same proportion as they were
deducted, unless the Owner requests a refund of such amount.
SPECIAL TRANSFER AND CONVERSION RIGHTS
Transfer Right for Policy. During the first two years following Policy
issue, the Owner may, on one occasion, transfer the entire Policy Account Value
in the Subaccounts to the Guaranteed Account without such transfer counting
toward the four transfers permitted without charge during a Policy Year. If such
transfer is made after four transfers have been made during a Policy Year, no
transfer charge will be deducted.
Conversion Privilege for Increase in Face Amount. During the first two
years following an increase in Face Amount, the Owner may, on one occasion,
without evidence of insurability, exchange the amount of the increase in Face
Amount for a fixed-benefit permanent life insurance policy. (Such an exchange
may, however, have Federal income tax consequences. See "Tax Treatment of Policy
Benefits," Page 45). Premiums under this new policy will be based on the Sex,
Attained Age and Premium Class of the Insured on the effective date of the
increase in the Face Amount of the Policy. The new policy will have the same
Face Amount and Issue Date as the amount and effective date of the increase.
PLACA will refund the monthly deductions for the increase made on each Policy
Processing Day between the effective date of the increase to the date of
conversion and the expense charge for such increase.
Transfer Right for Change in Investment Policy of a Subaccount. If the
investment policy of a Subaccount is materially changed, the Owner may transfer
the portion of the Policy Account Value in such Subaccount to another Subaccount
or to the Guaranteed Account without having such transfer count toward the four
transfers permitted without charge during a Policy Year. If such transfer is
made after four transfers have been made during a Policy Year, no transfer
charge will be deducted.
Telephone Transfers. Transfers will be made upon instructions given by
telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to PLACA. PLACA reserves the
right to suspend telephone transfer privileges at any time for any class of
policies, for any reason.
PLACA 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 authorized or fraudulent instructions.
PLACA, however, may be liable for such losses if it does not follow those
reasonable procedures. The procedures PLACA 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 policy or contract values
among the subaccounts in order to maintain the allocation of such values in
percentages that match the then current premium allocation percentages. Election
of this feature may occur at the time of application or at any time after the
policy is issued by properly completing the election form and returning it to
PLACA. The election may be revoked at any time. Rebalancing may be done
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quarterly or annually,. Rebalancing will not occur when the total value in the
subaccounts is less than $1,000. PLACA reserves the right to suspend automatic
asset rebalancing at any time, for any class of policies or contracts, for any
reason.
THE GUARANTEED ACCOUNT
An Owner may allocate some or all of the Net Premiums and transfer some or
all of the Policy Account Value to the Guaranteed Account, which is part of
PLACA's General Account and pays interest at declared rates guaranteed for each
calendar year (subject to a minimum guaranteed interest rate of 4%). The
principal, after deductions, is also guaranteed. PLACA'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 PLACA's General Account has been
registered as an investment company under the Investment Company Act of 1940.
Therefore, neither PLACA's General Account, the Guaranteed Account, nor any
interest 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 prospective Owners' information and have not been reviewed by
the SEC. However, such disclosures may be subject to certain general applicable
provisions of the Federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
The portion of the Policy Account Value allocated to the Guaranteed Account
will be credited with rates of interest, as described below. Since the
Guaranteed Account is part of PLACA's General Account, PLACA assumes the risk of
investment gain or loss on this amount. All assets in the General Account are
subject to PLACA'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 4%. PLACA will 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 PLACA, 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, PLACA reserves the right to declare a new current
interest rate on such amount and accrued interest thereon (which may be a
different current interest rate than 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 4% per
year will be determined in the sole discretion of PLACA. The Owner assumes the
risk that interest credited may not exceed the guaranteed minimum rate.
Amounts deducted from the Guaranteed Account for partial withdrawals,
Policy loans, transfers to the Separate Accounts, Monthly Deductions or other
changes are currently, for the purpose of crediting interest, accounted for on a
last in, first out ("LIFO") method.
PLACA 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 4% 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.
Interest will be credited to the Guaranteed Account on each Policy
Processing Day as follows: for amounts in the account for the entire Policy
Month, from the beginning to the end of the month; for amounts
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<PAGE> 51
allocated to the account during the prior Policy Month, from the date the Net
Premium or loan repayment is allocated to the end of the month; for amounts
transferred to the account during the Policy Month, from the date of transfer to
the end of the month; and for amounts deducted or withdrawn from the account
during the prior Policy Month, from the beginning of the month to the date of
deduction or withdrawal.
Surrenders and partial withdraws from the Guaranteed Account may be delayed
for up to six months. (See "Other Policy Provisions -- Payment of Policy
Benefits," Page 42.)
TRANSFERS FROM GUARANTEED ACCOUNT.
Within 30 days prior to or following any Policy 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 value
of such account if the value of such account exceeds $1,000 or, if less, then
the entire Guaranteed Account Value may be transferred on the applicable Policy
Anniversary. If the written request for such transfer is received prior to the
Policy Anniversary, the transfer will be made as of the Policy Anniversary; if
the written request is received after the Policy Anniversary, the transfer will
be made as of the date PLACA receives the written request at its Administrative
Office.
OTHER POLICY PROVISIONS
Amount Payable on Final Policy Date. If the Insured is living on the Final
Policy Date (at Insured's Attained Age 100), PLACA will pay the Owner the Policy
Account Value less any outstanding Policy loan and accrued interest and any
unpaid Monthly Deductions. Insurance coverage under the Policy will then end.
Payment will generally be made within seven days of the Final Policy Date.
Payment of Policy Benefits. Insurance Proceeds under a Policy will
ordinarily be paid to the Beneficiary within seven days after PLACA receives
proof of the Insured's death at its Administrative Office and all other
requirements are satisfied. Insurance proceeds will be paid in a single sum
unless an alternative settlement option has been selected.
If Insurance Proceeds are payable in a single sum, interest at the annual
rate of 3% or any higher rate declared by PLACA or required by law is paid on
the Insurance Proceeds from the date of death until payment is made.
Any amounts payable as a result of surrender, partial withdrawal, or Policy
loan will ordinarily be paid within seven days of receipt of written request at
PLACA's Administrative Office in a form satisfactory to PLACA.
Generally, the amount of a payment from the Variable Account will be
determined as of the date of receipt by PLACA of all required documents.
However, PLACA may defer the determination or payment of such amounts if the
date for determining such amounts falls within any period during which: (1) the
disposal or valuation of a Subaccount's assets is not reasonably practicable
because the New York Stock Exchange is closed or conditions are such that, under
the SEC's rules and regulations, trading is restricted or an emergency is deemed
to exist; or (2) the SEC by order permits postponement of such actions for the
protection of PLACA policyholders. As to amounts allocated to the Guaranteed
Account, PLACA may defer payment of any withdrawal or surrender of Net Cash
Surrender Value and the making of a loan for up to six months after PLACA
receives a written request at its Administrative Office. PLACA will allow
interest, at a rate of 3% a year, on any payment PLACA defers for 30 days or
more as described above.
The Owner may decide the form in which proceeds will be paid. During the
Insured's lifetime, the Owner may arrange for the Insurance Proceeds to be paid
in a lump sum or under a Settlement Option. These choices are also available
upon surrender of the Policy for its Net Cash Surrender Value and for payment of
the Policy Account Value on the Final Policy Date. If no election is made,
payment will be made in a lump sum. The Beneficiary may also arrange for payment
of the Insurance Proceeds in a lump sum or under a Settlement Option. If the
Beneficiary is changed, any prior arrangements with respect to the Payment
Option will be cancelled.
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The Contract. The Policy and a copy of the applications attached thereto
are the entire contract. Only statements made in the applications can be used to
void the Policy or deny a claim. PLACA assumes that all statements in an
application are made to the best of the knowledge and belief of the person(s)
who made them, and, in the absence of fraud, those statements are considered
representations and not warranties. PLACA relies on those statements when it
issues or changes a Policy. Only the President or a Vice President of PLACA can
agree to change or waive any provisions of the Policy and only in writing. As a
result of differences in applicable state laws, certain provisions of the Policy
may vary from state to state.
Ownership. The Owner is the Insured unless a different Owner is named in
the application or thereafter changed. While the Insured is living, the Owner is
entitled to exercise any of the rights stated in the Policy or otherwise granted
by PLACA. If the Insured and Owner are not the same, and the Owner dies before
the Insured, these rights will vest in the estate of the Owner, unless otherwise
provided.
Beneficiary. The Beneficiary is designated in the application for the
Policy, unless thereafter changed by the Owner during the Insured's lifetime by
written notice to PLACA. Any Insurance Proceeds for which there is not a
designated Beneficiary surviving at the Insured's death are payable in a single
sum to the Insured's executors or administrators.
Change of Owner and Beneficiary. As long as the Policy is in force, the
Owner or Beneficiary may be changed by written request in a form acceptable to
PLACA. If two or more persons are named as Beneficiaries, those surviving the
Insured will share the Insurance Proceeds equally, unless otherwise stated. The
change will take effect as of the date it is signed, whether or not the Insured
is living when the request is received by PLACA. PLACA will not be responsible
for any payment made or action taken before it receives the written request. A
change in the Policy's ownership may have Federal income tax consequences. (see
"Tax Treatment of Policy Benefits," page 48.)
Split Dollar Arrangements. The Owner or Owners may enter into a Split
Dollar Arrangement between each other or another person or persons whereby the
payment of premiums and the right to receive the benefits under the Policy
(i.e., Net Cash Surrender Value or Death Proceeds) are split between the
parties. There are different ways of allocating such rights.
For example, an employer and employee might agree that under a Policy on
the life of the employee, the employer will pay the premiums and will have the
right to receive the Net Cash Surrender Value. The employee may designate the
Beneficiary to receive any Death Proceeds in excess of the Net Cash Surrender
Value. If the employee dies while such an arrangement is in effect, the employer
would receive from the Death Proceeds the amount which he would have been
entitled to receive upon surrender of the policy and the employee's Beneficiary
would receive the balance of the proceeds.
No transfer of Policy rights pursuant to a Split Dollar Arrangement will be
binding on PLACA unless in writing and received by PLACA.
The parties who elect to enter into a Split Dollar Arrangement should
consult their own tax advisers regarding the tax consequences of such an
arrangement.
Assignments. The Owner may assign any and all rights under the Policy. No
assignment binds PLACA unless in writing and received by PLACA at it's
Administrative Office. PLACA assumes no responsibility for determining whether
an assignment is valid and the extent of the assignee's interest. All
assignments will be subject to any Policy loan. The interest of any Beneficiary
or other person will be subordinate to any assignment. A Beneficiary may not
commute, encumber, or alienate Policy benefits, and to the extent permitted by
applicable law, such benefits are not subject to any legal process for the
payment of any claim against the payee. To the extent permitted by applicable
laws, no right or benefit under the Policy will be subject to claims of
creditors, except as may be provided by assignment.
Misstatement of Age and Sex. If the Insured's age or sex has been
misstated in the application, the Death Benefit and any benefits provided by
riders will be such as the most recent Monthly Deductions would have provided at
the correct age and sex. No adjustment will be made to the Policy Account Value.
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Suicide. In the event of the Insured's suicide within two years from the
Issue Date of the Policy (except where state law requires a shorter period)
PLACA's liability is limited to the payment to the Beneficiary of a sum equal to
the premiums paid less any Policy loan and accrued interest and any partial
withdrawals.
If the Insured commits suicide within two years (or shorter period required
by state law) from the effective date of any Policy change which increases the
Death Benefit, the amount which PLACA will pay with respect to the increase will
be the Monthly Deductions for the cost of insurance attributable to such
increase and the expense charge for the increase.
Incontestability. PLACA has the right to contest the validity of a Policy
based on material misstatements made in the initial application for the Policy.
PLACA also has a right to contest the validity of any policy change based on
material misstatements made in any application for that change. However, the
Policy will be incontestable after it has been in force during the Insured's
lifetime for two years from the Issue Date (or such other date as required by
state law) except for nonpayment of the Minimum Initial Premium. Similar
incontestability will apply to an increase in Face Amount or reinstatement after
it has been in force during the Insured's lifetime for two years from its
effective date.
Settlement Options. In lieu of a single sum payment on death or surrender,
an election may be made to apply the proceeds under any one of the fixed-benefit
Settlement Options provided in the Policy. A guaranteed interest rate of 3% per
year applies to all Options. Additional interest may be declared each year by
PLACA in its sole discretion. The options are briefly described below. Please
refer to the Policy for more details.
Proceeds at Interest Option. Left on deposit to accumulate with PLACA with
interest payable at 12, 6, 3, or 1 month intervals, as elected at a rate of at
least 3% per year.
Installments of a Specified Amount Option. Payable in equal instalments of
the amount elected with PLACA's consent at 12, 6, 3, or 1 month intervals, as
elected until proceeds applied under the Option and interest on the unpaid
balance at 3% per year and any additional interest are exhausted.
Installments for a Specified Period Option. Payable in the number of equal
monthly instalments set forth in the election. Payments may be increased by
additional interest which would increase the instalments certain. The guaranteed
interest rate is 3% per year.
Life Income Option. Payable in equal monthly instalments during the
payee's life. Payments will be made either with or without a guaranteed minimum
number. If there is to be a minimum number of payments, they will be for either
120 or 240 months or until the proceeds applied under the Option are exhausted,
as elected.
Joint and Survivor Life Income. Payable in equal monthly instalments, with
a number of instalments certain, during the joint lives of the payee and one
other person and during the life of the survivor. The minimum number of payments
will be for either 120 or 240 months, as elected.
SUPPLEMENTARY BENEFITS
The following supplementary benefits, which are subject to the restrictions
and limitations set forth therein, may be included in a Policy:
Disability Waiver Benefit. Subject to certain age and underwriting
restrictions, the Policy may include a Disability Waiver Benefit Rider providing
that in the event of the Insured's total disability before Attained Age 60 and
continuing for at least six months, PLACA will apply a premium payment to the
Policy on each Policy Processing Day during the first three Policy Years (the
amount of the payment will be based on the Minimum Annual Premium). PLACA will
also waive all monthly deductions after the commencement of and during the
continuance of such total disability after the first three Policy Years. If this
rider is added, the Monthly Deduction will be increased to include the cost of
this rider.
Disability Waiver of Premium Benefit. Subject to certain age and
underwriting restrictions, a Policy may include the Disability Waiver of Premium
Benefit providing that, in the event of the Insured's total disability before
Attained Age 60 and continuing for at least 180 days, PLACA will apply a premium
payment
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to the Policy on each Policy Processing Day prior to Insured's Attained Age 65
and while the Insured remains totally disabled.
At the time of application, a Monthly Benefit Amount is selected by the
applicant. This amount is generally intended to reflect the amount of the
premiums expected to be paid monthly. In the event of Insured's total disability
the amount of the premium payment applied on each Policy Processing Day will be
the lesser of: (a) the Monthly Benefit Amount; or (b) the monthly average of the
premium payments less partial withdrawals for the Policy since its Policy Date.
If the Policy is issued with the Disability Waiver of Premium Benefit
Rider, each Monthly Deduction will be increased to include the cost of the rider
which is a specified percentage of the Monthly Benefit Amount.
This supplementary benefit must be selected at the time of application and
cannot be added after issue. An Owner cannot elect to have both this rider and
another disability waiver benefit rider attached as supplementary benefits with
the same Policy.
Change of Insured. Upon request, the Policy may include a Change of
Insured Rider by which the Insured under a Policy may be changed to a New
Insured, subject to certain conditions and evidence of insurability. The Monthly
Deduction for cost of insurance will be changed to that for the New Insured as
of the effective date of the change.
Children's Term Rider. Subject to certain age and underwriting
restrictions, the Policy may include a Children's Term Insurance Rider providing
level term insurance on each insured child until the earlier of age 25 of the
child or the Policy Anniversary nearest the insured's 65th birthday. When the
term insurance expires on the life of an insured child, it may be converted
without evidence of insurability to a whole life policy providing a level face
amount of insurance and a level premium. The new policy may be up to five times
the amount of the term insurance.
The rider is issued to provide between $5,000 and $15,000 of term insurance
on each insured child. Each insured child under a rider will have the same
amount of insurance. If this rider is added, the Monthly Deduction will be
increased to include the cost of this rider. This supplementary benefit must be
selected at the time of application for the Policy or an increase in Face
Amount.
Convertible Term Life Insurance. The Policy may include a Convertible Term
Life Insurance rider that provides additional term insurance on the Other
Insured, who must be an individual on whom the Insured has an insurable
interest. The amount of term insurance on the Other Insured is shown in the
Policy Schedule. If this rider is added, the Monthly Deduction will be increased
to include the cost of this rider. This rider will terminate at the earlier of
attained age 100 (80 in New York) of the Other Insured or at the termination or
maturity of the Policy. If the Policy is extended by the Final Policy Date
Extension Rider, this rider will terminate on the original maturity date.
Final Policy Date Extension. Upon request, the policy may include a Final
Policy Date Extension Rider. This rider extends the final policy date of a
policy 20 years from the original final policy date. It may only be added on or
after the anniversary nearest the younger insured's 90th birthday. There is no
charge for adding this rider.
When this rider is added, the final policy date is extended 20 years beyond
the original final policy date stated in the policy. The death benefit after the
original final policy date will be the policy account value. All other riders
attached and in effect on the original final policy date will terminate on the
original final policy date.
The tax consequences of (1) adding a Final Policy Date Extension Rider to
the Policy, and (2) the Policy continuing in force after the Insured's 100th
birthday are uncertain. Prospective purchasers of a Policy and Owners
considering the addition of a Final Policy Date Extension to a Policy should
consult their own legal or other advisors as to such consequences. Prospective
purchasers of life insurance policies must consult and rely on the advice of
their own legal or other advisors. PLACA believes that the policy will continue
to qualify as life insurance beyond the original final policy date. PLACA can
not conclude that adding the rider will eliminate any potential adverse tax
consequences.
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<PAGE> 55
Dollar Cost Averaging. Dollar Cost Averaging is a program which, if
elected, enables the Owner of a policy to systematically and automatically
transfer, on a monthly basis, specified dollar amounts from any selected
Subaccount to any of the policy's other Subaccounts or Guaranteed Account.
Transfers may not come from the Guaranteed Account. 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 short term market
fluctuations. PLACA, 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 of 6, 12, 24 or 36
months. To qualify for Dollar Cost Averaging, the following minimum amount must
be allocated to a Subaccount: 6 months -- $3,000; 12 months -- $6,000; 24
months -- $12,000; 36 months -- $18,000. At least $500 must be transferred from
the Subaccount each month. The amount required to be allocated to the Subaccount
can be made from an initial or subsequent investment or by transferring amounts
into the Subaccount from the other Subaccounts or from the Guaranteed Account
(which may be subject to certain restrictions) (See "Transfers from Guaranteed
Account," Page ). Each monthly transfer amount will be split among the
Subaccounts or the Guaranteed Account based upon the percentages elected. Dollar
Cost Averaging may not be elected if Automatic Asset Rebalancing has been
elected or if a policy loan is outstanding.
Election into this program may occur at the time of application by
completing the authorization on the Optional Features election form or at any
time after the policy is issued by completing the election form and returning it
to PLACA by the beginning of the month. When an election form is received,
Dollar Cost Averaging will commence on the first Policy Processing Day after the
later of (a) the Policy Date; (b) the 15-day period when premiums are allocated
to the Money Market Fund in certain states; and (c) when the Subaccount value
equals or exceeds the greater of the minimum amount stated above and the amount
of the first monthly transfer.
Once the transfers have commenced, the transfers from the Subaccount will
be processed monthly on the Policy Processing Day until the number of transfers
has been completed, or transfers will end automatically when (a) a policy loan
is requested; (b) the policy goes into the grace period; or (c) there is
insufficient value in the Subaccount to make the transfer. The Owner may
instruct PLACA in writing to cancel the remaining monthly transfers.
Transfers made under the Dollar Cost Averaging program will not count
toward the four transfers permitted each Policy Year without imposing the
Transfer Charge. PLACA reserves the right to discontinue offering automatic
transfers upon 30 days' written notice to the Owner. Written notice will be sent
to the Owner and agent confirming each transfer and when the Dollar Cost
Averaging program is terminated. The Owner and agent are responsible for
reviewing the confirmation to verify the transfers are as requested. Any
discrepancies must be reported to PLACA immediately.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following summary provides a general description of the Federal income
tax considerations associated with the Policy and does not purport to be
complete or to cover all situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisors should be consulted for more
complete information. This discussion is based upon PLACA's understanding of the
present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present Federal income tax laws or of the
current interpretations by the Internal Revenue Service.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code")
sets forth a definition of a life insurance contract for Federal tax purposes.
Although the Secretary of the Treasury (the "Treasury") is
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<PAGE> 56
authorized to prescribe regulations implementing Section 7702, while proposed
regulations and other interim guidance has been issued, final regulations have
not been adopted. Guidance as to how Section 7702 is to be applied is limited.
If a Policy were determined not to be a life insurance contract for purposes of
Section 7702, such Policy would not provide the tax advantages normally provided
by a life insurance policy.
With respect to a Policy issued on the basis of a standard premium class,
PLACA believes (largely in reliance on IRS Notice 88-128 and the proposed
regulations under Section 7702, issued on July 5, 1991) that such a Policy
should meet the Section 7702 definition of a life insurance contract, as long s
the Owner does not pay the full amount of premiums permitted under the Policy.
With respect to a Policy that is issued on a substandard basis (i.e., a
premium class with extra rating involving higher than standard mortality risk),
there is less guidance, in particular as to how the mortality and other expense
requirements of Section 7702 are to be applied in determining whether such a
Policy meets the Section 7702 definition of a life insurance contract. Thus, it
is not clear whether or not such a Policy would satisfy Section 7702,
particularly if the Owner pays the full amount of premiums permitted under the
Policy. An Owner of a Policy issued on a substandard basis may, however, adopt
certain self-imposed limitations on the amount of premiums paid for such a
Policy which should cause the Policy to meet the Section 7702 definition of a
life insurance contract. An Owner contemplating the adoption of such limitations
should do so only after consulting a tax adviser.
