<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
FILE NO. 333-10321
811-8722
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 2 [X]
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PROVIDENTMUTUAL VARIABLE LIFE
SEPARATE ACCOUNT
(EXACT NAME OF REGISTRANT)
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
(NAME OF DEPOSITOR)
300 CONTINENTAL DRIVE
NEWARK, DE 19713
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 452-4000
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<TABLE>
<S> <C>
ADAM SCARAMELLA, ESQ. COPY TO:
COUNSEL STEPHEN E. ROTH, ESQ.
PROVIDENTMUTUAL LIFE INSURANCE COMPANY SUTHERLAND, ASBILL & BRENNAN, L.L.P.
1050 WESTLAKES DRIVE 1275 PENNSYLVANIA AVENUE, N.W.
BERWYN, PA 19312 WASHINGTON, D.C. 20004
(NAME AND ADDRESS OF AGENT FOR SERVICE) (202) 383-0158
</TABLE>
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It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of rule 485
Title of Securities Being Registered:
Interests in Flexible Premium Adjustable Survivorship Variable Life Insurance
Policies
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<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-3B-2
ITEM CAPTION IN PROSPECTUS
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1 Cover Page
2 Cover Page
3 Not Applicable
4 Distribution of Policies
5 Providentmutual Variable Life Separate Account
6(a) Providentmutual Variable Life Separate Account
6(b) Not Applicable
9 Legal Proceedings
10(a) and (b) Not Applicable
10(c) and (d) Death Benefit; Transfers; Loan Privileges; Surrender
Privilege; Partial Withdrawal of Net Cash Surrender Value;
Free-Look Privileges; Special Transfer and Conversion
Rights; Accelerated Death Benefit
10(e) Payment and Allocation of Premiums; Accelerated Death
Benefit
10(f), (g), and (h) Voting Rights, Changes in Applicable Law, Funding and
Otherwise
10(i) Other Policy Provisions
11 Providentmutual Life and Annuity Company of America:
Providentmutual Variable Life Separate Account; The Funds
12 Providentmutual Variable Life Separate Accounts; The Funds
13(a), (b), and (c) Payment and Allocation of Premiums; Charges and Deductions;
Accelerated Death Benefit
13(d), (e), (f), and (g) Not Applicable
13(h) Charges Against the Separate Account
14 Payment and Allocation of Premiums; Distribution of
Policies; Accelerated Death Benefit
15 Payment and Allocation of Premiums
16 Providentmutual Variable Life Separate Account; The Funds
17 See items 10(c), (d), and (e)
18(a), (b), and (c) Providentmutual Variable Life Separate Account; Death
Benefit; Policy Account Value
18(d) Not Applicable
19 Policy Reports
20 Not Applicable
21(a) and (b) Loan Privileges; Accelerated Death Benefit
21(c) Not Applicable
22 Not Applicable
23 Officers and Directors of PLACA
24 Not Applicable
25 PLACA
26 See Item 13(a), (b) and (c)
27 Providentmutual Life and Annuity Company of America
</TABLE>
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<TABLE>
<CAPTION>
N-3B-2
ITEM CAPTION IN PROSPECTUS
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28 Officers and Directors of PLACA
29 Providentmutual Life and Annuity Company of America
30 Not Applicable
31 Not Applicable
32 Not Applicable
33(a) Not Applicable
33(b) Distribution of Policies
34 Not Applicable
35 Providentmutual Life and Annuity Company of America; State
Regulation; Accelerated Death Benefit
36 Not Applicable
37 Not Applicable
38 Distribution of Policies
39 Distribution of Policies
40(a) Distribution of Policies
40(b) The Funds
41 Distribution of Policies
42 Not Applicable
43 Not Applicable
44(a) Death Benefit; Policy Account Value; Accelerated Death
Benefit
44(b) and (c) Not Applicable
45 Not Applicable
46(a) Death Benefit; Policy Account Value; Accelerated Death
Benefit
46(b) Not Applicable
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 Providentmutual Variable Life Separate Account
51 Not Applicable
52(a), (b), and (c) Voting Rights, Changes in Applicable Law, Funding and
Otherwise
52(d) Not Applicable
53(a) Federal Income Tax Considerations
53(b) Not Applicable
54 Not Applicable
55 Not Applicable
</TABLE>
<PAGE> 4
PROSPECTUS
FOR
FLEXIBLE PREMIUM
ADJUSTABLE SURVIVORSHIP VARIABLE
LIFE INSURANCE
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
<TABLE>
<S> <C>
LOGO
PLACA SURVIVOR
OPTIONSVL PROVIDENTMUTUAL LIFE AND ANNUITY
FORM 16099 5.98 COMPANY OF AMERICA
</TABLE>
<PAGE> 5
Providentmutual Life and Annuity Company of America
PROSPECTUS
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FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19173
TELEPHONE: (302) 452-4000
- --------------------------------------------------------------------------------
This Prospectus describes a flexible premium adjustable survivorship
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 younger 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 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 Portfolios, 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 15 Policy Years or within 15 years after a Face Amount
increase, the Policy lapses or if the Owner effects a decrease in Face Amount.
The Policy remains in force if the Net Cash Surrender Value is sufficient to pay
the Monthly Deductions under the Policy. During the first four Policy years, the
Policy will not lapse if the Minimum Guarantee Premium has been paid, even if
the Net Cash Surrender Value is insufficient to pay the Monthly Deductions. This
four year period may be extended by electing the Guaranteed Minimum Death
Benefit Rider.
It may not be advantageous to purchase a Policy as a replacement for
another type of life insurance or as a means to obtain additional protection if
the purchaser already owns an adjustable variable life insurance policy.
------------------------
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES FOR THE
FUNDS.
------------------------
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Prospectus dated May 1, 1998
<PAGE> 6
TABLE OF CONTENTS
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Definitions................................................. 1
Summary Description of the Policy........................... 4
The Policy Offered..................................... 4
Availability of Policy................................. 5
The Death Benefit...................................... 5
Flexibility to Adjust Amount of Death Benefit.......... 5
Policy Account Value................................... 5
Allocation of Net Premiums............................. 6
Transfers.............................................. 6
Free-Look Privilege.................................... 6
Charges Assessed in Connection with the Policy......... 7
Premium Expense Charge............................ 7
Monthly Deductions................................ 7
Surrender Charge.................................. 7
Transfer Charge................................... 7
Partial Withdrawal Charge......................... 7
Daily Charges Against the Subaccounts............. 8
Table of Fund Fees and Expenses................... 8
Policy Lapse and Reinstatement......................... 9
Loan Privilege......................................... 10
Partial Withdrawal of Net Cash Surrender Value......... 10
Surrender of the Policy................................ 10
Tax Treatment.......................................... 10
Illustrations of Death Benefits, Policy Account Value
and Net Cash Surrender Value.......................... 11
The Company, Variable Account and Funds..................... 11
Providentmutual Life and Annuity Company of America.... 11
The Providentmutual Variable Life Separate Account..... 12
The Funds.............................................. 12
The Market Street Fund, Inc. ..................... 13
The Alger American Fund........................... 15
Variable Insurance Product Fund and Variable
Insurance Products Fund II........................ 16
Neuberger & Berman Advisers Management Trust...... 19
Van Eck Worldwide Insurance Trust................. 19
Termination of Participation Agreements................ 20
Resolving Material Conflicts........................... 21
The Guaranteed Account................................. 22
Detailed Description of Policy Provisions................... 22
Death Benefit.......................................... 22
General........................................... 22
Death Benefit Options............................. 22
Option A..................................... 22
Option B..................................... 23
Which Death Benefit Option to Choose.............. 23
Change in Death Benefit Option.................... 23
Death Benefit Guarantee........................... 24
How the Death Benefit May Vary.................... 24
Ability to Decrease Face Amount........................ 24
Changes Affecting the Death Benefit.................... 25
How the Duration of the Policy May Vary................ 25
Policy Account Value................................... 25
Calculation of Policy Account Value............... 26
</TABLE>
i
<PAGE> 7
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Determination of Number of Units for the
Subaccounts....................................... 26
Determination of Unit Value....................... 26
Net Investment Factor............................. 26
Payment and Allocation of Premiums..................... 26
Issuance of a Policy.............................. 26
Amount and Timing of Premiums..................... 27
Premium Limitations............................... 27
Allocation of Net Premiums........................ 28
Transfers......................................... 28
Policy Lapse...................................... 28
Reinstatement..................................... 29
Charges and Deductions...................................... 29
Premium Expense Charge................................. 29
Premium Tax Charge................................ 29
Percent of Premium Sales Charge................... 29
Federal Tax Charge................................ 29
Surrender Charge....................................... 29
Deferred Administrative Charge.................... 30
Deferred Sales Charge............................. 30
Surrender Charge Upon Decrease in Face Amount..... 30
Allocation of Surrender Charge.................... 30
Monthly Deductions..................................... 30
Cost of Insurance................................. 31
Cost of Insurance Rate....................... 31
Premium Class................................ 31
Administrative Charges....................... 31
Initial Administrative Charge................ 31
Monthly Administrative Charge................ 31
Additional Benefit Charges................... 31
Partial Withdrawal Charge.............................. 31
Transfer Charge........................................ 32
Charges Against the Subaccounts........................ 32
Mortality and Expense Risk Charge................. 32
Other Charges.......................................... 32
Contract Rights............................................. 32
Loan Privileges........................................ 32
General........................................... 32
Interest Rate Charged............................. 32
Allocation of Loans and Collateral................ 32
Interest Credited to Loan Account................. 33
Effect of Policy Loan............................. 33
Loan Repayments................................... 33
Lapse With Loans Outstanding...................... 33
Tax Considerations................................ 33
Surrender Privilege.................................... 33
Partial Withdrawal of Net Cash Surrender Value......... 34
Free-Look Privilege.................................... 35
Free-Look for Policy.............................. 35
Special Transfer and Conversion Rights................. 35
Transfer Right for Policy......................... 35
Transfer Right for Change in Investment Policy of
Subaccount........................................ 35
</TABLE>
ii
<PAGE> 8
<TABLE>
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Telephone Transfers............................... 36
Automatic Asset Rebalancing....................... 36
The Guaranteed Account...................................... 36
Minimum Guaranteed and Current Interest Rates.......... 36
Calculation of Guaranteed Account Value........... 37
Transfers from Guaranteed Account...................... 37
Other Policy Provisions..................................... 37
Amount Payable on Final Policy Date.................... 37
Payment of Policy Benefits............................. 37
The Contract........................................... 38
Ownership.............................................. 38
Beneficiary............................................ 38
Change of Owner and Beneficiary........................ 38
Split Dollar Arrangements.............................. 38
Assignments............................................ 38
Misstatement of Age and Sex............................ 38
Suicide................................................ 39
Incontestability....................................... 39
Dividends.............................................. 39
Settlement Options..................................... 39
Proceeds at Interest Option............................ 39
Installments of a Specified Amount Option.............. 39
Installments for a Specified Period Option............. 39
Life Income Option..................................... 39
Joint and Survivor Life Income......................... 40
Supplementary Benefits...................................... 40
Disability Waiver Benefit.............................. 40
Policy Split Option.................................... 40
Change of Insured...................................... 40
Four Year Survivorship Term Life Insurance............. 40
Convertible Term Life Insurance........................ 40
Guaranteed Minimum Death Benefit....................... 40
Final Policy Date Extension............................ 41
Dollar Cost Averaging.................................. 41
Federal Income Tax Considerations........................... 42
Introduction........................................... 42
Tax Status of the Policy............................... 42
Tax Treatment of Policy Benefits....................... 43
In General........................................ 43
Modified Endowment Contracts...................... 43
Distributions From Policies Classified as Modified
Endowment Contracts............................... 44
Distributions From Policies Not Classified as
Modified Endowment Contracts...................... 44
Policy Loan Interest.............................. 44
Investment in the Policy.......................... 44
Multiple Policies................................. 44
Taxation of Policy Split.......................... 44
Other Tax Considerations.......................... 45
Possible Tax Law Changes............................... 45
Charge for PLACA's Taxes............................... 45
Legal Developments Regarding Unisex Actuarial Tables........ 45
Voting Rights............................................... 46
Changes in Applicable Law, Funding and Otherwise............ 46
</TABLE>
iii
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Officers and Directors of PLACA............................. 47
Distribution of Policies.................................... 48
Preparing for Year 2000..................................... 49
Policy Reports.............................................. 49
Legal Proceedings........................................... 49
State Regulation............................................ 49
Experts..................................................... 50
Legal Matters............................................... 50
Appendix A--Illustration of Death Benefits, Policy Account
Values and Net Cash Surrender Values...................... A-1
Appendix B--Long Term Market Trends......................... B-1
Financial Statements........................................ F-1
</TABLE>
THE POLICY MAY NOT BE AVAILABLE IN ALL JURISDICTIONS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. IF GIVEN, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE
RELIED ON.
THE PRIMARY PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE
INSURANCE PROTECTION. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR
COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.
iv
<PAGE> 10
DEFINITIONS
ATTAINED AGE............... For each Insured, such Insured's Issue Age 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
last surviving 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 estate of the last
surviving Insured will be the Beneficiary.
CASH SURRENDER VALUE....... The Policy Account Value minus any applicable
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, measured from the Policy Date.
FACE AMOUNT................ The Face Amount is shown in the Policy Schedule.
It is equal to the Initial Face Amount minus any
subsequent decreases in such amount (including any
decreases due to changes from Death Benefit Option
B to Option A). The Face Amount is used to
determine the Death Benefit.
FINAL POLICY DATE.......... The Policy Anniversary nearest the younger
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 either 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.
HOME OFFICE................ PLACA's Home Office at 300 Continental Drive,
Newark, DE 19713.
INITIAL FACE AMOUNT........ The Face Amount shown in the Policy Schedule for
the Policy on the Policy Issue Date. The Initial
Face Amount may be decreased after issue.
INSURANCE PROCEEDS......... The net amount to be paid to the Beneficiary when
the last surviving Insured dies.
INSUREDS................... The persons upon whose lives the Policy is issued.
ISSUE AGES................. The age of each Insured at his or her birthday
nearest the Policy Date. The Issue Ages are stated
in the Policy.
JOINT EQUAL AGE............ An age assigned to the two Insureds which is
actuarially determined by PLACA based solely on
the Issue Age of each Insured.
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 $100,000.
1
<PAGE> 11
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
payment mode at issue. Annual -- 1.0;
Semiannual -- 0.50 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. The Monthly Deduction
on the first 12 Policy Processing Days also
includes an Initial Administrative Charge.
NET AMOUNT AT RISK......... The amount by which the Death Benefit exceeds the
Policy Account Value.
NET CASH SURRENDER VALUE... The Policy Account Value minus any applicable
contingent surrender charges, minus any
outstanding Policy loans and accrued interest.
NET PREMIUM................ The remainder of a premium after the deduction of
the Premium Expense Charge.
OWNER...................... The person(s) or entity(ies) entitled to exercise
the rights granted in the Policy.
PLANNED PERIODIC PREMIUM... The premium amount which the Owner plans to pay at
the frequency selected. The Owner is entitled to
receive a reminder notice and change the amount of
the Planned Periodic Premium. The Owner is not
required to pay the designated amount.
POLICY ACCOUNT VALUE....... The sum of the Policy's values in the Subaccounts,
the Guaranteed Account, and the Loan Account.
POLICY ANNIVERSARY......... The same day and month as the Policy Date in each
later year.
POLICY DATE................ The date set forth in the Policy that is used to
determine Policy Years and Policy Processing Days.
The Policy Date is generally the same as the
Policy Issue Date but may be another date mutually
agreed upon by PLACA and the proposed Insureds.
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 each Insured for cost of
insurance purposes. The classes are: standard;
nonsmoker; preferred; with extra rating; and
nonsmoker with extra rating.
PREMIUM EXPENSE CHARGE..... The amount deducted from a premium payment which
consists of the Premium Tax Charge and a Percent
of Premium Sales Charge and the Federal Tax
Charge.
SURRENDER CHARGE........... The amount deducted from the Policy Account Value
upon lapse or surrender of the Policy during the
first 15 Policy Years. A pro-rata Surrender Charge
will be deducted upon a decrease in the Face
Amount during the first 15 Policy Years. The
Maximum Surrender Charge is shown in the Policy.
2
<PAGE> 12
SURRENDER CHARGE
TARGET PREMIUM.......... An amount based on the Initial Face Amount and
Joint Equal Age of the Insureds used solely for
the purpose of calculating the Deferred Sales
Charge.
VALUATION DAY.............. Each day that the New York Stock Exchange is open
for business and any other day on which there is a
sufficient degree of trading with respect to a
Subaccount's portfolio of securities to materially
affect the value of that Subaccount.
VALUATION PERIOD........... The time between two successive Valuation Days.
Each Valuation Period includes a Valuation Day and
any non-Valuation Day or consecutive non-Valuation
Days immediately preceding it.
3
<PAGE> 13
SUMMARY DESCRIPTION OF THE POLICY
The following summary of the Policy provisions should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus.
THE POLICY OFFERED
The Flexible Premium Adjustable Survivorship Variable Life Insurance Policy
(the "Policy") offered by this Prospectus is issued by Providentmutual Life and
Annuity Company of America ("PLACA"). The Policy allows the Owner, subject to
certain limitations, to make premium payments in any amount and at any
frequency. As long as the Policy remains in force, it will provide for:
(1) Life insurance coverage on the named Insureds up to Attained Age 100 of
the younger Insured;
(2) A Cash Surrender Value;
(3) Surrender and withdrawal rights and Policy loan privileges; and
(4) A variety of additional insurance benefits.
The Policy described in this Prospectus is designed to provide insurance
coverage to help lessen the economic loss resulting from the deaths of the
Insureds. It is not primarily offered as an investment. Life insurance is not a
short-term investment. Prospective Owners should consider their need for
insurance coverage and the Policy's long-term investment potential. The Death
Benefit is not payable, in whole or in part, at the time of death of the first
of the Insureds to die; it is only payable at the time of death of the last
surviving Insured. There are no changes made to the Policy as a result of the
death of the first Insured to die.
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, decrease the Face Amount and may change the Death Benefit
Option. The Policy is called "variable" because, unlike a fixed benefit whole
life insurance policy, the Death Benefit under the Policy may, and its Account
Value will, vary to reflect the investment performance of the chosen
Subaccounts, and the crediting of interest to the Guaranteed Account, as well as
other factors.
The failure to pay Planned Periodic Premiums will not itself cause the
Policy to lapse. Conversely, the payment of premiums in any amount or frequency
will not necessarily guarantee that the Policy will remain in force. In general,
the Policy will lapse if the Net Cash Surrender Value is insufficient to pay the
Monthly Deduction for cost of insurance and administrative charges. During the
first four Policy Years, the Policy will not lapse if the Minimum Guarantee
Premium has been paid, even if the Net Cash Surrender Value is insufficient.
This four year period may be extended by electing the Guaranteed Minimum Death
Benefit Rider.
After deduction of the Premium Expense Charge, Net Premiums are allocated
to one or more of the Subaccounts of the Providentmutual Variable Life Separate
Account, and/or the Guaranteed Account as selected by the Owner. The Guaranteed
Account is part of PLACA's General Account.
The Providentmutual Variable Life Separate Account consists of twenty-eight
Subaccounts, the assets of which are used to purchase shares of a designated
corresponding mutual fund portfolio (each, a "Portfolio") that is part of one of
the following funds: The Market Street Fund, Inc.; The Alger American Fund;
Neuberger & Berman Advisers Management Trust; American Century Variable
Portfolio, Inc.; Van Eck Worldwide Insurance Trust; Variable Insurance Products
Fund; and Variable Insurance Products Fund II (the "Funds", each, a "Fund").
There is no assurance that the investment objectives of a particular Portfolio
will be met. The Owner bears the entire investment risk of amounts allocated to
the Subaccounts.
Before purchasing a Policy, a prospective Owner should ask his or her PLACA
representative whether changing, or adding to, current insurance coverage would
be advantageous. Generally, it is not advisable to purchase another policy as a
replacement for existing coverage.
4
<PAGE> 14
AVAILABILITY OF POLICY
This Policy can be issued for two Insureds each between ages 21 and 85 and
with a Joint Equal Age between 25 and 80. The Minimum Face Amount is $100,000.
Before issuing a Policy, PLACA will require that the proposed Insureds meet
certain underwriting standards satisfactory to PLACA. The premium classes
available for each Insured are Standard, Nonsmoker Preferred, with Extra Rating
and Nonsmoker with Extra Rating. (See "Issuance of a Policy," Page 26.)
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 both
Insureds. The Insurance Proceeds will consist of the Policy's Death Benefit plus
any relevant additional benefits provided by a supplementary benefit rider, less
any outstanding Policy loan and accrued interest, less any unpaid Monthly
Deductions.
There are two Death Benefit Options available. Death Benefit Option A
provides for the greater of (a) the Face Amount and (b) the applicable
percentage of the Policy Account Value. Death Benefit Option B provides for the
greater of (a) the Face Amount plus the Policy Account Value and (b) the
applicable percentage of the Policy Account Value. (See "Death Benefit Options,"
Page 22.)
During the first four Policy Years regardless of investment experience, the
Death Benefit is guaranteed never to be less than the Policy's Face Amount, as
long as the sum of premiums paid less any partial withdrawals less any policy
loans equals or exceeds the Minimum Guarantee Premium. This four year period may
be extended by electing the Guaranteed Minimum Death Benefit Rider.
FLEXIBILITY TO ADJUST AMOUNT OF DEATH BENEFIT
After the first Policy Year, the Owner has flexibility to adjust the Death
Benefit by changing the Death Benefit Option or by decreasing the Face Amount of
the Policy. (See "Change in Death Benefit Option," Page 23, and "Ability to
Decrease Face Amount," Page 24.) 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 at that
time. PLACA reserves the right to establish different Minimum Face Amounts for
Policies issued in the future. (Decreases are not permitted for Policies issued
in Virginia.)
Any change in Death Benefit Options or in the Face Amount may affect the
charges under the Policy. 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 lower the cost of insurance charges. (See "Cost of
Insurance," Page 31.)
To the extent that a requested decrease in Face Amount would result in
cumulative premiums exceeding the maximum premium limitations applicable under
the Internal Revenue Code for life insurance, PLACA will not effect the
decrease.
POLICY ACCOUNT VALUE
The Policy Account Value is the total amount of value held under the Policy
at any time. It equals the sum of the amounts held in the Subaccounts, the
Guaranteed Account and the Loan Account. (See "Calculation of Policy Account
Value," Page 26.)
The Policy Account Value in the Subaccounts will reflect the investment
performance of the chosen Subaccounts, any Net Premiums paid, any transfers, any
partial withdrawals, any loans, any loan repayments, any loan interest paid or
credited and any charges assessed in connection with the Policy. The Owner bears
the entire investment risk for amounts allocated to the Subaccounts. There is no
guaranteed minimum for the portion of the Policy Account Value in the
Subaccounts.
The Guaranteed Account earns interest at rates PLACA declares in advance
for specific periods. The rates are guaranteed to equal or exceed 4%. The
principal, after deductions, is also guaranteed. The value of
5
<PAGE> 15
the Guaranteed Account will reflect any amounts allocated or transferred to it
plus interest credited to it, less amounts deducted, transferred or withdrawn
from it. (See "The Guaranteed Account," Page 36.)
The Loan Account will reflect any amounts transferred from the Subaccounts
and/or Guaranteed Account as collateral for Policy loans plus interest of at
least 4% credited to such amount. (See "Loan Privileges," Page 32.)
The Policy Account Value is relevant to the computation of the Death
Benefit and cost of insurance charges.
ALLOCATION OF NET PREMIUMS
Except as described below, Net Premiums will generally be allocated to the
Subaccounts and the Guaranteed Account in accordance with the allocation
percentages which are in effect for such premium when received at PLACA's Home
Office. These percentages will be those specified in the application or as
subsequently changed by the Owner or as specified for a particular premium
payment.
Where state law requires a return of gross premiums paid when a Policy is
returned under the Free-Look provision (see "Free-Look for Policy," Page 35) any
portion of the Initial Net Premium and any Net Premiums received before the
expiration of a 15-day period beginning on the later of the Policy Issue Date or
the date PLACA receives the Minimum Initial Premium, which are to be allocated
to the Subaccounts will be allocated to the Money Market Subaccount. At the end
of the 15-day period, the amount in the Money Market Subaccount (including
investment experience) will be allocated to each of the chosen Subaccounts based
on the proportion that the allocation percentage for such Subaccount bears to
the sum of the Subaccount premium allocation percentages. (See "Allocation of
Net Premiums," Page 27.)
TRANSFERS
The Owner may make transfers of the amounts in the Subaccounts and
Guaranteed Account between and among such accounts and between and among
Subaccounts. Transfers between and among the Subaccounts or into the Guaranteed
Account will be made on the date we receive the request. The minimum amount for
each transfer is $1,000, unless a lesser minimum amount is required in a
particular jurisdiction. Transfers out of the Guaranteed Account may only be
made within 30 days of a Policy Anniversary and are limited in amount. If the
Owner makes more than four transfers in a Policy Year, a Transfer Charge of $25
will be deducted from the amount being transferred. (See "Transfers," Page 28.)
FREE-LOOK PRIVILEGE
The Policy provides for an initial Free-Look period. The Owner may cancel
the Policy before the latest of: (a) 45 days after Part I of the Application for
the Policy is signed; (b) 10 days after the Owner receives the Policy; and (c)
10 days after PLACA mails or personally delivers a Notice of Withdrawal Right to
the Owner. Upon returning the Policy to PLACA or to an agent of PLACA within
such time with a written request for cancellation, the Policy will be cancelled.
PLACA will promptly pay to the Owner a refund equal to the sum of: (i) the
Policy Account Value as of the date PLACA receives the returned Policy; plus
(ii) the amount deducted for premium taxes; plus (iii) any Monthly Deductions
charged against the Policy Account Value; plus (iv) an amount reflecting other
charges directly or indirectly deducted under the Policy. Where state law
requires a minimum refund equal to gross premiums paid, the refund will instead
equal the gross premium paid on the Policy and will not reflect the investment
experience of the Subaccounts. (See "Free-Look Privilege," Page 35.)
6
<PAGE> 16
CHARGES ASSESSED IN CONNECTION WITH THE POLICY
Premium Expense Charge. A Premium Expense Charge will be deducted from
each premium payment. This charge consists of:
(i) Premium Tax Charge for state and local premium taxes based on the
rate for the Insureds' 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 Insureds' residence changes or the applicable law is
changed;
(ii) Percent of Premium Sales Charge which is equal to 5% of the
amount of the premium payment in Policy Years 1 through 15. At the present
time PLACA does not intend to apply this charge after Policy Year 15, but
reserves the right to do so.
(iii) Federal Tax Charge equal to 1.25% of the amount of the premium
payment. PLACA reserves the right to change the amount of this charge if
the applicable Federal tax law changes PLACA's tax burden. (See "Premium
Expense Charge," Page 29).
Monthly Deductions. On the Policy Date and on each Policy Processing Day
thereafter, the Policy Account Value will be reduced by a Monthly Deduction
equal to the sum of the monthly Cost of Insurance Charge, Monthly Administrative
Charge, 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 will be determined by multiplying the Net Amount at Risk (that
is the Death Benefit less Policy Account Value) by the applicable cost of
insurance rate(s), which will depend upon the Issue Age, Sex, Premium Class of
each Insured and Duration and on PLACA's expectations as to future mortality and
expense experience, but which will not exceed the guaranteed maximum cost of
insurance rates set forth in the Policy based on the Issue Age, Sex, Premium
Class of each Insured, the Duration and the "1980 Commissioners Standard
Ordinary Smoker and Nonsmoker Mortality Table." (See "Cost of Insurance," Page
31.) The Monthly Administrative Charge is currently $7.50 plus $.01 per $1,000
of Face Amount; the maximum permissible Monthly Administrative Charge is $12
plus $.03 per $1,000 of Face Amount. (See "Monthly Administrative Charge," Page
31.) The Initial Administrative Charge is $17.50 plus $.11 per $1,000 of Initial
Face Amount, payable on the first 12 Policy Processing Days. (See "Initial
Administrative Charge," Page 31.)
Surrender Charge. A Surrender Charge is imposed if the Policy is
surrendered or lapses at any time before the fifteenth 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 Face Amount before the end of the fifteenth Policy Year. (See
"Surrender Charge," Page 29.)
The Deferred Administrative Charge is equal to $5.00 per $1,000 of Initial
Face Amount in Policy Years 1 to 11 declining by 20% of the original amount each
year in Policy Years 12 to 15 until it is zero in Policy Year 16.
The Deferred Sales Charge is equal to 25% of the premiums received during
the first Policy Year up to one Surrender Charge Target Premium plus 4% of all
other premiums received to the date of surrender, lapse or decrease. The
Deferred Sales Charge, however, will not exceed the Maximum Deferred Sales
Charge. For Joint Equal Ages 25 to 71, the Maximum Deferred Sales Charge equals
60% of the Surrender Charge Target Premium, 50% of the relevant Surrender Charge
Target Premium for Joint Equal Ages 72 and 73, 40% of the relevant Surrender
Charge Target Premium for Joint Equal Ages 74 and 75, 30% for Joint Equal Ages
76 to 78 and 20% for Joint Equal Ages 79 and 80. The amount of the Maximum
Deferred Sales Charge remains level for Policy Years 1 through 11 and declines
by 20% of the original amount each year in Policy Years 12 through 15.
Transfer Charge. After the fourth transfer between accounts in a Policy
Year, a $25 charge for each additional transfer will be deducted from the amount
transferred to compensate PLACA for administrative costs in handling such
transfers. (See "Transfer Charge," Page 32.)
Partial Withdrawal Charge. A charge equal to $25 will be deducted by PLACA
from the Policy Account Value to compensate it for its costs. (See "Partial
Withdrawal Charge," Page 31.)
7
<PAGE> 17
Daily Charges Against the Subaccounts. A daily charge for PLACA's
assumption of certain mortality and expense risks incurred in connection with
the Policy will be imposed at an annual rate which is currently 0.65% of the
average daily net assets of the Subaccounts. This charge may be increased in the
future but in no event will it exceed an annual rate of 0.90%. (See "Charges
Against the Subaccounts," Page 32.)
Shares of the Portfolios are purchased by the Subaccounts at net asset
value which reflects management fees and expenses deducted from the assets of
the Portfolios.
TABLE OF FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......... 0.32% 0.25% 0.35% 0.41% 0.45% 0.75%
Other Expenses....................... 0.11% 0.14% 0.22% 0.17% 0.18% 0.27%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses........... 0.43% 0.39% 0.57% 0.58% 0.63% 1.02%
</TABLE>
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......... 0.70% 0.70% 0.90% 0.90%
Other Expenses....................... 0.40% 0.40% 0.40% 0.40%
---- ---- ---- ----
Total Fund Annual Expenses........... 1.10% 1.10% 1.30% 1.30%
</TABLE>
<TABLE>
<CAPTION>
SMALL
CAPITALIZATION
PORTFOLIO
--------------
<S> <C> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND ANNUAL
EXPENSES(2)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees )........ 0.85%
Other Expenses....................... 0.04%
----
Total Fund Annual Expenses........... 0.89%
</TABLE>
<TABLE>
<CAPTION>
HIGH EQUITY-
INCOME INCOME GROWTH OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND
("VIP FUND") ANNUAL EXPENSES(2)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......... 0.59% 0.49% 0.60% 0.74%
Other Expenses
(after reimbursement)(1)........... 0.12% 0.08% 0.07% 0.16%
---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(1)........... 0.71% 0.57% 0.67% 0.90%
</TABLE>
8
<PAGE> 18
TABLE OF FUND FEES AND EXPENSES -- (CONTINUED)
<TABLE>
<CAPTION>
ASSET INDEX INVESTMENT
MANAGER 500 GRADE BOND CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND II ("VIP II FUND")
ANNUAL EXPENSES(2)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......... 0.55% 0.28% 0.44% 0.59%
Other Expenses
(after reimbursement)(1)........... 0.09% 0.00% 0.14% 0.09%
---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(1)........... 0.64% 0.28% 0.58% 0.68%
</TABLE>
<TABLE>
<CAPTION>
LIMITED
MATURITY
BOND PARTNERS
PORTFOLIO PORTFOLIO
-------------- ---------
<S> <C> <C> <C> <C> <C> <C>
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST ANNUAL EXPENSES(2)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......... 0.65% 0.80%
Other Expenses....................... 0.12% 0.06%
---- ----
Total Fund Annual Expenses........... 0.77% 0.86%
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
WORLDWIDE HARD EMERGING REAL
BOND ASSETS MARKETS ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE TRUST
ANNUAL EXPENSES(2)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......... 1.00% 1.00% 1.00% 1.00%
Other Expenses
(after reimbursement)(1)........... 0.12% 0.17% 0.00% 0.17%
---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(1)........... 1.12% 1.17% 1.00% 1.17%
</TABLE>
- ---------------
(1) For certain portfolios, certain expenses were reimbursed during 1997. It is
anticipated that expense reimbursement and fee waiver arrangements will
continue past the current year. Absent the expense reimbursement, the 1997
Other Expenses and Total Annual Expenses would have been 0.09%, 0.58%,
respectively, for the VIP Fund Equity Income Portfolio, 0.09%, 0.69%,
respectively, for the VIP Fund Growth Portfolio, 0.17%, 0.91%, respectively,
for the VIP II Fund Overseas Portfolio, 0.10%, 0.65%, respectively, for the
VIP II Fund Asset Manager Portfolio, 0.13%, 0.40%, respectively, for the VIP
II Fund Index 500 Portfolio, 0.11%, 0.71%, respectively, for the VIP II Fund
Contrafund Portfolio, and 0.18%, 1.18%, respectively, for the Van Eck
Worldwide Hard Assets Portfolio. Similar expense reimbursement and fee
waiver arrangements were also in place for the other Portfolios and it is
anticipated that such arrangements will continue past the current year.
However, no expenses were reimbursed or fees waived during 1997 for these
Portfolios because the level of actual expenses and fees never exceeded the
thresholds at which the reimbursement and waiver arrangements would have
become operative.
(2) The fee and expense information regarding the Funds was provided by those
Funds. The Alger American Fund, the VIP Fund, the VIP II Fund, the Neuberger
& Berman ATM Fund, and the Van Eck WIT Fund are not affiliated with PLACA.
More detailed information is contained in the Funds Prospectuses which are
attached to or accompany this Prospectus.
POLICY LAPSE AND REINSTATEMENT
During the first four Policy Years, the Policy will lapse if the Minimum
Guarantee Premium has not been paid and if the Net Cash Surrender Value is
insufficient to cover the Monthly Deductions and a 61-day Grace Period expires
without a sufficient premium payment. After the fourth Policy Year, the Policy
will lapse if the
9
<PAGE> 19
Net Cash Surrender Value is insufficient and the Grace Period lapses without a
sufficient premium payment. This four year period may be extended by electing
the Guaranteed Minimum Death Benefit Rider. The failure to pay a Planned
Periodic Premium will not itself cause a Policy to lapse. (See "Policy Lapse,"
Page 28.)
Subject to certain conditions, including evidence of insurability
satisfactory to PLACA and the payment of a sufficient premium, a Policy may be
reinstated at any time within three years (or such longer period as may be
required in a particular state) after the expiration of the Grace Period and
before the Final Policy Date. (See "Reinstatement," Page 29.)
LOAN PRIVILEGE
The Owner may obtain Policy loans in a minimum amount of $500 (or such
lesser minimum as may be required in a particular state) but not exceeding, in
the aggregate, the Net Cash Surrender Value.
Policy loans will bear interest at a fixed rate of 6% per year, payable at
the end of each Policy Year. If interest is not paid when due, it will be added
to the outstanding loan balance. Policy loans may be repaid at any time and in
any amount prior to the Final Policy Date.
Policy loans are allocated to the Subaccounts and the Guaranteed Account
based on the proportion that each account's value bears to the total unloaned
Policy Account Value. Based on this allocation, the collateral for the loan is
deducted from each account and transferred to the Loan Account. This amount in
the Loan Account will earn interest at an effective annual rate PLACA will
determine prior to each calendar year. This rate will not be less than 4%. (See
"Loan Privileges," Page 32.)
Depending upon the investment performance of Net Cash Surrender Value and
the amount of any Policy loan, such loans may cause a Policy to lapse. Lapse of
the Policy with Policy loans outstanding may result in adverse tax consequences.
(See "Tax Treatment of Policy Benefits," Page 43.)
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After the first Policy Year, the Owner may, subject to certain
restrictions, request a partial withdrawal of Net Cash Surrender Value. The
minimum amount for such withdrawal is $1,500. An expense charge of $25 will be
deducted from the Policy Account Value for each withdrawal. The withdrawal
amount and expense charge will be allocated to the Subaccounts and the
Guaranteed Account based on the proportion that the value in each account bears
to the total unloaned Policy Account Value. If Death Benefit Option A is in
effect, PLACA will reduce the Face Amount by the amount of the withdrawal. (See
"Partial Withdrawal of Net Cash Surrender Value," Page 34.)
SURRENDER OF THE POLICY
The Owner may at any time fully surrender the Policy and receive the Net
Cash Surrender Value, if any. The Net Cash Surrender Value will equal the Policy
Account Value less any Policy loan, accrued interest and any applicable
surrender charges. (See "Surrender Privilege," Page 33.)
