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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 2000
FILE NO. 333-10321
811-8722
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 4
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PROVIDENTMUTUAL VARIABLE LIFE
SEPARATE ACCOUNT
(EXACT NAME OF REGISTRANT)
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
(NAME OF DEPOSITOR)
300 CONTINENTAL DRIVE
NEWARK, DE 19713
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 452-4000
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<S> <C>
COPY TO:
JAMES G. POTTER, JR., ESQ. STEPHEN E. ROTH, ESQ.
PROVIDENTMUTUAL LIFE INSURANCE COMPANY SUTHERLAND ASBILL & BRENNAN LLP
1000 CHESTERBROOK BOULEVARD 1275 PENNSYLVANIA AVENUE, N.W.
BERWYN, PA 19312 WASHINGTON, D.C. 20004-2415
(NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
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It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) of Rule 485
Title of Securities Being Registered:
Interests in Flexible Premium Adjustable Survivorship Variable Life Insurance
Policies
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<PAGE> 2
PROSPECTUS
FOR
FLEXIBLE PREMIUM
ADJUSTABLE SURVIVORSHIP VARIABLE
LIFE INSURANCE POLICY
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
<TABLE>
<S> <C>
LOGO
PLACA SURVIVOR
OPTIONSVL PROVIDENTMUTUAL LIFE AND ANNUITY
FORM 16099 5.00 COMPANY OF AMERICA
</TABLE>
<PAGE> 3
PROSPECTUS
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
SERVICE CENTER: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19173
CORPORATE HEADQUARTERS: 1000 CHESTERBROOK BOULEVARD, BERWYN, PENNSYLVANIA 19312
TELEPHONE: (302) 452-4000
This Prospectus describes a flexible premium adjustable survivorship
variable life insurance policy (the "Policy") offered by Providentmutual Life
and Annuity Company of America ("PLACA"). The Policy has an insurance component
and an investment component. The primary purpose of the Policy is to provide
insurance coverage until the younger Attained Age 100. The Policy gives the
policyowner (the "Owner") the right to vary the frequency and amount of premium
payments, to choose among investment alternatives with different investment
objectives and to decrease the death benefit payable under the Policy.
After certain deductions are made, Net Premiums are allocated to one or
more Subaccounts of the Providentmutual Variable Life Separate Account, or the
Guaranteed Account, or both. The Providentmutual Variable Life Separate Account
has twenty-seven 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. STRONG VARIABLE
- ------------------------------------------ INSURANCE FUNDS, INC.
- All Pro Large Cap Growth Portfolio ------------------------------------------
- All Pro Large Cap Value Portfolio - Strong Mid Cap Growth Fund II
- All Pro Small Cap Growth Portfolio ------------------------------------------
- All Pro Small Cap Value Portfolio
- Equity 500 Index Portfolio ------------------------------------------
- International Portfolio VARIABLE INSURANCE
- Growth Portfolio PRODUCTS FUND
- Aggressive Growth Portfolio ------------------------------------------
- Managed Portfolio - Equity-Income Portfolio
- Bond Portfolio - Growth Portfolio
- Money Market Portfolio - High Income Portfolio
- ------------------------------------------ - Overseas Portfolio
------------------------------------------
- ------------------------------------------
THE ALGER AMERICAN FUND ------------------------------------------
- ------------------------------------------ VARIABLE INSURANCE
- Small Capitalization Portfolio PRODUCTS FUND II
- ------------------------------------------ ------------------------------------------
- Asset Manager Portfolio
- ------------------------------------------ - Contrafund(R) Portfolio
NEUBERGER BERMAN - Investment Grade Bond Portfolio
ADVISERS MANAGEMENT TRUST ------------------------------------------
- ------------------------------------------
- Limited Maturity Bond Portfolio ------------------------------------------
- Partners Portfolio VAN ECK WORLDWIDE INSURANCE TRUST
- ------------------------------------------ ------------------------------------------
- Worldwide Bond Portfolio
- ------------------------------------------ - Worldwide Emerging Markets Portfolio
STRONG OPPORTUNITY FUND II, INC. - Worldwide Hard Assets Portfolio
- ------------------------------------------ - Worldwide Real Estate Portfolio
- Strong Opportunity Fund II ------------------------------------------
- ------------------------------------------
</TABLE>
The Owner bears the entire investment risk for all amounts allocated to the
Subaccounts; there is no guaranteed minimum value for the Subaccounts.
The accompanying prospectuses for the funds describe the investment
objectives and the attendant risks of the Portfolios. The Policy Account Value
will reflect monthly deductions and certain other fees and charges. Also, a
surrender charge may be imposed if, during the first 15 Policy Years, the Policy
lapses or if the Owner decreases the Face Amount. Generally, during the first
four 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 fourth 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.
May 1, 2000
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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PAGE
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SUMMARY OF THE POLICY
The Policy................................................ 3
Purpose of the Policy..................................... 3
Availability of Policy.................................... 4
The Death Benefit......................................... 4
Flexibility to Adjust Amount of Death Benefit............. 4
Policy Account Value...................................... 4
Allocation of Net Premiums................................ 5
Transfers................................................. 5
Free-Look................................................. 5
Loan Privilege............................................ 5
Partial Withdrawal of Net Cash Surrender Value............ 6
Surrender of the Policy................................... 6
Tax Treatment............................................. 6
Illustrations............................................. 6
Charges Assessed Under the Policy......................... 7
Table of Fund Fees and Expenses............................. 8
The Company, Separate Account and Funds..................... 11
Providentmutual Life and Annuity Company of America....... 11
Providentmutual Variable Life Separate Account............ 11
The Funds................................................. 11
Additional Information About the Funds and Portfolios..... 15
Detailed Description of Policy Provisions................... 17
Death Benefit............................................. 17
Ability to Decrease Face Amount........................... 19
Insurance Protection...................................... 19
Payment and Allocation of Premiums........................ 20
Policy Account Value...................................... 22
Policy Duration........................................... 22
Transfers of Policy Account Value......................... 23
Free Look Privileges...................................... 24
Loan Privileges........................................... 25
Surrender Privilege....................................... 26
Partial Withdrawal Privilege.............................. 26
Charges and Deductions...................................... 28
Premium Expense Charge.................................... 28
Surrender Charges......................................... 28
Monthly Deductions........................................ 29
Partial Withdrawal Charge................................. 30
Transfer Charge........................................... 30
Mortality and Expense Risk Charge......................... 30
Other Charges............................................. 31
</TABLE>
<PAGE> 5
<TABLE>
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PAGE
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<S> <C>
The Guaranteed Account...................................... 32
Minimum Guaranteed and Current Interest Rates............. 32
Transfers from Guaranteed Account......................... 33
Other Policy Provisions..................................... 34
Benefit Payable on Final Policy Date...................... 34
Payment of Policy Benefits................................ 34
The Policy Application.................................... 34
Ownership................................................. 35
Beneficiary............................................... 35
Change of Owner and Beneficiary........................... 35
Split Dollar Arrangements................................. 35
Assignments............................................... 35
Misstatement of Age and Sex............................... 36
Suicide................................................... 36
Contestability............................................ 36
Settlement Options........................................ 36
Supplementary Benefits.................................... 37
Federal Income Tax Considerations........................... 39
Introduction.............................................. 39
Tax Status of the Policy.................................. 39
Tax Treatment of Policy Benefits.......................... 39
Business Uses of the Policy............................... 41
Possible Tax Law Changes.................................. 41
PLACA's Taxes............................................. 41
Policies Issued in Conjunction with Employee Benefit
Plans..................................................... 41
Legal Developments Regarding Unisex Actuarial Tables........ 42
Voting Rights............................................... 42
Standard & Poor's........................................... 43
Changes to the Separate Account and the Funds............... 44
Changes to Separate Account Operations.................... 44
Changes to Available Portfolios........................... 44
Termination of Participation Agreements................... 44
Officers and Directors of PLACA............................. 46
Distribution of Policies.................................... 47
Policy Reports.............................................. 47
State Regulation............................................ 48
Legal Proceedings........................................... 48
Experts..................................................... 48
Legal Matters............................................... 48
Definitions................................................. 49
Financial Statements........................................ F-1
Appendix A -- Illustration of Death Benefits, Policy Account
Values and Net Cash Surrender Values.......... A-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 Insureds are alive, the Policy is in force and there
is no outstanding loan.
The Policy is not a deposit or obligation of any bank, and no bank endorses
or guarantees the Policy or Policy values. Neither the Federal Deposit Insurance
Corporation nor any federal agency insures or guarantees Policy values or your
investment in the Policy.
THE POLICY
The Flexible Premium Adjustable Survivorship Variable Life Insurance Policy
(the "Policy") offered by this Prospectus is issued by Providentmutual Life and
Annuity Company of America ("PLACA"). The Policy is similar in many ways to a
fixed-benefit life insurance policy. As with a fixed-benefit life insurance
policy, the Owner of a Policy makes premium payments in return for insurance
coverage on the persons insured. Also, like many fixed-benefit life insurance
policies, the Policy provides for accumulation of Net Premiums and a Net Cash
Surrender Value which is payable if the Policy is surrendered during either
Insured's lifetime. As with many fixed-benefit life insurance policies, the Net
Cash Surrender Value during the early Policy Years is likely to be substantially
lower than the aggregate premium payments made.
However, the Policy differs from a fixed-benefit life insurance policy in
several important respects. Unlike a fixed-benefit life insurance policy, under
the Policy, the Death Benefit may and the Policy Account Value will increase or
decrease to reflect the investment performance of any Subaccounts to which
Policy Account Value is allocated. Also, unless the entire Policy Account Value
is allocated to the Guaranteed Account, there is no guaranteed minimum Net Cash
Surrender Value. If Net Cash Surrender Value is insufficient to pay charges due,
then, after a grace period, the Policy will Lapse without value. (See "Policy
Duration".) However, PLACA guarantees that the Policy will remain in force
during the first four Policy Years as long as certain requirements related to
the Minimum Guarantee Premium have been met. (See "Policy Lapse.") If a Policy
Lapses while loans are outstanding, certain amounts may become subject to income
tax and a 10% penalty tax. (See "Federal Income Tax Considerations.")
The Policy is called "flexible premium" because there is no fixed schedule
for premium payments, even though the Owner may establish a schedule of Planned
Periodic Premiums. The Policy is described as "adjustable" because the Owner
may, within limits, decrease the Face Amount and may change the Death Benefit
Option.
PLACA offers other variable life insurance policies that have different
Death Benefits, policy features, and optional programs. However, these other
policies also have different charges that would affect the Owner's Subaccount
performance and Policy Account Value. To obtain more information about these
other policies, contact PLACA's Service Center or the Owner's agent.
The most important features of the Policy, such as charges and deductions,
Death Benefits, and calculation of Policy values, are summarized on the
following pages.
PURPOSE OF THE POLICY
The Policy is designed to provide insurance coverage to help lessen the
economic loss resulting from the death of the Insureds. 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.
3
<PAGE> 7
AVAILABILITY OF POLICY
This Policy can be issued for two Insureds each between ages 21 and 85 and
with a Joint Equal Age between 25 and 80. The Minimum Face Amount is $100,000.
Before Issuing a Policy, PLACA will require that the proposed Insureds meet
certain underwriting standards satisfactory to PLACA. The premium classes
available for each Insured are Standard, Nonsmoker, Preferred, with Extra Rating
and Nonsmoker with Extra Rating.
THE DEATH BENEFIT
The Death Benefit is not payable, in whole or in part, at the time of death
of the first of the Insureds to die; it is only payable at the time of death of
the last surviving Insured. There are no changes made to the Policy as a result
of the death of the first Insured to die. As long as the Policy remains in
force, PLACA will pay the Insurance Proceeds to the Beneficiary upon receipt of
due proof of the death of both Insureds. The Insurance Proceeds will consist of
the Policy's Death Benefit, plus any additional benefits provided by a
supplementary benefit rider, less any outstanding Policy loan and accrued
interest, less any unpaid Monthly Deductions.
There are two Death Benefit Options available. Death Benefit Option A
provides Death Benefit equal to the greater of (a) the Face Amount and (b) the
specified percentage of the Policy Account Value. Death Benefit Option B
provides a Death Benefit equal to the greater of (a) the Face Amount plus the
Policy Account Value and (b) the specified percentage of the Policy Account
Value. (See "Death Benefit".)
FLEXIBILITY TO ADJUST AMOUNT OF DEATH BENEFIT
After the first Policy Year, the Owner has significant flexibility to
adjust the Death Benefit by changing the Death Benefit Option or by decreasing
the Face Amount of the Policy. (See "Death Benefit" and "Ability to Adjust Face
Amount".) 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. 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.
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".)
4
<PAGE> 8
The Loan Account will reflect any amounts transferred from the Subaccounts
and/or Guaranteed Account as collateral for Policy loans plus interest of at
least 4% credited to such amount. (See "Loan Privileges".)
ALLOCATION OF NET PREMIUMS
After deduction of the Premium Expense Charge, Net Premiums are allocated
to one or more of the Subaccounts and/or the Guaranteed Account as selected by
the Owner in the application or by subsequent written notice. The Owner bears
the entire risk of Policy Account Value in the Subaccounts.
Providentmutual Variable Life Separate Account consists of twenty-seven
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; Strong Opportunity Fund II, Inc.;
Strong Variable Insurance Funds, Inc.; Van Eck Worldwide Insurance Trust;
Variable Insurance Products Fund; and Variable Insurance Products Fund II (the
"Funds", each, a "Fund"). There is no assurance that the investment objectives
of a particular Portfolio will be met.
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. If the Owner makes more than
twelve transfers in a Policy Year, a Transfer Charge of $25 will be deducted
from the amount being transferred. (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, (b) 10 days after the Owner receives the Policy and (c) 10
days after PLACA mails or personally delivers a Notice of Withdrawal Right to
the Owner. Upon returning the Policy to PLACA or to an agent of PLACA within
such time with a written request for cancellation, the Owner will receive a
refund equal to the sum of: (i) the Policy Account Value as of the date PLACA
receives the returned Policy; (ii) the amount deducted for premium taxes; (iii)
any Monthly Deductions charged against the Policy Account Value; and (iv) an
amount reflecting other charges directly or indirectly deducted under the
Policy. Where state law requires, the refund will instead equal the premiums
paid. (See "Free-Look Privileges".)
LOAN PRIVILEGE
The Owner may obtain Policy loans in a minimum amount of $500 (or such
lesser minimum as may be required in a particular state) but not exceeding, in
the aggregate, the Net Cash Surrender Value. Policy loans will bear interest at
a fixed rate of 6% per year, payable at the end of each Policy Year. If interest
is not paid when due, it will be added to the outstanding loan balance. Policy
loans may be repaid at any time and in any amount prior to the Final Policy
Date. PLACA transfers Policy Account Value in an amount equal to the loan to the
Loan Account where it becomes collateral for the loan. The transfer is
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made pro-rata from each Subaccount and the Guaranteed Account. This collateral
in the Loan Account earns interest at an effective annual rate of at least 4%.
(See "Loan Privileges".)
Depending upon the investment performance of the Subaccounts and the
amounts borrowed, loans may cause a Policy to lapse. Lapse of the Policy with
outstanding loans may result in adverse tax consequences including a 10% penalty
tax. (See "Tax Treatment of Policy Benefits".)
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After the first Policy Year, the Owner may, subject to certain
restrictions, withdraw part of Net Cash Surrender Value. The minimum amount for
such withdrawal is $1,500. An expense charge of $25 will be deducted from the
Policy Account Value for each withdrawal. The withdrawal amount and expense
charge is allocated to the Subaccounts and the Guaranteed Account based on the
proportion that the value in each account bears to the total unloaned Policy
Account Value. If Death Benefit Option A is in effect, PLACA will reduce the
Face Amount by the amount of the withdrawal. (See "Partial Withdrawal
Privilege".)
SURRENDER OF THE POLICY
The Owner may at any time surrender the Policy and receive the entire Net
Cash Surrender Value. (See "Surrender Privilege".)
TAX TREATMENT
PLACA believes that it is reasonable to conclude that a Policy should meet
the definition of a life insurance contract in the Code. Due to lack of
guidance, however, there is some uncertainty as to how Federal tax law applies
to the Policies, particularly if the Owner pays the full amount of premiums
permitted under the Policy. An Owner of a Policy may 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
6
<PAGE> 10
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.
CHARGES ASSESSED UNDER THE POLICY
Premium Expense Charge. A Premium Expense Charge will be deducted from
each premium payment. This charge consists of:
1. Premium Tax Charge for state and local premium taxes based on the
rate for the Insureds' residence at the time the premium is paid. Premium
taxes vary from state to state but range from 0% to 4%. No premium tax
charge is deducted in jurisdictions that impose no premium tax. PLACA
reserves the right to change the amount of the charge deducted from future
premiums if the Insureds' residence changes or the applicable law is
changed;
2. Percent of Premium Sales Charge equal to 5% of the amount of the
premium payment in Policy Years 1 through 15. At the present time PLACA
does not intend to apply this charge after Policy Year 15, but reserves the
right to do so.
3. Federal Tax Charge equal to 1.25% of the amount of the premium
payment. PLACA reserves the right to change the amount of this charge if
the applicable Federal tax law changes PLACA's tax burden. (See "Premium
Expense Charge" below).
Monthly Deductions. On the Policy Date and on each Policy Processing Date
thereafter, the Policy Account Value is reduced by a Monthly Deduction equal to
the sum of the monthly Cost of Insurance Charge, Monthly Administrative Charge
and a charge for additional benefits added by rider and, on the first 12 Policy
Processing Days, the Initial Administrative Charge. The monthly Cost of
Insurance Charge is determined by multiplying the Net Amount at Risk by the
applicable cost of insurance rate(s) in the Policy. The Monthly Administrative
Charge is currently $7.50 plus $.01 per $1,000 of Face Amount; the maximum
permissible Monthly Administrative Charge is $12 plus $.03 per $1,000 of Face
Amount. (See "Monthly Administrative Charge".) The Initial Administrative Charge
is $17.50 plus $.11 per $1,000 of Face Amount, 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
15th Policy Year. The Surrender Charge consists of a Deferred Administrative
Charge and a Deferred Sales Charge. A portion of this Surrender Charge will be
deducted if the Owner decreases the Initial Face Amount before the end of the
15th Policy Year. (See "Surrender Charges".)
The Deferred Administrative Charge is equal to $5.00 per $1,000 of Initial
Face Amount in Policy Years 1 to 11 declining by 20% of the original amount each
year in Policy Years 12 to 15 until it is 0 in Policy Year 16.
The Deferred Sales Charge is equal to 25% of all premiums received during
the first Policy Year up to one Target Premium plus 4% of all other premiums
received to the date of surrender, lapse or decrease. The Deferred Sales Charge,
however, will not exceed the Maximum Deferred Sales Charge. For Joint Equal Ages
25 to 71, the Maximum Deferred Sales Charge equals 60% of the Target Premium,
50% of the relevant Target Premium for Joint Equal Ages 72 and 73, and 40% for
Joint Equal Ages 74 and 75, 30% for Joint Equal Ages 76 to 78 and 20% for Joint
Equal Ages 79 and 80. The amount of the Maximum Deferred Sales Charge remains
level for Policy Years 1 through 11 and declines by 20% of the original amount
each year in Policy Years 12 through 15.
Transfer Charge. 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.)
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<PAGE> 11
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 0.65% of the average daily net
assets of the Separate Account. This charge may be increased in the future but
it will not 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).
The following table shows the fees and expenses charged by the Portfolios
for the fiscal year ended December 31, 1999. The purpose of the table is to
assist you in understanding the various costs and expenses that you will bear
directly and indirectly. Expenses of the Portfolios may be higher or lower in
the future. Please refer to the Portfolios' prospectuses for more information.
TABLE OF FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
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
- ---------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ 0.70% 0.70% 0.90% 0.90%
Other Expenses (after reimbursement)... 0.19% 0.21% 0.21% 0.30%
---- ---- ---- ----
Total Fund Annual Expenses......... 0.89% 0.91% 1.11% 1.20%
<CAPTION>
EQUITY
500 AGGRESSIVE MONEY
MARKET STREET FUND, INC. ANNUAL EXPENSES INDEX INTERNATIONAL GROWTH GROWTH MANAGED BOND MARKET
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ------------------------ --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ 0.24% 0.75% 0.32% 0.41% 0.40% 0.35% 0.25%
Other Expenses(3).................. 0.04% 0.23% 0.16% 0.16% 0.17% 0.17% 0.15%
---- ---- ---- ---- ---- ---- ----
Total Fund Annual Expenses......... 0.28% 0.98% 0.48% 0.57% 0.57% 0.52% 0.40%
<CAPTION>
THE ALGER AMERICAN FUND ANNUAL SMALL
EXPENSES(2) CAPITALIZATION
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
- --------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ 0.85%
Other Expenses..................... 0.05%
----
Total Fund Annual Expenses......... 0.90%
<CAPTION>
NEUBERGER BERMAN ADVISERS MANAGEMENT LIMITED
TRUST ANNUAL EXPENSES(2) MATURITY BOND PARTNERS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO
- --------------------------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ 0.65% 0.80%
Other Expenses..................... 0.11% 0.07%
---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 0.76% 0.87%
</TABLE>
8
<PAGE> 12
<TABLE>
<CAPTION>
STRONG OPPORTUNITY FUND II, INC. ANNUAL STRONG
EXPENSES(2) OPPORTUNITY
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND II
- --------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)........................... 1.00%
Other Expenses (after reimbursement)... 0.14%
----
Total Fund Annual Expenses (after
reimbursement)(1)............... 1.14%
<CAPTION>
STRONG
STRONG VARIABLE INSURANCE FUNDS, INC. MID CAP
ANNUAL EXPENSES(2) GROWTH
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND II
- --------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)........................... 1.00%
Other Expenses (after reimbursement)... 0.15%
----
Total Fund Annual Expenses (after
reimbursement)(1)............... 1.15%
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
VAN ECK WORLDWIDE INSURANCE TRUST WORLDWIDE EMERGING HARD REAL
ANNUAL EXPENSES(2) BOND MARKETS ASSETS ESTATE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)........................... 1.00% 1.00% 1.00% 1.00%
Other Expenses (after reimbursement)... 0.22% 0.34% 0.26% 0.44%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)............... 1.22% 1.34% 1.26% 1.44%
<CAPTION>
HIGH
VARIABLE INSURANCE PRODUCTS FUND EQUITY-INCOME INCOME OVERSEAS
("VIP FUND") ANNUAL EXPENSES(2) PORTFOLIO GROWTH PORTFOLIO PORTFOLIO
(AS A PERCENTAGE OF AVERAGE NET ASSETS) (INITIAL CLASS) PORTFOLIO (INITIAL CLASS) (INITIAL CLASS)
- --------------------------------------- --------------- (INITIAL CLASS) --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)........................... 0.48% 0.58% 0.58% 0.73%
Other Expenses (after reimbursement)... 0.08% 0.07% 0.11% 0.14%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)............... 0.56% 0.65% 0.69% 0.87%
<CAPTION>
ASSET INVESTMENT
VARIABLE INSURANCE PRODUCTS FUND II MANAGER CONTRAFUND(R) GRADE BOND
("VIP II FUND") ANNUAL EXPENSES(2) PORTFOLIO PORTFOLIO PORTFOLIO
(AS A PERCENTAGE OF AVERAGE NET ASSETS) (INITIAL CLASS) (INITIAL CLASS) (INITIAL CLASS)
- --------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)........................... 0.53% 0.58% 0.43%
Other Expenses (after reimbursement)... 0.09% 0.07% 0.11%
---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)............... 0.62% 0.65% 0.54%
</TABLE>
- ---------------
(1) For certain portfolios, certain expenses were reimbursed or fees waived
during 1999. It is anticipated that expense reimbursement and fee waiver
arrangements will continue past the current year. Absent the expense
reimbursement, the 1999 Total Annual Expenses would have been 1.21% for the
All Pro Small Cap Value Portfolio, 0.57% for the VIP Fund Equity-Income
Portfolio, 0.66% for the VIP Fund Growth Portfolio, 0.91% for the VIP Fund
Overseas Portfolio, 0.63% for the VIP II Fund Asset Manager Portfolio, 0.67%
for the VIP II Fund Contrafund(R) Portfolio, 3.23% for the Van Eck
9
<PAGE> 13
Worldwide Real Estate Portfolio, and 1.17% for the Strong Mid Cap Growth
Fund II. 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 1999 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 Merrill Lynch Zero UST Securities Fund, the VIP Fund, the VIP II
Fund, the Neuberger Berman Advisers Management Trust, the Van Eck WIT, the
Strong Opportunity Fund II, Inc., the Strong Variable Insurance Funds, Inc.
and the Alger American Fund are not affiliated with PLACA.
