<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 2000
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REGISTRATION NO. 333-67775
811-8722
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-6
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 1
------------------------
PROVIDENTMUTUAL VARIABLE
LIFE SEPARATE ACCOUNT
(EXACT NAME OF TRUST)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
(NAME OF DEPOSITOR)
300 CONTINENTAL DRIVE
NEWARK, DELAWARE 19173
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
JAMES G. POTTER, JR., ESQ.,
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
1000 CHESTERBROOK BOULEVARD
BERWYN, PENNSYLVANIA 19312
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
COPY TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004-2415
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485.
[ ] On pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[X] On May 1, 2000 pursuant to paragraph (a)(1) of Rule 485.
TITLE OF SECURITIES BEING OFFERED: Individual Flexible Premium Variable Life
Insurance Policies.
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<PAGE> 2
PROSPECTUS
FOR
FLEXIBLE PREMIUM ADJUSTABLE
VARIABLE LIFE INSURANCE
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
<PAGE> 3
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE
INSURANCE POLICY
Issued by
PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT
and
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF
AMERICA
<TABLE>
<S> <C>
SERVICE CENTER MAIN ADMINISTRATIVE OFFICE
300 CONTINENTAL DRIVE 1000 CHESTERBROOK BLVD.
NEWARK, DELAWARE 19713 BERWYN, PENNSYLVANIA 19312
</TABLE>
TELEPHONE: (800) 688-5177
PROSPECTUS
May , 2000
This prospectus describes a flexible premium adjustable variable life insurance
policy ("Policy") issued by Providentmutual Life and Annuity Company of America
(the "Company"). The Policy is a long-term investment designed to provide
significant life insurance benefits for the insured. This prospectus provides
information that a prospective owner should know before investing in the Policy.
You should consider the Policy in conjunction with other insurance you own.
You can allocate your Policy's values to:
-- Providentmutual Variable Life Separate Account (the "Separate
Account"), which invests in the portfolios listed on this page; or
-- the Guaranteed Account, which credits a specified rate of interest.
A prospectus for each of the portfolios available through the Separate Account
must accompany this prospectus. Please read these documents before investing and
save them for future reference.
PLEASE NOTE THAT THE POLICIES AND THE PORTFOLIOS:
-- ARE NOT GUARANTEED TO ACHIEVE THEIR GOALS;
-- ARE NOT FEDERALLY INSURED;
-- ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY; AND
-- ARE SUBJECT TO RISKS, INCLUDING LOSS OF THE AMOUNT INVESTED.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
POLICY OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The following portfolios are available:
-- THE MARKET STREET FUND, INC.
All-Pro Large Cap Growth Portfolio
All-Pro Large Cap Value Portfolio
All-Pro Small Cap Growth Portfolio
All-Pro Small Cap Value Portfolio
Aggressive Growth Portfolio
Bond Portfolio
Equity 500 Index Portfolio
Growth Portfolio
International Portfolio
Managed Portfolio
Money Market Portfolio
-- THE ALGER AMERICAN FUND
Small Capitalization Portfolio
-- NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio
Partners Portfolio
-- VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Portfolio
Worldwide Emerging Markets Portfolio
Worldwide Hard Assets Portfolio
Worldwide Real Estate Portfolio
-- VARIABLE INSURANCE PRODUCTS FUND
Equity-Income Portfolio
Growth Portfolio
High Income Portfolio
Overseas Portfolio
-- VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio
Contrafund Portfolio
Investment Grade Bond Portfolio
<PAGE> 4
TABLE OF CONTENTS
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<TABLE>
<S> <C>
GLOSSARY.............................. 1
POLICY SUMMARY........................ 4
Premiums............................ 4
Investment Options.................. 4
Policy Account Value................ 5
Charges and Deductions.............. 5
Annual Portfolio Operating Expenses
Table............................ 7
Surrenders and Partial
Withdrawals...................... 8
Death Benefit....................... 9
Transfers........................... 10
Loans............................... 10
Illustrations....................... 10
RISK SUMMARY.......................... 11
THE COMPANY AND THE GUARANTEED
ACCOUNT............................. 12
Providentmutual Life and Annuity
Company of America............... 12
The Guaranteed Account.............. 13
THE SEPARATE ACCOUNT AND THE
PORTFOLIOS.......................... 13
The Separate Account................ 13
The Portfolios...................... 14
THE POLICY............................ 18
Purchasing a Policy................. 18
When Insurance Coverage Takes
Effect........................... 18
Canceling a Policy (Free Look
Right)........................... 19
Ownership Rights.................... 19
PREMIUMS.............................. 21
Allocating Premiums................. 22
POLICY ACCOUNT VALUES................. 22
Policy Account Value................ 22
Net Cash Surrender Value............ 23
Subaccount Value.................... 23
Unit Value.......................... 23
Guaranteed Account Value............ 24
Special Policy Account Value
Credit........................... 24
CHARGES AND DEDUCTIONS................ 24
Premium Expense Charge.............. 25
Monthly Deduction................... 25
Mortality and Expense Risk Charge... 27
Surrender Charges and Additional
Surrender Charges................ 27
Face Amount Increase Charge......... 30
Partial Withdrawal Charge........... 30
Transfer Charge..................... 30
Portfolio Expenses.................. 30
DEATH BENEFIT......................... 30
Insurance Proceeds.................. 30
Death Benefit Options............... 31
Changing Death Benefit Options...... 32
Changing the Face Amount............ 32
Settlement Options.................. 34
Accelerated Death Benefit........... 34
SURRENDERS AND PARTIAL WITHDRAWALS.... 34
Surrenders.......................... 34
Partial Withdrawals................. 35
TRANSFERS............................. 35
Dollar Cost Averaging............... 36
Automatic Asset Rebalancing......... 37
LOANS................................. 38
Effect of Policy Loans.............. 39
POLICY LAPSE AND REINSTATEMENT........ 39
Lapse............................... 39
Reinstatement....................... 40
FEDERAL TAX CONSIDERATIONS............ 40
Tax Treatment of Policy Benefits.... 41
OTHER POLICY INFORMATION.............. 42
Payment of Policy Benefits.......... 42
The Policy.......................... 43
Telephone Requests.................. 43
Our Right to Contest the Policy..... 44
Split Dollar Arrangements........... 44
Suicide Exclusion................... 44
Misstatement of Age or Sex.......... 44
Modifying the Policy................ 45
Payments We Make.................... 45
Additional Transfer Rights.......... 45
Reports to Owners................... 46
Records............................. 46
Policy Termination.................. 47
Supplemental Benefits and Riders.... 47
PERFORMANCE DATA...................... 51
ADDITIONAL INFORMATION................ 51
Sale of the Policies................ 51
Potential Conflicts of Interest..... 51
Changes to the Separate Account..... 52
Standard & Poor's................... 52
Policies Issued in Conjunction with
Employee Benefit Plans........... 53
Legal Developments Regarding Unisex
Actuarial Tables................. 53
Voting Portfolio Shares............. 53
Legal Matters....................... 54
Legal Proceedings................... 54
Experts............................. 54
Financial Statements................ 54
Additional Information about the
Company.......................... 54
PLACA's Executive Officers and
Directors........................ 55
FINANCIAL STATEMENTS.................. F-1
APPENDIX A -- ILLUSTRATIONS........... A-1
</TABLE>
<PAGE> 5
GLOSSARY
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ATTAINED AGE
The issue age of the insured plus the number of full policy years since the
policy date.
BENEFICIARY
The person(s) you select to receive the insurance proceeds from the Policy.
CODE
The Internal Revenue Code of 1986, as amended.
COMPANY (WE, US, OUR, PLACA)
Providentmutual Life and Annuity Company of America, Service Center: 300
Continental Drive Newark, Delaware 19713, Main Administrative Office: 1000
Chesterbrook Boulevard, Berwyn, Pennsylvania 19312, telephone: (800) 688-5177.
FACE AMOUNT
The dollar amount of insurance selected by the owner. The face amount may be
increased or decreased after issue, subject to certain conditions. The face
amount is a factor in determining the death benefit, surrender charges, and
additional surrender charges.
FINAL POLICY DATE
The policy anniversary nearest the insured's attained age 100, at which time the
Policy will end and you will be paid the policy account value less any
indebtedness and any unpaid monthly deductions. Subject to state availability,
you may elect to continue the Policy beyond the insured's attained age 100 under
the Final Policy Date Extension rider.
FREE LOOK PERIOD
The period shown on your Policy's cover page during which you may examine and
return the Policy to us at our Service Center and receive a refund. The length
of the free look period varies by state.
FUND
An investment company that is registered with the Securities and Exchange
Commission. The Policy allows you to invest in certain portfolios of the funds
that are listed on the front page of this prospectus.
GRACE PERIOD
A 61-day period after which a Policy will lapse if you do not make a sufficient
payment.
GUARANTEED ACCOUNT
Part of our general account. Amounts allocated to the Guaranteed Account earn at
least 4% annual interest.
GUIDELINE ANNUAL PREMIUM
The "guideline annual premium" as defined in regulations under the Investment
Company Act of 1940, and used in connection with the calculation of surrender
charges. It is approximately equal to the amount of premium that would be
required on an annual basis to keep the Policy in force if the Policy had a
mandatory fixed premium schedule assuming (among other things) a 5% net
investment return.
INDEBTEDNESS
The total amount of all outstanding policy loans, including both principal and
interest due.
INITIAL FACE AMOUNT
The face amount on the policy issue date.
INSURANCE PROCEEDS
The amount we pay to the beneficiary when we receive due proof of the insured's
death. We deduct any indebtedness and unpaid monthly deductions before making
any payment.
INSURED
The person whose life is insured by the Policy.
ISSUE AGE
The insured's age on the insured's birthday nearest the policy date.
LAPSE
When your Policy terminates without value after a grace period. You may
reinstate a lapsed Policy, subject to certain conditions.
LOAN ACCOUNT
The account to which we transfer collateral for a policy loan from the
Subaccounts and/or the Guaranteed Account.
1
<PAGE> 6
MEC
A modified endowment contract, as defined under the Code.
MINIMUM GUARANTEE PREMIUM
The amount necessary to guarantee the Policy will not lapse during the first 5
policy years. It is equal to the minimum annual premium (as set forth in your
Policy) MULTIPLIED by the number of months since the policy date (including the
current month) DIVIDED by 12.
MINIMUM INITIAL PREMIUM
An amount equal to the minimum annual premium (as set forth in your Policy)
MULTIPLIED by the following factor for your premium billing mode: annual 1.000;
semi-annual 0.500; quarterly 0.250; monthly 0.167.
MONTHLY DEDUCTION
This is the monthly amount we deduct from the policy account value on each
policy processing day. The monthly deduction includes the cost of insurance
charge, the monthly administrative charge, the initial administrative charge
(during the first policy year), and charges for any riders.
NET CASH SURRENDER VALUE
The amount we pay when you surrender your Policy. It is equal to: (1) the policy
account value as of the date of surrender; MINUS (2) any surrender charge or
additional surrender charge; MINUS (3) any indebtedness.
NET PREMIUMS
Premiums less the premium expense charge.
OWNER (YOU, YOUR)
The person entitled to exercise all rights as owner under the Policy.
POLICY ACCOUNT VALUE
The sum of your 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 year following the first
policy year.
POLICY DATE
The date set forth in the Policy that is used to determine policy anniversaries,
policy processing days, and policy years. The policy date is generally the same
as the policy issue date but, subject to state approval, may be another date
agreed upon by us and the proposed insured. The policy date may not be more than
6 months prior to the policy issue date.
POLICY ISSUE DATE
The date on which the Policy is issued. It is used to measure suicide and
contestable periods.
POLICY PROCESSING DAY
This is the same day as the policy date in each successive month. If there is no
day in a calendar month that coincides with the policy date, or if that day
falls on a day that is not a valuation day, then the policy processing day is
the next valuation day. On each policy processing day, we determine Policy
charges and deduct them from the policy account value.
POLICY YEAR
A year that starts on the policy date or on a policy anniversary.
PORTFOLIO
A separate investment portfolio of a fund. Each Subaccount invests exclusively
in one portfolio of a fund.
PREMIUM CLASS
The classification of the insured for cost of insurance purposes. The classes
are: standard, standard with extra rating; nonsmoker; nonsmoker with extra
rating; and preferred.
PREMIUMS
All payments you make under the Policy other than repayments of indebtedness.
RIDER
An amendment, addition, or endorsement to the Policy that changes the terms of
the Policy by: (1) expanding Policy benefits; (2) restricting Policy benefits;
or (3) excluding certain conditions from the Policy's coverage. A rider that is
added to the Policy becomes part of the Policy.
SEPARATE ACCOUNT
Providentmutual Variable Life Separate Account. It is a separate investment
account that is divided into Subaccounts, each of which invests in a
corresponding portfolio.
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<PAGE> 7
SUBACCOUNT
A subdivision of Providentmutual Variable Life Separate Account. We invest each
Subaccount's assets exclusively in shares of one portfolio.
SURRENDER
To cancel the Policy by signed request from the owner and return of the Policy
to us at our Service Center.
TARGET PREMIUM
An amount of premium payments, computed separately for each increment of face
amount, used to compute surrender charges and additional surrender charges.
VALUATION DAY
Each day that the New York Stock Exchange is open for business and any other day
on which there is a sufficient degree of trading with respect to a Subaccount's
portfolio of securities to materially affect the value of that Subaccount. As of
the date of this prospectus, the Company is open whenever the New York Stock
Exchange is open.
VALUATION PERIOD
The period beginning at the close of business on one valuation day (usually 4:00
p.m., Eastern time) and continuing to the close of business on the next
valuation day.
WRITTEN NOTICE OR REQUEST
The written notice or request you must complete, sign, and send to us at our
Service Center to request or exercise your rights as owner under the Policy. To
be complete, each written notice or request must: (1) be in a form we accept;
(2) contain the information and documentation that we determine in our sole
discretion is necessary for us to take the action you request or for you to
exercise the right specified; and (3) be received at our Service Center. You may
obtain the necessary form by calling us at (800) 688-5177.
3
<PAGE> 8
POLICY SUMMARY
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This summary describes the Policy's important features and corresponds to
prospectus sections that discuss the topics in more detail. THE GLOSSARY DEFINES
CERTAIN WORDS AND PHRASES USED IN THIS PROSPECTUS.
PREMIUMS
- - You must pay the minimum initial premium before we deliver the Policy.
- - After you pay the initial premium, you can pay subsequent premiums at any time
(prior to the final policy date) and in any amount (but not less than $20).
You select a premium payment plan to pay planned periodic premiums quarterly,
semiannually, or annually. You are not required to pay premiums according to
the plan. However, you may greatly increase your risk of lapse if you do not
regularly pay premiums. You may also choose to have premiums automatically
deducted monthly from your bank account or other source under our automatic
payment plan.
- - We will not accept any premiums after the final policy date.
- - PAYING YOUR PLANNED PERIODIC PREMIUMS WILL NOT NECESSARILY KEEP YOUR POLICY IN
FORCE. Even if you make premium payments according to your payment plan, your
Policy will lapse if the net cash surrender value is not enough to pay the
monthly deduction and other charges.
- - There will be a 61-day grace period before your Policy lapses. Your Policy
will not lapse:
-- during the first 5 policy years, if you pay premiums (less any
indebtedness and partial withdrawals) in excess of the minimum guarantee
premium;
-- if you purchase a Guaranteed Minimum Death Benefit rider and meet
certain conditions; or
-- if you make a payment equal to 3 monthly deductions before the end of
the grace period.
You may reinstate a lapsed Policy if you meet certain requirements.
- - When you receive your Policy, the free look period begins. You may return your
Policy during this period and receive a refund. A free look period also begins
if you request an increase in face amount.
- - We deduct a premium expense charge from each premium you pay. Generally, we
allocate the resulting amount (the net premium) to the Subaccounts and the
Guaranteed Account in accordance with your allocation instructions.
- - Some states require us to refund all premiums (less any partial withdrawals
and indebtedness) if you return your Policy during the free look period. In
those states, for the first 15 days following the later of the policy issue
date or the date we receive the minimum initial premium, we direct your
premiums into the Money Market Subaccount. After the 15 days, we allocate that
value to the Subaccounts you selected.
INVESTMENT OPTIONS
GUARANTEED ACCOUNT:
- - You may place money in the Guaranteed Account where it earns at least 4%
annual interest. We may declare higher rates of interest, but are not
obligated to do so.
SEPARATE ACCOUNT:
- - You may direct the money in your Policy to any of the Subaccounts of the
Separate Account. WE DO NOT GUARANTEE ANY MONEY YOU PLACE IN THE SUBACCOUNTS.
THE VALUE OF EACH SUBACCOUNT WILL INCREASE OR
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<PAGE> 9
DECREASE, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE CORRESPONDING
PORTFOLIO. YOU COULD LOSE SOME OR ALL OF YOUR MONEY.
- - Each Subaccount invests exclusively in one of the following portfolios:
<TABLE>
<S> <C>
- - THE MARKET STREET FUND, INC.
("MARKET STREET")
All-Pro Large Cap Growth
Portfolio
All-Pro Large Cap Value Portfolio
All-Pro Small Cap Growth
Portfolio
All-Pro Small Cap Value Portfolio
Aggressive Growth Portfolio
Bond Portfolio
Equity 500 Index Portfolio
Growth Portfolio
International Portfolio
Managed Portfolio
Money Market Portfolio
- - THE ALGER AMERICAN FUND
("ALGER AMERICAN")
Small Capitalization Portfolio
- - NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
("NEUBERGER BERMAN")
Limited Maturity Bond Portfolio
Partners Portfolio
- - VAN ECK WORLDWIDE INSURANCE TRUST
("VAN ECK")
Worldwide Bond Portfolio
Worldwide Emerging Markets
Portfolio
Worldwide Hard Assets Portfolio
Worldwide Real Estate Portfolio
- - VARIABLE INSURANCE PRODUCTS FUND
("VIP")
Equity-Income Portfolio
Growth Portfolio
High Income Portfolio
Overseas Portfolio
- - VARIABLE INSURANCE PRODUCTS FUND
II ("VIP II")
Asset Manager Portfolio
Contrafund Portfolio
Investment Grade Bond Portfolio
</TABLE>
POLICY ACCOUNT VALUE
- - Policy account value is the sum of your amounts in the Subaccounts, the
Guaranteed Account, and the Loan Account. Policy account value is the starting
point for calculating important values under the Policy, such as the net cash
surrender value and the death benefit.
- - Policy account value varies from day to day, depending on the investment
performance of the Subaccounts you choose, interest we credit to the
Guaranteed Account, charges we deduct, and any other transactions (e.g.,
transfers, partial withdrawals, and loans). WE DO NOT GUARANTEE A MINIMUM
POLICY ACCOUNT VALUE.
CHARGES AND DEDUCTIONS
$ PREMIUM EXPENSE CHARGE: We deduct a premium expense charge from each premium
and credit the remaining amount (the net premium) according to your allocation
instructions. The premium expense charge consists of:
1. Premium Tax Charge: for state and local premium taxes based on the rate
for the insured's residence at the time the premium is paid.
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<PAGE> 10
2. Percent of Premium Charge: equal to 1.5% of each premium payment. We may
increase this charge to a maximum of 3% of each premium payment.
$ MONTHLY DEDUCTION: On the policy date and on each policy processing day
thereafter, we deduct from the policy account value:
-- the cost of insurance charge
-- the $7.50 monthly administrative charge (we may increase this charge
to a maximum of $12)
-- the $5.00 initial administrative charge (only deducted on the first
12 policy processing days)
-- charges for any riders.
