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PROSPECTUS
FOR
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
VARIABLE LIFE INSURANCE
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
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PROSPECTUS
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
SERVICE CENTER: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19173
CORPORATE HEADQUARTERS: 1050 WESTLAKES DRIVE, BERWYN, PENNSYLVANIA 19312
TELEPHONE: (302) 452-4000
This Prospectus describes a flexible premium adjustable 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 purpose of the Policy is to provide
insurance coverage until the younger Insured's Attained Age 100. The Policy
gives the policyowner (the "Owner") the right to vary the frequency and amount
of premium payments, to choose among investment alternatives with different
investment objectives and to decrease the death benefit payable under the
Policy.
After certain deductions are made, Net Premiums are allocated to one or
more Subaccounts of the Providentmutual Variable Life Separate Account, or the
Guaranteed Account, or both. The Providentmutual Variable Life Separate Account
has twenty-five Subaccounts. The Subaccounts, invest in shares of a
corresponding investment Portfolio that is part of one of the following mutual
fund companies:
<TABLE>
<S> <C> <C>
- ------------------------------------------ ------------------------------------------
THE MARKET STREET FUND, INC. VARIABLE INSURANCE
- ------------------------------------------ PRODUCTS FUND
- Aggressive Growth Portfolio ------------------------------------------
- All-Pro Large Cap Growth Portfolio - Equity-Income Portfolio
- All-Pro Large Cap Value Portfolio - Growth Portfolio
- All-Pro Small Cap Growth Portfolio - High Income Portfolio
- All-Pro Small Cap Value Portfolio - Overseas Portfolio
- Bond Portfolio
- Growth Portfolio ------------------------------------------
- International Portfolio
- Managed Portfolio ------------------------------------------
- Money Market Portfolio VARIABLE INSURANCE
- ------------------------------------------ PRODUCT FUND II
------------------------------------------
- ------------------------------------------ - Asset Manager Portfolio
THE ALGER AMERICAN FUND - Contrafund Portfolio
- ------------------------------------------ - Index 500 Portfolio
- Small Capitalization Portfolio - Investment Grade Bond Portfolio
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
NEUBERGER BERMAN VAN ECK WORLDWIDE INSURANCE TRUST
ADVISERS MANAGEMENT TRUST ------------------------------------------
- ------------------------------------------ - Worldwide Bond Portfolio
- Limited Maturity Bond Portfolio - Worldwide Emerging Markets Portfolio
- Partners Portfolio - Worldwide Hard Assets Portfolio
- ------------------------------------------ - Worldwide Real Estate Portfolio
------------------------------------------
</TABLE>
The Owner bears the entire investment risk for all amounts allocated to the
Subaccounts; there is no guaranteed minimum value for the Subaccounts.
The accompanying prospectuses for the funds describe the investment
objectives and the attendant risks of the Portfolios. The Policy Account Value
will reflect monthly deductions and certain other fees and charges. Also, a
surrender charge may be imposed if, during the first 15 Policy Years, the Policy
lapses or if the Owner decreases the Face Amount. Generally, during the first
five Policy Years, the Policy will remain in force as long as the Minimum
Guarantee Premium is paid or there is sufficient value in the Policy to pay
certain monthly charges imposed under the Policy. After the fifth Policy Year,
the Policy will only remain in force if there is sufficient value to pay the
monthly deductions and other charges under the Policy.
This Prospectus must be accompanied or preceded by current prospectuses for
the funds. Please read this Prospectus carefully and retain it for future
reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
November 12, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY OF THE POLICY
The Policy................................................ 3
Purpose of the Policy..................................... 3
Availability of the Policy................................ 4
The Death Benefit......................................... 4
Flexibility to Adjust Amount of Death Benefit............. 4
Policy Account Value...................................... 4
Allocation of Net Premiums................................ 5
Transfers................................................. 5
Free-Look................................................. 5
Loan Privilege............................................ 5
Partial Withdrawal of Net Cash Surrender Value............ 6
Surrender of the Policy................................... 6
Tax Treatment............................................. 6
Illustrations............................................. 6
Charges Assessed Under the Policy......................... 7
Table of Fund Fees and Expenses............................. 9
The Company, Variable Account and Funds..................... 11
Providentmutual Life and Annuity Company of America....... 11
Providentmutual Variable Life Separate Account............ 11
The Funds................................................. 11
Market Street Fund, Inc. ................................. 12
The Alger American Fund................................... 14
Variable Insurance Product Fund and Variable Insurance
Products Fund II....................................... 14
Neuberger Berman Advisers Management Trust................ 17
Van Eck Worldwide Insurance Trust......................... 18
Additional Information About the Funds and Portfolios..... 18
Detailed Description of Policy Provisions................... 20
Death Benefit............................................. 20
Ability to Decrease Face Amount........................... 22
Insurance Protection...................................... 22
Payment and Allocation of Premiums........................ 23
Special Policy Account Value Credit....................... 25
Policy Account Value...................................... 25
Policy Duration........................................... 26
Transfers of Policy Account Value......................... 26
Free Look Privileges...................................... 27
Loan Privileges........................................... 28
Surrender Privilege....................................... 29
Partial Withdrawal Privilege.............................. 29
Charges and Deductions...................................... 31
Premium Expense Charge.................................... 31
Surrender Charges......................................... 31
Monthly Deductions........................................ 32
Partial Withdrawal Charge................................. 33
Transfer Charge........................................... 33
Mortality and Expense Risk Charge......................... 34
Other Charges............................................. 34
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
The Guaranteed Account...................................... 35
Minimum Guaranteed and Current Interest Rates............. 35
Transfers from Guaranteed Account......................... 36
Other Policy Provisions..................................... 37
Benefit Payable on Final Policy Date...................... 37
Payment of Policy Benefits................................ 37
The Policy................................................ 37
Ownership................................................. 38
Beneficiary............................................... 38
Change of Owner and Beneficiary........................... 38
Split Dollar Arrangements................................. 38
Assignments............................................... 38
Misstatement of Age and Sex............................... 39
Suicide................................................... 39
Contestability............................................ 39
Settlement Options........................................ 39
Supplementary Benefits...................................... 40
Federal Income Tax Considerations........................... 42
Introduction.............................................. 42
Tax Status of the Policy.................................. 42
Tax Treatment of Policy Benefits.......................... 42
Business Uses of the Policy............................... 44
Possible Tax Law Changes.................................. 44
PLACA's Taxes............................................. 44
Voting Rights............................................... 44
Changes to the Variable Account and the Funds............... 46
Changes to Variable Account Operations.................... 46
Changes to Available Portfolios........................... 46
Termination of Participation Agreements................... 46
Officers and Directors of PLACA............................. 49
Distribution of Policies.................................... 49
Policy Reports.............................................. 50
Preparing for Year 2000..................................... 50
State Regulation............................................ 51
Legal Proceedings........................................... 51
Experts..................................................... 51
Legal Matters............................................... 51
Definitions................................................. 52
Financial Statements........................................ F-1
Appendix A -- Illustration of Death Benefits, Policy Account
Values and Net Cash Surrender Values.......... A-1
Appendix B -- Long Term Market Trends....................... B-1
</TABLE>
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SUMMARY OF THE POLICY
The following summary of the Policy provisions should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policy in this
prospectus assumes that the Insureds are both alive, the Policy is in force and
there is no outstanding loan.
The Policy is not a deposit or obligation of any bank, and no bank endorses
or guarantees the Policy or Policy values. Neither the Federal Deposit Insurance
Corporation nor any federal agency insures or guarantees Policy values or your
investment in the Policy.
THE POLICY
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 is similar in many ways to a
fixed-benefit life insurance policy. As with a fixed-benefit life insurance
policy, the Owner of a Policy makes premium payments in return for insurance
coverage on the persons insured. Also, like many fixed-benefit life insurance
policies, the Policy provides for accumulation of Net Premiums and a Net Cash
Surrender Value which is payable if the Policy is surrendered during either
Insured's lifetime. As with many fixed-benefit life insurance policies, the Net
Cash Surrender Value during the early Policy Years is likely to be substantially
lower than the aggregate premium payments made.
However, the Policy differs from a fixed-benefit life insurance policy in
several important respects. Unlike a fixed-benefit life insurance policy, under
the Policy, the Death Benefit may and the Policy Account Value will increase or
decrease to reflect the investment performance of any Subaccounts to which
Policy Account Value is allocated. Also, unless the entire Policy Account Value
is allocated to the Guaranteed Account, there is no guaranteed minimum Net Cash
Surrender Value. If Net Cash Surrender Value is insufficient to pay charges due,
then, after a grace period, the Policy will lapse without value. (See "Policy
Duration".) However, PLACA guarantees that the Policy will remain in force
during the first five Policy Years as long as certain requirements related to
the Minimum Guarantee Premium have been met. (See "Policy Lapse.") If a Policy
lapses while loans are outstanding, certain amounts may become subject to income
tax and a 10% penalty tax. (See "Federal Income Tax Considerations.")
The Policy is called "flexible premium" because there is no fixed schedule
for premium payments, even though the Owner may establish a schedule of Planned
Periodic Premiums. The Policy is described as "adjustable" because the Owner
may, within limits, decrease the Face Amount and may change the Death Benefit
Option. The Policy is called a "survivorship" policy because it is issued on the
lives of two people and the Death Benefit proceeds are paid upon the death of
the last surviving Insured.
The most important features of the Policy, such as charges and deductions,
Death Benefits, and calculation of Policy values, are summarized on the
following pages.
PURPOSE OF THE POLICY
The Policy is designed to provide insurance benefits until the Policy
matures for the two Insureds and long-term investment of Policy Account Value. A
prospective Owner should evaluate the Policy along with other insurance coverage
that he or she may have, as well as their need for insurance and the Policy's
long-term investment potential. The Death Benefit is not payable, in whole or in
part, at the time of the first Insured's death; 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. It may not be advantageous
to replace existing insurance coverage with the Policy. In particular,
replacement should be carefully considered if the decision to replace existing
coverage is based solely on a comparison of Policy illustrations.
3
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AVAILABILITY OF THE POLICY
This Policy can be issued for two Insureds each between the ages of 21 and
85 and with a Joint Equal Age between 25 and 85. Minimum Face Amount is
$100,000. Before issuing a Policy, PLACA requires that the proposed Insureds
both meet certain underwriting standards satisfactory to PLACA.
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 additional benefits provided by a supplementary benefit rider, less any
outstanding Policy loan and accrued interest, less any unpaid Monthly
Deductions.
There are two Death Benefit Options available. Death Benefit Option A
provides Death Benefit equal to the greater of (a) the Face Amount and (b) the
specified percentage of the Policy Account Value. Death Benefit Option B
provides a Death Benefit equal to the greater of (a) the Face Amount plus the
Policy Account Value and (b) the specified percentage of the Policy Account
Value. (See "Death Benefit".)
FLEXIBILITY TO ADJUST AMOUNT OF DEATH BENEFIT
After the first Policy Year, the Owner has significant flexibility to
adjust the Death Benefit by changing the Death Benefit Option or by decreasing
the Face Amount of the Policy. (See "Death Benefit" and "Ability to Decrease
Face Amount".) The minimum amount of a requested decrease in Face Amount is
$25,000 (or such lesser amount required in a particular state) and cannot result
in a Face Amount less than the Minimum Face Amount available. PLACA reserves the
right to establish different Minimum Face Amounts for Policies issued in the
future.
Any change in Death Benefit Options or in the Face Amount may affect the
charges under the Policy. For any decrease in Face Amount, that part of the
surrender charges attributable to the decrease will reduce the Policy Account
Value, and the remaining surrender charges will be reduced by this amount. A
decrease in Face Amount may also affect cost of insurance charges. (See "Monthly
Deductions".)
To the extent that a requested decrease in Face Amount would result in
cumulative premiums exceeding the maximum premium limitations applicable under
the Internal Revenue Code of 1986 (the "Code") for life insurance, PLACA will
not effect the decrease.
POLICY ACCOUNT VALUE
The Policy Account Value in the Subaccounts reflects the investment
performance of those Subaccounts, any Net Premiums allocated to those
Subaccounts, any transfers to or from those Subaccounts, any partial withdrawals
from those Subaccounts, any loans, any loan repayments, any loan interest paid
or credited and any charges assessed in connection with the Policy. The Owner
bears the entire investment risk for amounts allocated to the Subaccounts.
The Guaranteed Account earns interest at rates PLACA declares in advance
for specific periods. The rates are guaranteed to equal or exceed 4%. The
principal, after deductions, is also guaranteed. The value of the Guaranteed
Account will reflect any amounts allocated or transferred to it plus interest
credited to it, less amounts deducted, transferred or withdrawn from it. (See
"The Guaranteed Account".)
The Loan Account will reflect any amounts transferred from the Subaccounts
and/or Guaranteed Account as collateral for Policy loans plus interest of at
least 4% credited to such amount. (See "Loan Privileges".)
4
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ALLOCATION OF NET PREMIUMS
After deduction of the Premium Expense Charge, Net Premiums are allocated
to one or more of the Subaccounts and/or the Guaranteed Account as selected by
the Owner in the application or by subsequent written notice. The Owner bears
the entire risk of Policy Account Value in the Subaccounts.
Providentmutual Variable Life Separate Account consists of twenty-five
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; 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.
Where state law requires a return of premiums paid when a Policy is
returned under the Free-Look provision, any portion of any Net Premiums received
before the expiration of a 15-day period beginning on the later of the Policy
Issue Date or the date PLACA receives the Minimum Initial Premium, which are to
be allocated to the Subaccounts are allocated to the Money Market Subaccount. At
the end of the 15-day period, Policy Account Value in the Money Market
Subaccount is allocated to each of the chosen Subaccounts as indicated in the
application. (See "Payment and Allocation of Premiums".)
TRANSFERS
The Owner may transfer Policy Account Value between and among the
Subaccounts and Guaranteed Account. Transfers between and among the Subaccounts
or into the Guaranteed Account are made as of the date PLACA receives the
request. PLACA requires a minimum amount for each such transfer, usually $1,000.
Transfers out of the Guaranteed Account may only be made within 30 days of a
Policy Anniversary and are limited in amount. (See "Transfers of Policy Account
Value".)
FREE-LOOK
The Policy provides for an initial Free-Look period. The Owner may cancel
the Policy before the 10 days after the Owner receives the Policy. Upon
returning the Policy to PLACA or to an agent of PLACA within such time with a
written request for cancellation, the Owner will receive a refund equal to the
sum of: (i) the Policy Account Value as of the date PLACA receives the returned
Policy; (ii) the amount deducted for premium taxes; (iii) any Monthly Deductions
charged against the Policy Account Value; and (iv) an amount reflecting other
charges directly or indirectly deducted under the Policy. Where state law
requires, the refund will instead equal the premiums paid. (See "Free-Look
Privileges".)
LOAN PRIVILEGE
The Owner may obtain Policy loans in a minimum amount of $500 (or such
lesser minimum as may be required in a particular state) but not exceeding, in
the aggregate, the Net Cash Surrender Value. Policy loans will bear interest at
a fixed rate of 6% per year, payable at the end of each Policy Year. If interest
is not paid when due, it will be added to the outstanding loan balance. Policy
loans may be repaid at any time and in any amount prior to the Final Policy
Date. PLACA transfers a portion of the Policy Account Value to the Loan Account
where it becomes collateral for the loan. The transfer is made pro-rata from
each Subaccount and the Guaranteed Account or as specified by the Owner when
applying for the loan. This collateral in the Loan Account earns interest at an
effective annual rate of at least 4%. (See "Loan Privileges".)
Depending upon the investment performance of the Subaccounts and the
amounts borrowed, loans may cause a Policy to lapse. Lapse of the Policy with
outstanding loans may result in adverse tax consequences including a 10% penalty
tax. (See "Tax Treatment of Policy Benefits".)
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PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After the first Policy Year, the Owner may, subject to certain
restrictions, withdraw part of Net Cash Surrender Value. The minimum amount for
such withdrawal is $1,500. An expense charge of $25 will be deducted from the
Policy Account Value for each withdrawal. The withdrawal amount and expense
charge is allocated to the Subaccounts and the Guaranteed Account based on the
proportion that the value in each account bears to the total unloaned Policy
Account Value or allocated to such Subaccounts as specified by the Owner. If
Death Benefit Option A is in effect, PLACA will reduce the Face Amount by the
amount of the withdrawal. (See "Partial Withdrawal Privilege".)
SURRENDER OF THE POLICY
The Owner may at any time surrender the Policy and receive the entire Net
Cash Surrender Value. (See "Surrender Privilege".)
TAX TREATMENT
PLACA believes that a Policy issued on a standard premium class basis
generally should meet the definition of a life insurance contract in the Code.
There is insufficient guidance to determine whether or not a Policy issued on an
extra rating (i.e., substandard) basis would satisfy the Code definition of a
life insurance contract, particularly if the Owner pays the full amount of
premiums permitted under such a Policy. An Owner of a Policy issued on an extra
rating basis may, however, adopt certain self-imposed limitations on the amount
of premiums paid for such a Policy which should cause the Policy to meet the
definition of a life insurance contract. Any Owner contemplating the adoption of
such limitations should consult a tax adviser.
Assuming that a Policy qualifies as a life insurance contract for federal
income tax purposes, a Policyowner should not be deemed to be in constructive
receipt of Policy Account Value under a Policy until there is a distribution
from the Policy. Moreover, death benefits payable under a Policy should be
completely excludable from the gross income of the Beneficiary. As a result, the
Beneficiary generally should not be taxed on these proceeds. (See "Tax Status of
the Policy".)
Under certain circumstances, a Policy may be treated as a "Modified
Endowment Contract." If the Policy is a Modified Endowment Contract, then all
pre-death distributions, including Policy loans, will be treated first as a
distribution of taxable income and then as a return of basis or investment in
the Policy. In addition, prior to age 59 1/2 any such distributions generally
will be subject to a 10% penalty tax. (For further discussion of Modified
Endowment Contracts, See "Tax Treatment of Policy Benefits".)
If the Policy is not a Modified Endowment Contract, distributions generally
will be treated first as a return of basis or investment in the contract and
then as disbursing taxable income. Moreover, loans will not be treated as
distributions. Finally, neither distributions nor loans from a Policy that is
not a Modified Endowment Contract are subject to the 10% penalty tax. (See
"Distributions from Policies Not Classified as Modified Endowment Contracts".)
ILLUSTRATIONS
Illustrations of Death Benefits, Policy Account Value and Net Cash
Surrender Value in this prospectus or used in connection with the purchase of a
Policy are based on hypothetical rates of return. These rates are not
guaranteed. They are illustrative only and should not be considered a
representation of past or future performance. Actual rates of return may be
higher or lower than those reflected in Policy illustrations, and therefore,
actual Policy values will be different from those illustrated.
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CHARGES ASSESSED UNDER THE POLICY
Premium Expense Charge. A Premium Expense Charge will be deducted from
each premium payment. This charge consists of:
1. Premium Tax Charge for state and local premium taxes based on the
rate for the 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;
2. Percent of Premium Charge equal to 6% of each premium payment in
the first 15 Policy Years and 1.5% of each premium payment thereafter.
PLACA may increase this charge to a maximum of 6% of each premium payment.
(See "Premium Expense Charge" below.)
Monthly Deductions. On the Policy Date and on each Policy Processing Date
thereafter, the Policy Account Value is reduced by a Monthly Deduction equal to
the sum of the monthly Cost of Insurance Charge, Monthly Administrative Charge
and a charge for additional benefits added by rider and, on the first 12 Policy
Processing Days, the Initial Administrative Charge. The monthly Cost of
Insurance Charge is determined by multiplying the Net Amount at Risk by the
applicable cost of insurance rate(s) in the Policy. The Monthly Administrative
Charge is currently $7.50 plus $0.01 per $1,000 of Face Amount; the maximum
permissible Monthly Administrative Charge is $12 plus $0.03 par $1,000 of Face
Amount. (See "Monthly Administrative Charge".) The Initial Administrative Charge
is $17.50 plus an amount per $1,000 of Face Amount (shown below), deducted on
the first 12 Policy Processing Days. (See "Initial Administrative Charge".)
INITIAL ADMINISTRATIVE CHARGE
$0.11 per $1,000 on the first million of face amount
$0.09 per $1,000 on the next million of face amount
$0.07 per $1,000 on the next million of face amount
$0.05 per $1,000 on the next million of face amount
$0.03 per $1,000 on the next million of face amount
0 on the excess face amount over $5 million
Surrender Charge. A Surrender Charge is imposed if the Policy is
surrendered or lapses at any time before the end of the 15th Policy Year. The
Surrender Charge consists of a Deferred Administrative Charge and a Deferred
Sales Charge. A portion of this Surrender Charge will be deducted if the Owner
decreases the Initial Face Amount before the end of the 15th Policy Year. (See
"Surrender Charges".)
The Deferred Administrative Charge is the charge described below less the
amount of any Deferred Administrative Charge previously paid at the time of a
decrease in Face Amount.
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR(S) OF FACE AMOUNT
- -------------- -----------------
<S> <C>
1-11......................................... $5.00
12........................................... $4.00
13........................................... $3.00
14........................................... $2.00
15........................................... $1.00
16+.......................................... $ 0
</TABLE>
The Deferred Sales Charge is equal to 30% of all premiums paid to the date
of surrender, lapse or decrease. The Deferred Sales Charge, however, will not
exceed the Maximum Deferred Sales Charge and Maximum Additional Deferred Sales
Charges, respectively. During Policy Years one through 11, this maximum equals a
percentage of the Target Premium for the Initial Face Amount (shown below). The
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maximum declines to 80% of the relevant Target Premium during year 12, 60%
during year 13, 40% during year 14, 20% during year 15, and 0% during years 16
and later.
<TABLE>
<CAPTION>
JOINT MAXIMUM DEFERRED SALES CHARGE
EQUAL AGE (% OF TARGET PREMIUM)
--------- -----------------------------
<S> <C>
25-71.................................... 60%
72-73.................................... 50
74-75.................................... 40
76-78.................................... 30
79-83.................................... 20
84-85.................................... 10
</TABLE>
Transfer Charge. For each transfer of Policy Account Value between or
among the Subaccounts and the Guaranteed Account after the twelfth transfer in a
Policy Year, PLACA deducts $25 from the amount transferred to compensate it for
administrative costs in handling such transfers. (See "Transfer Charge" below.)
Partial Withdrawal Charge. PLACA deducts a $25 charge from Policy Account
Value with each partial withdrawal to compensate it for administrative costs.
(See "Partial Withdrawal Charge" below.)
Daily Charges Against the Subaccounts. PLACA imposes a daily charge for
its assumption of certain mortality and expense risks in connection with the
Policy at an annual rate which is currently 0.75% of the average daily net
assets of the Separate Account. This charge may be increased in the future but
it will not it exceed an annual rate of 0.90%. (See "Mortality and Expense Risk
Charges".)
Investment Advisory Fees and Other Expenses of the Funds. Shares of the
Portfolios are purchased by the Subaccounts at net asset value. This net asset
value reflects the deduction of management fees and expenses associated with
management and administration of the Portfolios. (See "Table of Fund Fees and
Expenses" below).
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TABLE OF FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
MARKET STREET FUND, INC. ANNUAL EXPENSES GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- -------------- --------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ 0.32% 0.25% 0.35% 0.40% 0.41% 0.75%
Other Expenses..................... 0.15% 0.17% 0.20% 0.18% 0.21% 0.25%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses......... 0.47% 0.42% 0.55% 0.58% 0.62% 1.00%
ALL-PRO ALL-PRO ALL-PRO ALL-PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MARKET STREET FUND, INC. ANNUAL EXPENSES GROWTH VALUE GROWTH VALUE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.70% 0.70% 0.90% 0.90%
Other Expenses (after reimbursement)... 0.22% 0.27% 0.35% 0.39%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 0.92% 0.97% 1.25% 1.29%
THE ALGER AMERICAN FUND ANNUAL SMALL
EXPENSES(2) CAPITALIZATION
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
------------------------------- ----
Management Fees (Investment Advisory
Fees)............................ 0.85%
Other Expenses..................... 0.04%
----
Total Fund Annual Expenses......... 0.89%
VARIABLE INSURANCE PRODUCTS FUND ("VIP HIGH EQUITY-
FUND") ANNUAL EXPENSES(2) INCOME INCOME GROWTH OVERSEAS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.58% 0.49% 0.59% 0.74%
Other Expenses (after reimbursement)... 0.12% 0.08% 0.07% 0.15%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 0.70% 0.57% 0.66% 0.89%
INVESTMENT
VARIABLE INSURANCE PRODUCTS FUND II ASSET GRADE
("VIP II FUND") ANNUAL EXPENSES(2) MANAGER CONTRAFUND INDEX 500 BOND
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.54% 0.59% 0.24% 0.43%
Other Expenses (after reimbursement)... 0.09% 0.07% 0.04% 0.14%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 0.63% 0.66% 0.28% 0.57%
LIMITED
NEUBERGER BERMAN ADVISERS MATURITY
MANAGEMENT TRUST ANNUAL EXPENSES(2) BOND PARTNERS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO
------------------------------- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.65% 0.78%
Other Expenses..................... 0.11% 0.06%
---- ----
Total Fund Annual Expenses......... 0.76% 0.84%
</TABLE>
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<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
VAN ECK WORLDWIDE INSURANCE WORLDWIDE HARD EMERGING REAL
TRUST ANNUAL EXPENSES(2) BOND ASSETS MARKET ESTATE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- -------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ 1.00% 1.00% 1.00% 1.00%
Other Expenses (after reimbursement)... 0.15% 0.16% 0.50% 0.50%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 1.15% 1.16% 1.50% 1.50%
</TABLE>
- ---------------
(1) For certain Portfolios, certain expenses were reimbursed or fees waived
during 1998. It is anticipated that expense reimbursement and fee waiver
arrangements will continue past the current year. Absent the expense
reimbursement, the 1998 Total Annual Expenses would have been 1.36%, for the
Market Street Fund All-Pro Small Cap Value Portfolio, 0.58%, for the VIP
Fund Equity-Income Portfolio, 0.68%, for the VIP Fund Growth Portfolio,
0.91%, for the VIP II Fund Overseas Portfolio, 0.64%, for the VIP II Fund
Asset Manager Portfolio, 0.35%, for the VIP II Fund Index 500 Portfolio,
0.70%, for the VIP II Fund Contrafund Portfolio, 1.20%, for the Van Eck
Worldwide Hard Assets Portfolio, 1.61%, for the Van Eck Worldwide Emerging
Markets Portfolio and 5.32%, for the Van Eck Worldwide Real Estate
Portfolio. Similar expense reimbursement and fee waiver arrangements were
also in place for the other Portfolios and it is anticipated that such
arrangements will continue past the current year. However, no expenses were
reimbursed or fees waived during 1998 for these Portfolios because the level
of actual expenses and fees never exceeded the thresholds at which the
reimbursement and waiver arrangements would have become operative.
(2) The fee and expense information regarding the Funds was provided by those
Funds. The Neuberger Berman Advisers Management Trust, the Alger American
Fund, the VIP Fund, the VIP II Fund, and the Van Eck WIT Fund are not
affiliated with PLACA.
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<PAGE> 13
THE COMPANY, VARIABLE ACCOUNT AND FUNDS
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
The Contracts are issued by PLACA which is a stock life insurance company
originally incorporated under the name of Washington Square Life Insurance
Company in the Commonwealth of Pennsylvania in 1958. The name of the Company was
changed to Providentmutual Life and Annuity Company of America in 1991 and the
Company was redomiciled as a Delaware insurance company on October 28, 1992.
PLACA is currently licensed to transact life insurance business in 48 states and
the District of Columbia. As of December 31, 1998, PLACA had total assets of
approximately $1.5 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 1998 had total assets of approximately $8.7 billion. On
December 31, 1997, PLACA and PMLIC entered into a Support Agreement whereby
PMLIC agrees to maintain PLACA's total adjusted capital at the level of 200% of
the "company action level" for risk-based capital at the end of each calendar
quarter during the term of the agreement. Under the Support Agreement, PMLIC
also agrees to maintain PLACA's cash or cash equivalents from time to time as
may be necessary during the term of the agreement in an amount sufficient for
the payment of benefits and other contractual claims pursuant to policies and
other contracts issued by PLACA. Other than this Support Agreement, PMLIC is
under no obligation to invest money in PLACA nor is it in any way a guarantor of
PLACA's contractual obligations or obligations under the Policies. PLACA is
subject to regulation by the Insurance Department of the State of Delaware as
well as by the insurance departments of all other states and jurisdictions in
which it does business.
PLACA is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT
Providentmutual Variable Life Separate Account (the "Variable Account") is
a separate investment account of PLACA established by the Board of Directors of
PLACA under Delaware law to support the Policies and other variable life
insurance policies. PLACA has registered the Variable Account with the
Securities and Exchange Commission (the "SEC") as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act"). Such registration does not
involve supervision by the SEC of the management or investment policies or
practices of the Variable Account.
The assets of the Variable Account are owned by PLACA. However, these
assets are held separate from other assets and are not part of PLACA's General
Account. The portion of the assets of the Variable Account equal to the reserves
or other contract liabilities of the Variable Account are not chargeable with
liabilities that arise from any other business PLACA conducts. PLACA may
transfer to its General Account any assets of the Variable Account that exceed
the reserves and the Contract liabilities of the Variable Account (which will
always be at least equal to the aggregate Policy Account value allocated to the
Variable Account under the Policies). The income, gains and losses, realized or
unrealized, from assets allocated to the Variable Account are credited to or
charged against the Variable Account without regard to other income, gains or
losses of PLACA. PLACA may accumulate in the Variable Account the accrued
charges for mortality and expense risks and investment results attributable to
assets representing such charges. The Variable Account currently has twenty-five
Subaccounts, each corresponding to an investment portfolio (a "Portfolio") of
one of the mutual fund companies listed below.
THE FUNDS
The Portfolios are each part of one of six series-type mutual fund
companies (each, a "Fund"): Market Street Fund, Inc.; Neuberger Berman Advisers
Management Trust; The Alger American Fund;
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<PAGE> 14
Van Eck Worldwide Insurance Trust; Variable Insurance Products Fund; and
Variable Insurance Products Fund II. Each of the Funds are registered with the
SEC under the 1940 Act as an open-end management investment company. The SEC
does not, however, supervise the management or the investment practices and
policies of the Funds or their Portfolios. The assets of each Portfolio are
separate from the assets of other portfolios of that Fund and each Portfolio has
separate investment objectives and policies. Some of the Funds may, in the
future, create additional Portfolios. The investment experience of each
Subaccount depends on the investment performance of its corresponding Portfolio.
Certain Subaccounts invest in portfolios that have similar investment
objectives and/or policies; therefore before choosing Subaccounts, carefully
read the individual prospectuses for the Funds along with this prospectus.
MARKET STREET FUND, INC.
The Variable Account has ten Subaccounts that invest exclusively in shares
of Market Street Fund, Inc., ("MS Fund"), The investment objectives of MS Fund's
Portfolios are set forth below.
The Growth Portfolio. The Growth 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 foreign issuer 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 equity securities of companies among the 750
largest by market capitalization at the time of purchase, which the Advisers
believe show potential for growth in future earnings.
All Pro Small Cap Growth Portfolio. The All Pro Small Cap Growth Portfolio
seeks to achieve long-term capital appreciation. The Portfolio pursues its
objective by investing primarily in 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 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 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.
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<PAGE> 15
Sentinel Advisors Company (SAC), an affiliate which is registered with the
SEC as an investment adviser under the Investment Advisers Act of 1940, advises
the Fund with respect to the Growth, Money Market, Bond, Managed and Aggressive
Growth Portfolios. As compensation for its services, SAC receives monthly
compensation as follows:
Growth Portfolio -- 0.50% of the first $20 million of the average
daily net assets of the Growth Portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio, and 0.30% of the average
daily net assets in excess of $40 million.
Money Market Portfolio -- 0.25% of the average daily net assets of the
portfolio.
Bond Portfolio -- 0.35% of the first $100 million of the average daily
net assets of the portfolio and 0.30% of the average daily net assets in
excess of $100 million.
Managed Portfolio -- 0.40% of the first $100 million of the average
daily net assets of the portfolio and 0.35% of the average daily net assets
in excess of $100 million.
Aggressive Growth Portfolio -- 0.50% of the first $20 million of the
average daily net assets of the portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio and 0.30% of the average
daily net assets in excess of $40 million.
With respect to the International Portfolio, MS Fund is advised by
Providentmutual Investment Management Company ("PIMC"), a subsidiary of PMLIC,
which receives monthly compensation at an effective annual rate of 0.75% of the
first $500 million of the average daily net assets of the portfolio and 0.60% of
the average daily net assets in excess of $500 million. PIMC has employed The
Boston Company Asset Management, Inc. ("Boston Company") to provide investment
subadvisory services in connection with the Portfolio. As compensation for the
investment advisory services rendered, PIMC pays The Boston Company a monthly
fee at an effective rate of 0.375% of the first $500 million of the average
daily net assets of the portfolio and 0.30% of the average daily net assets in
excess of $500 million.