(3) Since the Equity 500 Index Portfolio has recently commenced operations,
"Other Expenses" is based on estimated amounts for 2000. This estimate
anticipates an expense reimbursement or fee waiver arrangement for 2000.
Absent this arrangement, estimated Total Fund Annual Expenses would be
0.39%.
10
<PAGE> 14
THE COMPANY, SEPARATE 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 49 states and
the District of Columbia. As of December 31, 1999, PLACA had total assets of
approximately $1.7 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 1999 had consolidated assets of approximately $9.2
billion. On December 31, 1997, PLACA and PMLIC entered into a Support Agreement
whereby PMLIC agrees to maintain PLACA's total adjusted capital at the level of
200% of the "company action level" for risk-based capital at the end of each
calendar quarter during the term of the agreement. Under the Support Agreement,
PMLIC also agrees to maintain PLACA's cash or cash equivalents from time to time
as may be necessary during the term of the agreement in an amount sufficient for
the payment of benefits and other contractual claims pursuant to policies and
other contracts issued by PLACA. Other than this Support Agreement, PMLIC is
under no obligation to invest money in PLACA nor is it in any way a guarantor of
PLACA's contractual obligations or obligations under the Policies. PLACA is
subject to regulation by the Insurance Department of the State of Delaware as
well as by the insurance departments of all other states and jurisdictions in
which it does business.
PLACA is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT
Providentmutual Variable Life Separate Account (the "Separate 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 Separate 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 Separate Account.
The assets of the Separate 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 Separate Account equal to the reserves
or other contract liabilities of the Separate 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 Separate Account that exceed
the reserves and the Contract liabilities of the Separate Account (which will
always be at least equal to the aggregate Policy Account value allocated to the
Separate Account under the Policies). The income, gains and losses, realized or
unrealized, from assets allocated to the Separate Account are credited to or
charged against the Separate Account without regard to other income, gains or
losses of PLACA. PLACA may accumulate in the Separate Account the accrued
charges for mortality and expense risks and investment results attributable to
assets representing such charges. The Separate Account currently has
twenty-seven 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 eight mutual fund companies (each, a
"Fund"): Market Street Fund, Inc.; Neuberger Berman Advisers Management Trust;
the Strong Opportunity Fund II, Inc.; the Strong Variable Insurance Funds, Inc.;
The Alger American Fund; Van Eck Worldwide Insurance Trust;
11
<PAGE> 15
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.
THESE PORTFOLIOS ARE NOT AVAILABLE FOR PURCHASE DIRECTLY BY THE GENERAL
PUBLIC, AND ARE NOT THE SAME AS OTHER MUTUAL FUND PORTFOLIOS WITH VERY SIMILAR
OR NEARLY IDENTICAL NAMES THAT ARE SOLD DIRECTLY TO THE PUBLIC. However, the
investment objectives and policies of certain Portfolios available under the
Policy are very similar to the investment objectives and policies of other
portfolios that are or may be managed by the same investment adviser or manager.
Nevertheless, the investment performance of the Portfolios available under the
Policy may be lower or higher than the investment performance of these other
(publicly available) portfolios. THERE CAN BE NO ASSURANCE, AND PLACA MAKES NO
REPRESENTATION, THAT THE INVESTMENT PERFORMANCE OF ANY OF THE PORTFOLIOS
AVAILABLE UNDER THE POLICY WILL BE COMPARABLE TO THE INVESTMENT PERFORMANCE OF
ANY OTHER PORTFOLIO, EVEN IF THE OTHER PORTFOLIO HAS THE SAME INVESTMENT ADVISER
OR MANAGER, THE SAME INVESTMENT OBJECTIVES AND POLICIES, AND A VERY SIMILAR
NAME.
The following table summarizes each Portfolio's investment objective(s) and
identifies its investment adviser (and subadviser, if applicable).
PORTFOLIO INVESTMENT OBJECTIVE AND INVESTMENT ADVISER
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 subadvisers believe
show potential for growth in future earnings.
Investment adviser is Market Street Investment
Management Company; subadvisers are Cohen,
Klingenstein & Marks, Inc. and Geewax, Terker & Co.
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 subadvisers believe offer above-average
potential for growth in future earnings. Investment
adviser is Market Street Investment Management
Company; subadvisers are Equinox Capital
Management, Inc., Sanford C. Bernstein & Company,
Inc., and Mellon Equity Associates.
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
included in the Wilshire 5000 Equity Index at the
time of purchase, which the subadvisers believe
show potential for growth in future earnings.
Investment adviser is Market Street Investment
Management Company; subadvisers are Standish, Ayer
& Wood and Husic Capital Management.
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 included in the Wilshire 5000 Equity
Index at the time of purchase, which the
subadvisers believe offer above-average potential
for growth in future earnings. Investment adviser
is Market Street Investment Management Company;
subadvisers are Reams Asset Management Company, LLC
and Sterling Capital Management Company.
12
<PAGE> 16
EQUITY 500 INDEX PORTFOLIO -- Seeks to provide long-term capital appreciation
by investing primarily in common stocks included in
the Standard & Poor's 500(R) Composite Stock Price
Index.* Investment adviser is Market Street
Investment Management Company; subadviser is State
Street Global Advisors.
INTERNATIONAL PORTFOLIO -- Seeks long-term growth of capital principally
through investments in a diversified portfolio of
marketable equity securities of established foreign
issuer companies. Investment adviser is Market
Street Investment Management Company; subadviser is
The Boston Company Asset Management, Inc.
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.
Investment adviser is Sentinel Advisors Company.
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.
Investment adviser is Sentinel Advisors Company.
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.
Investment adviser is Sentinel Advisors Company.
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. Investment adviser is Sentinel
Advisors Company.
MONEY MARKET PORTFOLIO -- Seeks to provide maximum current income
consistent with capital preservation and liquidity
by investing in high-quality money market
instruments. Investment adviser is Sentinel
Advisors Company.
ALGER AMERICAN SMALL
CAPITALIZATION PORTFOLIO -- Seeks long-term capital appreciation. It focuses
on small, fast-growing companies that offer
innovative products, services or technologies to a
rapidly expanding marketplace. Under normal
circumstances, the portfolio invests primarily in
the equity securities of small capitalization
companies. A small capitalization company is one
that has a market capitalization within the range
of the Russell 2000 Growth Index(R) or the S&P
SmallCap 600 Index(R). Investment adviser is Fred
Alger Management, Inc.
NEUBERGER BERMAN LIMITED
MATURITY BOND PORTFOLIO -- Seeks the highest available current income
consistent with low risk to principal and liquidity
and secondarily, total return, through investment
mainly in investment grade bonds. Investment
adviser is Neuberger Berman Management
Incorporated.
- ---------------
* "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500,"
and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by PMLIC and its affiliates and subsidiaries. The Policy
is not sponsored, endorsed, sold or promoted by Standard & Poor's and
Standard & Poor's makes no representation regarding the advisability of
investing in the Policy. See "Additional Information -- Standard &
Poor's" below which sets forth certain additional disclaimers and
limitations of liabilities on behalf of S&P.
13
<PAGE> 17
NEUBERGER BERMAN PARTNERS
PORTFOLIO -- Seeks capital growth through investment mainly
in common stocks of medium- to large-capitalization
companies. Investment adviser is Neuberger Berman
Management Incorporated.
STRONG OPPORTUNITY FUND II -- Seeks capital growth by investing primarily in
stocks of medium-capitalization companies that the
Portfolio's manager believes are underpriced, yet
have attractive growth prospects. Investment
adviser is Strong Capital Management, Inc.
STRONG MID CAP GROWTH FUND
II -- Seeks capital growth by investing at least 65%
of its assets in stocks of medium-capitalization
companies that the Portfolio's managers believe
have favorable prospects for accelerating growth of
earnings, but are selling at reasonable valuations
based on earnings, cash flow, or asset value.
Investment adviser is Strong Capital Management,
Inc.
VAN ECK WORLDWIDE BOND
PORTFOLIO -- Seeks high total return through a flexible
policy of investing globally, primarily in debt
securities. Investment adviser is Van Eck
Associates Corporation.
VAN ECK WORLDWIDE EMERGING
MARKETS PORTFOLIO -- Seeks long-term capital appreciation by
investing primarily in equity securities in
emerging markets around the world. Investment
adviser is Van Eck Global Asset Management (Asia)
Limited.
VAN ECK WORLDWIDE HARD
ASSETS
PORTFOLIO -- Seeks long-term capital appreciation by
investing globally, primarily in "Hard Assets
Securities." Hard Assets Securities include equity
securities of Hard Asset Companies and securities,
including structured notes, whose value is linked
to the price of a Hard Asset commodity or a
commodity index. Hard Asset Companies include
companies that are directly or indirectly engaged
to a significant extent in the exploration,
development, production, or distribution of one or
more of the following (together, "Hard Assets"):
(a) precious metals; (b) ferrous and non-ferrous
metals; (c) gas, petroleum, petrochemicals, or
other hydrocarbons; (d) forest products; (e) real
estate; and (f) other basic non-agricultural
commodities. Income is a secondary consideration.
Investment adviser is Van Eck Associates
Corporation.
VAN ECK WORLDWIDE REAL
ESTATE
PORTFOLIO -- Seeks to maximize total return by investing
primarily in equity securities of domestic and
foreign companies which are principally engaged in
the real estate industry or which own significant
real estate assets. Investment adviser is Van Eck
Associates Corporation.
VIP EQUITY-INCOME 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. Investment adviser is Fidelity
Management & Research Company.
VIP GROWTH 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. Investment adviser is
Fidelity Management & Research Company.
14
<PAGE> 18
VIP HIGH INCOME 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. Investment adviser
is Fidelity Management & Research Company.
VIP OVERSEAS 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. Investment
adviser is Fidelity Management & Research Company;
subadvisers are Fidelity Management & Research
(U.K.) Inc., Fidelity Management & Research (Far
East) Inc., Fidelity International Investment
Advisors, and Fidelity International Investment
Advisors (U.K.) Limited.
VIP II ASSET MANAGER
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. Investment adviser is Fidelity
Management & Research Company; subadvisers are
Fidelity Management & Research (U.K.) Inc. and
Fidelity Management & Research (Far East) Inc.
VIP II CONTRAFUND(R)
PORTFOLIO -- Seeks capital appreciation by investing in
securities of companies where value is not fully
recognized by the public. Investment adviser is
Fidelity Management & Research Company; subadvisers
are Fidelity Management & Research (U.K.) Inc. and
Fidelity Management & Research (Far East) Inc.
VIP II INVESTMENT GRADE
BOND
PORTFOLIO -- Seeks high current income by investing in
investment-grade debt securities. Investment
adviser is Fidelity Management & Research Company.
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, if investment in the Funds or a particular
Portfolio is no longer possible, in PLACA's judgment becomes inappropriate for
the purposes of the Policy, or for any other reason in PLACA's sole discretion,
PLACA may substitute another fund or portfolio without the Owner's consent. The
substituted fund or portfolio may have different fees and expenses. Substitution
may be made with respect to existing investments or the investment of future Net
Premiums, or both. However, no such substitution will be made without any
necessary approval of the Securities and Exchange Commission. Furthermore, PLACA
may close Subaccounts to allocations of Net Premiums or Policy Account Value, or
both, at any time in its sole discretion.
PLACA may receive compensation from the investment adviser of a Fund (or
affiliates thereof) in connection with administration, distribution, or other
services provided with respect to the Funds and their availability through the
Policies. The amount of this compensation is based upon a percentage of the
assets
15
<PAGE> 19
of the Fund attributable to the Policies and other policies issued by PLACA.
These percentages differ, and some advisers (or affiliates) may pay PLACA more
than others.
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 Separate Account, and of owners
of other contracts or policies whose values are allocated to one or more other
separate accounts investing in any one of the Portfolios. Shares of some of the
Funds may also be sold directly to certain pension and retirement plans
qualifying under Section 401 of the Code. As a result, there is a possibility
that a material conflict may arise between the interests of Owners or owners of
other policies or contracts (including policies issued by other companies), and
such retirement plans or participants in such retirement plans. In the event of
any such material conflicts, PLACA will consider what action may be appropriate,
including removing the Portfolio as an investment option under the Policies or
replacing the Portfolio with another Portfolio. There are certain risks
associated with mixed and shared funding and with the sale of shares to
qualified pension and retirement plans, as disclosed in each Fund's prospectus.
16
<PAGE> 20
DETAILED DESCRIPTION OF POLICY PROVISIONS
DEATH BENEFIT
General. As long as the Policy remains in force, the Insurance Proceeds of
the Policy will, upon due proof of both the Insureds' deaths (and fulfillment of
certain other requirements), be paid to the Beneficiary in accordance with the
designated Death Benefit Option. The Insurance Proceeds will be determined as of
the date of the last surviving Insured's death and will be equal to:
1. the Death Benefit;
2. plus any additional benefits due under a supplementary benefit
rider attached to the Policy;
3. less any loan and accrued loan interest on the Policy;
4. less any overdue deductions if the death of the Insured occurs
during the Grace Period.
The Insurance Proceeds may be paid in cash or under one of the Settlement
Options set forth in the Policy.
Death Benefit Options. The Policy provides two Death Benefit Options:
Option A and Option B. The Owner designates the Death Benefit Option in the
application and may change it as described in "Change in Death Benefit Option."
Under either Option, the duration of the Death Benefit coverage depends upon the
Policy's Net Cash Surrender Value. (See "Policy Duration.")
Option A. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy and (b) the Policy Account Value on the Valuation Date on
or next following the last surviving Insured's date of death multiplied by the
specified percentage based on the Age of the younger Insured shown in the table
below:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ---------- ------------- ----------
<S> <C> <C> <C>
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 through 99 100%
</TABLE>
For Attained Ages not shown, the percentages decrease pro rata 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 a younger Insured
under Attained Age 40 on the Policy Anniversary prior to the date of death is
250%. Because the Death Benefit must be equal to or be greater than 2.50 times
the Policy Account Value, any time the Policy Account Value exceeds $80,000 the
Death Benefit will exceed the Face Amount. Each additional dollar added to the
Policy Account Value will increase the Death Benefit by $2.50. Thus, a 35 year
old younger Insured with a Policy Account Value of $150,000 will have a Death
Benefit of $375,000 (2.50 x $150,000); a Policy Account Value of $300,000 will
yield a Death Benefit of $750,000 (2.50 x $300,000); a Policy Account Value of
$400,000 will yield a Death Benefit of $1,000,000 (2.50 x $400,000).
Similarly, any time the Policy Account Value exceeds $80,000, each dollar
taken out of the Policy Account Value will reduce the Death Benefit by $2.50. If
at any time, however, the Policy Account Value multiplied by the specified
percentage is less than the Face Amount, the Death Benefit will be the Face
Amount of the Policy.
Option B. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy plus the Policy Account Value and (b) the Policy Account
Value multiplied by the specified percentage shown in
17
<PAGE> 21
the table above. (The Policy Account Value in each case is determined on the
Valuation Day on or next following the last surviving Insured's date of death.)
Illustration of Option B -- For purposes of this illustration, assume that
the younger Insured is under Attained Age 40 and there is no outstanding Policy
loan.
Under Option B, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000 plus the Policy Account Value. Thus, for example, a
Policy with a $50,000 Policy Account Value will have a Death Benefit of $250,000
($200,000 plus $50,000); and a Policy Account Value of $100,000 will yield a
Death Benefit of $300,000. Since the specified percentage is 250%, the Death
Benefit will be at least 2.50 times the Policy Account Value. As a result, if
the Policy Account Value exceeds $133,333, the Death Benefit will be greater
than the Face Amount plus the Policy Account Value. Each additional dollar added
to the Policy Account Value above $133,333 will increase the Death Benefit by
$2.50. An Insured with a Policy Account Value of $150,000 will therefore have a
Death Benefit of $375,000 (2.50 x $150,000); a Policy Account Value of $300,000
will yield a Death Benefit of $750,000 (2.50 x $300,000); and a Policy Account
Value of $500,000 will yield a Death Benefit of $1,250,000 (2.50 x $500,000).
Similarly, any time the Policy Account Value exceeds $133,333, each dollar taken
out of the Policy Account Value will reduce the Death Benefit by $2.50. If at
any time, however, the Policy Account Value multiplied by the applicable
percentage is less than the Face Amount plus the Policy Account Value, the Death
Benefit will be the Face Amount plus the Policy Account Value.
Which Death Benefit Option to Choose. If an Owner prefers to have premium
payments and favorable investment performance reflected partly in the form of an
increasing Death Benefit, the Owner should choose Option B. If an Owner is
satisfied with the amount of the Insureds' existing insurance coverage and
prefers to have premium payments and favorable investment performance reflected
to the maximum extent in the Policy Account Value, the Owner should choose
Option A.
Change in Death Benefit Option. After the first Policy Year, at any time
while the Policy is in force, the Owner may change the Death Benefit Option in
effect by sending PLACA a completed application for change. No charges will be
imposed to make a change in the Death Benefit Option. The effective date of any
such change will be the Policy Processing Day on or next following the date
PLACA receives the completed application for change.
If the Death Benefit Option is changed from Option A to Option B, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be decreased by the Policy Account Value on that date. However, this
change may not be made if it would reduce the Face Amount to less than the
Minimum Face Amount.
If the Death Benefit Option is changed from Option B to Option A, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be increased by the Policy Account Value on that date.
A change in the Death Benefit Option may affect the Net Amount at Risk over
time which, in turn, would affect the monthly Cost of Insurance Charge. Changing
from Option A to Option B will generally result in a Net Amount at Risk that
remains level. Such a change will result in a relative increase in the cost of
insurance charges over time because the Net Amount at Risk will, unless the
Death Benefit is based on the applicable percentage of Policy Account Value,
remain level rather than decreasing as the Policy Account Value increases.
Unless the Death Benefit is based on the applicable percentage of Policy Account
Value, changing from Option B to Option A will, if the Policy Account Value
increases, decrease the Net Amount at Risk over time, thereby reducing the cost
of insurance charge.
The effects of these Death Benefit Option changes on the Face Amount, Death
Benefit and Net Amount at Risk can be illustrated as follows. Assume that a
contract under Option A has a Face Amount of $500,000 and a Policy Account Value
of $100,000 and, therefore, a Death Benefit of $500,000 and a Net Amount at Risk
of $400,000 ($500,000 - $100,000). If the Death Benefit Option is changed from
Option A to Option B, the Face Amount will decrease from $500,000 to $400,000
and the Death Benefit and Net Amount at Risk would remain the same. Assume that
a contract under Option B has a Face
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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. The Owner should consult a tax advisor before increasing or
decreasing the Policy's Face Amount.
How the Death Benefit May Vary. The amount of the Death Benefit may vary
with the Policy Account Value. The Death Benefit under Option A will vary with
the Policy Account Value whenever the specified percentage of Policy Account
Value exceeds the Face Amount of the Policy. The Death Benefit under Option B
will always vary with the Policy Account Value because the Death Benefit equals
the greater of (a) the Face Amount plus the Policy Account Value and (b) the
Policy Account Value multiplied by the specified percentage.
ABILITY TO DECREASE FACE AMOUNT
Subject to certain limitations, an Owner may generally, at any time after
the first Policy Year, increase or decrease the Policy's Face Amount by
submitting a written application to PLACA (Decreases are not permitted for
policies issued in Virginia). The effective date of the change 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. The Owner should
consult a tax advisor before increasing or decreasing the Policy's Face Amount.
The effect of a decrease in Face Amount on Policy charges, as well as other
considerations, are described below.
The amount of a Face Amount decrease must be for at least $25,000 (or such
lesser amount required in a particular state). The Face Amount after any
decrease may not be less than the Minimum Face Amount. A decrease in Face Amount
will not be permitted if the Face Amount was decreased during the prior 12-month
period. To the extent a decrease in the Face Amount could result in cumulative
premiums exceeding the maximum premium limitations applicable for life insurance
under the Code, PLACA will not effect the decrease.
A decrease in the Face Amount generally will decrease the total Net Amount
at Risk which will decrease an Owner's monthly Cost of Insurance Charges. A
decrease in the Face Amount may result in the imposition of a surrender charge
as of the Policy Processing Day on which the decrease becomes effective. (See
"Surrender Charges.")
Any Surrender Charge applicable to a decrease will be deducted from the
Policy Account Value and the remaining Surrender Charge will be reduced by the
amount deducted. The Surrender Charge will be deducted from the Subaccounts and
the Guaranteed Account based on the proportion that the value in such account
bears to the total unloaned Policy Account Value. The remaining Surrender Charge
will equal the charge prior to the decrease less the charge deducted in
connection with such decrease.
INSURANCE PROTECTION
An Owner may decrease the insurance protection provided by the Policy
(i.e., the Net Amount at Risk) in one of several ways, as insurance needs
change. These ways include decreasing the Face Amount, changing the level of
premium payments, and by making a partial withdrawal of Net Cash Surrender
Value. The consequences of each are summarized below.
A decrease in Face Amount will decrease the insurance protection. It will
not reduce the Policy Account Value, except for the deduction of any surrender
charge applicable to the decrease. The Monthly Deductions will generally be
correspondingly lower following the decrease.
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Under Death Benefit Option A, until the specified percentage of Policy
Account Value exceeds the Face Amount, then (a) if the Owner increases the
premium payments from the current level, the amount of insurance protection will
generally be reduced, and (b) if the Owner reduced the premium payments from the
current level, the amount of insurance protection will generally be increased.
Under Death Benefit Option B, until the specified percentage of Policy
Account Value exceeds the Face Amount plus the Policy Account Value, the level
of premium payments will not affect the amount of insurance protection.
(However, both the Policy Account Value and Death Benefit will be increased if
premium payments are increased and reduced if premium payments are reduced.)
Under either Death Benefit Option, if the Death Benefit is the specified
percentage of Policy Account Value, then (a) if the Owner increases premium
payments from the current level, the amount of insurance protection will
increase and (b) if the Owner reduces the premium payments from the current
level, the amount of insurance protection will decrease.
A partial withdrawal of Net Cash Surrender Value will reduce the Death
Benefit. If Death Benefit Option A is in effect, the withdrawal will first
decrease the Policy's Face Amount by the amount withdrawn plus the partial
withdrawal expense charge. If Death Benefit Option B is in effect, it will not
reduce the amount of insurance protection unless the Death Benefit is based on
the specified percentage of Policy Account Value. In this event, however, the
decrease in the Death Benefit will be greater than the amount of a withdrawal.
A reduction in the Policy's insurance protection may have tax consequences.
The Owner should consult a tax advisor before reducing the Policy's insurance
protection.
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 currently 100,000.
PLACA reserves the right to revise its rules from time to time to specify a
different Minimum Face Amount for subsequently issued policies. A Policy will be
issued only with respect to Insureds who individually have an Issue Age of 21 to
85 and a Joint Equal Age of 25 to 80 and who provide PLACA with satisfactory
evidence of insurability. Acceptance is subject to PLACA's underwriting rules.
PLACA reserves the right to reject an application for any reason permitted by
law. (See "Distribution of Policies.")
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 application; (b) the date that
insurance takes effect under the Policy; (c) the date a policy, other than as
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<PAGE> 24
applied for, is offered to the Applicant; or (d) five days from the date PLACA
mails a notice of termination of coverage.
Amount and Timing of Premiums. The Minimum Initial Premium is due on or
before the date the Policy is delivered. No insurance will take effect until the
Minimum Initial Premium is paid while the health and other conditions of the
Insured stay the same as described in the application. Prior to the Final Policy
Date and while the Policy is in force, an Owner may make additional premium
payments at any time and in any amount, subject to the limitation set forth
below. Each premium payment must be for at least $25. Subject to certain
limitations described below, an Owner has considerable flexibility in
determining the amount and frequency of premium payments.
At the time of application, each Owner will select a Planned Periodic
Premium schedule, based on a periodic billing mode of annual, semi-annual, or
quarterly payment. The Owner is entitled to receive a premium reminder notice
from PLACA at the specified interval. The Owner may change the Planned Periodic
Premium frequency and amount. Also, under the Automatic Payment Plan, the Owner
can select a monthly payment schedule pursuant to which premium payments will be
automatically deducted from a bank account or other source, rather than being
"billed".