$ SURRENDER CHARGES AND ADDITIONAL SURRENDER CHARGES:
-- Surrender Charge: During the first 12 policy years, we deduct a
surrender charge if you surrender the Policy or it lapses. The surrender
charge consists of:
1. Deferred Administrative Charge: the charge described in the table
below less any deferred administrative charge previously paid at
the time of a decrease in face amount.
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR(S) OF FACE AMOUNT
- -------------- -----------------------
<S> <C>
1-6............................................... $4.90
7................................................. $4.20
8................................................. $3.50
9................................................. $2.80
10................................................ $2.10
11................................................ $1.40
12................................................ $0.70
13+............................................... $ -0-
</TABLE>
2. Deferred Sales Charge: this charge equals the lesser of A or B (less
any deferred sales charge previously paid at the time of a prior
decrease in face amount), where:
a = 35% of all premiums paid to the date of surrender or lapse; or
b = the following percentage of target premium:
<TABLE>
<CAPTION>
% OF TARGET PREMIUM FOR
POLICY YEAR(S) THE INITIAL FACE AMOUNT
- -------------- -----------------------
<S> <C>
1-6............................................... 70%
7................................................. 60%
8................................................. 50%
9................................................. 40%
10................................................ 30%
11................................................ 20%
12................................................ 10%
13+............................................... 0%
</TABLE>
THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU MAY HAVE NO NET CASH SURRENDER
VALUE IF YOU SURRENDER YOUR POLICY DURING THE FIRST 12 YEARS.
-- Additional Surrender Charge: Within 12 years after the effective date of
an increase in face amount, we deduct an additional surrender charge if
you surrender the Policy or it lapses. The additional surrender charge
consists of an additional deferred administrative charge and an
additional deferred sales charge.
6
<PAGE> 11
-- Decrease in Face Amount. In the event of a decrease in face amount
before the end of the 12th policy year or within 12 years after an
increase in face amount, we deduct a charge that is a portion of the
surrender charge and/or additional surrender charge.
$ PARTIAL WITHDRAWAL CHARGES: For each partial withdrawal, we deduct a $25 fee
from the remaining policy account value.
$ FACE AMOUNT INCREASE CHARGE: On the effective date of an increase in face
amount, we deduct a charge of $60 plus $0.50 per $1,000 face amount increase
(but not greater than $750) from the policy account value. We may increase
this charge to a maximum of $60 plus $3.00 per $1,000 face amount increase.
$ MORTALITY AND EXPENSE RISK CHARGE: We deduct a daily charge equal to an annual
rate of 0.75% of the average daily net assets of the Separate Account. We may
increase this charge to a maximum annual rate of 0.90%
$ TRANSFER CHARGE: We assess a $25 fee (from the amount transferred) for the
13th and each additional transfer among the Subaccounts or the Guaranteed
Account in a policy year.
$ PORTFOLIO EXPENSES: The portfolios deduct management fees and other expenses
from their assets. These fees and expenses (shown in the following table) vary
by portfolio and currently range from % to % per year of the average
portfolio assets.
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.
ANNUAL PORTFOLIO OPERATING EXPENSES (as a percentage of average portfolio
assets after fee waivers and expense reimbursements)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
--------- ---------- -------- --------
<S> <C> <C> <C>
MARKET STREET FUND, INC. (1)
All-Pro Large Cap Growth Portfolio % % %
All-Pro Large Cap Value Portfolio % % %
All-Pro Small Cap Growth Portfolio % % %
All-Pro Small Cap Value Portfolio % % %
Aggressive Growth Portfolio % % %
Bond Portfolio % % %
Equity 500 Index Portfolio % % %
Growth Portfolio % % %
International Portfolio % % %
Managed Portfolio % % %
Money Market Portfolio % % %
THE ALGER AMERICAN FUND (1) % % %
Small Capitalization Portfolio % % %
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST (1) % % %
Limited Maturity Bond Portfolio % % %
Partners Portfolio % % %
VAN ECK WORLDWIDE INSURANCE TRUST (1)
Worldwide Bond Portfolio % % %
Worldwide Emerging Markets Portfolio % % %
Worldwide Hard Assets Portfolio % % %
Worldwide Real Estate Portfolio % % %
</TABLE>
7
<PAGE> 12
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
--------- ---------- -------- --------
<S> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND (1) % % %
Equity-Income Portfolio % % %
Growth Portfolio % % %
High Income Portfolio % % %
Overseas Portfolio % % %
VARIABLE INSURANCE PRODUCTS FUND II (1) % % %
Asset Manager Portfolio % % %
Contrafund Portfolio % % %
Investment Grade Bond Portfolio % % %
</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 for the current year. Absent the expense
reimbursement, the 1999 Total Annual Expenses would have been % for
the Market Street Fund All-Pro Small Cap Value Portfolio, % for the
VIP Fund Equity-Income Portfolio, % for the VIP Fund Growth
Portfolio, % for the VIP II Fund Overseas Portfolio, % for the
VIP II Fund Asset Manager Portfolio, % for the VIP II Fund Index 500
Portfolio, % for the VIP II Fund Contrafund Portfolio, % for the
Van Eck Worldwide Hard Assets Portfolio, % for the Van Eck Worldwide
Emerging Markets Portfolio, and % 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 these 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.
The fee and expense information regarding the portfolios was provided by those
portfolios. The Alger American Fund, Neuberger Berman Advisers Management
Trust, Van Eck Worldwide Insurance Trust, Variable Insurance Products Fund,
and Variable Insurance Products Fund II are not affiliated with PLACA.
SURRENDERS AND PARTIAL WITHDRAWALS
-- SURRENDER: At any time while the Policy is in force, you may make a request
to surrender your Policy and receive the net cash surrender value. A
surrender may have tax consequences.
-- PARTIAL WITHDRAWALS: After the first policy year, you may make a written
request to withdraw part of the net cash surrender value, subject to the
following rules. Partial withdrawals may have tax consequences.
X You must request at least $1,500.
X For each partial withdrawal, we deduct a $25 fee from the remaining policy
account value.
X If Death Benefit Option A is in effect, we will reduce the face amount by
the amount of the partial withdrawal.
X Unless you specify otherwise, we will deduct the requested partial
withdrawal and partial withdrawal charge from the Subaccounts and the
Guaranteed Account in proportion to the value in each account.
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DEATH BENEFIT
-- INSURANCE PROCEEDS. We pay insurance proceeds to the beneficiary upon due
proof of death of the insured. The insurance proceeds equal the death
benefit and any additional insurance provided by rider less any
indebtedness and unpaid monthly deductions.
-- DEATH BENEFIT OPTION A AND OPTION B. You may choose between two death
benefit options under the Policy. After the first policy year and at least
12 months after any increase in face amount, you may change death benefit
options while the Policy is in force. We calculate the amount available
under each death benefit option as of the insured's date of death.
-- DEATH BENEFIT OPTION A is equal to the greater of:
-- the face amount (which is the amount of insurance you select); OR
-- the policy account value multiplied by the applicable percentage listed
in the table below.
-- DEATH BENEFIT OPTION B is equal to the greater of:
-- the face amount PLUS the policy account value; or
-- the policy account value multiplied by the applicable percentage listed
in the table below.
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
- ------------ ---------- ------------- ----------
<S> <C> <C> <C>
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 through 99 100%
</TABLE>
For attained ages not shown, the percentages will decrease by a ratable portion
for each full year.
-- ACCELERATED DEATH BENEFIT. Under the Accelerated Death Benefit rider, you
may receive accelerated payment of part of your death benefit if the
insured develops a terminal illness or is permanently confined to a nursing
care facility.
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TRANSFERS
-- You may make transfers among the Subaccounts and the Guaranteed Account.
-- We charge $25 for the 13th and each additional transfer during a policy
year.
-- Transfers out of the Guaranteed Account may be made only within 30 days of
a policy anniversary.
-- The minimum amount you may transfer from a Subaccount or the Guaranteed
Account is the lesser of $1,000 or the total value in the Subaccount or
Guaranteed Account.
LOANS
-- You may take a loan (minimum $500) from your Policy at any time. The
maximum loan amount you may take is the net cash surrender value. You may
increase your risk of lapse if you take a loan. Loans may have tax
consequences.
-- We charge you a maximum annual interest rate of 6% ("charged interest
rate") on your loan. Charged interest is due and payable at the end of each
policy year. Unpaid interest becomes part of the outstanding loan and
accrues interest if it is not paid by the end of the policy year.
-- We credit interest on amounts in the Loan Account ("earned interest rate")
and we guarantee that the annual earned interest rate will not be lower
than 4%. We currently credit an earned interest rate of 4% to amounts in
the Loan Account until the 10th policy anniversary or attained age 60,
whichever is later, and 5.75% annually thereafter.
-- As collateral for the loan, we transfer an amount equal to the loan
(adjusted by the earned interest rate and the charged interest rate to the
next policy anniversary) from the Separate Account and Guaranteed Account
to the Loan Account.
-- You may repay all or part of your indebtedness at any time while the
insured is alive and the Policy is in force.
-- We deduct any indebtedness from the policy account value upon surrender,
and from the insurance proceeds payable on the insured's death.
ILLUSTRATIONS
The illustrations provided in Appendix A at the end of this prospectus
illustrate death benefits, policy account values, and net cash surrender values.
These illustrations are based on hypothetical rates of return that are not
guaranteed. The illustrations also assume costs of insurance for a hypothetical
person. Your rates of return and insurance charges may be higher or lower than
these illustrations. You should obtain a personalized illustration before
purchasing a Policy.
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RISK SUMMARY
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The following are some of the risks associated with the Policy.
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INVESTMENT RISK If you invest your policy account value in one or
more Subaccounts, then you will be subject to the
risk that investment performance will be
unfavorable and that the policy account value will
decrease. You COULD lose everything you invest. If
you allocate net premiums to the Guaranteed
Account, then we credit your policy account value
(in the Guaranteed Account) with a declared rate of
interest, but you assume the risk that the rate may
decrease, although it will never be lower than a
guaranteed minimum annual effective rate of 4%.
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RISK OF LAPSE If your net cash surrender value is not enough to
pay the monthly deduction and other charges, your
Policy may enter a 61-day grace period. We will
notify you that the Policy will lapse unless you
make a sufficient payment during the grace period.
Your Policy may also lapse if your indebtedness
reduces the net cash surrender value to zero. Your
Policy generally will not lapse: (1) during the
first 5 policy years, if you pay premiums (less any
indebtedness and partial withdrawals) in excess of
the minimum guarantee premium; (2) if you purchase
a Guaranteed Minimum Death Benefit rider and meet
certain conditions; or (3) if you make a payment
equal to 3 monthly deductions before the end of the
grace period. You may reinstate a lapsed Policy,
subject to certain conditions.
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TAX RISKS We anticipate that the Policy should generally be
deemed a life insurance contract under Federal tax
law. However, due to limited guidance under the
Federal tax law, there is some uncertainty about
the application of the Federal tax law to the
Policy, particularly if you pay the full amount of
premiums permitted under the Policy. Assuming that
a Policy qualifies as a life insurance contract for
Federal income tax purposes, you 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.
Depending on the total amount of premiums you pay,
the Policy may be treated as a modified endowment
contract ("MEC") under Federal tax laws. If a
Policy is treated as a MEC, then surrenders,
partial withdrawals, and loans under the Policy
will be taxable as ordinary income to the extent
there are earnings in the Policy. In addition, a
10% penalty tax may be imposed on surrenders,
partial withdrawals, and loans taken before you
reach age 59 1/2. If the Policy is not a MEC,
distributions generally will be treated first as a
return of basis or investment in the contract and
then as taxable income. Moreover, loans will not be
treated as distributions. Finally, neither
distributions
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<PAGE> 16
nor loans from a Policy that is not a MEC are
subject to the 10% penalty tax.
See "Federal Tax Considerations." You should
consult a qualified tax adviser for assistance in
all Policy-related tax matters.
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SURRENDER RISKS The surrender charge under the Policy applies for
12 policy years after the policy date. An
additional surrender charge will be applicable for
12 years from the date of any increase in the face
amount. It is possible that you will receive no net
cash surrender value if you surrender your Policy
in the first few policy years. You should purchase
the Policy only if you have the financial ability
to keep it in force for a substantial period of
time.
Even if you do not ask to surrender your Policy,
surrender charges and additional surrender charges
may play a role in determining whether your Policy
will lapse, because surrender charges and
additional surrender charges affect the net cash
surrender value which is a measure we use to
determine whether your Policy will enter a grace
period (and possibly lapse). See "Risk of Lapse,"
above.
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LOAN RISKS A policy loan, whether or not repaid, will affect
policy account value over time because we subtract
the amount of the loan from the Subaccounts and/or
Guaranteed Account as collateral, and this loan
collateral does not participate in the investment
performance of the Subaccounts or receive any
higher current interest rate credited to the
Guaranteed Account.
We reduce the amount we pay on the insured's death
by the amount of any indebtedness. Your Policy may
lapse if your indebtedness reduces the net cash
surrender value to zero.
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THE COMPANY AND THE GUARANTEED ACCOUNT
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PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
We are a stock life insurance company. We were originally incorporated under
Pennsylvania law in 1958 under the name Washington Square Life Insurance
Company. Our name was changed to Providentmutual Life and Annuity Company of
America in 1991, and we were redomiciled as a Delaware insurance company on
October 28, 1992. We are 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 we do business. We established the Separate
Account to support the investment options under the Policy and under other
variable life insurance policies we may issue. Our general account supports the
Guaranteed Account option under the Policy.
We are a wholly owned subsidiary of Provident Mutual Life Insurance Company
("Provident Mutual"). On December 31, 1997, we entered into a support agreement
with Provident Mutual whereby Provident Mutual agreed to maintain our 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, Provident Mutual also agreed to maintain
our 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 us.
Other than this
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<PAGE> 17
support agreement, Provident Mutual is under no obligation to invest money in us
nor is it in any way a guarantor of our contractual obligations or obligations
under the Policies.
IMSA. We are a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA members subscribe to a set of ethical standards involving the
sales and service of individually sold life insurance and annuities. As a member
of IMSA, we may use the IMSA logo and language in advertisements.
THE GUARANTEED ACCOUNT
The Guaranteed Account is part of our general account. We own the assets in the
general account, and we use these assets to support our insurance and annuity
obligations other than those funded by our separate investment accounts. These
assets are subject to our general liabilities from business operations. Subject
to applicable law, we have sole discretion over investment of the Guaranteed
Account's assets. We bear the full investment risk for all amounts allocated or
transferred to the Guaranteed Account. We guarantee that the amounts allocated
to the Guaranteed Account will be credited interest daily at a net effective
annual interest rate of at least 4%. The principal, after charges and
deductions, is also guaranteed. We will determine any interest rate credited in
excess of the guaranteed rate at our sole discretion.
The Guaranteed Account value will not share in the investment performance of our
general account. Because we, in our sole discretion, anticipate changing the
current interest rate from time to time, different allocations you make to the
Guaranteed Account will be credited with different current interest rates. For
each amount allocated or transferred to the Guaranteed Account, we apply the
current interest rate to the end of the calendar year. At the end of that
calendar year, we reserve the right to declare a new current interest rate on
this amount and accrued interest thereon (which may be a different rate than the
rate that applies to new allocations to the Guaranteed Account on that date). We
guarantee the rate declared on this amount and accrued interest thereon at the
end of each calendar year for the following calendar year. You assume the risk
that interest credited to amounts in the Guaranteed Account may not exceed the
minimum 4% guaranteed rate.
We allocate amounts from the Guaranteed Account for partial withdrawals,
transfers to the Subaccounts, or charges for the monthly deduction on a last in,
first out (i.e., LIFO) basis for the purpose of crediting interest.
WE HAVE NOT REGISTERED THE GUARANTEED ACCOUNT WITH THE SECURITIES AND EXCHANGE
COMMISSION, AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE GUARANTEED ACCOUNT.
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
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THE SEPARATE ACCOUNT
We established Providentmutual Variable Life Separate Account as a separate
investment account under Delaware law on February , 1995. We own the assets in
the Separate Account and we are obligated to pay all benefits under the
Policies. We may use the Separate Account to support other variable life
insurance policies we issue. The Separate Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940 and qualifies as a "separate account" within the
meaning of the Federal securities laws. This registration does not involve
supervision of the management or investment practices or policies of the
Separate Account by the Securities and Exchange Commission.
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<PAGE> 18
We have divided the Separate Account into Subaccounts, each of which invests in
shares of one portfolio of the following funds:
-- The Market Street Fund, Inc.
-- The Alger American Fund
-- Neuberger Berman Advisers Management Trust
-- Van Eck Worldwide Insurance Trust
-- Variable Insurance Products Fund
-- Variable Insurance Products Fund II
The Subaccounts buy and sell portfolio shares at net asset value. Any dividends
and distributions from a portfolio are reinvested at net asset value in shares
of that portfolio.
Income, gains, and losses, whether or not realized, from assets allocated to the
Separate Account will be credited to or charged against the Separate Account
without regard to our other income, gains, or losses. Income, gains, and losses
credited to, or charged against, a Subaccount reflect the Subaccount's own
investment performance and not the investment performance of our other assets.
The Separate Account assets are held separate from our other assets and are not
part of our General Account. We may not use the Separate Account's assets to pay
any of our liabilities other than those arising from the Policies. If the
Separate Account's assets exceed the required reserves and other liabilities, we
may transfer the excess to our general account. The Separate Account may include
other Subaccounts that are not available under the Policies and are not
discussed in this prospectus.
Where permitted by applicable law, we reserve the right to substitute new
portfolios for any existing portfolios if shares of a portfolio are no longer
available for investment or if we determine that investment in a portfolio is no
longer appropriate in light of the Separate Account's purposes. In addition, we
reserve the right to make other structural and operational changes affecting the
Separate Account. See "Additional Information -- Changes to the Separate
Account."
THE PORTFOLIOS
The Separate Account invests in shares of certain portfolios. Each portfolio is
part of a mutual fund that is registered with the Securities and Exchange
Commission as an open-end management investment company. This registration does
not involve supervision of the management or investment practices or policies of
the portfolios or mutual funds by the Securities and Exchange Commission.
Each portfolio's assets are held separate from the assets of the other
portfolios, and each portfolio has investment objectives and policies that are
different from those of the other portfolios. Thus, each portfolio operates as a
separate investment fund, and the income or losses of one portfolio generally
have no effect on the investment performance of any other portfolio.
The following table summarizes each portfolio's investment objective(s) and
identifies its investment adviser (and subadviser, if applicable). THERE IS NO
ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED OBJECTIVE(S). You
can find more detailed information about the portfolios, including a description
of risks and expenses, in the prospectuses for the portfolios that accompany
this prospectus. You should read these prospectuses carefully.
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 investment adviser
believes show potential for growth in future
earnings. Investment adviser is Providentmutual
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<PAGE> 19
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 undervalue equity securities
of companies among the 750 largest by market
capitalizations at the time of purchase that the
investment adviser believes offer above-average
potential for growth in future earnings. Investment
adviser is Providentmutual Investment Management
Company; subadvisers are Equinox Capital
Management, Inc., Harris Associates, 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 that
rank between 751 and 1,750 in size measured by
market capitalization at the time of purchase,
which the investment adviser believes show
potential for growth in future earnings. Investment
adviser is Providentmutual 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 that rank between 751 and 1,750 in size
measured by market capitalization at the time of
purchase, which the investment adviser believes
offer above-average potential for growth in future
earnings. Investment adviser is Providentmutual
Investment Management Company; subadvisers are
Reams Asset Management Company, LLC and Sterling
Capital Management 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.
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.
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 Providentmutual
Investment Management Company; subadviser is State
Street Global Advisors.
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.