PIMC serves as investment adviser for the All Pro Portfolios. As
compensation for its services, PIMC receives a monthly fee equal to .70% of the
average daily net assets of the All Pro Large Cap Growth and All Pro Large Cap
Value Portfolios, and .90% of the average 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, a monthly fee equal to .05% of the average daily net assets of the All Pro
Portfolios.
All Pro Large Cap Growth. As of the date of this prospectus, the assets of
the All Pro Large Cap Growth Portfolio are managed in part by Cohen,
Klingenstein & Marks, Inc. ("CKM") and in part by Geewax, Terker & Co.
("Geewax") pursuant to separate investment sub-advisory agreements. From its
investment advisory fees, PIMC pays CKM and Geewax a monthly fee equal to the
following percentages of the average daily net assets of the Portfolio:
CKM -- .35%; Geewax -- .30%.
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. From its investment advisory fees,
PIMC pays SAW and Husic a monthly fee equal to the following percentages of the
average 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. From its investment advisory fees, PIMC pays these
sub-advisers a monthly fee equal to the following percentages of the average
daily net assets of the Portfolio: Equinox --
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<PAGE> 16
.25% of the first $50 million of assets and .23% 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; and Mellon -- .20%.
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. From its investment advisory fees,
PIMC pays these Sub-advisers a monthly fee equal to the following percentages of
the average daily net assets of the Portfolio: 1838 -- .55%; and DIA -- .75% of
the first $25 million of assets and .65% on the remaining assets.
In addition to the fee for the investment advisory services, MS Fund pays
its own expenses generally, including brokerage costs, administrative costs,
custodial costs, and legal, accounting and printing costs. However, PMLIC has
entered into an agreement with the Fund whereby it will reimburse the Fund for
all ordinary operating expenses, excluding advisory fees in excess of an annual
rate of 0.40% of the average daily net assets of each portfolio except the
International Portfolio, and 0.75% for the International Portfolio. It is
anticipated that this agreement will continue; if it is terminated, Fund
expenses may increase.
A more complete description of MS Fund, including the investment
objectives, policies and risks of each Portfolio, is contained in the prospectus
for the Fund, which accompanies this Prospectus.
THE ALGER AMERICAN FUND
The Alger American Small Capitalization Subaccount that invests exclusively
in shares of the corresponding Portfolio of The Alger American Fund ("Alger
American").
Alger American Small Capitalization Portfolio. This Portfolio seeks
long-term capital appreciation by focusing on small, fast-growing companies that
offer innovative products, services or technologies to a rapidly expanding
marketplace.
The investment adviser for the Alger American Small Capitalization
Portfolio is Fred Alger Management, Inc. ("Alger Management"), which is
registered with the SEC as an Investment Adviser under the Investment Advisers
Act of 1940. As compensation for its services, Alger Management receives a fee
at the end of each month at an annual rate of .85% of the average net assets of
the Alger American Small Capitalization Portfolio.
A more complete description of Alger American and the Alger American Small
Capitalization Portfolio, including the Portfolio's investment objectives,
policies and risks, is contained in the prospectus for Alger American which
accompanies this Prospectus.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
The Variable Account has eight Subaccounts that invest exclusively in
shares of Portfolios of the Variable Insurance Products Fund (the "VIP Fund") or
of the Variable Insurance Products Fund II (the "VIP II Fund"). The investment
objectives of the Portfolios of the VIP Fund and the VIP II Fund in which the
Subaccounts will invest are set forth below.
VIP Fund
VIP Equity-Income Portfolio. This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the VIP Equity-Income Portfolio considers the potential for capital
appreciation. The Portfolio's goal is to achieve a yield which exceeds the
composite yield of the securities comprising the Standard and Poor's 500
Composite Stock Price Index.
VIP Growth Portfolio. This Portfolio seeks to achieve capital
appreciation. The VIP Growth Portfolio normally purchases common stocks,
although its investments are not restricted to any one type of
14
<PAGE> 17
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.
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.
Investment Grade Bond Portfolio. This Portfolio seeks high current income
by investing in investment grade debt securities.
The VIP Equity-Income, VIP Growth, VIP High Income, and VIP Overseas
Portfolios of the VIP Fund and the VIP II Asset Manager, VIP II Contrafund, and
VIP II Index 500 Portfolios of the VIP II Fund are managed by Fidelity
Management & Research Company ("FMR"). For managing its investments and business
affairs, each Portfolio pays FMR a monthly fee.
For the VIP Equity-Income, VIP Growth, VIP Overseas VIP II Contrafund and
VIP II Asset Manager Portfolios, the annual fee rate is the sum of two
components:
1. A group fee rate based on the monthly average net assets of all
the mutual funds advised by FMR. This rate cannot rise above 0.52% and it
drops (to as low as a marginal rate of 0.30% when average group assets
exceed $174 billion) as total assets in all these funds rise.
2. An individual fund fee rate of 0.20% for the VIP Equity-Income
Portfolio, 0.30% for the VIP Contrafund, VIP Growth and VIP II Asset
Manager Portfolios and 0.45% for the VIP Overseas Portfolio.
One-twelfth of the combined annual fee rate is applied to each Portfolio's
net assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
The VIP II Index 500 Portfolio pays FMR a total fund expense fee at the
annual rate of 0.28% of the Portfolio's average net assets. One-twelfth of this
annual fee rate is applied to the net assets averaged over the most recent
month, giving a dollar amount which is the fee for that month.
For the VIP High Income Portfolio 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.
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<PAGE> 18
2. An individual Portfolio 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 110% and 105%, respectively, of each sub-advisor's
costs incurred in connection with its sub-advisory agreement.
On behalf of the VIP Overseas Portfolio, FMR has entered into sub-advisory
agreements with FMR (U.K.), FMR Far East, and Fidelity International Investment
Advisors ("FIIA"). FIIA, in turn, has entered into a sub-advisory agreement with
its wholly owned subsidiary Fidelity International Investment Advisors (U.K.)
Limited (FIIAL U.K.). Under the sub-advisory agreements, FMR may receive
investment advice and research services with respect to companies based outside
the U.S. and may grant them investment management authority as well as the
authority to buy and sell securities if FMR believes it would be beneficial to
the Portfolio.
Currently, FMR (U.K.), FMR Far East, FIIA and FIIAL U.K. each focus on
investment opportunities in countries other than the U.S., including countries
in Europe, Asia and the Pacific Basin.
Under the sub-advisory agreements FMR pays the fees of FMR (U.K.), FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors are
compensated as follows:
- FMR pays FMR (U.K.) and FMR Far East fees equal to 110% and 105%,
respectively, of FMR (U.K.)'s and FMR Far East's costs incurred in
connection with providing investment advice and research services.
- FMR pays FIIA 30% of its monthly management fee with respect to the
average market value of investments held by the Portfolio for which FIIA
has provided FMR with investment advice.
- FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred
in connection with providing investment advice and research services.
For providing investment management services, the sub-advisors are
compensated according to the following formulas:
- FMR pays FMR (U.K.), FMR Far East, and FIIA 50% of its monthly management
fee with respect to the Portfolio's average net assets managed by the
sub-advisor on a discretionary basis.
- FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection
with providing investment management.
Each Portfolio utilizes Fidelity Investments Institutional Operations
Company ("FIIOC"), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each Portfolio pays fees based on the type, size, and number of accounts
in each Portfolio and the number of transactions made by shareholders of each
Portfolio.
Each Portfolio also has an agreement with Fidelity Service Co. ("Service"),
an affiliate of FMR under which each Portfolio pays Service to calculate its
daily share prices and to maintain the portfolio and general accounting records
of each Portfolio and to administer each Portfolio's securities lending program.
The fees for pricing and bookkeeping services are based on each Portfolio's
average net assets but
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<PAGE> 19
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 complete description of the VIP Fund and the VIP II Fund, including
the investment of objectives, policies and risks of its Portfolios, is contained
in the prospectuses for the VIP Fund and VIP II Fund which accompany this
Prospectus.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
The Variable Account has two Subaccounts that invest exclusively in shares
of Portfolios of the Neuberger Berman Advisers Management Trust ("AMT").
Each Portfolio of AMT invests all of its net investable assets in its
corresponding Series (each, a "Series") of Advisers Managers Trust ("Managers
Trust"), an open-end management investment company. Each Series invests in
securities in accordance with an investment objective, policies and limitations
identical to those of its corresponding Portfolio. This "master/feeder fund"
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities. For more
information regarding this structure, see the prospectus for AMT.
In that the investment objective of each Portfolio matches that of its
corresponding Series, the following describes the investment objective of each
Series underlying the Portfolio of AMT in which the Subaccounts will invest. The
investment objectives of the Portfolios of AMT in which the Subaccounts will
invest are set forth below. The investment experience of each Subaccount depends
upon the investment performance of its corresponding Portfolio and Series.
Limited Maturity Bond Portfolio. The Series corresponding to this
Portfolio seeks the highest current income consistent with low risk to principal
and liquidity and secondarily, total return, through investment in short to
intermediate term debt securities, primarily investment grade.
Partners Portfolio. The Series corresponding to this Portfolio seeks
capital growth through investment in common stocks and other equity securities
of medium to large capitalization established companies.
The Investment Adviser for the Series of Managers Trust corresponding to
the Limited Maturity Bond and Partners Portfolios of AMT is Neuberger Berman
Management Incorporated ("NB Management"). As compensation for its services, NB
Management receives a monthly fee from AMT at the following percentages of daily
net assets of the corresponding Portfolio: Limited Maturity Bond
Portfolio -- 0.25% of first $500 million, 0.225% of next $500 million, 0.20% of
next $500 million, 0.175% of next $500 million and 0.15% of over $2 billion;
Partners Portfolio -- 0.55% of first $250 million, 0.525% of next $250 million,
0.50% of next $250 million, 0.475% of next $250 million, 0.45% of next $500
million, and 0.425% of over $1.5 billion.
A more complete description of AMT, including the investment objectives,
policies and risks of the available Portfolios, is contained in the prospectuses
for the Limited Maturity Bond and Partners Portfolios of AMT, which accompany
this Prospectus.
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<PAGE> 20
VAN ECK WORLDWIDE INSURANCE TRUST
The Variable Account has four Subaccounts that invest exclusively in shares
of Portfolios of Van Eck Worldwide Insurance ("Van Eck Trust"). The investment
objectives of the Portfolios of Van Eck Trust are set forth below.
Van Eck Worldwide Hard Assets Portfolio. This Portfolio seeks long-term
capital appreciation by investing globally, primarily in "Hard Assets
Securities". Hard Assets Securities include equity securities of Hard Asset
Companies and securities, including structured notes, whose value is linked to
the price of a Hard Asset commodity or a commodity index. Hard Asset Companies
include companies that are directly or indirectly engaged to a significant
extent in the exploration, development, production or distribution of one or
more of the following (together, Hard Assets); (i) precious metals, (ii) ferrous
and non-ferrous metals, (iii) gas, petroleum, petrochemicals or other
hydrocarbons, (iv) forest products, (v) real estate and (vi) other basic
non-agricultural commodities. Income is a secondary consideration
Van Eck Worldwide Bond Portfolio. This Portfolio seeks high total return
through a flexible policy of investing globally, primarily in debt securities.
Van Eck Worldwide Emerging Markets Portfolio. This Portfolio seeks
long-term capital appreciation by investing primarily in equity securities in
emerging markets around the world.
Van Eck Worldwide Real Estate Portfolio. This Portfolio seeks to maximize
total return by investing primarily in equity securities of domestic and foreign
companies which are principally engaged in the real estate industry or which own
significant real estate assets.
The investment adviser for the Van Eck Worldwide Hard Assets, Van Eck
Worldwide Bond and Van Eck Worldwide Real Estate Portfolios is Van Eck
Associates Corporation ("Van Eck Associates"). The investment adviser for the
Van Eck Worldwide Emerging Markets Portfolio is Van Eck Global Asset Management
(Asia) Limited, a wholly-owned investment adviser subsidiary of Van Eck
Associates. As compensation for its services to the Worldwide Hard Assets and
Worldwide Bond Portfolios, Van Eck Associates receives a monthly fee at an
annual rate of 1.0% of the first $500 million of the average daily net assets of
the Portfolios, 0.90% of the next $250 million of the daily net assets of the
Portfolios, and 0.70% of the average daily net assets of the Portfolios in
excess of $750 million. As compensation for its services to the Worldwide
Emerging Markets and Van Eck Worldwide Real Estate Portfolios, Van Eck
Associates or its affiliate receives a monthly fee at an annual rate of 1.00% of
the Portfolio's average daily net assets.
A more complete description of Van Eck Trust, including the investment
objectives, policies and risks of the available Portfolios, is contained in the
Prospectus for the Trust which accompanies this Prospectus.
ADDITIONAL INFORMATION ABOUT THE FUNDS AND PORTFOLIOS
NO ONE CAN ASSURE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVES AND
POLICIES.
More detailed information concerning the investment objectives, policies
and restrictions of the Portfolios, the expenses of the Portfolios, the risks
attendant to investing in the Portfolios and other aspects of the Funds'
operations can be found in the current prospectus for each Fund that accompanies
this Prospectus and the current statement of additional information for each
Fund. The Funds' prospectuses should be read carefully before any decision is
made concerning the allocation of Net Premium Payments or transfers of Policy
Account Value among the Subaccounts.
Not all of the Portfolios described in the prospectuses for the Funds are
available with the Policy. Moreover, PLACA cannot guarantee that each Portfolio
will always be available for the Policies, but in the event that a Portfolio is
not available, PLACA will take reasonable steps to secure the availability of a
comparable portfolio. Shares of each Fund are purchased and redeemed at net
asset value, without a sales charge.
PLACA has entered into agreements with the investment advisers of several
of the Funds pursuant to which each such investment adviser will pay PLACA a
servicing fee based upon an annual percentage of the average aggregate net
assets invested by PLACA on behalf of the Variable Account. These agreements
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<PAGE> 21
reflect administrative services provided to the Funds by PLACA. Payments of such
amounts by an adviser will not increase the fees paid by the Portfolios or their
shareholders.
Shares of the Funds are sold to separate accounts of insurance companies
that are not affiliated with PLACA or each other, a practice known as "shared
funding." They are also sold to separate accounts to serve as the underlying
investment for both variable annuity contracts and variable life insurance
policies, a practice known as "mixed funding." As a result, there is a
possibility that a material conflict may arise between the interests of Owners,
whose Policy Account Values are allocated to the Variable Account, and of owners
of other contracts or policies whose values are allocated to one or more other
separate accounts investing in any one of the Portfolios. Shares of some of the
Funds may also be sold directly to certain pension and retirement plans
qualifying under Section 401 of the Code. As a result, there is a possibility
that a material conflict may arise between the interests of Owners or owners of
other policies or contracts (including policies issued by other companies), and
such retirement plans or participants in such retirement plans. In the event of
any such material conflicts, PLACA will consider what action may be appropriate,
including removing the Portfolio as an investment option under the Policies or
replacing the Portfolio with another Portfolio. There are certain risks
associated with mixed and shared funding and with the sale of shares to
qualified pension and retirement plans, as disclosed in each Fund's prospectus.
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<PAGE> 22
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 both Insureds' deaths (and fulfillment of
certain other requirements), be paid to the Beneficiary in accordance with the
designated Death Benefit Option. The Insurance Proceeds will be determined as of
the date of the last surviving Insured's death and will be equal to:
1. the Death Benefit;
2. plus any additional benefits due under a supplementary benefit
rider attached to the Policy;
3. less any loan and accrued loan interest on the Policy;
4. less any overdue deductions if the death of the Insured occurs
during the Grace Period.
The Insurance Proceeds may be paid in cash or under one of the Settlement
Options set forth in the Policy.
Death Benefit Options. The Policy provides two Death Benefit Options:
Option A and Option B. The Owner designates the Death Benefit Option in the
application and may change it as described in "Change in Death Benefit Option."
Under either Option, the duration of the Death Benefit coverage depends upon the
Policy's Net Cash Surrender Value. (See "Policy Duration.")
Option A. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy and (b) the Policy Account Value on the Valuation Date on
or next following the last surviving Insured's date of death multiplied by the
specified percentage based on the attained age of the younger Insured shown in
the table below:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ---------- ------------- ----------
<S> <C> <C> <C>
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 through 99 100%
</TABLE>
For Attained Ages not shown, the percentages will decrease by a ratable portion
for each full year.
Illustration of Option A -- For purposes of this illustration, assume that
the 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 an Insured under
Attained Age 40 on the Policy Anniversary prior to the date of death is 250%.
Because the Death Benefit must be equal to or be greater than 2.50 times the
Policy Account Value, any time the Policy Account Value exceeds $80,000 the
Death Benefit will exceed the Face Amount. Each additional dollar added to the
Policy Account Value will increase the Death Benefit by $2.50. Thus, a 35 year
old younger Insured with a Policy Account Value of $150,000 will have a Death
Benefit of $375,000 (2.50 x $150,000); a Policy Account Value of $300,000 will
yield a Death Benefit of $750,000 (2.50 x $300,000); a Policy Account Value of
$400,000 will yield a Death Benefit of $1,000,000 (2.50 x $400,000).
Similarly, any time the Policy Account Value exceeds $80,000, each dollar
taken out of the Policy Account Value will reduce the Death Benefit by $2.50. If
at any time, however, the Policy Account Value multiplied by the specified
percentage is less than the Face Amount, the Death Benefit will be the Face
Amount of the Policy.
Option B. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy plus the Policy Account Value and (b) the Policy Account
Value multiplied by the specified percentage shown in
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<PAGE> 23
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. An Insured with a Policy Account Value of $150,000 will therefore have a
Death Benefit of $375,000 (2.50 x $150,000); a Policy Account Value of $300,000
will yield a Death Benefit of $750,000 (2.50 x $300,000); and a Policy Account
Value of $500,000 will yield a Death Benefit of $1,250,000 (2.50 x $500,000).
Similarly, any time the Policy Account Value exceeds $133,333, each dollar taken
out of the Policy Account Value will reduce the Death Benefit by $2.50. If at
any time, however, the Policy Account Value multiplied by the applicable
percentage is less than the Face Amount plus the Policy Account Value, the Death
Benefit will be the Face Amount plus the Policy Account Value.
Which Death Benefit Option to Choose. If an Owner prefers to have premium
payments and favorable investment performance reflected partly in the form of an
increasing Death Benefit, the Owner should choose Option B. If an Owner is
satisfied with the amount of the 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
while the Policy is in force, the Owner may change the Death Benefit Option in
effect by sending PLACA a completed application for change. No charges will be
imposed to make a change in the Death Benefit Option. The effective date of any
such change will be the Policy Processing Day on or next following the date
PLACA receives the completed application for change.
If the Death Benefit Option is changed from Option A to Option B, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be decreased by the Policy Account Value on that date. However, this
change may not be made if it would reduce the Face Amount to less than the
Minimum Face Amount.
If the Death Benefit Option is changed from Option B to Option A, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be increased by the Policy Account Value on that date.
A change in the Death Benefit Option may affect the Net Amount at Risk over
time which, in turn, would affect the monthly Cost of Insurance Charge. Changing
from Option A to Option B will generally result in a Net Amount at Risk that
remains level. Such a change will result in a relative increase in the cost of
insurance charges over time because the Net Amount at Risk will, unless the
Death Benefit is based on the applicable percentage of Policy Account Value,
remain level rather than decreasing as the Policy Account Value increases.
Unless the Death Benefit is based on the applicable percentage of Policy Account
Value, changing from Option B to Option A will, if the Policy Account Value
increases, decrease the Net Amount at Risk over time, thereby reducing the cost
of insurance charge.
The effects of these Death Benefit Option changes on the Face Amount, Death
Benefit and Net Amount at Risk can be illustrated as follows. Assume that a
Policy under Option A has a Face Amount of $500,000 and a Policy Account Value
of $100,000 and, therefore, a Death Benefit of $500,000 and a Net Amount at Risk
of $400,000 ($500,000 - $100,000). If the Death Benefit Option is changed from
Option A to Option B, the Face Amount will decrease from $500,000 to $400,000
and the Death Benefit
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<PAGE> 24
and Net Amount at Risk would remain the same. Assume that a Policy 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, and the
Death Benefit and Net Amount at Risk would remain the same.
If a change in the Death Benefit Option would result in cumulative premiums
exceeding the maximum premium limitations under the Internal Revenue Code for
life insurance, PLACA will not effect the change.
A change in the Death Benefit Option may have federal income tax
consequences. (See "Tax Treatment of Policy Benefits.")
How the Death Benefit May Vary. The amount of the Death Benefit may vary
with the Policy Account Value. The Death Benefit under Option A will vary with
the Policy Account Value whenever the specified percentage of Policy Account
Value exceeds the Face Amount of the Policy. The Death Benefit under Option B
will always vary with the Policy Account Value because the Death Benefit equals
the greater of (a) the Face Amount plus the Policy Account Value and (b) the
Policy Account Value multiplied by the specified percentage.
ABILITY TO 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. A decrease in Face Amount
may have tax consequences. (See "Tax Treatment of Policy Benefits.") The effect
of a decrease in Face Amount on Policy charges, as well as other considerations,
are described below.
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. A decrease in Face Amount will not be permitted if
the Face Amount was decreased during the prior 12-month period. To the extent a
decrease in the Face Amount could result in cumulative premiums exceeding the
maximum premium limitations applicable for life insurance under the 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 cost of 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 Charges.")
Any surrender charge applicable to a decrease will be deducted from the
Policy Account Value and the remaining surrender charge will be reduced by the
amount deducted. The surrender charge will be deducted from the Subaccounts and
the Guaranteed Account based on the proportion that the value in each such
account bears to the total unloaned Policy Account Value.
INSURANCE PROTECTION
An Owner may decrease the insurance protection provided by the Policy (i.e,
the Net Amount at Risk) in one of several ways, as insurance needs change. These
ways include decreasing the Face Amount, changing the level of premium payments,
and by making a partial withdrawal of Net Cash Surrender Value. The consequences
of each are summarized below.
A decrease in Face Amount will decrease the insurance protection. It will
not reduce the Policy Account Value, except for the deduction of any surrender
charge applicable to the decrease. The Monthly Deductions will generally be
correspondingly lower following the decrease.
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<PAGE> 25
Under Death Benefit Option A, until the specified percentage of Policy
Account Value exceeds the Face Amount, then (a) if the Owner increases the
premium payments from the current level, the amount of insurance protection will
generally be reduced, and (b) if the Owner reduced the premium payments from the
current level, the amount of insurance protection will generally be increased.
Under Death Benefit Option B, until the specified 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 specified
percentage of Policy Account Value, then (a) if the Owner increases premium
payments from the current level, the amount of insurance protection will
increase and (b) if the Owner reduces the premium payments from the current
level, the amount of insurance protection will decrease.
A partial withdrawal of Net Cash Surrender Value will reduce the Death
Benefit. If Death Benefit Option A is in effect, the withdrawal will first
decrease the Policy's Face Amount by the amount withdrawn plus the partial
withdrawal expense charge. If Death Benefit Option B is in effect, it will not
reduce the amount of insurance protection unless the Death Benefit is based on
the specified percentage of Policy Account Value. In this event, however, the
decrease in the Death Benefit will be greater than the amount of a withdrawal.
PAYMENT AND ALLOCATION OF PREMIUMS
Issuance of a Policy. In order to purchase a Policy, an individual must
make application to PLACA through a licensed PLACA agent who is also a
registered representative of 1717 Capital Management Company ("1717") or a
broker/dealer having a Selling Agreement with 1717 or a broker/dealer having a
Selling Agreement with such a broker/dealer. If PLACA accepts the application, a
Policy will be issued in consideration of payment of the Minimum Initial Premium
set forth in the Policy. The Minimum Face Amount of a Policy under PLACA's rules
is $100,000.
PLACA reserves the right to revise its rules from time to time to specify a
different Minimum Face Amount for subsequently issued policies. A Policy will be
issued only with respect to Insureds who individually have an Issue Age of 21 to
85 and a Joint Equal Age of 25 to 85 and who provide PLACA with satisfactory
evidence of insurability. Acceptance is subject to PLACA's underwriting rules.
PLACA reserves the right to reject an application for any reason permitted by
law. (See "Distribution of Policies.")
At the time the application for a Policy is signed, an applicant can,
subject to PLACA's underwriting rules, obtain temporary insurance protection,
pending issuance of the Policy, by answering "no" to the Health Questions of the
Temporary Agreement and submitting payment of the Minimum Initial Premium with
the Application. The Minimum Initial Premium will equal the Minimum Annual
Premium multiplied by the following factor:
<TABLE>
<CAPTION>
PREMIUM BILLING MODE
SELECTED AT ISSUE FACTOR
- -------------------- ------
<S> <C>
Annual............................................. 1.000
Semi-annual........................................ 0.500
Quarterly.......................................... 0.250
Monthly............................................ 0.167
</TABLE>
The amount of coverage under the temporary agreement is the lesser of the
Face Amount applied for or $500,000. Coverage under the agreement will end on
the earliest of: (a) the 90th day from the date of the agreement; (b) the date
that insurance takes effect under the Policy; (c) the date a policy, other than
as applied for, is offered to the Applicant; or (d) five days from the date
PLACA mails a notice of termination of coverage.
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<PAGE> 26
Amount and Timing of Premiums. The Minimum Initial Premium is due on or
before the date the Policy is delivered. No insurance will take effect until the
Minimum Initial Premium is paid while the health and other conditions of the
Insureds stay the same as described in the application. Prior to the Final
Policy Date and while the Policy is in force, an Owner may make additional
premium payments at any time and in any amount, subject to the limitation set
forth below. Each premium payment must be for at least $20. PLACA may increase
this minimum amount upon 90 days written notice to Owners of such increase, but
the minimum amount will never exceed $500. Subject to certain limitations
described below, an Owner has considerable flexibility in determining the amount
and frequency of premium payments.
At the time of application, each Owner will select a Planned Periodic
Premium schedule, based on a periodic billing mode of annual, semi-annual, or
quarterly payment. The Owner is entitled to receive a premium reminder notice
from PLACA at the specified interval. The Owner may change the Planned Periodic
Premium frequency and amount. Also, under the Automatic Payment Plan, the Owner
can select a monthly payment schedule pursuant to which premium payments will be
automatically deducted from a bank account or other source, rather than being
"billed".
Unless prohibited by a particular state, any payments made while there is
an outstanding Policy loan are considered loan repayments, unless PLACA is
notified in writing that the amount is to be applied as a premium payment. The
Owner is not required to pay the Planned Periodic Premiums in accordance with
the specified schedule. The Owner has the flexibility to alter the amount and
frequency of premium payments. However, payment of the Planned Periodic Premiums
does not guarantee that the Policy will remain in force. Instead, the duration
of the Policy depends upon the Policy's Net Cash Surrender Value. Thus, even if
Planned Periodic Premiums are paid, the Policy may lapse whenever the Net Cash
Surrender Value is insufficient to pay the Monthly Deductions and any other
charges and if a Grace Period expires without an adequate payment by the Owner.
Premium Limitations. The Code provides for exclusion of the Death Benefit
from a Beneficiary's gross income if total premium payments do not exceed
certain stated limits. In no event can the total of all premiums paid under a
Policy exceed such limits. PLACA has established procedures to monitor whether
aggregate premiums paid under a Policy exceed those limits. If a premium is paid
which would result in total premiums exceeding such limits, PLACA will only
accept that portion of the premium which would make total premiums equal the
maximum amount which may be paid under the Policy. The excess will be refunded.
If total premiums do exceed the maximum premium limitations established by the
Code, however, the excess of a Policy's Death Benefit over the Policy's Cash
Surrender Value should still be excludable from gross income.
The maximum premium limitations set forth in the Code depend in part upon
the amount of the Death Benefit at any time. As a result, any Policy changes
which affect the amount of the Death Benefit may affect whether cumulative
premiums paid under the Policy exceed the maximum premium limitations. To the
extent that any such change would result in cumulative premiums exceeding the
maximum premium limitations, PLACA will not effect such change. (See "Federal
Income Tax Considerations.") PLACA reserves the right to require satisfactory
evidence of insurability before accepting a premium payment that would increase
the Net Amount At Risk.
Allocation of Net Premiums. The Owner indicates in the application how Net
Premiums should be allocated among the Subaccounts and/or the Guaranteed
Account. The percentages of each Net Premium that may be allocated to any
account must be in whole numbers and the sum of the allocation percentages must
be 100%. PLACA allocates the Net Premiums as of the date it receives such
premium at its Service Center.
Where state law requires a refund of premiums paid when a policy is
returned under the Free-Look provisions any premiums received by PLACA before
the expiration of a 15-day period beginning on the later of the Policy Issue
Date or the date PLACA receives the Minimum Initial Premium, which are to be
allocated to the Subaccounts are allocated to the Money Market Subaccount. At
the end of the 15-day period, Policy Account Value in the Money Market
Subaccount is allocated among the Subaccounts based on the proportion that the
allocation percentage for such Subaccount bears to the sum of the Subaccount
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<PAGE> 27
premium allocation percentages. All other Net Premiums are allocated based on
the allocation percentages then in effect. The allocation schedules may be
changed at any time by providing PLACA with written notice.
The values of the Subaccounts will vary with their investment experience
and the Owner bears the entire investment risk. Owners should periodically
review their allocation schedule in light of market conditions and the Owners'
overall financial objectives.
SPECIAL POLICY ACCOUNT VALUE CREDIT
On each Policy Processing Day after the Policy has been in force for at
least 15 years or when the Policy Account Value less the value in the Loan
Account equals or exceeds $500,000, an additional credit is added to the Policy
Account Value in the Subaccounts. The credit is a result of a reduction in the
mortality and expense risk charge and is equal to 0.03% multiplied by the Policy
Account Value in the Subaccounts.
POLICY ACCOUNT VALUE
The Policy Account Value is the total amount of value held under the Policy
at any time. It is equal to the sum of the Policy's values in the Subaccounts,
the Guaranteed Account and the Loan Account. The Policy Account Value minus any
applicable Surrender Charge is the Cash Surrender Value.
The Policy Account Value and Cash Surrender Value will reflect the
investment performance of the chosen Subaccounts, the crediting of interest for
the Guaranteed Account and the Loan Account, any Net Premiums paid, the Special
Policy Account Value Credit, any transfers, any partial withdrawals, any loans,
any loan repayments, any loan interest paid, and any charges assessed in
connection with the Policy.
Calculation of Policy Account Value. The Policy Account Value is
determined first on the Policy Date and thereafter at the close of each
Valuation Day. On the Policy Date, the Policy Account Value equals the Net
Premiums received less any Monthly Deductions on the Policy Date. On each
Valuation Day after the Policy Date, the Policy Account Value is:
1. Policy Account Value in each Subaccount, determined by multiplying
the number of units of the Subaccount by the Subaccount's Unit Value on
that date;
2. Policy Account Value in the Guaranteed Account; plus
3. Policy Account Value in the Loan Account.
Determination of Number of Units for the Subaccounts. Allocated Net
Premiums, the Special Policy Account Value Credit or Policy Account Value
transferred to a Subaccount are used to purchase units of that Subaccount; units
are redeemed when amounts are deducted, transferred or withdrawn. The number of
units of a Subaccount at any time equals the number of units purchased minus the
number of units redeemed up to such time. For each Subaccount, the number of
units purchased or redeemed in connection with a particular transaction is
determined by dividing the dollar amount by the unit value.
Determination of Unit Value. The unit value of a Subaccount on any
Valuation Day is equal to the unit value on the immediately preceding Valuation
Day multiplied by the Net Investment Factor for that Subaccount on that
Valuation Day.
Net Investment Factor. The Net Investment Factor for each Subaccount
measures the investment performance of a Subaccount. The factor increases to
reflect investment income and capital gains, realized and unrealized, for the
shares of the underlying Portfolio. The factor decreases to reflect any capital
losses, realized or unrealized, for the shares of the underlying Portfolio as
well as the asset charge for mortality and expense risks.
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<PAGE> 28
POLICY DURATION
Policy Lapse. The Policy will remain in force as long as the Net Cash
Surrender Value of the Policy is sufficient to pay the Monthly Deductions and
other charges under the Policy. When the Net Cash Surrender Value is
insufficient to pay the charges and the Grace Period expires without an adequate
premium payment by the Owner, the Policy will lapse and terminate without value.
Notwithstanding the foregoing, during the first five Policy Years the Policy
will not lapse if the Minimum Guarantee Premium has been paid. A Guaranteed
Minimum Death Benefit rider may be purchased with the Policy that guarantees the
Policy will not lapse if certain conditions are met. (See "Supplementary
Benefits.")
The Policy provides for a 61-day Grace Period that is measured from the
date on which notice is sent by PLACA indicating that the Grace Period has
begun. Thus, the Policy does not lapse, and the insurance coverage continues,
until the expiration of this Grace Period. To prevent lapse, the Owner must,
during the Grace Period, make a premium payment equal to three Monthly
Deductions. The notice sent by PLACA will specify the payment required to keep
the Policy in force.
