<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER , 1996
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REGISTRATION NO. 333-
811-8722
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
------------------------
PROVIDENTMUTUAL VARIABLE
LIFE SEPARATE ACCOUNT
(EXACT NAME OF TRUST)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
(NAME OF DEPOSITOR)
300 CONTINENTAL DRIVE
NEWARK, DELAWARE 19173
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
ADAM SCARAMELLA, ESQ., COUNSEL
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
1050 WESTLAKES DRIVE
BERWYN, PENNSYLVANIA 19312
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
COPY TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND, ASBILL & BRENNAN
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004-2404
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement
TITLE OF SECURITIES BEING OFFERED: Individual Flexible Premium Variable Life
Insurance Policies.
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
PROSPECTUS
FOR
FLEXIBLE PREMIUM
ADJUSTABLE VARIABLE
LIFE INSURANCE
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
<PAGE> 3
PROSPECTUS
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
SERVICE CENTER: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19173
CORPORATE HEADQUARTERS: 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 purpose of the Policy is to provide insurance
coverage for the lifetime of the Insured. The Policy gives the policyowner (the
"Owner") the right to vary the frequency and amount of premium payments, to
choose 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, or both. The Providentmutual Variable Life Separate Account
has twenty-eight Subaccounts, the assets of which are each invested in shares of
a corresponding investment Portfolio that is part of one of the following mutual
fund companies:
<TABLE>
<CAPTION>
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SCUDDER VARIABLE
THE MARKET STREET FUND, INC. OCC ACCUMULATION TRUST LIFE INVESTMENT FUND
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<S> <C> <C>
- Aggressive Growth Portfolio - Equity Portfolio - Growth and Income Portfolio
- All-Pro Large Cap Growth Portfolio - Managed Portfolio
- All-Pro Large Cap Value Portfolio
- All-Pro Small Cap Growth Portfolio
- All-Pro Small Cap Value Portfolio
- Bond Portfolio
- Growth Portfolio
- International Portfolio
- Managed Portfolio
- Money Market Portfolio
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</TABLE>
<TABLE>
<CAPTION>
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NEUBERGER & BERMAN THE DREYFUS SOCIALLY
THE ALGER AMERICAN FUND ADVISERS MANAGEMENT TRUST RESPONSIBLE GROWTH FUND
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<S> <C> <C>
- Limited Maturity Bond Portfolio - Small Capitalization Portfolio - Socially Responsible Portfolio
- Partners Portfolio
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</TABLE>
<TABLE>
<CAPTION>
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VARIABLE INSURANCE VARIABLE INSURANCE
VAN ECK WORLDWIDE INSURANCE TRUST PRODUCTS FUND PRODUCT FUND II
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<S> <C> <C>
- Worldwide Bond Portfolio - Equity-Income Portfolio - Asset Manager Portfolio
- Worldwide Emerging Market Portfolio - Growth Portfolio - Contrafund Portfolio
- Worldwide Hard Assets Portfolio - High Income Portfolio - Index 500 Portfolio
- Worldwide Real Estate Portfolio - Overseas Portfolio
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Owner bears the entire investment risk for all amounts allocated to the
Subaccounts; there is no guaranteed minimum 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 monthly deductions and certain other fees and charges. Also, a
surrender charge may be imposed if, during the first 12 Policy Years or within
12 years after a Face Amount increase, the Policy lapses or if the Owner
decreases the Face Amount. Generally, during the first five Policy Years, the
Policy will remain in force as long as the Minimum Guarantee Premium is paid or
there is sufficient value in the Policy to pay certain monthly charges imposed
under the Policy. After the fifth Policy Year, the Policy will only remain in
force if there is sufficient value to pay the monthly deductions and other
charges under the 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.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
February , 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY OF THE POLICY
The Policy................................................ 3
Purpose of the Policy..................................... 3
The Death Benefit......................................... 3
Flexibility to Adjust Amount of Death Benefit............. 4
Policy Account Value...................................... 4
Allocation of Net Premiums................................ 4
Transfers................................................. 5
Free-Look................................................. 5
Charges Assessed Under the Policy......................... 5
Loan Privilege............................................ 7
Partial Withdrawal of Net Cash Surrender Value............ 7
Surrender of the Policy................................... 7
Accelerated Death Benefit................................. 7
Tax Treatment............................................. 7
Illustrations............................................. 8
Table of Fund Fees and Expenses............................. 9
The Company, Variable Account and Funds..................... 11
Providentmutual Life and Annuity Company of America....... 11
The Providentmutual Variable Life Separate Account........ 11
The Funds................................................. 11
Market Street Fund, Inc. ................................. 12
The Alger American Fund................................... 14
Variable Insurance Product Fund and Variable Insurance
Products Fund II....................................... 15
Neuberger & Berman Advisers Management Trust.............. 18
Van Eck Worldwide Insurance Trust......................... 18
Additional Information About the Funds and Portfolios..... 19
Detailed Description of Policy Provisions................... 20
Death Benefit............................................. 20
Ability to Adjust Face Amount............................. 22
Insurance Protection...................................... 23
Payment and Allocation of Premiums........................ 24
Special Policy Account Value Credit....................... 26
Policy Account Value...................................... 26
Policy Duration........................................... 26
Transfers of Policy Account Value......................... 27
Free Look Privileges...................................... 28
Loan Privileges........................................... 29
Surrender Privilege....................................... 30
Partial Withdrawal Privilege.............................. 30
Accelerated Death Benefit................................. 32
Charges and Deductions...................................... 34
Premium Expense Charge.................................... 34
Surrender Charges......................................... 34
Monthly Deductions........................................ 36
Face Amount Increase Charge............................... 37
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Partial Withdrawal Charge................................. 37
Transfer Charge........................................... 37
Mortality and Expense Risk Charge......................... 37
Other Charges............................................. 38
The Guaranteed Account...................................... 39
Minimum Guaranteed and Current Interest Rates............. 39
Transfers from Guaranteed Account......................... 40
Other Policy Provisions..................................... 41
Benefit Payable on Final Policy Date...................... 41
Payment of Policy Benefits................................ 41
The Policy Application.................................... 41
Ownership................................................. 41
Beneficiary............................................... 42
Change of Owner and Beneficiary........................... 42
Split Dollar Arrangements................................. 42
Assignments............................................... 42
Misstatement of Age and Sex............................... 43
Suicide................................................... 43
Contestability............................................ 43
Settlement Options........................................ 43
Supplementary Benefits.................................... 43
Federal Income Tax Considerations........................... 45
Introduction.............................................. 45
Tax Status of the Policy.................................. 45
Tax Treatment of Policy Benefits.......................... 46
Possible Tax Law Changes.................................. 48
Special Rules for Pension and Profit-Sharing Plans........ 48
Possible Charge for PLACA's Taxes......................... 48
Policies Issued in Conjunction with Employee Benefit
Plans..................................................... 49
Legal Developments Regarding Unisex Actuarial Tables........ 49
Voting Rights............................................... 49
Changes to the Variable Account and the Funds............... 51
Changes to Variable Account Operations.................... 51
Changes to Available Portfolios........................... 51
Termination of Participation Agreements................... 51
Officers and Directors of PLACA............................. 53
Distribution of Policies.................................... 53
Policy Reports.............................................. 54
Preparing for Year 2000..................................... 54
State Regulation............................................ 55
Legal Proceedings........................................... 55
Experts..................................................... 55
Legal Matters............................................... 55
Definitions................................................. 56
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>
<PAGE> 6
SUMMARY OF THE POLICY
The following summary of the Policy provisions should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policy in this
prospectus assumes that the Insured is alive, the Policy is in force and there
is no outstanding loan.
THE POLICY
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 is similar in many ways to a
fixed-benefit life insurance policy. As with a fixed-benefit life insurance
policy, the Owner of a Policy makes premium payments in return for insurance
coverage on the person insured. Also, like many fixed-benefit life insurance
policies, the Policy provides for accumulation of Net Premiums and a Net Cash
Surrender Value which is payable if the Policy is surrendered during the
Insured's lifetime. As with many fixed-benefit life insurance policies, the Net
Cash Surrender Value during the early Policy Years is likely to be substantially
lower than the aggregate premium payments made.
However, the Policy differs from a fixed-benefit life insurance policy in
several important respects. Unlike a fixed-benefit life insurance policy, under
the Policy, the Death Benefit may and the Policy Account Value will increase or
decrease to reflect the investment performance of any Subaccounts to which
Policy Account Value is allocated. Also, unless the entire Policy Account Value
is allocated to the Fixed Account, there is no guaranteed minimum Net Cash
Surrender Value. If Net Cash Surrender Value is insufficient to pay charges due,
then, after a grace period, the Policy will Lapse without value. (See "Policy
Duration".) However, PLACA guarantees that the Policy will remain in force
during the first five Policy Years as long as certain requirements related to
the Minimum Guarantee Premium have been met. (See "Policy Lapse.") If a Policy
Lapses while loans are outstanding, certain amounts may become subject to income
tax and a 10% penalty tax. (See "Federal Income Tax Considerations.")
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 most important features of the Policy, such as charges and deductions,
Death Benefits, and calculation of Policy values, are summarized on the
following pages.
PURPOSE OF THE POLICY
The Policy is designed to provide lifetime insurance benefits and long-term
investment of Policy Account Value. A prospective Owner should evaluate the
Policy in conjunction with other insurance coverage that he or she may have, as
well as their need for insurance and the Policy's long-term investment
potential. It may not be advantageous to replace existing insurance coverage
with the Policy. In particular, replacement should be carefully considered if
the decision to replace existing coverage is based solely on a comparison of
Policy illustrations.
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 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 Death Benefit equal to the greater of (a) the Face Amount and (b) the
applicable percentage of the Policy Account Value. Death Benefit Option B
provides a Death Benefit equal to 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".)
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<PAGE> 7
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 "Death Benefit" and "Ability
to Adjust Face Amount".) 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 twelve-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
"Monthly Deductions".)
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 of 1986 (the "Code") for life insurance, PLACA will
not effect the decrease.
An Additional Insurance Benefit Rider ("AIB rider") is available with the
Policy. Changes in the AIB rider coverage amount may have the same affect on
charges and maximum premium limitations.
POLICY ACCOUNT VALUE
The Policy Account Value in the Subaccounts reflects the investment
performance of those Subaccounts, any Net Premiums allocated to those
Subaccounts, any transfers to or from those Subaccounts, any partial withdrawals
from those Subaccounts, 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.
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".)
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".)
ALLOCATION OF NET PREMIUMS
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 in the application or by subsequent written notice. The Owner bears
the entire risk of Policy Account Value in the Subaccounts.
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; The Dreyfus Socially Responsible
Growth Fund; OCC Accumulation Trust; Scudder Variable Life Investment Fund; 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.
4
<PAGE> 8
Where state law requires a return of premiums paid when a Policy is
returned under the Free-Look provision any portion of 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, Policy Account Value in the Money
Market Subaccount is allocated to each of the chosen Subaccounts as indicated in
the application. (See "Payment and Allocation of Premiums".)
TRANSFERS
The Owner may transfer Policy Account Value between and among the
Subaccounts and Guaranteed Account. Transfers between and among the Subaccounts
or into the Guaranteed Account are made as of the date PLACA receives 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. (See "Transfers of Policy Account
Value".)
FREE-LOOK
The Policy provides for an initial Free-Look period. The Owner may cancel
the Policy before the later of: (a) 45 days after Part I of the Application for
the Policy is signed, and (b) 10 days after the Owner receives the Policy. 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; (ii) the amount deducted for premium taxes; (iii) any Monthly Deductions
charged against the Policy Account Value; and (iv) an amount reflecting other
charges directly or indirectly deducted under the Policy. Where state law
requires, the refund will instead equal the premiums paid. (See "Free-Look
Privileges".)
A Free-Look privilege also applies after a requested increase in Face
Amount. (See "Free-Look For Increase in Face Amount".)
CHARGES ASSESSED UNDER THE POLICY
Premium Expense Charge. A Premium Charge will be deducted from each
premium payment. This charge consists of:
1. 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;
2. Percent of Premium Charge equal to 1.5% of each premium payment.
PLACA may increase this charge to a maximum of 3% of each premium payment.
(See "Premium Expense Charge".)
Monthly Deductions. On the Policy Date and on each Policy Processing Date
thereafter, the Policy Account Value is 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 and, on the first 12 Policy
Processing Days, the initial Administrative Charge. The monthly Cost of
Insurance Charge is determined by multiplying the Net Amount at Risk by the
applicable cost of insurance rate(s) in the Policy. The Monthly Administrative
Charge is currently $7.50; the maximum permissible Monthly Administrative Charge
is $12. (See "Monthly Administrative Charge".) The Initial Administrative Charge
is $5, deducted on the first 12 Policy Processing Days. (See "Initial
Administrative Charge".)
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
12th 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
12th Policy Year. (See "Surrender Charges".) An Additional Surrender Charge
which consists of an Additional Deferred Sales Charge and an Additional Deferred
Administrative Charge, will be imposed if the Policy is surrendered or lapses at
any time within 12 years after the effective date of an increase in Face Amount.
(See "Surrender
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<PAGE> 9
Charges".) A portion of an Additional Surrender Charge will be deducted if the
related increment of Face Amount is decreased within 12 years after such
increase took effect. (See "Surrender Charges".)
The Deferred Administrative Charge is the charge described below less the
amount of any Deferred Administrative Charge previously paid at the time of a
decrease in Face Amount.
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR(S) OF FACE AMOUNT
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<S> <C>
1-6.......................................... $4.90
7............................................ $4.20
8............................................ $3.50
9............................................ $2.80
</TABLE>
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR(S) OF FACE AMOUNT
- -------------- -----------------
<S> <C>
10......................................... $2.10
11......................................... $1.40
12......................................... $0.70
13+........................................ $ 0
</TABLE>
The Deferred Sales Charge is equal to 35% of all premiums paid to the date
of surrender, lapse or decrease. The Deferred Sales Charge and any Additional
Deferred Sales Charges, however, will not exceed the Maximum Deferred Sales
Charge and Maximum Additional Deferred 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 70% of the Target Premium for
the Initial Face Amount (or 70% of the Target Premium for the increase, as the
case may be). The maximum declines to 60% of the relevant Target Premium during
the seventh year, 50% during the eighth year, 40% during the ninth year, 30%
during the tenth year, 20% during the eleventh year, 10% during the twelfth year
and 0% during years thirteen and later.
Additional Deferred Administrative Charge. An Additional Deferred
Administrative Charge is associated with each increase in Face Amount. The
Charge is the same as that for the initial Face Amount except that the Charge
grades down based on 12-month periods beginning with the effective date of each
increase. The Additional Deferred Administrative Charge paid is the Charge as
described less amount of any such Charge previously paid at the time of a
decrease in Face Amount.
Face Amount Increase Charge. A charge, currently $100 plus $0.50 per
$1,000 Face Amount increase but not greater than $750, 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 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".)
Transfer Charge. For each transfer of Policy Account Value between or
among the Subaccounts and the Guaranteed Account after the twelfth transfer in a
Policy Year, PLACA deducts $25 from the amount transferred to compensate it for
administrative costs in handling such transfers. (See "Transfer Charge".)
Partial Withdrawal Charge. PLACA deducts a $25 charge from Policy Account
Value with each partial withdrawal to compensate it for administrative costs.
(See "Partial Withdrawal Charge".)
Daily Charges Against the Subaccounts. PLACA imposes a daily charge for
its assumption of certain mortality and expense risks in connection with the
Policy at an annual rate which is currently 0.75% of the average daily net
assets of the Separate Account. This charge may be increased in the future but
will not it exceed an annual rate of 0.90%. (See "Mortality and Expense Risk
Charges".)
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.
6
<PAGE> 10
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. PLACA transfers Policy Account Value in an amount equal to the loan to the
Loan Account where it becomes collateral for the loan. The transfer is made
pro-rata from each Subaccount and the Guaranteed Account or as specified by the
Owner when applying for the loan. This collateral in the Loan Account earns
interest at an effective annual rate of at least 4%. (See "Loan Privileges".)
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 including a 10% penalty
tax. (See "Tax Treatment of Policy Benefits".)
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After the first Policy Year, the Owner may, subject to certain
restrictions, withdraw part 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 is 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 or allocated to such Subaccounts as specified by the Owner. If
Death Benefit Option A is in effect, PLACA will reduce the Face Amount by the
amount of the withdrawal. (See "Partial Withdrawal Privilege".)
SURRENDER OF THE POLICY
The Owner may at any time surrender the Policy and receive the entire Net
Cash Surrender Value. (See "Surrender Privilege".)
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".)
TAX TREATMENT
PLACA believes that a Policy issued on a standard premium class basis
generally should meet the definition of a life insurance contract in the Code.
There is insufficient guidance to determine whether or not a Policy issued on an
extra rating (i.e., substandard) basis would satisfy the Code 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
definition of a life insurance contract. Any Owner contemplating the adoption of
such limitations should consult 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".)
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 Policy. In
7
<PAGE> 11
addition, prior to age 59 1/2 any such distributions generally will be subject
to a 10% penalty tax. (For further discussion of Modified Endowment Contracts,
See "Tax Treatment of Policy Benefits".)
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 Endowment Contract are subject to the 10% penalty tax. (See
"Distributions from Policies Not Classified as Modified Endowment Contracts".)
ILLUSTRATIONS
Illustrations of Death Benefits, Policy Account Value and Net Cash
Surrender Value in this prospectus or used in connection with the purchase of a
Policy are based on hypothetical rates of return. These rates are not
guaranteed. They are illustrative only and should not be considered a
representation of past or future performance. Actual rates of return may be
higher or lower than those reflected in Policy illustrations, and therefore,
actual Policy values will be different from those illustrated.