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* Standard & Poor's(R) , S&P(R), S&P 500(R), Standard & Poor's 500 and 500 are
trademarks of The McGrawHill Companies, Inc. and have been licensed for use by
PLACA and the Market Street Fund, Inc. Neither the Policy nor the Equity 500
Index Portfolio is sponsored, endorsed, sold, or promoted by Standard &
Poor's, and Standard & Poor's makes no representation regarding the
advisability of investing in the Policy and the Equity 500 Index Portfolio.
For more information regarding the S&P 500 Index, see "Additional
Information -- Standard & Poor's."
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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
Providentmutual Investment Management Company;
subadviser is The Boston Company Asset Management,
Inc.
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.
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 -- Seeks long-term capital appreciation by focusing
on small, fast-growing companies that offer
innovative products, services, or technologies to a
rapidly expanding marketplace. Investment adviser
is Fred Alger Management, Inc.
NEUBERGER BERMAN LIMITED
MATURITY PORTFOLIO -- Seeks the highest current income consistent with
low risk to principal and liquidity and
secondarily, total return, through investment in
short-to intermediate-term debt securities,
primarily investment grade. Investment adviser is
Neuberger Berman Management Incorporated.
NEUBERGER BERMAN PARTNER
PORTFOLIO -- Seeks capital growth through investment in
common stocks and other equity securities of
medium- to large-capitalization established
companies. Investment adviser is Neuberger Berman
Management Incorporated.
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.
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<PAGE> 21
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.
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 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.
In addition to the Separate Account, the portfolios may sell shares to other
separate investment accounts established by other insurance companies to support
variable annuity contracts and variable life insurance policies or qualified
retirement plans, or to certain pension and retirement plans qualifying under
Section 401 of the Code. It is possible that, in the future, material conflicts
could arise as a result of such "mixed and shared" investing. See "Additional
Information -- Potential Conflicts of Interest."
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
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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 WE MAKE 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.
PLEASE READ THE PORTFOLIO PROSPECTUSES TO OBTAIN MORE COMPLETE INFORMATION
REGARDING THE PORTFOLIOS. KEEP THESE PROSPECTUSES FOR FUTURE REFERENCE.
THE POLICY
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PURCHASING A POLICY
To purchase a Policy, you must submit a completed application and an initial
premium to us at our Service Center. You may also send the application and
initial premium to us through any licensed life insurance agent who is appointed
by PLACA and who is also a registered representative of 1717 Capital Management
Company ("1717"), the principal underwriter for the Policy (as well as for other
variable life policies), or a registered representative of a broker-dealer
having a selling agreement with 1717, or a registered representative of a
broker-dealer having a selling agreement with these broker-dealers.
We determine the minimum face amount benefit for a Policy based on the insured's
issue age when we issue the Policy. The minimum face amount is $50,000 for all
premium classes except preferred, and $100,000 for the preferred premium class.
Generally, the Policy is available for insureds between issue ages 1-85. We can
provide you with details as to our underwriting standards when you apply for a
Policy. We reserve the right to modify our minimum face amount and underwriting
requirements at any time. We must receive evidence of insurability that
satisfies our underwriting standards before we will issue a Policy. We reserve
the right to reject an application for any reason permitted by law.
WHEN INSURANCE COVERAGE TAKES EFFECT
Full insurance coverage under the Policy will take effect only if the proposed
insured is alive and in the same condition of health as described in the
application when we deliver the Policy to you, and if the minimum initial
premium has been paid.
TEMPORARY INSURANCE COVERAGE. Before full insurance coverage takes effect, you
may receive temporary insurance coverage, subject to our underwriting rules and
Policy conditions, if:
1. You answer "no" to the health questions in the temporary insurance
agreement; and
2. You pay the minimum initial premium when the application is signed.
Temporary insurance coverage shall not exceed the lesser of:
1. The face amount applied for, including term insurance riders; or
2. $500,000.
If we do not approve your application, we will make a full refund of the minimum
initial premium paid with the application.
If insurance does not take effect under these conditions, then no insurance
shall take effect unless a Policy is delivered to and accepted by the applicant,
and the minimum initial premium is paid before any change in the insurability of
any proposed insured since the date of application.
Temporary life insurance coverage is void if the application contains any
material misrepresentation. Benefits will also be denied if any proposed insured
commits suicide.
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<PAGE> 23
Temporary life insurance coverage terminates automatically, and without notice,
on the earliest of:
-- 5 days from the date we mail you notification of termination of
coverage; or
-- the date that full insurance coverage takes effect under the Policy; or
-- the date a policy, other than the Policy applied for, is offered to you;
or
-- the 90th day from the date of the temporary agreement.
FULL INSURANCE COVERAGE. Once we determine that the insured meets our
underwriting requirements, full insurance coverage begins, we issue the Policy,
and we begin to deduct monthly charges from your policy account value. This date
is the policy issue date.
CANCELING A POLICY (FREE LOOK RIGHT)
INITIAL FREE LOOK. You may cancel a Policy during the free look period by
providing written notice of cancellation and returning the Policy to us or to
the agent who sold it. The free look period begins when you receive the Policy
and generally expires upon the later of: (1) 10 days after you receive the
Policy; or (2) 45 days after you signed Part I of the application. This period
will be longer if required by state law. If you decide to cancel the Policy
during the free look period, we will treat the Policy as if we never issued it.
Within 7 days after we receive the returned Policy, we will refund an amount
equal to the sum of:
1. The policy account value as of the date we receive the returned Policy,
plus
2. Any premium expense charges deducted from premiums paid, plus
3. Any monthly deductions charged against the policy account value, plus
4. An amount reflecting other charges deducted (directly or indirectly)
under the Policy.
The free look period may be longer in some states and, where state law requires,
the refund will equal all payments you made (less any partial withdrawals and
indebtedness).
FREE LOOK FOR INCREASE IN FACE AMOUNT. A free look period also begins if you
request an increase in face amount. You may cancel an increase in face amount
until the later of: (1) 10 days after you receive the new Policy Schedule pages
reflecting the increase; or (2) 45 days after you signed the application for the
increase. If you exercise this right, all monthly deductions attributable to the
increase plus the face amount increase charge will be credited to the
Subaccounts and the Guaranteed Account in the same proportion as they were
deducted, unless you request a refund of this amount.
OWNERSHIP RIGHTS
The Policy belongs to the owner named in the application. While the insured is
living, the owner may exercise all of the rights and options described in the
Policy. The owner is the insured unless the application specifies a different
person as the insured or the owner is changed thereafter. If the owner is not
the insured and dies before the insured, ownership of the Policy will pass to
the owner's estate, unless a contingent owner has been designated. To the extent
permitted by law, Policy benefits are not subject to any legal process for the
payment of any claim against the payee, and no right or benefit will be subject
to claims of creditors (except as may be provided by assignment).
The owner may exercise certain rights described below.
SELECTING AND CHANGING THE
BENEFICIARY -- You designate the beneficiary (the person to
receive the insurance proceeds when the
insured dies) in the application.
-- You may designate more than one beneficiary.
If you designate more than one beneficiary,
then each beneficiary that survives the
19
<PAGE> 24
insured shares equally in any insurance proceeds
unless the beneficiary designation states
otherwise.
-- If there is not a designated beneficiary
surviving at the insured's death, we will pay
the insurance proceeds in a lump sum to the
insured's estate.
-- You can change the beneficiary by providing us
with written notice while the insured is
living.
-- The change is effective as of the date you
complete and sign the written notice,
regardless of whether the insured is living
when we receive the notice.
-- We are not liable for any payment or other
actions we take before we receive your written
notice.
-- A beneficiary generally may not pledge,
commute, or otherwise encumber or alienate
payments under the Policy before they are due.
- --------------------------------------------------------------------------------
CHANGING THE OWNER -- You may change the owner by providing a
written notice to us at any time while the
insured is alive.
-- The change is effective as of the date you
complete and sign the written notice,
regardless of whether the insured is living
when we receive the request.
-- We are not liable for any payment or other
actions we take before we receive your written
notice.
-- Changing the owner does not automatically
change the beneficiary or the insured.
-- Changing the owner may have tax consequences.
You should consult a tax adviser before
changing the owner.
- --------------------------------------------------------------------------------
ASSIGNING THE POLICY -- You may assign Policy rights while the insured
is alive by submitting written notice to us.
-- Your interests and the interests of any
beneficiary or other person will be subject to
any assignment.
-- You retain any ownership rights that are not
assigned.
-- Assignments are subject to any policy loan.
-- We are not:
& bound by any assignment unless we receive a
written notice of the assignment;
& responsible for the validity of any
assignment or determining the extent of an
assignee's interest; or
& liable for any payment we make before we
receive written notice of the assignment.
-- Assigning the Policy may have tax
consequences. See "Federal Tax
Considerations -- Tax Treatment of Policy
Benefits."
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<PAGE> 25
PREMIUMS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MINIMUM INITIAL PREMIUM. 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, and the health and other conditions of the insured
described in the application must not have changed.
PREMIUM FLEXIBILITY. When you apply for a Policy, you will elect to pay
premiums on a quarterly, semiannual, or annual basis (planned periodic
premiums). We will then send you a premium reminder notice as each payment
becomes "due." However, you do not have to pay premiums according to any
schedule. You have flexibility to determine the frequency and the amount of the
premiums you pay, and you can change the planned periodic premium schedule at
any time. If you are submitting a premium payment pursuant to a premium reminder
notice, the address for payment will be enclosed with the notice. You may also
send your premium payments to our Service Center. If you have an outstanding
policy loan, we will credit all payments you send to us as loan repayments
unless you provide written notice for the payments to be applied as premium
payments. You may also choose to have premium payments automatically deducted
monthly from your bank account or other source under the automatic payment plan.
Payment of the planned periodic premiums does not guarantee that the Policy will
remain in force. See "Policy Lapse and Reinstatement."
You may not pay any premiums after the Policy's final policy date. You may not
pay premiums less than $20, and we reserve the right to increase this minimum to
an amount not exceeding $500 upon 90 days written notice to you. We have the
right to limit or refund any premium or portion of a premium if:
1. The premium would disqualify the Policy as a life insurance contract
under the Code;
2. The amount you pay is less than the minimum dollar amount allowed
(currently $20); or
3. The premium would increase the net amount at risk (unless you provide
us with satisfactory evidence of insurability).
You can stop paying premiums at any time and your Policy will continue in force
until the earlier of the final policy date, or the date when either: (1) the
insured dies; (2) the grace period ends without a sufficient payment (see
"Policy Lapse and Reinstatement"); or (3) we receive your written notice
requesting a surrender of the Policy.
MINIMUM GUARANTEE PREMIUM. The minimum guarantee premium is the monthly premium
amount necessary to guarantee insurance coverage during the first 5 policy
years. Your Policy's specification page will show a minimum guarantee premium
amount for your Policy, which is based on the insured's issue age, sex, premium
class, face amount, and riders. The minimum guarantee premium will increase if
you increase the face amount or add supplemental benefits to your Policy. The
minimum guarantee premium will decrease for any supplemental benefit you
decrease or discontinue. The minimum guarantee premium will not decrease if you
decrease the face amount. See "Death Benefit -- Changing the Face Amount."
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 these limits. We have 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 these limits, we will accept only that
portion of the premium which would make total premiums equal the maximum amount
which may be paid under the Policy. We will notify you of available options with
regard to the excess premium. If a satisfactory arrangement is not made, we will
refund this excess to you. 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 (i.e., the policy account value
less any surrender charges or additional surrender charges) should still be
excludable from gross income.
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<PAGE> 26
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.
TAX-FREE EXCHANGES (1035 EXCHANGES). We may accept as part of your initial
premium, money from another life insurance contract that qualified for a
tax-free exchange under Section 1035 of the Code, contingent upon receipt of the
cash from that contract. If you contemplate such an exchange, you should consult
a tax adviser to discuss the potential tax effects of such a transaction.
ALLOCATING PREMIUMS
When you apply for a Policy, you must instruct us in the application to allocate
your net premium to one or more Subaccounts of the Separate Account and/or to
the Guaranteed Account according to the following rules:
-- Allocation percentages must be in whole numbers and the sum of the
percentages must equal 100%.
-- We will allocate the net premium as of the date we receive it at our
Service Center according to your current premium allocation
instructions.
-- You can change the allocation instructions for additional net premiums
without charge by providing us with written notice. Any change in
allocation instructions will be effective on the date we record the
change.
Investment returns from amounts allocated to the Subaccounts will vary with the
investment performance of these Subaccounts and will be reduced by Policy
charges. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE
SUBACCOUNTS. You should periodically review your allocation schedule in light of
market conditions and your overall financial objectives.
Where state law requires us to refund all payments (less any partial withdrawals
and indebtedness) in the event you cancel the Policy during the free look
period, we will allocate to the Money Market Subaccount any premiums you request
be allocated to Subaccount(s) which are received at our Service Center before
the expiration of a 15-day period beginning on the later of: (1) the policy
issue date; or (2) the date we receive 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. We invest all net premiums paid
thereafter based on the allocation percentages then in effect.
POLICY ACCOUNT VALUES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POLICY ACCOUNT VALUE
The policy account value serves as the starting point for calculating values
under a Policy.
POLICY ACCOUNT VALUE: -- equals the sum of all values in the Guaranteed
Account, the Loan Account, and in each
Subaccount;
-- is determined first on the policy date and
then on each valuation day; and
-- has no guaranteed minimum amount and may be
more or less than premiums paid.
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<PAGE> 27
NET CASH SURRENDER VALUE
The net cash surrender value is the amount we pay to you when you surrender your
Policy. We determine the net cash surrender value at the end of the valuation
period when we receive your written surrender request.
NET CASH SURRENDER VALUE AT
THE
END OF ANY VALUATION DAY
EQUALS: -- the policy account value as of such date;
MINUS
-- any surrender charge or additional surrender
charge as of such date; MINUS
-- any outstanding indebtedness.
SUBACCOUNT VALUE
At the end of any valuation period, the Subaccount value is equal to the number
of units in the Subaccount multiplied by the unit value of that Subaccount.
THE NUMBER OF UNITS IN ANY
SUBACCOUNT AT THE END OF
ANY
VALUATION DAY EQUALS: -- the initial units purchased at the unit value
on the policy issue date; PLUS
-- units purchased with additional net premiums;
PLUS
-- units purchased with special policy account
value credit (see "Policy Account
Values -- Special Policy Account Value
Credit"); PLUS
-- units purchased via transfers from another
Subaccount, the Guaranteed Account, or the
Loan Account; MINUS
-- units redeemed to pay for monthly deductions;
MINUS
-- units redeemed to pay for partial withdrawals;
MINUS
-- units redeemed as part of a transfer to
another Subaccount, the Guaranteed Account, or
the Loan Account.
Every time you allocate or transfer money to or from a Subaccount, we convert
that dollar amount into units. We determine the number of units we credit to, or
subtract from, your Policy by dividing the dollar amount of the transaction by
the unit value for that Subaccount at the end of the valuation period.
UNIT VALUE
We determine a unit value for each Subaccount to reflect how investment
performance affects the policy account value. Unit values will vary among
Subaccounts. The unit value may increase or decrease from one valuation period
to the next.
THE UNIT VALUE OF ANY
SUBACCOUNT AT THE END OF
ANY
VALUATION DAY EQUALS: -- the unit value of the Subaccount on the
immediately preceding valuation day;
MULTIPLIED BY
-- the net investment factor for that Subaccount
on that valuation day.
THE NET INVESTMENT FACTOR: -- measures the investment performance of a
Subaccount from one valuation period to the
next;
-- increases to reflect investment income and
capital gains (realized and unrealized) for
the shares of the underlying portfolio; and
-- decreases to reflect any capital losses
(realized and unrealized) for the shares of
the underlying portfolio, as well as the
mortality and expense risk charge.
23
<PAGE> 28
GUARANTEED ACCOUNT VALUE
On the policy issue date, the Guaranteed Account value is equal to the net
premiums allocated to the Guaranteed Account, less the portion of the first
monthly deduction taken from the Guaranteed Account.
THE GUARANTEED ACCOUNT
VALUE
AT THE END OF ANY VALUATION
DAY
IS EQUAL TO: -- the net premium(s) allocated to the Guaranteed
Account; PLUS
-- any amounts transferred to the Guaranteed
Account (including amounts transferred from
the Loan Account); PLUS
-- interest credited to the Guaranteed Account;
MINUS
-- amounts deducted to pay for monthly
deductions; MINUS
-- amounts withdrawn from the Guaranteed Account;
MINUS
-- amounts transferred from the Guaranteed
Account to a Subaccount or to the Loan
Account.
Interest will be credited to the Guaranteed Account on each policy processing
day as follows:
-- for amounts in the Guaranteed Account for the entire policy month --
interest will be credited from the beginning to the end of the policy
month
-- for amounts allocated to the Guaranteed Account during the prior policy
month -- interest will be credited from the date the net premium or loan
repayment is allocated to the end of the policy month
-- for amounts transferred to the Guaranteed Account during the prior
policy month -- interest will be credited from the date of the transfer
to the end of the policy month
-- for amounts deducted or withdrawn from the Guaranteed Account during the
prior policy month - - interest will be credited from the beginning of
the prior policy month to the date of deduction or withdrawal
SPECIAL POLICY ACCOUNT VALUE CREDIT
The special policy account value credit is an amount added to the policy account
value in the Subaccounts on each policy processing day, either: (1) after the
Policy has been in force for at least 15 years; or (2) when the policy account
value less the Loan Account value equals or exceeds $100,000.
<TABLE>
<S> <C>
SPECIAL POLICY ACCOUNT VALUE CREDIT -- 0.03% MULTIPLIED BY
IS EQUAL TO: -- the policy account value in the Subaccounts.
</TABLE>
The special policy account value credit is intended to offset a portion of the
mortality and expense risk charge.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We make certain charges and deductions under the Policy. These charges and
deductions compensate us for: (1) services and benefits we provide; (2) costs
and expenses we incur; and (3) risks we assume.
24
<PAGE> 29
<TABLE>
<S> <C>
SERVICES AND BENEFITS WE PROVIDE: -- the death benefit, cash, and loan benefits under the
Policy
-- investment options, including premium allocations
-- administration of elective options
-- the distribution of reports to owners
COSTS AND EXPENSES WE INCUR: -- costs associated with processing and underwriting
applications, and with issuing and administering the Policy
(including any riders)
-- overhead and other expenses for providing services and
benefits
-- sales and marketing expenses
-- other costs of doing business, such as collecting
premiums, maintaining records, processing claims, effecting
transactions, and paying Federal, state, and local
premium and other taxes and fees
RISK WE ASSUME: -- that the cost of insurance charges we may deduct are
insufficient to meet our actual claims because insureds die
sooner than we estimate
-- that the costs of providing the services and benefits
under the Policies exceed the charges we deduct
</TABLE>
PREMIUM EXPENSE CHARGE
Prior to allocation of net premium, we deduct a premium expense charge from each
premium to compensate us for distribution expenses and certain taxes. We credit
the remaining amount (the net premium) to your policy account value according to
your allocation instructions. The premium expense charge consists of:
1. Premium Tax Charge: for state and local premium taxes based on the rate
for the insured's residence at the time the premium is paid. 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.
2. Percent of Premium Charge: equal to 1.5% of each premium payment to
compensate us partially for Federal taxes and the cost of selling the
Policy. We may increase this charge to a maximum of 3% of each premium
payment.
MONTHLY DEDUCTION
We deduct a monthly deduction from the policy account value on the policy date
and on each policy processing day to compensate us for administrative expenses
and for the Policy's insurance coverage. We will make deductions from each
Subaccount and the Guaranteed Account in accordance with the allocation
percentage for monthly deductions you chose at the time of application, or as
later changed by written notice. If we cannot make a monthly deduction on this
basis, we will make deductions on a pro rata basis (i.e., in the same proportion
that the value in each Subaccount and the Guaranteed Account bears to the
unloaned policy account value on the policy processing day). Because portions of
the monthly deduction (such as the cost of insurance) can vary from
month-to-month, the monthly deduction will also vary.