If it is subsequently determined that a Policy does not satisfy Section
7702, PLACA may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, PLACA
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
Section 817(h) of the Code requires that the investments of each of the
Subaccounts must be "adequately diversified" in accordance with Treasury
regulations in order for the Policy to qualify as a life insurance contract
under Section 7702 of the Code (discussed above). The Subaccounts, through the
Fund, intend to comply with the diversification requirements prescribed in
Treas. Reg. sec. 1.817-5, which affect how the Fund's assets are to be invested.
PLACA believes that the Subaccounts will, thus, meet the diversification
requirement, and PLACA will monitor continued compliance with this requirement.
In certain circumstances, owners of variable life insurance contracts may
be considered the owners, for federal income tax purposes, of the assets of the
Subaccounts used to support their contracts. In those circumstances, income and
gains from the Subaccount assets would be includible in the variable contract
owner's gross income. The IRS has stated in published rulings that a variable
contract owner will be considered the owner of Subaccount assets if the contract
owner possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. The Treasury Department has also
announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of Subaccount assets. For example,
the Owner has additional flexibility in allocating premium payments and Policy
Values and the investment objective of certain Portfolios (i.e. the Worldwide
Hard Assets Portfolio) may be narrower. These differences could result in an
Owner being treated as the owner of a pro rata portion of the assets of the
Subaccounts. In addition, PLACA does not know what standards will be set forth,
if any, in the regulations or rulings which the Treasury Department has stated
it expects to issue. PLACA therefore reserves the right to modify the Policy as
necessary to attempt to prevent an Owner from being considered the owner of a
pro rata share of the assets of the Subaccounts.
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<PAGE> 57
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
In General. PLACA believes that the proceeds and cash value increases of a
Policy should be treated in a manner consistent with a fixed-benefit life
insurance policy for Federal income tax purposes. Thus, the Death Benefit under
the Policy should be excludable from the gross income of the Beneficiary under
Section 101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit Option (i.e., a change from Death Benefit Option A to
Death Benefit Option B or vice versa) an adjustment in the Policy's Face Amount,
a Policy loan, a partial withdrawal, a surrender, the addition of an Accelerated
Death Benefit Rider, the receipt of an Accelerated Death Benefit, the addition
of a Final Policy Date Extension Rider, the continuation of the Policy beyond
the Insured's 100th birthday, a change in ownership, or an assignment of the
Policy may have Federal income tax consequences. In addition, Federal, state and
local transfer, and other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Owner or Beneficiary.
Generally, the Owner will not be deemed to be in constructive receipt of
the Policy Account Value, including increments thereof, until there is a
distribution. The tax consequences of distributions from, and loans taken from
or secured by, a Policy depend on whether the Policy is classified as a
"Modified Endowment Contract". Whether a Policy is or is not a Modified
Endowment Contract, upon a complete surrender or lapse of a Policy or when
benefits are paid at a Policy's maturity date, if the amount received plus the
amount of indebtedness exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to tax.
Modified Endowment Contracts. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts," which applies
to Policies entered into or materially changed after June 20, 1988.
Due to the Policy's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Policy. In general,
a Policy will be a Modified Endowment Contract if the accumulated premiums paid
at any time during the first seven Policy Years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. The determination of whether a Policy will be a Modified Endowment
Contract after a material change generally depends upon the relationship of the
Death Benefit and Policy Account Value at the time of such change and the
additional premiums paid in the seven years following the material change. At
the time a premium is credited which would cause the Policy to become a Modified
Endowment Contract, PLACA will notify the Owner that unless a refund of the
excess premium is requested by the Owner, the Policy will become a Modified
Endowment Contract. The Owner will have 30 days after receiving such
notification to request the refund. The excess premium paid (with either the 4%
required interest or positive Subaccount earnings, if any) will be returned to
the Owner upon receipt by PLACA of the refund request. The amount to be refunded
will be deducted from the Policy Account Value in the Subaccounts and in the
Guaranteed Account in the same proportion as the premium payment was allocated
to such accounts. In the event that earnings on such excess premium is not at
least 4%, the premium plus an amount equal to interest at an annual rate of 4%
will be returned.
The rules relating to whether a Policy will be treated as a Modified
Endowment Contract are complex and cannot be fully described in the limited
confines of this summary. Therefore, a current or prospective Owner should
consult with a competent tax advisor to determine whether a policy transaction
will cause the Policy to be treated as a Modified Endowment Contract.
Distributions from Policies Classified as Modified Endowment
Contracts. Policies classified as Modified Endowment Contract will be subject
to the following tax rules: First, all distributions, including distributions
upon surrender and partial withdrawals from such a Policy are treated as
ordinary income subject to tax up to
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<PAGE> 58
the amount equal to the excess (if any) of the Policy Account Value immediately
before the distribution over the investment in the Policy (described below) at
such time. Second, loans taken from or secured by, such a Policy are treated as
distributions from such a Policy and taxed accordingly. Past due loan interest
that is added to the loan amount will be treated as a loan. Third, a 10 percent
additional income tax is imposed on the portion of any distribution from, or
loan taken from or secured by, such a Policy that is included in income except
where the distribution or loan is made on or after the Owner attains age 59 1/2,
is attributable to the Owner's becoming disabled, or is part of a series of
substantially equal periodic payments for the life (or life expectancy) of the
Owner or the joint lives (or joint life expectancies) or the Owner and the
Owner's Beneficiary.
If a Policy becomes a modified endowment contract after it is issued,
distributions made during the policy year in which it becomes a modified
endowment contract, distributions in any subsequent policy year and
distributions within two years before the Policy becomes a modified endowment
contract will be subject to the tax treatment described above. This means that a
distribution from a Policy that is not a modified endowment contract could later
become taxable as a distribution from a modified endowment contract.
Distributions From Policies Not Classified as Modified Endowment
Contracts. Distributions from a Policy that is not a Modified Endowment
Contract, are generally treated as first recovering the investment in the Policy
(described below) and then, only after the return of all such investment in the
Policy, as distributing taxable income. An exception to this general rule occurs
in the case of a decrease in the Policy's Death Benefit or any other change that
reduces benefits under the Policy in the first 15-years after the policy is
issued and that results in a cash distribution to the Owner in order for the
Policy to continue complying with the Section 7702 definitional limits. Such a
cash distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a Modified Endowment
Contract are generally not treated as distributions. Instead, such loans are
treated as indebtedness of the Owner. However, the tax consequences of loans
after the later of the Policy's 10th anniversary or Attained Age 65 is
uncertain. A tax advisor should be consulted.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a Modified Endowment Contract
are subject to the 10 percent additional tax.
Policy Loan Interest. Interest paid on any loan under a Policy generally
is not deductible. An Owner should consult a tax advisor before deducting any
policy loan interest.
Investment in the Policy. Investment in the Policy means: (i) the
aggregate amount of any premiums or other consideration paid for a Policy, minus
(ii) the aggregate amount received under the Policy which is excluded from gross
income of the Owner (except that the amount of any loan from, or secured by, a
Policy that is a Modified Endowment Contract, to the extent such amount is
excluded from gross income, will be disregarded), plus (iii) the amount of any
loan from, or secured by, a Policy that is a Modified Endowment Contract to the
extent that such amount is included in the gross income of the Owner.
Multiple Policies. All Modified Endowment Contracts that are issued by
PLACA (or its affiliates) to the same Owner during any calendar year are treated
as one Modified Endowment Contract for purposes of determining the amount
includible in the gross income under Section 72(e) of the Code.
In recent years, Congress has adopted new rules relating to life insurance
owned by businesses. Any business contemplating the purchase of a new Policy or
a change in an existing Policy should consult a tax adviser.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Policy could change by
legislation or otherwise. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely modify the federal
taxation of this Policy.
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<PAGE> 59
It is possible that any legislative 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 Policy.
SPECIAL RULES FOR PENSION AND PROFIT-SHARING PLANS
If Policies are purchased by a trust forming part of a pension or
profit-sharing plan meeting the qualification requirements of Section 401(a) of
the Code, various special tax rules will apply. Because these rules are
extensive and complicated, it is not possible to describe all of them here.
Accordingly, counsel or other competent tax advisors familiar with qualified
plan matters should be consulted in connection with any such purchase.
Generally, a plan participant on whose behalf a Policy is purchased will be
treated as having annual imputed income based on a cost of insurance factor
multiplied by the Net Amount at Risk under the Policy. This imputed income is to
be reported by the employer to the employee and the Service annually and
included in the employee's gross income. In the event of the death of a plan
participant while covered by the plan, Insurance Proceeds paid to the
participant's Beneficiary generally will not be completely excludable from the
Beneficiary's gross income under Section 101(a) of the Code. Any Death Benefit
in excess of the Policy Account Value will be excludable. The portion of the
Death Benefit equal to the Policy Account Value, however, generally will be
subject to Federal income tax to the extent it exceeds the sum of $5,000 plus
the participant's "investment in the contract" as defined in the Code, which
will include the imputed income noted above. Special rules may apply in certain
circumstances (e.g., to Owner-employees or participants who have borrowed from
the plan).
The Service has interpreted the plan qualification provisions of the Code
to require that non-retirement benefits, including death benefits, payable under
a qualified plan be "incidental to" retirement benefits provided by the plan.
These interpretations, which are primarily set forth in a series of Revenue
Rulings issued by the Service, should be considered in connection with any
purchase of life insurance policies to provide benefits under a qualified plan.
POSSIBLE CHARGE FOR PLACA'S TAXES
At the present time, PLACA makes no charge for any Federal, state or local
taxes (other than the Federal Tax Charge and the charge for state premium taxes)
that the Company incurs that may be attributable to the Subaccounts or to the
Policies. PLACA, however, reserves the right in the future to make additional
charges for any such tax or other economic burden resulting from the application
of the tax laws that it determines to be properly attributable to the
Subaccounts or to the Policies. If any tax charges are made in the future, they
will be accumulated daily and transferred from the applicable Subaccount to
PLACA's General Account. Any investment earnings on tax charges accumulated in a
Subaccount will be retained by PLACA.
POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS
Policies may be acquired in conjunction with employee benefit plans ("EBS
Policies"), including the funding of qualified pension plans meeting the
requirements of Section 401 of the Code.
For EBS Policies, the maximum mortality rates used to determine the monthly
Cost of Insurance Charge are based on the Commissioners' 1980 Standard Ordinary
Mortality Tables NB and SB. Under these Tables, mortality rates are the same for
male and female Insureds of a particular Attained Age and Premium Class. (See
"Cost of Insurance," Page 33.)
Illustrations reflecting the premiums and charges for EBS Policies will be
provided upon request to purchasers of such Policies.
There is no provision for misstatement of sex in the EBS Policies. (See
"Misstatement of Age and Sex," Page 43.) Also, the rates used to determine the
amount payable under a particular Settlement Option will be the same for male
and female Insureds. (See "Settlement Options," Page 44.)
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<PAGE> 60
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under an employee's
deferred compensation plan could not, under Title VII of the Civil Rights Act of
1964, vary between men and women on the basis of sex. In that case, the Court
applied its decision only to benefits derived from contributions made on or
after August 1, 1983. Subsequent decisions of lower federal courts indicate that
in other factual circumstances the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory, or
decisional authority of some states may prohibit use of sex-distinct mortality
tables under certain circumstances. The Policies offered by this Prospectus
(other than Policies issued in states which require "unisex" policies (currently
Montana) and EBS Policies (see "Policies Issued in Conjunction with Employee
Benefit Plans," Page 50)) are based upon actuarial tables which distinguish
between men and women and, thus, the Policy provides different benefits to men
and women of the same age. Accordingly, employers and employee organizations
should consider, in consultation with legal counsel, the impact of these
authorities on any employment-related insurance or benefits program before
purchasing the Policy and in determining whether an EBS Policy is appropriate.
VOTING RIGHTS
All of the assets held in the Subaccounts of the Variable Account will be
invested in shares of corresponding portfolios of the Funds. The Funds do not
hold routine annual shareholders' meetings. Shareholders' meetings will be
called whenever each Fund believes that it is necessary to vote to elect the
Board of Directors of the Fund and to vote upon certain other matters that are
required by the 1940 Act to be approved or ratified by the shareholders of a
mutual fund. PLACA is the legal owner of Fund shares and as such has the right
to vote upon any matter that may be voted upon at a shareholders' meeting.
However, in accordance with its view of present applicable law, PLACA will vote
the shares of the Funds at meetings of the shareholders of the appropriate Fund
or Portfolio in accordance with instructions received from Owners. Fund shares
held in each Subaccount for which no timely instructions from policyowners are
received will be voted by PLACA in the same proportion as those shares in that
Subaccount for which instructions are received.
Each Owner having a voting interest will be sent proxy material and a form
for giving voting instructions. Owners may vote, by proxy or in person, only as
to the Portfolios that correspond to the Subaccounts in which their Policy
values are allocated. The number of shares held in each Subaccount attributable
to a Policy for which the Owner may provide voting instructions will be
determined by dividing the Policy's value in that account by the net asset value
of one share of the corresponding Portfolio as of the record date for the
shareholder meeting. Fractional shares will be counted. For each share of a
Portfolio for which Owners have no interest, PLACA will cast votes, for or
against any matter, in the same proportion as Owners vote.
If required by state insurance officials, PLACA may disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the investment objectives or policies of one or more of the
Portfolios, or to approve or disapprove an investment policy or investment
adviser of one or more of the Portfolios. In addition, PLACA may disregard
voting instructions in favor of changes initiated by an Owner or the Fund's
Board of Directors provided that PLACA's disapproval of the change is reasonable
and is based on a good faith determination that the change would be contrary to
state law or otherwise inappropriate, considering the portfolio's objectives and
purposes, and the effect the change would have on PLACA. If PLACA does disregard
voting instructions, it will advise Owners of that action and its reasons for
such action in the next semi-annual report to Owners.
At some later time, the Market Street Fund, Inc. shares may be held by
separate accounts of insurance companies not affiliated with PLACA. PLACA
expects that those shares will be voted in accordance with instructions of the
owners of insurance policies and contracts issued by those other insurance
companies. This will dilute the effect of voting instructions of Owners.
Shares of the Funds other than The Market Street Fund, Inc. are currently
being offered to variable life insurance and variable annuity separate accounts
of life insurance companies other than PLACA that are not
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<PAGE> 61
affiliated with PLACA. PLACA understands that shares of these Funds also will be
voted by such other life insurance companies in accordance with instructions
from their policyowners invested in such separate accounts. This will dilute the
effect of voting instructions of Owners of the Policies.
CHANGES IN APPLICABLE LAW, FUNDING AND OTHERWISE
The voting rights described in this Prospectus are created under applicable
Federal securities laws. To the extent that such laws or regulations promulgated
thereunder eliminate the necessity to solicit voting instructions from Owners or
restrict such voting rights, PLACA reserves the right to proceed in accordance
with any such laws or regulations.
PLACA also reserves the right, subject to compliance with applicable law,
including approval of Owners, if so required: (1) to transfer assets determined
by PLACA to be associated with the class of policies to which the Policies
belong from one Subaccount or Separate Account to another Subaccount or Separate
Account by withdrawing the same percentage of each investment in the account
with appropriate adjustments to avoid odd lots and fractions (such transfers
will not count against the four free transfers during a Policy Year); (2) to
create additional separate investment accounts, to create divisions (or
Subaccounts) from, or combine or remove divisions (or Subaccounts) from Separate
Accounts, or to combine any two or more accounts including the Subaccounts, (3)
to operate one or more of the Subaccounts as a management investment company
under the 1940 Act, or in any other form permitted by law; (4) to deregister the
unit investment trust under the 1940 Act; and (5) to modify the provisions of
the Policies to comply with applicable laws. PLACA has reserved all rights in
respect of its corporate name and any part thereof, including without limitation
the right to withdraw its use and to grant its use to one or more other separate
accounts and other entities.
Although PLACA believes it to be highly unlikely, it is possible that in
the judgment of its management, one or more of the Portfolios may become
unsuitable for investment by the corresponding Subaccount because of a change in
investment policy, or a change in the tax laws, or because the shares or units
are no longer available for investment or for any other reasonable cause. In
that event, PLACA may seek to substitute the shares of another Portfolio or of
an entirely different mutual fund or trust. Before this would be done, the
approval of the SEC and possible one or more state insurance departments would
be obtained, to the extent legally required.
OFFICERS AND DIRECTORS OF PLACA
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
Robert W. Kloss.............................. 1996 to present -- President and Chief Executive
Director and President Officer of PMLIC; 1994 to 1996 -- President and Chief
Operating Officer of PMLIC; 1986 to 1994 -- Chief
Executive Officer of Covenant Life Insurance
Company.
James G. Potter, Jr.......................... 12/97 to present -- Executive Vice President, General
Director, Secretary and Legal Officer Counsel & Secretary of Provident Mutual Life
Insurance Company; 6/89 to 11/97 -- Chief Legal
Officer of Prudential Banks.
James D. Kestner............................. 11/94 to present -- Vice President of Provident Mutual
Director Life Insurance Company; 1/78 to 11/94 -- Sr. Vice
President and Treasurer of Covenant Life Insurance
Company.
Sarah C. Lange............................... 1983 to present -- Vice President of Provident Mutual
Director Life Insurance Company.
</TABLE>
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<PAGE> 62
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
J. Kevin McCarthy............................ 1996 to present -- Executive Vice President and Chief
Director Marketing Officer of PMLIC; 1995 -- Vice President,
Variable Products at CNA Insurance Companies; 1992
to 1994 -- Vice President, Sales at PMLIC; 1981 to
1992 -- Strategic Managing Consultant at The Wolper
Ross Corporations.
Alan F. Hinkle............................... 1996 to present -- Executive Vice President and Chief
Director Actuary of PMLIC; 1974 to 1996 -- Vice President and
Individual Actuary of PMLIC.
Joan C. Tucker............................... 1996 to present -- Executive Vice President, Insurance
Director Operations at PMLIC; 1996 -- Senior Vice President,
Insurance Operations of PMLIC; 1993 to 1996 -- Vice
President Individual Insurance Operations at PMLIC;
1989 to 1993 -- Assistant Vice President, Agency
Administration of PMLIC.
Mary Lynn Finelli............................ 1996 to present -- Executive Vice President and Chief
Director Financial Officer of PMLIC; 1986 to 1996 -- Vice
President and Controller of PMLIC; 1976 to 1986 --
Principal of Arthur Young Company.
Linda M. Springer............................ 1996 to present -- Vice President and controller of
Financial Reporting Officer PMLIC; 1995 to 1996 -- Assistant Vice President and
Actuary of PMLIC; 1992 to 1995 -- Actuary of PMLIC.
Rosanne Gatta................................ 1994 to present -- Vice President and Treasurer of
Treasurer PMLIC; 1985 to 1994 -- Assistant Vice President and
Treasurer of PMLIC.
</TABLE>
- ---------------
* Unless otherwise indicated, the address is 1050 Westlakes Drive, Berwyn,
Pennsylvania 19312.
A Fidelity Bond in the amount of $10 million covering PLACA's officers and
employees has been issued by Aetna Casualty and Surety Company.
DISTRIBUTION OF POLICIES
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell PLACA's variable life insurance policies,
and who are also registered representatives of 1717 Capital Management Company
("1717") or registered representatives of broker/dealers who have Selling
Agreements with 1717 or registered representatives of broker/dealers who have
Selling Agreements with such broker/dealers. 1717, whose address is Christiana
Executive Campus, P.O. Box 15626, Wilmington, Delaware 19850, is a registered
broker/dealer under the Securities Exchange Act of 1934 (the "1934 Act") and a
member of the National Association of Securities Dealers, Inc. (the "NASD").
1717 is an indirect wholly-owned subsidiary of PMLIC. 1717 acts as the principal
underwriter, as defined in the 1940 Act, of the Policies (as well as other
variable life policies) for the Subaccounts pursuant to an Underwriting
Agreement to which the Accounts, 1717 and PLACA are parties. The Policies are
offered and sold only in those states where their sale is lawful. 1717 receives
no compensation as principal underwriter of the Policies. 1717 is also the
principal underwriter of variable annuity contracts issued by PLACA and variable
life and annuity contracts issued by PMLIC.
The insurance underwriting and the determination of a proposed Insured's
Premium Class and whether to accept or reject an application for a Policy is
done by PLACA. PLACA will refund any premiums paid if a Policy ultimately is not
issued or will refund the applicable amount if the Policy is returned under the
Free-Look provision.
53
<PAGE> 63
Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. During the first Policy
Year, agent commissions will not be more than 81% of the premiums paid up to a
target amount (used only to determine commission payments) and 2% of the
premiums paid in excess of that amount. Agent commissions will not be more than
2% of premiums paid for Policy Years 2 through 10 and for years 11 and later, 0%
of the premiums paid. However, for each premium received within 10 years
following an increase in Face Amount, agent commissions on the premium paid up
to the target amount for the increase in each year will be calculated using the
commission rates for the corresponding Policy Year. Agents may also receive
annual renewal compensation of up to 0.25% of the unloaned Policy Account Value,
depending upon the circumstances. The annual renewal compensation will be
computed on the Policy Anniversary beginning at the end of the second Policy
Year. Agents may also receive expense allowances or bonuses. The agent may be
required to return the first year commission less the deferred sales charge
imposed if a Policy is not continued through the first Policy Year.
POLICY REPORTS
At least once each Policy Year a statement will be sent to the Owner
describing the status of the Policy, including setting forth the Face Amount,
the current Death Benefit, any Policy loans and accrued interest, the current
Policy Account Value, the Guaranteed Account Value, the Loan Account Value, the
value in each Subaccount, premiums paid since the last report, charges deducted
since the last report, any partial withdrawals since the last report, and the
current Net Cash Surrender Value. At the present time, PLACA plans to send these
Policy Statements on a quarterly basis. In addition, a statement will be sent to
an Owner showing the status of the Policy following the transfer of amounts from
one Subaccount to another, the taking out of a loan, a repayment of a loan, a
partial withdrawal and the payment of any premiums (excluding those paid by bank
draft or otherwise under the Automatic Payment Plan). An Owner may request that
a similar report be prepared at other times. PLACA may charge a reasonable fee
for such requested reports and may limit the scope and frequency of such
requested reports.
