<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1999
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REGISTRATION NO. 333-67775
811-8722
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
PRE-EFFECTIVE AMENDMENT NUMBER 1
------------------------
PROVIDENTMUTUAL VARIABLE
LIFE SEPARATE ACCOUNT
(EXACT NAME OF TRUST)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
(NAME OF DEPOSITOR)
300 CONTINENTAL DRIVE
NEWARK, DELAWARE 19173
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
JAMES G. POTTER, JR., ESQ.,
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
1050 WESTLAKES DRIVE
BERWYN, PENNSYLVANIA 19312
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID S. GOLDSTEIN, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004-2404
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement
TITLE OF SECURITIES BEING OFFERED: Individual Flexible Premium Variable Life
Insurance Policies.
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
PROSPECTUS
FOR
FLEXIBLE PREMIUM ADJUSTABLE
VARIABLE LIFE INSURANCE
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
<PAGE> 3
PROSPECTUS
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
SERVICE CENTER: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19173
CORPORATE HEADQUARTERS: 1050 WESTLAKES DRIVE, BERWYN, PENNSYLVANIA 19312
TELEPHONE: (302) 452-4000
This Prospectus describes a flexible premium adjustable variable life
insurance policy (the "Policy") offered by Providentmutual Life and Annuity
Company of America ("PLACA"). The Policy has an insurance component and an
investment component. The primary purpose of the Policy is to provide insurance
coverage for the lifetime of the Insured. The Policy gives the policyowner (the
"Owner") the right to vary the frequency and amount of premium payments, to
choose among investment alternatives with different investment objectives and to
increase or decrease the death benefit payable under the Policy.
After certain deductions are made, Net Premiums are allocated to one or
more Subaccounts of the Providentmutual Variable Life Separate Account, or the
Guaranteed Account, or both. The Providentmutual Variable Life Separate Account
has twenty-five Subaccounts, the assets of which are each invested in shares of
a corresponding investment Portfolio that is part of one of the following mutual
fund companies:
<TABLE>
<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 VARIABLE INSURANCE
- Money Market Portfolio PRODUCT FUND II
- ------------------------------------------ ------------------------------------------
- Asset Manager Portfolio
- ------------------------------------------ - Contrafund Portfolio
THE ALGER AMERICAN FUND - Index 500 Portfolio
- ------------------------------------------ - Investment Grade Bond Portfolio
- Small Capitalization Portfolio ------------------------------------------
- ------------------------------------------
------------------------------------------
- ------------------------------------------ VAN ECK WORLDWIDE INSURANCE TRUST
NEUBERGER BERMAN ------------------------------------------
ADVISERS MANAGEMENT TRUST - Worldwide Bond Portfolio
- ------------------------------------------ - Worldwide Emerging Markets Portfolio
- Limited Maturity Bond Portfolio - Worldwide Hard Assets Portfolio
- Partners 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 12 Policy Years or within
12 years after a Face Amount increase, the Policy lapses or if the Owner
decreases the Face Amount. Generally, during the first five Policy Years, the
Policy will remain in force as long as the Minimum Guarantee Premium is paid or
there is sufficient value in the Policy to pay certain monthly charges imposed
under the Policy. After the fifth Policy Year, the Policy will only remain in
force if there is sufficient value to pay the monthly deductions and other
charges under the Policy.
This Prospectus must be accompanied or preceded by current prospectuses for
the funds. Please read this Prospectus carefully and retain it for future
reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
March , 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF THE POLICY
The Policy................................................ 3
Purpose of the Policy..................................... 3
The Death Benefit......................................... 3
Flexibility to Adjust Amount of Death Benefit............. 4
Policy Account Value...................................... 4
Allocation of Net Premiums................................ 4
Transfers................................................. 5
Free-Look................................................. 5
Charges Assessed Under the Policy......................... 5
Loan Privilege............................................ 7
Partial Withdrawal of Net Cash Surrender Value............ 7
Surrender of the Policy................................... 7
Accelerated Death Benefit................................. 7
Tax Treatment............................................. 7
Illustrations............................................. 8
Table of Fund Fees and Expenses............................. 9
The Company, Variable Account and Funds..................... 11
Providentmutual Life and Annuity Company of America....... 11
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......................... 17
Additional Information About the Funds and Portfolios..... 18
Detailed Description of Policy Provisions................... 19
Death Benefit............................................. 19
Ability to Adjust Face Amount............................. 21
Insurance Protection...................................... 22
Payment and Allocation of Premiums........................ 23
Special Policy Account Value Credit....................... 25
Policy Account Value...................................... 25
Policy Duration........................................... 25
Transfers of Policy Account Value......................... 26
Free Look Privileges...................................... 27
Loan Privileges........................................... 28
Surrender Privilege....................................... 29
Partial Withdrawal Privilege.............................. 29
Accelerated Death Benefit................................. 31
Charges and Deductions...................................... 33
Premium Expense Charge.................................... 33
Surrender Charges......................................... 33
Monthly Deductions........................................ 35
Face Amount Increase Charge............................... 36
Partial Withdrawal Charge................................. 36
Transfer Charge........................................... 36
Mortality and Expense Risk Charge......................... 36
Other Charges............................................. 37
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Guaranteed Account...................................... 38
Minimum Guaranteed and Current Interest Rates............. 38
Transfers from Guaranteed Account......................... 39
Other Policy Provisions..................................... 40
Benefit Payable on Final Policy Date...................... 40
Payment of Policy Benefits................................ 40
The Policy Application.................................... 40
Ownership................................................. 40
Beneficiary............................................... 41
Change of Owner and Beneficiary........................... 41
Split Dollar Arrangements................................. 41
Assignments............................................... 41
Misstatement of Age and Sex............................... 42
Suicide................................................... 42
Contestability............................................ 42
Settlement Options........................................ 42
Supplementary Benefits.................................... 42
Federal Income Tax Considerations........................... 44
Introduction.............................................. 44
Tax Status of the Policy.................................. 44
Tax Treatment of Policy Benefits.......................... 44
Special Rules for Pension and Profit-Sharing Plans........ 46
Business Uses of the Policy............................... 46
Possible Tax Law Changes.................................. 46
PLACA's Taxes............................................. 46
Policies Issued in Conjunction with Employee Benefit
Plans..................................................... 46
Legal Developments Regarding Unisex Actuarial Tables........ 47
Voting Rights............................................... 47
Changes to the Variable Account and the Funds............... 48
Changes to Variable Account Operations.................... 48
Changes to Available Portfolios........................... 48
Termination of Participation Agreements................... 48
Officers and Directors of PLACA............................. 50
Distribution of Policies.................................... 51
Policy Reports.............................................. 51
Preparing for Year 2000..................................... 51
State Regulation............................................ 52
Legal Proceedings........................................... 52
Experts..................................................... 52
Legal Matters............................................... 52
Definitions................................................. 53
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
Appendix C -- Plan of Conversion............................ C-1
</TABLE>
<PAGE> 6
SUMMARY OF THE POLICY
The following summary of the Policy provisions should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policy in this
prospectus assumes that the Insured is alive, the Policy is in force and there
is no outstanding loan.
The Policy 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 Variable Life Insurance Policy (the
"Policy") offered by this Prospectus is issued by Providentmutual Life and
Annuity Company of America ("PLACA"). The Policy is similar in many ways to a
fixed-benefit life insurance policy. As with a fixed-benefit life insurance
policy, the Owner of a Policy makes premium payments in return for insurance
coverage on the person insured. Also, like many fixed-benefit life insurance
policies, the Policy provides for accumulation of Net Premiums and a Net Cash
Surrender Value which is payable if the Policy is surrendered during the
Insured's lifetime. As with many fixed-benefit life insurance policies, the Net
Cash Surrender Value during the early Policy Years is likely to be substantially
lower than the aggregate premium payments made.
However, the Policy differs from a fixed-benefit life insurance policy in
several important respects. Unlike a fixed-benefit life insurance policy, under
the Policy, the Death Benefit may and the Policy Account Value will increase or
decrease to reflect the investment performance of any Subaccounts to which
Policy Account Value is allocated. Also, unless the entire Policy Account Value
is allocated to the 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, increase or decrease the Face Amount and may change the
Death Benefit Option.
The most important features of the Policy, such as charges and deductions,
Death Benefits, and calculation of Policy values, are summarized on the
following pages.
PURPOSE OF THE POLICY
The Policy is designed to provide lifetime insurance benefits and long-term
investment of Policy Account Value. A prospective Owner should evaluate the
Policy 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. It may
not be advantageous to replace existing insurance coverage with the Policy. In
particular, replacement should be carefully considered if the decision to
replace existing coverage is based solely on a comparison of Policy
illustrations.
THE DEATH BENEFIT
As long as the Policy remains in force, PLACA will pay the Insurance
Proceeds to the Beneficiary upon receipt of due proof of the death of the
Insured. The Insurance Proceeds will consist of the Policy's Death Benefit, plus
any additional benefits provided by a supplementary benefit rider, less any
outstanding Policy loan and accrued interest, less any unpaid Monthly
Deductions.
3
<PAGE> 7
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 increasing
or decreasing the Face Amount of the Policy. (See "Death Benefit" and "Ability
to Adjust Face Amount".) The minimum amount of a requested increase in Face
Amount is $25,000 (or such lesser amount required in a particular state) and any
requested increase may require evidence of insurability. Any decrease in Face
Amount must be for at least $25,000 (or such lesser amount required in a
particular state) and cannot result in a Face Amount less than the Minimum Face
Amount available. PLACA reserves the right to establish different Minimum Face
Amounts for Policies issued in the future.
Any change in Death Benefit Options or in the Face Amount may affect the
charges under the Policy. Any increase in the Face Amount will result in an
increase in the Monthly Deductions and any increase in Face Amount will also
increase the surrender charges which are imposed upon lapse or surrender of the
Policy or the pro-rata surrender charges imposed upon a decrease in Face Amount
within the relevant twelve-year period. For any decrease in Face Amount, that
part of the surrender charges attributable to the decrease will reduce the
Policy Account Value, and the surrender charges will be reduced by this amount.
A decrease in Face Amount may also affect cost of insurance charges. (See
"Monthly Deductions".)
To the extent that a requested decrease in Face Amount would result in
cumulative premiums exceeding the maximum premium limitations applicable under
the Internal Revenue Code of 1986 (the "Code") for life insurance, PLACA will
not effect the decrease.
An Additional Insurance Benefit Rider ("AIB rider") is available with the
Policy. Changes in the AIB rider coverage amount may have the same affect on
charges and maximum premium limitations.
POLICY ACCOUNT VALUE
The Policy Account Value in the Subaccounts reflects the investment
performance of those Subaccounts, any Net Premiums allocated to those
Subaccounts, any transfers to or from those Subaccounts, any partial withdrawals
from those Subaccounts, any loans, any loan repayments, any loan interest paid
or credited and any charges assessed in connection with the Policy. The Owner
bears the entire investment risk for amounts allocated to the Subaccounts.
The Guaranteed Account earns interest at rates PLACA declares in advance
for specific periods. The rates are guaranteed to equal or exceed 4%. The
principal, after deductions, is also guaranteed. The value of the Guaranteed
Account will reflect any amounts allocated or transferred to it plus interest
credited to it, less amounts deducted, transferred or withdrawn from it. (See
"The Guaranteed Account".)
The Loan Account will reflect any amounts transferred from the Subaccounts
and/or Guaranteed Account as collateral for Policy loans plus interest of at
least 4% credited to such amount. (See "Loan Privileges".)
ALLOCATION OF NET PREMIUMS
After deduction of the Premium Expense Charge, Net Premiums are allocated
to one or more of the Subaccounts and/or the Guaranteed Account as selected by
the Owner in the application or by subsequent written notice. The Owner bears
the entire risk of Policy Account Value in the Subaccounts.
4
<PAGE> 8
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 will be allocated to the Money Market
Subaccount. At the end of the 15-day period, Policy Account Value in the Money
Market Subaccount is allocated to each of the chosen Subaccounts as indicated in
the application. (See "Payment and Allocation of Premiums".)
TRANSFERS
The Owner may transfer Policy Account Value between and among the
Subaccounts and Guaranteed Account. Transfers between and among the Subaccounts
or into the Guaranteed Account are made as of the date PLACA receives the
request. PLACA requires a minimum amount for each such transfer, usually $1,000.
Transfers out of the Guaranteed Account may only be made within 30 days of a
Policy Anniversary and are limited in amount. (See "Transfers of Policy Account
Value".)
FREE-LOOK
The Policy provides for an initial Free-Look period. The Owner may cancel
the Policy before the later of: (a) 45 days after Part I of the Application for
the Policy is signed, and (b) 10 days after the Owner receives the Policy. Upon
returning the Policy to PLACA or to an agent of PLACA within such time with a
written request for cancellation, the Owner will receive a refund equal to the
sum of: (i) the Policy Account Value as of the date PLACA receives the returned
Policy; (ii) the amount deducted for premium taxes; (iii) any Monthly Deductions
charged against the Policy Account Value; and (iv) an amount reflecting other
charges directly or indirectly deducted under the Policy. Where state law
requires, the refund will instead equal the premiums paid. (See "Free-Look
Privileges".)
A Free-Look privilege also applies after a requested increase in Face
Amount. (See "Free-Look For Increase in Face Amount".)
LOAN PRIVILEGE
The Owner may obtain Policy loans in a minimum amount of $500 (or such
lesser minimum as may be required in a particular state) but not exceeding, in
the aggregate, the Net Cash Surrender Value. Policy loans will bear interest at
a fixed rate of 6% per year, payable at the end of each Policy Year. If interest
is not paid when due, it will be added to the outstanding loan balance. Policy
loans may be repaid at any time and in any amount prior to the Final Policy
Date. PLACA transfers Policy Account Value in an amount equal to the loan to the
Loan Account where it becomes collateral for the loan. The transfer is made
pro-rata from each Subaccount and the Guaranteed Account or as specified by the
Owner when applying for the loan. This collateral in the Loan Account earns
interest at an effective annual rate of at least 4%. (See "Loan Privileges".)
Depending upon the investment performance of the Subaccounts and the
amounts borrowed, loans may cause a Policy to lapse. Lapse of the Policy with
outstanding loans may result in adverse tax consequences including a 10% penalty
tax. (See "Tax Treatment of Policy Benefits".)
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After the first Policy Year, the Owner may, subject to certain
restrictions, withdraw part of Net Cash Surrender Value. The minimum amount for
such withdrawal is $1,500. An expense charge of $25 will be
5
<PAGE> 9
deducted from the Policy Account Value for each withdrawal. The withdrawal
amount and expense charge is allocated to the Subaccounts and the Guaranteed
Account based on the proportion that the value in each account bears to the
total unloaned Policy Account Value or allocated to such Subaccounts as
specified by the Owner. If Death Benefit Option A is in effect, PLACA will
reduce the Face Amount by the amount of the withdrawal. (See "Partial Withdrawal
Privilege".)
SURRENDER OF THE POLICY
The Owner may at any time surrender the Policy and receive the entire Net
Cash Surrender Value. (See "Surrender Privilege".)
ACCELERATED DEATH BENEFIT
Under the Accelerated Death Benefit Rider, an Owner may receive, at his or
her request and upon approval by PLACA, accelerated payment of part of the
Policy's Death Benefit if the Insured develops a Terminal Illness or is
permanently confined to a Nursing Care Facility (see "Accelerated Death Benefit"
below.)
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.
6
<PAGE> 10
CHARGES ASSESSED UNDER THE POLICY
Premium Expense Charge. A Premium Charge will be deducted from each
premium payment. This charge consists of:
1. Premium Tax Charge for state and local premium taxes based on the
rate for the Insured's residence at the time the premium is paid. PLACA
reserves the right to change the amount of the charge deducted from future
premiums if the Insured's residence changes or the applicable law is
changed;
2. Percent of Premium Charge equal to 1.5% of each premium payment.
PLACA may increase this charge to a maximum of 3% of each premium payment.
(See "Premium Expense Charge" 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; the maximum permissible Monthly Administrative Charge
is $12. (See "Monthly Administrative Charge".) The Initial Administrative Charge
is $5, deducted on the first 12 Policy Processing Days. (See "Initial
Administrative Charge".)
Surrender Charge and Additional Surrender Charge. A Surrender Charge is
imposed if the Policy is surrendered or lapses at any time before the end of the
12th Policy Year. The Surrender Charge consists of a Deferred Administrative
Charge and a Deferred Sales Charge. A portion of this Surrender Charge will be
deducted if the Owner decreases the Initial Face Amount before the end of the
12th Policy Year. (See "Surrender Charges".) An Additional Surrender Charge
which consists of an Additional Deferred Sales Charge and an Additional Deferred
Administrative Charge, will be imposed if the Policy is surrendered or lapses at
any time within 12 years after the effective date of an increase in Face Amount.
(See "Surrender Charges".) A portion of an Additional Surrender Charge will be
deducted if the related increment of Face Amount is decreased within 12 years
after such increase took effect. (See "Surrender Charges".)
The Deferred Administrative Charge is the charge described below less the
amount of any Deferred Administrative Charge previously paid at the time of a
decrease in Face Amount.
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR(S) OF FACE AMOUNT
- -------------- -----------------
<S> <C>
1-6.......................................... $4.90
7............................................ $4.20
8............................................ $3.50
9............................................ $2.80
10........................................... $2.10
11........................................... $1.40
12........................................... $0.70
13+.......................................... $ 0
</TABLE>
The Deferred Sales Charge is equal to 35% of all premiums paid to the date
of surrender, lapse or decrease. The Deferred Sales Charge and any Additional
Deferred Sales Charges, however, will not exceed the Maximum Deferred Sales
Charge and Maximum Additional Deferred Sales Charges, respectively. During
Policy Years one through six (or for six years following the effective date of
an increase in Face Amount), this maximum equals 70% of the Target Premium for
the Initial Face Amount (or 70% of the Target Premium for the increase, as the
case may be). The maximum declines to 60% of the relevant Target Premium during
the seventh year, 50% during the eighth year, 40% during the ninth year, 30%
during the tenth year, 20% during the eleventh year, 10% during the twelfth year
and 0% during years
7
<PAGE> 11
thirteen and later. An Additional Deferred Administrative Charge is associated
with each increase in Face Amount. The Charge is the same as that for the
initial Face Amount except that the Charge grades down based on 12-month periods
(rather than Policy Years) beginning with the effective date of each increase.
The Additional Deferred Administrative Charge paid is the Charge as described
less amount of any such Charge previously paid at the time of a decrease in Face
Amount.
Face Amount Increase Charge. A charge, currently $60 plus $0.50 per $1,000
Face Amount increase but not greater than $750, will be deducted from the Policy
Account Value on the effective date of an increase in Face Amount to compensate
PLACA for administrative expenses in connection with the increase. This charge
may be increased in the future but in no event will it exceed $60 plus $3.00 per
$1,000 Face Amount increase. (See "Face Amount Increase Charge" below.)
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 which reflects
management fees and expenses deducted from the assets of the Portfolios. (See
"Table of Fund Fees and Expenses" below).
8
<PAGE> 12
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>
9
<PAGE> 13
<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.
10
<PAGE> 14
THE COMPANY, VARIABLE ACCOUNT AND FUNDS
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
The Contracts are issued by PLACA which is a stock life insurance company
originally incorporated under the name of Washington Square Life Insurance
Company in the Commonwealth of Pennsylvania in 1958. The name of the Company was
changed to 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. More
information about PMLIC is provided in Appendix C. 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 nine series-type mutual fund
companies (each, a "Fund"): Market Street Fund, Inc.; Neuberger Berman Advisers
Management Trust; The Alger American Fund;
11
<PAGE> 15
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.
12
<PAGE> 16
With respect to the Growth, Money Market, Bond, Managed and Aggressive
Growth Portfolios, the Fund is advised by Sentinel Advisors Company (SAC), which
is registered with the SEC as an investment adviser under the Investment
Advisers Act of 1940. As compensation for its services, SAC receives monthly
compensation as follows:
Growth Portfolio -- 0.50% of the first $20 million of the average
daily net assets of the Growth Portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio, and 0.30% of the average
daily net assets in excess of $40 million.
Money Market Portfolio -- 0.25% of the average daily net assets of the
portfolio.
Bond Portfolio -- 0.35% of the first $100 million of the average daily
net assets of the portfolio and 0.30% of the average daily net assets in
excess of $100 million.
Managed Portfolio -- 0.40% of the first $100 million of the average
daily net assets of the portfolio and 0.35% of the average daily net assets
in excess of $100 million.
Aggressive Growth Portfolio -- 0.50% of the first $20 million of the
average daily net assets of the portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio and 0.30% of the average
daily net assets in excess of $40 million.
With respect to the International Portfolio, MS Fund is advised by
Providentmutual Investment Management Company ("PIMC") which receives monthly
compensation at an effective annual rate of 0.75% of the first $500 million of
the average daily net assets of the portfolio and 0.60% of the average daily net
assets in excess of $500 million. PIMC has employed The Boston Company Asset
Management, Inc. ("Boston Company") to provide investment subadvisory services
in connection with the Portfolio. As compensation for the investment advisory
services rendered, PIMC pays The Boston Company a monthly fee at an effective
rate of 0.375% of the first $500 million of the average daily net assets of the
portfolio and 0.30% of the average daily net assets in excess of $500 million.
PIMC serves as investment adviser for the All Pro Portfolios. As
compensation for its services, PIMC receives .70% of the daily net assets of the
All Pro Large Cap Growth and All Pro Large Cap Value Portfolios, and .90% of the
daily net assets of the All Pro Small Cap Growth and All Pro Small Cap Value
Portfolios. PIMC uses a "manager of managers" approach for the All Pro
Portfolios under which PIMC allocates each Portfolio's assets among one or more
"specialist" investment sub-advisers. Additionally, PIMC has retained Wilshire
Associates Incorporated ("Wilshire") to assist it in identifying potential
sub-advisers and performing the quantitative analysis necessary to assess such
sub-advisers' styles and performance. As compensation for these services, PIMC
pays Wilshire from its investment advisory fees, .05% of the average daily net
assets of the All Pro Portfolios.
All Pro Large Cap Growth. As of the date of this prospectus, the assets of
the All Pro Large Cap Growth Portfolio are managed in part by Cohen,
Klingenstein & Marks, Inc. ("CKM") and in part by Geewax, Terker & Co.
("Geewax"); pursuant to separate investment sub-advisory agreements. As
compensation for their services PIMC pays from its investment advisory fees the
following percentages of the daily net assets of the Portfolio: CKM -- .35%;
Geewax -- .30%.
All Pro Small Cap Growth. As of the date of this prospectus, the assets of
the All Pro Small Cap Growth Portfolio are managed in part by Standish, Ayer &
Wood ("SAW"), and in part by Husic Capital Management ("Husic"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: SAW -- .50%; Husic -- .50%.
All Pro Large Cap Value. As of the date of this prospectus, the assets of
the All Pro Large Cap Value Portfolio are managed in part by Equinox Capital
Management, Inc. ("Equinox"); in part by Harris Associates, Inc. ("Harris"); and
in part by Mellon Equity Associates ("Mellon"), pursuant to separate investment
sub-advisory agreements. As compensation for their services PIMC pays from its
investment advisory fees the following percentages of the daily net assets of
the Portfolio: Equinox -- .25% of the first
13
<PAGE> 17
$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; 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. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: 1838 -- .55%; DIA -- .75% of the first $25
million of assets and .65% on the remaining assets.
In addition to the fee for the investment advisory services, MS Fund pays
its own expenses generally, including brokerage costs, administrative costs,
custodial costs, and legal, accounting and printing costs. However, PMLIC has
entered into an agreement with the Fund whereby it will reimburse the Fund for
all ordinary operating expenses, excluding advisory fees in excess of an annual
rate of 0.40% of the average daily net assets of each portfolio except the
International Portfolio, and 0.75% for the International Portfolio. It is
anticipated that this agreement will continue; if it is terminated, Fund
expenses may increase.
A more complete description of MS Fund, including the investment
objectives, policies and risks of each Portfolio, is contained in the prospectus
for the Fund, which accompanies this Prospectus.
THE ALGER AMERICAN FUND
The 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 Advisors
Act of 1940. As compensation for its services, Alger Management receives a fee
at the end of each month at an annual rate of .85% of the average net assets of
the Alger American Small Capitalization Portfolio.
A more complete description of Alger American and the Alger American Small
Capitalization Portfolio, including the Portfolio's investment objectives,
policies and risks, is contained in the prospectus for Alger American which
accompanies this Prospectus.
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 security. Capital
appreciation may also be found in other types of securities, including bonds and
preferred stocks.
14
<PAGE> 18
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 monthly management fee at the
annual rate of 0.28% of the Portfolio's average net assets. One-twelfth of this
annual fee rate is applied to the net assets averaged over the most recent
month, giving a dollar amount which is the fee for that month.
For the VIP High Income Portfolio, the annual fee rate is the sum of two
components:
1. A group fee rate based on the monthly average net assets of all
the mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
drops (to as low as a marginal rate of 0.14%) as total assets in all these
funds rise.
2. An individual Portfolio fee rate of 0.45%.
One twelfth of the combined annual fee rate is applied to the Portfolio's
net assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
15
<PAGE> 19
On behalf of the VIP II Asset Manager Portfolio and the VIP II Contrafund
Portfolio, FMR has entered into sub-advisory agreements with Fidelity Management
& Research (U.K.) Inc. ("FMR (U.K.)") and Fidelity Management & Research (Far
East) Inc. ("FMR Far East"), pursuant to which these entities provide research
and investment recommendations with respect to companies based outside the
United States. FMR (U.K.) primarily focuses on companies based in Europe while
FMR Far East focuses primarily on companies based in Asia and the Pacific Basin.
Under the sub-advisory agreements, FMR and not the Portfolios pay FMR (U.K.) and
FMR Far East fees equal to 100% and 105%, respectively, of each sub-advisor's
costs incurred in connection with its sub-advisory agreement.
On behalf of the VIP Overseas Portfolio, FMR has entered into sub-advisory
agreements with FMR (U.K.), FMR Far East, and Fidelity International Investment
Advisors ("FIIA"). FIIA, in turn, has entered into a sub-advisory agreement with
its wholly owned subsidiary Fidelity International Investment Advisors (U.K.)
Limited (FIIAL U.K.). Under the sub-advisory agreements, FMR may receive
investment advice and research services with respect to companies based outside
the U.S. and may grant them investment management authority as well as the
authority to buy and sell securities if FMR believes it would be beneficial to
the Portfolio.
Currently, FMR (U.K.), FMR Far East, FIIA and FIIAL U.K. each focus on
investment opportunities in countries other than the U.S., including countries
in Europe, Asia and the Pacific Basin.
Under the sub-advisory agreements FMR pays the fees of FMR (U.K.), FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors are
compensated as follows:
- FMR pays FMR (U.K.) and FMR Far East fees equal to 110% and 105%,
respectively, of FMR (U.K.)'s and FMR Far East's costs incurred in
connection with providing investment advice and research services.
- FMR pays FIIA 30% of its monthly management fee with respect to the
average market value of investments held by the Portfolio for which FIIA
has provided FMR with investment advice.
- FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred
in connection with providing investment advice and research services.
For providing investment management services, the sub-advisors are
compensated according to the following formulas:
- FMR pays FMR (U.K.), FMR Far East, and FIIA 50% of its monthly management
fee with respect to the Portfolio's average net assets managed by the
sub-advisor on a discretionary basis.
- FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection
with providing investment management.
Each Portfolio utilizes Fidelity Investments Institutional Operations
Company ("FIIOC"), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each Portfolio pays fees based on the type, size, and number of accounts
in each Portfolio and the number of transactions made by shareholders of each
Portfolio.
Each Portfolio also has an agreement with Fidelity Service Co. ("Service"),
an affiliate of FMR under which each Portfolio pays Service to calculate its
daily share prices and to maintain the portfolio and general accounting records
of each Portfolio and to administer each Portfolio's securities lending program.
The fees for pricing and bookkeeping services are based on each Portfolio's
average net assets but must fall within a range of $45,000 to $750,000. The fees
for securities lending services are based on the number and duration of
individual securities loans.
FMR may, from time to time, agree to reimburse a Portfolio for management
fees and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without notice,
will increase a Portfolio's yield. If FMR discontinues a
16
<PAGE> 20
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.
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
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<PAGE> 21
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
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
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<PAGE> 22
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> 23
DETAILED DESCRIPTION OF POLICY PROVISIONS
DEATH BENEFIT
General. As long as the Policy remains in force, the Insurance Proceeds of
the Policy will, upon due proof of the Insured's death (and fulfillment of
certain other requirements), be paid to the Beneficiary in accordance with the
designated Death Benefit Option. The Insurance Proceeds will be determined as of
the date of the Insured's death and will be equal to:
1. the Death Benefit;
2. plus any additional benefits due under a supplementary benefit
rider attached to the Policy;
3. less any loan and accrued loan interest on the Policy;
4. less any overdue deductions if the death of the Insured occurs
during the Grace Period.
The Insurance Proceeds may be paid in cash or under one of the Settlement
Options set forth in the Policy.
Death Benefit Options. The Policy provides two Death Benefit Options:
Option A and Option B. The Owner designates the Death Benefit Option in the
application and may change it as described in "Change in Death Benefit Option."
Under either Option, the duration of the Death Benefit coverage depends upon the
Policy's Net Cash Surrender Value. (See "Policy Duration.")
Option A. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy and (b) the Policy Account Value on the Valuation Date on
or next following the Insured's date of death multiplied by the specified
percentage shown in the table below:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ---------- ------------- ----------
<S> <C> <C> <C>
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 through 99 100%
</TABLE>
For Attained Ages not shown, the percentages will decrease by a ratable portion
for each full year.
Illustration of Option A -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no Policy loan outstanding.
Under Option A, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000. The specified percentage for an Insured under
Attained Age 40 on the Policy Anniversary prior to the date of death is 250%.
Because the Death Benefit must be equal to or be greater than 2.50 times the
Policy Account Value, any time the Policy Account Value exceeds $80,000 the
Death Benefit will exceed the Face Amount. Each additional dollar added to the
Policy Account Value will increase the Death Benefit by $2.50. Thus, a 35 year
old Insured with a Policy Account Value of $150,000 will have a Death Benefit of
$375,000 (2.50 x $150,000); a Policy Account Value of $300,000 will yield a
Death Benefit of $750,000 (2.50 x $300,000); a Policy Account Value of $400,000
will yield a Death Benefit of $1,000,000 (2.50 x $400,000).
Similarly, any time the Policy Account Value exceeds $80,000, each dollar
taken out of the Policy Account Value will reduce the Death Benefit by $2.50. If
at any time, however, the Policy Account Value multiplied by the specified
percentage is less than the Face Amount, the Death Benefit will be the Face
Amount of the Policy.