Reinstatement. A Policy that lapses may be reinstated at any time within
three years (or longer period required in a particular state) after the
expiration of the Grace Period and before the Final Policy Date by submitting
evidence of each Insured's insurability satisfactory to PLACA and payment of an
amount sufficient to keep the Policy in force for at least three months
following the date that the reinstatement application is approved. Upon
reinstatement, the Policy Account Value is based upon the premium paid to
reinstate the Policy. A reinstated Policy has the same Policy Date as it had
prior to the lapse.
TRANSFERS OF POLICY ACCOUNT VALUE
Transfers. The Owner may transfer the Policy Account Value between and
among the Subaccounts and the Guaranteed Account by making a written transfer
request to PLACA. The amount transferred must be at least $1,000, unless the
total value in an account is less than $1,000, in which case the entire amount
may be transferred.
After 12 transfers have been made in any Policy Year, a $25 transfer charge
will be deducted from each transfer during the remainder of such Policy Year.
All transfers included in a single written request are treated as one transfer.
Transfers are made as of the date PLACA receives a written request at its
Service Center. Transfers resulting from Policy loans, Automatic Asset
Rebalancing, Dollar Cost Averaging, the exercise of exchange privileges, and the
reallocation from the Money Market Subaccount following the 15-day period after
the Issue Date, are not subject to a transfer charge and do not count as one of
the 12 "free" transfers in any Policy Year. Under present law, transfers are not
taxable transactions.
Special Transfer Right. During the first two years following the Issue
Date, the Owner may, on one occasion, transfer the entire Policy Account Value
in the Subaccounts to the Guaranteed Account without a transfer charge and
without such transfer counting toward the twelve transfers permitted without
charge during a Policy Year.
Transfer Right for Change in Investment Policy of a Subaccount. If the
investment policy of a Subaccount is materially changed, the Owner may transfer
the portion of the Policy Account Value in such Subaccount to another Subaccount
or to the Guaranteed Account without a transfer charge and without having such
transfer count toward the twelve transfers permitted without charge during a
Policy Year.
Telephone Transfers. Transfers will be made upon instructions given by
telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to PLACA. PLACA reserves the
right to suspend telephone transfer privileges at any time for any class of
policies, for any reason. PLACA will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine and if it follows such
procedures it will not be liable for any losses due to authorized or fraudulent
instructions. PLACA, however, may be liable for such losses if it does not
follow those reasonable procedures. The procedures PLACA will follow for
telephone transfers
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<PAGE> 29
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 Account Values
between the Subaccounts in order to maintain the allocation of such values in
percentages that match the then current premium allocation percentages. Election
of this feature may be made in the application or at any time after the policy
is issued by properly completing the election form and returning it to PLACA.
The election may be revoked at any time. Rebalancing may be done quarterly or
annually. Rebalancing terminates when the total value in the subaccounts is less
than $1,000. PLACA reserves the right to suspend Automatic Asset Rebalancing at
any time, for any class of Policies, for any reason.
Dollar Cost Averaging. Dollar Cost Averaging is a program which, if
elected, enables the Owner to systematically and automatically transfer, on a
monthly basis, specified dollar amounts from any selected Subaccount to any
other Subaccounts or the Guaranteed Account. Transfers may not come from the
Guaranteed Account. By allocating on a regularly scheduled basis as opposed to
allocating the total amount at one particular time, an Owner may be less
susceptible to the impact of short term market fluctuations. PLACA, however,
makes no guarantee that Dollar Cost Averaging will result in a profit or protect
against loss.
Dollar Cost Averaging may be elected for a period of 6, 12, 18, 24, 30 or
36 months. To qualify for Dollar Cost Averaging, the following minimum amount of
Policy Account Value must be allocated to a Subaccount: 6 months -- $3,000; 12
months -- $6,000; 18 months -- $9,000; 24 months -- $12,000; 30
months -- $15,000; 36 months -- $18,000. At least $500 must be transferred from
the Subaccount each month. The amount required to be allocated to the Subaccount
can be made from an initial or subsequent investment or by transferring amounts
into the Subaccount from the other Subaccounts or from the Guaranteed Account
(See "Transfers from Guaranteed Account."). Each monthly transfer is split among
the Subaccounts or the Guaranteed Account based upon the percentages elected.
Dollar Cost Averaging may not be elected if Automatic Asset Rebalancing has been
elected or if a policy loan is outstanding.
Dollar Cost Averaging may be elected in the application or by completing an
election form and returning it to PLACA by the beginning of the month. When an
election form is received, Dollar Cost Averaging will commence on the first
Policy Processing Day after the later of (a) the Policy Date; (b) the end of the
15-day period when premiums are allocated to the Money Market Fund in certain
states; and (c) when the Subaccount value equals or exceeds the greater of the
minimum amount stated above and the amount of the first monthly transfer.
Once Dollar Cost Averaging transfers have commenced, they occur monthly on
the Policy Processing Day until the specified number of transfers has been
completed, or (a) a policy loan is requested, (b) the policy goes into the grace
period, or (c) there is insufficient value in the Subaccount to make the
transfer. The Owner may instruct PLACA in writing to cancel Dollar-Cost
Averaging transfers at any time.
Transfers made under the Dollar Cost Averaging program do not count toward
the twelve transfers permitted each Policy Year without imposing the Transfer
Charge. PLACA reserves the right to discontinue offering automatic transfers
upon 30 days' written notice to the Owner. Written notice will be sent to the
Owner confirming each transfer and when the Dollar Cost Averaging program is
terminated. The Owner and agent are responsible for reviewing the confirmation
to verify that the transfers are being made as requested.
FREE-LOOK PRIVILEGES
Free-Look for Policy. The Policy provides for an initial Free-Look Period.
The Owner may cancel the Policy until 10 days after the Owner receives the
Policy. Upon giving written notice of cancellation and returning the Policy to
PLACA's Service Center, to one of PLACA's other offices, or to the PLACA
representative from whom it was purchased, the Owner will receive a refund equal
to the sum of: (i) the
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<PAGE> 30
Policy Account Value as of the date the returned Policy is received by PLACA at
its Service Center or the PLACA representative through whom the Policy was
purchased; (ii) any Premium Expense Charges deducted from premiums paid; (iii)
any Monthly Deductions charged against the accounts; and (iv) any Mortality and
Expense Risk charges deducted from the value of the net assets of the
Subaccounts. A refund of all premiums paid is made for any Policy delivered in a
state that requires such a refund.
LOAN PRIVILEGES
General. The Owner may at any time after the Issue Date borrow money from
PLACA using the Policy Account Value as the security for the loan. The Owner may
obtain Policy loans in a minimum amount of $500 (or such lesser minimum required
in a particular state) but not exceeding the Policy's Net Cash Surrender Value
on the date of the loan. While at least one Insured is living, the Owner may
repay all or a portion of a loan and accrued interest.
Interest Rate Charged. Interest is charged on Policy loans at an effective
annual rate of 6%. Interest is due at the end of each Policy Year. If interest
is not paid when due, it is added to the loan balance and bear interest at the
same rate. Unpaid interest is allocated based on the Owner's written
instructions. If there are no written instructions or the Policy Account Value
in the specified Subaccounts is insufficient to allow the collateral for the
unpaid interest to be transferred, the interest is allocated based on the
proportion that the Guaranteed Account Value and the Value of the Subaccounts
under a Policy bear to the total unloaned Policy Account Value.
Allocation of Loans and Collateral. PLACA will allocate the amount of a
Policy loan among the Subaccounts and/or the Guaranteed Account based upon the
proportion that the value of the Subaccounts and/or the Guaranteed Account Value
bear to the total unloaned Policy Account Value at the time the loan is made or
to the Subaccounts based on the percentages you specify at the time the loan is
made.
The amount of collateral for a Policy loan is the loan amount plus accrued
interest to the next Policy Anniversary, less interest at an effective annual
rate of 4% which is earned to such Policy Anniversary. PLACA will deduct the
collateral for the loan from each account based on the allocation described in
the preceding paragraph and transfer this amount to the Loan Account. The
collateral is recalculated: (a) when loan interest is repaid or added to loaned
amount; (b) when a new loan is made; and (c) when a loan repayment is made. A
transfer to or from the Loan Account will be made to reflect any recalculation
of collateral. At any time, the amount of the outstanding loan under a Policy
equals the sum of all loans (including due and unpaid interest added to the loan
balance) minus any loan repayments.
Interest Credited to Loan Account. As long as the Policy is in force,
PLACA credits the amount in the Loan Account with interest at effective annual
rates it determines, but not less than 4% or such higher minimum rate required
under state law. The rate will apply to the calendar year which follows the date
of determination. Loan interest credited is transferred to the Subaccounts or
the Guaranteed Account: (a) when loan interest is paid added to the loaned
amount; (b) when a loan repayment is made; and (c) when a new loan is made.
PLACA currently credits 4.50% interest annually to the amount in the Loan
Account until the Policy's 15th anniversary, and 5.50% annually thereafter.
Effect of Policy Loan. Policy loans, whether or not repaid, will have a
permanent effect on the Policy Account Value, the Cash Surrender Value, and Net
Cash Surrender Value and may permanently affect the Death Benefit under the
Policy. The effect on the Policy Account Value and Death Benefit could be
favorable or unfavorable, depending on whether the investment performance of the
Subaccounts and the interest credited to the Guaranteed Account is less than or
greater than the interest being credited on the assets in the Loan Account while
the loan is outstanding. Compared to a Policy under which no loan is made,
values under a Policy will be lower when the credited interest rate is less than
the investment experience of assets held in the Subaccounts and interest
credited to the Guaranteed Account. The longer a loan is outstanding, the
greater the effect of a Policy loan is likely to be. The Death Proceeds will be
reduced by the amount of any outstanding Policy loan.
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<PAGE> 31
Loan Repayments. An Owner may repay all or part of a Policy loan at any
time while the Insured is alive and the Policy is in force. Unless prohibited by
a particular state, PLACA will assume that any payments made while there is an
outstanding loan is a loan repayment, unless it receives written instructions
that the payment is a premium payment. Repayments up to the amount of the
outstanding loan is allocated to the accounts based on the amount of the
outstanding loan allocated to each account as of the date of repayment; any
repayment in excess of the amount of the outstanding loan will be allocated to
the accounts based on the amount of interest due on the portion of the
outstanding loan allocated to each account. For this purpose, the amount of the
interest due is determined as of the next Policy Anniversary. Failure to repay a
loan or to pay loan interest will not cause the Policy to lapse unless the Net
Cash Surrender Value on the Policy Processing Day is less than the monthly
deduction due. (See "Policy Duration.")
Tax Considerations. Any loans taken from a Modified Endowment Contract
will be treated as a taxable distribution. In addition, with certain exceptions,
a 10% additional income tax penalty will be imposed on the portion of any loan
that is included in income. (See "Distributions from Policies Classified as
Modified Endowment Contracts.") Depending upon the investment performance of the
Subaccounts and the amounts borrowed, loans may cause the Policy to lapse. If
the Policy is not a Modified Endowment Contract, lapse of the Policy with
outstanding loans may result in adverse tax consequences. (See "Distributions
from Policies Not Classified as Modified Endowment Contracts.")
SURRENDER PRIVILEGE
At any time before the earlier of the death of the 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 determined by PLACA as of the
date it receives, at its Service Center, a surrender request signed by the
Owner. Coverage under the Policy will end on the day the Owner mails or
otherwise sends the written surrender request to PLACA at the Service Center. A
surrender may have adverse federal income tax consequences. (See "Tax Treatment
of Policy Benefits.")
PARTIAL WITHDRAWAL PRIVILEGE
After the first Policy Year, at any time before the earlier of the death of
the 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 withdrawal charge will be deducted from the Policy
Account Value. A partial withdrawal will not result in the imposition of
surrender charges.
The withdrawn amount and withdrawal charge will be allocated based on the
proportion that the Policy Account Value in the Subaccounts and the Guaranteed
Account Value bear to the total unloaned Policy Account Value, or are allocated
to such Subaccounts as the Owner specifies at the time of the withdrawal.
The effect of a partial withdrawal on the Death Benefit and Face Amount
will vary depending upon the Death Benefit Option in effect and whether the
Death Benefit is based on the applicable percentage of Policy Account Value.
(See "Death Benefit Options.")
Option A. The effect of a partial withdrawal on the Face Amount and Death
Benefit under Option A can be described as follows:
If the Death Benefit equals the Face Amount, a partial withdrawal will
reduce the Face Amount and the Death Benefit by the amount of the partial
withdrawal.
For the purposes of this illustration (and the following illustrations
of partial withdrawals), assume that the Attained Age of the 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 Owner takes a partial withdrawal of
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<PAGE> 32
$10,000. The partial withdrawal will reduce the Policy Account Value to
$19,975 ($30,000 - $10,000 - $25) and the Death Benefit and Face Amount to
$290,000 ($300,000 - $10,000).
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, the Face Amount
will be reduced by an amount equal to the amount of the partial withdrawal.
The Death Benefit will be reduced to equal the greater of (a) the Face
Amount after the partial withdrawal, and (b) the applicable percentage of
the Policy Account Value after deducting the amount of the partial
withdrawal and expense charge.
Under Option A, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000. Assume
that the Owner 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 Owner takes a partial withdrawal of $20,000. The
partial withdrawal will reduce the Policy Account Value to $69,975
($90,000 - $20,000 - $25) and the Death Benefit to $369,975 ($300,000 +
$69,975). The Face Amount is unchanged.
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, The Death
Benefit will be reduced to equal the greater of (a) the Face Amount plus
the Policy Account Value after deducting the partial withdrawal and expense
charge and (b) the applicable percentage of Policy Account Value after
deducting the amount of the partial withdrawal and the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000 ($300,000 x
2.5). Assume the Owner takes a partial withdrawal of $149,975. The partial
withdrawal will reduce the Policy Account Value to $150,000
($300,000 - $149,975 - $25) and the Death Benefit to the greater of (a) the
Face Amount plus the Policy Account Value $450,000 ($300,000 + $150,000)
and (b) the Death Benefit based on the applicable percentage of the Policy
Account Value $375,000 ($150,000 x 2.5). Therefore, the Death Benefit will
be $450,000. The Face Amount is unchanged.
Because a partial withdrawal can affect the Face Amount and the Death
Benefit as described above, a partial withdrawal may also affect the Net Amount
at Risk which is used to calculate the cost of insurance charge under the
Policy. (See "Cost of Insurance.") A request for partial withdrawal may not be
allowed if, or to the extent that, 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.")
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<PAGE> 33
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate PLACA
for (a) providing the insurance benefits set forth in the Policy; (b)
administering the Policy; (c) assuming certain risks in connection with the
Policy; and (d) incurring expenses in distributing the Policy. In the event that
there are any profits from fees and charges deducted under the Policy, including
but not limited to mortality and expense risk charges, such profits could be
used to finance the distribution of the contracts.
PREMIUM EXPENSE CHARGE
Prior to allocation of Net Premiums, premiums paid are reduced by a Premium
Expense Charge which consists of:
Premium Tax Charge. Various states and some of their subdivisions impose a
tax on premiums received by insurance companies. Premium taxes vary from state
to state but range from 0% to 4%. 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. No premium tax charge is deducted in
jurisdictions that impose no premium tax.
Percent of Premium Charge. A percent of premium charge not to exceed 6% is
deducted from each premium payment to partially compensate PLACA for federal
taxes and the cost of selling the Policy. Currently, PLACA deducts 6% of each
premium payment in the first 15 Policy Years and 1.5% percent from each premium
payment.
SURRENDER CHARGES
A Surrender Charge, which consists of a Deferred Administrative Charge and
a Deferred Sales Charge, is imposed if the Policy is surrendered or lapses at
any time before the end of the 15th Policy Year. A portion of this Surrender
Charge will be deducted if the Owner decreases the Initial Face Amount before
the end of the 15th Policy Year.
This surrender charge is designed partially to compensate PLACA for the
cost of administering, issuing and selling the Policy, including agent sales
commissions, the cost of printing the prospectuses and sales literature, any
advertising costs, medical exams, review of applications for insurance,
processing of the applications, establishing policy records and Policy issue.
PLACA does not expect the surrender charges to cover all of these costs. To the
extent that they do not, PLACA will cover the short-fall from its general
account assets, which may include profits from the mortality and expense risk
charge.
Deferred Administrative Charge. The Deferred Administrative Charge is as
follows:
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR OF FACE AMOUNT
- ----------- -----------------
<S> <C>
1-11................................. $5.00
12................................... 4.00
13................................... 3.00
14................................... 2.00
15................................... 1.00
16+.................................. 0
</TABLE>
The actual Deferred Administrative Charge is the charge described above
less the amount of any Deferred Administrative Charge previously paid at the
time of a decrease in Face Amount.
Deferred Sales Charge. The Deferred Sales Charge will not exceed the
Maximum Deferred Sales Charge specified in the Policy. During Policy Years 1
through 11, this maximum equals a percentage of the Target Premium for the
Initial Face Amount (shown below). It equals 80% of this maximum during Policy
Year 12, 60% during Policy Year 13, 40% during Policy Year 14, 20% during Policy
Year 15, and 0% during Policy Years 16 and later. The Deferred Sales Charge
actually imposed will equal the lesser of
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<PAGE> 34
this maximum and an amount equal to 30% of all premiums actually paid to the
date of surrender or lapse, less any Deferred Sales Charge previously paid at
the time of a prior decrease in Face Amount.
<TABLE>
<CAPTION>
JOINT MAXIMUM DEFERRED SALES CHARGE
EQUAL AGE (% OF TARGET PREMIUM)
--------- -----------------------------
<S> <C>
25-71................................ 60%
72-73................................ 50
74-75................................ 40
76-78................................ 30
79-83................................ 20
84-85................................ 10
</TABLE>
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 is determined by dividing the amount of the decrease
by the current Face Amount and multiplying the result by the Surrender Charge.
Where a decrease causes a partial reduction in the Face Amount, a proportionate
share of the Surrender Charge will be deducted.
Allocation of Surrender Charges. 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) monthly
administrative charges, (c) initial administrative charges, and (d) the cost of
any additional benefits provided by rider. Because portions of the Monthly
Deduction, such as the cost of insurance, can vary from month to month, the
Monthly Deduction may vary in amount from month to month. The Monthly Deduction
is deducted from the Subaccounts and the Guaranteed Account in accordance with
the allocation percentages for Monthly Deductions chosen by the Owner at the
time of application, or as later changed by PLACA pursuant to the Owner's
written request. If PLACA cannot make a monthly deduction on the basis of the
allocation schedule then in effect, PLACA makes the deduction based on the
proportion that the Owner's Guaranteed Account Value and the value in the
Owner's Subaccounts bear to the total unloaned Policy Account Value.
Cost of Insurance. Because the cost of insurance depends upon several
variables, the cost for each Policy Month can vary. PLACA will determine the
monthly Cost of Insurance Charge by multiplying the applicable cost of insurance
rate or rates by the Net Amount at Risk for each Policy Month. The Net Amount at
Risk on any Policy Processing Day is the amount by which the Death Benefit
exceeds the Policy Account Value.
In calculating the cost of insurance charge, the rate based on each
Insured's Premium Class on the Policy Date is applied to the Net Amount at Risk
for the Face Amount. Any change in the Net Amount at Risk will affect the total
cost of insurance charges paid by the Owner.
Cost of Insurance Rate. The cost of insurance rate is based on the
Attained Age, Sex, Premium Class of each Insured and Duration. The actual
monthly cost on insurance rates will be based on PLACA's expectations as to
future mortality and expense experience. They will not, however, be greater than
the guaranteed maximum cost of insurance rates set forth in the Policy. These
guaranteed maximum rates are based on each Insured's Attained Age, Sex, Premium
Class, and the 1980 Commissioners
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<PAGE> 35
Standard Ordinary Smoker and Nonsmoker Mortality Table. Any change in the cost
of insurance rates will apply to all pairs of Insureds of the same Attained,
Age, Sex, Premium Class and Duration.
Premium Class. The Premium Class 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 pairs of 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 standard nonsmokers.
Initial Administrative Charge. An Initial Administrative Charge of $17.50
plus an amount per $1,000 of Face Amount (shown below) is deducted from Policy
Account Value on the Policy Date and on each of the next eleven Policy
Processing Days.
INITIAL ADMINISTRATIVE CHARGE
$0.11 per $1,000 on the first million of face amount
$0.09 per $1,000 on the next million of face amount
$0.07 per $1,000 on the next million of face amount
$0.05 per $1,000 on the next million of face amount
$0.03 per $1,000 on the next million of face amount
0 on the excess face amount over $5 million
Monthly Administrative Charges. A Monthly Administrative Charge (presently
$7.50 plus $0.01 per $1,000 of Face Amount) is deducted from the Policy Account
Value on the Policy Date and each Policy Processing Day as part of the Monthly
Deduction. This charge may be increased, but in no event will it be greater than
$12 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.
PARTIAL WITHDRAWAL CHARGE
A charge of $25 will be deducted from the Policy Account Value for each
partial withdrawal of Net Cash Surrender Value. This charge is intended to
compensate PLACA for the administrative costs in effecting the requested payment
and in making all calculations which may be required by reason of the partial
withdrawal.
TRANSFER CHARGE
After 12 transfers have been made in any Policy Year, a transfer charge of
$25 will be deducted for each transfer during the remainder of such Policy Year
to compensate PLACA for the costs of processing such transfers.
The transfer charge will be deducted from the amount being transferred. The
transfer charge will not apply to transfers resulting from Policy loans,
Automatic Asset Rebalancing, Dollar Cost Averaging, the exercise of special
transfer rights and the initial reallocation of account values from the Money
Market Subaccount to other Subaccounts. These transfers will not count against
the 12 free transfers in any Policy Year.
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<PAGE> 36
MORTALITY AND EXPENSE RISK CHARGE
A daily charge will be deducted from the value of the net assets of the
Separate Accounts to compensate PLACA for mortality and expense risks assumed in
connection with the Policy. This charge will be deducted at an annual rate of
0.75% (or a daily rate of .002055%) of the average daily net assets of each
Subaccount. This charge may be increased, but in no event will it be greater
than an annual rate of 0.90% of the average daily net assets of each Separate
Account. The mortality risk assumed by PLACA is that Insureds may live for a
shorter time than projected and, therefore, greater death benefits than expected
will be paid in relation to the amount of premiums received. The expense risk
assumed is that expenses incurred in issuing and administering the Policies will
exceed the administrative charges provided in the Policy. (See "Special Policy
Account Value Credit")
If the Mortality and Expense Risk Charge proves insufficient, PLACA will
provide for all death benefits and expenses and any loss will be borne by PLACA.
Conversely, PLACA will realize a gain from this charge to the extent all money
collected from this charge is not needed to provide for benefits and expenses
under the Policies.
OTHER CHARGES
The Subaccounts purchase shares of the Funds at net asset value. The net
asset value of those shares reflect management fees and expenses already
deducted from the assets of the Fund's Portfolios. The fees and expenses for the
Funds and their Portfolios are described briefly in connection with a general
description of each Fund. More detailed information is contained in the Funds
Prospectuses which are attached to or accompany this Prospectus.
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<PAGE> 37
THE GUARANTEED ACCOUNT
An Owner may allocate some or all of the Net Premiums and transfer some or
all of the Policy Account Value to the Guaranteed Account, which is part of
PLACA's General Account and pays interest at declared rates guaranteed for each
calendar year (subject to a minimum guaranteed interest rate of 4%). The
principal, after deductions, is also guaranteed. PLACA's General Account
supports its insurance and annuity obligations. The Guaranteed Account has not,
and is not required to be, registered with the SEC under the Securities Act of
1933, and neither the Guaranteed Account nor PLACA's General Account has been
registered as an investment company under the Investment Company Act of 1940.
Therefore, neither PLACA's General Account, the Guaranteed Account, nor any
interest therein are generally subject to regulation under the 1933 Act or the
1940 Act. The disclosures relating to these accounts which are included in this
Prospectus are for prospective Owners' information and have not been reviewed by
the SEC. However, such disclosures may be subject to certain general applicable
provisions of the Federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
The portion of the Policy Account Value allocated to the Guaranteed Account
will be credited with rates of interest, as described below. Since the
Guaranteed Account is part of PLACA's General Account, PLACA assumes the risk of
investment gain or loss on this amount. All assets in the General Account are
subject to PLACA's general liabilities from business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Guaranteed Account Value is guaranteed to accumulate at a minimum
effective annual interest rate of 4%. PLACA intends to credit the Guaranteed
Account Value with current rates in excess of the minimum guarantee but is not
obligated to do so. These current interest rates are influenced by, but do not
necessarily correspond to, prevailing general market interest rates. Since
PLACA, in its sole discretion, anticipates changing the current interest rate
from time to time, different allocations to and from the Guaranteed Account will
be credited with different current interest rates. The interest rate to be
credited to each amount allocated or transferred to the Guaranteed Account will
apply to the end of the calendar year in which such amount is received or
transferred. At the end of the calendar year, PLACA reserves the right to
declare a new current interest rate on such amount and accrued interest thereon
(which may be a different current interest rate than the current interest rate
on new allocations to the Guaranteed Account on that date). The rate declared on
such amount and accrued interest thereon at the end of each calendar year will
be guaranteed for the following calendar year. Any interest credited on the
amounts in the Guaranteed Account in excess of the minimum guaranteed rate of 4%
per year will be determined in the sole discretion of PLACA. The Owner assumes
the risk that interest credited may not exceed the guaranteed minimum rate.
Amounts deducted from the Guaranteed Account for partial withdrawals,
Policy loans, transfers to the Separate Accounts, Monthly Deductions or other
changes are currently, for the purpose of crediting interest, accounted for on a
last in, first out ("LIFO") method.
PLACA reserves the right to change the method of crediting interest from
time to time, provided that such changes do not have the effect of reducing the
guaranteed rate of interest below 4% per annum or shorten the period for which
the interest rate applies to less than a calendar year (except for the year in
which such amount is received or transferred).
Calculation of Guaranteed Account Value. The Guaranteed Account Value at
any time is equal to amounts allocated and transferred to it plus interest
credited to it, minus amounts deducted, transferred or withdrawn from it.
Interest will be credited to the Guaranteed Account on each Policy
Processing Day as follows: for amounts in the account for the entire Policy
Month, from the beginning to the end of the month; for amounts allocated to the
account during the prior Policy Month, from the date the Net Premium or loan
repayment is allocated to the end of the month; for amounts transferred to the
account during the Policy Month, from the date of transfer to the end of the
month; and for amounts deducted or withdrawn from
35
<PAGE> 38
the account during the prior Policy Month, from the beginning of the month to
the date of deduction or withdrawal.
Surrenders and partial withdrawals from the Guaranteed Account may be
delayed for up to six months. (See "Payment of Policy Benefits.")
TRANSFERS FROM GUARANTEED ACCOUNT
Within 30 days prior to or following any Policy Anniversary, one transfer
is allowed from the Guaranteed Account to any or all of the Subaccounts. The
amount transferred from the Guaranteed Account may not exceed 25% of the value
of such account if the value of such account exceeds $1,000 or, if less, then
the entire Guaranteed Account Value may be transferred on the applicable Policy
Anniversary. If the written request for such transfer is received prior to the
Policy Anniversary, the transfer will be made as of the Policy Anniversary; if
the written request is received after the Policy Anniversary, the transfer will
be made as of the date PLACA receives the written request at its Administrative
Office.
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<PAGE> 39
OTHER POLICY PROVISIONS
BENEFIT 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 both Insureds'
deaths at its Administrative Office and all other requirements are satisfied.
Insurance proceeds will be paid in a single sum unless an alternative settlement
option has been selected.
If Insurance Proceeds are payable in a single sum, interest at the annual
rate of 3% or any higher rate declared by PLACA or required by law is paid on
the Insurance Proceeds from the date of death until payment is made.
Any amounts payable as a result of surrender, partial withdrawal, or Policy
loan will ordinarily be paid within seven days of receipt of written request at
PLACA's Administrative Office in a form satisfactory to PLACA.
Generally, the amount of a payment from the Variable Account will be
determined as of the date of receipt by PLACA of all required documents.
However, PLACA may defer the determination or payment of such amounts if the
date for determining such amounts falls within any period during which: (1) the
disposal or valuation of a Subaccount's assets is not reasonably practicable
because the New York Stock Exchange is closed or conditions are such that, under
the SEC's rules and regulations, trading is restricted or an emergency is deemed
to exist; or (2) the SEC by order permits postponement of such actions for the
protection of PLACA policyholders. As to amounts allocated to the Guaranteed
Account, PLACA may defer payment of any withdrawal or surrender of Net Cash
Surrender Value and the making of a loan for up to six months after PLACA
receives a written request at its Administrative Office. PLACA will allow
interest, at a rate of 3% a year, on any payment PLACA defers for 30 days or
more as described above.
The Owner may decide the form in which proceeds will be paid. 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. If the Beneficiary is changed, any prior arrangements with
respect to the Payment Option will be canceled.
THE POLICY
The Policy and the application(s) attached thereto are the entire contract.
Only statements made in the applications can be used to void the Policy or deny
a claim. PLACA assumes that all statements in an application are made to the
best of the knowledge and belief of the person(s) who made them, and, in the
absence of fraud, those statements are considered representations and not
warranties. PLACA relies on those statements when it issues or changes a Policy.
Only the President or a Vice President of PLACA can agree to change or waive any
provisions of the Policy and only in writing. As a result of differences in
applicable state laws, certain provisions of the Policy may vary from state to
state.
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OWNERSHIP
The Insureds jointly are the Owner unless a different Owner is named in the
application or thereafter changed. After the death of the first Insured, the
last surviving Insured is 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 Owner
are not the same, and the Owner dies while an Insured is still 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 last surviving Insured's death are
payable in a single sum to the estate of the last surviving Insured.
CHANGE OF OWNER OR BENEFICIARY
As long as the Policy is in force, the Owner or Beneficiary may be changed
by written request in a form acceptable to PLACA. If two or more persons are
named as Beneficiaries, those surviving the Insured will share the Insurance
Proceeds equally, unless otherwise stated. The change will take effect as of the
date it is signed, whether or not 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.")
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
Insurance Proceeds) are split between the parties. There are different ways of
allocating such rights.
For example, an employer and employee might agree that under a Policy on
the life of the employee, the employer will pay the premiums and will have the
right to receive the Net Cash Surrender Value. The employee may designate the
Beneficiary to receive any Insurance Proceeds in excess of the Net Cash
Surrender Value. If the employee dies while such an arrangement is in effect,
the employer would receive from the Insurance Proceeds the amount which he would
have been entitled to receive upon surrender of the policy and the employee's
Beneficiary would receive the balance of the proceeds.
No transfer of Policy rights pursuant to a Split Dollar Arrangement will be
binding on PLACA unless in writing and received by PLACA.
The parties who elect to enter into a Split Dollar Arrangement should
consult their own tax advisers regarding the tax consequences of such an
arrangement.
ASSIGNMENTS
The Owner may assign any and all rights under the Policy. No assignment
binds PLACA unless in writing and received by PLACA at it's Administrative
Office. PLACA assumes no responsibility for determining whether an assignment is
valid and the extent of the assignee's interest. All assignments will be subject
to any Policy loan. The interest of any Beneficiary or other person will be
subordinate to any assignment. A Beneficiary may not commute, encumber, or
alienate Policy benefits, and to the extent permitted by applicable law, such
benefits are not subject to any legal process for the payment of any claim
against the payee. To the extent permitted by applicable laws, no right or
benefit under the Policy will be subject to claims of creditors, except as may
be provided by assignment.
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MISSTATEMENT OF AGE AND SEX
If the age or sex of either Insured has been misstated in the application,
the Death Benefit and any benefits provided by riders will be such as the most
recent Monthly Deductions would have provided at the correct age and sex. No
adjustment will be made to the Policy Account Value.
SUICIDE
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 2 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 2 year period
and within 90 days of the death of the first of the Insured's 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 Policy, without evidence of
insurability, for a permanent life policy issued by PLACA on the life of the
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 that one of the
Insured's commits suicide within 2 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 2 years of the Policy Issue
Date (or shorter period required by state law) 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.
If the Insured commits suicide within two years (or shorter period required
by state law) from the effective date of any Policy change which increases the
Death Benefit, the amount which PLACA will pay with respect to the increase will
be the Monthly Deductions for the cost of insurance attributable to such
increase and the expense charge for the increase.
CONTESTABILITY
PLACA has the right to contest the validity of a Policy based on material
misstatements made in the application for the Policy or a change. However, PLACA
will not contest the Policy (or any change) after it (or the change) has been in
force during each Insured's lifetime for two years.
SETTLEMENT OPTIONS
In lieu of a single sum payment on death or surrender, an election may be
made to apply the proceeds under any one of the fixed-benefit Settlement Options
provided in the Policy. A guaranteed interest rate of 3% per year applies to all
Options. Additional interest may be declared each year by PLACA in its sole
discretion. The options are briefly described below. Please refer to the Policy
for more details.
Proceeds at Interest Option. Left on deposit to accumulate with PLACA with
interest payable at 12, 6, 3, or 1 month intervals, as elected at a rate of at
least 3% per year.