An Owner will be sent a semi-annual report containing the financial
statements of the Subaccounts and the Funds and Trust as required by the 1940
Act.
PREPARING FOR YEAR 2000
Like all financial services providers, Provident Mutual Life Insurance
Company and its affiliates (collectively "Provident Mutual") utilize systems
that may be affected by Year 2000 transition issues and they rely on service
providers, including banks, custodians, administrators, and investment managers
that also may be affected. Provident Mutual have developed, and are in the
process of implementing, a Year 2000 transition plan, and are confirming that
its service providers are also so engaged. The resources that are being devoted
to this effort are substantial. It is difficult to predict with precision
whether the amount of resources ultimately devoted, or the outcome of these
efforts, will have any negative impact on Provident Mutual. 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. Provident Mutual
currently anticipate that their systems will be Year 2000 compliant on or about
January 1, 1999 but there can be no assurance that Provident Mutual will be
successful, or that interaction with other service providers will not impair
Provident Mutual's services at that time.
STATE REGULATION
PLACA is subject to regulation and supervision by the Insurance Department
of the State of Delaware 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 Policy form has been filed with, and
where required approved by, insurance officials in each jurisdiction where the
Policies are sold. PLACA is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
54
<PAGE> 64
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
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.
EXPERTS
The Financial Statements listed on Page F-1, have been included in this
Prospectus, in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
Actuarial matters included in the Prospectus have been examined by Scott V.
Carney, FSA, MAAA, Vice President and Actuary of PMLIC, as stated in his opinion
filed as an exhibit to the Registration Statement.
LEGAL MATTERS
Sutherland, Asbill & Brennan, L.L.P., of Washington, D.C. has provided
advice on legal matters relating to certain aspects of Federal securities law
applicable to the issue and sale of the Policies. Adam Scaramella, Esq., Counsel
of Provident Mutual Life Insurance Company, has provided advice on certain
matters relating to the laws of Delaware regarding the Policies and PLACA's
issuance of the Policies.
55
<PAGE> 65
APPENDIX A
ILLUSTRATION OF DEATH BENEFITS, POLICY ACCOUNT VALUES
AND NET CASH SURRENDER VALUES
The following tables illustrate how the Death Benefits, Policy Account
Values and Net Cash Surrender Values of a Policy may change with the investment
experience of the Separate Accounts. The tables show how the Death Benefits,
Policy Account Values and Net Cash Surrender Values of a Policy issued to an
Insured of a given age and sex would vary over time if the investment return on
the assets held in each Portfolio of the Fund and Trust were a uniform, gross,
annual rate of 0%, 6% and 12%.
The tables on pages A-3 to A-8 illustrate a Policy issued to a male
Insured, Age 40 in the Preferred Premium Class with a Face Amount of $100,000
and a Planned Periodic Premium of $1,000 paid at the beginning of each Policy
Year. The Death Benefits, Policy Account Values and Net Cash Surrender Values
would be lower if the Insured was in a nonsmoker, smoker or special class, or a
Class with extra ratings, since the cost of insurance charges would increase.
Also, the values would be different from those shown if the gross annual
investment returns averaged 0%, 6% and 12% over a period of years, but
fluctuated above and below those averages for individual Policy years.
The second column of the tables show the amount to which the premiums would
accumulate if an amount equal to those premiums were invested to earn interest,
after taxes, at 5% compounded annually. The columns shown under the heading
"Guaranteed" assume that throughout the life of the Policy, the monthly charge
for cost of insurance is based on the maximum level permitted under the Policy
(based on the 1980 CSO Smoker/Nonsmoker Table), a Premium Expense Charge of 2%,
maximum monthly administrative fee of $12 and a daily charge for mortality and
expense risks equivalent to an annual rate of 0.90%; the columns under the
heading "Current" assume that throughout the life of the Policy, the monthly
charge for cost of insurance is based on the current cost of insurance rate, a
Premium Expense Charge of 2%, up until the current maximum premium sales charge
is deducted, current monthly administrative fee of $7.50 and a daily charge for
mortality and expense risks equivalent to an annual rate of 0.65%.
The amounts shown in all tables reflect an averaging of certain other asset
charges described below that may be assessed under the Policy, depending upon
how premiums are allocated. The total of the asset charges reflected in the
Current and Guaranteed illustrations, including the Mortality and Expense Risk
Charge listed above, is 1.47% and 1.72%, respectively. This total charge is
based on an assumption that an Owner allocates the Policy values equally among
each Sub-Account of the Variable Account.
These asset charges reflect an investment advisory fee of 0.65% which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of 0.17% which is based on an average of the
actual expenses incurred by the Portfolios during the most recent fiscal year.
For all of the Portfolios, the annual expenses used in the illustrations are net
of certain reimbursements that may or may not continue.
Currently there is an expense reimbursement agreement between PMLIC and MS
Fund pursuant to which PMLIC reimburses MS Fund expenses, excluding investment
advisory fees, in excess of 0.40% for all Portfolios except the International
Portfolio and 0.75% for the International Portfolio. There was no reimbursement
in 1997. The Fund expenses, excluding advisory fees, during 1997 were 0.11% for
the Growth Portfolio, 0.14% for the Money Market Portfolio, 0.22% for the Bond
Portfolio, 0.17% for the Managed Portfolio, 0.18% for the Aggressive Growth
Portfolio and 0.27% for the International Portfolio. It is anticipated that this
agreement will continue past the current year. If it does not continue, Fund
expenses may increase.
Absent reimbursements, the investment advisory fees and other expenses
during the most recent fiscal year for the portfolios were:
VIP Fund Equity Income Portfolio 0.58%, VIP Fund Growth Portfolio
0.69%, VIP Fund Overseas Portfolio 0.91%, VIP Fund II Asset Manager
Portfolio 0.65%, VIP Fund II Index 500 Portfolio 0.40%, VIP Fund II
Investment Grade Bond Portfolio 0.58%, VIP Fund II Contrafund Portfolio
0.71% and Van Eck Worldwide Hard Assets Portfolio 1.18%.
A-1
<PAGE> 66
The tables also reflect the fact that no charges for Federal or state
income taxes are currently made against the Subaccounts. If such a charge is
made in the future, it would take a higher gross annual rate of return to
produce the same Policy values.
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid and allocated as
indicated, no amounts are allocated to the Guaranteed Account, and no Policy
loans are made. The tables are also based on the assumption that the Owner has
not requested an increase or decrease in the Face Amount, that no partial
withdrawals have been made and no transfers have been made in any Policy Year.
Upon request, PLACA will provide a comparable illustration of future
benefits under the Policy based upon the proposed Insured's Age and Premium
Class, the Death Benefit Option, Face Amount, Planned Periodic Premiums and
riders requested. PLACA reserves the right to charge a reasonable fee for this
service to persons who request more than one policy illustration during a Policy
Year.
A-2
<PAGE> 67
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 563 0 100,000 649 0 100,000
2 2,153 1,101 251 100,000 1,273 423 100,000
3 3,310 1,613 693 100,000 1,871 951 100,000
4 4,526 2,097 1,107 100,000 2,441 1,451 100,000
5 5,802 2,554 1,494 100,000 2,982 1,922 100,000
6 7,142 2,980 1,850 100,000 3,492 2,362 100,000
7 8,549 3,375 2,375 100,000 3,977 2,977 100,000
8 10,027 3,736 2,986 100,000 4,436 3,686 100,000
9 11,578 4,068 3,568 100,000 4,872 4,372 100,000
10 13,207 4,377 4,127 100,000 5,294 5,044 100,000
11 14,917 4,648 4,648 100,000 5,688 5,688 100,000
12 16,713 4,874 4,874 100,000 6,047 6,047 100,000
13 18,599 5,050 5,050 100,000 6,370 6,370 100,000
14 20,579 5,170 5,170 100,000 6,652 6,652 100,000
15 22,657 5,227 5,227 100,000 6,890 6,890 100,000
16 24,840 5,215 5,215 100,000 7,207 7,207 100,000
17 27,132 5,127 5,127 100,000 7,491 7,491 100,000
18 29,539 4,959 4,959 100,000 7,741 7,741 100,000
19 32,066 4,705 4,705 100,000 7,958 7,958 100,000
20 34,719 4,354 4,354 100,000 8,138 8,138 100,000
25 50,113 629 629 100,000 8,421 8,421 100,000
30 69,760 0 0 0 7,113 7,113 100,000
</TABLE>
- ---------------
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE ACTUAL
RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12%, BUT
VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-3
<PAGE> 68
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 608 0 100,000 696 0 100,000
2 2,153 1,224 374 100,000 1,407 557 100,000
3 3,310 1,849 929 100,000 2,133 1,213 100,000
4 4,526 2,482 1,492 100,000 2,871 1,881 100,000
5 5,802 3,121 2,061 100,000 3,621 2,561 100,000
6 7,142 3,765 2,635 100,000 4,382 3,252 100,000
7 8,549 4,412 3,412 100,000 5,160 4,160 100,000
8 10,027 5,060 4,310 100,000 5,954 5,204 100,000
9 11,578 5,712 5,212 100,000 6,768 6,268 100,000
10 13,207 6,378 6,128 100,000 7,613 7,364 100,000
11 14,917 7,039 7,039 100,000 8,476 8,476 100,000
12 16,713 7,690 7,690 100,000 9,350 9,350 100,000
13 18,599 8,323 8,323 100,000 10,235 10,235 100,000
14 20,579 8,934 8,934 100,000 11,126 11,126 100,000
15 22,657 9,513 9,513 100,000 12,021 12,021 100,000
16 24,840 10,054 10,054 100,000 13,041 13,041 100,000
17 27,132 10,547 10,547 100,000 14,082 14,082 100,000
18 29,539 10,987 10,987 100,000 15,145 15,145 100,000
19 32,066 11,366 11,366 100,000 16,232 16,232 100,000
20 34,719 11,670 11,670 100,000 17,343 17,343 100,000
25 50,113 11,450 11,450 100,000 23,230 23,230 100,000
30 69,760 5,752 5,752 100,000 29,388 29,388 100,000
</TABLE>
- ---------------
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE ACTUAL
RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12%, BUT
VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-4
<PAGE> 69
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 652 0 100,000 743 0 100,000
2 2,153 1,352 502 100,000 1,547 697 100,000
3 3,310 2,107 1,187 100,000 2,417 1,497 100,000
4 4,526 2,918 1,928 100,000 3,357 2,367 100,000
5 5,802 3,792 2,732 100,000 4,374 3,314 100,000
6 7,142 4,731 3,601 100,000 5,474 4,344 100,000
7 8,549 5,743 4,743 100,000 6,672 5,672 100,000
8 10,027 6,831 6,081 100,000 7,976 7,226 100,000
9 11,578 8,008 7,508 100,000 9,403 8,903 100,000
10 13,207 9,293 9,043 100,000 10,977 10,727 100,000
11 14,917 10,679 10,679 100,000 12,697 12,697 100,000
12 16,713 12,171 12,171 100,000 14,573 14,573 100,000
13 18,599 13,775 13,775 100,000 16,621 16,621 100,000
14 20,579 15,501 15,501 100,000 18,858 18,858 100,000
15 22,657 17,354 17,354 100,000 21,301 21,301 100,000
16 24,840 19,346 19,346 100,000 24,085 24,085 100,000
17 27,132 21,488 21,488 100,000 27,146 27,146 100,000
18 29,539 23,797 23,797 100,000 30,516 30,516 100,000
19 32,066 26,288 26,288 100,000 34,231 34,231 100,000
20 34,719 28,979 28,979 100,000 38,330 38,330 100,000
25 50,113 46,232 46,232 100,000 66,332 66,333 100,000
30 69,760 73,537 73,537 100,000 113,105 113,105 131,202
</TABLE>
- ---------------
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will, differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFITS,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE ACTUAL
RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12%, BUT
VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OR RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-5
<PAGE> 70
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 562 0 100,562 648 0 100,648
2 2,153 1,096 246 101,096 1,268 418 101,268
3 3,310 1,603 683 101,603 1,862 942 101,862
4 4,526 2,081 1,091 102,081 2,425 1,435 102,425
5 5,802 2,529 1,469 102,529 2,958 1,898 102,958
6 7,142 2,945 1,815 102,945 3,457 2,327 103,457
7 8,549 3,328 2,328 103,328 3,929 2,929 103,929
8 10,027 3,675 2,925 103,675 4,372 3,622 104,372
9 11,578 3,989 3,489 103,989 4,790 4,290 104,790
10 13,207 4,279 4,029 104,279 5,192 4,942 105,192
11 14,917 4,527 4,527 104,527 5,562 5,562 105,562
12 16,713 4,727 4,727 104,727 5,895 5,895 105,895
13 18,599 4,874 4,874 104,874 6,187 6,187 106,187
14 20,579 4,961 4,961 104,961 6,435 6,435 106,435
15 22,657 4,981 4,981 104,981 6,634 6,634 106,634
16 24,840 4,929 4,929 104,929 6,920 6,920 106,920
17 27,132 4,798 4,798 104,798 7,167 7,167 107,167
18 29,539 4,583 4,583 104,583 7,377 7,377 107,377
19 32,066 4,280 4,280 104,280 7,550 7,550 107,550
20 34,719 3,879 3,879 103,879 7,684 7,684 107,684
25 50,113 0 0 0 7,675 7,675 107,675
30 69,760 0 0 0 5,969 5,969 105,969
</TABLE>
- ---------------
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE SUBACCOUNTS IF THE
ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR
12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-6
<PAGE> 71
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 606 0 100,606 695 0 100,695
2 2,153 1,218 368 101,218 1,402 552 101,402
3 3,310 1,838 918 101,838 2,122 1,202 102,122
4 4,526 2,462 1,472 102,462 2,852 1,862 102,852
5 5,802 3,091 2,031 103,091 3,591 2,531 103,591
6 7,142 3,720 2,590 103,720 4,337 3,207 104,337
7 8,549 4,349 3,349 104,349 5,095 4,095 105,095
8 10,027 4,973 4,223 104,973 5,864 5,114 105,864
9 11,578 5,597 5,097 105,597 6,649 6,149 106,649
10 13,207 6,227 5,977 106,227 7,458 7,208 107,458
11 14,917 6,846 6,846 106,846 8,276 8,276 108,276
12 16,713 7,445 7,445 107,445 9,099 9,099 109,099
13 18,599 8,018 8,018 108,018 9,920 9,920 109,920
14 20,579 8,556 8,556 108,556 10,738 10,738 110,738
15 22,657 9,049 9,049 109,049 11,544 11,544 111,544
16 24,840 9,488 9,488 109,488 12,479 12,479 112,479
17 27,132 9,863 9,863 109,863 13,420 13,420 113,420
18 29,539 10,165 10,165 110,165 14,368 14,368 114,368
19 32,066 10,385 10,385 110,385 15,324 15,324 115,324
20 34,719 10,506 10,506 110,506 16,283 16,283 116,283
25 50,113 8,957 8,957 108,957 21,038 21,038 121,038
30 69,760 1,305 1,305 101,305 25,010 25,010 125,010
</TABLE>
- ---------------
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE ACTUAL
RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12%, BUT
VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-7
<PAGE> 72
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 650 0 100,650 742 0 100,742
2 2,153 1,346 496 101,346 1,541 691 101,541
3 3,310 2,094 1,174 102,094 2,404 1,484 102,404
4 4,526 2,895 1,905 102,895 3,334 2,344 103,334
5 5,802 3,754 2,694 103,754 4,336 3,276 104,336
6 7,142 4,673 3,543 104,673 5,415 4,285 105,415
7 8,549 5,657 4,657 105,657 6,585 5,585 106,585
8 10,027 6,709 5,959 106,709 7,852 7,102 107,852
9 11,578 7,839 7,339 107,839 9,230 8,730 109,230
10 13,207 9,064 8,814 109,064 10,742 10,492 110,742
11 14,917 10,373 10,373 110,373 12,383 12,383 112,383
12 16,713 11,767 11,767 111,767 14,159 14,159 114,159
13 18,599 13,248 13,248 113,248 16,082 16,082 116,082
14 20,579 14,818 14,818 114,818 18,162 18,162 118,162
15 22,657 16,477 16,477 116,477 20,408 20,408 120,408
16 24,840 18,226 18,226 118,226 22,982 22,982 122,982
17 27,132 20,066 20,066 120,066 25,786 25,786 125,786
18 29,539 22,001 22,001 122,001 28,845 28,845 128,845
19 32,066 24,032 24,032 124,032 32,185 32,185 132,185
20 34,719 26,158 26,158 126,158 35,831 35,831 135,831
25 50,113 37,979 37,979 137,979 59,766 59,766 159,766
30 69,760 50,483 50,483 150,483 96,727 96,727 196,727
</TABLE>
- ---------------
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-8
<PAGE> 73
APPENDIX B
LONG TERM MARKET TRENDS
The information below is a record of the compound annual returns of common
stocks, high-grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The compound annual returns assume the reinvestment of
dividends, capital gains and interest. This is an historical record and is not
intended as a projection of future performance. Charges associated with a
variable life policy are not reflected.
The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high-grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods of
time. To the extent that cash value is allocated to separate accounts which
invest in common stocks, these trends indicate the potential advantages of
holding a variable life insurance policy for a long period of time.
The following chart illustrates the compound annual returns of the S&P 500
Composite Stock Price Index for each of the 20-year periods shown. These returns
are compared to the compound annual returns of high-grade corporate bonds and
U.S. Treasury bills for the same periods. (The 20-year periods selected for the
chart begin in 1938 and have ending periods at five year intervals.)
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Stocks Bonds U.S. Treasury Bills
<S> <C> <C> <C>
1957 12.98 2.52 0.91
1962 15.25 2.48 1.50
1967 14.63 2.01 2.38
1972 11.67 2.95 3.39
1977 8.12 3.99 4.44
1982 8.30 4.47 6.51
1987 9.27 7.88 7.44
1992 11.33 9.54 7.70
1997 16.65 10.29 7.29
</TABLE>
- ---------------
* Sources: Common stock returns-Standard & Poor's 500 Composite Stock Price
Index. Corporate bond returns -- Salomon Brothers Long Term High Grade
Corporate Bond Index, and U.S. Treasury Bill returns -- C.R.S.P. U.S.
Government Bond File through 1976 and The Wall Street Journal thereafter. All
data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills
and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1998
Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights reserved.
B-1
<PAGE> 74
Over the 53 20-year time periods beginning in 1926 and ending in 1997 (i.e.
1926-1945, 1927-1946, and so on through 1978-1997):
-- The compound annual return of common stocks was superior to that of
high-grade, long-term corporate bonds in 50 of the 53 periods.
-- The compound annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 53 periods.
-- Common stock compound annual returns exceeded the average annual rate of
inflation in each of the 53 periods.
Over the 43 30-year time periods beginning in 1926 and ending in 1997, the
compound annual return of common stocks was superior to that of high-grade,
long-term corporate bonds, U.S. Treasury bills and inflation in all 43 periods.
From 1926 through 1997 the compound annual return for common stocks was
11.0%, compared to 5.7% for high-grade, long-term corporate bonds, 5.2% for
Long-Term Government Bonds, 3.8% for U.S. Treasury bills and 3.1% for the
Consumer Price Index.
------------------------
SUMMARY TABLE: HISTORIC S&P 500 COMPOSITE STOCK INDEX RESULTS FOR
SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Composite Stock Index, with dividends reinvested, over one-year,
five-year, ten-year and twenty-year periods beginning in 1926 and ending in
1997.
The chart shows that historically, the longer that a portfolio matching the
S&P 500 Composite Stock Index was held, the less likely was the chance of a
loss. Conversely, the shorter the holding period of such a portfolio, the more
likely was the chance of a loss. The chart also shows that shorter term results
tend to be more extreme than longer term results.
THE CHART IS NOT A PROJECTION OR REPRESENTATION OF FUTURE STOCK MARKET
RESULTS. IT CANNOT BE TAKEN AS REPRESENTATIVE OF THE PERFORMANCE OF ANY ONE
SEPARATE ACCOUNT. Rather it shows the historic performance of a broad index of
stocks over arbitrarily selected time periods.
PERCENT OF HOLDING PERIODS WITH THE FOLLOWING RETURNS:
<TABLE>
<CAPTION>
GREATER
THAN
HOLDING NEGATIVE 0.5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
------ -------- ------- ----------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
1 year 27.8% 4.2% 11.1% 6.9% 11.1% 38.9%
5 years 10.3% 14.7% 14.7% 32.4% 17.6% 10.3%
10 years 3.2% 11.1% 34.9% 22.2% 27.0% 1.6%
20 years 0.0% 5.8% 32.1% 54.7% 7.5% 0.0%
</TABLE>
- ---------------
Source: All basic data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield,
Stocks, Bonds, Bills and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills
and Inflation 1998 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
B-2
<PAGE> 75
TREASURY BILLS ADJUSTED FOR INFLATION
The data below show the annual rate of return over 20-year holding periods
of U.S. Treasury Bills after adjusting for inflation as measured by the Urban
Consumer Price Index. This annual rate, as adjusted, is also called the real
interest rate and is represented as the real interest rate in the chart below.
U.S. Treasury Bills are considered to be one of the safest kinds of investments,
as they are backed by the U.S. government. However, the highest
inflation-adjusted return of U.S. Treasury Bills over the historic 20-year
periods presented below has been modest.
<TABLE>
<CAPTION>
Measurement Period Treasury Bills Adjusted for
(Fiscal Year Covered) Inflation
<S> <C>
1957 -2.45
1962 -1.44
1967 0.50
1972 1.02
1977 0.44
1982 0.47
1987 1.07
1992 1.40
1997 2.29
</TABLE>
Selected 20-year periods ending on year shown above.