Option B. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy plus the Policy Account Value and (b) the Policy Account
Value multiplied by the specified percentage shown in
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<PAGE> 24
the table above. (The Policy Account Value in each case is determined on the
Valuation Day on or next following the Insured's date of death.)
Illustration of Option B -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no outstanding Policy loan.
Under Option B, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000 plus the Policy Account Value. Thus, for example, a
Policy with a $50,000 Policy Account Value will have a Death Benefit of $250,000
($200,000 plus $50,000); and a Policy Account Value of $100,000 will yield a
Death Benefit of $300,000. Since the specified percentage is 250%, the Death
Benefit will be at least 2.50 times the Policy Account Value. As a result, if
the Policy Account Value exceeds $133,333, the Death Benefit will be greater
than the Face Amount plus the Policy Account Value. Each additional dollar added
to the Policy Account Value above $133,333 will increase the Death Benefit by
$2.50. An Insured with a Policy Account Value of $150,000 will therefore have a
Death Benefit of $375,000 (2.50 x $150,000); a Policy Account Value of $300,000
will yield a Death Benefit of $750,000 (2.50 x $300,000); and a Policy Account
Value of $500,000 will yield a Death Benefit of $1,250,000 (2.50 x $500,000).
Similarly, any time the Policy Account Value exceeds $133,333, each dollar taken
out of the Policy Account Value will reduce the Death Benefit by $2.50. If at
any time, however, the Policy Account Value multiplied by the applicable
percentage is less than the Face Amount plus the Policy Account Value, the Death
Benefit will be the Face Amount plus the Policy Account Value.
Which Death Benefit Option to Choose. If an Owner prefers to have premium
payments and favorable investment performance reflected partly in the form of an
increasing Death Benefit, the Owner should choose Option B. If an Owner is
satisfied with the amount of the Insured's existing insurance coverage and
prefers to have premium payments and favorable investment performance reflected
to the maximum extent in the Policy Account Value, the Owner should choose
Option A.
Change in Death Benefit Option. After the first Policy Year or 12 months
after a Face Amount increase, at any time while the Policy is in force, the
Owner may change the Death Benefit Option in effect by sending PLACA a completed
application for change. No charges will be imposed to make a change in the Death
Benefit Option. The effective date of any such change will be the Policy
Processing Day on or next following the date PLACA receives the completed
application for change.
If the Death Benefit Option is changed from Option A to Option B, on the
effective date of the change, the Death Benefit will not change and the Face
Amount and any applicable rider coverage amounts, respectively, will be
decreased by the Policy Account Value on that date. However, this change may not
be made if it would reduce the Face Amount or applicable rider coverage amount
to less than the Minimum Face Amount or minimum amount in which the applicable
rider could be issued.
If the Death Benefit Option is changed from Option B to Option A, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be increased by the Policy Account Value on that date.
A change in the Death Benefit Option may affect the Net Amount at Risk over
time which, in turn, would affect the monthly Cost of Insurance Charge. Changing
from Option A to Option B will generally result in a Net Amount at Risk that
remains level. Such a change will result in a relative increase in the cost of
insurance charges over time because the Net Amount at Risk will, unless the
Death Benefit is based on the applicable percentage of Policy Account Value,
remain level rather than decreasing as the Policy Account Value increases.
Unless the Death Benefit is based on the applicable percentage of Policy Account
Value, changing from Option B to Option A will, if the Policy Account Value
increases, decrease the Net Amount at Risk over time, thereby reducing the cost
of insurance charge.
The effects of these Death Benefit Option changes on the Face Amount, Death
Benefit and Net Amount at Risk can be illustrated as follows. Assume that a
contract under Option A has a Face Amount of $500,000 and a Policy Account Value
of $100,000 and, therefore, a Death Benefit of $500,000 and a Net Amount at Risk
of $400,000 ($500,000 - $100,000). If the Death Benefit Option is changed from
Option A to Option B, the Face Amount will decrease from $500,000 to $400,000
and the Death Benefit
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<PAGE> 25
and Net Amount at Risk would remain the same. Assume that a contract under
Option B has a Face Amount of $500,000 and a Policy Account Value of $50,000
and, therefore, the Death Benefit is $550,000 ($500,000 - $50,000) and a Net
Amount at Risk of $500,00 ($550,000 - $50,000). If the Death Benefit Option is
changed from Option B to Option A, the Face Amount will increase to $550,000,
and the Death Benefit and Net Amount at Risk would remain the same.
If a change in the Death Benefit Option would result in cumulative premiums
exceeding the maximum premium limitations under the Internal Revenue Code for
life insurance, PLACA will not effect the change.
A change in the Death Benefit Option may have Federal income tax
consequences. (See "Tax Treatment of Policy Benefits.")
How the Death Benefit May Vary. The amount of the Death Benefit may vary
with the Policy Account Value. The Death Benefit under Option A will vary with
the Policy Account Value whenever the specified percentage of Policy Account
Value exceeds the Face Amount of the Policy. The Death Benefit under Option B
will always vary with the Policy Account Value because the Death Benefit equals
the greater of (a) the Face Amount plus the Policy Account Value and (b) the
Policy Account Value multiplied by the specified percentage.
ABILITY TO ADJUST FACE AMOUNT
Subject to certain limitations, an Owner may generally, at any time after
the first Policy Year, increase or decrease the Policy's Face Amount by
submitting a written application to PLACA. The effective date of the increase or
decrease will be the Policy Processing Day on or next following PLACA's approval
of the request. An increase or decrease in Face Amount may have tax
consequences. (See "Tax Treatment of Policy Benefits.") The effect of changes in
Face Amount on Policy charges, as well as other considerations, are described
below.
Increase. A request for an increase in Face Amount may not be for less
than $25,000 (or such lesser amount required in a particular state). The Owner
may not increase the Face Amount after the Insured's Attained Age 75 or if the
Face Amount was increased during the prior 12-month period. To obtain the
increase, the Owner must submit an application for the increase and provide
evidence satisfactory to PLACA of the Insured's insurability.
On the effective date of an increase, and taking the increase into account,
the Net Cash Surrender Value must be equal to the Monthly Deductions then due
and the expense charge for the increase in Face Amount. If the Net Cash
Surrender Value is not sufficient, the increase will not take effect until the
Owner makes a sufficient additional premium payment to increase the Net Cash
Surrender Value.
An increase in the Face Amount will generally affect the total Net Amount
at Risk which will increase the monthly Cost of Insurance Charges. An increase
in Face Amount will increase the amount of any Additional Surrender Charge. A
Face Amount increase expense charge will also be deducted. (See "Face Amount
Increase Charge.") In addition, different cost of insurance rates may apply to
the increase in insurance coverage. (See "Monthly Deductions.")
After increasing the Face Amount, the Owner will have the right: (a) during
the Free-Look Period following the effective date of the increase, to have the
increase canceled and receive a credit or refund equal to the cost of insurance
charge and the increase charge deducted for the increase; and (b) during the
first 24 months following the increase, to exchange the increase in Face Amount
for a fixed benefit permanent life insurance policy issued by PLACA. (See
"Transfers of Policy Account Value.")
Decrease. The amount of a Face Amount decrease must be for at least
$25,000 (or such lesser amount required in a particular state). The Face Amount
after any decrease may not be less than the Minimum Face Amount. A decrease in
Face Amount will not be permitted if the Face Amount was increased during the
prior 12-month period. To the extent a decrease in the Face Amount could result
in
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<PAGE> 26
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 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 such account
bears to the total unloaned Policy Account Value.
For purposes of determining the cost of insurance charge and surrender
charges, any decrease in the Face Amount will reduce the Face Amount in the
following order: (a) the Face Amount provided by the most recent increase; (b)
the next most recent increases, successively; and (c) the Initial Face Amount.
INSURANCE PROTECTION
An Owner may increase or decrease the insurance protection provided by the
Policy (i.e, the Net Amount at Risk) in one of several ways, as insurance needs
change. These ways include increasing or decreasing the Face Amount, changing
the level of premium payments, and by making a partial withdrawal of Net Cash
Surrender Value. The consequences of each are summarized below.
A decrease in Face Amount will decrease the insurance protection. It will
not reduce the Policy Account Value, except for the deduction of any surrender
charge applicable to the decrease. The Monthly Deductions will generally be
correspondingly lower following the decrease.
An increase in Face Amount will generally increase the amount of insurance
protection, depending on the Policy Account Value and specified percentage. If
the insurance protection is increased, Monthly Deductions will increase as well.
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.
AIB Rider. Beginning on June 1, 1999, an Owner may also obtain additional
insurance protection by purchasing an AIB rider. An AIB rider increases the
Insurance Proceeds under the Policy by the death benefit of the AIB rider. The
death benefit under the AIB rider is: (a) if Death Benefit Option A under the
Policy is in effect, the Policy's Face Amount plus the rider coverage amount
less the Policy's Death Benefit, or (b) if Death Benefit Option B under the
Policy is in effect, the Policy's Face Amount plus the rider coverage amount
plus the Policy Account Value less the Policy's Death Benefit.
An AIB rider may be canceled separately from the Policy (i.e., it can be
canceled without causing the Policy to be canceled or to lapse). The cost of
insurance charge for the AIB rider is deducted from the Policy Account Value as
part of the monthly deduction. (See "Monthly Deductions".) No additional
Surrender Charge or Premium Expense Charge is assessed in connection with an AIB
rider.
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<PAGE> 27
Owners may increase or decrease the coverage amount of an AIB rider
separately from the Face Amount of a Policy. Likewise, the Face Amount of a
Policy may be increased or decreased without affecting the coverage amount of an
AIB rider. Since no Surrender Charge is assessed in connection with a decrease
in the coverage amount of an AIB rider, such a decrease may be less expensive
than a decrease of the same size in the Face Amount of the Policy if the Face
Amount decrease would be subject to a Surrender Charge. However, continuing
coverage on such an increment of Policy Face Amount may have a cost of insurance
charge that is higher than the same increment of coverage amount under the AIB
rider. Owners who have an AIB rider should consult their sales representative
before deciding whether to decrease Policy Face Amount or AIB rider coverage
amount.
For the purpose of maintaining compliance with the maximum premium
limitations under the Code, insurance coverage provided by an AIB rider is
treated as part of the Face Amount of a Policy (see "Tax Considerations").
Owners should consult their sales representative when deciding whether to
purchase an AIB rider.
A partial withdrawal of Net Cash Surrender Value will reduce the Death
Benefit. If Death Benefit Option A is in effect, the withdrawal will first
decrease the Policy's Face Amount, and then the coverage amount of any AIB rider
by the amount withdrawn plus the partial withdrawal expense charge. 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 $50,000 for all Premium Classes except preferred. For the preferred Premium
Class, the Minimum Face Amount is $100,000.
PLACA reserves the right to revise its rules from time to time to specify a
different Minimum Face Amount for subsequently issued policies. A Policy will be
issued only with respect to Insureds who have an Issue Age of 85 or less and who
provide PLACA with satisfactory evidence of insurability. Acceptance is subject
to PLACA's underwriting rules. PLACA reserves the right to reject an application
for any reason permitted by law. (See "Distribution of Policies.")
At the time the application for a Policy is signed, an applicant can,
subject to PLACA's underwriting rules, obtain temporary insurance protection,
pending issuance of the Policy, by answering "no" to the Health Questions of the
Temporary Agreement and submitting payment of the Minimum Initial Premium with
the Application. The Minimum Initial Premium will equal the Minimum Annual
Premium multiplied by the following factor:
<TABLE>
<CAPTION>
PREMIUM BILLING MODE
SELECTED AT ISSUE FACTOR
- -------------------- ------
<S> <C>
Annual............................................. 1.000
Semi-annual........................................ 0.500
Quarterly.......................................... 0.250
Monthly............................................ 0.167
</TABLE>
The amount of coverage under the agreement is the lesser of the Face Amount
applied for or $500,000. Coverage under the agreement will end on the earliest
of: (a) the 90th day from the date of the agreement; (b) the date that insurance
takes effect under the Policy; (c) the date a policy, other than as applied for,
is offered to the Applicant; or (d) five days from the date PLACA mails a notice
of termination of coverage.
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<PAGE> 28
Amount and Timing of Premiums. The Minimum Initial Premium is due on or
before the date the Policy is delivered. No insurance will take effect until the
Minimum Initial Premium is paid while the health and other conditions of the
Insured stay the same as described in the application. Prior to the Final Policy
Date and while the Policy is in force, an Owner may make additional premium
payments at any time and in any amount, subject to the limitation set forth
below. Each premium payment must be for at least $20. PLACA may increase this
minimum amount upon 90 days written notice to Owners of such increase, but the
minimum amount will never exceed $500. Subject to certain limitations described
below, an Owner has considerable flexibility in determining the amount and
frequency of premium payments.
At the time of application, each Owner will select a Planned Periodic
Premium schedule, based on a periodic billing mode of annual, semi-annual, or
quarterly payment. The Owner is entitled to receive a premium reminder notice
from PLACA at the specified interval. The Owner may change the Planned Periodic
Premium frequency and amount. Also, under the Automatic Payment Plan, the Owner
can select a monthly payment schedule pursuant to which premium payments will be
automatically deducted from a bank account or other source, rather than being
"billed".
Any payments made while there is an outstanding Policy loan are considered
loan repayments, unless PLACA is notified in writing that the amount is to be
applied as a premium payment. The Owner is not required to pay the Planned
Periodic Premiums in accordance with the specified schedule. The Owner has the
flexibility to alter the amount and frequency of premium payments. However,
payment of the Planned Periodic Premiums does not guarantee that the Policy will
remain in force. Instead, the duration of the Policy depends upon the Policy's
Net Cash Surrender Value. Thus, even if Planned Periodic Premiums are paid, the
Policy 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> 29
premium allocation percentages. All other Net Premiums are allocated based on
the allocation percentages then in effect. The allocation schedules may be
changed at any time by providing PLACA with written notice.
The values of the Subaccounts will vary with their investment experience
and the Owner bears the entire investment risk. Owners should periodically
review their allocation schedule in light of market conditions and the Owner's
overall financial objectives.
SPECIAL POLICY ACCOUNT VALUE CREDIT
On each Policy Processing Day after the Policy has been in force for at
least 15 years or when the Policy Account Value less the value in the Loan
Account equals or exceeds $100,000, an additional credit is added to the Policy
Account Value in the Subaccounts. The credit is a result of a reduction in the
mortality and expense risk charge and is equal to 0.03% multiplied by the Policy
Account Value in the Subaccounts.
POLICY ACCOUNT VALUE
The Policy Account Value is the total amount of value held under the Policy
at any time. It is equal to the sum of the Policy's values in the Subaccounts,
the Guaranteed Account and the Loan Account. The Policy Account Value minus any
applicable Surrender Charge or Additional Surrender Charge is the Cash Surrender
Value.
The Policy Account Value and Cash Surrender Value will reflect the
investment performance of the chosen Subaccounts, the crediting of interest for
the Guaranteed Account and the Loan Account, any Net Premiums paid, the Special
Policy Account Value Credit, any transfers, any partial withdrawals, any loans,
any loan repayments, any loan interest paid, and any charges assessed in
connection with the Policy.
Calculation of Policy Account Value. The Policy Account Value is
determined first on the Policy Date and thereafter at the close of each
Valuation Day. On the Policy Date, the Policy Account Value equals the Net
Premiums received less any Monthly Deductions on the Policy Date. On each
Valuation Day after the Policy Date, the Policy Account Value is:
1. Policy Account Value in each Subaccount, determined by multiplying
the number of units of the Subaccount by the Subaccount's Unit Value on
that date;
2. Policy Account Value in the Guaranteed Account; plus
3. Policy Account Value in the Loan Account.
Determination of Number of Units for the Subaccounts. Allocated Net
Premiums, the Special Policy Account Value Credit or Policy Account Value
transferred to a Subaccount are used to purchase units of that Subaccount; units
are redeemed when amounts are deducted, transferred or withdrawn. The number of
units of a Subaccount at any time equals the number of units purchased minus the
number of units redeemed up to such time. For each Subaccount, the number of
units purchased or redeemed in connection with a particular transaction is
determined by dividing the dollar amount by the unit value.
Determination of Unit Value. The unit value of a Subaccount on any
Valuation Day is equal to the unit value on the immediately preceding Valuation
Day multiplied by the Net Investment Factor for that Subaccount on that
Valuation Day.
Net Investment Factor. The Net Investment Factor for each Subaccount
measures the investment performance of a Subaccount. The factor increases to
reflect investment income and capital gains, realized and unrealized, for the
shares of the underlying Portfolio. The factor decreases to reflect any capital
losses, realized or unrealized, for the shares of the underlying Portfolio as
well as the asset charge for mortality and expense risks.
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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 the Insured's insurability satisfactory to PLACA and payment of an
amount sufficient to keep the Policy in force for at least three months
following the date that the reinstatement application is approved. Upon
reinstatement, the Policy Account Value is based upon the premium paid to
reinstate the Policy. A reinstated Policy has the same Policy Date as it had
prior to the lapse.
TRANSFERS OF POLICY ACCOUNT VALUE
Transfers. The Owner may transfer the Policy Account Value between and
among the Subaccounts and the Guaranteed Account by making a written transfer
request to PLACA. The amount transferred must be at least $1,000, unless the
total value in an account is less than $1,000, in which case the entire amount
may be transferred.
After 12 transfers have been made in any Policy Year, a $25 transfer charge
will be deducted from each transfer during the remainder of such Policy Year.
All transfers included in a single written request are treated as one transfer.
Transfers are made as of the date PLACA receives a written request at its
Service Center. Transfers resulting from Policy loans, the exercise of exchange
privileges, and the reallocation from the Money Market Subaccount following the
15-day period after the Issue Date, are not subject to a transfer charge and do
not count as one of the 12 "free" transfers in any Policy Year. Under present
law, transfers are not taxable transactions.
Special Transfer Right. During the first two years following the Issue
Date, the Owner may, on one occasion, transfer the entire Policy Account Value
in the Subaccounts to the Guaranteed Account without a transfer charge and
without such transfer counting toward the twelve transfers permitted without
charge during a Policy Year.
Conversion Privilege for Increase in Face Amount. During the first two
years following an increase in Face Amount, the Owner may, on one occasion,
without evidence of insurability, exchange the amount of the increase in Face
Amount for a fixed-benefit permanent life insurance policy. Such an exchange
may, however, have federal income tax consequences. (See "Tax Treatment of
Policy Benefits.") Premiums under this new policy will be based on the Sex,
Attained Age and Premium Class of the Insured on the effective date of the
increase in the Face Amount of the Policy. The new policy will have the same
Face Amount and Issue Date as the amount and effective date of the increase.
PLACA will refund the monthly deductions for the increase made on each Policy
Processing Day between the effective date of the increase to the date of
conversion and the expense charge for such increase.
Transfer Right for Change in Investment Policy of a Subaccount. If the
investment policy of a Subaccount is materially changed, the Owner may transfer
the portion of the Policy Account Value in such Subaccount to another Subaccount
or to the Guaranteed Account without a transfer charge and
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without having such transfer count toward the twelve transfers permitted without
charge during a Policy Year.
Telephone Transfers. Transfers will be made upon instructions given by
telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to PLACA. PLACA reserves the
right to suspend telephone transfer privileges at any time for any class of
policies, for any reason. PLACA will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine and if it follows such
procedures it will not be liable for any losses due to authorized or fraudulent
instructions. PLACA, however, may be liable for such losses if it does not
follow those reasonable procedures. The procedures PLACA will follow for
telephone transfers include requiring some form of personal identification prior
to acting on instructions received by telephone, providing written confirmation
of the transaction and making a tape-recording of the instructions given by
telephone.
Automatic Asset Rebalancing. Automatic asset rebalancing is a feature
which, if elected, authorizes periodic transfers of Policy Account Values
between the Subaccounts in order to maintain the allocation of such values in
percentages that match the then current premium allocation percentages. Election
of this feature may be made in the application or at any time after the policy
is issued by properly completing the election form and returning it to PLACA.
The election may be revoked at any time. Rebalancing may be done quarterly or
annually. Rebalancing terminates when the total value in the subaccounts is less
than $1,000. PLACA reserves the right to suspend automatic asset rebalancing at
any time, for any class of Policies, for any reason.
Dollar-Cost Averaging. Dollar Cost Averaging is a program which, if
elected, enables the Owner to systematically and automatically transfer, on a
monthly basis, specified dollar amounts from any selected Subaccount to any
other Subaccounts or the Guaranteed Account. Transfers may not come from the
Guaranteed Account. By allocating on a regularly scheduled basis as opposed to
allocating the total amount at one particular time, an Owner may be less
susceptible to the impact of short term market fluctuations. PLACA, however,
makes no guarantee that Dollar Cost Averaging will result in a profit or protect
against loss.
Dollar-Cost Averaging may be elected for a period of 6, 12, 18, 24, 30 or
36 months. To qualify for Dollar Cost Averaging, the following minimum amount of
Policy Account Value must be allocated to a Subaccount: 6 months -- $3,000;
12 months -- $6,000; 18 months -- $9,000; 24 months -- $12,000; 30 months --
$15,000; 36 months -- $18,000. At least $500 must be transferred from the
Subaccount each month. The amount required to be allocated to the Subaccount can
be made from an initial or subsequent investment or by transferring amounts into
the Subaccount from the other Subaccounts or from the Guaranteed Account (See
"Transfers from Guaranteed Account."). Each monthly transfer is split among the
Subaccounts or the Guaranteed Account based upon the percentages elected. Dollar
Cost Averaging may not be elected if Automatic Asset Rebalancing has been
elected or if a policy loan is outstanding.
Dollar-Cost Averaging may be elected in the application or by completing an
election form and returning it to PLACA by the beginning of the month. When an
election form is received, Dollar Cost Averaging will commence on the first
Policy Processing Day after the later of (a) the Policy Date; (b) the 15-day
period when premiums are allocated to the Money Market Fund in certain states;
and (c) when the Subaccount value equals or exceeds the greater of the minimum
amount stated above and the amount of the first monthly transfer.
Once Dollar-Cost Averaging transfers have commenced, they occur monthly on
the Policy Processing Day until the specified number of transfers has been
completed, or (a) a policy loan is requested, (b) the policy goes into the grace
period, or (c) there is insufficient value in the Subaccount to make the
transfer. The Owner may instruct PLACA in writing to cancel Dollar-Cost
Averaging transfers at any time.
Transfers made under the Dollar Cost Averaging program do not count toward
the twelve transfers permitted each Policy Year without imposing the Transfer
Charge. PLACA reserves the right to discontinue offering automatic transfers
upon 30 days' written notice to the Owner. Written notice will be
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sent to the Owner confirming each transfer and when the Dollar Cost Averaging
program is terminated. The Owner and agent are responsible for reviewing the
confirmation to verify that the transfers are being made as requested.
FREE-LOOK PRIVILEGES
Free-Look for Policy. The Policy provides for an initial Free-Look Period.
The Owner may cancel the Policy until the latest of: (a) 45 days after Part I of
the application for the Policy is signed, and (b) 10 days after the Owner
receives the Policy. Upon giving written notice of cancellation and returning
the Policy to PLACA's 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 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
Policy's delivered in states that require such a refund.
Free-Look for Increase in Face Amount. Any requested increase in Face
Amount is also subject to a Free-Look privilege. The Owner may cancel a
requested increase in Face Amount until the latest of: (a) 45 days after the
application for the increase is signed, and (b) 10 days after the Owner receives
the new Policy Schedule pages reflecting the increase. Upon requesting
cancellation of the increase, an amount equal to all cost of insurance charges
attributable to the increase plus the Face Amount Increase Charge will be
credited to the accounts in the same proportion as they were deducted, unless
the Owner requests a refund of such amount.
LOAN PRIVILEGES
General. The Owner may at any time after the Issue Date borrow money from
PLACA using the Policy Account Value as the security for the loan. The Owner may
obtain Policy loans in a minimum amount of $500 (or such lesser minimum required
in a particular state) but not exceeding the Policy's Net Cash Surrender Value
on the date of the loan. While the Insured is living, the Owner may repay all or
a portion of a loan and accrued interest.
Interest Rate Charged. Interest is charged on Policy loans at an effective
annual rate of 6%. Interest is due at the end of each Policy Year. If interest
is not paid when due, it is added to the loan balance and bear interest at the
same rate. Unpaid interest is allocated based on the Owner's written
instructions. If there are no written instructions or the Policy Account Value
in the specified Subaccounts is insufficient to allow the collateral for the
unpaid interest to be transferred, the interest is allocated based on the
proportion that the Guaranteed Account Value and the Value of the Subaccounts
under a Policy bear to the total unloaned Policy Account Value.
Allocation of Loans and Collateral. PLACA will allocate the amount of a
Policy loan among the Subaccounts and/or the Guaranteed Account based upon the
proportion that the value of the Subaccounts and/or the Guaranteed Account Value
bear to the total unloaned Policy Account Value at the time the loan is made or
to the Subaccounts based on the percentages you specify at the time the loan is
made.
The collateral for a Policy loan is the loan amount plus accrued interest
to the next Policy Anniversary, less interest at an effective annual rate of 4%
which is earned to such Policy Anniversary. PLACA will deduct the collateral for
the loan from each account based on the allocation described in the preceding
paragraph and transfer this amount to the Loan Account. The collateral is
recalculated: (a) when loan interest is repaid or added to loaned amount; (b)
when a new loan is made; and (c) when a loan repayment is made. A transfer to or
from the Loan Account will be made to reflect any recalculation of collateral.
At any time, the amount of the outstanding loan under a Policy equals the sum of
all loans (including due and unpaid interest added to the loan balance) minus
any loan repayments.
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Interest Credited to Loan Account. As long as the Policy is in force,
PLACA credits the amount in the Loan Account with interest at effective annual
rates it determines, but not less than 4% or such higher minimum rate required
under state law. The rate will apply to the calendar year which follows the date
of determination. Loan interest credited is transferred to the Subaccounts or
the Guaranteed Account: (a) when loan interest is paid added to the loaned
amount; (b) when a loan repayment is made; and (c) when a new loan is made.
PLACA currently credits 4% interest annually to the amount in the Loan Account
until the policy's 10th anniversary or until Attained Age 60, whichever is
later, and 5.75% annually thereafter. The tax consequences of a Policy loan
after the later of a Policy's 10th anniversary or Attained Age 60 are less
clear. Owners should consult a tax adviser with respect to such consequences.
Effect of Policy Loan. Policy loans, whether or not repaid, will have a
permanent effect on the Policy Account Value, the Cash Surrender Value, and Net
Cash Surrender Value and may permanently affect the Death Benefit under the
Policy. The effect on the Policy Account Value and Death Benefit could be
favorable or unfavorable, depending on whether the investment performance of the
Subaccounts and the interest credited to the Guaranteed Account is less than or
greater than the interest being credited on the assets in the Loan Account while
the loan is outstanding. Compared to a Policy under which no loan is made,
values under a Policy will be lower when the credited interest rate is less than
the investment experience of assets held in the Subaccounts and interest
credited to the Guaranteed Account. The longer a loan is outstanding, the
greater the effect of a Policy loan is likely to be. The Death Proceeds will be
reduced by the amount of any outstanding Policy loan.
Loan Repayments. An Owner may repay all or part of a Policy loan at any
time while the Insured is alive and the Policy is in force. Unless prohibited by
a particular state, PLACA will assume that any payments made while there is an
outstanding loan is a loan repayment, unless it receives written instructions
that the payment is a premium payment. Repayments up to the amount of the
outstanding loan is allocated to the accounts based on the amount of the
outstanding loan allocated to each account as of the date of repayment; any
repayment in excess of the amount of the outstanding loan will be allocated to
the accounts based on the amount of interest due on the portion of the
outstanding loan allocated to each account. For this purpose, the amount of the
interest due is determined as of the next Policy Anniversary. Failure to repay a
loan or to pay loan interest will not cause the Policy to lapse unless the Net
Cash Surrender Value on the Policy Processing Day is less than the monthly
deduction due. (See "Policy Duration.")
Tax Considerations. Any loans taken from a Modified Endowment Contract
will be treated as a taxable distribution. In addition, with certain exceptions,
a 10% additional income tax penalty will be imposed on the portion of any loan
that is included in income. (See "Distributions from Policies Classified as
Modified Endowment Contracts.") Depending upon the investment performance of the
Subaccounts and the amounts borrowed, loans may cause the Policy to lapse. If
the Policy is not a Modified Endowment Contract, lapse of the Policy with
outstanding loans may result in adverse tax consequences. (See "Distributions
from Policies Not Classified as Modified Endowment Contracts.")
SURRENDER PRIVILEGE
At any time before the earlier of the death of the Insured and the Final
Policy Date, the Owner may surrender the Policy for its Net Cash Surrender
Value. The Net Cash Surrender Value is determined by PLACA as of the date it
receives, at its Service Center, a surrender request signed by the Owner.
Coverage under the Policy will end on the day the Owner mails or otherwise sends
the written surrender request to PLACA 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 Insured and the Final Policy Date, the Owner may withdraw a portion of the
Policy's Net Cash Surrender Value. The minimum
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amount which may be withdrawn is $1,500. A withdrawal charge will be deducted
from the Policy Account Value. A partial withdrawal will not result in the
imposition of surrender charges.
The withdrawn amount and withdrawal charge will be allocated based on the
proportion that the Policy Account Value in the Subaccounts and the Guaranteed
Account Value bear to the total unloaned Policy Account Value, or are allocated
to such Subaccounts as the Owner specifies at the time of the withdrawal.
The effect of a partial withdrawal on the Death Benefit and Face Amount
will vary depending upon the Death Benefit Option in effect and whether the
Death Benefit is based on the applicable percentage of Policy Account Value.
(See "Death Benefit Options.")
Option A. The effect of a partial withdrawal on the Face Amount and Death
Benefit under Option A can be described as follows:
If the Death Benefit equals the Face Amount, a partial withdrawal will
reduce the Face Amount and the Death Benefit by the amount of the partial
withdrawal.
For the purposes of this illustration (and the following illustrations
of partial withdrawals), assume that the Attained Age of the Insured is
under 40 and there is no indebtedness. The applicable percentage is 250%
for an Insured with an Attained Age under 40.
Under Option A, a contract with a Face Amount of $300,000 and a Policy
Account Value of $30,000 will have a Death Benefit of $300,000. Assume that
the policyowner takes a partial withdrawal of $10,000. The partial
withdrawal will reduce the Policy Account Value to $19,975
($30,000 - $10,000 - $25) and the Death Benefit and Face Amount to $290,000
($300,000 - $10,000).
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, the Face Amount
will be reduced by an amount equal to the amount of the partial withdrawal.
The Death Benefit will be reduced to equal the greater of (a) the Face
Amount after the partial withdrawal, and (b) the applicable percentage of
the Policy Account Value after deducting the amount of the partial
withdrawal and expense charge.