Unless prohibited by a particular state, any payments made while there is
an outstanding Policy loan are considered loan repayments, unless PLACA is
notified in writing that the amount is to be applied as a premium payment. The
Owner is not required to pay the Planned Periodic Premiums in accordance with
the specified schedule. The Owner has the flexibility to alter the amount and
frequency of premium payments. However, payment of the Planned Periodic Premiums
does not guarantee that the Policy will remain in force. Instead, the duration
of the Policy depends upon the Policy's Net Cash Surrender Value. Thus, even if
Planned Periodic Premiums are paid, the Policy may lapse whenever the Net Cash
Surrender Value is insufficient to pay the Monthly Deductions and any other
charges and if a Grace Period expires without an adequate payment by the Owner.
Premium Limitations. The Code provides for exclusion of the Death Benefit
from a Beneficiary's gross income if total premium payments do not exceed
certain stated limits. In no event can the total of all premiums paid under a
Policy exceed such limits. PLACA has established procedures to monitor whether
aggregate premiums paid under a Policy exceed those limits. If a premium is paid
which would result in total premiums exceeding such limits, PLACA will only
accept that portion of the premium which would make total premiums equal the
maximum amount which may be paid under the Policy. The excess will be refunded.
If total premiums do exceed the maximum premium limitations established by the
Code, however, the excess of a Policy's Death Benefit over the Policy's Cash
Surrender Value should still be excludable from gross income.
The maximum premium limitations set forth in the Code depend in part upon
the amount of the Death Benefit at any time. As a result, any Policy changes
which affect the amount of the Death Benefit may affect whether cumulative
premiums paid under the Policy exceed the maximum premium limitations. To the
extent that any such change would result in cumulative premiums exceeding the
maximum premium limitations, PLACA will not effect such change. (See "Federal
Income Tax Considerations.") PLACA reserves the right to require satisfactory
evidence of insurability before accepting a premium payment that would increase
the Net Amount At Risk.
Allocation of Net Premiums. The Owner indicates in the application how Net
Premiums should be allocated among the Subaccounts and/or the Guaranteed
Account. The percentages of each Net Premium that may be allocated to any
account must be in whole numbers and the sum of the allocation percentages must
be 100%. PLACA allocates the Net Premiums as of the date it receives such
premium at its Service Center.
Certain states require PLACA to refund all payments (less any partial
withdrawals and indebtedness) in the event the Owner cancels the Policy during
the Free-Look period. See "Free-Look Privileges." In those states, PLACA will
allocate to the Money Market Subaccount any premiums the Owner requests be
allocated to Subaccount(s) which are received at the Service Center within 15
days from the later of:
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<PAGE> 25
(1) the Policy Issue Date; or (2) the date PLACA receives the Minimum Initial
Premium. After this 15-day period ends, the value in the Money Market Subaccount
is allocated among the Subaccounts as indicated in the application. PLACA
invests all Net Premiums paid thereafter based on the allocation percentages
then in effect.
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.
POLICY ACCOUNT VALUE
The Policy Account Value is the total amount of value held under the Policy
at any time. It is equal to the sum of the Policy's values in the Subaccounts,
the Guaranteed Account and the Loan Account. The Policy Account Value minus any
applicable Surrender Charge is the Cash Surrender Value.
The Policy Account Value and Cash Surrender Value will reflect the
investment performance of the chosen Subaccounts, the crediting of interest for
the Guaranteed Account and the Loan Account, any Net Premiums paid, 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, or Policy Account Value transferred to a Subaccount are used to
purchase units of that Subaccount; units are redeemed when amounts are deducted,
transferred or withdrawn. The number of units of a Subaccount at any time equals
the number of units purchased minus the number of units redeemed up to such
time. For each Subaccount, the number of units purchased or redeemed in
connection with a particular transaction is determined by dividing the dollar
amount by the unit value.
Determination of Unit Value. The unit value of a Subaccount on any
Valuation Day is equal to the unit value on the immediately preceding Valuation
Day multiplied by the Net Investment Factor for that Subaccount on that
Valuation Day.
Net Investment Factor. The Net Investment Factor for each Subaccount
measures the investment performance of a Subaccount. The factor increases to
reflect investment income and capital gains, realized and unrealized, for the
shares of the underlying Portfolio. The factor decreases to reflect any capital
losses, realized or unrealized, for the shares of the underlying Portfolio as
well as the asset charge for mortality and expense risks.
POLICY DURATION
Policy Lapse. The Policy will remain in force as long as the Net Cash
Surrender Value of the Policy is sufficient to pay the Monthly Deductions and
other charges under the Policy. When the Net Cash Surrender Value is
insufficient to pay the charges and the Grace Period expires without an adequate
premium payment by the Owner, the Policy will lapse and terminate without value.
Notwithstanding the foregoing, during the first four Policy Years the Policy
will not lapse if the Minimum Guarantee Premium
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<PAGE> 26
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 both the Insureds' insurability satisfactory to PLACA or evidence
for the last surviving Insured and due proof that the first death occurred
before the date of lapse. Payment of an amount sufficient to keep the Policy in
force for at least three months following the effective date of the
reinstatement, which is the date that the reinstatement application is approved,
is also required. 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 twelve transfers have been made in any Policy Year, a $25 transfer
charge will be deducted from each transfer during the remainder of such Policy
Year. All transfers included in a single written request are treated as one
transfer. Transfers are made as of the date PLACA receives a written request at
its Service Center. Transfers resulting from Policy loans, Automatic Asset
Rebalancing, Dollar-Cost Averaging, the exercise of exchange privileges, and the
reallocation from the Money Market Subaccount following the 15-day period after
the Issue Date, are not subject to a transfer charge and do not count as one of
the 12 "free" transfers in any Policy Year. Under present law, transfers are not
taxable transactions.
Special Transfer Right. During the first two years following the Issue
Date, the Owner may, on one occasion, transfer the entire Policy Account Value
in the Subaccounts to the Guaranteed Account without a transfer charge and
without such transfer counting toward the twelve transfers permitted without
charge during a Policy Year.
Transfer Right for Change in Investment Policy of a Subaccount. If the
investment policy of a Subaccount is materially changed, the Owner may transfer
the portion of the Policy Account Value in such Subaccount to another Subaccount
or to the Guaranteed Account without a transfer charge and without having such
transfer count toward the twelve transfers permitted without charge during a
Policy Year.
Telephone Transfers. Transfers will be made upon instructions given by
telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to PLACA. PLACA reserves the
right to suspend telephone transfer privileges at any time for any class of
policies, for any reason. PLACA will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine and if it follows such
procedures it will not be liable for any losses due to authorized or fraudulent
instructions. PLACA, however, may be liable for such losses if it does not
follow those reasonable procedures. The procedures PLACA will follow for
telephone transfers 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.
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<PAGE> 27
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 Subaccount 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 Subaccount in certain
states; and (c) when the Subaccount value equals or exceeds the greater of the
minimum amount stated above and the amount of the first monthly transfer.
Once Dollar-Cost Averaging transfers have commenced, they occur monthly on
the Policy Processing Day until the specified number of transfers has been
completed, or (a) a policy loan is requested, (b) the policy goes into the grace
period, or (c) there is insufficient value in the Subaccount to make the
transfer. The Owner may instruct PLACA in writing to cancel Dollar-Cost
Averaging transfers at any time.
Transfers made under the Dollar-Cost Averaging program do not count toward
the twelve transfers permitted each Policy Year without imposing the Transfer
Charge. PLACA reserves the right to discontinue offering automatic transfers
upon 30 days' written notice to the Owner. Written notice will be sent to the
Owner confirming each transfer and when the Dollar-Cost Averaging program is
terminated. The Owner and agent are responsible for reviewing the confirmation
to verify that the transfers are being made as requested.
FREE-LOOK PRIVILEGES
Free-Look for Policy. The Policy provides for an initial Free-Look Period.
The Owner may cancel the Policy until the latest of: (a) 45 days after Part I of
the application for the Policy is signed, (b) 10 days after the Owner receives
the Policy and (c) 10 days after PLACA mails or personally delivers a Notice of
Withdrawal Right to the Owner. Upon 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
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<PAGE> 28
premiums paid; (iii) any Monthly Deductions charged against the accounts; (iv)
any Mortality and Expense Risk charges deducted from the value of the net assets
of the Subaccounts; and (v) any advisory fees and any other fees and expenses of
the Fund. A refund of all premiums paid is made for Policy's delivered in states
that require such a refund.
When state law requires a refund equal to gross premiums paid, the refund
will instead equal the gross premiums paid on the Policy and will not reflect
the investment experience of the Separate Account or interest earnings for the
Guaranteed Account.
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.
Allocation of Loans and Collateral. PLACA will allocate the amount of a
Policy loan among the Subaccounts and/or the Guaranteed Account based upon the
proportion that the value of the Subaccounts and/or the Guaranteed Account Value
bear to the total unloaned Policy Account Value at the time the loan is made.
The collateral for a Policy loan is the loan amount plus accrued interest
to the next Policy Anniversary, less interest at an effective annual rate of 4%
which is earned to such Policy Anniversary. PLACA will deduct the collateral for
the loan from each account based on the allocation described in the preceding
paragraph and transfer this amount to the Loan Account. The collateral is
recalculated: (a) when loan interest is repaid or added to loaned amount; (b)
when a new loan is made; and (c) when a loan repayment is made. A transfer to or
from the Loan Account will be made to reflect any recalculation of collateral.
At any time, the amount of the outstanding loan under a Policy equals the sum of
all loans (including due and unpaid interest added to the loan balance) minus
any loan repayments.
Interest Credited to Loan Account. As long as the Policy is in force,
PLACA credits the amount in the Loan Account with interest at effective annual
rates it determines, but not less than 4% or such higher minimum rate required
under state law. The rate will apply to the calendar year which follows the date
of determination. Loan interest credited is transferred to the Subaccounts or
the Guaranteed Account: (a) when loan interest is paid added to the loaned
amount; (b) when a loan repayment is made; and (c) when a new loan is made.
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 at least one 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
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<PAGE> 29
loan is allocated to the accounts based on the amount of the outstanding loan
allocated to each account as of the date of repayment; any repayment in excess
of the amount of the outstanding loan will be allocated to the accounts based on
the amount of interest due on the portion of the outstanding loan allocated to
each account. For this purpose, the amount of the interest due is determined as
of the next Policy Anniversary. Failure to repay a loan or to pay loan interest
will not cause the Policy to lapse unless the Net Cash Surrender Value on the
Policy Processing Day is less than the monthly deduction due. (See "Policy
Duration.")
Tax Considerations. Any loans taken from a Modified Endowment Contract
will be treated as a taxable distribution. In addition, with certain exceptions,
a 10% additional income tax penalty will be imposed on the portion of any loan
that is included in income. (See "Distributions from Policies Classified as
Modified Endowment Contracts.") Depending upon the investment performance of the
Subaccounts and the amounts borrowed, loans may cause the Policy to lapse. If
the Policy is not a Modified Endowment Contract, lapse of the Policy with
outstanding loans may result in adverse tax consequences. (See "Distributions
from Policies Not Classified as Modified Endowment Contracts.")
SURRENDER PRIVILEGE
At any time before the earlier of the death of the last surviving Insured
and the Final Policy Date, the Owner may surrender the Policy for its Net Cash
Surrender Value. The Net Cash Surrender Value is determined by PLACA as of the
date it receives, at its Service Center, a surrender request signed by the
Owner. Coverage under the Policy will end on the day the Owner mails or
otherwise sends the written surrender request to PLACA at the Service Center. A
surrender may have adverse federal income tax consequences. (See "Tax Treatment
of Policy Benefits.")
PARTIAL WITHDRAWAL PRIVILEGE
After the first Policy Year, at any time before the earlier of the death of
the last surviving Insured and the Final Policy Date, the Owner may withdraw a
portion of the Policy's Net Cash Surrender Value. The minimum amount which may
be withdrawn is $1,500. A withdrawal charge will be deducted from the Policy
Account Value. A partial withdrawal will not result in the imposition of
surrender charges.
The withdrawn amount and withdrawal charge will be allocated based on the
proportion that the Policy Account Value in the Subaccounts and the Guaranteed
Account Value bear to the total unloaned Policy Account Value.
The effect of a partial withdrawal on the Death Benefit and Face Amount
will vary depending upon the Death Benefit Option in effect and whether the
Death Benefit is based on the applicable percentage of Policy Account Value.
(See "Death Benefit Options.")
Option A. The effect of a partial withdrawal on the Face Amount and Death
Benefit under Option A can be described as follows:
If the Death Benefit equals the Face Amount, a partial withdrawal will
reduce the Face Amount and the Death Benefit by the amount of the partial
withdrawal.
For the purposes of this illustration (and the following illustrations
of partial withdrawals), assume that the Attained Age of the younger
Insured is under 40 and there is no indebtedness. The applicable percentage
is 250% for a younger Insured with an Attained Age under 40.
Under Option A, a contract with a Face Amount of $300,000 and a Policy
Account Value of $30,000 will have a Death Benefit of $300,000. Assume that
the 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
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<PAGE> 30
amount of the partial withdrawal. The Death Benefit will be reduced to
equal the greater of (a) the Face Amount after the partial withdrawal, and
(b) the applicable percentage of the Policy Account Value after deducting
the amount of the partial withdrawal and expense charge.
Under Option A, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000. Assume
that the policyowner takes a partial withdrawal of $49,975. The partial
withdrawal will reduce the Policy Account Value to $250,000
($300,000 - $49,975 - $25) and the Face Amount to $250,025
($300,000 - $49,975). The Death Benefit is the greater of (a) the Face
Amount of $250,025 and (b) the applicable percentage of the Policy Account
Value $625,000 ($250,000 x 2.5). Therefore, the Death Benefit will be
$625,000.
Option B. The Face Amount will never be decreased by a partial withdrawal.
A partial withdrawal will, however, always decrease the Death Benefit.
If the Death Benefit equals the Face Amount plus the Policy Account
Value, a partial withdrawal will reduce the Policy Account Value by the
amount of the partial withdrawal and expense charge and thus the Death
Benefit will also be reduced by the amount of the partial withdrawal and
the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $90,000 will have a Death Benefit of $390,000 ($300,000 +
$90,000). Assume the policyowner takes a partial withdrawal of $20,000. The
partial withdrawal will reduce the Policy Account Value to $69,975
($90,000 - $20,000 - $25) and the Death Benefit to $369,975 ($300,000 +
$69,975). The Face Amount is unchanged.
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, The Death
Benefit will be reduced to equal the greater of (a) the Face Amount plus
the Policy Account Value after deducting the partial withdrawal and expense
charge and (b) the applicable percentage of Policy Account Value after
deducting the amount of the partial withdrawal and the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000 ($300,000 x
2.5). Assume the policyowner takes a partial withdrawal of $149,975. The
partial withdrawal will reduce the Policy Account Value to $150,000
($300,000 - $149,975 - $25) and the Death Benefit to the greater of (a) the
Face Amount plus the Policy Account Value $450,000 ($300,000 + $150,000)
and (b) the Death Benefit based on the applicable percentage of the Policy
Account Value $375,000 ($150,000 x 2.5). Therefore, the Death Benefit will
be $450,000. The Face Amount is unchanged.
Because a partial withdrawal can affect the Face Amount and the Death
Benefit as described above, a partial withdrawal may also affect the Net Amount
at Risk which is used to calculate the cost of insurance charge under the
Policy. (See "Cost of Insurance.") A request for partial withdrawal may not be
allowed if, or to the extent that, such withdrawal would reduce the Face Amount
below the Minimum Face Amount for the Policy. Also, if a partial withdrawal
would result in cumulative premiums exceeding the maximum premium limitations
applicable under the Code for life insurance, PLACA will not allow such partial
withdrawal.
A partial withdrawal of Net Cash Surrender Value may have federal income
tax consequences. (See "Tax Treatment of Policy Benefits.")
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<PAGE> 31
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 Sales Charge. In Policy Years 1 to 15, 5% will be
deducted from each premium payment to partially compensate PLACA for the cost of
selling the Policy. At the present time PLACA does not intend to apply this
charge after Policy Year 15, but reserves the right to do so.
Federal Tax Charge. PLACA will deduct 1.25% from each premium payment to
cover the cost of federal taxes resulting from its receipt of such premium
payment under the Policy. Section 848 of the Code ties PLACA's corporate tax
burden, in part, to the receipt of such premium payments. PLACA represents that
this charge is reasonable in relation to its increased tax burden under Section
848 of the Code. In addition, PLACA reserves the right to change the amount of
this charge if the applicable federal tax law changes PLACA's tax burden.
SURRENDER CHARGES
A Surrender Charge, which consists of a Deferred Administrative Charge and
a Deferred Sales Charge, is imposed if the Policy is surrendered or lapses at
any time before the end of the 15th Policy Year. A portion of this Surrender
Charge will be deducted if the Owner decreases the Initial Face Amount before
the end of the 15th Policy Year.
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 and cost of insurance charge.
Deferred Administrative Charge. The Deferred Administrative Charge is as
follows:
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR OF INITIAL FACE AMOUNT
- ----------- ----------------------
<S> <C>
1-11............................. $5.00
12............................... 4.00
13............................... 3.00
14............................... 2.00
15............................... 1.00
16 and after..................... 0
</TABLE>
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<PAGE> 32
The actual Deferred Administrative Charge is the charge described above
less the amount of any Deferred Administrative Charge previously paid at the
time of a decrease in Face Amount.
Deferred Sales Charge. The Deferred Sales Charge will not exceed the
Maximum Deferred Sales Charges specified in the Policy. This maximum equals the
Target Premium for the Face Amount multiplied by the specified percentage shown
in the table below. The Maximum Deferred Sales Charge deceases by 20% of the
original amount each year in Policy Years 12 through 15.
<TABLE>
<CAPTION>
POLICY YEAR
------------------------------------------------
JOINT EQUAL AGES 1-11 12 13 14 15 16 AND AFTER
- ---------------- ---- --- --- --- --- ------------
<S> <C> <C> <C> <C> <C> <C>
25-71..................................... 60% 48% 36% 24% 12% 0
72-73..................................... 50 40 30 20 10 0
74-75..................................... 40 32 24 16 8 0
76-78..................................... 30 24 18 12 6 0
79-80..................................... 20 15 12 8 4 0
</TABLE>
The Deferred Sales Charge actually imposed will equal the lesser of this maximum
and an amount equal to 25% of the premiums actually received during the first
Policy Year up to one Target Premium plus 4% of all other premiums paid to the
date of surrender or lapse, less any Deferred Sales Charge previously paid at
the time of a decrease in Face Amount.
Surrender Charge Upon Decrease in Face Amount. A surrender charge may be
deducted on a decrease in Face Amount. In the event of a decrease, the surrender
charge deducted is a fraction of the charge that would apply to a full surrender
of the Policy. The fraction will be determined by dividing the amount of the
decrease by the current Face Amount and multiplying the result by the Surrender
Charge.
Allocation of Surrender Charges. The Surrender Charge will be deducted
from the Policy Account Value. For surrender charges resulting from Face Amount
decreases, that part of any such surrender charge will reduce the Policy Account
Value and will be allocated among the accounts based on the proportion that the
value in each of the Subaccounts and the Guaranteed Account Value bear to the
total unloaned Policy Account Value.
MONTHLY DEDUCTIONS
Charges will be deducted from the Policy Account Value on the Policy Date
and on each Policy Processing Day to compensate PLACA for administrative
expenses and for the insurance coverage provided by the Policy. The Monthly
Deduction consists of four components -- (a) the cost of insurance, (b)
insurance underwriting and expenses in connection with issuing the policy
(Initial Administrative Charge), (c) administrative expenses, and (d) the cost
of any additional benefits provided by rider. Because portions of the Monthly
Deduction, such as the cost of insurance, can vary from month to month, the
Monthly Deduction may vary in amount from month to month. The Monthly Deduction
is deducted from the Subaccounts and the Guaranteed Account in accordance with
the allocation percentages for Monthly Deductions chosen by the Owner at the
time of application, or as later changed by PLACA pursuant to the Owner's
written request. If PLACA cannot make a monthly deduction on the basis of the
allocation schedule then in effect, PLACA makes the deduction based on the
proportion that the Owner's Guaranteed Account Value and the value in the
Owner's Subaccounts bear to the total unloaned Policy Account Value.
Cost of Insurance. Because the cost of insurance depends upon several
variables, the cost for each Policy Month can vary. PLACA will determine the
monthly Cost of Insurance Charge by multiplying the applicable cost of insurance
rate or rates by the Net Amount at Risk for each Policy Month.
The Net Amount at Risk on any Policy Processing Day is the amount by which
the Death Benefit exceeds the Policy Account Value. In calculating the Cost of
Insurance Charge, the rate is applied to the Net Amount at Risk. Any change in
the Net Amount at Risk will affect the total Cost of Insurance Charges paid by
the Owner.
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<PAGE> 33
Cost of Insurance Rate. The cost of insurance rate is based on the
Attained Age, Sex, Premium Class of each Insured and Duration. The actual
monthly cost on insurance rates will be based on PLACA's expectations as to
future mortality and expense experience. They will not, however, be greater than
the guaranteed maximum cost of insurance rates set forth in the Policy. These
guaranteed maximum rates are based on each Insured's Attained Age, Sex, Premium
Class, and the 1980 Commissioners 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 pairs of Insureds of the same
Attained, Age, Sex, and Premium Class and Duration.
Premium Class. The Premium Class of the Insureds will affect the cost of
insurance rates. PLACA currently places Insureds into standard classes and
classes with extra ratings, which reflect higher mortality risks. In an
otherwise identical Policy, 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.
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.
Initial Administrative Charge. An Initial Administrative Charge of $17.50
plus $0.11 per $1,000 of Initial Face Amount 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 plus $0.01 per $1,000 of Face Amount) is deducted from the Policy Account
Value on the Policy Date and each Policy Processing Day as part of the Monthly
Deduction. This charge may be increased, but in no event will it be greater than
$12 plus $0.03 per $1,000 of Face Amount per month. This charge is intended to
reimburse PLACA for ordinary administrative expenses expected to be incurred,
including record keeping, processing claims and certain Policy changes,
preparing and mailing reports, and overhead costs.
Additional Benefit Charges. The Monthly Deduction will include charges for
any additional benefits added to the Policy. The monthly charges will be
specified in the applicable rider.
PARTIAL WITHDRAWAL CHARGE
A charge of $25 will be deducted from the Policy Account Value for each
partial withdrawal of Net Cash Surrender Value. This charge is intended to
compensate PLACA for the administrative costs in effecting the requested payment
and in making all calculations which may be required by reason of the partial
withdrawal.
TRANSFER CHARGE
After twelve 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 Subaccount to other Subaccounts. These transfers will not count against
the twelve 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 Account to compensate PLACA for mortality and expense risks assumed in
connection with the Policy. This charge will be deducted at an annual rate of
0.65% (or a daily rate of .001781%) of the average daily net assets of
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<PAGE> 34
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 the
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 Funds' 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> 35
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 Account, 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
32
<PAGE> 36
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 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> 37
OTHER POLICY PROVISIONS
BENEFIT PAYABLE ON FINAL POLICY DATE
If one of the Insureds is living on the Final Policy Date (at the younger
Insured's Attained Age 100), PLACA will pay the Owner the Policy Account Value
less any outstanding Policy loan and accrued interest and any unpaid Monthly
Deductions. Insurance coverage under the Policy will then end. Payment will
generally be made within seven days of the Final Policy Date.
PAYMENT OF POLICY BENEFITS
Insurance Proceeds under a Policy will ordinarily be paid to the
Beneficiary within seven days after PLACA receives proof of both Insureds'
deaths at its Administrative Office and all other requirements are satisfied.
Insurance proceeds will be paid in a single sum unless an alternative settlement
option has been selected.
If Insurance Proceeds are payable in a single sum, interest at the annual
rate of 3% or any higher rate declared by PLACA or required by law is paid on
the Insurance Proceeds from the date of death until payment is made.
Any amounts payable as a result of surrender, partial withdrawal, or Policy
loan will ordinarily be paid within seven days of receipt of written request at
PLACA's Administrative Office in a form satisfactory to PLACA.
Generally, the amount of a payment from the Separate Account will be
determined as of the date of receipt by PLACA of all required documents.
However, PLACA may defer the determination or payment of such amounts if the
date for determining such amounts falls within any period during which: (1) the
disposal or valuation of a Subaccount's assets is not reasonably practicable
because the New York Stock Exchange is closed or conditions are such that, under
the SEC's rules and regulations, trading is restricted or an emergency is deemed
to exist; or (2) the SEC by order permits postponement of such actions for the
protection of PLACA policyholders. As to amounts allocated to the Guaranteed
Account, PLACA may defer payment of any withdrawal or surrender of Net Cash
Surrender Value and the making of a loan for up to six months after PLACA
receives a written request at its Administrative Office. PLACA will allow
interest, at a rate of 3% a year, on any payment PLACA defers for 30 days or
more as described above.
