<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1999
Registration No. 33-83120
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM N-4
REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. 5 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT /X/
COMPANY ACT OF 1940
Amendment No. 5 /X/
PIA VARIABLE ANNUITY ACCOUNT I
(Exact Name of Registrant)
-------------
THE PENN INSURANCE AND ANNUITY COMPANY
(Name of Depositor)
-------------
600 Dresher Road
Horsham, Pennsylvania 19044
(Address of Principal Executive Offices of Depositor)
Depositor's Telephone Number: (215) 956-9177
-------------
Richard F. Plush
Vice President, Products and Programs
The Penn Insurance and Annuity Company
600 Dresher Road
Horsham, Pennsylvania 19044
(Name and Address of Agent for Service)
Copy to:
Angela C. Goelzer C. Ronald Rubley
Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP
1800 M Street, N.W. 1701 Market Street
Washington, D.C. 20036 Philadelphia, PA 19103
-------------
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b) of Rule 485
-----
X on May 1, 1999 pursuant to paragraph (b) of Rule 485
-----
60 days after filing pursuant to paragraph (a) of Rule 485
-----
on (date) pursuant to paragraph (a) of Rule 485
-----
<PAGE>
CROSS REFERENCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Location in Statement
Form N-4 Item Number Location in Prospectus of Additional Information
<S> <C> <C> <C>
Item 1. Cover Page Cover Page N/A
Item 2. Definitions Glossary N/A
Item 3. Synopsis or Highlights Cover Page; Expenses N/A
Item 4. Condensed Financial Information Performance Information N/A
Item 5. General Description of Registrant, The Penn Insurance and Annuity N/A
Depositor and Portfolio Companies Company; The Separate Account
Item 6. Deductions and Expenses The Contract - What Charges Do I Pay? N/A
Item 7. General Description of Variable The Contract N/A
Annuity Contracts
Item 8. Annuity Period The Contract - What Types of Annuity N/A
Payments May I Choose?
Item 9. Death Benefit The Contract - What are the Death N/A
Benefits Under My Contract?
Item 10. Purchases and Contract Value The Contract - How Do I Purchase a N/A
Contract?
The Separate Account - Accumulations
Units
Item 11. Redemptions The Contract - May I Withdraw Any of N/A
My Money?
Item 12. Taxes Federal Income Tax Considerations N/A
Item 13. Legal Proceedings N/A N/A
Item 14. Table of Contents of Statement of Statement of Additional Information N/A
Additional Information Contents
Item 15. Cover Page N/A Cover Page
Item 16. Table of Contents N/A Cover Page
Item 17. General Information and History N/A N/A
Item 18. Services N/A Administrative and
Recordkeeping Services;
Custodian; Auditors
Item 19. Purchase of Securities Being The Contract - How Do I Purchase a Distribution of Contracts
Offered Contract?
The Contract - May I Transfer Money
Among Subaccounts and the Fixed
Interest Accounts?
The Contract - What Charges Do I Pay?
Item 20. Underwriters N/A Distribution of Contracts
Item 21. Calculation of Performance Data N/A Performance Data
Item 22. Annuity Payments N/A Variable Annuity Payments
Item 23. Financial Statements N/A Financial Statements
</TABLE>
<PAGE>
PART A
Information Required in a Prospectus
<PAGE>
PROSPECTUS
PIA Variable Annuity Account I
May 1, 1999
Pennant
- -------------------------------
A Flexible Premium Variable and
Fixed Annuity
Penn Series Funds, Inc.
May 1, 1999
Investment Advisers:
T. Rowe Price Associates, Inc.
OpCap Advisors
Independence Capital Management, Inc.
Vontobel USA, Inc.
RS Investment Management, Inc.
American Century Variable Portfolios, Inc.
May 1, 1999
Investment Adviser:
American Century Investment Management, Inc.
Neuberger Berman
Advisers Management Trust
May 1, 1999
Investment Adviser:
Neuberger Berman Management Incorporated
Fidelity Investments'
Variable Insurance Products Fund
Variable Insurance Products Fund II
April 30, 1999
Investment Adviser:
Fidelity Management & Research Company
Morgan Stanley Dean Witter Universal Funds
May 1, 1999
Investment Adviser:
Morgan Stanley Dean Witter Investment Management
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 1999
INDIVIDUAL VARIABLE AND FIXED ANNUITY CONTRACT -- FLEXIBLE PURCHASE PAYMENTS
- --------------------------------------------------------------------------------
PENNANT
PIA VARIABLE ANNUITY ACCOUNT I
THE PENN INSURANCE AND ANNUITY COMPANY
Philadelphia, Pennsylvania 19172 o Telephone (800) 523-0650
- --------------------------------------------------------------------------------
This prospectus describes an individual variable and fixed annuity contract
offered by The Penn Insurance and Annuity Company ("PIA"). Please read it
carefully and save it for future reference.
The Contract is an agreement between you and PIA. You agree to make one or more
payments to us and we agree to make annuity and other payments to you at a
future date. The Contract
o has a variable component, which means that your Variable Account Value and
any variable payout will be based upon investment experience.
o has a fixed component, which means that your Fixed Account Value and any
fixed payout will be based on purchase payments accumulated with interest
at a rate of not less than 3%.
o is tax-deferred, which means that you will not pay taxes until we begin to
make annuity payments to you or you take money out.
o allows you to choose to receive your annuity payments over different
periods of time.
Under the variable component of the Contract, you may direct us to invest your
payments in one or more of the following Funds through PIA Variable Annuity
Account I (the "Separate Account").
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
PENN SERIES FUNDS, INC. MANAGER
Growth Equity Fund Independence Capital Management, Inc. (a wholly owned
subsidiary of The Penn Mutual Life Insurance Company)
Value Equity Fund OpCap Advisors
Small Capitalization Fund OpCap Advisors
Emerging Growth Fund RS Investment Management, Inc.
Flexibly Managed Fund T. Rowe Price Associates, Inc.
International Equity Fund Vontobel USA, Inc.
Quality Bond Fund Independence Capital Management, Inc.
High Yield Bond Fund T. Rowe Price Associates, Inc.
Money Market Fund Independence Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. MANAGER
Capital Appreciation Portfolio American Century Investment Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST MANAGER
Balanced Portfolio Neuberger Berman Management Incorporated
Limited Maturity Bond Portfolio Neuberger Berman Management Incorporated
Partners Fund Portfolio Neuberger Berman Management Incorporated
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCT FUND MANAGER
Equity-Income Portfolio Fidelity Management and Research Company
Growth Portfolio Fidelity Management and Research Company
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II MANAGER
Asset Manager Portfolio Fidelity Management and Research Company
Index 500 Portfolio Fidelity Management and Research Company
- ------------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. MANAGER
Emerging Markets Equity (International) Portfolio Morgan Stanley Dean Witter Asset Management Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A PROSPECTUS FOR EACH OF THESE FUNDS ACCOMPANIES THIS PROSPECTUS.
Under the fixed component of the Contract, you may direct us to invest in one or
more options in our Fixed Interest Account.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IT IS
A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
<PAGE>
THE CONTRACT IS NOT SUITABLE FOR SHORT-TERM INVESTMENT. YOU MAY PAY A DEFERRED
SALES CHARGE ON EARLY WITHDRAWALS OF UP TO 6%. IF YOU WITHDRAW MONEY BEFORE AGE
59 1/2, YOU MAY PAY A 10% ADDITIONAL INCOME TAX. THE CONTRACT IS NOT A BANK
DEPOSIT AND IS NOT FEDERALLY INSURED.
You may return your Contract within ten days of receipt for a full refund of the
Contract Value (or purchase payments, if required by law). Longer free look
periods apply in some states.
FOR CONTRACTS SOLD IN SOME STATES, NOT ALL FUNDS OR FIXED INTEREST OPTIONS ARE
AVAILABLE. ALSO, IN SOME STATES THE NUMBER OF YEARS DURING WHICH PURCHASE
PAYMENTS MAY BE MADE TO THE COMPANY IS LIMITED.
You may obtain a Statement of Additional Information from us free of charge by
writing The Penn Insurance and Annuity Company, Customer Service Group,
Philadelphia, PA 19172. Or, you can call us at (800) 523-0650. The Statement of
Additional Information contains more information about the Contract. It is filed
with the Securities and Exchange Commission and we incorporate it by reference
into this Prospectus. The table of contents of the Statement of Additional
Information is at the end of this Prospectus.
The Securities and Exchange Commission maintains a Web site (http://www.sec.gov)
that contains this Prospectus, the Statement of Additional Information,
material incorporated by reference, and other information regarding registrants
that file electronically with the Commission.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS CONTENTS
GLOSSARY ..................................................................... 3
- --------------------------------------------------------------------------------
EXPENSES ..................................................................... 4
- --------------------------------------------------------------------------------
EXAMPLES OF FEES AND EXPENSES ................................................ 6
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION .............................................. 7
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY .......................................12
- --------------------------------------------------------------------------------
YEAR 2000 ....................................................................12
- --------------------------------------------------------------------------------
THE SEPARATE ACCOUNT .........................................................13
Accumulation Units.......................................................13
Voting Instructions......................................................13
Investment Options in the Separate Account...............................13
Penn Series Funds, Inc. .............................................13
American Century Variable Portfolios, Inc. ..........................14
Neuberger Berman Advisers Management Trust...........................14
Fidelity Investments' Variable Insurance Products Fund...............15
Fidelity Investments' Variable Insurance Products Fund II............15
Morgan Stanley Dean Witter Universal Funds, Inc. ....................15
- --------------------------------------------------------------------------------
THE FIXED INTEREST ACCOUNT ...................................................15
- --------------------------------------------------------------------------------
THE CONTRACT .................................................................16
How Do I Purchase a Contract?............................................16
What Types of Annuity Payments May I Choose?.............................17
Variable Annuity Payments............................................17
Fixed Annuity Payments...............................................17
Other Information....................................................17
What Are the Death Benefits Under My Contract?...........................17
Enhanced Death Benefit...............................................18
Choosing a Lump Sum or Annuity.......................................18
May I Transfer Money Among Subaccounts and the Fixed Interest Accounts?..18
Before the Annuity Date..............................................18
After the Annuity Date...............................................18
Dollar Cost Averaging................................................19
Automatic Rebalancing................................................19
May I Withdraw Any of My Money?..........................................19
Systematic Withdrawals...............................................19
403(b) Withdrawals...................................................19
Deferment of Payments and Transfers......................................20
2
<PAGE>
What Charges Do I Pay?...................................................20
Administration Charges...............................................20
Mortality and Expense Risk Charge....................................20
Contingent Deferred Sales Charge.....................................20
Free Withdrawals.....................................................21
Premium Taxes........................................................21
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION.......................................................22
- --------------------------------------------------------------------------------
MORE INFORMATION ABOUT THE FIXED INTEREST OPTIONS ............................22
General Information......................................................22
Loans Under Section 403(b) Contracts.....................................23
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX CONSIDERATIONS ............................................23
Withdrawals and Death Benefits...........................................23
Annuity Payments.........................................................23
Early Withdrawals........................................................24
Transfers................................................................24
Separate Account Diversification.........................................24
Qualified Plans..........................................................24
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS .........................................................25
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION CONTENTS .................................25
- --------------------------------------------------------------------------------
<PAGE>
GLOSSARY
As used in this prospectus, the following terms have the indicated
meanings:
ACCUMULATION PERIOD: A period that begins with your first purchase payment
and ends on the Annuity Date.
ACCUMULATION UNIT: A unit of measure used to compute the Variable Account
Value under the Contract prior to the Annuity Date.
ADMINISTRATIVE OFFICE: A reference to our administrative office means The
Penn Insurance and Annuity Company, Administrative Office, 600 Dresher
Road, Horsham, Pennsylvania 19044.
ANNUITANT: The person during whose life annuity payments are made.
ANNUITY DATE: The date on which annuity payments start.
ANNUITY PAYOUT PERIOD: The period of time, starting on the Annuity Date,
during which we make annuity payments.
ANNUITY UNIT: A unit of measure used to calculate the amount of each
variable annuity payment.
BENEFICIARY: The person(s) named by the Contract Owner to receive the death
benefit payable upon the death of the Contract Owner or Annuitant.
CONTRACT: The combination variable and fixed annuity contract described in
this Prospectus.
CONTRACT OWNER: The person named in the Contract as the Contract Owner.
CONTRACT VALUE: The sum of the Variable Account Value and the Fixed
Interest Account Value.
FIXED INTEREST ACCOUNT VALUE: The value of amounts held under the Contract
in all options in the Fixed Interest Account.
SEPARATE ACCOUNT: PIA Variable Annuity Account I, a separate account of The
Penn Insurance and Annuity Company, that is registered as a unit investment
trust under the Investment Company Act of 1940.
VARIABLE ACCOUNT VALUE: The value of amounts held under the Contract in all
subaccounts of the Separate Account.
VALUATION PERIOD: The period from one valuation of Separate Account assets
to the next. Valuation is performed on each day the New York Stock Exchange
is open for trading.
WE OR US: "we" or "us" means The Penn Insurance and Annuity Company, also
referred to in this Prospectus as PIA or the Company.
YOU: "you" means the Contract Owner or prospective Contract Owner.
3
<PAGE>
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchase Payments ................. None
Maximum Contingent Deferred Sales Charge ................ 6% of purchase
payments withdrawn*
Exchange Fee ............................................ None
MAXIMUM ANNUAL CONTRACT ADMINISTRATION CHARGE ........... $30**
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE
OF VARIABLE ACCOUNT VALUE)
Mortality and Expense Risk Charge ....................... 1.25%
Contract Administration Charge .......................... 0.15%
------
Total Separate Account Annual Expenses .................. 1.40%
- ----------
* See WHAT CHARGES DO I PAY? in this Prospectus for information on the
decline in the charge over time and free withdrawals
** You pay $30 or 2% of your Variable Account Value, whichever is less. You do
not pay this charge if your Contract Value is more than $50,000.
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC. (A)
UNDERLYING FUND ANNUAL EXPENSES (AS A % OF PORTFOLIO AVG. NET ASSETS)
<TABLE>
<CAPTION>
ADMINISTRATIVE
MANAGEMENT AND CORPORATE TOTAL
FEES SERVICES FEES ACCOUNTING OTHER FUND
(AFTER WAIVER) (AFTER WAIVER) FEES EXPENSES EXPENSES
-------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Growth Equity ............... 0.45% 0.15% 0.07% 0.09% 0.76%
Value Equity ................ 0.50% 0.15% 0.06% 0.05% 0.76%
Small Capitalization ........ 0.50% 0.15% 0.08% 0.09% 0.82%
Emerging Growth (b) ......... 0.80% 0.15% 0.10% 0.10% 1.15%
Flexibly Managed ............ 0.50% 0.15% 0.05% 0.06% 0.76%
International Equity ........ 0.75% 0.15% 0.08% 0.10% 1.08%
Quality Bond ................ 0.45% 0.15% 0.08% 0.09% 0.77%
High Yield Bond ............. 0.50% 0.15% 0.08% 0.09% 0.82%
Money Market ................ 0.40% 0.15% 0.08% 0.09% 0.72%
</TABLE>
- ----------
(a) These expenses are for the last fiscal year.
(b) The total expenses of the Emerging Growth Fund would have been 1.21%. if
the investment adviser and administrator of that Fund had not waived part
of their fees.
- --------------------------------------------------------------------------------
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
UNDERLYING FUND ANNUAL EXPENSES (AS A % OF PORTFOLIO AVG. NET ASSETS)
MANAGEMENT OTHER TOTAL FUND
FEES 12B-1 FEES EXPENSES EXPENSES
---------- ---------- -------- ----------
Capital Appreciation ..... 1.00% None None 1.00%
4
<PAGE>
- --------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST (A)
UNDERLYING FUND ANNUAL EXPENSES (AS A % OF PORTFOLIO AVG. NET ASSETS)
MANAGEMENT,
ADVISORY AND
ADMINISTRATION OTHER TOTAL FUND
FEES EXPENSES EXPENSES
-------------- -------- ----------
Limited Maturity Bond ......... 0.65% 0.11% 0.76%
Balanced ...................... 0.85% 0.18% 1.03%
Partners Fund ................. 0.80% 0.04% 0.84%
- ----------
(a) Neuberger Berman Advisers Management Trust (the "Trust") is divided into
portfolios ("Portfolios"). Each Portfolio invests in a corresponding series
("Series") of the Trust. This table shows the current expenses paid by each
Portfolio and the Portfolio's share of the current expenses of its Series.
See "Expenses" in the Trust's Prospectus.
- --------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND (A)
UNDERLYING FUND ANNUAL EXPENSES (AS A % OF PORTFOLIO AVG. NET ASSETS)
MANAGEMENT OTHER TOTAL FUND
FEE EXPENSES EXPENSES
---------- -------- ----------
Equity-Income ................ 0.50% 0.07% 0.57%
Growth ....................... 0.60% 0.06% 0.66%
- ----------
(a) These expenses are for the last fiscal year. Some of the brokerage
commissions paid by the fund reduced the expenses shown in this table.
Without this reduction, total expenses would have been 0.58% for the Equity
Income Portfolio and 0.68% for the Growth Portfolio.
- --------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II
UNDERLYING FUND ANNUAL EXPENSES (AS A % OF PORTFOLIO AVG. NET ASSETS)
MANAGEMENT OTHER TOTAL FUND
FEE EXPENSES EXPENSES
---------- -------- ----------
Asset Manager (a) ............ 0.55% 0.08% 0.63%
Index 500 (b) ................ 0.24% 0.04% 0.28%
- ----------
(a) THE EXPENSES PRESENTED ARE FOR THE LAST FISCAL YEAR. SOME OF THE BROKERAGE
COMMISSIONS PAID BY THE FUND REDUCED THE EXPENSES SHOWN IN THIS TABLE.
WITHOUT THIS REDUCTION, TOTAL EXPENSES WOULD HAVE BEEN 0.64% FOR THE ASSET
MANAGER PORTFOLIO.
(b) THESE EXPENSES ARE FOR THE LAST FISCAL YEAR. IF THE FUND'S INVESTMENT
ADVISER HAD NOT VOLUNTARILY WAIVED PART OF ITS FEE, TOTAL EXPENSES WOULD
HAVE BEEN 0.35% FOR THE INDEX 500 PORTFOLIO.
5
<PAGE>
- --------------------------------------------------------------------------------
MORGAN STANLEY UNIVERSAL FUNDS, INC.
UNDERLYING FUND ANNUAL EXPENSES (AS A % OF PORTFOLIO AVG. NET ASSETS)
MANAGEMENT OTHER TOTAL FUND
FEE EXPENSES EXPENSES
---------- -------- ----------
Emerging Markets Equity
(International) ............ 1.25% 0.50% 1.75%
Please review these tables carefully. They show the expenses that you pay
directly and indirectly when you purchase a Contract. Your expenses include
Contract expenses and the expenses of the Funds that you select. See the
prospectuses of Penn Series Funds, Inc., American Century Variable Portfolios,
Inc., Neuberger Berman Advisers Management Trust, Fidelity Investments' Variable
Insurance Products Fund, Fidelity Investments' Variable Insurance Products Fund
II and Morgan Stanley Dean Witter Universal Funds, Inc. for additional
information on Fund expenses.
You also may pay premium taxes. These tables and the examples that follow
do not show the effect of premium taxes. See WHAT CHARGES DO I PAY? in this
Prospectus.
- --------------------------------------------------------------------------------
EXAMPLES OF FEES AND EXPENSES
The following examples show the total expenses that you would pay on each
$1,000 invested.