Under Option A, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000. Assume
that the policyowner takes a partial withdrawal of $49,975. The partial
withdrawal will reduce the Policy Account Value to $250,000
($300,000 - $49,975 - $25) and the Face Amount to $250,025
($300,000 - $49,975). The Death Benefit is the greater of (a) the Face
Amount of $250,025 and (b) the applicable percentage of the Policy Account
Value $625,000 ($250,000 x 2.5). Therefore, the Death Benefit will be
$625,000.
Any decrease in Face Amount due to a partial withdrawal will first
reduce the most recent increase in Face Amount, then the most recent
increases, successively, and lastly, the Initial Face Amount. If an AIB
rider is purchased, partial withdrawals decrease the Policy's Face Amount
and then the coverage amount of the AIB rider.
Option B. The Face Amount will never be decreased by a partial withdrawal.
A partial withdrawal will, however, always decrease the Death Benefit.
If the Death Benefit equals the Face Amount plus the Policy Account
Value, a partial withdrawal will reduce the Policy Account Value by the
amount of the partial withdrawal and expense charge and thus the Death
Benefit will also be reduced by the amount of the partial withdrawal and
the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $90,000 will have a Death Benefit of $390,000 ($300,000 +
$90,000). Assume the policyowner takes a partial withdrawal of $20,000. The
partial withdrawal will reduce the Policy Account Value to $69,975
($90,000 - $20,000 - $25) and the Death Benefit to $369,975 ($300,000 +
$69,975). The Face Amount is unchanged.
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If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, The Death
Benefit will be reduced to equal the greater of (a) the Face Amount plus
the Policy Account Value after deducting the partial withdrawal and expense
charge and (b) the applicable percentage of Policy Account Value after
deducting the amount of the partial withdrawal and the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000 ($300,000 x
2.5). Assume the policyowner takes a partial withdrawal of $149,975. The
partial withdrawal will reduce the Policy Account Value to $150,000
($300,000 - $149,975 - $25) and the Death Benefit to the greater of (a) the
Face Amount plus the Policy Account Value $450,000 ($300,000 + $150,000)
and (b) the Death Benefit based on the applicable percentage of the Policy
Account Value $375,000 ($150,000 x 2.5). Therefore, the Death Benefit will
be $450,000. The Face Amount is unchanged.
Because a partial withdrawal can affect the Face Amount and the Death
Benefit as described above, a partial withdrawal may also affect the Net Amount
at Risk which is used to calculate the cost of insurance charge under the
Policy. (See "Cost of Insurance.") A request for partial withdrawal may not be
allowed if, or to the extent 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.")
ACCELERATED DEATH BENEFIT
Applicants residing in states that have approved the Accelerated Death
Benefit rider (the "ADB rider") may elect to add it to their Policy at issue,
subject to PLACA receiving satisfactory additional evidence of insurability. The
ADB rider is not yet available in all states and the terms under which it is
available may vary from state-to-state. There is no assurance that the ADB rider
will be approved in all states or that it will be approved under the terms
described herein.
The ADB rider permits the Owner to receive, at his or her request and upon
approval by PLACA, an accelerated payment of part of the Policy's Death Benefit
when one of the following two events occurs:
1. Terminal Illness. The Insured develops a non-correctable medical
condition which is expected to result in his or her death within 12 months;
or
2. Permanent Confinement to a Nursing Care Facility. The Insured has
been confined to a Nursing Care Facility for 180 days and is expected to
remain in such a facility for the remainder of his or her life.
There is no charge for adding the ADB rider to a Policy. However, an
administrative charge, currently $100 and not to exceed $250, will be deducted
from the accelerated death benefit at the time it is paid.
Tax Consequences of the ADB Rider. The federal income tax consequences
associated with adding the ADB rider or receiving the accelerated death benefit
are uncertain. Accordingly, Owners should consult a tax adviser before adding
the ADB rider to a Policy or requesting an accelerated death benefit.
Amount of the Accelerated Death Benefit. The ADB rider provides for a
minimum accelerated death benefit payment of $10,000 and a maximum benefit
payment equal to 75% of the Eligible Death Benefit less 25% of any outstanding
policy loans and accrued interest. The ADB rider also restricts the total of the
accelerated death benefits paid from all life insurance policies issued to an
Owner by PLACA and its
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subsidiaries to $250,000. This $250,000 maximum may be increased, as provided in
the ADB rider, to reflect inflation. The term Eligible Death Benefit under the
ADB rider means:
The Insurance Proceeds payable under a Policy if the Insured died at the
time a claim for an accelerated death benefit is approved by PLACA, minus:
1. any Premium Refund payable at death if the Insured died at such
time; and
2. any insurance payable under the terms of any other rider attached
to a Policy.
An Owner may request only one accelerated death benefit payment (except to
pay premiums and policy loan interest) and there are no restrictions on the
Owner's use of the benefit. An Owner may elect to receive the accelerated death
benefit payment in a lump sum or in 12 or 24 equal monthly installments. If
installments are elected and the Insured dies before all of the payments have
been made, the present value (at the time of the Insured's death) of the
remaining payments and the remaining Insurance Proceeds at Death under the
Policy will be paid to the Beneficiary in a lump sum.
Conditions for Receipt of the Accelerated Death Benefit. In order to
receive an accelerated death benefit payment, a Policy must be in force other
than as Extended Term Insurance and an Owner must submit due proof of
eligibility and a completed claim form to PLACA at its Home Office. Due proof of
eligibility means a written certification (described more fully in the ADB
rider) in a form acceptable to PLACA, from a treating physician stating that the
Insured has a Terminal Illness or is expected to be permanently confined in a
Nursing Care Facility.
PLACA may request additional medical information from an Owner's physician
and/or may require an independent physical examination (at its expense) before
approving the claim for payment of the accelerated death benefit. PLACA will not
approve a claim for an accelerated death benefit payment if a Policy is assigned
in whole or in part, if the Terminal Illness or Permanent Confinement is the
result of intentionally self-inflicted injury or if the Owner is required to
elect it in order to meet the claims of creditors or to obtain a government
benefit.
Operation of the ADB Rider. The ADB rider provides that the accelerated
death benefit be made in the form of a policy loan up to the amount of the
maximum loan available under a Policy at the time the claim is approved.
Therefore, a request for an accelerated death benefit payment in an amount less
than or equal to the maximum loan available at that time will result in a policy
loan being made in the amount of the requested benefit. This policy loan
operates as would any loan under the Policy.
To the extent that the amount of a requested accelerated death benefit
payment exceeds the maximum available loan amount, the benefit will be advanced
to the Owner and a lien will be placed on the Death Benefit payable under the
Policy (the "death benefit lien") in the amount of this advance. Under the ADB
rider, interest will accrue daily, at a rate determined as described in the ADB
rider, on the amount of this advance and upon the death of the Insured the
amount of the advance and accrued interest thereon will be subtracted from the
amount of Insurance Proceeds at Death.
Effect on Existing Policy. The Insurance Proceeds at Death otherwise
payable under a Policy at the time of an Insured's death will be reduced by the
amount of any death benefit lien and accrued interest thereon. If the Owner
makes a request for a surrender, a policy loan or a withdrawal, the Policy's Net
Cash Surrender Value and Loan Value will be reduced by the amount of any
outstanding death benefit lien plus accrued interest. Therefore, depending upon
the size of the death benefit lien, this may result in the Net Cash Surrender
Value and the Loan Value being reduced to zero.
Premiums and policy loan interest must be paid when due. However, if
requested with the accelerated death benefit claim, future premiums and policy
loan interest may be paid through additional accelerated death benefits. If
future premiums and policy loan interest are to be paid through additional
accelerated death benefits, Periodic Planned Premiums and policy loan interest
will be paid in this manner automatically.
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In addition to lapse under the applicable provisions of the Policy, a
Policy will also terminate on any Policy Anniversary when the death benefit lien
exceeds the Insurance Proceeds at Death.
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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 Insured's 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 3% is
deducted from each premium payment to partially compensate PLACA for federal
taxes and the cost of selling the Policy. Currently, PLACA deducts 1.5% percent
from each premium payment.
SURRENDER CHARGES
A Surrender Charge, which consists of a Deferred Administrative Charge and
a Deferred Sales Charge, is imposed if the Policy is surrendered or lapses at
any time before the end of the 12th Policy Year. A portion of this Surrender
Charge will be deducted if the Owner decreases the Initial Face Amount before
the end of the 12th Policy Year. An Additional Surrender Charge, which is an
Additional Deferred Administrative Charge and an Additional Deferred Sales
Charge, is imposed if the Policy is surrendered or lapses at any time within 12
years after the effective date of an increase in Face Amount. A portion of an
Additional Surrender Charge also is deducted if the related increment of Face
Amount is decreased within 12 years after such increase took effect.
These surrender charges are designed partially to compensate PLACA for the
cost of administering, issuing and selling the Policy, including agent sales
commissions, the cost of printing the prospectuses and sales literature, any
advertising costs, medical exams, review of applications for insurance,
processing of the applications, establishing policy records and Policy issue.
PLACA does not expect the surrender charges to cover all of these costs. To the
extent that they do not, PLACA will cover the short-fall from its general
account assets, which may include profits from the mortality and expense risk
charge.
Deferred Administrative Charge. The Deferred Administrative Charge is as
follows:
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR OF FACE AMOUNT
- ----------- -----------------
<S> <C>
1-6.................................. $4.90
7.................................... 4.20
8.................................... 3.50
9.................................... 2.80
10................................... 2.10
11................................... 1.40
12................................... 0.70
13................................... 0
</TABLE>
The actual Deferred Administrative Charge is the charge described above
less the amount of any Deferred Administrative Charge previously paid at the
time of a decrease in Face Amount.
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<PAGE> 39
Deferred Sales Charge. The Deferred Sales Charge will not exceed the
Maximum Deferred Sales Charge specified in the Policy. During Policy Years 1
through 6, this maximum equals 70% of the Target Premium for the Initial Face
Amount. It equals 60% of that premium during Policy Year 7, 50% during Policy
Year 8, 40% during Policy Year 9, 30% during Policy Year 10, 20% during Policy
Year 11, 10% during Policy year 12, and 0% during Policy Years 13 and later. The
Deferred Sales Charge actually imposed will equal the lesser of this maximum and
an amount equal to 35% of all premiums actually paid to the date of surrender or
lapse, less any Deferred Sales Charge previously paid at the time of a prior
decrease in Face Amount.
Additional Deferred Administrative Charge. An Additional Deferred
Administrative Charge is associated with each increase in Face Amount. The
Charge is the same as that for the Initial Face Amount except that the Charge
grades down based on 12-month periods beginning with the effective date of each
increase. The Additional Deferred Administrative Charge paid is the Charge as
described less the amount of any such Charge previously paid at the time of a
decrease in Face Amount.
Additional Deferred Sales Charge. An Additional Deferred Sales Charge is
associated with each increase in Face Amount. Each Additional Deferred Sales
Charge is calculated in a manner similar to the Deferred Sales Charge associated
with the Initial Face Amount. The Maximum Additional Deferred Sales Charge for
an increase in Face Amount is 70% of the Target Premium for that increase. This
maximum remains level for six years following the effective date of an increase.
It equals 60% of that premium during the seventh year, and declines in the same
manner as the Deferred Sales Charge such that it is 10% during Policy Year 12
and to 0% by the beginning of the 13th year after the effective date of the
increase. The Additional Deferred Sales Charge actually deducted is the lesser
of this maximum and 35% of premiums received for that increase, less any
Additional Deferred Sales Charge for such increase previously paid at the time
of a decrease in Face Amount.
Allocation of Policy Account Value and Subsequent Premium Payments. A
special method is used to allocate a portion of the existing Policy Account
Value to an increase in Face Amount and to allocate subsequent premium payments
between the Initial Face Amount and the increase. The Policy Account Value is
allocated according to the ratio between the Guideline Annual Premium for the
Initial Face Amount and the Guideline Annual Premium for the total Face Amount
on the effective date of the increase before any deductions are made. For
example, if the Guideline Annual Premium is equal to $4,500 before an increase
and is equal to $6,000 after an increase, the Policy Account Value on the
effective date of the increase would be allocated 75% ($4,500/$6,000) to the
Initial Face Amount and 25% to the increase. Premium payments made on or after
the effective date of the increase are allocated between the Initial Face Amount
and the increase using the same ratio as is used to allocate the Policy Account
Value. In the event that there is more than one increase in Face Amount,
Guideline Annual Premiums for each increment of Face Amount are used to allocate
Policy Account Values and subsequent premium payments among the various
increments of Face Amounts.
Surrender Charge Upon Decrease in Face Amount. A surrender charge may be
deducted on a decrease in Face Amount. In the event of a decrease, the surrender
charge deducted is a fraction of the charge that would apply to a full surrender
of the Policy. If there have been no increases in Face Amount, the fraction will
be determined by dividing the amount of the decrease by the current Face Amount
and multiplying the result by the Surrender Charge. If more than one Surrender
Charge is in effect (i.e., pursuant to one or more increases in Face Amount),
the surrender charge will be applied in the following order: (1) the most recent
increase followed by (2) the next most recent increases, successively, and (3)
the Initial Face Amount. Where a decrease causes a partial reduction in an
increase or in the Initial Face Amount, a proportionate share of the Surrender
Charge for that increase or for the Initial Face Amount will be deducted.
Allocation of Surrender Charges. The Surrender Charge and any Additional
Surrender Charge will be deducted from the Policy Account Value. For surrender
charges resulting from Face Amount decreases, that part of any such surrender
charge will reduce the Policy Account Value and will be allocated among
36
<PAGE> 40
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. The Net Amount at Risk is
determined separately for the Initial Face Amount and any increases in Face
Amount. In determining the Net Amount at Risk for each increment of Face Amount,
the Policy Account Value is first considered part of the Initial Face Amount. If
the Policy Account Value exceeds the Initial Face Amount, it is considered as
part of any increases in Face Amount in the order such increases took effect.
A cost of insurance is also determined separately for the Initial Face
Amount and any increases in Face Amount. In calculating the cost of insurance
charge, the rate for the Premium Class on the Policy Date is applied to the Net
Amount at Risk for the Initial Face Amount. For each increase in Face Amount,
the rate for the Premium Class applicable to the increase is used. If, however,
the Death Benefit is calculated as the Policy Account Value times the specified
percentage, the rate for the Premium Class for the Initial Face Amount will be
used for the amount of the Death Benefit in excess of the total Face Amount.
Any change in the Net Amount at Risk will affect the total cost of
insurance charges paid by the Owner.
The cost of insurance charge is determined in a similar manner for the
coverage amount under an AIB rider and for any increase in the coverage amount
under an AIB rider. Generally, the current cost of insurance rates for an AIB
rider are lower than the current cost of insurance rates on the Face Amount of
the Policy. The guaranteed cost of insurance rates under an AIB rider are
substantially the same as the guaranteed cost of insurance rates on the Face
Amount of the Policy.
Cost of Insurance Rate. The cost of insurance rate is based on the
Attained Age, Sex, Premium Class of the Insured and Duration. The actual monthly
cost on insurance rates will be based on PLACA's expectations as to future
mortality and expense experience. They will not, however, be greater than the
guaranteed maximum cost of insurance rates set forth in the Policy. These
guaranteed maximum rates are based on the Insured's Attained Age, Sex, Premium
Class, and the 1980 Commissioners Standard Ordinary Smoker and Nonsmoker
Mortality Table. For Policies issued in states which require "unisex" policies
(currently Montana) or in conjunction with employee benefit plans, the maximum
cost of insurance charge depends only on the Insured's Age, Premium Class and
the 1980 Commissioners Standard Ordinary Mortality Table NB and SB. Any change
in the cost of insurance rates will apply to all persons of the same Attained,
Age, Sex, and Premium Class and Duration.
37
<PAGE> 41
Premium Class. The Premium Class of the Insured will affect the cost of
insurance rates. PLACA currently places Insureds into standard classes and
classes with extra ratings, which reflect higher mortality risks. In an
otherwise identical Policy, an Insured in the standard class will have a lower
cost of insurance than an Insured in a class with extra ratings. The standard
Premium Class is divided into three categories: smoker, nonsmoker and preferred.
The preferred Premium Class is only available if the Face Amount equals or
exceeds $100,000. Nonsmoking insureds will generally incur lower cost of
insurance rates than Insureds who are classified as smokers in the same Premium
Class. Preferred Insureds will generally incur lower cost of insurance rates
than Insureds who are classified as nonsmokers.
Since the nonsmoker designation is not available for Insureds under
Attained Age 21, shortly before an Insured attains age 21, PLACA will notify the
Insured about possible classification as a nonsmoker and will send the Insured
an Application for Change in Premium Class. If the Insured does not qualify as a
nonsmoker or does not return the application, cost of insurance rates will
remain as shown in the Policy. However, if the insured returns the application
and qualifies as a nonsmoker, the cost of insurance rates will be changed to
reflect the nonsmoker classification.
Initial Administrative Charge. An Initial Administrative Charge of $5 is
deducted from Policy Account Value on the Policy Date and on each of the next
eleven Policy Processing Days.
Monthly Administrative Charges. A Monthly Administrative Charge (presently
$7.50) is deducted from the Policy Account Value on the Policy Date and each
Policy Processing Day as part of the Monthly Deduction. This charge may be
increased, but in no event will it be greater than $12 per month. This charge is
intended to reimburse PLACA for ordinary administrative expenses expected to be
incurred, including record keeping, processing claims and certain Policy
changes, preparing and mailing reports, and overhead costs.
Additional Benefit Charges. The Monthly Deduction will include charges for
any additional benefits added to the Policy. The monthly charges will be
specified in the applicable rider.
FACE AMOUNT INCREASE CHARGE
If the Face Amount is increased, an increase charge will be deducted from
the Policy Account Value on the effective date of such increase. This charge,
equal to $60 plus $0.50 per $1,000 of Face Amount increase, but not greater than
$750.00, will be deducted from the accounts based on the allocation schedule for
Monthly Deductions in effect at such time. This charge may be increased, but in
no event will it be greater than $60 plus $3.00 per $1,000 Face Amount increase.
This charge is intended to reimburse PLACA for administrative expenses in
connection with the Face Amount increase, including medical exams, review of the
application for the increase, underwriting decisions and processing of the
application, and changing Policy records and the Policy.
PARTIAL WITHDRAWAL CHARGE
A charge of $25 will be deducted from the Policy Account Value for each
partial withdrawal of Net Cash Surrender Value. This charge is intended to
compensate PLACA for the administrative costs in effecting the requested payment
and in making all calculations which may be required by reason of the partial
withdrawal.
TRANSFER CHARGE
After 12 transfers have been made in any Policy Year, a transfer charge of
$25 will be deducted for each transfer during the remainder of such Policy Year
to compensate PLACA for the costs of processing such transfers.
The transfer charge will be deducted from the amount being transferred. The
transfer charge will not apply to transfers resulting from Policy loans,
Automatic Asset Rebalancing and Dollar Cost Averaging the exercise of special
transfer rights and the initial reallocation of account values from the Money
Market
38
<PAGE> 42
Subaccount to other Subaccounts. These transfers will not count against the 12
free transfers in any Policy Year.
MORTALITY AND EXPENSE RISK CHARGE
A daily charge will be deducted from the value of the net assets of the
Separate Accounts to compensate PLACA for mortality and expense risks assumed in
connection with the Policy. This charge will be deducted at an annual rate of
0.75% (or a daily rate of .002055%) of the average daily net assets of each
Subaccount. This charge may be increased, but in no event will it be greater
than an annual rate of 0.90% of the average 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> 43
THE GUARANTEED ACCOUNT
An Owner may allocate some or all of the Net Premiums and transfer some or
all of the Policy Account Value to the Guaranteed Account, which is part of
PLACA's General Account and pays interest at declared rates guaranteed for each
calendar year (subject to a minimum guaranteed interest rate of 4%). The
principal, after deductions, is also guaranteed. PLACA's General Account
supports its insurance and annuity obligations. The Guaranteed Account has not,
and is not required to be, registered with the SEC under the Securities Act of
1933, and neither the Guaranteed Account nor PLACA's General Account has been
registered as an investment company under the Investment Company Act of 1940.
Therefore, neither PLACA's General Account, the Guaranteed Account, nor any
interest therein are generally subject to regulation under the 1933 Act or the
1940 Act. The disclosures relating to these accounts which are included in this
Prospectus are for prospective Owners' information and have not been reviewed by
the SEC. However, such disclosures may be subject to certain general applicable
provisions of the Federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
The portion of the Policy Account Value allocated to the Guaranteed Account
will be credited with rates of interest, as described below. Since the
Guaranteed Account is part of PLACA's General Account, PLACA assumes the risk of
investment gain or loss on this amount. All assets in the General Account are
subject to PLACA's general liabilities from business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Guaranteed Account Value is guaranteed to accumulate at a minimum
effective annual interest rate of 4%. PLACA will credit the Guaranteed Account
Value with current rates in excess of the minimum guarantee but is not obligated
to do so. These current interest rates are influenced by, but do not necessarily
correspond to, prevailing general market interest rates. Since PLACA, in its
sole discretion, anticipates changing the current interest rate from time to
time, different allocations to and from the Guaranteed Account 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
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<PAGE> 44
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> 45
OTHER POLICY PROVISIONS
BENEFIT PAYABLE ON FINAL POLICY DATE
If the Insured is living on the Final Policy Date (at Insured's Attained
Age 100), PLACA will pay the Owner the Policy Account Value less any outstanding
Policy loan and accrued interest and any unpaid Monthly Deductions. Insurance
coverage under the Policy will then end. Payment will generally be made within
seven days of the Final Policy Date.
PAYMENT OF POLICY BENEFITS
Insurance Proceeds under a Policy will ordinarily be paid to the
Beneficiary within seven days after PLACA receives proof of the Insured's death
at its Administrative Office and all other requirements are satisfied. Insurance
proceeds will be paid in a single sum unless an alternative settlement option
has been selected.
If Insurance Proceeds are payable in a single sum, interest at the annual
rate of 3% or any higher rate declared by PLACA or required by law is paid on
the Insurance Proceeds from the date of death until payment is made.
Any amounts payable as a result of surrender, partial withdrawal, or Policy
loan will ordinarily be paid within seven days of receipt of written request at
PLACA's Administrative Office in a form satisfactory to PLACA.
Generally, the amount of a payment from the Variable Account will be
determined as of the date of receipt by PLACA of all required documents.
However, PLACA may defer the determination or payment of such amounts if the
date for determining such amounts falls within any period during which: (1) the
disposal or valuation of a Subaccount's assets is not reasonably practicable
because the New York Stock Exchange is closed or conditions are such that, under
the SEC's rules and regulations, trading is restricted or an emergency is deemed
to exist; or (2) the SEC by order permits postponement of such actions for the
protection of PLACA policyholders. As to amounts allocated to the Guaranteed
Account, PLACA may defer payment of any withdrawal or surrender of Net Cash
Surrender Value and the making of a loan for up to six months after PLACA
receives a written request at its Administrative Office. PLACA will allow
interest, at a rate of 3% a year, on any payment PLACA defers for 30 days or
more as described above.
The Owner may decide the form in which proceeds will be paid. During the
Insured's lifetime, the Owner may arrange for the Insurance Proceeds to be paid
in a lump sum or under a Settlement Option. These choices are also available
upon surrender of the Policy for its Net Cash Surrender Value and for payment of
the Policy Account Value on the Final Policy Date. If no election is made,
payment will be made in a lump sum. The Beneficiary may also arrange for payment
of the Insurance Proceeds in a lump sum or under a Settlement Option. If the
Beneficiary is changed, any prior arrangements with respect to the Payment
Option will be canceled.
THE POLICY
The Policy and the application(s) attached thereto are the entire contract.
Only statements made in the applications can be used to void the Policy or deny
a claim. PLACA assumes that all statements in an application are made to the
best of the knowledge and belief of the person(s) who made them, and, in the
absence of fraud, those statements are considered representations and not
warranties. PLACA relies on those statements when it issues or changes a Policy.
Only the President or a Vice President of PLACA can agree to change or waive any
provisions of the Policy and only in writing. As a result of differences in
applicable state laws, certain provisions of the Policy may vary from state to
state.
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<PAGE> 46
OWNERSHIP
The Owner is the Insured unless a different Owner is named in the
application or thereafter changed. While the Insured is living, the Owner is
entitled to exercise any of the rights stated in the Policy or otherwise granted
by PLACA. If the Insured and Owner are not the same, and the Owner dies before
the Insured, these rights will vest in the estate of the Owner, unless otherwise
provided.
BENEFICIARY
The Beneficiary is designated in the application for the Policy, unless
thereafter changed by the Owner during the Insured's lifetime by written notice
to PLACA. Any Insurance Proceeds for which there is not a designated Beneficiary
surviving at the Insured's death are payable in a single sum to the Insured's
executors or administrators.
CHANGE OF OWNER OR BENEFICIARY
As long as the Policy is in force, the Owner or Beneficiary may be changed
by written request in a form acceptable to PLACA. If two or more persons are
named as Beneficiaries, those surviving the Insured will share the Insurance
Proceeds equally, unless otherwise stated. The change will take effect as of the
date it is signed, whether or not the Insured is living when the request is
received by PLACA. PLACA will not be responsible for any payment made or action
taken before it receives the written request. A change in the Policy's ownership
may have federal income tax consequences. (see "Tax Treatment of Policy
Benefits.")
SPLIT DOLLAR ARRANGEMENTS
The Owner or Owners may enter into a Split Dollar Arrangement between each
other or another person or persons whereby the payment of premiums and the right
to receive the benefits under the Policy (i.e., Net Cash Surrender Value or
Policy Proceeds) are split between the parties. There are different ways of
allocating such rights.
For example, an employer and employee might agree that under a Policy on
the life of the employee, the employer will pay the premiums and will have the
right to receive the Net Cash Surrender Value. The employee may designate the
Beneficiary to receive any Death Proceeds in excess of the Net Cash Surrender
Value. If the employee dies while such an arrangement is in effect, the employer
would receive from the Death Proceeds the amount which he would have been
entitled to receive upon surrender of the policy and the employee's Beneficiary
would receive the balance of the proceeds.
No transfer of Policy rights pursuant to a Split Dollar Arrangement will be
binding on PLACA unless in writing and received by PLACA.
The parties who elect to enter into a Split Dollar Arrangement should
consult their own tax advisers regarding the tax consequences of such an
arrangement.
PROTECTION OF PROCEEDS
Beneficiaries generally may not pledge or otherwise encumber or alienate
payments under this Policy before they are due.
ASSIGNMENTS
The Owner may assign any and all rights under the Policy. No assignment
binds PLACA unless in writing and received by PLACA at it's Administrative
Office. PLACA assumes no responsibility for determining whether an assignment is
valid and the extent of the assignee's interest. All assignments will be subject
to any Policy loan. The interest of any Beneficiary or other person will be
subordinate to any assignment. A Beneficiary may not commute, encumber, or
alienate Policy benefits, and to the extent permitted by applicable law, such
benefits are not subject to any legal process for the payment of any
43
<PAGE> 47
claim against the payee. To the extent permitted by applicable laws, no right or
benefit under the Policy will be subject to claims of creditors, except as may
be provided by assignment.
MISSTATEMENT OF AGE AND SEX
If the Insured's age or sex has been misstated in the application, the
Death Benefit and any benefits provided by riders will be such as the most
recent Monthly Deductions would have provided at the correct age and sex. No
adjustment will be made to the Policy Account Value.
SUICIDE
In the event of the Insured's suicide within two years from the Issue Date
of the Policy (except where state law requires a shorter period) PLACA's
liability is limited to the payment to the Beneficiary of a sum equal to the
premiums paid less any Policy loan and accrued interest and any partial
withdrawals.
If the Insured commits suicide within two years (or shorter period required
by state law) from the effective date of any Policy change which increases the
Death Benefit, the amount which PLACA will pay with respect to the increase will
be the Monthly Deductions for the cost of insurance attributable to such
increase and the expense charge for the increase.
CONTESTABILITY
PLACA has the right to contest the validity of a Policy based on material
misstatements made in the application for the Policy or a change. However, PLACA
will not contest the Policy (or any change) after it (or the change) has been in
force during the Insured's lifetime for two years.
SETTLEMENT OPTIONS
In lieu of a single sum payment on death or surrender, an election may be
made to apply the proceeds under any one of the fixed-benefit Settlement Options
provided in the Policy. A guaranteed interest rate of 3% per year applies to all
Options. Additional interest may be declared each year by PLACA in its sole
discretion. The options are briefly described below. Please refer to the Policy
for more details.
Proceeds at Interest Option. Left on deposit to accumulate with PLACA with
interest payable at 12, 6, 3, or 1 month intervals, as elected at a rate of at
least 3% per year.
Installments of a Specified Amount Option. Payable in equal installments
of the amount elected with PLACA's consent at 12, 6, 3, or 1 month intervals, as
elected until proceeds applied under the Option and interest on the unpaid
balance at 3% per year and any additional interest are exhausted.
Installments for a Specified Period Option. Payable in the number of equal
monthly installments set forth in the election. Payments may be increased by
additional interest which would increase the installments certain. The
guaranteed interest rate is 3% per year.
Life Income Option. Payable in equal monthly installments during the
payee's life. Payments will be made either with or without a guaranteed minimum
number. If there is to be a minimum number of payments, they will be for either
120 or 240 months or until the proceeds applied under the Option are exhausted,
as elected.
Joint and Survivor Life Income. Payable in equal monthly installments,
with a number of installments certain, during the joint lives of the payee and
one other person and during the life of the survivor. The minimum number of
payments will be for either 120 or 240 months, as elected.
SUPPLEMENTARY BENEFITS
In addition to the ADB rider, the following riders offer other
supplementary benefits. Most are subject to various age and underwriting
requirements and, unless otherwise indicated, must be purchased when the Policy
is issued. The cost of each rider is included in the monthly deduction.
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<PAGE> 48
Additional Insurance Benefit ("AIB"). This rider provides an additional
death benefit payable on the death of the covered insured without increasing the
Policy's Face Amount. The AIB rider may be purchased at any time after June 1,
1999. An AIB rider may be terminated separately from the Policy (i.e., it can be
canceled without causing the Policy to be canceled or to lapse). There is no
cash or loan value associated with this rider.
Disability Waiver Benefit. A Disability Waiver Benefit rider provides that
in the event of the Insured's total disability before Attained Age 60 and
continuing for at least six months, PLACA will apply a premium payment to the
Policy on each Policy Processing Day during the first five Policy Years (the
amount of the payment will be based on the Minimum Annual Premium). PLACA will
also waive all monthly deductions after the commencement of and during the
continuance of such total disability after the first five Policy Years.