TAX TREATMENT
Under current federal tax law, life insurance contracts receive tax-favored
treatment. The death benefit is generally excludable from the beneficiary's
gross income for federal income tax purposes, according to Section 101(a)(1) of
the Internal Revenue Code. Owners of a life insurance contract are not taxed on
any increase in the cash value while the contract remains in force.
If a life insurance contract is a modified endowment contract under federal
tax law, certain distributions made during either insured's lifetime, such as
loans and partial withdrawals from, and collateral assignments of, the contract
are includable in gross income on an income-first basis. A 10% penalty tax may
also be imposed on distributions made before the contract owner attains age
59 1/2. Life insurance contracts that are not modified endowment contracts under
federal tax law receive preferential tax treatment with respect to certain
distributions.
For a discussion of the tax issues associated with this Policy, see
"Federal Income Tax Considerations" on page 42.
10
<PAGE> 20
ILLUSTRATIONS OF DEATH BENEFITS, POLICY ACCOUNT VALUE AND NET CASH SURRENDER
VALUE
Illustrations of how investment performance of the Subaccounts may cause
Death Benefits, the Policy Account Value and the Net Cash Surrender Value to
vary are included in Appendix A commencing on page A-1.
These projections of hypothetical values may be helpful in understanding
the long-term effects of different levels of investment performance, of charges
and deductions, of electing one or the other death benefit option, and generally
comparing and contrasting this Policy to other life insurance policies.
Nonetheless, the illustrations are based on hypothetical investment rates of
return and are not guaranteed. Illustrations are illustrative only and are not a
representation of past or future performance. Actual rates of return may be more
or less than those reflected in the illustrations and, therefore, actual values
will be different from those illustrated.
THE COMPANY, VARIABLE ACCOUNT AND FUNDS
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
The Contracts are issued by PLACA which is a stock life insurance company
originally incorporated under the name of Washington Square Life Insurance
Company in the Commonwealth of Pennsylvania in 1958. The name of the Company was
changed from Washington Square to PLACA in 1991 and the Company was redomiciled
as a Delaware insurance company in December, 1992. PLACA is currently licensed
to transact life insurance business in 48 states and the District of Columbia.
As of December 31, 1997, PLACA had total assets of approximately $1.2 billion.
PLACA is a wholly-owned subsidiary of Provident Mutual Life Insurance
Company ("PMLIC"). PMLIC was chartered by the Commonwealth of Pennsylvania in
1865 and at the end of 1997 had total assets of approximately $7.9 billion. On
December 31, 1997, Providentmutual and PMLIC entered into a Support Agreement
whereby PMLIC agrees to ensure that Providentmutual's total adjusted capital
will remain at the level of 200% of the company action level for risk-based
capital ("RBC") at the end of each calendar quarter during the term of the
agreement, agreeing to contribute to Providentmutual an amount of capital
sufficient to attain such level of total adjusted capital. RBC requirements are
used to monitor sufficient capitalization of insurance companies based upon the
types and mixtures of risk inherent in such companies' operations.
Further, PMLIC agrees to cause Providentmutual to maintain cash or cash
equivalents from time to time as may be necessary during the term of the
agreement in an amount sufficient for the payment of benefits and other
contractual claims pursuant to policies and other contracts issued by
Providentmutual. This agreement will remain in effect provided Providentmutual
is, and remains, a subsidiary of PMLIC. Prior to any material modification or
termination of the agreement, a determination must be made that such
modification or termination will not have an adverse impact on the policyholders
of Providentmutual. Such determination shall be based on the ability of
Providentmutual at the time of such determination to maintain its own financial
stability according to the standards contained in the agreement.
Other than this Support Agreement, PMLIC is under no obligation to invest
money in PLACA nor is it in any way a guarantor of PLACA's contractual
obligations or obligations under the Contract.
PLACA is subject to regulation by the Insurance Department of the State of
Delaware as well as by the insurance departments of all other states and
jurisdictions in which it does business. PLACA submits annual statements on its
operations and finances to insurance officials in such states and jurisdictions.
The forms for the Contract described in this Prospectus are filed with and
(where required) approved by insurance officials in each state and jurisdiction
in which Contracts are sold.
PLACA is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
11
<PAGE> 21
THE PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT
The Providentmutual Variable Life Separate Account (the "Variable Account")
is a separate investment account of PLACA, established by the Board of Directors
of PLACA, under Delaware law to support the operation of the Policy and to
support other variable life insurance policies. PLACA has caused the Variable
Account to be registered with the Securities and Exchange Commission (the "SEC")
as a unit investment trust under the Investment Company Act of 1940 (the "1940
Act"). Such registration does not involve supervision by the SEC of the
management or investment policies or practices of the Variable Account.
The assets of the Variable Account are owned by PLACA. However, these
assets are held separate from other assets and are not part of PLACA's General
Account. The portion of the assets of the Variable Account equal to the reserves
or other contract liabilities of the Variable Account will not be charged with
liabilities that arise from any other business PLACA conducts. PLACA may
transfer to its General Account any assets of the Variable Account that exceed
the reserves and the Contract liabilities of the Variable Account (which will
always be at least equal to the aggregate Contract value allocated to the
Variable Account under the Contracts).
The income, gains and losses, realized or unrealized, from assets allocated
to the Variable Account are credited to or charged against the Variable Account
without regard to other income, gains or losses of PLACA. PLACA may accumulate
in the Variable Account the charge for mortality and expense risks, mortality
gains and losses and investment results applicable to those assets that are in
excess of the net assets supporting the Contracts. An Owner will share only in
the income, gains and losses of the particular Subaccounts to which his or her
Net Premium payments have been allocated or to which portions of the Policy
Account Value have been transferred.
The Variable Account currently has twenty-eight Subaccounts: Growth, Money
Market, Bond, Managed, Aggressive Growth, International, All Pro Large Cap
Growth, All Pro Large Cap Value, All Pro Small Cap Growth, All Pro Small Cap
Value, Alger American Small Capitalization, Fidelity Asset Manager, Fidelity
Contrafund, Fidelity Equity Income, Fidelity Growth, Fidelity High Income,
Fidelity Index 500, Fidelity Investment Grade Bond, Fidelity Overseas, Neuberger
& Berman Balanced, Neuberger & Berman Growth, Neuberger & Berman Limited
Maturity Bond, Neuberger & Berman Partners, American Century Growth, Van Eck
Worldwide Bond, Van Eck Worldwide Hard Assets, and Van Eck Worldwide Emerging
Markets, and Van Eck Worldwide Real Estate Investment Trust. The assets of each
Subaccount are invested exclusively in shares of a corresponding Portfolio of a
designated Fund.
THE FUNDS
The Variable Account currently invests for new business in portfolios of
six series-type mutual funds: Market Street Fund, Inc.; The Alger American Fund;
Neuberger & Berman Advisers Management Trust; Van Eck Worldwide Insurance Trust;
Variable Insurance Products Fund; and Variable Insurance Products Fund II
(collectively, the "Funds"). Each of the Funds are registered with the SEC under
the 1940 Act as an open-end diversified investment company. The SEC does not,
however, supervise the management or the investment practices and policies of
the Funds.
The assets of each Fund portfolio are separate from other portfolios of
that Fund and each portfolio has separate investment objectives and policies. As
a result, each portfolio operates as a separate investment portfolio and the
investment performance of one portfolio has no effect on the investment
performance of any other portfolio. Some of the Funds may, in the future, create
additional portfolios. The investment experience of each of the Subaccounts of
the Variable Account depends on the investment performance of its corresponding
portfolio.
Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between the Fund and PLACA. The
termination provisions of those agreements vary (See "Termination of
Participation Agreements," Page 20.) Should an agreement between PLACA and a
Fund terminate, the Variable Account will not be able to purchase additional
shares of that Fund. In that event, Owners will no longer be able to allocate
Account Values or premium payments to Subaccounts investing in portfolios of
that Fund.
12
<PAGE> 22
Additionally, in certain circumstances, it is possible that a Fund or a
portfolio of a Fund may refuse to sell its shares to the Variable Account
despite the fact that the participation agreement between the Fund and PLACA has
not been terminated. Should a Fund or a portfolio of a Fund decide not to sell
its shares to PLACA, PLACA will not be able to honor requests of Owners to
allocate their Account Values or premium payments to Subaccounts investing in
shares of that Fund or portfolio. In such circumstances, PLACA will notify
Owners by Prospectus Supplement.
Certain Subaccounts invest in portfolios that have similar investment
objectives and/or policies; therefore before choosing Subaccounts, carefully
read the individual prospectuses for the Funds along with this prospectus.
THE MARKET STREET FUND, INC.
The Variable Account has ten Subaccounts that invest exclusively in shares
of The Market Street Fund, Inc., a "series" type of mutual fund which is
registered with the SEC under the 1940 Act as a diversified open-end management
investment company. The Fund currently issues eleven "series" or classes of
shares, each of which represents an interest in a separate Portfolio within the
Fund. Shares of the Growth, Money Market, Bond, Managed, Aggressive Growth,
International, Sentinel Growth, Sentinel Growth, All Pro Large Cap Growth, All
Pro Large Cap Value, All Pro Small Cap Growth, and All Pro Small Cap Value
Portfolios currently are purchased and redeemed by the corresponding Subaccount.
The Fund sells and redeems its shares at net asset value without a sales charge.
The Fund presently serves as an investment medium for other variable life
and variable annuity contracts issued by PLACA, Provident Mutual Life Insurance
Company ("PMLIC"), which wholly owns PLACA, and National Life Insurance Company
of Vermont. At some later date, the Fund may serve as an investment medium for
other variable life policies and variable annuity contracts issued by PLACA and
may be made available as an investment medium for variable contracts issued by
other insurance companies, including affiliated and unaffiliated companies of
PLACA. PLACA currently does not foresee any disadvantages to Owners arising out
of the fact that the Fund will offer its shares to fund products other than
PLACA's policies. However, the Fund's Board of Directors intends to monitor
events in order to identify any material irreconcilable conflicts that possibly
may arise and to determine what action, if any, should be taken in response to
those events or conflicts.
The investment objectives of the Fund's portfolios available under the
Policy are set forth below. The investment experience of each of the Subaccounts
depends on the investment performance of the corresponding portfolio. There is
no assurance that any portfolio will achieve its stated objective.
The Growth Portfolio. This portfolio seeks intermediate and long-term
growth of capital by investing in common stocks of companies believed to offer
above-average growth potential over both the intermediate and the long-term.
Current income is a secondary consideration.
The Money Market Portfolio. The Money Market Portfolio seeks to provide
maximum current income consistent with capital preservation and liquidity by
investing in high-quality money market instruments.
The Bond Portfolio. The Bond Portfolio seeks to generate a high level of
current income consistent with prudent investment risk by investing in a
diversified portfolio of marketable debt securities.
The Managed Portfolio. The Managed Portfolio seeks to realize as high a
level of long-term total rate of return as is consistent with prudent investment
risk by investing in stocks, bonds, money market instruments or a combination
thereof.
The Aggressive Growth Portfolio. The Aggressive Growth Portfolio seeks to
achieve a high level of long-term capital appreciation by investing in
securities of a diverse group of smaller emerging companies.
The International Portfolio. The International Portfolio seeks long-term
growth of capital principally through investments in a diversified portfolio of
marketable equity securities of established non-United States companies.
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
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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 growth of capital appreciation. The Portfolio pursues
its objective by investing primarily in common stock and other equity securities
of companies that rank between 751 and 1,750 in size measured by market
capitalization at the time of purchase, which the Advisers believe show
potential for growth in future earnings.
All Pro Large Cap Value Portfolio. The All Pro Large Cap Value Portfolio
seeks to provide long-term capital appreciation. The Portfolio attempts to
achieve this objective by investing primarily in undervalued common stock and
other equity securities of companies among the 750 largest by market
capitalizations at the time of purchase that the Advisers believe offer
above-average potential for growth in future earnings.
All Pro Small Cap Value Portfolio. The All Pro Small Cap Value Portfolio
seeks to provide long-term capital appreciation. The Portfolio pursues this
objective by investing primarily in undervalued common stock and other equity
securities of companies that rank between 751 and 1,750 in size measured by
market capitalization at the time of purchase, which the Advisers believe offer
above-average potential for growth in future earnings.
With respect to the Growth, Bond, Managed, Aggressive Growth, and Money
Market 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.
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.
Money Market Portfolio -- 0.25% of the average daily net assets of the
Portfolio.
With respect to the International Portfolio, the Fund is advised by
Providentmutual Investment Management Company (PIMC) which receives monthly
compensation at an effective annual rate of 0.75% of the first $500 million of
the average daily net assets of the portfolio and 0.60% of the average daily net
assets in excess of $500 million. PIMC has employed The Boston Company Asset
Management, Inc. (the "Boston Company") to provide investment advisory services
in connection with the portfolio. As compensation for the investment advisory
services rendered, PIMC pays The Boston Company a monthly fee at an effective
rate of 0.375% of the first $500 million of the average daily net assets of the
portfolio and 0.30% of the average daily net assets in excess of $500 million.
With respect to the All Pro Portfolios, the MS Fund is advised by PIMC. 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.
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All Pro Large Cap Growth. As of the date of this prospectus, the assets of
the All Pro Large Cap Growth Portfolio are managed in part by Cohen,
Klingenstein & Marks, Inc. ("CKM"); in part by Geewax, Terker & Co. ("Geewax");
and in part by Oak Associates, Ltd. ("Oak"); pursuant to separate investment
sub-advisory agreements. As compensation for their services PIMC pays from its
investment advisory fees the following percentages of the daily net assets of
the Portfolio: CKM -- .35%; Geewax -- .30%; Oak -- .35%.
All Pro Small Cap Growth. As of the date of this prospectus, the assets of
the All Pro Small Cap Growth Portfolio are managed in part by Standish, Ayer &
Wood ("SAW"), and in part by Husic Capital Management ("Husic"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: SAW -- .50%; Husic -- .50%.
All Pro Large Cap Value. As of the date of this prospectus, the assets of
the All Pro Large Cap Value Portfolio are managed in part by Equinox Capital
Management, Inc. ("Equinox"); in part by Harris Associates, Inc. ("Harris"); and
in part by Mellon Equity Associates ("Mellon"), pursuant to separate investment
sub-advisory agreements. As compensation for their services PIMC pays from its
investment advisory fees the following percentages of the daily net assets of
the Portfolio: Equinox -- .30% of the first $50 million of assets and .25% of
the remaining assets; Harris -- .65% of the first $50 million of assets, .60% of
the next $50 million of assets and .55% of the remaining assets; Mellon -- .30%.
All Pro Small Cap Value. As of the date of this prospectus, the assets of
the All Pro Small Cap Value Portfolio are managed in part by 1838 Investment
Advisors ("1838") and in part by Denver Investment Advisors ("DIA"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: 1838 -- .55%; DIA -- .75% of the first $25
million of assets and .65% on the remaining assets.
In addition to the fee for the investment advisory services, the Fund pays
its own expenses generally, including brokerage costs, administrative costs,
custodial costs, and legal, accounting and printing costs. However, PMLIC has
entered into an agreement with the Fund whereby it will reimburse the Fund for
all ordinary operating expenses, excluding advisory fees in excess of an annual
rate of 0.40% of the average daily net assets of each portfolio except the
International Portfolio, and 0.75% for the International Portfolio. It is
anticipated that this agreement will continue; if it is terminated, Fund
expenses may increase.
A more extensive description of the Fund, its investment objectives and
policies, its risks, expenses, and all other aspects of its operations is
contained in the Prospectus for the Fund, which accompanies this Prospectus and
should be read together with this Prospectus.
THE ALGER AMERICAN FUND
The Variable Account has one Subaccount that invests exclusively in shares
of a Portfolio of The Alger American Fund ("Alger American"). Alger American is
a "series" type mutual fund registered with the SEC as a diversified open-end
management investment company issuing a number of series or classes of shares,
each of which represents an interest in a Portfolio of Alger American.
The Alger American Small Capitalization Subaccount of the Variable Account
invests in shares of the Alger American Small Capitalization Portfolio of Alger
American. (Alger American has other investment portfolios that are not offered
to the Variable Account or under the Policies.) Shares of the Alger American
Small Capitalization Portfolio are purchased and redeemed by the Variable
Account at net asset value without a sales charge. The Variable Account
purchases shares of Alger American Small Capitalization Portfolio from Alger
American in accordance with a participation agreement between Alger American and
PLACA. The termination provisions of this participation agreement is described
below.
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.
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The investment adviser for the Alger American Small Capitalization
Portfolio is Fred Alger Management, Inc. ("Alger Management"), which is
registered with the SEC as an Investment Adviser under the Investment Advisors
Act of 1940. As compensation for its services, Alger Management receives a fee
at the end of each month at an annual rate of .85% of the average net assets of
the Alger American Small Capitalization Portfolio.
A more extensive description of Alger American and the Alger American Small
Capitalization Portfolio, including the Portfolio's investment objectives and
policies, risks, expenses and other aspects of its operations are contained in
the Prospectus for Alger American which accompanies this Prospectus.
VARIABLE INSURANCE PRODUCT FUND AND VARIABLE INSURANCE PRODUCTS FUND II
Variable Account has eight Subaccounts that invest exclusively in shares of
Portfolios of the Variable Insurance Products Fund (the "VIP Fund") or of the
Variable Insurance Products Fund II (the "VIP II Fund"). The VIP Fund and the
VIP II Fund are each "series" type mutual funds registered with the SEC as
diversified open-end management investment companies issuing a number of series
or classes of shares, each of which represents an interest in a Portfolio of the
Fund.
The Fidelity Equity-Income Subaccount, Fidelity Growth Subaccount, Fidelity
High Income Subaccount and Fidelity Overseas Subaccount of the Variable Account
invest in shares of the Equity-Income Portfolio, Growth Portfolio, High Income
Portfolio and Overseas Portfolio, respectively, of the VIP Fund. The Fidelity
Asset Manager Subaccount, Contrafund Subaccount, Fidelity Index 500 Subaccount
and Fidelity Investment Grade Bond Subaccount of the Variable Account invest in
shares of the Asset Manager Portfolio, Contrafund Portfolio, Index 500 Portfolio
and Investment Grade Bond Portfolio, respectively, of the VIP II Fund. (The VIP
Fund and VIP II Fund have other investment portfolios that are not offered to
the Variable Account or under the Policies.) Shares of these Portfolios are
purchased and redeemed by the Variable Account at net asset value without a
sales charge. The Variable Account purchases shares of the Portfolios from the
VIP Fund and the VIP II Fund in accordance with a participation agreement
between each Fund and PLACA. The termination provisions of these participation
agreements are described below.
The investment objectives of the Portfolios of the VIP Fund and the VIP II
Fund in which the Subaccounts will invest are set forth below. The investment
experience of each Subaccount depends upon the investment performance of the
corresponding Portfolio. There is no assurance that any Portfolio will achieve
its stated objective.
VIP Fund
VIP Equity-Income Portfolio. This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the VIP Equity-Income Portfolio considers the potential for capital
appreciation. The Portfolio's goal is to achieve a yield which exceeds the
composite yield of the securities comprising the Standard and Poor's 500
Composite Stock Price Index.
VIP Growth Portfolio. This Portfolio seeks to achieve capital
appreciation. The VIP Growth Portfolio normally purchases common stocks,
although its investments are not restricted to any one type of security. Capital
appreciation may also be found in other types of securities, including bonds and
preferred stocks.
VIP High Income Portfolio. This Portfolio seeks to obtain a high level of
current income by investing primarily in high-yielding, lower-rated,
fixed-income securities, while also considering growth of capital.
VIP Overseas Portfolio. This Portfolio seeks long term growth of capital
primarily through investments in foreign securities. The VIP Overseas Portfolio
provides a means for diversification by participating in companies and economies
outside of the United States.
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.
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VIP II Contrafund Portfolio. This Portfolio seeks capital appreciation by
investing in securities of companies where value is not fully recognized by the
public.
VIP II Index 500 Portfolio. This Portfolio seeks to provide investment
results that correspond to the total return (i.e., the combination of capital
changes and income) of a broad range of common stocks publicly traded in the
United States. In seeking this objective, the VIP II Index 500 Portfolio
attempts to duplicate the composition and total return of the Standard and
Poor's 500 Composite Stock Price Index while keeping transaction costs and other
expenses low. The Portfolio is designed as a long-term investment option.
VIP II Investment Grade Bond Portfolio. This Portfolio seeks as high a
level of current income as is consistent with the preservation of capital by
investing in a broad range of investment-grade fixed-income securities. The
Portfolio will maintain a dollar-weighted average portfolio maturity of ten
years or less.
The VIP Equity-Income, VIP Growth, VIP High Income, and VIP Overseas
Portfolios of the VIP Fund and the VIP II Asset Manager, VIP II Contrafund, VIP
II Index 500 and VIP II Investment Grade Bond Portfolios of the VIP II Fund are
managed by Fidelity Management & Research Company ("FMR"). For managing its
investments and business affairs, each Portfolio pays FMR a monthly fee.
For the VIP Equity-Income, VIP Growth, VIP Overseas Contrafund and VIP II
Asset Manager Portfolios, the annual fee rate is the sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.52% and it
drops (to as low as a marginal rate of 0.30% when average group assets
exceed $174 billion) as total assets in all these funds rise.
2. An individual fund fee rate of 0.20% for the VIP Equity-Income
Portfolio, 0.30% for the VIP Contrafund, VIP Growth and VIP II Asset
Manager Portfolios and 0.45% for the VIP Overseas Portfolio.
One-twelfth of the combined annual fee rate is applied to each Portfolio's
net assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
The VIP II Index 500 Portfolio pays FMR a monthly management fee at the
annual rate of 0.28% of the Portfolio's average net assets. One-twelfth of this
annual fee rate is applied to the net assets averaged over the most recent
month, giving a dollar amount which is the fee for that month.
For the VIP High Income and VIP II Investment Grade Bond Portfolios, the
annual fee rate is the sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
drops (to as low as a marginal rate of 0.14%) as total assets in all
these funds rise.
2. An individual fund fee rate of 0.45% for the VIP High Income Portfolio
and 0.30% for the VIP II Investment Grade Bond Portfolio.
One-twelfth of the combined annual fee rate is applied to the
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.
On behalf of the VIP II Asset Manager Portfolio and the VIP II
Contrafund Portfolio, FMR has entered into sub-advisory agreements with
Fidelity Management & Research (U.K.) Inc. ("FMR (U.K.)") and Fidelity
Management & Research (Far East) Inc. ("FMR Far East"), pursuant to which
these entities provide research and investment recommendations with respect
to companies based outside the United States. FMR (U.K.) primarily focuses
on companies based in Europe while FMR Far East focuses primarily on
companies based in Asia and the Pacific Basin. Under the sub-advisory
agreements, FMR and not the Portfolios pay FMR (U.K.) and FMR Far East fees
equal to 100% and 105%, respectively, of each sub-advisor's costs incurred
in connection with its sub-advisory agreement.
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
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<PAGE> 27
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.
A more extensive description of the VIP Fund and the VIP II Fund, the
investment of objectives and policies of the Portfolios, the risks, expenses and
all other aspects of their operation is contained in the prospectuses for the
VIP Fund and VIP II Fund which accompany this Prospectus. You should note that
the VIP Fund and VIP II Fund have other investment portfolios that are not
available with the variable life insurance policies issued by PLACA.
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NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
The Variable Account has two Subaccounts that invest exclusively in shares
of Portfolios of the Neuberger & Berman Advisers Management Trust ("AMT") for
new business. AMT is a "series" type mutual fund registered with the SEC as a
diversified open-end management investment company issuing a number of series or
classes of shares, each of which represents an interest in a Portfolio of AMT.
The Neuberger & Berman Limited Maturity Bond Subaccount and Neuberger &
Berman Partners Subaccount of the Variable Account invest in shares of the
Limited Maturity Bond Portfolio and Partners Portfolio, respectively, of AMT.
(AMT has other investment portfolios that are not offered to the Variable
Account or under the Policies.) Shares of these Portfolios are purchased and
redeemed by the Variable Account at net asset value without a sales charge. The
Variable Account purchases shares of the Portfolios from AMT in accordance with
a participation agreement between AMT and PLACA. The termination provisions of
this participation agreement is described below.
Each Portfolio of AMT invests all of its net investable assets in its
corresponding Series (each, a "Series") of Advisers Managers Trust ("Managers
Trust"), an open-end management investment company. Each Series invests in
securities in accordance with an investment objective, policies and limitations
identical to those of its corresponding Portfolio. This "master/feeder fund"
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities. For more
information regarding this structure, see the prospectus for AMT.
In that the investment objective of each Portfolio matches that of its
corresponding Series, the following describes the investment objective of each
Series underlying the Portfolio of AMT in which the Subaccounts will invest. The
investment objectives of the Portfolios of AMT in which the Subaccounts will
invest are set forth below. The investment experience of each Subaccount depends
upon the investment performance of its corresponding Portfolio. There is no
assurance that any Portfolio will achieve its stated objective.
Limited Maturity Bond Portfolio. The Series corresponding to this
Portfolio seeks the highest current income consistent with low risk to principal
and liquidity and secondarily, total return, through investment in short to
intermediate term debt securities, primarily investment grade.
Partners Portfolio. The series corresponding to this Portfolio seeks
Capital Growth through investment in common stocks and other equity securities
of medium to large capitalization established companies.
The Investment Adviser for the Series of Managers Trust corresponding to
the Limited Maturity Bond and Partners Portfolios of AMT is Neuberger & Berman
Management Incorporated ("N & B Managers").
As compensation for its services, N & B Management receives a monthly fee
from AMT at the following percentages of daily net assets of the corresponding
Portfolio: Limited Maturity Bond Portfolio -- 0.25% of first $500 million,
0.225% of next $500 million, 0.20% of next $500 million, 0.175% of next $500
million and 0.15% of over $2 billion; Partners Portfolio -- 0.55% of first $250
million, 0.525% of next $250 million, 0.50% of next $250 million, 0.475 of next
$250 million, 0.45% of next $500 million, and 0.425% of over $1.5 billion.
A more extensive description of AMT, the investment objectives of the
available Portfolios, the risks, expenses and all other aspects of their
operation is contained in the prospectuses for the Limited Maturity Bond and
Partners Portfolios of AMT which accompany this Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
The Variable Account has four Subaccounts that invest exclusively in shares
of Portfolios of Van Eck Worldwide Insurance Trust (the "Van Eck Trust"). The
Van Eck Trust is a "series" type mutual fund registered with the SEC as a
diversified open-end management investment company issuing a number of series or
classes of shares, each of which represents an interest in a Portfolio of Van
Eck Trust.
The Van Eck Worldwide Bond, Van Eck Worldwide Hard Assets, Van Eck
Worldwide Emerging Markets, and Van Eck Worldwide Real Estate Subaccounts of the
Variable Account invest in shares of the Van Eck Worldwide Bond, Van Eck
Worldwide Hard Assets, Van Eck Worldwide Emerging Markets, and Van Eck Worldwide
Real Estate Portfolios, respectively, of the Van Eck Trust. Shares of the Van
Eck Worldwide Bond, Van Eck Worldwide Hard Assets and Van Eck Worldwide Emerging
Markets Portfolios are purchased and redeemed by the Variable Account at net
asset value without a sales charge. The Variable
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Account purchases shares of the Portfolios from the Van Eck Trust in accordance
with a participation agreement between the Van Eck Trust and PLACA. The
termination provisions of this participation agreement are described below.
The investment objectives of the Portfolios of Van Eck Trust are set forth
below. The investment experience of each Subaccount depends upon the investment
performance of its corresponding Portfolio. There is no assurance that these
Portfolios will achieve their stated objectives.
Van Eck Worldwide Hard Assets Portfolio seeks long-term capital
appreciation by investing globally, primarily in "Hard Assets Securities." Hard
Assets Securities include equity securities of Hard Asset Companies and
securities, including structured notes, whose value is linked to the price of a
Hard Asset commodity or a commodity index. Hard Asset Companies include
companies that are directly or indirectly engaged to a significant extent in the
exploration, development, production or distribution of one or more of the
following (together, Hard Assets); (i) precious metals, (ii) ferrous and
non-ferrous metals, (iii) gas, petroleum, pretochemicals or other hydrocarbons,
(iv) forest products, (v) real estate and (vi) other basic non-agricultural
commodities. Income is a secondary consideration.
Van Eck Worldwide Bond Portfolio seeks high total return through a flexible
policy of investing globally, primarily in debt securities.
Van Eck Worldwide Emerging Markets Portfolio seeks long-term capital
appreciation by investing primarily in equity securities in emerging markets
around the world.
Van Eck Worldwide Real Estate Portfolio seeks to maximize total return by
investing primarily in equity securities of domestic and foreign companies which
are principally engaged in the real estate industry or which own significant
real estate assets.
The investment adviser for the Van Eck Worldwide Hard Assets, Worldwide
Bond and Van Eck Worldwide Real Estate Portfolios is Van Eck Associates
Corporation ("Van Eck Associates"). The investment adviser for the Van Eck
Worldwide Emerging Markets Portfolio is Van Eck Global Asset Management (Asia)
Limited, a wholly-owned investment adviser subsidiary of Van Eck Associates. As
compensation for its services to the Worldwide Hard Assets and Worldwide Bond
Portfolios, Van Eck Associates receives a monthly fee at an annual rate of 1.0%
of the first $500 million of the average daily net assets of the Portfolios,
0.90% of the next $250 million of the daily net assets of the Portfolios, and
0.70% of the average daily net assets of the Portfolios in excess of $750
million. As compensation for its services to the Worldwide Emerging Markets, and
Van Eck Worldwide Real Estate Portfolios, Van Eck Associates or its affiliate
receives a monthly fee at an annual rate of 1.00% of the Portfolio's average
daily net assets.
A more extensive description of Van Eck Trust, Van Eck Worldwide Hard
Assets Portfolio, Van Eck Worldwide Bond Portfolio, Van Eck Worldwide Emerging
Markets Portfolio and Van Eck Worldwide Real Estate Portfolio, including each
Portfolio's investment objectives and policies, risks, expenses and other
aspects of its operations are contained in the Prospectus for the Trust which
accompanies this Prospectus.
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
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company under Subchapter M of the Code; or 9) by Alger's principal
underwriter if it determines that PLACA has suffered a material adverse
change in its business, operation, financial condition or prospects.
Fidelity Variable Insurance Products Fund and Variable Insurance
Products Fund II. The Agreements provide for termination 1) upon six
months' advance notice by either party, 2) at PLACA's option if shares of
the Fund are not reasonably available to meet requirements of the policies,
3) at PLACA's option if shares of the Fund are not registered, issued, or
sold in accordance with applicable laws, if the Fund ceases to qualify as a
regulated investment company under the Code or for a Portfolio of the Fund
in the event such Portfolio fails to meet diversification requirements
under the Code, 4) at the option of the Fund or its principal underwriter
if it determines that PLACA has suffered material adverse changes in its
business or financial condition or is subject to material adverse
publicity, 5) at the option of PLACA if the Fund has suffered material
adverse changes in its business or financial condition or is a subject of
material adverse publicity, or 6) at the option of the Fund or its
principal underwriter if PLACA decides to make another mutual fund
available as a funding vehicle for its policies.
Neuberger & Berman Advisers Management Trust. This Agreement may be
terminated by either party on six months' written notice to the other.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Trust
provides for termination 1) by PLACA, Van Eck Trust or Van Eck Trust's
Distributor upon six months prior written notice or in the event that
formal proceedings are initiated against the other party by the SEC or
another regulator, 2) by PLACA or Van Eck Trust in the event that shares of
Van Eck Trust subject to the agreement are not registered, offered or sold
in conformity with applicable law or such law precludes the use of Trust
shares, 3) by PLACA upon reasonable notice if shares of one of the then
available Portfolios of Van Eck Trust are not longer available or upon
sixty days notice if PLACA should substitute shares of another fund or Fund
for those of Van Eck Trust, 4) by PMLIC if a Portfolio fails to meet the
diversification and other requirements of the Internal Revenue Code, or
PMLIC reasonably believes it may fail to do so, 5) upon assignment of the
agreement unless both parties agree to the assignment in writing.
Should an agreement between PLACA and a Fund terminate, the subaccounts
that invest in that Fund may not be able to purchase additional shares of such
Fund. In that event, Owners will no longer be able to allocate cash values or
net premiums to Subaccounts investing in Portfolios of such Fund.
Additionally, in certain circumstances, it is possible that a Fund or a
portfolio of a Fund may refuse to sell its shares to a Subaccount despite the
fact that the participation agreement between the Fund and PLACA has not been
terminated. Should a Fund or portfolio of such Fund decide not to sell its
shares to PLACA, PLACA will not be able to honor requests by Owners to allocate
cash values or net premiums to Subaccounts investing in shares of that Fund or
portfolio.
The Company has entered into agreements with the investment advisers of
several of the Funds pursuant to which each such investment adviser will pay the
Company a servicing fee based upon an annual percentage of the average aggregate
net assets invested by the Company on behalf of the Variable Account. These
agreements reflect administrative services provided to the Funds by the Company.
Payments of such amounts by an adviser will not increase the fees paid by the
Funds or their shareholders.
RESOLVING MATERIAL CONFLICTS
The MS Fund, Alger American, VIP Fund, VIP Fund II, AMT, and Van Eck Trust
are used as investment vehicles for variable life insurance policies and
variable annuity contracts issued by PMLIC and PLACA, as well as registered
separate accounts of other insurance companies offering variable life and
annuity contracts. As a result, there is a possibility that a material conflict
may arise between the interest of Owners whose policy values are allocated to
the Variable Account and the owners of life insurance policies and variable
annuities issued by such other companies whose values are allocated to one or
more other separate accounts investing in any one of the Funds.
In addition, certain Funds may sell shares to certain retirement plans
qualifying under Section 401 of the Code (including cash or deferred
arrangements under Section 401(k) of the Code). As a result, there is a
21
<PAGE> 31
possibility that a material conflict may arise between the interests of Owners
of policies generally, or certain classes of Owners, and such retirement plans
or participants in such retirement plans.
In the event of a material conflict, PLACA will take any necessary steps,
including removing the Variable Account from that Fund, to resolve the matter.
The Board of Directors or Trustees of the Funds intend to monitor events in
order to identify any material conflicts that possible may arise and to
determine what action, if any, should be taken in response to those events or
conflicts. See the individual Fund prospectuses for more information.
THE GUARANTEED ACCOUNT
For information on the Guaranteed Account, see page 36.
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 death of both Insureds (and fulfillment
of certain other requirements), be paid to the named Beneficiary in accordance
with the designated Death Benefit Option. The proceeds may be paid in cash or
under one of the Settlement Options set forth in the Policy. The amount payable
under the designated Death Benefit Option will be increased by any additional
benefits and will be decreased by any outstanding Policy loan and accrued
interest and by any unpaid Monthly Deductions.
Death Benefit Options. The Policy provides two Death Benefit Options:
Option A and Option B. The Owner designates the Death Benefit Option in the
application and may change it as described in "Change in Death Benefit Option,"
Page 23.
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 last surviving Insured's date of death multiplied by the
specified percentage shown in the table below:
<TABLE>
<CAPTION>
ATTAINED AGE OF ATTAINED AGE OF
YOUNGER INSURED PERCENTAGE YOUNGER INSURED 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 younger 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 a policy with a
younger 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 policy with a 35 year old younger Insured and 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
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<PAGE> 32
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 last surviving Insured's date of death.)
Illustration of Option B -- For purposes of this illustration, assume that
the younger 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. A Policy 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 Insureds' 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, at any time
when the Death Benefit would be the Face Amount (if Option A is in effect) or
the Face Amount plus the Policy Account Value (if Option B is in effect), the
Death Benefit Option in effect may be changed by sending PLACA a written
request. 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 written request.
If the Death Benefit Option is changed from Option A to Option B, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be decreased by the Policy Account Value on that date. However, this
change may not be made if it would reduce the Face Amount to less than the
Minimum Face Amount for Policies being issued at that time.
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.
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<PAGE> 33
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
but the Death Benefit and Net Amount at Risk would remain the same. Assume that
a contract under Option B has a Face Amount of $500,000 and a Policy Account
Value of $50,000 and, therefore, the Death Benefit is $550,000 ($500,000 +
$50,000) and a Net Amount at Risk of $500,000 ($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, but the Death Benefit and Net Amount at Risk would remain
the same.
If a change in the Death Benefit Option would result in cumulative premiums
exceeding the maximum premium limitations under the Internal Revenue Code for
life insurance, PLACA will not effect the change.
A change in the Death Benefit Option may have Federal income tax
consequences. (See "Tax Treatment of Policy Benefits," Page 43).
Death Benefit Guarantee. During the first four Policy Years regardless of
investment experience, the Death Benefit is guaranteed never to be less than the
Face Amount as long as the sum of premiums paid less any partial withdrawals
less any policy loans equals or exceeds the Minimum Guarantee Premium. This four
year period may be extended by electing the Guaranteed Minimum Death Benefit
Rider. (See "Supplementary Benefits," Page 40.) This Rider expires at the later
of the Policy Anniversary nearest age 70 of the older Insured or the end of the
tenth Policy Year. This Rider is not available if Death Benefit Option B is
elected at issue, and the Rider will terminate if the Policy is changed to Death
Benefit Option B.
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 DECREASE FACE AMOUNT
Subject to certain limitations, an Owner may generally, at any time after
the first Policy Year, decrease the Policy's Face Amount by submitting a written
application to PLACA. (Decreases are not permitted for policies issued in
Virginia.) The effective date of the 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,"
page 43). The effect of a decrease in Face Amount on Policy charges, as well as
other considerations, are described below. Decreases in Face Amount may not be
made within 12 months of a previous 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 for Policies being issued
at the time of the decrease. To the extent a decrease in the Face Amount could
result in cumulative premiums exceeding the maximum premium limitations
applicable for life insurance under the Internal Revenue Code, PLACA will not
effect the decrease.