You would pay the following expenses on each $1,000 invested (assuming a 5%
annual return) if you make a single purchase payment and surrender your Contract
after the number of years shown:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Penn Series Growth Equity Fund ................................................ $75 $104 $136 $254
Penn Series Value Equity Fund ................................................. $75 $104 $136 $254
Penn Series Small Capitalization Fund ......................................... $76 $106 $139 $260
Penn Series Emerging Growth Fund .............................................. $79 $116 $155 $293
Penn Series Flexibly Managed Fund ............................................. $75 $104 $136 $254
Penn Series International Equity Fund ......................................... $78 $114 $152 $286
Penn Series Quality Bond Fund ................................................. $75 $104 $136 $255
Penn Series High Yield Bond Fund .............................................. $76 $106 $139 $260
Penn Series Money Market Fund ................................................. $75 $103 $134 $250
American Century Capital Appreciation Portfolio ............................... $77 $111 $148 $278
Neuberger Berman Limited Maturity Bond Portfolio .............................. $75 $104 $136 $254
Neuberger Berman Balanced Portfolio ........................................... $78 $112 $149 $281
Neuberger Berman Partners Portfolio ........................................... $76 $106 $140 $262
Fidelity's Equity Income Portfolio ............................................ $73 $98 $126 $234
Fidelity's Growth Portfolio ................................................... $74 $101 $131 $243
Fidelity's Asset Manager Portfolio ............................................ $74 $100 $129 $240
Fidelity's Index 500 .......................................................... $70 $89 $111 $203
Morgan Stanley Emerging Markets Equity (International) Portfolio .............. $84 $133 $184 $350
</TABLE>
6
<PAGE>
You would pay the following expenses by the end of the year shown (assuming
a 5% annual return) if you make a single purchase payment and either you do not
surrender your Contract or you annuitize your Contract after the number of years
shown:*
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Penn Series Growth Equity Fund ................................................. $22 $69 $118 $254
Penn Series Value Equity Fund .................................................. $22 $69 $118 $254
Penn Series Small Capitalization Fund .......................................... $23 $71 $121 $260
Penn Series Emerging Growth Fund ............................................... $26 $81 $138 $293
Penn Series Flexibly Managed Fund .............................................. $22 $69 $118 $254
Penn Series International Equity Fund .......................................... $26 $79 $134 $286
Penn Series Quality Bond Fund .................................................. $22 $69 $119 $255
Penn Series High Yield Bond Fund ............................................... $23 $71 $121 $260
Penn Series Money Market Fund .................................................. $22 $68 $116 $250
American Century Capital Appreciation Portfolio ................................ $22 $69 $118 $254
Neuberger Berman Limited Maturity Bond Portfolio ............................... $25 $77 $132 $281
Neuberger Berman Balanced Portfolio ............................................ $21 $66 $113 $243
Neuberger Berman Partners Portfolio ............................................ $23 $71 $122 $262
Fidelity's Equity Income Portfolio ............................................. $20 $63 $108 $234
Fidelity's Growth Portfolio .................................................... $21 $65 $111 $240
Fidelity's Asset Manager Portfolio ............................................. $21 $65 $111 $240
Fidelity's Index 500 ........................................................... $17 $54 $93 $203
Morgan Stanley Emerging Markets Equity (International) Portfolio ............... $32 $98 $167 $350
- ----------
* You may not annuitize your Contract until after the second Contract anniversary.
The examples are based upon fund data for the fiscal year ended December 31, 1998.
THESE ARE ONLY EXAMPLES. YOUR EXPENSES MAY BE MORE OR LESS THAN WHAT IS SHOWN.
</TABLE>
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
The following tables show Accumulation Unit values and the number of
Accumulation Units outstanding for each of the subaccounts of the Separate
Account for the specified periods. The financial data included in the tables
should be read in conjunction with the financial statements and the related
notes included in the Statement of Additional Information.
- --------------------------------------------------------------------------------
PENN SERIES GROWTH EQUITY FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ......................... $17.339 $13.873 $11.747 $10.000
Accumulation Unit Value, end of period ............................... $24.222 $17.339 $13.873 $11.747
Number of Accumulation Units outstanding, end of period .............. 569,824 403,911 140,629 13,923
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995
7
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES VALUE EQUITY FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ........................ $19.230 $15.604 $12.640 $10.000
Accumulation Unit Value, end of period .............................. $20.780 $19.230 $15.604 $12.640
Number of Accumulation Units outstanding, end of period ............. 2,077,252 1,768,950 916,524 177,701
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
- --------------------------------------------------------------------------------
PENN SERIES SMALL CAPITALIZATION FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ........................ $15.966 $13.161 $11.145 $10.000
Accumulation Unit Value, end of period .............................. $14.301 $15.966 $13.161 $11.145
Number of Accumulation Units outstanding, end of period ............. 786,502 673,274 353,352 55,394
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
- --------------------------------------------------------------------------------
PENN SERIES EMERGING GROWTH FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997(a)
------- -------
<S> <C> <C>
Accumulation Unit Value, beginning of period .......................... $13.793 $10.000
Accumulation Unit Value, end of period ................................ $18.457 $13.793
Number of Accumulation Units outstanding, end of period ............... 347,843 184,859
</TABLE>
- ----------
(a) FOR THE PERIOD MAY 1, 1997 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1997.
- --------------------------------------------------------------------------------
PENN SERIES FLEXIBLY MANAGED FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ......................... $15.245 $13.367 $11.649 $10.000
Accumulation Unit Value, end of period ............................... $15.948 $15.245 $13.367 $11.649
Number of Accumulation Units outstanding, end of period .............. 5,522,285 4,704,147 2,989,155 591,562
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
8
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES INTERNATIONAL EQUITY FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ......................... $14.902 $13.688 $11.880 $10.000
Accumulation Unit Value, end of period ............................... $17.465 $14.902 $13.688 $11.880
Number of Accumulation Units outstanding, end of period .............. 998,105 880,235 525,885 54,604
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
- --------------------------------------------------------------------------------
PENN SERIES QUALITY BOND FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ........................ $12.284 $11.531 $11.229 $10.000
Accumulation Unit Value, end of period ............................... $13.344 $12.284 $11.531 $11.229
Number of Accumulation Units outstanding, end of period .............. 757,765 432,962 275,302 64,152
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
- --------------------------------------------------------------------------------
PENN SERIES HIGH YIELD BOND FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ......................... $14.060 $12.315 $10.967 $10.000
Accumulation Unit Value, end of period ............................... $14.530 $14.060 $12.315 $10.967
Number of Accumulation Units outstanding, end of period .............. 806,706 596,879 290,291 57,255
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
- --------------------------------------------------------------------------------
PENN SERIES MONEY MARKET FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ......................... $11.066 $10.673 $10.310 $10.000
Accumulation Unit Value, end of period ............................... $11.461 $11.066 $10.673 $10.310
Number of Accumulation Units outstanding, end of period .............. 1,143,557 709,094 609,075 186,641
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
9
<PAGE>
- --------------------------------------------------------------------------------
AMERICAN CENTURY CAPITAL APPRECIATION PORTFOLIO SUBACCOUNT (A)
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ......................... $11.536 $12.092 $12.817 $10.000
Accumulation Unit Value, end of period ............................... $11.130 $11.536 $12.092 $12.817
Number of Accumulation Units outstanding, end of period .............. 278,560 319,882 314,124 71,869
</TABLE>
- ----------
(a) TCI GROWTH PORTFOLIO SUBACCOUNT PRIOR TO MAY 1, 1997.
(b) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
- --------------------------------------------------------------------------------
NEUBERGER BERMAN LIMITED MATURITY BOND PORTFOLIO SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ......................... $11.573 $10.995 $10.690 $10.000
Accumulation Unit Value, end of period ............................... $11.914 $11.573 $10.995 $10.690
Number of Accumulation Units outstanding, end of period .............. 319,947 270,171 214,093 51,495
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
- --------------------------------------------------------------------------------
NEUBERGER BERMAN BALANCED PORTFOLIO SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ......................... $14.467 $12.282 $11.653 $10.000
Accumulation Unit Value, end of period ............................... $16.003 $14.467 $12.282 $11.653
Number of Accumulation Units outstanding, end of period .............. 380,135 299,996 228,709 69,633
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
- --------------------------------------------------------------------------------
NEUBERGER BERMAN PARTNERS PORTFOLIO SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997(a)
------- -------
<S> <C> <C>
Accumulation Unit Value, beginning of period ......................... $12.399 $10.000
Accumulation Unit Value, end of period ............................... $12.741 $12.399
Number of Accumulation Units outstanding, end of period .............. 677,892 280,205
</TABLE>
- ----------
(a) FOR THE PERIOD MAY 1, 1997 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1997.
10
<PAGE>
- --------------------------------------------------------------------------------
FIDELITY INVESTMENTS' EQUITY INCOME FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ......................... $17.937 $14.199 $12.600 $10.000
Accumulation Unit Value, end of period ............................... $19.744 $17.937 $14.199 $12.600
Number of Accumulation Units outstanding, end of period .............. 1,974,265 1,658,212 1,134,707 246,915
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
- --------------------------------------------------------------------------------
FIDELITY INVESTMENTS' GROWTH FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ......................... $18.010 $14.791 $13.077 $10.000
Accumulation Unit Value, end of period ............................... $24.773 $18.010 $14.791 $13.077
Number of Accumulation Units outstanding, end of period .............. 1,557,325 1,360,867 1,007,942 223,746
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
- --------------------------------------------------------------------------------
FIDELITY INVESTMENTS' ASSET MANAGER FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit Value, beginning of period ......................... $15.428 $12.968 $11.475 $10.000
Accumulation Unit Value, end of period ............................... $17.504 $15.428 $12.968 $11.475
Number of Accumulation Units outstanding, end of period .............. 346,777 290,902 196,768 51,476
</TABLE>
- ----------
(a) FOR THE PERIOD MARCH 1, 1995 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1995.
- --------------------------------------------------------------------------------
FIDELITY INVESTMENTS' INDEX 500 FUND SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997(a)
------- -------
<S> <C> <C>
Accumulation Unit Value, beginning of period ......................... $12.150 $10.000
Accumulation Unit Value, end of period ............................... $15.375 $12.150
Number of Accumulation Units outstanding, end of period .............. 1,051,390 352,855
</TABLE>
- ----------
(a) FOR THE PERIOD MAY 1, 1997 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1997.
11
<PAGE>
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER EMERGING MARKETS EQUITY (INTERNATIONAL) FUND
SUBACCOUNT
VALUES OF AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997(a)
------- -------
<S> <C> <C>
Accumulation Unit Value, beginning of period ......................... $8.966 $10.000
Accumulation Unit Value, end of period ............................... $6.703 $8.966
Number of Accumulation Units outstanding, end of period .............. 217,260 110,227
</TABLE>
- ----------
(a) FOR THE PERIOD MAY 1, 1997 (DATE SUBACCOUNT WAS ESTABLISHED) THROUGH
DECEMBER 31, 1997.
The financial statements of the Separate Account for the year ended
December 31, 1998 are included in the statement of additional information
referred to on the cover page of this prospectus.
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
The Penn Insurance and Annuity Company. PIA is a Delaware stock life
insurance company. It is a wholly-owned subsidiary of The Penn Mutual Life
Insurance Company ("Penn Mutual"), a Pennsylvania mutual life insurance company
that has been in the life insurance business since 1847. Penn Insurance is
licensed to sell insurance and annuities in 47 states and the District of
Columbia.
We are located at 600 Dresher Road, Horsham, PA 19044. Our mailing address
is Philadelphia, PA 19172. We issue and are liable for all benefits and payments
under the Contract.
- --------------------------------------------------------------------------------
YEAR 2000
The services we provide, as well as services provided by other companies,
organizations and governmental entities generally, depend on the smooth
functioning of computer systems. Many computer systems in use today cannot
recognize the Year 2000, and may return to 1900 or some other date after
December 31, 1999. If not corrected, these systems could fail or create
erroneous results. We began addressing the Year 2000 problem actively in 1996.
The effort involves assessing all of our computers, computer programs, and
related equipment, making necessary changes, and assuring that all systems
process dates correctly. We believe that we have designed and implemented an
efficient process for identifying what needs to be changed. Although we cannot
give assurance that we will have no Year 2000 problem, we expect our computer
systems to perform satisfactorily in the Year 2000.
PIA and the mutual funds that serve as investment options for the Separate
Account have relationships with investment advisers, broker-dealers, transfer
agents, custodians, and other service providers. We are contacting the funds and
their vendors and service providers to obtain reasonable assurances that such
service providers have taken appropriate measures to address the Year 2000
problem. Where practicable, we will assess and attempt to mitigate risks that
the organizations upon which we depend are not Year 2000 compliant. We cannot,
however, give assurance that failure of these firms to complete adequate
preparations in a timely manner will not have an adverse effect on the
Contracts.
The Year 2000 Information and Readiness Disclosure Act passed by Congress
in 1998 encourages businesses and other organizations to provide information
about the readiness of their computer systems. The Act also provides certain
protections to these organizations against potential liability for what they say
about their readiness. We specifically designate the information about our
readiness as readiness disclosure under the protections of the Act.
12
<PAGE>
- --------------------------------------------------------------------------------
THE SEPARATE ACCOUNT
Penn Insurance established PIA Variable Annuity Account I (the "Separate
Account") on July 13, 1994. The Separate Account is registered with the
Securities and Exchange Commission as a unit investment trust and is a "separate
account" within the meaning of the federal securities laws. The Separate Account
is divided into subaccounts that invest in shares of different mutual funds.
o The income, gains and losses of PIA do not have any effect on the
income, gains or losses of the Separate Account or any subaccount.
o The Separate Account and its subaccounts are not responsible for the
liabilities of any other business of PIA.
- --------------------------------------------------------------------------------
ACCUMULATION UNITS
Your assets in the Separate Account are held as Accumulation Units of the
subaccounts that you select. We value Accumulation Units on each day the New
York Stock Exchange is open. When you invest in or transfer money to a
subaccount, you receive the Accumulation Unit price next computed after we
receive your purchase payment or transfer request at our administrative office.
In the case of the your first purchase payment, you receive the price next
computed after we accept your application to purchase a Contract.
The value of an Accumulation Unit is $10 when a subaccount begins
operation. The value of an Accumulation Unit may vary, and is determined by
multiplying its last computed value by the net investment factor for the
subaccount for the current valuation period. The net investment factor measures
(1) investment performance of Fund shares held in the subaccount, (2) any taxes
on income or gains from investments held in the subaccount and (3) the mortality
and expense risk charge at an annual rate of 1.25% and contract administration
charge at an annual rate of 0.15% assessed against the subaccount.
- --------------------------------------------------------------------------------
VOTING INSTRUCTIONS
You have the right to tell us how to vote proxies for the Fund shares in
which your purchase payments are invested. If the law changes and permits us to
vote the Fund shares, we may do so.
If you are a Contract Owner, we determine the number of Fund shares that
you may vote by dividing your interest in a subaccount by the net asset value
per share of the Fund. If you are receiving annuity payments, we determine the
number of Fund shares that you may vote by dividing the reserve allocated to the
subaccount by the net asset value per share of the Fund. We change these
procedures whenever we are required to do so by law.
- --------------------------------------------------------------------------------
INVESTMENT OPTIONS IN THE SEPARATE ACCOUNT
The Separate Account currently has subaccounts that invest in the
following Funds:
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.:
GROWTH EQUITY FUND -- seeks long term growth of capital and increase of
future income by investing primarily in common stocks of well established growth
companies;
VALUE EQUITY FUND -- seeks to maximize total return (capital appreciation
and income) primarily by investing in equity securities of companies believed to
be undervalued considering such factors as assets, earnings, growth potential
and cash flows;
SMALL CAPITALIZATION FUND -- seeks capital appreciation through investment
in a diversified portfolio of securities consisting primarily of equity
securities of companies with market capitalizations under $1 billion;
13
<PAGE>
EMERGING GROWTH FUND -- seeks capital appreciation by investing primarily
in common stocks of emerging growth companies with above-average growth
prospects;
FLEXIBLY MANAGED FUND -- seeks to maximize total return (capital
appreciation and income) by investing in common stocks, other equity securities,
corporate debt securities, and/or short term reserves, in proportions considered
appropriate in light of the availability of attractively valued individual
securities and current and expected economic and market conditions;
INTERNATIONAL EQUITY FUND -- seeks to maximize capital appreciation by
investing in a carefully selected diversified portfolio consisting primarily of
equity securities. The investments will consist principally of equity securities
of European and Pacific Basin countries;
QUALITY BOND FUND -- seeks the highest income over the long term
consistent with the preservation of principal through investment primarily in
marketable investment grade debt securities;
HIGH YIELD BOND FUND -- seeks high current income by investing primarily
in a diversified portfolio of long term high-yield/high-risk fixed income
securities in the medium to lower quality ranges; capital appreciation is a
secondary objective; such securities, which are commonly referred to as "junk"
bonds, generally involve greater risks of loss of income and principal than
higher rated securities (see accompanying Penn Series prospectuses);
MONEY MARKET FUND -- seeks to preserve capital, maintain liquidity and
achieve the highest possible level of current income consistent therewith, by
investing in high quality money market instruments; an investment in the Fund is
neither insured nor guaranteed by the U.S. Government and there can be no
assurance that the fund will be able to maintain a stable net asset value of
$1.00 per share.
Independence Capital Management, Inc., Horsham, Pennsylvania is investment
adviser to each of the Funds. OpCap Advisors, New York, New York, is investment
sub-adviser to the Value Equity and Small Capitalization Funds. T. Rowe Price
Associates, Baltimore, Maryland, is investment sub-adviser to the Flexibly
Managed and High Yield Bond Funds. Vontobel USA, Inc., New York, New York, is
investment sub-adviser to the International Equity Fund. RS Investment
Management, Inc., San Francisco, California, is investment sub-adviser to the
Emerging Growth Fund.
- --------------------------------------------------------------------------------
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.:
CAPITAL APPRECIATION PORTFOLIO -- seeks capital growth by investing
primarily in common stocks believed to have better-than-average prospects for
appreciation.
American Century Investment Management, Inc., Kansas City, Missouri, is
investment adviser to the Capital Appreciation Portfolio.
- --------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST:
LIMITED MATURITY BOND PORTFOLIO -- seeks highest current income consistent
with low risk to principal and liquidity, primarily by investing in a
diversified portfolio of limited maturity debt securities. A secondary objective
is capital appreciation.
BALANCED PORTFOLIO -- seeks long-term capital growth and reasonable
current income without undue risk to principal through investment of a portion
of its assets in common stock and a portion in debt securities.
PARTNERS PORTFOLIO -- seeks capital growth by investing primarily in
common stocks of established companies, using the value oriented investment
approach. Neuberger Berman reserves the right to make changes in the investment
objective, but will notify shareholders thirty days in advance of any proposed
material change.
Neuberger Berman Management Incorporated, New York, New York, is
investment adviser to the Limited Maturity Bond Portfolio, the Balanced
Portfolio and the Partners Portfolio.
14
<PAGE>
- --------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND:
EQUITY-INCOME PORTFOLIO -- seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the fund
will also consider the potential for capital appreciation. The fund's goal is to
achieve a yield which exceeds the composite yield on the securities comprising
the Standard & Poor's 500 Composite Stock Price Index.
GROWTH PORTFOLIO -- seeks to achieve capital appreciation. The fund
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.
Fidelity Management & Research Company, Boston, Massachusetts, is
investment adviser to the Equity-Income Portfolio and the Growth Portfolio.
- --------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II:
ASSET MANAGER PORTFOLIO -- seeks high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed income investments.
INDEX 500 PORTFOLIO -- seeks to match the total return of the S&P 500
while keeping expenses low. The S&P 500 is an index of 500 common stocks, most
of which trade on the New York Stock Exchange.
Fidelity Management & Research Company, Boston, Massachusetts, is
investment adviser to the Asset Manager Portfolio and the Index 500 Portfolio.
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.:
EMERGING MARKETS EQUITY (INTERNATIONAL) PORTFOLIO -- seeks long term
capital appreciation by investing primarily in equity securities of emerging
market country issuers. The Portfolio will focus on economies which are
developing strongly and in which the markets are becoming more sophisticated.