- ---------------
Source: All basic data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield,
Stocks, Bonds, Bills and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills
and Inflation 1998 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
---------------------------
THE "DOLLAR COST AVERAGING" INVESTMENT METHOD
As the Compound Annual Returns graph indicates, the investment performance
of many common stocks has generally been positive over certain relatively long
periods. Common stocks have, however, also been subject to market declines,
often dramatic ones, and general volatility of prices over shorter time periods.
The price fluctuations of common stocks has historically been greater than that
of high-grade debt securities.
The relative volatility of common stock prices as compared with prices of
high-grade debt instruments offers both advantages and disadvantages to
investors. Unfortunately, many investors who otherwise might be interested in
common stocks see only the disadvantages and not the advantages of stock price
fluctuation. The primary disadvantage, of course, is that price declines can be
prolonged and substantial, and when this occurs, investors cannot liquidate
their investments without realizing losses. Price declines, however, also offer
investors important opportunities.
Opportunity arises from the fact that investors can purchase more common
stock for the same amount of money than they would before prices declined.
Investors may take advantage of this if they remain willing to
B-3
<PAGE> 76
continue investing in both rising and falling markets. The dollar cost averaging
method of investing demonstrates this.
In this method of investing:
- Relatively constant dollar amounts are invested at regular intervals
(monthly, quarterly, or annually).
- Stock market fluctuations, especially the savings on purchases from price
declines, are exploited for the investor's benefit.
HOW DOLLAR COST AVERAGING WORKS
<TABLE>
<CAPTION>
INVESTMENTS AT COMMON STOCK SHARES
REGULAR INTERVALS MARKET PRICE PURCHASED
- ----------------- ------------ ---------
<S> <C> <C>
$150 $20 7.5
150 15 10.0
150 10 15.0
150 5 30.0
150 10 15.0
150 15 10.0
---- ---------
$900 87.5
Total Value of 87.5 shares @ 15/share $1,312.50
Less Investment made (900.00)
---------
Gain/Profit $ 412.50
</TABLE>
Though the market price has not returned to the initial high of $20 per
share, dollar cost averaging has permitted the investor to purchase more shares
at a savings and thus realize a significant gain. Obviously, the dollar cost
averaging method only works if the investor continues to invest relatively
constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss
in declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of marketing fluctuations.
How does the dollar cost averaging method relate to a variable life
insurance policy? A policyowner may invest his or her net premiums in a separate
account, and, although a Policy's value in the separate accounts is affected by
several factors other than investment experience (e.g., cash value charges and
charges against the separate account), the dollar cost averaging method can be
generally applied to the Policy to the extent that the policyowner pays premiums
on a regular basis and he or she allocates net premiums to separate accounts
which invest in common stocks in relatively constant amounts.
B-4
<PAGE> 77
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Providentmutual Variable Life Separate Account
Report of Independent Accountants...................... F-2
Statements of Assets and Liabilities, December 31,
1997.................................................. F-3
Statements of Operations for the Year Ended December
31, 1997.............................................. F-7
Statements of Operations for the Year Ended December
31, 1996.............................................. F-11
Statements of Operations for the Period February 1,
1995 (Date of Inception) to December 31, 1995......... F-15
Statements of Changes in Net Assets for the Year Ended
December 31, 1997..................................... F-18
Statements of Changes in Net Assets for the Year Ended
December 31, 1996..................................... F-22
Statements of Changes in Net Assets for the Period
February 1, 1995 (Date of Inception) to December 31,
1995.................................................. F-26
Notes to Financial Statements.......................... F-29
Providentmutual Life and Annuity Company of America
Report of Independent Accountants...................... F-44
Statements of Financial Condition as of December 31,
1997 and 1996......................................... F-45
Statements of Operations for the Years Ended December
31, 1997, 1996, and 1995.............................. F-46
Statements of Capital and Surplus for the Years Ended
December 31, 1997, 1996, and 1995..................... F-47
Statements of Cash Flows for the Years Ended December
31, 1997, 1996, and 1995.............................. F-48
Notes to Financial Statements.......................... F-49
</TABLE>
F-1
<PAGE> 78
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Policyholders and
Board of Directors of
Providentmutual Life and Annuity
Company of America
We have audited the accompanying statements of assets and liabilities of the
Providentmutual Variable Life Separate Account (comprising twenty-two
subaccounts) as of December 31, 1997, and the related statements of operations
and changes in net assets for the two years in the period then ended and the
period February 1, 1995 (Date of Inception) to December 31, 1995. These
financial statements are the responsibility of the management of the
Providentmutual Variable Life Separate Account. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997 by correspondence with
the transfer agents. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Providentmutual Variable
Life Separate Account as of December 31, 1997, and the results of its operations
and the changes in its net assets for the two years in the period then ended and
the period February 1, 1995 (Date of Inception) to December 31, 1995 in
conformity with generally accepted accounting principles.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1998
F-2
<PAGE> 79
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Market Street
Fund, Inc., at market value:
Growth Portfolio................. $1,620,894
Money Market Portfolio........... $3,217,082
Bond Portfolio................... $589,487
Managed Portfolio................ $361,475
Aggressive Growth Portfolio...... $1,268,161
International Portfolio.......... $1,335,505
Dividends receivable............... 15,692
Receivable from Providentmutual
Life and Annuity Company of
America.......................... 483,366
---------- ---------- -------- -------- ---------- ----------
NET ASSETS......................... $1,620,894 $3,716,140 $589,487 $361,475 $1,268,161 $1,335,505
========== ========== ======== ======== ========== ==========
Held for the benefit of
policyholders.................... $1,574,004 $3,690,235 $556,153 $320,115 $1,228,049 $1,300,439
Attributable to Providentmutual
Life and Annuity Company of
America.......................... 46,890 25,905 33,334 41,360 40,112 35,066
---------- ---------- -------- -------- ---------- ----------
$1,620,894 $3,716,140 $589,487 $361,475 $1,268,161 $1,335,505
========== ========== ======== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 80
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
FIDELITY FIDELITY HIGH FIDELITY ASSET FIDELITY
EQUITY-INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable
Insurance Products Fund, at
market value:
Equity-Income Portfolio....... $5,549,225
Growth Portfolio.............. $5,552,399
High Income Portfolio......... $1,258,364
Overseas Portfolio............ $1,835,860
Investment in the Variable
Insurance Products Fund II, at
market value:
Asset Manager Portfolio....... $1,257,078
Index 500 Portfolio........... $4,935,868
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS...................... $5,549,225 $5,552,399 $1,258,364 $1,835,860 $1,257,078 $4,935,868
========== ========== ========== ========== ========== ==========
Held for the benefit of
policyholders................. $5,502,728 $5,504,346 $1,218,329 $1,799,914 $1,216,467 $4,882,503
Attributable to Providentmutual
Life and Annuity Company of
America....................... 46,497 48,053 40,035 35,946 40,611 53,365
---------- ---------- ---------- ---------- ---------- ----------
$5,549,225 $5,552,399 $1,258,364 $1,835,860 $1,257,078 $4,935,868
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 81
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER &
INVESTMENT FIDELITY & BERMAN & BERMAN BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance Products
Fund II, at market value:
Investment Grade Bond Portfolio................ $654,754
Contrafund Portfolio........................... $2,126,511
Investment in the Neuberger & Berman Advisers
Management Trust, at market value:
Balanced Portfolio............................. $363,494
Growth Portfolio............................... $1,217,185
Limited Maturity Bond Portfolio................ $528,343
-------- ---------- -------- ---------- --------
NET ASSETS....................................... $654,754 $2,126,511 $363,494 $1,217,185 $528,343
======== ========== ======== ========== ========
Held for the benefit of policyholders............ $622,247 $2,092,513 $324,413 $1,171,569 $497,752
Attributable to Providentmutual Life and Annuity
Company of America............................. 32,507 33,998 39,081 45,616 30,591
-------- ---------- -------- ---------- --------
$654,754 $2,126,511 $363,494 $1,217,185 $528,343
======== ========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 82
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK VAN ECK ALGER
CENTURY VP VAN ECK WORLDWIDE WORLDWIDE AMERICAN
CAPITAL WORLDWIDE HARD EMERGING SMALL
APPRECIATION BOND ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in American Century Variable Portfolios,
Inc., at market value:
American Century VP Capital Appreciation
Portfolio...................................... $617,522
Investment in the Van Eck Worldwide Insurance
Trust, at market value:
Van Eck Worldwide Bond Portfolio................. $284,774
Van Eck Worldwide Hard Assets Portfolio.......... $362,835
Van Eck Worldwide Emerging Markets Portfolio..... $668,520
Investment in the Alger American Fund, at market
value:
Alger American Small Capitalization Portfolio.... $1,461,832
-------- -------- -------- -------- ----------
NET ASSETS......................................... $617,522 $284,774 $362,835 $668,520 $1,461,832
======== ======== ======== ======== ==========
Held for the benefit of policyholders.............. $586,501 $254,254 $327,375 $644,557 $1,436,398
Attributable to Providentmutual Life and Annuity
Company of America............................... 31,021 30,520 35,460 23,963 25,434
-------- -------- -------- -------- ----------
$617,522 $284,774 $362,835 $668,520 $1,461,832
======== ======== ======== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 83
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 17,576 $104,494 $12,984 $ 4,398 $ 4,527 $ 3,778
EXPENSES
Mortality and expense risks.............. 6,086 13,586 1,402 898 4,955 5,375
-------- -------- ------- ------- -------- -------
Net investment income (loss)............. 11,490 90,908 11,582 3,500 (428) (1,597)
-------- -------- ------- ------- -------- -------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized gain distributions reinvested... 64,240 637 898 29,576
Net realized gain from redemption of
investment shares...................... 8,284 4,094 3,520 28,779 4,619
-------- -------- ------- ------- -------- -------
Net realized gain on investments......... 72,524 4,094 4,157 29,677 34,195
-------- -------- ------- ------- -------- -------
Net unrealized appreciation of
investments:
Beginning of year...................... 53,902 2,198 6,860 42,267 24,229
End of year............................ 172,999 12,860 29,978 155,190 29,510
-------- -------- ------- ------- -------- -------
Net unrealized appreciation of
investments during the year............ 119,097 10,662 23,118 112,923 5,281
-------- -------- ------- ------- -------- -------
Net realized and unrealized gains on
investments............................ 191,621 14,756 27,275 142,600 39,476
-------- -------- ------- ------- -------- -------
Net increase in net assets resulting
from operations........................ $203,111 $ 90,908 $26,338 $30,775 $142,172 $37,879
======== ======== ======= ======= ======== =======
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 84
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
FIDELITY FIDELITY HIGH FIDELITY ASSET FIDELITY
EQUITY-INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................. $ 37,203 $ 16,922 $ 29,332 $ 10,489 $ 27,124 $ 18,761
EXPENSES
Mortality and expense risks............ 23,064 24,779 4,291 7,257 6,126 19,263
-------- -------- -------- -------- -------- --------
Net investment income (loss)........... 14,139 (7,857) 25,041 3,232 20,998 (502)
-------- -------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions
reinvested........................... 187,050 75,747 3,625 41,640 68,039 38,068
Net realized gain from redemption of
investment shares.................... 56,511 29,405 10,154 24,813 3,869 78,340
-------- -------- -------- -------- -------- --------
Net realized gain on investments....... 243,561 105,152 13,779 66,453 71,908 116,408
-------- -------- -------- -------- -------- --------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year.................... 140,032 120,385 17,486 44,125 42,785 130,599
End of year.......................... 689,708 749,980 92,199 12,760 120,277 762,238
-------- -------- -------- -------- -------- --------
Net unrealized appreciation
(depreciation) of investments during
the year............................. 549,676 629,595 74,713 (31,365) 77,492 631,639
-------- -------- -------- -------- -------- --------
Net realized and unrealized gain on
investments.......................... 793,237 734,747 88,492 35,088 149,400 748,047
-------- -------- -------- -------- -------- --------
Net increase in net assets
resulting from operations............ $807,376 $726,890 $113,533 $ 38,320 $170,398 $747,545
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 85
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends...................................... $10,062 $ 2,887 $ 3,239 $ 3,868
EXPENSES
Mortality and expense risks.................... 1,476 7,089 1,484 $ 5,067 1,400
------- -------- ------- -------- -------
Net investment income (loss)................... 8,586 (4,202) 1,755 (5,067) 2,468
------- -------- ------- -------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested......... 7,630 8,314 50,230
Net realized gain (loss) from redemption of
investment shares............................ 2,284 25,400 618 5,576 (214)
------- -------- ------- -------- -------
Net realized gain (loss) on investments........ 2,284 33,030 8,932 55,806 (214)
------- -------- ------- -------- -------
Net unrealized appreciation of investments:
Beginning of year............................ 5,863 15,525 1,403 11,488 208
End of year.................................. 20,012 204,136 34,081 138,020 13,790
------- -------- ------- -------- -------
Net unrealized appreciation of investments
during the year.............................. 14,149 188,611 32,678 126,532 13,582
------- -------- ------- -------- -------
Net realized and unrealized gain on
investments.................................. 16,433 221,641 41,610 182,338 13,368
------- -------- ------- -------- -------
Net increase in net assets resulting from
operations................................... $25,019 $217,439 $43,365 $177,271 $15,836
======= ======== ======= ======== =======
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 86
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING SMALL
APPRECIATION BOND HARD ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................................... $3,474 $ 4,182 $ 403
EXPENSES
Mortality and expense risks..................... $ 3,060 1,180 1,321 2,514 $ 5,530
-------- ------ -------- --------- --------
Net investment income (loss).................... (3,060) 2,294 2,861 (2,111) (5,530)
-------- ------ -------- --------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested.......... 9,129 3,087 29,556
Net realized gain (loss) from redemption of
investment shares............................. (14,973) 483 12,840 12,776 (646)
-------- ------ -------- --------- --------
Net realized gain (loss) on investments......... (5,844) 483 15,927 12,776 28,910
-------- ------ -------- --------- --------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year............................. (33,973) 2,328 12,095 4,779 (4,261)
End of year................................... (36,829) 7,894 (3,949) (165,992) 82,155
-------- ------ -------- --------- --------
Net unrealized appreciation (depreciation) of
investments during the year................... (2,856) 5,566 (16,044) (170,771) 86,416
-------- ------ -------- --------- --------
Net realized and unrealized gain (loss) on
investments................................... (8,700) 6,049 (117) (157,995) 115,326
-------- ------ -------- --------- --------
Net increase (decrease) in net assets resulting
from operations............................... ($11,760) $8,343 $ 2,744 ($160,106) $109,796
======== ====== ======== ========= ========
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 87
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 7,629 $15,339 $4,534 $1,814 $ 1,617 $ 1,188
EXPENSES
Mortality and expense risks.............. 1,837 1,825 383 139 1,734 1,421
------- ------- ------ ------ ------- -------
Net investment income (loss)............. 5,792 13,514 4,151 1,675 (117) (233)
------- ------- ------ ------ ------- -------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions reinvested... 7,226 1,578 16,290 4,817
Net realized gain from redemption of
investment shares...................... 4,464 741 663 2,217 2,539
------- ------- ------ ------ ------- -------
Net realized gain on investments......... 11,690 741 2,241 18,507 7,356
------- ------- ------ ------ ------- -------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year...................... 10,721 3,919 4,931 6,340 5,545
End of year............................ 53,902 2,198 6,860 42,267 24,229
------- ------- ------ ------ ------- -------
Net unrealized appreciation
(depreciation) of investments during
the year............................... 43,181 (1,721) 1,929 35,927 18,684
------- ------- ------ ------ ------- -------
Net realized and unrealized gains
(losses)
on investments......................... 54,871 (980) 4,170 54,434 26,040
------- ------- ------ ------ ------- -------
Net increase in net assets resulting
from operations........................ $60,663 $13,514 $3,171 $5,845 $54,317 $25,807
======= ======= ====== ====== ======= =======
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 88
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
FIDELITY FIDELITY HIGH FIDELITY ASSET FIDELITY
EQUITY-INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................. $ 795 $ 2,013 $13,682 $ 2,659 $ 4,580 $ 2,651
EXPENSES
Mortality and expense risks............ 6,521 9,311 1,324 2,129 1,923 3,896
-------- -------- ------- ------- ------- --------
Net investment income (loss)........... (5,726) (7,298) 12,358 530 2,657 (1,245)
-------- -------- ------- ------- ------- --------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain distributions
reinvested........................... 22,764 50,823 2,677 2,926 3,777 6,818
Net realized gain from redemption of
investment shares.................... 12,493 14,571 1,337 3,493 4,586 17,448
-------- -------- ------- ------- ------- --------
Net realized gain on investments....... 35,257 65,394 4,014 6,419 8,363 24,266
-------- -------- ------- ------- ------- --------
Net unrealized appreciation
of investments:
Beginning of year.................... 26,993 10,036 4,518 6,809 5,339 16,619
End of year.......................... 140,032 120,385 17,486 44,125 42,785 130,599
-------- -------- ------- ------- ------- --------
Net unrealized appreciation of
investments during the year.......... 113,039 110,349 12,968 37,316 37,446 113,980
-------- -------- ------- ------- ------- --------
Net realized and unrealized
gain on investments.................. 148,296 175,743 16,982 43,735 45,809 138,246
-------- -------- ------- ------- ------- --------
Net increase in net assets
resulting from operations............ $142,570 $168,445 $29,340 $44,265 $48,466 $137,001
======== ======== ======= ======= ======= ========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 89
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends...................................... $3,435 $1,823 $ 91 $2,949
EXPENSES
Mortality and expense risks.................... 488 $ 337 477 2,041 83
------ ------- ------ ------- ------
Net investment income (loss)................... 2,947 (337) 1,346 (1,950) 2,866
------ ------- ------ ------- ------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested......... 10,142 21,199
Net realized gain (loss) from redemption of
investment shares............................ 596 1,095 617 4,169 (74)
------ ------- ------ ------- ------
Net realized gain (loss) on investments........ 596 1,095 10,759 25,368 (74)
------ ------- ------ ------- ------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year............................ 4,575 5,547 5,688 1,194
End of year.................................. 5,863 15,525 1,403 11,488 208
------ ------- ------ ------- ------
Net unrealized appreciation (depreciation) of
investments during the year.................. 1,288 15,525 (4,144) 5,800 (986)
------ ------- ------ ------- ------
Net realized and unrealized gain (loss) on
investments.................................. 1,884 16,620 6,615 31,168 (1,060)
------ ------- ------ ------- ------
Net increase in net assets resulting from
operations................................... $4,831 $16,283 $7,961 $29,218 $1,806
====== ======= ====== ======= ======
</TABLE>
See accompanying notes to financial statements
F-13
<PAGE> 90
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK VAN ECK GOLD VAN ECK ALGER AMERICAN
WORLDWIDE AND NATURAL EMERGING SMALL
TCI GROWTH BOND RESOURCES MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................................... $1,824 $ 600 $ 137
EXPENSES
Mortality and expense risks..................... $ 1,480 277 375 70 $ 374
-------- ------ ------- ------ -------
Net investment income (loss).................... (1,480) 1,547 225 67 (374)
-------- ------ ------- ------ -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested.......... 23,158 588
Net realized gain (loss) from redemption of
investment shares............................. 4,391 218 2,780 254 (72)
-------- ------ ------- ------ -------
Net realized gain (loss) on investments......... 27,549 218 3,368 254 (72)
-------- ------ ------- ------ -------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year............................. 7,429 1,924 5,371
End of year................................... (33,973) 2,328 12,095 4,779 (4,261)
-------- ------ ------- ------ -------
Net unrealized appreciation (depreciation) of
investments during the year................... (41,402) 404 6,724 4,779 (4,261)
-------- ------ ------- ------ -------
Net realized and unrealized gain (loss) on
investments................................... (13,853) 622 10,092 5,033 (4,333)
-------- ------ ------- ------ -------
Net increase (decrease) in net assets resulting
from operations............................... ($15,333) $2,169 $10,317 $5,100 ($4,707)
======== ====== ======= ====== =======
</TABLE>
See accompanying notes to financial statements
F-14
<PAGE> 91
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Period February 1, 1995 (Date of Inception)
to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 1,144 $5,330 $1,517 $ 914
EXPENSES
Mortality and expense risks.............. 190 500 42 9 $ 215 $ 73
------- ------ ------ ------ ------ ------
Net investment income (loss)............. 954 4,830 1,475 905 (215) (73)
------- ------ ------ ------ ------ ------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain from redemption of
investment shares...................... 1,386 134 40 481 266
------- ------ ------ ------ ------ ------
Net realized gain on investments......... 1,386 134 40 481 266
------- ------ ------ ------ ------ ------
Net unrealized appreciation of
investments:
Beginning of period
End of period.......................... 10,721 3,919 4,931 6,340 5,545
------- ------ ------ ------ ------ ------
Net unrealized appreciation of
investments during the period.......... 10,721 3,919 4,931 6,340 5,545
------- ------ ------ ------ ------ ------
Net realized and unrealized gain
on investments......................... 12,107 4,053 4,971 6,821 5,811
------- ------ ------ ------ ------ ------
Net increase in net assets resulting
from operations........................ $13,061 $4,830 $5,528 $5,876 $6,606 $5,738
======= ====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements
F-15
<PAGE> 92
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Period February 1, 1995 (Date of Inception)
to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INVESTMENT