A decrease in the Face Amount generally will decrease the total Net Amount
at Risk which will decrease an Owner's monthly insurance charges. A decrease in
the Face Amount may result in the imposition of a surrender charge as of the
Policy Processing Day on which the decrease becomes effective. (See "Surrender
Charge Upon Decrease in Face Amount," Page 30).
Any surrender charge applicable to a decrease will be deducted from the
Policy Account Value. 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. The remaining
Surrender Charge will equal the charge prior to the decrease less the charge
deducted in connection with such decrease.
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<PAGE> 34
CHANGES AFFECTING THE DEATH BENEFIT
Owner may decrease the Face Amount. In addition, changing the level of
premium payments, and, to a lesser extent, making a partial withdrawal of Net
Cash Surrender Value may have consequences for the Death Benefit or charges
associated therewith. The consequences of each are summarized below.
A decrease in Face Amount will, subject to applicable percentage
limitations, decrease the insurance protection. It will not reduce the Policy
Account Value, except for the deduction of any surrender charge applicable to
the decrease. The Monthly Deductions will generally be correspondingly lower
following the decrease.
Under Death Benefit Option A, until the applicable percentage of Policy
Account Value exceeds the Face Amount, then (i) if the Owner increases the
premium payments from the current level, the amount of insurance protection will
generally be reduced, and (ii) if the Owner reduces the premium payments from
the current level, the amount of insurance protection will generally be
increased. For example, assume a policy has a Face Amount of $200,000 and a
Policy Account Value of $50,000. Thus, the amount of insurance protection would
be $150,000. If increased premium payments increase the Policy Account Value to
$75,000, the insurance protection would decrease to $125,000. If reduced premium
payments cause a decrease in Policy Account Value to $25,000, the amount of
insurance protection would increase to $175,000.
Under Death Benefit Option B, until the applicable percentage of Policy
Account Value exceeds the Face Amount plus the Policy Account Value, the level
of premium payments will not affect the amount of insurance protection.
(However, both the Policy Account Value and Death Benefit will be increased if
premium payments are increased and reduced if premium payments are reduced.)
Under either Death Benefit Option, if the Death Benefit is the applicable
percentage of Policy Account Value, then (i) if the Owner increases premium
payments from the current level, the amount of insurance protection will
increase and (ii) if the Owner reduces the premium payments from the current
level, the amount of insurance protection will be lower.
A partial withdrawal of Net Cash Surrender Value will reduce the Death
Benefit. It will not reduce the amount of insurance protection unless the Death
Benefit is based on the applicable percentage of Policy Account Value. This is
because if the Death Benefit is based on the applicable percentage, the decrease
in the Death Benefit will be greater than the amount of a withdrawal. Since the
primary use of a partial withdrawal is to withdraw cash which reduces the Policy
Account Value, the Net Cash Surrender Value is reduced, thereby increasing the
likelihood that the Policy will lapse. (See "Policy Lapse," Page 28).
HOW THE DURATION OF THE POLICY MAY VARY
The Policy will remain in force as long as the Net Cash Surrender Value of
the Policy is sufficient to pay the Monthly Deductions and the charges under the
Policy. When the Net Cash Surrender Value is insufficient to pay the charges and
the Grace Period expires without an adequate premium payment by the Owner, the
Policy will lapse and terminate without value. Notwithstanding the foregoing,
during the first four Policy Years the Policy will not lapse if the Minimum
Guarantee Premium has been paid. This four year period may be extended by
electing the Guaranteed Minimum Death Benefit Rider. (See "Supplementary
Benefits," Page 40.) The Owner has certain rights to reinstate the Policy. (See
"Reinstatement," Page 29).
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 is equal to the Cash Surrender Value. There is no
guaranteed minimum for the portion of the Policy Account Value in any of the
Subaccounts and, because the Policy Account Value on any future date depends
upon a number of variables, it cannot be predetermined.
The Policy Account Value and Cash Surrender Value will reflect the
investment performance of the chosen Subaccounts, the crediting of interest in
excess of 4% (the guaranteed minimum) for the Guaranteed
25
<PAGE> 35
Account and the Loan Account, any Net Premiums paid, any transfers, any partial
withdrawals, any loans, any loan repayments, any loan interest paid, and any
charges assessed in connection with the Policy.
Calculation of Policy Account Value. The Policy Account Value is
determined first on the Policy Date and thereafter on each Valuation Day. On the
Policy Date, the Policy Account Value will be the Net Premiums received less any
Monthly Deductions due on the Policy Date. On each Valuation Day after the
Policy Date, the Policy Account Value will be:
(1) The aggregate of the values attributable to the Policy in each
Subaccount, determined by multiplying the number of units the Policy has in
the Subaccount by the Subaccount's Unit Value on that date;
(2) The value attributable to the Policy in the Guaranteed Account
(See "The Guaranteed Account," Page 36); plus
(3) The value attributable to the Policy in the Loan Account. (See
"Loan Privileges," Page 32).
Determination of Number of Units for the Subaccounts. Amounts allocated,
transferred or added to a Subaccount under a Policy are used to purchase units
of that Subaccount; units are redeemed when amounts are deducted, transferred or
withdrawn. The number of units a Policy has in a Subaccount 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 is equal to
the unit value on the immediately preceding Valuation Day multiplied by the Net
Investment Factor for that Subaccount on that Valuation Day.
Net Investment Factor. Each Subaccount has its own Net Investment Factor.
The Net Investment Factor measures the daily investment performance of a
Subaccount. The factor will increase to reflect investment income and capital
gains, realized and unrealized, for the securities of the underlying portfolio
or series. The factor will decrease to reflect any capital losses, realized or
unrealized, for the securities of the underlying portfolio or series.
PAYMENT AND ALLOCATION OF PREMIUMS
Issuance of a Policy. In order to purchase a Policy, the proposed insureds
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. The Minimum Face Amount of a Policy
under PLACA's rules is currently $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 to Insureds who
individually have an Issue Age of 21 to 85 and a Joint Equal Age of 25 to 80 and
who provide PLACA with satisfactory evidence of insurability. Acceptance is
subject to PLACA's underwriting rules. PLACA reserves the right to reject an
application for any reason permitted by law. (See "Distribution of Policies,"
Page 47.)
At the time the applications for the Policy are signed, the applicants 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
26
<PAGE> 36
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 temporary coverage is the lesser of the Face Amount applied
for or $500,000. This coverage will end on the earliest of: (a) the 90th day
from the date of application; (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.
Where Minimum Initial Premium is not submitted with the application, it
must be submitted when the Policy is delivered.
Amount and Timing of Premiums. Each premium payment must be for at least
$25. 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, the 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 is not required to pay the
Planned Periodic Premiums in accordance with the specified schedule. The Owner
has the flexibility to alter the amount, frequency and time period over which
premiums are paid.
Payment of the Planned Periodic Premiums will not guarantee that the Policy
will remain in force. Instead, the duration of the Policy depends upon the
Policy's Net Cash Surrender Value. Thus, even if Planned Periodic Premiums are
paid, the Policy will lapse whenever the Net Cash Surrender Value is
insufficient to pay the Monthly Deductions and any other charges under the
Policy and if a Grace Period expires without an adequate payment by the Owner.
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".
Unless prohibited by a particular state any payments made while there is an
outstanding Policy loan will be applied as loan repayments, unless PLACA is
notified in writing that the amount is to be applied as a premium payment.
Premium Limitations. With regard to a Policy's inside build-up, the
Internal Revenue Code of 1986 (the "Code") provides for exclusion of the Death
Benefit from gross income if total premium payments do not exceed certain stated
limits. In no event can the total of all premiums paid under a Policy exceed
such limits. If at any time a premium is paid which would result in total
premiums exceeding such limits, PLACA will only accept that portion of the
premium which would make total premiums equal the maximum amount which may be
paid under the Policy. The excess will be refunded. Even if total premiums were
to exceed the maximum premium limitations established by the Code, the excess of
a Policy's Death Benefit over the Policy's Cash Surrender Value would still be
excludable from gross income under the Code.
The maximum premium limitations set forth in the Code depend in part upon
the amount of the Death Benefit at any time. As a result, any Policy changes
which affect the amount of the Death Benefit may affect whether cumulative
premiums paid under the Policy exceed the maximum premium limitations. To the
extent that any such change would result in cumulative premiums exceeding the
maximum premium limitations, PLACA will not effect such change. (See "Federal
Income Tax Considerations," Page 41).
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<PAGE> 37
Unless the Insureds provide satisfactory evidence of insurability, PLACA
reserves the right to limit the amount of any premium payment if it increases
the Death Benefit more than it increases the Policy Account Value.
Allocation of Net Premiums. The Net Premium equals the premium paid less
the Premium Expense Charge. The application for the Policy will indicate how Net
Premiums should be allocated among the Subaccounts and/or the Guaranteed
Account. The percentages of each Net Premium that may be allocated to any
account must be in whole numbers and the sum of the allocation percentages must
be 100%. PLACA will allocate the Net Premiums on the date it receives such
premium at its Home Office.
Where state law requires a refund of premiums paid when a policy is
returned under the Free-Look provision (See "Free-Look for Policy," Page 35) any
portion of the Initial Premium and any subsequent premiums received by PLACA
before the expiration of a 15-day period beginning on the later of the Policy
Issue Date or the date PLACA receives the Minimum Initial Premium, which are to
be allocated to the Subaccounts will be allocated to the Money Market
Subaccount. At the end of the 15-day period, PLACA will allocate the amount in
the Money Market Subaccount to each of the chosen Subaccounts based on the
proportion that the allocation percentage for such Subaccount bears to the sum
of the Subaccount premium allocation percentages.
For example, assume a Policy was issued with Net Premiums allocated 25% to
the Growth Subaccount, 25% to the Bond Subaccount and 50% to the Guaranteed
Account. During the 15-day period stated above, 50% (25% + 25%) of the premiums
will be allocated to the Money Market Subaccount. At the end of the 15-day
period, 50% (25% / 50%) of the amount in the Money Market Subaccount will be
transferred to the Growth Subaccount and 50% to the Bond Subaccount.
For premium payments received after the 15-day period, Net Premiums will be
allocated based on the allocation percentages then in effect. The allocation
schedules may be changed at any time by providing PLACA with written notice.
The values of the Subaccounts will vary with their investment experience
and the Owner bears the entire investment risk. Owners should periodically
review their allocation schedule in light of market conditions and the Owner's
overall financial objectives.
Transfers. The Owner may transfer the Policy Account Value between and
among the Subaccounts of the Variable Account and the Guaranteed Account by
making a written transfer request to PLACA. The amount transferred each time
must be at least $1,000, unless the total value in an account is less than
$1,000, in which case the entire amount will be transferred. Transfers between
and among the Subaccounts are made as of the Valuation Day that the request for
transfer is received at the Home Office.
The Owner may, at any time, transfer all or part of the amount in one of
the Subaccounts to another Subaccount and/or to the Guaranteed Account. (For
transfers from the Guaranteed Account to a Subaccount, see "Transfers from
Guaranteed Account," Page 37).
After four transfers have been made in any Policy Year, a $25 transfer
charge will be deducted from each transfer during the remainder of such Policy
Year. All transfers included in a request are treated as one transfer
transaction. Transfers resulting from Policy loans, the exercise of exchange
privileges, and the reallocation from the Money Market Subaccount following the
15-day period after the Policy Issue Date, will not be subject to a transfer
charge and will not count against the four free transfers in any Policy Year.
Under present law, transfers are not taxable transactions.
Policy Lapse. The failure to make a premium payment will not itself cause
a Policy to lapse. Lapse will only occur when the Net Cash Surrender Value is
insufficient to cover the Monthly Deductions and other charges under the Policy
and the Grace Period expires without a sufficient payment. During the first four
Policy Years, the Policy will not lapse if the sum of premiums paid less any
partial withdrawals less any policy loans equals or exceeds the Minimum
Guarantee Premium. This four year period may be extended by electing the
Guaranteed Minimum Death Benefit Rider.
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<PAGE> 38
The Policy provides for a 61-day Grace Period that is measured from the
date on which notice is sent by PLACA. Thus, the Policy does not lapse, and the
insurance coverage continues, until the expiration of this Grace Period. In
order to prevent lapse, the Owner must during the Grace Period make a premium
payment equal to three Monthly Deductions. The notice sent by PLACA will specify
the payment required to keep the Policy in force. Failure to make a sufficient
payment within the Grace Period will result in lapse of the Policy without
value.
Reinstatement. A Policy that lapses without value may be reinstated at any
time within three years (or longer period required in a particular state) after
the expiration of the Grace Period and before the Final Policy Date by
submitting evidence of insurability satisfactory to PLACA for both Insureds or
evidence for the last surviving Insured and due proof that the first death
occurred before the date of lapse. Payment of an amount sufficient to keep the
Policy in force for at least three months following the effective date of
reinstatement, which is the date the reinstatement application is approved, is
also required. Upon reinstatement, the Policy Account Value will be based upon
the premium paid to reinstate the Policy and the Policy will be reinstated with
the same Policy Date as it had prior to the lapse.
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 a Premium Tax Charge, a Percent of Premium
Charge and a Federal Tax Charge.
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 and range from 0.75% to 3.5%. 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 Insureds' residence.
Percent of Premium Sales Charge. In Policy Years 1 to 15, 5% will be
deducted from each premium payment to partially compensate PLACA for the cost of
selling the Policy. At the present time, PLACA does not intend to apply this
charge to premiums paid after Policy Year 15, but reserves the right to do so.
Federal Tax Charge. PLACA will deduct 1.25% from each premium payment to
cover the cost of Federal taxes resulting from its receipt of such premium
payment under the Policy. Section 848 of the Internal Revenue Code (enacted by
the Omnibus Budget Reconciliation Act of 1990) ties PLACA's corporate tax
liability (i.e., "tax burden"), in part, to the receipt of such premium
payments. PLACA represents that this charge is reasonable in relation to its
increased tax burden under Section 848 of the Code. In addition, PLACA reserves
the right to change the amount of this charge if the applicable Federal tax law
changes PLACA's tax burden.
SURRENDER CHARGE
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 fifteenth Policy Year. A portion of this
Surrender Charge will be deducted if the Owner decreases the Initial Face Amount
before the end of the fifteenth Policy Year.
The Surrender Charge is designed partially to compensate PLACA for the cost
of administering and selling the Policy, including agent sales commissions, the
cost of printing the prospectuses and sales literature, and any advertising and
underwriting costs. PLACA does not expect the surrender charge to cover all of
these
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<PAGE> 39
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
POLICY YEAR $1,000 OF INITIAL FACE AMOUNT
----------- -----------------------------
<S> <C> <C> <C>
1-11 $5.00
12 4.00
13 3.00
14 2.00
15 1.00
16 and after 0
</TABLE>
The actual Deferred Administrative Charge will be the charge described
above less the amount of any Deferred Administrative Charge previously paid at
the time of a decrease in Face Amount.
Deferred Sales Charge. The Deferred Sales Charge will not exceed the
Maximum Deferred Sales Charge specified in the Policy. This maximum equals the
Surrender Charge Target Premium for the Face Amount multiplied by the specified
percentage shown in the table below. The Maximum Deferred Sales Surrender Charge
decreases by 20% of the original amount each year in Policy Years 12 through 15.
<TABLE>
<CAPTION>
POLICY YEAR
------------------------------------------------
JOINT EQUAL AGES 1-11 12 13 14 15 16 AND AFTER
- ---------------- ---- --- --- --- --- ------------
<S> <C> <C> <C> <C> <C> <C>
25-71 60% 48% 36% 24% 12% 0
72-73 50% 40% 30% 20% 10% 0
74-75 40% 32% 24% 16% 8% 0
76-78 30% 24% 18% 12% 6% 0
79-80 20% 15% 12% 8% 4% 0
</TABLE>
The Deferred Sales Charge actually imposed will equal the lesser of this maximum
and an amount equal to 25% of the premiums actually received during the first
Policy Year up to one Surrender Charge Target Premium plus 4% of all other
premiums paid to the date of surrender or lapse, less any Deferred Sales Charge
previously paid at the time of a decrease in Face Amount.
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. The fraction will be determined by dividing the amount of the
decrease by the Face Amount immediately prior to the decrease and multiplying
the result by the Surrender Charge.
Allocation of Surrender Charge. The Surrender Charge will be deducted from
the Policy Account Value. For surrender charges resulting from Face Amount
decreases, that part of any such surrender charge will reduce the Policy Account
Value and will be allocated among the accounts based on the proportion that the
value in each of the Subaccounts and the Guaranteed Account Value bear to the
total unloaned Policy Account Value.
MONTHLY DEDUCTIONS
Charges will be deducted from the Policy Account Value on the Policy Date
and on each Policy Processing Day to compensate PLACA for administrative
expenses and for the insurance coverage provided by the Policy. The Monthly
Deduction consists of four components -- (a) the cost of insurance, (b)
insurance underwriting and expenses in connection with issuing the Policy, (c)
administrative expenses, 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 will be deducted from the Subaccounts and
the Guaranteed Account in accordance with the allocation percentages for Monthly
Deductions chosen by the Owner at the time of application, or as later changed
by PLACA pursuant to the Owner's written request.
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<PAGE> 40
If a monthly deduction cannot be made on the basis of the allocation
schedule then in effect, the deduction will be made based on the allocation of
Policy Account Value among the Owner's Guaranteed Account Value and the value in
any Subaccount.
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 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. In calculating the cost of
insurance charge, the rate is applied to the Net Amount at Risk. Any change in
the Net Amount at Risk will affect the total cost of insurance charges paid by
the Owner.
Cost of Insurance Rate. The cost of insurance rate will be based on the
Issue Age, Sex and Premium Class of each Insured and Duration. The actual
monthly cost of 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 Issue Age, Sex, Premium Classes of
each Insured, the Duration, and the 1980 Commissioners Standard Ordinary
Smoker/Nonsmoker Mortality Table. Any change in the cost of insurance rates will
apply to all pairs of Insureds with the same Issue Ages, Sexes, and Premium
Classes and Duration.
Premium Class. The Premium Classes of the Insureds will affect the cost of
insurance rates. PLACA currently places Insureds into standard classes and
classes with extra ratings which reflect higher mortality risks. In an otherwise
identical Policy, Insureds in the standard class will have a lower cost of
insurance than Insureds in a class with extra ratings. The Standard Premium
Class is divided into three categories: smoker, nonsmoker and preferred.
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.
Administrative Charges. PLACA administers the Policy and the Subaccounts
and, therefore, will incur certain ordinary administrative expenses and certain
issuance expenses. There are two administrative charges, the Initial
Administrative Charge and the Monthly Administrative Charge.
Initial Administrative Charge. An Initial Administrative Charge of $17.50
plus $0.11 per $1,000 of Initial Face Amount will be deducted from the Policy
Account Value on each of the first 12 Policy Processing Days as part of the
Monthly Deduction. The Initial Administrative Charge is intended to reimburse
PLACA for administrative expenses in connection with the issuance of the Policy,
including medical exams, review of applications for insurance, underwriting
decisions and processing of the applications, establishing Policy records, and
Policy issue.
Monthly Administrative Charge. A Monthly Administrative Charge (presently
$7.50 plus $0.01 per $1,000 of Face Amount) will be deducted from the Policy
Account Value on the Policy Date and each Policy Processing Day as part of the
Monthly Deduction. This charge may be increased, but in no event will it be
greater than $12 plus $0.03 per $1,000 of Face Amount 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 or in the Policy Schedule pages.
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.
31
<PAGE> 41
TRANSFER CHARGE
After four transfers have been made in any Policy Year, a transfer charge
of $25 will be deducted for each transfer during the remainder of such Policy
Year to compensate PLACA for the costs of processing such transfers.
The transfer charge will be deducted from the amount being transferred. The
transfer charge will not apply to transfers resulting from Policy loans, the
exercise of special transfer rights and the initial reallocation of account
values from the Money Market Subaccount to other Subaccounts. These transfers
will not count against the four free transfers in any Policy Year.
CHARGES AGAINST THE SUBACCOUNTS
Mortality and Expense Risk Charge. A daily charge will be deducted from
the value of the net assets of the Subaccounts to compensate PLACA for mortality
and expense risks assumed in connection with the Policy. This charge will be
deducted at an annual rate of 0.65% (or a daily rate of .001781%) of the average
daily net assets of each Subaccount. This charge may be increased, but in no
event will it be greater than an annual rate of 0.90% of the average daily net
assets of each Subaccount. The mortality risk assumed by PLACA is that Insureds
may live for a shorter time than projected and, therefore, greater death
benefits than expected will be paid in relation to the amount of premiums
received. The expense risk assumed is that expenses incurred in issuing and
administering the Policies will exceed the administrative charges provided in
the Policy.
If the Mortality and Expense Risk Charge proves insufficient, PLACA will
provide for all death benefits and expenses and any loss will be borne by PLACA.
Conversely, PLACA will realize a gain from this charge to the extent all money
collected from this charge is not needed to provide for benefits and expenses
under the Policies.
OTHER CHARGES
The Subaccounts purchase shares of the Funds at net asset value. The net
asset value of those shares reflect management fees and expenses already
deducted from the assets of the Funds' Portfolios. The fees and expenses for the
Funds and their Portfolios are described briefly in connection with a general
description of each Fund.
CONTRACT RIGHTS
LOAN PRIVILEGES
General. The Owner may at any time after the Issue Date borrow money from
PLACA using the Policy as the only security for the loan. The Owner may obtain
Policy loans in a minimum amount of $500 (or such lesser minimum required in a
particular state) but not exceeding the Policy's Net Cash Surrender Value on the
date of the loan. While either Insured is living, the Owner may repay all or a
portion of a loan and accrued interest.
Interest Rate Charged. The interest rate charged on Policy loans will be
at the fixed rate of 6% per year. Interest is due at the end of each Policy
Year. If interest is not paid when due, it will be added to the loan balance and
bear interest at the same rate.
Allocation of Loans and Collateral. PLACA will allocate the amount of a
Policy loan among the Subaccounts and/or the Guaranteed Account based upon the
proportion that the value of the Subaccounts and/or the Guaranteed Account Value
bear to the total unloaned Policy Account Value at the time the loan is made.
The collateral for a Policy loan will be the loan amount plus accrued
interest to the next Policy Anniversary, less interest at 4% per annum which
will be earned to such Policy Anniversary. PLACA will deduct the collateral for
the loan from each account based on the loan allocation and transfer this amount
to
32
<PAGE> 42
the Loan Account. The collateral for any existing loan will be recalculated: (a)
when loan interest is repaid or treated as part of the loaned amount; (b) when a
new loan is made; and (c) when a loan repayment is made. A transfer to or from
the Loan Account will be made to reflect any recalculation of collateral. At any
time, the amount of the outstanding loan under a Policy equals the sum of all
loans (including due and unpaid interest added to the loan balance) minus any
loan repayments.
Interest Credited to Loan Account. As long as the Policy is in force,
PLACA will credit the amount in the Loan Account with interest at effective
annual rates it determines, but not less than 4% or such higher minimum rate
required under state law. The rate will apply to the calendar year which follows
the date of determination. Loan interest credited will be transferred to the
accounts: (1) when loan interest is paid or treated as part of the loaned
amount; (2) when a loan repayment is made; and (3) when a new loan is made.
Effect of Policy Loan. Policy loans, whether or not repaid, will have a
permanent effect on the Policy Account Value, the Cash Surrender Value, and Net
Cash Surrender Value and may permanently affect the Death Benefit under the
Policy. The effect on the Policy Account Value and Death Benefit could be
favorable or unfavorable, depending on whether the investment performance of the
Subaccounts and the interest credited to the Guaranteed Account is less than or
greater than the interest being credited on the assets in the Loan Account while
the loan is outstanding. Compared to a Policy under which no loan is made,
values under a Policy will be lower when the credited interest rate is less than
the investment experience of assets held in the Subaccounts and interest
credited to the Guaranteed Account. The longer a loan is outstanding, the
greater the effect a Policy loan is likely to have. The Death Proceeds will be
reduced by the amount of any outstanding Policy loan.
Loan Repayments. Unless prohibited by a particular state, PLACA will
assume that any payments made while there is an outstanding loan on the Policy
is a loan repayment, unless it receives written instructions that it is a
premium payment. Repayments up to the amount of the outstanding loan will be
allocated to the accounts based on the amount of the outstanding loan allocated
to each account as of the date of repayment; any repayment in excess of the
amount of the outstanding loan will be allocated to the accounts based on the
amount of interest due on the portion of the outstanding loan allocated to each
account. For this purpose, the amount of the interest due is determined as of
the next Policy Anniversary.
Lapse With Loans Outstanding. The amount of an outstanding loan under a
Policy plus any accrued interest on outstanding loans is not part of Net Cash
Surrender Value. Therefore, the larger the amount of an outstanding loan, the
more likely it is that the Policy could lapse. (See "How the Duration of the
Policy May Vary," Page 25 and "Policy Lapse," Page 28.) In addition, lapse of
the Policy with outstanding loans may result in adverse tax consequences. (See
"Tax Treatment of Policy Benefits," Page 43.)
Tax Considerations. Any loans taken from a "Modified Endowment Contract"
will be treated as a taxable distribution. In addition, with certain exceptions,
a 10% additional income tax penalty will be imposed on the portion of any loan
that is included in income. (See "Distributions from Policies Classified as
Modified Endowment Contracts," Page 44).
SURRENDER PRIVILEGE
At any time before the earlier of the death of the last surviving Insured
and the Final Policy Date, the Owner may surrender the Policy for its Net Cash
Surrender Value. The Net Cash Surrender Value is the Policy Account Value minus
any Policy loan and accrued interest and less any surrender charges. The Net
Cash Surrender Value will be determined by PLACA on the date it receives, at its
Home Office, a surrender request signed by the Owner. Coverage under the Policy
will end on the day the Owner mails or otherwise sends the written surrender
request to PLACA.
A surrender may have Federal income tax consequences. (See "Tax Treatment
of Policy Benefits," Page 43).
33
<PAGE> 43
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After the first Policy Year, at any time before the earlier of the death of
the last surviving 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 Partial Withdrawal Charge will be deducted from the
Policy Account Value (See "Partial Withdrawal Charge," Page 31). A partial
withdrawal will not result in the imposition of Surrender Charges. (See
"Surrender Charge," Page 29.)
The amount of the partial withdrawal and the Partial Withdrawal Charge will
be allocated based on the proportion that the value in the Subaccounts and the
Guaranteed Account Value bear to the total unloaned Policy Account Value.
The effect of a partial withdrawal on the Death Benefit and Face Amount
will vary depending upon the Death Benefit Option in effect and whether the
Death Benefit is based on the applicable percentage of Policy Account Value.
(See "Death Benefit Options," Page 22.)
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 younger
Insured is under 40 and there is no indebtedness. The applicable percentage
is 250% for a younger Insured with an Attained Age under 40.
Under Option A, a contract with a Face Amount of $300,000 and a Policy
Account Value of $30,000 will have a Death Benefit of $300,000. Assume that
the policyowner takes a partial withdrawal of $10,000. The partial
withdrawal will reduce the Policy Account Value to $19,975
($30,000 - $10,000 - $25) and the Death Benefit and Face Amount to $290,000
($300,000 - $10,000).
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, the Face Amount
will be reduced by an amount equal to the amount of the partial withdrawal.
The Death Benefit will be reduced to equal the greater of (a) the Face
Amount after the partial withdrawal, and (b) the applicable percentage of
the Policy Account Value after deducting the amount of the partial
withdrawal and the expense charge.
Under Option A, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000. Assume
that the policyowner takes a partial withdrawal of $49,975. The partial
withdrawal will reduce the Policy Account Value to $250,000 ($300,000 -
$49,975 - $25) and the Face Amount to $250,025 ($300,000 - $49,975). The
Death Benefit is the greater of (a) the Face Amount of $250,025 and (b) the
applicable percentage of the Policy Account Value $625,000
($250,000 X 2.5). Therefore, the Death Benefit will be $625,000.
Option B. The Face Amount will never be decreased by a partial withdrawal.
A partial withdrawal will, however, always decrease the Death Benefit.
If the Death Benefit equals the Face Amount plus the Policy Account
Value, a partial withdrawal will reduce the Policy Account Value by the
amount of the partial withdrawal and expense charge and thus the Death
Benefit will also be reduced by the amount of the partial withdrawal and
the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $90,000 will have a Death Benefit of $390,000
($300,000 + $90,000). Assume the policyowner takes a partial withdrawal of
$20,000. The partial withdrawal will reduce the Policy Account Value to
$69,975 ($90,000 - $20,000 - $25) and the Death Benefit to $369,975
($300,000 + $69,975). The Face Amount is unchanged.
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<PAGE> 44
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," Page 31). A request for partial withdrawal may
not be allowed if or to the extent such withdrawal would reduce the Face Amount
below the Minimum Face Amount for the Policy. Also, if a partial withdrawal
would result in cumulative premiums exceeding the maximum premium limitations
applicable under the Code for life insurance, PLACA will not allow such partial
withdrawal.
A partial withdrawal of Net Cash Surrender Value may have Federal income
tax consequences. (See "Tax Treatment of Policy Benefits," Page 43).
FREE-LOOK PRIVILEGE
Free-Look for Policy. The Policy provides for an initial Free-Look Period.
The Owner may cancel the Policy until the latest of: (a) 45 days after Part I of
the application for the Policy is signed; (b) 10 days after the Owner receives
the Policy; and (c) 10 days after PLACA mails the Notice of Withdrawal Right to
the Owner. Upon giving notice of cancellation and returning the Policy, 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 Home Office or the
PLACA representative through whom the Policy was purchased; plus (ii) any
Premium Expense Charges deducted from premiums paid; plus (iii) any Monthly
Deductions charged against the accounts; plus (iv) any Mortality and Expense
Risk charges deducted from the value of the net assets of the Subaccounts
attributable to the Policy; plus (v) any advisory fees and any other fees and
expenses of the Fund.
When state law requires a refund equal to gross premiums paid, the refund
will instead equal the gross premiums paid on the Policy and will not reflect
the investment experience of the Subaccounts or interest earnings for the
Guaranteed Account.
SPECIAL TRANSFER AND CONVERSION RIGHTS
Transfer Right for Policy. During the first two years following Policy
issue, the Owner may, on one occasion, transfer the entire Policy Account Value
in the Subaccounts to the Guaranteed Account without such transfer counting
toward the four transfers permitted without charge during a Policy Year. If such
transfer is made after four transfers have been made during a Policy Year, no
transfer charge will be deducted. After exercising this transfer right, all
subsequent Net Premiums will be allocated to the Guaranteed Account.
Transfer Right for Change in Investment Policy of Subaccount. In
accordance with the variable life insurance regulations of certain states, if
the investment policy of a Subaccount is materially changed, the Owner may
transfer the portion of the Policy Account Value in such Subaccount to another
Subaccount or to the Guaranteed Account without having such transfer count
toward the four transfers permitted without charge during a Policy Year. If such
transfer is made after four transfers have been made during a Policy Year, no
transfer charge will be deducted.
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<PAGE> 45
Telephone Transfers. Transfers will be made based upon instructions given
by telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to 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 unauthorized or fraudulent instructions.
PLACA, however, may be liable for such losses if it does not follow those
reasonable procedures. The procedures PLACA will follow for telephone transfers
include requiring some form of personal identification prior to acting on
instructions received by telephone, providing written confirmation of the
transaction and making a tape-recording of the instructions given by telephone.
Automatic Asset Rebalancing. Automatic asset rebalancing is a feature
which, if elected, authorizes periodic transfers of policy or contract values
among the subaccounts in order to maintain the allocation of such values in
percentages that match the then current premium allocation percentages. Election
of this feature may occur at the time of application or at any time after the
policy is issued by properly completing the election form and returning it to
PLACA. The election may be revoked at any time. Rebalancing may be done
quarterly or annually. Rebalancing will not occur when the total value in the
subaccounts is less than $1,000. PLACA reserves the right to suspend automatic
asset rebalancing at any time, for any class of policies or contracts, for any
reason.
THE GUARANTEED ACCOUNT
An Owner may allocate some or all of the Net Premiums and transfer some or
all of the Policy Account Value to the Guaranteed Account, which is part of
PLACA's General Account and pays interest at declared rates guaranteed for each
calendar year (subject to a minimum guaranteed interest rate of 4%). The
principal, after deductions, is also guaranteed. PLACA's General Account
supports its insurance and annuity obligations. The Guaranteed Account has not,
and is not required to be, registered with the SEC under the Securities Act of
1933, and neither the Guaranteed Account nor PLACA's General Account has been
registered as an investment company under the Investment Company Act of 1940.
Therefore, neither PLACA's General Account, the Guaranteed Account, nor any
interests therein are generally subject to regulation under the 1933 Act or the
1940 Act. The disclosures relating to these accounts which are included in this
Prospectus are for your information and have not been reviewed by the SEC.
However, such disclosures may be subject to certain generally applicable
provisions of 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
36
<PAGE> 46
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 Subaccounts, Monthly Deductions or other changes
are currently, for the purpose of crediting interest, accounted for on a last
in, first out ("LIFO") method. For example, a withdrawal is satisfied by taking
out Guaranteed Account Value attributable to the amount most recently
transferred or allocated to the Guaranteed Account.
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.
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 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 Home
Office.
OTHER POLICY PROVISIONS
Amount Payable on Final Policy Date. If one of the Insureds is living on
the Final Policy Date (at the younger 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 death of both Insureds at its Home Office and all other
requirements are satisfied. 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 of the last surviving Insured until the payment is made.
Any amounts payable as a result of the exercise of the free-look right,
surrender, partial withdrawal, or Policy loan will ordinarily be paid within
seven days of receipt of written request at PLACA's Home Office in a form
satisfactory to PLACA. In order to be satisfactory, a request must contain all
information necessary to process the transaction and be signed by the contract
Owner.
Generally, the amount of a payment 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
Separate Account'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;
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or (2) the SEC by order permits postponement of such actions for the protection
of PLACA policyholders. PLACA also may defer the determination or payment of
amounts from the Guaranteed Account for up to six months.
The Owner may decide the form in which proceeds will be paid. Before the
death of the last surviving Insured, 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.
The Contract. The Policy and a copy of the applications attached thereto
are the entire contract. Only statements made in the applications can be used to
void the Policy or deny a claim. The statements are considered representations
and not warranties. 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 Insureds, jointly unless a different Owner is
named in the application or thereafter changed. After the death of the first
Insured, the surviving Insured will be the Owner, unless otherwise provided.
While both or one of the Insureds is living, the Owner is entitled to exercise
any of the rights stated in the Policy or otherwise granted by PLACA. If the
Insureds and the Owner are not the same, and the Owner dies while an Insured is
living, 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 before the death of the last
surviving Insured by written notice to PLACA. Any Insurance Proceeds for which
there is not a designated Beneficiary surviving at the death of the last
surviving Insured are payable in a single sum to the executors or administrators
of the last surviving Insured.
Change of Owner and Beneficiary. As long as the Policy is in force, the
Owner or Beneficiary may be changed by written request in a form acceptable to
PLACA. The change will take effect as of the date it is signed, whether or not
one of the Insureds is living when the request is received by PLACA. PLACA will
not be responsible for any payment made or action taken before it receives the
written request. A change in the Policy's ownership may have Federal income tax
consequences. (See "Tax Treatment of Policy Benefits, Page 43.)
Split Dollar Arrangements. The Owner or Owners may enter into a Split
Dollar Arrangement between each other or another person or persons whereby the
payment of premiums and the right to receive the benefits under the Policy
(i.e., Net Cash Surrender Value or Death Proceeds) are split between the
parties. There are different ways of allocating such rights. No transfer of
Policy rights pursuant to a Split Dollar Arrangement will be binding on PLACA
unless in writing and received by PLACA. The parties who elect to enter into a
Split Dollar Arrangement should consult their own tax advisers regarding the tax
consequences of such an arrangement.
Assignments. The Owner may assign any and all rights under the Policy. No
assignment binds PLACA unless in writing and received by PLACA. 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 payee who is not also the Owner may not assign or encumber 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.
Misstatement of Age and Sex. If the age or sex of either Insured has been
misstated in the applications, the Death Benefit and any benefits provided by
riders will be such as the most recent Monthly Deductions would have provided at
the correct ages and sexes of the Insureds.
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Suicide. PLACA's liability is limited to payment of a sum equal to the
premiums paid less any Policy loan and accrued interest on such loan and any
partial withdrawals if:
(a) both Insureds commit suicide within two years of the Policy Issue
Date (except where state law requires a shorter period) and within
90 days of each other; or
(b) the last surviving Insured dies by suicide within such two year
period and within 90 days of the death of the first of the
Insureds to die; or
(c) the last surviving Insured lives for more than 90 days beyond the
date that the first Insured's death occurred by suicide and does
not exchange the Policy as described below.
During the 90 day period following the date that the first Insured dies by
suicide, the surviving Insured may exchange the survivorship policy, without
evidence of insurability, for a fixed-benefit policy issued by PLACA on the life
of such surviving Insured. The Policy Issue Date for the new policy will be the
91st day after the date of the first Insured's death. In the event one of the
Insureds commits suicide within two years of the Policy Issue Date and the
surviving Insured does not exercise this exchange right, coverage under the
Policy will end on the 91st day following such death.