Installments of a Specified Amount Option. Payable in equal installments
of the amount elected with PLACA's consent at 12, 6, 3, or 1 month intervals, as
elected until proceeds applied under the Option and interest on the unpaid
balance at 3% per year and any additional interest are exhausted.
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Installments for a Specified Period Option. Payable in the number of equal
monthly installments set forth in the election. Payments may be increased by
additional interest which would increase the installments certain. The
guaranteed interest rate is 3% per year.
Life Income Option. Payable in equal monthly installments during the
payee's life. Payments will be made either with or without a guaranteed minimum
number. If there is to be a minimum number of payments, they will be for either
120 or 240 months or until the proceeds applied under the Option are exhausted,
as elected.
Joint and Survivor Life Income. Payable in equal monthly installments,
with a number of installments certain, during the joint lives of the payee and
one other person and during the life of the survivor. The minimum number of
payments will be for either 120 or 240 months, as elected.
SUPPLEMENTARY BENEFITS
The following riders offer supplementary benefits. Most are subject to
various age and underwriting requirements and, unless otherwise indicated, must
be purchased when the Policy is issued. The cost of each rider is included in
the monthly deduction.
Disability Waiver Benefit. A Disability Waiver Benefit rider provides that
in the event of the Insured's total disability before Attained Age 60 and
continuing for at least six months, PLACA will apply a premium payment to the
Policy on each Policy Processing Day during the first five Policy Years (the
amount of the payment will be based on the Minimum Annual Premium). PLACA will
also waive all monthly deductions after the commencement of and during the
continuance of such total disability after the first five Policy Years.
Policy Split Option. Under this rider, the Owner(s) may exchange the
Policy for two individual permanent life insurance policies, one on the life of
each of the Insureds, by making a Written Request to us within 180 days of one
of the following events:
1. a court of competent jurisdiction issues a final divorce decree
with respect to the marriage of the Insureds; or
2. federal law with regard to estate taxes is changed so as to remove
the unlimited marital deduction or reduce by 50% or more, the estate taxes
payable on death.
If the Policy is owned jointly by two Owners, both must agree to exercise
the rider. PLACA requires satisfactory evidence of insurability as to both
Insureds before issuing the individual policies. In the event that one of the
Insureds cannot provide satisfactory evidence of insurability, an individual
policy may be issued on the other Insured and one-half of the Net Cash Surrender
Value of the Policy may be distributed to the Owner(s) in lieu of a second
individual policy. Similarly, if two joint Owners are the Insureds and one of
them does not agree to exercise the exchange provided by this rider, then he or
she may take one-half (or other appropriate portion based on relative ownership)
of the Net Cash Surrender Value of the Policy in lieu of a second individual
policy.
If the rider is exercised, the Policy will terminate and the individual
policies will become effective as of the Policy Processing Day following the
later of the date that (1) Written Request is made for the exchange, or (2)
PLACA approves the exchange. This date shall also be the Policy Date for the
individual policies. Any Policy Debt under the Policy is extinguished as of the
date of the exchange.
The two individual policies shall each have a cash value equal to 50% of
the Policy's final Policy Account Value less 50% of any policy loan (including
accrued interest). The face amount of each individual policy will be at least
50% of the Policy's final Face Amount and never less than the stated minimum
face amount as of the date of the exchange.
After the exchange, the Owner(s) may return an individual policy for a
refund under the cancellation period provision in such policy. The refund shall
not exceed 50% of the Net Cash Surrender Value of the Policy plus premiums paid
in connection with the individual policy.
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The rider terminates upon the earliest of: (1) the Policy Processing Date
on or following the day that PLACA receives a Written Request to exchange under
this rider, (2) the date of death of the first Insured to die under the Policy,
(3) the date as of which PLACA receives a Written Request to cancel this rider,
(4) the Policy Anniversary when the older Insured reaches Attained Age 81, or
(5) the date as of which the Policy is surrendered.
Change of Insured. A Change of Insured rider permits the Owner to change
one of the Insureds, subject to certain conditions and evidence of insurability.
The Monthly Deduction for the cost of insurance is adjusted to that for the New
Insured and remaining Insured as of the effective date of the change.
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.
Convertible Term Life Insurance. A Convertible Term Life Insurance
rider(s) provides additional term insurance on either or both Insureds. This
rider will terminate at the earlier of attained age 100 of the covered Insured
or at the termination or maturity of the Policy. If the Policy is extended by
the Final Policy Date Extension rider, the Convertible Term Life Insurance rider
will terminate on the original maturity date.
Guaranteed Minimum Death Benefit. A Guaranteed Minimum Death Benefit rider
provides a guarantee that if the cumulative premiums paid less partial
withdrawals and outstanding loans exceed the cumulative minimum premiums to
date, the Policy will not lapse prior to the end of the Death Benefit Guarantee
Period shown on page 3 of the Policy Schedule. If the rider is added, the
Monthly Deduction will be increased by $0.01 per every $1,000 of Face Amount in
force under the Policy. The rider and the additional Monthly Deduction will
terminate: (1) upon written request; (2) upon surrender or other termination of
the Policy; or (3) at the expiration of the Death Benefit Guarantee Period. The
Guaranteed Minimum Death Benefit rider and the Convertible Term Life Insurance
rider may not be issued on the same Policy.
Final Policy Date Extension. A Final Policy Date Extension rider extends
the Final Policy Date of a Policy 20 years from the original Final Policy Date.
It may only be added on or after the anniversary nearest the younger insured's
90th birthday. There is no charge for adding this rider. The death benefit after
the original Final Policy Date will be the Policy Account Value. All other
riders attached and in effect on the original Final Policy Date will terminate
on the original Final Policy Date.
The tax consequences of (1) adding a Final Policy Date Extension rider to
the Policy, and (2) the Policy continuing in force after the younger Insured's
100th birthday are uncertain. Prospective Owners and Owners considering the
addition of a Final Policy Date Extension to a Policy should consult their own
legal or other advisors as to such consequences.
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FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following summary provides a general description of the federal income
tax considerations associated with the Policy and does not purport to be
complete or to cover all tax 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. No representation is made as to the likelihood
of continuation of the present federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements should be applied is limited. Nevertheless, PLACA believes that
Policies issued on a standard premium class basis should satisfy the applicable
requirements. There is less guidance, however, with respect to Policies issued
on a substandard basis, and it is not clear whether such Policies will in all
cases satisfy the applicable requirements, particularly if the Owner pays the
full amount of premiums permitted under the Policy. If it is subsequently
determined that a Policy does not satisfy the applicable requirements, PLACA may
take appropriate steps to bring the Policy into compliance with such
requirements and we reserve the right to restrict Policy transactions in order
to do so.
In certain circumstances, owners of variable life insurance contracts have
been considered for federal income tax purposes to be the owners of the assets
of the separate account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the separate account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of an Owner to allocate
premium payments and the Policy Account Value and the narrow investment
objective of certain Portfolios, have not been explicitly addressed in published
rulings. While PLACA believes that the Policies do not give Owners investment
control over Separate Account assets, PLACA reserves the right to modify the
Policies as necessary to prevent an Owner from being treated as the owner of the
Separate Account assets supporting the Policy.
In addition, the Code requires that the investments of the Separate
Accounts be "adequately diversified" in order for the Policies to be treated as
life insurance contracts for Federal income tax purposes. It is intended that
the Separate Accounts, through the Portfolios, will satisfy these
diversification requirements.
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 death benefit under a Policy should be
excludible from the gross income of the beneficiary.
Federal, state and local transfer, estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner or beneficiary. A tax adviser should be consulted on
these consequences.
Generally, the Owner will not be deemed to be in constructive receipt of
the Policy Account Value until there is a distribution. When distributions from
a Policy occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "Modified Endowment
Contract."
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Modified Endowment Contracts. Under the Internal Revenue Code, certain
life insurance contracts are classified as "Modified Endowment Contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
circumstances of each Policy will determine whether it is classified as a
Modified Endowment Contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
Policy years or seven years following a material change to the Policy. Certain
changes in a Policy after it is issued could also cause it to be classified as a
Modified Endowment Contract. A current or prospective Owner should consult with
a competent adviser to determine whether a Policy transaction will cause the
Policy to be classified as a Modified Endowment Contract.
Distributions Other Than Death Benefits from Modified Endowment
Contracts. Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
- All distributions other than death benefits from a Modified Endowment
Contract, including distributions upon surrender and withdrawals, are
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the Owner's investment in the Policy only after all
gain has been distributed.
- Loans taken from or secured by a Policy classified as a Modified
Endowment Contract are treated as distributions and taxed in same manner
as surrenders and withdrawals.
- A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Owner has
attained age 59 1/2 or is disabled, or where the distribution 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 or designated beneficiary.
Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a Policy that
is not classified as a Modified Endowment Contract are generally treated first
as a recovery of the Owner's investment in the Policy and only after the
recovery of all investment in the Policy as taxable income. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for Federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole or
in part as ordinary income subject to tax. Loans from or secured by a Policy
that is not a Modified Endowment Contract are generally not treated as
distributions.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a Modified Endowment Contract are subject to the 10 percent
additional income tax.
Investment in the Policy. The Owner's investment in the Policy is
generally the aggregate premium payments. When a distribution is taken from the
Policy, the Owner's investment in the Policy is reduced by the amount of the
distribution that is tax-free.
Policy Loans. In general, interest on a Policy loan will not be
deductible. Before taking out a Policy loan, an Owner should consult a tax
adviser as to the tax consequences.
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 Owner's income when a taxable distribution occurs.
Taxation of Policy Split. The Policy Split Option Rider permits a Policy
to be split into two other permanent 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 Section
1031 through 1043 of the Code. If a policy split is not 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
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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 adviser regarding the possible consequences of a
policy split.
BUSINESS USES OF THE POLICY
Businesses can use the Policy in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances. If an Owner
is purchasing the Policy for any arrangement the value of which depends in part
on its tax consequences, he or she should consult a qualified tax adviser. In
recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
Policy or a change in an existing Policy should consult a tax adviser.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Policy could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Policy.
PLACA'S TAXES
Under current Federal income tax law, PLACA is not taxed on the Separate
Accounts' operations. Thus, currently PLACA does not deduct charges from the
Separate Accounts for its Federal income taxes. PLACA reserves the right to
charge the Separate Accounts for any future Federal income taxes that it may
incur.
Under current laws in several states, PLACA may incur state and local taxes
(in addition to premium taxes). These taxes are not now significant and PLACA is
not currently charging for them. If they increase, PLACA may deduct charges for
such taxes.
VOTING RIGHTS
All of the assets held in the Subaccounts of the Variable Account will be
invested in shares of corresponding portfolios of the Funds. The Funds do not
hold routine annual shareholders' meetings. Shareholders' meetings will be
called whenever each Fund believes that it is necessary to vote to elect the
Board of Directors of the Fund and to vote upon certain other matters that are
required by the 1940 Act to be approved or ratified by the shareholders of a
mutual fund. PLACA is the legal owner of Fund shares and as such has the right
to vote upon any matter that may be voted upon at a shareholders' meeting.
However, in accordance with its view of present applicable law, PLACA will vote
the shares of the Funds at meetings of the shareholders of the appropriate Fund
or Portfolio in accordance with instructions received from Owners. Fund shares
held in each Subaccount for which no timely instructions from policyowners are
received will be voted by PLACA in the same proportion as those shares in that
Subaccount for which instructions are received.
Each Owner having a voting interest will be sent proxy material and a form
for giving voting instructions. Owners may vote, by proxy or in person, only as
to the Portfolios that correspond to the Subaccounts in which their Policy
values are allocated. The number of shares held in each Subaccount attributable
to a Policy for which the Owner may provide voting instructions will be
determined by dividing the Policy's value in that account by the net asset value
of one share of the corresponding Portfolio as of the record date for the
shareholder meeting. Fractional shares will be counted. For each share of a
Portfolio for which Owners have no interest, PLACA will cast votes, for or
against any matter, in the same proportion as Owners vote.
If required by state insurance officials, PLACA may disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the investment objectives or policies of one or
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more of the Portfolios, or to approve or disapprove an investment policy or
investment adviser of one or more of the Portfolios. In addition, PLACA may
disregard voting instructions in favor of changes initiated by an Owner or the
Fund's Board of Directors provided that PLACA's disapproval of the change is
reasonable and is based on a good faith determination that the change would be
contrary to state law or otherwise inappropriate, considering the portfolio's
objectives and purposes, and the effect the change would have on PLACA. If PLACA
does disregard voting instructions, it will advise Owners of that action and its
reasons for such action in the next semi-annual report to Owners.
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CHANGES TO THE VARIABLE ACCOUNT OR FUNDS
CHANGES TO VARIABLE ACCOUNT OPERATIONS
The voting rights described in this Prospectus are created under applicable
Federal securities laws and regulations. If these laws or regulations change to
eliminate the necessity to solicit voting instructions from Owners or restrict
such voting rights, PLACA reserves the right to proceed in accordance with any
such changed laws or regulations.
PLACA also reserves the right, subject to compliance with applicable law,
including approval of Owners, if so required: (1) to transfer assets supporting
the Policies from one Subaccount to another or from the Variable Account to
another separate account, or vice versa (2) to create additional separate
accounts, (3) to create Subaccounts from, or combine or remove Subaccounts from
the Variable Account or other separate accounts, or to combine any two or more
Subaccounts, (4) to operate one or more of the Subaccounts as a management
investment company under the 1940 Act, or in any other form permitted by law,
(5) to deregister the unit investment trust under the 1940 Act; and (6) to
modify the provisions of the Policies to comply with applicable laws.
CHANGES TO AVAILABLE PORTFOLIOS
It is possible that PLACA may determine that one or more of the Portfolios
may become unsuitable for investment by the corresponding Subaccount because of
a change in investment policy, or a change in the tax laws, or because the
shares or units are no longer available for investment or for any other
reasonable cause. In that event, PLACA may seek to substitute the shares of
another Portfolio or of a Portfolio of a Fund not currently available under the
Policies. If required by law, the approval of the SEC and possibly one or more
state insurance departments would be obtained.
Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between it and PLACA. The
termination provisions of those agreements vary. Should an agreement between
PLACA and a Fund terminate, the Variable Account will not be able to purchase
additional shares of that Fund. In that event, Owners would no longer be able to
allocate Policy Account Value or Net Premium Payments to Subaccounts investing
in Portfolios of that Fund. Additionally, in certain circumstances, it is
possible that a Fund may refuse to sell its shares to the Variable Account
despite the fact that the participation agreement between the Fund and PLACA has
not been terminated. In such an event, PLACA will not be able to honor requests
of Owners to allocate their Policy Account Value or Net Premium Payments to
Subaccounts investing in shares of Portfolios of that Fund.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares
to Subaccounts of the Variable Account contain varying provisions regarding
termination. The following summarizes those provisions:
Market Street Fund, Inc. This agreement provides for termination: (1)
on one year's advance notice by any party; (2) at PLACA's option if shares
of the Fund are not reasonably available to meet the requirements of the
Contracts; (3) at the option of the Fund or PLACA if certain enforcement
proceedings are instituted against the other; (4) upon receipt of
regulatory approvals and/or the vote of the Owners of Contracts to
substitute shares of another mutual fund; (5) at PLACA's option if the Fund
ceases to qualify as a regulated investment company under the Code or fails
to meet the diversification requirements thereunder; (6) at the option of
PLACA or the Fund upon a determination that an irreconcilable material
conflict exists between Owners of variable insurance products of all the
separate accounts or the interests of participating insurance companies
investing in the Fund; (7) at the option of PLACA if it has withdrawn the
Variable Account's investment in the Fund; (8) at the option of PLACA if
PLACA has withdrawn the Account or Accounts investment in the Fund because
a particular state insurance regulator's decision applicable
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to the PLACA conflicts with the majority of other state insurance
regulators; (9) at the option of the PLACA if the Fund ceases to qualify as
a Regulated Investment Company under Subchapter M of the Internal Revenue
Code of 1986, or under any successor or similar provision, or if the PLACA
reasonably believes that the Fund may fail to so qualify; (10) at the
option of the PLACA if the Fund fails to meet the diversification
requirements specified in Article VI hereof; or (11) at the option of any
party upon another party's material breach of any provision of the
agreement.
The Alger American Fund. The Agreement with The Alger American Fund
provides for termination: 1) by either party on 60 days written notice to
the other; 2) by Alger if the Policies cease to qualify as annuity
contracts or life insurance policies under the Code or the Policies are not
registered, issued or sold in accordance with applicable laws; 3) by any
party in the event of a material irreconcilable conflict; 4) by PLACA in
the event that formal proceedings are initiated against Alger or the
distributor by the SEC or another regulator; 5) by PLACA in the event the
Portfolio or trust fails to meet the diversification requirements; 6) by
PLACA if shares are not reasonably available; 7) by PLACA if shares of the
Portfolio are not registered, issued or sold in accordance with applicable
laws or applicable law precludes the use of such shares; 8) by PLACA if
Alger fails to qualify as a regulated investment company under Subchapter M
of the Code; or 9) by Alger's principal underwriter if it determines that
PLACA has suffered a material adverse change in its business, operation,
financial condition or prospects.
Variable Insurance Products Fund and Variable Insurance Products Fund
II. These agreements provide for termination: (1) on six months' advance
notice by any party; (2) at PLACA's option if shares of the Fund are not
reasonably available to meet the requirements of the Contracts; (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 fails to meet the
diversification requirements thereunder; (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 conditions or is the 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 the 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 Contracts; (7) by PLACA by
written notice to the Fund and its principal underwriter with respect to
any portfolio in the event that such portfolio ceases to qualify as a
regulated investment company under Subchapter M of the Code of under any
successor or similar provision, or if the PLACA reasonably believes that
the PLACA may fail to so qualify; (8) termination by PLACA by written
notice to the Fund and its principal underwriter with respect to any
portfolio in the event that such portfolio fails to meet specified
diversification requirements.
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
Worldwide Insurance Trust ("Van Eck Trust") provides for termination (1) by
PLACA, Van Eck Trust or Van Eck Trust's Distributor upon six months prior
written notice; (2) at the option of PLACA, if Fund shares are not
available for any reason to meet the requirements of Contracts as
determined by PLACA, reasonable advance notice of election to terminate
shall be furnished by PLACA; (3) at the option of PLACA, the Fund or its
principal underwriter, upon institution of formal proceedings against the
broker-dealer marketing the Contracts, the Variable Accounts, PLACA or the
Fund by any regulatory body; (4) upon a decision by PLACA, in accordance
with regulations of the SEC, to substitute Fund shares with the shares of
Contracts for which the shares have been selected to serve as the
underlying investment medium PLACA on 60 days' written notice replace Fund
shares; (5) upon assignment of the agreement unless made with the written
consent of each other party; (6) in the event Fund shares are not
registered, issued or sold in conformance with Federal law or such law
precludes the use of Fund shares as an underlying investment medium of
Contracts issued or to be issued by PLACA; (7) at the option of PLACA by
written notice to the Fund and its principal underwriter with respect
47
<PAGE> 50
to any portfolio in the event that such portfolio fails to meet specified
diversification requirements or if reasonably believes that the portfolio
may fail to meet either of those requirements; (8) at the option of PLACA
by written notice to the Fund and its principal underwriter, if PLACA shall
determine, in its sole judgment exercised in good faith, that the Fund or
its principal underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity; or (9) at
the option of the Fund or its principal underwriter by written notice to
PLACA, if the Fund or its principal underwriter shall determine, in its
sole judgment exercised in good faith, that the Fund or underwriter has
suffered a material adverse change in its business operations, financial
condition or prospects since the date of this Agreement or is the subject
of material adverse publicity.
48
<PAGE> 51
OFFICERS AND DIRECTORS OF PLACA
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
Robert W. Kloss
Director and President............... 1996 to present -- President and Chief Executive Officer
of PMLIC; 1994 to 1996 -- President and Chief Operating
Officer of PMLIC; 1986 to 1994 -- Chief Executive Officer
of Covenant Life Insurance Company.
James G. Potter, Jr.
Director, Secretary and Legal
Officer.............................. 12/97 to present -- Executive Vice President, General
Counsel & Secretary of Provident Mutual Life Insurance
Company; 6/89 to 11/97 -- Chief Legal Officer of
Prudential Banks.
James D. Kestner
Director............................. 11/94 to present -- Vice President of Provident Mutual
Life Insurance Company; 1/78 to 11/94 -- Sr. Vice
President and Treasurer of Covenant Life Insurance
Company.
Sarah C. Lange
Director............................. 1983 to present -- Vice President of Provident Mutual Life
Insurance Company.
Alan F. Hinkle
Director............................. 1996 to present -- Executive Vice President and Chief
Actuary of PMLIC; 1974 to 1996 -- Vice President and
Individual Actuary of PMLIC.
Joan C. Tucker
Director............................. 1996 to present -- Executive Vice President, Insurance
Operations at PMLIC; 1996 -- Senior Vice President,
Insurance Operations of PMLIC; 1993 to 1996 -- Vice
President Individual Insurance Operations at PMLIC.
Mary Lynn Finelli
Director............................. 1996 to present -- Executive Vice President and Chief
Financial Officer of PMLIC; 1986 to 1996 -- Vice President
and Controller of PMLIC.
Mehran Assadi
Director............................. 1998 to present -- Executive Vice President and Chief
Information Officer of PMLIC; 1982-1998 -- Vice President,
Technology and Business Development at St. Paul Company.
Linda M. Springer
Director............................. 1996 to present -- Vice President and controller of PMLIC;
1995 to 1996 -- Assistant Vice President and Actuary of
PMLIC; 1992 to 1995 -- Actuary of PMLIC.
Rosanne Gatta
Treasurer............................ 1994 to present -- Vice President and Treasurer of PMLIC;
1985 to 1994 -- Assistant Vice President and Treasurer of
PMLIC.
</TABLE>
- ---------------
* Unless otherwise indicated, the address is 1050 Westlakes Drive, Berwyn,
Pennsylvania 19312.
A Fidelity Bond in the amount of $10 million covering PLACA's officers and
employees has been issued by Aetna Casualty and Surety Company.
DISTRIBUTION OF POLICIES
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell PLACA's variable life insurance policies,
and who are also registered representatives of 1717 Capital Management Company
("1717") or registered representatives of broker/dealers who have Selling
Agreements with 1717 or registered representatives of broker/dealers who have
Selling Agreements with such broker/dealers. 1717, whose address is 300
Continental Drive, Suite 3, South Newark,
49
<PAGE> 52
Delaware 19713, 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 was organized under the laws of Pennsylvania on
January 22, 1969 and is an indirect wholly-owned subsidiary of PMLIC. 1717 acts
as the principal underwriter of the Policies (as well as other variable life
policies) pursuant to an Underwriting Agreement to which the Accounts, 1717 and
PLACA are parties. 1717 retains no compensation as principal underwriter of the
Policies. 1717 is also the principal underwriter of variable annuity contracts
issued by PLACA and variable life and annuity contracts issued by PMLIC.
The insurance underwriting and the determination of a proposed Insured's
Premium Class and whether to accept or reject an application for a Policy is
done by PLACA. PLACA will refund any premiums paid if a Policy ultimately is not
issued or will refund the applicable amount if the Policy is returned under the
Free-Look provision.
Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. During the first Policy
Year, agent commissions will not be more than 91% of the premiums paid up to a
target amount (used only to determine commission payments) and 2% of the
premiums paid in excess of that amount. Agent commissions will not be more than
2% of premiums paid for Policy Year 2 through 10. Agents may also receive annual
renewal compensation of up to 0.25% of the unloaned Policy Account Value,
depending upon the circumstances. The annual renewal compensation will be
computed on the Policy Anniversary beginning at the end of the second Policy
Year. Agents may also receive expense allowances or bonuses. The agent may be
required to return the first year commission less the deferred sales charge
imposed if a Policy is not continued through the first Policy Year.
POLICY REPORTS
At least once each Policy Year a statement will be sent to the Owner
describing the status of the Policy, including setting forth the Face Amount,
the current Death Benefit, any Policy loans and accrued interest, the current
Policy Account Value, the Guaranteed Account Value, the Loan Account Value, the
value in each Subaccount, premiums paid since the last report, charges deducted
since the last report, any partial withdrawals since the last report, and the
current Net Cash Surrender Value. At the present time, PLACA plans to send these
Policy Statements on a quarterly basis. In addition, a statement will be sent to
an Owner showing the status of the Policy following the transfer of amounts from
one Subaccount to another (excluding automatic rebalancing of Policy Account
Value), the taking a loan, a repayment of a loan, a partial withdrawal and the
payment of any premiums (excluding those paid by bank draft or otherwise under
the Automatic Payment Plan). An Owner may request that a similar report be
prepared at other times. PLACA may charge a reasonable fee for such requested
reports and may limit the scope and frequency of such requested reports.
An Owner will be sent a semi-annual report containing the financial
statements of each Portfolio in which he or she is invested.
PREPARING FOR YEAR 2000
Like all financial services providers, PMLIC 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 anticipates that
their systems will be Year 2000 compliant on or about
50
<PAGE> 53
October 1, 1999 but there can be no assurance that Provident Mutual will be
successful, or that interaction with other service providers will not impair
Provident Mutual's services at that time.
STATE REGULATION
PLACA is subject to regulation and supervision by the Insurance Department
of the State of Delaware which periodically examines its affairs. It is also
subject to the insurance laws and regulations of all jurisdictions where it is
authorized to do business. A copy of the Policy form has been filed with, and
where required approved by, insurance officials in each jurisdiction where the
Policies are sold. PLACA is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
LEGAL PROCEEDINGS
PMLIC and its subsidiaries, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PMLIC and PLACA believe that as
of the date of this Prospectus there are no pending or threatened lawsuits that
are reasonably likely to have a material adverse impact on the Separate Account,
PLACA or PMLIC.
EXPERTS
The audited Financial Statements listed on Page F-1, have been included in
this Prospectus, in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
Actuarial matters included in the Prospectus have been examined by Scott V.
Carney, FSA, MAAA, Vice President and Actuary of PMLIC, as stated in his opinion
filed as an exhibit to the Registration Statement.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington, D.C. has provided advice
relating to certain aspects of federal securities law applicable to the issue
and sale of the Policies. James G. Potter, Jr., General Counsel of PMLIC, has
provided advice on certain matters relating to the laws of Delaware regarding
the Policies and PLACA's issuance of the Policies.
51
<PAGE> 54
DEFINITIONS
ATTAINED AGE.................. The Issue Age for each Insured plus the number
of full Policy Years since the Policy Date.
BENEFICIARY................... The person(s) or entity(ies) designated to
receive all or some of the Insurance Proceeds
when the 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
last surviving Insured's estate 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.
DURATION...................... The number of full years the insurance has been
in force, measured from the Policy Date.
FACE AMOUNT................... The Initial Face Amount plus any increases in
Face Amount and minus any decreases in Face
Amount.
FINAL POLICY DATE............. The Policy Anniversary nearest 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.
INITIAL FACE AMOUNT........... The Face Amount of the Policy on the Issue
Date. The 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 AGE..................... 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 aligned to the two Insureds which PLACA
actuarially determines based 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.
52
<PAGE> 55
MINIMUM GUARANTEE PREMIUM..... The Minimum Annual Premium multiplied by the
number of months since the Policy Date
(including the current month) divided by 12.
MINIMUM INITIAL PREMIUM....... Equal to the Minimum Annual Premium multiplied
by the following factor for the specified
premium mode at issue: Annual -- 1.0;
Semi-annual -- 0.5; Quarterly -- 0.25;
Monthly -- 0.167.
MONTHLY DEDUCTIONS............ The amount deducted from the Policy Account
Value on each Policy Processing Day. It
includes the Monthly Administrative Charge, the
Initial Administrative Charge, the Monthly Cost
of Insurance Charge, and the monthly cost of
any benefits provided by riders.
NET AMOUNT AT RISK............ The amount by which the Death Benefit exceeds
the Policy Account Value.
NET CASH SURRENDER VALUE...... The Cash Surrender Value minus any outstanding
Policy loans and accrued interest.
NET PREMIUMS.................. The remainder of a premium after the deduction
of the Premium Expense Charge.
OWNER......................... The person(s) or entity(ies) entitled to
exercise the rights granted in the Policy.
PLANNED PERIODIC PREMIUM...... The premium amount which the Owner plans to pay
at the frequency selected. The Owner is
entitled to receive a reminder notice and
change the amount of the Planned Periodic
Premium. The Owner is not required to pay the
Planned Periodic Premium.
POLICY ACCOUNT VALUE.......... The sum of the Policy's values in the
Subaccounts, the Guaranteed Account, and the
Loan Account.
POLICY ANNIVERSARY............ The same day and month as the Policy Date in
each later year.
POLICY DATE................... The date set forth in the Policy that is used
to determine Policy Years and Policy Processing
Days. The Policy Date is generally the same as
the Issue Date but may be another date mutually
agreed upon by PLACA and the proposed Insured.
POLICY ISSUE DATE............. The date on which the Policy is issued. It is
used to measure suicide and contestable
periods.
POLICY PROCESSING DAY......... The day in each calendar month which is the
same day of the month as the Policy Date. The
first Policy Processing Day is the Policy Date.
POLICY YEAR................... A year that starts on the Policy Date or on a
Policy Anniversary.
PREMIUM CLASS................. The classification of the Insureds for cost of
insurance purposes. The classes are: standard;
standard, with extra rating, non-smoker,
non-smoker with extra rating, and preferred.
PREMIUM EXPENSE CHARGE........ The amount deducted from a premium payment
which consists of the Premium Tax Charge and
the Percent of Premium Charge.
53
<PAGE> 56
SPECIAL POLICY ACCOUNT VALUE
CREDIT........................ An amount that is added to the Policy Account
Value in the Subaccounts on any Policy
processing day after the Policy has been in
force for at least 15 years or when the Policy
Account Value equals or exceeds $500,000.
SUBACCOUNT.................... A division of the Providentmutual Variable Life
Separate Account. The assets of each Subaccount
are invested exclusively in a corresponding
mutual fund Portfolio that is part of one of
the Funds.
SURRENDER CHARGE.............. The amount deducted from the Policy Account
Value upon lapse or surrender of the Policy
during the first 15 Policy Years. A pro-rata
Surrender Charge will be deducted upon a
decrease in the Initial Face Amount during the
first 15 Policy Years. The Maximum Surrender
Charge is shown in the Policy.
TARGET PREMIUM................ An amount of premium payments, based on the
Initial Face Amount and Joint Equal Age of the
Insureds, used to compute Surrender Charges.
VALUATION DAY................. Each day that the New York Stock Exchange is
open for business and any other day on which
there is a sufficient degree of trading with
respect to a Subaccount's portfolio of
securities to materially affect the value of
that Subaccount.
VALUATION PERIOD.............. The time between two successive Valuation Days.
Each Valuation Period includes a Valuation Day
and any non-Valuation Day or consecutive
non-Valuation Days immediately preceding it.