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 GRADE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................... $ 3,295 $ 141 $1,794 $ 100 $ 529 $ 412 $ 872
EXPENSES
Mortality and expense
risks...................... 581 774 114 250 82 259 80
------- ------- ------ ------ ------ ------- ------
Net investment income
(loss)..................... 2,714 (633) 1,680 (150) 447 153 792
------- ------- ------ ------ ------ ------- ------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain distributions
reinvested................. 1,251 100 56
Net realized gain from
redemption of investment
shares..................... 1,814 2,933 562 455 654 1,999 196
------- ------- ------ ------ ------ ------- ------
Net realized gain on
investments................ 3,065 2,933 562 555 654 2,055 196
------- ------- ------ ------ ------ ------- ------
Net unrealized appreciation
of investments:
Beginning of period
End of period.............. 26,993 10,036 4,518 6,809 5,339 16,619 4,575
------- ------- ------ ------ ------ ------- ------
Net unrealized appreciation
of investments during the
period..................... 26,993 10,036 4,518 6,809 5,339 16,619 4,575
------- ------- ------ ------ ------ ------- ------
Net realized and unrealized
gain on investments........ 30,058 12,969 5,080 7,364 5,993 18,674 4,771
------- ------- ------ ------ ------ ------- ------
Net increase in net assets
resulting from
operations................. $32,772 $12,336 $6,760 $7,214 $6,440 $18,827 $5,563
======= ======= ====== ====== ====== ======= ======
</TABLE>
See accompanying notes to financial statements
F-16
<PAGE> 93
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Period February 1, 1995 (Date of Inception)
to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER NEUBERGER NEUBERGER VAN ECK VAN ECK
& BERMAN & BERMAN & BERMAN LIMITED TCI WORLDWIDE GOLD AND NATURAL
BALANCED GROWTH MATURITY BOND GROWTH BOND RESOURCES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends..................... $ 478 $ 61 $1,375 $2,583 $ 294
EXPENSES
Mortality and expense risks... 81 247 10 $ 123 67 11
------ ------ ------ ------ ------ ------
Net investment income
(loss)...................... 397 (186) 1,365 (123) 2,516 283
------ ------ ------ ------ ------ ------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain distributions
reinvested.................. 154 818
Net realized gain from
redemption of investment
shares...................... 172 1,767 6 1,594 201 197
------ ------ ------ ------ ------ ------
Net realized gain on
investments................. 326 2,585 6 1,594 201 197
------ ------ ------ ------ ------ ------
Net unrealized appreciation of
investments:
Beginning of period
End of period............... 5,547 5,688 1,194 7,429 1,924 5,371
------ ------ ------ ------ ------ ------
Net unrealized appreciation of
investments during the
period...................... 5,547 5,688 1,194 7,429 1,924 5,371
------ ------ ------ ------ ------ ------
Net realized and unrealized
gain on investments......... 5,873 8,273 1,200 9,023 2,125 5,568
------ ------ ------ ------ ------ ------
Net increase in net assets
resulting from operations... $6,270 $8,087 $2,565 $8,900 $4,641 $5,851
====== ====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE> 94
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
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)....... $ 11,490 $ 90,908 $ 11,582 $ 3,500 $ (428) $ (1,597)
Net realized gain on investments... 72,524 4,094 4,157 29,677 34,195
Net unrealized appreciation of
investments during the year...... 119,097 10,662 23,118 112,923 5,281
---------- ----------- --------- -------- ---------- ----------
Net increase in net assets from
operations....................... 203,111 90,908 26,338 30,775 142,172 37,879
---------- ----------- --------- -------- ---------- ----------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyholders' net premiums........ 606,490 12,818,390 174,094 62,606 504,056 534,082
Cost of insurance and
administrative charges........... (123,739) (377,001) (29,359) (18,265) (103,540) (94,480)
Surrenders and forfeitures......... (8,110) (2,037) (655) (561) (7,104) (7,124)
Net withdrawals due to policy
loans............................ (1,427) (2,750) (2,918) (647) (6,952) (2,905)
Transfers between investment
portfolios....................... 392,712 (9,338,827) 290,953 207,288 267,938 418,275
Withdrawals due to death
benefits......................... (2,251) (880) (1,330) (1,025) (490)
---------- ----------- --------- -------- ---------- ----------
Net increase in net assets derived
from policy transactions......... 863,675 3,096,895 430,785 250,421 653,373 847,358
---------- ----------- --------- -------- ---------- ----------
Total increase in net assets....... 1,066,786 3,187,803 457,123 281,196 795,545 885,237
NET ASSETS
Beginning of year................ 554,108 528,337 132,364 80,279 472,616 450,268
---------- ----------- --------- -------- ---------- ----------
End of year...................... $1,620,894 $3,716,140 $ 589,487 $361,475 $1,268,161 $1,335,505
========== =========== ========= ======== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE> 95
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............. $ 14,139 $ (7,857) $ 25,041 $ 3,232 $ 20,998 $ (502)
Net realized gain on investments......... 243,561 105,152 13,779 66,453 71,908 116,408
Net unrealized appreciation
(depreciation) of investments during
the year............................... 549,676 629,595 74,713 (31,365) 77,492 631,639
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets from
operations............................. 807,376 726,890 113,533 38,320 170,398 747,545
---------- ---------- ---------- ---------- ---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.............. 1,800,681 2,077,217 315,730 708,468 230,559 2,291,230
Cost of insurance and administrative
charges................................ (378,890) (507,915) (76,002) (144,645) (67,535) (452,765)
Surrenders and forfeitures............... (26,461) (71,933) (6,335) (7,458) (5,894) (27,300)
Net withdrawals due to policy loans...... (29,476) (25,572) (465) (12,515) (13,101) (34,119)
Transfers between investment
portfolios............................. 1,407,893 1,003,643 537,410 688,760 201,574 935,324
Withdrawals due to death benefits........ (3,109) (3,873) (3,581)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets derived from
policy transactions.................... 2,770,638 2,471,567 770,338 1,232,610 345,603 2,708,789
---------- ---------- ---------- ---------- ---------- ----------
Total increase in net assets............. 3,578,014 3,198,457 883,871 1,270,930 516,001 3,456,334
NET ASSETS
Beginning of year...................... 1,971,211 2,353,942 374,493 564,930 741,077 1,479,534
---------- ---------- ---------- ---------- ---------- ----------
End of year............................ $5,549,225 $5,552,399 $1,258,364 $1,835,860 $1,257,078 $4,935,868
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-19
<PAGE> 96
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................... $ 8,586 $ (4,202) $ 1,755 $ (5,067) $ 2,468
Net realized gain (loss) on investments........ 2,284 33,030 8,932 55,806 (214)
Net unrealized appreciation of investments
during the year.............................. 14,149 188,611 32,678 126,532 13,582
-------- ---------- -------- ---------- --------
Net increase in net assets from operations..... 25,019 217,439 43,365 177,271 15,836
-------- ---------- -------- ---------- --------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................... 250,638 899,768 108,720 437,297 147,394
Cost of insurance and administrative charges... (33,229) (140,720) (35,701) (106,436) (17,164)
Surrenders and forfeitures..................... (4,629) (4,872) (1,492) (4,296) (843)
Net withdrawals due to policy loans............ (2,142) (14,814) (191) (676) (580)
Transfers between investment portfolios........ 265,581 900,755 83,895 175,334 333,959
Withdrawals due to death benefits.............. (2,005)
-------- ---------- -------- ---------- --------
Net increase in net assets derived from policy
transactions................................. 474,214 1,640,117 155,231 501,223 462,766
-------- ---------- -------- ---------- --------
Total increase in net assets................... 499,233 1,857,556 198,596 678,494 478,602
NET ASSETS
Beginning of year............................ 155,521 268,955 164,898 538,691 49,741
-------- ---------- -------- ---------- --------
End of year.................................. $654,754 $2,126,511 $363,494 $1,217,185 $528,343
======== ========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE> 97
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING SMALL
APPRECIATION BOND HARD ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................... $ (3,060) $ 2,294 $ 2,861 $ (2,111) $ (5,530)
Net realized gain (loss) on investments........ (5,844) 483 15,927 12,776 28,910
Net unrealized appreciation (depreciation) of
investments during the year.................. (2,856) 5,566 (16,044) (170,771) 86,416
-------- -------- -------- --------- ----------
Net increase (decrease) in net assets from
operations................................... (11,760) 8,343 2,744 (160,106) 109,796
-------- -------- -------- --------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................... 302,126 134,179 131,149 362,026 708,739
Cost of insurance and administrative charges... (80,091) (24,944) (29,372) (51,528) (131,231)
Surrenders and forfeitures..................... (4,824) (957) (2,265) (1,605) (3,435)
Net withdrawals due to policy loans............ (694) (1,431) (341) (528) (13,587)
Transfers between investment portfolios........ 63,153 71,029 111,374 441,995 424,465
-------- -------- -------- --------- ----------
Net increase in net assets derived from policy
transactions................................. 279,670 177,876 210,545 750,360 984,951
-------- -------- -------- --------- ----------
Total increase in net assets................... 267,910 186,219 213,289 590,254 1,094,747
NET ASSETS
Beginning of year............................ 349,612 98,555 149,546 78,266 367,085
-------- -------- -------- --------- ----------
End of year.................................. $617,522 $284,774 $362,835 $ 668,520 $1,461,832
======== ======== ======== ========= ==========
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE> 98
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....... $ 5,792 $ 13,514 $ 4,151 $ 1,675 $ (117) $ (233)
Net realized gain on investments... 11,690 741 2,241 18,507 7,356
Net unrealized appreciation
(depreciation) of investments
during the year.................. 43,181 (1,721) 1,929 35,927 18,684
-------- ----------- -------- ------- -------- --------
Net increase in net assets from
operations....................... 60,663 13,514 3,171 5,845 54,317 25,807
-------- ----------- -------- ------- -------- --------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyholders' net premiums........ 200,633 3,426,014 62,154 30,006 253,610 181,285
Cost of insurance and
administrative charges........... (50,683) (139,681) (13,600) (6,124) (58,803) (40,512)
Surrenders and forfeitures......... (2,824) (1,748) (458) (269) (3,944) (2,321)
Net withdrawals due to policy
loans............................ (5,832) (10,177) (685) (4,282)
Transfers between investment
portfolios....................... 200,857 (3,043,148) 31,590 12,196 77,113 191,839
-------- ----------- -------- ------- -------- --------
Net increase in net assets derived
from policy transactions......... 342,151 231,260 79,686 35,809 267,291 326,009
-------- ----------- -------- ------- -------- --------
Total increase in net assets....... 402,814 244,774 82,857 41,654 321,608 351,816
NET ASSETS
Beginning of year................ 151,294 283,563 49,507 38,625 151,008 98,452
-------- ----------- -------- ------- -------- --------
End of year...................... $554,108 $ 528,337 $132,364 $80,279 $472,616 $450,268
======== =========== ======== ======= ======== ========
</TABLE>
See accompanying notes to financial statements
F-22
<PAGE> 99
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............. $ (5,726) $ (7,298) $ 12,358 $ 530 $ 2,657 $ (1,245)
Net realized gain on investments......... 35,257 65,394 4,014 6,419 8,363 24,266
Net unrealized appreciation of
investments during the year............ 113,039 110,349 12,968 37,316 37,446 113,980
---------- ---------- -------- -------- -------- ----------
Net increase in net assets from
operations............................. 142,570 168,445 29,340 44,265 48,466 137,001
---------- ---------- -------- -------- -------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.............. 1,064,311 1,228,372 182,867 303,606 504,956 682,499
Cost of insurance and administrative
charges................................ (172,223) (277,081) (33,017) (55,071) (41,734) (140,878)
Surrenders and forfeitures............... (10,460) (15,689) (1,416) (1,888) (141) (4,843)
Net withdrawals due to policy loans...... (8,344) (9,629) (352) (538) (107) (4,994)
Transfers between investment
portfolios............................. 489,521 624,149 51,297 61,872 157,808 590,621
---------- ---------- -------- -------- -------- ----------
Net increase in net assets derived from
policy transactions.................... 1,362,805 1,550,122 199,379 307,981 620,782 1,122,405
---------- ---------- -------- -------- -------- ----------
Total increase in net assets............. 1,505,375 1,718,567 228,719 352,246 669,248 1,259,406
NET ASSETS
Beginning of year...................... 465,836 635,375 145,774 212,684 71,829 220,128
---------- ---------- -------- -------- -------- ----------
End of year............................ $1,971,211 $2,353,942 $374,493 $564,930 $741,077 $1,479,534
========== ========== ======== ======== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-23
<PAGE> 100
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................... $ 2,947 $ (337) $ 1,346 $ (1,950) $ 2,866
Net realized gain (loss) on investments........ 596 1,095 10,759 25,368 (74)
Net unrealized appreciation (depreciation) of
investments during the year.................. 1,288 15,525 (4,144) 5,800 (986)
-------- -------- -------- -------- -------
Net increase in net assets from operations..... 4,831 16,283 7,961 29,218 1,806
-------- -------- -------- -------- -------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................... 89,577 111,330 65,215 249,358 15,412
Cost of insurance and administrative charges... (17,945) (11,937) (14,582) (59,022) (3,100)
Surrenders and forfeitures..................... (765) (265) (619) (8)
Net withdrawals due to policy loans............ (102) (27)
Transfers between investment portfolios........ 19,502 128,279 35,692 105,607 3,279
-------- -------- -------- -------- -------
Net increase in net assets derived from policy
transactions................................. 90,267 227,672 86,060 295,297 15,583
-------- -------- -------- -------- -------
Capital contribution from Providentmutual Life
and Annuity Company of America............... 25,000
-------- -------- -------- -------- -------
Total increase in net assets................... 95,098 268,955 94,021 324,515 17,389
NET ASSETS
Beginning of year............................ 60,423 -- 70,877 214,176 32,352
-------- -------- -------- -------- -------
End of year.................................. $155,521 $268,955 $164,898 $538,691 $49,741
======== ======== ======== ======== =======
</TABLE>
See accompanying notes to financial statements
F-24
<PAGE> 101
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK VAN ECK GOLD VAN ECK ALGER AMERICAN
WORLDWIDE AND NATURAL EMERGING SMALL
TCI GROWTH BOND RESOURCES MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).................... $ (1,480) $ 1,547 $ 225 $ 67 $ (374)
Net realized gain (loss) on investments......... 27,549 218 3,368 254 (72)
Net unrealized appreciation (depreciation) of
investments during the year................... (41,402) 404 6,724 4,779 (4,261)
-------- ------- -------- ------- --------
Net increase (decrease) in net assets from
operations.................................... (15,333) 2,169 10,317 5,100 (4,707)
-------- ------- -------- ------- --------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums..................... 186,453 40,692 80,930 34,459 235,120
Cost of insurance and administrative charges.... (51,208) (8,055) (12,112) (5,698) (15,164)
Surrenders and forfeitures...................... (2,139) (163) (78) (57)
Net withdrawals due to policy loans............. (1,766)
Transfers between investment portfolios......... 53,108 8,407 32,292 19,405 126,893
-------- ------- -------- ------- --------
Net increase in net assets derived from policy
transactions.................................. 184,448 40,881 101,032 48,166 346,792
-------- ------- -------- ------- --------
Capital contribution from Providentmutual Life
and Annuity Company of America................ 25,000 25,000
-------- ------- -------- ------- --------
Total increase in net assets.................... 169,115 43,050 111,349 78,266 367,085
NET ASSETS
Beginning of year............................. 180,497 55,505 38,197 -- --
-------- ------- -------- ------- --------
End of year................................... $349,612 $98,555 $149,546 $78,266 $367,085
======== ======= ======== ======= ========
</TABLE>
See accompanying notes to financial statements
F-25
<PAGE> 102
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Period February 1, 1995 (Date of
Inception) to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....... $ 954 $ 4,830 $ 1,475 $ 905 $ (215) $ (73)
Net realized gain on investments... 1,386 134 40 481 266
Net unrealized appreciation of
investments during the year...... 10,721 3,919 4,931 6,340 5,545
-------- ---------- ------- ------- -------- -------
Net increase in net assets
from operations.................. 13,061 4,830 5,528 5,876 6,606 5,738
-------- ---------- ------- ------- -------- -------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyholders' net premiums........ 82,812 1,226,779 16,686 6,530 89,173 60,462
Cost of insurance and
administrative charges........... (11,377) (64,764) (2,472) (722) (12,356) (6,573)
Surrenders and forfeitures......... (90) (16) (50) (118) (81)
Transfers between investment
portfolios....................... 41,888 (908,266) 4,815 1,941 42,703 13,906
-------- ---------- ------- ------- -------- -------
Net increase in net assets derived
from policy transactions......... 113,233 253,733 18,979 7,749 119,402 67,714
-------- ---------- ------- ------- -------- -------
Capital contribution from
Providentmutual Life and Annuity
Company of America............... 25,000 25,000 25,000 25,000 25,000 25,000
-------- ---------- ------- ------- -------- -------
Total increase in net assets....... 151,294 283,563 49,507 38,625 151,008 98,452
NET ASSETS
Beginning of year................ -- -- -- -- -- --
-------- ---------- ------- ------- -------- -------
End of year...................... $151,294 $ 283,563 $49,507 $38,625 $151,008 $98,452
======== ========== ======= ======= ======== =======
</TABLE>
See accompanying notes to financial statements
F-26
<PAGE> 103
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Period February 1, 1995 (Date of
Inception) to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INVESTMENT
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 GRADE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss)..................... $ 2,714 $ (633) $ 1,680 $ (150) $ 447 $ 153 $ 792
Net realized gain on
investments................ 3,065 2,933 562 555 654 2,055 196
Net unrealized appreciation
of investments during the
year....................... 26,993 10,036 4,518 6,809 5,339 16,619 4,575
-------- -------- -------- -------- ------- -------- -------
Net increase in net assets
from operations............ 32,772 12,336 6,760 7,214 6,440 18,827 5,563
-------- -------- -------- -------- ------- -------- -------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyholders' net
premiums................... 281,421 389,708 51,880 133,848 22,049 121,634 22,856
Cost of insurance and
administrative charges..... (31,287) (46,543) (7,891) (11,367) (4,044) (12,939) (3,801)
Surrenders and forfeitures... (362) (372) (18) (174) (48) (88) (28)
Transfers between investment
portfolios................. 158,292 255,246 70,043 58,163 22,432 67,694 10,833
-------- -------- -------- -------- ------- -------- -------
Net increase in net assets
derived from policy
transactions............... 408,064 598,039 114,014 180,470 40,389 176,301 29,860
-------- -------- -------- -------- ------- -------- -------
Capital contribution from
Providentmutual Life and
Annuity Company of
America.................... 25,000 25,000 25,000 25,000 25,000 25,000 25,000
-------- -------- -------- -------- ------- -------- -------
Total increase in net
assets..................... 465,836 635,375 145,774 212,684 71,829 220,128 60,423
NET ASSETS
Beginning of year.......... -- -- -- -- -- -- --
-------- -------- -------- -------- ------- -------- -------
End of year................ $465,836 $635,375 $145,774 $212,684 $71,829 $220,128 $60,423
======== ======== ======== ======== ======= ======== =======
</TABLE>
See accompanying notes to financial statements
F-27
<PAGE> 104
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Period February 1, 1995 (Date of
Inception) to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER VAN ECK
NEUBERGER NEUBERGER & BERMAN VAN ECK GOLD AND
& BERMAN & BERMAN LIMITED TCI WORLDWIDE NATURAL
BALANCED GROWTH MATURITY BOND GROWTH BOND RESOURCES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........... $ 397 $ (186) $ 1,365 $ (123) $ 2,516 $ 283
Net realized gain on investments....... 326 2,585 6 1,594 201 197
Net unrealized appreciation of
investments during the year.......... 5,547 5,688 1,194 7,429 1,924 5,371
------- -------- ------- -------- ------- -------
Net increase in net assets from
operations........................... 6,270 8,087 2,565 8,900 4,641 5,851
------- -------- ------- -------- ------- -------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............ 31,568 106,593 1,457 94,924 27,665 9,441
Cost of insurance and administrative
charges.............................. (2,111) (11,044) (475) (9,264) (1,906) (2,639)
Surrenders and forfeitures............. (71) (11) (290) (4)
Transfers between investment
portfolios........................... 10,150 85,611 3,816 61,227 109 544
------- -------- ------- -------- ------- -------
Net increase in net assets derived from
policy transactions.................. 39,607 181,089 4,787 146,597 25,864 7,346
------- -------- ------- -------- ------- -------
Capital contribution from
Providentmutual Life and Annuity
Company of America................... 25,000 25,000 25,000 25,000 25,000 25,000
------- -------- ------- -------- ------- -------
Total increase in net assets........... 70,877 214,176 32,352 180,497 55,505 38,197
NET ASSETS
Beginning of year.................... -- -- -- -- -- --
------- -------- ------- -------- ------- -------
End of year.......................... $70,877 $214,176 $32,352 $180,497 $55,505 $38,197
======= ======== ======= ======== ======= =======
</TABLE>
See accompanying notes to financial statements
F-28
<PAGE> 105
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Providentmutual Variable Life Separate Account (Separate Account) was
established by Providentmutual Life and Annuity Company of America
(Providentmutual) under the provisions of Delaware law and commenced operations
on February 1, 1995. Providentmutual is a wholly-owned subsidiary of Provident
Mutual Life Insurance Company. The Separate Account is an investment account to
which assets are allocated to support the benefits payable under flexible
premium adjustable variable life insurance policies (the Policies).
The Policies are distributed principally through personal producing general
agents and brokers.
Providentmutual has structured the Separate Account as a unit investment
trust registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
twenty-two subaccounts: the Growth, Money Market, Bond, Managed, Aggressive
Growth and International Subaccounts invest in the corresponding portfolios of
the Market Street Fund, Inc.; the Fidelity Equity-Income, Fidelity Growth,
Fidelity High Income and Fidelity Overseas Subaccounts invest in the
corresponding portfolios of the Variable Insurance Products Fund; the Fidelity
Asset Manager, Fidelity Index 500, Fidelity Investment Grade Bond and Fidelity
Contrafund Subaccounts invest in the corresponding portfolios of the Variable
Insurance Products Fund II; the Neuberger & Berman Balanced, Neuberger & Berman
Growth and Neuberger & Berman Limited Maturity Bond Subaccounts invest in the
corresponding portfolios of the Neuberger & Berman Advisers Management Trust;
the American Century VP Capital Appreciation (formerly the TCI Growth)
Subaccount, invests in the corresponding portfolio of the American Century
Variable Portfolios, Inc. (formerly, TCI Portfolios, Inc.); the Van Eck
Worldwide Bond, Van Eck Worldwide Hard Assets (formerly Van Eck Gold and Natural
Resources) and Van Eck Worldwide Emerging Markets (formerly Van Eck Emerging
Markets) Subaccounts invest in the corresponding portfolios of the Van Eck
Worldwide Insurance Trust; and the Alger American Small Capitalization
Subaccount invests in the corresponding portfolio of the Alger American Fund.