The Owner may decide the form in which proceeds will be paid. Before the
death of the last surviving Insured, the Owner may arrange for the Insurance
Proceeds to be paid in a lump sum or under a Settlement Option. These choices
are also available upon surrender of the Policy for its Net Cash Surrender Value
and for payment of the Policy Account Value on the Final Policy Date. If no
election is made, payment will be made in a lump sum. The Beneficiary may also
arrange for payment of the Insurance Proceeds in a lump sum or under a
Settlement Option. If the Beneficiary is changed, any prior arrangements with
respect to the Payment Option will be canceled.
THE POLICY
The Policy and the application(s) attached thereto are the entire contract.
Only statements made in the applications can be used to void the Policy or deny
a claim. PLACA assumes that all statements in an application are made to the
best of the knowledge and belief of the person(s) who made them, and, in the
absence of fraud, those statements are considered representations and not
warranties. PLACA relies on those statements when it issues or changes a Policy.
Only the President or a Vice President of PLACA can agree to change or waive any
provisions of the Policy and only in writing. As a result of differences in
applicable state laws, certain provisions of the Policy may vary from state to
state.
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<PAGE> 38
OWNERSHIP
The Owner is the Insureds, jointly, unless a different Owner is named in
the application or thereafter changed. After the death of the first Insured, the
surviving Insured will be the Owner, unless otherwise provided. While both or
one of the Insured is living, the Owner is entitled to exercise any of the
rights stated in the Policy or otherwise granted by PLACA. If the Insureds and
Owner are not the same, and the Owner dies while an Insured is living, these
rights will vest in the estate of the Owner, unless otherwise provided.
BENEFICIARY
The Beneficiary is designated in the application for the Policy, unless
thereafter changed by the Owner before the death of the last surviving Insured
by written notice to PLACA. Any Insurance Proceeds for which there is not a
designated Beneficiary surviving at the death of the last surviving Insured are
payable in a single sum to the executors or administrators of the last surviving
Insured.
CHANGE OF OWNER 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. The change will take effect as
of the date it is signed, whether or not one of 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.
ASSIGNMENTS
The Owner may assign any and all rights under the Policy. No assignment
binds PLACA unless in writing and received by PLACA at it's Administrative
Office. PLACA assumes no responsibility for determining whether an assignment is
valid and the extent of the assignee's interest. All assignments will be subject
to any Policy loan. The interest of any Beneficiary or other person will be
subordinate to any assignment. A Beneficiary may not commute, encumber, or
alienate Policy benefits, and to the extent permitted by applicable law, such
benefits are not subject to any legal process for the payment of any claim
against the payee.
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<PAGE> 39
MISSTATEMENT OF AGE AND SEX
If the age or sex of either Insured has been misstated in the application,
the Death Benefit and any benefits provided by riders will be such as the most
recent Monthly Deductions would have provided at the correct age and sex. No
adjustment will be made to the Policy Account Value.
SUICIDE
PLACA's liability is limited to payment of a sum equal to the premiums paid
less any Policy loan and accrues interest on such loan and any partial
withdrawals if:
(a) both Insureds commit suicide within two years of the Policy Issue Date
(except where state law requires a shorter period) and within 90 days
of each other; or
(b) the last surviving Insured dies by suicide within such two year period
and within 90 days of the death of the first of the Insureds to die; or
(c) the last surviving Insured lives for more than 90 days beyond the date
that the first Insured's death occurred by suicide and does not
exchange the Policy as described below.
During the 90 day period following the date that the first Insured dies by
suicide, the surviving Insured may exchange the survivorship policy, without
evidence of insurability, for a fixed-benefit policy issued by PLACA on the life
of such surviving Insured. The Policy Issue Date for the new policy will be the
91st day after the date of the first Insured's death. In the event one of the
Insureds commits suicide within two years of the Policy Issue Date and the
surviving Insured does not exercise this exchange right, coverage under the
Policy will end on the 91st day following such death.
If one of the Insured commits suicide within two years of the Policy Issue
Date (or shorter period required by state law) and the surviving Insured dies,
other than by suicide, within 90 days of the date of the first death, PLACA will
pay the Insurance Proceeds to the Beneficiary.
CONTESTABILITY
PLACA has the right to contest the validity of a Policy based on material
misstatements made in the application for the Policy or a change. However, PLACA
will not contest the Policy (or any change) after it (or the change) has been in
force during each Insured's lifetime for two years from the Issue Date.
DIVIDENDS
The Policy is participating; however, no dividends are expected to be paid
on the Policy. If dividends are ever declared, they will be paid under one of
the following options:
(a) Paid in cash; or
(b) Applied as a Net Premium.
The Owner must choose an option at the time the application for the Policy
is signed. If no option is chosen, any dividend will be applied as a Net Premium
payment. The Owner may change the option by giving written notice to PLACA.
SETTLEMENT OPTIONS
In lieu of a single sum payment on death or surrender, an election may be
made to apply the proceeds under any one of the fixed-benefit Settlement Options
provided in the Policy. 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 as elected at a rate of at least 3% per year.
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Installments of a Specified Amount Option. Payable in equal installments
until proceeds applied under the Option and interest on the unpaid balance at 3%
per year and any additional interest are exhausted.
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
during the joint lives of the payee and one other person and during the life of
the survivor. The minimum number of payments will be for either 120 or 240
months, as elected.
SUPPLEMENTARY BENEFITS
The following riders offer supplementary benefits. Most are subject to
various age and underwriting requirements and, unless otherwise indicated, must
be purchased when the Policy is issued. The cost of each rider is included in
the monthly deduction.
Disability Waiver Benefit. The policy may include a Disability Waiver
Benefit rider for either or both Insureds. This rider provides that in the event
of such Insured's total disability before Attained Age 60 and continuing for at
least six months, PLACA will apply a premium payment to the Policy on each
Policy Processing Day during the first four Policy Years (the amount of the
payment will be based on the Minimum Annual Premium). PLACA will also waive all
monthly deductions after the commencement of and during the continuance of such
total disability after the first four Policy Years.
Policy Split Option. Under certain circumstances, the Policy can be split
on a 50/50 basis into two fixed-benefit life insurance policies, one on the life
of each Insured, with evidence of insurability. A policy split can be made if a
final divorce decree is issued with respect to the marriage of the two Insureds
or if the Federal Estate Tax law is changed resulting in removal of the
unlimited marital deduction or a reduction of at least 50% in the estate taxes
payable on death. The Face Amount and Policy Account Value less Policy loans and
accrued interest will be divided evenly between the two new policies. For a
discussion of the tax consequences of a policy split, see "Taxation of Policy
Split."
Change of Insured. A Change of Insured rider permits the Owner to change
one of the Insureds under a Policy to a New 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 and the Remaining Insured as
of the effective date of the change.
Four year Survivorship Term Life Insurance. The Policy may include a Four
Year Survivorship Term rider which provides additional term insurance during the
first four Policy Years upon due proof of the death of both Insureds. The amount
of this term insurance is 1.25 multiplied by the Face Amount of the Policy.
Other Insured Convertible Term Life Insurance. An Other Insured
Convertible Term Life Insurance rider provides additional term insurance on one
of the Insureds. Two riders may be included to cover each Insured. The amount of
term insurance on either or both Insureds is shown in the Policy Schedule.
Guaranteed Minimum Death Benefit. A Guaranteed Minimum Death Benefit rider
provides a guarantee that the Policy will not lapse if the sum of premiums paid
less any partial withdrawals less any policy loans equals or exceeds the Minimum
Guarantee Premium. This rider expires at the later of the policy anniversary
nearest age 70 of the older Insured or the end of the tenth Policy year. This
rider is not available if Death Benefit Option B is elected at issue and will
terminate if the Policy is changed to Death
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<PAGE> 41
Benefit Option B. If this rider is added, the Monthly Deduction will be
increased to include the cost of this rider.
If the Guaranteed Minimum Death Benefit is lost due to insufficient premium
payments, it may be possible to regain the guarantee in future years. Federal
tax law may preclude payment of sufficient premiums to maintain the guarantee
following a decrease in Face Amount, a partial withdrawal that reduces the Face
Amount, reduction or deletion of a rider benefit or an improvement in the
Policy's Premium Class.
Final Policy Date Extension. A Final Policy Date Extension rider extends
the Final Policy Date of a Policy 20 years from the original Final Policy Date.
It may only be added on or after the anniversary nearest the younger insured's
90th birthday. There is no charge for adding this rider. The death benefit after
the original Final Policy Date will be the Policy Account Value. All other
riders attached and in effect on the original Final Policy Date will terminate
on the original Final Policy Date.
The tax consequences of (1) adding a Final Policy Date Extension rider to
the Policy, and (2) the Policy continuing in force after the younger Insured's
100th birthday are uncertain. Prospective Owners and Owners considering the
addition of a Final Policy Date Extension to a Policy should consult their own
legal or other advisors as to such consequences.
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<PAGE> 42
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. The manner in which these
requirements are to be applied to certain features of the Policy are not
directly addressed by the Code, and there is limited guidance as to how these
requirements are to be applied. Nevertheless, PLACA believes that a Policy
should satisfy the applicable Code requirements. Because of the absence of
pertinent interpretations of the Code, however, there is some uncertainty about
the application of these requirements to the Policy, 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 Account
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 Account, 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> 43
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 any Policy year or
any year 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 reduction in the Policy's death benefits at any time below the
lowest level of death benefits payable during the first seven policy years could
cause the Policy 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.
If a Policy becomes a Modified Endowment Contract, distributions that occur
during the contract year will be taxed as distributions from a Modified
Endowment Contract. In addition, distributions from a Policy within two years
before it becomes a Modified Endowment Contract will be taxed in this manner.
This means that a distribution made from a Policy that is not a Modified
Endowment Contract could later become taxable as a distribution from a Modified
Endowment Contract.
Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a Policy that
is not classified as a Modified Endowment Contract are generally treated first
as a recovery of the Owner's investment in the Policy and only after the
recovery of all investment in the Policy as taxable income. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for Federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole or
in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a Modified Endowment Contract
are generally not treated as distributions.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a Modified Endowment Contract are subject to the 10 percent
additional income tax.
Investment in the Policy. The Owner's investment in the Policy is
generally the aggregate premium payments. When a distribution is taken from the
Policy, the Owner's investment in the Policy is reduced by the amount of the
distribution that is tax-free.
Policy Loans. In general, interest on a Policy loan will not be
deductible. Before taking out a Policy loan, an Owner should consult a tax
adviser as to the tax consequences.
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Multiple Policies. All Modified Endowment Contracts that are issued by
PLACA (or its affiliates) to the same Owner during any calendar year are treated
as one Modified Endowment Contract for purposes of determining the amount
includible in the Owner's income when a taxable distribution occurs.
Taxation of Policy Split. The Policy Split Option Rider permits a Policy
to be split into two other fixed-benefit life policies upon the occurrence of a
divorce of the joint insureds or certain changes in federal estate tax law. A
policy split could have adverse tax consequences; for example, it is not clear
whether a policy split will be treated as a nontaxable exchange under Section
1031 through 1043 of the Code. If a policy split is not treated as a nontaxable
exchange, a split could result in the recognition of taxable income in an amount
up to any gain in the Policy at the time of the split. In addition, it is not
clear whether, in all circumstances, the individual contracts that result from a
policy split would be treated as life insurance contracts for federal income tax
purposes and, if so treated, whether the individual contracts would be
classified as modified endowment contracts. Before you exercise rights provided
by the policy split option, it is important that you consult with a competent
tax adviser regarding the possible consequences of a policy split.
BUSINESS USES OF THE POLICY
Businesses can use the Policy in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances. If an Owner
is purchasing the Policy for any arrangement the value of which depends in part
on its tax consequences, he or she should consult a qualified tax adviser. In
recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
Policy or a change in an existing Policy should consult a tax adviser.
The transfer of the Policy or designation of a beneficiary may have
federal, state, and/or local transfer and inheritance tax consequences,
including the imposition of gift, estate, and generation-skipping transfer
taxes. For example, the transfer of the Policy to, or the designation as a
beneficiary of, or the payment of proceeds to, a person who is assigned to a
generation which is two or more generations below the generation assignment of
the owner may have generation skipping transfer tax consequences under federal
tax law. The individual situation of each owner or beneficiary will determine
the extent, if any, to which federal, state, and local transfer and inheritance
taxes may be imposed and how ownership or receipt of Policy proceeds will be
treated for purposes of federal, state and local estate, inheritance, generation
skipping and other taxes.
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
Account's operations. Thus, currently PLACA does not deduct charges from the
Separate Account for its Federal income taxes. PLACA reserves the right to
charge the Separate Account 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.
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,
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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 Separate Account will be
invested in shares of corresponding portfolios of the Funds. The Funds do not
hold routine annual shareholders' meetings. Shareholders' meetings will be
called whenever each Fund believes that it is necessary to vote to elect the
Board of Directors of the Fund and to vote upon certain other matters that are
required by the 1940 Act to be approved or ratified by the shareholders of a
mutual fund. PLACA is the legal owner of Fund shares and as such has the right
to vote upon any matter that may be voted upon at a shareholders' meeting.
However, in accordance with its view of present applicable law, PLACA will vote
the shares of the Funds at meetings of the shareholders of the appropriate Fund
or Portfolio in accordance with instructions received from Owners. Fund shares
held in each Subaccount for which no timely instructions from policyowners are
received will be voted by PLACA in the same proportion as those shares in that
Subaccount for which instructions are received.
Each Owner having a voting interest will be sent proxy material and a form
for giving voting instructions. Owners may vote, by proxy or in person, only as
to the Portfolios that correspond to the Subaccounts in which their Policy
values are allocated. The number of shares held in each Subaccount attributable
to a Policy for which the Owner may provide voting instructions will be
determined by dividing the Policy's value in that account by the net asset value
of one share of the corresponding Portfolio as of the record date for the
shareholder meeting. Fractional shares will be counted. For each share of a
Portfolio for which Owners have no interest, PLACA will cast votes, for or
against any matter, in the same proportion as Owners vote.
If required by state insurance officials, PLACA may disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the investment objectives or policies of one or more of the
Portfolios, or to approve or disapprove an investment policy or investment
adviser of one or more of the Portfolios. In addition, PLACA may disregard
voting instructions in favor of changes initiated by an Owner or the Fund's
Board of Directors provided that PLACA's disapproval of the change is reasonable
and is based on a good faith determination that the change would be contrary to
state law or otherwise inappropriate, considering the portfolio's objectives and
purposes, and the effect the change
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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.
STANDARD & POOR'S
Standard & Poor's(R), S&P 500(R), Standard & Poor's 500 and 500 are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
PLACA and the Market Street Fund, Inc. ("Market Street"). Neither the Policy nor
the Equity 500 Index Portfolio is sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P").
S&P makes no representation or warranty, express or implied, to the owners
of the Policy and the Equity 500 Index Portfolio or any member of the public
regarding the advisability of investing in securities generally or in the Policy
and the Equity 500 Index Portfolio particularly or the ability of the S&P 500
Index to track general stock market performance. S&P's only relationship to
PLACA and Market Street is the licensing of certain trademarks and trade names
of S&P and of the S&P 500 Index which is determined, composed and calculated by
S&P without regard to PLACA, Market Street, the Policy, or the Equity 500 Index
Portfolio. S&P has no obligation to take the needs of PLACA, Market Street, or
the owners of the Policy or the Equity 500 Index Portfolio into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not responsible
for and has not participated in the determination of the prices and amount of
the Policy or the Equity 500 Index Portfolio or the timing of the issuance or
sale of the Policy or the Equity 500 Index Portfolio or in the determination or
calculation of the equation by which the Policy or the Equity 500 Index
Portfolio are to be converted into cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the Policy or the
Equity 500 Index Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY PLACA, MARKET STREET, OWNERS OF THE
POLICY AND THE EQUITY 500 INDEX PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
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CHANGES TO THE SEPARATE ACCOUNT OR FUNDS
CHANGES TO SEPARATE 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 Separate Account to
another separate account, (2) to create additional separate accounts, (3) to
create Subaccounts from, or combine or remove Subaccounts from the Separate
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 Separate 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 Separate 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 Separate 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 Separate 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.
The Strong Opportunity Fund II, Inc. and Strong Variable Insurance
Funds, Inc. The Agreement with the Strong Opportunity Fund II, Inc. and
Strong Variable Insurance Funds, Inc. provides for termination as to any
Fund: 1) upon six (6) months' advance notice (after the Agreement has been
in force for one year); 2) upon annual renewal of the Agreement with thirty
(30) days' prior written notice; 3) by the investment adviser (the
"Adviser"), Fund or distributors in the event: (a) PLACA has suffered a
material adverse change in its business, operations, financial condition or
prospects or is the subject of material adverse publicity; or (b) any of
the Policies are not registered, issued or sold in accordance with
applicable law or such law precludes the use of Fund shares as the
underlying investment media of the Policies; 4) by PLACA in the event that:
(a) any of the Fund shares are not registered, issued or sold in accordance
with applicable law or such law precludes the use of such shares as the
underlying investment media of the Policies; (b) the Fund ceases to qualify
as a regulated investment company under the Code; or (c) a Fund fails to
meet diversification requirements; 5) upon thirty (30) days' written notice
in the event of a material breach of the Agreement that is not cured during
such 30-day period, and (b)(i) upon institution of formal proceedings
relating to the legality of the terms and conditions of the Agreement
against the Separate Account, PLACA, any designee, the Funds, Adviser or
distributors by the NASD, the SEC or any other regulatory body provided
that the terminating party has a reasonable belief that the institution of
formal proceedings is not without foundation and will have a material
adverse impact on the terminating party, (ii) by the non-assigning party
upon the assignment of the Agreement in contravention of the terms hereof,
or (iii) as is required by law, order or instruction by a court of
competent jurisdiction or a regulatory body or self-regulatory organization
with jurisdiction over the terminating party.
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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PLACA'S EXECUTIVE OFFICERS AND DIRECTORS
PLACA is governed by a board of directors. The following table sets forth
the name, address, and principal occupation during the past 5 years of each of
PLACA's executive officers and directors. Unless otherwise noted, each person's
address is Provident Mutual Life Insurance Company, 1000 Chesterbrook Boulevard,
Berwyn, Pennsylvania 19312.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME POSITION WITH PLACA PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ---- ------------------- ----------------------------------------
<S> <C> <C>
Robert W. Kloss Director and President 1996 to present -- President and Chief Executive
Officer of Provident Mutual Life Insurance
Company; 1994 to 1996 -- President and Chief
Operating Officer of Provident Mutual Life
Insurance Company
James G. Potter, Jr Director, Secretary 12/97 to present -- Executive Vice President,
and Legal Officer General Counsel & Secretary of Provident Mutual
Life Insurance Company; 6/89 to 11/97 -- Chief
Legal Officer of Prudential Banks
James D. Kestner Director 1994 to present -- Vice President of Provident
Mutual Life Insurance Company
Sarah C. Lange Director 1983 to present -- Senior Vice President and
Chief Investment Officer of Provident Mutual
Life Insurance Company
Alan F. Hinkle Director, Vice 1996 to present -- Executive Vice President and
President and Actuary Chief Actuary of Provident Mutual Life Insurance
Company; 1974 to 1996 -- Vice President and
Individual Actuary of Provident Mutual Life
Insurance Company
Joan C. Tucker* Director and 1996 to present -- Executive Vice President,
Vice President Corporate Operations at Provident Mutual Life
Insurance Company; 1996 -- Senior Vice
President, Insurance Operations of Provident
Mutual Life Insurance Company; 1993 to
1996 -- Vice President Individual Insurance
Operations at Provident Mutual Life Insurance
Company
Mary Lynn Finelli Director 1996 to present -- Executive Vice President and
Chief Financial Officer of Provident Mutual Life
Insurance Company; 1986 to 1996 -- Vice
President and Controller of Provident Mutual
Life Insurance Company
Mehran Assadi* Director 1998 to present -- Executive Vice President and
Chief Information Officer of Provident Mutual
Life Insurance Company; 1982-1998 -- Vice
President, Technology and Business Development
at St. Paul Company
Linda M. Springer Director 1996 to present -- Vice President and Controller
of Provident Mutual Life Insurance Company; 1995
to 1996 -- Assistant Vice President and Actuary
of Provident Mutual Life Insurance Company
Stephen L. White Vice President and 1995 to present -- Vice President and Actuary of
Actuary Provident Mutual Life Insurance Company
Michael Funck Financial Reporting 1995 to present -- Manager, Finance and
Officer Accounting of Provident Mutual Life Insurance
Company
Rosanne Gatta Treasurer 1994 to present -- Vice President and Treasurer
of Provident Mutual Life Insurance Company
</TABLE>
- ---------------
* The address is 300 Continental Drive, Newark, Delaware 19713
PLACA holds the Separate Account's assets physically segregated and apart
from the general account. PLACA maintains records of all purchases and sale of
portfolio shares by each of the Subaccounts. A fidelity bond
46
<PAGE> 50
in the amount of $10 million per occurrence and $20 million in the aggregate
covering PLACA's officers and employees has been issued by Reliance Insurance
Company.
DISTRIBUTION OF POLICIES
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell PLACA's variable life insurance policies,
and who are also registered representatives of 1717 Capital Management Company
("1717") or registered representatives of broker/dealers who have Selling
Agreements with 1717 or registered representatives of broker/dealers who have
Selling Agreements with such broker/dealers. 1717, whose address is Christiana
Executive Campus, P.O. Box 15626, Wilmington, Delaware 19850, is a registered
broker/dealer under the Securities Exchange Act of 1934 (the "1934 Act") and a
member of the National Association of Securities Dealers, Inc. (the "NASD").
1717 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 the proposed Insureds'
Premium Class and whether to accept or reject an application for a Policy is
done by PLACA. PLACA will refund any premiums paid if a Policy ultimately is not
issued or will refund the applicable amount if the Policy is returned under the
Free-Look provision.
Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. During the first Policy
Year, agent commissions will not be more than 84% of the premiums paid up to a
target amount (used only to determine commission payments) and 2% of the
premiums paid in excess of that amount. Agent commissions will not be more than
2% of premiums paid for Policy Year 2 through 10 and for years 11 and later, 0%
of the premiums paid. 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. Agents may also receive compensation in the form of
non-cash compensation, subject to applicable regulatory requirements. In some
circumstances and to the extent permitted by applicable regulatory requirements,
1717 may reimburse certain sales and marketing expenses or pay other forms of
special compensation to selling broker-dealers. 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.
47
<PAGE> 51
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.
48
<PAGE> 52
DEFINITIONS
APPLICATION................... The application the Owner must complete to
purchase a Policy plus all forms required by
PLACA or applicable law.
ATTAINED AGE.................. For each Insured such Insured's Issue Age plus
the number of full Policy Years since the
Policy Date.
BENEFICIARY................... The person(s) or entity(ies) designated to
receive all or some of the Insurance Proceeds
when the last surviving Insured dies. The
Beneficiary is designated in the application or
if subsequently changed, as shown in the latest
change filed with PLACA. If no Beneficiary
survives and unless otherwise provided, the
last surviving Insured's estate will be the
Beneficiary.
CASH SURRENDER VALUE.......... The Policy Account Value minus any applicable
Surrender Charge.
DEATH BENEFIT................. Under Option A, the greater of the Face Amount
or a percentage of the Policy Account Value on
the date of death; under Option B, the greater
of the Face Amount plus the Policy Account
Value on the date of death, or a percentage of
the Policy Account Value on the date of death.
DURATION...................... The number of full years the insurance has been
in force -- measured from the Policy Date.
FACE AMOUNT................... The Initial Face Amount minus any subsequent
decreases in Face Amount including any
decreases due to changes from Death Benefit
Option B to Option A.
FINAL POLICY DATE............. The Policy Anniversary nearest the younger
Insured's Attained Age 100 at which time the
Policy Account Value, if any, (less any
outstanding Policy loan and accrued interest)
will be paid to the Owner if either Insured is
living. The Policy will end on the Final Policy
Date.
GRACE PERIOD.................. The 61-day period allowed for payment of a
premium following the date PLACA mails notice
of the amount required to keep the Policy in
force.
INITIAL FACE AMOUNT........... The Face Amount of the Policy on the Issue
Date. The Face Amount may be decreased after
issue.
INSURANCE PROCEEDS............ The net amount to be paid to the Beneficiary
when the last surviving Insured dies.
INSURED....................... The persons upon whose lives the Policy is
issued.
ISSUE AGE..................... The age of each Insured at his or her birthday
nearest the Policy Date. The Issue Ages are
stated in the Policy.
JOINT EQUAL AGE............... An age aligned to the two Insureds which is
actuarially determined by PLACA based solely on
the Issue Age of each Insured.