8
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TABLE OF FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
MARKET STREET FUND ANNUAL EXPENSES GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- -------------- --------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
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%
ALL-PRO ALL-PRO ALL-PRO ALL-PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MARKET STREET FUND ANNUAL EXPENSES GROWTH VALUE GROWTH VALUE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
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%
SMALL
ALGER AMERICAN FUND ANNUAL EXPENSES(2) CAPITALIZATION
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
------------------------------- ----
Management Fees (Investment Advisory
Fees)............................ 0.85%
Other Expenses..................... 0.04%
----
Total Fund Annual Expenses......... 0.89%
VARIABLE INSURANCE PRODUCTS FUND ("VIP HIGH EQUITY-
FUND") ANNUAL EXPENSES(2) INCOME INCOME GROWTH OVERSEAS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
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%
THE DREYFUS SOCIALLY RESPONSIBLE FUND SOCIALLY
("DREYFUS") ANNUAL EXPENSES(2) RESPONSIBLE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
------------------------------- ----
Management Fees (Investment Advisory
Fees)............................ 0.75%
Other Expenses..................... 0.07%
----
Total Fund Annual Expenses......... 0.82%
</TABLE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST ("OCC")
ANNUAL EXPENSES(2) EQUITY MANAGED
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO
- --------------------------------------- -------------- ---------
<S> <C> <C>
Management Fees (Investment Advisory
Fees)............................ 0.80% 0.80%
Other Expenses..................... 0.19% 0.07%
---- ----
Total Fund Annual Expenses......... 0.99% 0.87%
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
SCUDDER VARIABLE LIFE INVESTMENT FUND GROWTH
("SCUDDER") ANNUAL EXPENSES(2) AND INCOME
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
- --------------------------------------- --------------
<S> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ 0.47%
Other Expenses..................... 0.11%
----
Total Fund Annual Expenses......... 0.58%
VARIABLE INSURANCE PRODUCTS FUND II ASSET GRADE
("VIP II FUND") ANNUAL EXPENSES(2) MANAGER BOND CONTRAFUND
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.55% 0.28% 0.59%
Other Expenses (after reimburse-
ment)(1)......................... 0.09% 0.00% 0.09%
---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 0.64% 0.28% 0.68%
LIMITED
NEUBERGER & BERMAN ADVISERS MATURITY
MANAGEMENT TRUST ANNUAL EXPENSES(2) BOND PARTNERS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO
------------------------------- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.65% 0.80%
Other Expenses..................... 0.12% 0.06%
---- ----
Total Fund Annual Expenses......... 0.77% 0.86%
WORLDWIDE WORLDWIDE WORLDWIDE
VAN ECK WORLDWIDE INSURANCE WORLDWIDE HARD EMERGING REAL
TRUST ANNUAL EXPENSES(2) BOND ASSETS MARKET ESTATE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ 1.00% 1.00% 1.00% 1.00%
Other Expenses (after reimburse-
ment)(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 Neuberger & Berman Advisers Management Trust, the Alger American
Fund, the Dreyfus Socially Responsible Growth Fund, the OCC Accumulation
Trust, the Scudder Variable Life Investment Fund, the VIP Fund, the VIP II
Fund, and the Van Eck WIT Fund are not affiliated with PLACA.
10
<PAGE> 14
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 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, PLACA and PMLIC entered into a Support Agreement whereby
PMLIC agrees to maintain PLACA's total adjusted capital at the level of 200% of
the "company action level" for risk-based capital at the end of each calendar
quarter during the term of the agreement. Under the Support Agreement, PMLIC
also agrees to maintain PLACA's 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 PLACA. 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 Policies. 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 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 Policies and other variable life
insurance policies. PLACA has registered the Variable Account 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 Policy Account value allocated to the
Variable Account under the Policies). 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 accrued
charges for mortality and expense risks and investment results applicable to
those assets that are in excess of the net assets supporting the Policies. The
Variable Account currently has twenty-eight Subaccounts, each corresponding to
an investment portfolio (a "Portfolio") of one of the mutual fund companies
listed below.
THE FUNDS
The Portfolios are each part of one of nine series-type mutual fund
companies (each, a "Fund"): Market Street Fund, Inc.; Neuberger & Berman
Advisers Management Trust; The Alger American Fund; The Dreyfus Socially
Responsible Growth Fund; OCC Accumulation Trust; Scudder Variable Life
Investment
11
<PAGE> 15
Fund; Van Eck Investment Trust; Variable Insurance Products Fund; and Variable
Insurance Products Fund II. Each of the Funds are registered with the SEC under
the 1940 Act as an open-end management investment company. The SEC does not,
however, supervise the management or the investment practices and policies of
the Funds or their Portfolios. The assets of each Portfolio are separate from
the assets of other portfolios of that Fund and each Portfolio has separate
investment objectives and policies. Some of the Funds may, in the future, create
additional Portfolios. The investment experience of each Subaccount depends on
the investment performance of its corresponding 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.
MARKET STREET FUND, INC.
The Variable Account has ten Subaccounts that invest exclusively in shares
of Market Street Fund, Inc., ("MS Fund") The investment objectives of MS Fund's
Portfolios are set forth below.
The Growth Portfolio. This portfolio seeks intermediate and long-term
growth of capital by investing in common stocks of companies believed to offer
above-average growth potential over both the intermediate and the long-term.
Current income is a secondary consideration.
The Money Market Portfolio. The Money Market Portfolio seeks to provide
maximum current income consistent with capital preservation and liquidity by
investing in high-quality money market instruments.
The Bond Portfolio. The Bond Portfolio seeks to generate a high level of
current income consistent with prudent investment risk by investing in a
diversified portfolio of marketable debt securities.
The Managed Portfolio. The Managed Portfolio seeks to realize as high a
level of long-term 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.
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.
12
<PAGE> 16
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, MS 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 subadvisory 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 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
13
<PAGE> 17
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, MS 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 complete description of MS Fund, including the investment
objectives, policies and risks of each Portfolio, is contained in the prospectus
for the Fund, which accompanies 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 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 complete description of Alger American and the Alger American Small
Capitalization Portfolio, including the Portfolio's investment objectives,
policies and risks, is contained in the prospectus for Alger American which
accompanies this Prospectus.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Subaccount invests in shares of the
Dreyfus Socially Responsible Growth Fund, Inc. (the "Dreyfus Fund"). The Dreyfus
Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies offered by the separate accounts of various
life insurance companies. The Dreyfus Fund investment objective is as follows:
Socially Responsible Portfolio. This Portfolio seeks to provide capital
growth primarily through equity investments in companies that, in the opinion of
the Portfolio's management, not only meet traditional investment standards but
which also show evidence that they conduct their business in a manner that
contributes to the quality of life in America, current income is a secondary
goal.
The Dreyfus Corporation ("Dreyfus") serves as investment adviser to the
Dreyfus Fund. Dreyfus supervises and assists in the overall management of each
Dreyfus Fund's affairs subject to the overall authority of the Fund Boards. NCM
Capital Management Group, Inc. serves as sub-investment adviser of the Dreyfus
Socially Responsible Growth Fund, Inc. and provides day-to-day management of the
Fund's portfolio.
14
<PAGE> 18
OCC ACCUMULATION TRUST
The OCC Equity Subaccount and the OCC Managed Subaccount will invest only
in shares of their corresponding portfolios of the OCC Accumulation Trust ("OCC
Trust"). Shares of the OCC Trust are sold only to separate accounts of life
insurance companies established to fund variable life contracts.
The OCC Trust currently has seven Portfolios, two of which are available
for investment under the Policies. The investment objectives of the Portfolios
available with the variable life Policies issued by PLACA are described below.
Equity Portfolio. Long term capital appreciation through investment in a
diversified portfolio of primarily equity securities selected on the basis of a
value-oriented approach to investing.
Managed Portfolio. Growth of capital over time through investment in a
portfolio consisting of common stocks, bonds, and cash equivalents, the
percentages of which will vary over time based on the investment manager's
assessments of relative investment values.
The OCC Trust receives investment advice with respect to each of its
Portfolios from OpCap Advisors, a subsidiary of Oppenheimer Capital which is a
subsidiary of PIMCO Advisors L.P. and which is registered as an investment
adviser under the Investment Advisers Act of 1940.
THE SCUDDER VARIABLE LIFE INVESTMENT FUND
The Scudder Growth and Income Subaccount will invest in shares of its
corresponding portfolio of the Scudder Variable Life Investment Fund ("Scudder
Fund"). The Scudder Fund is designed to provide an investment vehicle for
variable annuity contracts and variable life insurance policies. Therefore,
shares of the Scudder Fund are sold only to insurance company separate accounts
including the PLACA Variable Life Separate Account.
The Scudder Fund currently consists of seven Portfolios. Only the Growth
and Income Portfolio is available under the variable life Policies offered by
PLACA. Its investment objective is as follows:
Growth and Income Portfolio. This Portfolio seeks long-term growth of
capital, current income and growth of income. It primarily invests in common
stocks, preferred stocks and securities convertible into common stocks.
Scudder Kemper Investments, Inc., an investment adviser registered with the
SEC under the Investment Advisers Act of 1940, as amended, manages daily
investments and business affairs of the Scudder Fund, subject to policies
established by the Trustees of the Scudder Fund.
VARIABLE INSURANCE PRODUCTS 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 investment
objectives of the Portfolios of the VIP Fund and the VIP II Fund in which the
Subaccounts will invest are set forth below.
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.
15
<PAGE> 19
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.
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.
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, and
VIP II Index 500 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 Portfolio, 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 Portfolio fee rate of 0.45%.
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
16
<PAGE> 20
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.
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.
17
<PAGE> 21
A more complete description of the VIP Fund and the VIP II Fund, including
the investment of objectives, policies and risks of its Portfolios, is contained
in the prospectuses for the VIP Fund and VIP II Fund which accompany this
Prospectus.
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").
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 and Series.
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 complete description of AMT, including the investment objectives,
policies and risks of the available Portfolios, 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 investment
objectives of the Portfolios of Van Eck Trust are set forth below.
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.
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<PAGE> 22
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 complete description of Van Eck Trust, including the investment
objectives, policies and risks of the available Portfolios, is contained in the
Prospectus for the Trust which accompanies this Prospectus.
ADDITIONAL INFORMATION ABOUT THE FUNDS AND PORTFOLIOS
NO ONE CAN ASSURE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVES AND
POLICIES.
More detailed information concerning the investment objectives, policies
and restrictions of the Portfolios, the expenses of the Portfolios, the risks
attendant to investing in the Portfolios and other aspects of the Funds'
operations can be found in the current prospectus for each Fund that accompanies
this Prospectus and the current statement of additional information for each
Fund. The Funds' prospectuses should be read carefully before any decision is
made concerning the allocation of Net Premium Payments or transfers among the
Subaccounts.
Not all of the Portfolios described in the prospectuses for the Funds are
available with the Policy. Moreover, PLACA cannot guarantee that each Portfolio
will always be available for the Policies, but in the event that a Portfolio is
not available, PLACA will take reasonable steps to secure the availability of a
comparable portfolio. Shares of each Fund are purchased and redeemed at net
asset value, without a sales charge.
PLACA has entered into agreements with the investment advisers of several
of the Funds pursuant to which each such investment adviser will pay PLACA a
servicing fee based upon an annual percentage of the average aggregate net
assets invested by PLACA on behalf of the Variable Account. These agreements
reflect administrative services provided to the Funds by PLACA. Payments of such
amounts by an adviser will not increase the fees paid by the Portfolios or their
shareholders.
Shares of the Funds are sold to separate accounts of insurance companies
that are not affiliated with PLACA or each other, a practice known as "shared
funding." They are also sold to separate accounts to serve as the underlying
investment for both variable annuity contracts and variable life insurance
policies, a practice known as "mixed funding." As a result, there is a
possibility that a material conflict may arise between the interests of Owners,
whose Policy Account Values are allocated to the Variable Account, and of owners
of other contracts or policies whose values are allocated to one or more other
separate accounts investing in any one of the Portfolios. Shares of some of the
Funds may also be sold to certain pension and retirement plans qualifying under
Section 401 of the Code. As a result, there is a possibility that a material
conflict may arise between the interests of Owners or owners of other policies
or contracts (including policies issued by other companies), and such retirement
plans or participants in such retirement plans. In the event of any such
material conflicts, PLACA will consider what action may be appropriate,
including removing the Portfolio from the Variable Account or replacing the
Portfolio with another Portfolio. There are certain risks associated with mixed
and shared funding and with the sale of shares to qualified pension and
retirement plans, as disclosed in each Fund's prospectus.
19
<PAGE> 23
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 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.
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."
Under either Option, the duration of the Death Benefit coverage depends upon the
Policy's Net Cash Surrender Value. (See "Policy Duration.")
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.)
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<PAGE> 24
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 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 or 12 months
after a Face Amount increase, at any time while the Policy is in force, the
Owner may change the Death Benefit Option in effect 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 and any applicable rider coverage amounts, respectively, 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 or applicable rider coverage amount
to less than the Minimum Face Amount or minimum amount in which the applicable
rider could be issued.
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
21
<PAGE> 25
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.")
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 Benefits.") 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.") In addition, different cost of insurance rates may apply to
the increase in insurance coverage. (See "Monthly Deductions.")
After increasing the Face Amount, the Owner will have the right: (a) during
the Free-Look Period following the effective date of the increase, to have the
increase canceled and receive a credit or refund equal to the cost of insurance
charge and the increase charge deducted for the increase; and (b) 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
"Transfers of Policy Account Value.")
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
22
<PAGE> 26
surrender charge as of the Policy Processing Day on which the decrease becomes
effective. (See "Surrender Charges.")
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 by making a partial withdrawal of Net Cash
Surrender Value. The consequences of each are summarized below.
A decrease in Face Amount will 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.
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 (a) if the Owner increases the
premium payments from the current level, the amount of insurance protection will
generally be reduced, and (b) 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 (a) if the Owner increases premium
payments from the current level, the amount of insurance protection will
increase and (b) if the Owner reduces the premium payments from the current
level, the amount of insurance protection will be lower.
AIB Rider. An Owner may also obtain additional insurance protection by
purchasing an AIB rider. An AIB rider increases the Insurance Proceeds under the
Policy by the death benefit of the AIB rider. The death benefit under the AIB
rider is: (a) if Death Benefit Option A under the Policy is in effect, the
Policy's Face Amount plus the rider coverage amount less the Policy's Death
Benefit, or (b) if Death Benefit Option B under the Policy is in effect, the
Policy's Face Amount plus the rider coverage amount plus the Policy Account
Value less the Policy's Death Benefit.
An AIB rider may be canceled separately from the Policy (i.e., it can be
canceled without causing the Policy to be canceled or to lapse). The cost of
insurance charge for the AIB rider is deducted from the Policy Account Value as
part of the monthly deduction. (See "Monthly Deductions".) No additional
Surrender or Premium Expense Charge is assessed in connection with an AIB rider.
Owners may increase or decrease the coverage amount of an AIB rider
separately from the Face Amount of a Policy. Likewise, the Face Amount of a
Policy may be increased or decreased without affecting the coverage amount of an
AIB rider. Since no Surrender Charge is assessed in connection with a decrease
in the coverage amount of an AIB rider, such a decrease may be less expensive
than a decrease of the same size in the Face Amount of the Policy if the Face
Amount decrease would be subject to a Surrender Charge.
23
<PAGE> 27
However, continuing coverage on such an increment of Policy Face Amount may have
a cost of insurance charge that is higher than the same increment of coverage
amount under the AIB rider. Owners who have an AIB rider should consult their
sales representative before deciding whether to decrease Policy Face Amount or
AIB rider coverage amount.
For the purpose of maintaining compliance with the maximum premium
limitations under the Code, insurance coverage provided by an AIB rider is
treated as part of the Face Amount of a Policy (see "Tax Considerations").
Owners should consult their sales representative when deciding whether to
purchase an AIB rider.
A partial withdrawal of Net Cash Surrender Value will reduce the Death
Benefit. If Death Benefit Option A is in effect, the withdrawal will first
decrease the Policy's Face Amount, and then the coverage amount of any AIB rider
by the amount withdrawn plus the partial withdrawal expense charge. It will not
reduce the amount of insurance protection unless the Death Benefit is based on
the applicable percentage of Policy Account Value. In this event, however, the
decrease in the Death Benefit will be greater than the amount of a withdrawal.
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 85 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.")
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.
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. 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.
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<PAGE> 28
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 are considered
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 and frequency of premium payments. However,
payment of the Planned Periodic Premiums does not 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 and if a Grace Period expires
without an adequate payment by the Owner.
Premium Limitations. The Code provides for exclusion of the Death Benefit
from a Beneficiary's 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. If total premiums do exceed the maximum premium
limitations established by the Code, however, the excess of a Policy's Death
Benefit over the Policy's Cash Surrender Value should still be excludable from
gross income.
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.") PLACA reserves the right to require satisfactory
evidence of insurability before accepting a premium payment that would increase
the Net Amount At Risk.
Allocation of Net Premiums. The Owner indicates in the application 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 allocates 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 any 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 Subaccounts are allocated to the Money Market Subaccount. At
the end of the 15-day period, Policy Account Value in the Money Market
Subaccount is allocated amount the Subaccounts based on the proportion that the
allocation percentage for such Subaccount bears to the sum of the Subaccount
premium allocation percentages. All other Net Premiums are 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.
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SPECIAL POLICY ACCOUNT VALUE CREDIT
On each Policy Processing Day after the Policy has been in force for at
least 15 years or when the Policy Account Value less the value in the Loan
Account equals or exceeds $100,000, an additional credit is added to the Policy
Account Value in the Subaccounts. The credit is a result of a reduction in the
mortality and expense risk charge and is equal to 0.03% multiplied by the Policy
Account Value in the Subaccounts.
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 the Cash Surrender
Value.