Disability Waiver of Premium Benefit. A Policy may include the Disability
Waiver of Premium Benefit rider that provides that, in the event of the
Insured's total disability before Attained Age 60 and continuing for at least
180 days, PLACA will apply a premium payment to the Policy on each Policy
Processing Day prior to Insured's Attained Age 65 and while the Insured remains
totally disabled.
At the time of application, a monthly benefit amount is selected by the
Owner. This amount is generally intended to reflect the amount of the premiums
expected to be paid monthly. In the event of Insured's total disability the
amount of the premium payment applied on each Policy Processing Day will be the
lesser of: (a) the monthly benefit amount; or (b) the monthly average of the
premium payments less partial withdrawals for the Policy since its Policy Date.
An Owner cannot elect this rider and another disability waiver benefit rider
with the same Policy.
Change of Insured. A Change of Insured rider permits the Owner to change
the Insured, subject to certain conditions and evidence of insurability. The
Monthly Deduction for the cost of insurance is adjusted to that for the New
Insured as of the effective date of the change.
Children's Term Rider. A Children's Term Insurance rider provides level
term insurance on each insured child until the earlier of age 25 of the child or
the Policy Anniversary nearest the Insured's 65th birthday. When the term
insurance expires on the life of an insured child, it may be converted without
evidence of insurability to a whole life policy providing a level face amount of
insurance and a level premium. The new policy may be up to five times the amount
of the term insurance.
The rider is issued to provide between $5,000 and $15,000 of term insurance
on each insured child. Each insured child under a rider will have the same
amount of insurance. This rider must be selected at the time of application for
the Policy or an increase in Face Amount.
Other Insured Convertible Term Life Insurance. An Other Insured
Convertible Term Life Insurance rider provides additional term insurance on an
insured other than the Insured, on whom the Insured has an insurable interest.
This rider will terminate at the earlier of attained age 100 of the Other
Insured or at the termination or maturity of the Policy. If the Policy is
extended by the Final Policy Date Extension rider, the Convertible Term Life
Insurance rider will terminate on the original maturity date.
Guaranteed Minimum Death Benefit. A Guaranteed Minimum Death Benefit rider
provides a guarantee that if the cumulative premiums paid less partial
withdrawals and outstanding loans exceed the cumulative minimum premiums to
date, the Policy will not lapse prior to the end of the Death Benefit Guarantee
Period shown on page 3 of the Policy Schedule. If the rider is added, the
Monthly Deduction will be increased by $0.01 per every $1,000 of Face Amount in
force under the Policy. The rider and the additional Monthly Deduction will
terminate: (1) upon written request; (2) upon surrender or other termination of
the Policy; or (3) at the expiration of the Death Benefit Guarantee Period. The
Guaranteed Minimum Death Benefit rider and the Convertible Term Life Insurance
rider may not be issued on the same Policy.
Final Policy Date Extension. A Final Policy Date Extension rider extends
the Final Policy Date of a Policy 20 years from the original Final Policy Date.
It may only be added on or after the anniversary nearest the younger insured's
90th birthday. There is no charge for adding this rider. The death benefit
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<PAGE> 49
after the original Final Policy Date will be the Policy Account Value. All other
riders attached and in effect on the original Final Policy Date will terminate
on the original Final Policy Date.
The tax consequences of (1) adding a Final Policy Date Extension rider to
the Policy, and (2) the Policy continuing in force after the Insured's 100th
birthday are uncertain. Prospective Owners and Owners considering the addition
of a Final Policy Date Extension to a Policy should consult their own legal or
other advisors as to such consequences.
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<PAGE> 50
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, we 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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<PAGE> 51
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. However, the tax consequences
associated with Policy loans after the later of the Policy's 10th anniversary or
Attained Age 60 is less clear and a tax adviser should be consulted about such
loans.
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.
Accelerated Death Benefit Rider. The Federal income tax consequences
associated with the Accelerated Death Benefit rider are uncertain. Owners should
consult a qualified tax adviser about the consequences of requesting payment
under this rider. (See p. 31 for more information regarding the Rider.)
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SPECIAL RULES FOR PENSION AND PROFIT-SHARING PLANS
If a Policy is purchased by a pension or profit-sharing plan, or similar
deferred compensation arrangement, the Federal, state and estate tax
consequences could differ. A competent tax adviser should be consulted in
connection with such a purchase.
The amounts of life insurance that may be purchased on behalf of a
participant in a pension or profit-sharing plan are limited. The current cost of
insurance for the net amount at risk is treated as a "current fringe benefit"
and must be included annually in the plan participant's gross income. PLACA
reports this cost (generally referred to as the "P.S. 58" cost) to the
participant annually. If the plan participant dies while covered by the plan and
the Policy proceeds are paid to the participant's beneficiary, then the excess
of the death benefit over the Policy Account Value is not taxable. However, the
cash value will generally be taxable to the extent it exceeds the participant's
cost basis in the Policy. Policies owned under these types of plans may be
subject to restrictions under the Employee Retirement Income Security Act of
1974 ("ERISA"). You should consult a qualified adviser regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as nontaxable. Plan loan requirements and provisions
may differ from Policy loan provisions. Failure of plan loans to comply with the
requirements and provisions of the DOL regulations and of tax law may result in
adverse tax consequences and/or adverse consequences under ERISA. Plan
fiduciaries and participants should consult a qualified adviser before
requesting a loan under a Policy held in connection with a retirement plan.
SPECIAL RULES FOR SECTION 403(b) ARRANGEMENTS
If a Policy is purchased in connection with a section 403(b) tax-sheltered
annuity program, the "Special Rules for Pension and Profit-Sharing Plans"
discussed above may be applicable. In addition, premiums, distributions and
other transactions with respect to the Policy must be administered, in
coordination with the section 403(b) annuity, to comply with the requirements of
section 403(b) of the tax law. A competent tax adviser should be consulted.
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 we are
not currently charging for them. If they increase, PLACA may deduct charges for
such taxes.
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POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS
Policies may be acquired in conjunction with employee benefit plans ("EBS
Policies"), including the funding of qualified pension plans meeting the
requirements of Section 401 of the Code. For EBS Policies, the maximum mortality
rates used to determine the monthly Cost of Insurance Charge are based on the
Commissioners' 1980 Standard Ordinary Mortality Tables NB and SB. Under these
Tables, mortality rates are the same for male and female Insureds of a
particular Attained Age and Premium Class. (See "Monthly Deductions.")
Illustrations reflecting the premiums and charges for EBS Policies will be
provided upon request to purchasers of such Policies. There is no provision for
misstatement of sex in the EBS Policies. Also, the rates used to determine the
amount payable under a particular Settlement Option will be the same for male
and female Insureds. (See "Settlement Options.")
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under an employee's
deferred compensation plan could not, under Title VII of the Civil Rights Act of
1964, vary between men and women on the basis of sex. In that case, the Court
applied its decision only to benefits derived from contributions made on or
after August 1, 1983. Subsequent decisions of lower federal courts indicate that
in other factual circumstances the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory, or
decisional authority of some states may prohibit use of sex-distinct mortality
tables under certain circumstances. The Policies offered by this Prospectus
other than Policies issued in states which require "unisex" policies (currently
Montana) and EBS Policies, are based upon actuarial tables which distinguish
between men and women and, thus, the Policy provides different benefits to men
and women of the same age. Accordingly, employers and employee organizations
should consider, in consultation with legal counsel, the impact of these
authorities on any employment-related insurance or benefits program before
purchasing the Policy and in determining whether an EBS Policy is appropriate.
VOTING RIGHTS
All of the assets held in the Subaccounts of the Variable Account will be
invested in shares of corresponding portfolios of the Funds. The Funds do not
hold routine annual shareholders' meetings. Shareholders' meetings will be
called whenever each Fund believes that it is necessary to vote to elect the
Board of Directors of the Fund and to vote upon certain other matters that are
required by the 1940 Act to be approved or ratified by the shareholders of a
mutual fund. PLACA is the legal owner of Fund shares and as such has the right
to vote upon any matter that may be voted upon at a shareholders' meeting.
However, in accordance with its view of present applicable law, PLACA will vote
the shares of the Funds at meetings of the shareholders of the appropriate Fund
or Portfolio in accordance with instructions received from Owners. Fund shares
held in each Subaccount for which no timely instructions from policyowners are
received will be voted by PLACA in the same proportion as those shares in that
Subaccount for which instructions are received.
Each Owner having a voting interest will be sent proxy material and a form
for giving voting instructions. Owners may vote, by proxy or in person, only as
to the Portfolios that correspond to the Subaccounts in which their Policy
values are allocated. The number of shares held in each Subaccount attributable
to a Policy for which the Owner may provide voting instructions will be
determined by dividing the Policy's value in that account by the net asset value
of one share of the corresponding Portfolio as of the record date for the
shareholder meeting. Fractional shares will be counted. For each share of a
Portfolio for which Owners have no interest, PLACA will cast votes, for or
against any matter, in the same proportion as Owners vote.
If required by state insurance officials, PLACA may disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the investment objectives or policies of one or more of the
Portfolios, or to approve or disapprove an investment policy or investment
adviser of one or more of the Portfolios. In addition, PLACA may disregard
voting instructions in favor of changes initiated
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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, (2) to create additional separate accounts, (3) to
create Subaccounts from, or combine or remove Subaccounts from the Variable
Account or other separate accounts, or to combine any two or more Subaccounts,
(4) to operate one or more of the Subaccounts as a management investment company
under the 1940 Act, or in any other form permitted by law, (5) to deregister the
unit investment trust under the 1940 Act; and (6) to modify the provisions of
the Policies to comply with applicable laws.
CHANGES TO AVAILABLE PORTFOLIOS
It is possible that PLACA may determine that one or more of the Portfolios
may become unsuitable for investment by the corresponding Subaccount because of
a change in investment policy, or a change in the tax laws, or because the
shares or units are no longer available for investment or for any other
reasonable cause. In that event, PLACA may seek to substitute the shares of
another Portfolio or of a Portfolio of a Fund not currently available under the
Policies. If required by law, the approval of the SEC and possibly one or more
state insurance departments would be obtained.
Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between it and PLACA. The
termination provisions of those agreements vary. Should an agreement between
PLACA and a Fund terminate, the Variable Account will not be able to purchase
additional shares of that Fund. In that event, Owners would no longer be able to
allocate Policy Account Value or Net Premium Payments to Subaccounts investing
in Portfolios of that Fund. Additionally, in certain circumstances, it is
possible that a Fund may refuse to sell its shares to the Variable Account
despite the fact that the participation agreement between the Fund and PLACA has
not been terminated. In such an event, PLACA will not be able to honor requests
of Owners to allocate their Policy Account Value or Net Premium Payments to
Subaccounts investing in shares of Portfolios of that Fund.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares
to Subaccounts of the Variable Account contain varying provisions regarding
termination. The following summarizes those provisions:
The Alger American Fund. The Agreement with The Alger American Fund
provides for termination: 1) by either party on 60 days written notice to
the other; 2) by Alger if the Policies cease to qualify as annuity
contracts or life insurance policies under the Code or the Policies are not
registered, issued or sold in accordance with applicable laws; 3) by any
party in the event of a material irreconcilable conflict; 4) by PLACA in
the event that formal proceedings are initiated against Alger or the
distributor by the SEC or another regulator; 5) by PLACA in the event the
Portfolio or trust fails to meet the diversification requirements; 6) by
PLACA if shares are not reasonably available; 7) by PLACA if shares of the
Portfolio are not registered, issued or sold in accordance with applicable
laws or applicable law precludes the use of such shares; 8) by PLACA if
Alger fails to qualify as a regulated investment company under Subchapter M
of the Code; or 9) by Alger's principal underwriter if it determines that
PLACA has suffered a material adverse change in its business, operation,
financial condition or prospects.
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Variable Insurance Products Fund and Variable Insurance Products Fund
II. The Agreements provide for termination 1) upon six months' advance
notice by either party, 2) at PLACA's option if shares of the Fund are not
reasonably available to meet requirements of the policies, 3) at PLACA's
option if shares of the Fund are not registered, issued, or sold in
accordance with applicable laws, if the Fund ceases to qualify as a
regulated investment company under the Code or for a Portfolio of the Fund
in the event such Portfolio fails to meet diversification requirements
under the Code, 4) at the option of the Fund or its principal underwriter
if it determines that PLACA has suffered material adverse changes in its
business or financial condition or is subject to material adverse
publicity, 5) at the option of PLACA if the Fund has suffered material
adverse changes in its business or financial condition or is a subject of
material adverse publicity, or 6) at the option of the Fund or its
principal underwriter if PLACA decides to make another mutual fund
available as a funding vehicle for its policies.
Neuberger Berman Advisers Management Trust. This Agreement may be
terminated by either party on six months' written notice to the other.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Trust
provides for termination 1) by PLACA, Van Eck Trust or Van Eck Trust's
Distributor upon six months prior written notice or in the event that
formal proceedings are initiated against the other party by the SEC or
another regulator, 2) by PLACA or Van Eck Trust in the event that shares of
Van Eck Trust subject to the agreement are not registered, offered or sold
in conformity with applicable law or such law precludes the use of Trust
shares, 3) by PLACA upon reasonable notice if shares of one of the then
available Portfolios of Van Eck Trust are not longer available or upon
sixty days notice if PLACA should substitute shares of another fund or Fund
for those of Van Eck Trust, 4) by PMLIC if a Portfolio fails to meet the
diversification and other requirements of the Internal Revenue Code, or
PMLIC reasonably believes it may fail to do so, 5) upon assignment of the
agreement unless both parties agree to the assignment in writing.
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OFFICERS AND DIRECTORS OF PLACA
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
Robert W. Kloss
Director and President............... 1996 to present -- President and Chief Executive Officer
of PMLIC; 1994 to 1996 -- President and Chief Operating
Officer of PMLIC; 1986 to 1994 -- Chief Executive Officer
of Covenant Life Insurance Company.
James G. Potter, Jr.
Director, Secretary and Legal
Officer.............................. 12/97 to present -- Executive Vice President, General
Counsel & Secretary of Provident Mutual Life Insurance
Company; 6/89 to 11/97 -- Chief Legal Officer of
Prudential Banks.
James D. Kestner
Director............................. 11/94 to present -- Vice President of Provident Mutual
Life Insurance Company; 1/78 to 11/94 -- Sr. Vice
President and Treasurer of Covenant Life Insurance
Company.
Sarah C. Lange
Director............................. 1983 to present -- Vice President of Provident Mutual Life
Insurance Company.
J. Kevin McCarthy
Director............................. 1996 to present -- Executive Vice President and Chief
Marketing Officer of PMLIC; 1995 -- Vice President,
Variable Products at CNA Insurance Companies; 1992 to
1994 -- Vice President, Sales at PMLIC.
Alan F. Hinkle
Director............................. 1996 to present -- Executive Vice President and Chief
Actuary of PMLIC; 1974 to 1996 -- Vice President and
Individual Actuary of PMLIC.
Joan C. Tucker
Director............................. 1996 to present -- Executive Vice President, Insurance
Operations at PMLIC; 1996 -- Senior Vice President,
Insurance Operations of PMLIC; 1993 to 1996 -- Vice
President Individual Insurance Operations at PMLIC; 1989
to 1993 -- Assistant Vice President, Agency Administration
of PMLIC.
Mary Lynn 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 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.
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DISTRIBUTION OF POLICIES
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell PLACA's variable life insurance policies,
and who are also registered representatives of 1717 Capital Management Company
("1717") or registered representatives of broker/dealers who have Selling
Agreements with 1717 or registered representatives of broker/dealers who have
Selling Agreements with such broker/dealers. 1717, whose address is Christiana
Executive Campus, P.O. Box 15626, Wilmington, Delaware 19850, is a registered
broker/dealer under the Securities Exchange Act of 1934 (the "1934 Act") and a
member of the National Association of Securities Dealers, Inc. (the "NASD").
1717 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 and for years 11 and later, 0%
of the premiums paid. However, for each premium received within 10 years
following an increase in Face Amount, agent commissions on the premium paid up
to the target amount for the increase in each year will be calculated using the
commission rates for the corresponding Policy Year. Agents may also receive
annual renewal compensation of up to 0.25% of the unloaned Policy Account Value,
depending upon the circumstances. The annual renewal compensation will be
computed on the Policy Anniversary beginning at the end of the second Policy
Year. Agents may also receive expense allowances or bonuses. The agent may be
required to return the first year commission less the deferred sales charge
imposed if a Policy is not continued through the first Policy Year.
POLICY REPORTS
At least once each Policy Year a statement will be sent to the Owner
describing the status of the Policy, including setting forth the Face Amount,
the current Death Benefit, any Policy loans and accrued interest, the current
Policy Account Value, the Guaranteed Account Value, the Loan Account Value, the
value in each Subaccount, premiums paid since the last report, charges deducted
since the last report, any partial withdrawals since the last report, and the
current Net Cash Surrender Value. At the present time, PLACA plans to send these
Policy Statements on a quarterly basis. In addition, a statement will be sent to
an Owner showing the status of the Policy following the transfer of amounts from
one Subaccount to another (excluding automatic rebalancing of Policy Account
Value), the taking a loan, a repayment of a loan, a partial withdrawal and the
payment of any premiums (excluding those paid by bank draft or otherwise under
the Automatic Payment Plan). An Owner may request that a similar report be
prepared at other times. PLACA may charge a reasonable fee for such requested
reports and may limit the scope and frequency of such requested reports.
An Owner will be sent a semi-annual report containing the financial
statements of each Portfolio in which he or she is invested.
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<PAGE> 59
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 July 1, 1999 but there can
be no assurance that Provident Mutual will be successful, or that interaction
with other service providers will not impair Provident Mutual's services at that
time.
STATE REGULATION
PLACA is subject to regulation and supervision by the Insurance Department
of the State of Delaware which periodically examines its affairs. It is also
subject to the insurance laws and regulations of all jurisdictions where it is
authorized to do business. A copy of the Policy form has been filed with, and
where required approved by, insurance officials in each jurisdiction where the
Policies are sold. PLACA is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
LEGAL PROCEEDINGS
PMLIC and its subsidiaries, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PMLIC and PLACA believe that as
of the date of this Prospectus there are no pending or threatened lawsuits that
are reasonably likely to have a material adverse impact on the Separate Account,
PLACA or PMLIC.
EXPERTS
The Financial Statements listed on Page F-1, have been included in this
Prospectus, in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
Actuarial matters included in the Prospectus have been examined by Scott V.
Carney, FSA, MAAA, Vice President and Actuary of PMLIC, as stated in his opinion
filed as an exhibit to the Registration Statement.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington, D.C. has provided advice
relating to certain aspects of federal securities law applicable to the issue
and sale of the Policies. 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.
56
<PAGE> 60
DEFINITIONS
ADDITIONAL SURRENDER CHARGE... The separately determined deferred
administrative charge and deferred sales charge
deducted from the Policy Account Value upon
surrender or lapse of the Policy within 12
years of the effective date of an increase in
Face Amount. A pro-rata Additional Surrender
Charge will be deducted for a reduction in Face
Amount within 12 years of the effective date of
a Face Amount increase. The Maximum Additional
Surrender Charge will be shown in the Policy
Schedule Pages reflecting the Face Amount
increase.
ATTAINED AGE.................. The Issue Age of the Insured plus the number of
full Policy Years since the Policy Date.
BENEFICIARY................... The person(s) or entity(ies) designated to
receive all or some of the Insurance Proceeds
when the Insured dies. The Beneficiary is
designated in the application or if
subsequently changed, as shown in the latest
change filed with PLACA. If no Beneficiary
survives and unless otherwise provided, the
Insured's estate will be the Beneficiary.
CASH SURRENDER VALUE.......... The Policy Account Value minus any applicable
Surrender Charge or Additional Surrender
Charge.
DEATH BENEFIT................. Under Option A, the greater of the Face Amount
or a percentage of the Policy Account Value on
the date of death; under Option B, the greater
of the Face Amount plus the Policy Account
Value on the date of death, or a percentage of
the Policy Account Value on the date of death.
DURATION...................... The number of full years the insurance has been
in force -- for the Initial Face Amount,
measured from the Policy Date; for any increase
in Face Amount, measured from the effective
date of such increase.
FACE AMOUNT................... The Initial Face Amount plus any increases in
Face Amount and minus any decreases in Face
Amount.
FINAL POLICY DATE............. The Policy Anniversary nearest Insured's
Attained Age 100 at which time the Policy
Account Value, if any, (less any outstanding
Policy loan and accrued interest) will be paid
to the Owner if the Insured is living. The
Policy will end on the Final Policy Date.
GRACE PERIOD.................. The 61-day period allowed for payment of a
premium following the date PLACA mails notice
of the amount required to keep the Policy in
force.
GUIDELINE ANNUAL PREMIUM...... The "guideline annual premium" as defined in
applicable regulations under the 1940 Act. It
is approximately equal to the amount of premium
that would be required on an annual basis to
keep the Policy in force if the Policy had a
mandatory fixed premium schedule assuming
(among other things) a 5% net investment
return.
INITIAL FACE AMOUNT........... The Face Amount of the Policy on the Issue
Date. The Face Amount may be increased or
decreased after issue.
57
<PAGE> 61
INSURANCE PROCEEDS............ The net amount to be paid to the Beneficiary
when the Insured dies.
INSURED....................... The person upon whose life the Policy is
issued.
ISSUE AGE..................... The age of the Insured at his or her birthday
nearest the Policy Date. The Issue Age is
stated in the Policy.
LOAN ACCOUNT.................. The account to which the collateral for the
amount of any Policy loan is transferred from
the Subaccounts and/or the Guaranteed Account.
MINIMUM ANNUAL PREMIUM........ The annual amount which is used to determine
the Minimum Guarantee Premium. This amount is
stated in each Policy.
MINIMUM FACE AMOUNT........... The Minimum Face Amount is $50,000 for all
Premium Classes except preferred. For the
preferred Premium Class, the Minimum Face
Amount is $100,000.
MINIMUM GUARANTEE PREMIUM..... The Minimum Annual Premium multiplied by the
number of months since the Policy Date
(including the current month) divided by 12.
MINIMUM INITIAL PREMIUM....... Equal to the Minimum Annual Premium multiplied
by the following factor for the specified
premium mode at issue: Annual -- 1.0;
Semi-annual -- 0.5; Quarterly -- 0.25;
Monthly -- 0.167.
MONTHLY DEDUCTIONS............ The amount deducted from the Policy Account
Value on each Policy Processing Day. It
includes the Monthly Administrative Charge, the
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.
58
<PAGE> 62
POLICY ISSUE DATE............. The date on which the Policy is issued. It is
used to measure suicide and contestable
periods.
POLICY PROCESSING DAY......... The day in each calendar month which is the
same day of the month as the Policy Date. The
first Policy Processing Day is the Policy Date.
POLICY YEAR................... A year that starts on the Policy Date or on a
Policy Anniversary.
PREMIUM CLASS................. The classification of the Insured for cost of
insurance purposes. The classes are: standard;
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.
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 $100,000.
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 12 Policy Years. A pro-rata
Surrender Charge will be deducted upon a
decrease in the Initial Face Amount during the
first 12 Policy Years. The Maximum Surrender
Charge is shown in the Policy. The Surrender
Charge is determined separately from the
Additional Surrender Charge.
TARGET PREMIUM................ An amount of premium payments, computed
separately for each increment of Face Amount,
used to compute Surrender Charges and
Additional Surrender Charges.
VALUATION DAY................. Each day that the New York Stock Exchange is
open for business and any other day on which
there is a sufficient degree of trading with
respect to a Subaccount's portfolio of
securities to materially affect the value of
that Subaccount.
VALUATION PERIOD.............. The time between two successive Valuation Days.
Each Valuation Period includes a Valuation Day
and any non-Valuation Day or consecutive
non-Valuation Days immediately preceding it.
59
<PAGE> 63
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
Providentmutual Life and Annuity Company of America
Report of Independent Accountants...................... F-54
Statements of Financial Condition as of December 31,
1998 and 1997......................................... F-55
Statements of Operations for the Years Ended December
31, 1998, 1997, and 1996.............................. F-56
Statements of Equity for the Years Ended December 31,
1998, 1997, and 1996.................................. F-57
Statements of Cash Flows for the Years Ended December
31, 1998, 1997, and 1996.............................. F-58
Notes to Financial Statements.......................... F-59
</TABLE>
F-1
<PAGE> 64
- --------------------------------------------------------------------------------
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> 65
- --------------------------------------------------------------------------------
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> 66
- --------------------------------------------------------------------------------
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> 67
- --------------------------------------------------------------------------------
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> 68
- --------------------------------------------------------------------------------
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> 69
- --------------------------------------------------------------------------------
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> 70
- --------------------------------------------------------------------------------
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> 71
- --------------------------------------------------------------------------------
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> 72
- --------------------------------------------------------------------------------
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> 73
- --------------------------------------------------------------------------------
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> 74
- --------------------------------------------------------------------------------
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> 75
- --------------------------------------------------------------------------------
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> 76
- --------------------------------------------------------------------------------
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> 77
- --------------------------------------------------------------------------------
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> 78
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 79
- --------------------------------------------------------------------------------
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> 80
- --------------------------------------------------------------------------------
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> 81
- --------------------------------------------------------------------------------
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> 82
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 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, 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> 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, 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> 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, 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> 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, 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> 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, 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> 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, 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> 89
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 90
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY 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> 91
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 92
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 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> 93
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 94
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY 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> 95
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 96
- --------------------------------------------------------------------------------
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> 97
- --------------------------------------------------------------------------------
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> 98
- --------------------------------------------------------------------------------
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> 99
- --------------------------------------------------------------------------------
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 106
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND 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> 107
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 108
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 109
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 110
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 111
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 112
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 113
- --------------------------------------------------------------------------------
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> 114
[Intentionally Left Blank Page]
<PAGE> 115
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> 116
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-54
<PAGE> 117
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-55
<PAGE> 118
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-56
<PAGE> 119
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-57
<PAGE> 120
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-58
<PAGE> 121
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-59
<PAGE> 122
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-60
<PAGE> 123
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-61
<PAGE> 124
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-62
<PAGE> 125
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-63
<PAGE> 126
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-64
<PAGE> 127
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-65
<PAGE> 128
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-66
<PAGE> 129
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-67
<PAGE> 130
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-68
<PAGE> 131
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-69
<PAGE> 132
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-70
<PAGE> 133
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 40 in the Preferred Premium Class with a Face Amount of $100,000
and a Planned Periodic Premium of $1,000 paid at the beginning of each Policy
Year. The Death Benefits, Policy Account Values and Net Cash Surrender Values
would be lower if the Insured was in a nonsmoker or smoker class or a class with
extra ratings since the cost of insurance charges would increase. Also, the
values would be different from those shown if the gross annual investment
returns averaged 0%, 6% and 12% over a period of years, but fluctuated above and
below those averages for individual Policy Years.
The second column of the tables show the amount to which the premiums would
accumulate if an amount equal to those premiums were invested to earn interest,
after taxes, at 5% compounded annually. The columns shown under the heading
"Guaranteed" assume that throughout the life of the policy, the monthly charge
for cost of insurance is based on the maximum level permitted under the Policy
(based on the 1980 CSO Smoker/Nonsmoker Table), a Premium Expense Charge of 5%,
maximum Monthly Administrative Fee of $12, an Initial Administrative Charge of
$5 and a daily charge for mortality and expense risks equivalent to an annual
rate of 0.90% with the additional Subaccount credit of 0.03% per month after the
Policy is in force for 15 years or the sum of the values in the Subaccount and
Guaranteed Account equal or exceed $100,000; the columns under the heading
"Current" assume that throughout the life of the policy, the monthly charge for
cost of insurance is based on the current cost of insurance rate, a Premium
Expense Charge of 3.5%, current monthly administrative fee of $7.50 and a daily
charge for mortality and expense risks equivalent to an annual rate of 0.75%
with the additional Subaccount credit of 0.03% per month after the Policy is in
force for 15 years or the sum of the values in the Subaccount and Guaranteed
Account equal or exceed $100,000.
The amounts shown in all tables reflect an averaging of certain other asset
charges described below that may be assessed under the Policy, depending upon
how premiums are allocated. The total of the asset charges reflected in the
Current and Guaranteed illustrations, including the Mortality and Expense Risk
Charge listed above, is 1.58% and 1.73%, respectively. This total charge is
based on an assumption that an Owner allocates the Policy values equally among
each Subaccount of the Variable Account.
These asset charges reflect an investment advisory fee of 0.64% 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 all of the Portfolios, the annual expenses used in the illustrations are net
of certain reimbursements that may or may not continue. See "Table of Fund Fees
and Expenses" for more information about such reimbursement.
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.
A-1
<PAGE> 134
Upon request, PLACA will provide a comparable illustration of future
benefits under the Policy based upon the proposed Insured's Age and Premium
Class, the Death Benefit Option, Face Amount, Planned Periodic Premiums and
riders requested. PLACA reserves the right to charge a reasonable fee for this
service to persons who request more than one policy illustration during a Policy
year.