If one of the Insureds commits suicide within two years of the Policy Issue
Date and the surviving Insured dies, other than by suicide, within 90 days of
the date of the first death, PLACA will pay the Insurance Proceeds to the
Beneficiary.
Incontestability. The Policy will be incontestable after it has been in
force during each Insured's lifetime for two years from the Issue Date (or such
other date as required by state law). Similar incontestability will apply to
reinstatement after it has been in force during each Insured's lifetime for two
years from its effective date. Before such times, however, PLACA may contest the
validity of the Policy (or changes) based on material misstatements in the
initial or any subsequent application.
Dividends. The Policy is participating; however, no dividends are expected
to be paid on the Policy.
If dividends are ever declared, they will be paid under one of the
following options:
(a) Paid in cash; or
(b) Applied as a Net Premium.
The Owner must choose an option at the time the application for the Policy
is signed. If no option is chosen, any dividend will be applied as a Net Premium
payment. The Owner may change the option by giving written notice to PLACA.
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. The options are described below.
Proceeds at Interest Option. Left on deposit to accumulate with PLACA with
interest payable at a rate of at least 3% per year.
Installments of a Specified Amount Option. Payable in equal installments
until proceeds applied under the Option and interest on the unpaid balance at 3%
per year and any additional interest are exhausted. Upon death of the
Beneficiary, an amount equal to the balance of proceeds with accrued interest
will be paid to persons as directed by Beneficiary.
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. Upon death of the Beneficiary, the
value of any remaining installments will be paid to persons as directed by
Beneficiary.
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
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exhausted, as elected. Upon death of the Beneficiary, the value of any remaining
guaranteed payments will be paid to persons as directed by Beneficiary.
Joint and Survivor Life Income. Payable in equal monthly installments
during the joint lives of the payee and one other person and during the life of
the survivor. The minimum number of payments will be for either 120 or 240
months, as elected.
SUPPLEMENTARY BENEFITS
The following supplementary benefits, which are subject to PLACA'S
underwriting restrictions and issue limitations, may be included in a Policy:
Disability Waiver Benefit. The Policy may include a Disability Waiver
Benefit Rider for either or both Insureds providing that in the event of such
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 four 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 four Policy Years. If this rider is added, the
Monthly Deduction will be increased to include the cost of this rider.
Policy Split Option. Under certain circumstances, the Policy can be split
on a 50/50 basis into two fixed-benefit life insurance policies, one on the life
of each Insured, with evidence of insurability. A policy split can be made if a
final divorce decree is issued with respect to the marriage of the two Insureds
or if the Federal Estate Tax law is changed resulting in removal of the
unlimited marital deduction or a reduction of at least 50% in the estate taxes
payable on death. The Face Amount and Policy Account Value less Policy loans and
accrued interest will be divided evenly between the two new policies. For a
discussion of the tax consequences of a policy split see "Taxation of Policy
Split" on page 43.
Change of Insured. Upon request, the Policy may include a Change of
Insured Rider by which one of the Insureds under a Policy may be changed to a
New Insured, subject to certain conditions and evidence of insurability. The
Monthly Deduction for cost of insurance will be changed to that for the New
Insured and the Remaining Insured as of the effective date of the change. Making
a change under this Rider may have adverse federal income tax consequences.
Accordingly, the Owner should consult a tax adviser before deciding to exercise
a change under this Rider.
Four Year Survivorship Term Life Insurance. The Policy may include a Four
Year Survivorship Term rider which provides additional term insurance during the
first four Policy Years upon due proof of the death of both Insureds. The amount
of this term insurance is 1.25 multiplied by the Face Amount of the Policy. If
this rider is added, the Monthly Deduction will be increased to include the cost
of this rider.
Convertible Term Life Insurance. The Policy may include a Convertible Term
Life Insurance rider which provides additional term insurance on one of the
Insureds. Two riders may be included to cover each Insured. The amount of term
insurance on either or both Insureds is shown in the Policy Schedule. If this
rider is added, the Monthly Deduction will be increased to include the cost of
this rider.
Guaranteed Minimum Death Benefit. The Policy may include a Guaranteed
Minimum Death Benefit rider which provides that the Policy will not lapse if the
sum of premiums paid less any partial withdrawals less any policy loans equals
or exceeds the Minimum Guarantee Premium. This rider expires at the later of the
policy anniversary nearest age 70 of the older Insured or the end of the tenth
Policy year. This rider is not available if Death Benefit Option B is elected at
issue and will terminate if the Policy is changed to Death Benefit Option B. If
this rider is added, the Monthly Deduction will be increased to include the cost
of this rider.
If the Guaranteed Minimum Death Benefit is lost due to insufficient premium
payments, it may be possible to regain the guarantee in future years. Federal
tax law may preclude payment of sufficient premiums to maintain the guarantee
following a decrease in Face Amount, a partial withdrawal that reduces the Face
Amount, reduction or deletion of a rider benefit or an improvement in the
Policy's Premium Class.
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Final Policy Date Extension. Upon request, the policy may include a Final
Policy Date Extension Rider. This rider extends the final policy date of a
policy 20 years from the original final policy date. It may only be added on or
after the anniversary nearest the younger insured's 90th birthday. There is no
charge for adding this rider.
When this rider is added, the final policy date is extended 20 years beyond
the original final policy date stated in the policy. The death benefit after the
original final policy date will be the policy account value. All other riders
attached and in effect on the original final policy date will terminate on the
original final policy date.
The tax consequences of (1) adding a Final Policy Date Extension Rider to
the Policy, and (2) the Policy continuing in force after the younger Insured's
100th birthday or, if the younger Insured is dead, the older Insured's 100
birthday are uncertain. Prospective purchasers of a Policy and Owners
considering the addition of Final Policy Date Extension to a Policy should
consult their own legal or other advisors as to such consequences.
Dollar Cost Averaging. Dollar Cost Averaging is a program which, if
elected, enables the Owner of a policy to systematically and automatically
transfer, on a monthly basis, specified dollar amounts from any selected
Subaccount to any of the policy's other Subaccounts or Guaranteed Account.
Transfers may not come from the Guaranteed Account. By allocating on a regularly
scheduled basis as opposed to allocating the total amount at one particular
time, an Owner may be less susceptible to the impact of short term market
fluctuations. PLACA, however, makes no guarantee that Dollar Cost Averaging will
result in a profit or protect against loss.
Dollar Cost Averaging may be elected for a period of 6, 12, 24 or 36
months. To qualify for Dollar Cost Averaging, the following minimum amount must
be allocated to a Subaccount: 6 months -- $3,000; 12 months -- $6,000; 24
months -- $12,000; 36 months -- $18,000. At least $500 must be transferred from
the Subaccount each month. The amount required to be allocated to the Subaccount
can be made from an initial or subsequent investment or by transferring amounts
into the Subaccount from the other Subaccounts or from the Guaranteed Account
(which may be subject to certain restrictions) (See "Transfers from Guaranteed
Account," Page ). Each monthly transfer amount will be split among the
Subaccounts or the Guaranteed Account based upon the percentages elected. Dollar
Cost Averaging may not be elected if Automatic Asset Rebalancing has been
elected or if a policy loan is outstanding.
Election into this program may occur at the time of application by
completing the authorization on the Optional Features election form or at any
time after the policy is issued by completing the election form and returning it
to PLACA by the beginning of the month. When an election form is received,
Dollar Cost Averaging will commence on the first Policy Processing Day after the
later of (a) the Policy Date; (b) the 15-day period when premiums are allocated
to the Money Market Fund in certain states; and (c) when the Subaccount value
equals or exceeds the greater of the minimum amount stated above and the amount
of the first monthly transfer.
Once the transfers have commenced, the transfers from the Subaccount will
be processed monthly on the Policy Processing Day until the number of transfers
has been completed, or transfers will end automatically when (a) a policy loan
is requested; (b) the policy goes into the grace period; or (c) there is
insufficient value in the Subaccount to make the transfer. The Owner may
instruct PLACA in writing to cancel the remaining monthly transfers.
Transfers made under the Dollar Cost Averaging program will not count
toward the four transfers permitted each Policy Year without imposing the
Transfer Charge. PLACA reserves the right to discontinue offering automatic
transfers upon 30 days' written notice to the Owner. Written notice will be sent
to the Owner and agent confirming each transfer and when the Dollar Cost
Averaging program is terminated. The Owner and agent are responsible for
reviewing the confirmation to verify the transfers are as requested. Any
discrepancies must be reported to PLACA immediately.
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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
In order to qualify as a life insurance contract for federal tax purposes,
the Policy must meet the definition of a life insurance contract which is set
forth in Section 7702 of the Internal Revenue Code of 1986, as amended (the
"Code"). The manner in which Section 7702 should be applied to certain features
of the Policy offered in this Prospectus is not directly addressed by Section
7702 or any guidance issued to date under Section 7702. Nevertheless, PLACA
believes it is reasonable to conclude that the Policy will meet the Section 7702
definition of a life insurance contract. In the absence of final regulations or
other pertinent interpretations of Section 7702, however, there is necessarily
some uncertainty as to whether a Policy will meet the statutory life insurance
contract definition, particularly if the Owner pays the full amount of premiums
permitted under the Policy. An Owner contemplating the payment of such premiums
should do so only after consulting a tax adviser. If a Contract were determined
not to be a life insurance contract for purposes of Section 7702, such contract
would not provide most of the tax advantages normally provided by a life
insurance contract.
If it is subsequently determined that a Policy does not satisfy Section
7702, PLACA may take whatever steps are appropriate and necessary 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
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account 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 separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the Policyowner), rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Owner has additional flexibility in allocating premium payments and
Policy Value and the investment objective of certain Portfolios (i.e. the
Worldwide Hard Assets Portfolio) may be
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narrower. These differences could result in a 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, the receipt of a
Policy in an exchange, 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), a
change in the Policy's Face Amount, a Policy loan, a partial withdrawal, a
surrender, a change in ownership, a change of insured, an adjustment of face
amount, a change in insurance protection, the addition of a Final Policy
Extension Date Rider to the Policy, the continuation of the Policy beyond the
younger Insured's 100th birthday, 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. A person considering any such
transaction should consult a tax adviser before effecting the transaction.
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. The Internal Revenue Code establishes a
class of life insurance contracts designated as "Modified Endowment Contracts,"
which applies to Policies entered into or materially changed after June 20,
1988.
Due to the Policy's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Policy. In general,
a Policy will be a Modified Endowment Contract if the accumulated premiums paid
at any time during the first seven Policy Years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. The determination of whether a Policy will be a Modified Endowment
Contract after a material change generally depends upon the relationship of the
Death Benefit and Policy Account Value at the time of such change and the
additional premiums paid in the seven years following the material change. At
the time a premium is credited which would cause the Policy to become a Modified
Endowment Contract, PLACA will notify the Owner that unless a refund of the
excess premium is requested by the Owner, the Policy will become a Modified
Endowment Contract. The Owner will have 30 days after receiving such
notification to request the refund. The excess premium paid (with either
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.
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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 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) of 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
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 not treated as distributions. Instead, such loans are treated as
indebtedness of the Owner.
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 adviser before deducting any
policy loan interest.
Investment in the Policy. Investment in the Policy means: (i) the
aggregate amount of any premiums or other consideration paid for a Policy, minus
(ii) the aggregate amount received under the Policy which is excluded from gross
income of the Owner (except that the amount of any loan from, or secured by, a
Policy that is a Modified Endowment Contract, to the extent such amount is
excluded from gross income, will be disregarded), plus (iii) the amount of any
loan from, or secured by, a Policy that is a Modified Endowment Contract to the
extent that such amount is included in the gross income of the Owner.
Multiple Policies. All Modified Endowment Contracts that are issued by
PLACA (or its affiliates) to the same Owner during any calendar year are treated
as one Modified Endowment Contract for purposes of determining the amount
includible in the gross income under Section 72(e) of the Code.
Taxation of Policy Split. The Policy Split Option Rider permits a Policy
to be split into two other fixed-benefit life policies upon the occurrence of a
divorce of the joint insureds or certain changes in federal estate tax law. A
policy split could have adverse tax consequences; for example, it is not clear
whether a policy split will be treated as a nontaxable exchange under Sections
1031 through 1043 of the Code. If a policy split is not
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treated as a nontaxable exchange, a split could result in the recognition of
taxable income in an amount up to any gain in the Policy at the time of the
split. In addition, it is not clear whether, in all circumstances, the
individual contracts that result from a policy split would be treated as life
insurance contracts for federal income tax purposes and, if so treated, whether
the individual contracts would be classified as modified endowment contracts.
Before you exercise rights provided by the policy split option, it is important
that you consult with a competent tax advisor regarding the possible
consequences of a policy split.
Other Tax Considerations. The transfer of the Policy or the designation of
a Beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate and generation-skipping
transfer taxes. For example, the transfer of the Policy to, or the designation
as beneficiary of, or the payment of proceeds to, a person who is assigned to a
generation which is two or more generations below the generation assignment of
the Owner, may have generation skipping transfer tax considerations under
Section 2601 of the Code.
The individual situation of each Owner or Beneficiary will determine the
extent, if any, to which federal, state and local transfer taxes may be imposed.
Consult with your tax adviser for specific information in connection with these
taxes. In addition, the Policy may be used in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Policy in any arrangement the value of which depends
in part on its tax consequences, you should be sure to consult a qualified tax
advisor regarding the tax attributes of the particular arrangement.
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 in 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.
CHARGE FOR PLACA'S TAXES
As a result of the Omnibus Budget Reconciliation Act of 1990, insurance
companies are generally required to capitalize and amortize certain policy
acquisition expenses associated with premium payments over a ten year period
rather than currently deducting such expenses. This treatment applies to the
deferred acquisition expenses of a Policy and results in a significantly higher
corporate income tax liability for PLACA in early policy years. PLACA makes a
charge to compensate for the anticipated higher corporate income taxes that
result from the receipt of premiums under a Policy (See "Federal Tax Charge,"
Page 29).
Currently, PLACA makes no other charges (other than premium taxes) for any
federal, state or local taxes that it incurs that may be attributable to the
Subaccounts or to the Policies. PLACA, however, reserves the right to deduct
from the Subaccounts any such taxes which are imposed on the investment earnings
of the Subaccounts. Currently no such taxes are imposed.
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
45
<PAGE> 55
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 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 this 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 a 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 policyowners. 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 policyowner having a voting interest will be sent proxy material and a
form for giving voting instructions. Policyowners 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 policyowner 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 policyowners have no interest, PLACA will
cast votes, for or against any matter, in the same proportion as policyowners
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 a policyowner or a 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 policyowners of that action and its reasons
for such action in the next semi-annual report to policyowners.
Shares of the Funds 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 policyowners of the
Policies.
CHANGES IN APPLICABLE LAW, FUNDING AND OTHERWISE
The voting rights described in this Prospectus are created under applicable
Federal securities laws. To the extent that such laws or regulations promulgated
thereunder eliminate the necessity to solicit voting instructions from Owners or
restrict such voting rights, PLACA reserves the right to proceed in accordance
with any such laws or regulations.
46
<PAGE> 56
PLACA also reserves the right, subject to compliance with applicable law,
including approval of Owners, if so required: (1) to transfer assets determined
by PLACA to be associated with the class of policies to which the Policies
belong from one Subaccount to another Subaccount by withdrawing the same
percentage of each investment in the account with appropriate adjustments to
avoid odd lots and fractions (such transfers will not count against the four
free transfers during a Policy Year); (2) to create additional separate
investment accounts, to create divisions from, or combine or remove divisions
from, Subaccounts, or to combine any two or more accounts including the
Subaccounts; (3) to operate one or more of the Subaccounts as a management
investment company under the 1940 Act, or in any other form permitted by law;
(4) to deregister the unit investment trust under the 1940 Act; and (5) to
modify the provisions of the Policies to comply with applicable laws. PLACA has
reserved all rights in respect of its corporate name and any part thereof,
including without limitation the right to withdraw its use and to grant its use
to one or more other separate accounts and other entities.
Although PLACA believes it to be highly unlikely, it is possible that in
the judgment of its management, one or more of the Portfolios may become
unsuitable for investment by the corresponding Subaccount because of a change in
investment policy, or a change in the tax laws, or because the shares or units
are no longer available for investment or for any other reasonable cause. In
that event, PLACA may seek to substitute the shares of another portfolio or
series or of an entirely different mutual fund or trust. Before this would be
done, the approval of the SEC and possibly one or more state insurance
departments would be obtained, to the extent legally required.
OFFICERS AND DIRECTORS OF PLACA
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
Robert W. Kloss.............................. 1996 to present -- President and Chief Executive
Director and President Officer of PMLIC; 1994 to 1996 -- President and Chief
Operating Officer of PMLIC; 1986 to 1994 -- Chief
Executive Officer of Covenant Life Insurance
Company.
James G. Potter, Jr.......................... 12/97 to present -- Executive Vice President, General
Director, Secretary and Legal Officer Counsel & Secretary of Provident Mutual Life
Insurance Company; 6/89 to 11/97 -- Chief Legal
Officer of Prudential Banks.
James D. Kestner............................. 11/94 to present -- Vice President of Provident Mutual
Director Life Insurance Company; 1/78 to 11/94 -- Sr. Vice
President and Treasurer of Covenant Life Insurance
Company.
Sarah C. Lange............................... 1983 to present -- Vice President of Provident Mutual
Director Life Insurance Company.
J. Kevin McCarthy............................ 1996 to present -- Executive Vice President and Chief
Director Marketing Officer of PMLIC; 1995 -- Vice President,
Variable Products at CNA Insurance Companies; 1992
to 1994 -- Vice President, Sales at PMLIC; 1981 to
1992 -- Strategic Managing Consultant at The Wolper
Ross Corporation.
Alan F. Hinkle............................... 1996 to present -- Executive Vice President and Chief
Director Actuary of PMLIC; 1974 to 1996 -- Vice President and
Individual Actuary.
</TABLE>
47
<PAGE> 57
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
Joan C. Tucker............................... 1996 to present -- Executive Vice President, Insurance
Director Operations at PMLIC; 1996 -- Senior Vice President,
Insurance Operations of PMLIC; 1993 to 1996 -- Vice
President Individual Insurance Operations at PMLIC;
1989 to 1993 -- Assistant Vice President, Agency
Administration at PMLIC.
Mary Lynn Finelli............................ 1996 to present -- Executive Vice President and Chief
Director Financial Officer of PMLIC; 1986 to 1996 -- Vice
President and Controller of PMLIC; 1976 to 1986 --
Principal of Arthur Young Company.
Linda M. Springer............................ 1996 to present -- Vice President and controller of
Financial Reporting Officer PMLIC; 1995 to 1996 -- Assistant Vice President and
Actuary of PMLIC; 1992 to 1995 -- Actuary of PMLIC.
Rosanne Gatta................................ 1994 to present -- Vice President and Treasurer of
Treasurer PMLIC; 1985 to 1994 -- Assistant Vice President and
Treasurer of PMLIC.
</TABLE>
- ---------------
* Unless otherwise indicated, the address is 1050 Westlakes Drive, Berwyn,
Pennsylvania 19312.
A Fidelity Bond in the amount of $10 million covering PLACA's officers and
employees has been issued by Aetna Casualty and Surety Company.
DISTRIBUTION OF POLICIES
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell PLACA's variable life insurance policies,
and who are also registered representatives of 1717 Capital Management Company
("1717") or registered representatives of broker/dealers who have Selling
Agreements with 1717 or registered representatives of broker/dealers who have
Selling Agreements with such broker/dealers. 1717, whose address is Christiana
Executive Campus, P.O. Box 15626, Wilmington, Delaware 19850, is a registered
broker/dealer under the Securities Exchange Act of 1934 (the "1934 Act") and a
member of the National Association of Securities Dealers, Inc. (the "NASD").
1717 is an indirect wholly-owned subsidiary of Provident Mutual Life Insurance
Company ("PMLIC"). 1717 acts as the principal underwriter, as defined in the
1940 Act, of the Policies (as well as other variable life policies) for the
Subaccounts pursuant to an Underwriting Agreement to which the Variable Account,
1717 and PLACA are parties. The Policies are offered and sold only in those
states where their sale is lawful. 1717 receives no compensation as principal
underwriter of the Policies. 1717 is also the principal underwriter of variable
annuity contracts issued by PLACA and variable life and annuity contacts 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 84% of the premiums paid up to a
target amount (used only to determine commission payments) and 2% of the
premiums paid in excess of that amount. Agent commissions will not be more than
2% of premiums paid for Policy Years 2 through 10 and for years 11 and later, 0%
of the premiums paid. However, for each premium received within 10 years
following an increase in Face Amount, agent commissions on the premium paid up
to the target amount for the increase in each year will be calculated using the
commission rates for the corresponding Policy Year. Agents may also receive
annual renewal compensation of up to 0.25% of the unloaned Policy Account Value,
depending upon the circumstances. The annual renewal compensation will be
computed on the Policy Anniversary beginning at the end of the second Policy
Year. Agents may also receive
48
<PAGE> 58
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.
PREPARING FOR YEAR 2000
Like all financial service providers, Provident Mutual Life Insurance
Company and its affiliates (collectively, "Provident Mutual") utilize systems
that may be affected by Year 2000 transition issues and they rely on service
providers, including banks, custodians, administrators, and investment managers
that also may be affected. Provident Mutual have developed, and are in the
process of implementing, a Year 2000 transition plan, and are confirming that
its service providers are also so engaged. The resources that are being devoted
to this effort are substantial. It is difficult to predict with precision
whether the amount of resources ultimately devoted, or the outcome of these
efforts, will have any negative impact on Provident Mutual. However, as of the
date of this prospectus, it is not anticipated that Owners will experience
negative effects on their investment, or on the services provided in connection
therewith, as a result of Year 2000 transition implementation. Provident Mutual
currently anticipate that their systems will be Year 2000 compliant on or about
January 1, 1999 but there can be no assurance that Provident Mutual will be
successful, or that interaction with other service providers will not impair
Provident Mutual's services at that time.
POLICY REPORTS
At least once each Policy Year a statement will be sent to the Owner
describing the status of the Policy, including setting forth the Face Amount,
the current Death Benefit, any Policy loans and accrued interest, the current
Policy Account Value, the Guaranteed Account Value, the Loan Account Value, the
value in each Subaccount, premiums paid since the last report, charges deducted
since the last report, any partial withdrawals since the last report, and the
current Net Cash Surrender Value. At the present time, PLACA plans to send these
Policy Statements on a quarterly basis. In addition, a statement will be sent to
an Owner showing the status of the Policy following the transfer of amounts from
one Subaccount to another, the taking out of a loan, a repayment of a loan, a
partial withdrawal and the payment of any premiums (excluding those paid by bank
draft or otherwise under the Automatic Payment Plan). An Owner may request that
a similar report be prepared at other times. PLACA may charge a reasonable fee
for such requested reports and may limit the scope and frequency of such
requested reports.
An Owner will be sent a semi-annual report containing the financial
statements of the Subaccounts and the Funds as required by the 1940 Act.
LEGAL PROCEEDINGS
PMLIC and its subsidiaries, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PMLIC believes that at the
present time there are not pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Separate Account or PMLIC.
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.
49
<PAGE> 59
EXPERTS
The audited Financial Statements of PLACA and the Providentmutual Variable
Life Separate Account contained herein have been included in this Prospectus in
reliance on the reports of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
Actuarial matters included in the Prospectus have been examined by Scott V.
Carney, FSA, MAAA, Vice President and Actuary of PMLIC, as stated in his opinion
filed as an exhibit to the Registration Statement.
LEGAL MATTERS
Sutherland, Asbill & Brennan, L.L.P., of Washington, D.C. has provided
advice on legal matters relating to certain aspects of Federal securities law
applicable to the issue and sale of the Policies. Adam Scaramella, Esq., Counsel
of Provident Mutual Life Insurance Company, has provided advice on certain
matters relating to the laws of Delaware regarding the Policies and PLACA's
issuance of the Policies.
50
<PAGE> 60
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 two Insureds
of given ages and sexes 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 and a female Insured, Age 40, both 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 either 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
8.25% (2% Premium Tax Charge, 5% of Premium Sales Charge and 1.25% Federal Tax
Charge) in all Policy Years, a maximum monthly administrative fee of $15.00, the
initial administrative charge of $43.50 in each of the first 12 policy months,
and a daily charge for mortality and expense risks equivalent to an annual rate
of 0.90%; the columns under the heading "Current" assume that throughout the
life of the Policy, the monthly charge for cost of insurance is based on the
current cost of insurance rate, a Premium Expense Charge of 8.25% in Policy
Years 1 through 15 and 3.25% (2% Premium Tax Charge and 1.25% Federal Tax
Charge) thereafter, the current monthly administrative fee of $8.50, the initial
administrative charge of $43.50 in each of the first 12 policy months, and a
daily charge for mortality and expense risks equivalent to an annual rate of
0.65%.
The amounts shown in all tables reflect an averaging of certain other asset
charges described below that may be assessed under the Policy, depending upon
how premiums are allocated. The total of the asset charges reflected in the
Current and Guaranteed illustrations, including the Mortality and Expense Risk
Charge listed above, is 1.47% and 1.72%, respectively. This total charge is
based on an assumption that an Owner allocates the Policy values equally among
each Sub-Account of the Variable Account.
These asset charges reflect an investment advisory fee of 0.65% which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of 0.17% which is based on an average of the
actual expenses incurred by the Portfolios during the most recent fiscal year.
For all of the Portfolios, the annual expenses used in the illustrations are net
of certain reimbursements that may or may not continue.
Currently there is an expense reimbursement agreement between PMLIC and MS
Fund pursuant to which PMLIC reimburses MS Fund expenses, excluding investment
advisory fees, in excess of 0.40% for all Portfolios except the International
Portfolio and 0.75% for the International Portfolio. There was no reimbursement
in 1997. The Fund expenses, excluding advisory fees, during 1997 were 0.11% for
the Growth Portfolio, 0.14% for the Money Market Portfolio, 0.22% for the Bond
Portfolio, 0.17% for the Managed Portfolio, 0.18% for the Aggressive Growth
Portfolio and 0.27% for the International Portfolio. It is anticipated that this
agreement will continue past the current year. If it does not continue, Fund
expenses may increase.
Absent reimbursements, the investment advisory fees and other expenses
during the most recent fiscal year for the portfolios were:
VIP Fund Equity Income Portfolio 0.58%, VIP Fund Growth Portfolio
0.69%, VIP Fund Overseas Portfolio 0.91%, VIP Fund II Asset Manager
Portfolio 0.65%, VIP Fund II Index 500 Portfolio 0.40%,
A-1
<PAGE> 61
VIP Fund II Investment Grade Bond Portfolio 0.58%, VIP Fund II Contrafund
Portfolio 0.71% and Van Eck Worldwide Hard Assets Portfolio 1.18%.
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 a 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 based upon the
proposed Insureds' Ages and Premium Classes, the Death Benefit Option, Face
Amount, Planned Periodic Premium 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> 62
PROVIDENTMUTUAL
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED--ISSUE AGE 40--PREFERRED
FEMALE 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 1,050 384 0 100,000 464 0 100,000
2 2,153 1,099 376 100,000 1,259 535 100,000
3 3,310 1,801 1,038 100,000 2,041 1,278 100,000
4 4,526 2,489 1,686 100,000 2,810 2,007 100,000
5 5,802 3,163 2,320 100,000 3,566 2,722 100,000
6 7,142 3,824 2,940 100,000 4,309 3,425 100,000
7 8,549 4,471 3,561 100,000 5,038 4,128 100,000
8 10,027 5,103 4,193 100,000 5,753 4,844 100,000
9 11,578 5,721 4,811 100,000 6,455 5,545 100,000
10 13,207 6,324 5,415 100,000 7,142 6,232 100,000
11 14,917 6,912 6,003 100,000 7,814 6,904 100,000
12 16,713 7,484 6,757 100,000 8,470 7,742 100,000
13 18,599 8,040 7,494 100,000 9,110 8,564 100,000
14 20,579 8,577 8,213 100,000 9,731 9,367 100,000
15 22,657 9,095 8,913 100,000 10,334 10,152 100,000
16 24,840 9,592 9,592 100,000 10,966 10,966 100,000
17 27,132 10,066 10,066 100,000 11,574 11,574 100,000
18 29,539 10,516 10,516 100,000 12,166 12,166 100,000
19 32,066 10,941 10,941 100,000 12,749 12,749 100,000
20 34,719 11,337 11,337 100,000 13,326 13,326 100,000
25 50,113 12,724 12,724 100,000 16,060 16,060 100,000
30 69,760 12,353 12,353 100,000 18,184 18,184 100,000
</TABLE>
- ---------------
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OR RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-3
<PAGE> 63
PROVIDENTMUTUAL
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED--ISSUE AGE 40--PREFERRED
FEMALE 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 1,050 422 0 100,000 504 0 100,000
2 2,153 1,209 486 100,000 1,379 655 100,000
3 3,310 2,029 1,265 100,000 2,292 1,528 100,000
4 4,526 2,881 2,077 100,000 3,244 2,440 100,000
5 5,802 3,766 2,923 100,000 4,236 3,392 100,000
6 7,142 4,687 3,803 100,000 5,270 4,386 100,000
7 8,549 5,643 4,733 100,000 6,347 5,437 100,000
8 10,027 6,636 5,727 100,000 7,469 6,560 100,000
9 11,578 7,668 6,758 100,000 8,638 7,728 100,000
10 13,207 8,738 7,828 100,000 9,854 8,945 100,000
11 14,917 9,848 8,938 100,000 11,120 10,211 100,000
12 16,713 10,998 10,271 100,000 12,437 11,709 100,000
13 18,599 12,191 11,645 100,000 13,805 13,259 100,000
14 20,579 13,424 13,061 100,000 15,226 14,862 100,000
15 22,657 14,700 14,519 100,000 16,701 16,519 100,000
16 24,840 16,019 16,019 100,000 18,283 18,283 100,000
17 27,132 17,380 17,380 100,000 19,924 19,924 100,000
18 29,539 18,783 18,783 100,000 21,631 21,631 100,000
19 32,066 20,229 20,229 100,000 23,416 23,416 100,000
20 34,719 21,718 21,718 100,000 25,283 25,283 100,000
25 50,113 29,728 29,728 100,000 35,945 35,945 100,000
30 69,760 38,270 38,270 100,000 48,940 48,940 100,000
</TABLE>
- ---------------
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OR RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-4
<PAGE> 64
PROVIDENTMUTUAL
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED--ISSUE AGE 40--PREFERRED
FEMALE INSURED--ISSUE AGE 40--PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
</TABLE>
<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 1,050 459 0 100,000 544 0 100,000
2 2,153 1,324 601 100,000 1,504 781 100,000
3 3,310 2,275 1,511 100,000 2,563 1,799 100,000
4 4,526 3,320 2,516 100,000 3,729 2,925 100,000
5 5,802 4,468 3,624 100,000 5,014 4,170 100,000
6 7,142 5,729 4,846 100,000 6,430 5,546 100,000
7 8,549 7,115 6,205 100,000 7,990 7,080 100,000
8 10,027 8,638 7,728 100,000 9,708 8,798 100,000
9 11,578 10,310 9,400 100,000 11,601 10,691 100,000
10 13,207 12,147 11,237 100,000 13,686 12,776 100,000
11 14,917 14,165 13,255 100,000 15,983 15,073 100,000
12 16,713 16,380 15,653 100,000 18,512 17,784 100,000
13 18,599 18,813 18,267 100,000 21,298 20,752 100,000
14 20,579 21,484 21,120 100,000 24,365 24,001 100,000
15 22,657 24,416 24,234 100,000 27,742 27,560 100,000
16 24,840 27,635 27,635 100,000 31,517 31,517 100,000
17 27,132 31,170 31,170 100,000 35,675 35,675 100,000
18 29,539 35,050 35,050 100,000 40,260 40,260 100,000
19 32,066 39,313 39,313 100,000 45,326 45,326 100,000
20 34,719 43,996 43,996 100,000 50,923 50,923 100,000
25 50,113 75,412 75,412 100,000 89,008 89,008 108,590
30 69,760 126,099 126,099 146,275 151,282 151,282 175,487
</TABLE>
- ---------------
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OR RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-5
<PAGE> 65
PROVIDENTMUTUAL
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
$100,000 FACE AMOUNT MALE INSURED--ISSUE AGE 40--PREFERRED
FEMALE INSURED--ISSUE AGE 40--PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
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 1,050 384 0 100,384 464 0 100,464
2 2,153 1,099 376 101,099 1,259 535 101,259
3 3,310 1,801 1,038 101,801 2,041 1,277 102,041
4 4,526 2,489 1,685 102,489 2,810 2,006 102,810
5 5,802 3,163 2,320 103,163 3,565 2,722 103,565
6 7,142 3,823 2,940 103,823 4,308 3,424 104,308
7 8,549 4,469 3,559 104,469 5,036 4,127 105,036
8 10,027 5,101 4,191 105,101 5,751 4,842 105,751
9 11,578 5,718 4,808 105,718 6,452 5,542 106,452
10 13,207 6,320 5,410 106,320 7,137 6,227 107,137
11 14,917 6,906 5,996 106,906 7,807 6,897 107,807
12 16,713 7,475 6,748 107,475 8,460 7,733 108,460
13 18,599 8,027 7,481 108,027 9,096 8,550 109,096
14 20,579 8,560 8,196 108,560 9,713 9,349 109,713
15 22,657 9,072 8,890 109,072 10,309 10,127 110,309
16 24,840 9,562 9,562 109,562 10,932 10,932 110,932
17 27,132 10,027 10,027 110,027 11,531 11,531 111,531
18 29,539 10,466 10,466 110,466 12,110 12,110 112,110
19 32,066 10,876 10,876 110,876 12,681 12,681 112,681
20 34,719 11,255 11,255 111,255 13,244 13,244 113,244
25 50,113 12,480 12,480 112,480 15,904 15,904 115,904
30 69,760 11,702 11,702 111,702 17,850 17,850 117,850
</TABLE>
- ---------------
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OR RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-6
<PAGE> 66
PROVIDENTMUTUAL
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
$100,000 FACE AMOUNT MALE INSURED--ISSUE AGE 40--PREFERRED
FEMALE INSURED--ISSUE AGE 40--PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
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 1,050 422 0 100,422 504 0 100,504
2 2,153 1,209 486 101,209 1,379 655 101,379
3 3,310 2,029 1,265 102,029 2,292 1,528 102,292
4 4,526 2,880 2,077 102,880 3,243 2,440 103,243
5 5,802 3,766 2,922 103,766 4,235 3,392 104,235
6 7,142 4,686 3,802 104,686 5,269 4,385 105,269
7 8,549 5,641 4,732 105,641 6,345 5,436 106,345
8 10,027 6,634 5,724 106,634 7,467 6,557 107,467
9 11,578 7,663 6,753 107,663 8,634 7,724 108,634
10 13,207 8,731 7,821 108,731 9,848 8,938 109,848
11 14,917 9,838 8,928 109,838 11,110 10,200 111,110
12 16,713 10,984 10,257 110,984 12,422 11,694 112,422
13 18,599 12,171 11,625 112,171 13,783 13,237 113,783
14 20,579 13,397 13,033 113,397 15,195 14,831 115,195
15 22,657 14,662 14,480 114,662 16,658 16,476 116,658
16 24,840 15,966 15,966 115,966 18,224 18,224 118,224
17 27,132 17,308 17,308 117,308 19,843 19,843 119,843
18 29,539 18,687 18,687 118,687 21,524 21,524 121,524
19 32,066 20,102 20,102 120,102 23,280 23,280 123,280
20 34,719 21,550 21,550 121,550 25,115 25,115 125,115
25 50,113 29,120 29,120 129,120 35,546 35,546 135,546
30 69,760 36,241 36,241 136,241 47,923 47,923 147,923
</TABLE>
- ---------------
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGE 0%, 6% OR
12%, BUT VARIED ABOVE OR BELOW THAT AVERAGED FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-7
<PAGE> 67
PROVIDENTMUTUAL
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
$100,000 FACE AMOUNT MALE INSURED--ISSUE AGE 40--PREFERRED
FEMALE INSURED--ISSUE AGE 40--PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
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 1,050 459 0 100,459 544 0 100,544
2 2,153 1,324 601 101,324 1,504 781 101,504
3 3,310 2,275 1,511 102,275 2,563 1,799 102,563
4 4,526 3,319 2,516 103,319 3,729 2,925 103,729
5 5,802 4,467 3,624 104,467 5,013 4,170 105,013
6 7,142 5,728 4,845 105,728 6,429 5,545 106,429
7 8,549 7,113 6,203 107,113 7,987 7,078 107,987
8 10,027 8,634 7,724 108,634 9,704 8,795 109,704
9 11,578 10,304 9,394 110,304 11,595 10,685 111,595
10 13,207 12,138 11,228 112,138 13,676 12,766 113,676
11 14,917 14,150 13,240 114,150 15,967 15,058 115,967
12 16,713 16,359 15,631 116,359 18,489 17,761 118,489
13 18,599 18,781 18,235 118,781 21,262 20,716 121,262
14 20,579 21,437 21,073 121,437 24,313 23,949 124,313
15 22,657 24,349 24,167 124,349 27,667 27,485 127,667
16 24,840 27,539 27,539 127,539 31,410 31,410 131,410
17 27,132 31,034 31,034 131,034 35,522 35,522 135,522
18 29,539 34,862 34,862 134,862 40,051 40,051 140,051
19 32,066 39,052 39,052 139,052 45,047 45,047 145,047
20 34,719 43,639 43,639 143,639 50,563 50,563 150,563
25 50,113 73,805 73,805 173,805 87,942 87,942 187,942
30 69,760 120,083 120,083 220,083 148,459 148,459 248,459
</TABLE>
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGE 0%, 6% OR
12%, BUT VARIED ABOVE OR BELOW THAT AVERAGED FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-8
<PAGE> 68
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 1.5
1967 14.63 2.01 2.38
1972 11.67 2.95 3.39
1977 8.12 3.99 4.44
1982 8.3 4.47 6.51
1987 9.27 7.88 7.44
1992 11.33 9.54 7.7
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.