The Policy Account Value and Cash Surrender Value will reflect the
investment performance of the chosen Subaccounts, the crediting of interest for
the Guaranteed Account and the Loan Account, any Net Premiums paid, the Special
Policy Account Value Credit, 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 equals the Net
Premiums received less any Monthly Deductions on the Policy Date. On each
Valuation Day after the Policy Date, the Policy Account Value is:
1. Policy Account Value in each Subaccount, determined by multiplying
the number of units of the Subaccount by the Subaccount's Unit Value on
that date;
2. Policy Account Value in the Guaranteed Account; plus
3. Policy Account Value in the Loan Account.
Determination of Number of Units for the Subaccounts. Allocated Net
Premiums, the Special Policy Account Value Credit or Policy Account Value
transferred to a Subaccount are used to purchase units of that Subaccount; units
are redeemed when amounts are deducted, transferred or withdrawn. The number of
units of 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. The Net Investment Factor for each Subaccount
measures the investment performance of a Subaccount. The factor increases to
reflect investment income and capital gains, realized and unrealized, for the
shares of the underlying Portfolio. The factor decreases to reflect any capital
losses, realized or unrealized, for the shares of the underlying Portfolio as
well as the asset charge for mortality and expense risks.
POLICY DURATION
Policy Lapse. 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
other 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 five Policy Years the Policy
will not lapse if the Minimum Guarantee Premium has been paid. A Guaranteed
Minimum Death Benefit rider may be purchased with the Policy that guarantees the
Policy will not lapse if certain conditions are met. (See "Supplementary
Benefits.")
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The Policy provides for a 61-day Grace Period that is measured from the
date on which notice is sent by PLACA indicating that the Grace Period has
begun. Thus, the Policy does not lapse, and the insurance coverage continues,
until the expiration of this Grace Period. 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.
Reinstatement. A Policy that lapses 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 date that the reinstatement application is approved. Upon
reinstatement, the Policy Account Value is based upon the premium paid to
reinstate the Policy. A reinstated Policy has the same Policy Date as it had
prior to the lapse.
TRANSFERS OF POLICY ACCOUNT VALUE
Transfers. The Owner may transfer the Policy Account Value between and
among the Subaccounts and the Guaranteed Account by making a written transfer
request to PLACA. The amount transferred must be at least $1,000, unless the
total value in an account is less than $1,000, in which case the entire amount
may be transferred.
After 12 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 single written request are treated as one transfer.
Transfers are 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, are not subject to a transfer
charge and do not count as one of the 12 "free" transfers in any Policy Year.
Under present law, transfers are not taxable transactions.
Special Transfer Right. During the first two years following the Issue
Date, the Owner may, on one occasion, transfer the entire Policy Account Value
in the Subaccounts to the Guaranteed Account without a transfer charge and
without such transfer counting toward the twelve transfers permitted without
charge during a Policy Year.
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.") 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 a transfer charge and without having such
transfer count toward the twelve transfers permitted without charge during a
Policy Year.
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
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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 Account Values
between 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 be made in the 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 quarterly or
annually. Rebalancing terminates 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, for any reason.
Dollar-Cost Averaging. Dollar Cost Averaging is a program which, if
elected, enables the Owner to systematically and automatically transfer, on a
monthly basis, specified dollar amounts from any selected Subaccount to any
other Subaccounts or the 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, 18, 24, 30 or
36 months. To qualify for Dollar Cost Averaging, the following minimum amount of
Policy Account Value must be allocated to a Subaccount: 6 months -- $3,000; 12
months -- $6,000; 18 months -- $9,000; 24 months -- $12,000; 30 months --
$15,000; 36 months -- $18,000. At least $500 must be transferred from the
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 (See
"Transfers from Guaranteed Account."). Each monthly transfer is 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.
Dollar-Cost Averaging may be elected in the application or by completing an
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 Dollar-Cost Averaging transfers have commenced, they occur monthly on
the Policy Processing Day until the specified number of transfers has been
completed, or (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 Dollar-Cost
Averaging transfers at any time.
Transfers made under the Dollar Cost Averaging program do not count toward
the twelve 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 confirming each transfer and when the Dollar Cost Averaging program is
terminated. The Owner and agent are responsible for reviewing the confirmation
to verify that the transfers are being made as requested.
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, and (b) 10 days after the Owner
receives the Policy. 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; (ii) any Premium Expense
Charges deducted from
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premiums paid; (iii) any Monthly Deductions charged against the accounts; and
(iv) any Mortality and Expense Risk charges deducted from the value of the net
assets of the Subaccounts attributable to the Policy. A refund of all premiums
paid is made for Policy's delivered in states that require such a refund.
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, and (b) 10 days after the Owner receives
the new Policy Schedule pages reflecting the increase. Upon requesting
cancellation of the increase, an amount equal to all cost of insurance charges
attributable to the increase plus the Face Amount Increase Charge will be
reallocated to the accounts in the same proportion as they were deducted, unless
the Owner requests a refund of such amount.
LOAN PRIVILEGES
General. The Owner may at any time after the Issue Date borrow money from
PLACA using the Policy Account Value as the 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. Interest is charged on Policy loans at an effective
annual rate of 6%. Interest is due at the end of each Policy Year. If interest
is not paid when due, it is added to the loan balance and bear interest at the
same rate. Unpaid interest is allocated based on the Owner's written
instructions. If there are no written instructions or the Policy Account Value
in the specified Subaccounts is insufficient to allow the collateral for the
unpaid interest to be transferred, the interest is 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 or
to the Subaccounts based on the percentages you specify at the time the loan is
made.
The collateral for a Policy loan is the loan amount plus accrued interest
to the next Policy Anniversary, less interest at an effective annual rate of 4%
which is earned to such Policy Anniversary. PLACA will deduct the collateral for
the loan from each account based on the allocation described in the preceding
paragraph and transfer this amount to the Loan Account. The collateral is
recalculated: (a) when loan interest is repaid or added to 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 credits the amount in the Loan Account with interest at effective annual
rates it determines, but not less than 4% or such higher minimum rate required
under state law. The rate will apply to the calendar year which follows the date
of determination. Loan interest credited is transferred to the Subaccounts or
the Guaranteed Account: (a) when loan interest is paid added to the loaned
amount; (b) when a loan repayment is made; and (c) 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 60, 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
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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 is a loan repayment, unless it receives written instructions
that the payment is a premium payment. Repayments up to the amount of the
outstanding loan is 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. (See "Policy Duration.")
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.") 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.")
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 determined by PLACA as of the date it
receives, at its Service Center, 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 adverse federal
income tax consequences. (See "Tax Treatment of Policy Benefits.")
PARTIAL WITHDRAWAL PRIVILEGE
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 surrender charges.
The withdrawn amount and withdrawal charge will be allocated based on the
proportion that the Policy Account Value in the Subaccounts and the Guaranteed
Account Value bear to the total unloaned Policy Account Value, or are allocated
to such Subaccounts as the Owner specifies at the time of the withdrawal.
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.")
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.
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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.
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. If an AIB
rider is purchased, partial withdrawals decrease the Policy's Face Amount
and then the coverage amount of the AIB rider.
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 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.
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.") 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.
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A partial withdrawal of Net Cash Surrender Value may have Federal income
tax consequences. (See "Tax Treatment of Policy Benefits.")
ACCELERATED DEATH BENEFIT
Applicants residing in states that have approved the Accelerated Death
Benefit rider (the "ADB rider") may elect to add it to their Policy at issue,
subject to PLACA receiving satisfactory additional evidence of insurability. The
ADB rider 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 ADB rider
will be approved in all states or that it will be approved under the terms
described herein.
The ADB rider 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 ADB rider 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 ADB Rider. The federal income tax consequences
associated with adding the ADB rider or receiving the accelerated death benefit
are uncertain. Accordingly, Owners should consult a tax adviser before adding
the ADB rider to a Policy or requesting an accelerated death benefit.
Amount of the Accelerated Death Benefit. The ADB rider 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 ADB rider 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 ADB rider, to reflect inflation. The term Eligible
Death Benefit under the ADB rider 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 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 ADB
rider) 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
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<PAGE> 36
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 ADB Rider. The ADB rider 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 ADB
rider, interest will accrue daily, at a rate determined as described in the ADB
rider, 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.
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<PAGE> 37
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 Charge. A percent of premium charge not to exceed 3% is
deducted from each premium payment to partially compensate PLACA for the cost of
selling the Policy. Currently, PLACA deducts 1.5% percent from each premium
payment.
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 12th Policy Year. A portion of this Surrender
Charge will be deducted if the Owner decreases the Initial Face Amount before
the end of the 12th Policy Year. An Additional Surrender Charge, which is an
Additional Deferred Administrative Charge and an Additional Deferred Sales
Charge, is imposed if the Policy is surrendered or lapses at any time within 12
years after the effective date of an increase in Face Amount. A portion of an
Additional Surrender Charge also is deducted if the related increment of Face
Amount is decreased within 12 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.
Deferred Administrative Charge. The Deferred Administrative Charge is as
follows:
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR OF FACE AMOUNT
- ----------- -----------------
<S> <C>
1-6.................................. $4.90
7.................................... 4.20
8.................................... 3.50
9.................................... 2.80
10................................... 2.10
11................................... 1.40
12................................... 0.70
13................................... 0
</TABLE>
The actual Deferred Administrative Charge is the charge described above
less the amount of any Deferred Administrative Charge previously paid at the
time of a decrease in Face Amount.
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<PAGE> 38
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 70% of the Target Premium for the Initial Face
Amount. It equals 60% of that premium during Policy Year 7, 50% during Policy
Year 8, 40% during Policy Year 9, 30% during Policy Year 10, 20% during Policy
Year 11, 10% during Policy year 12, and 0% during Policy Years 13 and later. The
Deferred Sales Charge actually imposed will equal the lesser of this maximum and
an amount equal to 35% of all premiums actually paid to the date of surrender or
lapse, less any Deferred Sales Charge previously paid at the time of a prior
decrease in Face Amount.
Additional Deferred Administrative Charge. An Additional Deferred
Administrative Charge is associated with each increase in Face Amount. The
Charge is the same as that for the initial Face Amount except that the Charge
grades down based on 12-month periods beginning with the effective date of each
increase. The Additional Deferred Administrative Charge paid is the Charge as
described less amount of any such Charge previously paid at the time of a
decrease in Face Amount.
Additional Deferred Sales Charge. An Additional Deferred 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 70% of the Target Premium for that increase. This maximum
remains level for six years following the effective date of an increase. It
equals 60% of that premium during the seventh year, and declines in the same
manner as the Deferred Sales Charge such that it is 10% during Policy Year 12
and to 0% by the beginning of the 13th year after the effective date of the
increase. The Additional Deferred Sales Charge actually deducted is the lesser
of this maximum and 35% of premiums received for that increase, less any
Additional Deferred Sales Charge for such increase previously paid at the time
of a decrease in Face Amount.
Allocation of Policy Account Value and Subsequent Premium Payments. A
special method is used to allocate a portion of the existing Policy Account
Value to an increase in Face Amount 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 Guideline Annual Premium for the
Initial Face Amount and the 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 that there is more than one increase in Face Amount,
Guideline Annual Premiums for each increment of Face Amount are used to allocate
Policy Account Values and subsequent premium payments among the various
increments of Face Amounts.
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.
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<PAGE> 39
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, (c) initial administrative charges, and (d) 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
is 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 makes the deduction 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.
The cost of insurance charge is determined in a similar manner for the
coverage amount under an AIB rider and for any increase in the coverage amount
under an AIB rider. Generally, the current cost of insurance rates for an AIB
rider are lower than the current cost of insurance rates on the Face Amount of
the Policy. The guaranteed cost of insurance rates under an AIB rider are
substantially the same as the guaranteed cost of insurance rates on the Face
Amount of the Policy.
Cost of Insurance Rate. The cost of insurance rate is based on the
Attained Age, Sex, Premium Class of the Insured and Duration. The actual monthly
cost on insurance rates will be based on 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
(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
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<PAGE> 40
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.
Initial Administrative Charge. An Initial Administrative Charge of $5 is
deducted from Policy Account Value on the Policy Date and on each of the next
eleven Policy Processing Days.
Monthly Administrative Charges. A Monthly Administrative Charge (presently
$7.50) is 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 $0.50 per $1,000 Face Amount increase, but not greater than
$750.00, 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 12 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 12 free transfers in any Policy Year.
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
0.75% (or a daily rate of .002055%) 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
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<PAGE> 41
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. (See "Special Policy Account Value Credit")
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.
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<PAGE> 42
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 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.
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<PAGE> 43
Surrenders and partial withdrawals from the Guaranteed Account may be
delayed for up to six months. (See "Payment of Policy Benefits.")
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.
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<PAGE> 44
OTHER POLICY PROVISIONS
BENEFIT 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 canceled.
THE POLICY
The Policy and the application(s) 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
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<PAGE> 45
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 OR 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.")
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
Policy 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.
PROTECTION OF PROCEEDS
Beneficiaries generally may not pledge or otherwise encumber or alienate
payments under this Policy before they are due.
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.
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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.
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.
CONTESTABILITY
PLACA has the right to contest the validity of a Policy based on material
misstatements made in the application for the Policy or a change. However, PLACA
will not contest the Policy (or any change) after it (or the change) has been in
force during the Insured's lifetime for two years.
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 installments
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 installments set forth in the election. Payments may be increased by
additional interest which would increase the installments certain. The
guaranteed interest rate is 3% per year.
Life Income Option. Payable in equal monthly installments 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 installments,
with a number of installments 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
In addition to the ADB rider, the following riders offer other
supplementary benefits. Most are subject to various age and underwriting
requirements and, unless otherwise indicated, must be purchased when the Policy
is issued. The cost of each rider is included in the monthly deduction.
Additional Insurance Benefit ("AIB"). This rider provides an additional
death benefit payable on the death of the covered insured without increasing the
Policy's Face Amount. The AIB rider may be purchased
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at any time. An AIB rider may be terminated separately from the Policy (i.e., it
can be canceled without causing the Policy to be canceled or to lapse). There is
no cash or loan value associated with this rider.
Disability Waiver Benefit. A Disability Waiver Benefit rider provides 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 five 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 five Policy Years.
Disability Waiver of Premium Benefit. A Policy may include the Disability
Waiver of Premium Benefit rider that provides 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 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
Owner. 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.
An Owner cannot elect this rider and another disability waiver benefit rider
with the same Policy.
Change of Insured. A Change of Insured rider permits the Owner to change
the Insured, subject to certain conditions and evidence of insurability. The
Monthly Deduction for the cost of insurance is adjusted to that for the New
Insured as of the effective date of the change.
Children's Term Rider. A Children's Term Insurance rider provides 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. This rider must be selected at the time of application for
the Policy or an increase in Face Amount.
Convertible Term Life Insurance. A Convertible Term Life Insurance rider
provides additional term insurance on an insured other than the Insured, on whom
the Insured has an insurable interest. 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, the Convertible Term Life Insurance rider will terminate on the
original maturity date.
Guaranteed Minimum Death Benefit. A Guaranteed Minimum Death Benefit rider
provides a guarantee that if the cumulative premiums paid less partial
withdrawals and outstanding loans exceed the cumulative minimum premiums to
date, the Policy will not lapse prior to the end of the Death Benefit Guarantee
Period shown on page 3 of the Policy Schedule. If the rider is added, the
Monthly Deduction will be increased by $0.01 per every $1,000 of Face Amount in
force under the Policy. The rider and the additional Monthly Deduction will
terminate: (1) upon written request; (2) upon surrender or other termination of
the Policy; or (3) at the expiration of the Death Benefit Guarantee Period. The
Guaranteed Minimum Death Benefit rider and the Convertible Term Life Insurance
rider may not be issued on the same Policy.
Final Policy Date Extension. A Final Policy Date Extension 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. 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 Owners 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.
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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 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 as
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
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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.
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
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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 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
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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. 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 charge for state and local 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.
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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 "Monthly Deductions.")
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. 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.")
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 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
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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 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.
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CHANGES TO THE VARIABLE ACCOUNT OR FUNDS
CHANGES TO VARIABLE ACCOUNT OPERATIONS
The voting rights described in this Prospectus are created under applicable
Federal securities laws and regulations. If these laws or regulations change to
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 changed 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 supporting
the Policies from one Subaccount to another or from the Variable Account to
another separate account, (2) to create additional separate accounts, (3) to
create Subaccounts from, or combine or remove Subaccounts from the Variable
Account or other separate accounts, or to combine any two or more Subaccounts,
(4) 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, (5) to deregister the
unit investment trust under the 1940 Act; and (6) to modify the provisions of
the Policies to comply with applicable laws.
CHANGES TO AVAILABLE PORTFOLIOS
It is possible that PLACA may determine that 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 a Portfolio of a Fund not currently available under the
Policies. If required by law, the approval of the SEC and possibly one or more
state insurance departments would be obtained.
Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between it and PLACA. The
termination provisions of those agreements vary. 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 would no longer be able to
allocate Policy Account Value or Net Premium Payments to Subaccounts investing
in Portfolios of that Fund. Additionally, in certain circumstances, it is
possible that 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. In such an event, PLACA will not be able to honor requests
of Owners to allocate their Policy Account Value or Net Premium Payments to
Subaccounts investing in shares of Portfolios of that Fund.
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.
51
<PAGE> 55
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.
52
<PAGE> 56
OFFICERS AND DIRECTORS OF PLACA
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
Robert W. Kloss
Director and President............... 1996 to present -- President and Chief Executive 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.
Director, Secretary and Legal
Officer.............................. 12/97 to present -- Executive Vice President, General
Counsel & Secretary of Provident Mutual Life Insurance
Company; 6/89 to 11/97 -- Chief Legal Officer of
Prudential Banks.
James D. Kestner
Director............................. 11/94 to present -- Vice President of Provident Mutual
Life Insurance Company; 1/78 to 11/94 -- Sr. Vice
President and Treasurer of Covenant Life Insurance
Company.
Sarah C. Lange
Director............................. 1983 to present -- Vice President of Provident Mutual Life
Insurance Company.
J. Kevin McCarthy
Director............................. 1996 to present -- Executive Vice President and Chief
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
Director............................. 1996 to present -- Executive Vice President and Chief
Actuary of PMLIC; 1974 to 1996 -- Vice President and
Individual Actuary of PMLIC.
Joan C. Tucker
Director............................. 1996 to present -- Executive Vice President, Insurance
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 Finell
Director............................. 1996 to present -- Executive Vice President and Chief
Financial Officer of PMLIC; 1986 to 1996 -- Vice President
and Controller of PMLIC; 1976 to 1986 -- Principal of
Arthur Young Company.