A-2
<PAGE> 135
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0% (NET RATE OF -1.73%)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 358 0 100,000 621 0 100,000
2 2,153 900 0 100,000 1,275 85 100,000
3 3,310 1,417 52 100,000 1,903 538 100,000
4 4,526 1,907 542 100,000 2,501 1,136 100,000
5 5,802 2,368 1,003 100,000 3,070 1,705 100,000
6 7,142 2,800 1,435 100,000 3,606 2,241 100,000
7 8,549 3,199 2,029 100,000 4,117 2,947 100,000
8 10,027 3,565 2,590 100,000 4,600 3,625 100,000
9 11,578 3,897 3,117 100,000 5,056 4,276 100,000
10 13,207 4,191 3,606 100,000 5,481 4,896 100,000
11 14,917 4,446 4,056 100,000 5,878 5,488 100,000
12 16,713 4,657 4,462 100,000 6,239 6,044 100,000
13 18,599 4,817 4,817 100,000 6,564 6,564 100,000
14 20,579 4,922 4,922 100,000 6,848 6,848 100,000
15 22,657 4,964 4,964 100,000 7,086 7,086 100,000
16 24,840 4,956 4,956 100,000 7,419 7,419 100,000
17 27,132 4,871 4,871 100,000 7,718 7,718 100,000
18 29,539 4,706 4,706 100,000 7,984 7,984 100,000
19 32,066 4,454 4,454 100,000 8,217 8,217 100,000
20 34,719 4,103 4,103 100,000 8,414 8,414 100,000
25 50,113 344 344 100,000 8,787 8,787 100,000
30 69,761 0 0 0 7,568 7,568 100,000
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE
DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD
ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE
TO THE SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE
ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR
12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-3
<PAGE> 136
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0% (NET RATE OF -1.73%)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 356 0 100,356 620 0 100,620
2 2,153 896 0 100,896 1,271 81 101,271
3 3,310 1,409 44 101,409 1,894 529 101,894
4 4,526 1,892 527 101,892 2,486 1,121 102,486
5 5,802 2,346 981 102,346 3,047 1,682 103,047
6 7,142 2,768 1,403 102,768 3,572 2,207 103,572
7 8,549 3,155 1,985 103,155 4,070 2,900 104,070
8 10,027 3,507 2,532 103,507 4,538 3,563 104,538
9 11,578 3,822 3,042 103,822 4,976 4,196 104,976
10 13,207 4,097 3,512 104,097 5,381 4,796 105,381
11 14,917 4,331 3,941 104,331 5,754 5,364 105,754
12 16,713 4,517 4,322 104,517 6,090 5,895 106,090
13 18,599 4,649 4,649 104,649 6,384 6,384 106,384
14 20,579 4,723 4,723 104,723 6,634 6,634 106,634
15 22,657 4,730 4,730 104,730 6,835 6,835 106,835
16 24,840 4,683 4,683 104,683 7,133 7,133 107,133
17 27,132 4,556 4,556 104,556 7,394 7,394 107,394
18 29,539 4,345 4,345 104,345 7,618 7,618 107,618
19 32,066 4,045 4,045 104,045 7,805 7,805 107,805
20 34,719 3,645 3,645 103,645 7,953 7,953 107,953
25 50,113 0 0 0 8,015 8,015 108,015
30 69,761 0 0 0 6,366 6,366 106,366
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE
DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD
ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE
TO THE SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE
ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR
12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-4
<PAGE> 137
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6% (NET RATE OF 4.33%)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 395 0 100,000 668 0 100,000
2 2,153 1,004 0 100,000 1,408 218 100,000
3 3,310 1,622 257 100,000 2,165 800 100,000
4 4,526 2,247 882 100,000 2,934 1,569 100,000
5 5,802 2,879 1,514 100,000 3,717 2,352 100,000
6 7,142 3,514 2,149 100,000 4,510 3,145 100,000
7 8,549 4,151 2,981 100,000 5,321 4,151 100,000
8 10,027 4,790 3,815 100,000 6,148 5,173 100,000
9 11,578 5,427 4,647 100,000 6,992 6,212 100,000
10 13,207 6,060 5,475 100,000 7,851 7,266 100,000
11 14,917 6,688 6,298 100,000 8,726 8,336 100,000
12 16,713 7,302 7,107 100,000 9,613 9,418 100,000
13 18,599 7,898 7,898 100,000 10,509 10,509 100,000
14 20,579 8,469 8,469 100,000 11,413 11,413 100,000
15 22,657 9,006 9,006 100,000 12,319 12,319 100,000
16 24,840 9,538 9,538 100,000 13,385 13,385 100,000
17 27,132 10,023 10,023 100,000 14,476 14,476 100,000
18 29,539 10,456 10,456 100,000 15,596 15,596 100,000
19 32,066 10,828 10,828 100,000 16,745 16,745 100,000
20 34,719 11,125 11,125 100,000 17,924 17,924 100,000
25 50,113 10,859 10,859 100,000 24,267 24,267 100,000
30 69,761 5,008 5,008 100,000 31,133 31,133 100,000
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE
DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD
ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE
TO THE SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE
ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR
12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-5
<PAGE> 138
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6% (NET RATE OF 4.33%)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 394 0 100,394 666 0 100,666
2 2,153 1,000 0 101,000 1,404 214 101,404
3 3,310 1,613 248 101,613 2,155 790 102,155
4 4,526 2,230 865 102,230 2,916 1,551 102,916
5 5,802 2,851 1,486 102,851 3,688 2,323 103,688
6 7,142 3,473 2,108 103,473 4,466 3,101 104,466
7 8,549 4,093 2,923 104,093 5,258 4,088 105,258
8 10,027 4,709 3,734 104,709 6,061 5,086 106,061
9 11,578 5,319 4,539 105,319 6,876 6,096 106,876
10 13,207 5,919 5,334 105,919 7,699 7,114 107,699
11 14,917 6,506 6,116 106,506 8,531 8,141 108,531
12 16,713 7,072 6,877 107,072 9,367 9,172 109,367
13 18,599 7,610 7,610 107,610 10,201 10,201 110,201
14 20,579 8,112 8,112 108,112 11,031 11,031 111,031
15 22,657 8,568 8,568 108,568 11,850 11,850 111,850
16 24,840 9,001 9,001 109,001 12,828 12,828 112,828
17 27,132 9,371 9,371 109,371 13,817 13,817 113,817
18 29,539 9,670 9,670 109,670 14,817 14,817 114,817
19 32,066 9,888 9,888 109,888 15,830 15,830 115,830
20 34,719 10,007 10,007 110,007 16,852 16,852 116,852
25 50,113 8,440 8,440 108,440 22,004 22,004 122,004
30 69,761 681 681 100,681 26,536 26,536 126,536
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE
DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD
ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE
TO THE SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE
ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR
12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-6
<PAGE> 139
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12% (NET RATE OF 10.23%)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 433 0 100,000 714 0 100,000
2 2,153 1,113 0 100,000 1,547 357 100,000
3 3,310 1,845 481 100,000 2,449 1,084 100,000
4 4,526 2,632 1,267 100,000 3,423 2,058 100,000
5 5,802 3,478 2,113 100,000 4,477 3,112 100,000
6 7,142 4,388 3,023 100,000 5,616 4,251 100,000
7 8,549 5,365 4,195 100,000 6,855 5,685 100,000
8 10,027 6,416 5,441 100,000 8,204 7,229 100,000
9 11,578 7,547 6,767 100,000 9,674 8,894 100,000
10 13,207 8,763 8,178 100,000 11,276 10,691 100,000
11 14,917 10,072 9,682 100,000 13,024 12,634 100,000
12 16,713 11,479 11,284 100,000 14,930 14,735 100,000
13 18,599 12,989 12,989 100,000 17,008 17,008 100,000
14 20,579 14,608 14,608 100,000 19,275 19,275 100,000
15 22,657 16,344 16,344 100,000 21,748 21,748 100,000
16 24,840 18,271 18,271 100,000 24,640 24,640 100,000
17 27,132 20,347 20,347 100,000 27,827 27,827 100,000
18 29,539 22,588 22,588 100,000 31,347 31,347 100,000
19 32,066 25,013 25,013 100,000 35,238 35,238 100,000
20 34,719 27,638 27,638 100,000 39,543 39,543 100,000
25 50,113 44,584 44,584 100,000 69,224 69,224 100,000
30 69,761 71,720 71,720 100,000 119,317 119,317 138,408
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE
DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD
ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE
TO THE SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE
ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR
12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-7
<PAGE> 140
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12% (NET RATE OF 10.23%)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 431 0 100,431 713 0 100,713
2 2,153 1,108 0 101,108 1,542 352 101,542
3 3,310 1,834 469 101,834 2,438 1,073 102,438
4 4,526 2,612 1,247 102,612 3,402 2,037 103,402
5 5,802 3,445 2,080 103,445 4,441 3,076 104,441
6 7,142 4,335 2,970 104,335 5,560 4,195 105,560
7 8,549 5,287 4,117 105,287 6,772 5,602 106,772
8 10,027 6,304 5,329 106,304 8,084 7,109 108,084
9 11,578 7,391 6,611 107,391 9,507 8,727 109,507
10 13,207 8,550 7,965 108,550 11,047 10,462 111,047
11 14,917 9,787 9,397 109,787 12,718 12,328 112,718
12 16,713 11,102 10,907 111,102 14,526 14,331 114,526
13 18,599 12,495 12,495 112,495 16,481 16,481 116,481
14 20,579 13,969 13,969 113,969 18,594 18,594 118,594
15 22,657 15,521 15,521 115,521 20,874 20,874 120,874
16 24,840 17,216 17,216 117,216 23,552 23,552 123,552
17 27,132 19,002 19,002 119,002 26,478 26,478 126,478
18 29,539 20,885 20,885 120,885 29,680 29,680 129,680
19 32,066 22,865 22,865 122,865 33,185 33,185 133,185
20 34,719 24,943 24,943 124,943 37,024 37,024 137,024
25 50,113 36,579 36,579 136,579 62,466 62,466 162,466
30 69,761 49,052 49,052 149,052 102,393 102,393 202,393
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE
DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD
ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE
TO THE SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE
ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR
12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-8
<PAGE> 141
APPENDIX B
LONG TERM MARKET TRENDS
The information below is a record of the compound annual returns of common
stocks, high-grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The compound annual returns assume the reinvestment of
dividends, capital gains and interest. This is an historical record and is not
intended as a projection of future performance. Charges associated with a
variable life policy are not reflected.
The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high-grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods of
time. To the extent that cash value is allocated to separate accounts which
invest in common stocks, these trends indicate the potential advantages of
holding a variable life insurance policy for a long period of time.
The following chart illustrates the compound annual returns of the S&P 500
Composite Stock Price Index for each of the 20-year periods shown. These returns
are compared to the compound annual returns of high-grade corporate bonds and
U.S. Treasury bills for the same periods. (The 20-year periods selected for the
chart begin in 1938 and have ending periods at five year intervals.)
[COMPOUND ANNUAL RETURNS BAR CHART]
- ---------------
* 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),
B-1
<PAGE> 142
1982, updated in Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM),
Ibbotson Associates, Inc., Chicago. All rights reserved.
Over the 53 20-year time periods beginning in 1926 and ending in 1997 (i.e.
1926-1945, 1927-1946, and so on through 1978-1997):
-- The compound annual return of common stocks was superior to that of
high-grade, long-term corporate bonds in 50 of the 53 periods.
-- The compound annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 53 periods.
-- Common stock compound annual returns exceeded the average annual rate of
inflation in each of the 53 periods.
Over the 43 30-year time periods beginning in 1926 and ending in 1997, the
compound annual return of common stocks was superior to that of high-grade,
long-term corporate bonds, U.S. Treasury bills and inflation in all 43 periods.
From 1926 through 1997 the compound annual return for common stocks was
11.0%, compared to 5.7% for high-grade, long-term corporate bonds, 5.2% for
Long-Term Government Bonds, 3.8% for U.S. Treasury bills and 3.1% for the
Consumer Price Index.
------------------------
SUMMARY TABLE: HISTORIC S&P 500 COMPOSITE STOCK INDEX RESULTS FOR
SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Composite Stock Index, with dividends reinvested, over one-year,
five-year, ten-year and twenty-year periods beginning in 1926 and ending in
1997.
The chart shows that historically, the longer that a portfolio matching the
S&P 500 Composite Stock Index was held, the less likely was the chance of a
loss. Conversely, the shorter the holding period of such a portfolio, the more
likely was the chance of a loss. The chart also shows that shorter term results
tend to be more extreme than longer term results.
THE CHART IS NOT A PROJECTION OR REPRESENTATION OF FUTURE STOCK MARKET
RESULTS. IT CANNOT BE TAKEN AS REPRESENTATIVE OF THE PERFORMANCE OF ANY ONE
SEPARATE ACCOUNT. Rather it shows the historic performance of a broad index of
stocks over arbitrarily selected time periods.
PERCENT OF HOLDING PERIODS WITH THE FOLLOWING RETURNS:
<TABLE>
<CAPTION>
GREATER
THAN
HOLDING NEGATIVE 0.5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
------ -------- ------- ----------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
1 year 27.8% 4.2% 11.1% 6.9% 11.1% 38.9%
5 years 10.3% 14.7% 14.7% 32.4% 17.6% 10.3%
10 years 3.2% 11.1% 34.9% 22.2% 27.0% 1.6%
20 years 0.0% 5.8% 32.1% 54.7% 7.5% 0.0%
</TABLE>
- ---------------
Source: All basic data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield,
Stocks, Bonds, Bills and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills
and Inflation 1998 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
B-2
<PAGE> 143
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 BAR 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 1998 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
---------------------------
THE "DOLLAR COST AVERAGING" INVESTMENT METHOD
As the Compound Annual Returns graph indicates, the investment performance
of many common stocks has generally been positive over certain relatively long
periods. Common stocks have, however, also been subject to market declines,
often dramatic ones, and general volatility of prices over shorter time periods.
The price fluctuations of common stocks has historically been greater than that
of high-grade debt securities.
The relative volatility of common stock prices as compared with prices of
high-grade debt instruments offers both advantages and disadvantages to
investors. Unfortunately, many investors who otherwise might be interested in
common stocks see only the disadvantages and not the advantages of stock price
fluctuation. The primary disadvantage, of course, is that price declines can be
prolonged and substantial, and when this occurs, investors cannot liquidate
their investments without realizing losses. Price declines, however, also offer
investors important opportunities.
B-3
<PAGE> 144
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
<PAGE> 145
APPENDIX C
PLAN OF CONVERSION
It is anticipated that, at some point in the future, a Plan of Conversion
("Plan") will become effective pursuant to which Provident Mutual Life Insurance
Company, a Pennsylvania mutual life insurance corporation ("Provident Mutual"),
will be reorganized and continue its corporate existence ("Conversion") as
Provfirst American Life Insurance Company, a Pennsylvania stock life insurance
corporation ("Provfirst Life"). The Plan was adopted by Provident Mutual's board
of directors on October 13, 1998. The Plan was approved by the Pennsylvania
Deputy Insurance Commissioner by a Decision and Order dated November 6, 1998
("Order"). The Provident Mutual policyholders entitled to vote on the Plan duly
adopted the Plan at a special meeting held on February 9, 1999. On February 11,
1999, the Court of Common Pleas of Philadelphia County issued an order granting
a preliminary injunction, which has postponed completion of the Conversion until
the court conducts a hearing. The Company believes the Plan and related
disclosure documents meet all applicable legal requirements.
Before the Conversion, Providentmutual Life and Annuity Company of America
("PLACA") is a wholly-owned subsidiary of Provident Mutual. If the Conversion
occurs, PLACA will remain a wholly-owned subsidiary of Provfirst Life, and
PLACA's name will be changed to Provfirst America Life and Annuity Company
("Provfirst Life and Annuity"). No other changes to PLACA are anticipated to
occur as a result of the Conversion. THE CURRENT AND FUTURE RIGHTS AND INTERESTS
OF OWNERS OF PLACA INSURANCE AND ANNUITY CONTRACTS, INCLUDING THE POLICIES, WILL
NOT CHANGE AS A RESULT OF THE CONVERSION, AND THE CONVERSION WILL NOT INCREASE
PREMIUMS OR REDUCE POLICY BENEFITS, VALUES, GUARANTEES OR OTHER POLICY
OBLIGATIONS TO OWNERS. THE CONVERSION WILL NOT CHANGE THE OPERATIONS OF THE
VARIABLE ACCOUNT AND WILL NOT RESULT IN ANY MATERIAL DISRUPTION OF THE SERVICES
PROVIDED TO OWNERS.
Before the Conversion, PLACA will continue to conduct business in all
jurisdictions under the name "Providentmutual Life and Annuity Company of
America." After the Conversion it is anticipated that PLACA will conduct
business in all jurisdictions under the name "Provfirst America Life and Annuity
Company," except in those jurisdictions in which regulators have not yet
approved use of this name. In those jurisdictions, Provfirst Life and Annuity
will continue to do business using the name "Providentmutual Life and Annuity
Company of America" until it receives approval to use the new name. Likewise,
the name of the Variable Account will be changed to Provfirst Variable Annuity
Separate Account. Use of the new Variable Account name in each jurisdiction will
begin concurrently with the use of Provfirst Life and Annuity's new name in such
jurisdiction.
Pursuant to the Plan, Provident Mutual will also form Provident Mutual
Holding Company, a Pennsylvania nonstock corporation, and Provfirst America
Corporation, a Pennsylvania business corporation. If the Conversion occurs, all
the shares of voting stock of Provfirst Life will be issued to the Provfirst
America Corporation, and all the shares of voting stock of Provfirst America
Corporation will be issued to Provident Mutual Holding Company, except for
approximately 1% of the then-issued shares of voting stock of Provfirst America
Corporation, which will be issued to an employee stock ownership plan to be
formed by Provfirst Life. Pursuant to the Order and as set forth in the Plan,
Provident Mutual Holding Company will at all times, directly or indirectly,
control Provfirst Life through the ownership of at least a majority of the
voting authority of Provfirst America Corporation, which will hold, directly or
indirectly, all the outstanding voting stock of Provfirst Life. If the
Conversion occurs, the directors and executive officers of Provfirst Life
serving immediately prior to the Effective Date will remain as the directors and
executive officers of each of Provident Mutual Holding Company, Provfirst
America Corporation and Provfirst Life after the Effective Date.
Before the Conversion, Provident Mutual policyholders have (1) contract
rights under their insurance policies and annuity contracts, and (2) certain
membership rights in Provident Mutual. The principal contract right of
policyholders is the right to receive the type and amount of benefits specified
in their policies or contracts in accordance with their terms and conditions,
including the right to receive policy dividends when, if, and as declared by the
board of directors of Provident Mutual in accordance with the terms and
conditions of such policies. The membership rights of policyholders include the
right to vote at
C-1
<PAGE> 146
annual or special meetings of Provident Mutual, and certain rights as provided
by law in any remaining surplus of Provident Mutual in the event of the
insolvency, winding-up or liquidation of Provident Mutual, after the discharge
of all other liabilities.
If the Conversion occurs, the contract rights and the membership rights of
policyholders of Provident Mutual policies will be separated. The contract
rights will remain with Provfirst Life and the membership rights in Provident
Mutual will be extinguished. Each policyholder will then receive, by operational
law, membership rights in Provident Mutual Holding Company. Each future
policyholder of Provfirst Life will become a member of Provident Mutual Holding
Company, and each member will remain a member of Provident Mutual Holding
Company as long as the policy or policies conferring such membership remain in
force.
C-2
<PAGE> 147
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article VIII of PLACA's By-Laws provides, in part:
To the fullest extent permitted by law, the Company shall indemnify
any present, former or future Director, officer, or employee of the Company
or any person who may serve or has served at its request as officer or
Director of another corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including attorney's fees,
necessarily incurred in connection with the defense of any action, suit or
other proceeding to which any of them is made a party because of service as
Director, officer or employee of the Company or such other corporation, or
in connection with any appeal therein, and against any amounts paid by such
Director, officer or employee in settlement of, or in satisfaction of a
judgement or fine in, any such action or proceeding, except expenses
incurred in defense of or amounts paid in connection with any action, suit
or other proceeding in which such Director, officer or employee shall be
adjudged to be liable for negligence or misconduct in the performance of
his duty.
Insofar as indemnification or liability arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REASONABLENESS REPRESENTATION
Providentmutual Life and Annuity Company of America of America hereby
represents that the fees and charges deducted under the Policy, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Providentmutual Life and
Annuity Company of America.
II-1
<PAGE> 148
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of pages.
The undertaking to file report.
Rule 484 undertaking.
Reasonableness Representation.
The following exhibits:
<TABLE>
<S> <C>
1.A.1.a. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing establishment of
the Providentmutual Variable Life Separate Account(4)
1.A.1.b. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Life Separate
Account(4)
1.A.2. None
1.A.3.a.i. Form of Underwriting Agreement among Providentmutual Life
and Annuity Company of America, PML Securities, Inc. and
Providentmutual Variable Life Separate Account(4)
1.A.3.b.i. Personal Producing General Agent's Agreement and
Supplement(4)
1.A.3.b.ii. Personal Producing Agent's Agreement and Supplement(4)
1.A.3.b.iii. Producing General Agent's Agreement and Supplement(4)
1.A.3.c.iv. Form of Selling Agreement between PML Securities, Inc. and
Broker/Dealers(4)
1.A.4. Inapplicable
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy (Form VL201)
1.A.5.a. Convertible Term Life Rider (PLC308)(4)
1.A.5.b. Additional Insurance Benefit Rider (R2308)
1.A.5.c. Guaranteed Minimum Death Benefit Ride (PLC320)(4)
1.A.5.d. Children's Term Rider (PLC306)
1.A.5.e. Extension of Final Policy Date Rider (PLC822)(4)
1.A.5.f. Change of Insured Rider (PLC905)(4)
1.A.5.g. Disability Waiver Benefit Rider (R2901)
1.A.5.h. Disability Waiver of Premium Benefit Rider (PLC903)
1.A.5.i. Qualify as Section 403(b) Rider (PLC827)(2)
1.A.5.j. Accelerated Death Benefit Rider (PLC/0904)(1)
1.A.6.a. Charter of Providentmutual Life and Annuity Company of
America(1)
1.A.6.b. By-Laws of Providentmutual Life and Annuity Company of
America(1)
1.A.7. Inapplicable
</TABLE>
II-2
<PAGE> 149
<TABLE>
<S> <C>
1.A.8. Inapplicable
1.A.9. Inapplicable
1.A.10. Form of Application(2)
1.A.10.a. Supplemental Application for Flexible Premium(3)
1.A.10.b. Initial Allocation Selection(3)
2. See Exhibits 1.A
3. Opinion and consent of James G. Potter, Jr., Esquire
4. Inapplicable
5. Inapplicable
6. Opinion and consent of Scott V. Carney, FSA, MAAA
7.A. Consent of Sutherland Asbill & Brennan LLP
7.B. Consent of PricewaterhouseCoopers LLP
8. Description of Providentmutual Life and Annuity Company of
America's Issuance, Transfer and Redemption Procedures for
Policies(4)
9. Inapplicable
10.A. Participation Agreement among Market, Street Fund, Inc.,
Providentmutual Company of America and PML Securities,
Inc.(1)
10.B. Participation Agreement among Variable Insurance Products
Fund, Fidelity Corporation and Providentmutual Life and
Annuity Company of America(2)
10.C. Participation Agreement among Variable Insurance Products
Fund II, Fidelity Corporation and Providentmutual Life and
Annuity Company of America(2)
10.D. Form of Fund Participation Agreement among Neuberger &
Berman Advisers Managers Trust and Providentmutual Life and
Annuity Company of America(1)
10.E. Participation Agreement between Van Eck Invest ment Trust
and Providentmutual Life and Annuity Company of America(1)
10.F. Participation Agreement among The Alger American Fund,
Providentmutual Life and Annuity Company of America and Fred
Alger and Company Incorporated(2)
10.G. Support Agreement between Provident Mutual Life Insurance
and Providentmutual Life and Annuity Company of America.(1)
27. Inapplicable
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form S-6 Registration Statement for Provident Mutual Life Insurance Company
filed on May 1, 1998, File No. 33-65512.
(2) Incorporated herein by reference to Post-Effective Amendment No. 18 to the
Form S-6 Registration Statement for Provident Mutual Life Insurance Company
filed on May 1, 1998, File No. 33-2625.
(3) Incorporated herein by reference to Post-Effective Amendment No. 11 to the
Form S-6 Registration Statement for Provident Mutual Life Insurance Company
filed on May 1, 1998, File No. 33-42133.
(4) Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Form S-6 Registration Statement for Providentmutual Life and Annuity Company
of America filed on May 1, 1998, file No. 33-83138.
II-3
<PAGE> 150
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Providentmutual Variable Life Separate Account
has caused this Registration Statement to be signed on its behalf in New Castle
County, State of Delaware on this third day of March, 1999.
<TABLE>
<S> <C>
PROVIDENTMUTUAL VARIABLE LIFE
SEPARATE ACCOUNT (Registrant)
By: PROVIDENTMUTUAL LIFE AND
ANNUITY COMPANY OF
AMERICA (Depositor)
Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
- --------------------------------------------------- ----------------------------------------------
Robert W. Kloss
President
PROVIDENTMUTUAL LIFE AND
ANNUITY COMPANY OF
AMERICA (Depositor)
Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
- --------------------------------------------------- ----------------------------------------------
Robert W. Kloss
President
</TABLE>
As required by the securities act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ ROBERT W. KLOSS Director and President (Principal Executive
- --------------------------------------------------- Officer)
Robert W. Kloss
/s/ STEPHEN L. WHITE Actuarial Officer (Principal Financial Officer)
- ---------------------------------------------------
Stephen L. White
/s/ TODD R. MILLER Financial Reporting Officer (Principal
- --------------------------------------------------- Accounting Officer)
Todd R. Miller
/s/ MARY LYNN FINELLI Director
- ---------------------------------------------------
Mary Lynn Finelli
/s/ J. KEVIN MCCARTHY Director
- ---------------------------------------------------
J. Kevin McCarthy
/s/ JAMES G. POTTER, JR. Director, Secretary and Legal Officer
- ---------------------------------------------------
James G. Potter, Jr.
/s/ JAMES D. KESTNER Director
- ---------------------------------------------------
James D. Kestner
</TABLE>
<PAGE> 151
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ SARAH C. LANGE Director
- ---------------------------------------------------
Sarah C. Lange
/s/ ALAN F. HINKLE Director
- ---------------------------------------------------
Alan F. Hinkle
/s/ JOAN C. TUCKER Director
- ---------------------------------------------------
Joan C. Tucker
/s/ MEHRAN ASSADI Director
- ---------------------------------------------------
Mehran Assadi
/s/ LINDA M. SPRINGER Director
- ---------------------------------------------------
Linda M. Springer
*By: /s/ JAMES G. POTTER, JR.
---------------------------------------------
James G. Potter, Jr.
Attorney-In-Fact
Pursuant To Power Of Attorney
</TABLE>
<PAGE> 152
EXHIBIT INDEX
<TABLE>
<S> <C>
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy (Form VL201)
1.A.5.b Additional Insurance Benefit Rider (Form R2308)
1.A.5.d Children's Term Rider (Form PLC306)
1.A.5.g Disability Waiver Benefit Rider (Form R2901)
1.A.5.h Disability Waiver of Premium Benefit Rider (Form PLC903)
3. Opinion and Consent of James G. Potter, Jr. Esq.
6. Opinion and Consent of Scott V. Caney, FSA, MAAA.
7.A. Consent of Sutherland Asbill & Brennan LLP
7.B. Consent of PricewaterhouseCoopers LLP
</TABLE>
<PAGE> 1
Exhibit 1.A.5
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
INSURED JOHN DOE
POLICY NUMBER 9,000,000
ISSUE DATE 01/01/1999
FACE AMOUNT $50,000
ISSUE AGE AND SEX 35, MALE
DEATH BENEFIT OPTION A
POLICY DATE 01/01/1999
Providentmutual Life and Annuity Company of America agrees:
To pay the Beneficiary of this Policy the Insurance Proceeds upon receiving due
proof of the Insured's death; To provide you (the Policy Owner) with the other
rights and benefits of this Policy. These agreements are subject to the
provisions of this Policy.
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE INSURANCE COVERAGE, OR
BOTH, MAY BE VARIABLE OR FIXED, AS DESCRIBED IN THE DEATH BENEFIT PROVISIONS.
THE PORTION OF THE POLICY ACCOUNT VALUE THAT IS IN A SUBACCOUNT MAY INCREASE OR
DECREASE, DEPENDING UPON THE UNIT VALUE OF SUCH SUBACCOUNT, WHICH IN TURN
DEPENDS UPON THE INVESTMENT EXPERIENCE OF THE CORRESPONDING PORTFOLIO OF A
DESIGNATED INVESTMENT COMPANY. THERE IS NO GUARANTEED MINIMUM FOR THE PORTION OF
YOUR POLICY ACCOUNT VALUE IN THE SUBACCOUNTS.
The portion of the Policy Account Value that is in the Guaranteed Account and
the Loan Account will accumulate, after deductions, at rates of interest we
determine. Such rates will not be less than 4% a year.
Please read this Policy with care. A guide to its provisions is on the last
page. A description is on page 2. Any additional benefit riders and a copy of
the Application are included in this Policy before the last page.
This is a legal contract between the Owner and Providentmutual Life and Annuity
Company of America.
RIGHT TO EXAMINE POLICY. You may examine this Policy and if for any reason you
are not satisfied with it, you may cancel it by returning the Policy to us with
a written request no later than: (a) 10 days after you receive it; (b) or 45
days after Part I of the Application was signed. All you have to do is take this
Policy or mail it to our Service Center at 300 Continental Drive, Newark, DE
19713-4399; P.O. Box 15750, Wilmington, DE 19850-5750; or to one of our offices
or to the representative who sold it to you. If you do this, we will refund an
amount equal to: (a) the difference between the premiums you paid (including any
fees and charges) and the sum of the amounts allocated to the Guaranteed Account
and the Subaccounts; plus (b) the value of the amounts allocated to the
Guaranteed Account including any interest accumulated to the date you return the
Policy to us; plus (c) the value of the amounts allocated to the Subaccounts
including the net investment experience of such Subaccounts to the date you
return the Policy to us; plus (d) any fees or charges imposed on the amounts
allocated to the Guaranteed Account or the Subaccounts.
Attest
/s/ Robert W. Kloss
-------------------
Registrar President
* Flexible Premium Adjustable Variable Life Insurance Policy * Insurance
Proceeds payable upon death before Final Policy Date * Policy Account Value
payable on Final Policy Date * Adjustable Death Benefit * Values provided by
this Policy are based on declared interest rates of the Guaranteed and Loan
Accounts and on the investment experience of the Subaccounts * Non-participating
*
FOR INQUIRIES, INFORMATION AND RESOLUTION OF COMPLAINTS, CALL: 1-800-688-5177
<PAGE> 2
POLICY DESCRIPTION
This is a flexible premium adjustable variable life insurance policy.
Net premiums are allocated at your direction to one or more of the Subaccounts
and/or the Guaranteed Account.
The Subaccounts invest in securities and other investments whose value is
subject to market fluctuation and investment risk. There is no guarantee of
principal or investment return.
The Guaranteed Account earns interest at rates we declare in advance. The rates
are guaranteed to equal or exceed 4%. The principal, after deductions, is also
guaranteed.
The duration of life insurance coverage depends on the Net Cash Surrender Value
except that during the first five Policy Years, your Policy will remain in force
if the sum of the premiums paid less loans and partial withdrawals equals or
exceeds the Minimum Guarantee Premium.
If Death Benefit Option A has been selected, the Death Benefit is the Face
Amount of this Policy and the amount of the Death Benefit is fixed, except where
it is a percentage of the Policy Account Value. If Death Benefit Option B has
been selected, the Death Benefit is the Face Amount of this Policy plus the
Policy Account Value. The amount of the Death Benefit under Option B is
variable. Under either Option, the Death Benefit will not be less than a
percentage of the Policy Account Value.
To compute the Insurance Proceeds payable upon the Insured's death, we start
with the Death Benefit and adjust this amount if there is a loan.
We make monthly deductions from the Policy Account Value to cover the cost of
benefits provided under this Policy, including the cost of any benefits provided
by rider. We will allocate such deductions to the Subaccounts and the Guaranteed
Account in accordance with your instructions.
If you surrender this Policy for its Net Cash Surrender Value or reduce the Face
Amount of insurance during the first 12 Policy Years or within 12 years after
the effective date of an increase in the Face Amount, we will deduct any
applicable Surrender Charges from the Policy Account Value.