Net premiums from in-force Policies are allocated to the Subaccounts in
accordance with policyholder instructions and are recorded as variable life
policy transactions in the statements of changes in net assets. Such amounts are
used to provide money to pay benefits under the Policies (Note 4). The Separate
Account's assets are the property of Providentmutual.
Transfers between investment portfolios include transfers between the
Subaccounts and the Guaranteed Account (not shown), which is part of
Providentmutual's General Account.
F-29
<PAGE> 106
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Separate Account in the financial statements.
Investment Valuation:
Investment shares are valued at the net asset values of the respective
Portfolios. Transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date.
Realized Gains and Losses:
Realized gains and losses on sales of investment shares are determined
using the specific identification basis for financial reporting and income tax
purposes.
Federal Income Taxes:
The operations of the Separate Account are included in the Federal income
tax return of Providentmutual. Under the provisions of the Policies,
Providentmutual 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 policy
transactions during the period. Actual results could differ from those
estimates.
F-30
<PAGE> 107
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1997, 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.................................... 83,294 $1,447,895 $1,620,894
Money Market Portfolio.............................. 3,217,082 $3,217,082 $3,217,082
Bond Portfolio...................................... 53,687 $576,627 $589,487
Managed Portfolio................................... 21,188 $331,497 $361,475
Aggressive Growth Portfolio......................... 57,150 $1,112,971 $1,268,161
International Portfolio............................. 98,127 $1,305,995 $1,335,505
Variable Insurance Products Fund:
Equity-Income Portfolio............................. 228,551 $4,859,517 $5,549,225
Growth Portfolio.................................... 149,660 $4,802,419 $5,552,399
High Income Portfolio............................... 92,663 $1,166,165 $1,258,364
Overseas Portfolio.................................. 95,618 $1,823,100 $1,835,860
Variable Insurance Products Fund II:
Asset Manager Portfolio............................. 69,799 $1,136,801 $1,257,078
Index 500 Portfolio................................. 43,149 $4,173,630 $4,935,868
Investment Grade Bond Portfolio..................... 52,130 $634,742 $654,754
Contrafund Portfolio................................ 106,645 $1,922,375 $2,126,511
Neuberger & Berman Advisers Management Trust:
Balanced Portfolio.................................. 20,421 $329,413 $363,494
Growth Portfolio.................................... 39,855 $1,079,165 $1,217,185
Limited Maturity Bond Portfolio..................... 37,418 $514,553 $528,343
American Century Variable Portfolios, Inc.:
American Century VP Capital Appreciation
Portfolio........................................ 63,794 $654,351 $617,522
Van Eck Worldwide Insurance Trust:
Van Eck Worldwide Bond Portfolio.................... 25,912 $276,880 $284,774
Van Eck Worldwide Hard Assets Portfolio............. 23,081 $366,784 $362,835
Van Eck Worldwide Emerging Markets Portfolio........ 60,775 $834,512 $668,520
Alger American Fund:
Alger American Small Capitalization Portfolio....... 33,413 $1,379,677 $1,461,832
</TABLE>
F-31
<PAGE> 108
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the years ended December 31, 1997, 1996 and the period February 1,
1995 (Date of Inception) to December 31, 1995, transactions in investment shares
were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ---------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................. 50,220 22,000 9,742 11,393,078 2,343,055 874,800
Shares received from reinvestment of:
Dividends.................................. 1,003 464 76 88,801 15,339 5,330
Capital gain distributions................. 4,035 464
-------- -------- -------- ----------- ----------- ---------
Total shares acquired........................ 55,258 22,928 9,818 11,481,879 2,358,394 880,130
Total shares redeemed........................ (2,578) (1,562) (570) (8,717,947) (2,171,067) (614,307)
-------- -------- -------- ----------- ----------- ---------
Net increase in shares owned................. 52,680 21,366 9,248 2,763,932 187,327 265,823
Shares owned, beginning of year.............. 30,614 9,248 453,150 265,823
-------- -------- -------- ----------- ----------- ---------
Shares owned, end of year.................... 83,294 30,614 9,248 3,217,082 453,150 265,823
======== ======== ======== =========== =========== =========
Cost of shares acquired...................... $986,013 $380,965 $148,035 $11,481,879 $ 2,358,394 $ 880,130
======== ======== ======== =========== =========== =========
Cost of shares redeemed...................... $ 38,324 $ 21,332 $ 7,462 $ 8,717,947 $ 2,171,067 $ 614,307
======== ======== ======== =========== =========== =========
</TABLE>
F-32
<PAGE> 109
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ----------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO MANAGED PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......................................... 50,228 8,375 4,493 16,278 2,833 2,676
Shares received from reinvestment of:
Dividends.............................................. 1,233 433 146 282 131 70
Capital gain distributions............................. 44 117
-------- ------- ------- -------- ------- -------
Total shares acquired.................................... 51,461 8,808 4,639 16,604 3,081 2,746
Total shares redeemed.................................... (10,179) (903) (139) (884) (335) (24)
-------- ------- ------- -------- ------- -------
Net increase in shares owned............................. 41,282 7,905 4,500 15,720 2,746 2,722
Shares owned, beginning of year.......................... 12,405 4,500 5,468 2,722
-------- ------- ------- -------- ------- -------
Shares owned, end of year................................ 53,687 12,405 4,500 21,188 5,468 2,722
======== ======= ======= ======== ======= =======
Cost of shares acquired.................................. $552,874 $93,373 $46,940 $268,677 $43,739 $33,984
======== ======= ======= ======== ======= =======
Cost of shares redeemed.................................. $106,413 $ 8,795 $ 1,352 $ 10,599 $ 4,014 $ 290
======== ======= ======= ======== ======= =======
</TABLE>
F-33
<PAGE> 110
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ---------------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased..................................... 38,091 17,269 9,089 64,862 26,818 7,846
Shares received from reinvestment of:
Dividends.......................................... 247 105 306 95
Capital gain distributions......................... 49 1,071 2,397 390
-------- -------- -------- -------- -------- -------
Total shares acquired................................ 38,387 18,445 9,089 67,565 27,303 7,846
Total shares redeemed................................ (6,756) (1,615) (400) (3,015) (1,383) (189)
-------- -------- -------- -------- -------- -------
Net increase in shares owned......................... 31,631 16,830 8,689 64,550 25,920 7,657
Shares owned, beginning of year...................... 25,519 8,689 33,577 7,657
-------- -------- -------- -------- -------- -------
Shares owned, end of year............................ 57,150 25,519 8,689 98,127 33,577 7,657
======== ======== ======== ======== ======== =======
Cost of shares acquired.............................. $796,588 $310,897 $150,890 $916,201 $348,283 $94,994
======== ======== ======== ======== ======== =======
Cost of shares redeemed.............................. $113,966 $ 25,216 $ 6,222 $ 36,245 $ 15,164 $ 2,074
======== ======== ======== ======== ======== =======
</TABLE>
F-34
<PAGE> 111
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- ----------------------------------------------------------------------------------------------------------------------
EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................. 135,989 72,214 24,671 76,083 53,882 22,131
Shares received from reinvestment of:
Dividends.................................. 1,879 42 179 536 73 6
Capital gain distributions................. 9,447 1,207 83 2,400 1,829
---------- ---------- -------- ---------- ---------- --------
Total shares acquired........................ 147,315 73,463 24,933 79,019 55,784 22,137
Total shares redeemed........................ (12,497) (3,904) (759) (4,951) (1,951) (378)
---------- ---------- -------- ---------- ---------- --------
Net increase in shares owned................. 134,818 69,559 24,174 74,068 53,833 21,759
Shares owned, beginning of year.............. 93,733 24,174 75,592 21,759
---------- ---------- -------- ---------- ---------- --------
Shares owned, end of year.................... 228,551 93,733 24,174 149,660 75,592 21,759
========== ========== ======== ========== ========== ========
Cost of shares acquired...................... $3,254,127 $1,456,815 $450,678 $2,711,400 $1,652,672 $633,382
========== ========== ======== ========== ========== ========
Cost of shares redeemed...................... $ 225,789 $ 64,479 $ 11,835 $ 142,538 $ 44,454 $ 8,043
========== ========== ======== ========== ========== ========
</TABLE>
F-35
<PAGE> 112
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- ---------------------------------------------------------------------------------------------------------------------
HIGH INCOME PORTFOLIO OVERSEAS PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................................. 69,137 17,623 12,589 70,577 18,466 12,757
Shares received from reinvestment of:
Dividends....................................... 2,488 1,213 177 605 157 7
Capital gain distributions...................... 307 237 2,403 171 7
-------- -------- -------- ---------- -------- --------
Total shares acquired............................. 71,932 19,073 12,766 73,585 18,794 12,771
Total shares redeemed............................. (9,180) (1,259) (669) (7,953) (1,282) (297)
-------- -------- -------- ---------- -------- --------
Net increase in shares owned...................... 62,752 17,814 12,097 65,632 17,512 12,474
Shares owned, beginning of year................... 29,911 12,097 29,986 12,474
-------- -------- -------- ---------- -------- --------
Shares owned, end of year......................... 92,663 29,911 12,097 95,618 29,986 12,474
======== ======== ======== ========== ======== ========
Cost of shares acquired........................... $916,751 $229,442 $148,527 $1,433,652 $334,188 $210,331
======== ======== ======== ========== ======== ========
Cost of shares redeemed........................... $107,593 $ 13,691 $ 7,271 $ 131,357 $ 19,258 $ 4,456
======== ======== ======== ========== ======== ========
</TABLE>
F-36
<PAGE> 113
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- ----------------------------------------------------------------------------------------------------------------------
ASSET MANAGER PORTFOLIO INDEX 500 PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................................. 23,488 40,738 5,010 28,249 15,023 3,044
Shares received from reinvestment of:
Dividends....................................... 1,757 303 39 204 35 7
Capital gain distributions...................... 4,410 251 414 91 1
-------- -------- ------- ---------- ---------- --------
Total shares acquired............................. 29,655 41,292 5,049 28,867 15,149 3,052
Total shares redeemed............................. (3,629) (2,068) (500) (2,318) (1,457) (144)
-------- -------- ------- ---------- ---------- --------
Net increase in shares owned...................... 26,026 39,224 4,549 26,549 13,692 2,908
Shares owned, beginning of year................... 43,773 4,549 16,600 2,908
-------- -------- ------- ---------- ---------- --------
Shares owned, end of year......................... 69,799 43,773 4,549 43,149 16,600 2,908
======== ======== ======= ========== ========== ========
Cost of shares acquired........................... $494,496 $660,528 $73,342 $2,998,568 $1,241,314 $211,867
======== ======== ======= ========== ========== ========
Cost of shares redeemed........................... $ 55,987 $ 28,726 $ 6,852 $ 173,873 $ 95,888 $ 8,358
======== ======== ======= ========== ========== ========
</TABLE>
F-37
<PAGE> 114
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE CONTRAFUND
BOND PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased............................................ 43,904 8,553 5,032 95,855 17,029
Shares received from reinvestment of:
Dividends................................................. 866 288 80 175
Capital gain distributions................................ 464
-------- -------- ------- ---------- --------
Total shares acquired....................................... 44,770 8,841 5,112 96,494 17,029
Total shares redeemed....................................... (5,346) (977) (270) (6,090) (788)
-------- -------- ------- ---------- --------
Net increase in shares owned................................ 39,424 7,864 4,842 90,404 16,241
Shares owned, beginning of year............................. 12,706 4,842 16,241
-------- -------- ------- ---------- --------
Shares owned, end of year................................... 52,130 12,706 4,842 106,645 16,241
======== ======== ======= ========== ========
Cost of shares acquired..................................... $548,044 $104,740 $58,875 $1,758,817 $265,037
======== ======== ======= ========== ========
Cost of shares redeemed..................................... $ 62,960 $ 10,930 $ 3,027 $ 89,872 $ 11,607
======== ======== ======= ========== ========
</TABLE>
F-38
<PAGE> 115
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
- ---------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO GROWTH PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased..................................... 11,617 6,369 4,065 19,122 12,912 8,555
Shares received from reinvestment of:
Dividends.......................................... 207 119 32 4 3
Capital gain distributions......................... 531 665 10 1,969 855 39
-------- -------- ------- -------- -------- --------
Total shares acquired................................ 12,355 7,153 4,107 21,091 13,771 8,597
Total shares redeemed................................ (2,292) (841) (61) (2,132) (1,157) (315)
-------- -------- ------- -------- -------- --------
Net increase in shares owned......................... 10,063 6,312 4,046 18,959 12,614 8,282
Shares owned, beginning of year...................... 10,358 4,046 20,896 8,282
-------- -------- ------- -------- -------- --------
Shares owned, end of year............................ 20,421 10,358 4,046 39,855 20,896 8,282
======== ======== ======= ======== ======== ========
Cost of shares acquired.............................. $202,808 $110,480 $66,229 $605,607 $342,933 $214,940
======== ======== ======= ======== ======== ========
Cost of shares redeemed.............................. $ 36,890 $ 12,315 $ 899 $ 53,645 $ 24,218 $ 6,452
======== ======== ======= ======== ======== ========
</TABLE>
F-39
<PAGE> 116
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER & BERMAN AMERICAN CENTURY
ADVISERS MANAGEMENT TRUST VARIABLE PORTFOLIOS, INC.
- ---------------------------------------------------------------------------------------------------------------------
LIMITED MATURITY AMERICAN CENTURY VP
BOND PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased...................................... 34,180 1,441 2,127 35,982 20,034 15,511
Shares received from reinvestment of:
Dividends........................................... 290 219 101
Capital gain distributions.......................... 1,032 2,166
-------- ------- ------- -------- -------- --------
Total shares acquired................................. 34,470 1,660 2,228 37,014 22,200 15,511
Total shares redeemed................................. (592) (319) (29) (7,362) (3,025) (544)
-------- ------- ------- -------- -------- --------
Net increase in shares owned.......................... 33,878 1,341 2,199 29,652 19,175 14,967
Shares owned, beginning of year....................... 3,540 2,199 34,142 14,967
-------- ------- ------- -------- -------- --------
Shares owned, end of year............................. 37,418 3,540 2,199 63,794 34,142 14,967
======== ======= ======= ======== ======== ========
Cost of shares acquired............................... $473,413 $22,893 $31,573 $360,144 $239,141 $177,972
======== ======= ======= ======== ======== ========
Cost of shares redeemed............................... $ 8,393 $ 4,518 $ 415 $ 89,378 $ 28,624 $ 4,904
======== ======= ======= ======== ======== ========
</TABLE>
F-40
<PAGE> 117
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK WORLDWIDE INSURANCE TRUST
- ---------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE VAN ECK WORLDWIDE
BOND PORTFOLIO HARD ASSETS PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased....................................... 23,946 4,129 4,991 19,029 6,863 2,712
Shares received from reinvestment of:
Dividends............................................ 329 174 234 263 35 22
Capital gain distributions........................... 194 35
-------- ------- ------- -------- -------- -------
Total shares acquired.................................. 24,275 4,303 5,225 19,486 6,933 2,734
Total shares redeemed.................................. (7,242) (406) (243) (5,349) (638) (85)
-------- ------- ------- -------- -------- -------
Net increase in shares owned........................... 17,033 3,897 4,982 14,137 6,295 2,649
Shares owned, beginning of year........................ 8,879 4,982 8,944 2,649
-------- ------- ------- -------- -------- -------
Shares owned, end of year.............................. 25,912 8,879 4,982 23,081 8,944 2,649
======== ======= ======= ======== ======== =======
Cost of shares acquired................................ $258,716 $46,831 $56,085 $309,179 $112,234 $33,835
======== ======= ======= ======== ======== =======
Cost of shares redeemed................................ $ 78,063 $ 4,185 $ 2,504 $ 79,846 $ 7,609 $ 1,009
======== ======= ======= ======== ======== =======
</TABLE>
F-41
<PAGE> 118
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK WORLDWIDE ALGER
INSURANCE TRUST AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE ALGER AMERICAN
EMERGING MARKETS SMALL CAPITALIZATION
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 58,300 6,457 26,913 9,023
Shares received from reinvestment of:
Dividends................................................. 30 11
Capital gain distributions................................ 790
-------- ------- ---------- --------
Total shares acquired....................................... 58,330 6,468 27,703 9,023
Total shares redeemed....................................... (3,821) (202) (3,263) (50)
-------- ------- ---------- --------
Net increase in shares owned................................ 54,509 6,266 24,440 8,973
Shares owned, beginning of year............................. 6,266 8,973
-------- ------- ---------- --------
Shares owned, end of year................................... 60,775 6,266 33,413 8,973
======== ======= ========== ========
Cost of shares acquired..................................... $804,526 $75,703 $1,143,613 $373,537
======== ======= ========== ========
Cost of shares redeemed..................................... $ 43,501 $ 2,216 $ 135,282 $ 2,191
======== ======= ========== ========
</TABLE>
F-42
<PAGE> 119
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- concluded
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
Providentmutual makes certain deductions from premiums before amounts are
allocated to each Subaccount selected by the policyholder. The deductions may
include (1) state premium taxes, (2) sales charges and (3) Federal tax charges.
Premiums adjusted for these deductions are recorded as net premiums in the
statement of changes in net assets. See original policy documents for specific
charges assessed.
In addition to the aforementioned charges, a daily charge will be deducted
from the Separate Account for mortality and expense risks assumed by
Providentmutual. The charge is deducted at an annual rate of 0.65% of the
average daily net assets of the Separate Account. This charge may be increased,
but in no event will it be greater than 0.90% of the average daily net assets of
the Separate Account.
The Separate Account is also charged monthly by Providentmutual for the
cost of insurance protection. The amount of the charge is computed based upon
the amount of insurance provided during the year and the insured's attained age.
Additional monthly deductions may be made for (1) administrative charges, (2)
minimum death benefit charges, (3) first year policy charges and (4)
supplementary charges. See original policy documents for additional monthly
charges. These charges are included in the statements of changes in net assets.
During any given policy year, the first four transfers by a policyholder of
amounts in the Subaccounts are free of charge. A fee of $25 is assessed for each
additional transfer. No transfer fees were incurred during the years ended
December 31, 1997, 1996 and 1995.
The Policies provide for an initial free-look period. If a policy is
cancelled within certain time constraints, the policyholder will receive a
refund equal to the policy account value plus certain deductions made under the
policy. Where state law requires a minimum refund equal to gross premiums paid,
the refund will instead equal the gross premiums paid on the policy and will not
reflect investment experience.
If a policy is surrendered or lapses within the first ten policy years, a
contingent deferred sales load charge and/or contingent deferred administrative
charge are assessed. A deferred sales charge will be imposed if a policy is
surrendered or lapses at any time within ten years after the effective date of
an increase in face amount. A portion of the deferred sales charge will be
deducted if the related increment of face amount is decreased within ten years
after such increase took effect. These charges are recorded as administrative
charges in the statements of changes in net assets.