Linda M. Springer
Financial Reporting Officer.......... 1996 to present -- Vice President and controller of PMLIC;
1995 to 1996 -- Assistant Vice President and Actuary of
PMLIC; 1992 to 1995 -- Actuary of PMLIC.
Rosanne Gatta
Treasurer............................ 1994 to present -- Vice President and Treasurer of 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 Agree-
53
<PAGE> 57
ments 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 of the Policies (as well as other variable life policies) pursuant
to an Underwriting Agreement to which the Accounts, 1717 and PLACA are parties.
1717 retains 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.
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 91% 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 Year 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 (excluding automatic rebalancing of Policy Account
Value), the taking 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 each Portfolio in which he or she is invested.
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
54
<PAGE> 58
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
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 and PLACA believe that as
of the date of this Prospectus there are no pending or threatened lawsuits that
are reasonably likely to have a material adverse impact on the Separate Account,
PLACA or PMLIC.
EXPERTS
The Financial Statements listed on Page F-1, have been included in this
Prospectus, in reliance on the reports of Pricewaterhousecoopers LLP,
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 LLP, of Washington, D.C. has provided advice
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> 59
DEFINITIONS
ADDITIONAL SURRENDER CHARGE... The separately determined deferred
administrative charge and deferred sales charge
deducted from the Policy Account Value upon
surrender or lapse of the Policy within 12
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 12 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.
EXPENSE CREDIT................ An amount that is added to the Policy value in
the Subaccounts on any Policy processing day
after the Policy has been in force for at least
15 years or when the Policy Account Value
equals or exceeds $100,000.
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.
GUIDELINE ANNUAL PREMIUM...... The "guideline annual premium" as defined in
applicable regulations under the 1940 Act. It
is approximately equal to the amount of premium
that would be required on an annual basis to
keep the Policy in force if the Policy had a
mandatory fixed premium
56
<PAGE> 60
schedule assuming (among other things) a 5% net
investment return.
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.
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 Cash Surrender Value 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
57
<PAGE> 61
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 and
the Percent of Premium Charge.
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 12 Policy Years. A pro-rata
Surrender Charge will be deducted upon a
decrease in the Initial Face Amount during the
first 12 Policy Years. The Maximum Surrender
Charge is shown in the Policy. The Surrender
Charge is determined separately from the
Additional Surrender Charge.
TARGET PREMIUM................ An amount of premium payments, computed
separately for each increment of Face Amount,
used to compute Surrender Charges and
Additional Surrender Charges.
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.
58
<PAGE> 62
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 Subaccounts. 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 or smoker 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 5%,
maximum monthly administrative fee of $12 and a daily charge for mortality and
expense risks equivalent to an annual rate of 0.90% with the additional
Subaccount credit of 0.03% per month after the Policy is in force for 15 years
or the sum of the values in the Subaccount and Guaranteed Account equal or
exceed $100,000; 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 3.5%, current
monthly administrative fee of $7.50 and a daily charge for mortality and expense
risks equivalent to an annual rate of 0.75% with the additional Subaccount
credit of 0.03% per month after the Policy is in force for 15 years or the sum
of the values in the Subaccount and Guaranteed Account equal or exceed $100,000.
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 1.58% and 1.73%, respectively. This total charge is
based on an assumption that an Owner allocates the Policy values equally among
each Subaccount of the Variable Account.
These asset charges reflect an investment advisory fee of 0.67% which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of 0.16% 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.
A-1
<PAGE> 63
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
Contrafund Portfolio 0.71% and Van Eck Worldwide Hard Assets Portfolio
1.18%.
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> 64
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 1,050 358 0 100,000 621 0 100,000
2 2,153 900 0 100,000 1,275 85 100,000
3 3,310 1,417 52 100,000 1,903 538 100,000
4 4,526 1,907 542 100,000 2,501 1,136 100,000
5 5,802 2,368 1,003 100,000 3,070 1,705 100,000
6 7,142 2,800 1,435 100,000 3,606 2,241 100,000
7 8,549 3,199 2,029 100,000 4,117 2,947 100,000
8 10,027 3,565 2,590 100,000 4,600 3,625 100,000
9 11,578 3,897 3,117 100,000 5,056 4,276 100,000
10 13,207 4,191 3,606 100,000 5,481 4,896 100,000
11 14,917 4,446 4,056 100,000 5,878 5,488 100,000
12 16,713 4,657 4,462 100,000 6,239 6,044 100,000
13 18,599 4,817 4,817 100,000 6,564 6,564 100,000
14 20,579 4,922 4,922 100,000 6,848 6,848 100,000
15 22,657 4,964 4,964 100,000 7,086 7,086 100,000
16 24,840 4,956 4,956 100,000 7,419 7,419 100,000
17 27,132 4,871 4,871 100,000 7,718 7,718 100,000
18 29,539 4,706 4,706 100,000 7,984 7,984 100,000
19 32,066 4,454 4,454 100,000 8,217 8,217 100,000
20 34,719 4,103 4,103 100,000 8,414 8,414 100,000
25 50,113 344 344 100,000 8,787 8,787 100,000
30 69,761 0 0 0 7,568 7,568 100,000
</TABLE>
- ---------------
* These values reflect investment results using guaranteed 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> 65
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 1,050 356 0 100,356 620 0 100,620
2 2,153 896 0 100,896 1,271 81 101,271
3 3,310 1,409 44 101,409 1,894 529 101,894
4 4,526 1,892 527 101,892 2,486 1,121 102,486
5 5,802 2,346 981 102,346 3,047 1,682 103,047
6 7,142 2,768 1,403 102,768 3,572 2,207 103,572
7 8,549 3,155 1,985 103,155 4,070 2,900 104,070
8 10,027 3,507 2,532 103,507 4,538 3,563 104,538
9 11,578 3,822 3,042 103,822 4,976 4,196 104,976
10 13,207 4,097 3,512 104,097 5,381 4,796 105,381
11 14,917 4,331 3,941 104,331 5,754 5,364 105,754
12 16,713 4,517 4,322 104,517 6,090 5,895 106,090
13 18,599 4,649 4,649 104,649 6,384 6,384 106,384
14 20,579 4,723 4,723 104,723 6,634 6,634 106,634
15 22,657 4,730 4,730 104,730 6,835 6,835 106,835
16 24,840 4,683 4,683 104,683 7,133 7,133 107,133
17 27,132 4,556 4,556 104,556 7,394 7,394 107,394
18 29,539 4,345 4,345 104,345 7,618 7,618 107,618
19 32,066 4,045 4,045 104,045 7,805 7,805 107,805
20 34,719 3,645 3,645 103,645 7,953 7,953 107,953
25 50,113 0 0 0 8,015 8,015 108,015
30 69,761 0 0 0 6,366 6,366 106,366
</TABLE>
- ---------------
* These values reflect investment results using guaranteed 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> 66
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 1,050 395 0 100,000 668 0 100,000
2 2,153 1,004 0 100,000 1,408 218 100,000
3 3,310 1,622 257 100,000 2,165 800 100,000
4 4,526 2,247 882 100,000 2,934 1,569 100,000
5 5,802 2,879 1,514 100,000 3,717 2,352 100,000
6 7,142 3,514 2,149 100,000 4,510 3,145 100,000
7 8,549 4,151 2,981 100,000 5,321 4,151 100,000
8 10,027 4,790 3,815 100,000 6,148 5,173 100,000
9 11,578 5,427 4,647 100,000 6,992 6,212 100,000
10 13,207 6,060 5,475 100,000 7,851 7,266 100,000
11 14,917 6,688 6,298 100,000 8,726 8,336 100,000
12 16,713 7,302 7,107 100,000 9,613 9,418 100,000
13 18,599 7,898 7,898 100,000 10,509 10,509 100,000
14 20,579 8,469 8,469 100,000 11,413 11,413 100,000
15 22,657 9,006 9,006 100,000 12,319 12,319 100,000
16 24,840 9,538 9,538 100,000 13,385 13,385 100,000
17 27,132 10,023 10,023 100,000 14,476 14,476 100,000
18 29,539 10,456 10,456 100,000 15,596 15,596 100,000
19 32,066 10,828 10,828 100,000 16,745 16,745 100,000
20 34,719 11,125 11,125 100,000 17,924 17,924 100,000
25 50,113 10,859 10,859 100,000 24,267 24,267 100,000
30 69,761 5,008 5,008 100,000 31,133 31,133 100,000
</TABLE>
- ---------------
* These values reflect investment results using guaranteed 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-5
<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 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 1,050 394 0 100,394 666 0 100,666
2 2,153 1,000 0 101,000 1,404 214 101,404
3 3,310 1,613 248 101,613 2,155 790 102,155
4 4,526 2,230 865 102,230 2,916 1,551 102,916
5 5,802 2,851 1,486 102,851 3,688 2,323 103,688
6 7,142 3,473 2,108 103,473 4,466 3,101 104,466
7 8,549 4,093 2,923 104,093 5,258 4,088 105,258
8 10,027 4,709 3,734 104,709 6,061 5,086 106,061
9 11,578 5,319 4,539 105,319 6,876 6,096 106,876
10 13,207 5,919 5,334 105,919 7,699 7,114 107,699
11 14,917 6,506 6,116 106,506 8,531 8,141 108,531
12 16,713 7,072 6,877 107,072 9,367 9,172 109,367
13 18,599 7,610 7,610 107,610 10,201 10,201 110,201
14 20,579 8,112 8,112 108,112 11,031 11,031 111,031
15 22,657 8,568 8,568 108,568 11,850 11,850 111,850
16 24,840 9,001 9,001 109,001 12,828 12,828 112,828
17 27,132 9,371 9,371 109,371 13,817 13,817 113,817
18 29,539 9,670 9,670 109,670 14,817 14,817 114,817
19 32,066 9,888 9,888 109,888 15,830 15,830 115,830
20 34,719 10,007 10,007 110,007 16,852 16,852 116,852
25 50,113 8,440 8,440 108,440 22,004 22,004 122,004
30 69,761 681 681 100,681 26,536 26,536 126,536
</TABLE>
- ---------------
* These values reflect investment results using guaranteed 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-6
<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 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 1,050 433 0 100,000 714 0 100,000
2 2,153 1,113 0 100,000 1,547 357 100,000
3 3,310 1,845 481 100,000 2,449 1,084 100,000
4 4,526 2,632 1,267 100,000 3,423 2,058 100,000
5 5,802 3,478 2,113 100,000 4,477 3,112 100,000
6 7,142 4,388 3,023 100,000 5,616 4,251 100,000
7 8,549 5,365 4,195 100,000 6,855 5,685 100,000
8 10,027 6,416 5,441 100,000 8,204 7,229 100,000
9 11,578 7,547 6,767 100,000 9,674 8,894 100,000
10 13,207 8,763 8,178 100,000 11,276 10,691 100,000
11 14,917 10,072 9,682 100,000 13,024 12,634 100,000
12 16,713 11,479 11,284 100,000 14,930 14,735 100,000
13 18,599 12,989 12,989 100,000 17,008 17,008 100,000
14 20,579 14,608 14,608 100,000 19,275 19,275 100,000
15 22,657 16,344 16,344 100,000 21,748 21,748 100,000
16 24,840 18,271 18,271 100,000 24,640 24,640 100,000
17 27,132 20,347 20,347 100,000 27,827 27,827 100,000
18 29,539 22,588 22,588 100,000 31,347 31,347 100,000
19 32,066 25,013 25,013 100,000 35,238 35,238 100,000
20 34,719 27,638 27,638 100,000 39,543 39,543 100,000
25 50,113 44,584 44,584 100,000 69,224 69,224 100,000
30 69,761 71,720 71,720 100,000 119,317 119,317 138,408
</TABLE>
- ---------------
* These values reflect investment results using guaranteed 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> 69
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 1,050 431 0 100,431 713 0 100,713
2 2,153 1,108 0 101,108 1,542 352 101,542
3 3,310 1,834 469 101,834 2,438 1,073 102,438
4 4,526 2,612 1,247 102,612 3,402 2,037 103,402
5 5,802 3,445 2,080 103,445 4,441 3,076 104,441
6 7,142 4,335 2,970 104,335 5,560 4,195 105,560
7 8,549 5,287 4,117 105,287 6,772 5,602 106,772
8 10,027 6,304 5,329 106,304 8,084 7,109 108,084
9 11,578 7,391 6,611 107,391 9,507 8,727 109,507
10 13,207 8,550 7,965 108,550 11,047 10,462 111,047
11 14,917 9,787 9,397 109,787 12,718 12,328 112,718
12 16,713 11,102 10,907 111,102 14,526 14,331 114,526
13 18,599 12,495 12,495 112,495 16,481 16,481 116,481
14 20,579 13,969 13,969 113,969 18,594 18,594 118,594
15 22,657 15,521 15,521 115,521 20,874 20,874 120,874
16 24,840 17,216 17,216 117,216 23,552 23,552 123,552
17 27,132 19,002 19,002 119,002 26,478 26,478 126,478
18 29,539 20,885 20,885 120,885 29,680 29,680 129,680
19 32,066 22,865 22,865 122,865 33,185 33,185 133,185
20 34,719 24,943 24,943 124,943 37,024 37,024 137,024
25 50,113 36,579 36,579 136,579 62,466 62,466 162,466
30 69,761 49,052 49,052 149,052 102,393 102,393 202,393
</TABLE>
- ---------------
* These values reflect investment results using guaranteed 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-8
<PAGE> 70
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> 71
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> 72
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> 73
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
</TABLE>
<TABLE>
<S> <C>
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> 74
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> 75
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.
REASONABLENESS REPRESENTATION
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.
II-1
<PAGE> 76
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of pages.
The undertaking to file report.
Rule 484 undertaking.
Reasonableness Representation.
The following exhibits:
<TABLE>
<S> <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(4)
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(4)
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 (To be filed
by amendment.)
1.A.3.b.i. Personal Producing General Agent's Agreement and Supplement
(To be filed by amendment.)
1.A.3.b.ii. Personal Producing Agent's Agreement and Supplement (To be
filed by amendment.)
1.A.3.b.iii. Producing General Agent's Agreement and Supplement (To be
filed by amendment.)
1.A.3.c.i. Personal Producing General Agent's Commission Schedule (To
be filed by amendment.)
1.A.3.c.ii. Personal Producing Agent's Commission Schedule (To be filed
by amendment.)
1.A.3.c.iii. Producing General Agent's Commission Schedule (To be filed
by amendment.)
1.A.3.c.iv. Form of Selling Agreement between PML Securities, Inc. and
Broker/Dealers (To be filed by amendment.)
1.A.4. Inapplicable
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy (Form VL101)
1.A.5.a. Convertible Term Life Rider (PLC308)(4)
1.A.5.b. Additional Insurance Benefit Rider ( )
1.A.5.c. Guaranteed Minimum Death Benefit Ride (PLC320)(4)
1.A.5.d. Children's Term Rider ( )
1.A.5.e. Extension of Final Policy Date Rider (PLC822)(4)
1.A.5.f. Change of Insured Rider (PLC905)(4)
1.A.5.g. Disability Waiver Benefit Rider (PLC907)(4)
1.A.5.h. Disability Waiver of Premium Benefit Rider ( )
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
</TABLE>
II-2
<PAGE> 77
<TABLE>
<S> <C>
1.A.8. Inapplicable
1.A.9. Inapplicable
1.A.10. Form of Application
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 (To be filed by
amendment.)
4. Inapplicable
5. Inapplicable
6. Consent of Scott V. Carney, FSA, MAAA (To be filed by
amendment.)
7.A. Consent of Sutherland, Asbill & Brennan LLP (To be filed by
amendment.)
7.B. Consent of PricewaterhouseCoopers (To be filed by
amendment.)
8. Description of Providentmutual Life and Annuity Company of
America's Issuance, Transfer and Redemption Procedures for
Policies(4)
9. Powers of Attorney(1)
10.A. Participation Agreement among Market, Street Fund, Inc.,
Providentmutual Company of America and PML Securities, Inc.
(To be filed by amendment.)
10.B. Participation Agreement among Variable Insurance Products
Fund, Fidelity Corporation and Providentmutual Life and
Annuity Company of America (To be filed by amendment.)
10.C. Participation Agreement among Variable Insurance Products
Fund II, Fidelity Corporation and Providentmutual Life and
Annuity Company of America (To be filed by amendment.)
10.D. Form of Fund Participation Agreement among Neuberger &
Berman Advisers Managers Trust and Providentmutual Life and
Annuity Company of America (To be filed by amendment.)
10.E. Participation Agreement between OCC Accumulation Trust and
Providentmutual Life and Annuity Company of America (To be
filed by amendment.)
10.F. Participation Agreement between Van Eck Invest ment Trust
and Providentmutual Life and Annuity Company of America (To
be filed by amendment.)
10.G. Participation Agreement among The Alger American Fund,
Providentmutual Life and Annuity Company of America and Fred
Alger and Company Incorporated (To be filed by amendment.)
10.H. Participation Agreement between Scudder Variable Life
Investment Fund and Providentmutual Life and Annuity Company
of America (To be filed by amendment.)
10.I. Participation Agreement between The Dreyfus Socially
Responsible Growth Fund and Providentmutual Life and Annuity
Company of America (To be filed by amendment.)
10.J. Support Agreement between Provident Mutual Life Insurance
and Providentmutual Life and Annuity Company of America. (To
be filed by amendment.)
27. Inapplicable
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form S-6 Registration Statement for Provident Mutual Life Insurance Company
filed on May 1, 1998, File No. 33-65512.
(2) Incorporated herein by reference to Post-Effective Amendment No. 18 to the
Form S-6 Registration Statement for Provident Mutual Life Insurance Company
filed on May 1, 1998, File No. 33-2625.
II-3
<PAGE> 78
(3) Incorporated herein by reference to Post-Effective Amendment No. 11 to the
Form S-6 Registration Statement for Provident Mutual Life Insurance Company
filed on May 1, 1998, File No. 33-42133.