Morgan Stanley Dean Witter Asset Management Inc., New York, New York, is
investment adviser to the Emerging Markets Equity (International) Portfolio.
Shares of Penn Series are sold to other variable life and variable annuity
separate accounts of PIA and Penn Mutual. Shares of American Century Variable
Portfolio, Inc., Neuberger Berman Advisers Management Trust, Fidelity
Investments' Variable Insurance Products Fund and Variable Insurance Products
Fund II and Morgan Stanley Dean Witter Universal Funds, Inc. are offered not
only to variable annuity and variable life separate accounts of Penn Mutual, but
also to such accounts of other insurance companies unaffiliated with Penn Mutual
and, in the case of Neuberger Berman Advisers Management Trust and Morgan
Stanley Dean Witter Universal Funds, Inc., directly to qualified pension and
retirement plans. For more information on the possible conflicts involved when
the Separate Account invests in Funds offered to other separate accounts, see
the Fund prospectuses.
READ THE PROSPECTUSES OF THESE FUNDS BEFORE INVESTING.
- --------------------------------------------------------------------------------
THE FIXED INTEREST ACCOUNT
Interests in our general account are not registered under the Securities
Act of 1933 and the general account is not registered as an investment company
under the Investment Company Act of 1940. The general account and any interests
held in the general account are not subject to the provisions of these Acts.
This Prospectus generally discusses only the variable portion of the Contract.
The staff of the Securities and Exchange Commission has not reviewed the
disclosure in this Prospectus relating to the Fixed Interest Accounts.
Disclosure regarding the Fixed Interest Accounts, however, may be subject to
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in this Prospectus. See MORE
INFORMATION ABOUT THE FIXED INTEREST ACCOUNT.
15
<PAGE>
- --------------------------------------------------------------------------------
THE CONTRACT
A combination variable and fixed annuity contract may be an attractive
long-term investment vehicle for many people. Our Contract allows you to invest
in:
o the Separate Account, through which you may invest in one or more of the
available Funds of Penn Series Funds, Inc., American Century Variable
Portfolio, Inc., Neuberger Berman Advisers Management Trust, Fidelity
Investments' Variable Insurance Products Fund, Fidelity Investments'
Variable Insurance Products Fund II and Morgan Stanley Dean Witter
Universal Funds, Inc. See THE SEPARATE ACCOUNT in this Prospectus.
o one or more options in our Fixed Interest Account. The Fixed Interest
Account is guaranteed and funded by PIA through its general account. See
THE FIXED INTEREST ACCOUNT and MORE INFORMATION ABOUT THE FIXED INTEREST
ACCOUNT in this Prospectus.
You decide, within Contract limits,
o how often you make a purchase payment and how much you invest;
o the Funds and/or options in our Fixed Interest Account in which your
purchase payments are invested;
o whether or not to transfer money among the available Funds and Fixed
Interest Account options;
o the type of annuity that we pay and who receives it;
o the Beneficiary or Beneficiaries to whom we pay death benefits; and
o the amount and frequency of withdrawals from the Contract Value.
Your Contract has
o an Accumulation Period, during which you make one or more purchase
payments and we invest your payments as you tell us; and
o an Annuity Payout Period, during which we make annuity payments to you.
Your Payout Period begins on your Annuity Date, which may not be earlier
than your second Contract anniversary.
We may amend your Contract at any time to comply with legal requirements.
State law may require us to obtain your approval for any Contract amendment. We
may, with approval of the Securities and Exchange Commission and the governing
state insurance department, substitute another mutual fund for any of the Funds
currently available.
For Contracts sold in Oregon, New Jersey and Washington, you may make
purchase payments only during the first three Contract years.
You may contact us by writing The Penn Insurance and Annuity Company,
Customer Service Group, Philadelphia, PA 19172. Or, you may call (800) 523-0650.
- --------------------------------------------------------------------------------
HOW DO I PURCHASE A CONTRACT?
Our representative will assist you in completing an application and
sending it, together with a check for your first purchase payment, to our
administrative office. All subsequent purchase payments should be sent to the
administrative office. We usually accept an application to purchase a Contract
within two business days after we receive it. If you send us an incomplete
application, we will return your purchase payment to you within five business
days unless you ask us to keep it while you complete the application.
The minimum purchase payment is $5,000 for all non-qualified contracts and
$2,000 for individual retirement annuities under Section 408 of the Internal
Revenue Code and for tax deferred annuities under Section 403(b) of the Code.
For all Contracts, the minimum subsequent purchase payment that will be accepted
is $250. We may, in our discretion, reduce the minimum requirements for initial
and subsequent purchase payments. We will accept total purchase payments under
your Contract of up to $1 million. Total purchase payments in excess of $1
million require our prior approval.
The principal underwriter of the Contracts is Hornor, Townsend & Kent,
Inc., 600 Dresher Road, Horsham, PA 19044, a wholly-owned subsidiary of Penn
Mutual.
16
<PAGE>
- --------------------------------------------------------------------------------
WHAT TYPES OF ANNUITY PAYMENTS MAY I CHOOSE?
You may choose: (1) an annuity for a set number of years, (2) a life
annuity; (3) a life annuity with payments guaranteed for 10 or 20 years, (4) a
joint and survivor life annuity; or (5) any other form of annuity that we may
agree upon. You may choose a variable annuity (except for a set number of
years), a fixed annuity, or a combination of both. You may choose a person other
than yourself to be the Annuitant.
VARIABLE ANNUITY PAYMENTS. The size of your variable annuity payments will
vary depending upon the performance of the investment options that you choose
for the Annuity Payout Period. Your payments also will depend on the size of
your investment, the type of annuity you choose, the expected length of the
annuity period, and the annuity purchase rates and charges in your Contract.
The variable annuity purchase rates assume an annual net investment return
of 3%. If the annual net investment return during the annuity payout period is
greater than 3%, your annuity payments will increase. If the annual net
investment return is less than 3%, your payments will decrease.
FIXED ANNUITY PAYMENTS. The size of your fixed annuity payments will not
change. The size of these payments is determined by a number of factors,
including the size of your investment, the form of annuity chosen, the expected
length of the annuity period, and a guaranteed 3% rate of return.
OTHER INFORMATION. Unless you tell us otherwise:
o you or the person you designate will receive a life annuity with
payments guaranteed for 10 years. Tax deferred annuities under Section
403(b) of the Code and pension or profit sharing plans under Section 410
of the Code will receive a joint and survivor annuity.
o the annuity will be split between fixed and variable in the same
proportions as your Contract Value on the Annuity Date.
o your annuity payments will begin on the later of (1) the first day of
the next month after the Annuitant's 85th birthday or (2) 10 years after
the contract date, unless state law requires an earlier Annuity Date.
The Annuity Date under the Contract must be on the first day of a month
and may not be earlier than your second contract anniversary.
You may change the Annuity Date or your annuity option by giving us
written notice at our administrative office at least 30 days prior to the
current Annuity Date. If your Contract Value is less than $5,000, we may pay you
in a lump sum. We usually make annuity payments monthly, starting with the
Annuity Date, but we will pay you quarterly, semiannually or annually, if you
prefer. If necessary, we will adjust the frequency of your payments so that
payments are at least $50 each. For information on the treatment of annuity
payments, see FEDERAL INCOME TAX CONSIDERATIONS in this Prospectus.
- --------------------------------------------------------------------------------
WHAT ARE THE DEATH BENEFITS UNDER MY CONTRACT?
You may designate a Beneficiary in your application. If you fail to
designate a Beneficiary, your Beneficiary will be your estate. You may change
the Beneficiary at any time before your death or the death of the Annuitant,
whichever occurs first.
If the Contract Owner or the Annuitant dies prior to the Annuity Date, we
will pay the Beneficiary the greater of (1) the Contract Value as of the date on
which proof of death and any other required information needed to make payment
is received at our administrative office; or (2) the sum of the Fixed Interest
Account Value on the date the above information is received at our
administrative office and the net purchase payments and transfers allocated to
the Separate Account (i.e., all purchase payments and transfers to the Separate
Account minus all prior withdrawals and transfers made from the Separate
Account). We generally pay the death benefit within 7 days after we have
sufficient information to make the payment. For a discussion of the tax
treatment of a death benefit, see FEDERAL INCOME TAX CONSIDERATIONS in this
prospectus.
17
<PAGE>
ENHANCED DEATH BENEFIT. If the Contract Owner dies before the age of 80
and if permitted by state law, an enhanced death benefit will be paid to the
Beneficiary, if it is greater than the Contract Value as of the receipt of proof
of death and the necessary information to make a death benefit payment. The
enhanced death benefit is the sum of: (1) the Fixed Account Value, and (2) the
net purchase payments allocated to the Separate Account (as defined in the
previous paragraph) plus interest accumulated at an annual interest rate of 5%
through the Contract Owner's attained age 69, and interest accumulated at an
annual interest rate of 3% for years subsequent to attained age 70.
If the Beneficiary is your surviving spouse, he or she may become the
Contract Owner rather than receive the death benefit.
CHOOSING A LUMP SUM OR ANNUITY. Your Beneficiary has one year from your
date of death to choose to receive the death benefit in lump sum or in the form
of an annuity.
o If he or she chooses a lump sum, it must be paid within five years of
the date of death (until paid out, the death benefit will be allocated
to subaccounts of the Separate Account and/or fixed interest options as
directed by the Beneficiary).
o If an annuity is selected, payments must commence within one year of the
date of death and must be made over the Beneficiary's life or over a
period not longer than the Beneficiary's life expectancy.
o If an election is not made within one year of the date of death, the
death benefit will be paid to the Beneficiary in a lump sum.
If the Annuitant dies on or after the Annuity Date and the annuity is for
a specified number of years or for life with payments guaranteed for 10 or 20
years, the Beneficiary may elect to have the payments continue for the specified
or guaranteed period or to receive in lump sum the present value of the
remaining payments.
- --------------------------------------------------------------------------------
MAY I TRANSFER MONEY AMONG SUBACCOUNTS AND THE FIXED INTEREST ACCOUNTS?
BEFORE THE ANNUITY DATE. You may transfer amounts from one subaccount of
the Separate Account to another subaccount of the Separate Account. Within
Contract limits, you also may transfer from the subaccounts of the Separate
Account to a fixed interest option of the Fixed Interest Account. You may
transfer from the Fixed Interest Account to the Variable Account or to another
fixed interest option in the Fixed Interest Account only at the completion of
the interest period or within 25 days thereafter.
AFTER THE ANNUITY DATE. You may transfer amounts from one subaccount of
the Separate Account to another. Upon your death or the death of the Annuitant,
a Beneficiary who is receiving annuity payments may transfer amounts among the
subaccounts of the Separate Account.
o Transfers will be based on values at the end of the valuation period in
which the transfer request is received at our administrative office.
o The minimum amount that may be transferred is $250 or, if less, the
amount held in the subaccount or Fixed Interest Account option. In the
case of partial transfers, the amount remaining in the subaccount or
Fixed Interest Account option must be at least $250.
o A transfer request must be received at our administrative office and all
other administrative requirements for transfer must be met to make the
transfer. Neither we nor the Separate Account will be liable for
following instructions communicated by telephone that we reasonably
believe to be genuine. We require certain personal identifying
information to process a request for transfer made over the telephone.
18
<PAGE>
DOLLAR COST AVERAGING. Dollar cost averaging is a way to invest in which
securities are purchased at regular intervals in fixed dollar amounts so that
the cost of the securities gets averaged over time and possibly over market
cycles. If your Contract Value is at least $10,000, you can have a flat dollar
amount ($100 minimum) transferred monthly or quarterly from one account to other
accounts ($50 minimum per account) to achieve dollar cost averaging. These
transfers may be made only from one of the following accounts: Money Market
Subaccount, Limited Maturity Bond Subaccount, Quality Bond Subaccount, or the
One Year Fixed Interest Option. You may do this for from 12 to 60 months or
until you tell us to change or cancel the dollar cost averaging.
AUTOMATIC REBALANCING. Automatic Rebalancing is a way to transfer money
from those subaccounts that have increased in value to those subaccounts that
have decreased in value. Over time, this may help you to sell high and buy low,
although there can be no assurance of this. You may elect to have your
investments in subaccounts of the Separate Account automatically rebalanced. We
will transfer funds under your Contract on a quarterly (calendar) basis among
the subaccounts to maintain a specified percentage allocation among your
selected variable investment options.
Dollar cost averaging and automatic rebalancing may not be in effect at
the same time.
For transfers other than dollar cost averaging and automatic rebalancing,
we reserve the right to charge a transfer fee, although we have no present
intention of doing so.
- --------------------------------------------------------------------------------
MAY I WITHDRAW ANY OF MY MONEY?
Before the Annuity Date and the death of the Contract Owner or Annuitant,
you may withdraw all or part of your Contract Value. We base your withdrawal on
your Contract Value next determined after we receive a proper written request
for withdrawal at our administrative office (and the Contract, in case of a full
withdrawal). We normally will pay you within seven days. You may pay tax when
you make a withdrawal, including an additional 10% tax under certain
circumstances. See FEDERAL INCOME TAX CONSIDERATIONS.
o The minimum withdrawal is $500. If it is your first withdrawal in a
Contract Year, the minimum withdrawal is 15% of total purchase payments
if less.
o You may make a partial withdrawal only if the amount remaining in the
subaccount is at least $250.
o If you do not tell us otherwise, the withdrawal will be taken pro rata
from the variable subaccounts; if the partial withdrawal exhausts your
Variable Account Value, then any remaining withdrawal will be taken from
a fixed interest account beginning with the One Year Fixed Interest
Option and continuing with the other fixed interest options in the order
of ascending duration.
SYSTEMATIC WITHDRAWALS. If your Contract Value is at least $25,000 and you
have not made a withdrawal in the current contract year, you can make systematic
withdrawals. These are regular payments that we make to you on a monthly,
quarterly, semiannual or annual basis. It is a convenient way for you to
withdraw a limited percentage of purchase payments without incurring a
contingent deferred sales charge. The total amount that you withdraw in a
Contract Year cannot exceed 15% of total purchase payments at the time of the
request. The minimum amount of each withdrawal payment is $50.
Payments can be either a fixed dollar amount or a fixed percentage of
purchase payments. Your payments will begin on the next withdrawal date after we
receive your request. See FREE WITHDRAWALS below. For information on the tax
treatment of withdrawals, see FEDERAL INCOME TAX CONSIDERATIONS in this
Prospectus.
403(B) WITHDRAWALS. There are restrictions on withdrawals from Contracts
qualifying under Section 403(b) of the Code. Generally, withdrawals may be made
only if the Contract Owner is over the age of 59 1/2, leaves the employment of
the employer, dies, or becomes disabled as defined in the Code. Withdrawals
(other than withdrawals attributable to income earned on purchase payments) may
also be possible in the case of hardship as defined in the Code. The
restrictions do not apply to transfers among subaccounts and may also not apply
to transfers to other investments qualifying under Section 403(b). For
information on the tax treatment of withdrawals under Section 403(b) Contracts,
see FEDERAL INCOME TAX CONSIDERATIONS in this Prospectus.
19
<PAGE>
- --------------------------------------------------------------------------------
DEFERMENT OF PAYMENTS AND TRANSFERS
We reserve the right to defer a withdrawal, a transfer of values or
annuity payments funded by the Separate Account if (a) the New York Stock
Exchange is closed (other than customary weekend and holiday closings); (b)
trading on the Exchange is restricted; (c) an emergency exists such that it is
not reasonably practical to dispose of securities held in the Separate Account
or to determine the value of its assets; or (d) the Securities and Exchange
Commission by order so permits for the protection of investors. Conditions
described in (b) and (c) will be decided by, or in accordance with rules of, the
Commission.
- --------------------------------------------------------------------------------
WHAT CHARGES DO I PAY?
The following discussion explains the Contract charges that you pay. You
also indirectly pay expenses of the Funds that you select as investment options
in the Separate Account. See the prospectuses of the Funds for information on
Fund expenses.
ADMINISTRATION CHARGES:
These charges reimburse us for administering the Contract and the Separate
Account.
o We deduct from your Variable Account Value an annual contract
administration charge that is the lesser of $30 or 2% of your Variable
Account Value. You will not pay this charge if your Variable Account
Value is more than $50,000. To pay this charge, we cancel Accumulation
Units credited to your Contract, pro rata among the subaccounts in which
you invest. We assess this charge on each Contract anniversary and on
any other date that your Variable Account Value is reduced to zero by
withdrawal or transfer.
o We deduct from the net asset value of the Separate Account a daily
administration charge that will not exceed an effective annual rate of
0.15%.
For transfers among investment options other than under dollar cost
averaging and automatic rebalancing, we reserve the right to charge a transfer
fee, although we have no present intention of doing so.
MORTALITY AND EXPENSE RISK CHARGE:
We deduct from the net asset value of the Separate Account a daily
mortality and expense risk charge equal to an effective annual rate of 1.25%.
This charge compensates us for the mortality-related guarantees we make under
the Contract (e.g., the death benefit and the guarantee that the annuity factors
will never be decreased even if mortality experience is substantially different
than originally assumed), and for the risk that our administration charges will
be insufficient to cover administration expenses over the life of the Contracts.
The mortality and expense risk charge is paid during both the accumulation and
variable annuity pay-out phases of the Contract.
CONTINGENT DEFERRED SALES CHARGE:
This charge pays for our sales expenses. Sales expenses that are not
covered by the deferred sales charge are paid from the surplus of the Company,
which may include proceeds from the mortality and expense risk charge.
20
<PAGE>
You pay this charge only if you withdraw a purchase payment within seven
years of the effective date of payment. The following table shows the schedule
of the contingent deferred sales charge that will be applied to withdrawal of a
purchase payment, after allowing for the free withdrawals which are described in
the next subsection. Purchase payments will be treated as withdrawn on a
first-in, first-out basis.
Number of Full Contract
Years Since Purchase Payment Applicable Charge
- --------------------------------------------------------------------------------
0 6%
- --------------------------------------------------------------------------------
1 6%
- --------------------------------------------------------------------------------
2 5%
- --------------------------------------------------------------------------------
3 4%
- --------------------------------------------------------------------------------
4 3%
- --------------------------------------------------------------------------------
5 2%
- --------------------------------------------------------------------------------
6 1%
- --------------------------------------------------------------------------------
7+ 0%
- --------------------------------------------------------------------------------
The contingent deferred sales charge may be reduced on Contracts sold to a
trustee, employer or similar party pursuant to a retirement plan or to a group
of individuals, if such sales are expected to involve reduced sales expenses.
The amount of reduction will depend upon such factors as the size of the group,
any prior or existing relationship with the purchaser or group, the total amount
of purchase payments and other relevant factors that might tend to reduce
expenses incurred in connection with such sales. The reduction will not be
unfairly discriminatory to any Contract Owner.
FREE WITHDRAWALS:
SEVEN-YEAR-OLD PURCHASE PAYMENTS. You may withdraw any purchase payment
which was made more than 7 years before the withdrawal without incurring a
contingent deferred sales charge.
15% WITHDRAWALS. On the last day of the first contract year and once each
contract year thereafter, you may withdraw, without incurring a contingent
deferred sales charge, 15% of total purchase payments. You may take the 15% free
withdrawal on a single sum basis or systematically, but not both. The 15% free
withdrawal amount will be applied to purchase payments on a first-in, first-out
basis. With respect to any withdrawal in excess of the 15% free withdrawal in a
contract year, the contingent deferred sales charge schedule set forth above
will apply to the remainder of the purchase payments so withdrawn on a first-in,
first-out basis. This 15% free withdrawal applies only to the first withdrawal
request made in a contract year (after the first contract year) and the amount
is not cumulative from year to year.