If the policy date is set prior to the policy issue date, a monthly deduction
will accrue on the policy date and on each policy processing day until the
policy issue date. On the policy issue date, these accrued monthly deductions
will be deducted from the policy account value. The maximum amount deducted on
the policy issue date will equal the sum of 6 monthly deductions. We will then
deduct a monthly deduction from the policy account value on each policy
processing day thereafter as described above.
The monthly deduction has 4 components:
-- the cost of insurance charge
-- the monthly administrative charge
-- the initial administrative charge (for the first 12 policy processing
days)
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<PAGE> 30
-- charges for any riders (as specified in the applicable rider(s))
COST OF INSURANCE. We assess a monthly cost of insurance charge to compensate
us for underwriting the death benefit. The charge depends on a number of
variables (issue age, sex, premium class, policy year, and face amount) that
would cause it to vary from Policy to Policy and from policy processing day to
policy processing day.
<TABLE>
<S> <C>
COST OF The cost of insurance charge is equal to:
INSURANCE -- the monthly cost of insurance rate; MULTIPLIED BY
-- the net amount at risk for your Policy on the policy
CHARGE processing day.
</TABLE>
The net amount at risk is equal to:
<TABLE>
<S> <C>
-- the death benefit on the policy processing day; MINUS
-- the policy account value on the policy processing day.
</TABLE>
We calculate the cost of insurance charge separately for the initial face amount
and for any increase in face amount. If we approve an increase in your Policy's
face amount, then a different premium class (and a different cost of insurance
charge) may apply to the increase, based on the insured's circumstances at the
time of the increase. If, however, the death benefit is the policy account value
times the specified percentage, the rate for the premium class for the initial
face amount will be used for the amount of the death benefit in excess of the
total face amount.
The cost of insurance charge is determined in a similar manner for any
Additional Insurance Benefit rider coverage amount and for any increase in rider
coverage amount. Generally, the current cost of insurance rates for this rider
are lower than the current cost of insurance rates on the Policy's net amount at
risk. The guaranteed cost of insurance rates under the rider are substantially
the same as the guaranteed cost of insurance rates on the Policy's net amount at
risk. See "Other Policy Information -- Supplemental Benefits and Riders."
Net Amount at Risk. We also calculate the net amount at risk separately for the
initial face amount and for any increase in face amount. In determining the net
amount at risk for each increment of face amount, the policy account value is
first considered part of the initial face amount. If the policy account value
exceeds the initial face amount, it is then considered as part of any increases
in face amount in the order these increases took effect.
Cost of insurance rates. We base the cost of insurance rates on the insured's
attained age, sex, premium class, number of full years the insurance has been in
force, and the face amount. The actual monthly cost of insurance rates are based
on our expectations as to future mortality and expense experience. The rates
will never be greater than the guaranteed cost of insurance rates stated in your
Policy. These guaranteed rates are based on the 1980 Commissioner's Standard
Ordinary Smoker and Nonsmoker Mortality Table and the insured's attained age,
sex, and premium class. For Policies issued in states which require "unisex"
policies or in conjunction with employee benefit plans, the maximum cost of
insurance charge depends only on the insured's attained age, premium class, and
the 1980 Commissioner's Standard Ordinary Mortality Table NB and SB. Any change
in the cost of insurance rates will apply to all persons of the same attained
age, sex, premium class, and number of full years insurance has been in force.
Premium class. The premium class of the insured will affect the cost of
insurance rates. We currently place 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 3 categories: smoker,
nonsmoker, and preferred.
-- The preferred premium class is only available if the face amount
equals or exceeds $100,000.
-- Nonsmoking insureds will generally incur lower cost of insurance rates
than insureds who are classified as smokers in the same premium class.
The nonsmoker designation is not available for
26
<PAGE> 31
insureds under attained age 21, but shortly before an insured attains age 21, we
will notify the insured about possible classification as a nonsmoker and will
send the insured an application for change in premium class. If the insured does
not qualify as a nonsmoker or does not return the application, cost of
insurance rates will remain as shown in the Policy. However, if the
insured returns the application and qualifies as a nonsmoker, the cost
of insurance rates will be changed to reflect the nonsmoker
classification.
-- Preferred insureds will generally incur lower cost of insurance rates
than insureds who are classified as nonsmokers.
MONTHLY ADMINISTRATIVE CHARGE. Each month we deduct a $7.50 monthly
administrative charge to compensate us for ordinary administrative expenses such
as record keeping, processing death benefit claims and Policy changes, preparing
and mailing reports, and overhead costs. This charge may be increased but will
not exceed $12 per month.
INITIAL ADMINISTRATIVE CHARGE. On the first 12 policy processing days, we
deduct a $5.00 initial administrative charge for policy issue costs.
CHARGES FOR RIDERS. The monthly deduction includes charges for any supplemental
insurance benefits you add to your Policy by rider. See "Other Policy
Information -- Supplemental Benefits and Riders."
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge from each Subaccount (but not the Guaranteed Account)
to compensate us for certain mortality and expense risks we assume. The
mortality risk is that an insured will live for a shorter time than we project.
The expense risk is that the expenses that we incur will exceed the
administrative charge limits we set in the Policy.
This charge is equal to:
-- the assets in each Subaccount, MULTIPLIED BY
-- 0.002055%, which is the daily portion of the annual mortality and
expense risk charge rate of 0.75% during all policy years.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our surplus.
We may increase this charge to a maximum annual rate of 0.90%. We expect to
profit from this charge and may use these profits for any lawful purpose
including covering distribution expenses.
In certain situations, a portion of the mortality and expense risk charge may be
offset by the special policy account value credit. See "Policy Account
Value -- Special Policy Account Value Credit."
SURRENDER CHARGES AND ADDITIONAL SURRENDER CHARGES
Surrender charges and additional surrender charges are deducted to compensate us
partially 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. We do not expect surrender charges and additional surrender
charges to cover all of these costs. To the extent that they do not, we will
cover the short-fall from our general account assets, which may include profits
from the mortality and expense risk charge.
SURRENDER CHARGE. If your Policy lapses or you fully surrender your Policy
during the first 12 policy years, we deduct a surrender charge from your policy
account value and pay the remaining amount (less any outstanding indebtedness)
to you. The payment you receive is called the net cash surrender value. This
surrender charge does not apply to partial withdrawals.
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<PAGE> 32
The surrender charge consists of:
1. Deferred Administrative Charge: the charge described in the table below
less any deferred administrative charge previously paid at the time of a
decrease in face amount.
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR(S) OF FACE AMOUNT
- -------------- -----------------
<S> <C>
1-6......................................................... $4.90
7........................................................... $4.20
8........................................................... $3.50
9........................................................... $2.80
10.......................................................... $2.10
11.......................................................... $1.40
12.......................................................... $0.70
13+......................................................... $ -0-
</TABLE>
2. Deferred Sales Charge: this charge equals the lesser of a or b (less any
deferred sales charge previously paid at the time of a prior decrease in
face amount), where:
a = 35% of all premiums paid to the date of surrender or lapse; or
b = the following percentage of target premium:
<TABLE>
<CAPTION>
% OF TARGET
PREMIUM FOR THE
POLICY YEAR(S) INITIAL FACE AMOUNT
- -------------- -------------------
<S> <C>
1-6......................................................... 70%
7........................................................... 60%
8........................................................... 50%
9........................................................... 40%
10.......................................................... 30%
11.......................................................... 20%
12.......................................................... 10%
13+......................................................... 0%
</TABLE>
ADDITIONAL SURRENDER CHARGE. Within 12 years after the effective date of an
increase in face amount, we deduct an additional surrender charge if you
surrender the Policy or it lapses.
The additional surrender charge consists of:
1. Additional Deferred Administrative Charge: the charge described in the
table below less any additional deferred administrative charge
previously paid at the time of a decrease in face amount.
<TABLE>
<CAPTION>
CHARGE PER $1,000
12-MONTH PERIOD BEGINNING WITH FOR EACH INCREASE
THE EFFECTIVE DATE OF EACH INCREASE IN FACE AMOUNT
- ----------------------------------- -----------------
<S> <C>
1-6......................................................... $4.90
7........................................................... $4.20
8........................................................... $3.50
9........................................................... $2.80
10.......................................................... $2.10
11.......................................................... $1.40
12.......................................................... $0.70
13+......................................................... $ -0-
</TABLE>
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<PAGE> 33
2. Additional Deferred Sales Charge: this charge equals the lesser of A or
B (less any additional deferred sales charge for this increase
previously paid at the time of a decrease in face amount), where:
a = 35% of premiums allocated to the increase in face amount; or
b = the following percentage of target premium:
<TABLE>
<CAPTION>
% OF TARGET PREMIUM
FOR EACH INCREASE
NUMBER OF YEARS FOLLOWING THE EFFECTIVE DATE OF THE INCREASE IN FACE AMOUNT IN FACE AMOUNT
- --------------------------------------------------------------------------- -------------------
<S> <C>
1-6................................................................ 70%
7.................................................................. 60%
8.................................................................. 50%
9.................................................................. 40%
10................................................................. 30%
11................................................................. 20%
12................................................................. 10%
13+................................................................ 0%
</TABLE>
DECREASE IN FACE AMOUNT. In the event of a decrease in face amount before the
end of the 12th policy year or within 12 years after an increase in face amount,
we deduct a charge that is a portion of the surrender charge and/or additional
surrender charge.
-- If there have been no increases in face amount, we determine this
portion by dividing the amount of the decrease by the current face
amount and multiplying the result by the surrender charge and/or
additional surrender charge.
-- If more than one surrender charge and/or additional surrender charge is
in effect because of one or more increases in face amount, we apply the
surrender charge and/or additional surrender charge in the following
order: (1) the most recent increase, followed by (2) the next most
recent increases in succession, and (3) the initial face amount.
-- Where a decrease causes a partial reduction in an increase or in the
initial face amount, we will deduct a proportionate share of the
surrender charge or additional surrender charge for that increase or for
the initial face amount.
-- We will deduct the surrender charge and/or additional surrender charge
applicable to the decrease from the policy account value and the
remaining surrender charge and/or additional surrender charge will be
reduced by the amount deducted.
-- We will deduct the surrender charge and/or additional surrender charge
from the Subaccounts and the Guaranteed Account based on the proportion
that the values in the Subaccounts and the Guaranteed Account bear to
the total unloaned Policy account value.
The surrender charge, additional surrender charge, and target premium vary based
on the insured's attained age, sex, premium class, and initial face amount. The
maximum target premium for any insured is $54 per $1,000 of face amount. Your
Policy's specifications page indicates the surrender charges, additional
surrender charges, and target premium applicable to your Policy.
THE SURRENDER CHARGE AND ADDITIONAL SURRENDER CHARGE MAY BE SIGNIFICANT. YOU
SHOULD CAREFULLY CALCULATE THESE CHARGES BEFORE YOU REQUEST A SURRENDER OR
DECREASE IN FACE AMOUNT. Under some circumstances the level of surrender charges
and additional surrender charges might result in no net cash surrender value
available.
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<PAGE> 34
FACE AMOUNT INCREASE CHARGE
If you increase the face amount, we will deduct a charge of $60 plus $0.50 per
$1,000 face amount increase (but not greater than $750) from the policy account
value on the effective date of this increase. This charge will be deducted from
the Subaccounts and the Guaranteed Account based on the allocation schedule for
monthly deductions in effect at the time of the increase. We deduct this charge
to compensate us for administrative expenses incurred in connection with the
increase, including medical exams, review of the application for the increase,
underwriting decisions, application processing, and changing Policy records and
the Policy. We may increase this charge to a maximum of $60 plus $3.00 per
$1,000 face amount increase.
PARTIAL WITHDRAWAL CHARGE
After the first policy year, you may request a partial withdrawal from your
policy account value. For each partial withdrawal, we will deduct a $25 fee from
the remaining policy account value. This charge is to compensate us for
administrative costs in generating the withdrawn payment and in making all
calculations which may be required because of the partial withdrawal.
TRANSFER CHARGE
We currently allow you to make 12 transfers among the Subaccounts or the
Guaranteed Account each policy year with no additional charge.
-- We deduct $25 for the 13th and each additional transfer made during a
policy year to compensate us for the costs of processing these
transfers.
-- For purposes of assessing the transfer charge, we consider each
telephone or written request to be one transfer, regardless of the
number of Subaccounts (or Guaranteed Account) affected by the
transfer.
-- We deduct the transfer charge from the amount being transferred.
-- Transfers due to dollar cost averaging, automatic asset rebalancing,
loans, the exchange privilege, the special transfer right, change in
Subaccount investment policy, or the initial reallocation of account
values from the Money Market Subaccount do NOT count as transfers for
the purpose of assessing this charge.
PORTFOLIO EXPENSES
The value of the net assets of each Subaccount reflects the management fees and
other expenses incurred by the corresponding portfolio in which the Subaccount
invests. For further information, consult the portfolios' prospectuses and the
Annual Portfolio Operating Expenses table included in the summary of this
prospectus.
DEATH BENEFIT
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INSURANCE PROCEEDS
As long as the Policy is in force, we will pay the insurance proceeds to the
beneficiary once we receive satisfactory proof of the insured's death. We may
require you to return the Policy. We will pay the insurance proceeds in a lump
sum or under a settlement option. If the beneficiary dies before the insured, we
will pay the insurance proceeds in a lump sum to the insured's estate. See
"Death Benefit -- Settlement Options" and "Other Policy Information -- Payment
of Policy Benefits."
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<PAGE> 35
<TABLE>
<S> <C>
INSURANCE PROCEEDS EQUAL: -- the death benefit (described below); PLUS
-- any additional insurance provided by rider; MINUS
-- any unpaid monthly deductions; MINUS
-- any outstanding indebtedness.
</TABLE>
If all or part of the insurance proceeds are paid in one sum, we will pay
interest on this sum at the annual rate of 3% or any higher rate as required by
applicable state law from the date of the insured's death to the date we make
payment.
An increase in the face amount will increase the death benefit, and a decrease
in the face amount will decrease the death benefit.
We may further adjust the amount of the insurance proceeds under certain
circumstances. See "Other Policy Information -- Our Right to Contest the
Policy," and "Other Policy Information -- Misstatement of Age or Sex."
DEATH BENEFIT OPTIONS
The Policy provides two death benefit options: Option A and Option B. We
calculate the amount available under each death benefit option as of the date of
the insured's death. Under either option, the length of the death benefit
coverage depends upon the Policy's net cash surrender value. See "Policy Lapse
and Reinstatement."
<TABLE>
<S> <C> <C>
The Death Benefit -- the face amount; OR
under OPTION A is the greater of: -- the policy account value (determined on the valuation day on
or next following the date of the insured's death)
multiplied by the applicable percentage listed in the table
below.
The Death Benefit under OPTION B is -- the face amount PLUS the policy account value (determined on
the greater of: the valuation day on or next following the date of the
insured's death); OR
-- the policy account value (determined on the valuation day on
or next following the date of the insured's death)
multiplied by the applicable percentage listed in the table
below.
</TABLE>
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
- ------------ ---------- ------------ ----------
<S> <C> <C> <C>
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 through 99 100%
</TABLE>
For attained ages not shown, the percentages will decrease by a ratable portion
for each full year.
WHICH DEATH BENEFIT OPTION TO CHOOSE. If you prefer to have premium payments
and favorable investment performance reflected partly in the form of an
increasing death benefit, you should choose Option B. If you are satisfied with
the amount of the insured's existing insurance coverage and prefer to have
premium payments and favorable investment performance reflected to the maximum
extent in the policy account value, you should choose Option A.
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<PAGE> 36
The amount of the death benefit may vary with the policy account value.
-- Under Option A, the death benefit will vary with the policy account
value whenever the policy account value multiplied by the applicable
percentage is greater than the face amount.
-- Under Option B, the death benefit will always vary with the policy
account value.
CHANGING DEATH BENEFIT OPTIONS
After the first policy year or 12 months after a face amount increase, you may
change death benefit options without evidence of insurability and with no
additional charge while the Policy is in force. Changing the death benefit
option may have tax consequences and may affect the net amount at risk over time
(which would affect the monthly cost of insurance charge). However, we will not
permit any change that would result in your Policy being disqualified as a life
insurance contract under Section 7702 of the Code. You should consult a tax
adviser before changing death benefit options.
-- You must submit a written request for any change in death benefit
options.
-- We may require you to return your Policy to make a change.
-- The effective date of the change in death benefit option will be the
policy processing day on or following the date when we approve your
request for a change.
If you change from OPTION A TO OPTION B:
X We will first decrease the face amount (beginning with the most recent
increase, then the next most recent increases in succession, and then the
initial face amount) and then any applicable rider coverage amounts by
the policy account value on the effective date of the change.
X The death benefit will NOT change on the effective date of the change.
X The net amount at risk will generally remain level. This means there will
be a relative increase in the cost of insurance charges over time because
the net amount at risk will remain level rather than decrease as the
policy account value increases (unless the death benefit is based on the
applicable percentage of policy account value).
X If the face amount or applicable rider coverage amount would be reduced
to less than the minimum face amount or minimum amount in which the
Policy or applicable rider could be issued, then we will not allow the
change in death benefit option.
If you change from OPTION B TO OPTION A:
X The face amount will be increased by the policy account value on the
effective date of the change.
X The death benefit will NOT change on the effective date of the change.
X Unless the death benefit is based on the applicable percentage of policy
account value, if the policy account value increases, the net amount at
risk will decrease over time, thereby reducing the cost of insurance
charge.
CHANGING THE FACE AMOUNT
You select the face amount when you apply for the Policy. After the first policy
year, you may change the face amount subject to the conditions described below.
We may require you to return your Policy to make a change. We will not permit
any change that would result in your Policy being disqualified as a life
insurance contract under Section 7702 of the Code. However, changing the face
amount may have tax consequences and you should consult a tax adviser before
doing so.
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<PAGE> 37
INCREASING THE FACE AMOUNT
-- You may increase the face amount by submitting a written
application and providing evidence of insurability satisfactory to
us at our Service Center.
-- On the effective date of an increase, and taking the increase into
account, the net cash surrender value must be equal to the monthly
deductions then due and the charge for the increase. If not, the
increase will not occur until you pay sufficient additional premium
to increase the net cash surrender value.
-- An increase will be effective on the policy processing day on or
next following the date we approve your application, provided we
have received any premium necessary to make the change.
-- We apply a face amount increase charge.
-- The minimum increase is $25,000.
-- You may not increase the face amount after the insured's attained
age 75 or if the face amount was increased during the prior
12-month period.
-- Increasing the face amount during the first 5 policy years or
purchasing the Guaranteed Minimum Death Benefit rider will increase
your minimum guarantee premium.
-- Each increase in face amount will begin a 12-year period during
which an additional surrender charges will apply if you surrender
the Policy.
-- The total net amount at risk will be affected, which will increase
the monthly cost of insurance charges.
-- A different cost of insurance charge may apply to the increase in
face amount, based on the insured's circumstances at the time of
the increase.
We use a special method to allocate a portion of the existing policy account
value to an increase in face amount and to allocate subsequent premium payments
between the initial face amount and the increase. We allocate the policy account
value according to the ratio between the guideline annual premium for the
initial face amount and the guideline annual premium for the total face amount
on the effective date of the increase (before any deductions are made). We
allocate premium payments made on or after the effective date of the increase
between the initial face amount and the increase using the same ratio as is used
to allocate the policy account value. In the event that there is more than one
increase in face amount, guideline annual premiums for each increment of face
amount are used to allocate policy account values and subsequent premium
payments among the various increments of face amounts.