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.
B-1
<PAGE> 69
-- 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> 70
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 0.5
1972 1.02
1977 0.44
1982 0.47
1987 1.07
1992 1.4
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 continue
investing in both rising and falling markets. The dollar cost averaging method
of investing demonstrates this.
B-3
<PAGE> 71
In this method of investing:
- Relatively constant dollar amounts are invested at regular intervals
(monthly, quarterly, or annually).
- Stock market fluctuations, especially the savings on purchases from price
declines, are exploited for the investor's benefit.
HOW DOLLAR COST AVERAGING WORKS
<TABLE>
<CAPTION>
INVESTMENTS AT COMMON STOCK SHARES
REGULAR INTERVALS MARKET PRICE PURCHASED
- ----------------- ------------ ---------
<S> <C> <C>
$150 $20 7.5
150 15 10.0
150 10 15.0
150 5 30.0
150 10 15.0
150 15 10.0
---- ---------
$900 87.5
Total Value of 87.5 shares @ $15/share $1,312.50
Less Investment made (900.00)
---------
Gain/Profit $ 412.50
</TABLE>
Though the market price has not returned to the initial high of $20 per
share, dollar cost averaging has permitted the investor to purchase more shares
at a savings and thus realize a significant gain. Obviously, the dollar cost
averaging method only works if the investor continues to invest relatively
constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss
in declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of marketing fluctuations.
How does the dollar cost averaging method relate to a variable life
insurance policy? A policyowner may invest his or her net premiums in a separate
account, and, although a Policy's value in the separate accounts is affected by
several factors other than investment experience (e.g., cash value charges and
charges against the separate account), the dollar cost averaging method can be
generally applied to the Policy to the extent that the policyowner pays premiums
on a regular basis and he or she allocates net premiums to separate accounts
which invest in common stocks in relatively constant amounts.
B-4
<PAGE> 72
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Providentmutual Variable Life Separate Account
Report of Independent Accountants...................... F-2
Statements of Assets and Liabilities, December 31,
1997.................................................. F-3
Statements of Operations for the Year Ended December
31, 1997.............................................. F-7
Statements of Operations for the Year Ended December
31, 1996.............................................. F-11
Statements of Operations for the Period February 1,
1995 (Date of Inception) to December 31, 1995......... F-15
Statements of Changes in Net Assets for the Year Ended
December 31, 1997..................................... F-18
Statements of Changes in Net Assets for the Year Ended
December 31, 1996..................................... F-22
Statements of Changes in Net Assets for the Period
February 1, 1995 (Date of Inception) to December 31,
1995.................................................. F-26
Notes to Financial Statements.......................... F-29
Providentmutual Life and Annuity Company of America
Report of Independent Accountants...................... F-44
Statements of Financial Condition as of December 31,
1997 and 1996......................................... F-45
Statements of Operations for the Years Ended December
31, 1997, 1996, and 1995.............................. F-46
Statements of Capital and Surplus for the Years Ended
December 31, 1997, 1996, and 1995..................... F-47
Statements of Cash Flows for the Years Ended December
31, 1997, 1996, and 1995.............................. F-48
Notes to Financial Statements.......................... F-49
</TABLE>
F-1
<PAGE> 73
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Policyholders and
Board of Directors of
Providentmutual Life and Annuity
Company of America
We have audited the accompanying statements of assets and liabilities of the
Providentmutual Variable Life Separate Account (comprising twenty-two
subaccounts) as of December 31, 1997, and the related statements of operations
and changes in net assets for the two years in the period then ended and the
period February 1, 1995 (Date of Inception) to December 31, 1995. These
financial statements are the responsibility of the management of the
Providentmutual Variable Life Separate Account. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997 by correspondence with
the transfer agents. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Providentmutual Variable
Life Separate Account as of December 31, 1997, and the results of its operations
and the changes in its net assets for the two years in the period then ended and
the period February 1, 1995 (Date of Inception) to December 31, 1995 in
conformity with generally accepted accounting principles.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1998
F-2
<PAGE> 74
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Market Street
Fund, Inc., at market value:
Growth Portfolio................. $1,620,894
Money Market Portfolio........... $3,217,082
Bond Portfolio................... $589,487
Managed Portfolio................ $361,475
Aggressive Growth Portfolio...... $1,268,161
International Portfolio.......... $1,335,505
Dividends receivable............... 15,692
Receivable from Providentmutual
Life and Annuity Company of
America.......................... 483,366
---------- ---------- -------- -------- ---------- ----------
NET ASSETS......................... $1,620,894 $3,716,140 $589,487 $361,475 $1,268,161 $1,335,505
========== ========== ======== ======== ========== ==========
Held for the benefit of
policyholders.................... $1,574,004 $3,690,235 $556,153 $320,115 $1,228,049 $1,300,439
Attributable to Providentmutual
Life and Annuity Company of
America.......................... 46,890 25,905 33,334 41,360 40,112 35,066
---------- ---------- -------- -------- ---------- ----------
$1,620,894 $3,716,140 $589,487 $361,475 $1,268,161 $1,335,505
========== ========== ======== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 75
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
FIDELITY FIDELITY HIGH FIDELITY ASSET FIDELITY
EQUITY-INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable
Insurance Products Fund, at
market value:
Equity-Income Portfolio....... $5,549,225
Growth Portfolio.............. $5,552,399
High Income Portfolio......... $1,258,364
Overseas Portfolio............ $1,835,860
Investment in the Variable
Insurance Products Fund II, at
market value:
Asset Manager Portfolio....... $1,257,078
Index 500 Portfolio........... $4,935,868
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS...................... $5,549,225 $5,552,399 $1,258,364 $1,835,860 $1,257,078 $4,935,868
========== ========== ========== ========== ========== ==========
Held for the benefit of
policyholders................. $5,502,728 $5,504,346 $1,218,329 $1,799,914 $1,216,467 $4,882,503
Attributable to Providentmutual
Life and Annuity Company of
America....................... 46,497 48,053 40,035 35,946 40,611 53,365
---------- ---------- ---------- ---------- ---------- ----------
$5,549,225 $5,552,399 $1,258,364 $1,835,860 $1,257,078 $4,935,868
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 76
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER &
INVESTMENT FIDELITY & BERMAN & BERMAN BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance Products
Fund II, at market value:
Investment Grade Bond Portfolio................ $654,754
Contrafund Portfolio........................... $2,126,511
Investment in the Neuberger & Berman Advisers
Management Trust, at market value:
Balanced Portfolio............................. $363,494
Growth Portfolio............................... $1,217,185
Limited Maturity Bond Portfolio................ $528,343
-------- ---------- -------- ---------- --------
NET ASSETS....................................... $654,754 $2,126,511 $363,494 $1,217,185 $528,343
======== ========== ======== ========== ========
Held for the benefit of policyholders............ $622,247 $2,092,513 $324,413 $1,171,569 $497,752
Attributable to Providentmutual Life and Annuity
Company of America............................. 32,507 33,998 39,081 45,616 30,591
-------- ---------- -------- ---------- --------
$654,754 $2,126,511 $363,494 $1,217,185 $528,343
======== ========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 77
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK VAN ECK ALGER
CENTURY VP VAN ECK WORLDWIDE WORLDWIDE AMERICAN
CAPITAL WORLDWIDE HARD EMERGING SMALL
APPRECIATION BOND ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in American Century Variable Portfolios,
Inc., at market value:
American Century VP Capital Appreciation
Portfolio...................................... $617,522
Investment in the Van Eck Worldwide Insurance
Trust, at market value:
Van Eck Worldwide Bond Portfolio................. $284,774
Van Eck Worldwide Hard Assets Portfolio.......... $362,835
Van Eck Worldwide Emerging Markets Portfolio..... $668,520
Investment in the Alger American Fund, at market
value:
Alger American Small Capitalization Portfolio.... $1,461,832
-------- -------- -------- -------- ----------
NET ASSETS......................................... $617,522 $284,774 $362,835 $668,520 $1,461,832
======== ======== ======== ======== ==========
Held for the benefit of policyholders.............. $586,501 $254,254 $327,375 $644,557 $1,436,398
Attributable to Providentmutual Life and Annuity
Company of America............................... 31,021 30,520 35,460 23,963 25,434
-------- -------- -------- -------- ----------
$617,522 $284,774 $362,835 $668,520 $1,461,832
======== ======== ======== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 78
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 17,576 $104,494 $12,984 $ 4,398 $ 4,527 $ 3,778
EXPENSES
Mortality and expense risks.............. 6,086 13,586 1,402 898 4,955 5,375
-------- -------- ------- ------- -------- -------
Net investment income (loss)............. 11,490 90,908 11,582 3,500 (428) (1,597)
-------- -------- ------- ------- -------- -------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized gain distributions reinvested... 64,240 637 898 29,576
Net realized gain from redemption of
investment shares...................... 8,284 4,094 3,520 28,779 4,619
-------- -------- ------- ------- -------- -------
Net realized gain on investments......... 72,524 4,094 4,157 29,677 34,195
-------- -------- ------- ------- -------- -------
Net unrealized appreciation of
investments:
Beginning of year...................... 53,902 2,198 6,860 42,267 24,229
End of year............................ 172,999 12,860 29,978 155,190 29,510
-------- -------- ------- ------- -------- -------
Net unrealized appreciation of
investments during the year............ 119,097 10,662 23,118 112,923 5,281
-------- -------- ------- ------- -------- -------
Net realized and unrealized gains on
investments............................ 191,621 14,756 27,275 142,600 39,476
-------- -------- ------- ------- -------- -------
Net increase in net assets resulting
from operations........................ $203,111 $ 90,908 $26,338 $30,775 $142,172 $37,879
======== ======== ======= ======= ======== =======
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 79
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
FIDELITY FIDELITY HIGH FIDELITY ASSET FIDELITY
EQUITY-INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................. $ 37,203 $ 16,922 $ 29,332 $ 10,489 $ 27,124 $ 18,761
EXPENSES
Mortality and expense risks............ 23,064 24,779 4,291 7,257 6,126 19,263
-------- -------- -------- -------- -------- --------
Net investment income (loss)........... 14,139 (7,857) 25,041 3,232 20,998 (502)
-------- -------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions
reinvested........................... 187,050 75,747 3,625 41,640 68,039 38,068
Net realized gain from redemption of
investment shares.................... 56,511 29,405 10,154 24,813 3,869 78,340
-------- -------- -------- -------- -------- --------
Net realized gain on investments....... 243,561 105,152 13,779 66,453 71,908 116,408
-------- -------- -------- -------- -------- --------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year.................... 140,032 120,385 17,486 44,125 42,785 130,599
End of year.......................... 689,708 749,980 92,199 12,760 120,277 762,238
-------- -------- -------- -------- -------- --------
Net unrealized appreciation
(depreciation) of investments during
the year............................. 549,676 629,595 74,713 (31,365) 77,492 631,639
-------- -------- -------- -------- -------- --------
Net realized and unrealized gain on
investments.......................... 793,237 734,747 88,492 35,088 149,400 748,047
-------- -------- -------- -------- -------- --------
Net increase in net assets
resulting from operations............ $807,376 $726,890 $113,533 $ 38,320 $170,398 $747,545
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 80
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends...................................... $10,062 $ 2,887 $ 3,239 $ 3,868
EXPENSES
Mortality and expense risks.................... 1,476 7,089 1,484 $ 5,067 1,400
------- -------- ------- -------- -------
Net investment income (loss)................... 8,586 (4,202) 1,755 (5,067) 2,468
------- -------- ------- -------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested......... 7,630 8,314 50,230
Net realized gain (loss) from redemption of
investment shares............................ 2,284 25,400 618 5,576 (214)
------- -------- ------- -------- -------
Net realized gain (loss) on investments........ 2,284 33,030 8,932 55,806 (214)
------- -------- ------- -------- -------
Net unrealized appreciation of investments:
Beginning of year............................ 5,863 15,525 1,403 11,488 208
End of year.................................. 20,012 204,136 34,081 138,020 13,790
------- -------- ------- -------- -------
Net unrealized appreciation of investments
during the year.............................. 14,149 188,611 32,678 126,532 13,582
------- -------- ------- -------- -------
Net realized and unrealized gain on
investments.................................. 16,433 221,641 41,610 182,338 13,368
------- -------- ------- -------- -------
Net increase in net assets resulting from
operations................................... $25,019 $217,439 $43,365 $177,271 $15,836
======= ======== ======= ======== =======
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 81
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING SMALL
APPRECIATION BOND HARD ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................................... $3,474 $ 4,182 $ 403
EXPENSES
Mortality and expense risks..................... $ 3,060 1,180 1,321 2,514 $ 5,530
-------- ------ -------- --------- --------
Net investment income (loss).................... (3,060) 2,294 2,861 (2,111) (5,530)
-------- ------ -------- --------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested.......... 9,129 3,087 29,556
Net realized gain (loss) from redemption of
investment shares............................. (14,973) 483 12,840 12,776 (646)
-------- ------ -------- --------- --------
Net realized gain (loss) on investments......... (5,844) 483 15,927 12,776 28,910
-------- ------ -------- --------- --------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year............................. (33,973) 2,328 12,095 4,779 (4,261)
End of year................................... (36,829) 7,894 (3,949) (165,992) 82,155
-------- ------ -------- --------- --------
Net unrealized appreciation (depreciation) of
investments during the year................... (2,856) 5,566 (16,044) (170,771) 86,416
-------- ------ -------- --------- --------
Net realized and unrealized gain (loss) on
investments................................... (8,700) 6,049 (117) (157,995) 115,326
-------- ------ -------- --------- --------
Net increase (decrease) in net assets resulting
from operations............................... ($11,760) $8,343 $ 2,744 ($160,106) $109,796
======== ====== ======== ========= ========
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 82
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 7,629 $15,339 $4,534 $1,814 $ 1,617 $ 1,188
EXPENSES
Mortality and expense risks.............. 1,837 1,825 383 139 1,734 1,421
------- ------- ------ ------ ------- -------
Net investment income (loss)............. 5,792 13,514 4,151 1,675 (117) (233)
------- ------- ------ ------ ------- -------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions reinvested... 7,226 1,578 16,290 4,817
Net realized gain from redemption of
investment shares...................... 4,464 741 663 2,217 2,539
------- ------- ------ ------ ------- -------
Net realized gain on investments......... 11,690 741 2,241 18,507 7,356
------- ------- ------ ------ ------- -------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year...................... 10,721 3,919 4,931 6,340 5,545
End of year............................ 53,902 2,198 6,860 42,267 24,229
------- ------- ------ ------ ------- -------
Net unrealized appreciation
(depreciation) of investments during
the year............................... 43,181 (1,721) 1,929 35,927 18,684
------- ------- ------ ------ ------- -------
Net realized and unrealized gains
(losses)
on investments......................... 54,871 (980) 4,170 54,434 26,040
------- ------- ------ ------ ------- -------
Net increase in net assets resulting
from operations........................ $60,663 $13,514 $3,171 $5,845 $54,317 $25,807
======= ======= ====== ====== ======= =======
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 83
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
FIDELITY FIDELITY HIGH FIDELITY ASSET FIDELITY
EQUITY-INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................. $ 795 $ 2,013 $13,682 $ 2,659 $ 4,580 $ 2,651
EXPENSES
Mortality and expense risks............ 6,521 9,311 1,324 2,129 1,923 3,896
-------- -------- ------- ------- ------- --------
Net investment income (loss)........... (5,726) (7,298) 12,358 530 2,657 (1,245)
-------- -------- ------- ------- ------- --------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain distributions
reinvested........................... 22,764 50,823 2,677 2,926 3,777 6,818
Net realized gain from redemption of
investment shares.................... 12,493 14,571 1,337 3,493 4,586 17,448
-------- -------- ------- ------- ------- --------
Net realized gain on investments....... 35,257 65,394 4,014 6,419 8,363 24,266
-------- -------- ------- ------- ------- --------
Net unrealized appreciation
of investments:
Beginning of year.................... 26,993 10,036 4,518 6,809 5,339 16,619
End of year.......................... 140,032 120,385 17,486 44,125 42,785 130,599
-------- -------- ------- ------- ------- --------
Net unrealized appreciation of
investments during the year.......... 113,039 110,349 12,968 37,316 37,446 113,980
-------- -------- ------- ------- ------- --------
Net realized and unrealized
gain on investments.................. 148,296 175,743 16,982 43,735 45,809 138,246
-------- -------- ------- ------- ------- --------
Net increase in net assets
resulting from operations............ $142,570 $168,445 $29,340 $44,265 $48,466 $137,001
======== ======== ======= ======= ======= ========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 84
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends...................................... $3,435 $1,823 $ 91 $2,949
EXPENSES
Mortality and expense risks.................... 488 $ 337 477 2,041 83
------ ------- ------ ------- ------
Net investment income (loss)................... 2,947 (337) 1,346 (1,950) 2,866
------ ------- ------ ------- ------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested......... 10,142 21,199
Net realized gain (loss) from redemption of
investment shares............................ 596 1,095 617 4,169 (74)
------ ------- ------ ------- ------
Net realized gain (loss) on investments........ 596 1,095 10,759 25,368 (74)
------ ------- ------ ------- ------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year............................ 4,575 5,547 5,688 1,194
End of year.................................. 5,863 15,525 1,403 11,488 208
------ ------- ------ ------- ------
Net unrealized appreciation (depreciation) of
investments during the year.................. 1,288 15,525 (4,144) 5,800 (986)
------ ------- ------ ------- ------
Net realized and unrealized gain (loss) on
investments.................................. 1,884 16,620 6,615 31,168 (1,060)
------ ------- ------ ------- ------
Net increase in net assets resulting from
operations................................... $4,831 $16,283 $7,961 $29,218 $1,806
====== ======= ====== ======= ======
</TABLE>
See accompanying notes to financial statements
F-13
<PAGE> 85
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK VAN ECK GOLD VAN ECK ALGER AMERICAN
WORLDWIDE AND NATURAL EMERGING SMALL
TCI GROWTH BOND RESOURCES MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................................... $1,824 $ 600 $ 137
EXPENSES
Mortality and expense risks..................... $ 1,480 277 375 70 $ 374
-------- ------ ------- ------ -------
Net investment income (loss).................... (1,480) 1,547 225 67 (374)
-------- ------ ------- ------ -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested.......... 23,158 588
Net realized gain (loss) from redemption of
investment shares............................. 4,391 218 2,780 254 (72)
-------- ------ ------- ------ -------
Net realized gain (loss) on investments......... 27,549 218 3,368 254 (72)
-------- ------ ------- ------ -------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year............................. 7,429 1,924 5,371
End of year................................... (33,973) 2,328 12,095 4,779 (4,261)
-------- ------ ------- ------ -------
Net unrealized appreciation (depreciation) of
investments during the year................... (41,402) 404 6,724 4,779 (4,261)
-------- ------ ------- ------ -------
Net realized and unrealized gain (loss) on
investments................................... (13,853) 622 10,092 5,033 (4,333)
-------- ------ ------- ------ -------
Net increase (decrease) in net assets resulting
from operations............................... ($15,333) $2,169 $10,317 $5,100 ($4,707)
======== ====== ======= ====== =======
</TABLE>
See accompanying notes to financial statements
F-14
<PAGE> 86
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Period February 1, 1995 (Date of Inception)
to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 1,144 $5,330 $1,517 $ 914
EXPENSES
Mortality and expense risks.............. 190 500 42 9 $ 215 $ 73
------- ------ ------ ------ ------ ------
Net investment income (loss)............. 954 4,830 1,475 905 (215) (73)
------- ------ ------ ------ ------ ------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain from redemption of
investment shares...................... 1,386 134 40 481 266
------- ------ ------ ------ ------ ------
Net realized gain on investments......... 1,386 134 40 481 266
------- ------ ------ ------ ------ ------
Net unrealized appreciation of
investments:
Beginning of period
End of period.......................... 10,721 3,919 4,931 6,340 5,545
------- ------ ------ ------ ------ ------
Net unrealized appreciation of
investments during the period.......... 10,721 3,919 4,931 6,340 5,545
------- ------ ------ ------ ------ ------
Net realized and unrealized gain
on investments......................... 12,107 4,053 4,971 6,821 5,811
------- ------ ------ ------ ------ ------
Net increase in net assets resulting
from operations........................ $13,061 $4,830 $5,528 $5,876 $6,606 $5,738
======= ====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements
F-15
<PAGE> 87
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Period February 1, 1995 (Date of Inception)
to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INVESTMENT
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 GRADE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................... $ 3,295 $ 141 $1,794 $ 100 $ 529 $ 412 $ 872
EXPENSES
Mortality and expense
risks...................... 581 774 114 250 82 259 80
------- ------- ------ ------ ------ ------- ------
Net investment income
(loss)..................... 2,714 (633) 1,680 (150) 447 153 792
------- ------- ------ ------ ------ ------- ------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain distributions
reinvested................. 1,251 100 56
Net realized gain from
redemption of investment
shares..................... 1,814 2,933 562 455 654 1,999 196
------- ------- ------ ------ ------ ------- ------
Net realized gain on
investments................ 3,065 2,933 562 555 654 2,055 196
------- ------- ------ ------ ------ ------- ------
Net unrealized appreciation
of investments:
Beginning of period
End of period.............. 26,993 10,036 4,518 6,809 5,339 16,619 4,575
------- ------- ------ ------ ------ ------- ------
Net unrealized appreciation
of investments during the
period..................... 26,993 10,036 4,518 6,809 5,339 16,619 4,575
------- ------- ------ ------ ------ ------- ------
Net realized and unrealized
gain on investments........ 30,058 12,969 5,080 7,364 5,993 18,674 4,771
------- ------- ------ ------ ------ ------- ------
Net increase in net assets
resulting from
operations................. $32,772 $12,336 $6,760 $7,214 $6,440 $18,827 $5,563
======= ======= ====== ====== ====== ======= ======
</TABLE>
See accompanying notes to financial statements
F-16
<PAGE> 88
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Period February 1, 1995 (Date of Inception)
to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER NEUBERGER NEUBERGER VAN ECK VAN ECK
& BERMAN & BERMAN & BERMAN LIMITED TCI WORLDWIDE GOLD AND NATURAL
BALANCED GROWTH MATURITY BOND GROWTH BOND RESOURCES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends..................... $ 478 $ 61 $1,375 $2,583 $ 294
EXPENSES
Mortality and expense risks... 81 247 10 $ 123 67 11
------ ------ ------ ------ ------ ------
Net investment income
(loss)...................... 397 (186) 1,365 (123) 2,516 283
------ ------ ------ ------ ------ ------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain distributions
reinvested.................. 154 818
Net realized gain from
redemption of investment
shares...................... 172 1,767 6 1,594 201 197
------ ------ ------ ------ ------ ------
Net realized gain on
investments................. 326 2,585 6 1,594 201 197
------ ------ ------ ------ ------ ------
Net unrealized appreciation of
investments:
Beginning of period
End of period............... 5,547 5,688 1,194 7,429 1,924 5,371
------ ------ ------ ------ ------ ------
Net unrealized appreciation of
investments during the
period...................... 5,547 5,688 1,194 7,429 1,924 5,371
------ ------ ------ ------ ------ ------
Net realized and unrealized
gain on investments......... 5,873 8,273 1,200 9,023 2,125 5,568
------ ------ ------ ------ ------ ------
Net increase in net assets
resulting from operations... $6,270 $8,087 $2,565 $8,900 $4,641 $5,851
====== ====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE> 89
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....... $ 11,490 $ 90,908 $ 11,582 $ 3,500 $ (428) $ (1,597)
Net realized gain on investments... 72,524 4,094 4,157 29,677 34,195
Net unrealized appreciation of
investments during the year...... 119,097 10,662 23,118 112,923 5,281
---------- ----------- --------- -------- ---------- ----------
Net increase in net assets from
operations....................... 203,111 90,908 26,338 30,775 142,172 37,879
---------- ----------- --------- -------- ---------- ----------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyholders' net premiums........ 606,490 12,818,390 174,094 62,606 504,056 534,082
Cost of insurance and
administrative charges........... (123,739) (377,001) (29,359) (18,265) (103,540) (94,480)
Surrenders and forfeitures......... (8,110) (2,037) (655) (561) (7,104) (7,124)
Net withdrawals due to policy
loans............................ (1,427) (2,750) (2,918) (647) (6,952) (2,905)
Transfers between investment
portfolios....................... 392,712 (9,338,827) 290,953 207,288 267,938 418,275
Withdrawals due to death
benefits......................... (2,251) (880) (1,330) (1,025) (490)
---------- ----------- --------- -------- ---------- ----------
Net increase in net assets derived
from policy transactions......... 863,675 3,096,895 430,785 250,421 653,373 847,358
---------- ----------- --------- -------- ---------- ----------
Total increase in net assets....... 1,066,786 3,187,803 457,123 281,196 795,545 885,237
NET ASSETS
Beginning of year................ 554,108 528,337 132,364 80,279 472,616 450,268
---------- ----------- --------- -------- ---------- ----------
End of year...................... $1,620,894 $3,716,140 $ 589,487 $361,475 $1,268,161 $1,335,505
========== =========== ========= ======== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE> 90
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............. $ 14,139 $ (7,857) $ 25,041 $ 3,232 $ 20,998 $ (502)
Net realized gain on investments......... 243,561 105,152 13,779 66,453 71,908 116,408
Net unrealized appreciation
(depreciation) of investments during
the year............................... 549,676 629,595 74,713 (31,365) 77,492 631,639
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets from
operations............................. 807,376 726,890 113,533 38,320 170,398 747,545
---------- ---------- ---------- ---------- ---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.............. 1,800,681 2,077,217 315,730 708,468 230,559 2,291,230
Cost of insurance and administrative
charges................................ (378,890) (507,915) (76,002) (144,645) (67,535) (452,765)
Surrenders and forfeitures............... (26,461) (71,933) (6,335) (7,458) (5,894) (27,300)
Net withdrawals due to policy loans...... (29,476) (25,572) (465) (12,515) (13,101) (34,119)
Transfers between investment
portfolios............................. 1,407,893 1,003,643 537,410 688,760 201,574 935,324
Withdrawals due to death benefits........ (3,109) (3,873) (3,581)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets derived from
policy transactions.................... 2,770,638 2,471,567 770,338 1,232,610 345,603 2,708,789
---------- ---------- ---------- ---------- ---------- ----------
Total increase in net assets............. 3,578,014 3,198,457 883,871 1,270,930 516,001 3,456,334
NET ASSETS
Beginning of year...................... 1,971,211 2,353,942 374,493 564,930 741,077 1,479,534
---------- ---------- ---------- ---------- ---------- ----------
End of year............................ $5,549,225 $5,552,399 $1,258,364 $1,835,860 $1,257,078 $4,935,868
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-19
<PAGE> 91
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................... $ 8,586 $ (4,202) $ 1,755 $ (5,067) $ 2,468
Net realized gain (loss) on investments........ 2,284 33,030 8,932 55,806 (214)
Net unrealized appreciation of investments
during the year.............................. 14,149 188,611 32,678 126,532 13,582
-------- ---------- -------- ---------- --------
Net increase in net assets from operations..... 25,019 217,439 43,365 177,271 15,836
-------- ---------- -------- ---------- --------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................... 250,638 899,768 108,720 437,297 147,394
Cost of insurance and administrative charges... (33,229) (140,720) (35,701) (106,436) (17,164)
Surrenders and forfeitures..................... (4,629) (4,872) (1,492) (4,296) (843)
Net withdrawals due to policy loans............ (2,142) (14,814) (191) (676) (580)
Transfers between investment portfolios........ 265,581 900,755 83,895 175,334 333,959
Withdrawals due to death benefits.............. (2,005)
-------- ---------- -------- ---------- --------
Net increase in net assets derived from policy
transactions................................. 474,214 1,640,117 155,231 501,223 462,766
-------- ---------- -------- ---------- --------
Total increase in net assets................... 499,233 1,857,556 198,596 678,494 478,602
NET ASSETS
Beginning of year............................ 155,521 268,955 164,898 538,691 49,741
-------- ---------- -------- ---------- --------
End of year.................................. $654,754 $2,126,511 $363,494 $1,217,185 $528,343
======== ========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE> 92
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING SMALL
APPRECIATION BOND HARD ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................... $ (3,060) $ 2,294 $ 2,861 $ (2,111) $ (5,530)
Net realized gain (loss) on investments........ (5,844) 483 15,927 12,776 28,910
Net unrealized appreciation (depreciation) of
investments during the year.................. (2,856) 5,566 (16,044) (170,771) 86,416
-------- -------- -------- --------- ----------
Net increase (decrease) in net assets from
operations................................... (11,760) 8,343 2,744 (160,106) 109,796
-------- -------- -------- --------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................... 302,126 134,179 131,149 362,026 708,739
Cost of insurance and administrative charges... (80,091) (24,944) (29,372) (51,528) (131,231)
Surrenders and forfeitures..................... (4,824) (957) (2,265) (1,605) (3,435)
Net withdrawals due to policy loans............ (694) (1,431) (341) (528) (13,587)
Transfers between investment portfolios........ 63,153 71,029 111,374 441,995 424,465
-------- -------- -------- --------- ----------
Net increase in net assets derived from policy
transactions................................. 279,670 177,876 210,545 750,360 984,951
-------- -------- -------- --------- ----------
Total increase in net assets................... 267,910 186,219 213,289 590,254 1,094,747
NET ASSETS
Beginning of year............................ 349,612 98,555 149,546 78,266 367,085
-------- -------- -------- --------- ----------
End of year.................................. $617,522 $284,774 $362,835 $ 668,520 $1,461,832
======== ======== ======== ========= ==========
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE> 93
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....... $ 5,792 $ 13,514 $ 4,151 $ 1,675 $ (117) $ (233)
Net realized gain on investments... 11,690 741 2,241 18,507 7,356
Net unrealized appreciation
(depreciation) of investments
during the year.................. 43,181 (1,721) 1,929 35,927 18,684
-------- ----------- -------- ------- -------- --------
Net increase in net assets from
operations....................... 60,663 13,514 3,171 5,845 54,317 25,807
-------- ----------- -------- ------- -------- --------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyholders' net premiums........ 200,633 3,426,014 62,154 30,006 253,610 181,285
Cost of insurance and
administrative charges........... (50,683) (139,681) (13,600) (6,124) (58,803) (40,512)
Surrenders and forfeitures......... (2,824) (1,748) (458) (269) (3,944) (2,321)
Net withdrawals due to policy
loans............................ (5,832) (10,177) (685) (4,282)
Transfers between investment
portfolios....................... 200,857 (3,043,148) 31,590 12,196 77,113 191,839
-------- ----------- -------- ------- -------- --------
Net increase in net assets derived
from policy transactions......... 342,151 231,260 79,686 35,809 267,291 326,009
-------- ----------- -------- ------- -------- --------
Total increase in net assets....... 402,814 244,774 82,857 41,654 321,608 351,816
NET ASSETS
Beginning of year................ 151,294 283,563 49,507 38,625 151,008 98,452
-------- ----------- -------- ------- -------- --------
End of year...................... $554,108 $ 528,337 $132,364 $80,279 $472,616 $450,268
======== =========== ======== ======= ======== ========
</TABLE>
See accompanying notes to financial statements
F-22
<PAGE> 94
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............. $ (5,726) $ (7,298) $ 12,358 $ 530 $ 2,657 $ (1,245)
Net realized gain on investments......... 35,257 65,394 4,014 6,419 8,363 24,266
Net unrealized appreciation of
investments during the year............ 113,039 110,349 12,968 37,316 37,446 113,980
---------- ---------- -------- -------- -------- ----------
Net increase in net assets from
operations............................. 142,570 168,445 29,340 44,265 48,466 137,001
---------- ---------- -------- -------- -------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.............. 1,064,311 1,228,372 182,867 303,606 504,956 682,499
Cost of insurance and administrative
charges................................ (172,223) (277,081) (33,017) (55,071) (41,734) (140,878)
Surrenders and forfeitures............... (10,460) (15,689) (1,416) (1,888) (141) (4,843)
Net withdrawals due to policy loans...... (8,344) (9,629) (352) (538) (107) (4,994)
Transfers between investment
portfolios............................. 489,521 624,149 51,297 61,872 157,808 590,621
---------- ---------- -------- -------- -------- ----------
Net increase in net assets derived from
policy transactions.................... 1,362,805 1,550,122 199,379 307,981 620,782 1,122,405
---------- ---------- -------- -------- -------- ----------
Total increase in net assets............. 1,505,375 1,718,567 228,719 352,246 669,248 1,259,406
NET ASSETS
Beginning of year...................... 465,836 635,375 145,774 212,684 71,829 220,128
---------- ---------- -------- -------- -------- ----------
End of year............................ $1,971,211 $2,353,942 $374,493 $564,930 $741,077 $1,479,534
========== ========== ======== ======== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-23
<PAGE> 95
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................... $ 2,947 $ (337) $ 1,346 $ (1,950) $ 2,866
Net realized gain (loss) on investments........ 596 1,095 10,759 25,368 (74)
Net unrealized appreciation (depreciation) of
investments during the year.................. 1,288 15,525 (4,144) 5,800 (986)
-------- -------- -------- -------- -------
Net increase in net assets from operations..... 4,831 16,283 7,961 29,218 1,806
-------- -------- -------- -------- -------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................... 89,577 111,330 65,215 249,358 15,412
Cost of insurance and administrative charges... (17,945) (11,937) (14,582) (59,022) (3,100)
Surrenders and forfeitures..................... (765) (265) (619) (8)
Net withdrawals due to policy loans............ (102) (27)
Transfers between investment portfolios........ 19,502 128,279 35,692 105,607 3,279
-------- -------- -------- -------- -------
Net increase in net assets derived from policy
transactions................................. 90,267 227,672 86,060 295,297 15,583
-------- -------- -------- -------- -------
Capital contribution from Providentmutual Life
and Annuity Company of America............... 25,000
-------- -------- -------- -------- -------
Total increase in net assets................... 95,098 268,955 94,021 324,515 17,389
NET ASSETS
Beginning of year............................ 60,423 -- 70,877 214,176 32,352
-------- -------- -------- -------- -------
End of year.................................. $155,521 $268,955 $164,898 $538,691 $49,741
======== ======== ======== ======== =======
</TABLE>
See accompanying notes to financial statements
F-24
<PAGE> 96
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK VAN ECK GOLD VAN ECK ALGER AMERICAN
WORLDWIDE AND NATURAL EMERGING SMALL
TCI GROWTH BOND RESOURCES MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).................... $ (1,480) $ 1,547 $ 225 $ 67 $ (374)
Net realized gain (loss) on investments......... 27,549 218 3,368 254 (72)
Net unrealized appreciation (depreciation) of
investments during the year................... (41,402) 404 6,724 4,779 (4,261)
-------- ------- -------- ------- --------
Net increase (decrease) in net assets from
operations.................................... (15,333) 2,169 10,317 5,100 (4,707)
-------- ------- -------- ------- --------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums..................... 186,453 40,692 80,930 34,459 235,120
Cost of insurance and administrative charges.... (51,208) (8,055) (12,112) (5,698) (15,164)
Surrenders and forfeitures...................... (2,139) (163) (78) (57)
Net withdrawals due to policy loans............. (1,766)
Transfers between investment portfolios......... 53,108 8,407 32,292 19,405 126,893
-------- ------- -------- ------- --------
Net increase in net assets derived from policy
transactions.................................. 184,448 40,881 101,032 48,166 346,792
-------- ------- -------- ------- --------
Capital contribution from Providentmutual Life
and Annuity Company of America................ 25,000 25,000
-------- ------- -------- ------- --------
Total increase in net assets.................... 169,115 43,050 111,349 78,266 367,085
NET ASSETS
Beginning of year............................. 180,497 55,505 38,197 -- --
-------- ------- -------- ------- --------
End of year................................... $349,612 $98,555 $149,546 $78,266 $367,085
======== ======= ======== ======= ========
</TABLE>
See accompanying notes to financial statements
F-25
<PAGE> 97
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Period February 1, 1995 (Date of
Inception) to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....... $ 954 $ 4,830 $ 1,475 $ 905 $ (215) $ (73)
Net realized gain on investments... 1,386 134 40 481 266
Net unrealized appreciation of
investments during the year...... 10,721 3,919 4,931 6,340 5,545
-------- ---------- ------- ------- -------- -------
Net increase in net assets
from operations.................. 13,061 4,830 5,528 5,876 6,606 5,738
-------- ---------- ------- ------- -------- -------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyholders' net premiums........ 82,812 1,226,779 16,686 6,530 89,173 60,462
Cost of insurance and
administrative charges........... (11,377) (64,764) (2,472) (722) (12,356) (6,573)
Surrenders and forfeitures......... (90) (16) (50) (118) (81)
Transfers between investment
portfolios....................... 41,888 (908,266) 4,815 1,941 42,703 13,906
-------- ---------- ------- ------- -------- -------
Net increase in net assets derived
from policy transactions......... 113,233 253,733 18,979 7,749 119,402 67,714
-------- ---------- ------- ------- -------- -------
Capital contribution from
Providentmutual Life and Annuity
Company of America............... 25,000 25,000 25,000 25,000 25,000 25,000
-------- ---------- ------- ------- -------- -------
Total increase in net assets....... 151,294 283,563 49,507 38,625 151,008 98,452
NET ASSETS
Beginning of year................ -- -- -- -- -- --
-------- ---------- ------- ------- -------- -------
End of year...................... $151,294 $ 283,563 $49,507 $38,625 $151,008 $98,452
======== ========== ======= ======= ======== =======
</TABLE>
See accompanying notes to financial statements
F-26
<PAGE> 98
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Period February 1, 1995 (Date of
Inception) to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INVESTMENT
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 GRADE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss)..................... $ 2,714 $ (633) $ 1,680 $ (150) $ 447 $ 153 $ 792
Net realized gain on
investments................ 3,065 2,933 562 555 654 2,055 196
Net unrealized appreciation
of investments during the
year....................... 26,993 10,036 4,518 6,809 5,339 16,619 4,575
-------- -------- -------- -------- ------- -------- -------
Net increase in net assets
from operations............ 32,772 12,336 6,760 7,214 6,440 18,827 5,563
-------- -------- -------- -------- ------- -------- -------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyholders' net
premiums................... 281,421 389,708 51,880 133,848 22,049 121,634 22,856
Cost of insurance and
administrative charges..... (31,287) (46,543) (7,891) (11,367) (4,044) (12,939) (3,801)
Surrenders and forfeitures... (362) (372) (18) (174) (48) (88) (28)
Transfers between investment
portfolios................. 158,292 255,246 70,043 58,163 22,432 67,694 10,833
-------- -------- -------- -------- ------- -------- -------
Net increase in net assets
derived from policy
transactions............... 408,064 598,039 114,014 180,470 40,389 176,301 29,860
-------- -------- -------- -------- ------- -------- -------
Capital contribution from
Providentmutual Life and
Annuity Company of
America.................... 25,000 25,000 25,000 25,000 25,000 25,000 25,000
-------- -------- -------- -------- ------- -------- -------
Total increase in net
assets..................... 465,836 635,375 145,774 212,684 71,829 220,128 60,423
NET ASSETS
Beginning of year.......... -- -- -- -- -- -- --
-------- -------- -------- -------- ------- -------- -------
End of year................ $465,836 $635,375 $145,774 $212,684 $71,829 $220,128 $60,423
======== ======== ======== ======== ======= ======== =======
</TABLE>
See accompanying notes to financial statements
F-27
<PAGE> 99
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Period February 1, 1995 (Date of
Inception) to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER VAN ECK
NEUBERGER NEUBERGER & BERMAN VAN ECK GOLD AND
& BERMAN & BERMAN LIMITED TCI WORLDWIDE NATURAL
BALANCED GROWTH MATURITY BOND GROWTH BOND RESOURCES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........... $ 397 $ (186) $ 1,365 $ (123) $ 2,516 $ 283
Net realized gain on investments....... 326 2,585 6 1,594 201 197
Net unrealized appreciation of
investments during the year.......... 5,547 5,688 1,194 7,429 1,924 5,371
------- -------- ------- -------- ------- -------
Net increase in net assets from
operations........................... 6,270 8,087 2,565 8,900 4,641 5,851
------- -------- ------- -------- ------- -------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............ 31,568 106,593 1,457 94,924 27,665 9,441
Cost of insurance and administrative
charges.............................. (2,111) (11,044) (475) (9,264) (1,906) (2,639)
Surrenders and forfeitures............. (71) (11) (290) (4)
Transfers between investment
portfolios........................... 10,150 85,611 3,816 61,227 109 544
------- -------- ------- -------- ------- -------
Net increase in net assets derived from
policy transactions.................. 39,607 181,089 4,787 146,597 25,864 7,346
------- -------- ------- -------- ------- -------
Capital contribution from
Providentmutual Life and Annuity
Company of America................... 25,000 25,000 25,000 25,000 25,000 25,000
------- -------- ------- -------- ------- -------
Total increase in net assets........... 70,877 214,176 32,352 180,497 55,505 38,197
NET ASSETS
Beginning of year.................... -- -- -- -- -- --
------- -------- ------- -------- ------- -------
End of year.......................... $70,877 $214,176 $32,352 $180,497 $55,505 $38,197
======= ======== ======= ======== ======= =======
</TABLE>
See accompanying notes to financial statements
F-28
<PAGE> 100
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Providentmutual Variable Life Separate Account (Separate Account) was
established by Providentmutual Life and Annuity Company of America
(Providentmutual) under the provisions of Delaware law and commenced operations
on February 1, 1995. Providentmutual is a wholly-owned subsidiary of Provident
Mutual Life Insurance Company. The Separate Account is an investment account to
which assets are allocated to support the benefits payable under flexible
premium adjustable variable life insurance policies (the Policies).