MEDICALLY RELATED WITHDRAWAL. Subject to applicable state law, after the
first contract year and before the Annuity Date, you may withdraw, without
incurring a contingent deferred sales charge, up to the lesser of $500,000 or
your Contract Value if certain medically related contingencies occur. This free
withdrawal is available if you are: (1) first confined in a nursing home or
hospital while this Contract is in force and remain confined for at least 90
days in a row; or (2) first diagnosed as having a fatal illness (an illness
expected to result in death within 2 years for 80% of diagnosed cases) while
this Contract is in force. The precise terms and conditions of this benefit are
set forth in the Contract. It is not available if your age at issue is greater
than 75. The medically related contingencies that must be met for free
withdrawal vary in some states.
DISABILITY RELATED WITHDRAWAL. You may withdraw, without incurring a
contingent deferred sales charge, part or all of your Contract Value if you (you
or the Annuitant for qualified Contracts) become totally disabled as defined in
the Contract.
OTHER WITHDRAWALS. There is no contingent deferred sales charge imposed
upon minimum distributions under qualified contracts which are required by the
Internal Revenue Code.
21
<PAGE>
PREMIUM TAXES:
Some states and municipalities impose premium taxes on purchase payments
received by insurance companies. Generally, any premium taxes payable will be
deducted upon annuitization, although we reserve the right to deduct such taxes
when due in jurisdictions that impose such taxes on purchase payments.
Currently, state premium taxes on purchase payments range from 0% to 3 1/2%.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
We may advertise total return performance and annual changes in
accumulation unit values.
Information on total return performance will include average annual rates
of total return for one, five and ten year periods, or lesser periods depending
on how long the Fund has been available through a subaccount of the Separate
Account. Average annual total return figures will show the average annual rates
of increase or decrease in investments in the subaccounts, assuming a
hypothetical $1,000 investment at the beginning of the period, withdrawal of the
investment at the end of the period, and the deduction of all applicable fund
and Contract charges. We may also show average annual rates of total return,
assuming investment on the inception date of the underlying Funds, other amounts
invested at the beginning of the period, and no withdrawal at the end of the
period. Average annual total return figures which assume no withdrawals at the
end of the period will reflect all recurring charges, but will not reflect the
contingent deferred sales charge (if applicable, the contingent deferred sales
charge would reduce the amount that may be withdrawn under the Contracts).
- --------------------------------------------------------------------------------
MORE INFORMATION ABOUT THE FIXED INTEREST OPTIONS
GENERAL INFORMATION
Subject to the laws of your state, you may allocate or transfer all or
part of the amount credited to your Contract to one or more of the following
fixed interest options in the Fixed Account: (1) the One Year Fixed Interest
Option; (2) the Three Year Fixed Interest Option; (3) the Five Year Fixed
Interest Option; and (4) the Seven Year Fixed Interest Option. We periodically
declare an effective annual interest rate applicable to allocations to the
various fixed interest options. For each amount allocated to the One Year Fixed
Interest Option, the Three Year Fixed Interest Option, the Five Year Fixed
Interest Option or the Seven Year Fixed Interest Option, we credit interest at
an effective annual interest rate declared by us in the month in which the
allocation is made. The declared rate of interest will apply through the end of
the 12-month, 36-month, 60-month or 84-month period, as applicable, which begins
on the first day of the calendar month in which the allocation is made. We
guarantee an effective annual rate of interest on allocations to all fixed
interest options of not less than 3%. In addition, we guarantee that the rate
credited in the One Year Fixed Interest Option will at least equal the increase
in the cost of living as calculated by the Company; the Company uses for this
purpose a six-month average of the relative change by month in the Consumer
Price Index published by the Bureau of Labor Statistics.
You may transfer amounts in the Fixed Account to subaccounts of the
Separate Account or to another fixed interest option within the Fixed Account,
subject to the conditions and limitations in the fixed account provisions of
your Contract. A premature withdrawal charge in an amount specified in the
Contract will be deducted from the interest earned on any amount that is
withdrawn from the Three Year Fixed Interest Option, the Five Year Fixed
Interest Option or the Seven Year Fixed Interest Option prior to the expiration
of the period for which the interest rate is guaranteed. Amounts not withdrawn
or reallocated within 25 days after the end of an interest period are rolled
over and treated as a new allocation to the same fixed interest option. The
premature withdrawal charge is not applicable to amounts withdrawn to effect an
annuity or to meet the minimum distribution requirement under the tax laws. Nor
will the premature withdrawal charge be applied to amounts withdrawn due to the
death, total disability, or defined medical confinement or terminal illness of
the owner or annuitant, as specified in the Contract. In no event will the
premature withdrawal charge be greater than the total amount of interest
credited to the applicable fixed interest option. In accordance with state law,
we may defer a withdrawal or transfer from the Fixed Account for up to six
months if we reasonably determine that investment conditions are such that an
orderly sale of assets in the Company's general account is not feasible.
22
<PAGE>
LOANS UNDER SECTION 403(B) CONTRACTS
If your Contract qualifies under Section 403(b) of the Code, and if state
law permits, you may be able to borrow against money that you have invested in a
Fixed Interest Account. Review your Contract loan endorsement or consult our
representative for a complete description of the terms of the loan privilege,
including minimum and maximum loan amounts, repayment terms, and restrictions on
prepayments.
When you borrow, an amount equal to your loan will be transferred, as
collateral, from your Separate Account subaccounts to an account in our general
account called the "Restricted Account." Amounts transferred to the Restricted
Account generally earn interest at a rate of 2 1/2 percentage points less than
the rate of interest that we charge you on the loan. On your Contract
Anniversary, the accrued interest in the Restricted Account will be transferred
to your Separate Account subaccounts in accordance with your current payment
allocation instructions.
Loan repayments are due quarterly. When you repay part of your loan, we
transfer an amount equal to the principal portion of the repayment from the
Restricted Account to the Money Market subaccount. You may then transfer amounts
from the Money Market subaccount to the other investment options offered under
the Contract.
If you are in default, we must report the default to the Internal Revenue
Service as a taxable distribution and, if you are then under age 59 1/2, as a
premature distribution that may be subject to a 10% penalty. We will repay the
loan by withdrawing the amount in default, plus interest and any applicable
contingent deferred sales charge, from your Separate Account subaccounts in
accordance with your Loan Request and Agreement. If Section 403(b) prevents us
from doing this, your outstanding loan balance will continue to accrue interest
and the amount due will be withdrawn when a withdrawal becomes permissible.
While a loan balance is outstanding, any withdrawal or death benefit proceeds
must first be used to pay the loan.
Loans are subject to the terms of your Contract, your Section 403(b) plan
and the Code, and, in the case of plans subject to the Employee Retirement
Income Security Act of 1974, the ERISA regulations on plan loans, all of which
may impose restrictions. We reserve the right to suspend, modify or terminate
the availability of loans. Where there is a plan fiduciary, it is the
responsibility of the fiduciary to ensure that any Contract loans comply with
plan qualification requirements, including ERISA.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of some federal income tax
considerations. It is based on the law in effect on the date of this Prospectus,
which may change, and does not address state or local tax laws. For further
information, you should consult qualified tax counsel.
You pay no federal income tax on increases in the value of your Contract
until money is distributed to you or your beneficiary as a withdrawal, death
benefit or an annuity payment.
WITHDRAWALS AND DEATH BENEFITS. You may pay tax on a withdrawal, and your
beneficiary may pay tax on a death benefit. The taxable portion of these
payments generally will be the amount by which the payment exceeds your cost.
Thus, you or your Beneficiary generally will have taxable income to the extent
that your Contract Value exceeds your purchase payments. Ordinary income tax
rates apply. If you designate a Beneficiary who is either 37 1/2 years younger
than you or your grandchild, you may obtain Generation Skipping Transfer Tax
treatment under Section 2601 of the Code.
ANNUITY PAYMENTS. The taxable portion of an annuity payment generally is
determined by a formula that establishes the ratio of the cost basis of the
Contract (as adjusted for any refund feature) to the expected return under the
Contract. The taxable portion, which is the amount of the annuity payment in
excess of the cost basis, is taxed at ordinary income tax rates.
Subject to certain exceptions, a Contract must be held by or on behalf of
a natural person in order to be treated as an annuity contract under federal
income tax law and to be accorded the tax treatment described in the preceding
paragraphs. If a contract is not treated as an annuity contract for federal
income tax purposes, the income on the Contract is treated as ordinary income
received or accrued by the Contract Owner during the taxable year.
23
<PAGE>
EARLY WITHDRAWALS. An additional income tax of 10% may be imposed on the
taxable portion of an early withdrawal or distribution unless one of several
exceptions apply. Generally, there will be no additional income tax on
o early withdrawals that are part of a series of substantially equal
periodic payments (not less frequently than annually) made for life (or
life expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of the taxpayer and a Beneficiary;
o withdrawals made on or after age 59 1/2;
o on distributions made after death;
o withdrawals attributable to total and permanent disability.
TRANSFERS. You may pay tax if you transfer your Contract to someone else.
If the transfer is for less than adequate consideration, the taxable portion
would be the Contract Value at the time of transfer over the investment in the
Contract at such time. This rule does not apply to transfers between spouses or
to transfers incident to a divorce.
SEPARATE ACCOUNT DIVERSIFICATION. Section 817(h) of the Code provides that
the investments of a separate account underlying a variable annuity contract
which is not purchased under a qualified retirement plan or certain other types
of plans (or the investments of a mutual fund, the shares of which are owned by
the variable annuity separate account) must be "adequately diversified" in order
for the Contract to be treated as an annuity contract for tax purposes. The
Treasury Department has issued regulations prescribing such diversification
requirements. The Separate Account, through each of the available funds of the
Penn Series Funds, Inc., American Century Variable Portfolios, Inc., Neuberger
Berman Advisers Management Trust, Variable Insurance Products Fund, Variable
Insurance Products Fund II, and Morgan Stanley Universal Funds, Inc. intends to
comply with those requirements. The requirements are briefly discussed in the
accompanying prospectuses for the underlying funds.
The Treasury Department has indicated that in regulations or revenue
rulings under Section 817(d) (relating to the definition of a variable
contract), it will provide guidance on the extent to which Contract Owners may
direct their investments to particular subaccounts without being treated as
owners of the underlying shares. It is possible that when such regulations or
rulings are issued, the Contracts may need to be modified to comply with them.
QUALIFIED PLANS. The Contracts may be used in connection with retirement
plans that qualify for special tax treatment under the Code. The plans include
individual retirement annuities qualified under Section 408(b) of the Code
(referred to as IRAs), tax deferred annuities qualified under Section 403(b) of
the Code, pension or profit sharing plans for self-employed individuals
qualified under Section 401 of the Code (referred to as H.R. 10 or Keogh plans)
and corporate pension or profit sharing plans qualified under Section 401 of the
Code, or annuity plans qualified under Section 403(a) of the Code. Special
provisions are required in some Contracts for qualification under the Code.
For some types of qualified retirement plans, there may be no cost basis
in the Contract. In this case, the total payments received may be taxable.
Before purchasing a contract under a qualified retirement plan, the tax law
provisions applicable to the particular plan should be considered.
Generally, under a nonqualified annuity or individual retirement annuity
qualified under Section 408(b), unless the Contract Owner elects to the
contrary, any amounts that are received under the Contract that the Company
believes are includable in gross income for tax purposes will be subject to
mandatory withholding to meet federal income tax obligations. The same treatment
will apply to distributions from a qualified plan or Section 403(b) annuity that
are payable as an annuity for the life or life expectancy of one or more
individuals, or for a period of at least 10 years, or are required minimum
distributions. Other distributions from a qualified plan or a Section 403(b)
annuity are subject to mandatory withholding, unless an election is made to
receive the distribution as a direct rollover to another eligible retirement
plan.
This general summary of federal income tax does not address every issue
that may affect you. You should consult qualified tax counsel.
24
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
The consolidated financial statements of the Company at December 31, 1998,
and for the year then ended appear in the Statement of Additional Information.
The consolidated financial statements of the Company should be considered only
as bearing upon the Company's ability to meet its obligations under the
Contracts.
The financial statements of the Separate Account at December 31, 1998
appear in the Statement of Additional Information.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION CONTENTS
- --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYMENTS ................................................. B-
First Variable Annuity Payments ...................................... B-
Subsequent Variable Annuity Payments ................................. B-
Annuity Units ........................................................ B-
Value of Annuity Units ............................................... B-
Net Investment Factor ................................................ B-
Assumed Interest Rate ................................................ B-
Valuation Period ..................................................... B-
- --------------------------------------------------------------------------------
PERFORMANCE DATA .......................................................... B-
Average Annual Total Return .......................................... B-
Annual Changes in Accumulation Unit Values ........................... B-
- --------------------------------------------------------------------------------
ADMINISTRATION AND RECORDKEEPING SERVICES ................................. B-
- --------------------------------------------------------------------------------
DISTRIBUTION OF CONTRACTS AND CERTIFICATES ................................ B-
- --------------------------------------------------------------------------------
CUSTODIAN ................................................................. B-
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ...................................................... B-
- --------------------------------------------------------------------------------
LEGAL MATTERS ............................................................. B-
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS ...................................................... B-
- --------------------------------------------------------------------------------
25
<PAGE>
The Penn Insurance
and Annuity Company
Philadelphia, PA 19172
PI1339 5/99
<PAGE>
PART B
Information Required in a Statement
of Additional Information
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION -- MAY 1, 1999
- --------------------------------------------------------------------------------
LOGO
PIA VARIABLE ANNUITY ACCOUNT I
THE PENN INSURANCE AND ANNUITY COMPANY
PHILADELPHIA, PENNSYLVANIA 19172 O TELEPHONE (800) 523-0650 PENNANT
- --------------------------------------------------------------------------------
This statement of additional information is not a prospectus. It should be read
in conjunction with the current prospectus for PIA Variable Annuity Account I
(the "Separate Account"), dated May 1, 1999. To obtain a prospectus you may
write to The Penn Insurance and Annuity Company (the "Company"), Customer
Service Group, Philadelphia, PA 19172. Or you may call (800) 523-0650. Terms
used in this statement of additional information have the same meaning as the
prospectus.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYMENTS ................................................. B-
First Variable Annuity Payments .......................................... B-
Subsequent Variable Annuity Payments ..................................... B-
Annuity Units ............................................................ B-
Value of Annuity Units ................................................... B-
Net Investment Factor .................................................... B-
Assumed Interest Rate .................................................... B-
Valuation Period ......................................................... B-
- --------------------------------------------------------------------------------
PERFORMANCE DATA .......................................................... B-
Average Annual Total Return .............................................. B-
Annual Changes in Accumulation Unit Values ............................... B-
- --------------------------------------------------------------------------------
ADMINISTRATION AND RECORDKEEPING SERVICES ................................. B-
- --------------------------------------------------------------------------------
DISTRIBUTION OF CONTRACTS ................................................. B-
- --------------------------------------------------------------------------------
CUSTODIAN ................................................................. B-
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS ...................................................... B-
- --------------------------------------------------------------------------------
LEGAL MATTERS ............................................................. B-
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS ...................................................... B-
- --------------------------------------------------------------------------------
B-1
<PAGE>
VARIABLE ANNUITY PAYMENTS
FIRST VARIABLE ANNUITY PAYMENT
When a variable annuity is effected, we will first deduct applicable
premium taxes, if any, from the Contract Value. The dollar amount of the first
monthly annuity payment will be determined by applying the net Contract Value
to the annuity table set forth in the contract for the annuity option chosen.
The annuity tables show the amount of the first monthly income payment under
each annuity option for each $1,000 of value applied, based on the Annuitant's
age at the Annuity Date. The annuity tables are based on the 1983 Individual
Annuity Mortality Tables with interest at 3%.
SUBSEQUENT VARIABLE ANNUITY PAYMENTS
The dollar amount of subsequent variable annuity payments will vary in
accordance with the investment experience of the subaccount(s) of the Separate
Account applicable to the annuity. Each subsequent variable annuity payment
will equal the number of annuity units credited, multiplied by the value of the
annuity unit for the valuation period. The Company guarantees that the amount
of each subsequent annuity payment will not be affected by variations in
expense or mortality experience.
ANNUITY UNITS
For each subaccount selected, the number of annuity units is the amount of
the first annuity payment allocated to the subaccount divided by the value of
an annuity unit for the subaccount on the Annuity Date. The number of your
annuity units will not change as a result of investment experience.
VALUE OF ANNUITY UNITS
The value of an annuity unit for each subaccount was arbitrarily set at
$10 when the subaccount was established. The value may increase or decrease
from one valuation period to the next. For a valuation period, the value of an
annuity unit for a subaccount is the value of an annuity unit for the
subaccount for the last prior valuation period multiplied by the net investment
factor for the subaccount for the valuation period. The result is then
multiplied by a factor to neutralize an assumed interest rate of 3% built into
the annuity tables.
NET INVESTMENT FACTOR
For any subaccount, the net investment factor for a valuation period is
determined by dividing (a) by (b) and subtracting (c):
WHERE (A) IS:
The net asset value per share of the mutual fund held in the subaccount,
as of the end of the valuation period
PLUS
The per share amount of any dividend or capital gain distributions by the
mutual fund if the "ex-dividend" date occurs in the valuation period
PLUS OR MINUS
A per share charge or credit, as we may determine as of the end of the
valuation period, for provision for taxes (if applicable).
WHERE (B) IS:
The net asset value per share of the mutual fund held in the subaccount as
of the end of the last prior valuation period
PLUS OR MINUS
The per share charge or credit for provision for taxes as of the end of the
last prior valuation period (if applicable).
WHERE (C) IS:
The sum of the mortality and expense risk charge and the daily
administration charge. On an annual basis, the sum of such charges equals
1.40% of the daily net asset value of the subaccount.
B-2
<PAGE>
ASSUMED INTEREST RATE
A 3% assumed annual interest rate is included in the annuity tables in the
contracts. A higher assumption would mean a higher first annuity payment but
more slowly rising or more rapidly falling subsequent payments. A lower
assumption would have the opposite effect. If the actual net investment rate is
3% on an annual basis, annuity payments will be level.
VALUATION PERIOD
Valuation period is the period from one valuation of underlying fund
assets to the next. Valuation is performed each day the New York Stock Exchange
is open for trading.
PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN
The performance data in the following tables include average annual total
return of subaccounts of the Separate Account computed in accordance with the
standard formula and limitations prescribed by the Securities and Exchange
Commission and average annual total return and cumulative total return
information based upon different hypothetical assumptions.
B-3
<PAGE>
Table 1 Average Annual Total Return On $1,000 Investment -- Computed as
Prescribed by the SEC
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------------------------------
FROM TEN FIVE ONE
INCEPTION YEARS YEARS YEAR
INCEPTION THROUGH ENDED ENDED ENDED
FUND (MANAGER) DATE* 12/31/98 12/31/98 12/31/98 12/31/98
- -------------- ----------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Growth Equity (a) 3/1/95 25.83% N/A N/A 32.47%
(Independence Capital)
Value Equity (a) 3/1/95 20.58% N/A N/A 2.16%
(OpCap)
Small-Cap Fund 3/1/95 8.70% N/A N/A (15.09%)
(OpCap)
Emerging Growth Fund (a) 5/1/97 39.86% N/A N/A 26.92%
(RS Investment Management)
Flexibly Managed (a) 3/1/95 12.36% N/A N/A (1.24%)
(T. Rowe Price)
International Equity (a) 3/1/95 15.11% N/A N/A 10.97%
(Vontobel)
Quality Bond (a) 3/1/95 7.71% N/A N/A 3.01%
(Independence Capital)
High Yield Bond (a) 3/1/95 10.09% N/A N/A (2.05%)
(T. Rowe Price)
Capital Appreciation (b) 3/1/95 2.78% N/A N/A (8.48%)
(American Century Investment Management)
Balanced Portfolio (c) 3/1/95 12.89% N/A N/A 4.79%
(Neuberger Berman)
Limited Maturity Bond Portfolio (c) 3/1/95 4.27% N/A N/A (2.64%)
(Neuberger Berman)
Partners Fund Portfolio (c) 5/1/97 13.48% N/A N/A (2.83%)
(Neuberger Berman)
Equity-Income Portfolio (d) 3/1/95 19.28% N/A N/A 4.35%
(Fidelity Investments)
Growth Portfolio (d) 3/1/95 26.59% N/A N/A 30.47%
(Fidelity Investments)
Asset Manager Portfolio (e) 3/1/95 15.63% N/A N/A 7.60%
(Fidelity Investments)
Index 500 (e) 5/1/97 28.61% N/A N/A 20.01%
(Fidelity Investments)
Emerging Markets Equity (International) (f) 5/1/97 (23.40%) N/A N/A (29.08%)
(Morgan Stanley Dean Witter)
</TABLE>
- -----------
* DATE THE UNDERLYING FUND WAS FIRST OFFERED THROUGH A SUBACCOUNT OF THE
SEPARATE ACCOUNT.