F-43
<PAGE> 120
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholder and Board of Directors of
Providentmutual Life and Annuity
Company of America
We have audited the accompanying statements of financial condition of
Providentmutual Life and Annuity Company of America (a wholly-owned stock life
insurance subsidiary of Provident Mutual Life Insurance Company) as of December
31, 1997 and 1996, and the related statements of operations, capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Providentmutual Life and
Annuity Company of America as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, in 1996 the Company adopted
Statement of Financial Accounting Standards No. 120 (SFAS 120) and Financial
Accounting Standards Board Interpretation No. 40 (FIN 40) which required
implementation of several accounting pronouncements not previously adopted. The
effects of adopting SFAS 120 and FIN 40 were retroactively applied to the
Company's previously issued financial statements, consistent with the
implementation guidance of those standards.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 4, 1998
F-44
<PAGE> 121
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Financial Condition (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: 1997-$311,637;
1996-$288,732)......................................... $ 320,363 $294,294
Held to maturity, at amortized cost (market:
1997-$65,305; 1996-$80,638)............................ 62,753 79,526
Equity securities, at market (cost: 1997-$1,714;
1996-$2,566).............................................. 1,776 1,582
Mortgage loans.............................................. 46,871 42,187
Real estate................................................. 2,494 3,146
Policy loans and premium notes.............................. 6,725 6,352
Other invested assets....................................... 302 276
Short-term investments...................................... 552 8,453
---------- --------
Total Investments........................................... 441,836 435,816
---------- --------
Cash........................................................ 1,063 472
Investment income due and accrued........................... 7,046 6,609
Deferred acquisition costs.................................. 83,291 62,520
Reinsurance recoverable..................................... 74,674 80,346
Deferred Federal income taxes............................... -- 673
Separate account assets..................................... 627,081 373,802
Other assets................................................ 1,342 1,981
---------- --------
Total Assets................................................ $1,236,333 $962,219
========== ========
LIABILITIES
Policy Liabilities:
Future policyholder benefits.............................. $ 516,591 $511,447
Other policy obligations.................................. 8,147 6,836
---------- --------
Total Policy Liabilities.................................. 524,738 518,283
---------- --------
Payable to parent........................................... 1,837 4,936
Federal income taxes payable:
Current................................................... 3,928 4,737
Deferred.................................................. 2,363 --
Separate account liabilities................................ 624,872 372,005
Other liabilities........................................... 8,506 8,109
---------- --------
Total Liabilities........................................... 1,166,244 908,070
---------- --------
COMMITMENTS AND CONTINGENCIES -- NOTE 9
CAPITAL AND SURPLUS
Common stock, $10 par value; authorized 500,000 shares;
issued and outstanding 250,000 shares..................... 2,500 2,500
Contributed capital in excess of par........................ 44,165 37,665
Unassigned surplus.......................................... 20,565 13,087
Net unrealized appreciation on securities................... 2,859 897
---------- --------
Total Capital and Surplus................................... 70,089 54,149
---------- --------
Total Liabilities, Capital and Surplus...................... $1,236,333 $962,219
========== ========
</TABLE>
See accompanying notes to financial statements
F-45
<PAGE> 122
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Operations (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $13,904 $13,541 $12,930
Policy and contract charges................................. 11,729 6,068 2,467
Net investment income....................................... 32,314 32,213 32,112
Other income................................................ 4,815 2,994 3,715
Realized gains on investments............................... 69 112 730
------- ------- -------
Total Revenues.............................................. 62,831 54,928 51,954
------- ------- -------
BENEFITS AND EXPENSES
Policy and contract benefits................................ 15,606 12,861 11,081
Change in future policyholder benefits...................... 19,254 24,092 25,462
Commissions and operating expenses.......................... 15,271 8,564 9,684
Policyholder dividends...................................... 773 541 353
------- ------- -------
Total Benefits and Expenses................................. 50,904 46,058 46,580
------- ------- -------
Income Before Income Taxes.................................. 11,927 8,870 5,374
Income tax expense (benefit):
Current................................................... 2,470 2,612 3,728
Deferred.................................................. 1,979 988 (1,339)
------- ------- -------
Total Income Tax Expense.................................... 4,449 3,600 2,389
------- ------- -------
Net Income.................................................. $ 7,478 $ 5,270 $ 2,985
======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-46
<PAGE> 123
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Capital and Surplus For the Years Ended December 31, 1997, 1996
and 1995 (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
CONTRIBUTED UNREALIZED
COMMON CAPITAL APPRECIATION TOTAL
STOCK COMMON IN EXCESS UNASSIGNED (DEPRECIATION) CAPITAL AND
SHARES STOCK OF PAR SURPLUS ON SECURITIES SURPLUS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995............ 2,500 $2,500 $29,665 $ 4,832 $(2,320) $34,677
Net income.......................... -- -- -- 2,985 -- 2,985
Change in unrealized appreciation
(depreciation).................... -- -- -- -- 5,074 5,074
----- ------ ------- ------- ------- -------
Balance at December 31, 1995.......... 2,500 2,500 29,665 7,817 2,754 42,736
Net income.......................... -- -- -- 5,270 -- 5,270
Capital contribution from parent.... -- -- 8,000 -- -- 8,000
Change in unrealized appreciation
(depreciation).................... -- -- -- -- (1,857) (1,857)
----- ------ ------- ------- ------- -------
Balance at December 31, 1996.......... 2,500 2,500 37,665 13,087 897 54,149
Net income.......................... -- -- -- 7,478 -- 7,478
Capital contribution from parent.... -- -- 6,500 -- -- 6,500
Change in unrealized appreciation
(depreciation).................... -- -- -- -- 1,962 1,962
----- ------ ------- ------- ------- -------
Balance at December 31, 1997.......... 2,500 $2,500 $44,165 $20,565 $ 2,859 $70,089
===== ====== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-47
<PAGE> 124
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Cash Flows (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 7,478 $ 5,270 $ 2,985
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to variable universal life and
investment products................................... 15,076 19,684 16,780
Policy fees assessed on variable universal life and
investment products................................... (11,729) (6,068) (2,467)
Amortization of deferred policy acquisition costs....... 9,445 5,433 5,263
Capitalization of deferred policy acquisition costs..... (31,404) (25,182) (19,579)
Deferred Federal income taxes........................... 1,979 988 (1,339)
Depreciation and amortization expense................... 625 798 816
Realized gains on investments........................... (69) (112) (730)
Change in investment income due and accrued............. (437) 66 845
Change in reinsurance recoverable....................... 5,672 772 (21,413)
Change in policy liabilities and other policyholders'
funds of traditional life products.................... (12,255) (2,124) 30,526
Change in other liabilities............................. 431 (210) (1,993)
Change in current Federal income taxes payable.......... (809) (928) 2,473
Other, net.............................................. (2,676) 3,756 2,349
--------- --------- ---------
Net cash (used in) provided by operating
activities........................................ (18,673) 2,143 14,516
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities........................... 21,382 6,956 12,817
Equity securities....................................... 100 200 46,114
Real estate............................................. 772 -- 940
Other invested assets................................... 333 158 --
Proceeds from maturities of investments:
Held to maturity securities............................. 19,184 17,323 16,030
Available for sale securities........................... 28,439 21,467 20,422
Mortgage loans.......................................... 2,599 7,873 8,065
Purchases of investments:
Held to maturity securities............................. (2,029) (15,887) (16,418)
Available for sale securities........................... (72,520) (38,542) (58,802)
Equity securities....................................... (609) (157) (44,930)
Mortgage loans.......................................... (7,179) (11,342) (8,418)
Real estate............................................. (99) (36) (213)
Other invested assets................................... (302) -- --
Net withdrawals of separate account seed money............ -- (335) (650)
Policy loans and premium notes, net....................... (373) (906) (989)
Net sales of short-term investments....................... 7,901 4,203 1,596
--------- --------- ---------
Net cash used in investing activities............... (2,401) (9,025) (24,436)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits... 232,307 185,984 124,336
Variable universal life and investment product
withdrawals............................................. (217,142) (186,630) (114,416)
Capital contribution from parent.......................... 6,500 8,000 --
--------- --------- ---------
Net cash provided by financing activities........... 21,665 7,354 9,920
--------- --------- ---------
Net change in cash.................................. 591 472 --
Cash, beginning of year..................................... 472 -- --
--------- --------- ---------
Cash, end of year........................................... $ 1,063 $ 472 $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes................ $ 3,280 $ 3,540 $ 1,438
========= ========= =========
Foreclosure of mortgage loans............................. $ -- $ -- $ 667
========= ========= =========
</TABLE>
See accompanying notes to financial statements
F-48
<PAGE> 125
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Providentmutual Life and Annuity Company of America (the Company) is a
stock life insurance company and a wholly-owned subsidiary of Provident Mutual
Life Insurance Company (Provident Mutual).
The Company sells life and annuity products principally through a personal
producing general agency (PPGA) and brokerage sales force. The Company is
licensed to operate in 48 states, which are responsible for product regulation.
Sales in 14 states accounted for 74% of the Company's sales for the year ended
December 31, 1997. For many of the life and annuity products, the insurance
departments of the states in which the Company conducts business must approve
products and policy forms in advance of sales. In addition, benefits are
determined by statutes and regulations in each of these states.
Basis of Presentation
As of January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 120, "Accounting and Reporting by Mutual Life
Insurance Enterprises for Certain Long-Duration Participating Contracts," an
amendment to Financial Accounting Standards Board Interpretation 40 (FIN 40),
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises." The initial effect of applying this statement
has been reported retroactively through restatement of previously issued
financial statements presented herein for comparative purposes. SFAS 120
requires financial statements referred to as prepared in accordance with
generally accepted accounting principles (GAAP) to apply to all applicable
authoritative GAAP pronouncements. Prior to the adoption of SFAS 120, statutory
financial statements were permitted to be referred to as being prepared in
accordance with GAAP. The significant GAAP authoritative pronouncements
requiring initial application were as follows:
-- SFAS 60, "Accounting and Reporting by Insurance Enterprises,"
-- SFAS 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investments,"
-- SFAS 109, "Accounting for Income Taxes,"
-- SFAS 113, "Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts,"
-- SFAS 114, "Accounting by Creditors for Impairment of a Loan,"
-- Statement of Position (SOP) 95-1, "Accounting for Certain Insurance
Activities of Mutual Life Insurance Enterprises,"
-- SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities" and
-- SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."
F-49
<PAGE> 126
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
The cumulative effective on capital and surplus of adopting the above
pronouncements primarily consists of the initial deferral of acquisition costs,
change in policy reserve valuation basis, the establishment of deferred taxes,
the elimination of statutory asset valuation and interest maintenance reserves
and the establishment of investment valuation allowances.
As a result of the change in accounting principles, net income for 1995 as
previously reported, has been restated as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------
<S> <C>
Net income, as previously reported.......................... $ 1,581
Effect of changing to a different basis of accounting:
Deferred acquisition costs................................ 14,316
Net policyholder liabilities.............................. (14,165)
Deferred income taxes..................................... 1,339
Adjustment in valuation of investments.................... 567
Other, net................................................ (653)
--------
Net income, as adjusted..................................... $ 2,985
========
</TABLE>
As a result of the change in accounting principles, capital and surplus, as
of December 31, 1995 as previously reported, has been restated as follows (in
thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------
<S> <C>
Balance at beginning of year, as previously reported........ $ 29,382
Add adjustment for the cumulative effect on prior years of
applying retroactively the new basis of accounting:
Deferred acquisition costs................................ 45,971
Net policyholder liabilities.............................. (41,068)
Deferred income taxes..................................... 2,144
Adjustment in valuation of investments.................... 854
Asset valuation reserve................................... 3,939
Other, net................................................ (4,225)
--------
Balance at beginning of year, as adjusted................... 36,997
Net income.................................................. 2,985
Add adjustment for the cumulative effect on prior years of
applying accounting change -- securities.................. (2,320)
Change in unrealized gains (losses) on investment
securities................................................ 5,074
--------
Balance at end of year...................................... $ 42,736
========
</TABLE>
F-50
<PAGE> 127
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
The Company prepares financial statements for filing with regulatory
authorities in conformity with the accounting practices prescribed or permitted
by the Insurance Department of the State of Delaware (SAP). Practices under SAP
vary from GAAP primarily with respect to the initial deferral of acquisition
costs, the establishment of deferred taxes, the elimination of statutory asset
valuation and interest maintenance reserves and the establishment of investment
valuation allowances.
Amounts disclosed in the footnotes are denoted in thousands of dollars.
Statutory net income was $1,792, $1,448 and $1,581 for the years ended
December 31, 1997, 1996 and 1995, respectively. Statutory surplus was $47,225
and $39,530 as of December 31, 1997 and 1996, respectively.
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the report values of
assets and liabilities and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
The Company is subject to interest rate risk to the extent its investment
portfolio cash flows are not matched to its insurance liabilities. Management
believes it manages this risk through modeling of the cash flows under
reasonable scenarios.
Invested Assets
Fixed maturity securities (bonds) which may be sold are designated as
"available for sale" and are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in capital
and surplus net of related Federal income taxes and amortization of deferred
acquisition costs. Fixed maturity securities that the Company has the intent and
ability to hold to maturity are designated as "held to maturity" and are
reported at amortized cost.
Equity securities (common stocks, redeemable preferred stocks and
nonredeemable preferred stocks) are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in capital
and surplus, net of applicable Federal income taxes.
Fixed maturity and equity securities that have experienced an other than
temporary decline in value are written down to fair value by a charge to
realized losses. This fair value becomes the new cost basis of the particular
security.
Mortgage loans are carried at unpaid principal balances, less impairment
reserves. For mortgage loans considered impaired, a specific reserve is
established. A general reserve is also established for probable losses arising
from the portfolio but not attributable to specific loans. Mortgage loans are
considered impaired when it is probable that the Company will be unable to
collect amounts due according to the contractual terms of the loan agreement.
When a mortgage loan has been determined to
F-51
<PAGE> 128
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Invested Assets -- continued
be impaired, 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.
The reserve is charged to realized capital losses.
Policy loans and premium notes are reported at unpaid principal balances.
Real estate is carried at lower of cost or fair value less accumulated
depreciation from the date of foreclosure. The straight-line method of
depreciation is used for real estate.
Other invested assets consist of limited partnerships carried at the lower
of cost or market value.
Cash includes demand deposits and cash on hand.
Short-term investments include money market funds, certificates of deposit
and short-term investments whose maturities at the time of acquisition were one
year or less. These investments are carried at amortized cost which approximates
market value.
It is the Company's policy to use derivatives (exchange-traded or
over-the-counter financial instruments whose value is based upon or derived from
a specific underlying index or commodity) for the purpose of reducing exposure
to interest rate fluctuations, and not for income generation or speculative
purposes. Derivatives utilized by the Company are long and short positions on
United States Treasury notes and bond futures and certain interest rate swaps.
The net interest effect of futures transactions is settled on a daily
basis. Cash paid or received is recorded daily, along with a receivable/payable,
to settle the futures contract prior to the contract termination. The
receivable/payable is carried until the contract is terminated and the remaining
balance is included in either net investment income or realized gain or loss.
Upon termination of a futures contract that is identified to a specific
security, any gain or loss is deferred and amortized to net investment income
over the expected remaining life of the hedged security. If the futures contract
is not identified to a specific security, any gain or loss on termination is
reported as a realized gain or loss.
Interest rate swaps are settled on the contract date. Cash paid or received
is reported as an adjustment to net investment income.
Investment Valuation Reserves
Investment valuation reserves have been provided for impairments of
mortgage loans and totalled $1,170 and $1,274 at December 31, 1997 and 1996,
respectively. Changes in the reserves are reflected as realized capital gains
and losses.
F-52
<PAGE> 129
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Benefit Reserves and Policyholder Contract Deposits
Traditional Life Insurance Products
Traditional life insurance products include those contracts with fixed and
guaranteed premiums and benefits, and consist principally of whole life and
term insurance policies, limited-payment life insurance policies and
certain annuities with life contingencies. Most traditional life insurance
policies are participating: in addition to guaranteed benefits, they pay
dividends, as declared annually by the Company based on its experience.
Reserves on traditional life insurance products are calculated by using the
net level premium method. For participating traditional life insurance
policies, the assumptions are based on mortality rates consistent with the
cash values and investment rates consistent with the Company's dividend
practices. For most such policies, reserves are based on the 1958 or 1980
Commissioners' Standard Ordinary (CSO) mortality table at interest rates
ranging from 2.5% to 5.0%.
Variable Life and Investment-Type Products
Variable life products are all flexible premium variable universal life.
Investment-type products consist primarily of single premium and flexible
premium annuity contracts.
Benefit reserves and policyholder contract deposits on these products are
determined following the retrospective deposit method and consist of policy
values that accrue to the benefit of the policyholder, before deduction of
surrender charges.
Premiums, Charges and Benefits
Traditional Life Insurance
Premiums for individual life policies are recognized when due.
Benefit claims (including an estimated provision for claims incurred but
not reported), benefit reserve changes, and expenses (except those
deferred) are charged to income as incurred.
Variable Life and Investment-Type Products
Revenues for variable life and investment-type products consist of policy
charges for the cost of insurance, policy initiation, administration and
surrenders during the period. Expenses include interest credited to policy
account balances and benefit payments made in excess of policy account
balances. Many of these policies are variable life or variable annuity
policies, in which investment performance credited to the account balance
is based on the investment performance of separate accounts chosen by the
policyholder. For other account balances, credited interest rates ranged
from 3.8% to 8.2% in 1997.
F-53
<PAGE> 130
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Premiums, Charges and Benefits -- continued
Deferred Policy Acquisition Costs
The costs that vary with and are directly related to the production of new
business, have been deferred to the extent deemed recoverable. Such costs
include commissions and certain costs of underwriting, policy issue and
marketing.
Deferred policy acquisition costs on traditional participating life
insurance policies are amortized in proportion to the present value of
expected gross margins. Gross margins include margins from mortality,
investments and expenses, net of policyholder dividends. Expected gross
margins are redetermined regularly, based on actual experience and current
assumptions of mortality, persistency, expenses, and investment experience.
The average investment yield, before realized capital gains and losses, in
the calculation of expected gross margins was 8.0% for 1997.
Deferred policy acquisition costs for variable life and investment-type
products are amortized in relation to the incident of expected gross
profits, including realized investment gains and losses, over the expected
life of the policies.
The costs deferred during 1997, 1996 and 1995 were $31,404, $25,182 and
$19,579, respectively. Amortization of deferred policy acquisition costs
was $9,445, $5,433 and $5,263 during 1997, 1996 and 1995, respectively.
Capital Gains and Losses
Realized capital gains and losses on sales of investments are based upon
specific identification of the investments sold and do not include amounts
allocable to separate accounts. A realized capital loss is also recorded at the
time a decline in the value of an investment is determined to be other than
temporary.
Policyholder Dividends
As of December 31, 1997, approximately 69% of the Company's in force life
insurance business was written on a participating basis. Dividends are earned by
the policyholders ratably over the policy year. Dividends are included in the
accompanying financial statements as a liability and as a charge to operations.
Reinsurance
Premiums, benefits and expenses are recorded net of experience refunds,
reserve adjustments and amounts assumed from or ceded to reinsurers, including
commission and expense allowances.
F-54
<PAGE> 131
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Separate Accounts
Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the benefit of annuity
contractholders and variable life insurance policyholders.
Premiums received and the accumulated value portion of benefits paid are
excluded from the amounts reported in the statements of operations. Fees charged
on policyholder and contractholder account values are reported as revenues.
The contractholders/policyholders bear the investment risk on separate
account assets. Separate account assets are carried at fair values determined as
of the balance sheet date.
Federal Income Taxes
Deferred income tax assets and liabilities have been recorded for temporary
differences between the reported amounts of assets and liabilities in the
accompanying financial statements and those in the Company's income tax returns.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the fair values and carrying values of the
Company's financial instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale.................... $320,363 $320,363 $294,294 $294,294
Held to maturity...................... $65,305 $62,753 $80,638 $79,526
Equity securities....................... $1,776 $1,776 $1,582 $1,582
Commercial mortgage loans............... $49,379 $46,871 $43,976 $42,187
LIABILITIES FOR INVESTMENT-TYPE
INSURANCE CONTRACTS
Supplementary contracts without life
contingencies......................... $7,304 $7,185 $5,736 $5,835
Individual annuities.................... $977,658 $1,012,040 $802,622 $829,783
</TABLE>
F-55
<PAGE> 132
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
The underlying investment risk of the Company's variable life and variable
annuity contracts is assumed by the owner. These reserve liabilities are
primarily reported in the separate accounts. The liabilities in the separate
accounts are recorded at amounts equal to the related assets at fair value.
Fair values for the Company's insurance contracts other than
investment-type contracts are not required to be disclosed under Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." However, the estimated fair value and future cash flows
of liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts. The estimated fair value of all assets
without a corresponding revaluation of all liabilities associated with insurance
contracts can be misinterpreted.
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments:
Investment Securities
Bonds, common stocks and preferred stocks are valued based upon quoted
market prices, where available. If quoted market prices are not available, as in
the case of private placements, fair values are based on quoted market prices of
comparable instruments (see Note 3).
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.
F-56
<PAGE> 133
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Individual Annuities and Supplementary Contracts
The fair value of individual annuities and supplementary contracts without
life contingencies is based primarily on surrender values. For those individual
annuities and supplementary contracts that are not surrenderable, discounted
future cash flows are used for calculating fair value.
Policyholder Dividends and Coupon Accumulations
The policyholders' dividend and coupon accumulation liabilities will
ultimately be settled in cash, applied towards the payment of premiums, or left
on deposit with the Company at interest. Management deems it impractical to
calculate the fair value of these liabilities due to valuation difficulties
involving the uncertainties of final settlement.
3. MARKETABLE SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investments in fixed maturity securities and equity
securities as of December 31, 1997 and 1996 are as follows:
<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................................... $ 563 $ 12 $ 2 $ 573
Obligations of states and political
subdivisions............................... 4,083 187 -- 4,270
Corporate securities......................... 274,262 8,651 1,076 281,837
Mortgage-backed securities................... 32,729 958 4 33,683
-------- ------- ------ --------
Subtotal -- fixed maturities............ 311,637 9,808 1,082 320,363
Equity securities............................ 1,714 487 425 1,776
-------- ------- ------ --------
Total.............................. $313,351 $10,295 $1,507 $322,139
======== ======= ====== ========
</TABLE>
F-57
<PAGE> 134
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 4,704 $ 417 $ 10 $ 5,111
Corporate securities......................... 54,563 1,899 28 56,434
Mortgage-backed securities................... 3,486 274 -- 3,760
-------- ------- ------ --------
Total.............................. $ 62,753 $ 2,590 $ 38 $ 65,305
======== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 567 $ 4 $ 13 $ 558
Obligations of states and political
subdivisions............................... 4,853 197 -- 5,050
Corporate securities......................... 246,887 5,907 1,103 251,691
Mortgage-backed securities................... 36,425 680 110 36,995
-------- ------ ------ --------
Subtotal -- fixed maturities............ 288,732 6,788 1,226 294,294
Equity securities............................ 2,566 355 1,339 1,582
-------- ------ ------ --------
Total.............................. $291,298 $7,143 $2,565 $295,876
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 4,821 $ 278 $ 27 $ 5,072
Corporate securities......................... 71,136 979 346 71,769
Mortgage-backed securities................... 3,569 228 -- 3,797
-------- ------ ------ --------
Total.............................. $ 79,526 $1,485 $ 373 $ 80,638
======== ====== ====== ========
</TABLE>
F-58
<PAGE> 135
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1997, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
ESTIMATED
AMORTIZED FAIR
AVAILABLE FOR SALE COST VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less..................................... $ 32,283 $ 32,366
Due after one year through five years....................... 107,134 109,530
Due after five years through ten years...................... 100,827 104,315
Due after ten years......................................... 71,393 74,152
-------- --------
Total............................................. $311,637 $320,363
======== ========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
ESTIMATED
AMORTIZED FAIR
HELD TO MATURITY COST VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less..................................... $ 2,215 $ 2,231
Due after one year through five years....................... 22,403 23,047
Due after five years through ten years...................... 34,541 36,123
Due after ten years......................................... 3,594 3,904
-------- --------
Total............................................. $ 62,753 $ 65,305
======== ========
</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,
1997, 1996 and 1995 are summarized as follows:
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------
Fixed maturities......................................... $1,135 $ 71 $ 561
Equity securities........................................ (1,360) 6 253
Mortgage loans........................................... 104 35 (103)
Real estate.............................................. 133 -- 19
Other invested assets.................................... 57 -- --
------ ---- -----
$ 69 $112 $ 730
====== ==== =====
</TABLE>
F-59
<PAGE> 136
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
Net unrealized appreciation (depreciation) on available for sale securities
as of December 31, 1997 and 1996 is summarized as follows:
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Net unrealized appreciation before adjustments for the
following:................................................ $ 8,788 $ 4,578
Amortization of deferred policy acquisition costs......... (4,389) (3,198)
Deferred Federal income taxes............................. (1,540) (483)
------- -------
Net unrealized appreciation................................. $ 2,859 $ 897
======= =======
</TABLE>
In late 1995, the Financial Accounting Standards Board issued "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." This report permits a one-time reclassification of
securities from held to maturity to available for sale. In response to this
report, the Company transferred fixed income securities with a combined
amortized cost of $34,784 from the held to maturity portfolio to the available
for sale portfolio. An additional transfer of fixed income securities with a
combined cost of $5,000 and an estimated fair value of $5,050 was made from the
available for sale portfolio to the held to maturity portfolio. The $50
difference between the amortized cost and the estimated fair value has been
amortized to realized capital gains/losses.