LOAN ACCOUNT.................. The account to which the collateral for the
amount of any Policy loan is transferred from
the Subaccounts and/or the Guaranteed Account.
MINIMUM ANNUAL PREMIUM........ The annual amount which is used to determine
the Minimum Guarantee Premium. This amount is
stated in each Policy.
MINIMUM FACE AMOUNT........... The Minimum Face Amount is $100,000.
49
<PAGE> 53
MINIMUM GUARANTEE PREMIUM..... The Minimum Annual Premium multiplied by the
number of months since the Policy Date
(including the current month) divided by 12.
MINIMUM INITIAL PREMIUM....... Equal to the Minimum Annual Premium multiplied
by the following factor for the specified
premium mode at issue: Annual -- 1.0;
Semi-annual -- 0.5; Quarterly -- 0.25;
Monthly -- 0.167.
MONTHLY DEDUCTIONS............ The amount deducted from the Policy Account
Value on each Policy Processing Day. It
includes the Monthly Administrative Charge, the
Initial Administrative Charge, the Monthly Cost
of Insurance Charge, and the monthly cost of
any benefits provided by riders.
NET AMOUNT AT RISK............ The amount by which the Death Benefit exceeds
the Policy Account Value.
NET CASH SURRENDER VALUE...... The Cash Surrender Value minus any outstanding
Policy loans and accrued interest.
NET PREMIUMS.................. The remainder of a premium after the deduction
of the Premium Expense Charge.
OWNER......................... The person(s) or entity(ies) entitled to
exercise the rights granted in the Policy.
PLANNED PERIODIC PREMIUM...... The premium amount which the Owner plans to pay
at the frequency selected. The Owner is
entitled to receive a reminder notice and
change the amount of the Planned Periodic
Premium. The Owner is not required to pay the
Planned Periodic Premium.
POLICY ACCOUNT VALUE.......... The sum of the Policy's values in the
Subaccounts, the Guaranteed Account, and the
Loan Account.
POLICY ANNIVERSARY............ The same day and month as the Policy Date in
each later year.
POLICY DATE................... The date set forth in the Policy that is used
to determine Policy Years and Policy Processing
Days. The Policy Date is generally the same as
the Issue Date but may be another date mutually
agreed upon by PLACA and the proposed Insured.
POLICY ISSUE DATE............. The date on which the Policy is issued. It is
used to measure suicide and contestable
periods.
POLICY PROCESSING DAY......... The day in each calendar month which is the
same day of the month as the Policy Date. The
first Policy Processing Day is the Policy Date.
POLICY YEAR................... A year that starts on the Policy Date or on a
Policy Anniversary.
PREMIUM CLASS................. The classification of each Insured for cost of
insurance purposes. The classes are: 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, the
Percent of Premium Sales Charge and the Federal
Tax Charge.
50
<PAGE> 54
SERVICE CENTER................ The Technology and Service Center located at
300 Continental Drive, Newark, Delaware 19713.
SUBACCOUNT.................... A division of the Providentmutual Variable Life
Separate Account. The assets of each Subaccount
are invested exclusively in a corresponding
mutual fund Portfolio that is part of one of
the Funds.
SURRENDER CHARGE.............. The amount deducted from the Policy Account
Value upon lapse or surrender of the Policy
during the first 15 Policy Years. A pro-rata
Surrender Charge will be deducted upon a
decrease in the Initial Face Amount during the
first 15 Policy Years. The Maximum Surrender
Charge is shown in the Policy.
TARGET PREMIUM................ An amount based on the Initial Face Amount and
Joint Equal Age of the Insureds used to compute
Surrender Charges.
VALUATION DAY................. Each day that the New York Stock Exchange is
open for business and any other day on which
there is a sufficient degree of trading with
respect to a Subaccount's portfolio of
securities to materially affect the value of
that Subaccount.
VALUATION PERIOD.............. The time between two successive Valuation Days.
Each Valuation Period includes a Valuation Day
and any non-Valuation Day or consecutive
non-Valuation Days immediately preceding it.
51
<PAGE> 55
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,
1999.................................................. F-3
Statements of Operations for the Year Ended December
31, 1999.............................................. F-8
Statements of Operations for the Year Ended December
31, 1998.............................................. F-13
Statements of Operations for the Year Ended December
31, 1997.............................................. F-18
Statements of Changes in Net Assets for the Year Ended
December 31, 1999..................................... F-22
Statements of Changes in Net Assets for the Year Ended
December 31, 1998..................................... F-27
Statements of Changes in Net Assets for the Year Ended
December 31, 1997..................................... F-32
Notes to Financial Statements.......................... F-36
Providentmutual Life and Annuity Company of America
Report of Independent Accountants...................... F-56
Statements of Financial Condition as of December 31,
1999 and 1998......................................... F-57
Statements of Operations for the Years Ended December
31, 1999, 1998, and 1997.............................. F-58
Statements of Equity for the Years Ended December 31,
1999, 1998, and 1997.................................. F-59
Statements of Cash Flows for the Years Ended December
31, 1999, 1998, and 1997.............................. F-60
Notes to Financial Statements.......................... F-61
</TABLE>
F-1
<PAGE> 56
- --------------------------------------------------------------------------------
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 of changes in net assets present
fairly, in all material respects, the financial position of the Separate Account
at December 31, 1999, 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
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States 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, 1999 by correspondence with the transfer
agents, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 23, 2000
F-2
<PAGE> 57
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc.,
at market value:
Growth Portfolio........................... $3,904,672
Money Market Portfolio..................... $7,210,373
Bond Portfolio............................. $1,324,837
Managed Portfolio.......................... $1,164,717
Aggressive Growth Portfolio................ $2,352,333
International Portfolio.................... $3,347,428
Dividends receivable......................... 31,273
Receivable from Providentmutual Life and
Annuity Company of America................. 40,427
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS................................... $3,904,672 $7,282,073 $1,324,837 $1,164,717 $2,352,333 $3,347,428
========== ========== ========== ========== ========== ==========
Held for the benefit of policyholders........ $3,852,944 $7,255,348 $1,290,648 $1,048,734 $2,301,469 $3,299,561
Attributable to Providentmutual Life and
Annuity Company of America................. 51,728 26,725 34,189 115,983 50,864 47,867
---------- ---------- ---------- ---------- ---------- ----------
$3,904,672 $7,282,073 $1,324,837 $1,164,717 $2,352,333 $3,347,428
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 58
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO LARGE ALL PRO LARGE ALL PRO SMALL ALL PRO SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc., at market value:
All Pro Large Cap Growth Portfolio........................ $1,828,788
All Pro Large Cap Value Portfolio......................... $485,162
All Pro Small Cap Growth Portfolio........................ $1,043,448
All Pro Small Cap Value Portfolio......................... $573,321
---------- -------- ---------- --------
NET ASSETS.................................................. $1,828,788 $485,162 $1,043,448 $573,321
========== ======== ========== ========
Held for the benefit of policyholders....................... $1,747,812 $459,906 $ 998,896 $553,167
Attributable to Providentmutual Life and Annuity Company of
America................................................... 80,976 25,256 44,552 20,154
---------- -------- ---------- --------
$1,828,788 $485,162 $1,043,448 $573,321
========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 59
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<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..................... $12,550,381
Growth Portfolio............................ $19,190,345
High Income Portfolio....................... $2,443,033
Overseas Portfolio.......................... $6,621,461
Investment in the Variable Insurance Products
Fund II, at market value:
Asset Manager Portfolio..................... $3,357,990
Index 500 Portfolio......................... $21,344,259
Receivable from Providentmutual Life and
Annuity Company of America.................. 48,000
----------- ----------- ---------- ---------- ---------- -----------
NET ASSETS.................................... $12,550,381 $19,190,345 $2,443,033 $6,621,461 $3,357,990 $21,392,259
=========== =========== ========== ========== ========== ===========
Held for the benefit of policyholders......... $12,492,543 $19,134,591 $2,401,393 $6,561,904 $3,305,700 $21,350,911
Attributable to Providentmutual Life and
Annuity Company of America.................. 57,838 55,754 41,640 59,557 52,290 41,348
----------- ----------- ---------- ---------- ---------- -----------
$12,550,381 $19,190,345 $2,443,033 $6,621,461 $3,357,990 $21,392,259
=========== =========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 60
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER
INVESTMENT FIDELITY BERMAN LIMITED BERMAN
GRADE BOND CONTRAFUND(R) MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance Products Fund II, at
market value:
Investment Grade Bond Portfolio........................... $1,766,878
Contrafund(R) Portfolio................................... $10,289,770
Investment in the Neuberger Berman Advisers Management
Trust, at market value:
Limited Maturity Bond Portfolio........................... $1,091,364
Partners Portfolio........................................ $2,525,724
---------- ----------- ---------- ----------
NET ASSETS.................................................. $1,766,878 $10,289,770 $1,091,364 $2,525,724
========== =========== ========== ==========
Held for the benefit of policyholders....................... $1,731,973 $10,232,384 $1,065,378 $2,427,032
Attributable to Providentmutual Life and Annuity Company of
America................................................... 34,905 57,386 25,986 98,692
---------- ----------- ---------- ----------
$1,766,878 $10,289,770 $1,091,364 $2,525,724
========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statement
F-6
<PAGE> 61
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK
VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Van Eck Worldwide Insurance Trust,
at market value:
Van Eck Worldwide Bond Portfolio................... $529,057
Van Eck Worldwide Hard Assets Portfolio............ $577,999
Van Eck Worldwide Emerging Markets Portfolio....... $2,145,910
Van Eck Worldwide Real Estate Portfolio............ $152,847
Investment in the Alger American Fund, at market
value:
Alger American Small Capitalization Portfolio...... $5,744,229
-------- -------- ---------- -------- ----------
NET ASSETS........................................... $529,057 $577,999 $2,145,910 $152,847 $5,744,229
======== ======== ========== ======== ==========
Held for the benefit of policyholders................ $497,375 $540,198 $2,121,998 $131,766 $5,701,476
Attributable to Providentmutual Life and Annuity
Company of America................................. 31,682 37,801 23,912 21,081 42,753
-------- -------- ---------- -------- ----------
$529,057 $577,999 $2,145,910 $152,847 $5,744,229
======== ======== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 62
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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....................................... $ 9,498 $281,219 $ 17,985 $ 4,783 $ 9,548 $ 23,987
EXPENSES
Mortality and expense risks..................... 21,440 38,521 8,454 5,758 12,145 16,572
-------- -------- -------- -------- -------- --------
Net investment (loss) income.................... (11,942) 242,698 9,531 (975) (2,597) 7,415
-------- -------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions reinvested.......... 55,482 14,131 32,620 236,787 123,072
Net realized gain (loss) from redemption of
investment shares............................. 51,110 (4,307) 12,101 10,420 25,236
-------- -------- -------- -------- -------- --------
Net realized gain on investments................ 106,592 9,824 44,721 247,207 148,308
-------- -------- -------- -------- -------- --------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year............................. 197,030 26,571 38,577 133,217 65,845
End of year................................... 158,461 (44,027) (24,425) 190,731 606,265
-------- -------- -------- -------- -------- --------
Net unrealized (depreciation) appreciation of
investments during the year................... (38,569) (70,598) (63,002) 57,514 540,420
-------- -------- -------- -------- -------- --------
Net realized and unrealized gains (losses) on
investments................................... 68,023 (60,774) (18,281) 304,721 688,728
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net assets resulting
from operations............................... $ 56,081 $242,698 $(51,243) $(19,256) $302,124 $696,143
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 63
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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................................................... $ 54 $ 1,599 $ 594
EXPENSES
Mortality and expense risks................................. 6,892 2,211 $ 2,993 2,592
-------- -------- -------- --------
Net investment loss......................................... (6,838) (612) (2,993) (1,998)
-------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions reinvested......................
Net realized gain from redemption of investment shares...... 59,937 21,529 96,011 2,248
-------- -------- -------- --------
Net realized gain on investments............................ 59,937 21,529 96,011 2,248
-------- -------- -------- --------
Net unrealized appreciation (depreciation) of investments:
Beginning of year......................................... 31,368 21,256 49,117 22,620
End of year............................................... 224,085 (5,174) 372,314 (5,515)
-------- -------- -------- --------
Net unrealized appreciation (depreciation) of investments
during the year........................................... 192,717 (26,430) 323,197 (28,135)
-------- -------- -------- --------
Net realized and unrealized gains (losses) on investments... 252,654 (4,901) 419,208 (25,887)
-------- -------- -------- --------
Net increase (decrease) in net assets resulting from
operations................................................ $245,816 $ (5,513) $416,215 $(27,885)
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 64
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........................................ $ 148,010 $ 20,603 $ 184,305 $ 54,422 $ 79,081 $ 132,241
EXPENSES
Mortality and expense risks...................... 73,008 91,540 14,505 29,448 18,061 106,942
---------- ---------- --------- ---------- -------- ----------
Net investment income (loss)..................... 75,002 (70,937) 169,800 24,974 61,020 25,299
---------- ---------- --------- ---------- -------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions reinvested........... 327,180 1,295,428 6,890 87,778 100,169 89,735
Net realized gain (loss) from redemption of
investment shares.............................. 244,315 278,673 (27,226) 134,635 21,574 575,621
---------- ---------- --------- ---------- -------- ----------
Net realized gain (loss) on investments.......... 571,495 1,574,101 (20,336) 222,413 121,743 665,356
---------- ---------- --------- ---------- -------- ----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year.............................. 1,077,750 2,627,782 (159,189) 120,843 174,522 2,218,476
End of year.................................... 997,899 5,885,573 (156,577) 1,733,389 284,627 4,625,801
---------- ---------- --------- ---------- -------- ----------
Net unrealized (depreciation) appreciation of
investments during the year.................... (79,851) 3,257,791 2,612 1,612,546 110,105 2,407,325
---------- ---------- --------- ---------- -------- ----------
Net realized and unrealized gain (loss) on
investments.................................... 491,644 4,831,892 (17,724) 1,834,959 231,848 3,072,681
---------- ---------- --------- ---------- -------- ----------
Net increase in net assets resulting from
operations..................................... $ 566,646 $4,760,955 $ 152,076 $1,859,933 $292,868 $3,097,980
========== ========== ========= ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 65
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY BERMAN BERMAN BERMAN LIMITED BERMAN
GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................... $ 50,917 $ 28,227 $ 9,406 $ 107,676 $ 51,545 $ 4,019
EXPENSES
Mortality and expense risks................. 9,846 48,329 1,113 4,103 6,265 8,634
-------- ---------- -------- --------- -------- --------
Net investment income (loss)................ 41,071 (20,102) 8,293 103,573 45,280 (4,615)
-------- ---------- -------- --------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions reinvested...... 15,974 206,999 13,935 6,990
Net realized gain (loss) from redemption of
investment shares......................... 790 173,375 (16,493) (112,803) (17,023) 30,465
-------- ---------- -------- --------- -------- --------
Net realized gain (loss) on investments..... 16,764 380,374 (2,558) (112,803) (17,023) 37,455
-------- ---------- -------- --------- -------- --------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year......................... 55,564 1,044,526 12,499 32,289 5,385 18,863
End of year............................... (26,628) 2,405,959 (14,450) (17,944)
-------- ---------- -------- --------- -------- --------
Net unrealized (depreciation) appreciation
of investments during the year............ (82,192) 1,361,433 (12,499) (32,289) (19,835) (36,807)
-------- ---------- -------- --------- -------- --------
Net realized and unrealized (loss) gain on
investments............................... (65,428) 1,741,807 (15,057) (145,092) (36,858) 648
-------- ---------- -------- --------- -------- --------
Net (decrease) increase in net assets
resulting from operations................. $(24,357) $1,721,705 $ (6,764) $ (41,519) $ 8,422 $ (3,967)
======== ========== ======== ========= ======== ========
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 66
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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................................... $ 26,734 $ 4,868 $ 1,545
EXPENSES
Mortality and expense risks................. $ 1,619 3,260 2,665 $ 8,384 597 $ 25,644
-------- -------- --------- ---------- -------- ----------
Net investment (loss) income................ (1,619) 23,474 2,203 (8,384) 948 (25,644)
-------- -------- --------- ---------- -------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions reinvested...... 11,945 446,274
Net realized gain (loss) from redemption of
investment shares......................... 11,508 11,290 (29,183) (146,766) 1,132 61,846
-------- -------- --------- ---------- -------- ----------
Net realized gain (loss) on investments..... 11,508 23,235 (29,183) (146,766) 1,132 508,120
-------- -------- --------- ---------- -------- ----------
Net unrealized (depreciation) appreciation
of investments:
Beginning of year......................... (51,652) 65,524 (137,564) (424,268) 3,621 164,065
End of year............................... (29,178) (35,662) 775,273 (7,346) 1,355,653
-------- -------- --------- ---------- -------- ----------
Net unrealized appreciation (depreciation)
of investments during the year............ 51,652 (94,702) 101,902 1,199,541 (10,967) 1,191,588
-------- -------- --------- ---------- -------- ----------
Net realized and unrealized gain (loss) on
investments............................... 63,160 (71,467) 72,719 1,052,775 (9,835) 1,699,708
-------- -------- --------- ---------- -------- ----------
Net increase (decrease) in net assets
resulting from operations................. $ 61,541 $(47,993) $ 74,922 $1,044,391 $ (8,887) $1,674,064
======== ======== ========= ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 67
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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-13
<PAGE> 68
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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-14
<PAGE> 69
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 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>
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-15
<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>
FIDELITY NEUBERGER NEUBERGER NEUBERGER & NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN BERMAN LIMITED & BERMAN
GRADE BOND CONTRAFUND(R) 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-16
<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>
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................... $ 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-17
<PAGE> 72
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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-18
<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, 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>
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-19
<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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER &
INVESTMENT FIDELITY & BERMAN & BERMAN BERMAN LIMITED
GRADE BOND CONTRAFUND(R) 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-20
<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>
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-21
<PAGE> 76
- --------------------------------------------------------------------------------
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, 1999
- --------------------------------------------------------------------------------
<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 (loss) income.............. $ (11,942) $ 242,698 $ 9,531 $ (975) $ (2,597) $ 7,415
Net realized gain on investments.......... 106,592 9,824 44,721 247,207 148,308
Net unrealized (depreciation) appreciation
of investments during the year.......... (38,569) (70,598) (63,002) 57,514 540,420
---------- ----------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets from
operations.............................. 56,081 242,698 (51,243) (19,256) 302,124 696,143
---------- ----------- ---------- ---------- ---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............... 1,074,495 10,836,005 332,588 194,230 412,431 661,165
Cost of insurance and administrative
charges................................. (303,622) (797,781) (97,177) (89,639) (167,274) (167,001)
Surrenders and forfeitures................ (189,291) (59,612) (15,922) (9,974) (27,978) (24,702)
Net (withdrawals) repayments due to policy
loans................................... (31,216) 4,739 (15,470) (8,925) (33,883) (12,649)
Transfers between investment portfolios... 470,309 (7,352,211) (135,405) 449,128 32,008 91,516
Transfers due to death benefits........... (1,337) (1,278)
---------- ----------- ---------- ---------- ---------- ----------
Net increase in net assets derived from
policy transactions..................... 1,020,675 2,631,140 68,614 534,820 213,967 547,051
---------- ----------- ---------- ---------- ---------- ----------
Total increase in net assets.............. 1,076,756 2,873,838 17,371 515,564 516,091 1,243,194
NET ASSETS
Beginning of year....................... 2,827,916 4,408,235 1,307,466 649,153 1,836,242 2,104,234
---------- ----------- ---------- ---------- ---------- ----------
End of year............................. $3,904,672 $ 7,282,073 $1,324,837 $1,164,717 $2,352,333 $3,347,428
========== =========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-22
<PAGE> 77
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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........................................ $ (6,838) $ (612) $ (2,993) $ (1,998)
Net realized gain on investments........................... 59,937 21,529 96,011 2,248
Net unrealized appreciation (depreciation) of investments
during the year.......................................... 192,717 (26,430) 323,197 (28,135)
---------- -------- ---------- --------
Net increase (decrease) in net assets from operations...... 245,816 (5,513) 416,215 (27,885)
---------- -------- ---------- --------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................................ 410,602 235,417 146,222 217,981
Cost of insurance and administrative charges............... (107,613) (46,883) (37,756) (35,684)
Surrenders and forfeitures................................. (30,667) (6,497) (3,858) (191)
Net withdrawals due to policy loans........................ (16,290) (11,460) (4,008) (5,077)
Transfers between investment portfolios.................... 1,079,015 82,627 249,104 142,715
---------- -------- ---------- --------
Net increase in net assets derived from policy
transactions............................................. 1,335,047 253,204 349,704 319,744
---------- -------- ---------- --------
Total increase in net assets............................... 1,580,863 247,691 765,919 291,859
NET ASSETS
Beginning of year........................................ 247,925 237,471 277,529 281,462
---------- -------- ---------- --------
End of year.............................................. $1,828,788 $485,162 $1,043,448 $573,321
========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-23
<PAGE> 78
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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)..................... $ 75,002 $ (70,937) $ 169,800 $ 24,974 $ 61,020 $ 25,299
Net realized gain (loss) on investments.......... 571,495 1,574,101 (20,336) 222,413 121,743 665,356
Net unrealized (depreciation) appreciation of
investments during the year.................... (79,851) 3,257,791 2,612 1,612,546 110,105 2,407,325
----------- ----------- ---------- ---------- ---------- -----------
Net increase in net assets from operations....... 566,646 4,760,955 152,076 1,859,933 292,868 3,097,980
----------- ----------- ---------- ---------- ---------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums...................... 2,929,981 3,422,090 451,275 1,525,307 779,887 6,727,693
Cost of insurance and administrative charges..... (913,963) (1,072,275) (185,657) (338,270) (213,071) (1,698,031)
Surrenders and forfeitures....................... (249,092) (370,650) (29,802) (66,192) (40,031) (426,927)
Net withdrawals due to policy loans.............. (79,425) (71,729) (12,437) (44,838) (41,805) (166,653)
Transfers between investment portfolios.......... 657,552 1,206,940 219,593 250,238 281,207 1,580,849
Withdrawals due to death benefits................ (10,825) (4,635) (3,418) (77,679)
----------- ----------- ---------- ---------- ---------- -----------
Net increase in net assets derived from policy
transactions................................... 2,334,228 3,109,741 442,972 1,322,827 766,187 5,939,252
----------- ----------- ---------- ---------- ---------- -----------
Total increase in net assets..................... 2,900,874 7,870,696 595,048 3,182,760 1,059,055 9,037,232
NET ASSETS
Beginning of year.............................. 9,649,507 11,319,649 1,847,985 3,438,701 2,298,935 12,355,027
----------- ----------- ---------- ---------- ---------- -----------
End of year.................................... $12,550,381 $19,190,345 $2,443,033 $6,621,461 $3,357,990 $21,392,259
=========== =========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-24
<PAGE> 79
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY NEUBERGER NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY BERMAN BERMAN BERMAN LIMITED BERMAN
GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................ $ 41,071 $ (20,102) $ 8,293 $ 103,573 $ 45,280 $ (4,615)
Net realized gain (loss) on investments..... 16,764 380,374 (2,558) (112,803) (17,023) 37,455
Net unrealized (depreciation) appreciation
of investments during the year............ (82,192) 1,361,433 (12,499) (32,289) (19,835) (36,807)
---------- ----------- --------- ----------- ---------- ----------
Net (decrease) increase in net assets from
operations................................ (24,357) 1,721,705 (6,764) (41,519) 8,422 (3,967)
---------- ----------- --------- ----------- ---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................. 408,193 2,629,902 30,596 122,455 359,023 431,555
Cost of insurance and administrative
charges................................... (125,447) (641,252) (17,818) (47,317) (61,450) (148,466)
Surrenders and forfeitures.................. (78,777) (232,393) (743) (4,937) (55,990) (44,451)
Net (withdrawals) repayments due to policy
loans..................................... (12,459) (89,980) 192 48 (6,347) (10,397)
Transfers between investment portfolios..... 375,555 1,420,233 (576,638) (2,035,198) (10,622) 2,058,260
Withdrawals due to death benefits........... (5,412) (4,020) (1,057)
---------- ----------- --------- ----------- ---------- ----------
Net increase (decrease) in net assets
derived from policy transactions.......... 567,065 3,081,098 (564,411) (1,968,969) 224,614 2,285,444
---------- ----------- --------- ----------- ---------- ----------
Total increase (decrease) in net assets..... 542,708 4,802,803 (571,175) (2,010,488) 233,036 2,281,477
NET ASSETS
Beginning of year......................... 1,224,170 5,486,967 571,175 2,010,488 858,328 244,247
---------- ----------- --------- ----------- ---------- ----------
End of year............................... $1,766,878 $10,289,770 -- -- $1,091,364 $2,525,724
========== =========== ========= =========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-25
<PAGE> 80
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss) income........... $ (1,619) $ 23,474 $ 2,203 $ (8,384) $ 948 $ (25,644)
Net realized gain (loss) on
investments.......................... 11,508 23,235 (29,183) (146,766) 1,132 508,120
Net unrealized appreciation
(depreciation) of investments during
the year............................. 51,652 (94,702) 101,902 1,199,541 (10,967) 1,191,588
--------- --------- -------- ---------- -------- ----------
Net increase (decrease) in net assets
from operations...................... 61,541 (47,993) 74,922 1,044,391 (8,887) 1,674,064
--------- --------- -------- ---------- -------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............ 52,425 94,818 151,588 402,320 63,311 1,102,941
Cost of insurance and administrative
charges.............................. (27,936) (46,560) (35,575) (107,952) (7,593) (344,012)
Surrenders and forfeitures............. (9,792) (20,025) (2,094) (14,113) (17) (208,635)
Net withdrawals due to policy loans.... (2,760) (6,828) (5,013) (8,664) (22,006)
Transfers between investment
portfolios........................... (854,349) (135,667) 73,320 (58,680) 32,608 391,868
Withdrawals due to death benefits...... (1,499) (3,576)
--------- --------- -------- ---------- -------- ----------
Net (decrease) increase in net assets
derived from policy transactions..... (842,412) (114,262) 182,226 211,412 88,309 916,580
--------- --------- -------- ---------- -------- ----------
Total (decrease) increase in net
assets............................... (780,871) (162,255) 257,148 1,255,803 79,422 2,590,644
NET ASSETS
Beginning of year.................... 780,871 691,312 320,851 890,107 73,425 3,153,585
--------- --------- -------- ---------- -------- ----------
End of year.......................... -- $ 529,057 $577,999 $2,145,910 $152,847 $5,744,229
========= ========= ======== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-26
<PAGE> 81
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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-27
<PAGE> 82
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 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-28
<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>
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)..................... $ 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-29
<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>
FIDELITY NEUBERGER NEUBERGER NEUBERGER & NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN BERMAN LIMITED & BERMAN
GRADE BOND CONTRAFUND(R) 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-30
<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>
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment 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-31
<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, 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-32
<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, 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-33
<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>
FIDELITY NEUBERGER NEUBERGER NEUBERGER &
INVESTMENT FIDELITY & BERMAN & BERMAN BERMAN LIMITED
GRADE BOND CONTRAFUND(R) 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-34
<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>
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-35
<PAGE> 90
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Providentmutual Variable Life Separate Account (Separate Account) was
established by Providentmutual Life and Annuity Company of America ("PLACA")