54
<PAGE> 57
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,
1998.................................................. F-3
Statements of Operations for the Year Ended December
31, 1998.............................................. F-8
Statements of Operations for the Year Ended December
31, 1997.............................................. F-13
Statements of Operations for the Year Ended December
31, 1996.............................................. F-17
Statements of Changes in Net Assets for the Year Ended
December 31, 1998..................................... F-21
Statements of Changes in Net Assets for the Year Ended
December 31, 1997..................................... F-26
Statements of Changes in Net Assets for the Year Ended
December 31, 1996..................................... F-30
Notes to Financial Statements.......................... F-34
Statements of Assets and Liabilities, June 30, 1999
(unaudited)........................................... F-52
Statements of Operations for the Six Months Ended June
30, 1999 (unaudited).................................. F-57
Statements of Changes in Net Assets for the Six Months
Ended June 30, 1999 (unaudited)....................... F-62
Notes to Interim Unaudited Condensed Financial
Statements............................................ F-67
Providentmutual Life and Annuity Company of America
Report of Independent Accountants...................... F-79
Statements of Financial Condition as of December 31,
1998 and 1997......................................... F-80
Statements of Operations for the Years Ended December
31, 1998, 1997, and 1996.............................. F-81
Statements of Equity for the Years Ended December 31,
1998, 1997, and 1996.................................. F-82
Statements of Cash Flows for the Years Ended December
31, 1998, 1997, and 1996.............................. F-83
Notes to Financial Statements.......................... F-84
Condensed Statement of Financial Condition, June 30,
1999 (unaudited)...................................... F-96
Condensed Statement of Operations for the Six Months
Ended June 30, 1999 (unaudited)....................... F-97
Condensed Statement of Equity for the Six Months Ended
June 30, 1999 (unaudited)............................. F-98
Condensed Statement of Cash Flows for the Six Months
Ended June 30, 1999 (unaudited)....................... F-99
Notes to Interim Unaudited Condensed Financial
Statements............................................ F-100
</TABLE>
F-1
<PAGE> 58
- --------------------------------------------------------------------------------
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:
In our opinion, the accompanying statements of assets and liabilities of the
Providentmutual Variable Life Separate Account comprising twenty-eight
subaccounts, hereafter collectively referred to as the "Separate Account" and
the related statements of operations and changes in net assets present fairly,
in all material respects, the financial position of the Separate Account at
December 31, 1998, and the results of its operations and changes in its net
assets for each of the three years in the period then ended, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the management of the Separate Account; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1998 by
correspondence with the transfer agents, provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 26, 1999
F-2
<PAGE> 59
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc.,
at market value:
Growth Portfolio........................... $2,827,916
Money Market Portfolio..................... $4,355,548
Bond Portfolio............................. $1,307,466
Managed Portfolio.......................... $649,153
Aggressive Growth Portfolio................ $1,836,242
International Portfolio.................... $2,104,234
Dividends receivable......................... 18,278
Receivable from Providentmutual Life and
Annuity Company of America................. 34,409
---------- ---------- ---------- -------- ---------- ----------
NET ASSETS................................... $2,827,916 $4,408,235 $1,307,466 $649,153 $1,836,242 $2,104,234
========== ========== ========== ======== ========== ==========
Held for the benefit of policyholders........ $2,777,677 $4,381,932 $1,271,574 $602,463 $1,792,702 $2,067,356
Attributable to Providentmutual Life and
Annuity Company of America................. 50,239 26,303 35,892 46,690 43,540 36,878
---------- ---------- ---------- -------- ---------- ----------
$2,827,916 $4,408,235 $1,307,466 $649,153 $1,836,242 $2,104,234
========== ========== ========== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 60
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO LARGE ALL PRO LARGE ALL PRO SMALL ALL PRO SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc., at market value:
All Pro Large Cap Growth Portfolio........................ $247,925
All Pro Large Cap Value Portfolio......................... $237,471
All Pro Small Cap Growth Portfolio........................ $277,529
All Pro Small Cap Value Portfolio......................... $281,462
-------- -------- -------- --------
NET ASSETS.................................................. $247,925 $237,471 $277,529 $281,462
======== ======== ======== ========
Held for the benefit of policyholders....................... $220,095 $212,701 $254,390 $259,563
Attributable to Providentmutual Life and Annuity Company of
America................................................... 27,830 24,770 23,139 21,899
-------- -------- -------- --------
$247,925 $237,471 $277,529 $281,462
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 61
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<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>
ASSETS
Investment in the Variable Insurance Products
Fund, at market value:
Equity-Income Portfolio.................... $9,649,507
Growth Portfolio........................... $11,319,649
High Income Portfolio...................... $1,847,985
Overseas Portfolio......................... $3,438,701
Investment in the Variable Insurance Products
Fund II, at market value:
Asset Manager Portfolio.................... $2,298,935
Index 500 Portfolio........................ $12,355,027
---------- ----------- ---------- ---------- ---------- -----------
NET ASSETS................................... $9,649,507 $11,319,649 $1,847,985 $3,438,701 $2,298,935 $12,355,027
========== =========== ========== ========== ========== ===========
Held for the benefit of policyholders........ $9,596,100 $11,280,784 $1,809,764 $3,397,921 $2,251,873 $12,305,784
Attributable to Providentmutual Life and
Annuity Company of America................. 53,407 38,865 38,221 40,780 47,062 49,243
---------- ----------- ---------- ---------- ---------- -----------
$9,649,507 $11,319,649 $1,847,985 $3,438,701 $2,298,935 $12,355,027
========== =========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 62
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER
FIDELITY NEUBERGER NEUBERGER & BERMAN NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN LIMITED & BERMAN
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance
Products Fund II, at market value:
Investment Grade Bond Portfolio........ $1,224,170
Contrafund Portfolio................... $5,486,967
Investment in the Neuberger & Berman
Advisers Management Trust, at market
value:
Balanced Portfolio..................... $571,175
Growth Portfolio....................... $2,010,488
Limited Maturity Bond Portfolio........ $858,328
Partners Portfolio..................... $244,247
---------- ---------- -------- ---------- -------- --------
NET ASSETS............................... $1,224,170 $5,486,967 $571,175 $2,010,488 $858,328 $244,247
========== ========== ======== ========== ======== ========
Held for the benefit of policyholders.... $1,188,892 $5,441,595 $527,297 $1,956,915 $826,431 $220,760
Attributable to Providentmutual Life and
Annuity Company of America............. 35,278 45,372 43,878 53,573 31,897 23,487
---------- ---------- -------- ---------- -------- --------
$1,224,170 $5,486,967 $571,175 $2,010,488 $858,328 $244,247
========== ========== ======== ========== ======== ========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 63
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in American Century Variable
Portfolios, Inc., at market value:
American Century VP Capital
Appreciation Portfolio............... $780,871
Investment in the Van Eck Worldwide
Insurance Trust, at market value:
Van Eck Worldwide Bond Portfolio....... $691,312
Van Eck Worldwide Hard Assets
Portfolio............................ $320,851
Van Eck Worldwide Emerging Markets
Portfolio............................ $890,107
Van Eck Worldwide Real Estate
Portfolio............................ $73,425
Investment in the Alger American Fund, at
market value:
Alger American Small Capitalization
Portfolio............................ $3,153,585
-------- -------- -------- -------- ------- ----------
NET ASSETS............................... $780,871 $691,312 $320,851 $890,107 $73,425 $3,153,585
======== ======== ======== ======== ======= ==========
Held for the benefit of policyholders.... $750,225 $656,914 $289,648 $878,330 $51,940 $3,123,752
Attributable to Providentmutual Life and
Annuity Company of America............. 30,646 34,398 31,203 11,777 21,485 29,833
-------- -------- -------- -------- ------- ----------
$780,871 $691,312 $320,851 $890,107 $73,425 $3,153,585
======== ======== ======== ======== ======= ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 64
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................................... $ 32,506 $200,082 $51,027 $13,745 $ 10,230 $ 10,981
EXPENSES
Mortality and expense risks..................... 13,985 25,182 6,139 2,618 9,880 11,192
-------- -------- ------- ------- -------- --------
Net investment income (loss).................... 18,521 174,900 44,888 11,127 350 (211)
-------- -------- ------- ------- -------- --------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized gain distributions reinvested.......... 215,993 91 17,406 97,659 92,754
Net realized gain from redemption of investment
shares........................................ 25,043 10,106 16,185 41,538 7,476
-------- -------- ------- ------- -------- --------
Net realized gain on investments................ 241,036 10,197 33,591 139,197 100,230
-------- -------- ------- ------- -------- --------
Net unrealized appreciation of investments:
Beginning of year............................. 172,999 12,860 29,978 155,190 29,510
End of year................................... 197,030 26,571 38,577 133,217 65,845
-------- -------- ------- ------- -------- --------
Net unrealized appreciation (depreciation) of
investments during the year................... 24,031 13,711 8,599 (21,973) 36,335
-------- -------- ------- ------- -------- --------
Net realized and unrealized gains on
investments................................... 265,067 23,908 42,190 117,224 136,565
-------- -------- ------- ------- -------- --------
Net increase in net assets resulting from
operations.................................... $283,588 $174,900 $68,796 $53,317 $117,574 $136,354
======== ======== ======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 65
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO ALL PRO
ALL PRO LARGE ALL PRO LARGE SMALL SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends
EXPENSES
Mortality and expense risks................................. $ 259 $ 304 $ 314 $ 329
------- ------- ------- -------
Net investment loss......................................... (259) (304) (314) (329)
------- ------- ------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions reinvested
Net realized loss from redemption of investment shares...... (1,657) (6,212) (9,872) (9,805)
------- ------- ------- -------
Net realized loss on investments............................ (1,657) (6,212) (9,872) (9,805)
------- ------- ------- -------
Net unrealized appreciation of investments:
Beginning of year.........................................
End of year............................................... 31,368 21,256 49,117 22,620
------- ------- ------- -------
Net unrealized appreciation of investments during the
year...................................................... 31,368 21,256 49,117 22,620
------- ------- ------- -------
Net realized and unrealized gains on investments............ 29,711 15,044 39,245 12,815
------- ------- ------- -------
Net increase in net assets resulting from operations........ $29,452 $14,740 $38,931 $12,486
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 66
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<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..................................... $ 81,811 $ 29,841 $ 93,141 $ 40,087 $ 42,970 $ 63,803
EXPENSES
Mortality and expense risks................... 48,070 51,289 10,379 16,730 10,984 54,109
-------- ---------- --------- -------- -------- ----------
Net investment income (loss).................. 33,741 (21,448) 82,762 23,357 31,986 9,694
-------- ---------- --------- -------- -------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested........ 291,150 780,585 59,183 118,152 128,911 147,780
Net realized gain from redemption of
investment shares........................... 88,248 127,759 3,646 31,224 30,583 418,425
-------- ---------- --------- -------- -------- ----------
Net realized gain on investments.............. 379,398 908,344 62,829 149,376 159,494 566,205
-------- ---------- --------- -------- -------- ----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year........................... 689,708 749,980 92,199 12,760 120,277 762,238
End of year................................. 1,077,750 2,627,782 (159,189) 120,843 174,522 2,218,476
-------- ---------- --------- -------- -------- ----------
Net unrealized appreciation (depreciation) of
investments during the year................. 388,042 1,877,802 (251,388) 108,083 54,245 1,456,238
-------- ---------- --------- -------- -------- ----------
Net realized and unrealized gain (loss) on
investments................................. 767,440 2,786,146 (188,559) 257,459 213,739 2,022,443
-------- ---------- --------- -------- -------- ----------
Net increase (decrease) in net assets
resulting from operations................... $801,181 $2,764,698 ($105,797) $280,816 $245,725 $2,032,137
======== ========== ========= ======== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 67
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED & BERMAN
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................. $34,930 $ 15,801 $10,205 $35,042
EXPENSES
Mortality and expense risks............... 5,834 22,599 3,166 $ 10,244 4,092 $ 241
------- ---------- ------- -------- ------- -------
Net investment income (loss).............. 29,096 (6,798) 7,039 (10,244) 30,950 (241)
------- ---------- ------- -------- ------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested.... 4,144 116,250 71,678 353,563
Net realized gain (loss) from redemption
of investment shares.................... 3,572 53,379 (5,814) (27,730) 373 (2,190)
------- ---------- ------- -------- ------- -------
Net realized gain (loss) on investments... 7,716 169,629 65,864 325,833 373 (2,190)
------- ---------- ------- -------- ------- -------
Net unrealized appreciation of
investments:
Beginning of year....................... 20,012 204,136 34,081 138,020 13,790
End of year............................. 55,564 1,044,526 12,499 32,289 5,385 18,863
------- ---------- ------- -------- ------- -------
Net unrealized appreciation (depreciation)
of investments during the year.......... 35,552 840,390 (21,582) (105,731) (8,405) 18,863
------- ---------- ------- -------- ------- -------
Net realized and unrealized gain (loss) on
investments............................. 43,268 1,010,019 44,282 220,102 (8,032) 16,673
------- ---------- ------- -------- ------- -------
Net increase in net assets resulting from
operations.............................. $72,364 $1,003,221 $51,321 $209,858 $22,918 $16,432
======= ========== ======= ======== ======= =======
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 68
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING REAL SMALL
APPRECIATION BOND HARD ASSETS MARKETS ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................... $ 3,318 $ 1,970 $ 5,912
EXPENSES
Mortality and expense risks................. $ 4,421 3,195 2,120 5,032 $ 64 $ 13,957
-------- ------- --------- --------- ------- --------
Net investment income (loss)................ (4,421) 123 (150) 880 (64) (13,957)
-------- ------- --------- --------- ------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested...... 34,155 48,391 5,255 284,477
Net realized gain (loss) from redemption of
investment shares......................... (42,850) 7,111 (45,006) (63,895) (5,674) (7,361)
-------- ------- --------- --------- ------- --------
Net realized gain (loss) on investments..... (8,695) 7,111 3,385 (58,640) (5,674) 277,116
-------- ------- --------- --------- ------- --------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year......................... (36,829) 7,894 (3,949) (165,992) 82,155
End of year............................... (51,652) 65,524 (137,564) (424,268) 3,621 164,065
-------- ------- --------- --------- ------- --------
Net unrealized appreciation (depreciation)
of investments during the year............ (14,823) 57,630 (133,615) (258,276) 3,621 81,910
-------- ------- --------- --------- ------- --------
Net realized and unrealized gain (loss) on
investments............................... (23,518) 64,741 (130,230) (316,916) (2,053) 359,026
-------- ------- --------- --------- ------- --------
Net increase (decrease) in net assets
resulting from operations................. ($27,939) $64,864 ($130,380) ($316,036) ($2,117) $345,069
======== ======= ========= ========= ======= ========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 69
- --------------------------------------------------------------------------------
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-13
<PAGE> 70
- --------------------------------------------------------------------------------
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-14
<PAGE> 71
- --------------------------------------------------------------------------------
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-15
<PAGE> 72
- --------------------------------------------------------------------------------
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-16
<PAGE> 73
- --------------------------------------------------------------------------------
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-17
<PAGE> 74
- --------------------------------------------------------------------------------
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-18
<PAGE> 75
- --------------------------------------------------------------------------------
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-19
<PAGE> 76
- --------------------------------------------------------------------------------
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
TCI WORLDWIDE AND NATURAL EMERGING SMALL
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-20
<PAGE> 77
- --------------------------------------------------------------------------------
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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............. $ 18,521 $ 174,900 $ 44,888 $ 11,127 $ 350 $ (211)
Net realized gain on investments......... 241,036 10,197 33,591 139,197 100,230
Net unrealized appreciation
(depreciation) of investments during
the year............................... 24,031 13,711 8,599 (21,973) 36,335
---------- ------------ ---------- -------- ---------- ----------
Net increase in net assets from
operations............................. 283,588 174,900 68,796 53,317 117,574 136,354
---------- ------------ ---------- -------- ---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.............. 700,982 12,157,013 286,323 145,810 390,883 542,593
Cost of insurance and administrative
charges................................ (223,112) (517,784) (74,547) (44,806) (145,982) (131,026)
Surrenders and forfeitures............... (20,394) (78,839) (5,714) (1,879) (26,378) (19,231)
Net withdrawals due to
policy loans........................... (51,892) (268,614) (4,688) 295 (41,359) (2,014)
Transfers between investment
portfolios............................. 517,850 (10,774,581) 447,809 134,941 273,343 242,053
---------- ------------ ---------- -------- ---------- ----------
Net increase in net assets derived from
policy transactions.................... 923,434 517,195 649,183 234,361 450,507 632,375
---------- ------------ ---------- -------- ---------- ----------
Total increase in net assets............. 1,207,022 692,095 717,979 287,678 568,081 768,729
NET ASSETS
Beginning of year...................... 1,620,894 3,716,140 589,487 361,475 1,268,161 1,335,505
---------- ------------ ---------- -------- ---------- ----------
End of year............................ $2,827,916 $ 4,408,235 $1,307,466 $649,153 $1,836,242 $2,104,234
========== ============ ========== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE> 78
- --------------------------------------------------------------------------------
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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO ALL PRO
ALL PRO LARGE ALL PRO LARGE SMALL SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment loss........................................ $ (259) $ (304) $ (314) $ (329)
Net realized loss on investments........................... (1,657) (6,212) (9,872) (9,805)
Net unrealized appreciation of investments during the
year..................................................... 31,368 21,256 49,117 22,620
-------- -------- -------- --------
Net increase in net assets from operations................. 29,452 14,740 38,931 12,486
-------- -------- -------- --------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................................ 54,913 56,634 38,819 36,602
Cost of insurance and administrative charges............... (5,966) (7,965) (3,250) (5,225)
Surrenders and forfeitures................................. (1) (8)
Transfers between investment portfolios.................... 144,527 149,070 178,029 212,599
-------- -------- -------- --------
Net increase in net assets derived from policy
transactions............................................. 193,473 197,731 213,598 243,976
-------- -------- -------- --------
Capital contribution from Providentmutual Life and Annuity
Company of America....................................... 25,000 25,000 25,000 25,000
-------- -------- -------- --------
Total increase in net assets............................... 247,925 237,471 277,529 281,462
NET ASSETS
Beginning of year........................................ -- -- -- --
-------- -------- -------- --------
End of year.............................................. $247,925 $237,471 $277,529 $281,462
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-22
<PAGE> 79
- --------------------------------------------------------------------------------
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, 1998
- --------------------------------------------------------------------------------
<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>
FROM OPERATIONS
Net investment income (loss).................. $ 33,741 $ (21,448) $ 82,762 $ 23,357 $ 31,986 $ 9,694
Net realized gain on investments.............. 379,398 908,344 62,829 149,376 159,494 566,205
Net unrealized appreciation (depreciation) of
investments during the year................. 388,042 1,877,802 (251,388) 108,083 54,245 1,456,238
---------- ----------- ---------- ---------- ---------- -----------
Net increase (decrease) in net assets from
operations.................................. 801,181 2,764,698 (105,797) 280,816 245,725 2,032,137
---------- ----------- ---------- ---------- ---------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................... 2,791,625 2,817,681 644,433 991,712 538,144 4,725,165
Cost of insurance and administrative
charges..................................... (683,360) (776,716) (141,578) (247,860) (128,200) (1,026,576)
Surrenders and forfeitures.................... (100,189) (148,661) (18,862) (43,350) (27,852) (153,976)
Net withdrawals due to policy loans........... (25,809) (30,231) (12,378) (17,062) 11,088 (35,752)
Transfers between investment portfolios....... 1,325,938 1,223,266 223,803 639,706 404,187 1,912,283
Withdrawals due to death benefits............. (9,104) (52,787) (1,121) (1,235) (4,122)
---------- ----------- ---------- ---------- ---------- -----------
Net increase in net assets derived from policy
transactions................................ 3,299,101 3,032,552 695,418 1,322,025 796,132 5,417,022
---------- ----------- ---------- ---------- ---------- -----------
Return of capital to Providentmutual Life and
Annuity Company of America.................. (30,000) (30,000)
---------- ----------- ---------- ---------- ---------- -----------
Total increase in net assets.................. 4,100,282 5,767,250 589,621 1,602,841 1,041,857 7,419,159
NET ASSETS
Beginning of year........................... 5,549,225 5,552,399 1,258,364 1,835,860 1,257,078 4,935,868
---------- ----------- ---------- ---------- ---------- -----------
End of year................................. $9,649,507 $11,319,649 $1,847,985 $3,438,701 $2,298,935 $12,355,027
========== =========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-23
<PAGE> 80
- --------------------------------------------------------------------------------
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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED & BERMAN
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).............. $ 29,096 $ (6,798) $ 7,039 $ (10,244) $ 30,950 $ (241)
Net realized gain (loss) on investments... 7,716 169,629 65,864 325,833 373 (2,190)
Net unrealized appreciation (depreciation)
of investments during the year.......... 35,552 840,390 (21,582) (105,731) (8,405) 18,863
---------- ---------- -------- ---------- -------- --------
Net increase in net assets from
operations.............................. 72,364 1,003,221 51,321 209,858 22,918 16,432
---------- ---------- -------- ---------- -------- --------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............... 310,292 1,737,346 127,973 582,452 224,085 123,418
Cost of insurance and administrative
charges................................. (76,939) (364,105) (55,932) (156,359) (42,136) (8,687)
Surrenders and forfeitures................ (8,154) (53,656) (8,030) (19,760) (1,602)
Net (withdrawals) repayments due to policy
loans................................... (2,779) 3,715 (16,887) (18,679) (1,363) (101)
Transfers between investment portfolios... 274,632 1,036,789 109,236 230,165 128,083 88,185
Withdrawals due to death benefits......... (2,854) (34,374)
---------- ---------- -------- ---------- -------- --------
Net increase in net assets derived from
policy transactions..................... 497,052 2,357,235 156,360 583,445 307,067 202,815
---------- ---------- -------- ---------- -------- --------
Capital contribution from Providentmutual
Life and Annuity Company of America..... 25,000
---------- ---------- -------- ---------- -------- --------
Total increase in net assets.............. 569,416 3,360,456 207,681 793,303 329,985 244,247
NET ASSETS
Beginning of year....................... 654,754 2,126,511 363,494 1,217,185 528,343 --
---------- ---------- -------- ---------- -------- --------
End of year............................. $1,224,170 $5,486,967 $571,175 $2,010,488 $858,328 $244,247
========== ========== ======== ========== ======== ========
</TABLE>
See accompanying notes to financial statements
F-24
<PAGE> 81
- --------------------------------------------------------------------------------
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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING REAL SMALL
APPRECIATION BOND HARD ASSETS MARKETS ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................ $ (4,421) $ 123 $ (150) $ 880 $ (64) $ (13,957)
Net realized gain (loss) on investments..... (8,695) 7,111 3,385 (58,640) (5,674) 277,116
Net unrealized appreciation (depreciation)
of investments during the year............ (14,823) 57,630 (133,615) (258,276) 3,621 81,910
-------- -------- --------- -------- --------- ----------
Net increase (decrease) in net assets from
operations................................ (27,939) 64,864 (130,380) (316,036) (2,117) 345,069
-------- -------- --------- -------- --------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................. 236,573 249,745 134,991 375,034 13,909 1,139,641
Cost of insurance and administrative
charges................................... (91,415) (44,347) (33,980) (98,968) (1,364) (248,405)
Surrenders and forfeitures.................. (22,461) (4,079) (4,253) (5,110) (30,009)
Net withdrawals due to policy loans......... (10,745) (1,174) (969) (2,809) (16,982)
Transfers between investment
portfolios................................ 79,336 141,529 (7,393) 259,476 37,997 531,504
Withdrawals due to death benefits........... (29,065)
-------- -------- --------- -------- --------- ----------
Net increase in net assets derived from
policy transactions....................... 191,288 341,674 88,396 527,623 50,542 1,346,684
-------- -------- --------- -------- --------- ----------
Capital contribution from Providentmutual
Life and Annuity Company of America....... 10,000 25,000
-------- -------- --------- -------- --------- ----------
Total increase in net assets................ 163,349 406,538 (41,984) 221,587 73,425 1,691,753
NET ASSETS
Beginning of year......................... 617,522 284,774 362,835 668,520 -- 1,461,832
-------- -------- --------- -------- --------- ----------
End of year............................... $780,871 $691,312 $ 320,851 $890,107 $ 73,425 $3,153,585
======== ======== ========= ======== ========= ==========
</TABLE>
See accompanying notes to financial statements
F-25
<PAGE> 82
- --------------------------------------------------------------------------------
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-26
<PAGE> 83
- --------------------------------------------------------------------------------
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-27
<PAGE> 84
- --------------------------------------------------------------------------------
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-28
<PAGE> 85
- --------------------------------------------------------------------------------
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-29
<PAGE> 86
- --------------------------------------------------------------------------------
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-30
<PAGE> 87
- --------------------------------------------------------------------------------
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-31
<PAGE> 88
- --------------------------------------------------------------------------------
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-32
<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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK VAN ECK GOLD VAN ECK ALGER AMERICAN
TCI WORLDWIDE AND NATURAL EMERGING SMALL
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-33
<PAGE> 90
- --------------------------------------------------------------------------------
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-eight subaccounts: the Growth, Money Market, Bond, Managed, Aggressive
Growth, International, All Pro Large Cap Growth, All Pro Large Cap Value, All
Pro Small Cap Growth and All Pro Small Cap Value Subaccounts invest in the
corresponding portfolios of the Market Street Fund, Inc.; the Fidelity
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, Neuberger & Berman
Limited Maturity Bond and Neuberger & Berman Partners 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), Van Eck Worldwide Emerging Markets (formerly Van Eck Emerging
Markets) and Van Eck Worldwide Real Estate 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-34
<PAGE> 91
- --------------------------------------------------------------------------------
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-35
<PAGE> 92
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1998, the investments of the respective Subaccounts are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market Street Fund, Inc.:
Growth Portfolio........................................ 150,261 $2,630,886 $2,827,916
Money Market Portfolio.................................. 4,355,548 $4,355,548 $4,355,548
Bond Portfolio.......................................... 116,530 $1,280,895 $1,307,466
Managed Portfolio....................................... 36,717 $610,576 $649,153
Aggressive Growth Portfolio............................. 83,808 $1,703,025 $1,836,242
International Portfolio................................. 151,930 $2,038,389 $2,104,234
All Pro Large Cap Growth Portfolio...................... 21,064 $216,557 $247,925
All Pro Large Cap Value Portfolio....................... 23,987 $216,215 $237,471
All Pro Small Cap Growth Portfolio...................... 28,319 $228,412 $277,529
All Pro Small Cap Value Portfolio....................... 34,116 $258,842 $281,462
Variable Insurance Products Fund:
Equity-Income Portfolio................................. 379,603 $8,571,757 $9,649,507
Growth Portfolio........................................ 252,276 $8,691,867 $11,319,649
High Income Portfolio................................... 160,276 $2,007,174 $1,847,985
Overseas Portfolio...................................... 171,506 $3,317,858 $3,438,701
Variable Insurance Products Fund II:
Asset Manager Portfolio................................. 126,593 $2,124,413 $2,298,935
Index 500 Portfolio..................................... 87,469 $10,136,551 $12,355,027
Investment Grade Bond Portfolio......................... 94,457 $1,168,606 $1,224,170
Contrafund Portfolio.................................... 224,508 $4,442,441 $5,486,967
Neuberger & Berman Advisers Management Trust:
Balanced Portfolio...................................... 34,956 $558,676 $571,175
Growth Portfolio........................................ 76,473 $1,978,199 $2,010,488
Limited Maturity Bond Portfolio......................... 62,108 $852,943 $858,328
Partners Portfolio...................................... 12,903 $225,384 $244,247
American Century Variable Portfolios, Inc.:
American Century VP Capital Appreciation Portfolio...... 86,571 $832,523 $780,871
Van Eck Worldwide Insurance Trust:
Van Eck Worldwide Bond Portfolio........................ 56,296 $625,788 $691,312
Van Eck Worldwide Hard Assets Portfolio................. 34,875 $458,415 $320,851
Van Eck Worldwide Emerging Markets Portfolio............ 125,015 $1,314,375 $890,107
Van Eck Worldwide Real Estate Portfolio................. 7,696 $69,804 $73,425
Alger American Fund:
Alger American Small Capitalization Portfolio........... 71,721 $2,989,520 $3,153,585
</TABLE>
F-36
<PAGE> 93
- --------------------------------------------------------------------------------
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, 1998, 1997 and 1996, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ----------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 73,135 50,220 22,000 10,866,458 11,393,078 2,343,055
Shares received from reinvestment of:
Dividends..................................... 1,893 1,003 464 197,496 88,801 15,339
Capital gain distributions.................... 13,090 4,035 464
---------- -------- -------- ----------- ----------- -----------
Total shares acquired........................... 88,118 55,258 22,928 11,063,954 11,481,879 2,358,394
Total shares redeemed........................... (21,151) (2,578) (1,562) (9,925,488) (8,717,947) (2,171,067)
---------- -------- -------- ----------- ----------- -----------
Net increase in shares owned.................... 66,967 52,680 21,366 1,138,466 2,763,932 187,327
Shares owned, beginning of year................. 83,294 30,614 9,248 3,217,082 453,150 265,823
---------- -------- -------- ----------- ----------- -----------
Shares owned, end of year....................... 150,261 83,294 30,614 4,355,548 3,217,082 453,150
========== ======== ======== =========== =========== ===========
Cost of shares acquired......................... $1,524,498 $986,013 $380,965 $11,063,954 $11,481,879 $ 2,358,394
========== ======== ======== =========== =========== ===========
Cost of shares redeemed......................... $ 341,507 $ 38,324 $ 21,332 $ 9,925,488 $ 8,717,947 $ 2,171,067
========== ======== ======== =========== =========== ===========
</TABLE>
F-37
<PAGE> 94
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................................... 77,640 50,228 8,375 18,495 16,278 2,833
Shares received from reinvestment of:
Dividends................................................ 4,610 1,233 433 832 282 131
Capital gain distributions............................... 8 1,087 44 117
-------- -------- ------- -------- -------- -------
Total shares acquired...................................... 82,258 51,461 8,808 20,414 16,604 3,081
Total shares redeemed...................................... (19,415) (10,179) (903) (4,885) (884) (335)
-------- -------- ------- -------- -------- -------
Net increase in shares owned............................... 62,843 41,282 7,905 15,529 15,720 2,746
Shares owned, beginning of year............................ 53,687 12,405 4,500 21,188 5,468 2,722
-------- -------- ------- -------- -------- -------
Shares owned, end of year.................................. 116,530 53,687 12,405 36,717 21,188 5,468
======== ======== ======= ======== ======== =======
Cost of shares acquired.................................... $908,607 $552,874 $93,373 $346,281 $268,677 $43,739
======== ======== ======= ======== ======== =======
Cost of shares redeemed.................................... $204,339 $106,413 $ 8,795 $ 67,202 $ 10,599 $ 4,014
======== ======== ======= ======== ======== =======
</TABLE>
F-38
<PAGE> 95
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......................................... 31,265 38,091 17,269 56,397 64,862 26,818
Shares received from reinvestment of:
Dividends.............................................. 508 247 105 813 306 95
Capital gain distributions............................. 4,846 49 1,071 7,315 2,397 390
-------- -------- -------- -------- -------- --------
Total shares acquired.................................... 36,619 38,387 18,445 64,525 67,565 27,303
Total shares redeemed.................................... (9,961) (6,756) (1,615) (10,722) (3,015) (1,383)
-------- -------- -------- -------- -------- --------
Net increase in shares owned............................. 26,658 31,631 16,830 53,803 64,550 25,920
Shares owned, beginning of year.......................... 57,150 25,519 8,689 98,127 33,577 7,657
-------- -------- -------- -------- -------- --------
Shares owned, end of year................................ 83,808 57,150 25,519 151,930 98,127 33,577
======== ======== ======== ======== ======== ========
Cost of shares acquired.................................. $753,159 $796,588 $310,897 $866,730 $916,201 $348,283
======== ======== ======== ======== ======== ========
Cost of shares redeemed.................................. $163,105 $113,966 $ 25,216 $134,336 $ 36,245 $ 15,164
======== ======== ======== ======== ======== ========
</TABLE>
F-39
<PAGE> 96
- --------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE LARGE SMALL SMALL
CAP CAP CAP CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
1998 1998 1998 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 24,150 28,950 32,753 43,816
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................
-------- -------- -------- --------
Total shares acquired....................................... 24,150 28,950 32,753 43,816
Total shares redeemed....................................... (3,086) (4,963) (4,434) (9,700)
-------- -------- -------- --------
Net increase in shares owned................................ 21,064 23,987 28,319 34,116
Shares owned, beginning of year.............................