(A) PENN SERIES FUNDS, INC.
(B) AMERICAN CENTURY INVESTMENT MANAGEMENT
(C) NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
(D) VARIABLE INSURANCE PRODUCTS FUND
(E) VARIABLE INSURANCE PRODUCTS FUND II
(F) MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC
B-4
<PAGE>
Table 2 Average Annual Total Return On $1,000 Investment -- Assumes No
Contingent Deferred Sales Charge and Investment on Inception Date of the
Underlying Fund
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------------------------------------------
FROM TEN FIVE ONE
INCEPTION YEARS YEARS YEAR
INCEPTION THROUGH ENDED ENDED ENDED
FUND (MANAGER) DATE* 12/31/98 12/31/98 12/31/98 12/31/98
- -------------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Growth Equity (a) 06/01/83 12.79% 14.99% 18.32% 39.59%
(Independence Capital)
Value Equity (a) 03/17/87 12.20% 12.87% 17.43% 7.67%
(OpCap)
Small-Cap Fund 03/01/95 9.69% N/A N/A (10.52%)
(OpCap)
Emerging Growth Fund (a) 05/01/97 44.32% N/A N/A 33.75%
(RS Investment Management)
Flexibly Managed (a) 07/31/84 12.70% 11.01% 10.69% 4.09%
(T. Rowe Price)
International Equity (a) 11/01/92 12.69% N/A 8.56% 16.95%
(Vontobel)
Quality Bond (a) 03/17/87 6.72% 7.41% 5.55% 8.55%
(Independence Capital)
High Yield Bond (a) 08/06/84 8.79% 8.24% 6.69% 3.22%
(T. Rowe Price)
Capital Appreciation (b) 11/20/87 6.67% 7.12% 1.75% (3.56%)
(American Century Investment Management)
Balanced Portfolio (c) 02/28/89 9.63% N/A 9.73% 10.43%
(Neuberger Berman)
Limited Maturity Bond Portfolio (c) 09/10/84 6.20% 5.05% 3.41% 2.61%
(Neuberger Berman)
Partners Fund Portfolio (c) 03/22/94 18.10% N/A N/A 2.41%
(Neuberger Berman)
Equity-Income Portfolio (d) 10/09/86 12.69% 13.86% 16.88% 9.97%
(Fidelity Investments)
Growth Portfolio (d) 10/09/86 15.68% 17.70% 19.98% 37.48%
(Fidelity Investments)
Asset Manager Portfolio (e) 09/06/89 11.36% N/A 10.18% 13.38%
(Fidelity Investments)
Index 500 (e) 08/27/92 19.79% N/A 22.28% 26.46%
(Fidelity Investments)
Emerging Markets Equity (International) (f) 10/01/96 (13.53%) N/A N/A (25.27%)
(Morgan Stanley Dean Witter)
</TABLE>
- -----------
* DATE THE UNDERLYING FUND WAS ESTABLISHED.
(A) PENN SERIES FUNDS, INC.
(B) AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
(C) NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
(D) VARIABLE INSURANCE PRODUCTS FUND
(E) VARIABLE INSURANCE PRODUCTS FUND II
(F) MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
B-5
<PAGE>
Table 3 Average Annual Total Return On $10,000 Investment -- Assumes No
Contingent Deferred Sales Charge and Investment on the Inception Date of
Underlying Fund
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------------------------------------------
FROM TEN FIVE ONE
INCEPTION YEARS YEARS YEAR
INCEPTION THROUGH ENDED ENDED ENDED
FUND (MANAGER) DATE* 12/31/98 12/31/98 12/31/98 12/31/98
- -------------- ----------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Growth Equity (a) 06/01/83 12.84% 15.05% 18.41% 39.69%
(Independence Capital)
Value Equity (a) 03/17/87 12.44% 13.12% 17.69% 8.02%
(OpCap)
Small-Cap Fund 03/01/95 9.76% N/A N/A (10.43%)
(OpCap)
Emerging Growth Fund (a) 05/01/97 44.38% N/A N/A 33.81%
(RS Investment Management)
Flexibly Managed (a) 07/31/84 12.92% 11.32% 11.09% 4.56%
(T. Rowe Price)
International Equity (a) 11/01/92 12.87% N/A 8.77% 17.17%
(Vontobel)
Quality Bond (a) 03/17/87 6.77% 7.46% 5.62% 8.63%
(Independence Capital)
High Yield Bond (a) 08/06/84 8.85% 8.32% 6.79% 3.33%
(T. Rowe Price)
Capital Appreciation (b) 11/20/87 6.70% 7.15% 1.79% (3.52%)
(American Century Investment Management)
Balanced Portfolio (c) 02/28/89 9.74% N/A 9.88% 10.60%
(Neuberger Berman)
Limited Maturity Bond Portfolio (c) 09/10/84 6.39% 5.28% 3.69% 2.91%
(Neuberger Berman)
Partners Fund Portfolio (c) 03/22/94 18.35% N/A N/A 2.72%
(Neuberger Berman)
Equity-Income Portfolio (d) 10/09/86 12.75% 13.93% 16.95% 10.06%
(Fidelity Investments)
Growth Portfolio (d) 10/09/86 15.72% 17.74% 20.03% 37.54%
(Fidelity Investments)
Asset Manager Portfolio (e) 09/06/89 11.41% N/A 10.24% 13.44%
(Fidelity Investments)
Index 500 (e) 08/27/92 19.85% N/A 22.34% 26.53%
(Fidelity Investments)
Emerging Markets Equity (International) (f) 10/01/96 (13.49%) N/A N/A (25.24%)
(Morgan Stanley Dean Witter)
</TABLE>
- -----------
* DATE THE UNDERLYING FUND WAS ESTABLISHED.
(A) PENN SERIES FUNDS, INC.
(B) AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
(C) NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
(D) VARIABLE INSURANCE PRODUCTS FUND
(E) VARIABLE INSURANCE PRODUCTS FUND II
(F) MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
B-6
<PAGE>
Average annual total returns in Table 1 are computed by finding the
average annual compounded rates of return over the periods shown that would
equate the initial amount invested to the withdrawal value, in accordance with
the following formula: P(1 + T) n = ERV. In the formula, P is a hypothetical
investment payment of $1,000; T is the average annual total return; n is the
number of years; and ERV is the withdrawal value at the end of the periods
shown. The computation assumes that the contract or account adminstration
charge is allocated equally across all available subaccounts by an average
Contract Owner or Participant and that the Contract Value or Participant's
Variable Account Value is of average size. The returns are computed according
to the formula assumptions prescribed by the SEC. The returns are based upon
hypothetical assumptions which are not prescribed by the SEC.
Average annual rates of total return in Tables 2 and 3 are computed by
finding the average annual compounded rates of return over the periods shown
that would equate the initial amount invested to the Contract account value at
the end of the periods shown, in accordance with the following formula: P(1 +
T) n = FV. In the formula, P is a hypothetical investment of $1,000 in Table 2
and $10,000 in Table 3; T is the average annual total return; n is the number
of years; and FV is the Contract Value. The computations assume that no
withdrawals were made at the end of the periods, and therefore do not reflect
the contract's contingent deferred sales charge of 1% for withdrawals made
within one year of the purchase payment. The returns also show investment
performance from the inception date of the Fund, which may predate the date the
Separate Account began investing in the Fund.
B-7
<PAGE>
- --------------------------------------------------------------------------------
Annual Rate of Change in Accumulation Unit Values
Table 4 Annual Rate of Change in Accumulation Unit Values
Table 4 shows the changes in values of accumulation units for each
subaccount of the Separate Account for each of the calendar years 1995 through
1998 for which the investment option was offered. Accumulation unit values do
not reflect the $30 annual contract or account administration charge or the
contingent deferred sales charge that may be applicable to a withdrawal from
the Contract.
<TABLE>
<CAPTION>
ANNUAL RATE OF CHANGE IN
ACCUMULATION UNIT VALUES
----------------------------------------------------------
FUND (MANAGER) 1998 1997 1996 1995
- -------------- ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Growth Equity 39.70% 24.98% 18.10% 11.75%
(Independence Capital Management)
Value Equity (a) 8.06% 23.24% 23.45% 12.64%
(OpCap Advisors)
Small Capitalization (a) (10.42%) 21.31% 18.09% 11.15%
(OpCap Advisors)
Emerging Growth Fund (a) 33.82% 37.93% N/A N/A
(RS Investment Management)
Flexibly Managed (a) 4.62% 14.05% 14.75% 11.65%
(T. Rowe Price Associates)
International Equity (a) 17.20% 8.87% 16.90% 11.71%
(Vontobel USA)
Quality Bond (a) 8.64% 6.53% 2.69% 11.23%
(Independence Capital Management)
High Yield Bond (a) 3.34% 14.17% 12.29% 10.97%
(T. Rowe Price Associates)
Money Market (a) 3.56% 3.68% 3.52% 10.31%
(Independence Capital Management)
Capital Appreciation (b) (3.52%) (4.60%) (5.66%) 12.82%
(American Century Investment Management)
Balanced Portfolio (c) 10.62% 17.79% 5.40% 11.65%
(Neuberger Berman)
Limited Maturity Bond (c) 2.94% 5.26% 2.85% 10.69%
(Neuberger Berman)
Partners Fund Portfolio (c) 2.76% 23.99% N/A N/A
(Neuberger Berman)
Equity Income (d) 10.08% 26.33% 12.69% 12.60%
(Fidelity Investors Research)
Growth (d) 37.55% 21.76% 13.11% 13.08%
(Fidelity Investors Research)
Asset Manager (e) 13.45% 18.97% 13.01% 11.48%
(Fidelity Investors Research)
Index 500 (e) 26.54% 21.50% N/A N/A
(Fidelity Investors Research)
Emerging Markets Equity (International) (f) (25.23%) (10.34%) N/A N/A
(Morgan Stanley Dean Witter)
</TABLE>
(A) PENN SERIES FUNDS, INC.
(B) AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
(C) NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST.
(D) FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND.
(E) FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II.
(F) MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
B-8
<PAGE>
The performance information set forth above is for past performance of the
Funds, assuming the subaccounts of the Separate Account had invested in the
Funds from the date the underlying Fund was first available through a
subaccount of the Separate Account or the date the underlying Fund was
established. The performance information is not an indication or representation
of future performance.
- --------------------------------------------------------------------------------
ADMINISTRATIVE AND RECORDKEEPING SERVICES
The Company performs all data processing, recordkeeping and other related
services with respect to the Contracts and the Separate Accounts.
- --------------------------------------------------------------------------------
DISTRIBUTION OF CONTRACTS
Hornor, Townsend & Kent, Inc., a wholly owned subsidiary of Penn Mutual,
serves as principal underwriter of the Contracts. The address of Hornor,
Townsend & Kent, Inc. is 600 Dresher Road, Horsham, PA 19044. For 1998, 1997,
1996 and 1995, the Company paid Hornor, Townsend & Kent, Inc. underwriting
commissions of $251,816, $138,545, $115,190 and $25,447.
The Contracts will be distributed by Hornor, Townsend & Kent, Inc. through
broker-dealers. Total commissions on purchase payments made under the Contract
will not exceed 61/2% and trailer commissions based on a percentage of Contract
Value may be paid. The offering of the Contracts is continuous, and the Company
does not anticipate discontinuing the offering of the Contract, although we
reserve the right to do so.
- --------------------------------------------------------------------------------
CUSTODIAN
The Company is custodian of the assets held in the Separate Account.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS LLP
Ernst & Young LLP serve as independent auditors of The Penn Insurance and
Annuity Company and PIA Variable Annuity Account I. Their offices are located
at 2001 Market Street, Suite 4000, Philadelphia, PA.
- --------------------------------------------------------------------------------
LEGAL MATTERS
Morgan, Lewis & Bockius LLP of Philadelphia, Pennsylvania, has provided
advice on certain matters relating to the federal securities laws and the
offering of the Contracts.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
The consolidated financial statements of the Company at December 31, 1998,
and for the year then ended appear in the Statement of Additional Information.
The consolidated financial statements of the Company should be considered only
as bearing upon the Company's ability to meet its obligations under the
Contracts.
The financial statements of the Separate Account at December 31, 1998
appear in the Statement of Additional Information.
B-9
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Penn Insurance and Annuity Company and Contract Owners of PIA Variable
Annuity Account I
We have audited the accompanying statement of assets and liabilities of the PIA
Annuity Account I (comprising, respectively, Money Market Fund, Quality Bond
Fund, High Yield Bond Fund, Growth Equity Fund, Value Equity Fund, Flexibly
Managed Fund, Small Capitalization Fund, International Equity Fund, Emerging
Growth Fund, Balanced Portfolio, Limited Maturity Bond Portfolio, Partners
Portfolio, Capital Appreciation Portfolio, Equity Income Portfolio, Growth
Portfolio, Asset Manager Portfolio, Index 500 Portfolio, Emerging Markets
Equity Portfolio) as of December 31, 1998, and the related statement of
operations and statements of changes in net assets for each of the periods
indicated therein. These financial statements are the responsibility of the
management of PIA Variable Annuity Account I. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1998,
by correspondence with the transfer agents. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
portfolios constituting the PIA Variable Annuity Account I at December 31,
1998, the results of their operations for the changes in their net assets for
each of the periods indicted therein, in conformity with generally accepted
accounting principles.
Philadelphia, Pennsylvania ERNST & YOUNG LLP
April 2, 1999
B-10
<PAGE>
- --------------------------------------------------------------------------------
PIA VARIABLE ANNUITY ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES -- DECEMBER 31, 1998
<TABLE>
<CAPTION>
MONEY QUALITY HIGH YIELD GROWTH EQUITY
TOTAL MARKET FUND+ BOND FUND+ BOND FUND+ FUND+
--------------- --------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT IN COMMON STOCK
Number of Shares .................... 13,069,065 972,644 1,275,913 447,170
Cost ................................ $314,492,322 $13,069,065 $10,204,265 $12,065,286 $11,567,843
ASSETS:
Investments at market value ......... $338,067,174 $13,069,065 $10,115,502 $11,725,642 $13,808,610
Dividends receivable ................ 51,399 51,399 -- -- --
LIABILITIES:
Due to The Penn Insurance and Annuity
Company ............................ 159,089 17,479 3,587 4,553 6,476
------------ ----------- ----------- ----------- -----------
NET ASSETS .......................... $337,959,484 $13,102,985 $10,111,915 $11,721,089 $13,802,134
============ =========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
PIA VARIABLE ANNUITY ACCOUNT I
STATEMENT OF OPERATIONS -- FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MONEY QUALITY HIGH YIELD GROWTH EQUITY
TOTAL MARKET FUND+ BOND FUND+ BOND FUND+ FUND+
--------------- --------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................... $ 6,235,964 $528,135 $ 449,042 $ 910,966 $ 9,430
EXPENSE:
Mortality and expense risk charges .......... 4,161,875 153,379 105,577 146,238 145,540
----------- -------- --------- ---------- -----------
Net investment income (loss) ................ 2,074,089 374,756 343,465 764,728 (136,110)
----------- -------- --------- ---------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Realized gains (losses) from redemption of
fund shares ................................ (435,018) -- 6,226 (17,094) (36,789)
Capital gains distributions ................. 21,727,912 -- 292,434 -- 1,468,416
----------- -------- --------- ---------- -----------
Net realized gains (losses) from investment
transactions ............................... 21,292,894 -- 298,660 (17,094) 1,431,627
Net change in unrealized appreciation/
depreciation of investments ................ 5,557,756 -- (36,035) (474,406) 2,167,911
----------- -------- --------- ---------- -----------
Net realized and unrealized gains (losses) on
investments ................................ 26,850,650 -- 262,625 (491,500) 3,599,538
----------- -------- --------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................. $28,924,739 $374,756 $ 606,090 $ 273,228 $ 3,463,428
=========== ======== ========= ========== ===========
</TABLE>
- -----------
+ INVESTMENT IN PENN SERIES FUNDS, INC.
++ INVESTMENT IN NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
+++ INVESTMENT IN AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
++++ INVESTMENT IN FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUNDS
I AND II
+++++ INVESTMENT IN MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
B-11
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLY SMALL EMERGING
VALUE EQUITY MANAGED CAPITALIZATION INTERNATIONAL GROWTH BALANCED
FUND+ FUND+ FUND+ EQUITY FUND+ FUND+ PORTFOLIO++
- -------------- -------------- ---------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1,928,714 4,811,928 878,409 948,817 368,512 372,501
$39,733,637 $92,424,369 $11,607,918 $15,385,221 $5,322,655 $5,866,684
$43,183,898 $88,106,397 $11,252,426 $17,439,257 $6,423,163 $6,086,665
-- -- -- -- -- --
17,962 34,694 4,293 7,316 3,148 3,280
----------- ----------- ----------- ----------- ---------- ----------
$43,165,936 $88,071,703 $11,248,133 $17,431,941 $6,420,015 $6,083,385
=========== =========== =========== =========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLY SMALL EMERGING
VALUE EQUITY MANAGED CAPITALIZATION INTERNATIONAL GROWTH BALANCED
FUND+ FUND + FUND+ EQUITY FUND+ FUND+ PORTFOLIO++
- -------------- --------------- ---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$ 539,199 $ 2,481,409 $ 70,610 $ 161,765 $ -- $ 103,437
563,881 1,167,337 154,774 222,196 65,707 72,958
----------- ------------ ----------- ----------- ----------- ----------
(24,682) 1,314,072 (84,164) (60,431) (65,707) 30,479
----------- ------------ ----------- ----------- ----------- ----------
(216,842) (61,741) (43,756) 21,855 86,492 (4,584)
3,523,876 8,840,034 183,261 563,801 1,272 726,519
----------- ------------ ----------- ----------- ----------- ----------
3,307,034 8,778,293 139,505 585,656 87,764 721,935
(748,979) (6,788,985) (1,431,774) 1,857,070 1,305,485 (198,018)
----------- ------------ ----------- ----------- ----------- ----------
2,558,055 1,989,308 (1,292,269) 2,442,726 1,393,249 523,917
----------- ------------ ----------- ----------- ----------- ----------
$ 2,533,373 $ 3,303,380 ($ 1,376,433) $ 2,382,295 $ 1,327,542 $ 554,396
=========== ============ =========== =========== =========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
B-12
<PAGE>
- --------------------------------------------------------------------------------
PIA VARIABLE ANNUITY ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES -- DECEMBER 31, 1998 (CONT'D.)
<TABLE>
<CAPTION>
LIMITED CAPITAL
MATURITY BOND PARTNERS APPRECIATION EQUITY INCOME
PORTFOLIO++ PORTFOLIO++ PORTFOLIO+++ PORTFOLIO++++
--------------- --------------- ----------------- ------------------
<S> <C> <C> <C> <C>
INVESTMENT IN COMMON STOCK
Number of Shares .................... 277,292 456,445 343,880 1,534,095
Identified Cost ..................... $3,890,069 $8,946,237 $3,840,797 $31,991,328
ASSETS:
Investments at market value ......... $3,832,173 $8,640,498 $3,101,813 $38,996,687
Dividends receivable ................ -- -- -- --
LIABILITIES:
Due to (from) The Penn Insurance and
Annuity Company ................... 20,439 3,523 1,421 17,058
---------- ---------- ---------- -----------
NET ASSETS ........................... $3,811,734 $8,636,975 $3,100,392 $38,979,629
========== ========== ========== ===========
</TABLE>
- --------------------------------------------------------------------------------
PIA VARIABLE ANNUITY ACCOUNT I
STATEMENT OF OPERATIONS -- FOR THE YEAR ENDED DECEMBER 31, 1998 (CONT'D.)