under the provisions of Delaware law and commenced operations on February 1,
1995. PLACA 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.
PLACA 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-five subaccounts: the Growth, Money Market, Bond, Managed, Aggressive
Growth, International, All Pro Large Cap Growth, All Pro Large Cap Value, All
Pro Small Cap Growth and All Pro Small Cap Value Subaccounts invest in the
corresponding portfolios of the Market Street Fund, Inc.; the Fidelity
Equity-Income, Fidelity Growth, Fidelity High Income and Fidelity Overseas
Subaccounts invest in the corresponding portfolios of the Variable Insurance
Products Fund; the Fidelity Asset Manager, Fidelity Index 500, Fidelity
Investment Grade Bond and Fidelity Contrafund(R) Subaccounts invest in the
corresponding portfolios of the Variable Insurance Products Fund II; Neuberger
Berman Limited Maturity Bond and Neuberger Berman Partners Subaccounts invest in
the corresponding portfolios of the Neuberger Berman Advisers Management Trust;
the Van Eck Worldwide Bond, Van Eck Worldwide Hard Assets, Van Eck Worldwide
Emerging Markets and Van Eck Worldwide Real Estate Subaccounts invest in the
corresponding portfolios of the Van Eck Worldwide Insurance Trust; and the Alger
American Small Capitalization Subaccount invests in the corresponding portfolio
of the Alger American Fund.
At the close of business on April 30, 1999, the Neuberger Berman Growth
Subaccount, Neuberger Berman Balanced Subaccount and American Century VP Capital
Appreciation Subaccount were terminated and the investments were transferred to
the Neuberger Berman Partners Subaccount, the Managed Subaccount and the All Pro
Large Cap Growth Subaccount, respectively.
Net premiums from in-force Policies are allocated to the Subaccounts in
accordance with policyholder instructions and are recorded as variable life
policy transactions in the statements of changes in net assets. Such amounts are
used to provide money to pay benefits under the Policies (Note 4). The Separate
Account's assets are the property of PLACA.
Transfers between investment portfolios include transfers between the
Subaccounts and the Guaranteed Account (not shown), which is part of PLACA's
General Account.
F-36
<PAGE> 91
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Separate Account in the financial statements.
Investment Valuation:
Investment shares are valued at the net asset values of the respective
Portfolios. Transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date.
Realized Gains and Losses:
Realized gains and losses on sales of investment shares are determined
using the specific identification basis for financial reporting and income tax
purposes.
Federal Income Taxes:
The operations of the Separate Account are included in the Federal income
tax return of PLACA. Under the provisions of the Policies, PLACA 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-37
<PAGE> 92
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1999, the investments of the respective Subaccounts are as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHARES COST MARKET VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market Street Fund, Inc.:
Growth Portfolio........................................ 206,160 $3,746,211 $3,904,672
Money Market Portfolio.................................. 7,210,373 $7,210,373 $7,210,373
Bond Portfolio.......................................... 125,221 $1,368,864 $1,324,837
Managed Portfolio....................................... 69,370 $1,189,142 $1,164,717
Aggressive Growth Portfolio............................. 107,070 $2,161,602 $2,352,333
International Portfolio................................. 200,685 $2,741,163 $3,347,428
All Pro Large Cap Growth Portfolio...................... 123,818 $1,604,703 $1,828,788
All Pro Large Cap Value Portfolio....................... 48,613 $490,336 $485,162
All Pro Small Cap Growth Portfolio...................... 55,414 $671,134 $1,043,448
All Pro Small Cap Value Portfolio....................... 75,736 $578,836 $573,321
Variable Insurance Products Fund:
Equity-Income Portfolio................................. 488,152 $11,552,482 $12,550,381
Growth Portfolio........................................ 349,360 $13,304,772 $19,190,345
High Income Portfolio................................... 216,006 $2,599,610 $2,443,033
Overseas Portfolio...................................... 241,307 $4,888,072 $6,621,461
Variable Insurance Products Fund II:
Asset Manager Portfolio................................. 179,860 $3,073,363 $3,357,990
Index 500 Portfolio..................................... 127,496 $16,718,458 $21,344,259
Investment Grade Bond Portfolio......................... 145,302 $1,793,506 $1,766,878
Contrafund(R) Portfolio................................. 352,994 $7,883,811 $10,289,770
Neuberger Berman Advisers Management Trust:
Limited Maturity Bond Portfolio......................... 82,429 $1,105,814 $1,091,364
Partners Portfolio...................................... 128,601 $2,543,668 $2,525,724
Van Eck Worldwide Insurance Trust:
Van Eck Worldwide Bond Portfolio........................ 49,491 $558,235 $529,057
Van Eck Worldwide Hard Assets Portfolio................. 52,737 $613,661 $577,999
Van Eck Worldwide Emerging Markets Portfolio............ 150,485 $1,370,637 $2,145,910
Van Eck Worldwide Real Estate Portfolio................. 16,705 $160,193 $152,847
Alger American Fund:
Alger American Small Capitalization Portfolio........... 104,156 $4,388,576 $5,744,229
</TABLE>
F-38
<PAGE> 93
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the years ended December 31, 1999, 1998 and 1997, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................... 73,102 73,135 50,220 8,932,793 10,866,458 11,393,078
Shares received from reinvestment of:
Dividends.................................... 512 1,893 1,003 268,224 197,496 88,801
Capital gain distributions................... 2,993 13,090 4,035
---------- ---------- -------- ----------- ----------- -----------
Total shares acquired.......................... 76,607 88,118 55,258 9,201,017 11,063,954 11,481,879
Total shares redeemed.......................... (20,708) (21,151) (2,578) (6,346,192) (9,925,488) (8,717,947)
---------- ---------- -------- ----------- ----------- -----------
Net increase in shares owned................... 55,899 66,967 52,680 2,854,825 1,138,466 2,763,932
Shares owned, beginning of year................ 150,261 83,294 30,614 4,355,548 3,217,082 453,150
---------- ---------- -------- ----------- ----------- -----------
Shares owned, end of year...................... 206,160 150,261 83,294 7,210,373 4,355,548 3,217,082
========== ========== ======== =========== =========== ===========
Cost of shares acquired........................ $1,459,551 $1,524,498 $986,013 $ 9,201,017 $11,063,954 $11,481,879
========== ========== ======== =========== =========== ===========
Cost of shares redeemed........................ $ 344,226 $ 341,507 $ 38,324 $ 6,346,192 $ 9,925,488 $ 8,717,947
========== ========== ======== =========== =========== ===========
</TABLE>
F-39
<PAGE> 94
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- --------------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO MANAGED PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......................................... 36,328 77,640 50,228 46,775 18,495 16,278
Shares received from reinvestment of:
Dividends.............................................. 1,653 4,610 1,233 286 832 282
Capital gain distributions............................. 1,299 8 1,951 1,087 44
-------- -------- -------- -------- -------- --------
Total shares acquired.................................... 39,280 82,258 51,461 49,012 20,414 16,604
Total shares redeemed.................................... (30,589) (19,415) (10,179) (16,359) (4,885) (884)
-------- -------- -------- -------- -------- --------
Net increase in shares owned............................. 8,691 62,843 41,282 32,653 15,529 15,720
Shares owned, beginning of year.......................... 116,530 53,687 12,405 36,717 21,188 5,468
-------- -------- -------- -------- -------- --------
Shares owned, end of year................................ 125,221 116,530 53,687 69,370 36,717 21,188
======== ======== ======== ======== ======== ========
Cost of shares acquired.................................. $419,905 $908,607 $552,874 $843,762 $346,281 $268,677
======== ======== ======== ======== ======== ========
Cost of shares redeemed.................................. $331,936 $204,339 $106,413 $265,196 $ 67,202 $ 10,599
======== ======== ======== ======== ======== ========
</TABLE>
F-40
<PAGE> 95
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- --------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......................................... 25,961 31,265 38,091 60,220 56,397 64,862
Shares received from reinvestment of:
Dividends.............................................. 508 508 247 1,831 813 306
Capital gain distributions............................. 12,602 4,846 49 9,395 7,315 2,397
-------- -------- -------- -------- -------- --------
Total shares acquired.................................... 39,071 36,619 38,387 71,446 64,525 67,565
Total shares redeemed.................................... (15,809) (9,961) (6,756) (22,691) (10,722) (3,015)
-------- -------- -------- -------- -------- --------
Net increase in shares owned............................. 23,262 26,658 31,631 48,755 53,803 64,550
Shares owned, beginning of year.......................... 83,808 57,150 25,519 151,930 98,127 33,577
-------- -------- -------- -------- -------- --------
Shares owned, end of year................................ 107,070 83,808 57,150 200,685 151,930 98,127
======== ======== ======== ======== ======== ========
Cost of shares acquired.................................. $747,203 $753,159 $796,588 $993,410 $866,730 $916,201
======== ======== ======== ======== ======== ========
Cost of shares redeemed.................................. $288,626 $163,105 $113,966 $290,636 $134,336 $ 36,245
======== ======== ======== ======== ======== ========
</TABLE>
F-41
<PAGE> 96
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ---------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO
LARGE CAP LARGE CAP
GROWTH VALUE
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 125,649 24,150 41,597 28,950
Shares received from reinvestment of:
Dividends................................................. 5 161
Capital gain distributions................................
---------- -------- -------- --------
Total shares acquired....................................... 125,654 24,150 41,758 28,950
Total shares redeemed....................................... (22,900) (3,086) (17,132) (4,963)
---------- -------- -------- --------
Net increase in shares owned................................ 102,754 21,064 24,626 23,987
Shares owned, beginning of year............................. 21,064 23,987
---------- -------- -------- --------
Shares owned, end of year................................... 123,818 21,064 48,613 23,987
========== ======== ======== ========
Cost of shares acquired..................................... $1,626,858 $248,497 $424,442 $265,246
========== ======== ======== ========
Cost of shares redeemed..................................... $ 238,712 $ 31,940 $150,321 $ 49,031
========== ======== ======== ========
</TABLE>
F-42
<PAGE> 97
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO
SMALL CAP SMALL CAP
GROWTH VALUE
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 47,453 32,753 52,030 43,816
Shares received from reinvestment of:
Dividends................................................. 73
Capital gain distributions................................
-------- -------- -------- --------
Total shares acquired....................................... 47,453 32,753 52,103 43,816
Total shares redeemed....................................... (20,358) (4,434) (10,483) (9,700)
-------- -------- -------- --------
Net increase in shares owned................................ 27,095 28,319 41,620 34,116
Shares owned, beginning of year............................. 28,319 34,116
-------- -------- -------- --------
Shares owned, end of year................................... 55,414 28,319 75,736 34,116
======== ======== ======== ========
Cost of shares acquired..................................... $601,240 $272,699 $396,338 $340,167
======== ======== ======== ========
Cost of shares redeemed..................................... $158,518 $ 44,287 $ 76,344 $ 81,325
======== ======== ======== ========
</TABLE>
F-43
<PAGE> 98
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 127,157 153,199 135,989 82,042 94,179 76,083
Shares received from reinvestment of:
Dividends..................................... 6,224 3,495 1,879 495 887 536
Capital gain distributions.................... 13,759 12,437 9,447 31,095 23,197 2,400
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 147,140 169,131 147,315 113,632 118,263 79,019
Total shares redeemed........................... (38,591) (18,079) (12,497) (16,548) (15,647) (4,951)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 108,549 151,052 134,818 97,084 102,616 74,068
Shares owned, beginning of year................. 379,603 228,551 93,733 252,276 149,660 75,592
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 488,152 379,603 228,551 349,360 252,276 149,660
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $3,726,855 $4,057,867 $3,254,127 $5,084,590 $4,350,414 $2,711,400
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $ 746,130 $ 345,627 $ 225,789 $ 471,685 $ 460,966 $ 142,538
========== ========== ========== ========== ========== ==========
</TABLE>
F-44
<PAGE> 99
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- ----------------------------------------------------------------------------------------------------------------------------
HIGH INCOME PORTFOLIO OVERSEAS PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................... 66,264 69,235 69,137 96,724 81,679 70,577
Shares received from reinvestment of:
Dividends........................................ 17,034 7,523 2,488 2,832 2,130 605
Capital gain distributions....................... 636 4,781 307 4,567 6,278 2,403
-------- ---------- -------- ---------- ---------- ----------
Total shares acquired.............................. 83,934 81,539 71,932 104,123 90,087 73,585
Total shares redeemed.............................. (28,204) (13,926) (9,180) (34,322) (14,199) (7,953)
-------- ---------- -------- ---------- ---------- ----------
Net increase in shares owned....................... 55,730 67,613 62,752 69,801 75,888 65,632
Shares owned, beginning of year.................... 160,276 92,663 29,911 171,506 95,618 29,986
-------- ---------- -------- ---------- ---------- ----------
Shares owned, end of year.......................... 216,006 160,276 92,663 241,307 171,506 95,618
======== ========== ======== ========== ========== ==========
Cost of shares acquired............................ $934,435 $1,006,130 $916,751 $2,201,082 $1,741,880 $1,433,652
======== ========== ======== ========== ========== ==========
Cost of shares redeemed............................ $341,999 $ 165,121 $107,593 $ 630,868 $ 247,122 $ 131,357
======== ========== ======== ========== ========== ==========
</TABLE>
F-45
<PAGE> 100
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- -----------------------------------------------------------------------------------------------------------------------------
ASSET MANAGER PORTFOLIO INDEX 500 PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................................. 58,391 63,645 23,488 48,111 53,123 28,249
Shares received from reinvestment of:
Dividends....................................... 4,685 2,657 1,757 944 555 204
Capital gain distributions...................... 5,934 7,972 4,410 641 1,285 414
---------- ---------- -------- ---------- ---------- ----------
Total shares acquired............................. 69,010 74,274 29,655 49,696 54,963 28,867
Total shares redeemed............................. (15,743) (17,480) (3,629) (9,669) (10,643) (2,318)
---------- ---------- -------- ---------- ---------- ----------
Net increase in shares owned...................... 53,267 56,794 26,026 40,027 44,320 26,549
Shares owned, beginning of year................... 126,593 69,799 43,773 87,469 43,149 16,600
---------- ---------- -------- ---------- ---------- ----------
Shares owned, end of year......................... 179,860 126,593 69,799 127,496 87,469 43,149
========== ========== ======== ========== ========== ==========
Cost of shares acquired........................... $1,204,348 $1,257,524 $494,496 $7,454,952 $6,814,303 $2,998,568
========== ========== ======== ========== ========== ==========
Cost of shares redeemed........................... $ 255,398 $ 269,912 $ 55,987 $ 873,045 $ 851,382 $ 173,873
========== ========== ======== ========== ========== ==========
</TABLE>
F-46
<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>
VARIABLE INSURANCE PRODUCTS FUND II
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE CONTRAFUND(R)
BOND PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................... 85,128 43,614 43,904 136,907 123,430 95,855
Shares received from reinvestment of:
Dividends........................................ 4,150 2,904 866 1,179 817 175
Capital gain distributions....................... 1,302 344 8,647 6,008 464
---------- -------- -------- ---------- ---------- ----------
Total shares acquired.............................. 90,580 46,862 44,770 146,733 130,255 96,494
Total shares redeemed.............................. (39,735) (4,535) (5,346) (18,247) (12,392) (6,090)
---------- -------- -------- ---------- ---------- ----------
Net increase in shares owned....................... 50,845 42,327 39,424 128,486 117,863 90,404
Shares owned, beginning of year.................... 94,457 52,130 12,706 224,508 106,645 16,241
---------- -------- -------- ---------- ---------- ----------
Shares owned, end of year.......................... 145,302 94,457 52,130 352,994 224,508 106,645
========== ======== ======== ========== ========== ==========
Cost of shares acquired............................ $1,108,475 $586,720 $548,044 $3,738,001 $2,721,969 $1,758,817
========== ======== ======== ========== ========== ==========
Cost of shares redeemed............................ $ 483,575 $ 52,856 $ 62,960 $ 296,631 $ 201,903 $ 89,872
========== ======== ======== ========== ========== ==========
</TABLE>
F-47
<PAGE> 102
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- ---------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO GROWTH PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased...................................... 1,894 19,377 11,617 3,434 29,928 19,122
Shares received from reinvestment of:
Dividends........................................... 628 673 207
Capital gain distributions.......................... 930 4,722 531 4,649 14,622 1,969
-------- -------- -------- ---------- ---------- --------
Total shares acquired................................. 3,452 24,772 12,355 8,083 44,550 21,091
Total shares redeemed................................. (38,408) (10,237) (2,292) (84,556) (7,932) (2,132)
-------- -------- -------- ---------- ---------- --------
Net (decrease) increase in shares owned............... (34,956) 14,535 10,063 (76,473) 36,618 18,959
Shares owned, beginning of year....................... 34,956 20,421 10,358 76,473 39,855 20,896
-------- -------- -------- ---------- ---------- --------
Shares owned, end of year............................. -- 34,956 20,421 -- 76,473 39,855
======== ======== ======== ========== ========== ========
Cost of shares acquired............................... $ 53,427 $390,678 $202,808 $ 193,400 $1,104,028 $605,607
======== ======== ======== ========== ========== ========
Cost of shares redeemed............................... $612,103 $161,415 $ 36,890 $2,171,599 $ 204,994 $ 53,645
======== ======== ======== ========== ========== ========
</TABLE>
F-48
<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>
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- --------------------------------------------------------------------------------------------------------------------
LIMITED MATURITY PARTNERS
BOND PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased............................................ 54,409 30,075 34,180 130,332 13,985
Shares received from reinvestment of:
Dividends................................................. 3,965 2,621 290 222
Capital gain distributions................................ 387
-------- -------- -------- ---------- --------
Total shares acquired....................................... 58,374 32,696 34,470 130,941 13,985
Total shares redeemed....................................... (38,053) (8,006) (592) (15,243) (1,082)
-------- -------- -------- ---------- --------
Net increase in shares owned................................ 20,321 24,690 33,878 115,698 12,903
Shares owned, beginning of year............................. 62,108 37,418 3,540 12,903
-------- -------- -------- ---------- --------
Shares owned, end of year................................... 82,429 62,108 37,418 128,601 12,903
======== ======== ======== ========== ========
Cost of shares acquired..................................... $775,612 $447,958 $473,413 $2,587,656 $247,264
======== ======== ======== ========== ========
Cost of shares redeemed..................................... $522,741 $109,568 $ 8,393 $ 269,372 $ 21,880
======== ======== ======== ========== ========
</TABLE>
F-49
<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>
AMERICAN CENTURY
VARIABLE PORTFOLIOS, INC.
- --------------------------------------------------------------------------------------------
AMERICAN CENTURY VP
CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 4,498 33,759 35,982
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................ 3,550 1,032
-------- -------- --------
Total shares acquired....................................... 4,498 37,309 37,014
Total shares redeemed....................................... (91,069) (14,532) (7,362)
-------- -------- --------
Net (decrease) increase in shares owned..................... (86,571) 22,777 29,652
Shares owned, beginning of year............................. 86,571 63,794 34,142
-------- -------- --------
Shares owned, end of year................................... -- 86,571 63,794
======== ======== ========
Cost of shares acquired..................................... $ 40,967 $343,650 $360,144
======== ======== ========
Cost of shares redeemed..................................... $873,490 $165,478 $ 89,378
======== ======== ========
</TABLE>
F-50
<PAGE> 105
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK WORLDWIDE INSURANCE TRUST
- --------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE VAN ECK WORLDWIDE
BOND PORTFOLIO HARD ASSETS PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......................................... 12,314 36,665 23,946 22,265 17,397 19,029
Shares received from reinvestment of:
Dividends.............................................. 2,315 302 329 545 154 263
Capital gain distributions............................. 1,034 3,792 194
-------- -------- -------- -------- -------- --------
Total shares acquired.................................... 15,663 36,967 24,275 22,810 21,343 19,486
Total shares redeemed.................................... (22,468) (6,583) (7,242) (4,948) (9,549) (5,349)
-------- -------- -------- -------- -------- --------
Net increase in shares owned............................. (6,805) 30,384 17,033 17,862 11,794 14,137
Shares owned, beginning of year.......................... 56,296 25,912 8,879 34,875 23,081 8,944
-------- -------- -------- -------- -------- --------
Shares owned, end of year................................ 49,491 56,296 25,912 52,737 34,875 23,081
======== ======== ======== ======== ======== ========
Cost of shares acquired.................................. $173,521 $419,483 $258,716 $234,961 $243,416 $309,179
======== ======== ======== ======== ======== ========
Cost of shares redeemed.................................. $241,074 $ 70,575 $ 78,063 $ 79,715 $151,785 $ 79,846
======== ======== ======== ======== ======== ========
</TABLE>
F-51
<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>
VAN ECK WORLDWIDE INSURANCE TRUST
- ----------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE VAN ECK WORLDWIDE
EMERGING MARKETS PORTFOLIO REAL ESTATE PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased............................................ 64,480 75,726 58,300 11,666 11,645
Shares received from reinvestment of:
Dividends................................................. 605 30 167
Capital gain distributions................................ 538
-------- -------- -------- ---------- ----------
Total shares acquired....................................... 64,480 76,869 58,330 11,833 11,645
Total shares redeemed....................................... (39,010) (12,629) (3,821) (2,824) (3,949)
-------- -------- -------- ---------- ----------
Net increase in shares owned................................ 25,470 64,240 54,509 9,009 7,696
Shares owned, beginning of year............................. 125,015 60,775 6,266 7,696
-------- -------- -------- ---------- ----------
Shares owned, end of year................................... 150,485 125,015 60,775 16,705 7,696
======== ======== ======== ========== ==========
Cost of shares acquired..................................... $622,693 $649,297 $804,526 $ 115,470 $ 110,595
======== ======== ======== ========== ==========
Cost of shares redeemed..................................... $566,431 $169,434 $ 43,501 $ 25,081 $ 40,791
======== ======== ======== ========== ==========
</TABLE>
F-52
<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>
ALGER AMERICAN FUND
- --------------------------------------------------------------------------------------------------
ALGER AMERICAN
SMALL CAPITALIZATION PORTFOLIO
- --------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 31,023 37,591 26,913
Shares received from reinvestment of:
Dividends
Capital gain distributions................................ 11,270 7,022 790
---------- ---------- ----------
Total shares acquired....................................... 42,293 44,613 27,703
Total shares redeemed....................................... (9,858) (6,305) (3,263)
---------- ---------- ----------
Net increase in shares owned................................ 32,435 38,308 24,440
Shares owned, beginning of year............................. 71,721 33,413 8,973
---------- ---------- ----------
Shares owned, end of year................................... 104,156 71,721 33,413
========== ========== ==========
Cost of shares acquired..................................... $1,781,809 $1,870,715 $1,143,613
========== ========== ==========
Cost of shares redeemed..................................... $ 382,753 $ 260,872 $ 135,282
========== ========== ==========
</TABLE>
F-53
<PAGE> 108
- --------------------------------------------------------------------------------
The Providentmutual Variable Life Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
PLACA 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 PLACA. The
charge is deducted at an annual rate of 0.65% -- 0.75% of the average daily net
assets of the Separate Account. This charge may be increased on a prospective
basis, 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 PLACA 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 twelve 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, 1999, 1998 and 1997.