(4) Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Form S-6 Registration Statement for Providentmutual Life and Annuity Company
of America filed on May 1, 1998, file No. 33-83138.
II-4
<PAGE> 79
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Providentmutual Variable Life Separate Account
has caused this Registration Statement to be signed on its behalf in New Castle
County, State of Delaware on this day of November, 1998.
<TABLE>
<S> <C>
PROVIDENTMUTUAL VARIABLE LIFE
SEPARATE ACCOUNT (Registrant)
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 required by the securities act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ ROBERT W. KLOSS Director and President
- ---------------------------------------------------
Robert W. Kloss
/s/ STEPHEN L. WHITE Actuarial Officer (Principal Financial Officer)
- ---------------------------------------------------
Stephen L. White
/s/ TODD R. MILLER Financial Reporting Officer (Principal
- --------------------------------------------------- Accounting Officer)
Todd R. Miller
* Director
- ---------------------------------------------------
Mary Lynn Finelli
* Director
- ---------------------------------------------------
J. Kevin McCarthy
* Director, Secretary and Legal Officer
- ---------------------------------------------------
James G. Potter, Jr.
* Director
- ---------------------------------------------------
James D. Kestner
* Director
- ---------------------------------------------------
Sarah C. Lange
</TABLE>
II-5
<PAGE> 80
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
* Director
- ---------------------------------------------------
Alan F. Hinkle
* Director
- ---------------------------------------------------
Joan C. Tucker
* Director
- ---------------------------------------------------
Mehran Assadi
* Director
- ---------------------------------------------------
Linda M. Springer
*By: /s/ WILLIAM P. LOECHE
---------------------------------------------
William P. Loesche
Attorney-In-Fact
Pursuant To Power Of Attorney
</TABLE>
II-6
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<S> <C>
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy (Form VL101)
1.A.5.b Additional Insurance Benefit Rider (Form )
1.A.5.d Children's Term Rider (Form )
1.A.5.h Disability Waiver of Premium Benefit Rider (Form )
1.A.10 Form of Application
</TABLE>
<PAGE> 1
Exhibit 1.A.5
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
INSURED JOHN DOE
POLICY NUMBER 9,000,000
ISSUE DATE 01/01/1999
FACE AMOUNT $50,000
ISSUE AGE AND SEX 35, MALE
DEATH BENEFIT OPTION A
POLICY DATE 01/01/1999
Providentmutual Life and Annuity Company of America agrees:
To pay the Beneficiary of this Policy the Insurance Proceeds upon receiving due
proof of the Insured's death; To provide you (the Policy Owner) with the other
rights and benefits of this Policy. These agreements are subject to the
provisions of this Policy.
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE INSURANCE COVERAGE, OR
BOTH, MAY BE VARIABLE OR FIXED, AS DESCRIBED IN THE DEATH BENEFIT PROVISIONS.
THE PORTION OF THE POLICY ACCOUNT VALUE THAT IS IN A SUBACCOUNT MAY INCREASE OR
DECREASE, DEPENDING UPON THE UNIT VALUE OF SUCH SUBACCOUNT, WHICH IN TURN
DEPENDS UPON THE INVESTMENT EXPERIENCE OF THE CORRESPONDING PORTFOLIO OF A
DESIGNATED INVESTMENT COMPANY. THERE IS NO GUARANTEED MINIMUM FOR THE PORTION OF
YOUR POLICY ACCOUNT VALUE IN THE SUBACCOUNTS.
The portion of the Policy Account Value that is in the Guaranteed Account and
the Loan Account will accumulate, after deductions, at rates of interest we
determine. Such rates will not be less than 4% a year.
Please read this Policy with care. A guide to its provisions is on the last
page. A description is on page 2. Any additional benefit riders and a copy of
the Application are included in this Policy before the last page.
This is a legal contract between the Owner and Providentmutual Life and Annuity
Company of America.
RIGHT TO EXAMINE POLICY. You may examine this Policy and if for any reason you
are not satisfied with it, you may cancel it by returning the Policy to us with
a written request no later than: (a) 10 days after you receive it; (b) or 45
days after Part I of the Application was signed. All you have to do is take this
Policy or mail it to our Service Center at 300 Continental Drive, Newark, DE
19713-4399; P.O. Box 15750, Wilmington, DE 19850-5750; or to one of our offices
or to the representative who sold it to you. If you do this, we will refund an
amount equal to: (a) the difference between the premiums you paid (including any
fees and charges) and the sum of the amounts allocated to the Guaranteed Account
and the Subaccounts; plus (b) the value of the amounts allocated to the
Guaranteed Account including any interest accumulated to the date you return the
Policy to us; plus (c) the value of the amounts allocated to the Subaccounts
including the net investment experience of such Subaccounts to the date you
return the Policy to us; plus (d) any fees or charges imposed on the amounts
allocated to the Guaranteed Account or the Subaccounts.
Attest
/s/ Robert W. Kloss
-------------------
Registrar President
* Flexible Premium Adjustable Variable Life Insurance Policy * Insurance
Proceeds payable upon death before Final Policy Date * Policy Account Value
payable on Final Policy Date * Adjustable Death Benefit * Values provided by
this Policy are based on declared interest rates of the Guaranteed and Loan
Accounts and on the investment experience of the Subaccounts * Non-participating
*
FOR INQUIRIES, INFORMATION AND RESOLUTION OF COMPLAINTS, CALL: 1-800-688-5177
<PAGE> 2
POLICY DESCRIPTION
This is a flexible premium adjustable variable life insurance policy.
Net premiums are allocated at your direction to one or more of the Subaccounts
and/or the Guaranteed Account.
The Subaccounts invest in securities and other investments whose value is
subject to market fluctuation and investment risk. There is no guarantee of
principal or investment return.
The Guaranteed Account earns interest at rates we declare in advance. The rates
are guaranteed to equal or exceed 4%. The principal, after deductions, is also
guaranteed.
The duration of life insurance coverage depends on the Net Cash Surrender Value
except that during the first five Policy Years, your Policy will remain in force
if the sum of the premiums paid less loans and partial withdrawals equals or
exceeds the Minimum Guarantee Premium.
If Death Benefit Option A has been selected, the Death Benefit is the Face
Amount of this Policy and the amount of the Death Benefit is fixed, except where
it is a percentage of the Policy Account Value. If Death Benefit Option B has
been selected, the Death Benefit is the Face Amount of this Policy plus the
Policy Account Value. The amount of the Death Benefit under Option B is
variable. Under either Option, the Death Benefit will not be less than a
percentage of the Policy Account Value.
To compute the Insurance Proceeds payable upon the Insured's death, we start
with the Death Benefit and adjust this amount if there is a loan.
We make monthly deductions from the Policy Account Value to cover the cost of
benefits provided under this Policy, including the cost of any benefits provided
by rider. We will allocate such deductions to the Subaccounts and the Guaranteed
Account in accordance with your instructions.
If you surrender this Policy for its Net Cash Surrender Value or reduce the Face
Amount of insurance during the first 12 Policy Years or within 12 years after
the effective date of an increase in the Face Amount, we will deduct any
applicable Surrender Charges from the Policy Account Value.
We will pay the proceeds under this Policy in one sum unless a Payment Option is
in force. If you elect a Payment Option it will apply to payment of the Net Cash
Surrender Value if you surrender this Policy or to the Insurance Proceeds paid
to the Beneficiary when the Insured dies. If a Payment Option is not in force
when the Insured dies, the Beneficiary will be able to elect a Payment Option
for the Insurance Proceeds.
If this Policy lapses, coverage will end. If such occurs, you may be able to
reinstate this Policy within three full years with full benefits.
As Policy Owner, you have these rights in this Policy, among others, subject to
the terms, conditions, and limits in this Policy:
- - You may make premium payments at any time and of any amount.
- - You may change the allocation of premiums and deductions among your
investment options.
- - You may increase or decrease the Face Amount of insurance.
- - You may change the Death Benefit Option.
- - You may transfer amounts among your investment options.
- - You may borrow on this Policy.
- - You may make a partial withdrawal of the Net Cash Surrender Value.
- - You may surrender this Policy for its Net Cash Surrender Value.
- - You may change the Beneficiary of the Insurance Proceeds of this Policy.
- - You may assign this Policy and change the Owner.
This is only a summary of what the Policy provides. You should read the entire
Policy carefully as its terms govern your rights and our obligations.
Page 2
<PAGE> 3
POLICY SCHEDULE
INSURED JOHN DOE
POLICY NUMBER 9,000,000 01/01/1999 POLICY ISSUE DATE
FACE AMOUNT $50,000.00 35, MALE ISSUE AGE AND SEX
DEATH BENEFIT OPTION A 01/01/1999 POLICY DATE
PREMIUM CLASS STANDARD 01/01/2064 FINAL POLICY DATE
BENEFITS
--------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
INITIAL FACE AMOUNT $50,000.00
RIDER - DISABILITY WAIVER BENEFIT
This Policy provides life insurance coverage on the Insured until the final
policy date, provided the Net Cash Surrender Value is sufficient to cover the
deductions for the cost to that date of the benefits of this Policy and of any
riders. You may have to pay more than the premiums shown below to keep this
Policy and coverage in force to that date, and to keep any additional riders in
force.
MINIMUM INITIAL PREMIUM - $408.00
PLANNED PERIODIC PREMIUM - $500.00 PAYABLE ANNUALLY
MINIMUM ANNUAL PREMIUM - $408.00
MINIMUM FACE AMOUNT - $50,000.00
MINIMUM PAYMENT - $20.00
PARTIAL WITHDRAWAL - MINIMUM AMOUNT $1,500.00
TRANSFERS - MINIMUM AMOUNT $1,000.00
POLICY LOAN - FIXED 6.00% POLICY LOAN INTEREST RATE
MINIMUM LOAN AMOUNT $500.00
FORM VL201 PAGE 3
<PAGE> 4
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
EXPENSE CHARGES
PREMIUM EXPENSE CHARGE
CONSISTS OF THE FOLLOWING:
1. A Premium Tax Charge of 2% will be deducted from each premium payment
for state and local premium taxes. We reserve the right to change this
percentage if the applicable law changes or the insured's residence
changes.
2. A percent of premium charge not exceeding 3% will be deducted from each
premium payment.
INITIAL ADMINISTRATIVE CHARGE
$5.00 deducted monthly from the Policy Account Value on the first 12
policy processing days.
MONTHLY ADMINISTRATIVE CHARGE
$7.50 deducted monthly from the Policy Account Value. We reserve the
right to increase this charge, but it will be greater than $12.00 a
month.
FOR PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
$25.00 deducted from the Policy Account Value whenever you make a
partial withdrawal.
FOR AN INCREASE IN FACE AMOUNT
$100.00 plus $0.50 per $1,000 of increase in face amount, but not
greater than $750.00, deducted from the Policy Account Value. We
reserve the right to increase this charge, but it will not be greater
than $100.00 plus $3.00 per $1,000.
FOR TRANSFERS
After the first twelve transfers of amounts among your investment
options during a Policy Year, we will charge $25.00 for each additional
transfer during that Policy Year.
PAGE 4
<PAGE> 5
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
SURRENDER CHARGES
If this Policy is surrendered or lapses during the first 12 Policy Years, we
will deduct a Surrender Charge from the Policy Account Value in determining its
Net Cash Surrender Value. The Surrender Charge consists of Deferred
Administrative Charge and the Deferred Sales Charge.
The Deferred Administrative Charge at any time during the policy year is the
amount shown in the table below for that year, less the amount of any pro rata
Deferred Administrative Charge previously paid under this Policy.
The Deferred Sales Charge at any time during the Policy Year is equal to (A)
minus (B) where: (A) is the lessor of: (1) the maximum charge shown in the
table below for that year; or (2) an amount equal to 35% of all premium
payments paid to such time; and (B) is the amount of any pro rata Deferred
Sales Charge previously paid under this Policy.
<TABLE>
<CAPTION>
DEFERRED MAXIMUM DEFERRED MAXIMUM
POLICY ADMIN SALES POLICY ADMIN SALES
YEAR CHARGE CHARGE YEAR CHARGE CHARGE
<S> <C> <C> <C> <C> <C>
1 245.00 460.95 7 210.00 395.10
2 245.00 460.95 8 175.00 329.25
3 245.00 460.95 9 140.00 263.40
4 245.00 460.95 10 105.00 197.55
5 245.00 460.95 11 70.00 131.70
6 245.00 460.95 12 35.00 65.85
</TABLE>
If the Face Amount of this Policy is decreased at any time during the first 12
Policy Years, a pro rata share of the Surrender Charge will be deducted.
If the Face Amount of this Policy is increased at any time, and within 12 years
of the effective date of such increase you decrease the Face Amount or
surrender this Policy, a Deferred Administrative Charge and Deferred Additional
Sales Charge will be deducted.
FORM VL201 PAGE 4A
<PAGE> 6
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
GUARANTEED MONTHLY COST OF INSURANCE RATES PER $1,000 NET
AMOUNT AT RISK
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE RATE AGE RATE AGE RATE
<S> <C> <C> <C> <C> <C>
35 0.21917 57 1.50750 79 9.45750
36 0.23417 58 1.64083 80 10.13250
37 0.25333 59 1.77917 81 10.86750
38 0.27500 60 1.93250 82 11.68333
39 0.30000 61 2.10500 83 12.58583
40 0.32833 62 2.29917 84 13.54083
41 0.36167 63 2.51917 85 14.51667
42 0.39583 64 2.76167 86 15.48167
43 0.43500 65 3.02417 87 16.42167
44 0.47583 66 3.29750 88 17.44750
45 0.52250 67 3.58417 89 18.46000
46 0.56917 68 3.87917 90 19.47417
47 0.62000 69 4.19333 91 20.51000
48 0.67333 70 4.54000 92 21.61083
49 0.73333 71 4.92417 93 23.02500
50 0.79167 72 5.36083 94 24.84583
51 0.87000 73 5.85250 95 27.49667
52 0.95167 74 6.38833 96 32.04583
53 1.04500 75 6.98083 97 40.01667
54 1.15000 76 7.59167 98 54.83167
55 1.26167 77 8.21000 99 83.33333
56 1.38250 78 8.82583
</TABLE>
FORM VL201 PAGE 5
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6
<PAGE> 8
DEFINITIONS
ATTAINED AGE. The Issue Age of the Insured plus the number of full years
since the Policy Date.
CASH SURRENDER VALUE. The Policy Account Value minus any applicable
Surrender Charges.
INSURANCE PROCEEDS. The net amount to be paid to the Beneficiary when the
Insured dies. (See Amount of Insurance Proceeds provision.)
INSURED. The person named as the Insured on the first page. He or she need
not be the Owner.
LOAN ACCOUNT. The account to which we transfer the amount of any policy loan
from the Subaccounts and Guaranteed Account.
MINIMUM GUARANTEE PREMIUM. The Minimum Annual Premium multiplied by the number
of months since the Policy Date, including the current month, divided by 12.
NET CASH SURRENDER VALUE. The Policy Account Value minus any applicable
Surrender Charges, minus any outstanding policy loans and accrued interest.
NET PREMIUM. The remainder of a premium after deduction of the Premium
Expense Charge.
POLICY ACCOUNT VALUE. The sum of this 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 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.
WE, OUR, US AND COMPANY. Providentmutual Life and Annuity Company of
America, a stock life insurance company, a Delaware Corporation.
YOU AND YOUR. The Owner of this Policy.
GENERAL PROVISIONS
THE CONTRACT. This Policy is issued in consideration of payment of the Minimum
Initial Premium shown in the Policy Schedule. This Policy and the initial
Application, a copy of which is attached, and all subsequent Applications to
change the Policy and all additional Policy Schedule pages added to this Policy,
form the whole contract. We assume that all statements in the applications were
made to the best of the knowledge and belief of the person(s) who made them; in
the absence of fraud, they are assumed to be representations and not warranties.
We relied on those statements when we issued or changed this Policy. We will not
use any statement, unless made in the Applications, to void this Policy or to
deny a claim.
POLICY MODIFICATIONS. Only the President or a Vice President of the Company
may agree to modify this Policy, and then only in writing.
SUICIDE EXCLUSION. If the Insured, whether sane or insane, dies by suicide
within two years from the Policy Issue Date, our payment will be limited to the
sum of premiums paid, minus any loan and loan interest and any partial
withdrawals of Net Cash Surrender Value. If the Insured, whether sane or insane,
dies by suicide within two years of the Effective Date of a policy change which
increases the Death Benefit, our payment with respect to such increase will be
limited to the sum of the monthly deductions for the cost of insurance
attributable to such increase and the expense charge for the increase in Face
Amount deducted from the Policy Account Value.
MISSTATEMENT OF AGE OR SEX. If the Insured's stated age or sex is not correct,
the Death Benefit and any benefits provided by riders to this Policy shall be
those which would be purchased by the most recent deduction for the cost of
insurance and the cost of any benefits provided by such riders, at the correct
age and sex. There is no adjustment to the Policy Account Value at that time.
INCONTESTABILITY. We have the right to contest the validity of this Policy based
on material
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misstatements made in the initial Application for this Policy. We also have a
right to contest the validity of any policy change based on material
misstatements made in any Application for that change. However, we will not
contest this Policy after it has been in force during the Insured's lifetime for
two years from the Policy Issue Date, except for nonpayment of the Minimum
Initial Premium. We will not contest any policy change that requires evidence of
insurability, or any reinstatement of this Policy, after such change or
reinstatement has been in effect for two years during the Insured's lifetime.
See any supplementary benefit riders for modifications that apply to them.
PERIODIC REPORT. At least once a year we will send you a report for this Policy.
It will show: (1) the current Death Benefit; (2) the current Policy Account
Value; (3) the Guaranteed Account Value; (4) the Loan Account Value; (5) the
value in each Subaccount; (6) premiums paid since the last report; (7) charges
deducted since the last report; (8) any partial withdrawals of Net Cash
Surrender Value since the last report; (9) any policy loans and accrued
interest; (10) the current Net Cash Surrender Value; (11) any other information
that may be required when and where this Policy is delivered.