The Policies are distributed principally through personal producing general
agents and brokers.
Providentmutual has structured the Separate Account as a unit investment
trust registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
twenty-two subaccounts: the Growth, Money Market, Bond, Managed, Aggressive
Growth and International Subaccounts invest in the corresponding portfolios of
the Market Street Fund, Inc.; the Fidelity Equity-Income, Fidelity Growth,
Fidelity High Income and Fidelity Overseas Subaccounts invest in the
corresponding portfolios of the Variable Insurance Products Fund; the Fidelity
Asset Manager, Fidelity Index 500, Fidelity Investment Grade Bond and Fidelity
Contrafund Subaccounts invest in the corresponding portfolios of the Variable
Insurance Products Fund II; the Neuberger & Berman Balanced, Neuberger & Berman
Growth and Neuberger & Berman Limited Maturity Bond Subaccounts invest in the
corresponding portfolios of the Neuberger & Berman Advisers Management Trust;
the American Century VP Capital Appreciation (formerly the TCI Growth)
Subaccount, invests in the corresponding portfolio of the American Century
Variable Portfolios, Inc. (formerly, TCI Portfolios, Inc.); the Van Eck
Worldwide Bond, Van Eck Worldwide Hard Assets (formerly Van Eck Gold and Natural
Resources) and Van Eck Worldwide Emerging Markets (formerly Van Eck Emerging
Markets) Subaccounts invest in the corresponding portfolios of the Van Eck
Worldwide Insurance Trust; and the Alger American Small Capitalization
Subaccount invests in the corresponding portfolio of the Alger American Fund.
Net premiums from in-force Policies are allocated to the Subaccounts in
accordance with policyholder instructions and are recorded as variable life
policy transactions in the statements of changes in net assets. Such amounts are
used to provide money to pay benefits under the Policies (Note 4). The Separate
Account's assets are the property of Providentmutual.
Transfers between investment portfolios include transfers between the
Subaccounts and the Guaranteed Account (not shown), which is part of
Providentmutual's General Account.
F-29
<PAGE> 101
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Separate Account in the financial statements.
Investment Valuation:
Investment shares are valued at the net asset values of the respective
Portfolios. Transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date.
Realized Gains and Losses:
Realized gains and losses on sales of investment shares are determined
using the specific identification basis for financial reporting and income tax
purposes.
Federal Income Taxes:
The operations of the Separate Account are included in the Federal income
tax return of Providentmutual. Under the provisions of the Policies,
Providentmutual has the right to charge the Separate Account for Federal income
tax attributable to the Separate Account. No charge is currently being made
against the Separate Account for such tax.
Estimates:
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities and the reported amounts from operations and policy
transactions during the period. Actual results could differ from those
estimates.
F-30
<PAGE> 102
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1997, the investments of the respective Subaccounts are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market Street Fund, Inc.:
Growth Portfolio.................................... 83,294 $1,447,895 $1,620,894
Money Market Portfolio.............................. 3,217,082 $3,217,082 $3,217,082
Bond Portfolio...................................... 53,687 $576,627 $589,487
Managed Portfolio................................... 21,188 $331,497 $361,475
Aggressive Growth Portfolio......................... 57,150 $1,112,971 $1,268,161
International Portfolio............................. 98,127 $1,305,995 $1,335,505
Variable Insurance Products Fund:
Equity-Income Portfolio............................. 228,551 $4,859,517 $5,549,225
Growth Portfolio.................................... 149,660 $4,802,419 $5,552,399
High Income Portfolio............................... 92,663 $1,166,165 $1,258,364
Overseas Portfolio.................................. 95,618 $1,823,100 $1,835,860
Variable Insurance Products Fund II:
Asset Manager Portfolio............................. 69,799 $1,136,801 $1,257,078
Index 500 Portfolio................................. 43,149 $4,173,630 $4,935,868
Investment Grade Bond Portfolio..................... 52,130 $634,742 $654,754
Contrafund Portfolio................................ 106,645 $1,922,375 $2,126,511
Neuberger & Berman Advisers Management Trust:
Balanced Portfolio.................................. 20,421 $329,413 $363,494
Growth Portfolio.................................... 39,855 $1,079,165 $1,217,185
Limited Maturity Bond Portfolio..................... 37,418 $514,553 $528,343
American Century Variable Portfolios, Inc.:
American Century VP Capital Appreciation
Portfolio........................................ 63,794 $654,351 $617,522
Van Eck Worldwide Insurance Trust:
Van Eck Worldwide Bond Portfolio.................... 25,912 $276,880 $284,774
Van Eck Worldwide Hard Assets Portfolio............. 23,081 $366,784 $362,835
Van Eck Worldwide Emerging Markets Portfolio........ 60,775 $834,512 $668,520
Alger American Fund:
Alger American Small Capitalization Portfolio....... 33,413 $1,379,677 $1,461,832
</TABLE>
F-31
<PAGE> 103
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the years ended December 31, 1997, 1996 and the period February 1,
1995 (Date of Inception) to December 31, 1995, transactions in investment shares
were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ---------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................. 50,220 22,000 9,742 11,393,078 2,343,055 874,800
Shares received from reinvestment of:
Dividends.................................. 1,003 464 76 88,801 15,339 5,330
Capital gain distributions................. 4,035 464
-------- -------- -------- ----------- ----------- ---------
Total shares acquired........................ 55,258 22,928 9,818 11,481,879 2,358,394 880,130
Total shares redeemed........................ (2,578) (1,562) (570) (8,717,947) (2,171,067) (614,307)
-------- -------- -------- ----------- ----------- ---------
Net increase in shares owned................. 52,680 21,366 9,248 2,763,932 187,327 265,823
Shares owned, beginning of year.............. 30,614 9,248 453,150 265,823
-------- -------- -------- ----------- ----------- ---------
Shares owned, end of year.................... 83,294 30,614 9,248 3,217,082 453,150 265,823
======== ======== ======== =========== =========== =========
Cost of shares acquired...................... $986,013 $380,965 $148,035 $11,481,879 $ 2,358,394 $ 880,130
======== ======== ======== =========== =========== =========
Cost of shares redeemed...................... $ 38,324 $ 21,332 $ 7,462 $ 8,717,947 $ 2,171,067 $ 614,307
======== ======== ======== =========== =========== =========
</TABLE>
F-32
<PAGE> 104
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ----------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO MANAGED PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......................................... 50,228 8,375 4,493 16,278 2,833 2,676
Shares received from reinvestment of:
Dividends.............................................. 1,233 433 146 282 131 70
Capital gain distributions............................. 44 117
-------- ------- ------- -------- ------- -------
Total shares acquired.................................... 51,461 8,808 4,639 16,604 3,081 2,746
Total shares redeemed.................................... (10,179) (903) (139) (884) (335) (24)
-------- ------- ------- -------- ------- -------
Net increase in shares owned............................. 41,282 7,905 4,500 15,720 2,746 2,722
Shares owned, beginning of year.......................... 12,405 4,500 5,468 2,722
-------- ------- ------- -------- ------- -------
Shares owned, end of year................................ 53,687 12,405 4,500 21,188 5,468 2,722
======== ======= ======= ======== ======= =======
Cost of shares acquired.................................. $552,874 $93,373 $46,940 $268,677 $43,739 $33,984
======== ======= ======= ======== ======= =======
Cost of shares redeemed.................................. $106,413 $ 8,795 $ 1,352 $ 10,599 $ 4,014 $ 290
======== ======= ======= ======== ======= =======
</TABLE>
F-33
<PAGE> 105
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ---------------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased..................................... 38,091 17,269 9,089 64,862 26,818 7,846
Shares received from reinvestment of:
Dividends.......................................... 247 105 306 95
Capital gain distributions......................... 49 1,071 2,397 390
-------- -------- -------- -------- -------- -------
Total shares acquired................................ 38,387 18,445 9,089 67,565 27,303 7,846
Total shares redeemed................................ (6,756) (1,615) (400) (3,015) (1,383) (189)
-------- -------- -------- -------- -------- -------
Net increase in shares owned......................... 31,631 16,830 8,689 64,550 25,920 7,657
Shares owned, beginning of year...................... 25,519 8,689 33,577 7,657
-------- -------- -------- -------- -------- -------
Shares owned, end of year............................ 57,150 25,519 8,689 98,127 33,577 7,657
======== ======== ======== ======== ======== =======
Cost of shares acquired.............................. $796,588 $310,897 $150,890 $916,201 $348,283 $94,994
======== ======== ======== ======== ======== =======
Cost of shares redeemed.............................. $113,966 $ 25,216 $ 6,222 $ 36,245 $ 15,164 $ 2,074
======== ======== ======== ======== ======== =======
</TABLE>
F-34
<PAGE> 106
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- ----------------------------------------------------------------------------------------------------------------------
EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................. 135,989 72,214 24,671 76,083 53,882 22,131
Shares received from reinvestment of:
Dividends.................................. 1,879 42 179 536 73 6
Capital gain distributions................. 9,447 1,207 83 2,400 1,829
---------- ---------- -------- ---------- ---------- --------
Total shares acquired........................ 147,315 73,463 24,933 79,019 55,784 22,137
Total shares redeemed........................ (12,497) (3,904) (759) (4,951) (1,951) (378)
---------- ---------- -------- ---------- ---------- --------
Net increase in shares owned................. 134,818 69,559 24,174 74,068 53,833 21,759
Shares owned, beginning of year.............. 93,733 24,174 75,592 21,759
---------- ---------- -------- ---------- ---------- --------
Shares owned, end of year.................... 228,551 93,733 24,174 149,660 75,592 21,759
========== ========== ======== ========== ========== ========
Cost of shares acquired...................... $3,254,127 $1,456,815 $450,678 $2,711,400 $1,652,672 $633,382
========== ========== ======== ========== ========== ========
Cost of shares redeemed...................... $ 225,789 $ 64,479 $ 11,835 $ 142,538 $ 44,454 $ 8,043
========== ========== ======== ========== ========== ========
</TABLE>
F-35
<PAGE> 107
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- ---------------------------------------------------------------------------------------------------------------------
HIGH INCOME PORTFOLIO OVERSEAS PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................................. 69,137 17,623 12,589 70,577 18,466 12,757
Shares received from reinvestment of:
Dividends....................................... 2,488 1,213 177 605 157 7
Capital gain distributions...................... 307 237 2,403 171 7
-------- -------- -------- ---------- -------- --------
Total shares acquired............................. 71,932 19,073 12,766 73,585 18,794 12,771
Total shares redeemed............................. (9,180) (1,259) (669) (7,953) (1,282) (297)
-------- -------- -------- ---------- -------- --------
Net increase in shares owned...................... 62,752 17,814 12,097 65,632 17,512 12,474
Shares owned, beginning of year................... 29,911 12,097 29,986 12,474
-------- -------- -------- ---------- -------- --------
Shares owned, end of year......................... 92,663 29,911 12,097 95,618 29,986 12,474
======== ======== ======== ========== ======== ========
Cost of shares acquired........................... $916,751 $229,442 $148,527 $1,433,652 $334,188 $210,331
======== ======== ======== ========== ======== ========
Cost of shares redeemed........................... $107,593 $ 13,691 $ 7,271 $ 131,357 $ 19,258 $ 4,456
======== ======== ======== ========== ======== ========
</TABLE>
F-36
<PAGE> 108
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- ----------------------------------------------------------------------------------------------------------------------
ASSET MANAGER PORTFOLIO INDEX 500 PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................................. 23,488 40,738 5,010 28,249 15,023 3,044
Shares received from reinvestment of:
Dividends....................................... 1,757 303 39 204 35 7
Capital gain distributions...................... 4,410 251 414 91 1
-------- -------- ------- ---------- ---------- --------
Total shares acquired............................. 29,655 41,292 5,049 28,867 15,149 3,052
Total shares redeemed............................. (3,629) (2,068) (500) (2,318) (1,457) (144)
-------- -------- ------- ---------- ---------- --------
Net increase in shares owned...................... 26,026 39,224 4,549 26,549 13,692 2,908
Shares owned, beginning of year................... 43,773 4,549 16,600 2,908
-------- -------- ------- ---------- ---------- --------
Shares owned, end of year......................... 69,799 43,773 4,549 43,149 16,600 2,908
======== ======== ======= ========== ========== ========
Cost of shares acquired........................... $494,496 $660,528 $73,342 $2,998,568 $1,241,314 $211,867
======== ======== ======= ========== ========== ========
Cost of shares redeemed........................... $ 55,987 $ 28,726 $ 6,852 $ 173,873 $ 95,888 $ 8,358
======== ======== ======= ========== ========== ========
</TABLE>
F-37
<PAGE> 109
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE CONTRAFUND
BOND PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased............................................ 43,904 8,553 5,032 95,855 17,029
Shares received from reinvestment of:
Dividends................................................. 866 288 80 175
Capital gain distributions................................ 464
-------- -------- ------- ---------- --------
Total shares acquired....................................... 44,770 8,841 5,112 96,494 17,029
Total shares redeemed....................................... (5,346) (977) (270) (6,090) (788)
-------- -------- ------- ---------- --------
Net increase in shares owned................................ 39,424 7,864 4,842 90,404 16,241
Shares owned, beginning of year............................. 12,706 4,842 16,241
-------- -------- ------- ---------- --------
Shares owned, end of year................................... 52,130 12,706 4,842 106,645 16,241
======== ======== ======= ========== ========
Cost of shares acquired..................................... $548,044 $104,740 $58,875 $1,758,817 $265,037
======== ======== ======= ========== ========
Cost of shares redeemed..................................... $ 62,960 $ 10,930 $ 3,027 $ 89,872 $ 11,607
======== ======== ======= ========== ========
</TABLE>
F-38
<PAGE> 110
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
- ---------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO GROWTH PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased..................................... 11,617 6,369 4,065 19,122 12,912 8,555
Shares received from reinvestment of:
Dividends.......................................... 207 119 32 4 3
Capital gain distributions......................... 531 665 10 1,969 855 39
-------- -------- ------- -------- -------- --------
Total shares acquired................................ 12,355 7,153 4,107 21,091 13,771 8,597
Total shares redeemed................................ (2,292) (841) (61) (2,132) (1,157) (315)
-------- -------- ------- -------- -------- --------
Net increase in shares owned......................... 10,063 6,312 4,046 18,959 12,614 8,282
Shares owned, beginning of year...................... 10,358 4,046 20,896 8,282
-------- -------- ------- -------- -------- --------
Shares owned, end of year............................ 20,421 10,358 4,046 39,855 20,896 8,282
======== ======== ======= ======== ======== ========
Cost of shares acquired.............................. $202,808 $110,480 $66,229 $605,607 $342,933 $214,940
======== ======== ======= ======== ======== ========
Cost of shares redeemed.............................. $ 36,890 $ 12,315 $ 899 $ 53,645 $ 24,218 $ 6,452
======== ======== ======= ======== ======== ========
</TABLE>
F-39
<PAGE> 111
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER & BERMAN AMERICAN CENTURY
ADVISERS MANAGEMENT TRUST VARIABLE PORTFOLIOS, INC.
- ---------------------------------------------------------------------------------------------------------------------
LIMITED MATURITY AMERICAN CENTURY VP
BOND PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased...................................... 34,180 1,441 2,127 35,982 20,034 15,511
Shares received from reinvestment of:
Dividends........................................... 290 219 101
Capital gain distributions.......................... 1,032 2,166
-------- ------- ------- -------- -------- --------
Total shares acquired................................. 34,470 1,660 2,228 37,014 22,200 15,511
Total shares redeemed................................. (592) (319) (29) (7,362) (3,025) (544)
-------- ------- ------- -------- -------- --------
Net increase in shares owned.......................... 33,878 1,341 2,199 29,652 19,175 14,967
Shares owned, beginning of year....................... 3,540 2,199 34,142 14,967
-------- ------- ------- -------- -------- --------
Shares owned, end of year............................. 37,418 3,540 2,199 63,794 34,142 14,967
======== ======= ======= ======== ======== ========
Cost of shares acquired............................... $473,413 $22,893 $31,573 $360,144 $239,141 $177,972
======== ======= ======= ======== ======== ========
Cost of shares redeemed............................... $ 8,393 $ 4,518 $ 415 $ 89,378 $ 28,624 $ 4,904
======== ======= ======= ======== ======== ========
</TABLE>
F-40
<PAGE> 112
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK WORLDWIDE INSURANCE TRUST
- ---------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE VAN ECK WORLDWIDE
BOND PORTFOLIO HARD ASSETS PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased....................................... 23,946 4,129 4,991 19,029 6,863 2,712
Shares received from reinvestment of:
Dividends............................................ 329 174 234 263 35 22
Capital gain distributions........................... 194 35
-------- ------- ------- -------- -------- -------
Total shares acquired.................................. 24,275 4,303 5,225 19,486 6,933 2,734
Total shares redeemed.................................. (7,242) (406) (243) (5,349) (638) (85)
-------- ------- ------- -------- -------- -------
Net increase in shares owned........................... 17,033 3,897 4,982 14,137 6,295 2,649
Shares owned, beginning of year........................ 8,879 4,982 8,944 2,649
-------- ------- ------- -------- -------- -------
Shares owned, end of year.............................. 25,912 8,879 4,982 23,081 8,944 2,649
======== ======= ======= ======== ======== =======
Cost of shares acquired................................ $258,716 $46,831 $56,085 $309,179 $112,234 $33,835
======== ======= ======= ======== ======== =======
Cost of shares redeemed................................ $ 78,063 $ 4,185 $ 2,504 $ 79,846 $ 7,609 $ 1,009
======== ======= ======= ======== ======== =======
</TABLE>
F-41
<PAGE> 113
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK WORLDWIDE ALGER
INSURANCE TRUST AMERICAN FUND
- -----------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE ALGER AMERICAN
EMERGING MARKETS SMALL CAPITALIZATION
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 58,300 6,457 26,913 9,023
Shares received from reinvestment of:
Dividends................................................. 30 11
Capital gain distributions................................ 790
-------- ------- ---------- --------
Total shares acquired....................................... 58,330 6,468 27,703 9,023
Total shares redeemed....................................... (3,821) (202) (3,263) (50)
-------- ------- ---------- --------
Net increase in shares owned................................ 54,509 6,266 24,440 8,973
Shares owned, beginning of year............................. 6,266 8,973
-------- ------- ---------- --------
Shares owned, end of year................................... 60,775 6,266 33,413 8,973
======== ======= ========== ========
Cost of shares acquired..................................... $804,526 $75,703 $1,143,613 $373,537
======== ======= ========== ========
Cost of shares redeemed..................................... $ 43,501 $ 2,216 $ 135,282 $ 2,191
======== ======= ========== ========
</TABLE>
F-42
<PAGE> 114
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- concluded
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
Providentmutual makes certain deductions from premiums before amounts are
allocated to each Subaccount selected by the policyholder. The deductions may
include (1) state premium taxes, (2) sales charges and (3) Federal tax charges.
Premiums adjusted for these deductions are recorded as net premiums in the
statement of changes in net assets. See original policy documents for specific
charges assessed.
In addition to the aforementioned charges, a daily charge will be deducted
from the Separate Account for mortality and expense risks assumed by
Providentmutual. The charge is deducted at an annual rate of 0.65% of the
average daily net assets of the Separate Account. This charge may be increased,
but in no event will it be greater than 0.90% of the average daily net assets of
the Separate Account.
The Separate Account is also charged monthly by Providentmutual for the
cost of insurance protection. The amount of the charge is computed based upon
the amount of insurance provided during the year and the insured's attained age.
Additional monthly deductions may be made for (1) administrative charges, (2)
minimum death benefit charges, (3) first year policy charges and (4)
supplementary charges. See original policy documents for additional monthly
charges. These charges are included in the statements of changes in net assets.
During any given policy year, the first four transfers by a policyholder of
amounts in the Subaccounts are free of charge. A fee of $25 is assessed for each
additional transfer. No transfer fees were incurred during the years ended
December 31, 1997, 1996 and 1995.
The Policies provide for an initial free-look period. If a policy is
cancelled within certain time constraints, the policyholder will receive a
refund equal to the policy account value plus certain deductions made under the
policy. Where state law requires a minimum refund equal to gross premiums paid,
the refund will instead equal the gross premiums paid on the policy and will not
reflect investment experience.
If a policy is surrendered or lapses within the first ten policy years, a
contingent deferred sales load charge and/or contingent deferred administrative
charge are assessed. A deferred sales charge will be imposed if a policy is
surrendered or lapses at any time within ten years after the effective date of
an increase in face amount. A portion of the deferred sales charge will be
deducted if the related increment of face amount is decreased within ten years
after such increase took effect. These charges are recorded as administrative
charges in the statements of changes in net assets.
F-43
<PAGE> 115
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholder and Board of Directors of
Providentmutual Life and Annuity
Company of America
We have audited the accompanying statements of financial condition of
Providentmutual Life and Annuity Company of America (a wholly-owned stock life
insurance subsidiary of Provident Mutual Life Insurance Company) as of December
31, 1997 and 1996, and the related statements of operations, capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Providentmutual Life and
Annuity Company of America as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, in 1996 the Company adopted
Statement of Financial Accounting Standards No. 120 (SFAS 120) and Financial
Accounting Standards Board Interpretation No. 40 (FIN 40) which required
implementation of several accounting pronouncements not previously adopted. The
effects of adopting SFAS 120 and FIN 40 were retroactively applied to the
Company's previously issued financial statements, consistent with the
implementation guidance of those standards.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 4, 1998
F-44
<PAGE> 116
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Financial Condition (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: 1997-$311,637;
1996-$288,732)......................................... $ 320,363 $294,294
Held to maturity, at amortized cost (market:
1997-$65,305; 1996-$80,638)............................ 62,753 79,526
Equity securities, at market (cost: 1997-$1,714;
1996-$2,566).............................................. 1,776 1,582
Mortgage loans.............................................. 46,871 42,187
Real estate................................................. 2,494 3,146
Policy loans and premium notes.............................. 6,725 6,352
Other invested assets....................................... 302 276
Short-term investments...................................... 552 8,453
---------- --------
Total Investments........................................... 441,836 435,816
---------- --------
Cash........................................................ 1,063 472
Investment income due and accrued........................... 7,046 6,609
Deferred acquisition costs.................................. 83,291 62,520
Reinsurance recoverable..................................... 74,674 80,346
Deferred Federal income taxes............................... -- 673
Separate account assets..................................... 627,081 373,802
Other assets................................................ 1,342 1,981
---------- --------
Total Assets................................................ $1,236,333 $962,219
========== ========
LIABILITIES
Policy Liabilities:
Future policyholder benefits.............................. $ 516,591 $511,447
Other policy obligations.................................. 8,147 6,836
---------- --------
Total Policy Liabilities.................................. 524,738 518,283
---------- --------
Payable to parent........................................... 1,837 4,936
Federal income taxes payable:
Current................................................... 3,928 4,737
Deferred.................................................. 2,363 --
Separate account liabilities................................ 624,872 372,005
Other liabilities........................................... 8,506 8,109
---------- --------
Total Liabilities........................................... 1,166,244 908,070
---------- --------
COMMITMENTS AND CONTINGENCIES -- NOTE 9
CAPITAL AND SURPLUS
Common stock, $10 par value; authorized 500,000 shares;
issued and outstanding 250,000 shares..................... 2,500 2,500
Contributed capital in excess of par........................ 44,165 37,665
Unassigned surplus.......................................... 20,565 13,087
Net unrealized appreciation on securities................... 2,859 897
---------- --------
Total Capital and Surplus................................... 70,089 54,149
---------- --------
Total Liabilities, Capital and Surplus...................... $1,236,333 $962,219
========== ========
</TABLE>
See accompanying notes to financial statements
F-45
<PAGE> 117
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Operations (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $13,904 $13,541 $12,930
Policy and contract charges................................. 11,729 6,068 2,467
Net investment income....................................... 32,314 32,213 32,112
Other income................................................ 4,815 2,994 3,715
Realized gains on investments............................... 69 112 730
------- ------- -------
Total Revenues.............................................. 62,831 54,928 51,954
------- ------- -------
BENEFITS AND EXPENSES
Policy and contract benefits................................ 15,606 12,861 11,081
Change in future policyholder benefits...................... 19,254 24,092 25,462
Commissions and operating expenses.......................... 15,271 8,564 9,684
Policyholder dividends...................................... 773 541 353
------- ------- -------
Total Benefits and Expenses................................. 50,904 46,058 46,580
------- ------- -------
Income Before Income Taxes.................................. 11,927 8,870 5,374
Income tax expense (benefit):
Current................................................... 2,470 2,612 3,728
Deferred.................................................. 1,979 988 (1,339)
------- ------- -------
Total Income Tax Expense.................................... 4,449 3,600 2,389
------- ------- -------
Net Income.................................................. $ 7,478 $ 5,270 $ 2,985
======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-46
<PAGE> 118
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Capital and Surplus For the Years Ended December 31, 1997, 1996
and 1995 (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
CONTRIBUTED UNREALIZED
COMMON CAPITAL APPRECIATION TOTAL
STOCK COMMON IN EXCESS UNASSIGNED (DEPRECIATION) CAPITAL AND
SHARES STOCK OF PAR SURPLUS ON SECURITIES SURPLUS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995............ 2,500 $2,500 $29,665 $ 4,832 $(2,320) $34,677
Net income.......................... -- -- -- 2,985 -- 2,985
Change in unrealized appreciation
(depreciation).................... -- -- -- -- 5,074 5,074
----- ------ ------- ------- ------- -------
Balance at December 31, 1995.......... 2,500 2,500 29,665 7,817 2,754 42,736
Net income.......................... -- -- -- 5,270 -- 5,270
Capital contribution from parent.... -- -- 8,000 -- -- 8,000
Change in unrealized appreciation
(depreciation).................... -- -- -- -- (1,857) (1,857)
----- ------ ------- ------- ------- -------
Balance at December 31, 1996.......... 2,500 2,500 37,665 13,087 897 54,149
Net income.......................... -- -- -- 7,478 -- 7,478
Capital contribution from parent.... -- -- 6,500 -- -- 6,500
Change in unrealized appreciation
(depreciation).................... -- -- -- -- 1,962 1,962
----- ------ ------- ------- ------- -------
Balance at December 31, 1997.......... 2,500 $2,500 $44,165 $20,565 $ 2,859 $70,089
===== ====== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-47
<PAGE> 119
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Cash Flows (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 7,478 $ 5,270 $ 2,985
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to variable universal life and
investment products................................... 15,076 19,684 16,780
Policy fees assessed on variable universal life and
investment products................................... (11,729) (6,068) (2,467)
Amortization of deferred policy acquisition costs....... 9,445 5,433 5,263
Capitalization of deferred policy acquisition costs..... (31,404) (25,182) (19,579)
Deferred Federal income taxes........................... 1,979 988 (1,339)
Depreciation and amortization expense................... 625 798 816
Realized gains on investments........................... (69) (112) (730)
Change in investment income due and accrued............. (437) 66 845
Change in reinsurance recoverable....................... 5,672 772 (21,413)
Change in policy liabilities and other policyholders'
funds of traditional life products.................... (12,255) (2,124) 30,526
Change in other liabilities............................. 431 (210) (1,993)
Change in current Federal income taxes payable.......... (809) (928) 2,473
Other, net.............................................. (2,676) 3,756 2,349
--------- --------- ---------
Net cash (used in) provided by operating
activities........................................ (18,673) 2,143 14,516
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities........................... 21,382 6,956 12,817
Equity securities....................................... 100 200 46,114
Real estate............................................. 772 -- 940
Other invested assets................................... 333 158 --
Proceeds from maturities of investments:
Held to maturity securities............................. 19,184 17,323 16,030
Available for sale securities........................... 28,439 21,467 20,422
Mortgage loans.......................................... 2,599 7,873 8,065
Purchases of investments:
Held to maturity securities............................. (2,029) (15,887) (16,418)
Available for sale securities........................... (72,520) (38,542) (58,802)
Equity securities....................................... (609) (157) (44,930)
Mortgage loans.......................................... (7,179) (11,342) (8,418)
Real estate............................................. (99) (36) (213)
Other invested assets................................... (302) -- --
Net withdrawals of separate account seed money............ -- (335) (650)
Policy loans and premium notes, net....................... (373) (906) (989)
Net sales of short-term investments....................... 7,901 4,203 1,596
--------- --------- ---------
Net cash used in investing activities............... (2,401) (9,025) (24,436)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits... 232,307 185,984 124,336
Variable universal life and investment product
withdrawals............................................. (217,142) (186,630) (114,416)
Capital contribution from parent.......................... 6,500 8,000 --
--------- --------- ---------
Net cash provided by financing activities........... 21,665 7,354 9,920
--------- --------- ---------
Net change in cash.................................. 591 472 --
Cash, beginning of year..................................... 472 -- --
--------- --------- ---------
Cash, end of year........................................... $ 1,063 $ 472 $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes................ $ 3,280 $ 3,540 $ 1,438
========= ========= =========
Foreclosure of mortgage loans............................. $ -- $ -- $ 667
========= ========= =========
</TABLE>
See accompanying notes to financial statements
F-48
<PAGE> 120
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Providentmutual Life and Annuity Company of America (the Company) is a
stock life insurance company and a wholly-owned subsidiary of Provident Mutual
Life Insurance Company (Provident Mutual).
The Company sells life and annuity products principally through a personal
producing general agency (PPGA) and brokerage sales force. The Company is
licensed to operate in 48 states, which are responsible for product regulation.
Sales in 14 states accounted for 74% of the Company's sales for the year ended
December 31, 1997. For many of the life and annuity products, the insurance
departments of the states in which the Company conducts business must approve
products and policy forms in advance of sales. In addition, benefits are
determined by statutes and regulations in each of these states.
Basis of Presentation
As of January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 120, "Accounting and Reporting by Mutual Life
Insurance Enterprises for Certain Long-Duration Participating Contracts," an
amendment to Financial Accounting Standards Board Interpretation 40 (FIN 40),
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises." The initial effect of applying this statement
has been reported retroactively through restatement of previously issued
financial statements presented herein for comparative purposes. SFAS 120
requires financial statements referred to as prepared in accordance with
generally accepted accounting principles (GAAP) to apply to all applicable
authoritative GAAP pronouncements. Prior to the adoption of SFAS 120, statutory
financial statements were permitted to be referred to as being prepared in
accordance with GAAP. The significant GAAP authoritative pronouncements
requiring initial application were as follows:
-- SFAS 60, "Accounting and Reporting by Insurance Enterprises,"
-- SFAS 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investments,"
-- SFAS 109, "Accounting for Income Taxes,"
-- SFAS 113, "Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts,"
-- SFAS 114, "Accounting by Creditors for Impairment of a Loan,"
-- Statement of Position (SOP) 95-1, "Accounting for Certain Insurance
Activities of Mutual Life Insurance Enterprises,"
-- SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities" and
-- SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."
F-49
<PAGE> 121
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
The cumulative effective on capital and surplus of adopting the above
pronouncements primarily consists of the initial deferral of acquisition costs,
change in policy reserve valuation basis, the establishment of deferred taxes,
the elimination of statutory asset valuation and interest maintenance reserves
and the establishment of investment valuation allowances.
As a result of the change in accounting principles, net income for 1995 as
previously reported, has been restated as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------
<S> <C>
Net income, as previously reported.......................... $ 1,581
Effect of changing to a different basis of accounting:
Deferred acquisition costs................................ 14,316
Net policyholder liabilities.............................. (14,165)
Deferred income taxes..................................... 1,339
Adjustment in valuation of investments.................... 567
Other, net................................................ (653)
--------
Net income, as adjusted..................................... $ 2,985
========
</TABLE>
As a result of the change in accounting principles, capital and surplus, as
of December 31, 1995 as previously reported, has been restated as follows (in
thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------
<S> <C>
Balance at beginning of year, as previously reported........ $ 29,382
Add adjustment for the cumulative effect on prior years of
applying retroactively the new basis of accounting:
Deferred acquisition costs................................ 45,971
Net policyholder liabilities.............................. (41,068)
Deferred income taxes..................................... 2,144
Adjustment in valuation of investments.................... 854
Asset valuation reserve................................... 3,939
Other, net................................................ (4,225)
--------
Balance at beginning of year, as adjusted................... 36,997
Net income.................................................. 2,985
Add adjustment for the cumulative effect on prior years of
applying accounting change -- securities.................. (2,320)
Change in unrealized gains (losses) on investment
securities................................................ 5,074
--------
Balance at end of year...................................... $ 42,736
========
</TABLE>
F-50
<PAGE> 122
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
The Company prepares financial statements for filing with regulatory
authorities in conformity with the accounting practices prescribed or permitted
by the Insurance Department of the State of Delaware (SAP). Practices under SAP
vary from GAAP primarily with respect to the initial deferral of acquisition
costs, the establishment of deferred taxes, the elimination of statutory asset
valuation and interest maintenance reserves and the establishment of investment
valuation allowances.