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 reimbursements of certain
deductions previously 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 10-15 policy years
(depending on the policy), 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 10-15
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 10-15 years after such increase took effect. These charges
are recorded as administrative charges in the statements of changes in net
assets.
F-54
<PAGE> 109
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, 1999, 1998 AND 1997
<PAGE> 110
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, of equity and of 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, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, 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 7, 2000
F-56
<PAGE> 111
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: 1999-$320,293;
1998-$352,107)........................................ $ 304,681 $ 359,442
Held to maturity, at amortized cost (market:
1999-$41,906; 1998-$57,419)........................... 42,263 54,671
Equity securities, at market (cost: 1999-$232;
1998-$1,278)........................................... 400 1,360
Mortgage loans............................................ 58,179 58,907
Real estate............................................... 1,794 484
Policy loans and premium notes............................ 11,168 8,454
Other invested assets..................................... 2,041 88
---------- ----------
Total investments.................................... 420,526 483,406
---------- ----------
Cash and cash equivalents................................... 6,010 5,581
Investment income due and accrued........................... 6,868 7,304
Deferred policy acquisition costs........................... 133,347 104,913
Reinsurance recoverable..................................... 3,515 3,054
Separate account assets..................................... 1,127,941 880,417
Other assets................................................ 1,179 1,312
---------- ----------
Total assets......................................... $1,699,386 $1,485,987
========== ==========
LIABILITIES
Policy liabilities:
Future policyholder benefits.............................. $ 482,673 $ 517,625
Other policy obligations.................................. 1,744 1,181
---------- ----------
Total policy liabilities............................. 484,417 518,806
---------- ----------
Payable to parent........................................... 917 --
Federal income taxes payable:
Current................................................... 2,676 6,281
Deferred.................................................. 1,246 2,474
Separate account liabilities................................ 1,124,803 877,713
Other liabilities........................................... 5,191 3,447
---------- ----------
Total liabilities.................................... 1,619,250 1,408,721
---------- ----------
COMMITMENTS AND CONTINGENCIES -- NOTE 10
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......................................... 37,306 28,346
Accumulated other comprehensive income:
Net unrealized (depreciation) appreciation on
securities............................................ (3,835) 2,255
---------- ----------
Total equity......................................... 80,136 77,266
---------- ----------
Total liabilities and equity......................... $1,699,386 $1,485,987
========== ==========
</TABLE>
See accompanying notes to financial statements
F-57
<PAGE> 112
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $18,031 $13,269 $13,904
Policy and contract charges................................. 29,386 18,239 11,729
Net investment income....................................... 34,876 35,262 32,314
Other income................................................ 2,927 2,705 4,815
Net realized (losses) gains on investments.................. (1,887) 2,010 69
------- ------- -------
Total revenues............................................ 83,333 71,485 62,831
------- ------- -------
BENEFITS AND EXPENSES
Policy and contract benefits................................ 13,435 13,884 15,606
Change in future policyholder benefits...................... 32,415 24,791 19,254
Commissions and operating expenses.......................... 22,736 19,859 15,271
Policyholder dividends...................................... 1,090 958 773
------- ------- -------
Total benefits and expenses............................... 69,676 59,492 50,904
------- ------- -------
Income before income taxes............................. 13,657 11,993 11,927
Income tax expense:
Current................................................... 2,645 3,776 2,470
Deferred.................................................. 2,052 436 1,979
------- ------- -------
Total income tax expense............................... 4,697 4,212 4,449
------- ------- -------
Net Income........................................... $ 8,960 $ 7,781 $ 7,478
======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-58
<PAGE> 113
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
CONTRIBUTED UNREALIZED
COMMON CAPITAL APPRECIATION
STOCK COMMON IN EXCESS RETAINED (DEPRECIATION) TOTAL
SHARES STOCK OF PAR EARNINGS ON SECURITIES EQUITY
------ ------ ----------- -------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997.......... 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
(depreciation) on
securities................ -- -- -- -- 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
(depreciation) on
securities................ -- -- -- -- (604) (604)
-------
Total comprehensive income........ 7,177
----- ------ ------- ------- ------- -------
Balance at December 31, 1998........ 2,500 2,500 44,165 28,346 2,255 77,266
-------
Comprehensive income
Net income..................... -- -- -- 8,960 -- 8,960
Other comprehensive income, net
of tax:
Change in unrealized
appreciation
(depreciation) on
securities................ -- -- -- -- (6,090) (6,090)
-------
Total comprehensive income........ 2,870
----- ------ ------- ------- ------- -------
Balance at December 31, 1999........ 2,500 $2,500 $44,165 $37,306 $(3,835) $80,136
===== ====== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-59
<PAGE> 114
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 8,960 $ 7,781 $ 7,478
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Interest credited to variable universal life and
investment products..................................... 24,461 21,927 15,076
Amortization of deferred policy acquisition costs......... 16,426 14,804 9,445
Capitalization of deferred policy acquisition costs....... (31,369) (35,985) (31,404)
Deferred Federal income taxes............................. 2,052 436 1,979
Depreciation, amortization and accretion.................. (371) 372 625
Net realized losses (gains) on investments................ 1,887 (2,010) (69)
Change in investment income due and accrued............... 436 (258) (437)
Change in reinsurance recoverable......................... (461) 71,620 5,672
Change in policy liabilities.............................. (894) (77,582) (12,255)
Change in other liabilities............................... 1,744 (3,444) 3,250
Change in current Federal income taxes payable............ (3,605) 2,353 (809)
Other, net................................................ 294 (2,236) (2,676)
--------- --------- ---------
Net cash provided by (used in) operating activities..... 19,560 (2,222) (4,125)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities............................. 27,345 21,681 21,382
Equity securities......................................... 652 370 100
Real estate............................................... -- 5,324 772
Other invested assets..................................... 566 248 333
Proceeds from maturities of investments:
Held to maturity securities............................... 13,801 10,128 19,184
Available for sale securities............................. 58,546 56,894 28,439
Mortgage loans............................................ 8,631 4,436 2,599
Purchases of investments:
Held to maturity securities............................... (1,080) (2,000) (2,029)
Available for sale securities............................. (55,525) (119,639) (72,520)
Equity securities......................................... -- (207) (609)
Mortgage loans............................................ (8,825) (17,166) (7,179)
Real estate............................................... (65) (195) (99)
Other invested assets..................................... (2,507) -- (302)
Contributions of separate account seed money................ -- (330) --
Withdrawals of separate account seed money.................. -- 265 --
Policy loans and premium notes, net......................... (2,714) (1,729) (373)
--------- --------- ---------
Net cash provided by (used in) investing activities..... 38,825 (41,920) (10,302)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits..... 212,196 302,071 232,307
Variable universal life and investment product
withdrawals............................................... (270,152) (252,348) (228,871)
Capital contribution from parent............................ -- -- 6,500
--------- --------- ---------
Net cash (used in) provided by financing activities..... (57,956) 49,723 9,936
--------- --------- ---------
Net change in cash and cash equivalents................. 429 5,581 (4,491)
Cash and cash equivalents, beginning of year................ 5,581 -- 4,491
--------- --------- ---------
Cash and cash equivalents, end of year...................... $ 6,010 $ 5,581 $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes.................. $ 6,246 $ 1,434 $ 3,280
========= ========= =========
Foreclosure of mortgage loans............................... $ 1,245 $ 500 $ --
========= ========= =========
</TABLE>
See accompanying notes to financial statements
F-60
<PAGE> 115
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 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.
A Special Meeting of policyholders to consider and vote upon the Plan was
held on February 9, 1999. Approximately 90% of the voting policyholders approved
the Plan.
Subsequent to the Special Meeting, a group of dissident policyholders filed
a lawsuit to block the Plan. On February 11, 1999, a Philadelphia Common Pleas
Court judge issued an order granting a preliminary injunction blocking the Plan
until the Court conducted a hearing. Provident Mutual continued to provide
information to the Court at hearings held on March 16, 1999 and June 22, 1999.
On September 16, 1999, the judge issued a permanent injunction blocking the Plan
until certain additional disclosures were made.
On October 29, 1999, Provident Mutual announced that it was abandoning the
Plan due to practical barriers to completing all of the required steps before
the December 31, 1999 deadline mandated in the Pennsylvania Insurance
Department's order approving the Plan.
The Company sells life and annuity products principally through a personal
producing general agency (PPGA) and a brokerage sales force. The Company is
licensed to operate in 49 states and the District of Columbia, each of which has
regulatory oversight. Sales in 16 states accounted for 78% of the Company's
sales for the year ended December 31, 1999. 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, selected benefit elements and policy provisions are determined by
statutes and regulations in each of these states.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States (GAAP). Certain
prior year amounts have been reclassified to conform to the current year
presentation, including short-term investments reclassified as cash and cash
equivalents.
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 deferral and subsequent
amortization of policy acquisition costs, the valuation of policy reserves, the
accounting for deferred taxes, the inclusion 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.
F-61
<PAGE> 116
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statutory net income was $886, $1,702 and $1,792 for the years ended
December 31, 1999, 1998 and 1997, respectively. Statutory surplus was $44,161
and $44,730 as of December 31, 1999 and 1998, respectively.
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 of revenues and expenses. Actual
results could differ from those estimates.
The Company is subject to interest rate risk to the extent its investment
portfolio cash flows are not matched to its insurance liabilities. Management
believes it manages this risk through modeling of the cash flows under
reasonable scenarios.
INVESTED ASSETS
Fixed maturity securities (bonds) which may be sold are designated as
"available for sale" and are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in 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 credited (charged) to operations. Reserves totaled
$740 and $1,064 at December 31, 1999 and 1998, respectively.
Policy loans are reported at unpaid principal balances.
Foreclosed real estate is carried at lower of cost or fair value and is
held for sale.
Other invested assets consist of limited partnerships carried at the lower
of cost or market value.
Cash and cash equivalents include cash and all highly liquid investments
with a maturity of three months or less when purchased, reduced by the amount of
outstanding checks.
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
F-62
<PAGE> 117
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of SFAS No. 133", which
changed the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. The Company plans to adopt the provisions of SFAS No. 133 effective
January 1, 2001. The Company is currently reviewing SFAS No. 133 and has not yet
determined its impact on the financial statements.
Effective January 1, 1999, the Company adopted Statement of Position (SOP)
No. 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments." SOP 97-3 provides guidance for determining measurement and
recognition of a liability or an asset for insurance-related assessments. The
adoption of this statement did not have a material effect on the results of
operations or the financial position of the Company.
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 3.5% to 4.5%.
Variable Life and Investment-Type Products
Variable life products are 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.
F-63
<PAGE> 118
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 policies, the account balances were credited at interest rates which
ranged from 4.5% to 6.5% in 1999.
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 yields,
before realized capital gains and losses, in the calculation of expected gross
margins was 8.0% for 1999, 8.25% for 1998 and 8.0% for 1997.
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 lives of the
policies.
Deferred policy acquisition costs are subject to recoverability testing at
the time of policy issuance and loss recognition testing at the end of each
accounting period. The effect on the amortization of deferred policy acquisition
costs of revisions in estimated experience is reflected in earnings in the
period such estimates are revised. In addition, the effect on the deferred
policy acquisition cost asset that would result from the realization of
unrealized gains (losses) is recognized through an offset to Other Comprehensive
Income as of the balance sheet date.
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 to participating policyholders 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.
F-64
<PAGE> 119
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPARATE ACCOUNTS
Separate account assets and liabilities reflect 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 guarantees 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.
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, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------ ------------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale.............. $304,681 $304,681 $359,442 $359,442
Held to maturity................ $41,906 $42,263 $57,419 $54,671
Equity securities................. $400 $400 $1,360 $1,360
Mortgage loans.................... $57,261 $58,179 $64,225 $58,907
LIABILITIES FOR INVESTMENT-TYPE
INSURANCE CONTRACTS
Supplementary contracts without
life contingencies.............. $7,407 $7,428 $7,479 $7,142
Individual annuities.............. $1,346,732 $1,384,023 $1,181,520 $1,215,896
</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 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).
F-65
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 ACCUMULATIONS
The policyholder dividend and 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, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------
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.......... $ 1,714 $ 1 $ 67 $ 1,648
Obligations of states and political
subdivisions.................................. 952 37 -- 989
Corporate securities............................ 290,080 751 15,499 275,332
Mortgage-backed securities...................... 27,547 155 990 26,712
-------- ------ ------- --------
Subtotal -- fixed maturities.................. 320,293 944 16,556 304,681
Equity securities............................... 232 171 3 400
-------- ------ ------- --------
Total......................................... $320,525 $1,115 $16,559 $305,081
======== ====== ======= ========
</TABLE>
F-66
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------
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........... $ 4,165 $182 $ 23 $ 4,324
Corporate securities............................. 36,770 99 653 36,216
Mortgage-backed securities....................... 1,328 38 -- 1,366
------- ---- ---- -------
Total.......................................... $42,263 $319 $676 $41,906
======= ==== ==== =======
</TABLE>
<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>
<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>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1999, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE
------------------ --------- ----------
<S> <C> <C>
Due in one year or.......................................... $ 13,041 $ 13,064
Due after one year through five years....................... 117,657 115,895
Due after five years through ten years...................... 106,214 98,939
Due after ten years......................................... 83,381 76,783
-------- --------
Total..................................................... $320,293 $304,681
======== ========
</TABLE>
F-67
<PAGE> 122
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE
---------------- --------- ----------
<S> <C> <C>
Due in one year or less..................................... $ 5,416 $ 5,413
Due after one year through five years....................... 19,961 19,773
Due after five years through ten years...................... 13,993 13,984
Due after ten years......................................... 2,893 2,736
------- --------
Total..................................................... $42,263 $ 41,906
======= ========
</TABLE>
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are included based on their
contractual maturity.
Realized (losses) gains on investments for the years ended December 31,
1999, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Fixed maturities....................................... $(1,506) $ (292) $ 1,135
Equity securities...................................... (393) (273) (1,360)
Mortgage loans......................................... -- (194) 104
Real estate............................................ -- 2,735 133
Other invested assets.................................. 12 34 57
------- ------ -------
$(1,887) $2,010 $ 69
======= ====== =======
</TABLE>
Net unrealized (depreciation) appreciation on available for sale securities
as of December 31, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Net unrealized (depreciation) appreciation before
adjustments for the following:............................ $(15,444) $ 7,417
Amortization of deferred policy acquisition costs......... 9,545 (3,947)
Deferred Federal income taxes............................. 2,064 (1,215)
-------- -------
Net unrealized (depreciation) appreciation.................. $ (3,835) $ 2,255
======== =======
</TABLE>
F-68
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net investment income, by type of investment, is as follows for the years
ending December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Gross investment income:
Fixed maturities:
Available for sale.................................. $25,413 $25,294 $22,559
Held to maturity.................................... 4,126 4,686 5,692
Equity securities..................................... 2 66 92
Mortgage loans........................................ 5,099 4,485 3,924
Real estate........................................... 183 523 591
Policy loans.......................................... 427 299 214
Cash and cash equivalents............................. 255 431 258
Other, net............................................ 119 781 9
------- ------- -------
35,624 36,565 33,339
Less investment expenses.............................. (748) (1,303) (1,025)
------- ------- -------
Net investment income................................. $34,876 $35,262 $32,314
======= ======= =======
</TABLE>
4. MORTGAGE LOANS
The carrying value of impaired loans was $0 and $2,363, which were net of
reserves of $0 and $474 as of December 31, 1999 and 1998, respectively.
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Balance at January 1........................................ $1,064 $1,170
Provision, net of recoveries................................ (324) 124
Releases due to foreclosures................................ -- (230)
------ ------
Balance at December 31...................................... $ 740 $1,064
====== ======
</TABLE>
The average recorded investment in impaired loans was $1,418 and $2,624
during 1999 and 1998, respectively. Interest income recognized on impaired loans
during 1999, 1998 and 1997 was $124, $237 and $284, respectively. All interest
income on impaired loans was recognized on the cash basis.
5. REAL ESTATE
Real estate totaled $1,794 and $484 as of December 31, 1999 and 1998,
respectively. Depreciation expense was $0, $116 and $113 for the years ended
December 31, 1999, 1998 and 1997, respectively.
F-69
<PAGE> 124
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. DEFERRED POLICY ACQUISITION COSTS
A reconciliation of the deferred policy acquisition cost (DAC) asset for
1999, 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Balance at January 1,............................... $104,913 $ 83,291 $62,520
Expenses deferred................................... 31,369 35,985 31,404
Amortization of DAC................................. (16,426) (14,804) (9,445)
Effect on DAC from unrealized losses (gains)........ 13,491 441 (1,188)
-------- -------- -------
Balance at December 31,............................. $133,347 $104,913 $83,291
======== ======== =======
</TABLE>
7. FEDERAL INCOME TAXES
The Company is included in a consolidated Federal income tax return with
Provident Mutual. The tax liability is accrued on a separate company basis,
adjusted for an allocation of an equity tax from Provident Mutual.
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,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Federal income tax at statutory rate..................... $4,780 $4,198 $4,174
Current year equity tax................................ 817 664 900
True down of prior years' equity tax................... (900) (650) (625)
------ ------ ------
Provision for Federal income tax from operations......... $4,697 $4,212 $4,449
====== ====== ======
</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 are as follows at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
DEFERRED TAX LIABILITY
Deferred policy acquisition costs........................... $36,685 $32,648
Net unrealized gain on available for sale securities........ -- 1,215
------- -------
Total deferred tax liability.............................. 36,685 33,863
------- -------
DEFERRED TAX ASSET
Reserves.................................................... 32,505 30,671
Invested assets............................................. 422 353
Policyholder dividends...................................... 203 189
Net unrealized loss on available for sale securities........ 2,065 --
Other....................................................... 244 176
------- -------
Total deferred tax asset.................................. 35,439 31,389
------- -------
Net deferred tax liability.................................. $ 1,246 $ 2,474
======= =======
</TABLE>
Under current tax law, stock life insurance companies are taxed at current
rates on distributions from the special surplus account for the benefit of
policyholders designated "Policyholder Surplus" (the Account). The Tax Reform
Act of 1984 eliminated further additions to the Account after December 31,
F-70
<PAGE> 125
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1983. The aggregate accumulation at December 31, 1983 was $2,037. The Company
has no present plans to make any distributions which would subject the Account
to current taxation.
The Company's Federal income tax returns have been audited through 1995.
All years through 1985 are closed. Years 1986 through 1995 have been audited and
are closed with the exception of several issues for which claims for refund have
been filed. Years 1996 and subsequent remain open. In the opinion of management,
adequate provision has been made for the possible effect of potential
assessments related to prior years' taxes.
8. 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.
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, 1999
Life insurance in force..................... $3,304,015 $2,454,842 $25,319 $874,492
========== ========== ======= ========
Premiums.................................... $ 18,580 $ 639 $ 90 $ 18,031
========== ========== ======= ========
Future policyholder benefits................ $ 482,673 $ 3,515 $ 1,968 $481,126
========== ========== ======= ========
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................ $ 517,625 $ 3,054 $ 2,378 $516,949
========== ========== ======= ========
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
========== ========== ======= ========
</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.
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, 1999 and 1998. Deposits
ceded during 1999 and 1998 were $2,627 and $2,749, respectively.
F-71
<PAGE> 126
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Approximately $1,668,604 and $1,481,828 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, 1999 and 1998, respectively.
Premiums and deposits ceded were $4,146 and $4,103 during 1999 and 1998,
respectively. Reinsurance recoverables at December 31, 1999 and 1998 were $132
and $134, respectively.
9. 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
$15,941, $16,581 and $13,964 for 1999, 1998 and 1997, 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, 1999 and 1998
approximated $73,957 and $81,050, respectively.
10. 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, 1999, the Company had outstanding mortgage loan and limited
partnership commitments of approximately $3,768. The mortgage loan commitments,
which expire through December 2000, totaled $3,275 and were issued during 1999
at interest rates consistent with rates applicable on December 31, 1999. 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 had no hedge activity in 1999. The
Company closed out hedge positions consisting of 226 treasury futures contracts
with a dollar value of $25,727 in 1998. The approximate net losses generated
from the hedge positions were $33 in 1998. There were no open hedge positions at
December 31, 1999 and 1998.
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, 1999 or 1998.
INVESTMENT PORTFOLIO CREDIT RISK
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1999 and 1998, approximately
$34,449 and $23,488, respectively, in debt security investments (9.5% and 5.8%,
respectively, of the total debt security portfolio) are considered "below
investment grade." During 1999, the Company increased its allocation of assets
to "below investment grade" securities. Securities are classified as "below
investment grade" primarily by utilizing rating criteria established by
independent bond rating agencies.
F-72
<PAGE> 127
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Debt security investments with a carrying value at December 31, 1999 of
$600 were non-income producing for the year ended December 31, 1999.
The Company had debt security investments in the financial services
industry at both December 31, 1999 and 1998 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, 1999 and 1998, 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 results of operations.
Insurance companies are subject to assessments, up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of management, the outcome of the proceedings and
assessments will not have a material adverse effect on the financial statements.
Guaranty fund assessments totaled $79, $109 and $236 in 1999, 1998 and 1997,
respectively. Of those amounts, $76, $56 and $117 in 1999, 1998 and 1997,
respectively, are creditable against future years' premium taxes.
F-73
<PAGE> 128
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. COMPREHENSIVE INCOME
The components of other comprehensive income are as follows:
<TABLE>
<CAPTION>
BEFORE TAX
TAX (EXPENSE) NET OF TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Unrealized (depreciation) appreciation on
securities.................................... $(11,256) $ 3,939 $(7,317)
Less: reclassification adjustment for losses
realized in net income........................ 1,887 (660) 1,227
-------- ------- -------
Net change in unrealized (depreciation)
appreciation on securities.................... $ (9,369) $ 3,279 $(6,090)
======== ======= =======
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 (depreciation)
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
(depreciation) on securities.................. $ 3,019 $(1,057) $ 1,962
======== ======= =======
</TABLE>
F-74
<PAGE> 129
APPENDIX A
ILLUSTRATION OF DEATH BENEFITS, POLICY ACCOUNT VALUES
AND NET CASH SURRENDER VALUES
The following tables illustrate how the Death Benefits, Policy Account
Values and Net Cash Surrender Values of a Policy may change with the investment
experience of the Subaccounts. The tables show how the Death Benefits, Policy
Account Values and Net Cash Surrender Values of a Policy issued to two Insureds
of given ages and sexes would vary over time if the investment return on the
assets held in each Portfolio were a uniform, gross, annual rate of 0%, 6% and
12%.
The tables on pages A-3 to A-8 illustrate a Policy issued to a male
Insured, Age 40 and a female Insured, Age 40, both in the Preferred Premium
Class with a Face Amount of $100,000 and a Planned Periodic Premium of $1,000
paid at the beginning of each Policy Year. The Death Benefits, Policy Account
Values and Net Cash Surrender Values would be lower if either Insured was in a
nonsmoker or smoker class or a class with extra ratings since the cost of
insurance charges would increase. Also, the values would be different from those
shown if the gross annual investment returns averaged 0%, 6% and 12% over a
period of years, but fluctuated above and below those averages for individual
Policy Years.