-------- -------- -------- --------
Shares owned, end of year................................... 21,064 23,987 28,319 34,116
======== ======== ======== ========
Cost of shares acquired..................................... $248,497 $265,246 $272,699 $340,167
======== ======== ======== ========
Cost of shares redeemed..................................... $ 31,940 $ 49,031 $ 44,287 $ 81,325
======== ======== ======== ========
</TABLE>
F-40
<PAGE> 97
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 153,199 135,989 72,214 94,179 76,083 53,882
Shares received from reinvestment of:
Dividends..................................... 3,495 1,879 42 887 536 73
Capital gain distributions.................... 12,437 9,447 1,207 23,197 2,400 1,829
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 169,131 147,315 73,463 118,263 79,019 55,784
Total shares redeemed........................... (18,079) (12,497) (3,904) (15,647) (4,951) (1,951)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 151,052 134,818 69,559 102,616 74,068 53,833
Shares owned, beginning of year................. 228,551 93,733 24,174 149,660 75,592 21,759
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 379,603 228,551 93,733 252,276 149,660 75,592
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $4,057,867 $3,254,127 $1,456,815 $4,350,414 $2,711,400 $1,652,672
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $ 345,627 $ 225,789 $ 64,479 $ 460,966 $ 142,538 $ 44,454
========== ========== ========== ========== ========== ==========
</TABLE>
F-41
<PAGE> 98
- --------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased..................................... 69,235 69,137 17,623 81,679 70,577 18,466
Shares received from reinvestment of:
Dividends.......................................... 7,523 2,488 1,213 2,130 605 157
Capital gain distributions......................... 4,781 307 237 6,278 2,403 171
---------- -------- -------- ---------- ---------- --------
Total shares acquired................................ 81,539 71,932 19,073 90,087 73,585 18,794
Total shares redeemed................................ (13,926) (9,180) (1,259) (14,199) (7,953) (1,282)
---------- -------- -------- ---------- ---------- --------
Net increase in shares owned......................... 67,613 62,752 17,814 75,888 65,632 17,512
Shares owned, beginning of year...................... 92,663 29,911 12,097 95,618 29,986 12,474
---------- -------- -------- ---------- ---------- --------
Shares owned, end of year............................ 160,276 92,663 29,911 171,506 95,618 29,986
========== ======== ======== ========== ========== ========
Cost of shares acquired.............................. $1,006,130 $916,751 $229,442 $1,741,880 $1,433,652 $334,188
========== ======== ======== ========== ========== ========
Cost of shares redeemed.............................. $ 165,121 $107,593 $ 13,691 $ 247,122 $ 131,357 $ 19,258
========== ======== ======== ========== ========== ========
</TABLE>
F-42
<PAGE> 99
- --------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................... 63,645 23,488 40,738 53,123 28,249 15,023
Shares received from reinvestment of:
Dividends........................................ 2,657 1,757 303 555 204 35
Capital gain distributions....................... 7,972 4,410 251 1,285 414 91
---------- -------- -------- ---------- ---------- ----------
Total shares acquired.............................. 74,274 29,655 41,292 54,963 28,867 15,149
Total shares redeemed.............................. (17,480) (3,629) (2,068) (10,643) (2,318) (1,457)
---------- -------- -------- ---------- ---------- ----------
Net increase in shares owned....................... 56,794 26,026 39,224 44,320 26,549 13,692
Shares owned, beginning of year.................... 69,799 43,773 4,549 43,149 16,600 2,908
---------- -------- -------- ---------- ---------- ----------
Shares owned, end of year.......................... 126,593 69,799 43,773 87,469 43,149 16,600
========== ======== ======== ========== ========== ==========
Cost of shares acquired............................ $1,257,524 $494,496 $660,528 $6,814,303 $2,998,568 $1,241,314
========== ======== ======== ========== ========== ==========
Cost of shares redeemed............................ $ 269,912 $ 55,987 $ 28,726 $ 851,382 $ 173,873 $ 95,888
========== ======== ======== ========== ========== ==========
</TABLE>
F-43
<PAGE> 100
- --------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased..................................... 43,614 43,904 8,553 123,430 95,855 17,029
Shares received from reinvestment of:
Dividends.......................................... 2,904 866 288 817 175
Capital gain distributions......................... 344 6,008 464
-------- -------- -------- ---------- ---------- ----------
Total shares acquired................................ 46,862 44,770 8,841 130,255 96,494 17,029
Total shares redeemed................................ (4,535) (5,346) (977) (12,392) (6,090) (788)
-------- -------- -------- ---------- ---------- ----------
Net increase in shares owned......................... 42,327 39,424 7,864 117,863 90,404 16,241
Shares owned, beginning of year...................... 52,130 12,706 4,842 106,645 16,241
-------- -------- -------- ---------- ---------- ----------
Shares owned, end of year............................ 94,457 52,130 12,706 224,508 106,645 16,241
======== ======== ======== ========== ========== ==========
Cost of shares acquired.............................. $586,720 $548,044 $104,740 $2,721,969 $1,758,817 $ 265,037
======== ======== ======== ========== ========== ==========
Cost of shares redeemed.............................. $ 52,856 $ 62,960 $ 10,930 $ 201,903 $ 89,872 $ 11,607
======== ======== ======== ========== ========== ==========
</TABLE>
F-44
<PAGE> 101
- --------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................................ 19,377 11,617 6,369 29,928 19,122 12,912
Shares received from reinvestment of:
Dividends............................................. 673 207 119 4
Capital gain distributions............................ 4,722 531 665 14,622 1,969 855
-------- -------- -------- ---------- -------- --------
Total shares acquired................................... 24,772 12,355 7,153 44,550 21,091 13,771
Total shares redeemed................................... (10,237) (2,292) (841) (7,932) (2,132) (1,157)
-------- -------- -------- ---------- -------- --------
Net increase in shares owned............................ 14,535 10,063 6,312 36,618 18,959 12,614
Shares owned, beginning of year......................... 20,421 10,358 4,046 39,855 20,896 8,282
-------- -------- -------- ---------- -------- --------
Shares owned, end of year............................... 34,956 20,421 10,358 76,473 39,855 20,896
======== ======== ======== ========== ======== ========
Cost of shares acquired................................. $390,678 $202,808 $110,480 $1,104,028 $605,607 $342,933
======== ======== ======== ========== ======== ========
Cost of shares redeemed................................. $161,415 $ 36,890 $ 12,315 $ 204,994 $ 53,645 $ 24,218
======== ======== ======== ========== ======== ========
</TABLE>
F-45
<PAGE> 102
- --------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------
LIMITED MATURITY PARTNERS
BOND PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
1998 1997 1996 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 30,075 34,180 1,441 13,985
Shares received from reinvestment of:
Dividends................................................. 2,621 290 219
Capital gain distributions................................
-------- -------- ------- --------
Total shares acquired....................................... 32,696 34,470 1,660 13,985
Total shares redeemed....................................... (8,006) (592) (319) (1,082)
-------- -------- ------- --------
Net increase in shares owned................................ 24,690 33,878 1,341 12,903
Shares owned, beginning of year............................. 37,418 3,540 2,199
-------- -------- ------- --------
Shares owned, end of year................................... 62,108 37,418 3,540 12,903
======== ======== ======= ========
Cost of shares acquired..................................... $447,958 $473,413 $22,893 $247,264
======== ======== ======= ========
Cost of shares redeemed..................................... $109,568 $ 8,393 $ 4,518 $ 21,880
======== ======== ======= ========
</TABLE>
F-46
<PAGE> 103
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN CENTURY
VARIABLE PORTFOLIOS, INC.
- --------------------------------------------------------------------------------------------
AMERICAN CENTURY VP
CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 33,759 35,982 20,034
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................ 3,550 1,032 2,166
-------- -------- --------
Total shares acquired....................................... 37,309 37,014 22,200
Total shares redeemed....................................... (14,532) (7,362) (3,025)
-------- -------- --------
Net increase in shares owned................................ 22,777 29,652 19,175
Shares owned, beginning of year............................. 63,794 34,142 14,967
-------- -------- --------
Shares owned, end of year................................... 86,571 63,794 34,142
======== ======== ========
Cost of shares acquired..................................... $343,650 $360,144 $239,141
======== ======== ========
Cost of shares redeemed..................................... $165,478 $ 89,378 $ 28,624
======== ======== ========
</TABLE>
F-47
<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>
VAN ECK WORLDWIDE INSURANCE TRUST
- --------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE VAN ECK WORLDWIDE
BOND PORTFOLIO HARD ASSETS PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................................... 36,665 23,946 4,129 17,397 19,029 6,863
Shares received from reinvestment of:
Dividends............................................... 302 329 174 154 263 35
Capital gain distributions.............................. 3,792 194 35
-------- -------- ------- -------- -------- --------
Total shares acquired..................................... 36,967 24,275 4,303 21,343 19,486 6,933
Total shares redeemed..................................... (6,583) (7,242) (406) (9,549) (5,349) (638)
-------- -------- ------- -------- -------- --------
Net increase in shares owned.............................. 30,384 17,033 3,897 11,794 14,137 6,295
Shares owned, beginning of year........................... 25,912 8,879 4,982 23,081 8,944 2,649
-------- -------- ------- -------- -------- --------
Shares owned, end of year................................. 56,296 25,912 8,879 34,875 23,081 8,944
======== ======== ======= ======== ======== ========
Cost of shares acquired................................... $419,483 $258,716 $46,831 $243,416 $309,179 $112,234
======== ======== ======= ======== ======== ========
Cost of shares redeemed................................... $ 70,575 $ 78,063 $ 4,185 $151,785 $ 79,846 $ 7,609
======== ======== ======= ======== ======== ========
</TABLE>
F-48
<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>
VAN ECK WORLDWIDE INSURANCE TRUST
- ---------------------------------------------------------------------------------------------------------
VAN ECK
WORLDWIDE
VAN ECK WORLDWIDE REAL ESTATE
EMERGING MARKETS PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------
1998 1997 1996 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 75,726 58,300 6,457 11,645
Shares received from reinvestment of:
Dividends................................................. 605 30 11
Capital gain distributions................................ 538
-------- -------- ------- --------
Total shares acquired....................................... 76,869 58,330 6,468 11,645
Total shares redeemed....................................... (12,629) (3,821) (202) (3,949)
-------- -------- ------- --------
Net increase in shares owned................................ 64,240 54,509 6,266 7,696
Shares owned, beginning of year............................. 60,775 6,266
-------- -------- ------- --------
Shares owned, end of year................................... 125,015 60,775 6,266 7,696
======== ======== ======= ========
Cost of shares acquired..................................... $649,297 $804,526 $75,703 $110,595
======== ======== ======= ========
Cost of shares redeemed..................................... $169,434 $ 43,501 $ 2,216 $ 40,791
======== ======== ======= ========
</TABLE>
F-49
<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>
ALGER AMERICAN FUND
- ------------------------------------------------------------------------------------------------
ALGER AMERICAN
SMALL CAPITALIZATION
PORTFOLIO
- ------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 37,591 26,913 9,023
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................ 7,022 790
---------- ---------- --------
Total shares acquired....................................... 44,613 27,703 9,023
Total shares redeemed....................................... (6,305) (3,263) (50)
---------- ---------- --------
Net increase in shares owned................................ 38,308 24,440 8,973
Shares owned, beginning of year............................. 33,413 8,973
---------- ---------- --------
Shares owned, end of year................................... 71,721 33,413 8,973
========== ========== ========
Cost of shares acquired..................................... $1,870,715 $1,143,613 $373,537
========== ========== ========
Cost of shares redeemed..................................... $ 260,872 $ 135,282 $ 2,191
========== ========== ========
</TABLE>
F-50
<PAGE> 107
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
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, 1998, 1997 and 1996.
The Policies provide for an initial free-look period. If a policy is
cancelled within certain time constraints, the policyholder will receive a
refund equal to the policy account value plus certain deductions made under the
policy. Where state law requires a minimum refund equal to gross premiums paid,
the refund will instead equal the gross premiums paid on the policy and will not
reflect investment experience.
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 assessed if a flexible
premium adjustable survivorship policy is surrendered before the fifteenth
policy year. These charges are recorded as administrative charges in the
statements of changes in net assets.
F-51
<PAGE> 108
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc.,
at market value:
Growth Portfolio........................... $3,470,607
Money Market Portfolio..................... $5,923,591
Bond Portfolio............................. $1,211,854
Managed Portfolio.......................... $1,164,380
Aggressive Growth Portfolio................ $2,061,041
International Portfolio.................... $2,661,104
Dividends receivable......................... 21,339
Receivable from Providentmutual Life and
Annuity Company of America................. 94,764
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS................................... $3,470,607 $6,039,694 $1,211,854 $1,164,380 $2,061,041 $2,661,104
========== ========== ========== ========== ========== ==========
Held for the benefit of policyholders........ $3,416,251 $6,013,689 $1,177,317 $1,044,837 $2,013,347 $2,620,503
Attributable to Providentmutual Life and
Annuity Company of America................. 54,356 26,005 34,537 119,543 47,694 40,601
---------- ---------- ---------- ---------- ---------- ----------
$3,470,607 $6,039,694 $1,211,854 $1,164,380 $2,061,041 $2,661,104
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-52
<PAGE> 109
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO LARGE ALL PRO LARGE ALL PRO SMALL ALL PRO SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc., at market value:
All Pro Large Cap Growth Portfolio........................ $1,445,391
All Pro Large Cap Value Portfolio......................... $345,135
All Pro Small Cap Growth Portfolio........................ $400,587
All Pro Small Cap Value Portfolio......................... $434,464
---------- -------- -------- --------
NET ASSETS.................................................. $1,445,391 $345,135 $400,587 $434,464
========== ======== ======== ========
Held for the benefit of policyholders....................... $1,372,607 $318,000 $371,204 $412,785
Attributable to Providentmutual Life and Annuity Company of
America................................................... 72,784 27,135 29,383 21,679
---------- -------- -------- --------
$1,445,391 $345,135 $400,587 $434,464
========== ======== ======== ========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-53
<PAGE> 110
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<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>
ASSETS
Investment in the Variable Insurance Products
Fund, at market value:
Equity-Income Portfolio.................... $11,990,488
Growth Portfolio........................... $14,146,231
High Income Portfolio...................... $2,332,629
Overseas Portfolio......................... $4,419,054
Investment in the Variable Insurance Products
Fund II, at market value:
Asset Manager Portfolio.................... $2,872,987
Index 500 Portfolio........................ $16,891,828
Receivable from Providentmutual Life and
Annuity Company of America................. 49,664
----------- ----------- ---------- ---------- ---------- -----------
NET ASSETS................................... $11,990,488 $14,146,231 $2,332,629 $4,419,054 $2,872,987 $16,941,492
=========== =========== ========== ========== ========== ===========
Held for the benefit of policyholders........ $11,928,576 $14,100,984 $2,291,223 $4,373,986 $2,823,423 $16,899,383
Attributable to Providentmutual Life and
Annuity Company of America................. 61,912 45,247 41,406 45,068 49,564 42,109
----------- ----------- ---------- ---------- ---------- -----------
$11,990,488 $14,146,231 $2,332,629 $4,419,054 $2,872,987 $16,941,492
=========== =========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-54
<PAGE> 111
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER
FIDELITY & BERMAN NEUBERGER
INVESTMENT FIDELITY LIMITED & BERMAN
GRADE BOND CONTRAFUND MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance Products Fund II, at
market value:
Investment Grade Bond Portfolio........................... $1,629,529
Contrafund Portfolio...................................... $7,690,959
Investment in the Neuberger & Berman Advisers Management
Trust, at market value:
Limited Maturity Bond Portfolio........................... $1,020,007
Partners Portfolio........................................ $2,521,492
Receivable from Providentmutual Life and Annuity Company of
America................................................... 6,230
---------- ---------- ---------- ----------
NET ASSETS.................................................. $1,629,529 $7,690,959 $1,026,237 $2,521,492
========== ========== ========== ==========
Held for the benefit of policyholders....................... $1,594,858 $7,639,505 $ 994,202 $2,418,778
Attributable to Providentmutual Life and Annuity Company of
America................................................... 34,671 51,454 32,035 102,714
---------- ---------- ---------- ----------
$1,629,529 $7,690,959 $1,026,237 $2,521,492
========== ========== ========== ==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-55
<PAGE> 112
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK
VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Van Eck Worldwide Insurance Trust,
at market value:
Van Eck Worldwide Bond Portfolio................... $519,259
Van Eck Worldwide Hard Assets Portfolio............ $483,493
Van Eck Worldwide Emerging Markets Portfolio....... $1,413,065
Van Eck Worldwide Real Estate Portfolio............ $139,061
Investment in the Alger American Fund, at market
value:
Alger American Small Capitalization Portfolio...... $4,259,129
-------- -------- ---------- -------- ----------
NET ASSETS........................................... $519,259 $483,493 $1,413,065 $139,061 $4,259,129
======== ======== ========== ======== ==========
Held for the benefit of policyholders................ $487,309 $446,586 $1,395,730 $115,265 $4,225,742
Attributable to Providentmutual Life and Annuity
Company of America................................. 31,950 36,907 17,335 23,796 33,387
-------- -------- ---------- -------- ----------
$519,259 $483,493 $1,413,065 $139,061 $4,259,129
======== ======== ========== ======== ==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-56
<PAGE> 113
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<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....................................... $ 64,980 $116,341 $ 32,116 $ 37,404 $ 246,336 $ 147,060
EXPENSES
Mortality and expense risks..................... 9,550 17,040 3,930 2,393 5,551 7,155
-------- -------- -------- -------- --------- ---------
Net investment income........................... 55,430 99,301 28,186 35,011 240,785 139,905
-------- -------- -------- -------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested.......... 55,482 14,131 32,620 236,787 123,072
Net realized loss from redemption of investment
shares........................................ (18,436) (15,029) (20,932) (226,968) (118,777)
-------- -------- -------- -------- --------- ---------
Net realized gain (loss) on investments......... 37,046 (898) 11,688 9,819 4,295
-------- -------- -------- -------- --------- ---------
Net unrealized appreciation (depreciation) of
investments:
Beginning of period........................... 197,030 26,571 38,577 133,217 65,845
End of period................................. 337,709 (51,952) 10,656 38,943 138,447
-------- -------- -------- -------- --------- ---------
Net unrealized appreciation (depreciation) of
investments during the period................. 140,679 (78,523) (27,921) (94,274) 72,602
-------- -------- -------- -------- --------- ---------
Net realized and unrealized gains (losses) on
investments................................... 177,725 (79,421) (16,233) (84,455) 76,897
-------- -------- -------- -------- --------- ---------
Net increase (decrease) in net assets resulting
from operations............................... $233,155 $ 99,301 $(51,235) $ 18,778 $ 156,330 $ 216,802
======== ======== ======== ======== ========= =========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-57
<PAGE> 114
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO LARGE ALL PRO LARGE ALL PRO SMALL ALL PRO SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................... $ 54 $ 1,599 $ 594
EXPENSES
Mortality and expense risks................................. 2,051 872 $ 872 1,010
------- ------- ------- -------
Net investment (loss) income................................ (1,997) 727 (872) (416)
------- ------- ------- -------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain distributions reinvested......................
Net realized gain from redemption of investment shares...... 27,106 14,100 37,252 2,152
------- ------- ------- -------
Net realized gain on investments............................ 27,106 14,100 37,252 2,152
------- ------- ------- -------
Net unrealized appreciation of investments:
Beginning of period....................................... 31,368 21,256 49,117 22,620
End of period............................................. 73,016 32,580 83,663 24,618
------- ------- ------- -------
Net unrealized appreciation of investments during the
period.................................................... 41,648 11,324 34,546 1,998
------- ------- ------- -------
Net realized and unrealized gains on investments............ 68,754 25,424 71,798 4,150
------- ------- ------- -------
Net increase in net assets resulting from operations........ $66,757 $26,151 $70,926 $ 3,734
======= ======= ======= =======
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-58
<PAGE> 115
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<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>
INVESTMENT INCOME
Dividends........................................ $ 475,190 $ 1,316,031 $ 191,195 $142,200 $179,250 $ 221,975
EXPENSES
Mortality and expense risks...................... 34,051 40,208 6,772 11,915 8,202 46,593
---------- ----------- --------- -------- -------- ----------
Net investment income............................ 441,139 1,275,823 184,423 130,285 171,048 175,382
---------- ----------- --------- -------- -------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested........... 327,180 1,295,428 6,890 87,778 100,169 89,735
Net realized (loss) gain from redemption of
investment shares.............................. (231,508) (1,126,598) (26,115) (62,672) (90,621) 166,238
---------- ----------- --------- -------- -------- ----------
Net realized gain (loss) on investments.......... 95,672 168,830 (19,225) 25,106 9,548 255,973
---------- ----------- --------- -------- -------- ----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of period............................ 1,077,750 2,627,782 (159,189) 120,843 174,522 2,218,476
End of period.................................. 1,822,370 2,840,802 (171,919) 256,658 119,813 3,405,992
---------- ----------- --------- -------- -------- ----------
Net unrealized appreciation (depreciation) of
investments during the period.................. 744,620 213,020 (12,730) 135,815 (54,709) 1,187,516
---------- ----------- --------- -------- -------- ----------
Net realized and unrealized gain (loss) on
investments.................................... 840,292 381,850 (31,955) 160,921 (45,161) 1,443,489
---------- ----------- --------- -------- -------- ----------
Net increase in net assets resulting from
operations..................................... $1,281,431 $ 1,657,673 $ 152,468 $291,206 $125,887 $1,618,871
========== =========== ========= ======== ======== ==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-59
<PAGE> 116
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED & BERMAN
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................. $ 66,891 $ 235,226 $ 23,342 $ 107,676 $ 51,545 $ 11,010
EXPENSES
Mortality and expense risks............... 4,349 20,818 1,113 4,103 2,831 2,565
-------- ---------- -------- --------- -------- --------
Net investment income..................... 62,542 214,408 22,229 103,573 48,714 8,445
-------- ---------- -------- --------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested.... 15,974 206,999 13,935 107,676 6,990
Net realized (loss) gain from redemption
of investment shares.................... (8,261) (156,385) (30,428) (220,479) (867) 1,874
-------- ---------- -------- --------- -------- --------
Net realized gain (loss) on investments... 7,713 50,614 (16,493) (112,803) (867) 8,864
-------- ---------- -------- --------- -------- --------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period..................... 55,564 1,044,526 12,499 32,289 5,385 18,863
End of period........................... (44,368) 1,457,571 (42,546) 128,263
-------- ---------- -------- --------- -------- --------
Net unrealized (depreciation) appreciation
of investments during the period........ (99,932) 413,045 (12,499) (32,289) (47,931) 109,400
-------- ---------- -------- --------- -------- --------
Net realized and unrealized (loss) gain on
investments............................. (92,219) 463,659 (28,992) (145,092) (48,798) 118,264
-------- ---------- -------- --------- -------- --------
Net (decrease) increase in net assets
resulting from operations............... $(29,677) $ 678,067 $ (6,763) $ (41,519) $ (84) $126,709
======== ========== ======== ========= ======== ========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-60
<PAGE> 117
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................... $ 38,678 $ 4,868 $ 1,545 $ 446,274
EXPENSES
Mortality and expense risks................. $ 1,619 1,700 1,109 $ 3,275 212 11,054
-------- -------- --------- --------- ------- ---------
Net investment (loss) income................ (1,619) 36,978 3,759 (3,275) 1,333 435,220
-------- -------- --------- --------- ------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested...... 11,945 446,274
Net realized gain (loss) from redemption of
investment shares......................... 11,508 574 (10,579) (132,636) 519 (441,188)
-------- -------- --------- --------- ------- ---------
Net realized gain (loss) on investments..... 11,508 12,519 (10,579) (132,636) 519 5,086
-------- -------- --------- --------- ------- ---------
Net unrealized (depreciation) appreciation
of investments:
Beginning of period....................... (51,652) 65,524 (137,564) (424,268) 3,621 164,065
End of period............................. (26,239) (68,524) 125,015 10,716 199,791
-------- -------- --------- --------- ------- ---------
Net unrealized appreciation (depreciation)
of investments during the period.......... 51,652 (91,763) 69,040 549,283 7,095 35,726
-------- -------- --------- --------- ------- ---------
Net realized and unrealized gain (loss) on
investments............................... 63,160 (79,244) 58,461 416,647 7,614 40,812
-------- -------- --------- --------- ------- ---------
Net increase (decrease) in net assets
resulting from operations................. $ 61,541 $(42,266) $ 62,220 $ 413,372 $ 8,947 $ 476,032
======== ======== ========= ========= ======= =========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-61
<PAGE> 118
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Six Months Ended June 30, 1999
(unaudited)
- --------------------------------------------------------------------------------
<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..................... $ 55,430 $ 99,301 $ 28,186 $ 35,011 $ 240,785 $ 139,905
Net realized gain (loss) on investments... 37,046 (898) 11,688 9,819 4,295
Net unrealized appreciation (depreciation)
of investments during the period........ 140,679 (78,523) (27,921) (94,274) 72,602
---------- ----------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets from
operations.............................. 233,155 99,301 (51,235) 18,778 156,330 216,802
---------- ----------- ---------- ---------- ---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............... 517,308 4,980,430 162,600 90,356 211,623 353,764
Cost of insurance and administrative
charges................................. (138,638) (349,451) (48,348) (35,707) (82,099) (78,122)
Surrenders and forfeitures................ (147,813) (41,101) (3,189) (3,272) (10,633) (9,690)
Net (withdrawals) repayments due to policy
loans................................... (19,521) 1,244 (2,312) (2,458) (30,444) (740)
Transfers between investment portfolios... 198,200 (3,058,964) (153,128) 447,530 (19,831) 75,735
Withdrawals due to death benefits......... (147) (879)
---------- ----------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets
derived from policy transactions........ 409,536 1,532,158 (44,377) 496,449 68,469 340,068
---------- ----------- ---------- ---------- ---------- ----------
Total increase (decrease) in net assets... 642,691 1,631,459 (95,612) 515,227 224,799 556,870
NET ASSETS
Beginning of period..................... 2,827,916 4,408,235 1,307,466 649,153 1,836,242 2,104,234
---------- ----------- ---------- ---------- ---------- ----------
End of period........................... $3,470,607 $ 6,039,694 $1,211,854 $1,164,380 $2,061,041 $2,661,104
========== =========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-62
<PAGE> 119
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Six Months Ended June 30, 1999
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO LARGE ALL PRO LARGE ALL PRO SMALL ALL PRO SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss) income.............................. $ (1,997) $ 727 $ (872) $ (416)
Net realized gain on investments.......................... 27,106 14,100 37,252 2,152
Net unrealized appreciation of investments during the
period.................................................. 41,648 11,324 34,546 1,998
---------- -------- -------- --------
Net increase in net assets from operations................ 66,757 26,151 70,926 3,734
---------- -------- -------- --------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............................... 155,408 60,723 43,570 96,500
Cost of insurance and administrative charges.............. (33,908) (17,191) (13,135) (14,421)
Surrenders and forfeitures................................ (11,502) (5,565) (2,607) (46)
Net withdrawals due to policy loans....................... (16,047) (17,322) (3,607) (9,333)
Transfers between investment portfolios................... 1,036,758 60,868 27,911 76,568
---------- -------- -------- --------
Net increase in net assets derived from policy
transactions............................................ 1,130,709 81,513 52,132 149,268
---------- -------- -------- --------
Total increase in net assets.............................. 1,197,466 107,664 123,058 153,002
NET ASSETS
Beginning of period..................................... 247,925 237,471 277,529 281,462
---------- -------- -------- --------
End of period........................................... $1,445,391 $345,135 $400,587 $434,464
========== ======== ======== ========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-63
<PAGE> 120
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Six Months Ended June 30, 1999
(unaudited)
- --------------------------------------------------------------------------------
<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............................ $ 441,139 $ 1,275,823 $ 184,423 $ 130,285 $ 171,048 $ 175,382
Net realized gain (loss) on investments.......... 95,672 168,830 (19,225) 25,106 9,548 255,973
Net unrealized appreciation (depreciation) of
investments during the period.................. 744,620 213,020 (12,730) 135,815 (54,709) 1,187,516
----------- ----------- ---------- ---------- ---------- -----------
Net increase in net assets from operations....... 1,281,431 1,657,673 152,468 291,206 125,887 1,618,871
----------- ----------- ---------- ---------- ---------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums...................... 1,419,236 1,542,367 229,346 811,173 415,696 3,149,512
Cost of insurance and administrative charges..... (426,219) (481,379) (88,570) (155,151) (96,057) (741,116)
Surrenders and forfeitures....................... (47,121) (119,786) (12,980) (22,721) (25,207) (112,103)
Net (withdrawals) repayments due to policy
loans.......................................... (27,062) (22,859) (18,481) (22,516) 700 (51,289)
Transfers between investment portfolios.......... 146,762 253,607 222,861 79,065 153,033 791,076
Withdrawals due to death benefits................ (6,046) (3,041) (703) (68,486)
----------- ----------- ---------- ---------- ---------- -----------
Net increase in net assets derived from policy
transactions................................... 1,059,550 1,168,909 332,176 689,147 448,165 2,967,594
----------- ----------- ---------- ---------- ---------- -----------
Total increase in net assets..................... 2,340,981 2,826,582 484,644 980,353 574,052 4,586,465
NET ASSETS
Beginning of period............................ 9,649,507 11,319,649 1,847,985 3,438,701 2,298,935 12,355,027
----------- ----------- ---------- ---------- ---------- -----------
End of period.................................. $11,990,488 $14,146,231 $2,332,629 $4,419,054 $2,872,987 $16,941,492
=========== =========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-64
<PAGE> 121
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Six Months Ended June 30, 1999
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED & BERMAN
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income..................... $ 62,542 $ 214,408 $ 22,229 $ 103,573 $ 48,714 $ 8,445
Net realized gain (loss) on investments... 7,713 50,614 (16,493) (112,803) (867) 8,864
Net unrealized (depreciation) appreciation
of investments during the period........ (99,932) 413,045 (12,499) (32,289) (47,931) 109,400
---------- ---------- --------- ----------- ---------- ----------
Net (decrease) increase in net assets from
operations.............................. (29,677) 678,067 (6,763) (41,519) (84) 126,709
---------- ---------- --------- ----------- ---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............... 176,263 1,263,343 30,596 122,455 160,210 172,441
Cost of insurance and administrative
charges................................. (56,438) (277,984) (17,818) (47,317) (27,106) (48,245)
Surrenders and forfeitures................ (5,497) (53,956) (743) (4,937) (4,686) (3,150)
Net (withdrawals) repayments due to policy
loans................................... (4,629) (31,772) 192 48 (363) (6,459)
Transfers between investment portfolios... 325,337 630,542 (576,639) (2,035,198) 39,938 2,035,949
Withdrawals due to death benefits......... (4,248) (4,020)
---------- ---------- --------- ----------- ---------- ----------
Net increase (decrease) in net assets
derived from policy transactions........ 435,036 1,525,925 (564,412) (1,968,969) 167,993 2,150,536
---------- ---------- --------- ----------- ---------- ----------
Total increase (decrease) in net assets... 405,359 2,203,992 (571,175) (2,010,488) 167,909 2,277,245
NET ASSETS
Beginning of period..................... 1,224,170 5,486,967 571,175 2,010,488 858,328 244,247
---------- ---------- --------- ----------- ---------- ----------
End of period........................... $1,629,529 $7,690,959 -- -- $1,026,237 $2,521,492
========== ========== ========= =========== ========== ==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-65
<PAGE> 122
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Six Months Ended June 30, 1999
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss) income................ $ (1,619) $ 36,978 $ 3,759 $ (3,275) $ 1,333 $ 435,220
Net realized gain (loss) on investments..... 11,508 12,519 (10,579) (132,636) 519 5,086
Net unrealized appreciation (depreciation)
of investments during the period.......... 51,652 (91,763) 69,040 549,283 7,095 35,726
--------- --------- -------- ---------- -------- ----------
Net increase (decrease) in net assets from
operations................................ 61,541 (42,266) 62,220 413,372 8,947 476,032
--------- --------- -------- ---------- -------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................. 52,425 50,121 65,105 218,324 38,600 588,102
Cost of insurance and administrative
charges................................... (27,936) (24,101) (15,993) (50,371) (2,754) (157,724)
Surrenders and forfeitures.................. (9,792) (2,259) (476) (6,304) (20,183)
Net withdrawals due to policy loans......... (2,760) (1,201) (2,578) (801) (5,224)
Transfers between investment portfolios..... (854,349) (152,347) 54,364 (49,763) 20,843 225,867
Withdrawals due to death benefits........... (1,499) (1,326)
--------- --------- -------- ---------- -------- ----------
Net (decrease) increase in net assets
derived from policy transactions.......... (842,412) (129,787) 100,422 109,586 56,689 629,512
--------- --------- -------- ---------- -------- ----------
Total (decrease) increase in net assets..... (780,871) (172,053) 162,642 522,958 65,636 1,105,544
NET ASSETS
Beginning of period....................... 780,871 691,312 320,851 890,107 73,425 3,153,585
--------- --------- -------- ---------- -------- ----------
End of period............................. -- $ 519,259 $483,493 $1,413,065 $139,061 $4,259,129
========= ========= ======== ========== ======== ==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-66
<PAGE> 123
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Interim Unaudited Condensed 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. As of June 30, 1999, the Separate
Account is comprised of twenty-five subaccounts: the Growth, Money Market, Bond,
Managed, Aggressive Growth, International, All Pro Large Cap Growth, All Pro
Large Cap Value, All Pro Small Cap Growth and All Pro Small Cap Value
Subaccounts invest in the corresponding portfolios of the Market Street Fund,
Inc.; the Fidelity 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 Limited Maturity Bond and Neuberger & Berman Partners
Subaccounts invest in the corresponding portfolios of the Neuberger & Berman
Advisers Management Trust; the Van Eck Worldwide Bond, Van Eck Worldwide Hard
Assets (formerly Van Eck Gold and Natural Resources), Van Eck Worldwide Emerging
Markets (formerly Van Eck Emerging Markets) and Van Eck Worldwide Real Estate
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.
At the close of business on April 30, 1999, the Neuberger & Berman Growth
Subaccount, Neuberger & Berman Balanced Subaccount and American Century VP
Capital Appreciation Subaccount were terminated and the investments were
transferred to the Neuberger & Berman Partners Subaccount, the Managed
Subaccount and the All Pro Large Cap Growth Subaccount, respectively.