DECREASING THE FACE AMOUNT
-- You must submit a written request to decrease the face amount, but
you may not decrease the face amount below the minimum initial face
amount. The decrease must be for at least $25,000.
-- A decrease is not allowed for 12 months following an increase in
face amount.
-- Any decrease will be effective on the policy processing day on or
next following the date we approve your request.
-- Decreasing the face amount may result in a surrender charge and/or
additional surrender charge, which will reduce policy account
value.
-- A decrease in face amount generally will decrease the net amount at
risk, which will decrease the cost of insurance charges. For
purposes of determining the cost of insurance charge and any
surrender charge, any decrease will first be used to reduce the
most recent increase, then the next most recent increases in
succession, and then the initial face amount.
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<PAGE> 38
-- We will not allow a decrease in face amount if this decrease would
cause the Policy to no longer qualify as life insurance under the
Code.
-- Decreasing the face amount will not affect the minimum guarantee
premium, unless you have elected the Guaranteed Minimum Death
Benefit rider.
SETTLEMENT OPTIONS
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. None of these
options vary with the investment performance of a Separate Account. More
detailed information concerning these settlement options is available on request
from our Service Center. See "Other Policy Information -- Payment of Policy
Benefits."
ACCELERATED DEATH BENEFIT
Under the Accelerated Death Benefit rider, you may receive an accelerated
payment of part of the Policy's death benefit when one of the following two
events occurs:
1. TERMINAL ILLNESS. The insured develops a non-correctable medical
condition which is expected to result in his or her death within 12
months; OR
2. PERMANENT CONFINEMENT TO A NURSING CARE FACILITY. The insured has been
confined to a nursing care facility for 180 days and is expected to
remain in such a facility for the remainder of his or her life.
There is no additional charge for this rider. However, an administrative charge,
currently $100 and not to exceed $250, will be deducted from the accelerated
death benefit at the time it is paid. See "Other Policy
Information -- Supplemental Benefits and Riders."
SURRENDERS AND PARTIAL WITHDRAWALS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SURRENDERS
You may request to surrender your Policy for its net cash surrender value as
calculated at the end of the valuation day when we receive your request, subject
to the following conditions:
-- You must complete and sign our surrender form and send it to us at our
Service Center. You may obtain the surrender form by calling us at
(800) 688-5177.
-- The insured must be alive and the Policy must be in force when you
make your request, and the request must be made before the final
policy date. We may require that you return the Policy.
-- If you surrender your Policy during the first 12 policy years (or
during the first 12 years after an increase in the face amount), you
will incur a surrender charge. See "Charges and Deductions --
Surrender Charges and Additional Surrender Charges."
-- Once you surrender your Policy, all coverage and other benefits under
it cease and cannot be reinstated.
-- We will pay the net cash surrender value to you in a lump sum within 7
days after we receive your completed, signed surrender form unless you
request other arrangements.
-- A surrender may have tax consequences. See "Federal Tax
Considerations -- Tax Treatment of Policy Benefits."
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<PAGE> 39
PARTIAL WITHDRAWALS
After the first policy year, you may make a written request to withdraw part of
the net cash surrender value subject to the following conditions:
-- You must request at least $1,500.
-- For each partial withdrawal, we deduct a $25 fee from the remaining
policy account value. See "Charges and Deductions -- Partial Withdrawal
Charge."
-- The insured must be alive and the Policy must be in force when you make
your request, and this request must be made before the final policy
date.
-- You can specify the Subaccount(s) and Guaranteed Account from which to
make the partial withdrawal. Otherwise, we will deduct the amount
(including any fee) from the Subaccounts and the Guaranteed Account on a
pro-rata basis (that is, based on the proportion that each Subaccount
value and the Guaranteed Account value bears to the unloaned policy
account value).
-- You may not make a partial withdrawal if, or to the extent that, the
partial withdrawal would reduce the face amount below the minimum face
amount.
-- If Death Benefit Option A is in effect, we will reduce the face amount
by the amount of the partial withdrawal (including the partial
withdrawal fee). Any decrease in face amount due to a partial withdrawal
will first reduce the most recent increase in face amount, then the next
most recent increases in succession, and lastly, the initial face
amount.
-- If you purchased an Additional Insurance Benefit rider, partial
withdrawals first decrease the Policy's face amount (beginning with the
most recent increase, then the next most recent increases in succession,
and then the initial face amount) and then the rider coverage amount.
-- We will process the partial withdrawal at the unit values next
determined after we receive your request.
-- We generally will pay a partial withdrawal request within 7 days after
the valuation day when we receive the request.
-- A partial withdrawal can affect the face amount, death benefit, and net
amount at risk (which is used to calculate the cost of insurance charge
(see "Charges and Deductions -- Monthly Deduction")).
-- If a partial withdrawal would cause the Policy to fail to qualify as
life insurance under the Code, we will not allow the partial withdrawal.
-- Partial withdrawals may have tax consequences. See "Federal Tax
Considerations -- Tax Treatment of Policy Benefits."
TRANSFERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You may make transfers between and among the Subaccounts and the Guaranteed
Account. We determine the amount you have available for transfers at the end of
the valuation period when we receive your written request. The following
features apply to transfers under the Policy:
-- You must transfer at least $1,000, or the total value in the Subaccount
or Guaranteed Account, if less.
-- We deduct a $25 charge from the amount transferred for the 13th and each
additional transfer in a policy year. Transfers due to dollar cost
averaging, automatic asset rebalancing, loans, the exchange privilege,
the special transfer right, change in Subaccount investment policy, or
the initial reallocation of account values from the Money Market
Subaccount do NOT count as transfers for
35
<PAGE> 40
the purpose of assessing the transfer charge. See "Transfers -- Dollar Cost
Averaging," "Transfers -- Automatic Asset Rebalancing," and "Other Policy
Information -- Additional Transfer Rights."
-- We consider each telephone or written request to be a single transfer,
regardless of the number of Subaccounts (or Guaranteed Account)
involved.
-- We process transfers based on unit values determined at the end of the
valuation day when we receive your transfer request. The corresponding
portfolio of any Subaccount determines its net asset value per each
share once daily, as of the close of the regular business session of the
New York Stock Exchange (usually 4:00 p.m., Eastern time), which
coincides with the end of each valuation period. Therefore, we will
process any transfer request we receive after the close of the regular
business session of the New York Stock Exchange, using the net asset
value for each share of the applicable portfolio determined as of the
close of the next regular business session of the New York Stock
Exchange.
TRANSFERS FROM THE GUARANTEED ACCOUNT. You may make one transfer out of the
Guaranteed Account within 30 days prior to or following each policy anniversary.
The amount transferred may not exceed 25% of the Guaranteed Account value.
However, if the Guaranteed Account value is less than $1,000, the entire
Guaranteed Account value may be transferred. If we receive your written request
for this transfer prior to the policy anniversary, the transfer will be made as
of the policy anniversary. If this request is received after the policy
anniversary, the transfer will be made as of the date we receive the written
request.
DOLLAR COST AVERAGING
You may elect to participate in a dollar cost averaging program in the
application or by completing an election form that we receive by the beginning
of the month. Dollar cost averaging is an investment strategy designed to reduce
the investment risks associated with market fluctuations. The strategy spreads
the allocation of your premium into the Subaccounts or Guaranteed Account over a
period of time by systematically and automatically transferring, on a monthly
basis, specified dollar amounts from any selected Subaccount to any other
Subaccount(s) or the Guaranteed Account. This allows you to potentially reduce
the risk of investing most of your premium into the Subaccounts at a time when
prices are high. We do not assure the success of this strategy, and success
depends on market trends. We cannot guarantee that dollar cost averaging will
result in a profit or protect against loss. You should carefully consider your
financial ability to continue the program over a long enough period of time to
purchase units when their value is low as well as when it is high.
Each month on the policy processing day, we will automatically transfer equal
amounts (minimum $500) from the chosen Subaccount to your designated "target
accounts" in the percentages selected. You may have multiple target accounts.
To participate in dollar cost averaging, you must elect a period of time and
place the following minimum amount in any one Subaccount (not the Guaranteed
Account):
<TABLE>
<CAPTION>
DOLLAR COST AVERAGING PERIOD MINIMUM AMOUNT
- ---------------------------- --------------
<C> <S> <C>
6 months $ 3,000
12 months $ 6,000
18 months $ 9,000
24 months $12,000
30 months $15,000
36 months $18,000
</TABLE>
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<PAGE> 41
If you have elected dollar cost averaging, the program will start on the first
policy processing day after the later of:
1. The policy date;
2. The end of the 15-day period when premiums have been allocated to the
Money Market Subaccount; or
3. When the value of the chosen Subaccount equals or exceeds the greater
of: (a) the minimum amount stated above; or (b) the amount of the first
monthly transfer.
<TABLE>
<S> <C>
DOLLAR COST AVERAGING WILL END IF: -- we receive your written request to cancel your
participation;
-- the value in the chosen Subaccount is insufficient to
make the transfer;
-- the specified number of transfers has been completed; or
-- the Policy enters the grace period.
</TABLE>
You will receive written notice confirming each transfer and when the program
has ended. You are responsible for reviewing the confirmation to verify that the
transfers are being made as requested. There is no additional charge for dollar
cost averaging. A transfer under this program is NOT considered a transfer for
purposes of assessing the transfer fee. We may modify, suspend, or discontinue
the dollar cost averaging program at any time upon 30 days' written notice to
you. You cannot choose dollar cost averaging if you are participating in the
automatic asset rebalancing program or if a policy loan is outstanding.
AUTOMATIC ASSET REBALANCING
We also offer an automatic asset rebalancing program under which we will
automatically transfer amounts quarterly or annually to maintain a particular
percentage allocation among the Subaccounts. Policy account value allocated to
each Subaccount will grow or decline in value at different rates. The automatic
asset rebalancing program automatically reallocates the policy account value in
the Subaccounts at the end of each quarterly or annual period to match your
Policy's currently effective premium allocation schedule. The automatic asset
rebalancing program will transfer policy account value from those Subaccounts
that have increased in value to those Subaccounts that have declined in value
(or not increased as much). Over time, this method of investing may help you buy
low and sell high. The automatic asset rebalancing program does not guarantee
gains, nor does it assure that you will not have losses. Policy account value in
the Guaranteed Account is not available for this program.
<TABLE>
<S> <C>
TO PARTICIPATE IN THE AUTOMATIC ASSET -- you must elect this feature in the application or after
REBALANCING PROGRAM: issue by submitting an automatic asset rebalancing request
form to our Service Center; and
-- you must have a minimum policy account value of $1,000.
</TABLE>
There is no additional charge for the automatic asset rebalancing program. Any
reallocation which occurs under the automatic asset rebalancing program will NOT
be counted towards the 12 "free" transfers allowed during each policy year. You
can end this program at any time.
<TABLE>
<S> <C>
AUTOMATIC ASSET REBALANCING WILL END -- the total value in the Subaccounts is less than $1,000;
IF: or
-- we receive your written request to terminate the program.
</TABLE>
We may modify, suspend, or discontinue the automatic asset rebalancing program
at any time. You cannot choose automatic asset rebalancing if you are
participating in the dollar cost averaging program.
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<PAGE> 42
LOANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
While the Policy is in force, you may submit a written request to borrow money
from us using the Policy as the only collateral for the loan. You may increase
your risk of lapse if you take a loan. A loan that is taken from, or secured by,
a Policy may have tax consequences.
LOAN CONDITIONS:
-- The MINIMUM LOAN you may take is $500.
-- The MAXIMUM LOAN you may take is the net cash surrender value on the
date of the loan.
-- To secure the loan, we transfer an amount as collateral to the Loan
Account. This amount is equal to the amount of the loan (adjusted by
the earned interest rate and the charged interest rate to the next
policy anniversary). You may request that we transfer this amount
from specific Subaccounts, but may not request that we transfer this
amount from the Guaranteed Account. However, if you do not specify
any specific Subaccounts, we will transfer the loan from the
Subaccounts and the Guaranteed Account on a pro-rata basis based on
the proportion that the values in the Subaccounts and Guaranteed
Account bear to the unloaned policy account value.
-- We charge you 6% interest per year (charged interest rate) on your
loan. Interest is due and payable at the end of each policy year.
Unpaid interest becomes part of the outstanding loan and accrues
interest. Unpaid interest is allocated based on your written
instructions. If there are no such instructions or the policy account
value in the specified Subaccounts is insufficient to allow the
collateral for the unpaid interest to be transferred, the interest is
allocated based on the proportion that the Guaranteed Account value
and the value in the Subaccounts bear to the total unloaned policy
account value.
-- Amounts in the Loan Account earn interest at an annual rate
guaranteed not to be lower than 4.0% (earned interest rate). We may
credit the Loan Account with an interest rate different than the rate
credited to net premiums allocated to the Guaranteed Account. We
currently credit 4% to amounts in the Loan Account until the 10th
policy anniversary or attained age 60, whichever is later, and 5.75%
annually thereafter. The tax consequences associated with loans taken
from or secured by a Policy that is not a MEC are unclear when the
interest earned on the loan is increased to 5.75%.
-- We transfer earned loan interest to the Subaccounts and/or the
Guaranteed Account and recalculate collateral: (a) when loan interest
is paid or added to the loaned amount; (b) when a new loan is made;
and (c) when a loan repayment is made. We also recalculate collateral
under these situations. 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 charged interest added to the loan
balance) minus any loan repayments.
-- You may repay all or part of your indebtedness at any time while the
insured is alive and the Policy is in force. Upon each loan
repayment, we will allocate an amount equal to the loan repayment
(but not more than the amount of the outstanding loan) from the Loan
Account back to the Subaccounts and/or Guaranteed Account according
to the pro rata basis upon which we originally transferred the loan
collateral from the Subaccounts and/or Guaranteed Account as
described above. We will allocate any repayment in excess of the
amount of the outstanding loan to the Subaccounts and/or the
Guaranteed Account based on the amount of interest due on the portion
of the outstanding loan allocated to each such account.
-- While your loan is outstanding, we will credit all payments you send
to us as loan repayments unless you provide written notice for the
payments to be applied as premium payments.
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<PAGE> 43
-- We deduct any indebtedness from the policy account value upon
surrender, and from the insurance proceeds payable on the insured's
death.
-- If your indebtedness causes the net cash surrender value on a policy
processing day to be less than the monthly deduction due, your Policy
will enter a grace period. See "Policy Lapse and Reinstatement."
-- We normally pay the amount of the loan within 7 days after we receive
a proper loan request. We may postpone payment of loans under certain
conditions. See "Other Policy Information -- Payments We Make."
EFFECT OF POLICY LOANS
A loan, whether or not repaid, affects the Policy, the policy account value, the
net cash surrender value, and the death benefit. The insurance proceeds and net
cash surrender value include reductions for the amount of any indebtedness.
Repaying a loan causes the death benefit and net cash surrender value to
increase by the amount of the repayment. As long as a loan is outstanding, we
hold an amount as collateral for the loan in the Loan Account. This amount is
not affected by the investment performance of the Subaccounts and may not be
credited with the interest rates accruing on the Guaranteed Account. Amounts
transferred from the Separate Account to the Loan Account will affect the policy
account value, even if the loan is repaid, because we credit these amounts with
an interest rate we declare rather than with a rate of return that reflects the
investment performance of the Separate Account.
Accordingly, 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 with an outstanding loan will be lower when the earned
interest rate is less than the investment performance 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.
There are risks involved in taking a loan, including the potential for a Policy
to lapse if projected earnings, taking into account outstanding loans, are not
achieved. If the Policy is a MEC, then a loan will be treated as a partial
withdrawal for Federal income tax purposes. A loan may also have possible
adverse tax consequences that could occur if a Policy lapses with loans
outstanding. See "Policy Lapse and Reinstatement." In addition, if a loan is
taken from a Policy that is part of a plan subject to the Employee Retirement
Income Security Act of 1974 ("ERISA"), the loan will be treated as a "prohibited
transaction" subject to certain penalties unless additional ERISA requirements
are satisfied. The owner of such a Policy should seek competent advice before
requesting a policy loan.
POLICY LAPSE AND REINSTATEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LAPSE
Your Policy may enter a 61-day grace period and possibly lapse (terminate
without value) if the net cash surrender value is not enough to pay the monthly
deduction and other charges. If you have taken a loan, then your Policy also
will enter a grace period (and possibly lapse) whenever your indebtedness
reduces the net cash surrender value to zero.
Your Policy will NOT lapse:
1. During the first 5 policy years, if you pay premiums (less any
indebtedness and partial withdrawals) in excess of the minimum
guarantee premium;
2. If you purchase a Guaranteed Minimum Death Benefit rider and meet
certain conditions (see "Other Policy Information -- Supplemental
Benefits and Riders"); or
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<PAGE> 44
3. If you make a payment equal to 3 monthly deductions before the end of
the grace period.
If your Policy enters a grace period, we will mail a notice to your last known
address and to any assignee of record. The 61-day grace period begins on the
date of the notice. The notice will indicate that the payment amount of 3
monthly deductions is required and will also indicate the final date by which we
must receive the payment to keep the Policy from lapsing. If we do not receive
the specified minimum payment by the end of the grace period, all coverage under
the Policy will terminate and you will receive no benefits. You may reinstate a
lapsed Policy if you meet certain requirements. If the insured dies during the
grace period, we will pay the insurance proceeds.
REINSTATEMENT
Unless you have surrendered your Policy, you may reinstate a lapsed Policy at
any time while the insured is alive and within 3 years after the end of the
grace period (and prior to the final policy date) by submitting all of the
following items to us at our Service Center:
1. A written notice requesting reinstatement;
2. Evidence of insurability we deem satisfactory; and
3. Payment of sufficient premium to keep the Policy in force for at least
3 months.
The effective date of reinstatement will be the first policy processing day on
or next following the date we approve your application for reinstatement. The
reinstated Policy will have the same policy date as it had prior to the lapse.
Upon reinstatement, the policy account value will be based upon the premium paid
to reinstate the Policy.
FEDERAL TAX CONSIDERATIONS
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The following summarizes some of the basic Federal income tax considerations
associated with a Policy and does not purport to be complete or to cover all
situations. THIS DISCUSSION IS NOT INTENDED AS TAX ADVICE. PLEASE CONSULT
COUNSEL OR OTHER QUALIFIED TAX ADVISERS FOR MORE COMPLETE INFORMATION. We base
this discussion on our understanding of the present Federal income tax laws as
they are currently interpreted by the Internal Revenue Service (the "IRS").
Federal income tax laws and the current interpretations by the IRS may change.
TAX STATUS OF THE POLICY. A Policy must satisfy certain requirements set forth
in the Code 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. 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,
we believe that a Policy should satisfy the applicable Code requirements.
Because of the absence of pertinent interpretations of the Code requirements,
there is, however, some uncertainty about the application of these requirements
to the Policy, particularly if you pay 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 these 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 to allocate premiums and
policy account values, have not been explicitly addressed in published rulings.
While we believe that the Policy does not give you investment control over
Separate Account assets, we reserve the right to modify
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the Policy as necessary to prevent you 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 to treat the Policy as a life insurance
contract for Federal income tax purposes. We intend 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. We believe that the death benefit under a Policy should be
excludible from the beneficiary's gross income. Federal, state, and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on your circumstances and the beneficiary's circumstances. You should
consult a tax adviser on these consequences.