Amounts disclosed in the footnotes are denoted in thousands of dollars.
Statutory net income was $1,792, $1,448 and $1,581 for the years ended
December 31, 1997, 1996 and 1995, respectively. Statutory surplus was $47,225
and $39,530 as of December 31, 1997 and 1996, respectively.
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the report values of
assets and liabilities and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
The Company is subject to interest rate risk to the extent its investment
portfolio cash flows are not matched to its insurance liabilities. Management
believes it manages this risk through modeling of the cash flows under
reasonable scenarios.
Invested Assets
Fixed maturity securities (bonds) which may be sold are designated as
"available for sale" and are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in capital
and surplus net of related Federal income taxes and amortization of deferred
acquisition costs. Fixed maturity securities that the Company has the intent and
ability to hold to maturity are designated as "held to maturity" and are
reported at amortized cost.
Equity securities (common stocks, redeemable preferred stocks and
nonredeemable preferred stocks) are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in capital
and surplus, net of applicable Federal income taxes.
Fixed maturity and equity securities that have experienced an other than
temporary decline in value are written down to fair value by a charge to
realized losses. This fair value becomes the new cost basis of the particular
security.
Mortgage loans are carried at unpaid principal balances, less impairment
reserves. For mortgage loans considered impaired, a specific reserve is
established. A general reserve is also established for probable losses arising
from the portfolio but not attributable to specific loans. Mortgage loans are
considered impaired when it is probable that the Company will be unable to
collect amounts due according to the contractual terms of the loan agreement.
When a mortgage loan has been determined to
F-51
<PAGE> 123
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Invested Assets -- continued
be impaired, a reserve is established for the difference between the unpaid
principal of the mortgage loan and its fair value. Fair value is based on either
the present value of expected future cash flows discounted at the mortgage
loan's effective interest rate or the fair value of the underlying collateral.
The reserve is charged to realized capital losses.
Policy loans and premium notes are reported at unpaid principal balances.
Real estate is carried at lower of cost or fair value less accumulated
depreciation from the date of foreclosure. The straight-line method of
depreciation is used for real estate.
Other invested assets consist of limited partnerships carried at the lower
of cost or market value.
Cash includes demand deposits and cash on hand.
Short-term investments include money market funds, certificates of deposit
and short-term investments whose maturities at the time of acquisition were one
year or less. These investments are carried at amortized cost which approximates
market value.
It is the Company's policy to use derivatives (exchange-traded or
over-the-counter financial instruments whose value is based upon or derived from
a specific underlying index or commodity) for the purpose of reducing exposure
to interest rate fluctuations, and not for income generation or speculative
purposes. Derivatives utilized by the Company are long and short positions on
United States Treasury notes and bond futures and certain interest rate swaps.
The net interest effect of futures transactions is settled on a daily
basis. Cash paid or received is recorded daily, along with a receivable/payable,
to settle the futures contract prior to the contract termination. The
receivable/payable is carried until the contract is terminated and the remaining
balance is included in either net investment income or realized gain or loss.
Upon termination of a futures contract that is identified to a specific
security, any gain or loss is deferred and amortized to net investment income
over the expected remaining life of the hedged security. If the futures contract
is not identified to a specific security, any gain or loss on termination is
reported as a realized gain or loss.
Interest rate swaps are settled on the contract date. Cash paid or received
is reported as an adjustment to net investment income.
Investment Valuation Reserves
Investment valuation reserves have been provided for impairments of
mortgage loans and totalled $1,170 and $1,274 at December 31, 1997 and 1996,
respectively. Changes in the reserves are reflected as realized capital gains
and losses.
F-52
<PAGE> 124
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Benefit Reserves and Policyholder Contract Deposits
Traditional Life Insurance Products
Traditional life insurance products include those contracts with fixed and
guaranteed premiums and benefits, and consist principally of whole life and
term insurance policies, limited-payment life insurance policies and
certain annuities with life contingencies. Most traditional life insurance
policies are participating: in addition to guaranteed benefits, they pay
dividends, as declared annually by the Company based on its experience.
Reserves on traditional life insurance products are calculated by using the
net level premium method. For participating traditional life insurance
policies, the assumptions are based on mortality rates consistent with the
cash values and investment rates consistent with the Company's dividend
practices. For most such policies, reserves are based on the 1958 or 1980
Commissioners' Standard Ordinary (CSO) mortality table at interest rates
ranging from 2.5% to 5.0%.
Variable Life and Investment-Type Products
Variable life products are all flexible premium variable universal life.
Investment-type products consist primarily of single premium and flexible
premium annuity contracts.
Benefit reserves and policyholder contract deposits on these products are
determined following the retrospective deposit method and consist of policy
values that accrue to the benefit of the policyholder, before deduction of
surrender charges.
Premiums, Charges and Benefits
Traditional Life Insurance
Premiums for individual life policies are recognized when due.
Benefit claims (including an estimated provision for claims incurred but
not reported), benefit reserve changes, and expenses (except those
deferred) are charged to income as incurred.
Variable Life and Investment-Type Products
Revenues for variable life and investment-type products consist of policy
charges for the cost of insurance, policy initiation, administration and
surrenders during the period. Expenses include interest credited to policy
account balances and benefit payments made in excess of policy account
balances. Many of these policies are variable life or variable annuity
policies, in which investment performance credited to the account balance
is based on the investment performance of separate accounts chosen by the
policyholder. For other account balances, credited interest rates ranged
from 3.8% to 8.2% in 1997.
F-53
<PAGE> 125
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Premiums, Charges and Benefits -- continued
Deferred Policy Acquisition Costs
The costs that vary with and are directly related to the production of new
business, have been deferred to the extent deemed recoverable. Such costs
include commissions and certain costs of underwriting, policy issue and
marketing.
Deferred policy acquisition costs on traditional participating life
insurance policies are amortized in proportion to the present value of
expected gross margins. Gross margins include margins from mortality,
investments and expenses, net of policyholder dividends. Expected gross
margins are redetermined regularly, based on actual experience and current
assumptions of mortality, persistency, expenses, and investment experience.
The average investment yield, before realized capital gains and losses, in
the calculation of expected gross margins was 8.0% for 1997.
Deferred policy acquisition costs for variable life and investment-type
products are amortized in relation to the incident of expected gross
profits, including realized investment gains and losses, over the expected
life of the policies.
The costs deferred during 1997, 1996 and 1995 were $31,404, $25,182 and
$19,579, respectively. Amortization of deferred policy acquisition costs
was $9,445, $5,433 and $5,263 during 1997, 1996 and 1995, respectively.
Capital Gains and Losses
Realized capital gains and losses on sales of investments are based upon
specific identification of the investments sold and do not include amounts
allocable to separate accounts. A realized capital loss is also recorded at the
time a decline in the value of an investment is determined to be other than
temporary.
Policyholder Dividends
As of December 31, 1997, approximately 69% of the Company's in force life
insurance business was written on a participating basis. Dividends are earned by
the policyholders ratably over the policy year. Dividends are included in the
accompanying financial statements as a liability and as a charge to operations.
Reinsurance
Premiums, benefits and expenses are recorded net of experience refunds,
reserve adjustments and amounts assumed from or ceded to reinsurers, including
commission and expense allowances.
F-54
<PAGE> 126
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Separate Accounts
Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the benefit of annuity
contractholders and variable life insurance policyholders.
Premiums received and the accumulated value portion of benefits paid are
excluded from the amounts reported in the statements of operations. Fees charged
on policyholder and contractholder account values are reported as revenues.
The contractholders/policyholders bear the investment risk on separate
account assets. Separate account assets are carried at fair values determined as
of the balance sheet date.
Federal Income Taxes
Deferred income tax assets and liabilities have been recorded for temporary
differences between the reported amounts of assets and liabilities in the
accompanying financial statements and those in the Company's income tax returns.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the fair values and carrying values of the
Company's financial instruments at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale.................... $320,363 $320,363 $294,294 $294,294
Held to maturity...................... $65,305 $62,753 $80,638 $79,526
Equity securities....................... $1,776 $1,776 $1,582 $1,582
Commercial mortgage loans............... $49,379 $46,871 $43,976 $42,187
LIABILITIES FOR INVESTMENT-TYPE
INSURANCE CONTRACTS
Supplementary contracts without life
contingencies......................... $7,304 $7,185 $5,736 $5,835
Individual annuities.................... $977,658 $1,012,040 $802,622 $829,783
</TABLE>
F-55
<PAGE> 127
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
The underlying investment risk of the Company's variable life and variable
annuity contracts is assumed by the owner. These reserve liabilities are
primarily reported in the separate accounts. The liabilities in the separate
accounts are recorded at amounts equal to the related assets at fair value.
Fair values for the Company's insurance contracts other than
investment-type contracts are not required to be disclosed under Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." However, the estimated fair value and future cash flows
of liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts. The estimated fair value of all assets
without a corresponding revaluation of all liabilities associated with insurance
contracts can be misinterpreted.
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments:
Investment Securities
Bonds, common stocks and preferred stocks are valued based upon quoted
market prices, where available. If quoted market prices are not available, as in
the case of private placements, fair values are based on quoted market prices of
comparable instruments (see Note 3).
Mortgage Loans
Mortgage loans are valued using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. For mortgage loans classified as nonperforming, the
fair value was set equal to the lesser of the unpaid principal balance or the
market value of the underlying property.
Policy Loans
Policy loans are issued with either fixed or variable interest rates,
depending upon the terms of the policies. For those loans with fixed interest
rates, the interest rates range from 5% to 8%. For loans with variable interest
rates, the interest rates are primarily adjusted quarterly based upon changes in
a corporate bond index. Future cash flows of policy loans are uncertain and
difficult to predict. As a result, management deems it impractical to calculate
the fair value of policy loans.
F-56
<PAGE> 128
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Individual Annuities and Supplementary Contracts
The fair value of individual annuities and supplementary contracts without
life contingencies is based primarily on surrender values. For those individual
annuities and supplementary contracts that are not surrenderable, discounted
future cash flows are used for calculating fair value.
Policyholder Dividends and Coupon Accumulations
The policyholders' dividend and coupon accumulation liabilities will
ultimately be settled in cash, applied towards the payment of premiums, or left
on deposit with the Company at interest. Management deems it impractical to
calculate the fair value of these liabilities due to valuation difficulties
involving the uncertainties of final settlement.
3. MARKETABLE SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investments in fixed maturity securities and equity
securities as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 563 $ 12 $ 2 $ 573
Obligations of states and political
subdivisions............................... 4,083 187 -- 4,270
Corporate securities......................... 274,262 8,651 1,076 281,837
Mortgage-backed securities................... 32,729 958 4 33,683
-------- ------- ------ --------
Subtotal -- fixed maturities............ 311,637 9,808 1,082 320,363
Equity securities............................ 1,714 487 425 1,776
-------- ------- ------ --------
Total.............................. $313,351 $10,295 $1,507 $322,139
======== ======= ====== ========
</TABLE>
F-57
<PAGE> 129
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 4,704 $ 417 $ 10 $ 5,111
Corporate securities......................... 54,563 1,899 28 56,434
Mortgage-backed securities................... 3,486 274 -- 3,760
-------- ------- ------ --------
Total.............................. $ 62,753 $ 2,590 $ 38 $ 65,305
======== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 567 $ 4 $ 13 $ 558
Obligations of states and political
subdivisions............................... 4,853 197 -- 5,050
Corporate securities......................... 246,887 5,907 1,103 251,691
Mortgage-backed securities................... 36,425 680 110 36,995
-------- ------ ------ --------
Subtotal -- fixed maturities............ 288,732 6,788 1,226 294,294
Equity securities............................ 2,566 355 1,339 1,582
-------- ------ ------ --------
Total.............................. $291,298 $7,143 $2,565 $295,876
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 4,821 $ 278 $ 27 $ 5,072
Corporate securities......................... 71,136 979 346 71,769
Mortgage-backed securities................... 3,569 228 -- 3,797
-------- ------ ------ --------
Total.............................. $ 79,526 $1,485 $ 373 $ 80,638
======== ====== ====== ========
</TABLE>
F-58
<PAGE> 130
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1997, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
ESTIMATED
AMORTIZED FAIR
AVAILABLE FOR SALE COST VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less..................................... $ 32,283 $ 32,366
Due after one year through five years....................... 107,134 109,530
Due after five years through ten years...................... 100,827 104,315
Due after ten years......................................... 71,393 74,152
-------- --------
Total............................................. $311,637 $320,363
======== ========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
ESTIMATED
AMORTIZED FAIR
HELD TO MATURITY COST VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less..................................... $ 2,215 $ 2,231
Due after one year through five years....................... 22,403 23,047
Due after five years through ten years...................... 34,541 36,123
Due after ten years......................................... 3,594 3,904
-------- --------
Total............................................. $ 62,753 $ 65,305
======== ========
</TABLE>
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are included based on their
contractual maturity.
Realized gains (losses) on investments for the years ended December 31,
1997, 1996 and 1995 are summarized as follows:
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------
Fixed maturities......................................... $1,135 $ 71 $ 561
Equity securities........................................ (1,360) 6 253
Mortgage loans........................................... 104 35 (103)
Real estate.............................................. 133 -- 19
Other invested assets.................................... 57 -- --
------ ---- -----
$ 69 $112 $ 730
====== ==== =====
</TABLE>
F-59
<PAGE> 131
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
Net unrealized appreciation (depreciation) on available for sale securities
as of December 31, 1997 and 1996 is summarized as follows:
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Net unrealized appreciation before adjustments for the
following:................................................ $ 8,788 $ 4,578
Amortization of deferred policy acquisition costs......... (4,389) (3,198)
Deferred Federal income taxes............................. (1,540) (483)
------- -------
Net unrealized appreciation................................. $ 2,859 $ 897
======= =======
</TABLE>
In late 1995, the Financial Accounting Standards Board issued "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." This report permits a one-time reclassification of
securities from held to maturity to available for sale. In response to this
report, the Company transferred fixed income securities with a combined
amortized cost of $34,784 from the held to maturity portfolio to the available
for sale portfolio. An additional transfer of fixed income securities with a
combined cost of $5,000 and an estimated fair value of $5,050 was made from the
available for sale portfolio to the held to maturity portfolio. The $50
difference between the amortized cost and the estimated fair value has been
amortized to realized capital gains/losses.
Net investment income, by type of investment, is as follows for the years
ending December 31, 1997, 1996 and 1995:
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
Gross investment income:
Fixed maturities:
Available for sale................................ $22,559 $21,379 $20,222
Held to maturity.................................. 5,692 6,699 7,725
Equity securities................................... 92 87 211
Mortgage loans...................................... 3,924 3,750 3,592
Real estate......................................... 591 759 747
Policy loans and premium notes...................... 214 158 113
Short-term investments.............................. 258 363 521
Other, net.......................................... 9 27 35
------- ------- -------
33,339 33,222 33,166
Less: investment expenses........................... (1,025) (1,009) (1,054)
------- ------- -------
Net investment income............................... $32,314 $32,213 $32,112
======= ======= =======
</TABLE>
F-60
<PAGE> 132
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. MORTGAGE LOANS
Impaired mortgage loans and the related reserves are as follows at December
31, 1997 and 1996:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
Impaired mortgage loans..................................... $3,655 $3,878
Reserves.................................................... (704) (848)
------ ------
Net impaired mortgage loans................................. $2,951 $3,030
====== ======
</TABLE>
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1997 and 1996 is as follows:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
Balance at January 1........................................ $1,274 $1,309
Losses charged, net of recoveries........................... (104) (35)
Releases due to foreclosures................................ -- --
------ ------
Balance at December 31...................................... $1,170 $1,274
====== ======
</TABLE>
The average recorded investment in impaired loans was $3,767 and $4,378
during 1997 and 1996, respectively. Interest income recognized on impaired loans
during 1997, 1996 and 1995 was $284, $405 and $434, respectively. All interest
income on impaired mortgage loans was recognized on the cash basis.
5. REAL ESTATE
Real estate totalled $2,494 and $3,146 as of December 31, 1997 and 1996,
respectively. Depreciation expense was $113, $112 and $106 for the years ended
December 31, 1997, 1996 and 1995, respectively. Accumulated depreciation for
real estate totalled $435 and $353 at December 31, 1997 and 1996, respectively.
6. FEDERAL INCOME TAXES
The Company files a consolidated Federal income tax return with Provident
Mutual. The tax liability is accrued on a separate company basis which includes
an allocation of an equity tax by Provident Mutual.
F-61
<PAGE> 133
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
6. FEDERAL INCOME TAXES, CONTINUED
The provision for Federal income taxes from operations differs from the
normal relationship of Federal income tax to pretax income as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate................... $4,174 $3,105 $1,881
Current year equity tax.............................. 900 800 625
True down of prior years' equity tax................. (625) (305) --
Other................................................ -- -- (117)
------ ------ ------
Provision for Federal income tax from operations....... $4,449 $3,600 $2,389
====== ====== ======
</TABLE>
Deferred income tax assets and liabilities reflect the income tax effects
of cumulative temporary differences between the reported values of assets and
liabilities for financial statement purposes and income tax return purposes.
Components of the Company's net deferred income tax (liability) asset is as
follows at December 31, 1997 and 1996:
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
DEFERRED TAX ASSET
Reserves.................................................... $26,650 $21,679
Invested assets............................................. 409 445
Policyholder dividends...................................... 159 115
Other....................................................... (1,491) (714)
------- -------
Total deferred tax asset.................................. 25,727 21,525
------- -------
DEFERRED TAX LIABILITY
Deferred policy acquisition costs........................... 26,550 19,249
Net unrealized gain on available for sale securities........ 1,540 1,603
------- -------
Total deferred tax liability.............................. 28,090 20,852
------- -------
Net deferred tax (liability) asset.......................... $(2,363) $ 673
======= =======
</TABLE>
Under current tax law, stock life insurance companies are taxed at current
rates on distributions from the special surplus account for the benefit of
policyholders designated "Policyholder Surplus" (the Account). The Tax Reform
Act of 1984 eliminated further additions to the Account after December 31,
F-62
<PAGE> 134
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
6. FEDERAL INCOME TAXES, CONTINUED
1983. The aggregate accumulation at December 31, 1983 was $2,037. The Company
has no present plans to make any distributions which would subject the Account
to current taxation.
The Company's Federal income tax returns have been audited through 1992.
All years through 1985 are closed. Years 1986 through 1992 have been audited and
are closed with the exception of several issues for which claims for refund have
been filed. Years 1993 through the present remain open. In the opinion of
management, adequate provision has been made for the possible effect of
potential assessments related to prior years' taxes.
7. REINSURANCE
In the normal course of business, the Company assumes risks from and cedes
certain parts of its risks with other insurance companies. The primary purpose
of ceded reinsurance is to limit losses from large exposures.
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company would be liable for these
obligations. The Company evaluates the financial condition of its reinsurers and
limits its exposure to any one reinsurer.
At December 31, 1997, there were $73,108 of individual fixed annuity
account values coinsured by the Company, or approximately 17.2% of total
individual fixed annuity account values outstanding.
F-63
<PAGE> 135
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
7. REINSURANCE, CONTINUED
The tables below highlight the amounts shown in the accompanying financial
statements which are net of reinsurance activity:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
CEDED TO ASSUMED
GROSS OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997:
Life insurance in force.................. $2,153,084 $1,591,141 $ 50,233 $612,176
========== ========== ======== ========
Premiums................................. $ 14,367 $ 614 $ 151 $ 13,904
========== ========== ======== ========
Future policyholder benefits............. $ 74,674 $ 3,102
========== ========
December 31, 1996:
Life insurance in force.................. $1,591,685 $1,282,667 $ 42,330 $351,348
========== ========== ======== ========
Premiums................................. $ 14,240 $ 801 $ 102 $ 13,541
========== ========== ======== ========
Future policyholder benefits............. $ 80,346 $ 4,332
========== ========
December 31, 1995:
Life insurance in force.................. $1,142,970 $ 923,876 $ 46,163 $265,257
========== ========== ======== ========
Premiums................................. $ 13,693 $ 916 $ 153 $ 12,930
========== ========== ======== ========
Future policyholder benefits............. $ 81,118 $ 4,518
========== ========
</TABLE>
The Company has a reinsurance contract with a third party to cede 65
percent (75 percent prior to July 1, 1992) of the premiums and reserves related
to its single premium deferred annuity (SPDA) product. There were no deposits
ceded in 1997 and $5,317 during 1996, respectively. Reinsurance recoverables
were $71,995 and $77,801 at December 31, 1997 and 1996, respectively.
A coinsurance agreement exists between Provident Mutual and the Company
with respect to annuities. Prior to 1992, the agreement covered SPDA's issued
after 1984. The agreement was amended in 1992 to include single premium
immediate annuities and supplementary contracts. Pursuant to this agreement, the
Company has no reinsurance recoverables at December 31, 1997 and 1996. Deposits
ceded during 1997 and 1996 were $2,351 and $2,320, respectively.
Approximately $1,169,702 and $1,007,498 of the Company's life insurance in
force is ceded to Provident Mutual under two reinsurance agreements and a
modified coinsurance agreement at December 31, 1997 and 1996, respectively.
Premiums ceded were $3,889 and $436 during 1997 and 1996, respectively.
Reinsurance recoverables at December 31, 1997 and 1996 were $74 and $471,
respectively.
F-64
<PAGE> 136
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
8. RELATED PARTY TRANSACTIONS
Provident Mutual and its subsidiaries provide certain investment and
administrative services to the Company. Generally fees for these services are
based on an allocation of costs upon either a specific identification basis or a
proportional cost allocation basis which management believes to be reasonable.
These costs include direct salaries and related benefits, including pension and
other post-retirement benefits, as well as overhead costs. These costs were
$13,964, $10,013 and $9,238 for 1997, 1996 and 1995, respectively.
The contractual obligations under the Company's SPDA contracts in force and
issued before September 1, 1988 are guaranteed by Provident Mutual. Total SPDA
contracts affected by this guarantee in force at December 31, 1997 and 1996
approximated $90,995 and $105,004, respectively.
9. COMMITMENTS AND CONTINGENCIES
Financial Instruments With Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its borrowers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include investment commitments related to its interests in
mortgage loans, marketable securities lending and interest rate futures
contracts. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the statements of
financial condition, but which are not deemed to be material.
At December 31, 1997, the Company had outstanding mortgage loan commitments
of approximately $2,200. The mortgage loan commitments, which expire through
April 1998, were issued during 1997 at interest rates consistent with rates
applicable on December 31, 1997. As a result, the fair value of these
commitments approximates the face amount.
Derivative products are used for hedging existing bonds (including cash
reserves) against adverse price or interest rate movements and for fixing
liability costs at the time of product sales. There was no hedge position
activity for the years ended December 31, 1997 and 1996.
Periodically the Company enters securities lending agreements to earn
additional investment income on its securities. The borrower must first provide
cash collateral prior to or at the inception of the loan. There were no
securities lending positions at December 31, 1997.
Investment Portfolio Credit Risk
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1997 and 1996, approximately
$14,771 and $14,777, respectively, in debt security investments (3.9% and 4.0%,
respectively, of the total debt security portfolio) are considered "below
F-65
<PAGE> 137
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED
Investment Portfolio Credit Risk -- continued
Bonds -- continued
investment grade." Securities are classified as "below investment grade"
primarily by utilizing rating criteria established by independent bond rating
agencies.
Debt security investments with a carrying value at December 31, 1997 of
$385 were non-income producing for the year ended December 31, 1997.
The Company had debt security investments in the financial services
industry at both December 31, 1997 and 1996 that exceeded 5% of total assets.
Mortgage Loans
The Company originates mortgage loans either directly or through mortgage
correspondents and brokers throughout the country. Loans are primarily related
to underlying real property investments in office and apartment buildings and
retail/commercial and industrial facilities. Mortgage loans are collateralized
by the related properties and such collateral generally approximates a minimum
133% of the original loan value at the time the loan is made.
At December 31, 1997 and 1996, there were no delinquent mortgage loans
(i.e., loans where payments on principal and/or interest are over 90 days past
due).
The Company had no loans in any state where principal balances in the
aggregate exceeded 20% of the Company's capital and surplus.
Litigation and Unasserted Claims
The Company is involved in various litigation, as both plaintiff and
defendant, which has arisen in the ordinary course of business which, in the
opinion of management and legal counsel, will not have a material effect on the
Company's financial position or its operations.
Insurance companies are subject to assessments, up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of management, the outcome of the proceedings and
assessments will not have a material adverse effect on the financial statements.
Guaranty fund assessments totalled $236, $82 and $343 in 1997, 1996 and 1995,
respectively. Of those amounts, $117, $58 and $285 in 1997, 1996 and 1995,
respectively, are creditable against future years' premium taxes.
F-66
<PAGE> 138
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- concluded
- --------------------------------------------------------------------------------
10. SUBSEQUENT EVENT
On January 5, 1998, the Board of Directors of Provident Mutual unanimously
approved and adopted a Plan of Conversion to reorganize Provident Mutual Life
Insurance Company, utilizing a mutual holding company structure. The proposed
conversion plan was submitted to the Insurance Department of the Commonwealth of
Pennsylvania and is awaiting approval.
F-67
<PAGE> 139
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article VIII of PLACA's By-Laws provides, in part:
To the fullest extent permitted by law, the Company shall indemnify
any present, former or future Director, officer, or employee of the Company
or any person who may serve or has served at its request as officer or
Director of another corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including attorney's fees,
necessarily incurred in connection with the defense of any action, suit or
other proceeding to which any of them is made a party because of service as
Director, officer or employee of the Company or such other corporation, or
in connection with any appeal therein, and against any amounts paid by such
Director, officer or employee in settlement of, or in satisfaction of a
judgement or fine in, any such action or proceeding, except expenses
incurred in defense of or amounts paid in connection with any action, suit
or other proceeding in which such Director, officer or employee shall be
adjudged to be liable for negligence or misconduct in the performance of
his duty.
Insofar as indemnification or liability arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REPRESENTATION OF REASONABLENESS
Providentmutual Life and Annuity Company of America hereby represents that
the fees and charges deducted under the Policy, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by Providentmutual Life and Annuity Company of America.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of the information shown in the Prospectus
with items of Form N-8B-2.
The Prospectus consisting of 48 pages.
The undertaking to file report.
Rule 484 undertaking.
II-1
<PAGE> 140
Representations pursuant to Rule 6e-3(T).
The signatures.
The following exhibits:
EXHIBIT
<TABLE>
<CAPTION>
EXHIBITS PAGE
----------- ----
<S> <C> <C>
1.A.1.a. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing establishment of
the Providentmutual Variable Life Separate Account(1)
1.A.1.b. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Life Separate
Account(1)
1.A.2. None
1.A.3.a.i. Form of Underwriting Agreement among Providentmutual Life
and Annuity Company of America, PML Securities, Inc. and
Providentmutual Variable Life Separate Account(1)
1.A.3.b.i. Personal Producing General Agent's Agreement and
Supplement(1)
1.A.3.b.ii. Personal Producing Agent's Agreement and Supplement(1)
1.A.3.b.iii Producing General Agent's Agreement and Supplement(1)
1.A.3.c.i. Personal Producing General Agent's Commission Schedule(1)
1.A.3.c.ii. Personal Producing Agent's Commission Schedule(1)
1.A.3.c.iii Producing General Agent's Commission Schedule(1)
1.A.3.c.iv. Form of Selling Agreement between PML Securities, Inc. and
Broker/Dealers(1)
1.A.4. Inapplicable
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy (PLC134 & PLC134A)
1.A.5.a. Convertible Term Life Rider (PLC308)(1)
1.A.5.b. 4 Year Survivorship Term Life Rider (PLC309)
1.A.5.c. Guaranteed Minimum Death Benefit Rider (PLC320)
1.A.5.d. Policy Split Option Rider (PLC615)
1.A.5.e. Extension of Final Policy Date Rider (PLC822)(1)
1.A.5.f. Change of Insured Rider (PLC905)
1.A.5.g. Disability Waiver Benefit Rider (PLC907)
1.A.6.a. Charter of Providentmutual Life and Annuity Company of
America(2)
1.A.6.b. By-Laws of Providentmutual Life and Annuity Company of
America(2)
1.A.7. Inapplicable
1.A.8. Inapplicable
1.A.9. Inapplicable
1.A.10. Form of Application(3)
1.A.10.a. Supplemental Application for Flexible Premium(3)
1.A.10.b. Initial Allocation Selection(4)
2. See Exhibits 1.A.(5)
</TABLE>
II-2
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBITS PAGE
----------- ----
<S> <C> <C>
3. Consent of Adam Scaramella, Esquire
4. Inapplicable
5. Inapplicable
6. Consent of Scott V. Carney, FSA, MAAA
7.A. Consent of Sutherland, Asbill & Brennan, L.L.P.
7.B. Consent of Coopers & Lybrand, L.L.P.
8. Description of Providentmutual Life and Annuity Company of
America's Issuance, Transfer and Redemption Procedures for
Policies(1)
9. Powers of Attorney(2)
10.A. Participation Agreement among Market Street Fund, Inc.,
Providentmutual Life and Annuity Company of America and PML
Securities, Inc.(2)
10.B. Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Providentmutual
Life and Annuity Company of America(1)
10.C. Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and
Providentmutual Life and Annuity Company of America(1)
10.D. Form of Fund Participation Agreement among Neuberger &
Berman Advisers Management Trust, Advisers Managers Trust
and Providentmutual Life and Annuity Company of America(2)
10.E. Participation Agreement between TCI Portfolios, Inc. and
Providentmutual Life and Annuity Company of America(2)
10.F. Participation Agreement between Van Eck Investment Trust and
Providentmutual Life and Annuity Company of America(2)
10.G. Participation Agreement among The Alger American Fund,
Providentmutual Life and Annuity Company of America and Fred
Alger and Company Incorporated(1)
10.H. Support Agreement between Provident Mutual Life Insurance
Company and Providentmutual Life and Annuity Company of
America(2)
27. Inapplicable
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 4, filed on
May 1, 1998, File No. 33-83138.
(2) Incorporated herein by reference to Post-Effective Amendment No. 5, filed on
May 1, 1998, File No. 33-65512.
(3) Incorporated herein by reference to Post-Effective Amendment No. 18, filed
on May 1, 1998, File No. 33-2625.
(4) Incorporated herein by reference to Post-Effective Amendment No. 11, filed
on May 1, 1998, File No. 33-42133.
II-3
<PAGE> 142
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT
CERTIFIES THAT IT MEETS ALL THE REQUIREMENTS FOR THE EFFECTIVENESS OF THIS
POST-EFFECTIVE AMENDMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF
1933, AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, AND ITS SEAL TO BE HEREUNTO
AFFIXED AND ATTESTED, ALL IN NEW CASTLE COUNTY, STATE OF DELAWARE ON THIS 1ST
DAY OF MAY, 1998.
PROVIDENTMUTUAL VARIABLE LIFE
SEPARATE ACCOUNT (Registrant)
<TABLE>
<S> <C>
Attest: /s/ JAMES POTTER By: /s/ ROBERT W. KLOSS
---------------------------------------------- -------------------------------------------------
ROBERT W. KLOSS
President
By:PROVIDENTMUTUAL LIFE AND ANNUITY
Company of America (Depositor)
Attest: /s/ JAMES POTTER By: /s/ ROBERT W. KLOSS
---------------------------------------------- -------------------------------------------------
ROBERT W. KLOSS
President
</TABLE>
AS REQUESTED BY THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS
BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ROBERT W. KLOSS Director and President May 1, 1998
- ------------------------------------------------
ROBERT W. KLOSS
/s/ STEPHEN L. WHITE Actuarial Officer (Principal May 1, 1998
- ------------------------------------------------ Financial Officer)
STEPHEN L. WHITE
/s/ LINDA M. SPRINGER Financial Reporting Officer May 1, 1998
- ------------------------------------------------ (Principal Accounting Officer)
LINDA M. SPRINGER
* Director May 1, 1998
- ------------------------------------------------
MARY LYNN FINELLI
* Director May 1, 1998
- ------------------------------------------------
J. KEVIN MCCARTHY
Director, Secretary and Legal May 1, 1998
- ------------------------------------------------ Officer
JAMES G. POTTER, JR.
Director May 1, 1998
- ------------------------------------------------
JAMES D. KESTNER
Director May 1, 1998
- ------------------------------------------------
SARAH C. LANGE
* Director May 1, 1998
- ------------------------------------------------
ALAN F. HINKLE
</TABLE>
II-4
<PAGE> 143
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director May 1, 1998
- ------------------------------------------------
JOAN C. TUCKER
By: /s/ WILLIAM P. LOESCHE
-------------------------------------------
WILLIAM P. LOESCHE
Attorney-in-fact,
Pursuant to Power of Attorney
</TABLE>
II-5
<PAGE> 144
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<S> <C> <C>
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy (PLC134 & PLC134A)
1.A.5.b. 4 Year Survivorship Term Life Rider (PLC309)
1.A.5.c. Guaranteed Minimum Death Benefit Rider (PLC320)
1.A.5.d. Policy Split Option Rider (PLC615)
1.A.5.f. Change of Insured Rider (PLC905)
1.A.5.g. Disability Waiver Benefit Rider (PLC907)
3. Consent of Adam Scaramella, Esquire
6. Consent of Scott V. Carney, FSA, MAAA
7.A. Consent of Sutherland, Asbill & Brennan, L.L.P.
7.B. Consent of Coopers & Lybrand, L.L.P.
</TABLE>
<PAGE> 1
EXHIBIT 1(A5)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
NEWARK, DELAWARE
------------------------------
INSURED 1 JOHN DOE 35, MALE ISSUE AGE/SEX
INSURED 2 JANE DOE 35, FEMALE ISSUE AGE/SEX
POLICY NUMBER 9,000,000 01/01/1996 POLICY ISSUE DATE
FACE AMOUNT $100,000.00 01/01/1996 POLICY DATE
DEATH BENEFIT OPTION A
------------------------------
Providentmutual Life and Annuity Company of America agrees:
- To pay the Beneficiary of this Policy the Insurance Proceeds upon receipt
of due proof of the death of both Insureds;
- To provide you (the Policy Owner) with the other rights and benefits under
this Policy.
These agreements are subject to the provisions of this Policy. The Policy does
not pay a benefit upon the death of the first of the Insureds to die, but only
upon the death of the last surviving Insured.
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE INSURANCE COVERAGE, OR
BOTH, MAY BE VARIABLE OR FIXED, AS DESCRIBED ON PAGE 10.
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. THE INVESTMENT OPTIONS FOR THIS POLICY ARE
DESCRIBED ON PAGE 6. 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 copies of
the Applications are included in this Policy after page 20.
This is a legal contract between the Owner and
Providentmutual Life and Annuity Company of America.
READ THIS POLICY CAREFULLY
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 TO OUR SERVICE CENTER AT 300 CONTINENTAL DRIVE, NEWARK, DELAWARE, OR MAIL
IT TO 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
NOT 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/ Illegible
President
Registrar
VARIABLE LIFE
[PROVIDENTMUTUAL LOGO] [PROVIDENTMUTUAL LOGO]
Flexible Premium Adjustable Survivorship Variable Life Insurance Policy.
Insurance Proceeds payable upon death of the last surviving Insured
before Final Policy Date. Policy Account Value payable on Final
Policy Date. 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 1-800-262-9273.
Form PLC134 11.96
<PAGE> 2
POLICY DESCRIPTION
This is a flexible premium adjustable survivorship 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 of the Separate Account 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 four Policy Years, your Policy will remain in force
if the sum of the premiums paid less partial withdrawals and outstanding loans
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 death of the last surviving
Insured, 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 15 Policy Years, 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 last surviving Insured dies. If a Payment
Option is not in force when the last surviving Insured dies, the Beneficiary
will be able to elect a Payment Option for 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 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
Form PLC134
<PAGE> 3
POLICY SCHEDULE
<TABLE>
<S> <C> <C> <C>
INSURED 1 JOHN DOE 35, MALE ISSUE AGE/SEX
INSURED 2 JANE DOE 35, FEMALE ISSUE AGE/SEX
POLICY NUMBER 9,000,000 01-01-1996 POLICY ISSUE DATE
FACE AMOUNT $100,000 01-01-1996 POLICY DATE
DEATH BENEFIT OPTION A 01-01-2061 FINAL POLICY DATE
PREMIUM CLASS
INSURED 1 STANDARD SMOKER
INSURED 2 STANDARD SMOKER
</TABLE>
BENEFITS
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE -
INITIAL FACE AMOUNT $1,000,000
RIDER - DISABILITY WAIVER BENEFIT
THIS POLICY PROVIDES LIFE INSURANCE COVERAGE ON THE INSUREDS 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 - $485.00
PLANNED PERIODIC PREMIUM - $1,000.00 PAYABLE YEARLY
MINIMUM PREMIUM PAYMENT - $485.00 UNTIL 01-01-2000
MINIMUM PAYMENT - $25.00
PARTIAL WITHDRAWAL - MINIMUM AMOUNT $1,500
TRANSFERS - MINIMUM AMOUNT $1,000
POLICY LOAN - FIXED 6% POLICY LOAN INTEREST RATE
MINIMUM LOAN AMOUNT $500
PAGE 3
PLC134
<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 2.00% 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 INSUREDS'
RESIDENCE CHANGES.