<TABLE>
<CAPTION>
LIMITED CAPITAL
MATURITY BOND PARTNERS APPRECIATION EQUITY INCOME
PORTFOLIO++ PORTFOLIO++ PORTFOLIO+++ PORTFOLIO++++
--------------- --------------- ----------------- ------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ...................................... $ 196,155 $ 17,520 $ -- $ 428,228
EXPENSE:
Mortality and expense risk charges ............. 46,348 92,149 45,339 502,947
--------- ---------- --------- -----------
Net investment income (loss) ................... 149,807 (74,629) (45,339) (74,719)
--------- ---------- --------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Realized gains (losses) from redemption of
fund shares .................................. 1,639 (12,095) (33,398) (7,746)
Capital gains distributions .................... -- 551,895 174,995 1,523,990
--------- ---------- --------- -----------
Net realized gains (losses) from investment
transactions ................................. 1,639 539,800 141,597 1,516,244
Net change in unrealized
appreciation/depreciation of investments ..... (57,775) (437,909) (212,450) 1,714,500
--------- ---------- --------- -----------
Net realized and unrealized gains (losses)
on investments ............................... (56,136) 101,891 (70,853) 3,230,744
--------- ---------- --------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .................... $ 93,671 $ 27,262 ($ 116,192) $ 3,156,025
========= ========== ========= ===========
</TABLE>
- -----------
+ INVESTMENT IN PENN SERIES FUNDS, INC.
++ INVESTMENT IN NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
+++ INVESTMENT IN AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
++++ INVESTMENT IN FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUNDS
I AND II
+++++ INVESTMENT IN MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
B-13
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING
GROWTH ASSET MANAGER INDEX 500 MARKETS EQUITY
PORTFOLIO++++ PORTFOLIO++++ PORTFOLIO++++ PORTFOLIO+++++
- ------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
859,908 334,387 114,495 204,836
$27,341,290 $5,381,264 $13,805,228 $2,049,166
$38,584,062 $6,072,466 $16,172,469 $1,456,381
-- -- -- --
4,183 2,527 7,150 --
----------- ---------- ----------- ----------
$38,579,879 $6,069,939 $16,165,319 $1,456,381
=========== ========== =========== ==========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING
GROWTH ASSET MANAGER INDEX 500 MARKETS EQUITY
PORTFOLIO++++ PORTFOLIO++++ PORTFOLIO++++ PORTFOLIO+++++
- ------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
$ 126,122 $ 148,199 $ 57,734 $ 8,013
446,228 77,665 137,250 16,362
----------- --------- ----------- ---------
(320,106) 70,534 (79,516) (8,349)
----------- --------- ----------- ---------
(79,701) 3,720 (38,418) (2,786)
3,299,098 444,598 133,723 --
----------- --------- ----------- ---------
3,219,397 448,318 95,305 (2,786)
6,926,573 156,671 2,165,015 (349,138)
----------- --------- ----------- ---------
10,145,970 604,989 2,260,320 (351,924)
----------- --------- ----------- ---------
$ 9,825,864 $ 675,523 $ 2,180,804 ($ 360,273)
=========== ========= =========== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
B-14
<PAGE>
- --------------------------------------------------------------------------------
PIA VARIABLE ANNUITY ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS -- FOR THE YEARS ENDED DECEMBER 31, 1998
AND 1997
<TABLE>
<CAPTION>
TOTAL
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ................ $ 2,074,089 $ 2,320,612
Net realized gains (losses) from
investment transactions .................... 21,292,894 10,346,335
Net change in unrealized appreciation/
depreciation of investments ................ 5,557,756 14,512,578
------------- -------------
Net increase (decrease) in net assets
resulting from operations ................... 28,924,739 27,179,525
------------- -------------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments ........................... 135,541,358 125,425,903
Surrender benefits .......................... (9,362,238) (3,712,589)
Net Transfers ............................... (51,060,966) (29,870,283)
Contract administration charges ............. (88,251) (55,707)
Annuity benefits ............................ (5,347,245) (3,453,573)
------------- -------------
Net increase (decrease) in net assets
resulting from variable annuity
activities .................................. 69,682,658 88,333,751
------------- -------------
Total increase (decrease) in net assets ..... 98,607,397 115,513,276
NET ASSETS:
Beginning of year ........................... 239,352,087 123,838,811
------------- -------------
END OF YEAR ................................. $ 337,959,484 $ 239,352,087
============= =============
MONEY MARKET FUND+ QUALITY BOND FUND+
---------------------------------- ------------------------------
1998 1997 1998 1997
---------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ................ $ 374,756 $ 269,877 $ 343,465 $ 240,364
Net realized gains (losses) from
investment transactions .................... -- -- 298,660 2,792
Net change in unrealized appreciation/
depreciation of investments ................ -- -- (36,035) 24,619
-------------- -------------- ------------ ----------
Net increase (decrease) in net assets
resulting from operations ................... 374,756 269,877 606,090 267,775
-------------- -------------- ------------ ----------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments ........................... 23,596,049 15,006,343 6,843,131 2,584,557
Surrender benefits .......................... (788,184) (184,822) (200,330) (68,783)
Net Transfers ............................... (17,700,923) (13,635,983) (2,275,495) (554,711)
Contract administration charges ............. (2,014) (1,353) (1,315) (991)
Annuity benefits ............................ (222,746) (108,074) (178,470) (83,976)
-------------- -------------- ------------ ----------
Net increase (decrease) in net assets
resulting from variable annuity
activities .................................. 4,882,182 1,076,111 4,187,521 1,876,096
-------------- -------------- ------------ ----------
Total increase (decrease) in net assets ..... 5,256,938 1,345,988 4,793,611 2,143,871
NET ASSETS:
Beginning of year ........................... 7,846,047 6,500,059 5,318,304 3,174,433
-------------- -------------- ------------ ----------
END OF YEAR ................................. $ 13,102,985 $ 7,846,047 $ 10,111,915 $5,318,304
============== ============== ============ ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HIGH YIELD BOND FUND+
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .................. $ 764,728 $ 570,823
Net realized gains (losses) from
investment transactions ...................... (17,094) 3,996
Net change in unrealized appreciation/
depreciation of investments .................. (474,406) 167,037
------------ -------------
Net increase (decrease) in net assets
resulting from operations ..................... 273,228 741,856
------------ -------------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments ............................. 4,945,705 5,569,185
Surrender benefits ............................ (296,671) (294,894)
Net Transfers ................................. (1,392,476) (1,032,502)
Contract administration charges ............... (2,027) (942)
Annuity benefits .............................. (199,055) (165,182)
------------ -------------
Net increase (decrease) in net assets
resulting from variable annuity
activities .................................... 3,055,476 4,075,665
------------ -------------
Total increase (decrease) in net assets ....... 3,328,704 4,817,521
NET ASSETS:
Beginning of year ............................. 8,392,385 3,574,864
------------ -------------
END OF YEAR ................................... $ 11,721,089 $ 8,392,385
============ =============
GROWTH EQUITY FUND+ VALUE EQUITY FUND+
----------------------------- -------------------------------
1998 1997 1998 1997
-------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................. ($ 136,110) ($ 36,637) ($ 24,682) $ 49,629
Net realized gains (losses) from
investment transactions ...................... 1,431,627 697,348 3,307,034 1,838,047
Net change in unrealized appreciation/
depreciation of investments .................. 2,167,911 150,133 (748,979) 3,228,914
----------- --------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations ..................... 3,463,428 810,844 2,533,373 5,116,590
----------- --------- ----------- ------------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments ............................. 5,526,230 4,823,066 12,733,300 16,717,687
Surrender benefits ............................ (158,570) (62,363) (1,585,043) (398,755)
Net Transfers ................................. (1,856,756) (474,697) (4,001,865) (1,391,344)
Contract administration charges ............... (2,169) (829) (12,702) (7,184)
Annuity benefits .............................. (173,262) (43,676) (517,363) (321,771)
----------- --------- ----------- ------------
Net increase (decrease) in net assets
resulting from variable annuity
activities .................................... 3,335,473 4,241,501 6,616,327 14,598,633
----------- --------- ----------- ------------
Total increase (decrease) in net assets ....... 6,798,901 5,052,345 9,149,700 19,715,223
NET ASSETS:
Beginning of year ............................. 7,003,233 1,950,888 34,016,236 14,301,013
----------- --------- ----------- ------------
END OF YEAR ................................... $13,802,134 $7,003,233 $43,165,936 $ 34,016,236
=========== =========== =========== ============
</TABLE>
- -----------
* FOR THE PERIOD FROM MAY 1, 1997 (DATE FUND BECAME AVAILABLE FOR INVESTMENT
TO CONTRACT OWNERS) TO DECEMBER 31, 1997.
+ INVESTMENT IN PENN SERIES FUNDS, INC.
++ INVESTMENT IN NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
+++ INVESTMENT IN AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. (TCI PORTFOLIOS,
INC.'S NAME CHANGED TO AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. AS OF
MAY 1, 1997)
++++ INVESTMENT IN FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS
FUNDS I AND II
+++++ INVESTMENT IN MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
B-15
<PAGE>
- --------------------------------------------------------------------------------
PIA VARIABLE ANNUITY ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS -- FOR THE YEARS ENDED DECEMBER 31, 1998
AND 1997 (CONT'D)
<TABLE>
<CAPTION>
FLEXIBLY MANAGED FUND+
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .................. $ 1,314,072 $ 1,207,433
Net realized gains (losses) from
investment transactions ...................... 8,778,293 4,106,617
Net change in unrealized appreciation/
depreciation of investments .................. (6,788,985) 2,137,531
------------ ------------
Net increase (decrease) in net assets
resulting from operations ..................... 3,303,380 7,451,581
------------ ------------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments ............................. 23,480,763 29,495,872
Surrender benefits ............................ (2,309,819) (939,438)
Net Transfers ................................. (6,076,934) (2,878,761)
Contract administration charges ............... (25,948) (16,941)
Annuity benefits .............................. (2,012,397) (1,356,123)
------------ ------------
Net increase (decrease) in net assets
resulting from variable annuity
activities .................................... 13,055,665 24,304,609
------------ ------------
Total increase (decrease) in net assets ....... 16,359,045 31,756,190
NET ASSETS:
Beginning of year ............................. 71,712,658 39,956,468
------------ ------------
END OF YEAR ................................... $ 88,071,703 $ 71,712,658
============ ============
SMALL
CAPITALIZATION FUND+ INTERNATIONAL EQUITY FUND+
-------------------------------- --------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................. ($ 84,164) ($ 59,981) ($ 60,431) $ 247,402
Net realized gains (losses) from
investment transactions ...................... 139,505 633,914 585,656 438,429
Net change in unrealized appreciation/
depreciation of investments .................. (1,431,774) 837,078 1,857,070 91,691
----------- ---------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations ..................... (1,376,433) 1,411,011 2,382,295 777,522
----------- ---------- ----------- ------------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments ............................. 4,140,766 5,634,761 4,528,945 7,093,961
Surrender benefits ............................ (314,301) (76,804) (465,457) (290,294)
Net Transfers ................................. (1,814,570) (790,037) (1,883,029) (1,488,312)
Contract administration charges ............... (4,050) (2,673) (5,841) (3,915)
Annuity benefits .............................. (132,547) (77,311) (242,420) (169,687)
----------- ---------- ----------- ------------
Net increase (decrease) in net assets
resulting from variable annuity
activities .................................... 1,875,298 4,687,936 1,932,198 5,141,753
----------- ---------- ----------- ------------
Total increase (decrease) in net assets ....... 498,865 6,098,947 4,314,493 5,919,275
NET ASSETS:
Beginning of year ............................. 10,749,268 4,650,321 13,117,448 7,198,173
----------- ---------- ----------- ------------
END OF YEAR ................................... $11,248,133 $10,749,268 $17,431,941 $ 13,117,448
=========== =========== =========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EMERGING GROWTH
PORTFOLIO+ BALANCED PORTFOLIO+
------------------------------ -----------------------------
1998 1997* 1998 1997
--------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ................... ($ 65,707) ($ 9,423) $ 30,479 $ 2,703
Net realized gains (losses) from
investment transactions ....................... 87,764 192,904 721,935 140,597
Net change in unrealized appreciation/
depreciation of investments ................... 1,305,485 (204,977) (198,018) 426,917
------------ --------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations ...................... 1,327,542 (21,496) 554,396 570,217
------------ --------- ---------- ----------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments .............................. 4,314,103 2,824,448 2,016,921 1,776,553
Surrender benefits ............................. (188,033) (6,836) (186,582) (130,016)
Net Transfers .................................. (1,518,437) (228,570) (519,208) (622,920)
Contract administration charges ................ (1,117) (84) (1,402) (1,210)
Annuity benefits ............................... (63,712) (17,793) (120,808) (61,501)
------------ --------- ---------- ----------
Net increase (decrease) in net assets
resulting from variable annuity
activities ..................................... 2,542,804 2,571,165 1,188,921 960,906
------------ --------- ---------- ----------
Total increase (decrease) in net assets ........ 3,870,346 2,549,669 1,743,317 1,531,123
NET ASSETS:
Beginning of year .............................. 2,549,669 -- 4,340,068 2,808,945
------------ --------- ---------- ----------
END OF YEAR .................................... $ 6,420,015 $2,549,669 $6,083,385 $4,340,068
============ =========== ========== ==========
LIMITED MATURITY
BOND PORTFOLIO+
--------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ................... $ 149,807 $ 97,920
Net realized gains (losses) from
investment transactions ....................... 1,639 3,589
Net change in unrealized appreciation/
depreciation of investments ................... (57,775) 29,378
------------- -------------
Net increase (decrease) in net assets
resulting from operations ...................... 93,671 130,887
------------- -------------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments .............................. 2,008,024 1,893,653
Surrender benefits ............................. (170,172) (78,555)
Net Transfers .................................. (1,161,255) (1,089,130)
Contract administration charges ................ (751) (576)
Annuity benefits ............................... (84,586) (83,489)
------------- -------------
Net increase (decrease) in net assets
resulting from variable annuity
activities ..................................... 591,260 641,903
------------- -------------
Total increase (decrease) in net assets ........ 684,931 772,790
NET ASSETS:
Beginning of year .............................. 3,126,803 2,354,013
------------- -------------
END OF YEAR .................................... $ 3,811,734 $ 3,126,803
============= =============
</TABLE>
- -----------
* FOR THE PERIOD FROM MAY 1, 1997 (DATE FUND BECAME AVAILABLE FOR INVESTMENT
TO CONTRACT OWNERS) TO DECEMBER 31, 1997.
+ INVESTMENT IN PENN SERIES FUNDS, INC.
++ INVESTMENT IN NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
+++ INVESTMENT IN AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. (TCI PORTFOLIOS,
INC.'S NAME CHANGED TO AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. AS OF
MAY 1, 1997)
++++ INVESTMENT IN FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS
FUNDS I AND II
+++++ INVESTMENT IN MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
B-16
<PAGE>
- --------------------------------------------------------------------------------
PIA VARIABLE ANNUITY ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS -- FOR THE YEARS ENDED DECEMBER 31, 1998
AND 1997 (CONT'D)
<TABLE>
<CAPTION>
PARTNERS CAPITAL APPRECIATION
PORTFOLIO++ PORTFOLIO+++
---------------------------- ------------------------------
1998 1997* 1998 1997
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................. ($ 74,629) ($ 12,490) ($ 45,339) ($ 50,683)
Net realized gains (losses) from
investment transactions ...................... 539,800 (1,352) 141,597 120,709
Net change in unrealized appreciation/
depreciation of investments .................. (437,909) 132,170 (212,450) (197,160)
--------- --------- --------- ------------
Net increase (decrease) in net assets
resulting from operations ..................... 27,262 118,328 (116,192) (127,134)
--------- --------- --------- ------------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments ............................. 6,316,324 3,513,547 553,025 1,520,996
Surrender benefits ............................ (240,149) (14,660) (179,038) (117,546)
Net Transfers ................................. (848,706) (120,660) (808,187) (1,357,196)
Contract administration charges ............... (1,341) (71) (1,423) (1,692)
Annuity benefits .............................. (90,589) (22,310) (37,839) (25,856)
--------- --------- --------- ------------
Net increase (decrease) in net assets
resulting from variable annuity
activities .................................... 5,135,539 3,355,846 (473,462) 18,706
--------- --------- --------- ------------
Total increase (decrease) in net assets ....... 5,162,801 3,474,174 (589,654) (108,428)
NET ASSETS:
Beginning of year ............................. 3,474,174 -- 3,690,046 3,798,474
--------- --------- --------- ------------
END OF YEAR ................................... $8,636,975 $3,474,174 $3,100,392 $ 3,690,046
========== ========== ==========
============
EQUITY INCOME
PORTFOLIO++++
-------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .................. ($ 74,719) ($ 42,703)
Net realized gains (losses) from
investment transactions ...................... 1,516,244 1,460,789
Net change in unrealized appreciation/
depreciation of investments .................. 1,714,500 3,899,630
----------- -----------
Net increase (decrease) in net assets
resulting from operations ..................... 3,156,025 5,317,716
----------- -----------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments ............................. 10,030,814 11,205,598
Surrender benefits ............................ (802,060) (461,859)
Net Transfers ................................. (2,449,472) (1,885,293)
Contract administration charges ............... (10,107) (7,231)
Annuity benefits .............................. (688,303) (537,337)
----------- -----------
Net increase (decrease) in net assets
resulting from variable annuity
activities .................................... 6,080,872 8,313,878
----------- -----------
Total increase (decrease) in net assets ....... 9,236,897 13,631,594
NET ASSETS:
Beginning of year ............................. 29,742,732 16,111,138
----------- -----------
END OF YEAR ................................... $38,979,629 $29,742,732
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROWTH
PORTFOLIO++++
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .................. ($ 320,106) ($ 178,353)
Net realized gains (losses) from
investment transactions ...................... 3,219,397 472,789
Net change in unrealized appreciation/
depreciation of investments .................. 6,926,573 3,506,923
----------- -----------
Net increase (decrease) in net assets
resulting from operations ..................... 9,825,864 3,801,359
----------- -----------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments ............................. 10,112,920 8,080,441
Surrender benefits ............................ (896,947) (464,697)
Net Transfers ................................. (4,615,292) (1,589,438)
Contract administration charges ............... (11,574) (8,502)
Annuity benefits .............................. (344,414) (218,182)
----------- -----------
Net increase (decrease) in net assets
resulting from variable annuity
activities .................................... 4,244,693 5,799,622
----------- -----------
Total increase (decrease) in net assets ....... 14,070,557 9,600,981
NET ASSETS:
Beginning of year ............................. 24,509,322 14,908,341
----------- -----------
END OF YEAR ................................... $38,579,879 $24,509,322
=========== ===========
ASSET MANAGER INDEX 500
PORTFOLIO++++ PORTFOLIO++++
------------------------------ -----------------------------
1998 1997 1998 1997*
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................. $ 70,534 $ 42,396 ($ 79,516) ($ 18,044)
Net realized gains (losses) from
investment transactions ...................... 448,318 234,747 95,305 303
Net change in unrealized appreciation/
depreciation of investments .................. 156,671 324,115 2,165,015 202,226
---------- ---------- ----------- ---------
Net increase (decrease) in net assets
resulting from operations ..................... 675,523 601,258 2,180,804 184,485
---------- ---------- ----------- ---------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments ............................. 1,443,285 1,898,036 11,906,022 4,226,105
Surrender benefits ............................ (195,034) (102,809) (339,940) (10,032)
Net Transfers ................................. (213,530) (320,483) (1,763,815) (93,068)
Contract administration charges ............... (1,882) (1,403) (2,179) (80)
Annuity benefits .............................. (126,596) (138,107) (102,850) (20,133)
---------- ---------- ----------- ---------
Net increase (decrease) in net assets
resulting from variable annuity
activities .................................... 906,243 1,335,234 9,697,238 4,102,792
---------- ---------- ----------- ---------
Total increase (decrease) in net assets ....... 1,581,766 1,936,492 11,878,042 4,287,277
NET ASSETS:
Beginning of year ............................. 4,488,173 2,551,681 4,287,277 --
---------- ---------- ----------- ---------
END OF YEAR ................................... $6,069,939 $4,488,173 $16,165,319 $4,287,277
========== ========== =========== ==========
</TABLE>
- -----------
* FOR THE PERIOD FROM MAY 1, 1997 (DATE FUND BECAME AVAILABLE FOR INVESTMENT
TO CONTRACT OWNERS) TO DECEMBER 31, 1997.