Net investment income, by type of investment, is as follows for the years
ending December 31, 1997, 1996 and 1995:
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
Gross investment income:
Fixed maturities:
Available for sale................................ $22,559 $21,379 $20,222
Held to maturity.................................. 5,692 6,699 7,725
Equity securities................................... 92 87 211
Mortgage loans...................................... 3,924 3,750 3,592
Real estate......................................... 591 759 747
Policy loans and premium notes...................... 214 158 113
Short-term investments.............................. 258 363 521
Other, net.......................................... 9 27 35
------- ------- -------
33,339 33,222 33,166
Less: investment expenses........................... (1,025) (1,009) (1,054)
------- ------- -------
Net investment income............................... $32,314 $32,213 $32,112
======= ======= =======
</TABLE>
F-60
<PAGE> 137
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. MORTGAGE LOANS
Impaired mortgage loans and the related reserves are as follows at December
31, 1997 and 1996:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
Impaired mortgage loans..................................... $3,655 $3,878
Reserves.................................................... (704) (848)
------ ------
Net impaired mortgage loans................................. $2,951 $3,030
====== ======
</TABLE>
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1997 and 1996 is as follows:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
Balance at January 1........................................ $1,274 $1,309
Losses charged, net of recoveries........................... (104) (35)
Releases due to foreclosures................................ -- --
------ ------
Balance at December 31...................................... $1,170 $1,274
====== ======
</TABLE>
The average recorded investment in impaired loans was $3,767 and $4,378
during 1997 and 1996, respectively. Interest income recognized on impaired loans
during 1997, 1996 and 1995 was $284, $405 and $434, respectively. All interest
income on impaired mortgage loans was recognized on the cash basis.
5. REAL ESTATE
Real estate totalled $2,494 and $3,146 as of December 31, 1997 and 1996,
respectively. Depreciation expense was $113, $112 and $106 for the years ended
December 31, 1997, 1996 and 1995, respectively. Accumulated depreciation for
real estate totalled $435 and $353 at December 31, 1997 and 1996, respectively.
6. FEDERAL INCOME TAXES
The Company files a consolidated Federal income tax return with Provident
Mutual. The tax liability is accrued on a separate company basis which includes
an allocation of an equity tax by Provident Mutual.
F-61
<PAGE> 138
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
6. FEDERAL INCOME TAXES, CONTINUED
The provision for Federal income taxes from operations differs from the
normal relationship of Federal income tax to pretax income as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate................... $4,174 $3,105 $1,881
Current year equity tax.............................. 900 800 625
True down of prior years' equity tax................. (625) (305) --
Other................................................ -- -- (117)
------ ------ ------
Provision for Federal income tax from operations....... $4,449 $3,600 $2,389
====== ====== ======
</TABLE>
Deferred income tax assets and liabilities reflect the income tax effects
of cumulative temporary differences between the reported values of assets and
liabilities for financial statement purposes and income tax return purposes.
Components of the Company's net deferred income tax (liability) asset is as
follows at December 31, 1997 and 1996:
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
DEFERRED TAX ASSET
Reserves.................................................... $26,650 $21,679
Invested assets............................................. 409 445
Policyholder dividends...................................... 159 115
Other....................................................... (1,491) (714)
------- -------
Total deferred tax asset.................................. 25,727 21,525
------- -------
DEFERRED TAX LIABILITY
Deferred policy acquisition costs........................... 26,550 19,249
Net unrealized gain on available for sale securities........ 1,540 1,603
------- -------
Total deferred tax liability.............................. 28,090 20,852
------- -------
Net deferred tax (liability) asset.......................... $(2,363) $ 673
======= =======
</TABLE>
Under current tax law, stock life insurance companies are taxed at current
rates on distributions from the special surplus account for the benefit of
policyholders designated "Policyholder Surplus" (the Account). The Tax Reform
Act of 1984 eliminated further additions to the Account after December 31,
F-62
<PAGE> 139
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
6. FEDERAL INCOME TAXES, CONTINUED
1983. The aggregate accumulation at December 31, 1983 was $2,037. The Company
has no present plans to make any distributions which would subject the Account
to current taxation.
The Company's Federal income tax returns have been audited through 1992.
All years through 1985 are closed. Years 1986 through 1992 have been audited and
are closed with the exception of several issues for which claims for refund have
been filed. Years 1993 through the present remain open. In the opinion of
management, adequate provision has been made for the possible effect of
potential assessments related to prior years' taxes.
7. REINSURANCE
In the normal course of business, the Company assumes risks from and cedes
certain parts of its risks with other insurance companies. The primary purpose
of ceded reinsurance is to limit losses from large exposures.
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company would be liable for these
obligations. The Company evaluates the financial condition of its reinsurers and
limits its exposure to any one reinsurer.
At December 31, 1997, there were $73,108 of individual fixed annuity
account values coinsured by the Company, or approximately 17.2% of total
individual fixed annuity account values outstanding.
F-63
<PAGE> 140
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
7. REINSURANCE, CONTINUED
The tables below highlight the amounts shown in the accompanying financial
statements which are net of reinsurance activity:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
CEDED TO ASSUMED
GROSS OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997:
Life insurance in force.................. $2,153,084 $1,591,141 $ 50,233 $612,176
========== ========== ======== ========
Premiums................................. $ 14,367 $ 614 $ 151 $ 13,904
========== ========== ======== ========
Future policyholder benefits............. $ 74,674 $ 3,102
========== ========
December 31, 1996:
Life insurance in force.................. $1,591,685 $1,282,667 $ 42,330 $351,348
========== ========== ======== ========
Premiums................................. $ 14,240 $ 801 $ 102 $ 13,541
========== ========== ======== ========
Future policyholder benefits............. $ 80,346 $ 4,332
========== ========
December 31, 1995:
Life insurance in force.................. $1,142,970 $ 923,876 $ 46,163 $265,257
========== ========== ======== ========
Premiums................................. $ 13,693 $ 916 $ 153 $ 12,930
========== ========== ======== ========
Future policyholder benefits............. $ 81,118 $ 4,518
========== ========
</TABLE>
The Company has a reinsurance contract with a third party to cede 65
percent (75 percent prior to July 1, 1992) of the premiums and reserves related
to its single premium deferred annuity (SPDA) product. There were no deposits
ceded in 1997 and $5,317 during 1996, respectively. Reinsurance recoverables
were $71,995 and $77,801 at December 31, 1997 and 1996, respectively.
A coinsurance agreement exists between Provident Mutual and the Company
with respect to annuities. Prior to 1992, the agreement covered SPDA's issued
after 1984. The agreement was amended in 1992 to include single premium
immediate annuities and supplementary contracts. Pursuant to this agreement, the
Company has no reinsurance recoverables at December 31, 1997 and 1996. Deposits
ceded during 1997 and 1996 were $2,351 and $2,320, respectively.
Approximately $1,169,702 and $1,007,498 of the Company's life insurance in
force is ceded to Provident Mutual under two reinsurance agreements and a
modified coinsurance agreement at December 31, 1997 and 1996, respectively.
Premiums ceded were $3,889 and $436 during 1997 and 1996, respectively.
Reinsurance recoverables at December 31, 1997 and 1996 were $74 and $471,
respectively.
F-64
<PAGE> 141
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
8. RELATED PARTY TRANSACTIONS
Provident Mutual and its subsidiaries provide certain investment and
administrative services to the Company. Generally fees for these services are
based on an allocation of costs upon either a specific identification basis or a
proportional cost allocation basis which management believes to be reasonable.
These costs include direct salaries and related benefits, including pension and
other post-retirement benefits, as well as overhead costs. These costs were
$13,964, $10,013 and $9,238 for 1997, 1996 and 1995, respectively.
The contractual obligations under the Company's SPDA contracts in force and
issued before September 1, 1988 are guaranteed by Provident Mutual. Total SPDA
contracts affected by this guarantee in force at December 31, 1997 and 1996
approximated $90,995 and $105,004, respectively.
9. COMMITMENTS AND CONTINGENCIES
Financial Instruments With Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its borrowers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include investment commitments related to its interests in
mortgage loans, marketable securities lending and interest rate futures
contracts. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the statements of
financial condition, but which are not deemed to be material.
At December 31, 1997, the Company had outstanding mortgage loan commitments
of approximately $2,200. The mortgage loan commitments, which expire through
April 1998, were issued during 1997 at interest rates consistent with rates
applicable on December 31, 1997. As a result, the fair value of these
commitments approximates the face amount.
Derivative products 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. There was no hedge position
activity for the years ended December 31, 1997 and 1996.
Periodically the Company enters securities lending agreements to earn
additional investment income on its securities. The borrower must first provide
cash collateral prior to or at the inception of the loan. There were no
securities lending positions at December 31, 1997.
Investment Portfolio Credit Risk
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1997 and 1996, approximately
$14,771 and $14,777, respectively, in debt security investments (3.9% and 4.0%,
respectively, of the total debt security portfolio) are considered "below
F-65
<PAGE> 142
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED
Investment Portfolio Credit Risk -- continued
Bonds -- continued
investment grade." Securities are classified as "below investment grade"
primarily by utilizing rating criteria established by independent bond rating
agencies.
Debt security investments with a carrying value at December 31, 1997 of
$385 were non-income producing for the year ended December 31, 1997.
The Company had debt security investments in the financial services
industry at both December 31, 1997 and 1996 that exceeded 5% of total assets.
Mortgage Loans
The Company originates mortgage loans either directly or through mortgage
correspondents and brokers throughout the country. Loans are primarily related
to underlying real property investments in office and apartment buildings and
retail/commercial and industrial facilities. Mortgage loans are collateralized
by the related properties and such collateral generally approximates a minimum
133% of the original loan value at the time the loan is made.
At December 31, 1997 and 1996, there were no delinquent mortgage loans
(i.e., loans where payments on principal and/or interest are over 90 days past
due).
The Company had no loans in any state where principal balances in the
aggregate exceeded 20% of the Company's capital and surplus.
Litigation and Unasserted Claims
The Company is involved in various litigation, as both plaintiff and
defendant, which has arisen in the ordinary course of business which, in the
opinion of management and legal counsel, will not have a material effect on the
Company's financial position or its operations.
Insurance companies are subject to assessments, up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of management, the outcome of the proceedings and
assessments will not have a material adverse effect on the financial statements.
Guaranty fund assessments totalled $236, $82 and $343 in 1997, 1996 and 1995,
respectively. Of those amounts, $117, $58 and $285 in 1997, 1996 and 1995,
respectively, are creditable against future years' premium taxes.
F-66
<PAGE> 143
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- concluded
- --------------------------------------------------------------------------------
10. SUBSEQUENT EVENT
On January 5, 1998, the Board of Directors of Provident Mutual unanimously
approved and adopted a Plan of Conversion to reorganize Provident Mutual Life
Insurance Company, utilizing a mutual holding company structure. The proposed
conversion plan was submitted to the Insurance Department of the Commonwealth of
Pennsylvania and is awaiting approval.
F-67
<PAGE> 144
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article VIII of PLACA's By-Laws provides, in part:
To the fullest extent permitted by law, the Company shall indemnify
any present, former or future Director, officer, or employee of the Company
or any person who may serve or has served at its request as officer or
Director of another corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including attorney's fees,
necessarily incurred in connection with the defense of any action, suit or
other proceeding to which any of them is made a party because of service as
Director, officer or employee of the Company or such other corporation, or
in connection with any appeal therein, and against any amounts paid by such
Director, officer or employee in settlement of, or in satisfaction of a
judgement or fine in, any such action or proceeding, except expenses
incurred in defense of or amounts paid in connection with any action, suit
or other proceeding in which such Director, officer or employee shall be
adjudged to be liable for negligence or misconduct in the performance of
his duty.
Insofar as indemnification or liability arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, 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 any 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 action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with 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.
REPRESENTATION OF REASONABLENESS
Providentmutual Life and Annuity Company of America hereby represents that
the fees and charges deducted under the Policy, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by Providentmutual Life and Annuity Company of America.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of the information shown in the Prospectus
with items of Form N-8B-2.
The Prospectus consisting of 53 pages.
The undertaking to file report.
Rule 484 undertaking.
II-1
<PAGE> 145
Representations pursuant to Rule 6e-3(T).
The signatures.
The following exhibits:
<TABLE>
<S> <C> <C>
1.A.1.a. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing establishment of
the Providentmutual Variable Life Separate Account
1.A.1.b. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Life Separate
Account
1.A.2. None
1.A.3.a.i. Form of Underwriting Agreement among Providentmutual Life
and Annuity Company of America, PML Securities, Inc. and
Providentmutual Variable Life Separate Account
1.A.3.b.i. Personal Producing General Agent's Agreement and Supplement
1.A.3.b.ii. Personal Producing Agent's Agreement and Supplement
1.A.3.b.iii Producing General Agent's Agreement and Supplement
1.A.3.c.i. Personal Producing General Agent's Commission Schedule
1.A.3.c.ii. Personal Producing Agent's Commission Schedule
1.A.3.c.iii Producing General Agent's Commission Schedule
1.A.3.c.iv. Form of Selling Agreement between PML Securities, Inc. and
Broker/Dealers
1.A.4. Inapplicable
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy (PLC134 & PLC134A)
1.A.5.a. Convertible Term Life Rider (PLC308)
1.A.5.b. 4 Year Survivorship Term Life Rider (PLC309)
1.A.5.c. Guaranteed Minimum Death Benefit Rider (PLC320)
1.A.5.d Policy Split Option Rider (PLC615)
1.A.5.e. Extension of Final Policy Date Rider (PLC822)
1.A.5.f. Change of Insured Rider (PLC905)
1.A.5.g. Disability Waiver Benefit Rider (PLC907)
1.A.6.a. Charter of Providentmutual Life and Annuity Company of
America(1)
1.A.6.b. By-Laws of Providentmutual Life and Annuity Company of
America(1)
1.A.7. Inapplicable
1.A.8. Inapplicable
1.A.9. Inapplicable
1.A.10. Form of Application(2)
1.A.10.a. Supplemental Application for Flexible Premium(3)
1.A.10.b. Initial Allocation Selection(3)
2. See Exhibits 1.A.
3. Consent of Adam Scaramella, Esquire
4. Inapplicable
5. Inapplicable
6. Consent of Scott V. Carney, FSA, MAAA
7.A. Consent of Sutherland, Asbill & Brennan, L.L.P.
7.B. Consent of Coopers & Lybrand, L.L.P.
8. Description of Providentmutual Life and Annuity Company of
America's Issuance, Transfer and Redemption Procedures for
Policies
9. Powers of Attorney(1)
</TABLE>
II-2
<PAGE> 146
<TABLE>
<S> <C> <C>
10.A. Participation Agreement among Market Street Fund, Inc., Providentmutual Life and Annuity
Company of America and PML Securities, Inc.(1)
10.B. Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors
Corporation and Providentmutual Life and Annuity Company of America
10.C. Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors
Corporation and Providentmutual Life and Annuity Company of America
10.D. Form of Fund Participation Agreement among Neuberger & Berman Advisers Management Trust,
Advisers Managers Trust and Providentmutual Life and Annuity Company of America(1)
10.E. Participation Agreement between TCI Portfolios, Inc. and Providentmutual Life and Annuity
Company of America(1)
10.F. Participation Agreement between Van Eck Investment Trust and Providentmutual Life and Annuity
Company of America(1)
10.G. Participation Agreement among The Alger American Fund, Providentmutual Life and Annuity
Company of America and Fred Alger and Company Incorporated
27. Inapplicable
10.H. Support Agreement between Provident Mutual Life Insurance and Providentmutual Company Life
and Annuity Company of America(1)
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 5 filed on
May 1, 1998, File No. 33-65512.
(2) Incorporated herein by reference to Post-Effective Amendment No. 18 filed on
May 1, 1998, File No. 33-2625.
(3) Incorporated herein by reference to Post-Effective Amendment No. 11 filed on
May 1, 1998, File No. 33-42133.
II-3
<PAGE> 147
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT
CERTIFIES THAT IT MEETS ALL THE REQUIREMENTS FOR THE EFFECTIVENESS OF THIS
POST-EFFECTIVE AMENDMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF
1933, AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, AND ITS SEAL TO BE HEREUNTO
AFFIXED AND ATTESTED, ALL IN NEW CASTLE COUNTY, STATE OF DELAWARE ON THIS 1ST
DAY OF MAY, 1998.
PROVIDENTMUTUAL VARIABLE LIFE
SEPARATE ACCOUNT (Registrant)
<TABLE>
<S> <C>
Attest: /s/ JAMES POTTER By: /s/ ROBERT W. KLOSS
- -------------------------------------------- --------------------------------------------
ROBERT W. KLOSS
President
By:PROVIDENTMUTUAL LIFE AND ANNUITY
Company of America (Depositor)
Attest: /s/ JAMES POTTER By: /s/ ROBERT W. KLOSS
- -------------------------------------------- --------------------------------------------
ROBERT W. KLOSS
President
</TABLE>
AS REQUESTED BY THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS
BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ROBERT W. KLOSS Director and President May 1, 1998
- ------------------------------------------------
ROBERT W. KLOSS
/s/ STEPHEN L. WHITE Actuarial Officer May 1, 1998
- ------------------------------------------------ (Principal Financial Officer)
STEPHEN L. WHITE
/s/ LINDA M. SPRINGER Financial Reporting Officer May 1, 1998
- ------------------------------------------------ (Principal Accounting Officer)
LINDA M. SPRINGER
* Director May 1, 1998
- ------------------------------------------------
MARY LYNN FINELLI
* Director May 1, 1998
- ------------------------------------------------
J. KEVIN MCCARTHY
* Director, Secretary and Legal May 1, 1998
- ------------------------------------------------ Officer
JAMES G. POTTER, JR.
</TABLE>
II-4
<PAGE> 148
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director May 1, 1998
- ------------------------------------------------
JAMES D. KESTNER
* Director May 1, 1998
- ------------------------------------------------
SARAH C. LANGE
* Director May 1, 1998
- ------------------------------------------------
ALAN F. HINKLE
* Director May 1, 1998
- ------------------------------------------------
JOAN C. TUCKER
*By: /s/ WILLIAM P. LOESCHE
----------------------------------------
WILLIAM P. LOESCHE
ATTORNEY-IN-FACT
PURSUANT TO POWER OF ATTORNEY
</TABLE>
II-5
<PAGE> 149
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<S> <C> <C>
1.A.1.a. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing establishment of
the Providentmutual Variable Life Separate Account
1.A.1.b. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Life Separate
Account
1.A.2. None
1.A.3.a.i. Form of Underwriting Agreement among Providentmutual Life
and Annuity Company of America, PML Securities, Inc. and
Providentmutual Variable Life Separate Account
1.A.3.b.i. Personal Producing General Agent's Agreement and Supplement
1.A.3.b.ii. Personal Producing Agent's Agreement and Supplement
1.A.3.b.iii Producing General Agent's Agreement and Supplement
1.A.3.c.i. Personal Producing General Agent's Commission Schedule
1.A.3.c.ii. Personal Producing Agent's Commission Schedule
1.A.3.c.iii Producing General Agent's Commission Schedule
1.A.3.c.iv. Form of Selling Agreement between PML Securities, Inc. and
Broker/Dealers
1.A.4. Inapplicable
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy (PLC134 & PLC134A)
1.A.5.a. Convertible Term Life Rider (PLC308)
1.A.5.b. 4 Year Survivorship Term Life Rider (PLC309)
1.A.5.c. Guaranteed Minimum Death Benefit Rider (PLC320)
1.A.5.d Policy Split Option Rider (PLC615)
1.A.5.e. Extension of Final Policy Date Rider (PLC822)(1)
1.A.5.f. Change of Insured Rider (PLC905)
1.A.5.g. Disability Waiver Benefit Rider (PLC907)
1.A.7. Inapplicable
1.A.8. Inapplicable
1.A.9. Inapplicable
1.A.10.a. Supplemental Application for Flexible Premium(3)
2. See Exhibits 1.A.(5)
3. Consent of Adam Scaramella, Esquire
4. Inapplicable
5. Inapplicable
6. Consent of Scott V. Carney, FSA, MAAA
7.A. Consent of Sutherland, Asbill & Brennan, L.L.P.
7.B. Consent of Coopers & Lybrand, L.L.P.
8. Description of Providentmutual Life and Annuity Company of
America's Issuance, Transfer and Redemption Procedures for
Policies(1)
10.B. Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Providentmutual
Life and Annuity Company of America(1)
10.C. Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and
Providentmutual Life and Annuity Company of America
10.G. Participation Agreement among The Alger American Fund,
Providentmutual Life and Annuity Company of America and Fred
Alger and Company Incorporated(1)
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