2. A PERCENT OF PREMIUM CHARGE NOT EXCEEDING 5% WILL BE DEDUCTED FROM EACH
PREMIUM PAYMENT.
3. A FEDERAL INCOME TAX CHARGE OF 1.25% WILL BE DEDUCTED FROM EACH PAYMENT
FOR APPLICABLE FEDERAL TAXES. WE RESERVE THE RIGHT TO CHANGE THIS
PERCENTAGE IF THE APPLICABLE LAW CHANGES OUR TAX BURDEN.
INITIAL ADMINISTRATIVE CHARGE
$39.50 DEDUCTED FROM THE POLICY ACCOUNT VALUE ON THE FIRST 12 POLICY
PROCESSING DAYS.
MONTHLY ADMINISTRATIVE CHARGE
$9.50 DEDUCTED MONTHLY FROM THE POLICY ACCOUNT VALUE. WE RESERVE THE RIGHT
TO INCREASE THIS CHARGE, BUT IT WILL NOT BE GREATER THAN $ 18 A MONTH.
FOR PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
$25 DEDUCTED FROM THE POLICY ACCOUNT VALUE WHENEVER YOU MAKE A PARTIAL
WITHDRAWAL.
FOR TRANSFERS
AFTER THE FIRST FOUR TRANSFERS OF AMOUNTS AMONG YOUR INVESTMENT OPTIONS
DURING A POLICY YEAR, WE WILL CHARGE $25 FOR EACH ADDITIONAL TRANSFER
DURING THAT POLICY YEAR.
PAGE 4
PLC134
<PAGE> 5
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 9,000,000
SURRENDER CHARGES
IF THIS POLICY IS SURRENDERED OR LAPSES DURING THE FIRST 15 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 THE DEFERRED
ADMINISTRATIVE CHARGE AND THE DEFERRED SALES CHARGE.
THE DEFERRED ADMINISTRATIVE CHARGE AT ANY TIME DURING THE POLICY YEAR IS $500
MULTIPLIED BY THE FACTOR 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 LESSER OF: (1) THE MAXIMUM CHARGE SHOWN IN THE TABLE
BELOW FOR THAT YEAR; OR (2) AN AMOUNT EQUAL TO 25% OF THE FIRST $525.00 IN
PREMIUM PAYMENTS RECEIVED DURING THE FIRST POLICY YEAR PLUS 4% OF ALL OTHER
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>
POLICY MAXIMUM POLICY MAXIMUM
YEAR FACTOR CHARGE YEAR FACTOR CHARGE
<S> <C> <C> <C> <C> <C>
1 1.0 $315.00 8 1.0 $315.00
2 1.0 $315.00 9 1.0 $315.00
3 1.0 $315.00 10 1.0 $315.00
4 1.0 $315.00 11 1.0 $315.00
5 1.0 $315.00 12 0.8 $252.00
6 1.0 $315.00 13 0.6 $113.40
7 1.0 $315.00 14 0.4 $ 75.60
15 0.2 $ 37.80
</TABLE>
IF THE FACE AMOUNT OF THIS POLICY IS DECREASED AT ANY TIME DURING THE FIRST 15
POLICY YEARS, A PRO RATA SHARE OF THE SURRENDER CHARGE WILL BE DEDUCTED.
PAGE 4A
PLC134
<PAGE> 6
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 9,000,000
GUARANTEED MONTHLY COST OF INSURANCE RATES
PER $1,000 OF NET AMOUNT AT RISK
<TABLE>
<CAPTION>
POLICY POLICY
YEAR RATE YEAR RATE
<S> <C> <C> <C>
1 0.000425 33 1.188475
2 0.001400 34 1.349633
3 0.002617 35 1.529792
4 0.004133 36 1.729708
5 0.006050 37 1.966742
6 0.008450 38 2.248992
7 0.011533 39 2.584325
8 0.015217 40 2.972941
9 0.019717 41 3.415241
10 0.025042 42 3.899642
11 0.031442 43 4.417859
12 0.038858 44 4.964283
13 0.047592 45 5.549692
14 0.057683 46 6.192758
15 0.069583 47 6.909441
16 0.083575 48 7.717308
17 0.099933 49 8.624249
18 0.119308 50 9.654408
19 0.142667 51 10.702042
20 0.169908 52 11.843484
21 0.201242 53 12.963417
22 0.236908 54 14.202384
23 0.276350 55 15.392966
24 0.319875 56 16.712233
25 0.368033 57 18.101366
26 0.422867 58 19.602367
27 0.487850 59 21.327917
28 0.564575 60 23.446426
29 0.658858 61 26.541808
30 0.768567 62 31.375642
31 0.895558 63 39.612883
32 1.034625 64 54.663725
65 83.333333
</TABLE>
PAGE 5
PLC134
<PAGE> 7
POLICY SCHEDULE
(CONTINUED)
ALLOCATION OPTIONS
SCHEDULE A-1
THE MARKET STREET FUND, INC.:
Providentmutual Variable Large Cap Growth Subaccount
Providentmutual Variable Large Cap Value Subaccount
Providentmutual Variable Small Cap Growth Subaccount
Providentmutual Variable Small Cap Value Subaccount
Providentmutual Variable Growth Subaccount
Providentmutual Variable Aggressive Growth Subaccount
Providentmutual Variable Bond Subaccount
Providentmutual Variable Managed Subaccount
Providentmutual Variable Money Market Subaccount
Providentmutual Variable International Subaccount
SCHEDULE A-2
THE ALGER AMERICAN FUND:
Alger American Small Capitalization Subaccount
VARIABLE INSURANCE PRODUCTS FUND (VIP) OR THE
VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
Fidelity Asset Manager Subaccount (VIP II)
Fidelity Contrafund Subaccount (VIP II)
Fidelity Equity-Income Subaccount (VIP)
Fidelity Growth Subaccount (VIP)
Fidelity High Income Subaccount (VIP)
Fidelity Index 500 Subaccount (VIP II)
Fidelity Investment Grade Bond Subaccount (VIP II)
Fidelity Overseas Subaccount (VIP)
Page 6
Form LSA3 (Rev. 1998) (LSA3598)
<PAGE> 8
POLICY SCHEDULE
(CONTINUED)
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST:
Neuberger & Berman Limited Maturity Bond Subaccount
Neuberger & Berman Partners Subaccount
VAN ECK WORLDWIDE INSURANCE TRUST:
Van Eck Worldwide Bond Subaccount
Van Eck Worldwide Emerging Markets Subaccount
Van Eck Worldwide Hard Assets Subaccount
Van Eck Worldwide Real Estate Subaccount
Page 6A
Form LSA3 (Rev. 1998) (LSA3598)
<PAGE> 9
DEFINITIONS
ATTAINED AGE. For each Insured, the Issue Age of such Insured plus the number of
full Policy 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 last
surviving Insured dies. (See Amount of Insurance Proceeds provision.)
INSURED. The persons named as the Insureds on the first page. They need not be
the Owner.
LOAN ACCOUNT. The account to which we transfer the amount of any policy loan
from the Subaccounts and/or Guaranteed Account.
MINIMUM GUARANTEE PREMIUM. The sum of the Minimum Annual Premiums for each month
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 and 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
Applications, copies of which are attached, all subsequent Applications to
change the policy, all additional Policy Schedule pages and any endorsements or
riders 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 persons 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 both Insureds, whether sane or insane, die by suicide
within two years from the Policy Issue Date, or if the last surviving Insured,
whether sane or insane, dies by suicide within such two year period, or if the
surviving Insured lives more than 90 days beyond the date that the first death
occurred by suicide and a policy exchange is not made, 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. At the end of the second Policy
Year, we will notify you and request notification of the death of any Insured.
Failure to provide timely notice will not avoid the Suicide Exclusion.
Page 7
Form PLC134
<PAGE> 10
SUICIDE SURVIVOR BENEFIT. If, within two years from the Policy Issue Date, one
of the Insureds commits suicide and the surviving Insured dies (not by suicide)
within 90 days of the first death, the amount we will pay the beneficiary upon
the death of such surviving Insured will equal the Proceeds at Death. We will
make payment subject to the provisions of this policy, including receipt of due
proof that the surviving Insured died within such 90-day period.
If the first death occurs by suicide within two years from the Policy Issue
Date, you may exchange this policy for a new policy on the life of the surviving
Insured. You must make the exchange within 90 days after the first death. We
must receive the completed application for the exchange and first modal premium
during this 90-day period. The exchange will be made without evidence of
insurability.
The new policy will have the same Face Amount as this policy on the date of
the first death or such lower amount allowed by our rules in effect at the time
of such exchange. The issue date for the new policy will be the 91st day after
the first death. The premium for the new policy will be based on the rates in
effect on that date for the surviving Insured's age on the issue date of the new
policy and for the same premium class as this policy. The new policy must be on
a permanent whole life plan tinder the rules of the Company then in effect as to
plan, amount, age and premium class. The new policy cannot be a variable life
insurance policy, unless we approve such a request. The new policy cannot
involve any other life.
The new policy may contain additional benefit riders subject to our consent
and evidence of the surviving Insured's insurability satisfactory to us.
Evidence of insurability will not be required for a Disability Waiver Rider if:
(a) such rider is in effect for this policy as to the surviving Insured
immediately before the first death; and (b) the surviving Insured was not then
totally disabled as defined in such rider.
A copy of the application on the surviving Insured for this policy will be
made a part of the new policy. The Suicide Exclusion and Incontestability
Periods for the new policy will begin on the Policy Issue Date for this Policy.
MISSTATEMENT OF AGE OR SEX. If the stated age or sex of either Insured 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 for each Insured. There is no adjustment to the Policy
Account Value.
INCONTESTABILITY. We have the right to contest the validity of this Policy based
on material misstatements made in the initial Applications 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 lifetime of each
Insured for two years from the Policy Issue Date, except for nonpayment of the
Minimum Initial Premium.
At the end of the second Policy Year, the Company will notify you and request
notification of the death of any Insured. Failure to provide timely notice of
death will not avoid a contest and could result in a contest even if premiums
continue to be paid.
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 each 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.
Page 8
Form PLC134
<PAGE> 11
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 death of both
Insureds 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.
POLICY OWNER AND BENEFICIARY PROVISIONS
OWNERSHIP. Unless otherwise stated in the Applications or later changed, the
Owner of this Policy is the Insureds. After the death of the first Insured, the
surviving Insured will be the Owner, unless a different Owner is named in the
applications. While both or one of the Insureds is living, the Owner is entitled
to exercise any right and privilege granted by this Policy or by us. These
rights end at the death of the last surviving Insured. If both or one of the
Insureds 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 both or
one of the Insureds 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 named in the Applications, unless later changed.
When a Beneficiary is designated, any relationship shown is to the Insureds,
unless otherwise stated. If two or more persons are named, those surviving both
Insureds will share the Insurance Proceeds equally, unless otherwise stated. The
interest of any beneficiary who dies before the last surviving Insured will vest
in you, unless otherwise provided. If none of the persons named as Beneficiary
survive both Insureds, we will pay the Insurance Proceeds in one sum to the
estate of the last surviving Insured to die.
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, contracts or engagements of any Beneficiary nor to any judicial
process to levy upon or attach the same for payment of such debts.
Form PLC134
Page 9
<PAGE> 12
CHANGES. While either Insured is living, you may change the Owner or Beneficiary
by written notice in a form satisfactory to us. The change will take effect as
of the date you sign the notice, even if an Insured or an Owner dies before we
receive it, 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
Center. Your rights and those of any other person referred to in this Policy
will be subject to the assignment. All assignments are subject to any
indebtedness on the Policy. 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 both Insureds die while this Policy is in force, we will pay the Insurance
Proceeds to the Beneficiary when we receive: (1) proof that both Insureds 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 as of the date of the
death of the last surviving Insured.
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 of
the last surviving Insured (see Table of Percentages, below). Under this Option,
the amount of the death benefit is fixed, unless it is determined by such a
percentage. If Option A is in effect when a partial withdrawal is made and the
Face Amount is reduced, no Surrender Charge will be applicable.
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 of the last
surviving Insured, or a percentage of the Policy Account Value on the date of
death of the last surviving Insured (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.
<TABLE>
Attained Age of
Younger Insured Percentage
- --------------- ----------
<S> <C>
0 through 40 250%
45 215%
50 185%
55 150%
60 130%
65 120%
70 115%
75 through 90 105%
95 through 99 100%
</TABLE>
AMOUNT OF INSURANCE PROCEEDS. The Insurance Proceeds will be determined as of
the date of death of the last surviving Insured 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 last surviving Insured
occurs during the Grace Period.
PAYMENT OF INSURANCE PROCEEDS. At the death of the last surviving Insured 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 of the last surviving Insured 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.
Form PLC134
Page 10
<PAGE> 13
CHANGING THE DEATH BENEFIT OPTION OR DECREASING THE FACE AMOUNT. 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 decrease the Face Amount. Any change will be effective
as of the Policy Processing Day that coincides with or next follows the date we
approve your written request. 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.
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 for such changes.
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. if the decrease is made during the first 15 Policy Years, we will deduct a
pro rata share of any applicable surrender charges from the Policy Account
Value.
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
Insureds stay the same as described in the applications 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 both Insureds' insurability satisfactory to us.
Page 11
Form PLC134
<PAGE> 14
GRACE PERIOD. During the first four 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 partial withdrawals and outstanding loans does not equal
or exceed the Minimum Guarantee Premium, the Grace Period described below will
begin. After the first four 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 four 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. If the last
surviving 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 either Insured is alive if you:
1. apply for reinstatement within three years after the end of the Grace
Period;
2. provide evidence of the insurability satisfactory to us for both Insureds;
or evidence for the last surviving Insured and due proof that the first
death occurred before the date of lapse; 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;
2. Percent of Premium Charge; and
3. Federal Tax 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, realized or unrealized, 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 Separate Account has Subaccounts, the assets of which are used to
purchase shares of a designated corresponding mutual fund portfolio. The
Subaccounts are listed in the Policy Schedule.
Page 12
Form PLC134
<PAGE> 15
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, and to substitute shares or units of another portfolio, or another
fund, if the shares or units of the portfolio are no longer available for
investments, or if in our judgment further investment in the portfolio 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 refer to the Subaccount or Separate Account to which the assets were
transferred.
The 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 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 policyowners 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.
Page 13
Form PLC134
<PAGE> 16
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 four 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 transfer of the entire Policy Account Value in the
Subaccounts to the Guaranteed Account. This request will not count toward the
four 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 or
Nonsmoker Mortality Table for the Sex and Premium Class of each 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 a
Subaccount's portfolio of securities to materially affect the value of that
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.
Page 14
Form PLC134
<PAGE> 17
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), and 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 .90% per year (.002465753% for each day in
the Valuation Period) for mortality and expense risks.
We will value the assets in the Subaccount at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
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.
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.
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).
Page 15
Form PLC134
<PAGE> 18
The cost of insurance rates are based on each Insured's Issue Age, Sex and
Premium Class and the Policy's duration. 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.
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 15 Policy Years 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 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 either Insured is living. The Net Cash Surrender Value of this Policy at
any time is equal to the Policy Account Value on such date less any Surrender
Charge, and 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 15 Policy Years, or if this Policy lapses during the first 15
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 Face Amount during any of the first 15
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 Face Amount divided by the 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.
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.
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.
Page 16
Form PLC134
<PAGE> 19
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 unloaned Policy Account Value.
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 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
either 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.
Form PLC134
Page 17
<PAGE> 20
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 I - 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 - INSTALMENTS OF A SPECIFIED AMOUNT. We will pay the proceeds in equal
instalments 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 instalments. until the proceeds and interest are exhausted.
The last instalment will be for the balance only of the proceeds and interest.
OPTION 3 - INSTALMENTS FOR A SPECIFIED PERIOD. We will pay the proceeds in the
number of equal monthly instalments certain set forth in the election. We will
base the amount of each instalment on the Option 3 table. If so elected, the
instalments may be paid at 12, 6 or 3 month intervals. The amount of each
instalment in such case will be the product of the monthly instalment and the
factor shown in the table below:
<TABLE>
<CAPTION>
FACTOR APPLIED TO
INTERVAL IN MONTHS MONTHLY INSTALMENT
- ------------------ ------------------
<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
instalments during the payee's life. We will pay the instalments, as elected,
either without instalments certain or with instalments certain for 120 months,
for 240 months, or until the proceeds are refunded.
"Until the proceeds are refunded" means until the sum of the instalments paid
by us equals the amount of proceeds settled under this Option. We will base the
amount of each instalment on the Option 4 table.
OPTION 5 - JOINT AND SURVIVOR LIFE INCOME. We will use the proceeds to provide
equal monthly instalments, with a number of instalments certain, during the
joint lives of the payee and one other person and during the life of the
survivor.
We will pay the instalments certain for either 120 or 240 months, as elected.
We will base the amount of each instalment 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 instalments 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 instalments
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 instalments
other than instalments 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 instalments certain under Option 3, 4 or 5.
Form PLC134
Page 18
<PAGE> 21
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> 22
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 egos 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 3.86 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> 23
ENDORSEMENTS
(Only We Can Endorse This Policy)
A GUIDE TO THE PROVISIONS OF THIS POLICY
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
Allocation Options ................. 6 Policy Description ............... 2
Calculation of Values .............. 14-16 Policy Loan Provisions ........... 17
Death Benefit Provisions ........... 10-11 Policy Owner and Beneficiary
Definitions ........................ 7 Provisions ..................... 9-10
Endorsements ....................... 21 Policy Schedule .................. 3-5
General Provisions ................. 7-9 Premium Expense Charge ........... 12
Payment Options .................... 18 Premium Payment Provisions ....... 11-12
Policy Account Value: Allocations The Separate Account ............. 12-13
and Transfers .................... 13-14 Surrenders and Withdrawals ....... 16
</TABLE>
Page 21
Form PLC134
<PAGE> 24
VARIABLE LIFE
Flexible Premium Adjustable Survivorship Variable Life Insurance Policy.
Insurance Proceeds payable upon death of the last surviving Insured
before Final Policy Date. Policy Account Value payable on Final Policy
Date. 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 LOGO]
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A Stock Life Insurance Company
300 Continental Drive, Newark, Delaware 19713
Form PLC134
<PAGE> 25
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
NEWARK, DELAWARE
INSURED 1 JOHN DOE 35, MALE ISSUE AGE/SEX
INSURED 2 JANE DOE 35, FEMALE ISSUE AGE/SEX
POLICY NUMBER 9,000,000 01/01/1996 POLICY ISSUE DATE
FACE AMOUNT $100,000.00 01/01/1996 POLICY DATE
DEATH BENEFIT OPTION A
Providentmutual Life and Annuity Company of America agrees:
- To pay the Beneficiary of this Policy the Insurance Proceeds upon
receipt of due proof of the death of both Insureds;
- To provide you (the Policy Owner) with the other rights and benefits
under this Policy.
These agreements are subject to the provisions of this Policy. The Policy does
not pay a benefit upon the death of the first of the Insureds to die, but only
upon the death of the last surviving Insured.
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE INSURANCE COVERAGE, OR
BOTH, MAY BE VARIABLE OR FIXED, AS DESCRIBED ON PAGE 10.
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. THE INVESTMENT OPTIONS FOR THIS POLICY ARE
DESCRIBED ON PAGE 6. 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 copies of
the Applications are included in this Policy after page 20.
This is a legal contract between the Owner and
Providentmutual Life and Annuity Company of America.
READ THIS POLICY CAREFULLY
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 TO OUR SERVICE CENTER AT 300 CONTINENTAL DRIVE, NEWARK, DELAWARE, OR MAIL
IT TO 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 THE PREMIUMS YOU PAID UNDER THIS POLICY.
Attest /s/ Illegible
President
Registrar
VARIABLE LIFE
Flexible Premium Adjustable Survivorship Variable Life Insurance Policy.
Insurance Proceeds payable upon death of the last surviving Insured before
Final Policy Date. Policy Account Value payable on Final Policy Date. 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 1-800-262-9273.
[PROVIDENTMUTUAL LOGO] [PROVIDENTMUTUAL LOGO]
Form PLC134A 11.96
<PAGE> 1
EXHIBIT 1(A5)(b)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
RIDER
4 YEAR SURVIVORSHIP TERM LIFE INSURANCE
POLICY NUMBER RIDER ISSUE DATE
This Rider is attached to and made part of this Policy.
The Company will pay the Beneficiary the Rider Death Benefit upon receipt
of due proof of both Insureds' death on or before the Expiry Date of this Rider,
subject to the terms and conditions set forth below. Unless otherwise provided,
the Owner and Beneficiary of this Rider are the same as the Owner and
Beneficiary of the Policy to which this Rider is attached.
RIDER DEATH BENEFIT. The death benefit of this Rider is an amount equal to 1.25
multiplied by the Face Amount of the Policy, as shown in the Policy Schedule.
EXPIRY DATE. The Expiry Date of this Rider is the end of the fourth Policy Year.
COST. The cost of insurance for this Rider is included in the monthly deductions
for the Policy to which this Rider is attached. It is determined by multiplying
the monthly cost of insurance rate divided by 1,000 by the Rider Death Benefit.
The monthly deduction for this Rider will cease upon the termination of this
Rider.
The monthly cost of insurance rate is based on each Insured's Sex, Issue
Age and Premium Class and the Rider's duration. Monthly cost of insurance rates
will be determined by us, based on our expectations as to future mortality costs
and expenses. Any change in cost of insurance rates will be in accordance with
the Changes In Policy Cost Factors Provision of the Policy. The cost of
insurance rates will never be greater than the Guaranteed Monthly Rider Cost Per
$1,000 of Insurance Amount shown in the Policy Schedule.
CHANGE IN RIDER DEATH BENEFIT. After the first Policy Year, the amount of this
Rider may decrease if the Face Amount of the Policy is decreased. The death
benefit of the Rider will always equal 1.25 multiplied by the Face Amount shown
in the Policy Schedule.
TERMINATION. This Rider will terminate:
1. upon written request;
2. on its Expiry Date or the prior surrender or other termination of the
Policy to which it is attached; or
3. upon exercise of the Policy Split Option Rider, if included with the
Policy to which this Rider is attached.
Attached by Providentmutual Life and Annuity Company of America on the issue
date of this Rider.
/s/ illegible
President
Form PLC309 (11.96)
<PAGE> 1
EXHIBIT 1(A5)(c)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
RIDER
GUARANTEED MINIMUM DEATH BENEFIT
POLICY NUMBER RIDER ISSUE DATE
This Rider is attached to and made part of this Policy.
If during the term of this Rider, the Net Cash Surrender Value of the
Policy to which it is attached is not sufficient to cover the monthly
deductions, we will determine if the Minimum Guarantee Premium has been paid. If
the Minimum Guarantee Premium has been paid while this Rider is in effect, the
Policy will not go into the Grace Period as described in the Policy. If the
Minimum Guarantee Premium has not been paid while this Rider is in effect, the
Grace Period will begin.
To determine whether the Minimum Guarantee Premium has been paid, the sum
of the premiums paid into the Policy less any partial withdrawals and
outstanding loans must equal or exceed the Minimum Guarantee Premium.
DEATH BENEFIT GUARANTEE PERIOD. This Rider is in effect until the Policy
Anniversary nearest the Older Insured's Attained Age 70 or 10 years after the
Policy Date as shown on page 3 of the Policy Schedule, whichever is later.
COST. The cost of this Rider is $0.01 per $1,000 of Face Amount of the Policy to
which this Rider is attached. This amount will be included in the monthly
deductions for this Policy. The monthly deduction for this Rider will cease upon
the termination of this Rider.
TERMINATION. This Rider will terminate:
1. upon written request;
2. upon surrender or other termination of the Policy to which it is
attached;
3. at the Policy Anniversary nearest the Older Insured's Attained Age 70
or 10 years after the Policy Date as shown on page 3 of the Policy
Schedule, whichever is later; or
4. if the Death Benefit Option of the Policy is changed to Option B.
Attached by Providentmutual Life Insurance Company of America on the issue date
of this Rider.
/s/ Illegible
President
(11.96)
Form PLC320
<PAGE> 1
EXHIBIT 1(A5)(d)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
RIDER
POLICY SPLIT OPTION
INSUREDS POLICY NUMBER
RIDER EFFECTIVE DATE RIDER ISSUE DATE
----------------------------------
PLEASE READ THIS RIDER CAREFULLY
----------------------------------
DESCRIPTION While this Rider is in effect, this Policy may be split into
OF BENEFIT two individual whole life insurance policies, one on each of
the above Insureds, upon the occurrence of one of the
following:
1. if a final divorce decree with respect to
the marriage of the Insureds is issued by a
court in the United States;
2. if the Federal Estate Tax law is changed
resulting in removal of the unlimited
marital deduction or reduction of at least
50% in the estate taxes payable on death.
Evidence of insurability will be required on both Insureds to
exercise this option. We must receive Written Request within
180 days of the date the applicable event occurs. All Owners
must agree to the split. The portion of this Policy
attributable to an Owner not choosing to exercise this option
or where satisfactory evidence of insurability is not provided
with respect to one of the Insureds, may be surrendered for
one-half of the Net Cash Surrender Value.
EFFECTIVE DATE The Effective Date of the split will be the Policy Processing
Day following the later of the date Written Request is
received at our Service Center or the date we approve
satisfactory evidence of insurability for both Insureds.
NEW POLICIES Each of the new policies will be a permanent participating
fixed-benefit policy which is available on the Effective Date
of the split. The Policy Date of the new policies will be the
Effective Date of the split. The new policies will not provide
any insurance until this Policy terminates.
PERCENTAGE This Policy will be split on a 50/50 basis into two individual
OF THE SPLIT policies.
FACE AMOUNT OF The Face Amount of the new policy will be determined such that
NOW POLICIES the initial death benefit (excluding paid-up additions) is at
least one-half of the Face Amount of this Policy. The minimum
Face Amount of the new policies will be based on our minimum
limit for such policies on the Effective Date of the split.
FREE-LOOK If you return either of the new policies under the free-look
PROVISION FOR provision, we will refund an amount equal to one-half of the
NEW POLICIES Net Cash Surrender Value of this Policy plus all additional
premiums paid for the new policy.
(continued on reverse side)
Form PLC615
<PAGE> 2
POLICY ACCOUNT One-half of the Policy Account Value less one-half of any
VALUE policy loan including accrued interest, determined as of the
Effective Date of the split, will be applied to pay the
initial premium of each new policy. Any excess amount (any
value remaining after the initial premium is paid) will be
applied to purchase paid-up insurance under the provisions of
the new policy or rider attached to such policy.
LOANS Any debt existing prior to the Effective Date of the split
will no longer exist. Any assignment of this Policy will apply
to each new policy.
RIDERS Riders attached to this Policy will terminate on the Effective
Date of the split. Riders may be added to the new policies,
subject to our normal requirements and restrictions for such
benefits.
NEW POLICY The premiums for each new policy will be based on each
PREMIUMS Insured's Age and Premium Class as of the Policy Date of the
new policy. Premiums will become payable as of the Effective
Date of the split.
PREMIUM There is no cost for this rider.
FOR RIDER
SUICIDE The Suicide Exclusion and Incontestability provisions of this
EXCLUSION & Policy apply to this Rider. In applying these provisions to
INCONTESTABILITY this Rider, Date of Issue means the Rider Issue Date.
TERMINATION This Rider terminates on the earliest of:
1. the Policy Processing Day on or following
the date your Written Request to split the
policy under this Rider is received;
2. the date of death of the first Insured to
die under this Policy;
3. the date we receive Written Request to
cancel this Rider;
4. the Policy Anniversary when the older
Insured reaches Attained Age 81; or
5. the date this Policy is surrendered for
cash.
Attached by Providentmutual Life and Annuity Company of America on the Rider
Issue Date.
/s/ Robert W. Kloss
President
Form PLC615
<PAGE> 1
EXHIBIT 1(A5)(f)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
RIDER
CHANGE OF INSURED
INSUREDS POLICY NUMBER
RIDER EFFECTIVE DATE RIDER ISSUE DATE
----------------------------------
PLEASE READ THIS RIDER CAREFULLY
----------------------------------
This Rider is attached to and is a part of this Policy.
While this Rider is in effect, you may change one of the Insureds under
this policy for a New Insured so that the Policy will provide coverage on the
lives of the New Insured and the Remaining Insured.
CONDITIONS FOR CHANGE. You may change one of the Insureds for a New Insured:
(a) upon written request; and
(b) by meeting any other terms and conditions set by us, including the
following:
1. on the Date of Change, the New Insured's age may not be more than
75;
2. the New Insured must have been at least age 21 on or before the
Policy Date of the Policy to which this Rider is attached;
3. the New Insured must provide evidence of insurability
satisfactory to us;
4. you must have an insurable interest in the life of the New
lnsured;
5. both the Owner and the New Insured must sign the written request.
DATE OF CHANGE. The Date of Change will be the Policy Processing Day following
the later of:
(a) the date set forth in your written request for the change; or
(b) the date we determine that the New Insured is insurable.
TERMS OF POLICY AFTER CHANGE. This Policy will cover the New Insured and the
Remaining Insured starting on the Date of Change. When coverage of the New and
the Remaining Insureds begins, coverage on the prior Insureds will end.
The Contestable and Suicide periods for the New Insured will start on the
Date of Change. With respect to the New Insured, in the event of a contest or
suicide within two years of the Date of Change, our payment will be limited to
the Net Cash Surrender Value of this Policy as of the date of death of the last
surviving Insured plus any deductions for the Premium Expense Charge and Monthly
Deductions since the Date of Change.
The Face Amount of Insurance will be the same as that on the prior
Insureds. The monthly deduction for cost of insurance and any other benefits
provided by rider will be based on the Issue Ages, sexes, and Premium Classes of
the New Insured and the Remaining Insured. The Issue Age of the New Insured is
his or her age as of the Policy Date of this Policy. There is no adjustment to
the Policy Account Value on the Date of Change.
Any policy loans or assignment will remain in effect after the change. The
Policy Account Value and the Net Cash Surrender Value on the Date of Change are
not changed except for the change in the monthly deductions noted above.
Signed for the Company on the Rider Issue Date.
/s/ Robert W. Kloss
President
Form PLC905
<PAGE> 1
EXHIBIT 1(A5)(g)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
RIDER
DISABILITY WAIVER BENEFIT
INSURED POLICY NUMBER
RIDER EFFECTIVE DATE RIDER ISSUE DATE
This Rider is attached to and is a part of this Policy.
WAIVER OF PREMIUM BENEFIT. Upon receipt of due proof that:
a. the Insured is totally disabled, as defined below;
b. such total disability begins while this rider is in effect; and
c. such total disability has continued without pause for a period of
six months,
we will apply a premium payment to the Policy on each Policy Processing Day
during the first four Policy Years, while the Insured is totally disabled,
subject to provisions of this Policy. For each Policy Processing Day that occurs
while the Insured is totally disabled but before we approve a claim, we will
apply a premium payment to the Policy on the date we approve the claim. Each
premium payment will equal the Minimum Annual Premium divided by 12.
WAIVER OF MONTHLY DEDUCTIONS BENEFIT. Upon receipt of due proof that:
a. the Insured is totally disabled, as defined below;
b. such total disability begins while this rider is in effect; and
c. such total disability has continued without pause for a period of
six months,
we will waive monthly deductions falling due after the first four Policy Years
while the Insured is totally disabled, subject to the provisions of this Policy.
Except for monthly deductions made one year or more before we receive written
notice and proof of a claim, monthly deductions which are made after the first
four Policy Years while the Insured is totally disabled but before we approve a
claim, will be added back to the Policy Account Value. The amount will be
allocated to the Separate Accounts and Guaranteed Account in the same proportion
as it was deducted from such Accounts.
DEFINITION OF TOTAL DISABILITY.
l. TOTAL DISABILITY. Total Disability is a disability which:
a. is caused by sickness or bodily injury; and
b. prevents the Insured from engaging in an occupation. During the
first 5 years of total disability, "occupation" means the regular
occupation of the Insured at the time the disability started.
However, the Insured will not be deemed totally disabled if,
during this 5-year period, he or she is engaged in any gainful
occupation for which he or she is qualified. After the first 5
years of total disability, "occupation" means any gainful
occupation for which the Insured is qualified.
As used in this rider the word "qualified" means qualified by education,
training and experience. "Disability" means the inability of the Insured to
engage in his or her regular occupation or any gainful occupation for which he
or she is qualified.
2. RECURRENT TOTAL DISABILITY. If, after a total disability has stopped,
a total disability due to the same or a related cause recurs, it will
be deemed a continuation of the prior period of total disability,
except that: if the Insured has engaged in the meantime, for at least
6 months without pause, in any gainful occupation for which he or she
is qualified, such recurrence will be deemed a new period of total
disability.
3. PRESUMPTIVE TOTAL DISABILITY. Total disability also means the total
and irrecoverable loss of:
a. the sight of both eyes;
b. the use, of both hands;
c. the use of both feet; or
d. the use of one hand and one foot.
(continued on reverse side)
Form PLC907
<PAGE> 2
NOTICE AND PROOF OF TOTAL DISABILITY. Written notice and due proof of total
disability must be given to us at our Service Center while the Insured is living
and totally disabled. Failure to give such notice and proof will not void the
claim if it is shown that they were given as soon as was reasonably possible.
We may ask for proof of continued total disability from time to time. Such
proof will not be required more than once a year after total disability has
continued for two full years. As part of any such proof, we may require medical
examinations of the Insured by physicians named by us.
EXCLUSIONS FROM COVERAGE. We will not waive monthly deductions if the total
disability was the result of:
1. intentional, self-inflicted injury while sane or insane;
2. bodily injury occurring or sickness first manifesting itself before
this rider took effect unless such injury or sickness was shown in the
application for this rider; or
3. service in the military, naval or air forces of any country engaged in
war. "War" means declared or undeclared war and any act incidental to
war and includes resistance to armed aggression.
COST OF RIDER. The cost of this rider is determined on each Policy Processing
Day by multiplying the Rate Factor for the Insured's Attained Age by the net
amount at risk divided by 1,000.
If the Insured is in a Special Premium Class, the rate factor shown below
will be multiplied by the Risk Factor.
<TABLE>
<CAPTION>
Attained Age Rate Factor
------------ -----------
<S> <C>
15-45 .01
46-48 .02
49-50 .03
51 .04
52 .05
53 .07
54 .09
55 .13
56 .18
57 .24
58 .32
59 .44
</TABLE>
TERMINATION. This rider will automatically terminate:
1. on the date of surrender or other termination of this Policy;
2. on the first Policy Processing Day after we receive your written
request for termination of this rider;
3. at Insured's Attained Age 60, except for benefits for a disability
which began before that Policy Anniversary.
No monthly deduction for the cost of this rider will be made after
termination.
INCONTESTABILITY. The Company will not contest this rider after it has been in
force during the Insured's lifetime without the occurence of total disability
for two years from the Rider Issue Date.
Signed for the Company on the Rider Issue Date.
/s/ Illegible
President
Form PLC907
<PAGE> 1
(EXHIBIT 3.A)
April 30, 1998
Provident Mutual
1050 Westlakes Dr.
Berwyn, PA 19312
Re: Providentmutual Life and Annuity Company of America
Providentmutual Variable Life Separate Account
(File No. 333-10321
Gentlemen:
I hereby consent to the reference to my name under the caption "Legal Matters"
in the Prospectus filed as part of the Post-Effective Amendment No. 2 to the
Registration Statement on Form S-6 (File No. 333-10321) for the Providentmutual
Variable Life Separate Account.
Sincerely,
Adam Scaramella
<PAGE> 1
(EXHIBIT 6)
April 30, 1998
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, DE 19713
Gentlemen:
I hereby consent to the reference to my name under the caption "Experts" in the
Prospectus filed as part of the Post-Effective Amendment No. 2 of the
Registration Statement on Form S-6 (File No. 333-10321) for the Providentmutual
Variable Life Separate Account.
Sincerely,
Scott V. Carney, FSA, MAAA
Actuary
<PAGE> 1
(EXHIBIT 7.A)
[SUTHERLAND, ASBILL & BRENNAN, L.L.P. LETTERHEAD]
ATLANTA * AUSTIN * NEW YORK * WASHINGTON
1275 PENNSYLVANIA AVENUE, N.W. TEL: (202) 383-0100
WASHINGTON, D.C. 20004-2404 FAX: (202) 637-3593
April 29, 1998
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, DE 19713
RE: PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT
(FILE NO. 333-10321)
---------------------------------------------------------
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of post-effective amendment number 2
to the Form S-6 registration statement (File No. 333-10321) for the
Providentmutual Variable Life Separate Account. In giving this consent, we do
not admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: /s/ STEPHEN E. ROTH
------------------------
Stephen E. Roth
<PAGE> 1
(EXHIBIT 7.B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Post-Effective Amendment
No. 2 to the Registration Statement under the Securities Act of 1933, as
amended, filed on Form S-6 (File No. 333-10321) for the Providentmutual
Variable Life Separate Account, of the following reports:
1. Our report dated February 4, 1998 on our audits of the
financial statements of Providentmutual Life and Annuity Company
of America as of December 31, 1997 and 1996 and for each of the
three years in the period ended December 31, 1997.
2. Our report dated March 4, 1998 on our audits of the
financial statements of the Providentmutual Variable Life
Separate Account (comprising twenty-two subaccounts) as of
December 31, 1997 and for the year ended December 31, 1997 and
for the period February 1, 1995 (date of inception) to December
31, 1995.
We also consent to the reference to our Firm under the caption
"Experts".
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 30, 1998