We will pay the proceeds under this Policy in one sum unless a Payment Option is
in force. If you elect a Payment Option it will apply to payment of the Net Cash
Surrender Value if you surrender this Policy or to the Insurance Proceeds paid
to the Beneficiary when the Insured dies. If a Payment Option is not in force
when the Insured dies, the Beneficiary will be able to elect a Payment Option
for the Insurance Proceeds.
If this Policy lapses, coverage will end. If such occurs, you may be able to
reinstate this Policy within three full years with full benefits.
As Policy Owner, you have these rights in this Policy, among others, subject to
the terms, conditions, and limits in this Policy:
- - You may make premium payments at any time and of any amount.
- - You may change the allocation of premiums and deductions among your
investment options.
- - You may increase or decrease the Face Amount of insurance.
- - You may change the Death Benefit Option.
- - You may transfer amounts among your investment options.
- - You may borrow on this Policy.
- - You may make a partial withdrawal of the Net Cash Surrender Value.
- - You may surrender this Policy for its Net Cash Surrender Value.
- - You may change the Beneficiary of the Insurance Proceeds of this Policy.
- - You may assign this Policy and change the Owner.
This is only a summary of what the Policy provides. You should read the entire
Policy carefully as its terms govern your rights and our obligations.
Page 2
<PAGE> 3
POLICY SCHEDULE
INSURED JOHN DOE
POLICY NUMBER 9,000,000 01/01/1999 POLICY ISSUE DATE
FACE AMOUNT $50,000.00 35, MALE ISSUE AGE AND SEX
DEATH BENEFIT OPTION A 01/01/1999 POLICY DATE
PREMIUM CLASS STANDARD 01/01/2064 FINAL POLICY DATE
BENEFITS
--------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
INITIAL FACE AMOUNT $50,000.00
RIDER - DISABILITY WAIVER BENEFIT
This Policy provides life insurance coverage on the Insured until the final
policy date, provided the Net Cash Surrender Value is sufficient to cover the
deductions for the cost to that date of the benefits of this Policy and of any
riders. You may have to pay more than the premiums shown below to keep this
Policy and coverage in force to that date, and to keep any additional riders in
force.
MINIMUM INITIAL PREMIUM - $408.00
PLANNED PERIODIC PREMIUM - $500.00 PAYABLE ANNUALLY
MINIMUM ANNUAL PREMIUM - $408.00
MINIMUM FACE AMOUNT - $50,000.00
MINIMUM PAYMENT - $20.00
PARTIAL WITHDRAWAL - MINIMUM AMOUNT $1,500.00
TRANSFERS - MINIMUM AMOUNT $1,000.00
POLICY LOAN - FIXED 6.00% POLICY LOAN INTEREST RATE
MINIMUM LOAN AMOUNT $500.00
FORM VL201 PAGE 3
<PAGE> 4
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
EXPENSE CHARGES
PREMIUM EXPENSE CHARGE
CONSISTS OF THE FOLLOWING:
1. A Premium Tax Charge of 2% will be deducted from each premium payment
for state and local premium taxes. We reserve the right to change this
percentage if the applicable law changes or the insured's residence
changes.
2. A percent of premium charge not exceeding 3% will be deducted from each
premium payment.
INITIAL ADMINISTRATIVE CHARGE
$5.00 deducted monthly from the Policy Account Value on the first 12
policy processing days.
MONTHLY ADMINISTRATIVE CHARGE
$7.50 deducted monthly from the Policy Account Value. We reserve the
right to increase this charge, but it will be greater than $12.00 a
month.
FOR PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
$25.00 deducted from the Policy Account Value whenever you make a
partial withdrawal.
FOR AN INCREASE IN FACE AMOUNT
$100.00 plus $0.50 per $1,000 of increase in face amount, but not
greater than $750.00, deducted from the Policy Account Value. We
reserve the right to increase this charge, but it will not be greater
than $100.00 plus $3.00 per $1,000.
FOR TRANSFERS
After the first twelve transfers of amounts among your investment
options during a Policy Year, we will charge $25.00 for each additional
transfer during that Policy Year.
PAGE 4
<PAGE> 5
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
SURRENDER CHARGES
If this Policy is surrendered or lapses during the first 12 Policy Years, we
will deduct a Surrender Charge from the Policy Account Value in determining its
Net Cash Surrender Value. The Surrender Charge consists of Deferred
Administrative Charge and the Deferred Sales Charge.
The Deferred Administrative Charge at any time during the policy year is the
amount shown in the table below for that year, less the amount of any pro rata
Deferred Administrative Charge previously paid under this Policy.
The Deferred Sales Charge at any time during the Policy Year is equal to (A)
minus (B) where: (A) is the lessor of: (1) the maximum charge shown in the
table below for that year; or (2) an amount equal to 35% of all premium
payments paid to such time; and (B) is the amount of any pro rata Deferred
Sales Charge previously paid under this Policy.
<TABLE>
<CAPTION>
DEFERRED MAXIMUM DEFERRED MAXIMUM
POLICY ADMIN SALES POLICY ADMIN SALES
YEAR CHARGE CHARGE YEAR CHARGE CHARGE
<S> <C> <C> <C> <C> <C>
1 245.00 460.95 7 210.00 395.10
2 245.00 460.95 8 175.00 329.25
3 245.00 460.95 9 140.00 263.40
4 245.00 460.95 10 105.00 197.55
5 245.00 460.95 11 70.00 131.70
6 245.00 460.95 12 35.00 65.85
</TABLE>
If the Face Amount of this Policy is decreased at any time during the first 12
Policy Years, a pro rata share of the Surrender Charge will be deducted.
If the Face Amount of this Policy is increased at any time, and within 12 years
of the effective date of such increase you decrease the Face Amount or
surrender this Policy, a Deferred Administrative Charge and Deferred Additional
Sales Charge will be deducted.
FORM VL201 PAGE 4A
<PAGE> 6
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
GUARANTEED MONTHLY COST OF INSURANCE RATES PER $1,000 NET
AMOUNT AT RISK
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE RATE AGE RATE AGE RATE
<S> <C> <C> <C> <C> <C>
35 0.21917 57 1.50750 79 9.45750
36 0.23417 58 1.64083 80 10.13250
37 0.25333 59 1.77917 81 10.86750
38 0.27500 60 1.93250 82 11.68333
39 0.30000 61 2.10500 83 12.58583
40 0.32833 62 2.29917 84 13.54083
41 0.36167 63 2.51917 85 14.51667
42 0.39583 64 2.76167 86 15.48167
43 0.43500 65 3.02417 87 16.42167
44 0.47583 66 3.29750 88 17.44750
45 0.52250 67 3.58417 89 18.46000
46 0.56917 68 3.87917 90 19.47417
47 0.62000 69 4.19333 91 20.51000
48 0.67333 70 4.54000 92 21.61083
49 0.73333 71 4.92417 93 23.02500
50 0.79167 72 5.36083 94 24.84583
51 0.87000 73 5.85250 95 27.49667
52 0.95167 74 6.38833 96 32.04583
53 1.04500 75 6.98083 97 40.01667
54 1.15000 76 7.59167 98 54.83167
55 1.26167 77 8.21000 99 83.33333
56 1.38250 78 8.82583
</TABLE>
FORM VL201 PAGE 5
<PAGE> 7
This page intentionally left blank.
6
<PAGE> 8
DEFINITIONS
ATTAINED AGE. The Issue Age of the Insured plus the number of full years
since the Policy Date.
CASH SURRENDER VALUE. The Policy Account Value minus any applicable
Surrender Charges.
INSURANCE PROCEEDS. The net amount to be paid to the Beneficiary when the
Insured dies. (See Amount of Insurance Proceeds provision.)
INSURED. The person named as the Insured on the first page. He or she need
not be the Owner.
LOAN ACCOUNT. The account to which we transfer the amount of any policy loan
from the Subaccounts and Guaranteed Account.
MINIMUM GUARANTEE PREMIUM. The Minimum Annual Premium multiplied by the number
of months since the Policy Date, including the current month, divided by 12.
NET CASH SURRENDER VALUE. The Policy Account Value minus any applicable
Surrender Charges, minus any outstanding policy loans and accrued interest.
NET PREMIUM. The remainder of a premium after deduction of the Premium
Expense Charge.
POLICY ACCOUNT VALUE. The sum of this Policy's values in the Subaccounts,
the Guaranteed Account and the Loan Account.
POLICY ANNIVERSARY. The same day and month as the Policy Date in each later
year.
POLICY PROCESSING DAY. The day in each calendar month which is the same day
of the month as the Policy Date. The first Policy Processing Day is the
Policy Date.
POLICY YEAR. A year that starts on the Policy Date or on a Policy
Anniversary.
WE, OUR, US AND COMPANY. Providentmutual Life and Annuity Company of
America, a stock life insurance company, a Delaware Corporation.
YOU AND YOUR. The Owner of this Policy.
GENERAL PROVISIONS
THE CONTRACT. This Policy is issued in consideration of payment of the Minimum
Initial Premium shown in the Policy Schedule. This Policy and the initial
Application, a copy of which is attached, and all subsequent Applications to
change the Policy and all additional Policy Schedule pages added to this Policy,
form the whole contract. We assume that all statements in the applications were
made to the best of the knowledge and belief of the person(s) who made them; in
the absence of fraud, they are assumed to be representations and not warranties.
We relied on those statements when we issued or changed this Policy. We will not
use any statement, unless made in the Applications, to void this Policy or to
deny a claim.
POLICY MODIFICATIONS. Only the President or a Vice President of the Company
may agree to modify this Policy, and then only in writing.
SUICIDE EXCLUSION. If the Insured, whether sane or insane, dies by suicide
within two years from the Policy Issue Date, our payment will be limited to the
sum of premiums paid, minus any loan and loan interest and any partial
withdrawals of Net Cash Surrender Value. If the Insured, whether sane or insane,
dies by suicide within two years of the Effective Date of a policy change which
increases the Death Benefit, our payment with respect to such increase will be
limited to the sum of the monthly deductions for the cost of insurance
attributable to such increase and the expense charge for the increase in Face
Amount deducted from the Policy Account Value.
MISSTATEMENT OF AGE OR SEX. If the Insured's stated age or sex is not correct,
the Death Benefit and any benefits provided by riders to this Policy shall be
those which would be purchased by the most recent deduction for the cost of
insurance and the cost of any benefits provided by such riders, at the correct
age and sex. There is no adjustment to the Policy Account Value at that time.
INCONTESTABILITY. We have the right to contest the validity of this Policy based
on material
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<PAGE> 9
misstatements made in the initial Application for this Policy. We also have a
right to contest the validity of any policy change based on material
misstatements made in any Application for that change. However, we will not
contest this Policy after it has been in force during the Insured's lifetime for
two years from the Policy Issue Date, except for nonpayment of the Minimum
Initial Premium. We will not contest any policy change that requires evidence of
insurability, or any reinstatement of this Policy, after such change or
reinstatement has been in effect for two years during the Insured's lifetime.
See any supplementary benefit riders for modifications that apply to them.
PERIODIC REPORT. At least once a year we will send you a report for this Policy.
It will show: (1) the current Death Benefit; (2) the current Policy Account
Value; (3) the Guaranteed Account Value; (4) the Loan Account Value; (5) the
value in each Subaccount; (6) premiums paid since the last report; (7) charges
deducted since the last report; (8) any partial withdrawals of Net Cash
Surrender Value since the last report; (9) any policy loans and accrued
interest; (10) the current Net Cash Surrender Value; (11) any other information
that may be required when and where this Policy is delivered.
You may ask for a similar report at some other time. We have the right to make a
reasonable charge for the reports that you ask for, and to limit the scope and
frequency of such reports.
PAYMENTS. We will usually pay any amounts payable as a result of surrender,
partial withdrawal or policy loan within 7 days after we receive your written
request at our Service Center in a form satisfactory to us. We will usually pay
the Insurance Proceeds within 7 days after we receive proof of the Insured's
death at our Service Center and all other requirements deemed necessary are met.
However, payment may be postponed if we are not able to sell securities or
determine the value of the assets of the Subaccounts because:
1. the New York Stock Exchange is closed;
2. the Securities and Exchange Commission (SEC) requires trading to be
restricted or declares an emergency; or
3. the SEC by order permits us to defer payments for the protection of Policy
Owners.
As to amounts allocated to the Guaranteed Account, we may defer payment of any
withdrawal or surrender of Net Cash Surrender Value and the making of a loan for
up to six months after we receive your written request at our Service Center.
We will allow interest, at a rate of 3% a year, on any payment we defer for 30
days or more under this provision.
POLICY CHANGES - TAX CONSIDERATIONS. In order to receive the tax treatment
accorded to life insurance under federal tax laws, this Policy must qualify and
continue to qualify as life insurance under the Internal Revenue Code. We
reserve the right to decline to accept a premium payment, to decline to change
the Death Benefit Option, or to decline a partial withdrawal which would cause
this Policy to fail to qualify as life insurance under the applicable tax law,
as interpreted by us. We also reserve the right to make changes in this Policy
or to riders or to make distributions from this Policy to the extent we deem
such to be necessary for this Policy to continue to qualify as life insurance.
Such changes will apply uniformly to all affected policies. You will receive
advance written notification of such changes.
CHANGES IN POLICY COST FACTORS. Changes in credited interest rates, cost of
insurance charges, Percent of Premium Charge, mortality and expense risk
charges, and Monthly Administrative Charges will be by class and will be based
upon changes in future expectations for such factors as:
(a) investment earnings;
(b) mortality;
(c) persistency;
(d) expenses; and
(e) taxes.
Any change will be determined in accordance with the procedures and standards on
file, if required, with the insurance supervisory official of the state in which
this Policy is delivered.
POLICY ILLUSTRATIONS. Upon request, we will provide an illustration of the
future benefits under this Policy. We reserve the right to charge a reasonable
fee for this service if you request more than one policy illustration during a
Policy Year.
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<PAGE> 10
POLICY OWNER AND BENEFICIARY PROVISIONS
OWNERSHIP. Unless otherwise stated in the Application or later changed, the
Owner of this Policy is the Insured. While the Insured is living, the Owner
alone is entitled to exercise any right and privilege granted by this Policy or
by us. If the Insured is living on the Final Policy Date shown in the Policy
Schedule and while this Policy is in force, we will pay you, the Owner, the
Policy Account Value on that date, less any outstanding policy loan and accrued
loan interest. This Policy will then end. If you are not the Insured and you die
while the Insured is still living, all rights will vest in your estate, unless
otherwise provided.
BENEFICIARY. The Beneficiary is entitled to the Insurance Proceeds under this
Policy. The Beneficiary is as stated in the Application, unless later changed.
when a Beneficiary is designated, any relationship shown is to the Insured,
unless otherwise stated. If two or more persons are named, those surviving the
Insured will share the Insurance Proceeds equally, unless otherwise stated. If
none of the persons named survives the Insured, we will pay the Insurance
Proceeds in one sum to the Insured's estate.
PROTECTION OF PROCEEDS. No Beneficiary may commute, encumber or alienate any
payments under this Policy before they are due. No payments shall be subject to
the debts, contract or engagements of any Beneficiary nor to any judicial
process to levy upon or attach the same for payment of such debts.
CHANGES. While the Insured is living, you may change the Owner or Beneficiary by
written notice in a form satisfactory to us. The change will take effect on the
date you sign the notice, except that it will not apply to any payment or other
action we take before we receive the notice at our Service Center. If you change
the Beneficiary, any previous arrangement you made under the Payment Options
provision is cancelled.
ASSIGNMENT. You may assign this Policy but we will not be bound by any
assignment unless it is in writing and we have received it at our Service enter.
Your rights and those of any other person referred to in this Policy will be
subject to the assignment. We assume no responsibility for the validity of any
assignments.
CREDITOR CLAIMS. To the extent permitted by applicable laws, no right or benefit
under this Policy shall be subject to claims of creditors, except as may be
provided by an Assignment.
DEATH BENEFIT PROVISIONS
If the Insured dies while this Policy is in force, we will pay the Insurance
Proceeds to the Beneficiary when we receive: (1) proof that the Insured died
before the Final Policy Date; and (2) all other requirements deemed necessary to
make payment.
DEATH BENEFIT. The Death Benefit will be determined under either Option A or
Option B below, whichever you have chosen and is in effect at such time.
Under either Option, the duration of insurance coverage depends upon your Net
Cash Surrender Value.
OPTION A. Under Option A, the Death Benefit is the greater of the Face Amount of
insurance, or a percentage of the Policy Account Value on the date of death (see
Table of Percentages, below). Under this Option, the amount of the Death Benefit
is fixed, unless it is determined by such a percentage.
OPTION B. Under Option B, the Death Benefit is the greater of the Face Amount of
insurance plus the Policy Account Value on the date of death, or a percentage of
the Policy Account Value on the date of death (see Table of Percentages, below).
Under this Option, the amount of the Death Benefit is variable.
TABLE OF PERCENTAGES. The following table is used in determining the Death
Benefit under Option A and Option B above. For Attained Ages not shown, the
applicable percentages shall decrease by a ratable portion for each full year.
ATTAINED AGE PERCENTAGE
- ------------ ----------
0 through 40 250%
45 215%
50 185%
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<PAGE> 11
ATTAINED AGE PERCENTAGE
- ------------ ----------
55 150%
60 130%
65 120%
70 115%
75 through 90 105%
95 through 99 100%
AMOUNT OF INSURANCE PROCEEDS. The Insurance Proceeds will be determined as
of the date of the Insured's death and will be equal to:
1. the Death Benefit described above;
2. plus any additional benefits due under a supplementary benefit rider
attached to this Policy;
3. less any loan and accrued loan interest on this Policy;
4. less any overdue deductions if the death of the Insured occurs during the
Grace Period.
PAYMENT OF INSURANCE PROCEEDS. We will pay the Insurance Proceeds to the
Beneficiary in a lump sum, unless a Payment Option has been selected. If the
proceeds are payable in a lump sum, we will add interest to the amount of such
proceeds for the period from the date of death to the date of payment. The
amount of interest will be computed at the yearly rate of 3% or any higher rate
declared by us or required by law.
CHANGING THE FACE AMOUNT OF INSURANCE OR DEATH BENEFIT OPTION. During the first
Policy Year, the Death Benefit Option and the Face Amount of insurance will be
as selected at the time of application, as shown in the Policy Schedule.
After the first Policy Year while this Policy is in force, you may change the
Death Benefit Option or the Face Amount, except in the 12-month period following
a Face Amount increase. Any change will be effective as of the Policy processing
Day that coincides with or next follows the date we approve your written
request, provided we have received the premium required for the change. You may
request a change by completing an application for change. A copy of such
application will be attached to new Policy Schedule pages which will be issued
when the change is approved. The application for change and new Policy Schedule
pages will become a part of this Policy. We may require you to return this
Policy to make a change.
FACE AMOUNT INCREASE. You may request a Face Amount increase subject to the
following:
(a) you must provide evidence satisfactory to us of the Insured's insurability;
(b) the Insured's Attained Age must be 75 years or less;
(c) you may not have increased the Face Amount in the prior 12-month period;
(d) the Face Amount increase must be for at least $25,000.
We will deduct the expense charge for an increase in Face Amount shown in the
Policy Schedule from the Policy Account Value as of the effective date of the
increase. The deduction will be made in accordance with the allocation schedule
for monthly deductions in effect at such time.
You may cancel an increase in Face Amount and receive a refund by giving us
written notice no later than: (a) 10 days after you receive the new Policy
Schedule pages reflecting the increase; or (b) 45 days after you signed the
application for the increase. The amount of the refund will be equal to the
monthly deductions for such increase plus the expense charge for the increase in
Face Amount shown in the Policy Schedule. If you cancel the increase but do not
request a refund, we will add the refund to the Policy Account Value. This
amount will be allocated in the same proportion as it was deducted. Any premium
payment made after the increase will not be refunded.
CONVERSION PRIVILEGE FOR INCREASE. You have the right once during the first two
years following the Effective Date of an increase in Face Amount to convert the
increase in Face Amount and receive a life insurance policy that provides for
fixed benefits. No evidence of insurability will be required. The new policy
will have the same Face Amount and Issue Date as the amount and Effective Date
of the increase. Premiums for the new policy will be based on our rates in
effect for the same Attained Age, Sex, and Premium Class of the Insured as of
the Effective Date of the increase. A refund will be made equal to the monthly
deductions for such increase plus the expense charge for the increase shown in
the Policy Schedule.
FACE AMOUNT DECREASE. You may request a Face Amount decrease provided:
(a) the Face Amount of the Policy after the decrease is not less than the
minimum amount shown in the Policy Schedule;
(b) the amount of the decrease is for at least $25,000;
(c) you may not have increased the Face Amount in the prior 12-month period;
(d) if the decrease is made during the first 12 Policy Years, or within 12 years
following the effective date of a Face Amount increase, we will deduct a pro
rata share of any applicable Surrender Charges from the Policy Account
Value.
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<PAGE> 12
(e) a decrease in the Face Amount will reduce this Policy's Face Amount in the
following order:
1. the Face Amount attributable to the most recent Face Amount increase;
2. the Face Amount attributable to the next most recent Face Amount
increases, successively;
3. the Initial Face Amount.
CHANGE FROM DEATH BENEFIT OPTION A TO OPTION B. If you request a change from
Option A to Option B, we will decrease the Face Amount by the Policy Account
Value as of the date of change. We reserve the right to decline to make such a
change if it would reduce the Face Amount below the minimum amount for which we
would then issue this Policy under our rules.
CHANGE FROM DEATH BENEFIT OPTION B TO OPTION A. If you request a change from
Option B to Option A, we will increase the Face Amount by the Policy Account
Value on the date of change.
The decreases and increases in Face Amount described above in connection with
changes in the Death Benefit Option are made so the Death Benefit remains the
same on the date of change. We do not require evidence of insurability, nor do
we deduct a Surrender Charge or the Expense Charge to increase the Face Amount
for such changes.
TAX CONSIDERATIONS. We reserve the right to refuse to make a policy change if
such would cause this Policy to fail to qualify as life insurance under
applicable laws, as interpreted by us.
PREMIUM PAYMENT PROVISIONS
The Minimum Initial Premium shown in the Policy Schedule is due on or before the
date the Policy is delivered. No insurance will take effect until the Minimum
Initial Premium is paid, while the health and other conditions of the Insured
stay the same as described in the Application for this Policy. Prior to the
Final Policy Date and while this Policy is in force you may make additional
premium payments at any time and in any amount (subject to certain limits
described below). We intend to send premium reminder notices to you for the
Planned Periodic Premium shown in the Policy Schedule, unless at the time of
application or later you request in writing that such notices not be sent. You
do not need to pay the Planned Periodic Premiums and may change their frequency
and amount subject to the limits described below. (However, see Grace Period.)
LIMITS FOR PREMIUM PAYMENTS. Each premium payment after the initial one must be
for at least the Minimum Payment amount shown in the Policy Schedule. We may
increase this minimum amount upon 90 days written notice to you of such
increase. This minimum amount will not exceed $500.
We reserve the right not to accept any portion of premium payments during a
Policy Year if we determine that such portion would cause this Policy to fail to
qualify as life insurance under applicable tax laws, as interpreted by us.
We reserve the right to limit the amount of any premium payment if it increases
the Death Benefit more than it increases the Policy Account Value unless you
provide evidence of the Insured's insurability satisfactory to us.
GRACE PERIOD. During the first five Policy Years, the duration of the insurance
coverage under this Policy depends, in part, upon whether the Net Cash Surrender
Value is sufficient to cover the monthly deductions. If the Net Cash Surrender
Value is not sufficient, we will determine if the Minimum Guarantee Premium has
been paid. If the Net Cash Surrender Value is not sufficient and the sum of the
premiums paid less any loans and partial withdrawals does not equal or exceed
the Minimum Guarantee Premium, the Grace Period described below will begin.
After the first five Policy Years, the duration of the insurance coverage under
this Policy depends solely upon whether the Net Cash Surrender Value is
sufficient to cover the monthly deductions.
If the Net Cash Surrender Value at the beginning of any policy month is less
than the deductions for that month (and during the first five Policy Years, the
Minimum Guarantee Premium has not been paid), we will send written notice to you
and any assignee of record stating that a Grace Period of 61 days has begun,
starting on the date we mail such notice. The notice will indicate an amount
equal to three monthly deductions. If we do not receive payment of such amount
before the end of the Grace Period, we will withdraw the Policy Account Value
including any applicable Surrender Charge and send you and any assignee of
record written notice that the Policy has lapsed without value.
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<PAGE> 13
If the Insured dies during the Grace Period, we will pay the Insurance Proceeds.
REINSTATEMENT. If this Policy has lapsed without value, you may reinstate it
while the Insured is alive if you:
1. apply for reinstatement within three years after the end of the Grace
Period;
2. provide evidence of the Insured's insurability satisfactory to us; and
3. make a premium payment of an amount sufficient to keep the Policy in
force for at least three months after the date of reinstatement.
The Effective Date of the reinstated Policy will be the Policy Processing Day,
which coincides with or next follows the date we approve the reinstatement
application.
PREMIUM EXPENSE CHARGE
The Premium Expense Charge consists of the following:
1. Premium Tax Charge; and
2. Percent of Premium Charge.
The Premium Expense Charge will be deducted from any premiums paid and the
amount remaining will be the Net Premium. The amounts of these charges are shown
in the Policy Schedule.
THE SEPARATE ACCOUNT
A Separate Account will be used to support the operation of this Policy and to
support other variable life insurance policies. We will not allocate assets to
the Separate Account to support the operation of any contracts or policies that
are not variable life insurance.
We own the assets in the Separate Account. However, these assets are not part of
our General Account. Income, gains, and losses, whether or not realized, from
assets allocated to the Separate Account will be credited to or charged against
the Separate Account without regard to our other income, gains or losses.
The Separate Account is treated as a unit investment trust under federal
securities laws. It is registered with the Securities and Exchange Commission
(SEC) under the Investment Company Act of 1940 (1940 Act).
The subaccounts will invest in shares or units of their respective portfolios or
series.
The Separate Account is subject to the laws of the State of Delaware which
regulate the operations of insurance companies incorporated in Delaware. The
investment policies of the Separate Account will not be changed without the
approval of the Delaware Commissioner of Insurance. The approval process has
been filed with the insurance supervisory official of the state in which this
Policy is delivered.
We have the right, subject to compliance with applicable laws, to make additions
to, deletions from, or substitutions for, the shares or units of an investment
company that are held by the Subaccounts or that the Subaccounts may purchase.
We reserve the right to eliminate the shares or units of an eligible portfolio
or series, and to substitute shares or units of another portfolio or series, or
another fund, if the shares or units of the portfolio or series are no longer
available for investments, or if in our judgment further investment in the
portfolio or series should become inappropriate in view of the purposes of the
Subaccount. In the event of any substitution or change, we may, subject to your
written approval and by appropriate endorsement, make such changes in this and
other policies as may be necessary or appropriate to reflect the substitution or
change.
We also reserve the right to transfer assets of a Subaccount or the Separate
Account, which we determine to be associated with the class of policies to which
this Policy belongs, to another Subaccount or Separate Account. If this type of
transfer is made, the Subaccount or Separate Account specified in this Policy
shall then refer to the Subaccount or Separate Account to which the assets were
transferred.
The Policy Owner will share only in the income, gains, and losses of the
particular Subaccounts to which your Net Premium payments have been allocated or
to
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<PAGE> 14
which portions of the Policy Account Value have been transferred.
That portion of the assets of the Separate Account which equals the reserves or
other policy liabilities of the policies with respect to the Separate Account
will not be charged with liabilities arising from any other business we conduct.
We have the right to transfer to our General Account any assets of the Separate
Account, which are in excess of such reserves and other policy liabilities.
When permitted by law, we also reserve the right:
1. to create additional Separate Accounts; to create Subaccounts from, or
combine or remove Subaccounts from, Separate Accounts; or to combine any
two or more Separate Accounts;
2. to operate any one or more of the Separate Accounts as a management
investment company under the 1940 Act or in any other form permitted by
law;
3. to deregister the unit investment trusts under the 1940 Act;
4. to modify the provisions of this Policy to comply with applicable laws;
5. to restrict or eliminate any voting rights of policyholders or other
persons who have voting rights as to the Subaccounts.
We will value the assets of the Subaccounts on each business day.
If you object to a material change in the investment policy of a Subaccount in
which you have at such time a portion of the Policy Account Value, you may
transfer such portion of the Policy Account Value, upon written request, from
that Subaccount, without charge, to another Subaccount or to the Guaranteed
Account. You may then change your premium and deduction allocation percentages.
POLICY ACCOUNT VALUE: ALLOCATIONS AND TRANSFERS
The Policy Account Value for this Policy is based on the policy values in the
Subaccounts, Guaranteed Account, and the Loan Account to which you have:
allocated Net Premiums; transferred account values; and allocated monthly
deductions. Each allocation percentage must be a whole number.
ALLOCATION OF NET PREMIUMS. Net Premiums will be allocated to the Subaccounts
and the Guaranteed Account on the date we receive such premium payment. The
allocation will be based on the premium allocation percentages then in effect.
The percentage chosen by you at the time of application will apply until you
notify us in writing of a new allocation schedule for premium payments.
ALLOCATION FOR MONTHLY DEDUCTIONS. Monthly Deductions will be allocated to the
Subaccounts and Guaranteed Account based on the allocation percentages chosen by
you at the time of application or as later changed by written request to us. If
we cannot make a monthly deduction on the basis of the allocation schedule then
in effect, we will make such deduction and future deductions based on the
proportion that your Guaranteed Account Value and the value in your Subaccounts
bear to the total unloaned Policy Account Value.
TRANSFERS. We will allow you to make twelve transfers in a Policy Year without
charge. We will make a charge for additional transfers in such Policy Year. The
maximum charge is shown in the Policy Schedule. The transfer charge will be
deducted from the amount being transferred.
TRANSFERS FROM SUBACCOUNTS. You may ask us to transfer all or part of the amount
in one of the Subaccounts to another Subaccount or to the Guaranteed Account.
The minimum amount for such transfer is the lesser of the amount shown in the
Policy Schedule or the entire value of the Subaccount. The transfer will be made
as of the date we receive your written request at our Service Center.
TRANSFERS FROM GUARANTEED ACCOUNT. Within 30 days prior to or following any
Policy Anniversary you may ask us to make one transfer for up to 25% of your
Guaranteed Account Value to any of the Subaccounts. The minimum amount for such
transfer is the lesser of the amount shown in the Policy Schedule or your
Guaranteed Account Value on such Policy Anniversary. The date of transfer will
be as of the Policy Anniversary if your written request is received prior to the
Policy Anniversary; if your written request is received after the Policy
Anniversary, the transfer will be made as of the date we receive your request at
our Service Center.