The second column of the tables show the amount to which the premiums would
accumulate if an amount equal to those premiums were invested to earn interest,
after taxes, at 5% compounded annually. The columns shown under the heading
"Guaranteed" assume that throughout the life of the policy, the monthly charge
for cost of insurance is based on the maximum level permitted under the Policy
(based on the 1980 CSO Smoker/Nonsmoker Table), a Premium Expense Charge of
8.25%, maximum Monthly Administrative Fee of $15, an Initial Administrative
Charge of $28.50 and a daily charge for mortality and expense risks equivalent
to an annual rate of 0.90%. The guaranteed Premium Expense Charge assumes a 2%
Premium Tax Charge. However, certain states may impose higher premium taxes. For
those Policies, the Death Benefit, Policy Account Value, and Net Cash Surrender
Value would be lower since the guaranteed Premium Expense Charge would be
higher. The columns under the heading "Current" assume that throughout the life
of the policy, the monthly charge for cost of insurance is based on the current
cost of insurance rate, a Premium Expense Charge of 8.25% in Policy Years 1
through 15 and 3.25% thereafter, current Monthly Administrative Fee of $8.50, an
Initial Administrative Charge of $28.50 and a daily charge for mortality and
expense risks equivalent to an annual rate of 0.65%.
The amounts shown in all tables reflect an averaging of certain other asset
charges described below that may be assessed under the Policy, depending upon
how premiums are allocated. The total of the asset charges reflected in the
Current and Guaranteed illustrations, including the Mortality and Expense Risk
Charge listed above, is 1.48% 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 Separate Account.
These asset charges reflect an investment advisory fee of 0.67% which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of 0.16% which is based on an average of the
actual expenses incurred by the Portfolios during the most recent fiscal year.
For certain Portfolios, certain expenses were reimbursed or fees waived during
1999. It is anticipated that expense reimbursement and fee waiver arrangements
will continue past the current year. Absent the expense reimbursement, the 1999
Total Annual Expenses would have been 1.21% for the Market Street Fund All Pro
Small Cap Value Portfolio, 0.57% for the VIP Fund Equity-Income Portfolio, 0.66%
for the VIP Fund Growth Portfolio, 0.91% for the VIP Fund Overseas Portfolio,
0.63% for the VIP II Fund Asset Manager Portfolio, 0.67% for the VIP II Fund
Contrafund(R)Portfolio, 1.17% for the Strong Mid Cap Growth Fund II, and 3.23%
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 1999 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. In the event that any expense reimbursement or fee waiver arrangement
is not continued in future years, the expenses incurred by the Portfolios will
be greater than otherwise would be the case.
A-1
<PAGE> 130
The tables also reflect the fact that no charges for Federal or state
income taxes are currently made against the Subaccounts. If such a charge is
made in the future, it would take a higher gross annual rate of return to
produce the same Policy values.
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid and allocated as
indicated, no amounts are allocated to the Guaranteed Account, and no Policy
loans are made. The tables are also based on the assumption that the Owner has
not requested a decrease in the Face Amount, that no partial withdrawals have
been made and no transfers have been made in any Policy Year.
Upon request, PLACA will provide a comparable illustration of future
benefits under the Policy based upon the proposed Insureds' Ages and Premium
Classes, the Death Benefit Option, Face Amount, Planned Periodic Premiums and
riders requested. PLACA reserves the right to charge a reasonable fee for this
service to persons who request more than one policy illustration during a Policy
year.
A-2
<PAGE> 131
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A FEMALE INSURED ISSUE AGE 40 PREFERRED
ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED (NET RATE OF -1.73%) CURRENT (NET RATE OF -1.48%)
PREMIUMS -------------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 384 0 100,000 463 0 100,000
2 2,153 1,099 376 100,000 1,258 535 100,000
3 3,310 1,801 1,037 100,000 2,041 1,277 100,000
4 4,526 2,488 1,685 100,000 2,809 2,006 100,000
5 5,802 3,162 2,319 100,000 3,565 2,721 100,000
6 7,142 3,823 2,939 100,000 4,307 3,424 100,000
7 8,549 4,469 3,559 100,000 5,036 4,126 100,000
8 10,027 5,101 4,191 100,000 5,751 4,841 100,000
9 11,578 5,718 4,808 100,000 6,452 5,542 100,000
10 13,207 6,321 5,411 100,000 7,138 6,228 100,000
11 14,917 6,908 5,999 100,000 7,809 6,900 100,000
12 16,713 7,480 6,752 100,000 8,465 7,737 100,000
13 18,599 8,034 7,488 100,000 9,104 8,558 100,000
14 20,579 8,571 8,207 100,000 9,724 9,360 100,000
15 22,657 9,087 8,906 100,000 10,326 10,144 100,000
16 24,840 9,584 9,584 100,000 10,957 10,957 100,000
17 27,132 10,057 10,057 100,000 11,564 11,564 100,000
18 29,539 10,506 10,506 100,000 12,155 12,155 100,000
19 32,066 10,930 10,930 100,000 12,737 12,737 100,000
20 34,719 11,325 11,325 100,000 13,312 13,312 100,000
25 50,113 12,707 12,707 100,000 16,040 16,040 100,000
30 69,760 12,330 12,330 100,000 18,157 18,157 100,000
</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> 132
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A FEMALE INSURED ISSUE AGE 40 PREFERRED
ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED (NET RATE OF 4.17%) CURRENT (NET RATE OF 4.43%)
PREMIUMS -------------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 422 0 100,000 504 0 100,000
2 2,153 1,209 486 100,000 1,379 655 100,000
3 3,310 2,028 1,265 100,000 2,291 1,528 100,000
4 4,526 2,880 2,077 100,000 3,243 2,439 100,000
5 5,802 3,765 2,922 100,000 4,234 3,391 100,000
6 7,142 4,685 3,802 100,000 5,268 4,384 100,000
7 8,549 5,641 4,731 100,000 6,344 5,435 100,000
8 10,027 6,633 5,723 100,000 7,466 6,556 100,000
9 11,578 7,663 6,754 100,000 8,634 7,724 100,000
10 13,207 8,733 7,823 100,000 9,849 8,939 100,000
11 14,917 9,841 8,932 100,000 11,113 10,204 100,000
12 16,713 10,991 10,263 100,000 12,428 11,700 100,000
13 18,599 12,181 11,635 100,000 13,794 13,249 100,000
14 20,579 13,413 13,049 100,000 15,213 14,849 100,000
15 22,657 14,687 14,505 100,000 16,686 16,504 100,000
16 24,840 16,004 16,004 100,000 18,266 18,266 100,000
17 27,132 17,362 17,362 100,000 19,904 19,904 100,000
18 29,539 18,763 18,763 100,000 21,608 21,608 100,000
19 32,066 20,206 20,206 100,000 23,389 23,389 100,000
20 34,719 21,692 21,692 100,000 25,252 25,252 100,000
25 50,113 29,680 29,680 100,000 35,889 35,889 100,000
30 69,760 38,190 38,190 100,000 48,846 48,846 100,000
</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-4
<PAGE> 133
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A FEMALE INSURED ISSUE AGE 40 PREFERRED
ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED (NET RATE OF 10.06%) CURRENT (NET RATE OF 10.34%)
PREMIUMS -------------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 459 0 100,000 544 0 100,000
2 2,153 1,324 601 100,000 1,504 780 100,000
3 3,310 2,274 1,511 100,000 2,562 1,799 100,000
4 4,526 3,319 2,515 100,000 3,728 2,924 100,000
5 5,802 4,466 3,623 100,000 5,012 4,169 100,000
6 7,142 5,727 4,844 100,000 6,427 5,544 100,000
7 8,549 7,112 6,202 100,000 7,986 7,076 100,000
8 10,027 8,633 7,724 100,000 9,703 8,794 100,000
9 11,578 10,304 9,395 100,000 11,595 10,685 100,000
10 13,207 12,140 11,230 100,000 13,678 12,768 100,000
11 14,917 14,155 13,245 100,000 15,972 15,062 100,000
12 16,713 16,368 15,640 100,000 18,498 17,770 100,000
13 18,599 18,797 18,252 100,000 21,280 20,734 100,000
14 20,579 21,465 21,101 100,000 24,342 23,979 100,000
15 22,657 24,392 24,210 100,000 27,715 27,533 100,000
16 24,840 27,606 27,606 100,000 31,484 31,484 100,000
17 27,132 31,134 31,134 100,000 35,634 35,634 100,000
18 29,539 35,008 35,008 100,000 40,212 40,212 100,000
19 32,066 39,262 39,262 100,000 45,268 45,268 100,000
20 34,719 43,935 43,935 100,000 50,853 50,853 100,000
25 50,113 75,275 75,275 100,000 88,850 88,850 108,396
30 69,760 125,814 125,814 145,945 150,947 150,947 175,099
</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> 134
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B FEMALE INSURED ISSUE AGE 40 PREFERRED
ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED (NET RATE OF -1.73%) CURRENT (NET RATE OF -1.48%)
PREMIUMS -------------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 384 0 100,384 463 0 100,463
2 2,153 1,099 376 101,099 1,258 535 101,258
3 3,310 1,801 1,037 101,801 2,041 1,277 102,041
4 4,526 2,488 1,685 102,488 2,809 2,006 102,809
5 5,802 3,162 2,319 103,162 3,564 2,721 103,564
6 7,142 3,822 2,938 103,822 4,306 3,423 104,306
7 8,549 4,468 3,558 104,468 5,034 4,125 105,034
8 10,027 5,099 4,189 105,099 5,749 4,839 105,749
9 11,578 5,715 4,805 105,715 6,449 5,539 106,449
10 13,207 6,316 5,407 106,316 7,133 6,223 107,133
11 14,917 6,902 5,992 106,902 7,802 6,893 107,802
12 16,713 7,471 6,743 107,471 8,455 7,727 108,455
13 18,599 8,022 7,476 108,022 9,090 8,544 109,090
14 20,579 8,554 8,190 108,554 9,706 9,342 109,706
15 22,657 9,065 8,883 109,065 10,301 10,119 110,301
16 24,840 9,554 9,554 109,554 10,923 10,923 110,923
17 27,132 10,018 10,018 110,018 11,520 11,520 111,520
18 29,539 10,456 10,456 110,456 12,099 12,099 112,099
19 32,066 10,866 10,866 110,866 12,669 12,669 112,669
20 34,719 11,243 11,243 111,243 13,231 13,231 113,231
25 50,113 12,463 12,463 112,463 15,884 15,884 115,884
30 69,760 11,681 11,681 111,681 17,823 17,823 117,823
</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> 135
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B FEMALE INSURED ISSUE AGE 40 PREFERRED
ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED (NET RATE OF 4.17%) CURRENT (NET RATE OF 4.43%)
PREMIUMS -------------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 422 0 100,422 504 0 100,504
2 2,153 1,209 486 101,209 1,379 655 101,379
3 3,310 2,028 1,265 102,028 2,291 1,528 102,291
4 4,526 2,880 2,076 102,880 3,243 2,439 103,243
5 5,802 3,765 2,921 103,765 4,234 3,390 104,234
6 7,142 4,684 3,801 104,684 5,267 4,383 105,267
7 8,549 5,639 4,729 105,639 6,343 5,433 106,343
8 10,027 6,630 5,721 106,630 7,463 6,553 107,463
9 11,578 7,659 6,749 107,659 8,629 7,719 108,629
10 13,207 8,726 7,816 108,726 9,842 8,932 109,842
11 14,917 9,832 8,922 109,832 11,103 10,193 111,103
12 16,713 10,977 10,249 110,977 12,413 11,685 112,413
13 18,599 12,161 11,615 112,161 13,773 13,227 113,773
14 20,579 13,385 13,022 113,385 15,182 14,818 115,182
15 22,657 14,649 14,467 114,649 16,643 16,461 116,643
16 24,840 15,951 15,951 115,951 18,207 18,207 118,207
17 27,132 17,290 17,290 117,290 19,823 19,823 119,823
18 29,539 18,667 18,667 118,667 21,501 21,501 121,501
19 32,066 20,079 20,079 120,079 23,253 23,253 123,253
20 34,719 21,524 21,524 121,524 25,084 25,084 125,084
25 50,113 29,073 29,073 129,073 35,491 35,491 135,491
30 69,760 36,165 36,165 136,165 47,831 47,831 147,831
</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> 136
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B FEMALE INSURED ISSUE AGE 40 PREFERRED
ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED (NET RATE OF 10.06%) CURRENT (NET RATE OF 10.34%)
PREMIUMS -------------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 459 0 100,459 544 0 100,544
2 2,153 1,324 601 101,324 1,504 780 101,504
3 3,310 2,274 1,511 102,274 2,562 1,799 102,562
4 4,526 3,318 2,515 103,318 3,728 2,924 103,728
5 5,802 4,466 3,622 104,466 5,012 4,168 105,012
6 7,142 5,726 4,842 105,726 6,426 5,543 106,426
7 8,549 7,110 6,200 107,110 7,984 7,074 107,984
8 10,027 8,630 7,720 108,630 9,700 8,790 109,700
9 11,578 10,298 9,389 110,298 11,589 10,679 111,589
10 13,207 12,130 11,220 112,130 13,668 12,758 113,668
11 14,917 14,140 13,231 114,140 15,956 15,047 115,956
12 16,713 16,346 15,618 116,346 18,474 17,747 118,474
13 18,599 18,765 18,219 118,765 21,245 20,699 121,245
14 20,579 21,418 21,054 121,418 24,291 23,927 124,291
15 22,657 24,325 24,143 124,325 27,640 27,458 127,640
16 24,840 27,510 27,510 127,510 31,376 31,376 131,376
17 27,132 30,999 30,999 130,999 35,482 35,482 135,482
18 29,539 34,819 34,819 134,819 40,002 40,002 140,002
19 32,066 39,001 39,001 139,001 44,989 44,989 144,989
20 34,719 43,578 43,578 143,578 50,494 50,494 150,494
25 50,113 73,670 73,670 173,670 87,785 87,785 187,785
30 69,760 119,805 119,805 219,805 148,128 148,128 248,128
</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> 137
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article VIII of PLACA's By-Laws provides, in part:
To the fullest extent permitted by law, the Company shall indemnify
any present, former or future Director, officer, or employee of the Company
or any person who may serve or has served at its request as officer or
Director of another corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including attorney's fees,
necessarily incurred in connection with the defense of any action, suit or
other proceeding to which any of them is made a party because of service as
Director, officer or employee of the Company or such other corporation, or
in connection with any appeal therein, and against any amounts paid by such
Director, officer or employee in settlement of, or in satisfaction of a
judgement or fine in, any such action or proceeding, except expenses
incurred in defense of or amounts paid in connection with any action, suit
or other proceeding in which such Director, officer or employee shall be
adjudged to be liable for negligence or misconduct in the performance of
his duty.
Insofar as indemnification or liability arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REPRESENTATION OF REASONABLENESS
Providentmutual Life and Annuity Company of America hereby represents that
the fees and charges deducted under the Policy, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by Providentmutual Life and Annuity Company of America.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 136 pages.
The undertaking to file reports.
Rule 484 undertaking.
Representations pursuant to Rule 6e-3(T).
The signatures.
II-1
<PAGE> 138
The following exhibits:
EXHIBIT
<TABLE>
<CAPTION>
EXHIBITS
-----------
<S> <C> <C>
1.A.1.a. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing establishment of
the Providentmutual Variable Life Separate Account(1)
1.A.1.b. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Life Separate
Account(1)
1.A.1.c. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Life Separate
Account(6)
1.A.2. None
1.A.3.a.i. Form of Underwriting Agreement among Providentmutual Life
and Annuity Company of America, PML Securities, Inc. and
Providentmutual Variable Life Separate Account(1)
1.A.3.b.i. Personal Producing General Agent's Agreement and
Supplement(1)
1.A.3.b.ii. Personal Producing Agent's Agreement and Supplement(1)
1.A.3.b.iii Producing General Agent's Agreement and Supplement(1)
1.A.3.c.i. Personal Producing General Agent's Commission Schedule(1)
1.A.3.c.ii. Personal Producing Agent's Commission Schedule(1)
1.A.3.c.iii Producing General Agent's Commission Schedule(1)
1.A.3.c.iv. Form of Selling Agreement between PML Securities, Inc. and
Broker/Dealers(1)
1.A.4. Inapplicable
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy (PLC134 & PLC134A)(5)
1.A.5.a. Convertible Term Life Rider (PLC308)(1)
1.A.5.b. 4 Year Survivorship Term Life Rider (PLC309)(5)
1.A.5.c. Guaranteed Minimum Death Benefit Rider (PLC320)(5)
1.A.5.d. Policy Split Option Rider (PLC615)(5)
1.A.5.e. Extension of Final Policy Date Rider (PLC822)(1)
1.A.5.f. Change of Insured Rider (PLC905)(5)
1.A.5.g. Disability Waiver Benefit Rider (PLC907)(5)
1.A.6.a. Charter of Providentmutual Life and Annuity Company of
America(2)
1.A.6.b. By-Laws of Providentmutual Life and Annuity Company of
America(2)
1.A.7. Inapplicable
1.A.8. Inapplicable
1.A.9. Inapplicable
1.A.10. Form of Application(6)
1.A.10.a. Supplemental Application for Flexible Premium(3)
1.A.10.b. Initial Allocation Selection(4)
2. See Exhibits 1.A.(5)
3.A. Consent of James G. Potter, Jr., Esquire
3.B. Consent of Sutherland Asbill & Brennan LLP
4. Inapplicable
5. Inapplicable
</TABLE>
II-2
<PAGE> 139
<TABLE>
<CAPTION>
EXHIBITS
-----------
<S> <C> <C>
6. Consent of Scott V. Carney, FSA, MAAA
7. Consent of PricewaterhouseCoopers, LLP
8. Description of Providentmutual Life and Annuity Company of
America's Issuance, Transfer and Redemption Procedures for
Policies(7)
9. Powers of Attorney(2)
10.A. Participation Agreement among Market Street Fund, Inc.,
Providentmutual Life and Annuity Company of America and PML
Securities, Inc.(2)
10.B. Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Providentmutual
Life and Annuity Company of America(1)
10.C. Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and
Providentmutual Life and Annuity Company of America(1)
10.D. Form of Fund Participation Agreement among Neuberger &
Berman Advisers Management Trust, Advisers Managers Trust
and Providentmutual Life and Annuity Company of America(2)
10.E. Participation Agreement between TCI Portfolios, Inc. and
Providentmutual Life and Annuity Company of America(2)
10.F. Participation Agreement between Van Eck Investment Trust and
Providentmutual Life and Annuity Company of America(2)
10.G. Participation Agreement among The Alger American Fund,
Providentmutual Life and Annuity Company of America and Fred
Alger and Company Incorporated(1)
10.H. Support Agreement between Provident Mutual Life Insurance
Company and Providentmutual Life and Annuity Company of
America(2)
10.I. Form of Participation Agreement between Strong Opportunity
Fund II, Inc., Strong Variable Insurance Funds, Inc. and
Providentmutual Life and Annuity Company of America(6)
27. Inapplicable
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 4, filed on
May 1, 1998, File No. 33-83138.
(2) Incorporated herein by reference to Post-Effective Amendment No. 5, filed on
May 1, 1998, File No. 33-65512.
(3) Incorporated herein by reference to Post-Effective Amendment No. 18, filed
on May 1, 1998, File No. 33-2625.
(4) Incorporated herein by reference to Post-Effective Amendment No. 11, filed
on May 1, 1998, File No. 33-42133.
(5) Incorporated herein by reference to Post-Effective Amendment No. 2, filed on
May 1, 1998, File No. 333-10321.
(6) Incorporated herein by reference to Post-Effective Amendment No. 2, filed on
April 24, 2000, File No. 333-67775.
(7) Incorporated herein by reference to Post-Effective Amendment No. 1, filed on
April 24, 2000, File No. 333-82611.
II-3
<PAGE> 140
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT,
PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT CERTIFIES THAT IT MEETS THE
REQUIREMENTS OF SECURITIES ACT RULE 485(b) FOR EFFECTIVENESS OF THIS
REGISTRATION STATEMENT AND HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT NO. 4
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, AND ITS SEAL TO BE HEREUNTO AFFIXED AND ATTESTED, ALL
IN THE COUNTY OF NEW CASTLE, STATE OF DELAWARE ON THE 24 DAY OF APRIL, 2000.
PROVIDENTMUTUAL VARIABLE LIFE
SEPARATE ACCOUNT (Registrant)
<TABLE>
<S> <C>
By: PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
ATTEST: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
- ----------------------------------------------------- -----------------------------------------------------
JAMES G. POTTER, JR. ROBERT W. KLOSS
President
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA (Depositor)
Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
- ----------------------------------------------------- -----------------------------------------------------
JAMES G. POTTER, JR. ROBERT W. KLOSS
President
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED
BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON APRIL 24, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ ROBERT W. KLOSS Director and President (Principal Executive
- ------------------------------------------------ Officer)
ROBERT W. KLOSS
/s/ STEPHEN L. WHITE Vice President and Actuary (Principal Financial
- ------------------------------------------------ Officer)
STEPHEN L. WHITE
/s/ MICHAEL FUNCK Financial Reporting Officer (Principal Accounting
- ------------------------------------------------ Officer)
MICHAEL FUNCK
* Vice President and Actuary
- ------------------------------------------------
SCOTT V. CARNEY
* Director
- ------------------------------------------------
MARY LYNN FINELLI
/s/ JAMES G. POTTER, JR. Director, Secretary and Legal Officer
- ------------------------------------------------
JAMES G. POTTER, JR.
* Director
- ------------------------------------------------
JAMES D. KESTNER
* Director
- ------------------------------------------------
SARAH C. LANGE
</TABLE>
<PAGE> 141
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
* Director, Vice President and Actuary
- ------------------------------------------------
ALAN F. HINKLE
* Director and Vice President
- ------------------------------------------------
JOAN C. TUCKER
* Director
- ------------------------------------------------
MEHRAN ASSADI
* Director
- ------------------------------------------------
LINDA M. SPRINGER
* Treasurer
- ------------------------------------------------
ROSANNE GATTA
*By: /s/ JAMES G. POTTER, JR.
- ------------------------------------------------
JAMES G. POTTER, JR.
Attorney-in-fact
pursuant to Power of Attorney
</TABLE>
<PAGE> 142
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<S> <C> <C>
3.A. Consent of James G. Potter, Jr., Esquire
3.B. Consent of Sutherland Asbill & Brennan LLP
6. Consent of Scott V. Carney, FSA, MAAA
7. Consent of PricewaterhouseCoopers, LLP
</TABLE>
<PAGE> 1
Exhibit 3.A.
[PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA LETTERHEAD]
April 24, 2000
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, DE 19713
Directors:
I hereby consent to the reference to my name under the caption "Legal Matters"
in the Prospectus filed as part of the Post-Effective Amendment No. 4 of the
Registration Statement on Form S-6 (File No. 333-10321) for the Providentmutual
Variable Life Separate Account.
Sincerely,
/s/ James G. Potter, Jr.
- ------------------------
James G. Potter, Jr., Legal Officer
<PAGE> 1
Exhibit 3.B
[Sutherland Asbill & Brennan LLP Letterhead]
April 24, 2000
Board of Directors
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, DE 19173
RE: PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT FILE
NO. 333-10321
Directors:
We hereby consent to the reference to our name under the
caption "Legal Matters" in the Statement of Additional Information filed as
part of the Post-Effective Amendment No. 4 of the Registration Statement on Form
S-6 for Providentmutual Variable Life Separate Account (File No. 333-10321). In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
-------------------
Stephen E. Roth
<PAGE> 1
Exhibit 6
[PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA LETTERHEAD]
April 24, 2000
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, DE 19713
Directors:
I hereby consent to the reference to my name under the caption "Experts" in the
Prospectus filed as part of the Post-Effective Amendment No. 4 of the
Registration Statement on Form S-6 (File No. 333-10321) for the Providentmutual
Variable Life Separate Account.
Sincerely,
/s/ Scott V. Carney
- -------------------
Scott V. Carney, FSA, MAAA Actuary
<PAGE> 1
Exhibit 7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, in this Post-Effective Amendment No. 4 to the
Registration Statement under the Securities Act of 1933, as amended, filed on
Form S-6 (File No. 333-10321) for the Providentmutual Variable Life Separate
Account, of the following reports:
1. Our report dated February 7, 2000 on our audits of the financial
statements of Providentmutual Life and Annuity Company of America as of
December 31, 1999 and 1998 and for each of the three years in the period
ended December 31, 1999.
2. Our report dated February 23, 2000 on our audits of the financial
statements of the Providentmutual Variable Life Separate Account
(comprising twenty-eight subaccounts) as of December 31, 1999 and for
the each of the three years in the period ended December 31, 1999.
We also consent to the reference to our Firm under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
April 24, 2000