+ INVESTMENT IN PENN SERIES FUNDS, INC.
++ INVESTMENT IN NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
+++ INVESTMENT IN AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. (TCI PORTFOLIOS,
INC.'S NAME CHANGED TO AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. AS OF
MAY 1, 1997)
++++ INVESTMENT IN FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS
FUNDS I AND II
+++++ INVESTMENT IN MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
B-17
<PAGE>
- --------------------------------------------------------------------------------
PIA VARIABLE ANNUITY ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS -- FOR THE YEARS ENDED DECEMBER 31, 1998
AND 1997 (CONT'D)
<TABLE>
<CAPTION>
EMERGING MARKETS
PORTFOLIO++++
-----------------------------
1998 1997*
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ............... ($ 8,349) $ 379
Net realized gains (losses) from
investment transactions .................. (2,786) 117
Net change in unrealized appreciation/
depreciation of investments .............. (349,138) (243,647)
--------- ----------
Net increase (decrease) in net assets
resulting from operations .................. (360,273) (243,151)
--------- ----------
VARIABLE ANNUITY ACTIVITIES:
Purchase payments .......................... 1,045,031 1,561,094
Surrender benefits ......................... (45,908) (9,426)
Net Transfers .............................. (161,016) (317,178)
Contract administration charges ............ (409) (30)
Annuity benefits ........................... (9,288) (3,065)
--------- ----------
Net increase (decrease) in net assets
resulting from variable annuity
activities ................................. 828,410 1,231,395
--------- ----------
Total increase (decrease) in net assets..... 468,137 988,244
NET ASSETS:
Beginning of year .......................... 988,244 --
--------- ----------
END OF YEAR ................................ $1,456,381 $ 988,244
========== ==========
</TABLE>
- -----------
* FOR THE PERIOD FROM MAY 1, 1997 (DATE FUND BECAME AVAILABLE FOR INVESTMENT
TO CONTRACT OWNERS) TO DECEMBER 31, 1997.
+ INVESTMENT IN PENN SERIES FUNDS, INC.
++ INVESTMENT IN NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
+++ INVESTMENT IN AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. (TCI PORTFOLIOS,
INC.'S NAME CHANGED TO AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. AS OF
MAY 1, 1997)
++++ INVESTMENT IN FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS
FUNDS I AND II
+++++ INVESTMENT IN MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
B-18
<PAGE>
PIA VARIABLE ANNUITY ACCOUNT I
- --------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1998
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of Penn Insurance and Annuity Variable
Annuity Account I (Account I) are as follows:
GENERAL -- Account I was established by The Penn Insurance and Annuity
Company (PIA) under the provisions of the Pennsylvania Insurance Law. Account I
is registered under the Investment Company Act of 1940, as amended, as a unit
investment trust. Account I offers units to variable annuity contract owners to
provide for the accumulation of value and for the payment of annuities. The
preparation of the accompanying financial statements requires management to
make estimates and assumptions that affect the reported values of assets and
liabilities as of December 31, 1998 and the reported amounts from operations
and annuity activities during 1998 and 1997. Actual results could differ with
those estimates. Certain 1997 amounts have been reclassified to conform with
1998 presentation.
INVESTMENTS -- Assets of Account I are invested in shares of Penn Series
Funds, Inc. (Penn Series): Money Market, Quality Bond, High Yield Bond, Growth
Equity, Value Equity, Flexibly Managed, International Equity, Small
Capitalization and Emerging Growth Funds; Neuberger Berman Advisers Management
Trust (AMT): Limited Maturity Bond, Balanced and Partners Portfolios; American
Century Variable Portfolios, Inc. (ACI): Capital Appreciation Portfolio;
Fidelity Investments' Variable Insurance Products (Fidelity): Equity Income,
Growth, Asset Manager and Index 500 Portfolios; and Morgan Stanley Dean Witter
Universal Funds, Inc. (Morgan Stanley): Emerging Markets Equity Portfolio. Penn
Series, AMT, ACI, Fidelity and Morgan Stanley are open-end diversified
management investment companies. The investment in shares of these funds or
portfolios are carried at market value as determined by the underlying net
asset value of the respective funds or portfolios. Dividend income is recorded
on the ex-dividend date. Investment transactions are accounted for on a trade
date basis.
FEDERAL INCOME TAXES -- PIA is taxed under federal law as a life insurance
company. Account I is part of PIA's total operations and is not taxed
separately. Under existing federal law, no taxes are payable on investment
income and realized gains of Account I.
DIVERSIFICATION REQUIREMENTS -- Under the provisions of Section 817(h) of
the Internal Revenue Code, a variable annuity contract other than a contract
issued in connection with certain types of employee benefit plans will not be
treated as an annuity contract for federal tax purposes for any period for
which the investments of the segregated asset account on which the contract is
based are not adequately diversified. The Code provides that the "adequately
diversified" requirement may be met if the underlying investments satisfy
either a statutory safe harbor test or diversification requirements set forth
in regulations issued by the Secretary of Treasury. The Internal Revenue
Service has issued regulations under 817(h) of the Code. PIA believes that
Account I satisfies the current requirements of the regulations, and it intends
that Account I will continue to meet such requirements.
B-19
<PAGE>
NOTE 2. PURCHASES AND SALES OF INVESTMENTS
The following table shows aggregate cost of shares purchased and proceeds
from sales of each fund or portfolio for the year ended December 31, 1998:
Purchases Sales
-------------- --------------
Money Market Fund .......................... $ 19,368,931 $14,109,123
Quality Bond Fund .......................... 6,396,190 1,571,598
High Yield Bond Fund ....................... 5,137,625 1,316,758
Growth Equity Fund ......................... 6,046,452 1,374,908
Value Equity Fund .......................... 13,723,781 3,605,069
Flexibly Managed Fund ...................... 29,234,402 6,023,862
International Equity Fund .................. 4,076,359 1,639,369
Small Capitalization Fund .................. 3,607,094 1,633,312
Emerging Growth Fund ....................... 3,845,280 1,364,864
Balanced Portfolio ......................... 2,552,092 604,784
Limited Maturity Bond Portfolio ............ 1,955,899 1,195,840
Partners Portfolio ......................... 6,264,530 649,677
Capital Appreciation Portfolio ............. 593,361 937,315
Equity Income Portfolio .................... 9,791,491 2,256,762
Growth Portfolio ........................... 10,862,053 3,643,923
Asset Manager Portfolio .................... 1,868,755 446,799
Index 500 Portfolio ........................ 11,360,878 1,595,682
Emerging Markets Equity Portfolio .......... 1,067,509 247,838
------------ -----------
Total ...................................... $137,752,682 $44,217,483
============ ===========
NOTE 3. CONTRACT CHARGES
Operations are charged for mortality and expense risks assumed by PIA and
for administering at an annual rate of 1.25% and 0.15% respectively, of the
average value of Account I. As reimbursement for expenses incurred in
administering the contract, PIA receives $30 per year from each annuity
contract prior to the contract's date of maturity. The $30 charge is waived on
certain contracts.
If a policy is surrendered within the first 7 years, a contingent deferred
sales charge may be assessed. This charge will be deducted before any surrender
proceeds are paid. See original contract documents for special charges
assessed.
B-20
<PAGE>
Note 4. Unit Values
As of December 31, 1998, the accumulation units and accumulation unit
values are as follows:
Accumulation Accumulated
Units Unit Value
-------------- ------------
Pennant Variable Annuity Contract
Money Market Fund ......................... 1,143,557 $ 11.46
Quality Bond Fund ......................... 757,765 $ 13.34
High Yield Bond Fund ...................... 806,706 $ 14.53
Growth Equity Fund ........................ 569,824 $ 24.22
Value Equity Fund ......................... 2,077,252 $ 20.78
Flexibly Managed Fund ..................... 5,522,285 $ 15.95
International Equity Fund ................. 998,105 $ 17.47
Small Capitalization Fund ................. 786,502 $ 14.30
Emerging Growth Fund ...................... 347,843 $ 18.46
Balanced Portfolio ........................ 380,135 $ 16.00
Limited Maturity Bond Portfolio ........... 319,947 $ 11.91
Partners Portfolio ........................ 677,892 $ 12.74
Capital Appreciation Portfolio ............ 278,560 $ 11.13
Equity Income Portfolio ................... 1,974,265 $ 19.74
Growth Portfolio .......................... 1,557,325 $ 24.77
Asset Manager Portfolio ................... 346,777 $ 17.50
Index 500 Portfolio ....................... 1,051,390 $ 15.38
Emerging Markets Equity Portfolio ......... 217,260 $ 6.70
B-21
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
THE PENN INSURANCE AND ANNUITY COMPANY
WILMINGTON, DELAWARE
We have audited the accompanying balance sheets of The Penn Insurance and
Annuity Company (a wholly-owned subsidiary of The Penn Mutual Life Insurance
Company) as of December 31, 1998 and 1997, and the related income statements,
statements of changes in stockholder's equity and statements of cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of the
Company for the year ended December 31, 1996 were audited by other auditors
whose report dated January 31, 1997 expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Penn Insurance and Annuity
Company as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 29, 1999
B-22
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998 1997
- ----------------------------------------------------------------------------------------------------
(in thousands, except per share amount)
<S> <C> <C>
ASSETS
Debt securities, at fair value .................................... $ 690,583 $ 659,215
Equity securities, at fair value .................................. 66 702
Mortgage loan on real estate ...................................... 2,153 2,403
Real estate, net of accumulated depreciation ...................... -- 2,916
Policy loans ...................................................... 270,611 253,886
Short-term investments ............................................ 948 2,741
----------- -----------
TOTAL INVESTMENTS ................................................ 964,361 921,863
Cash and cash equivalents ......................................... 4,226 1,510
Investment income due and accrued ................................. 21,730 21,019
Deferred acquisition costs ........................................ 86,706 93,007
Amounts recoverable from reinsurers ............................... 6,655 5,066
Other assets ...................................................... 64 5,302
Separate account assets ........................................... 371,872 290,539
----------- -----------
TOTAL ASSETS ..................................................... $ 1,455,614 $ 1,338,306
=========== ===========
LIABILITIES
Reserves for payment of future policy benefits .................... $ 85,808 $ 73,493
Other policyholder funds .......................................... 784,466 770,762
Accrued income tax payable:
Current .......................................................... 1,807 251
Deferred ......................................................... 25,250 23,225
Other liabilities ................................................. 13,955 14,179
Separate account liabilities ...................................... 371,872 290,539
----------- -----------
TOTAL LIABILITIES ................................................ 1,283,158 1,172,449
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, $2 par value; 1,000 shares authorized, issued,
and outstanding .................................................. 2,000 2,000
Additional paid-in capital ........................................ 93,369 103,369
Retained earnings ................................................. 63,561 52,266
Accumulated other comprehensive income - unrealized gains ......... 13,526 8,222
----------- -----------
TOTAL STOCKHOLDER'S EQUITY ....................................... 172,456 165,857
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ..................... $ 1,455,614 $ 1,338,306
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-23
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
INCOME STATEMENTS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
REVENUES
Premium and annuity considerations ....................... $ 16,284 $ 29,761 $ 25,882
Policy fee income ........................................ 23,893 20,207 19,344
Net investment income .................................... 65,837 62,542 62,783
Net realized capital gains ............................... 1,729 106 2,311
Other income ............................................. 6,557 4,905 5,507
-------- -------- --------
TOTAL REVENUE ........................................... 114,300 117,521 115,827
-------- -------- --------
BENEFITS AND EXPENSES
Benefits paid to policyholders and beneficiaries ......... 55,587 53,112 51,575
Increase in liability for future policy benefits ......... 13,167 25,596 22,468
General expenses ......................................... 6,706 7,517 8,596
Amortization of deferred acquisition costs ............... 9,923 2,640 6,773
-------- -------- --------
TOTAL BENEFITS AND EXPENSES ............................. 85,383 88,865 89,412
-------- -------- --------
Income Before Income Taxes ............................... 28,917 28,656 26,415
Federal income taxes/(benefit):
Current ................................................. 11,453 7,975 8,983
Deferred ................................................ (831) 3,166 592
-------- -------- --------
NET INCOME ............................................. $ 18,295 $ 17,515 $ 16,840
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-24
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Additional Other Total
Common Paid-In Retained Comprehensive Stockholder's
FOR THE YEARS ENDED DECEMBER 31, Stock Capital Earnings Income Equity
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 .................... $ 2,000 $ 103,369 $ 17,911 $ 5,478 $ 128,758
Net income for 1996 .......................... -- -- 16,840 -- 16,840
Other comprehensive income, net of tax:
Unrealized depreciation of securities,
net of reclassification adjustment ......... -- -- -- (3,343) (3,343)
------- --------- -------- -------- ---------
Comprehensive Income ......................... 13,497
------- --------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1996 .................. 2,000 103,369 34,751 2,135 142,255
Net income for 1997 .......................... -- -- 17,515 -- 17,515
Other comprehensive income, net of tax:
Unrealized appreciation of securities,
net of reclassification adjustment ......... -- -- -- 6,087 6,087
------- --------- -------- -------- ---------
Comprehensive Income ......................... 23,602
------- --------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1997 .................. 2,000 103,369 52,266 8,222 165,857
Net income for 1998 .......................... -- -- 18,295 -- 18,295
Other comprehensive income, net of tax:
Unrealized appreciation of securities,
net of reclassification adjustment ......... -- -- -- 5,304 5,304
------- --------- -------- -------- ---------
Comprehensive Income ......................... 23,599
Dividend paid to Penn Mutual ................. -- -- (7,000) -- (7,000)
Return of capital to Penn Mutual ............. -- (10,000) -- -- (10,000)
------- --------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1998 .................. $ 2,000 $ 93,369 $ 63,561 $ 13,526 $ 172,456
======= ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-25
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................. $ 18,295 $ 17,515 $ 16,840
Adjustments to reconcile net income to net cash provided by operations:
Capitalization of policy acquisition costs ............................ (6,496) (7,196) (7,527)
Amortization of deferred acquisition costs ............................ 9,923 2,640 6,773
Policy fees on universal life and investment contracts ................ (26,722) (23,228) (19,344)
Interest credited on universal life and investment contracts .......... 38,520 38,468 38,366
Realized capital gains ................................................ (1,729) (106) (2,311)
(Increase)/decrease in accrued investment income ...................... (711) (795) (5,967)
(Increase)/decrease in amounts due from reinsurers .................... (1,589) (135) 884
Increase in future policy benefit reserves ............................ 12,315 25,571 21,213
Increase/(decrease) in federal income taxes payable ................... 725 (1,377) 907
Other, net ............................................................ 4,411 (13,241) 13,961
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................... 46,942 38,116 63,795
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of investments:
Debt securities available for sale .................................... 295,710 142,773 118,240
Real estate investments ............................................... 3,450 -- 2,849
Equity securities ..................................................... 1,286 3,747 --
Mortgage loans ........................................................ -- -- 159
Maturity and other principal repayments:
Debt securities available for sale .................................... 74,315 69,239 46,805
Mortgage loans ........................................................ 150 5,527 11,015
Cost of investments acquired:
Debt securities available for sale .................................... (387,885) (299,645) (236,556)
Equity securities ..................................................... (644) -- --
Mortgage loans ........................................................ -- (75) (561)
Real estate ........................................................... (12) (236) (229)
(Increase)/decrease in short-term investments ......................... 1,793 30,674 (12,559)
Increase in policy loans, net ......................................... (16,725) (7,157) (12,287)
---------- ---------- ----------
NET CASH USED BY INVESTING ACTIVITIES ............................... (28,562) (55,153) (83,124)
---------- ---------- ----------
</TABLE>
- continued -
The accompanying notes are an intergral part of these financial statements.
B-26
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits for universal life and investment contracts ......... $ 116,022 $ 166,741 $ 153,713
Withdrawals from universal life and investment contracts ..... (72,187) (35,060) (29,269)
Transfers to separate accounts ............................... (42,499) (115,104) (105,011)
Return of capital/dividends to Penn Mutual ................... (17,000) -- --
--------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................. (15,664) 16,577 19,433
--------- ---------- ----------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS .............................................. 2,716 (460) 104
CASH AND CASH EQUIVALENTS
Beginning of the year ....................................... 1,510 1,970 1,866
--------- ---------- ----------
End of the year ............................................. $ 4,226 $ 1,510 $ 1,970
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-27
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS OF DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION
The Penn Insurance and Annuity Company (the "Company") was founded in 1980
and commenced business in 1981 as a wholly-owned subsidiary of The Penn Mutual
Life Insurance Company ("Penn Mutual"). The Company currently concentrates
primarily in the sale of individual annuity products, both fixed and variable.
The Company sells its products through Penn Mutual's distribution systems,
which consist of a network of career agents, independent agents and independent
marketing organizations. Additionally, it has a significant amount of universal
life insurance business in force, although the Company no longer sells these
products. The Company is licensed to do business in forty-seven states and the
District of Columbia.
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. The preparation of financial
statements requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and notes to the financial
statements.
NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for the reporting and display of comprehensive income and
its components in the financial statements. The initial application of SFAS No.
130, requires the restatement of prior year financials to reflect the
components of comprehensive income.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to
be recognized in the statement of financial position as either assets or
liabilities and measured at fair value. The corresponding derivative gains and
losses should be reported based on hedge relationships that exist. Changes in
the fair value of derivatives that are not designated as hedges or that do not
meet the hedge accounting criteria in SFAS No. 133, are required to be reported
in earnings. SFAS No. 133 is effective for fiscal years beginning after June
15, 1999. Adoption of SFAS No. 133 is not expected to have a material effect on
the Company's financial condition or results of operations.
INVESTMENTS
Debt securities (bonds, notes, redeemable preferred stocks and
mortgage-backed securities) which might be sold prior to maturity are
classified as available for sale. These securities are carried at fair value,
with the change in unrealized gains and losses reported in other comprehensive
income. Interest on debt securities is credited to income as it is earned. Debt
securities are amortized using the scientific method. These assumptions are
consistent with the current interest rate and economic environments. The
retrospective adjustment method is used to value all securities.
Equity securities are classified as available for sale and carried at fair
value. Dividends on equity securities are credited to income on their
ex-dividend dates.
The Company regularly evaluates the carrying value of debt and equity
securities based on current economic conditions, past credit loss experience
and other circumstances of the investee. A decline in a security's fair value
that is deemed to be other than temporary is treated as a realized loss and a
reduction in the cost basis of the security.
Mortgage loans on real estate are stated at unpaid principal balances, net
of unamortized discounts and valuation allowances. Valuation allowances on
impaired loans are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the collateral
value if the loan is collateral dependent. However, if foreclosure is or
becomes probable, the measurement method used is collateral value.
Real estate held for sale is carried at the lower of depreciated cost or
fair value less selling costs. Valuation reserves are established for
properties held for sale when the fair value less estimated selling costs is
below depreciated cost.