SPECIAL TRANSFER RIGHT. During the first two years following the Policy Issue
Date, you may request one
<PAGE> 15
transfer of the entire Policy Account Value in the Subaccounts to the Guaranteed
Account. This request will not count towards the twelve free transfers in a
Policy Year and is not subject to a transfer charge.
CALCULATION OF VALUES
BASIS OF CALCULATION. Minimum cash surrender values and maximum cost of
insurance rates are based on the Commissioners 1980 Standard Ordinary Smoker and
Nonsmoker Mortality Table for the sex and premium class of the Insured. Cash
surrender values are at least equal to those required by law. Reserves are
computed by the Commissioners Reserve Valuation Method. A detailed statement of
how we calculate the values for this Policy has been filed with the insurance
supervisory official of the state in which this Policy is delivered.
CALCULATION OF VALUE OF SUBACCOUNTS. The Policy Account Value in a Subaccount at
any time is equal to the number of units this Policy then has in that Subaccount
multiplied by the Subaccount's unit value at that time.
Amounts allocated, transferred, or added to a Subaccount are used to purchase
units of that Subaccount; units are redeemed when amounts are deducted,
transferred or withdrawn. The number of units in a Subaccount at any time is
equal to the number of units purchased minus the number of units redeemed up to
such time.
The unit value of a Subaccount on any Valuation Day is equal to the unit value
for that Subaccount on the immediately preceding Valuation Day multiplied by the
Net Investment Factor for that Subaccount on that Valuation Day.
VALUATION DAY AND PERIOD. Assets are valued at the close of a Valuation Day. A
Valuation Day is each day that the New York Stock Exchange is open for business
and any other day in which there is a sufficient degree of trading of the
Subaccount's portfolio of securities to materially affect the value of a
Subaccount.
A Valuation Period is the time between two successive Valuation Days. Each
Valuation Period includes a Valuation Day and any non-Valuation Day or
consecutive non-Valuation Days immediately preceding it.
NET INVESTMENT FACTOR. Each Subaccount has its own Net Investment Factor. The
Net Investment Factor of the Subaccount for a Valuation Period is (a) divided by
(b) minus (c), where:
(a) is:
(1) the value of the assets in the Subaccount for the preceding
Valuation Period; plus
(2) the investment income and capital gains, realized or
unrealized, credited to those assets during the Valuation
Period for which the Net Investment Factor is being
determined; minus
(3) the capital losses, realized or unrealized, charged against
those assets during the Valuation Period; minus
(4) any amount charged against the Subaccount for taxes, or any
amount we set aside during the Valuation Period as a reserve
for taxes attributable to the operation or maintenance of the
Subaccount; and
(b) is the value of the assets in the preceding Valuation Period; and
(c) is a charge no greater than 0.90% per year (0.002465753% for each
day in the Valuation Period) for mortality and expense risks.
We will value the assets in the Subaccounts at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
ADDITIONAL SUBACCOUNTS CREDIT. On each Policy Processing Day, an additional
credit may be added to each Subaccount after the Policy has been in force for at
least 15 years or when the values in the Subaccount and Guaranteed Account
equals or exceeds $100,000. The credit will be equal to 0.03% multiplied by the
value in each Subaccount. The additional credit is a result of a reduction in
the mortality and expense risk charge.
CALCULATION OF GUARANTEED ACCOUNT VALUE. The Guaranteed Account Value at any
time is equal to the amounts allocated and transferred to it plus interest
credited to it, minus amounts deducted, transferred and withdrawn from it.
Amounts deducted, transferred, or withdrawn will be on a last in, first out
basis.
Page 14
<PAGE> 16
We will credit the Guaranteed Account Value with interest at effective annual
rates we determine. These rates will not be less than 4%. For the amount in the
Guaranteed Account at the beginning of a calendar year, we will determine such
interest rates in advance of each calendar year. Such rates will apply to the
calendar year which follows the date of determination. For amounts allocated or
transferred to the Guaranteed Account during a calendar year, we will determine
such interest rates in advance of the date such amount is received or
transferred. Such rates will apply to the end of the calendar year in which the
payment is received or the transfer is made.
Interest will be credited on each Policy Processing Day as follows:
For amounts in the Guaranteed Account for the entire prior policy month, from
the beginning to the end of such policy month;
For amounts allocated to the Guaranteed Account during the prior policy month,
from the date we allocate a Net Premium to the Guaranteed Account or receive a
loan repayment to the end of the policy month;
For amounts transferred to the Guaranteed Account during the prior policy month,
from the date of transfer to the end of the policy month;
For amounts deducted or withdrawn from the Guaranteed Account during the prior
policy month, from the beginning of the prior policy month to the date of
deduction or withdrawal.
MONTHLY DEDUCTIONS. On each Policy Processing Day, beginning on the Policy Date,
we will deduct the following charges from the Policy Account Value:
1. The Monthly Administrative Charge shown in the Policy Schedule;
2. On the first 12 Policy Processing Days, the Initial Administrative
Charge shown in the Policy Schedule;
3. The monthly cost of any benefits provided by rider to this Policy,
in accordance with such rider;
4. The monthly cost of insurance charge, as described below, and in
accordance with provisions in any rider attached to this Policy.
The monthly cost of insurance charge is: (a) multiplied by the result of (b)
minus (c):
(a) is the current monthly cost of insurance rate per $1000 divided by
1000;
and the result of (b) minus (c) is the net amount at risk where:
(b) is your current Death Benefit; and
(c) is your Policy Account Value (after other deductions but before cost
of insurance).
The cost of insurance rates are based on the Insured's Attained Age, Sex,
Premium Class and duration. For the Initial Face Amount, we will use the Premium
Class as of the Policy Issue Date. For each Face Amount increase, we will use
the Premium Class and duration applicable to the increase. Current cost of
insurance rates will be determined by the Company based on our expectations as
to future mortality costs and expenses. However, these rates will never exceed
those shown in the Table of Guaranteed Maximum Cost of Insurance Rates Per $1000
of Net Amount At Risk shown in the Policy Schedule. If Death Benefit Option A is
in effect and there have been Face Amount increases, the Policy Account Value
will first be considered as part of the Initial Face Amount. If the Policy
Account Value exceeds the Initial Face Amount, it will be considered as a part
of the increases in Face Amount in the order of such increases.
OTHER DEDUCTIONS. We also make the following other deductions from the
Policy Account Value as they occur:
1. Charge for partial withdrawal of Net Cash Surrender Value;
2. Surrender charges if during the first 12 Policy Years or within 12
years of the effective date of an increase in Face Amount, you
surrender this policy for its Net Cash Surrender Value, reduce the
Face Amount of insurance, or this policy lapses at the end of a
Grace Period;
3. Charge to increase the Face Amount of insurance;
4. Charge for certain transfers of the Policy Account Value.
SURRENDERS AND WITHDRAWALS
SURRENDER FOR NET CASH SURRENDER VALUE. You may surrender this Policy for its
Net Cash Surrender Value at any time while the Insured is living. The Net Cash
Surrender Value of this Policy at any
Page 15
<PAGE> 17
time is equal to the Policy Account Value on such date less any Surrender Charge
and any Additional Surrender Charge, less any outstanding policy loan and
accrued interest. We will determine the Net Cash Surrender Value on the date we
receive your signed written surrender request at our Service Center. Coverage
under this Policy will end on the date you send the surrender request to us.
SURRENDER CHARGE. If you surrender this Policy for its Net Cash Surrender Value
during the first 12 Policy Years, or if this Policy lapses during the first 12
Policy Years, we will deduct a Surrender Charge from the Policy Account Value.
This Surrender Charge has two parts: the Deferred Administrative Charge and the
Deferred Sales Charge. The amounts of such charges are shown in the Policy
Schedule.
If you request a reduction in the Initial Face Amount during any of the first 12
Policy Years, we will deduct a pro rata Surrender Charge from the Policy Account
Value as of the effective date of such reduction. The amount of such pro rata
Surrender Charge will be the Surrender Charge multiplied by the amount of the
reduction in the Initial Face Amount divided by the Initial Face Amount as of
the effective date of such reduction.
We will allocate the pro rata Surrender Charge based on the proportion that your
Guaranteed Account Value and the value in your Subaccounts bear to the total
unloaned Policy Account Value.
ADDITIONAL SURRENDER CHARGE. If you surrender this Policy for its Net Cash
Surrender Value within 12 years of the effective date of an increase in Face
Amount or if this policy lapses within 12 years of the effective date of an
increase in Face Amount, we will deduct an Additional Surrender Charge from the
Policy Account Value. The Additional Surrender Charge has two parts: the
Deferred Additional Administrative Charge and the Deferred Additional Sales
Charge. The amount of such charge or charges will be shown in the Policy
Schedule pages issued when you increase the Face Amount.
If you request a reduction in Face Amount within 12 years of the effective date
of a Face Amount increase, we will deduct a pro rata Additional Surrender Charge
from the Policy Account Value as of the effective date of such reduction. The
amount of such pro rata Additional Surrender Charge will be the Additional
Surrender Charge applicable to the Face Amount increase multiplied by the amount
of reduction in the Face Amount increase divided by the amount of the Face
Amount increase as of the effective date of such reduction.
We will allocate the pro rata Additional Surrender Charge based on the
proportion that your Guaranteed Account Value and the value in your Subaccounts
bear to the total unloaned Policy Account Value.
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE. After the first Policy Year, you
may make a written request for a partial withdrawal of the Net Cash Surrender
Value, subject to the restrictions below and the minimum amount shown in the
Policy Schedule. As of the date we receive your request at our Service Center,
we will reduce the Policy Account Value by the amount withdrawn plus the expense
charge for a partial withdrawal shown in the Policy Schedule. If Death Benefit
Option A is in effect, we will reduce the Face Amount by such amount.
We will allocate the withdrawal and expense charge based on the proportion that
your Guaranteed Account Value and the value in your Subaccounts bear to the
total unloaned Policy Account Value or to the specified Subaccounts based on the
percentages you specify at the time of your withdrawal.
We reserve the right to decline your withdrawal request if: the Face Amount
would be reduced below the minimum amount for which we would then issue this
Policy under our rules; or we determine that the withdrawal would cause this
Policy to fail to qualify as life insurance under applicable tax laws, as
interpreted by us.
If we approve your request, we will issue revised Policy Schedule pages
reflecting the changes, if any. The revised pages will become a part of this
Policy. We may require you to return the Policy to make the change.
POLICY LOAN PROVISIONS
You may borrow from this Policy while it has a loan value. This Policy will be
the only security for the loan. Any policy loan must be for at least the minimum
amount shown in the Policy Schedule. The maximum amount which may be borrowed is
the Net Cash Surrender Value. We will allocate the loan based on the proportion
that your Guaranteed Account Value and the value of your Subaccounts bear to the
total
Page 16
<PAGE> 18
unloaned Policy Account Value or to the specified Subaccounts based on the
percentages you specify at the time of your loan.
The collateral for the loan will be the loan amount plus accrued interest to the
next Policy Anniversary less interest at 4% per annum which will be earned to
such Policy Anniversary. The collateral for the loan will be deducted from each
account and transferred to the Loan Account. The collateral for any existing
loan will be recalculated: (1) when loan interest is paid or treated as part of
the loaned amount; (2) when a loan repayment is made; and (3) when a new loan is
made.
EFFECT OF LOANS. A policy loan will have a permanent effect on your benefits
under this Policy, even if it is repaid. The loan amount which is transferred to
the Loan Account will be maintained separately.
INTEREST RATE CHARGED ON LOANS. We will charge interest on loans at the fixed
yearly rate of 6%. Loan interest is due at the end of each Policy Year. If you
do not pay the interest when it is due, we will add it to the outstanding loan.
The unpaid interest will then be treated as part of the loaned amount and bear
interest at the policy loan interest rate. We will allocate the unpaid interest
based on the percentages you specified for your last loan. If the value in the
specified Subaccounts is insufficient to allow the collateral for the unpaid
interest to be deducted or no percentages were specified by you, then we will
allocate the unpaid interest based on the proportion that your Guaranteed
Account Value and the value of your Subaccounts bear to the total unloaned
Policy Account Value.
LOAN INTEREST CREDITED. We will credit the Loan Account with interest at an
effective annual rate we determine. This rate will not be less than 4%. We will
determine such rate in advance of each calendar year. This rate will apply to
the calendar year which follows the date of determination. Loan interest
credited will be transferred to each of your accounts: (1) when loan interest is
paid or treated as part of the loaned amount; (2) when a loan repayment is made;
and (3) when a new loan is made.
LOAN REPAYMENTS. You may repay all or part of a policy loan at any time while
the Insured is alive and this Policy is in force. We will assume that any
payments made while there is an outstanding loan on this Policy is a loan
repayment, unless you tell us, in writing, that such is a premium payment.
Repayments will first be allocated to the accounts based on the allocation of
the outstanding loan from each account as of the date of repayment. Any
repayment in excess of the amount of the outstanding loan will be allocated
based on the amount of accrued interest for the outstanding loan.
Failure to repay a loan or pay loan interest will not cause this Policy to lapse
unless the Net Cash Surrender Value on the Policy Processing Day is less than
the monthly deduction due. In that event, the Grace Period provision will apply.
PAYMENT OPTIONS
Payments under these Options will not be affected by the investment experience
of any Subaccount after proceeds are applied under such Options.
Instead of being paid in one sum, the proceeds of this Policy may be paid under
one of the Options below.
OPTION 1 - PROCEEDS AT INTEREST. We will pay interest on the proceeds at 12, 6,
3 or 1 month intervals, as elected. The interest per interval for each $1,000 of
proceeds is shown in the table below:
<TABLE>
<CAPTION>
INTERVAL IN MONTHS AMOUNT OF INTEREST
------------------ ------------------
<S> <C>
12 $ 30.00
6 14.89
3 7.42
1 2.47
</TABLE>
OPTION 2 - INSTALLMENTS OF A SPECIFIED AMOUNT. We will pay the proceeds in equal
installments of the amount elected with our consent at 12, 6, 3, or 1 month
intervals. We will add interest on the balance of proceeds to such balance each
year. We will pay installments until the proceeds and interest are exhausted.
The last installment will be for the balance only of the proceeds and interest.
OPTION 3 - INSTALLMENTS FOR A SPECIFIED PERIOD. We will pay the proceeds in the
number of equal monthly installments certain set forth in the election. We will
base the amount of each installment on the Option 3 table. If so elected, the
installments may be paid at 12, 6 or 3 month intervals. The amount of each
installment in such case will be the product of the monthly installment and the
factor shown in the table below:
Page 17
<PAGE> 19
<TABLE>
<CAPTION>
FACTOR APPLIED TO
INTERVALS IN MONTHS MONTHLY INSTALLMENTS
------------------- --------------------
<S> <C>
12 11.839
6 5.963
3 2.993
</TABLE>
OPTION 4 - LIFE INCOME. We will use the proceeds to provide equal monthly
installments during the payee's life. We will pay the installments, as elected,
either without installments certain or with installments certain for 120 months,
for 240 months, or until the proceeds are refunded.
"Until the proceeds are refunded" means until the sum of the installments paid
by us equals the amount of proceeds settled under this Option. We will base the
amount of each installment on the Option 4 table.
OPTION 5 - JOINT AND SURVIVOR LIFE INCOME. We will use the proceeds to provide
equal monthly installments, with a number of installments certain, during the
joint lives of the payee and one other person and during the life of the
survivor.
We will pay the installments certain for either 120 or 240 months, as elected.
We will base the amount of each installment on the Option 5 table.
DATE OF FIRST PAYMENT. We will make the first payment under Option 1 at the end
of the first payment interval. We will make the first payment under Option 2, 3,
4 or 5 on the date on which the Option takes effect.
INTEREST. The interest rate underlying all of the above Options is 3% per
year. Additional interest may be declared each year by us. Such additional
interest will:
1. increase the interest payment under Option 1;
2. be added to the proceeds under Option 2; or
3. increase the installments certain under Option 3, 4 or 5.
WITHDRAWAL OR COMMUTATION. If expressly provided in the election of the
Option but not otherwise, the payee will have the right to:
1. withdraw all or part of the balance of the proceeds under Option 1
or 2; or
2. take in one sum the commuted value of any balance of the
installments certain under Option 3, 4, or 5.
Partial withdrawals will be subject to our published minimum amount limits in
effect at the time the Option is elected. Such commuted value will be based on
compound interest at a yearly rate of 3%. Under Option 4 or 5, no installments
other than installments certain may be commuted.
We may defer payment of the amount withdrawn or commuted for a period not
exceeding 6 months.
SETTLEMENT AT DEATH OF PAYEE. After the death of the payee (the survivor in the
case of Option 5), we will make payment as directed in the election of the
Option. Such direction is subject to our approval.
The amount subject to such payment will be:
1. any balance of proceeds, with accrued interest, under Option 1 or 2;
or
2. the value of any remaining installments certain under Option 3, 4 or
5.
Page 18
<PAGE> 20
OPTION 3-INSTALMENTS FOR A SPECIFIED PERIOD
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under
Option 3
<TABLE>
<CAPTION>
Monthly Installments Certain
----------------------------
No. Amount
--- ------
<S> <C>
12 $ 84.47
24 42.86
36 28.99
48 22.06
60 17.91
72 15.14
84 13.16
96 11.68
108 10.53
120 9.61
132 8.86
144 8.24
156 7.71
168 7.26
180 6.87
192 6.53
204 6.23
216 5.96
228 5.73
240 5.51
252 5.32
264 5.15
276 4.99
288 4.84
300 4.71
312 4.59
324 4.47
336 4.37
348 4.27
360 4.18
</TABLE>
OPTION 4-LIFE INCOME
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under
Option 4 Where the incomes are the same the longer certain period will apply.
<TABLE>
<CAPTION>
Number of Monthly Instalments
Certain
---------------------------------------------------------
Age of
Payee* Until
Proceeds
None 120 240 Are
M Refunded
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5** $ 2.81 $ 2.81 $ 2.81 $ 2.80
6 2.83 2.82 2.82 2.81
7 2.84 2.84 2.83 2.83
8 2.85 2.85 2.84 2.84
9 2.86 2.86 2.86 2.85
10 2.87 2.87 2.87 2.86
11 2.89 2.89 2.88 2.88
12 2.90 2.90 2.90 2.89
13 2.92 2.91 2.91 2.90
14 2.93 2.93 2.92 2.92
15 2.95 2.95 2.94 2.93
16 2.96 2.96 2.96 2.95
17 2.98 2.98 2.97 2.96
18 3.00 3.00 2.99 2.98
19 3.02 3.01 3.01 3.00
20 3.04 3.03 3.03 3.02
21 3.06 3.05 3.05 3.04
22 3.08 3.07 3.07 3.06
23 3.10 3.09 3.09 3.08
24 3.12 3.12 3.11 3.10
25 3.14 3.14 3.13 3.12
26 3.17 3.16 3.15 3.14
27 3.19 3.19 3.18 3.16
28 3.22 3.22 3.20 3.19
29 3.25 3.24 3.23 3.21
30 3.28 3.27 3.26 3.24
31 3.31 3.30 3.29 3.27
32 3.34 3.33 3.32 3.30
33 3.37 3.37 3.35 3.33
34 3.41 3.40 3.38 3.36
35 3.44 3.44 3.41 3.39
36 3.48 3.48 3.45 3.42
37 3.52 3.51 3.48 3.46
38 3.57 3.56 3.52 3.50
39 3.61 3.60 3.56 3.53
40 3.66 3.64 3.60 3.57
41 3.71 3.69 3.64 3.61
42 3.76 3.74 3.68 3.66
43 3.81 3.79 3.73 3.70
44 3.87 3.85 3.77 3.75
45 3.93 3.90 3.82 3.80
46 3.99 3.96 3.87 3.85
47 4.05 4.02 3.92 3.90
48 4.12 4.09 3.97 3.96
49 4.19 4.15 4.03 4.01
50 4.27 4.22 4.08 4.08
51 4.34 4.29 4.14 4.14
52 4.43 4.37 4.20 4.20
53 4.51 4.45 4.26 4.27
54 4.60 4.54 4.32 4.35
55 4.70 4.62 4.39 4.42
56 4.80 4.72 4.45 4.50
57 4.91 4.82 4.51 4.58
58 5.03 4.92 4.58 4.67
59 5.15 5.03 4.64 4.76
60 5.28 5.14 4.71 4.86
61 5.42 5.26 4.78 4.96
62 5.57 5.39 4.84 5.07
63 5.74 5.52 4.90 5.19
64 5.91 5.66 4.96 5.30
65 6.10 5.81 5.02 5.43
66 6.29 5.96 5.08 5.56
67 6.50 6.11 5.13 5.70
68 6.73 6.28 5.18 5.85
69 6.97 6.44 5.23 6.00
70 7.23 6.61 5.27 6.16
71 7.51 6.78 5.31 6.33
72 7.80 6.96 5.34 6.51
73 8.12 7.14 5.37 6.70
74 8.45 7.32 5.40 6.90
75 8.82 7.49 5.42 7.11
76 9.21 7.67 5.44 7.33
77 9.62 7.84 5.45 7.56
78 10.07 8.01 5.47 7.80
79 10.55 8.17 5.48 8.05
80 11.06 8.33 5.49 8.32
81 11.61 8.48 5.49 8.60
82 12.19 8.61 5.50 8.89
83 12.81 8.74 5.50 9.20
84 13.46 8.86 5.51 9.52
85+ 14.16 8.97 5.51 9.85
</TABLE>
<TABLE>
<CAPTION>
Number of Monthly Instalments
Certain
---------------------------------------------------------
Age of
Payee* Until
Proceeds
None 120 240 Are
F Refunded
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5** $ 2.75 $ 2.75 $ 2.75 $ 2.74
6 2.76 2.76 2.76 2.75
7 2.77 2.77 2.77 2.76
8 2.78 2.78 2.78 2.77
9 2.79 2.79 2.79 2.78
10 2.80 2.80 2.80 2.79
11 2.81 2.81 2.81 2.80
12 2.82 2.82 2.82 2.82
13 2.83 2.83 2.83 2.83
14 2.85 2.85 2.84 2.84
15 2.86 2.86 2.86 2.85
16 2.87 2.87 2.87 2.86
17 2.89 2.89 2.88 2.88
18 2.90 2.90 2.90 2.89
19 2.92 2.92 2.91 2.91
20 2.93 2.93 2.93 2.92
21 2.95 2.95 2.94 2.94
22 2.96 2.96 2.96 2.95
23 2.98 2.98 2.98 2.97
24 3.00 3.00 2.99 2.99
25 3.02 3.02 3.01 3.01
26 3.04 3.04 3.03 3.02
27 3.06 3.06 3.05 3.04
28 3.08 3.08 3.07 3.06
29 3.10 3.10 3.09 3.09
30 3.13 3.12 3.12 3.11
31 3.15 3.15 3.14 3.13
32 3.18 3.17 3.16 3.15
33 3.20 3.20 3.19 3.18
34 3.23 3.23 3.22 3.20
35 3.26 3.26 3.24 3.23
36 3.29 3.29 3.27 3.26
37 3.32 3.32 3.30 3.29
38 3.35 3.35 3.33 3.32
39 3.39 3.38 3.37 3.35
40 3.42 3.42 3.40 3.38
41 3.46 3.46 3.43 3.42
42 3.50 3.50 3.47 3.45
43 3.54 3.54 3.51 3.49
44 3.59 3.58 3.55 3.53
45 3.63 3.63 3.59 3.57
46 3.68 3.67 3.63 3.61
47 3.73 3.72 3.68 3.66
48 3.79 3.77 3.72 3.70
49 3.84 3.83 3.77 3.75
50 3.90 3.89 3.82 3.80
51 3.97 3.95 3.88 3.86
52 4.03 4.01 3.93 3.91
53 4.10 4.08 3.99 3.97
54 4.18 4.15 4.04 4.03
55 4.25 4.22 4.11 4.10
56 4.34 4.30 4.17 4.17
57 4.42 4.38 4.23 4.24
58 4.52 4.47 4.30 4.31
59 4.61 4.56 4.37 4.39
60 4.72 4.66 4.44 4.48
61 4.83 4.76 4.51 4.56
62 4.95 4.86 4.58 4.66
63 5.07 4.98 4.65 4.75
64 5.21 5.10 4.72 4.86
65 5.35 5.22 4.79 4.97
66 5.51 5.36 4.86 5.08
67 5.67 5.50 4.93 5.20
68 5.85 5.65 5.00 5.33
69 6.04 5.80 5.06 5.47
70 6.25 5.96 5.12 5.61
71 6.47 6.14 5.18 5.76
72 6.71 6.31 5.23 5.93
73 6.97 6.50 5.28 6.10
74 7.26 6.69 5.32 6.28
75 7.56 6.89 5.35 6.48
76 7.90 7.09 5.39 6.68
77 8.26 7.29 5.41 6.90
78 8.65 7.49 5.43 7.13
79 9.07 7.69 5.45 7.38
80 9.53 7.89 5.47 7.64
81 10.03 8.08 5.48 7.91
82 10.57 8.26 5.49 8.21
83 11.16 8.43 5.49 8.51
84 11.79 8.59 5.50 8.83
85+ 12.48 8.74 5.50 9.18
</TABLE>
*On birthday nearest to due date of first instalment.
**Ages 5 and under.
+Ages 85 and over.
Form SO-1980
Page 19
<PAGE> 21
OPTION 5-JOINT AND SURVIVOR LIFE INCOME
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under
Option 5
<TABLE>
<CAPTION>
WITH 120 MONTHLY INSTALMENTS CERTAIN
- -----------------------------------------------------------------------------------------------------------------------------
Age of Age of Payee*
Payee* FEMALE
---------------------------------------------------------------------------------------------------------------------
MALE 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.60 $3.63 $3.66 $3.69 $3.72 $3.75 $3.77 $3.80 $3.83 $3.85 $3.88 $3.90 $3.92 $3.95 $3.97
51 3.62 3.65 3.68 3.71 3.74 3.77 3.80 3.83 3.86 3.89 3.91 3.94 3.97 3.99 4.01
52 3.64 3.67 3.70 3.74 3.77 3.80 3.83 3.86 3.89 3.92 3.95 3.98 4.01 4.03 4.06
53 3.66 3.69 3.72 3.76 3.79 3.82 3.86 3.89 3.92 3.96 3.99 4.02 4.05 4.08 4.11
54 3.67 3.71 3.74 3.78 3.81 3.85 3.89 3.92 3.96 3.99 4.02 4.06 4.09 4.12 4.15
55 3.69 3.72 3.76 3.80 3.84 3.87 3.91 3.95 3.99 4.02 4.06 4.10 4.13 4.17 4.20
56 3.70 3.74 3.78 3.82 3.86 3.90 3.94 3.98 4.02 4.06 4.10 4.13 4.17 4.21 4.25
57 3.72 3.76 3.80 3.84 3.88 3.92 3.96 4.00 4.05 4.09 4.13 4.17 4.21 4.25 4.29
58 3.73 3.77 3.81 3.86 3.90 3.94 3.99 4.03 4.08 4.12 4.17 4.21 4.25 4.30 4.34
59 3.74 3.79 3.83 3.87 3.92 3.96 4.01 4.06 4.10 4.15 4.20 4.25 4.29 4.34 4.38
60 3.75 3.80 3.84 3.89 3.94 3.98 4.03 4.08 4.13 4.18 4.23 4.28 4.33 4.38 4.43
61 3.77 3.81 3.86 3.91 3.95 4.00 4.05 4.11 4.16 4.21 4.26 4.32 4.37 4.42 4.48
62 3.78 3.82 3.87 3.92 3.97 4.02 4.07 4.13 4.18 4.24 4.29 4.35 4.41 4.46 4.52
63 3.79 3.83 3.88 3.93 3.99 4.04 4.09 4.15 4.21 4.26 4.32 4.38 4.44 4.50 4.56
64 3.80 3.84 3.90 3.95 4.00 4.06 4.11 4.17 4.23 4.29 4.35 4.41 4.48 4.54 4.60
65 3.80 3.85 3.91 3.96 4.01 4.07 4.13 4.19 4.25 4.31 4.38 4.44 4.51 4.58 4.64
70 3.84 3.89 3.95 4.01 4.07 4.13 4.20 4.27 4.34 4.41 4.49 4.57 4.65 4.73 4.82
75 3.86 3.92 3.98 4.04 4.11 4.17 4.25 4.32 4.40 4.48 4.57 4.66 4.75 4.84 4.94
80 3.87 3.93 4.00 4.06 4.13 4.20 4.27 4.35 4.44 4.52 4.61 4.71 4.81 4.91 5.02
</TABLE>
<TABLE>
<CAPTION>
WITH 120 MONTHLY INSTALMENTS CERTAIN
- ----------------------------------------
Age of Age of Payee*
Payee* FEMALE
-----------------------------
MALE 65 70 75 80
- ----------------------------------------
<S> <C> <C> <C> <C>
50 $3.99 $4.08 $4.14 $4.18
51 4.04 4.13 4.20 4.25
52 4.08 4.19 4.27 4.32
53 4.13 4.25 4.34 4.40
54 4.18 4.31 4.41 4.48
55 4.23 4.37 4.48 4.56
56 4.28 4.44 4.56 4.64
57 4.33 4.50 4.64 4.73
58 4.38 4.57 4.72 4.82
59 4.43 4.64 4.80 4.92
60 4.48 4.71 4.89 5.02
61 4.53 4.77 4.98 5.12
62 4.58 4.84 5.07 5.23
63 4.62 4.91 5.16 5.34
64 4.67 4.98 5.25 5.45
65 4.71 5.05 5.35 5.57
70 4.91 5.36 5.81 6.18
75 5.05 5.62 6.23 6.78
80 5.14 5.79 6.54 7.27
</TABLE>
* On birthday nearest to due date of first instalment. The amount of the
monthly instalment for any combination of ages not shown in this table will
be furnished on request.