You may ask for a similar report at some other time. We have the right to make a
reasonable charge for the reports that you ask for, and to limit the scope and
frequency of such reports.
PAYMENTS. We will usually pay any amounts payable as a result of surrender,
partial withdrawal or policy loan within 7 days after we receive your written
request at our Service Center in a form satisfactory to us. We will usually pay
the Insurance Proceeds within 7 days after we receive proof of the Insured's
death at our Service Center and all other requirements deemed necessary are met.
However, payment may be postponed if we are not able to sell securities or
determine the value of the assets of the Subaccounts because:
1. the New York Stock Exchange is closed;
2. the Securities and Exchange Commission (SEC) requires trading to be
restricted or declares an emergency; or
3. the SEC by order permits us to defer payments for the protection of Policy
Owners.
As to amounts allocated to the Guaranteed Account, we 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 we receive your written request at our Service Center.
We will allow interest, at a rate of 3% a year, on any payment we defer for 30
days or more under this provision.
POLICY CHANGES - TAX CONSIDERATIONS. In order to receive the tax treatment
accorded to life insurance under federal tax laws, this Policy must qualify and
continue to qualify as life insurance under the Internal Revenue Code. We
reserve the right to decline to accept a premium payment, to decline to change
the Death Benefit Option, or to decline a partial withdrawal which would cause
this Policy to fail to qualify as life insurance under the applicable tax law,
as interpreted by us. We also reserve the right to make changes in this Policy
or to riders or to make distributions from this Policy to the extent we deem
such to be necessary for this Policy to continue to qualify as life insurance.
Such changes will apply uniformly to all affected policies. You will receive
advance written notification of such changes.
CHANGES IN POLICY COST FACTORS. Changes in credited interest rates, cost of
insurance charges, Percent of Premium Charge, mortality and expense risk
charges, and Monthly Administrative Charges will be by class and will be based
upon changes in future expectations for such factors as:
(a) investment earnings;
(b) mortality;
(c) persistency;
(d) expenses; and
(e) taxes.
Any change will be determined in accordance with the procedures and standards on
file, if required, with the insurance supervisory official of the state in which
this Policy is delivered.
POLICY ILLUSTRATIONS. Upon request, we will provide an illustration of the
future benefits under this Policy. We reserve the right to charge a reasonable
fee for this service if you request more than one policy illustration during a
Policy Year.
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POLICY OWNER AND BENEFICIARY PROVISIONS
OWNERSHIP. Unless otherwise stated in the Application or later changed, the
Owner of this Policy is the Insured. While the Insured is living, the Owner
alone is entitled to exercise any right and privilege granted by this Policy or
by us. If the Insured is living on the Final Policy Date shown in the Policy
Schedule and while this Policy is in force, we will pay you, the Owner, the
Policy Account Value on that date, less any outstanding policy loan and accrued
loan interest. This Policy will then end. If you are not the Insured and you die
while the Insured is still living, all rights will vest in your estate, unless
otherwise provided.
BENEFICIARY. The Beneficiary is entitled to the Insurance Proceeds under this
Policy. The Beneficiary is as stated in the Application, unless later changed.
when a Beneficiary is designated, any relationship shown is to the Insured,
unless otherwise stated. If two or more persons are named, those surviving the
Insured will share the Insurance Proceeds equally, unless otherwise stated. If
none of the persons named survives the Insured, we will pay the Insurance
Proceeds in one sum to the Insured's estate.
PROTECTION OF PROCEEDS. No Beneficiary may commute, encumber or alienate any
payments under this Policy before they are due. No payments shall be subject to
the debts, contract or engagements of any Beneficiary nor to any judicial
process to levy upon or attach the same for payment of such debts.
CHANGES. While the Insured is living, you may change the Owner or Beneficiary by
written notice in a form satisfactory to us. The change will take effect on the
date you sign the notice, except that it will not apply to any payment or other
action we take before we receive the notice at our Service Center. If you change
the Beneficiary, any previous arrangement you made under the Payment Options
provision is cancelled.
ASSIGNMENT. You may assign this Policy but we will not be bound by any
assignment unless it is in writing and we have received it at our Service enter.
Your rights and those of any other person referred to in this Policy will be
subject to the assignment. We assume no responsibility for the validity of any
assignments.
CREDITOR CLAIMS. To the extent permitted by applicable laws, no right or benefit
under this Policy shall be subject to claims of creditors, except as may be
provided by an Assignment.
DEATH BENEFIT PROVISIONS
If the Insured dies while this Policy is in force, we will pay the Insurance
Proceeds to the Beneficiary when we receive: (1) proof that the Insured died
before the Final Policy Date; and (2) all other requirements deemed necessary to
make payment.
DEATH BENEFIT. The Death Benefit will be determined under either Option A or
Option B below, whichever you have chosen and is in effect at such time.
Under either Option, the duration of insurance coverage depends upon your Net
Cash Surrender Value.
OPTION A. Under Option A, the Death Benefit is the greater of the Face Amount of
insurance, or a percentage of the Policy Account Value on the date of death (see
Table of Percentages, below). Under this Option, the amount of the Death Benefit
is fixed, unless it is determined by such a percentage.
OPTION B. Under Option B, the Death Benefit is the greater of the Face Amount of
insurance plus the Policy Account Value on the date of death, or a percentage of
the Policy Account Value on the date of death (see Table of Percentages, below).
Under this Option, the amount of the Death Benefit is variable.
TABLE OF PERCENTAGES. The following table is used in determining the Death
Benefit under Option A and Option B above. For Attained Ages not shown, the
applicable percentages shall decrease by a ratable portion for each full year.
ATTAINED AGE PERCENTAGE
- ------------ ----------
0 through 40 250%
45 215%
50 185%
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<PAGE> 11
ATTAINED AGE PERCENTAGE
- ------------ ----------
55 150%
60 130%
65 120%
70 115%
75 through 90 105%
95 through 99 100%
AMOUNT OF INSURANCE PROCEEDS. The Insurance Proceeds will be determined as
of the date of the Insured's death and will be equal to:
1. the Death Benefit described above;
2. plus any additional benefits due under a supplementary benefit rider
attached to this Policy;
3. less any loan and accrued loan interest on this Policy;
4. less any overdue deductions if the death of the Insured occurs during the
Grace Period.
PAYMENT OF INSURANCE PROCEEDS. We will pay the Insurance Proceeds to the
Beneficiary in a lump sum, unless a Payment Option has been selected. If the
proceeds are payable in a lump sum, we will add interest to the amount of such
proceeds for the period from the date of death to the date of payment. The
amount of interest will be computed at the yearly rate of 3% or any higher rate
declared by us or required by law.
CHANGING THE FACE AMOUNT OF INSURANCE OR DEATH BENEFIT OPTION. During the first
Policy Year, the Death Benefit Option and the Face Amount of insurance will be
as selected at the time of application, as shown in the Policy Schedule.
After the first Policy Year while this Policy is in force, you may change the
Death Benefit Option or the Face Amount, except in the 12-month period following
a Face Amount increase. Any change will be effective as of the Policy processing
Day that coincides with or next follows the date we approve your written
request, provided we have received the premium required for the change. You may
request a change by completing an application for change. A copy of such
application will be attached to new Policy Schedule pages which will be issued
when the change is approved. The application for change and new Policy Schedule
pages will become a part of this Policy. We may require you to return this
Policy to make a change.
FACE AMOUNT INCREASE. You may request a Face Amount increase subject to the
following:
(a) you must provide evidence satisfactory to us of the Insured's insurability;
(b) the Insured's Attained Age must be 75 years or less;
(c) you may not have increased the Face Amount in the prior 12-month period;
(d) the Face Amount increase must be for at least $25,000.
We will deduct the expense charge for an increase in Face Amount shown in the
Policy Schedule from the Policy Account Value as of the effective date of the
increase. The deduction will be made in accordance with the allocation schedule
for monthly deductions in effect at such time.
You may cancel an increase in Face Amount and receive a refund by giving us
written notice no later than: (a) 10 days after you receive the new Policy
Schedule pages reflecting the increase; or (b) 45 days after you signed the
application for the increase. The amount of the refund will be equal to the
monthly deductions for such increase plus the expense charge for the increase in
Face Amount shown in the Policy Schedule. If you cancel the increase but do not
request a refund, we will add the refund to the Policy Account Value. This
amount will be allocated in the same proportion as it was deducted. Any premium
payment made after the increase will not be refunded.
CONVERSION PRIVILEGE FOR INCREASE. You have the right once during the first two
years following the Effective Date of an increase in Face Amount to convert the
increase in Face Amount and receive a life insurance policy that provides for
fixed benefits. No evidence of insurability will be required. The new policy
will have the same Face Amount and Issue Date as the amount and Effective Date
of the increase. Premiums for the new policy will be based on our rates in
effect for the same Attained Age, Sex, and Premium Class of the Insured as of
the Effective Date of the increase. A refund will be made equal to the monthly
deductions for such increase plus the expense charge for the increase shown in
the Policy Schedule.
FACE AMOUNT DECREASE. You may request a Face Amount decrease provided:
(a) the Face Amount of the Policy after the decrease is not less than the
minimum amount shown in the Policy Schedule;
(b) the amount of the decrease is for at least $25,000;
(c) you may not have increased the Face Amount in the prior 12-month period;
(d) if the decrease is made during the first 12 Policy Years, or within 12 years
following the effective date of a Face Amount increase, we will deduct a pro
rata share of any applicable Surrender Charges from the Policy Account
Value.
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(e) a decrease in the Face Amount will reduce this Policy's Face Amount in the
following order:
1. the Face Amount attributable to the most recent Face Amount increase;
2. the Face Amount attributable to the next most recent Face Amount
increases, successively;
3. the Initial Face Amount.
CHANGE FROM DEATH BENEFIT OPTION A TO OPTION B. If you request a change from
Option A to Option B, we will decrease the Face Amount by the Policy Account
Value as of the date of change. We reserve the right to decline to make such a
change if it would reduce the Face Amount below the minimum amount for which we
would then issue this Policy under our rules.
CHANGE FROM DEATH BENEFIT OPTION B TO OPTION A. If you request a change from
Option B to Option A, we will increase the Face Amount by the Policy Account
Value on the date of change.
The decreases and increases in Face Amount described above in connection with
changes in the Death Benefit Option are made so the Death Benefit remains the
same on the date of change. We do not require evidence of insurability, nor do
we deduct a Surrender Charge or the Expense Charge to increase the Face Amount
for such changes.
TAX CONSIDERATIONS. We reserve the right to refuse to make a policy change if
such would cause this Policy to fail to qualify as life insurance under
applicable laws, as interpreted by us.
PREMIUM PAYMENT PROVISIONS
The Minimum Initial Premium shown in the Policy Schedule 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 this Policy. Prior to the
Final Policy Date and while this Policy is in force you may make additional
premium payments at any time and in any amount (subject to certain limits
described below). We intend to send premium reminder notices to you for the
Planned Periodic Premium shown in the Policy Schedule, unless at the time of
application or later you request in writing that such notices not be sent. You
do not need to pay the Planned Periodic Premiums and may change their frequency
and amount subject to the limits described below. (However, see Grace Period.)
LIMITS FOR PREMIUM PAYMENTS. Each premium payment after the initial one must be
for at least the Minimum Payment amount shown in the Policy Schedule. We may
increase this minimum amount upon 90 days written notice to you of such
increase. This minimum amount will not exceed $500.
We reserve the right not to accept any portion of premium payments during a
Policy Year if we determine that such portion would cause this Policy to fail to
qualify as life insurance under applicable tax laws, as interpreted by us.
We reserve the right to limit the amount of any premium payment if it increases
the Death Benefit more than it increases the Policy Account Value unless you
provide evidence of the Insured's insurability satisfactory to us.
GRACE PERIOD. During the first five Policy Years, the duration of the insurance
coverage under this Policy depends, in part, upon whether the Net Cash Surrender
Value is sufficient to cover the monthly deductions. If the Net Cash Surrender
Value is not sufficient, we will determine if the Minimum Guarantee Premium has
been paid. If the Net Cash Surrender Value is not sufficient and the sum of the
premiums paid less any loans and partial withdrawals does not equal or exceed
the Minimum Guarantee Premium, the Grace Period described below will begin.
After the first five Policy Years, the duration of the insurance coverage under
this Policy depends solely upon whether the Net Cash Surrender Value is
sufficient to cover the monthly deductions.
If the Net Cash Surrender Value at the beginning of any policy month is less
than the deductions for that month (and during the first five Policy Years, the
Minimum Guarantee Premium has not been paid), we will send written notice to you
and any assignee of record stating that a Grace Period of 61 days has begun,
starting on the date we mail such notice. The notice will indicate an amount
equal to three monthly deductions. If we do not receive payment of such amount
before the end of the Grace Period, we will withdraw the Policy Account Value
including any applicable Surrender Charge and send you and any assignee of
record written notice that the Policy has lapsed without value.
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If the Insured dies during the Grace Period, we will pay the Insurance Proceeds.
REINSTATEMENT. If this Policy has lapsed without value, you may reinstate it
while the Insured is alive if you:
1. apply for reinstatement within three years after the end of the Grace
Period;
2. provide evidence of the Insured's insurability satisfactory to us; and
3. make a premium payment of an amount sufficient to keep the Policy in
force for at least three months after the date of reinstatement.
The Effective Date of the reinstated Policy will be the Policy Processing Day,
which coincides with or next follows the date we approve the reinstatement
application.
PREMIUM EXPENSE CHARGE
The Premium Expense Charge consists of the following:
1. Premium Tax Charge; and
2. Percent of Premium Charge.
The Premium Expense Charge will be deducted from any premiums paid and the
amount remaining will be the Net Premium. The amounts of these charges are shown
in the Policy Schedule.
THE SEPARATE ACCOUNT
A Separate Account will be used to support the operation of this Policy and to
support other variable life insurance policies. We will not allocate assets to
the Separate Account to support the operation of any contracts or policies that
are not variable life insurance.
We own the assets in the Separate Account. However, these assets are not part of
our General Account. Income, gains, and losses, whether or not realized, from
assets allocated to the Separate Account will be credited to or charged against
the Separate Account without regard to our other income, gains or losses.
The Separate Account is treated as a unit investment trust under federal
securities laws. It is registered with the Securities and Exchange Commission
(SEC) under the Investment Company Act of 1940 (1940 Act).
The subaccounts will invest in shares or units of their respective portfolios or
series.
The Separate Account is subject to the laws of the State of Delaware which
regulate the operations of insurance companies incorporated in Delaware. The
investment policies of the Separate Account will not be changed without the
approval of the Delaware Commissioner of Insurance. The approval process has
been filed with the insurance supervisory official of the state in which this
Policy is delivered.
We have the right, subject to compliance with applicable laws, to make additions
to, deletions from, or substitutions for, the shares or units of an investment
company that are held by the Subaccounts or that the Subaccounts may purchase.
We reserve the right to eliminate the shares or units of an eligible portfolio
or series, and to substitute shares or units of another portfolio or series, or
another fund, if the shares or units of the portfolio or series are no longer
available for investments, or if in our judgment further investment in the
portfolio or series should become inappropriate in view of the purposes of the
Subaccount. In the event of any substitution or change, we may, subject to your
written approval and by appropriate endorsement, make such changes in this and
other policies as may be necessary or appropriate to reflect the substitution or
change.
We also reserve the right to transfer assets of a Subaccount or the Separate
Account, which we determine to be associated with the class of policies to which
this Policy belongs, to another Subaccount or Separate Account. If this type of
transfer is made, the Subaccount or Separate Account specified in this Policy
shall then refer to the Subaccount or Separate Account to which the assets were
transferred.
The Policy Owner will share only in the income, gains, and losses of the
particular Subaccounts to which your Net Premium payments have been allocated or
to
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which portions of the Policy Account Value have been transferred.
That portion of the assets of the Separate Account which equals the reserves or
other policy liabilities of the policies with respect to the Separate Account
will not be charged with liabilities arising from any other business we conduct.
We have the right to transfer to our General Account any assets of the Separate
Account, which are in excess of such reserves and other policy liabilities.
When permitted by law, we also reserve the right:
1. to create additional Separate Accounts; to create Subaccounts from, or
combine or remove Subaccounts from, Separate Accounts; or to combine any
two or more Separate Accounts;
2. to operate any one or more of the Separate Accounts as a management
investment company under the 1940 Act or in any other form permitted by
law;
3. to deregister the unit investment trusts under the 1940 Act;
4. to modify the provisions of this Policy to comply with applicable laws;
5. to restrict or eliminate any voting rights of policyholders or other
persons who have voting rights as to the Subaccounts.
We will value the assets of the Subaccounts on each business day.
If you object to a material change in the investment policy of a Subaccount in
which you have at such time a portion of the Policy Account Value, you may
transfer such portion of the Policy Account Value, upon written request, from
that Subaccount, without charge, to another Subaccount or to the Guaranteed
Account. You may then change your premium and deduction allocation percentages.
POLICY ACCOUNT VALUE: ALLOCATIONS AND TRANSFERS
The Policy Account Value for this Policy is based on the policy values in the
Subaccounts, Guaranteed Account, and the Loan Account to which you have:
allocated Net Premiums; transferred account values; and allocated monthly
deductions. Each allocation percentage must be a whole number.
ALLOCATION OF NET PREMIUMS. Net Premiums will be allocated to the Subaccounts
and the Guaranteed Account on the date we receive such premium payment. The
allocation will be based on the premium allocation percentages then in effect.
The percentage chosen by you at the time of application will apply until you
notify us in writing of a new allocation schedule for premium payments.
ALLOCATION FOR MONTHLY DEDUCTIONS. Monthly Deductions will be allocated to the
Subaccounts and Guaranteed Account based on the allocation percentages chosen by
you at the time of application or as later changed by written request to us. If
we cannot make a monthly deduction on the basis of the allocation schedule then
in effect, we will make such deduction and future deductions based on the
proportion that your Guaranteed Account Value and the value in your Subaccounts
bear to the total unloaned Policy Account Value.