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-67
<PAGE> 124
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Interim Unaudited Condensed 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-68
<PAGE> 125
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At June 30, 1999, 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........................................ 174,930 $3,132,898 $3,470,607
Money Market Portfolio.................................. 5,923,591 $5,923,591 $5,923,591
Bond Portfolio.......................................... 114,977 $1,263,806 $1,211,854
Managed Portfolio....................................... 67,305 $1,153,724 $1,164,380
Aggressive Growth Portfolio............................. 100,196 $2,022,098 $2,061,041
International Portfolio................................. 187,931 $2,522,657 $2,661,104
All Pro Large Cap Growth Portfolio...................... 109,004 $1,372,375 $1,445,391
All Pro Large Cap Value Portfolio....................... 32,195 $312,555 $345,135
All Pro Small Cap Growth Portfolio...................... 32,279 $316,924 $400,587
All Pro Small Cap Value Portfolio....................... 53,374 $409,846 $434,464
Variable Insurance Products Fund:
Equity-Income Portfolio................................. 440,018 $10,168,118 $11,990,488
Growth Portfolio........................................ 309,342 $11,305,429 $14,146,231
High Income Portfolio................................... 206,610 $2,504,548 $2,332,629
Overseas Portfolio...................................... 212,455 $4,162,396 $4,419,054
Variable Insurance Products Fund II:
Asset Manager Portfolio................................. 162,407 $2,753,174 $2,872,987
Index 500 Portfolio..................................... 108,524 $13,485,836 $16,891,828
Investment Grade Bond Portfolio......................... 134,895 $1,673,897 $1,629,529
Contrafund Portfolio.................................... 294,673 $6,233,388 $7,690,959
Neuberger & Berman Advisers Management Trust:
Limited Maturity Bond Portfolio......................... 77,923 $1,062,553 $1,020,007
Partners Portfolio...................................... 121,694 $2,393,229 $2,521,492
Van Eck Worldwide Insurance Trust:
Van Eck Worldwide Bond Portfolio........................ 48,169 $545,498 $519,259
Van Eck Worldwide Hard Assets Portfolio................. 45,144 $552,017 $483,493
Van Eck Worldwide Emerging Markets Portfolio............ 136,002 $1,288,050 $1,413,065
Van Eck Worldwide Real Estate Portfolio................. 13,449 $128,345 $139,061
Alger American Fund:
Alger American Small Capitalization Portfolio........... 97,731 $4,059,338 $4,259,129
</TABLE>
F-69
<PAGE> 126
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the six months ended June 30, 1999, transactions in investment
shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE
GROWTH MONEY MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.............................. 35,904 4,682,808 15,326 41,061 14,894 38,064
Shares received from reinvestment of:
Dividends................................... 512 113,281 1,653 286 508 1,831
Capital gain distributions.................. 2,993 1,299 1,951 12,602 9,395
-------- ----------- -------- -------- -------- --------
Total shares acquired......................... 39,409 4,796,089 18,278 43,298 28,004 49,290
Total shares redeemed......................... (14,740) (3,228,046) (19,831) (12,710) (11,616) (13,289)
-------- ----------- -------- -------- -------- --------
Net increase (decrease) in shares owned....... 24,669 1,568,043 (1,553) 30,588 16,388 36,001
Shares owned, beginning of period............. 150,261 4,355,548 116,530 36,717 83,808 151,930
-------- ----------- -------- -------- -------- --------
Shares owned, end of period................... 174,930 5,923,591 114,977 67,305 100,196 187,931
======== =========== ======== ======== ======== ========
Cost of shares acquired....................... $748,369 $ 4,796,089 $197,589 $747,652 $524,732 $653,484
======== =========== ======== ======== ======== ========
Cost of shares redeemed....................... $246,357 $ 3,228,046 $214,678 $204,504 $205,659 $169,216
======== =========== ======== ======== ======== ========
</TABLE>
F-70
<PAGE> 127
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ------------------------------------------------------------------------------------------------------------
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>
Shares purchased............................................ 96,290 17,255 15,806 25,649
Shares received from reinvestment of:
Dividends................................................. 5 161 73
Capital gain distributions................................
---------- -------- -------- --------
Total shares acquired....................................... 96,295 17,416 15,806 25,722
Total shares redeemed....................................... (8,355) (9,208) (11,846) (6,464)
---------- -------- -------- --------
Net increase in shares owned................................ 87,940 8,208 3,960 19,258
Shares owned, beginning of period........................... 21,064 23,987 28,319 34,116
---------- -------- -------- --------
Shares owned, end of period................................. 109,004 32,195 32,279 53,374
========== ======== ======== ========
Cost of shares acquired..................................... $1,235,682 $175,623 $178,870 $197,636
========== ======== ======== ========
Cost of shares redeemed..................................... $ 79,864 $ 79,283 $ 90,358 $ 46,632
========== ======== ======== ========
</TABLE>
F-71
<PAGE> 128
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- -------------------------------------------------------------------------------------------------------------------
EQUITY-INCOME GROWTH HIGH INCOME OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 57,158 36,478 42,682 48,457
Shares received from reinvestment of:
Dividends................................................. 6,224 495 17,034 2,832
Capital gain distributions................................ 13,759 31,095 637 4,567
---------- ---------- -------- ----------
Total shares acquired....................................... 77,141 68,068 60,353 55,856
Total shares redeemed....................................... (16,726) (11,002) (14,019) (14,907)
---------- ---------- -------- ----------
Net increase in shares owned................................ 60,415 57,066 46,334 40,949
Shares owned, beginning of period........................... 379,603 252,276 160,276 171,506
---------- ---------- -------- ----------
Shares owned, end of period................................. 440,018 309,342 206,610 212,455
========== ========== ======== ==========
Cost of shares acquired..................................... $1,921,437 $2,926,394 $672,712 $1,113,223
========== ========== ======== ==========
Cost of shares redeemed..................................... $ 325,076 $ 312,832 $175,338 $ 268,685
========== ========== ======== ==========
</TABLE>
F-72
<PAGE> 129
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT
ASSET MANAGER INDEX 500 GRADE BOND CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 30,602 24,195 51,556 66,337
Shares received from reinvestment of:
Dividends................................................. 4,685 944 4,150 1,179
Capital gain distributions................................ 5,934 641 1,302 8,647
-------- ---------- -------- ----------
Total shares acquired....................................... 41,221 25,780 57,008 76,163
Total shares redeemed....................................... (5,407) (4,725) (16,570) (5,998)
-------- ---------- -------- ----------
Net increase in shares owned................................ 35,814 21,055 40,438 70,165
Shares owned, beginning of period........................... 126,593 87,469 94,457 224,508
-------- ---------- -------- ----------
Shares owned, end of period................................. 162,407 108,524 134,895 294,673
======== ========== ======== ==========
Cost of shares acquired..................................... $712,762 $3,772,596 $701,396 $1,891,089
======== ========== ======== ==========
Cost of shares redeemed..................................... $ 84,001 $ 423,311 $196,105 $ 100,142
======== ========== ======== ==========
</TABLE>
F-73
<PAGE> 130
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN CENTURY
VARIABLE
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST PORTFOLIOS, INC.
- --------------------------------------------------------------------------------------------------------------------------
AMERICAN
CENTURY
LIMITED VP CAPITAL
BALANCED GROWTH MATURITY BOND PARTNERS APPRECIATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased................................. 1,894 3,434 27,121 111,813 4,498
Shares received from reinvestment of:
Dividends...................................... 628 3,965 223
Capital gain distributions..................... 930 4,649 387
-------- ---------- -------- ---------- --------
Total shares acquired............................ 3,452 8,083 31,086 112,423 4,498
Total shares redeemed............................ (38,408) (84,556) (15,271) (3,632) (91,069)
-------- ---------- -------- ---------- --------
Net (decrease) increase in shares owned.......... (34,956) (76,473) 15,815 108,791 (86,571)
Shares owned, beginning of period................ 34,956 76,473 62,108 12,903 86,571
-------- ---------- -------- ---------- --------
Shares owned, end of period...................... -- -- 77,923 121,694 --
======== ========== ======== ========== ========
Cost of shares acquired.......................... $ 53,427 $ 193,400 $416,244 $2,231,941 $ 40,967
======== ========== ======== ========== ========
Cost of shares redeemed.......................... $612,103 $2,171,599 $206,634 $ 64,096 $873,490
======== ========== ======== ========== ========
</TABLE>
F-74
<PAGE> 131
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER AMERICAN
VAN ECK WORLDWIDE INSURANCE TRUST FUND
- --------------------------------------------------------------------------------------------------------------------------
VAN ECK VAN ECK VAN ECK ALGER AMERICAN
VAN ECK WORLDWIDE WORLDWIDE WORLDWIDE SMALL
WORLDWIDE HARD ASSETS EMERGING MARKETS REAL ESTATE CAPITALIZATION
BOND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased.......................... 5,870 11,404 28,651 6,532 18,237
Shares received from reinvestment of:
Dividends............................... 2,315 545 167
Capital gain distributions.............. 1,034 11,270
-------- -------- -------- ------- ----------
Total shares acquired..................... 9,219 11,949 28,651 6,699 29,507
Total shares redeemed..................... (17,346) (1,680) (17,664) (946) (3,497)
-------- -------- -------- ------- ----------
Net (decrease) increase in shares owned... (8,127) 10,269 10,987 5,753 26,010
Shares owned, beginning of period......... 56,296 34,875 125,015 7,696 71,721
-------- -------- -------- ------- ----------
Shares owned, end of period............... 48,169 45,144 136,002 13,449 97,731
======== ======== ======== ======= ==========
Cost of shares acquired................... $104,196 $120,379 $246,318 $66,962 $1,215,937
======== ======== ======== ======= ==========
Cost of shares redeemed................... $184,486 $ 26,777 $272,643 $ 8,421 $ 146,119
======== ======== ======== ======= ==========
</TABLE>
F-75
<PAGE> 132
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
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% (for "Options
VL") or 0.75% (for "Options Premier") 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 six months ended
June 30, 1999.
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 assessed if a flexible
premium adjustable survivorship policy is surrendered before the fifteenth
policy year. These charges are recorded as administrative charges in the
statements of changes in net assets.
F-76
<PAGE> 133
PROVIDENTMUTUAL
LIFE AND ANNUITY COMPANY
OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF PROVIDENT MUTUAL LIFE INSURANCE COMPANY)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<PAGE> 134
[This Page Intentionally Left Blank.]
<PAGE> 135
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Providentmutual Life and Annuity
Company of America
In our opinion, the accompanying statements of financial condition and the
related statements of operations, equity, and cash flows present fairly, in all
material respects, the financial position of Providentmutual Life and Annuity
Company of America (a wholly-owned stock life insurance subsidiary of Provident
Mutual Life Insurance Company), at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 5, 1999
F-79
<PAGE> 136
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: 1998 -- $352,107;
1997 -- $311,637).................................... $ 359,442 $ 320,363
Held to maturity, at amortized cost (market:
1998 -- $57,419; 1997 -- $65,305)..................... 54,671 62,753
Equity securities, at market (cost: 1998 -- $1,278;
1997 -- $1,714)........................................ 1,360 1,776
Mortgage loans............................................ 58,907 46,871
Real estate............................................... 484 2,494
Policy loans and premium notes............................ 8,454 6,725
Other invested assets..................................... 88 302
Short-term investments.................................... 7,151 552
---------- ----------
Total investments................................. 490,557 441,836
---------- ----------
Cash........................................................ 3,107 1,063
Investment income due and accrued........................... 7,304 7,046
Deferred policy acquisition costs........................... 104,913 83,291
Reinsurance recoverable..................................... 3,054 74,674
Separate account assets..................................... 880,417 627,081
Other assets................................................ 1,312 1,342
---------- ----------
Total assets...................................... $1,490,664 $1,236,333
========== ==========
LIABILITIES
Policy liabilities:
Future policyholder benefits.............................. $ 510,560 $ 516,591
Other policy obligations.................................. 8,246 8,147
---------- ----------
Total policy liabilities.......................... 518,806 524,738
---------- ----------
Payable to parent........................................... -- 1,837
Federal income taxes payable:
Current................................................... 6,281 3,928
Deferred.................................................. 2,474 2,363
Separate account liabilities................................ 877,713 624,872
Other liabilities........................................... 8,124 8,506
---------- ----------
Total liabilities................................. 1,413,398 1,166,244
---------- ----------
COMMITMENTS AND CONTINGENCIES -- NOTE 9
EQUITY
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 44,165
Retained earnings........................................... 28,346 20,565
Accumulated other comprehensive income:
Net unrealized appreciation on securities................. 2,255 2,859
---------- ----------
Total equity...................................... 77,266 70,089
---------- ----------
Total liabilities and equity...................... $1,490,664 $1,236,333
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-80
<PAGE> 137
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $13,269 $13,904 $13,541
Policy and contract charges................................. 18,239 11,729 6,068
Net investment income....................................... 35,262 32,314 32,213
Other income................................................ 2,705 4,815 2,994
Net realized gains on investments........................... 2,010 69 112
------- ------- -------
Total revenues.................................... 71,485 62,831 54,928
------- ------- -------
BENEFITS AND EXPENSES
Policy and contract benefits................................ 13,884 15,606 12,861
Change in future policyholder benefits...................... 24,791 19,254 24,092
Commissions and operating expenses.......................... 19,859 15,271 8,564
Policyholder dividends...................................... 958 773 541
------- ------- -------
Total benefits and expenses....................... 59,492 50,904 46,058
------- ------- -------
Income before income taxes........................ 11,993 11,927 8,870
Income tax expense:
Current................................................... 3,776 2,470 2,612
Deferred.................................................. 436 1,979 988
------- ------- -------
Total income tax expense.......................... 4,212 4,449 3,600
------- ------- -------
Net income........................................ $ 7,781 $ 7,478 $ 5,270
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-81
<PAGE> 138
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONTRIBUTED NET
COMMON CAPITAL UNREALIZED
STOCK COMMON IN EXCESS RETAINED APPRECIATION TOTAL
SHARES STOCK OF PAR EARNINGS ON SECURITIES EQUITY
------ ------ ----------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996............ 2,500 $2,500 $29,665 $ 7,817 $ 2,754 $42,736
-------
Comprehensive income
Net income............................ -- -- -- 5,270 -- 5,270
Other comprehensive income, net of
tax:
Change in unrealized
appreciation.................... -- -- -- -- (1,857) (1,857)
-------
Total comprehensive income............ 3,413
Capital contribution from parent.... -- -- 8,000 -- -- 8,000
----- ------ ------- ------- ------- -------
BALANCE AT DECEMBER 31, 1996.......... 2,500 2,500 37,665 13,087 897 54,149
-------
Comprehensive income
Net income............................ -- -- -- 7,478 -- 7,478
Other comprehensive income, net of
tax:
Change in unrealized
appreciation.................... -- -- -- -- 1,962 1,962
-------
Total comprehensive income............ 9,440
Capital contribution from parent.... -- -- 6,500 -- -- 6,500
----- ------ ------- ------- ------- -------
BALANCE AT DECEMBER 31, 1997.......... 2,500 2,500 44,165 20,565 2,859 70,089
-------
Comprehensive income
Net income............................ -- -- -- 7,781 -- 7,781
Other comprehensive income, net of
tax:
Change in unrealized
appreciation.................... -- -- -- -- (604) (604)
-------
Total comprehensive income............ 7,177
----- ------ ------- ------- ------- -------
BALANCE AT DECEMBER 31, 1998.......... 2,500 $2,500 $44,165 $28,346 $ 2,255 $77,266
===== ====== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-82
<PAGE> 139
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 7,781 $ 7,478 $ 5,270
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Interest credited to variable universal life and
investment products..................................... 21,927 15,076 19,684
Amortization of deferred policy acquisition costs......... 14,804 9,445 5,433
Capitalization of deferred policy acquisition costs....... (35,985) (31,404) (25,182)
Deferred Federal income taxes............................. 436 1,979 988
Depreciation, amortization and accretion.................. 372 625 798
Net realized gains on investments......................... (2,010) (69) (112)
Change in investment income due and accrued............... (258) (437) 66
Change in reinsurance recoverable......................... 71,620 5,672 772
Change in policy liabilities and other policyholder
funds................................................... (77,582) (12,255) (2,124)
Change in other liabilities............................... (382) 431 (210)
Change in current Federal income taxes payable............ 2,353 (809) (928)
Other, net................................................ (2,236) (2,676) 3,756
--------- --------- ---------
Net cash provided by (used in) operating activities..... 840 (6,944) 8,211
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities............................. 21,681 21,382 6,956
Equity securities......................................... 370 100 200
Real estate............................................... 5,324 772 --
Other invested assets..................................... 248 333 158
Proceeds from maturities of investments:
Held to maturity securities............................... 10,128 19,184 17,323
Available for sale securities............................. 56,894 28,439 21,467
Mortgage loans............................................ 4,436 2,599 7,873
Purchases of investments:
Held to maturity securities............................... (2,000) (2,029) (15,887)
Available for sale securities............................. (119,639) (72,520) (38,542)
Equity securities......................................... (207) (609) (157)
Mortgage loans............................................ (17,166) (7,179) (11,342)
Real estate............................................... (195) (99) (36)
Other invested assets..................................... -- (302) --
Contributions of separate account seed money................ (330) -- (335)
Withdrawals of separate account seed money.................. 265 -- --
Policy loans and premium notes, net......................... (1,729) (373) (906)
Net (purchases) sales of short-term investments............. (6,599) 7,901 4,203
--------- --------- ---------
Net cash used in investing activities................... (48,519) (2,401) (9,025)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits..... 302,071 232,307 185,984
Variable universal life and investment product
withdrawals............................................... (252,348) (228,871) (192,698)
Capital contribution from parent............................ -- 6,500 8,000
--------- --------- ---------
Net cash provided by financing activities............... 49,723 9,936 1,286
--------- --------- ---------
Net change in cash...................................... 2,044 591 472
Cash, beginning of year..................................... 1,063 472 --
--------- --------- ---------
Cash, end of year........................................... $ 3,107 $ 1,063 $ 472
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes................ $ 1,434 $ 3,280 $ 3,540
========= ========= =========
Foreclosure of mortgage loans............................. $ 500 $ -- $ --
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-83
<PAGE> 140
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).
On October 13, 1998, the Board of Directors of Provident Mutual unanimously
approved and adopted a Plan of Conversion (Plan) to reorganize Provident Mutual
Life Insurance Company, utilizing a mutual holding company structure. The Plan
amended and replaced the proposed plan of conversion adopted January 5, 1998.
The Plan would result in Provident Mutual converting to a stock life insurance
company and being renamed Provfirst America Life Insurance Company (Provfirst
America). Provfirst America will have a newly created parent company, Provfirst
America Corporation, a stock holding company. Additionally, Provfirst America
Corporation will have a newly created parent company, Provident Mutual Holding
Company, a mutual holding company. The Company will be renamed Provfirst America
Life and Annuity Company.
The Insurance Department of the Commonwealth of Pennsylvania reviewed the
Plan and rendered its Decision and Order approving the Plan, subject to certain
conditions, on November 6, 1998.
The Plan requires the approval of at least two-thirds of the votes cast by
voting policyholders. A Special Meeting of policyholders to consider and vote
upon the Plan has been scheduled for February 9, 1999.
The Company sells 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 16 states accounted for 78% of the Company's sales for the year ended
December 31, 1998. For many of the life and annuity products, the insurance
departments of the states in which the Company conducts business must approve
products and policy forms in advance of sales. In addition, benefits are
determined by statutes and regulations in each of these states.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP). Certain prior year amounts have
been reclassified to conform with the current year presentation.
The Company prepares financial statements for filing with regulatory
authorities in conformity with the accounting practices prescribed or permitted
by the Insurance Department of the State of Delaware (SAP). Practices under SAP
vary from GAAP primarily with respect to the initial deferral of acquisition
costs, the valuation of policy reserves, the accounting for 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 $1,702, $1,792 and $1,448 for the years ended
December 31, 1998, 1997 and 1996, respectively. Statutory surplus was $44,730
and $47,225 as of December 31, 1998 and 1997, 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
F-84
<PAGE> 141
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are reported at market value. Unrealized appreciation/depreciation on these
securities is recorded directly in equity, net of related Federal income taxes
and amortization of deferred policy acquisition costs. Fixed maturity securities
that the Company has the intent and ability to hold to maturity are designated
as "held to maturity" and are reported at amortized cost.
Equity securities (common and preferred stocks) are reported at market
value. Unrealized appreciation/depreciation on these securities is recorded
directly in equity, net of related Federal income taxes and amortization of
deferred policy acquisition costs.
Fixed maturity and equity securities that have experienced an other than
temporary decline in value are written down to fair value by a charge to
realized losses. This fair value becomes the new cost basis of the particular
security.
Mortgage loans are carried at unpaid principal balances, less impairment
reserves. For mortgage loans considered impaired, a specific reserve is
established. A general reserve is also established for probable losses arising
from the portfolio but not attributable to specific loans. Mortgage loans are
considered impaired when it is probable that the Company will be unable to
collect amounts due according to the contractual terms of the loan agreement.
Upon impairment, a reserve is established for the difference between the unpaid
principal of the mortgage loan and its fair value. Fair value is based on either
the present value of expected future cash flows discounted at the mortgage
loan's effective interest rate or the fair value of the underlying collateral.
Changes in the reserve are charged to realized capital losses. Reserves totaled
$1,064 and $1,170 at December 31, 1998 and 1997, respectively.
Policy loans 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 fair 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, but not for income generation or speculative
purposes. Derivatives utilized by the Company are long and short positions on
United States Treasury notes and bond futures and certain interest rate swaps.
The net interest effect of futures transactions is settled on a daily
basis. Cash paid or received is recorded daily, along with a receivable/payable,
to settle the futures contract prior to the contract termination. The
receivable/payable is carried until the contract is terminated and the remaining
balance is included in either net investment income or realized gain or loss.
Upon termination of a futures contract that is identified to a specific
security, any gain or loss is deferred and amortized to net investment income
over the expected remaining life of the hedged security. If the futures contract
is not identified to a specific security, any gain or loss on termination is
reported as a realized gain or loss.
Interest rate swaps are settled on the contract date. Cash paid or received
is reported as an adjustment to net investment income.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement requires that all
derivatives be recorded at fair value in the statement of financial condition as
either assets or liabilities. The accounting for changes in the fair value of a
derivative depends on its intended use and its resulting designation. This
Statement is effective for fiscal years beginning after June 15, 1999. The
Company is currently reviewing this
F-85
<PAGE> 142
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statement and has not yet determined its impact on the financial statements.
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position No. 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." The adoption of this statement,
which is effective for fiscal years beginning after December 15, 1998, is not
expected to have a material effect on the Company's financial statements.
BENEFIT RESERVES AND POLICYHOLDER CONTRACT DEPOSITS
Traditional Life Insurance Products
Traditional life insurance products include those contracts with fixed and
guaranteed premiums and benefits, and consist principally of whole life and term
insurance policies, limited-payment life insurance policies and certain
annuities with life contingencies. Most traditional life insurance policies are
participating. In addition to guaranteeing benefits, they pay dividends, as
declared annually by the Company based on its experience. Reserves on
traditional life insurance products are calculated by using the net level
premium method. For participating traditional life insurance policies, reserve
assumptions are based on mortality rates consistent with those underlying the
cash values and investment rates consistent with the Company's dividend
practices. For most policies, reserves are based on the 1958 or 1980
Commissioners' Standard Ordinary (CSO) mortality 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. Premiums received and the accumulated value
portion of benefits paid are excluded from the amounts reported in the
statements of operations. Expenses include interest credited to policy account
balances and benefit payments made in excess of policy account balances. Many of
these policies are variable life or variable annuity policies, in which
investment performance credited to the account balance is based on the
investment performance of separate accounts chosen by the policyholder. For
other account balances, credited interest rates ranged from 3.47% to 7.5% in
1998.
Deferred Policy Acquisition Costs
The costs that vary with and are directly related to the production of new
business, have been deferred to the extent deemed recoverable. Such costs
include commissions and certain costs of underwriting, policy issue and
marketing.
Deferred policy acquisition costs on traditional participating life
insurance policies are amortized in proportion to the present value of expected
gross margins. Gross margins include margins from mortality, investments and
expenses, net of policyholder dividends. Expected gross margins are redetermined
regularly, based on actual experience and current assumptions of mortality,
persistency, expenses, and investment experience. The average investment yield,
before realized capital gains and losses, in the calculation of expected gross
margins was 8.25% for 1998, 8.0% for 1997 and 8.46% for 1996.
F-86
<PAGE> 143
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred policy acquisition costs for variable life and investment-type
products are amortized in relation to the incidence of expected gross profits,
including realized investment gains and losses, over the expected life of the
policies.
The costs deferred during 1998, 1997 and 1996 were $35,985, $31,404 and
$25,182, respectively. Amortization of deferred policy acquisition costs was
$14,804, $9,445 and $5,433 during 1998, 1997 and 1996, respectively.
CAPITAL GAINS AND LOSSES
Realized capital gains and losses on sales of investments are based upon
specific identification of the investments sold. A realized capital loss is
recorded at the time a decline in the value of an investment is determined to be
other than temporary.
POLICYHOLDER DIVIDENDS
Annually, the Board of Directors declares the amount of dividends to be
paid in the following calendar year. Dividends are earned by the policyholders
ratably over the policy year. Dividends are included in the accompanying
financial statements as a liability and as a charge to operations.
REINSURANCE
Premiums, benefits and expenses are recorded net of experience refunds,
reserve adjustments and amounts assumed from or ceded to reinsurers, including
commission and expense allowances.
SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the benefit of variable annuity
contractholders and variable life insurance policyholders.
The contractholders/policyholders bear the investment risk on separate
account assets except in instances where the Company generates a fixed return
and on the Company's seed money. The separate account assets are carried at fair
value.
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.
COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for the reporting and presentation
of comprehensive income and its components.
Comprehensive income encompasses all changes in equity, excluding
transactions with owners, and includes net income and the change in unrealized
appreciation/depreciation on securities. This new standard requires additional
disclosures in the financial statements and does not affect results of
operations or financial condition.
F-87
<PAGE> 144
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of other comprehensive income are as follows:
<TABLE>
<CAPTION>
TAX
BEFORE TAX (EXPENSE) NET OF TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Unrealized appreciation (depreciation) on
securities.................................... $ 1,081 $ (378) $ 703
Less: reclassification adjustment for gains
realized in net income........................ (2,010) 703 (1,307)
------- ------- -------
Net change in unrealized appreciation on
securities.................................... $ (929) $ 325 $ (604)
======= ======= =======
YEAR ENDED DECEMBER 31, 1997:
Unrealized appreciation (depreciation) on
securities.................................... $ 3,088 $(1,081) $ 2,007
Less: reclassification adjustment for gains
realized in net income........................ (69) 24 (45)
------- ------- -------
Net change in unrealized appreciation on
securities.................................... $ 3,019 $(1,057) $ 1,962
======= ======= =======
YEAR ENDED DECEMBER 31, 1996:
Unrealized appreciation (depreciation) on
securities.................................... $(2,745) $ 961 $(1,784)
Less: reclassification adjustment for gains
realized in net income........................ (112) 39 (73)
------- ------- -------
Net change in unrealized appreciation on
securities.................................... $(2,857) $ 1,000 $(1,857)
======= ======= =======
</TABLE>
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the fair values and carrying values of the
Company's financial instruments at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ----------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale............... $359,442 $359,442 $320,363 $320,363
Held to maturity................. $57,419 $54,671 $65,305 $62,753
Equity securities.................. $1,360 $1,360 $1,776 $1,776
Mortgage loans..................... $64,225 $58,907 $49,379 $46,871
LIABILITIES FOR INVESTMENT-TYPE
INSURANCE CONTRACTS
Supplementary contracts without
life contingencies............... $7,479 $7,142 $7,304 $7,185
Individual annuities............... $1,181,520 $1,215,896 $977,658 $1,012,040
</TABLE>
The underlying investment risk of the Company's variable life and variable
annuity contracts is assumed by the policyholder. These reserve liabilities are
primarily reported in the separate accounts. The liabilities in the separate
accounts are recorded at amounts equal to the related assets at fair value.
Fair values for the Company's insurance contracts other than
investment-type contracts are not required to be disclosed under Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." However, the estimated fair value and future cash flows
of liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts
F-88
<PAGE> 145
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
INDIVIDUAL ANNUITIES AND SUPPLEMENTARY CONTRACTS
The fair value of individual annuities and supplementary contracts without
life contingencies is based primarily on surrender values. For those individual
annuities and supplementary contracts that are not surrenderable, discounted
future cash flows are used for calculating fair value.
POLICYHOLDER DIVIDENDS AND COUPON ACCUMULATIONS
The policyholders' dividend and coupon accumulation liabilities will
ultimately be settled in cash, applied toward the payment of premiums, or left
on deposit with the Company at interest. Management deems it impractical to
calculate the fair value of these liabilities due to valuation difficulties
involving the uncertainties of final settlement.
3. MARKETABLE SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investments in fixed maturity securities and equity
securities as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $ 562 $ 38 $ -- $ 600
Obligations of states and political
subdivisions.................................. 3,416 215 -- 3,631
Corporate securities............................ 317,068 9,330 3,340 323,058
Mortgage-backed securities...................... 31,061 1,121 29 32,153
-------- ------- ------ --------
Subtotal -- fixed maturities.................... 352,107 10,704 3,369 359,442
Equity securities............................... 1,278 495 413 1,360
-------- ------- ------ --------
Total...................................... $353,385 $11,199 $3,782 $360,802
======== ======= ====== ========
</TABLE>
F-89
<PAGE> 146
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- ---------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $ 4,655 $ 594 $ -- $ 5,249
Corporate securities............................ 46,618 1,849 1 48,466
Mortgage-backed securities...................... 3,398 306 -- 3,704
-------- ------- ------ --------
Total...................................... $ 54,671 $ 2,749 $ 1 $ 57,419
======== ======= ====== ========
</TABLE>
<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>
<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>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1998, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE
- ------------------ --------- ----------
<S> <C> <C>
Due in one year or less... $ 33,082 $ 33,398
Due after one year through
five years.............. 120,727 123,164
Due after five years
through ten years....... 105,291 108,028
Due after ten years....... 93,007 94,852
-------- --------
Total................ $352,107 $359,442
======== ========
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE
- ---------------- --------- ----------
<S> <C> <C>
Due in one year or less... $ 2,257 $ 2,262
Due after one year through
five years.............. 21,467 22,155
Due after five years
through ten years....... 28,040 29,818
Due after ten years....... 2,907 3,184
------- -------
Total................ $54,671 $57,419
======= =======
</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.
F-90
<PAGE> 147
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Realized gains (losses) on investments for the years ended December 31,
1998, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ----
<S> <C> <C> <C>
Fixed maturities...... $ (292) $ 1,135 $ 71
Equity securities..... (273) (1,360) 6
Mortgage loans........ (194) 104 35
Real estate........... 2,735 133 --
Other invested
assets.............. 34 57 --
------- ------- ----
$ 2,010 $ 69 $112
======= ======= ====
</TABLE>
Net unrealized appreciation on available for sale securities as of December
31, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net unrealized appreciation
before adjustments for the
following:................ $ 7,417 $ 8,788
Amortization of deferred
policy acquisition
costs.................. (3,947) (4,389)
Deferred Federal income
taxes.................. (1,215) (1,540)
------- -------
Net unrealized
appreciation.............. $ 2,255 $ 2,859
======= =======
</TABLE>
Net investment income, by type of investment, is as follows for the years
ending December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Gross investment
income:
Fixed maturities:
Available for
sale............ $25,294 $22,559 $21,379
Held to maturity... 4,686 5,692 6,699
Equity securities.... 66 92 87
Mortgage loans....... 4,485 3,924 3,750
Real estate.......... 523 591 759
Policy loans and
premium notes...... 299 214 158
Short-term
investments........ 431 258 363
Other, net........... 781 9 27
------- ------- -------
36,565 33,339 33,222
Less investment
expenses........... (1,303) (1,025) (1,009)
------- ------- -------
Net investment
income............. $35,262 $32,314 $32,213
======= ======= =======
</TABLE>
4. MORTGAGE LOANS
The carrying value of impaired loans was $2,363 and $2,951, which were net
of reserves of $474 and $704 as of December 31, 1998 and 1997, respectively.
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Balance at January 1.......... $1,170 $1,274
Recoveries.................... 124 (104)
Releases due to
foreclosures................ (230) --
------ ------
Balance at December 31........ $1,064 $1,170
====== ======
</TABLE>
The average recorded investment in impaired loans was $2,624 and $3,767
during 1998 and 1997, respectively. Interest income recognized on impaired loans
during 1998, 1997 and 1996 was $237, $284 and $405, respectively. All interest
income on impaired loans was recognized on the cash basis.
5. REAL ESTATE
Real estate totaled $484 and $2,494 as of December 31, 1998 and 1997,
respectively. Depreciation expense was $116, $113 and $112 for the years ended
December 31, 1998, 1997 and 1996, respectively. Accumulated depreciation for
real estate totaled $34 and $435 at December 31, 1998 and 1997, 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 from Provident Mutual.
F-91
<PAGE> 148
NOTES TO FINANCIAL STATEMENTS -- (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,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Federal income tax at
statutory rate..... $4,198 $4,174 $3,105
Current year equity
tax............. 664 900 800
True down of prior
years' equity
tax............. (650) (625) (305)
------ ------ ------
Provision for Federal
income tax from
operations......... $4,212 $4,449 $3,600
====== ====== ======
</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 is as follows at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
DEFERRED TAX LIABILITY
Deferred policy acquisition
costs.................... 32,648 26,550
Net unrealized gain on
available for sale
securities............... 1,215 1,540
------- -------
Total deferred tax
liability........... 33,863 28,090
------- -------
DEFERRED TAX ASSET
Reserves................... $30,671 $26,650
Invested assets............ 353 409
Policyholder dividends..... 189 159
Other...................... 176 (1,491)
------- -------
Total deferred tax
asset............... 31,389 25,727
------- -------
Net deferred tax
liability................ $ 2,474 $ 2,363
======= =======
</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, 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 1994.
All years through 1985 are closed. Years 1986 through 1994 have been audited and
are closed with the exception of several issues for which claims for refund have
been filed. Years 1995 through the present remain open. In the opinion of
management, adequate provision has been made for the possible effect of
potential assessments related to prior years' taxes.