Generally, you will not be deemed to be in constructive receipt of the policy
account value until there is a distribution. In addition, if you elect the
accelerated death benefit, the tax consequences associated with continuing the
Policy after a distribution is made are unclear. Please consult a tax adviser on
these consequences. When distributions from a Policy occur, or when loans are
taken out from or secured by a Policy (e.g., by assignment), the tax
consequences depend on whether the Policy is classified as a MEC. Moreover, if a
loan from a Policy that is not a MEC is outstanding when the Policy is canceled
or lapses, the amount of the outstanding indebtedness will be added to the
amount distributed and will be taxed accordingly.
MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance contracts
are classified as MECs and receive less favorable tax treatment than other life
insurance contracts. The rules are too complex to be summarized here, but
generally depend on the amount of premiums paid during the first 7 policy years.
Certain changes in a Policy after it is issued could also cause it to be
classified as a MEC. Due to the Policy's flexibility, each Policy's
circumstances will determine whether the Policy is classified as a MEC. If you
do not want your Policy to be classified as a MEC, you should consult a tax
adviser to determine the circumstances, if any, under which your Policy would or
would not be classified as a MEC.
DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as MECs
are subject to the following tax rules:
-- All distributions other than death benefits from a MEC, including
distributions upon surrender and partial withdrawals, will be treated
as ordinary income subject to tax up to an amount equal to the excess
(if any) of the unloaned policy account value immediately before the
distribution plus prior distributions over the owner's total
investment in the Policy at that time. They will be treated as
tax-free recovery of the owner's investment in the Policy only after
all such excess has been distributed. "Total investment in the Policy"
means the aggregate amount of any premiums or other considerations
paid for a Policy, plus any previously taxed distributions.
-- Loans taken from such a Policy (or secured by such a Policy, e.g., by
assignment) are treated as distributions and taxed accordingly.
-- A 10% additional income tax penalty is imposed on the amount included
in income except where the distribution or loan is made when you have
attained age 59 1/2 or are disabled, or where the distribution is part
of a series of substantially equal periodic payments for your life (or
life expectancy) or the joint lives (or joint life expectancies) of
you and the beneficiary.
If a Policy becomes a MEC, distributions that occur during the policy year will
be taxed as distributions from a MEC. In addition, distributions from a Policy
within 2 years before it becomes a MEC will be taxed in this manner. This means
that a distribution from a Policy that is not a MEC at the time when the
distribution is made could later become taxable as a distribution from a MEC.
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DISTRIBUTORS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS.
Distributions from a Policy that is not a MEC are generally treated first as a
recovery of your investment in the Policy, and as taxable income after the
recovery of all investment in the Policy. 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 MEC are generally not treated as
distributions. However, there is some uncertainty as to the tax treatment of
amounts in the Loan Account after the later of the 10th policy anniversary or
attained age 60 under a Policy that is not a MEC. You should consult a tax
adviser on this point.
Finally, neither distributions from nor loans from (or secured by) a Policy that
is not a MEC are subject to the 10% additional tax.
DEDUCTIBILITY OF POLICY LOAN INTEREST. In general, interest you pay on a loan
from a Policy will not be deductible. Before taking out a policy loan, you
should consult a tax adviser as to the tax consequences.
MULTIPLE POLICIES. All MECs that we issue (and that our affiliates issue) to
the same owner during any calendar year are treated as one MEC for purposes of
determining the amount includible in the owner's income when a taxable
distribution occurs.
BUSINESS USES OF THE POLICY. The Policy may be used in various arrangements,
including nonqualified deferred compensation or salary continuance plans, split
dollar insurance plans, executive bonus plans, retiree medical benefit plans,
and others. The tax consequences of these plans and business uses of the Policy
may vary depending on the particular facts and circumstances of each individual
arrangement and business uses of the Policy. Therefore, if you are contemplating
using the Policy in any arrangement the value of which depends in part on its
tax consequences, you should be sure to consult a tax adviser as to tax
attributes of the arrangement.
OTHER POLICY OWNER TAX MATTERS. Federal and state estate, inheritance,
transfer, and other tax consequences depend on the individual circumstances of
each Policy owner or beneficiary. The tax consequences of continuing the Policy
beyond the insured's attained age 100 are unclear. You should consult a tax
adviser if you intend to keep the Policy in force beyond the insured's attained
age 100.
POSSIBLE TAX LAW CHANGES. While the likelihood of legislative or other changes
is uncertain, there is always a possibility that the tax treatment of the Policy
could change by legislation or otherwise. It is even possible that any
legislative change could be retroactive (effective prior to the date of the
change). You should consult a tax adviser with respect to legislative
developments and their effect on the Policy.
OTHER POLICY INFORMATION
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PAYMENT OF POLICY BENEFITS
BENEFIT PAYABLE ON FINAL POLICY DATE. If the insured is living on the final
policy date (at insured's attained age 100), we will pay you the policy account
value less any indebtedness and any unpaid monthly deductions. Insurance
coverage under the Policy will then end. Payment will generally be made within 7
days of the final policy date. You may elect to continue the Policy beyond
insured's attained age 100 under the Final Policy Date Extension rider.
INSURANCE PROCEEDS. Insurance proceeds will ordinarily be paid to the
beneficiary within 7 days after we receive proof of the insured's death and all
other requirements are satisfied, including receipt by us at our Service Center
of all required documents. Generally, we determine the amount of a payment from
the Separate Account as of the date of death. We pay insurance proceeds in a
single sum unless you have selected an alternative settlement option. If
insurance proceeds are paid in a single sum, we pay interest at
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an annual rate of 3% (unless we declare a higher rate) on the insurance proceeds
from the date of death until payment is made.
SETTLEMENT OPTIONS. In lieu of a single sum payment on death, surrender, or
maturity, you may elect one of the following settlement options. Payment under
these settlement options will not be affected by the investment performance of
any Subaccounts after proceeds are applied.
-- Proceeds at Interest Option. Proceeds are left on deposit to accumulate
with us with interest payable at 12, 6, 3, or 1 month intervals.
-- Installments of a Specified Amount Option. Proceeds are payable in
equal installments of the amount elected at 12, 6, 3, or l month
intervals, until proceeds applied under the option and interest on the
unpaid balance and any additional interest are exhausted.
-- Installments for a Specified Period Option. Proceeds are payable in a
number of equal monthly installments. Alternatively, the installments
may be paid at 12, 6, or 3 month intervals. Payments may be increased by
additional interest which would increase the installments certain.
-- Life Income Option. Proceeds are 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.
-- Joint and Survivor Life Income Option. Proceeds are payable in equal
monthly installments, with a number of installments certain, during the
joint lives of the payee and one other person and during the life of the
survivor. The minimum number of payments will be for either 120 or 240
months.
A guaranteed interest rate of 3% per year applies to all settlement options. We
may declare additional rates of interest in our sole discretion. See "Death
Benefit -- Insurance Proceeds" and the Policy for more details.
THE POLICY
The Policy, application(s), policy schedule pages, and any riders are the entire
contract. Only statements made in the applications can be used to void the
Policy or to deny a claim. We assume 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. We rely on those statements when we issue or change a
Policy. As a result of differences in applicable state laws, certain provisions
of the Policy may vary from state to state.
TELEPHONE REQUESTS
We may accept telephone instructions from you or an authorized third party
regarding transfers, dollar cost averaging, automatic asset rebalancing, loans,
and exercise of the special transfer right, subject to the following conditions:
-- You must complete and sign our telephone request form and send it to us.
You also may authorize us in the application or by written notice to act
upon transfer instructions given by telephone.
-- You may designate in the telephone request form a third party to act on
your behalf in making telephone requests.
-- We will employ reasonable procedures to confirm that telephone
instructions are genuine.
-- If we follow these procedures, we are not liable for any loss, damage,
cost, or expense from complying with telephone instructions we
reasonably believe to be authentic. You bear the risk of
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any such loss. If we do not employ reasonable confirmation procedures,
we may be liable for losses due to unauthorized or fraudulent
instructions.
-- These procedures may include requiring forms of personal identification
prior to acting upon telephone instructions, providing written
confirmation of transactions to you, and/or tape recording telephone
instructions received from you.
-- We reserve the right to suspend telephone instructions at any time for
any class of policies for any reason.
OUR RIGHT TO CONTEST THE POLICY
In issuing the Policy, we rely on all statements made by or for you and/or the
insured in the application or in a supplemental application. Therefore, we may
contest the validity of the Policy based on material misstatements made in the
application (or any supplemental application).
However, we will not contest the Policy after the Policy has been in force
during the insured's lifetime for 2 years, except for nonpayment of the minimum
initial premium. Likewise, we will not contest any Policy change that requires
evidence of insurability, or any reinstatement of the Policy, after such change
or reinstatement has been in effect during the insured's lifetime for 2 years.
SPLIT DOLLAR ARRANGEMENTS
You may enter into a split dollar arrangement with another owner or another
person(s) whereby the payment of premiums and the right to receive the benefits
under the Policy (i.e., net cash surrender value or insurance proceeds) are
split between the parties. There are different ways of allocating these rights.
For example, an employer and employee might agree that under a Policy on the
life of the employee, the employer will pay the premiums and will have the right
to receive the net cash surrender value. The employee may designate the
beneficiary to receive any insurance proceeds in excess of the net cash
surrender value. If the employee dies while such an arrangement is in effect,
the employer would receive from the insurance proceeds the amount which he would
have been entitled to receive upon surrender of the policy and the employee's
beneficiary would receive the balance of the proceeds.
No transfer of Policy rights pursuant to a split dollar arrangement will be
binding on us unless in writing and received by us at our Service Center. 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.
SUICIDE EXCLUSION
If the insured commits suicide, while sane or insane, within 2 years of the
policy issue date, the Policy will terminate and our liability will be limited
to an amount equal to the premiums paid, less any indebtedness, and less any
partial withdrawals previously paid.
If the insured commits suicide, while sane or insane, within 2 years from the
effective date of any change which increases the death benefit, the Policy will
terminate and our liability with respect to the amount of increase will be
limited to the sum of the monthly deductions for the cost of insurance
attributable to the increase and the expense charge for the increase in face
amount previously deducted from policy account value.
Certain states may require suicide exclusion provisions that differ from those
stated here.
MISSTATEMENT OF AGE OR SEX
If the insured's age or sex was stated incorrectly in the application, we will
adjust the death benefit and any benefits provided by riders to the amount that
would have been payable at the correct age and sex based on the most recent
monthly deduction. No adjustment will be made to the policy account value.
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MODIFYING THE POLICY
Any modification or waiver of our rights or requirements under the Policy must
be in writing and signed by our president or a vice president. No agent may bind
us by making any promise not contained in the Policy.
Upon notice to you, we may modify the Policy:
-- to conform the Policy, our operations, or the Separate Account's
operations to the requirements of any law (or regulation issued by a
government agency) to which the Policy, our Company, or the Separate
Account is subject;
-- to assure continued qualification of the Policy as a life insurance
contract under the Federal tax laws; or
-- to reflect a change in the Separate Account's operation.
If we modify the Policy, we will make appropriate endorsements to the Policy. If
any provision of the Policy conflicts with the laws of a jurisdiction that
govern the Policy, we reserve the right to amend the provision to conform with
these laws.
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, partial withdrawal, insurance
proceeds, loan, or settlement options within 7 days after we receive all
applicable written notices, permitted telephone requests, and/or due proofs of
death. However, we can postpone these payments if:
-- the New York Stock Exchange is closed, other than customary weekend and
holiday closing, or trading on the New York Stock Exchange is restricted
as determined by the Securities and Exchange Commission; OR
-- the Securities and Exchange Commission permits, by an order, the
postponement of any payment for the protection of owners; OR
-- the Securities and Exchange Commission determines that an emergency
exists that would make the disposal of securities held in the Separate
Account or the determination of their value not reasonably practicable.
We have the right to defer payment of amounts from the Guaranteed Account for up
to 6 months after receipt of the written notice. We will pay interest on any
payment deferred for 30 days or more at an annual rate of 3%.
If you have submitted a check or draft to our Service Center, we have the right
to defer payment of surrenders, partial withdrawals, insurance proceeds, or
payments under a settlement option until the check or draft has been honored.
ADDITIONAL TRANSFER RIGHTS
SPECIAL TRANSFER RIGHT
At any one time during the first 2 years following the policy issue date, you
may submit written notice requesting a transfer of the entire amount in the
Separate Account to the Guaranteed Account, and the allocation of all future net
premiums to the Guaranteed Account. This serves as an exchange of the Policy for
the equivalent of a flexible premium fixed benefit life insurance policy. We
will not assess any transfer or other charges in connection with the special
transfer right, and this transfer will not count toward the 12 "free" transfers
permitted each policy year.
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CONVERSION PRIVILEGE FOR INCREASE IN FACE AMOUNT
At any one time during the first 2 years following an increase in the Policy's
face amount, you may exchange the amount of the increase for a fixed benefit
permanent life insurance policy without evidence of insurability. Such an
exchange may have tax consequences. Premiums under this new policy will be based
on our rates in effect for the same sex, attained age, and premium class of the
insured on the effective date of the increase in the face amount. The new policy
will have the same face amount and policy issue date as the amount and effective
date of the increase. We will refund the expense charge for the increase and the
monthly deductions for the increase made on each policy processing day between
the effective date of the increase to the date of conversion. We will not assess
any transfer charges in connection with this conversion privilege, and this
transfer will not count toward the 12 "free" transfers permitted each policy
year.
CHANGE IN SUBACCOUNT INVESTMENT POLICY
If the investment policy of a Subaccount is materially changed, you may transfer
the portion of the policy account value in that Subaccount to another Subaccount
or to the Guaranteed Account without a transfer charge and without having the
transfer count toward the 12 transfers permitted without charge during a Policy
Year.
REPORTS TO OWNERS
At least once each year, we will send you a report showing the following
information as of the end of the report period:
X the current policy account value, Guaranteed Account value, Subaccount
values, and Loan Account value
X the current net cash surrender value
X the current death benefit
X the current amount of any indebtedness
X any activity since the last report (e.g., premiums paid, partial
withdrawals, charges and deductions)
X any other information required by law
We currently send these reports quarterly. In addition, we will send you a
statement showing the status of the Policy following the transfer of amounts
from one Subaccount to another (excluding automatic rebalancing), the taking of
a loan, the 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).
We can prepare a similar report for you at other times for a reasonable fee. We
may limit the scope and frequency of these requested reports.
We will send you a semi-annual report containing the financial statements of
each portfolio in which you are invested.
RECORDS
We will maintain all records relating to the Separate Account and the Guaranteed
Account at our Service Center.
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POLICY TERMINATION
Your Policy will terminate on the earliest of:
-- the final policy date;
-- the end of the grace period without a sufficient payment;
-- the date the insured dies; or
-- the date you surrender the Policy.
SUPPLEMENTAL BENEFITS AND RIDERS
ACCELERATED DEATH BENEFIT RIDER
If your state of residence has approved the Accelerated Death Benefit rider (the
"ADB rider") and we have received satisfactory additional evidence of
insurability, you may choose to add it to your Policy at issue. The terms of the
ADB rider may vary from state-to-state.
Generally, the ADB rider allows you to receive an accelerated payment of part of
the Policy's death benefit when one of the following two events occurs:
1. TERMINAL ILLNESS. The insured develops a non-correctable medical
condition which is expected to result in his or her death within 12
months; OR
2. PERMANENT CONFINEMENT TO A NURSING CARE FACILITY. The insured has been
confined to a nursing care facility (as defined in the ADB rider) for
at least 180 consecutive days and is expected to remain in such a
facility for the remainder of his or her life.
There is no additional charge for this rider. However, an administrative charge,
currently $100 and not to exceed $250, will be deducted from the accelerated
death benefit amount.
TAX CONSEQUENCES OF THE ADB RIDER. The federal income tax consequences
associated with adding the ADB rider or receiving the accelerated death benefit
are uncertain. You should consult a tax adviser before adding the ADB rider to
your Policy or requesting an accelerated death benefit.
AMOUNT OF THE ACCELERATED DEATH BENEFIT. The ADB rider provides for a minimum
accelerated death benefit payment of $10,000 and a maximum benefit payment equal
to 75% of the eligible death benefit (as defined below) less 25% of any
indebtedness. The ADB rider also restricts the total of the accelerated death
benefits paid from all life insurance policies issued to you by us and our
affiliates to $250,000. We may increase this $250,000 maximum to reflect
inflation.
<TABLE>
<S> <C>
ELIGIBLE DEATH BENEFIT MEANS: the insurance proceeds payable under the Policy if the
insured died at the time we approve a claim for an
accelerated death benefit, MINUS
1. Any premium refund payable at death if the insured died
at that time; and
2. Any insurance payable under the terms of any other
rider.
</TABLE>
You may submit written notice to request only one accelerated death benefit
payment (except to pay premiums and policy loan interest). There are no
restrictions on your use of the benefit. You may elect to receive the
accelerated death benefit payment in a lump sum or in 12 or 24 equal monthly
installments. If installments are elected and the insured dies before all of the
payments have been made, the present value (at the time of the insured's death)
of the remaining payments and the remaining insurance proceeds at death under
the Policy will be paid to the beneficiary in a lump sum.
CONDITIONS FOR RECEIPT OF THE ACCELERATED DEATH BENEFIT. To receive an
accelerated death benefit payment, the Policy must be in force and you must
submit written notice, "due proof of eligibility," and a completed claim form to
us. Due proof of eligibility means a written certification (described more fully
in the ADB rider) in a form acceptable to us from a treating physician (as
defined in the ADB rider) stating that the insured has a terminal illness or is
expected to be permanently confined to a nursing care facility.
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We may request additional medical information from the insured's physician
and/or may require an independent physical examination (at our expense) before
approving the claim for payment of the accelerated death benefit. We will not
approve a claim for an accelerated death benefit payment if:
1. The Policy is assigned in whole or in part;
2. If the terminal illness or permanent confinement to a nursing care
facility is the result of intentionally self-inflicted injury; or
3. If you are required to elect the payment in order to meet the claims of
creditors or to obtain a government benefit.
OPERATION OF THE ADB RIDER. The ADB rider provides that the accelerated death
benefit be made in the form of a policy loan up to the amount of the maximum
loan available under the Policy at the time the claim is approved. Therefore, a
request for an accelerated death benefit payment in an amount less than or equal
to the maximum loan available at that time will result in a policy loan being
made in the amount of the requested benefit. This policy loan operates as would
any loan under the Policy. See "Loans."
To the extent that the amount of a requested accelerated death benefit payment
exceeds the maximum available loan amount, the benefit will be advanced to you
and a lien will be placed on the death benefit payable under the Policy (the
"death benefit lien") in the amount of this excess. Under the ADB rider,
interest will accrue daily, at a rate determined as described in the ADB rider,
on the amount of this lien, and upon the death of the insured the amount of the
lien and accrued interest thereon will be subtracted from the amount of
insurance proceeds payable at death.
EFFECT ON EXISTING POLICY. The insurance proceeds otherwise payable at the time
of an insured's death will be reduced by the amount of any death benefit lien
and accrued interest thereon. If you make a request for a surrender, a policy
loan, or a partial withdrawal, the net cash surrender value and Loan Account
value will be reduced by the amount of any outstanding death benefit lien plus
accrued interest. Therefore, depending upon the size of the death benefit lien,
this may result in the net cash surrender value and the Loan Account value being
reduced to zero.
Premiums and policy loan interest must be paid when due. However, if requested
with the accelerated death benefit claim, future premiums and policy loan
interest may be paid through additional accelerated death benefits. If future
premiums and policy loan interest are to be paid through additional accelerated
death benefits, periodic planned premiums and policy loan interest will be paid
in this manner automatically.
In addition to a lapse under the applicable provisions of the Policy, the Policy
will also terminate on any policy anniversary when the death benefit lien
exceeds the insurance proceeds at death.