TRANSFERS. We will allow you to make twelve transfers in a Policy Year without
charge. We will make a charge for additional transfers in such Policy Year. The
maximum charge is shown in the Policy Schedule. The transfer charge will be
deducted from the amount being transferred.
TRANSFERS FROM SUBACCOUNTS. You may ask us to transfer all or part of the amount
in one of the Subaccounts to another Subaccount or to the Guaranteed Account.
The minimum amount for such transfer is the lesser of the amount shown in the
Policy Schedule or the entire value of the Subaccount. The transfer will be made
as of the date we receive your written request at our Service Center.
TRANSFERS FROM GUARANTEED ACCOUNT. Within 30 days prior to or following any
Policy Anniversary you may ask us to make one transfer for up to 25% of your
Guaranteed Account Value to any of the Subaccounts. The minimum amount for such
transfer is the lesser of the amount shown in the Policy Schedule or your
Guaranteed Account Value on such Policy Anniversary. The date of transfer will
be as of the Policy Anniversary if your written request is received prior to the
Policy Anniversary; if your written request is received after the Policy
Anniversary, the transfer will be made as of the date we receive your request at
our Service Center.
SPECIAL TRANSFER RIGHT. During the first two years following the Policy Issue
Date, you may request one
<PAGE> 15
transfer of the entire Policy Account Value in the Subaccounts to the Guaranteed
Account. This request will not count towards the twelve free transfers in a
Policy Year and is not subject to a transfer charge.
CALCULATION OF VALUES
BASIS OF CALCULATION. Minimum cash surrender values and maximum cost of
insurance rates are based on the Commissioners 1980 Standard Ordinary Smoker and
Nonsmoker Mortality Table for the sex and premium class of the Insured. Cash
surrender values are at least equal to those required by law. Reserves are
computed by the Commissioners Reserve Valuation Method. A detailed statement of
how we calculate the values for this Policy has been filed with the insurance
supervisory official of the state in which this Policy is delivered.
CALCULATION OF VALUE OF SUBACCOUNTS. The Policy Account Value in a Subaccount at
any time is equal to the number of units this Policy then has in that Subaccount
multiplied by the Subaccount's unit value at that time.
Amounts allocated, transferred, or added to a Subaccount are used to purchase
units of that Subaccount; units are redeemed when amounts are deducted,
transferred or withdrawn. The number of units in a Subaccount at any time is
equal to the number of units purchased minus the number of units redeemed up to
such time.
The unit value of a Subaccount on any Valuation Day is equal to the unit value
for that Subaccount on the immediately preceding Valuation Day multiplied by the
Net Investment Factor for that Subaccount on that Valuation Day.
VALUATION DAY AND PERIOD. Assets are valued at the close of a Valuation Day. A
Valuation Day is each day that the New York Stock Exchange is open for business
and any other day in which there is a sufficient degree of trading of the
Subaccount's portfolio of securities to materially affect the value of a
Subaccount.
A Valuation Period is 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.
NET INVESTMENT FACTOR. Each Subaccount has its own Net Investment Factor. The
Net Investment Factor of the Subaccount for a Valuation Period is (a) divided by
(b) minus (c), where:
(a) is:
(1) the value of the assets in the Subaccount for the preceding
Valuation Period; plus
(2) the investment income and capital gains, realized or
unrealized, credited to those assets during the Valuation
Period for which the Net Investment Factor is being
determined; minus
(3) the capital losses, realized or unrealized, charged against
those assets during the Valuation Period; minus
(4) any amount charged against the Subaccount for taxes, or any
amount we set aside during the Valuation Period as a reserve
for taxes attributable to the operation or maintenance of the
Subaccount; and
(b) is the value of the assets in the preceding Valuation Period; and
(c) is a charge no greater than 0.90% per year (0.002465753% for each
day in the Valuation Period) for mortality and expense risks.
We will value the assets in the Subaccounts at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
ADDITIONAL SUBACCOUNTS CREDIT. On each Policy Processing Day, an additional
credit may be added to each Subaccount after the Policy has been in force for at
least 15 years or when the values in the Subaccount and Guaranteed Account
equals or exceeds $100,000. The credit will be equal to 0.03% multiplied by the
value in each Subaccount. The additional credit is a result of a reduction in
the mortality and expense risk charge.
CALCULATION OF GUARANTEED ACCOUNT VALUE. The Guaranteed Account Value at any
time is equal to the amounts allocated and transferred to it plus interest
credited to it, minus amounts deducted, transferred and withdrawn from it.
Amounts deducted, transferred, or withdrawn will be on a last in, first out
basis.
Page 14
<PAGE> 16
We will credit the Guaranteed Account Value with interest at effective annual
rates we determine. These rates will not be less than 4%. For the amount in the
Guaranteed Account at the beginning of a calendar year, we will determine such
interest rates in advance of each calendar year. Such rates will apply to the
calendar year which follows the date of determination. For amounts allocated or
transferred to the Guaranteed Account during a calendar year, we will determine
such interest rates in advance of the date such amount is received or
transferred. Such rates will apply to the end of the calendar year in which the
payment is received or the transfer is made.
Interest will be credited on each Policy Processing Day as follows:
For amounts in the Guaranteed Account for the entire prior policy month, from
the beginning to the end of such policy month;
For amounts allocated to the Guaranteed Account during the prior policy month,
from the date we allocate a Net Premium to the Guaranteed Account or receive a
loan repayment to the end of the policy month;
For amounts transferred to the Guaranteed Account during the prior policy month,
from the date of transfer to the end of the policy month;
For amounts deducted or withdrawn from the Guaranteed Account during the prior
policy month, from the beginning of the prior policy month to the date of
deduction or withdrawal.
MONTHLY DEDUCTIONS. On each Policy Processing Day, beginning on the Policy Date,
we will deduct the following charges from the Policy Account Value:
1. The Monthly Administrative Charge shown in the Policy Schedule;
2. On the first 12 Policy Processing Days, the Initial Administrative
Charge shown in the Policy Schedule;
3. The monthly cost of any benefits provided by rider to this Policy,
in accordance with such rider;
4. The monthly cost of insurance charge, as described below, and in
accordance with provisions in any rider attached to this Policy.
The monthly cost of insurance charge is: (a) multiplied by the result of (b)
minus (c):
(a) is the current monthly cost of insurance rate per $1000 divided by
1000;
and the result of (b) minus (c) is the net amount at risk where:
(b) is your current Death Benefit; and
(c) is your Policy Account Value (after other deductions but before cost
of insurance).
The cost of insurance rates are based on the Insured's Attained Age, Sex,
Premium Class and duration. For the Initial Face Amount, we will use the Premium
Class as of the Policy Issue Date. For each Face Amount increase, we will use
the Premium Class and duration applicable to the increase. Current cost of
insurance rates will be determined by the Company based on our expectations as
to future mortality costs and expenses. However, these rates will never exceed
those shown in the Table of Guaranteed Maximum Cost of Insurance Rates Per $1000
of Net Amount At Risk shown in the Policy Schedule. If Death Benefit Option A is
in effect and there have been Face Amount increases, the Policy Account Value
will first be considered as part of the Initial Face Amount. If the Policy
Account Value exceeds the Initial Face Amount, it will be considered as a part
of the increases in Face Amount in the order of such increases.
OTHER DEDUCTIONS. We also make the following other deductions from the
Policy Account Value as they occur:
1. Charge for partial withdrawal of Net Cash Surrender Value;
2. Surrender charges if during the first 12 Policy Years or within 12
years of the effective date of an increase in Face Amount, you
surrender this policy for its Net Cash Surrender Value, reduce the
Face Amount of insurance, or this policy lapses at the end of a
Grace Period;
3. Charge to increase the Face Amount of insurance;
4. Charge for certain transfers of the Policy Account Value.
SURRENDERS AND WITHDRAWALS
SURRENDER FOR NET CASH SURRENDER VALUE. You may surrender this Policy for its
Net Cash Surrender Value at any time while the Insured is living. The Net Cash
Surrender Value of this Policy at any
Page 15
<PAGE> 17
time is equal to the Policy Account Value on such date less any Surrender Charge
and any Additional Surrender Charge, less any outstanding policy loan and
accrued interest. We will determine the Net Cash Surrender Value on the date we
receive your signed written surrender request at our Service Center. Coverage
under this Policy will end on the date you send the surrender request to us.
SURRENDER CHARGE. If you surrender this Policy for its Net Cash Surrender Value
during the first 12 Policy Years, or if this Policy lapses during the first 12
Policy Years, we will deduct a Surrender Charge from the Policy Account Value.
This Surrender Charge has two parts: the Deferred Administrative Charge and the
Deferred Sales Charge. The amounts of such charges are shown in the Policy
Schedule.
If you request a reduction in the Initial Face Amount during any of the first 12
Policy Years, we will deduct a pro rata Surrender Charge from the Policy Account
Value as of the effective date of such reduction. The amount of such pro rata
Surrender Charge will be the Surrender Charge multiplied by the amount of the
reduction in the Initial Face Amount divided by the Initial Face Amount as of
the effective date of such reduction.
We will allocate the pro rata Surrender Charge based on the proportion that your
Guaranteed Account Value and the value in your Subaccounts bear to the total
unloaned Policy Account Value.
ADDITIONAL SURRENDER CHARGE. If you surrender this Policy for its Net Cash
Surrender Value within 12 years of the effective date of an increase in Face
Amount or if this policy lapses within 12 years of the effective date of an
increase in Face Amount, we will deduct an Additional Surrender Charge from the
Policy Account Value. The Additional Surrender Charge has two parts: the
Deferred Additional Administrative Charge and the Deferred Additional Sales
Charge. The amount of such charge or charges will be shown in the Policy
Schedule pages issued when you increase the Face Amount.
If you request a reduction in Face Amount within 12 years of the effective date
of a Face Amount increase, we will deduct a pro rata Additional Surrender Charge
from the Policy Account Value as of the effective date of such reduction. The
amount of such pro rata Additional Surrender Charge will be the Additional
Surrender Charge applicable to the Face Amount increase multiplied by the amount
of reduction in the Face Amount increase divided by the amount of the Face
Amount increase as of the effective date of such reduction.
We will allocate the pro rata Additional Surrender Charge based on the
proportion that your Guaranteed Account Value and the value in your Subaccounts
bear to the total unloaned Policy Account Value.
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE. After the first Policy Year, you
may make a written request for a partial withdrawal of the Net Cash Surrender
Value, subject to the restrictions below and the minimum amount shown in the
Policy Schedule. As of the date we receive your request at our Service Center,
we will reduce the Policy Account Value by the amount withdrawn plus the expense
charge for a partial withdrawal shown in the Policy Schedule. If Death Benefit
Option A is in effect, we will reduce the Face Amount by such amount.
We will allocate the withdrawal and expense charge based on the proportion that
your Guaranteed Account Value and the value in your Subaccounts bear to the
total unloaned Policy Account Value or to the specified Subaccounts based on the
percentages you specify at the time of your withdrawal.
We reserve the right to decline your withdrawal request if: the Face Amount
would be reduced below the minimum amount for which we would then issue this
Policy under our rules; or we determine that the withdrawal would cause this
Policy to fail to qualify as life insurance under applicable tax laws, as
interpreted by us.
If we approve your request, we will issue revised Policy Schedule pages
reflecting the changes, if any. The revised pages will become a part of this
Policy. We may require you to return the Policy to make the change.
POLICY LOAN PROVISIONS
You may borrow from this Policy while it has a loan value. This Policy will be
the only security for the loan. Any policy loan must be for at least the minimum
amount shown in the Policy Schedule. The maximum amount which may be borrowed is
the Net Cash Surrender Value. We will allocate the loan based on the proportion
that your Guaranteed Account Value and the value of your Subaccounts bear to the
total
Page 16
<PAGE> 18
unloaned Policy Account Value or to the specified Subaccounts based on the
percentages you specify at the time of your loan.
The collateral for the 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. The collateral for the loan will be deducted from each
account and transferred to the Loan Account. The collateral for any existing
loan will be recalculated: (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.
EFFECT OF LOANS. A policy loan will have a permanent effect on your benefits
under this Policy, even if it is repaid. The loan amount which is transferred to
the Loan Account will be maintained separately.
INTEREST RATE CHARGED ON LOANS. We will charge interest on loans at the fixed
yearly rate of 6%. Loan interest is due at the end of each Policy Year. If you
do not pay the interest when it is due, we will add it to the outstanding loan.
The unpaid interest will then be treated as part of the loaned amount and bear
interest at the policy loan interest rate. We will allocate the unpaid interest
based on the percentages you specified for your last loan. If the value in the
specified Subaccounts is insufficient to allow the collateral for the unpaid
interest to be deducted or no percentages were specified by you, then we will
allocate the unpaid interest based on the proportion that your Guaranteed
Account Value and the value of your Subaccounts bear to the total unloaned
Policy Account Value.
LOAN INTEREST CREDITED. We will credit the Loan Account with interest at an
effective annual rate we determine. This rate will not be less than 4%. We will
determine such rate in advance of each calendar year. This rate will apply to
the calendar year which follows the date of determination. Loan interest
credited will be transferred to each of your 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.
LOAN REPAYMENTS. You may repay all or part of a policy loan at any time while
the Insured is alive and this Policy is in force. We will assume that any
payments made while there is an outstanding loan on this Policy is a loan
repayment, unless you tell us, in writing, that such is a premium payment.
Repayments will first be allocated to the accounts based on the allocation of
the outstanding loan from each account as of the date of repayment. Any
repayment in excess of the amount of the outstanding loan will be allocated
based on the amount of accrued interest for the outstanding loan.
Failure to repay a loan or pay loan interest will not cause this 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.
PAYMENT OPTIONS
Payments under these Options will not be affected by the investment experience
of any Subaccount after proceeds are applied under such Options.
Instead of being paid in one sum, the proceeds of this Policy may be paid under
one of the Options below.
OPTION 1 - PROCEEDS AT INTEREST. We will pay interest on the proceeds at 12, 6,
3 or 1 month intervals, as elected. The interest per interval for each $1,000 of
proceeds is shown in the table below:
<TABLE>
<CAPTION>
INTERVAL IN MONTHS AMOUNT OF INTEREST
------------------ ------------------
<S> <C>
12 $ 30.00
6 14.89
3 7.42
1 2.47
</TABLE>
OPTION 2 - INSTALLMENTS OF A SPECIFIED AMOUNT. We will pay the proceeds in equal
installments of the amount elected with our consent at 12, 6, 3, or 1 month
intervals. We will add interest on the balance of proceeds to such balance each
year. We will pay installments until the proceeds and interest are exhausted.
The last installment will be for the balance only of the proceeds and interest.
OPTION 3 - INSTALLMENTS FOR A SPECIFIED PERIOD. We will pay the proceeds in the
number of equal monthly installments certain set forth in the election. We will
base the amount of each installment on the Option 3 table. If so elected, the
installments may be paid at 12, 6 or 3 month intervals. The amount of each
installment in such case will be the product of the monthly installment and the
factor shown in the table below:
Page 17
<PAGE> 19
<TABLE>
<CAPTION>
FACTOR APPLIED TO
INTERVALS IN MONTHS MONTHLY INSTALLMENTS
------------------- --------------------
<S> <C>
12 11.839
6 5.963
3 2.993
</TABLE>
OPTION 4 - LIFE INCOME. We will use the proceeds to provide equal monthly
installments during the payee's life. We will pay the installments, as elected,
either without installments certain or with installments certain for 120 months,
for 240 months, or until the proceeds are refunded.
"Until the proceeds are refunded" means until the sum of the installments paid
by us equals the amount of proceeds settled under this Option. We will base the
amount of each installment on the Option 4 table.
OPTION 5 - JOINT AND SURVIVOR LIFE INCOME. We will use the proceeds to provide
equal monthly installments, with a number of installments certain, during the
joint lives of the payee and one other person and during the life of the
survivor.
We will pay the installments certain for either 120 or 240 months, as elected.
We will base the amount of each installment on the Option 5 table.
DATE OF FIRST PAYMENT. We will make the first payment under Option 1 at the end
of the first payment interval. We will make the first payment under Option 2, 3,
4 or 5 on the date on which the Option takes effect.
INTEREST. The interest rate underlying all of the above Options is 3% per
year. Additional interest may be declared each year by us. Such additional
interest will:
1. increase the interest payment under Option 1;
2. be added to the proceeds under Option 2; or
3. increase the installments certain under Option 3, 4 or 5.
WITHDRAWAL OR COMMUTATION. If expressly provided in the election of the
Option but not otherwise, the payee will have the right to:
1. withdraw all or part of the balance of the proceeds under Option 1
or 2; or
2. take in one sum the commuted value of any balance of the
installments certain under Option 3, 4, or 5.
Partial withdrawals will be subject to our published minimum amount limits in
effect at the time the Option is elected. Such commuted value will be based on
compound interest at a yearly rate of 3%. Under Option 4 or 5, no installments
other than installments certain may be commuted.
We may defer payment of the amount withdrawn or commuted for a period not
exceeding 6 months.
SETTLEMENT AT DEATH OF PAYEE. After the death of the payee (the survivor in the
case of Option 5), we will make payment as directed in the election of the
Option. Such direction is subject to our approval.
The amount subject to such payment will be:
1. any balance of proceeds, with accrued interest, under Option 1 or 2;
or
2. the value of any remaining installments certain under Option 3, 4 or
5.
Page 18
<PAGE> 20
OPTION 3-INSTALMENTS FOR A SPECIFIED PERIOD
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under
Option 3
<TABLE>
<CAPTION>
Monthly Installments Certain
----------------------------
No. Amount
--- ------
<S> <C>
12 $ 84.47
24 42.86
36 28.99
48 22.06
60 17.91
72 15.14
84 13.16
96 11.68
108 10.53
120 9.61
132 8.86
144 8.24
156 7.71
168 7.26
180 6.87
192 6.53
204 6.23
216 5.96
228 5.73
240 5.51
252 5.32
264 5.15
276 4.99
288 4.84
300 4.71
312 4.59
324 4.47
336 4.37
348 4.27
360 4.18
</TABLE>
OPTION 4-LIFE INCOME
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under
Option 4 Where the incomes are the same the longer certain period will apply.