7. REINSURANCE
In the normal course of business, the Company assumes risks from and cedes
certain parts of its risks to other insurance companies. The primary purpose of
ceded reinsurance is to limit losses from large exposures. For life insurance,
the Company retains no more than $1,500 on any single life.
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company would be liable for these
obligations. The Company evaluates the financial condition of its reinsurers and
limits its exposure to any one reinsurer.
F-92
<PAGE> 149
NOTES TO FINANCIAL STATEMENTS -- (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, 1998:
Life insurance in force............. $2,763,532 $1,980,669 $34,968 $817,831
========== ========== ======= ========
Premiums............................ $ 13,771 $ 666 $ 164 $ 13,269
========== ========== ======= ========
Future policyholder benefits........ $ 510,560 $ 3,054 $ 2,378 $509,884
========== ========== ======= ========
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........ $ 516,591 $ 74,674 $ 3,102 $445,019
========== ========== ======= ========
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........ $ 511,447 $ 80,346 $ 4,332 $435,433
========== ========== ======= ========
</TABLE>
On January 1, 1998, the Company terminated its reinsurance agreement with
Metropolitan Life Insurance Company (Metropolitan). Prior to 1998, the Company
had ceded 65 percent of the premiums and reserves related to its single premium
deferred annuity (SPDA) product to Metropolitan. The Company recaptured $71,995
in reserves and received cash totaling $70,140. The $1,855 cost of recapturing
the contracts has been deferred and will be amortized in relation to the
incidence of expected gross profits over the expected life of the contracts.
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, 1998 and 1997. Deposits
ceded during 1998 and 1997 were $2,749 and $2,351, respectively.
Approximately $1,481,828 and $1,169,702 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, 1998 and 1997, respectively.
Premiums ceded were $4,182 and $3,889 during 1998 and 1997, respectively.
Reinsurance recoverables at December 31, 1998 and 1997 were $134 and $74,
respectively.
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 postretirement benefits, as well as overhead costs. These costs were
$16,581, $13,964 and $10,013 for 1998, 1997 and 1996, 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, 1998 and 1997
approximated $81,050 and $90,995, respectively.
F-93
<PAGE> 150
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
At December 31, 1998, the Company had outstanding mortgage loan and limited
partnership commitments of approximately $4,650. The mortgage loan commitments,
which expire through February 1999, totaled $1,650 and were issued during 1998
at interest rates consistent with rates applicable on December 31, 1998. As a
result, the fair value of these commitments approximates the face amount.
Derivatives are used for hedging existing bonds (including cash reserves)
against adverse price or interest rate movements and for fixing liability costs
at the time of product sales. The Company closed out hedge positions consisting
of 226 treasury futures contracts with a dollar value of $25,727 in 1998 and the
approximate net losses generated from the hedge positions were $33. There were
no open hedge positions at December 31, 1998. There was no hedge position
activity for the year ended December 31, 1997.
Periodically, the Company enters securities lending agreements to earn
additional investment income on its securities. The borrower must provide cash
collateral prior to or at the inception of the loan. There were no securities
lending positions at December 31, 1998.
INVESTMENT PORTFOLIO CREDIT RISK
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade se-curities. At December 31, 1998 and 1997, approximately
$23,488 and $14,771, respectively, in debt security investments (5.8% and 3.9%,
respectively, of the total debt security portfolio) are considered "below
investment grade." Securities are classified as "below investment grade"
primarily by utilizing rating criteria established by independent bond rating
agencies.
Debt security investments with a carrying value at December 31, 1998 of $.7
million were non-income producing for the year ended December 31, 1998.
The Company had debt security investments in the financial services
industry at both December 31, 1998 and 1997 that exceeded 5% of total assets.
Mortgage Loans
The Company originates mortgage loans either directly or through mortgage
correspondents and brokers throughout the country. Loans are primarily related
to underlying real property investments in office and apartment buildings and
retail/commercial and industrial facilities. Mortgage loans are collateralized
by the related properties and such collateral generally approximates a minimum
133% of the original loan value at the time the loan is made.
At December 31, 1998 and 1997, 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 equity.
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 manage-
F-94
<PAGE> 151
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ment, the outcome of the proceedings and assessments will not have a material
adverse effect on the financial statements. Guaranty fund assessments totaled
$109, $236 and $82 in 1998, 1997 and 1996, respectively. Of those amounts, $56,
$117 and $58 in 1998, 1997 and 1996, respectively, are creditable against future
years' premium taxes.
F-95
<PAGE> 152
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
CONDENSED STATEMENT OF FINANCIAL CONDITION
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1999
----------
<S> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: $344,410)......... $ 337,758
Held to maturity, at amortized cost (market:
$49,881).............................................. 49,438
Equity securities, at market (cost: $232)................. 464
Mortgage loans............................................ 58,648
Real estate............................................... 493
Policy loans and premium notes............................ 9,438
Other invested assets..................................... 2,204
Short-term investments.................................... 2,857
----------
Total investments................................. 461,300
----------
Cash........................................................ 1,201
Investment income due and accrued........................... 7,412
Deferred policy acquisition costs........................... 121,951
Reinsurance recoverable..................................... 3,370
Separate account assets..................................... 1,013,928
Other assets................................................ 1,308
----------
Total assets...................................... $1,610,470
==========
LIABILITIES
Policy liabilities:
Future policyholder benefits.............................. $ 490,130
Other policy obligations.................................. 7,899
----------
Total policy liabilities.......................... 498,029
----------
Federal income taxes payable:
Current................................................... 7,493
Deferred.................................................. 1,546
Separate account liabilities................................ 1,010,861
Other liabilities........................................... 12,804
----------
Total liabilities................................. 1,530,733
----------
COMMITMENTS AND CONTINGENCIES -- NOTE 5
EQUITY
Common stock, $10 par value; authorized 500,000 shares;
issued and outstanding 250,000 shares..................... 2,500
Contributed capital in excess of par........................ 44,165
Retained earnings........................................... 34,551
Accumulated other comprehensive income:
Net unrealized depreciation on securities................. (1,479)
----------
Total equity...................................... 79,737
----------
Total liabilities and equity...................... $1,610,470
==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-96
<PAGE> 153
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
-------------
<S> <C>
REVENUES
Premiums.................................................... $ 7,252
Policy and contract charges................................. 10,465
Net investment income....................................... 18,150
Other income................................................ 1,278
Net realized losses on investments.......................... (1,512)
-------
Total revenues.................................... 35,633
-------
BENEFITS AND EXPENSES
Policy and contract benefits................................ 6,391
Change in future policyholder benefits...................... 11,754
Commissions and operating expenses.......................... 8,482
Policyholder dividends...................................... 505
-------
Total benefits and expenses....................... 27,132
-------
Income before income taxes........................ 8,501
Income tax expense:
Current................................................... 1,213
Deferred.................................................. 1,083
-------
Total income tax expense.......................... 2,296
-------
Net Income........................................ $ 6,205
=======
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-97
<PAGE> 154
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
CONDENSED STATEMENT OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
CONTRIBUTED UNREALIZED
COMMON CAPITAL APPRECIATION
STOCK COMMON IN EXCESS RETAINED (DEPRECIATION) TOTAL
SHARES STOCK OF PAR EARNINGS ON SECURITIES EQUITY
------ ------ ----------- -------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999............. 2,500 $2,500 $44,165 $28,346 $ 2,255 $77,266
-------
Comprehensive income
Net income............................. -- -- -- 6,205 -- 6,205
Other comprehensive income, net of
tax:
Change in unrealized appreciation
(depreciation)................... -- -- -- -- (3,734) (3,734)
-------
Total comprehensive income............. 2,471
----- ------ ------- ------- ------- -------
BALANCE AT JUNE 30, 1999............... 2,500 $2,500 $44,165 $34,551 $(1,479) $79,737
===== ====== ======= ======= ======= =======
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-98
<PAGE> 155
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 6,205
Adjustments to reconcile net income to net cash provided by
operating activities:
Interest credited to variable universal life and
investment products..................................... 8,347
Amortization of deferred policy acquisition costs......... 6,216
Capitalization of deferred policy acquisition costs....... (15,162)
Deferred Federal income taxes............................. 1,083
Depreciation, amortization and accretion.................. (374)
Net realized losses on investments........................ 1,512
Change in investment income due and accrued............... (108)
Change in reinsurance recoverable......................... (316)
Change in policy liabilities and other policyholder
funds................................................... (1,146)
Change in other liabilities............................... 4,680
Change in current Federal income taxes payable............ 1,212
Other, net................................................ (761)
---------
Net cash provided by operating activities............... 11,388
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities............................. 16,228
Equity securities......................................... 618
Other invested assets..................................... 75
Proceeds from maturities of investments:
Held to maturity securities............................... 5,510
Available for sale securities............................. 34,152
Mortgage loans............................................ 4,186
Purchases of investments:
Available for sale securities............................. (43,682)
Mortgage loans............................................ (3,525)
Real estate............................................... (9)
Other invested assets..................................... (2,179)
Policy loans and premium notes, net......................... (984)
Net sales of short-term investments......................... 4,294
---------
Net cash provided by investing activities............... 14,684
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits..... 102,812
Variable universal life and investment product
withdrawals............................................... (130,790)
---------
Net cash used in financing activities................... (27,978)
---------
Net change in cash...................................... (1,906)
Cash, beginning of period................................... 3,107
---------
Cash, end of period......................................... $ 1,201
=========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-99
<PAGE> 156
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
NOTES TO INTERIM UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying interim unaudited condensed financial statements should be
read in conjunction with the financial statements and footnotes for the years
ended December 31, 1998, 1997 and 1996. Management believes that all
adjustments, consisting of normal recurring accruals, required for a fair
presentation of the financial position as of June 30, 1999 and the results of
operations, comprehensive income and cash flows for the six months ended June
30, 1999 have been made.
The preparation of the accompanying interim unaudited condensed financial
statements required management to make estimates and assumptions that affect the
reported values of assets and liabilities and the reported amounts of revenues
and expenses. Actual results could differ from those estimates.
2. 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).
On October 13, 1998, the Board of Directors of Provident Mutual unanimously
approved and adopted a Plan of Conversion (the Plan) to reorganize Provident
Mutual Life Insurance Company, utilizing a mutual holding company structure.
On November 6, 1998, the Insurance Department of the Commonwealth of
Pennsylvania reviewed the Plan and rendered its Decision and Order approving the
Plan, subject to certain conditions.
A Special Meeting of policyholders was held February 9, 1999 to consider
and vote upon the Plan. Approximately 90% of the voting policyholders approved
the Plan.
Subsequent to the Special Meeting, a group of dissident policyholders filed
a lawsuit to block the Plan. On February 11, 1999, a Philadelphia Common Pleas
Court judge issued an order granting a preliminary injunction blocking the Plan
until the Court conducted a hearing. Provident Mutual continued to provide
information to the Court at hearings held on March 16, 1999 and June 22, 1999.
On September 16, 1999, the judge issued a permanent injunction blocking the
Plan. Provident Mutual is in the process of responding to the substantive issues
raised in the permanent injunction and assessing its options.
3. COMPREHENSIVE INCOME
The components of other comprehensive income for the six months ended June
30, 1999 are as follows (in millions):
<TABLE>
<CAPTION>
TAX
BEFORE TAX (EXPENSE) NET OF TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
Unrealized appreciation (depreciation) on
securities....................................... $(7.2) $2.5 $(4.7)
Less: reclassification adjustment for losses
realized in net income........................... 1.5 (.5) 1.0
----- ---- -----
Net change in unrealized appreciation
(depreciation) on securities..................... $(5.7) $2.0 $(3.7)
===== ==== =====
</TABLE>
F-100
<PAGE> 157
NOTES TO INTERIM UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
4. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted Statement of Position No.
97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments" (SOP 97-3). SOP 97-3 provides guidance for determining measurement
and recognition of a liability or an asset for insurance-related assessments.
The adoption of SOP 97-3 did not have a material effect on the results of
operations or the financial position of the Company.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133" (SFAS 137). SFAS 137 defers for one year the effective date of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). The Company plans to adopt the provisions of
SFAS 133 effective January 1, 2001. The Company is currently reviewing SFAS 133
and has not yet determined its impact on the condensed financial statements.
5. COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation, as both plaintiff and
defendant, which has arisen in the ordinary course of business and as a result
of sales practices, which, in the opinion of management and legal counsel, will
not have a material adverse effect on the Company's financial position or its
operations.
F-101
<PAGE> 158
[This Page Intentionally Left Blank.]
<PAGE> 159
APPENDIX A
ILLUSTRATION OF DEATH BENEFITS, POLICY ACCOUNT VALUES
AND NET CASH SURRENDER VALUES
The following tables illustrate how the Death Benefits, Policy Account
Values and Net Cash Surrender Values of a Policy may change with the investment
experience of the Subaccounts. The tables show how the Death Benefits, Policy
Account Values and Net Cash Surrender Values of a Policy issued to an Insured of
a given age and sex would vary over time if the investment return on the assets
held in each Portfolio 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 55 and a female Insured, Age 50 in the Preferred Premium Class with
a Face Amount of $1,000,000 and a Planned Periodic Premium of $10,000 paid at
the beginning of each Policy Year. The Death Benefits, Policy Account Values and
Net Cash Surrender Values would be lower if the Insureds were 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 6% 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 6%,
maximum Monthly Administrative Fee of $42, an Initial Administrative Charge of
$127.50 and a daily charge for mortality and expense risks equivalent to an
annual rate of 0.90% with the additional Subaccount credit of 0.03% per month
after the Policy is in force for 15 years or the sum of the values in the
Subaccount and Guaranteed Account equal or exceed $500,000; the columns under
the heading "Current" assume that throughout the life of the policy, the monthly
charge for cost of insurance is based on the current cost of insurance rate, a
Premium Expense Charge of 6% for the first 15 Policy years, 1.5% thereafter,
current monthly administrative fee of $7.50 and a daily charge for mortality and
expense risks equivalent to an annual rate of 0.75% with the additional
Subaccount credit of 0.03% per month after the Policy is in force for 15 years
or the sum of the values in the Subaccount and Guaranteed Account equal or
exceed $500,000.
The amounts shown in all tables reflect an averaging of certain other asset
charges described below that may be assessed under the Policy, depending upon
how premiums are allocated. The total of the asset charges reflected in the
Current and Guaranteed illustrations, including the Mortality and Expense Risk
Charge listed above, is 1.58% and 1.73%, respectively. This total charge is
based on an assumption that an Owner allocates the Policy values equally among
each Subaccount of the Variable Account.
These asset charges reflect an investment advisory fee of 0.64% which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of 0.19% which is based on an average of the
actual expenses incurred by the Portfolios during the most recent fiscal year.
For certain Portfolios, certain expenses were reimbursed or fees waived during
1998. It is anticipated that expense reimbursement and fee waiver arrangements
will continue past the current year. Absent the expense reimbursement, the 1998
Total Annual Expenses would have been 1.36%, for the Market Street Fund All-Pro
Small Cap Value Portfolio, 0.58%, for the VIP Fund Equity-Income Portfolio,
0.68%, for the VIP Fund Growth Portfolio, 0.91%, for the VIP II Fund Overseas
Portfolio, 0.64%, for the VIP II Fund Asset Manager Portfolio, 0.35%, for the
VIP II Fund Index 500 Portfolio, 0.70%, for the VIP II Fund Contrafund
Portfolio, 1.20%, for the Van Eck Worldwide Hard Assets Portfolio, 1.61%, for
the Van Eck Worldwide Emerging Markets Portfolio and 5.32%, for the Van Eck
Worldwide Real Estate Portfolio. Similar expense reimbursement and fee waiver
arrangements were also in place for the other Portfolios and it is anticipated
that such arrangements will continue past the current year. However, no expenses
were reimbursed or fees waived during 1998 for these Portfolios because the
level of actual expenses and fees never exceeded the thresholds at which the
reimbursement and waiver arrangements would have become
A-1
<PAGE> 160
operative. In the event that any expense reimbursement or fee waiver arrangement
is not continued in future years, the expenses incurred by the Portfolios will
be greater than otherwise would be the case.
The tables also reflect the fact that no charges for Federal or state
income taxes are currently made against the Subaccounts. If such a charge is
made in the future, it would take a higher gross annual rate of return to
produce the same Policy values.
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid and allocated as
indicated, no amounts are allocated to the Guaranteed Account, and no Policy
loans are made. The tables are also based on the assumption that the Owner has
not requested an increase or decrease in the Face Amount, that no partial
withdrawals have been made and no transfers have been made in any Policy Year.
Upon request, PLACA will provide a comparable illustration of future
benefits under the Policy based upon the proposed Insureds' Age and Premium
Classes, the Death Benefit Option, Face Amount, Planned Periodic Premiums and
riders requested. PLACA reserves the right to charge a reasonable fee for this
service to persons who request more than one policy illustration during a Policy
year.
A-2
<PAGE> 161
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
FEMALE INSURED ISSUE AGE 50 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $10,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF -1.73%) CURRENT** (NET RATE OF -1.58%)
PREMIUMS ---------------------------------- -------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 6% 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... 10,600 6,994 0 1,000,000 7,300 0 1,000,000
2... 21,836 15,308 4,308 1,000,000 15,934 4,934 1,000,000
3... 33,746 23,387 10,503 1,000,000 24,335 11,451 1,000,000
4... 46,371 31,214 18,330 1,000,000 32,490 19,606 1,000,000
5... 59,753 38,770 25,886 1,000,000 40,386 27,502 1,000,000
6... 73,938 46,031 33,147 1,000,000 47,991 35,107 1,000,000
7... 88,975 52,972 40,088 1,000,000 55,284 42,400 1,000,000
8... 104,913 59,561 46,677 1,000,000 62,226 49,342 1,000,000
9... 121,808 65,765 52,881 1,000,000 68,955 56,071 1,000,000
10.. 139,716 71,542 58,658 1,000,000 75,514 62,630 1,000,000
11.. 158,699 76,837 63,953 1,000,000 81,867 68,983 1,000,000
12.. 178,821 81,590 71,283 1,000,000 88,003 77,696 1,000,000
13.. 200,151 85,718 77,987 1,000,000 93,917 86,187 1,000,000
14.. 222,760 89,115 83,961 1,000,000 99,543 94,389 1,000,000
15.. 246,725 91,657 89,080 1,000,000 104,753 102,176 1,000,000
16.. 272,129 93,556 93,556 1,000,000 110,510 110,510 1,000,000
17.. 299,057 94,251 94,251 1,000,000 116,098 116,098 1,000,000
18.. 327,600 93,670 93,670 1,000,000 121,484 121,484 1,000,000
19.. 357,856 91,568 91,568 1,000,000 126,516 126,516 1,000,000
20.. 389,927 87,705 87,705 1,000,000 131,193 131,193 1,000,000
25.. 581,564 28,853 28,853 1,000,000 143,080 143,080 1,000,000
30.. 838,017 0 0 0 114,827 114,827 1,000,000
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the subaccounts and the different rates of return of the subaccounts if the
actual rates of investment return applicable to the Policy averaged 0%, 6% or
12%, but varied above or below that average for particular subaccounts. No
representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
A-3
<PAGE> 162
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
FEMALE INSURED ISSUE AGE 50 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $10,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF -1.73%) CURRENT** (NET RATE OF -1.58%)
PREMIUMS ---------------------------------- -------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 6% 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 10,600 6,993 0 1,006,993 7,300 0 1,007,300
2 21,836 15,306 4,306 1,015,306 15,932 4,932 1,015,932
3 33,746 23,380 10,496 1,023,380 24,328 11,444 1,024,320
4 46,371 31,197 18,313 1,031,197 32,473 19,589 1,032,473
5 59,753 38,735 25,851 1,038,735 40,350 27,466 1,040,350
6 73,938 45,967 33,083 1,045,967 47,925 35,041 1,047,925
7 88,975 52,863 39,979 1,052,863 55,171 42,287 1,055,171
8 104,913 59,387 46,503 1,059,387 62,046 49,162 1,062,046
9 121,808 65,499 52,615 1,065,499 68,692 55,808 1,068,692
10 139,716 71,151 58,267 1,071,151 75,155 62,271 1,075,155
11 158,699 76,282 63,398 1,076,282 81,396 68,512 1,081,396
12 178,821 80,819 70,512 1,080,819 87,400 77,092 1,087,400
13 200,151 84,668 76,938 1,084,668 93,160 85,430 1,093,160
14 222,760 87,712 82,558 1,087,712 98,601 93,448 1,098,601
15 246,725 89,810 87,233 1,089,810 103,580 101,003 1,103,580
16 272,129 91,149 91,149 1,091,149 109,062 109,062 1,109,062
17 299,057 91,154 91,154 1,091,154 114,347 114,347 1,114,347
18 327,600 89,754 89,754 1,089,754 119,399 119,399 1,119,399
19 357,856 86,689 86,689 1,086,689 124,042 124,042 1,124,042
20 389,927 81,725 81,725 1,081,725 128,270 128,270 1,128,270
25 581,564 16,572 16,572 1,016,572 135,958 135,958 1,135,958
30 838,017 0 0 0 97,779 97,779 1,097,779
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the subaccounts and the different rates of return of the subaccounts if the
actual rates of investment return applicable to the Policy averaged 0%, 6% or
12%, but varied above or below that average for particular subaccounts. No
representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
A-4
<PAGE> 163
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
FEMALE INSURED ISSUE AGE 50 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $10,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF 4.17%) CURRENT** (NET RATE OF 4.33%)
PREMIUMS ------------------------------- -------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 6% 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 10,600 7,470 0 1,000,000 7,787 0 1,000,000
2 21,836 16,740 5,740 1,000,000 17,406 6,406 1,000,000
3 33,746 26,302 13,418 1,000,000 27,343 14,459 1,000,000
4 46,371 36,147 23,263 1,000,000 37,593 24,709 1,000,000
5 59,753 46,264 33,380 1,000,000 48,154 35,270 1,000,000
6 73,938 56,636 43,752 1,000,000 59,003 46,119 1,000,000
7 88,975 67,244 54,360 1,000,000 70,128 57,244 1,000,000
8 104,913 78,063 65,179 1,000,000 81,500 68,616 1,000,000
9 121,808 89,064 76,180 1,000,000 93,265 80,381 1,000,000
10 139,716 100,209 87,325 1,000,000 105,480 92,596 1,000,000
11 158,699 111,450 98,566 1,000,000 118,132 105,248 1,000,000
12 178,821 122,727 112,420 1,000,000 131,226 120,918 1,000,000
13 200,151 133,960 126,230 1,000,000 144,775 137,045 1,000,000
14 222,760 145,045 139,892 1,000,000 158,736 153,582 1,000,000
15 246,725 155,859 153,283 1,000,000 173,006 170,429 1,000,000
16 272,129 166,873 166,873 1,000,000 188,863 188,863 1,000,000
17 299,057 177,335 177,335 1,000,000 205,401 205,401 1,000,000
18 327,600 187,169 187,169 1,000,000 222,628 222,628 1,000,000
19 357,856 196,138 196,138 1,000,000 240,441 240,441 1,000,000
20 389,927 204,011 204,011 1,000,000 258,877 258,877 1,000,000
25 581,564 214,349 214,349 1,000,000 356,614 356,614 1,000,000
30 838,017 112,081 112,081 1,000,000 452,667 452,667 1,000,000
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the subaccounts and the different rates of return of the subaccounts if the
actual rates of investment return applicable to the Policy averaged 0%, 6% or
12%, but varied above or below that average for particular subaccounts. No
representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
A-5
<PAGE> 164
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
FEMALE INSURED ISSUE AGE 50 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $10,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF 4.17%) CURRENT** (NET RATE OF 4.33%)
PREMIUMS ------------------------------- -------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 6% 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 10,600 7,470 0 1,007,470 7,787 0 1,007,787
2 21,836 16,738 5,738 1,016,738 17,404 6,404 1,017,404
3 33,746 26,294 13,410 1,026,294 27,335 14,451 1,027,335
4 46,371 36,127 23,243 1,036,127 37,573 24,689 1,037,573
5 59,753 46,221 33,337 1,046,221 48,111 35,227 1,048,111
6 73,938 56,555 43,671 1,056,555 58,920 46,036 1,058,920
7 88,975 67,101 54,217 1,067,101 69,981 57,097 1,069,981
8 104,913 77,826 64,942 1,077,826 81,255 68,371 1,081,255
9 121,808 88,690 75,806 1,088,690 92,894 80,010 1,092,894
10 139,716 99,640 86,756 1,099,640 104,955 92,071 1,104,955
11 158,699 110,609 97,725 1,110,609 117,414 104,530 1,117,414
12 178,821 121,514 111,207 1,121,514 130,269 119,962 1,130,269
13 200,151 132,245 124,515 1,132,245 143,526 135,796 1,143,526
14 222,760 142,660 137,506 1,142,660 157,122 151,968 1,157,122
15 246,725 152,586 150,010 1,152,586 170,916 168,339 1,170,916
16 272,129 162,424 162,424 1,162,424 186,182 186,182 1,186,182
17 299,057 171,351 171,351 1,171,351 202,032 202,032 1,202,032
18 327,600 179,233 179,233 1,179,233 218,453 218,453 1,218,453
19 357,856 185,734 185,734 1,185,734 235,287 235,287 1,235,287
20 389,927 190,527 190,527 1,190,527 252,543 252,543 1,252,543
25 581,564 172,126 172,127 1,172,126 337,779 337,779 1,337,779
30 838,017 14,396 14,396 1,014,396 393,292 393,292 1,393,292
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the subaccounts and the different rates of return of the subaccounts if the
actual rates of investment return applicable to the Policy averaged 0%, 6% or
12%, but varied above or below that average for particular subaccounts. No
representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
A-6
<PAGE> 165
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
FEMALE INSURED ISSUE AGE 50 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $10,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF 10.06%) CURRENT** (NET RATE OF 10.23%)
PREMIUMS --------------------------------- ---------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 6% 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 10,600 7,948 0 1,000,000 8,275 275 1,000,000
2 21,836 18,230 7,230 1,000,000 18,938 7,938 1,000,000
3 33,746 29,449 16,565 1,000,000 30,590 17,706 1,000,000
4 46,371 41,680 28,796 1,000,000 43,316 30,432 1,000,000
5 59,753 55,002 42,118 1,000,000 57,208 44,324 1,000,000
6 73,938 69,496 56,612 1,000,000 72,352 59,468 1,000,000
7 88,975 85,252 72,368 1,000,000 88,853 75,969 1,000,000
8 104,913 102,367 89,483 1,000,000 106,812 93,928 1,000,000
9 121,808 120,944 108,060 1,000,000 126,518 113,634 1,000,000
10 139,716 141,092 128,208 1,000,000 148,195 135,311 1,000,000
11 158,699 162,926 150,042 1,000,000 172,014 159,130 1,000,000
12 178,821 186,569 176,262 1,000,000 198,189 187,881 1,000,000
13 200,151 212,145 204,414 1,000,000 226,962 219,231 1,000,000
14 222,760 239,780 234,627 1,000,000 258,550 253,397 1,000,000
15 246,725 269,615 267,038 1,000,000 293,149 290,572 1,000,000
16 272,129 302,901 302,901 1,000,000 332,877 332,877 1,000,000
17 299,057 338,942 338,942 1,000,000 376,851 376,851 1,000,000
18 327,600 378,088 378,088 1,000,000 425,522 425,522 1,000,000
19 357,856 420,633 420,633 1,000,000 479,319 479,319 1,000,000
20 389,927 466,972 466,972 1,000,000 538,838 538,838 1,000,000
25 581,564 776,914 776,914 1,000,000 947,238 947,238 1,013,545
30 838,017 1,312,234 1,312,234 1,377,846 1,627,710 1,627,710 1,709,095
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the subaccounts and the different rates of return of the subaccounts if the
actual rates of investment return applicable to the Policy averaged 0%, 6% or
12%, but varied above or below that average for particular subaccounts. No
representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
A-7
<PAGE> 166
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
FEMALE INSURED ISSUE AGE 50 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $10,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF 10.06%) CURRENT** (NET RATE OF 10.23%)
PREMIUMS ---------------------------------- ---------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 6% 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 10,600 7,948 0 1,007,948 8,275 275 1,008,275
2 21,836 18,227 7,227 1,018,227 18,935 7,935 1,018,935
3 33,746 29,440 16,556 1,029,440 30,581 17,697 1,030,581
4 46,371 41,657 28,773 1,041,657 43,292 30,408 1,043,292
5 59,753 54,950 42,066 1,054,950 57,156 44,272 1,057,156
6 73,938 69,394 56,510 1,069,394 72,248 59,364 1,072,248
7 88,975 85,066 72,182 1,085,066 88,662 75,778 1,088,662
8 104,913 102,047 89,163 1,102,047 106,482 93,598 1,106,482
9 121,808 120,420 107,536 1,120,420 125,998 113,114 1,125,998
10 139,716 140,263 127,379 1,140,263 147,427 134,543 1,147,427
11 158,699 161,652 148,768 1,161,652 170,921 158,037 1,170,921
12 178,821 184,658 174,350 1,184,658 196,670 186,363 1,196,670
13 200,151 209,330 201,599 1,209,330 224,896 217,166 1,224,896
14 222,760 235,697 230,544 1,235,697 255,768 250,614 1,255,768
15 246,725 263,769 261,192 1,263,769 289,396 286,819 1,289,396
16 272,129 294,597 294,597 1,294,597 327,860 327,860 1,327,860
17 299,057 327,250 327,250 1,327,250 370,273 370,273 1,370,273
18 327,600 361,822 361,822 1,361,822 417,013 417,013 1,417,013
19 357,856 398,218 398,218 1,398,218 468,349 468,349 1,468,349
20 389,927 436,353 436,353 1,436,353 524,759 524,759 1,524,759
25 581,564 645,086 645,086 1,645,086 895,072 895,072 1,895,072
30 838,017 834,201 834,201 1,834,201 1,449,723 1,449,723 2,449,723
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the subaccounts and the different rates of return of the subaccounts if the
actual rates of investment return applicable to the Policy averaged 0%, 6% or
12%, but varied above or below that average for particular subaccounts. No
representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
A-8
<PAGE> 167
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 1939 and have ending periods at five year intervals.)
[COMPOUND ANNUAL RETURNS GRAPH]
- ---------------
* 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 1999
Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights reserved.
B-1
<PAGE> 168
Over the 54 20-year time periods beginning in 1926 and ending in 1998 (i.e.
1926-1945, 1927-1946, and so on through 1979-1998:
-- The compound annual return of common stocks was superior to that of
high-grade, long-term corporate bonds in 51 of the 54 periods.
-- The compound annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 54 periods.
-- Common stock compound annual returns exceeded the average annual rate of
inflation in each of the 54 periods.
Over the 44 30-year time periods beginning in 1926 and ending in 1998, 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 44 periods.
From 1926 through 1998 the compound annual return for common stocks was
11.2%, compared to 5.8% for high-grade, long-term corporate bonds, 5.3% 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
1998.
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 27.4% 4.1% 11.0% 6.8% 12.3% 38.4%
5 years 10.1% 14.5% 14.5% 31.9% 17.4% 11.6%
10 years 3.1% 10.9% 34.4% 21.9% 28.1% 1.6%
20 years 0.0% 5.5% 31.5% 53.7% 9.3% 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 1999 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
B-2
<PAGE> 169
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.
[TREASURY BILLS ADJUSTED FOR INFLATION GRAPH]
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 1999 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 have 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.
B-3
<PAGE> 170
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.
In this method of investing:
- Relatively constant dollar amounts are invested at regular intervals
(monthly, quarterly, or annually).
- Stock market fluctuations, especially the savings on purchases from price
declines, are exploited for the investor's benefit.
HOW DOLLAR COST AVERAGING WORKS
<TABLE>
<CAPTION>
INVESTMENTS AT COMMON STOCK SHARES
REGULAR INTERVALS MARKET PRICE PURCHASED
- ----------------- ------------ ---------
<S> <C> <C>
$150 $20 7.5
150 15 10.0
150 10 15.0
150 5 30.0
150 10 15.0
150 15 10.0
---- ---------
$900 87.5
</TABLE>
<TABLE>
<S> <C>
Total Value of 87.5 shares @ 15/share $1,312.50
Less Investment made (900.00)
---------
Gain/Profit $ 412.50
</TABLE>
Though the market price has not returned to the initial high of $20 per
share, dollar cost averaging has permitted the investor to purchase more shares
at a savings and thus realize a significant gain. Obviously, the dollar cost
averaging method only works if the investor continues to invest relatively
constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss
in declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of marketing fluctuations.
How does the dollar cost averaging method relate to a variable life
insurance policy? A policyowner may invest his or her net premiums in a separate
account, and, although a Policy's value in the separate accounts is affected by
several factors other than investment experience (e.g., cash value charges and
charges against the separate account), the dollar cost averaging method can be
generally applied to the Policy to the extent that the policyowner pays premiums
on a regular basis and he or she allocates net premiums to separate accounts
which invest in common stocks in relatively constant amounts.
B-4