TERMINATION OF THE ADB RIDER. The ADB rider will terminate on the earliest of:
(1) our receipt of your written notice requesting termination of the rider; (2)
surrender or other termination of the Policy; or (3) the policy anniversary when
the insurance proceeds payable at death on such policy anniversary is less than
or equal to zero.
ADDITIONAL INSURANCE BENEFIT RIDER
The Additional Insurance Benefit rider ("AIB rider") provides an additional
death benefit payable on the death of the insured without increasing the
Policy's face amount. The AIB rider may not be available in all states.
The additional death benefit under the AIB rider is:
a. the face amount plus the rider coverage amount less the Policy's death
benefit (if Death Benefit Option A is in effect); or
b. the face amount plus the rider coverage amount plus the policy account
value less the death benefit (if Death Benefit Option B is in effect).
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Please note the following about the AIB rider:
-- The AIB rider may be canceled separately from the Policy (i.e., it can
be canceled without causing the Policy to be canceled or to lapse). The
AIB rider will terminate on the earliest of: (1) our receipt of your
written notice requesting termination of the rider; (2) surrender or
other termination of the Policy; or (3) the policy anniversary nearest
the insured's attained age 100.
-- The AIB rider has a cost of insurance charge that is deducted from the
policy account value as part of the monthly deduction.
-- If you change from Death Benefit Option A to Death Benefit Option B, we
will first decrease the Policy's face amount and then the rider coverage
amount by the policy account value. See "Death Benefit -- Changing Death
Benefit Options."
-- If Death Benefit Option A is in effect and you make a partial
withdrawal, we will first decrease the Policy's face amount and then the
rider coverage amount by the amount withdrawn (including the partial
withdrawal fee). See "Surrenders and Partial Withdrawals -- Partial
Withdrawals."
-- The AIB rider has no cash or loan value.
-- The AIB rider has no surrender charge, additional surrender charge, or
premium expense charge.
-- Since there is no surrender charge for decreasing the rider coverage
amount, such a decrease may be less expensive than a decrease of the
same size in the face amount of the Policy (if the face amount
decrease would be subject to a surrender charge). But, continuing
coverage on such an increment of Policy face amount may have a cost
of insurance charge that is higher than the same increment of
coverage amount under the rider. You should consult your agent before
buying an AIB rider, and before deciding whether to decrease Policy
face amount or AIB rider coverage amount.
-- After the first policy year and subject to certain conditions, you may
increase or decrease the rider coverage amount separately from the
Policy's face amount (and the Policy's face amount may be increased or
decreased without affecting the rider coverage amount).
-- To comply with the maximum premium limitations under the Code, insurance
coverage provided by an AIB rider is treated as part of the Policy's
face amount (for discussion of the tax status of the Policy, see
"Federal Tax Considerations").
OTHER RIDERS
In addition to the Accelerated Death Benefit rider and Additional Insurance
Benefit rider, the following riders offering supplemental benefits are available
under the Policy. Most of these riders are subject to age and underwriting
requirements and, unless otherwise indicated, must be purchased when the Policy
is issued. We deduct any monthly charges for these riders from policy account
value as part of the monthly deduction. These riders (which are summarized
below) provide fixed benefits that do not vary with the investment performance
of the Separate Account. Your agent can help you determine whether certain of
the riders are suitable for you. These riders may not be available in all
states. Please contact us for further details.
-- CHANGE OF INSURED: This rider permits you to change the insured,
subject to certain conditions and evidence of insurability. The Policy's
face amount will remain the same, and the monthly deduction for the cost
of insurance and any other benefits provided by rider will be adjusted
for the attained age and premium class of the new insured as of the
effective date of the change. As the change of an insured is generally a
taxable event, you should consult a tax advisor before making such a
change.
-- CHILDREN'S TERM INSURANCE: This rider provides level term insurance on
each of the insured's dependent children, until the earliest of: (1) the
first policy processing day after our receipt of your written notice
requesting termination of the rider; (2) surrender or other termination
of the Policy;
49
<PAGE> 54
(3) the child's 25th birthday; or (4) the policy anniversary nearest the
insured's 65th birthday. Upon expiration of the term insurance on the
life of a child and subject to certain conditions, it may be converted
without evidence of insurability to a whole life policy providing a
level face amount of insurance and a level premium. The face amount of
the new policy may be up to 5 times the amount of the term insurance in
force on the expiration date. The rider is issued to provide between
$5,000 and $15,000 of term insurance on each insured child. Each insured
child under this rider will have the same amount of insurance. This
rider must be selected at the time of application for the Policy or upon
an increase in face amount.
-- CONVERTIBLE TERM LIFE INSURANCE: This rider provides term insurance on
an additional insured ("other insured"). This rider will terminate on
the earliest of: (1) our receipt of your written notice requesting
termination of the rider; (2) surrender or other termination of the
Policy; (3) the policy anniversary nearest the other insured's attained
age 100; or (4) exercise of the Policy Split Option Rider (if
applicable). If the Policy is extended by the Final Policy Date
Extension rider, this rider will terminate on the original final policy
date. This rider and the Guaranteed Minimum Death Benefit rider may not
be issued on the same Policy.
-- DISABILITY WAIVER BENEFIT: This rider provides that in the event of the
insured's total disability (as defined in the rider), which begins while
the rider is in effect and which continues for at least 6 'months, we
will apply a premium payment to the Policy on each policy processing day
during the first 5 policy years while the insured is totally disabled
(the amount of the payment will be based on the minimum annual premium).
We will also waive all monthly deductions due after the commencement of
and during the continuance of the total disability after the first 5
policy years. This rider terminates on the earliest of: (1) the first
policy processing day after our receipt of your written notice
requesting termination of the rider; (2) surrender or other termination
of the Policy; or (3) the policy anniversary nearest the insured's
attained age 60 (except for benefits for a disability which began before
that policy anniversary).
-- DISABILITY WAIVER OF PREMIUM BENEFIT: This rider provides that, in the
event of the insured's total disability before attained age 60 and
continuing for at least 180 days, we will apply a premium payment to the
Policy on each policy processing day prior to insured's attained age 65
and while the insured remains totally disabled. At the time of
application, a monthly benefit amount is selected by you. This amount is
generally intended to reflect the amount of the premiums expected to be
paid monthly. In the event of insured's total disability, the amount of
the premium payment applied on each policy processing day will be the
lesser of: (a) the monthly benefit amount; or (b) the monthly average of
the premium payments less partial withdrawals for the Policy since its
policy date. You cannot elect this rider and another disability waiver
benefit rider with the same Policy.
-- FINAL POLICY DATE EXTENSION: This rider extends the final policy date
20 years past the original final policy date. This benefit may be added
only on or after the anniversary nearest the insured's 90th birthday.
There is no additional charge for this benefit. The death benefit after
the original final policy date will be the policy account value. All
other riders in effect on the original final policy date will terminate
on the original final policy date. Adding this benefit and/or continuing
the Policy beyond the insured's attained age 100 may have tax
consequences and you should consult a tax adviser before doing so.
-- GUARANTEED MINIMUM DEATH BENEFIT: This rider provides a guarantee that,
if the net cash surrender value is not sufficient to cover the monthly
deductions, and the minimum guarantee premium has been paid, the Policy
will not lapse prior to the end of the death benefit guarantee period
(as defined in the rider). If this rider is added, the monthly deduction
will be increased by $0.01 per every $1,000 of face amount in force
under the Policy. The rider and the additional monthly deduction
terminate on the earliest of: (1) our receipt of your written notice
requesting termination of the rider; (2) surrender or other termination
of the Policy; or (3) expiration of the death benefit guarantee period.
This rider and the Convertible Term Life Insurance rider may not be
issued on the same Policy.
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<PAGE> 55
PERFORMANCE DATA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In order to demonstrate how the actual investment performance of the portfolios
could have affected the death benefit, policy account value, and net cash
surrender value of the Policy, we may provide hypothetical illustrations using
the actual investment performance of each portfolio since its inception. THESE
HYPOTHETICAL ILLUSTRATIONS ARE DESIGNED TO SHOW THE PERFORMANCE THAT COULD HAVE
RESULTED IF THE POLICY HAD BEEN IN EXISTENCE DURING THE PERIOD ILLUSTRATED AND
ARE NOT INDICATIVE OF FUTURE PERFORMANCE.
The values we illustrate for death benefit, policy account value, and net cash
surrender value take into account all applicable charges and deductions from the
Policy (current and guaranteed), the Separate Account and the portfolios. We
have not deducted premium taxes or charges for any riders. These charges would
lower the performance figures significantly if reflected.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALE OF THE POLICIES
The Policy will be sold by individuals who are licensed as our life insurance
agents and appointed by us and who are also registered representatives of 1717,
or registered representatives of a broker-dealer having a selling agreement with
1717, or registered representatives of a broker-dealer having a selling
agreement with these broker-dealers. 1717 is located at Christiana Executive
Campus, P.O. Box 15626, Wilmington, Delaware 19850, is registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 as
a broker-dealer, and is a member of the National Association of Securities
Dealers, Inc. 1717 was organized under the laws of Pennsylvania on January 22,
1969 as an indirect wholly owned subsidiary of Provident Mutual. 1717 retains no
compensation as principal underwriter of the Policies. We decide the insurance
underwriting, the determination of premium class, and whether to accept or
reject an application. 1717 also may reject an application if the Policy applied
for is unsuitable.
During the first policy year, the maximum sales commission payable to our agents
or other registered representatives will be approximately 91% of premiums paid
up to a specified amount, and 2% of premiums paid in excess of that amount.
During policy years 2 through 10, the maximum sales commission will not be more
than 2% of premiums paid, and after policy year 10, the maximum sales commission
will be 0% of premiums paid. Further, for each premium received within 10 years
following an increase in face amount, a commission on that premium will be paid
up to the specified amount for the increase in each year; the commission will be
calculated using the commission rates for the corresponding policy year. Expense
allowances and bonuses may also be paid, and agents may receive annual renewal
compensation of up to 0.25% of the unloaned policy account value. Agents may be
required to return first year commission (less the deferred sales charge) if the
Policy is not continued through the first policy year.
POTENTIAL CONFLICTS OF INTEREST
In addition to the Separate Account, the portfolios may sell shares to other
separate investment accounts established by other insurance companies to support
variable annuity contracts and variable life insurance policies or qualified
retirement plans. It is possible that, in the future, it may become
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the portfolios simultaneously. Although
neither we nor the portfolios currently foresee any such disadvantages, either
to variable life insurance policy owners or to variable annuity contract owners,
each portfolio's Board of Directors (Trustees) will monitor events in order to
identify any material conflicts between the interests of these variable life
insurance policy owners and variable annuity contract owners, and will determine
what action, if any, it should take. This action could include the sale of
portfolio shares by one or more of the separate accounts, which could have
adverse consequences. Material conflicts could result from, for
51
<PAGE> 56
example: (1) changes in state insurance laws; (2) changes in Federal income tax
laws; or (3) differences in voting instructions between those given by variable
life insurance policy owners and those given by variable annuity contract
owners.
If a portfolio's Board of Directors (Trustees) were to conclude that separate
portfolios should be established for variable life insurance and variable
annuity separate accounts, we will bear the attendant expenses, but variable
life insurance policy owners and variable annuity contract owners would no
longer have the economies of scale resulting from a larger combined portfolio.
The portfolios may also sell shares 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
of this Policy or 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, we 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.
CHANGES TO THE SEPARATE ACCOUNT
Where permitted by applicable law, we reserve the right to make certain changes
to the structure and operation of the Separate Account, including, among others,
the right to:
1. Remove, combine, or add Subaccounts and make the new Subaccounts
available to you at our discretion;
2. Transfer assets supporting the Policies from one Subaccount to another
or from the Separate Account to another separate account;
3. Combine the Separate Account with other separate accounts, and/or
create new separate accounts;
4. Deregister the Separate Account under the Investment Company Act of
1940, or operate the Separate Account as a management investment
company under the Investment Company Act of 1940, or as any other form
permitted by law; and
5. Modify the provisions of the Policy to comply with applicable law.
We will not make any such changes without receiving any necessary approval of
the Securities and Exchange Commission and applicable state insurance
departments. We will notify you of any changes.
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
52
<PAGE> 57
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.
POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS
Policies may be acquired in conjunction with employee benefit plans ("EBS
Policies"), including the funding of qualified pension plans meeting the
requirements of Section 401 of the Code. For EBS Policies, the maximum mortality
rates used to determine the monthly cost of insurance charge are based on the
Commissioners' 1980 Standard Ordinary Mortality Tables NB and SB. Under these
tables, mortality rates are the same for male and female insureds of a
particular attained age and premium class. See "Charges and
Deductions -- Monthly Deduction." Illustrations reflecting the premiums and
charges for EBS Policies will be provided upon request to purchasers of these
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 "Death
Benefit -- 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 Supreme 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 the 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 PORTFOLIO SHARES
Even though we are the legal owner of the portfolio shares held in the
Subaccounts, and have the right to vote on all matters submitted to shareholders
of the portfolios, we will vote our shares only as owners instruct, so long as
such action is required by law.
Before a vote of a portfolio's shareholders occurs, you will receive voting
materials. We will ask you to instruct us on how to vote and to return your
proxy to us in a timely manner. You will have the right to instruct us on the
number of portfolio shares that corresponds to the amount of policy account
value you have in that portfolio (as of a date set by the portfolio).
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<PAGE> 58
If we do not receive voting instructions on time from some owners, we will vote
those shares in the same proportion as the timely voting instructions we
receive. Should Federal securities laws, regulations, or interpretations change,
we may elect to vote portfolio shares in our own right. If required by state
insurance officials, or if permitted under Federal regulation, under certain
circumstances we may disregard certain owner voting instructions. If we ever
disregard voting instructions, we will send you a summary in the next annual
report to owners advising you of the action and the reasons we took this action.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain legal matters relating to the Policy under the Federal securities laws.
James G. Potter, Jr., General Counsel of Provident Mutual and the Legal Officer
of PLACA, has provided advice on certain matters relating to the laws of
Delaware regarding the Policies and our issuance of the Policies.
LEGAL PROCEEDINGS
Provident Mutual 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, Provident Mutual and PLACA
believe that, as of the date of this prospectus, there are no pending or
threatened lawsuits that will have a materially adverse impact on them or the
Separate Account.
EXPERTS
The Financial Statements 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 Provident Mutual, as stated in
his opinion filed as an exhibit to the Registration Statement.
FINANCIAL STATEMENTS
Our financial statements and the financial statements of the Separate Account
appear at the end of this prospectus. Our financial statements should be
distinguished from the Separate Account's financial statements and you should
consider our financial statements only as bearing upon our ability to meet our
obligations under the Policies.
ADDITIONAL INFORMATION ABOUT THE COMPANY
We are a stock life insurance company and a wholly owned subsidiary of Provident
Mutual, which was chartered by the Commonwealth of Pennsylvania in 1865. We are
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 we do business. We are engaged in the business of issuing life insurance
policies and annuity contracts, and we are currently licensed to do business in
49 states and the District of Columbia. Our Service Center is located at 300
Continental Drive, Newark, Delaware 19713.
We submit annual statements on our operations and finances to insurance
officials in all states and jurisdictions in which we do business. We have filed
the Policy described in this prospectus with insurance officials in those
jurisdictions in which the Policy is sold.
We intend to reinsure a portion of the risks assumed under the Policies.
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<PAGE> 59
PLACA'S EXECUTIVE OFFICERS AND DIRECTORS
We are governed by a board of directors. The following tables set forth the
name, address, and principal occupation during the past 5 years of each of our
executive officers and directors. Each person is located at 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; 1994 to
1996 -- President and Chief Operating Officer of
Provident Mutual; 1986 to 1994 -- Chief
Executive Officer of Covenant 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 -- Vice President of Provident
Mutual Life Insurance Company
Alan F. Hinkle Director 1996 to present -- Executive Vice President and
Chief Actuary of Provident Mutual; 1974 to
1996 -- Vice President and Individual Actuary of
Provident Mutual
Joan C. Tucker Director 1996 to present -- Executive Vice President,
Insurance Operations at Provident Mutual;
1996 -- Senior Vice President, Insurance
Operations of Provident Mutual; 1993 to
1996 -- Vice President Individual Insurance
Operations at Provident Mutual
Mary Lynn Finelli Director 1996 to present -- Executive Vice President and
Chief Financial Officer of Provident Mutual;
1986 to 1996 -- Vice President and Controller of
Provident Mutual
Mehran Assadi Director 1998 to present -- Executive Vice President of
Provident Mutual; 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; 1995 to 1996 -- Assistant
Vice President and Actuary of Provident Mutual
Rosanne Gatta Treasurer 1994 to present -- Vice President and Treasurer
of Provident Mutual
</TABLE>
We hold the Separate Account's assets physically segregated and apart from the
general account. We maintain records of all purchases and sale of portfolio
shares by each of the Subaccounts. A fidelity bond in the amount of $10 million
per occurrence and $20 million in the aggregate covering our officers and
employees has been issued by Reliance Insurance Company.
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<PAGE> 60
FINANCIAL STATEMENTS
<TABLE>
<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-17
Statements of Changes in Net Assets for the Year Ended
December 31, 1999...................................... F-21
Statements of Changes in Net Assets for the Year Ended
December 31, 1998...................................... F-26
Statements of Changes in Net Assets for the Year Ended
December 31, 1997...................................... F-30
Notes to Financial Statements............................. F-34
Providentmutual Life and Annuity Company of America
Report of Independent Accountants......................... F-54
Statements of Financial Condition as of December 31, 1999
and 1998............................................... F-55
Statements of Operations for the Years Ended December 31,
1999, 1998, and 1997................................... F-56
Statements of Equity for the Years Ended December 31,
1999, 1998, and 1997................................... F-57
Statements of Cash Flows for the Years Ended December 31,
1999, 1998, and 1997................................... F-58
Notes to Financial Statements............................. F-59
</TABLE>
F-1
<PAGE> 61
APPENDIX A -- ILLUSTRATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following illustrations have been prepared to help show how certain values
under the Policy change with different rates of investment performance over an
extended period of time. THE HYPOTHETICAL INVESTMENT RETURNS ARE PROVIDED ONLY
TO ILLUSTRATE THE MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST
OR FUTURE PERFORMANCE. Actual rates of return for a particular Policy may be
more or less than the hypothetical investment rates of return. The actual return
on your policy account value will depend on factors such as the amounts you
allocate to particular portfolios, the amounts deducted for the Policy's monthly
charges, the portfolios' expense ratios, and your policy loan and partial
withdrawal history.
The following illustrations show how certain values under a sample Policy would
change with different rates of fictional investment performance over an extended
period of time. In particular, the illustrations show how the death benefit,
policy account value, and net cash surrender value under a Policy covering a
male insured of Age 40 on the policy date in the preferred premium class with a
face amount of $100,000, would change over time if the planned premiums were
paid and the return on the assets in the Subaccounts were a uniform gross annual
rate (before any expenses) of 0%, 6% or 12%. The tables also show how the Policy
would operate if premiums accumulated at 5% interest. The tables illustrate
policy account values that would result based on assumptions that you pay the
premiums indicated, you do not increase your face amount, and you do not make
any partial withdrawals or take any policy loans. The death benefits, policy
account values, and net cash surrender values would be lower if the insured was
in a nonsmoker or smoker class or a class with extra ratings since the cost of
insurance charges would increase. The values under the Policy will be different
from those shown even if the returns averaged 0%, 6% or 12%, but fluctuated over
and under those averages throughout the years shown.