<TABLE>
<CAPTION>
Number of Monthly Instalments
Certain
---------------------------------------------------------
Age of
Payee* Until
Proceeds
None 120 240 Are
M Refunded
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5** $ 2.81 $ 2.81 $ 2.81 $ 2.80
6 2.83 2.82 2.82 2.81
7 2.84 2.84 2.83 2.83
8 2.85 2.85 2.84 2.84
9 2.86 2.86 2.86 2.85
10 2.87 2.87 2.87 2.86
11 2.89 2.89 2.88 2.88
12 2.90 2.90 2.90 2.89
13 2.92 2.91 2.91 2.90
14 2.93 2.93 2.92 2.92
15 2.95 2.95 2.94 2.93
16 2.96 2.96 2.96 2.95
17 2.98 2.98 2.97 2.96
18 3.00 3.00 2.99 2.98
19 3.02 3.01 3.01 3.00
20 3.04 3.03 3.03 3.02
21 3.06 3.05 3.05 3.04
22 3.08 3.07 3.07 3.06
23 3.10 3.09 3.09 3.08
24 3.12 3.12 3.11 3.10
25 3.14 3.14 3.13 3.12
26 3.17 3.16 3.15 3.14
27 3.19 3.19 3.18 3.16
28 3.22 3.22 3.20 3.19
29 3.25 3.24 3.23 3.21
30 3.28 3.27 3.26 3.24
31 3.31 3.30 3.29 3.27
32 3.34 3.33 3.32 3.30
33 3.37 3.37 3.35 3.33
34 3.41 3.40 3.38 3.36
35 3.44 3.44 3.41 3.39
36 3.48 3.48 3.45 3.42
37 3.52 3.51 3.48 3.46
38 3.57 3.56 3.52 3.50
39 3.61 3.60 3.56 3.53
40 3.66 3.64 3.60 3.57
41 3.71 3.69 3.64 3.61
42 3.76 3.74 3.68 3.66
43 3.81 3.79 3.73 3.70
44 3.87 3.85 3.77 3.75
45 3.93 3.90 3.82 3.80
46 3.99 3.96 3.87 3.85
47 4.05 4.02 3.92 3.90
48 4.12 4.09 3.97 3.96
49 4.19 4.15 4.03 4.01
50 4.27 4.22 4.08 4.08
51 4.34 4.29 4.14 4.14
52 4.43 4.37 4.20 4.20
53 4.51 4.45 4.26 4.27
54 4.60 4.54 4.32 4.35
55 4.70 4.62 4.39 4.42
56 4.80 4.72 4.45 4.50
57 4.91 4.82 4.51 4.58
58 5.03 4.92 4.58 4.67
59 5.15 5.03 4.64 4.76
60 5.28 5.14 4.71 4.86
61 5.42 5.26 4.78 4.96
62 5.57 5.39 4.84 5.07
63 5.74 5.52 4.90 5.19
64 5.91 5.66 4.96 5.30
65 6.10 5.81 5.02 5.43
66 6.29 5.96 5.08 5.56
67 6.50 6.11 5.13 5.70
68 6.73 6.28 5.18 5.85
69 6.97 6.44 5.23 6.00
70 7.23 6.61 5.27 6.16
71 7.51 6.78 5.31 6.33
72 7.80 6.96 5.34 6.51
73 8.12 7.14 5.37 6.70
74 8.45 7.32 5.40 6.90
75 8.82 7.49 5.42 7.11
76 9.21 7.67 5.44 7.33
77 9.62 7.84 5.45 7.56
78 10.07 8.01 5.47 7.80
79 10.55 8.17 5.48 8.05
80 11.06 8.33 5.49 8.32
81 11.61 8.48 5.49 8.60
82 12.19 8.61 5.50 8.89
83 12.81 8.74 5.50 9.20
84 13.46 8.86 5.51 9.52
85+ 14.16 8.97 5.51 9.85
</TABLE>
<TABLE>
<CAPTION>
Number of Monthly Instalments
Certain
---------------------------------------------------------
Age of
Payee* Until
Proceeds
None 120 240 Are
F Refunded
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5** $ 2.75 $ 2.75 $ 2.75 $ 2.74
6 2.76 2.76 2.76 2.75
7 2.77 2.77 2.77 2.76
8 2.78 2.78 2.78 2.77
9 2.79 2.79 2.79 2.78
10 2.80 2.80 2.80 2.79
11 2.81 2.81 2.81 2.80
12 2.82 2.82 2.82 2.82
13 2.83 2.83 2.83 2.83
14 2.85 2.85 2.84 2.84
15 2.86 2.86 2.86 2.85
16 2.87 2.87 2.87 2.86
17 2.89 2.89 2.88 2.88
18 2.90 2.90 2.90 2.89
19 2.92 2.92 2.91 2.91
20 2.93 2.93 2.93 2.92
21 2.95 2.95 2.94 2.94
22 2.96 2.96 2.96 2.95
23 2.98 2.98 2.98 2.97
24 3.00 3.00 2.99 2.99
25 3.02 3.02 3.01 3.01
26 3.04 3.04 3.03 3.02
27 3.06 3.06 3.05 3.04
28 3.08 3.08 3.07 3.06
29 3.10 3.10 3.09 3.09
30 3.13 3.12 3.12 3.11
31 3.15 3.15 3.14 3.13
32 3.18 3.17 3.16 3.15
33 3.20 3.20 3.19 3.18
34 3.23 3.23 3.22 3.20
35 3.26 3.26 3.24 3.23
36 3.29 3.29 3.27 3.26
37 3.32 3.32 3.30 3.29
38 3.35 3.35 3.33 3.32
39 3.39 3.38 3.37 3.35
40 3.42 3.42 3.40 3.38
41 3.46 3.46 3.43 3.42
42 3.50 3.50 3.47 3.45
43 3.54 3.54 3.51 3.49
44 3.59 3.58 3.55 3.53
45 3.63 3.63 3.59 3.57
46 3.68 3.67 3.63 3.61
47 3.73 3.72 3.68 3.66
48 3.79 3.77 3.72 3.70
49 3.84 3.83 3.77 3.75
50 3.90 3.89 3.82 3.80
51 3.97 3.95 3.88 3.86
52 4.03 4.01 3.93 3.91
53 4.10 4.08 3.99 3.97
54 4.18 4.15 4.04 4.03
55 4.25 4.22 4.11 4.10
56 4.34 4.30 4.17 4.17
57 4.42 4.38 4.23 4.24
58 4.52 4.47 4.30 4.31
59 4.61 4.56 4.37 4.39
60 4.72 4.66 4.44 4.48
61 4.83 4.76 4.51 4.56
62 4.95 4.86 4.58 4.66
63 5.07 4.98 4.65 4.75
64 5.21 5.10 4.72 4.86
65 5.35 5.22 4.79 4.97
66 5.51 5.36 4.86 5.08
67 5.67 5.50 4.93 5.20
68 5.85 5.65 5.00 5.33
69 6.04 5.80 5.06 5.47
70 6.25 5.96 5.12 5.61
71 6.47 6.14 5.18 5.76
72 6.71 6.31 5.23 5.93
73 6.97 6.50 5.28 6.10
74 7.26 6.69 5.32 6.28
75 7.56 6.89 5.35 6.48
76 7.90 7.09 5.39 6.68
77 8.26 7.29 5.41 6.90
78 8.65 7.49 5.43 7.13
79 9.07 7.69 5.45 7.38
80 9.53 7.89 5.47 7.64
81 10.03 8.08 5.48 7.91
82 10.57 8.26 5.49 8.21
83 11.16 8.43 5.49 8.51
84 11.79 8.59 5.50 8.83
85+ 12.48 8.74 5.50 9.18
</TABLE>
*On birthday nearest to due date of first instalment.
**Ages 5 and under.
+Ages 85 and over.
Form SO-1980
Page 19
<PAGE> 21
OPTION 5-JOINT AND SURVIVOR LIFE INCOME
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under
Option 5
<TABLE>
<CAPTION>
WITH 120 MONTHLY INSTALMENTS CERTAIN
- -----------------------------------------------------------------------------------------------------------------------------
Age of Age of Payee*
Payee* FEMALE
---------------------------------------------------------------------------------------------------------------------
MALE 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.60 $3.63 $3.66 $3.69 $3.72 $3.75 $3.77 $3.80 $3.83 $3.85 $3.88 $3.90 $3.92 $3.95 $3.97
51 3.62 3.65 3.68 3.71 3.74 3.77 3.80 3.83 3.86 3.89 3.91 3.94 3.97 3.99 4.01
52 3.64 3.67 3.70 3.74 3.77 3.80 3.83 3.86 3.89 3.92 3.95 3.98 4.01 4.03 4.06
53 3.66 3.69 3.72 3.76 3.79 3.82 3.86 3.89 3.92 3.96 3.99 4.02 4.05 4.08 4.11
54 3.67 3.71 3.74 3.78 3.81 3.85 3.89 3.92 3.96 3.99 4.02 4.06 4.09 4.12 4.15
55 3.69 3.72 3.76 3.80 3.84 3.87 3.91 3.95 3.99 4.02 4.06 4.10 4.13 4.17 4.20
56 3.70 3.74 3.78 3.82 3.86 3.90 3.94 3.98 4.02 4.06 4.10 4.13 4.17 4.21 4.25
57 3.72 3.76 3.80 3.84 3.88 3.92 3.96 4.00 4.05 4.09 4.13 4.17 4.21 4.25 4.29
58 3.73 3.77 3.81 3.86 3.90 3.94 3.99 4.03 4.08 4.12 4.17 4.21 4.25 4.30 4.34
59 3.74 3.79 3.83 3.87 3.92 3.96 4.01 4.06 4.10 4.15 4.20 4.25 4.29 4.34 4.38
60 3.75 3.80 3.84 3.89 3.94 3.98 4.03 4.08 4.13 4.18 4.23 4.28 4.33 4.38 4.43
61 3.77 3.81 3.86 3.91 3.95 4.00 4.05 4.11 4.16 4.21 4.26 4.32 4.37 4.42 4.48
62 3.78 3.82 3.87 3.92 3.97 4.02 4.07 4.13 4.18 4.24 4.29 4.35 4.41 4.46 4.52
63 3.79 3.83 3.88 3.93 3.99 4.04 4.09 4.15 4.21 4.26 4.32 4.38 4.44 4.50 4.56
64 3.80 3.84 3.90 3.95 4.00 4.06 4.11 4.17 4.23 4.29 4.35 4.41 4.48 4.54 4.60
65 3.80 3.85 3.91 3.96 4.01 4.07 4.13 4.19 4.25 4.31 4.38 4.44 4.51 4.58 4.64
70 3.84 3.89 3.95 4.01 4.07 4.13 4.20 4.27 4.34 4.41 4.49 4.57 4.65 4.73 4.82
75 3.86 3.92 3.98 4.04 4.11 4.17 4.25 4.32 4.40 4.48 4.57 4.66 4.75 4.84 4.94
80 3.87 3.93 4.00 4.06 4.13 4.20 4.27 4.35 4.44 4.52 4.61 4.71 4.81 4.91 5.02
</TABLE>
<TABLE>
<CAPTION>
WITH 120 MONTHLY INSTALMENTS CERTAIN
- ----------------------------------------
Age of Age of Payee*
Payee* FEMALE
-----------------------------
MALE 65 70 75 80
- ----------------------------------------
<S> <C> <C> <C> <C>
50 $3.99 $4.08 $4.14 $4.18
51 4.04 4.13 4.20 4.25
52 4.08 4.19 4.27 4.32
53 4.13 4.25 4.34 4.40
54 4.18 4.31 4.41 4.48
55 4.23 4.37 4.48 4.56
56 4.28 4.44 4.56 4.64
57 4.33 4.50 4.64 4.73
58 4.38 4.57 4.72 4.82
59 4.43 4.64 4.80 4.92
60 4.48 4.71 4.89 5.02
61 4.53 4.77 4.98 5.12
62 4.58 4.84 5.07 5.23
63 4.62 4.91 5.16 5.34
64 4.67 4.98 5.25 5.45
65 4.71 5.05 5.35 5.57
70 4.91 5.36 5.81 6.18
75 5.05 5.62 6.23 6.78
80 5.14 5.79 6.54 7.27
</TABLE>
* On birthday nearest to due date of first instalment. The amount of the
monthly instalment for any combination of ages not shown in this table will
be furnished on request.
<TABLE>
<CAPTION>
WITH 240 MONTHLY INSTALMENTS CERTAIN
- -----------------------------------------------------------------------------------------------------------------------------
Age of Age of Payee*
Payee* FEMALE
---------------------------------------------------------------------------------------------------------------------
MALE 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.60 $3.63 $3.65 $3.68 $3.71 $3.73 $3.76 $3.79 $3.81 $3.84 $3.86 $3.88 $3.90 $3.92 $3.94
51 3.61 3.64 3.67 3.70 3.73 3.76 3.79 3.82 3.84 3.87 3.89 3.92 3.94 3.96 3.98
52 3.63 3.66 3.69 3.72 3.76 3.79 3.82 3.85 3.87 3.90 3.93 3.95 3.98 4.00 4.02
53 3.65 3.68 3.71 3.75 3.78 3.81 3.84 3.87 3.90 3.93 3.96 3.99 4.02 4.04 4.07
54 3.66 3.70 3.73 3.77 3.80 3.83 3.87 3.90 3.93 3.97 4.00 4.03 4.06 4.08 4.11
55 3.68 3.71 3.75 3.79 3.82 3.86 3.89 3.93 3.96 4.00 4.03 4.06 4.09 4.12 4.15
56 3.69 3.73 3.77 3.80 3.84 3.88 3.92 3.95 3.99 4.03 4.06 4.10 4.13 4.16 4.19
57 3.70 3.74 3.78 3.82 3.86 3.90 3.94 3.98 4.02 4.06 4.09 4.13 4.17 4.20 4.24
58 3.72 3.76 3.80 3.84 3.88 3.92 3.96 4.00 4.04 4.09 4.13 4.16 4.20 4.24 4.28
59 3.73 3.77 3.81 3.85 3.90 3.94 3.98 4.03 4.07 4.11 4.15 4.20 4.24 4.28 4.31
60 3.74 3.78 3.82 3.87 3.91 3.96 4.00 4.05 4.09 4.14 4.18 4.23 4.27 4.31 4.35
61 3.75 3.79 3.84 3.88 3.93 3.97 4.02 4.07 4.12 4.16 4.21 4.26 4.30 4.35 4.39
62 3.76 3.80 3.85 3.89 3.94 3.99 4.04 4.09 4.14 4.19 4.23 4.28 4.33 4.38 4.42
63 3.77 3.81 1.86 3.91 3.95 4.00 4.05 4.10 4.16 4.21 4.26 4.31 4.36 4.41 4.46
64 3.77 3.82 3.87 3.92 3.97 4.02 4.07 4.12 4.17 4.23 4.28 4.33 4.39 4.44 4.49
65 3.78 3.83 3.88 3.93 3.98 4.03 4.08 4.14 4.19 4.25 4.30 4.36 4.41 4.46 4.52
70 3.81 3.86 3.91 3.96 4.02 4.07 4.13 4.19 4.25 4.31 4.38 4.44 4.50 4.57 4.63
75 3.82 3.87 3.92 3.98 4.03 4.09 4.16 4.22 4.28 4.35 4.42 4.48 4.55 4.62 4.69
80 3.82 3.87 3.93 3.98 4.04 4.10 4.16 4.23 4.29 4.36 4.43 4.50 4.57 4.64 4.71
</TABLE>
<TABLE>
<CAPTION>
WITH 240 MONTHLY INSTALMENTS CERTAIN
- ----------------------------------------
Age of Age of Payee*
Payee* FEMALE
-----------------------------
MALE 65 70 75 80
- ----------------------------------------
<S> <C> <C> <C> <C>
50 $3.96 $4.03 $4.06 $4.08
51 4.00 4.08 4.12 4.14
52 4.05 4.13 4.17 4.19
53 4.09 4.18 4.23 4.25
54 4.13 4.23 4.29 4.31
55 4.18 4.29 4.35 4.38
56 4.22 4.34 4.41 4.44
57 4.27 4.40 4.47 4.50
58 4.31 4.45 4.53 4.57
59 4.35 4.50 4.59 4.63
60 4.39 4.55 4.65 4.69
61 4.43 4.61 4.71 4.76
62 4.47 4.66 4.77 4.82
63 4.50 4.70 4.83 4.88
64 4.54 4.75 4.88 4.94
65 4.57 4.79 4.93 5.00
70 4.69 4.97 5.15 5.24
75 4.76 5.07 5.28 5.38
80 4.78 5.11 5.33 5.44
</TABLE>
* On birthday nearest to due date of first instalment. The amount of the
monthly instalment for any combination of ages not shown in this table will
be furnished on request.
Form SO-1980
Page 20
<PAGE> 22
ENDORSEMENTS
A GUIDE TO THE PROVISIONS OF THIS POLICY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Allocations and Transfers ............................................ 13
Calculation of Values ................................................ 14
Death Benefit Provisions ............................................. 9
Definitions .......................................................... 7
General Provisions ................................................... 7
Payment Options ...................................................... 17
Policy Description ................................................... 2
Policy Loan Provisions ............................................... 16
Policy Owner & Beneficiary Provisions ................................ 9
Policy Schedule & Specifications ..................................... 3
Premium Expense Charge ............................................... 12
Premium Payment Provisions ........................................... 11
The Separate Account ................................................. 12
Surrenders and Withdrawals ........................................... 15
</TABLE>
<PAGE> 23
Flexible Premium Adjustable Variable Life Insurance Policy.
Insurance Proceeds payable upon death before Final Policy Date.
Policy Account Value payable on Final Policy Date.
Adjustable Death Benefit.
Values provided by this Policy are based on declared interest rates of the
Guaranteed and Loan Accounts and on the investment experience of the
Subaccounts.
Non-participating
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
300 Continental Drive, Newark, DE 19713