<TABLE>
<CAPTION>
WITH 240 MONTHLY INSTALMENTS CERTAIN
- -----------------------------------------------------------------------------------------------------------------------------
Age of Age of Payee*
Payee* FEMALE
---------------------------------------------------------------------------------------------------------------------
MALE 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.60 $3.63 $3.65 $3.68 $3.71 $3.73 $3.76 $3.79 $3.81 $3.84 $3.86 $3.88 $3.90 $3.92 $3.94
51 3.61 3.64 3.67 3.70 3.73 3.76 3.79 3.82 3.84 3.87 3.89 3.92 3.94 3.96 3.98
52 3.63 3.66 3.69 3.72 3.76 3.79 3.82 3.85 3.87 3.90 3.93 3.95 3.98 4.00 4.02
53 3.65 3.68 3.71 3.75 3.78 3.81 3.84 3.87 3.90 3.93 3.96 3.99 4.02 4.04 4.07
54 3.66 3.70 3.73 3.77 3.80 3.83 3.87 3.90 3.93 3.97 4.00 4.03 4.06 4.08 4.11
55 3.68 3.71 3.75 3.79 3.82 3.86 3.89 3.93 3.96 4.00 4.03 4.06 4.09 4.12 4.15
56 3.69 3.73 3.77 3.80 3.84 3.88 3.92 3.95 3.99 4.03 4.06 4.10 4.13 4.16 4.19
57 3.70 3.74 3.78 3.82 3.86 3.90 3.94 3.98 4.02 4.06 4.09 4.13 4.17 4.20 4.24
58 3.72 3.76 3.80 3.84 3.88 3.92 3.96 4.00 4.04 4.09 4.13 4.16 4.20 4.24 4.28
59 3.73 3.77 3.81 3.85 3.90 3.94 3.98 4.03 4.07 4.11 4.15 4.20 4.24 4.28 4.31
60 3.74 3.78 3.82 3.87 3.91 3.96 4.00 4.05 4.09 4.14 4.18 4.23 4.27 4.31 4.35
61 3.75 3.79 3.84 3.88 3.93 3.97 4.02 4.07 4.12 4.16 4.21 4.26 4.30 4.35 4.39
62 3.76 3.80 3.85 3.89 3.94 3.99 4.04 4.09 4.14 4.19 4.23 4.28 4.33 4.38 4.42
63 3.77 3.81 1.86 3.91 3.95 4.00 4.05 4.10 4.16 4.21 4.26 4.31 4.36 4.41 4.46
64 3.77 3.82 3.87 3.92 3.97 4.02 4.07 4.12 4.17 4.23 4.28 4.33 4.39 4.44 4.49
65 3.78 3.83 3.88 3.93 3.98 4.03 4.08 4.14 4.19 4.25 4.30 4.36 4.41 4.46 4.52
70 3.81 3.86 3.91 3.96 4.02 4.07 4.13 4.19 4.25 4.31 4.38 4.44 4.50 4.57 4.63
75 3.82 3.87 3.92 3.98 4.03 4.09 4.16 4.22 4.28 4.35 4.42 4.48 4.55 4.62 4.69
80 3.82 3.87 3.93 3.98 4.04 4.10 4.16 4.23 4.29 4.36 4.43 4.50 4.57 4.64 4.71
</TABLE>
<TABLE>
<CAPTION>
WITH 240 MONTHLY INSTALMENTS CERTAIN
- ----------------------------------------
Age of Age of Payee*
Payee* FEMALE
-----------------------------
MALE 65 70 75 80
- ----------------------------------------
<S> <C> <C> <C> <C>
50 $3.96 $4.03 $4.06 $4.08
51 4.00 4.08 4.12 4.14
52 4.05 4.13 4.17 4.19
53 4.09 4.18 4.23 4.25
54 4.13 4.23 4.29 4.31
55 4.18 4.29 4.35 4.38
56 4.22 4.34 4.41 4.44
57 4.27 4.40 4.47 4.50
58 4.31 4.45 4.53 4.57
59 4.35 4.50 4.59 4.63
60 4.39 4.55 4.65 4.69
61 4.43 4.61 4.71 4.76
62 4.47 4.66 4.77 4.82
63 4.50 4.70 4.83 4.88
64 4.54 4.75 4.88 4.94
65 4.57 4.79 4.93 5.00
70 4.69 4.97 5.15 5.24
75 4.76 5.07 5.28 5.38
80 4.78 5.11 5.33 5.44
</TABLE>
* On birthday nearest to due date of first instalment. The amount of the
monthly instalment for any combination of ages not shown in this table will
be furnished on request.
Form SO-1980
Page 20
<PAGE> 22
ENDORSEMENTS
A GUIDE TO THE PROVISIONS OF THIS POLICY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Allocations and Transfers ............................................ 13
Calculation of Values ................................................ 14
Death Benefit Provisions ............................................. 9
Definitions .......................................................... 7
General Provisions ................................................... 7
Payment Options ...................................................... 17
Policy Description ................................................... 2
Policy Loan Provisions ............................................... 16
Policy Owner & Beneficiary Provisions ................................ 9
Policy Schedule & Specifications ..................................... 3
Premium Expense Charge ............................................... 12
Premium Payment Provisions ........................................... 11
The Separate Account ................................................. 12
Surrenders and Withdrawals ........................................... 15
</TABLE>
<PAGE> 23
Flexible Premium Adjustable Variable Life Insurance Policy.
Insurance Proceeds payable upon death before Final Policy Date.
Policy Account Value payable on Final Policy Date.
Adjustable Death Benefit.
Values provided by this Policy are based on declared interest rates of the
Guaranteed and Loan Accounts and on the investment experience of the
Subaccounts.
Non-participating
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
300 Continental Drive, Newark, DE 19713
<PAGE> 1
1.A.5.b
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
RIDER
ADDITIONAL INSURANCE BENEFIT
POLICY NUMBER RIDER ISSUE DATE
This Rider is attached to and made part of this Policy.
The Company will pay the Beneficiary the Death Benefit for this Rider upon
receipt of due proof of the Insured's death on or before the Expiry Date of this
Rider, subject to the terms and conditions set forth below. Unless otherwise
provided, the Owner and Beneficiary of this Rider are the same as the Owner and
Beneficiary of the Policy to which this Rider is attached.
INSURED. The Insured must be the same person covered under the Policy to which
this Rider is attached.
COVERAGE AMOUNT. The Coverage Amount is shown on page 3 of the Policy Schedule,
and will remain level until the Expiry Date, or until increased or decreased at
the request of the Owner.
EXPIRY DATE. The Expiry Date of this Rider is the Policy Anniversary nearest age
100 of the Insured or the maturity date of the Policy to which it is attached,
whichever occurs first.
DEATH BENEFIT. The Death Benefit for this Rider is determined as follows:
1. If Death Benefit Option A is in effect, the Death Benefit for this Rider is
the Policy's Face Amount plus the Rider's Coverage Amount less the Policy's
Death Benefit.
2. If Death Benefit Option B is in effect, the Death Benefit for this Rider is
the Policy's Face Amount plus the Rider's Coverage Amount plus the Policy
Account Value less the Policy's Death Benefit.
COST. The cost of insurance for this Rider is included in the monthly deductions
for the Policy to which this Rider is attached. It is determined by multiplying
the monthly cost of insurance rate by the Rider's Death Benefit divided by
1,000. The monthly deduction for this Rider will cease upon the termination of
this Rider.
The monthly cost of insurance rate is based on the Sex, Issue Age and Rider
Class of the Insured and the Rider's duration. Monthly cost of insurance rates
will be determined by us, based on our expectations as to future mortality costs
and expenses. Any change in cost of insurance rates will be in accordance with
the Changes In Policy Cost Factors Provision of the Policy. The cost of
insurance rates will never be greater than the Guaranteed Monthly Rider Cost Per
$1,000 of Death Benefit shown in the Policy Schedule. Guaranteed maximum rates
are based on the 1980
<PAGE> 2
Commissioners' Standard Ordinary Nonsmoker or Smoker Mortality Table, Age
Nearest Birthday plus any special risk factors for any extra rating.
COST OF DISABILITY WAIVER BENEFIT. If the Policy to which this Rider is attached
has a Disability Waiver Benefit rider, there will be an additional cost on each
Policy Processing Day. The additional cost will be determined by multiplying the
Rate Factor for the Insured's Attained Age by the Death Benefit of this Rider
divided by 1,000.
CHANGE FROM DEATH BENEFIT OPTION A TO OPTION B. If you request a change from
Option A to Option B, we will decrease the Policy's Face Amount and then the
Rider's Coverage Amount by the Policy Account Value. The decrease will be in the
following order:
1. the Face Amount of the Policy;
2. the Coverage Amount of the Rider.
We reserve the right to decline to make such change if it would reduce the
Policy's Face Amount or the Rider's Coverage Amount below the minimum amount for
which we would then issue this Policy or this Rider under our rules.
PARTIAL WITHDRAWALS. The Partial Withdrawal of the Net Cash Surrender Value
provision of the Policy to which this Rider is attached, is modified as follows:
If Death Benefit Option A is in effect, we will decrease the Policy's Face
Amount and then the Rider's Coverage Amount by the amount withdrawn plus the
expense charge for a Partial Withdrawal. The decrease will be in the following
order:
1. the Face Amount of the Policy;
2. the Coverage Amount of the Rider.
CHANGE IN COVERAGE AMOUNT. After the first Policy Year, the Coverage Amount of
this Rider may be increased or decreased upon request of the Owner and approval
of the Company, while this Rider is in force. Any change will be effective as of
the next Policy Processing Day following the date we approve your written
request, provided we have received any premium required for the change.
You may request a change by completing an application for change. A copy of such
application will be attached to new Policy Schedule pages which will be issued
when the change is approved. The application for change and new Policy Schedule
pages will become part of the Policy to which this Rider is attached. We may
require you to return the Policy to make the change.
Coverage Amount Increase. You may request a Coverage Amount increase subject to
the following:
1. you must provide evidence satisfactory to the Company of the Insured's
insurability in the same or better Rider Class in which this Rider was
issued;
2. the Insured's Attained Age must be 75 years or less;
3. you may not have increased the Coverage Amount of this Rider in the
prior 12-month period;
4. the amount of the increase must be at least $25,000,
5. we reserve the right to charge a reasonable fee for this transaction.
Coverage Amount Decrease. You may request a Coverage Amount decrease subject to
the following:
1. the Coverage Amount after the decrease is not less than the minimum
amount for which we would then issue this Rider under our rules; and
2. the amount of the decrease must be at least $25,000.
<PAGE> 3
TERMINATION. This Rider will terminate:
1. upon written request;
2. upon prior surrender or other termination of the Policy to which it is
attached; or
3. on its Expiry Date.
Attached by the Company on the issue date of this Rider.
President
<PAGE> 1
1.A.5.d
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
RIDER
CHILDREN'S TERM INSURANCE
POLICY NUMBER RIDER ISSUE DATE
The Company will pay the Death Benefit for an Insured Child to the beneficiary
specified below, upon receipt of due proof of the death of such Insured Child
while this Rider is in force, subject to the terms and conditions of this Rider.
DEATH BENEFIT. The Death Benefit on each Insured Child under this Rider is the
amount of insurance in force on that child's life on the date of death. Each
Insured Child will be covered for the same amount of insurance.
The amount of insurance on each Insured Child is shown on page 3 of the
Policy. Such insurance will cease to be in force on the Expiry Date or the
termination of this Rider, if earlier.
EXPIRY DATE. The Expiry Date of insurance under this Rider is the earlier of:
1. the Policy Anniversary nearest the Insured's 65th birthday; or
2. an Insured Child's attainment of age 25.
DEFINITIONS. "INSURED" means the person named as the Insured on page 3 of the
Policy, and does not mean an Insured Child.
"INSURED CHILD" means:
1. any child, stepchild or legally adopted child of the Insured, provided
such child is named in the application for this Rider and on the date
of such application has not reached his or her 18th birthday; and
2. any child who, after the date of such application, is:
a. born to the Insured; or
b. legally adopted by the Insured before such child's 18th
birthday.
In no case, however, will any child born or adopted after the date of such
application be deemed to be an Insured Child before attaining the age of 15
days.
OWNER. The Owner of this Rider, unless otherwise provided, is:
1. the Insured, during his or her lifetime; and
<PAGE> 2
2. after the death of the Insured, each surviving Insured Child, with
respect to any term insurance in force on his or her own life.
The Owner may exercise all rights granted by this Rider.
BENEFICIARY. Unless changed by the Owner, the beneficiary entitled to receive
any Death Benefit payable at the death of an Insured Child will be:
1. the Insured, if then living; otherwise
2. the executor or administrator of such Insured Child.
The Owner of any insurance under this Rider may change the beneficiary of such
insurance by Written Request while the Owner and the Insured Child are living.
This change must be filed at our Home Office. The change will take effect as of
the date the request is signed, even if the Insured Child or the Owner dies
before the Company receives it. Each change will be subject to any payment or
other action taken by the Company before receiving the request.
Any reference in any beneficiary designation to a beneficiary living will
mean, unless otherwise provided, living at the death of the Insured Child.
PAID-UP TERM INSURANCE ON INSURED CHILD. If the Insured dies while this Rider is
in force, except as set forth in the "Suicide Exclusion" clause of this Rider,
any term insurance provided by this Rider on the life of an Insured Child will
become fully paid-up. Such insurance will continue in force without further
payment of premium until its Expiry Date.
CASH VALUE OF PAID-UP TERM INSURANCE. Any paid-up term insurance in force on the
life of the Insured Child may be surrendered upon Written Request at any time
for its cash value. The amount of cash value available will be provided on
request.
The cash value of any paid-up term insurance at the end of a Policy Year will
be the net single premium for such insurance at the Attained Age of the Insured.
The cash value will be computed on the basis of the Commissioners 1980 Standard
Ordinary Mortality Table, curtate functions and interest at the yearly rate of 4
1/2%. The cash value at any time during a Policy Year will be determined by the
Company with due allowance for the time elapsed in such year.
CONVERSION OF TERM INSURANCE AT EXPIRY. On its Expiry Date, any term insurance
in force on the life of an Insured Child may be converted, without evidence of
insurability, to a policy on the life of such Insured Child, subject to the
following:
1. Written Request must be made within the 90 day period ending on the
Expiry Date of the term insurance under this Rider.
2. The policy may be any life plan which has a level face amount and a
level premium. It must also be one which, on that date, is customarily
issued by the Company at the then Attained Age of the Insured Child and
for the amount applied.
3. The face amount of the policy on the life of an Insured Child may not
be for more than 5 times the amount of term insurance in force under
this Rider on its Expiry Date.
4. The Issue Date of the policy will be the Expiry Date of the term
insurance under this Rider. It will take effect only upon payment to
the Company of the first premium no later than such Issue Date and
while the Insured Child is still living.
5. The policy will be:
a. a life plan in use by the Company on its Issue Date;
b. at the premium rate then in use based on the age of the
Insured Child at his or her birthday nearest that date; and
c. in the standard premium classification.
<PAGE> 3
6. A Rider for benefits in event of disability or accidental death may be
included in the policy only with the consent of and evidence of
insurability satisfactory to the Company.
SUICIDE EXCLUSION. If, within two years from the Rider Issue Date, an Insured
Child commits suicide, while sane or insane, the Death Benefit for such Insured
Child will not be payable. The Insured will have the option to continue coverage
under this Rider on other Insured Children, or request the return of all
premiums paid for this Rider. Any election must be made within 30 days after the
date of such Insured Child's death.
If, within two years from the Rider Issue Date, the Insured commits suicide,
while sane or insane, the Company will refund the sum of all premiums paid for
this Rider. After such death of the Insured, this Rider and all insurance under
it will cease to be in force.
MISSTATEMENT OF AGE. If the Insured's age has been misstated, the correct age
will be used to determine the termination date of this Rider.
If the age of an Insured Child has been misstated, the correct age of such
child will be used to determine:
1. whether such child is an Insured Child; and
2. the Expiry Date of any term insurance on such child's life.
INCONTESTABILITY. The Company will not contest this Rider as to the insurance
provided on the life of any person insured under it after it has been in force
during the lifetime of such person for 2 years from the Rider Issue Date.
REINSTATEMENT. If the Policy is reinstated prior to the termination of this
Rider, this Rider may be included in the reinstated Policy:
1. upon evidence satisfactory to the Company of the insurability of each
person who would be insured under this Rider upon its reinstatement;
and
2. if all past due premiums are paid with interest at the yearly rate of
6%.
Failure to furnish evidence satisfactory to the Company of the insurability of
any child will not prevent reinstatement of this Rider; however, any child for
whom such evidence is not furnished will not be covered under this Rider upon
reinstatement. Upon reinstatement there shall be no liability with respect to
the death of any Insured Child which may have occurred while the Policy and this
Rider were not in force.
COST OF RIDER. The monthly cost of this Rider is determined by the Death Benefit
divided by 1,000 multiplied by 0.52. The monthly cost will be deducted from the
Policy Account Value on each Policy Processing Day.
TERMINATION. This Rider will terminate:
1. on the first Policy Processing Day after we receive Written Request for
termination;
2. on the date of surrender or other termination of this Policy; or
3. on the Policy Anniversary nearest the Insured's 65th birthday.
No monthly deduction for the cost of this Rider will be made after
termination.
Attached by the Company on the Rider Issue Date.
President
<PAGE> 1
1.A.5.g
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
RIDER
DISABILITY WAIVER BENEFIT
INSURED
POLICY NUMBER RIDER ISSUE DATE
This Rider is attached to and is a part of this Policy.
WAIVER OF PREMIUM BENEFIT. Upon receipt of due proof that:
(a) the Insured is totally disabled, as defined below;
(b) such total disability begins while this rider is in effect; and
(c) such total disability has continued without pause for a period of six
months,
we will apply a premium payment to the Policy on each Policy Processing Day
during the first five Policy Years, while the Insured is totally disabled,
subject to provisions of this Policy. For each Policy Processing Day that occurs
while the Insured is totally disabled but before we approve a claim, we will
apply a premium payment to the Policy on the date we approve the claim. Each
premium payment will equal the Minimum Annual premium divided by 12.
WAIVER OF MONTHLY DEDUCTIONS BENEFIT. Upon receipt of due proof that:
(a) the Insured is totally disabled, as defined below;
(b) such total disability begins while this rider is in effect; and
(c) such total disability has continued without pause for a period of six
months,
we will waive monthly deductions falling due after the first five Policy Years
while the Insured is totally disabled, subject to the provisions of this Policy.
Except for monthly deductions made one year or more before we receive written
notice and proof of a claim, monthly deductions which are made after the first
five Policy Years while the Insured is totally disabled but before we approve a
claim, will be added back to the Policy Account Value. The amount will be
allocated to the Subaccounts and Guaranteed Account in the same proportion as it
was deducted from such Accounts.
<PAGE> 2
DEFINITION OF TOTAL DISABILITY.
1. Total Disability. Total Disability is a disability which:
(a) is caused by sickness or bodily injury; and
(b) prevents the Insured from engaging in an occupation.
During the first 5 years of total disability, "occupation" means the
regular occupation of the Insured at the time the disability started. However,
the Insured will not be deemed totally disabled if, during this 5-year period,
he or she is engaged in any gainful occupation for which he or she is qualified.
After the first 5 years of total disability, "occupation" means any gainful
occupation for which the Insured is qualified.
As used in this Rider the word "qualified" means qualified by education,
training and experience. "Disability" means the inability of the Insured to
engage in his or her regular occupation or any gainful occupation for which he
or she is qualified.
1. Recurrent Total Disability. If, after a total disability has stopped, a total
disability due to the same or a related cause recurs, it will be deemed a
continuation of the prior period of total disability, except that: if the
Insured has engaged in the meantime, for at least 6 months without pause, in any
gainful occupation for which he or she is qualified, such recurrence will be
deemed a new period of total disability.
2. Presumptive Total Disability. Total disability also means the total and
irrecoverable loss of:
(a) the sight of both eyes;
(b) the use of both hands;
(c) the use of both feet; or
(d) the use of one hand and one foot.
NOTICE AND PROOF OF TOTAL DISABILITY. Written notice and due proof of total
disability must be given to us at our Service Center while the Insured is living
and totally disabled. Failure to give such notice and proof will not void the
claim if it is shown that they were given as soon as was reasonably possible.
We may ask for proof of continued total disability from time to time. Such proof
will not be required more than once a year after total disability has continued
for two full years. As part of any such proof, we may require medical
examinations of the Insured by physicians named by us.
EXCLUSIONS FROM COVERAGE. We will not waive monthly deductions if the total
disability was the result of:
1. intentional, self-inflicted injury while sane or insane;
2. bodily injury occurring or sickness first manifesting itself before this
Rider took effect unless such injury or sickness was shown in the application
for this Rider; or
3. service in the military, naval or air forces of any country engaged in war.
"War" means declared or undeclared war and any act incidental to war and
includes resistance to armed aggression.
COST OF RIDER. The cost of this Rider is determined on each Policy Processing
Day by multiplying the Rate Factor for the Insured's Attained Age by the net
amount at risk divided by 1,000.
<PAGE> 3
If the Insured is in a Special Premium Class, the rate factor shown below will
be multiplied by the Risk Factor.
<TABLE>
<CAPTION>
ATTAINED AGE RATE FACTOR
------------ -----------
<S> <C>
15-45 .01
46-48 .02
49-50 .03
51 .04
52 .05
53 .07
54 .09
55 .13
56 .18
57 .24
58 .32
</TABLE>
TERMINATION. This Rider will automatically terminate:
1. on the date of surrender or other termination of this Policy;
2. on the first Policy Processing Day after we receive your written request for
termination of this Rider;
3. at Insured's Attained Age 60, except for benefits for a disability which
began before that Policy Anniversary.
No monthly deduction for the cost of this Rider will be made after termination.
INCONTESTABILITY. The Company will not contest this rider after it has been in
force during the Insured's lifetime without the occurrence of total disability
for two years from the Rider Issue Date.
EFFECTIVE DATE. The Effective Date of this Rider is the Rider Issue Date shown
above.
Signed for the Company on the Rider Issue Date.
President
<PAGE> 1
1.A.5.h
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
RIDER
DISABILITY WAIVER OF PREMIUM BENEFIT
INSURED POLICY NUMBER
RIDER ISSUE DATE
This Rider is attached to and is a part of this Policy.
WAIVER OF PREMIUM BENEFIT. Upon receipt of due proof that:
1. the Insured is totally disabled, as defined below;
2. such total disability begins while this rider is in effect;
3. such total disability has continued without pause for a period of 180
days; and
4. such total disability started between Attained Age 5 and Attained Age
60;
we will apply a premium payment to the Policy on each Policy Processing Day
prior to the Policy Anniversary when the Insured reaches Attained Age 65, while
the Insured is totally disabled, subject to the provisions of this Policy. For
each Policy Processing Day that occurs while the Insured is totally disabled but
before we approve a claim, we will apply a premium payment to the Policy on the
date we approve the claim. However, no premium payment will be applied for a
Policy Processing Day that is more than one year prior to the date we receive
written notice and proof of claim. The amount of each premium payment will equal
the lesser of:
1. the Disability Premium Benefit Amount shown in the Policy Schedule; or
2. an amount equal to: the sum of all premiums paid for this Policy less
any Partial Withdrawals of Net Cash Surrender Value; divided by the
number of completed months since the Policy Date. This amount will be
determined as of the date that total disability began.
Any premium payment that would cause this Policy to fail to qualify as life
insurance under applicable tax laws, as interpreted by us, will be paid to the
Owner.
The amount of the premium payments applied may not always be sufficient to keep
this Policy in force during the period of the Insured's total disability.
REDUCTION OF DISABILITY PREMIUM BENEFIT AMOUNT. If there is a change in the
Policy Face Amount or the Death Benefit Option which reduces the guideline
annual premium, as defined in Section 7702 of the Internal Revenue Code, as
amended, we reserve the right to reduce the Disability Premium Benefit Amount to
one-twelfth of the "guideline annual premium" if it exceeds such amount. Such
<PAGE> 2
reduction will only be made if the Insured is not then totally disabled. The
cost of this Rider will also be reduced at such time.
DEFINITION OF TOTAL DISABILITY.
TOTAL DISABILITY. Total Disability is a disability which:
1. is caused by sickness or bodily injury; and
2. prevents the Insured from engaging in an occupation. During the first 5
years of total disability, "occupation" means the regular occupation of
the Insured at the time the disability started. However, the Insured
will not be deemed totally disabled if, during this 5-year period, he
or she is engaged in any gainful occupation for which he or she is
qualified. After the first 5 years of total disability, "occupation"
means any gainful occupation for which the Insured is qualified.
As used in this rider the word "qualified" means qualified by education,
training and experience. "Disability" means the inability of the Insured to
engage in his or her regular occupation or any gainful occupation for which he
or she is qualified.
RECURRENT TOTAL DISABILITY. If, after a total disability has stopped, a total
disability due to the same or a related cause recurs, it will be deemed a
continuation of the prior period of total disability, except that: if the
Insured has engaged in the meantime, for at least 6 months without pause, in any
gainful occupation for which he or she is qualified, such recurrence will be
deemed a new period of total disability.
PRESUMPTIVE TOTAL DISABILITY. Total disability also means the total and
irrecoverable loss of:
1. the sight of both eyes;
2. the use of both hands;
3. the use of both feet; or
4. the use of one hand and one foot.
NOTICE AND PROOF OF TOTAL DISABILITY. Written notice and due proof of total
disability must be given to us at our Service Center while the Insured is living
and totally disabled. Failure to give such notice and proof will not void the
claim if it is shown that they were given as soon as was reasonably possible.
We may ask for proof of continued total disability from time to time. Such proof
will not be required more than once a year after total disability has continued
for two full years. As part of any such proof, we may require medical
examinations of the Insured by physicians named by us.
EXCLUSIONS FROM COVERAGE. We will not apply any premium payments if the total
disability was the result of:
1. intentional, self-inflicted injury while sane or insane;
2. bodily injury occurring or sickness first manifesting itself before
this rider took effect unless such injury or sickness was shown in the
application for this rider; or
3. service in the military, naval or air forces of any country engaged in
war. "War" means declared or undeclared war and any act incidental to
war and includes resistance to armed aggression.
COST OF RIDER. The monthly cost of this rider is shown in the Policy Schedule.
The monthly cost will be deducted from the Policy Account Value on each Policy
Processing Day.
TERMINATION. This Rider will automatically terminate:
1. on the date of surrender or other termination of this Policy;
2. on the first Policy Processing Day after we receive your written
request for termination of this Rider;
3. at Insured's Attained Age 60, except for benefits for a disability
which began before that Policy Anniversary.
<PAGE> 3
No monthly deduction for the cost of this Rider will be made after termination.
INCONTESTABILITY. The Company will not contest this Rider after it has been in
force during the Insured's lifetime without the occurrence of total disability
for two years from the Rider Issue Date.
EFFECTIVE DATE. The Effective Date of this rider is the Rider Issue Date shown
above.
Signed for the Company on the Rider Issue Date.
President
<PAGE> 1
Exhibit 3
[PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA LETTERHEAD]
March 4, 1999
Board of Directors
Providentmutual Life and Annuity
Company of America
300 Continental Drive
Newark, Delaware 19613
RE: PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT
FILE NOS. 333-67775/811-8722
---------------------------------------------------
Directors:
I have acted as legal officer to Providentmutual Life and Annuity
Company of America (the Company) and Providentmutual Variable Life Separate
Account (the Account) in connection with the registration of an indefinite
amount of securities in the form of variable life insurance policies (the
"Policies") with the Securities and Exchange Commission under the Securities Act
of 1933, as amended. I have examined such corporate records and other documents,
including pre-effective amendment number one to the Form S-6 registration
statement for the Policies (File No. 333-67775) and reviewed such questions of
law as I considered necessary and appropriate, and on the basis of such
examination and review, it is my opinion that:
1. The Company is a corporation duly organized and validly
existing as a stock life insurance company under the laws of
the State of Delaware and is duly authorized by the Department
of Insurance of the State of Delaware to issue the Policies.
2. The Account is a segregated asset account duly established and
maintained by the Company pursuant to the provisions of
Section 2932 of the Delaware Insurance Code.
3. The assets of the Account are and will be owned by the
Company. To the extent so provided under the Policies, that
portion of the assets of the Account equal to the reserves and
other contract liabilities with respect to the Account will
not be chargeable with liabilities arising out of any other
business that the Company may conduct.
4. The Policies have been duly authorized by the Company and,
when issued as contemplated by the registration statement for
the Policies in jurisdictions authorizing such sales, will
constitute legal, validly issued and binding obligations of
the Company.
<PAGE> 2
I hereby consent to the filing of this opinion as an exhibit to the
Form S-6 registration statement for the Policies and the Account.
Sincerely,
/s/ James G. Potter, Jr.
James G. Potter, Jr.
Director, Secretary and Legal Officer
<PAGE> 1
Exhibit 6
[PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA LETTERHEAD]
March 2, 1999
Board of Directors
Providentmutual Life and Annuity
Company of America
300 Continental Drive
Newark, Delaware 19613
RE: PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT
FILE NOS. 333-67775/811-8722
---------------------------------------------------
Directors:
In my capacity as actuary to Providentmutual Life and Annuity Company
of America (the "Company"), I have provided actuarial advice concerning and
participated in the design of the Company's flexible premium variable life
insurance policies (the "Policies"). I have also provided actuarial advice
concerning the preparation of pre-effective amendment number one to the Form S-6
registration statement for the Policies (File No. 333-67775) and Providentmutual
Variable Life Separate Account (the "Account") in connection with the
registration of an indefinite amount of securities in the form of such Policies
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended.
It is my professional opinion that:
1. The illustrations of death benefits, policy account values,
net cash surrender values and accumulated premiums in Appendix
A of the prospectus included in the registration statement for
the Policies (the "Prospectus"), based on the assumptions
stated in the illustrations, are consistent with the
provisions of the Policies. The rate structure of the Policies
has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustrations, appear
correspondingly more favorable to prospective purchasers of
Policies age 40 in the underwriting classes illustrated than
to prospective purchasers of Policies at other ages and
underwriting classes.
2. The Prospectus information contained in (a) the examples
illustrating the calculation of death benefits under different
death benefit options, (b) the examples illustrating the
effects of death benefit option changes on pages 19 and 20,
and (c) the examples of the effect of a partial withdrawal on
pages 29 and 30, are consistent with the provisions of the
Policies.
<PAGE> 2
I hereby consent to the filing of this opinion as an exhibit to the
Form S-6 registration statement for the Policies and the Account.
Sincerely,
/s/ Scott Carney
Scott Carney, FSA, MAAA
Actuary
<PAGE> 1
Exhibit 7.A
[SUTHERLAND ASBILL & BRENNAN LETTERHEAD]
March 2, 1999
Board of Directors
Providentmutual Life and Annuity
Company of America
300 Continental Drive
Newark, DE 19713
Directors:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus for certain flexible premium variable life insurance
policies filed as part of pre-effective amendment number 1 to the registration
statement on Form S-6 for Providentmutual Variable Life Separate Account (File
No. 333-67775). In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ David S. Goldstein
-----------------------------
David S. Goldstein
<PAGE> 1
Exhibit 7.B
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, in this Pre-Effective Amendment Number 1 to
the Registration Statement under the Securities Act of 1933, as amended, filed
on Form S-6 (File No. 333-67775) for the Providentmutual Variable Life Separate
Account, of the following reports:
1. Our report dated February 5, 1999 on our audits of the financial
statements of Providentmutual Life and Annuity Company of America as of
December 31, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998.
2. Our report dated February 26, 1999 on our audits of the financial
statements of the Providentmutual Variable Life Separate Account
(comprising twenty-eight subaccounts) as of December 31, 1998 and for
each of the three years in the period ended December 31, 1998.
We also consent to the reference to our Firm under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
March 3, 1999