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, a premium expense charge of 5%, maximum
monthly administrative fee of $12, an initial administrative charge of $5, and a
daily charge for mortality and expense risks equivalent to an annual rate of
0.90%, with the additional Subaccount credit of 0.03% per month after the Policy
is in force for 15 years or the sum of the values in the Subaccount and
Guaranteed Account equal or exceed $100,000. The columns under the heading
"Current" assume that throughout the life of the policy, the monthly charge for
cost of insurance is based on the current cost of insurance rate, a premium
expense charge of 3.5%, current monthly administrative fee of $7.50, and a daily
charge for mortality and expense risks equivalent to an annual rate of 0.75%,
with the additional Subaccount credit of 0.03% per month after the Policy is in
force for 15 years or the sum of the values in the Subaccount and Guaranteed
Account equal or exceed $100,000. The illustrations assume no charges for
Federal or state taxes or charges for supplemental benefits.
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 % and %, respectively. This total charge is
based on an assumption that an owner allocates the Policy values equally among
each Subaccount of the Separate Account.
The illustrations assume that the assets in the portfolios are subject to an
annual expense ratio of % of the average daily net assets. This annual
expense ratio is based on the average of the expense ratios of each of the
portfolios for the last fiscal year and takes into account current expense
reimbursement arrangements. For information on portfolio expenses, consult the
Annual Portfolio Operating Expenses table in the Summary of this prospectus, and
the respective expense and fee tables set forth in the portfolios' prospectuses.
After deducting portfolio expenses and mortality and expense risk charges, the
illustrated gross annual investment rates of return of 0%, 6%, and 12% would
correspond to approximate net annual rates of
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<PAGE> 62
%, %, and %, respectively, assuming guaranteed charges, and net annual
rates of %, %, and %, respectively, assuming current charges.
Upon request, we will provide illustrations of future benefits under the Policy
based upon the proposed insured's age and premium class, the death benefit
option, face amount, planned periodic premiums, and riders requested. We reserve
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> 63
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF %) CURRENT** (NET RATE OF %)
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 358 0 100,000 621 0 100,000
2 2,153 900 0 100,000 1,275 85 100,000
3 3,310 1,417 52 100,000 1,903 538 100,000
4 4,526 1,907 542 100,000 2,501 1,136 100,000
5 5,802 2,368 1,003 100,000 3,070 1,705 100,000
6 7,142 2,800 1,435 100,000 3,606 2,241 100,000
7 8,549 3,199 2,029 100,000 4,117 2,947 100,000
8 10,027 3,565 2,590 100,000 4,600 3,625 100,000
9 11,578 3,897 3,117 100,000 5,056 4,276 100,000
10 13,207 4,191 3,606 100,000 5,481 4,896 100,000
11 14,917 4,446 4,056 100,000 5,878 5,488 100,000
12 16,713 4,657 4,462 100,000 6,239 6,044 100,000
13 18,599 4,817 4,817 100,000 6,564 6,564 100,000
14 20,579 4,922 4,922 100,000 6,848 6,848 100,000
15 22,657 4,964 4,964 100,000 7,086 7,086 100,000
16 24,840 4,956 4,956 100,000 7,419 7,419 100,000
17 27,132 4,871 4,871 100,000 7,718 7,718 100,000
18 29,539 4,706 4,706 100,000 7,984 7,984 100,000
19 32,066 4,454 4,454 100,000 8,217 8,217 100,000
20 34,719 4,103 4,103 100,000 8,414 8,414 100,000
25 50,113 344 344 100,000 8,787 8,787 100,000
30 69,761 0 0 0 7,568 7,568 100,000
</TABLE>
- ------------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will, differ if premiums are paid in different amounts or frequencies.
A-3
<PAGE> 64
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> 65
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF %) CURRENT** (NET RATE OF %)
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 356 0 100,356 620 0 100,620
2 2,153 896 0 100,896 1,271 81 101,271
3 3,310 1,409 44 101,409 1,894 529 101,894
4 4,256 1,892 527 101,892 2,486 1,121 102,486
5 5,802 2,346 981 102,346 3,047 1,682 103,047
6 7,142 2,768 1,403 102,768 3,572 2,207 103,572
7 8,549 3,155 1,985 103,155 4,070 2,900 104,070
8 10,027 3,507 2,532 103,507 4,538 3,563 104,538
9 11,578 3,822 3,042 103,822 4,976 4,196 104,976
10 13,207 4,097 3,512 104,097 5,381 4,796 105,381
11 14,917 4,331 3,941 104,331 5,754 5,364 105,754
12 16,713 4,517 4,322 104,517 6,090 5,895 106,090
13 18,599 4,649 4,649 104,649 6,384 6,384 106,384
14 20,579 4,723 4,723 104,723 6,634 6,634 106,634
15 22,657 4,730 4,730 104,730 6,835 6,835 106,835
16 24,840 4,683 4,683 104,683 7,133 7,133 107,133
17 27,132 4,556 4,556 104,556 7,394 7,394 107,394
18 29,539 4,345 4,345 104,345 7,618 7,618 107,618
19 32,066 4,045 4,045 104,045 7,805 7,805 107,805
20 34,719 3,645 3,645 103,645 7,953 7,953 107,953
25 50,113 0 0 0 8,015 8,015 108,015
30 69,761 0 0 0 6,366 6,366 106,366
</TABLE>
- ------------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will, differ if premiums are paid in different amounts or frequencies.
A-5
<PAGE> 66
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> 67
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF %) CURRENT** (NET RATE OF %)
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 395 0 100,000 668 0 100,000
2 2,153 1,004 0 100,000 1,408 218 100,000
3 3,310 1,622 257 100,000 2,165 800 100,000
4 4,526 2,247 882 100,000 2,934 1,569 100,000
5 5,802 2,879 1,514 100,000 3,717 2,352 100,000
6 7,142 3,514 2,149 100,000 4,510 3,145 100,000
7 8,549 4,151 2,981 100,000 5,321 4,151 100,000
8 10,027 4,790 3,815 100,000 6,148 5,173 100,000
9 11,578 5,427 4,647 100,000 6,992 6,212 100,000
10 13,207 6,060 5,475 100,000 7,851 7,266 100,000
11 14,917 6,688 6,298 100,000 8,726 8,336 100,000
12 16,713 7,302 7,107 100,000 9,613 9,418 100,000
13 18,599 7,898 7,898 100,000 10,509 10,509 100,000
14 20,579 8,469 8,469 100,000 11,413 11,413 100,000
15 22,657 9,006 9,006 100,000 12,319 12,319 100,000
16 24,840 9,538 9,538 100,000 13,385 13,385 100,000
17 27,132 10,023 10,023 100,000 14,476 14,476 100,000
18 29,539 10,456 10,456 100,000 15,596 15,596 100,000
19 32,066 10,828 10,828 100,000 16,745 16,745 100,000
20 34,719 11,125 11,125 100,000 17,924 17,924 100,000
25 50,113 10,859 10,859 100,000 24,267 24,267 100,000
30 69,761 5,008 5,008 100,000 31,133 31,133 100,000
</TABLE>
- ------------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will, differ if premiums are paid in different amounts or frequencies.
A-7
<PAGE> 68
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> 69
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF %) CURRENT** (NET RATE OF %)
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 394 0 100,394 666 0 100,666
2 2,153 1,000 0 101,000 1,404 214 101,404
3 3,310 1,613 248 101,613 2,155 790 102,155
4 4,526 2,230 865 102,230 2,916 1,551 102,916
5 5,802 2,851 1,486 102,851 3,688 2,323 103,688
6 7,142 3,473 2,108 103,473 4,466 3,101 104,466
7 8,549 4,093 2,923 104,093 5,258 4,088 105,258
8 10,027 4,709 3,734 104,709 6,061 5,086 106,061
9 11,578 5,319 4,539 105,319 6,876 6,096 106,876
10 13,207 5,919 5,334 105,919 7,699 7,114 107,699
11 14,917 6,506 6,116 106,506 8,531 8,141 108,531
12 16,713 7,072 6,877 107,072 9,367 9,172 109,367
13 18,599 7,610 7,610 107,610 10,201 10,201 110,201
14 20,579 8,112 8,112 108,112 11,031 11,031 111,031
15 22,657 8,568 8,568 108,568 11,850 11,850 111,850
16 24,840 9,001 9,001 109,001 12,828 12,828 112,828
17 27,132 9,371 9,371 109,371 13,817 13,817 113,817
18 29,539 9,670 9,670 109,670 14,817 14,817 114,817
19 32,066 9,888 9,888 109,888 15,830 15,830 115,830
20 34,719 10,007 10,007 110,007 16,852 16,852 116,852
25 50,113 8,440 8,440 108,440 22,004 22,004 122,004
30 69,761 681 681 100,681 26,536 26,536 126,536
</TABLE>
- ------------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will, differ if premiums are paid in different amounts or frequencies.
A-9
<PAGE> 70
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-10
<PAGE> 71
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF %) CURRENT** (NET RATE OF %)
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 433 0 100,000 714 0 100,000
2 2,153 1,113 0 100,000 1,547 357 100,000
3 3,310 1,845 481 100,000 2,449 1,084 100,000
4 4,526 2,632 1,267 100,000 3,423 2,058 100,000
5 5,802 3,478 2,113 100,000 4,477 3,112 100,000
6 7,142 4,388 3,023 100,000 5,616 4,251 100,000
7 8,549 5,365 4,195 100,000 6,855 5,685 100,000
8 10,027 6,416 5,441 100,000 8,204 7,229 100,000
9 11,578 7,547 6,767 100,000 9,674 8,894 100,000
10 13,207 8,763 8,178 100,000 11,276 10,691 100,000
11 14,917 10,072 9,682 100,000 13,024 12,634 100,000
12 16,713 11,479 11,284 100,000 14,930 14,735 100,000
13 18,599 12,989 12,989 100,000 17,008 17,008 100,000
14 20,579 14,608 14,608 100,000 19,275 19,275 100,000
15 22,657 16,344 16,344 100,000 21,748 21,748 100,000
16 24,840 18,271 18,271 100,000 24,640 24,640 100,000
17 27,132 20,347 20,347 100,000 27,827 27,827 100,000
18 29,539 22,588 22,588 100,000 31,347 31,347 100,000
19 32,066 25,013 25,013 100,000 35,238 35,238 100,000
20 34,719 27,638 27,638 100,000 39,543 39,543 100,000
25 50,113 44,584 44,584 100,000 69,224 69,224 100,000
30 69,761 71,720 71,720 100,000 119,317 119,317 138,408
</TABLE>
- ------------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will, differ if premiums are paid in different amounts or frequencies.
A-11
<PAGE> 72
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-12
<PAGE> 73
PROVIDENTMUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF %) CURRENT** (NET RATE OF %)
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 431 0 100,431 713 0 100,713
2 2,153 1,108 0 101,108 1,542 352 101,542
3 3,310 1,834 469 101,834 2,438 1,073 102,438
4 4,526 2,612 1,247 102,612 3,402 2,037 103,402
5 5,802 3,445 2,080 103,445 4,441 3,076 104,441
6 7,412 4,335 2,970 104,335 5,560 4,195 105,560
7 8,549 5,287 4,117 105,287 6,772 5,602 106,772
8 10,027 6,304 5,329 106,304 8,084 7,109 108,084
9 11,578 7,391 6,611 107,391 9,507 8,727 109,507
10 13,207 8,550 7,965 108,550 11,047 10,462 111,047
11 14,917 9,787 9,397 109,787 12,718 12,328 112,718
12 16,713 11,102 10,907 111,102 14,526 14,331 114,526
13 18,599 12,495 12,495 112,495 16,481 16,481 116,481
14 20,579 13,969 13,969 113,969 18,594 18,594 118,594
15 22,657 15,521 15,521 115,521 20,874 20,874 120,874
16 24,840 17,216 17,216 117,216 23,552 23,552 123,552
17 27,132 19,002 19,002 119,002 26,478 26,478 126,478
18 29,539 20,885 20,885 120,885 29,680 29,680 129,680
19 32,066 22,865 22,865 122,865 33,185 33,185 133,185
20 34,719 24,943 24,943 124,943 37,024 37,024 137,024
25 50,113 36,579 36,579 136,579 62,466 62,466 162,466
30 69,761 49,052 49,052 149,052 102,393 102,393 202,393
</TABLE>
- ------------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will, differ if premiums are paid in different amounts or frequencies.
A-13
<PAGE> 74
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-14
<PAGE> 75
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
RULE 484 UNDERTAKING
Article VIII of PLACA's By-Laws provides, in part:
To the fullest extent permitted by law, the Company shall indemnify
any present, former or future Director, officer, or employee of the Company
or any person who may serve or has served at its request as officer or
Director of another corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including attorney's fees,
necessarily incurred in connection with the defense of any action, suit or
other proceeding to which any of them is made a party because of service as
Director, officer or employee of the Company or such other corporation, or
in connection with any appeal therein, and against any amounts paid by such
Director, officer or employee in settlement of, or in satisfaction of a
judgement or fine in, any such action or proceeding, except expenses
incurred in defense of or amounts paid in connection with any action, suit
or other proceeding in which such Director, officer or employee shall be
adjudged to be liable for negligence or misconduct in the performance of
his duty.
Insofar as indemnification or liability arising under the Securities Act of 1933
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REASONABLENESS REPRESENTATION
Providentmutual Life and Annuity Company of America of America hereby represents
that the fees and charges deducted under the Policy, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by Providentmutual Life and Annuity Company of
America.
II-1
<PAGE> 76
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of pages.
The undertaking to file report.
Rule 484 undertaking.
Reasonableness Representation.
The following exhibits:
<TABLE>
<S> <C>
1.A.1.a. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing establishment of
the Providentmutual Variable Life Separate Account(4)
1.A.1.b. Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Life Separate
Account(4)
1.A.2. None
1.A.3.a.i. Form of Underwriting Agreement among Providentmutual Life
and Annuity Company of America, PML Securities, Inc. and
Providentmutual Variable Life Separate Account(4)
1.A.3.b.i. Personal Producing General Agent's Agreement and
Supplement(4)
1.A.3.b.ii. Personal Producing Agent's Agreement and Supplement(4)
1.A.3.b.iii. Producing General Agent's Agreement and Supplement(4)
1.A.3.c.iv. Form of Selling Agreement between PML Securities, Inc. and
Broker/Dealers(4)
1.A.4. Inapplicable
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy (Form VL201)(5)
1.A.5.a. Convertible Term Life Rider (PLC308)(4)
1.A.5.b. Additional Insurance Benefit Rider (R2308)(5)
1.A.5.c. Guaranteed Minimum Death Benefit Ride (PLC320)(4)
1.A.5.d. Children's Term Rider (PLC306)(5)
1.A.5.e. Extension of Final Policy Date Rider (PLC822)(4)
1.A.5.f. Change of Insured Rider (PLC905)(4)
1.A.5.g. Disability Waiver Benefit Rider (R2901)(5)
1.A.5.h. Disability Waiver of Premium Benefit Rider (PLC903)(5)
1.A.5.i. Qualify as Section 403(b) Rider (PLC827)(2)
1.A.5.j. Accelerated Death Benefit Rider (PLC/0904)(1)
1.A.6.a. Charter of Providentmutual Life and Annuity Company of
America(1)
1.A.6.b. By-Laws of Providentmutual Life and Annuity Company of
America(1)
1.A.7. Inapplicable
</TABLE>
II-2
<PAGE> 77
<TABLE>
<S> <C>
1.A.8. Inapplicable
1.A.9. Inapplicable
1.A.10. Form of Application(2)
1.A.10.a. Supplemental Application for Flexible Premium(3)
1.A.10.b. Initial Allocation Selection(3)
2. See Exhibits 1.A
3. Opinion and consent of James G. Potter, Jr., Esquire(6)
4. Inapplicable
5. Inapplicable
6. Opinion and consent of Scott V. Carney, FSA, MAAA(6)
7.A. Consent of Sutherland Asbill & Brennan LLP(6)
7.B. Consent of PricewaterhouseCoopers LLP(6)
8. Description of Providentmutual Life and Annuity Company of
America's Issuance, Transfer and Redemption Procedures for
Policies(4)
9. Inapplicable
10.A. Participation Agreement among Market, Street Fund, Inc.,
Providentmutual Company of America and PML Securities,
Inc.(1)
10.B. Participation Agreement among Variable Insurance Products
Fund, Fidelity Corporation and Providentmutual Life and
Annuity Company of America(2)
10.C. Participation Agreement among Variable Insurance Products
Fund II, Fidelity Corporation and Providentmutual Life and
Annuity Company of America(2)
10.D. Form of Fund Participation Agreement among Neuberger &
Berman Advisers Managers Trust and Providentmutual Life and
Annuity Company of America(1)
10.E. Participation Agreement between Van Eck Invest ment Trust
and Providentmutual Life and Annuity Company of America(1)
10.F. Participation Agreement among The Alger American Fund,
Providentmutual Life and Annuity Company of America and Fred
Alger and Company Incorporated(2)
10.G. Support Agreement between Provident Mutual Life Insurance
and Providentmutual Life and Annuity Company of America.(1)
27. Inapplicable
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form S-6 Registration Statement for Provident Mutual Life Insurance Company
filed on May 1, 1998, File No. 33-65512.
(2) Incorporated herein by reference to Post-Effective Amendment No. 18 to the
Form S-6 Registration Statement for Provident Mutual Life Insurance Company
filed on May 1, 1998, File No. 33-2625.
(3) Incorporated herein by reference to Post-Effective Amendment No. 11 to the
Form S-6 Registration Statement for Provident Mutual Life Insurance Company
filed on May 1, 1998, File No. 33-42133.
(4) Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Form S-6 Registration Statement for Providentmutual Life and Annuity Company
of America filed on May 1, 1998, file No. 33-83138.
(5) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement for Provident Mutual Life Insurance Company
filed on March 4, 1999, File No. 333-67775.
(6) To be filed by amendment.
II-3
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Providentmutual Variable Life Separate Account, has duly caused this
Post-Effective Amendment No. 1 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 and State of Delaware, on
the 11th day of February, 2000.
PROVIDENTMUTUAL VARIABLE LIFE SEPARATE
ACCOUNT (Registrant)
By: PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA (Depositor)
By: /s/ ROBERT W. KLOSS
------------------------------------
Robert W. Kloss
President
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
(Depositor)
Attest: /s/ JAMES G. POTTER, JR.
---------------------------
By: /s/ ROBERT W. KLOSS
------------------------------------
Robert W. Kloss
President
Attest: /s/ JAMES G. POTTER, JR.
----------------------------------------------------
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on February 11, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ ROBERT W. KLOSS Director and President (Principal Executive
- --------------------------------------------------- Officer)
Robert W. Kloss
/s/ STEPHEN L. WHITE Actuarial Officer (Principal Financial Officer)
- ---------------------------------------------------
Stephen L. White
/s/ TODD R. MILLER Financial Reporting Officer (Principal Accounting
- --------------------------------------------------- Officer)
Todd R. Miller
/s/ MARY LYNN FINELLI Director
- ---------------------------------------------------
Mary Lynn Finelli
/s/ JAMES G. POTTER, JR. Director, Secretary and Legal Officer
- ---------------------------------------------------
James G. Potter, Jr.
/s/ JAMES D. KESTNER Director
- ---------------------------------------------------
James D. Kestner
/s/ SARAH C. LANGE Director
- ---------------------------------------------------
Sarah C. Lange
</TABLE>
II-4
<PAGE> 79
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ ALAN F. HINKLE Director
- ---------------------------------------------------
Alan F. Hinkle
/s/ JOAN C. TUCKER Director
- ---------------------------------------------------
Joan C. Tucker
/s/ MEHRAN ASSADI Director
- ---------------------------------------------------
Mehran Assadi
/s/ LINDA M. SPRINGER Director
- ---------------------------------------------------
Linda M. Springer
/s/ ROSEANNE GATTA Treasurer
- ---------------------------------------------------
Roseanne Gatta
</TABLE>
II-5