Policy loans are carried at the unpaid principal balances.
B-28
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
Short-term investments include securities purchased with a maturity date,
at date of purchase, of 90 days to less than one year. Short-term investments
are valued at cost.
Realized gains and losses are determined by specific identification and
are included in income on the trade date, net of amortization of deferred
acquisition costs. Unrealized gains and losses, net of appropriate taxes and
amortization of deferred acquisition costs, are accounted for as a separate
component of other comprehensive income.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, money market instruments
and other debt securities with a maturity of 90 days or less when purchased.
DEFERRED ACQUISITION COSTS
Costs of acquiring new insurance and annuity contracts, which vary with
and are primarily related to the production of new business, have been deferred
to the extent that such costs are deemed recoverable from future gross profits.
Such costs include commissions, certain costs of policy issuance and
underwriting, and certain variable agency expenses.
Deferred acquisition costs related to universal life insurance policies
and annuity products, without mortality risk, that include significant
surrender charges, are being amortized over the lesser of the estimated or
actual contract life in proportion to estimated gross profits arising
principally from interest, mortality, expense margins and surrender charges.
The effects on amortization of deferred acquisition costs of revisions to
estimated gross profits are reflected in earnings in the period such estimated
gross profits are revised. Deferred acquisition costs are reviewed to determine
that the unamortized portion of such costs is still recoverable from future
estimated gross profits. Certain costs and expenses reported in the income
statements are net of amounts deferred.
SEPARATE ACCOUNTS
Separate Account assets and liabilities represent segregated funds
administered and invested by the Company primarily for the benefit of variable
annuity and pension contractholders. The value of the assets in the Separate
Accounts reflects the actual investment performance of the respective accounts
and is not guaranteed by the Company. The carrying value for Separate Account
assets and liabilities approximates the estimated fair value of the underlying
assets.
INSURANCE LIABILITIES AND REVENUE RECOGNITION
RIDERS ON UNIVERSAL LIFE POLICIES AND LIFE CONTINGENT ANNUITY PRODUCTS
Future policy benefits include reserves for riders on universal life
insurance policies and life contingent annuity products and are established in
amounts adequate to meet the estimated future obligations of the policies in
force. Liabilities for these riders are unearned cost of insurance charges
using statutory assumptions for investment yields and mortality. Interest rate
assumptions used in the calculation of the liabilities for universal life
riders ranged from 3.5% to 4.5%. Premiums are recognized as income when due.
Death and surrender benefits are reported in expense as incurred.
Liabilities for the life contingent annuity products are computed by
estimating future benefits and expenses. Assumptions are based on Company
experience projected at the time of policy issue, with provision for adverse
deviations. Interest rate assumptions range from 5.09% to 13.25%. Premiums are
recognized in income as they are received. Death and surrender benefits are
reported in expense as incurred.
UNIVERSAL LIFE AND OTHER ANNUITY PRODUCTS
Other policyholder funds represent liabilities for universal life and
investment-type annuity products. The liabilities for these products are based
on the contract account value which consists of deposits received from
customers and investment earnings on the account value, less administrative and
expense charges. The liability for universal life products is also reduced by
mortality charges. Liabilities for the non-life contingent annuity products are
computed by estimating future benefits and expenses. Assumptions are based on
Company experience projected at the time of policy issue. Interest rate
assumptions range from 3.0% to 7.85%.
B-29
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
Contract charges assessed against account value for universal life and
investment-type annuities are reflected as policy fee income in revenue.
Interest credited to account values and universal life benefit claims in excess
of fund values are reflected as benefit expense.
FEDERAL INCOME TAXES
The Company files a consolidated federal income tax return with its
parent, Penn Mutual. Federal income taxes are charged or credited to operations
based upon amounts estimated to be payable or recoverable as a result of
taxable operations for the current year. Deferred income tax assets and
liabilities are established to reflect the impact of temporary differences
between the amount of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes. These deferred tax
assets or liabilities are measured by using the enacted tax rates expected to
apply to taxable income in the period in which the deferred tax liabilities or
assets are expected to be settled or realized.
REINSURANCE
In the normal course of business, the Company seeks to limit its exposure
to loss on any single insured and to recover a portion of benefits paid by
ceding reinsurance to other insurance enterprises or reinsurers under excess
coverage and coinsurance contracts. The Company has set its retention limit for
acceptance of risk on life insurance policies at various levels up to $100 with
over one-half of its life insurance in force ceded to Penn Mutual.
Insurance liabilities are reported before the effects of reinsurance.
Reinsurance receivables (including amounts related to insurance liabilities)
are reported as assets. Estimated reinsurance receivables are recognized in a
manner consistent with the liabilities related to the underlying reinsured
contracts.
2. INVESTMENTS:
DEBT SECURITIES
The following tables summarize the Company's investment in debt
securities. All debt securities are classified as available for sale and are
carried at estimated fair value. Amortized cost is net of cumulative writedowns
for other than temporary declines in value of $461 as of December 31, 1998. The
Company did not write down any securities for other than temporary declines in
value as of December 31, 1997.
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S. Government and agency
securities ........................................... $ 4,940 $ 165 $ -- $ 5,105
Foreign governments ................................... 4,828 548 -- 5,376
Corporate securities .................................. 374,947 21,940 1,173 395,714
Mortgage and other asset-backed securities ............ 276,845 8,190 647 284,388
-------- ------- ------ --------
TOTAL ............................................... $661,560 $30,843 $1,820 $690,583
======== ======= ====== ========
December 31, 1997
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ ----------
U.S. Treasury securities and U.S. Government and agency
securities ........................................... $ 30,172 $ 1,894 $ -- $ 32,066
Foreign governments ................................... 4,788 495 -- 5,283
Corporate securities .................................. 343,315 10,722 333 353,704
Mortgage and other asset-backed securities ............ 261,453 6,761 52 268,162
-------- ------- ---- --------
TOTAL ............................................... $639,728 $19,872 $385 $659,215
======== ======= ==== ========
</TABLE>
B-30
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
The following tables summarize the amortized cost and estimated fair value
of debt securities as of December 31, 1998 by contractual maturity.
Amortized Estimated
Cost Fair Value
----------- -----------
Years to Maturity:
One or less ........................................ $ 37,029 $ 38,553
After one through five ............................. 97,391 101,034
After five through ten ............................. 80,625 86,459
After ten .......................................... 169,670 180,149
Mortgage and other asset-backed securities ......... 276,845 284,388
-------- --------
TOTAL ............................................ $661,560 $690,583
======== ========
Expected maturities may differ from contractual maturities because certain
borrowers have the right to call or prepay obligations with or without call or
prepayment penalties. Mortgage and other asset-backed securities are presented
separately in the maturity schedule due to the potential for prepayment. The
weighted average life of these securities is 5.5 years.
At December 31, 1998, the Company held $284,388 in mortgage and other
asset-backed securities. The structured securities portfolio consists of
commercial and residential mortgage pass-through holdings totaling $238,381 and
securities backed by credit card receivables, auto loans, home equity and
manufactured housing loans totaling $46,007. These securities follow a
structured principal repayment schedule and are of high credit quality.
Securities totaling $209,652 are rated AAA and include $1,713 of interest only
tranches that were retained from the securitization of the Company's mortgage
loan portfolio.
At December 31, 1998, the largest industry concentration of the Company's
portfolio was investments in the finance industry of $112,450, representing 17%
of the total debt portfolio.
Proceeds during 1998, 1997 and 1996 from sales of available-for-sale
securities were $295,710, $142,773 and $118,240. Gross gains and gross losses
realized on those sales were $7,459 and $4,775, respectively, during 1998,
$1,653 and $921, respectively, during 1997 and $2,138 and $363, respectively,
for 1996.
The Company's investment portfolio of debt securities is predominantly
comprised of investment grade securities. At December 31, 1998 and 1997, debt
securities with amortized cost totaling $19,401 and $15,302, respectively, were
less than investment grade. At December 31, 1998, the Company held securities
with a carrying value of $1,261 which are to be restructured pursuant to
commenced negotiations. At December 31, 1997, the Company did not hold any
securities which were either in default as to principal and/or interest
payments, were to be restructured pursuant to commenced negotiations or were in
situations where the borrowers went into bankruptcy subsequent to acquisition.
The Company did not hold any debt securities which were non-income producing
for the preceding twelve months as of December 31, 1998 and 1997.
At December 31, 1998 and 1997, the Company held no debt securities with
restructured or modified terms.
EQUITY SECURITIES
During 1998 and 1997, the proceeds from the sales of equity securities
amounted to $1,286 and $3,747, respectively. The gross gains on those sales
were $206 and $177 for 1998 and 1997, respectively. There were no sales of
equity securities during 1996.
MORTGAGE LOANS
On August 29, 1996, in conjunction with its parent, the Company
securitized the majority of its mortgage loan portfolio by transferring the
loans to a trust which qualifies as a REMIC (Real Estate Mortgage Investment
Conduit) under the Internal Revenue Code. Prior to transferring the loans with
a principal value of $65,852 and a book value of $65,821, the loans were
written down to a fair market value of $63,466, and a related reserve of $2,355
was released. The trust issued sixteen classes of Commercial Mortgage
Pass-Through Certificates with a total par value of $65,651. The certificates
evidence the entire beneficial ownership interest in the trust. The cash flow
from the mortgages will be used to repay the
B-31
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
certificates over an average life of 4.28 years. The actual date on which the
principal amount of the notes may be paid in full could be substantially
earlier or later based on performance of the mortgages. The cash flows of the
assets of the trust will be the sole source of payments on the notes. The
Company has not guaranteed these certificates or the mortgage loans held by the
trust.
The Company retained the highest quality classes of certificates with a
par value of $60,071 and a fair market value of $61,683 at the time of the
securitization. As of December 31, 1998, the par value and fair value of these
securities was $38,703 and $39,959, respectively. As of December 31, 1997, the
par value and fair value of these securities was $47,891 and $50,169,
respectively. The Company sold the lowest rated classes of certificates with a
par value of $5,581 and a fair market value of $2,086.
The mortgage loans which were not included in the securitization and were
retained by the Company had a book value of $19,075 with a related reserve of
$2,971 and an estimated fair value of $16,354 on the date of the
securitization. Loans which the Company intends to dispose of within a period
of 6 to 24 months were written down to their estimated net realizable value.
These loans had a book value of $16,389 and an estimated net realizable value
of $13,668. The writedown of $2,721 was fully offset by a release in mortgage
loss reserve. As of December 31, 1998 and 1997, the Company did not hold any of
these loans. The Company intends to hold mortgage loans with a book value of
$2,686 on the date of the securitization through their remaining terms. As of
December 31, 1998 and 1997, the Company held $2,353 and $2,503, respectively,
of these loans. The Company discontinued the origination of commercial mortgage
loans in 1996.
Mortgage loans as of December 31, 1998 and 1997 consisted of a loan on an
office building in the state of New York. The carrying value of the mortgage
loan was $2,353 and $2,503 and the valuation allowance was $(200) as of
December 31, 1998 and 1997. The mortgage loan was not impaired or delinquent.
REAL ESTATE
The Company had no real estate holdings at December 31, 1998. The Company
had real estate held for sale with a carrying value of $2,916 net of a
valuation reserve of $235 at December 31, 1997.
OTHER
Investments on deposit with regulatory authorities as required by law were
$3,620 at December 31, 1998 and 1997.
As of December 31, 1998 and 1997, the Company's investments included
$39,959 and $50,169, respectively, of the tranches retained from the 1996
securitization of the Company's commercial mortgage loan portfolio. These
investments represented 23% and 30% of stockholder's equity as of December 31,
1998 and 1997, respectively.
3. INVESTMENT INCOME AND CAPITAL GAINS:
The following table summarizes the sources of investment income, excluding
investment gains/(losses), for the year ended December 31.
1998 1997 1996
---------- ---------- ----------
Debt securities ..................... $47,385 $43,915 $35,009
Equity securities ................... 6 362 265
Mortgage loans ...................... 277 1,130 8,257
Real estate ......................... 273 781 932
Policy loans ........................ 18,622 17,777 18,346
Short-term investments .............. 578 709 2,207
------- ------- -------
Gross investment income ............. 67,141 64,674 65,016
Less: Investment expenses .......... 1,304 2,132 2,233
------- ------- -------
Investment income, net .............. $65,837 $62,542 $62,783
======= ======= =======
B-32
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
The following table summarizes net realized capital gains/(losses) on
investments for the year ended December 31. Net realized capital gains/(losses)
include changes in valuation allowances of $135, $792 and $4,949 during 1998,
1997 and 1996, respectively.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Debt securities ..................................... $ 2,223 $ 732 $1,775
Equity securities ................................... 206 177 --
Mortgage loans ...................................... (100) (1,432) (17)
Real estate ......................................... 569 692 553
Amortization of deferred acquisition costs .......... (1,169) (63) --
-------- -------- ------
Realized gains ...................................... $ 1,729 $ 106 $2,311
======== ======== ======
</TABLE>
The following table summarizes the change in unrealized gains and losses
for investments carried at fair value which are reflected in other
comprehensive income for the year ended December 31.
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ------------
<S> <C> <C> <C>
Unrealized gains/(losses):
Debt securities ................................ $9,536 $15,127 $ (9,283)
Equity securities .............................. (200) (265) 69
------ ------- --------
9,336 14,862 (9,214)
------ ------- --------
Less:
Deferred policy acquisition costs .............. 1,175 5,497 (4,051)
Deferred income taxes .......................... 2,857 3,278 (1,820)
------ ------- --------
Net change in unrealized gains/(losses) ......... $5,304 $ 6,087 $ (3,343)
====== ======= ========
</TABLE>
The following table sets forth the reclassification adjustment required to
avoid double-counting in comprehensive income items that are included as part
of net income for a period that also had been part of other comprehensive
income in earlier periods:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ------------
<S> <C> <C> <C>
RECLASSIFICATION ADJUSTMENTS
Unrealized holding gains/(losses) arising during period .............. $6,481 $6,819 $ (2,701)
Reclassification adjustment for gains included in net income ......... 1,177 732 642
------ ------ --------
Unrealized gains/(losses) on investments, net of reclassification
adjustment .......................................................... $5,304 $6,087 $ (3,343)
====== ====== ========
</TABLE>
Reclassification adjustments reported in the above table for the years
ended December 31, 1998, 1997 and 1996 are net of income tax expense of $1,434,
$829 and $920, respectively, and $1,487, $808 and $1,066, respectively,
relating to the effects of such amounts on deferred acquisition costs.
B-33
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
4. FAIR VALUE INFORMATION:
The following table summarizes the carrying value and estimated fair value
of the Company's financial instruments as of December 31, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Debt securities
Available for sale ...................... $690,583 $690,583 $659,215 $659,215
Equity securities
Common stock ............................ 66 66 -- --
Non-redeemable preferred stocks ......... -- -- 702 702
Mortgage loans ............................ 2,153 2,361 2,403 2,523
Policy loans .............................. 270,611 270,611 253,886 253,886
Cash and cash equivalents ................. 4,226 4,226 1,510 1,510
Short-term investments .................... 948 948 2,741 2,741
Separate account assets ................... 371,872 371,872 290,539 290,539
FINANCIAL LIABILITIES:
Investment-type contracts
Individual annuities .................... $ 62,912 $ 65,889 $ 59,333 $ 61,791
Other policyholder funds ................ 721,554 721,554 711,429 711,429
-------- -------- -------- --------
Total policyholder funds .................. 784,466 787,443 770,762 773,220
Separate account liabilities .............. 371,872 371,872 290,539 290,539
</TABLE>
The estimated fair values for the Company's investments in debt and equity
securities are based on quoted market prices, where available. In situations
where market prices are not readily available, primarily private placements,
fair values are estimated using a formula pricing method based on fair values
of securities with similar characteristics. The estimated fair value of
currently performing mortgage loans is estimated by discounting the cash flows
associated with the investment, using an interest rate currently offered for
similar loans to borrowers with similar credit ratings. Loans with similar
credit quality, characteristics and time to maturity are aggregated for
purposes of discounted cash flow analysis. Assumptions regarding credit risk,
cash flows and discount rates are determined using the available market and
borrower-specific information. The estimated fair value for non-performing
loans is based on the estimated fair value of the underlying real estate, which
is based on recent appraisals or other estimation techniques. The estimated
fair value of policy loans is calculated by discounting estimated future cash
flows using interest rates currently being offered for similar loans. Loans
with similar characteristics are aggregated for purposes of the calculations.
The carrying values of cash, cash equivalents, and short-term investments
approximate their fair values. The statement values of other policyholder funds
and separate account liabilities approximate their fair values.
The fair values of the Company's liabilities for individual annuities are
estimated by discounting the cash flows associated with the contracts, using an
interest rate currently offered for similar contracts with maturities similar
to those remaining for the contracts being valued. The statement values of
other policyholder funds and separate account liabilities approximate their
fair values.
Currently, disclosure of estimated fair values is not required for all the
Company's assets and liabilities. Therefore, presentation of the estimated fair
value of a significant portion of assets without a corresponding valuation of
liabilities associated with insurance contracts can be misinterpreted. The
estimated fair values of liabilities under all of the Company's contracts are
considered in the overall management of interest rate risk. The continuing
management of the relationship between the maturities of the Company's
investments and the amounts due under insurance contracts reduces the Company's
exposure to changing interest rates.
The Company is exposed to interest rate risk on its interest-sensitive
products. The Company's investment strategy is designed to minimize interest
risk by managing the durations and anticipated cash flows of the Company's
assets and liabilities.
B-34
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
In the normal course of business, the Company loans securities under
arrangements in which collateral is obtained in amounts greater than the
current market value of loaned securities. This collateral is held in the form
of cash, cash equivalents or securities issued or guaranteed by the United
States Government. The Company is at risk to the extent the value of loaned
securities exceeds the value of the collateral obtained. The Company controls
this risk by requiring collateral of the highest quality and requiring that
additional collateral be deposited when the market value of loaned securities
increases in relation to the collateral held or the value of the collateral
held decreases in relation to the value of the loaned securities. The Company
had loaned securities outstanding of $4,832 and $12,275 as of December 31, 1998
and 1997, respectively.
5. INCOME TAXES:
The Company follows the asset and liability method of accounting for
income taxes whereby current and deferred tax assets and liabilities are
recognized utilizing currently enacted tax laws and rates. Deferred taxes are
adjusted to reflect tax rates at which future tax liabilities or assets are
expected to be settled or realized.
Deferred income taxes reflect the impact for financial statement reporting
purposes of temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities. The significant temporary
differences that give rise to the deferred tax assets and liabilities at
December 31 relate to the following:
1998 1997
---------- ----------
DEFERRED TAX ASSETS
Future policy benefits ................... $10,430 $10,003
Allowances for investment losses ......... 231 117
Other .................................... 1,619 2,819
------- -------
Total deferred tax asset ................ 12,280 12,939
------- -------
DEFERRED TAX LIABILITIES
Deferred acquisition costs ............... 28,600 30,094
Unrealized investment gains .............. 7,247 4,390
Other .................................... 1,683 1,680
------- -------
Total deferred tax liability ............ 37,530 36,164
------- -------
NET DEFERRED TAX LIABILITY ................ $25,250 $23,225
======= =======
The federal income taxes attributable to net income are different from the
amounts determined by multiplying net income before federal income taxes by the
expected federal income tax rate. The difference between the amount of tax at
the U.S. federal income tax rate of 35% and the tax provision is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Tax expense at 35% ................................ $ 10,121 $ 10,030 $ 9,245
Increase (decrease) in income taxes resulting from:
Differential earnings amount ..................... 785 1,073 845
Other ............................................ (284) 38 (515)
-------- -------- -------
Federal income tax expense ........................ $ 10,622 $ 11,141 $ 9,575
======== ======== =======
</TABLE>
As a wholly-owned subsidiary of a mutual life insurance company, the
Company is subject to Internal Revenue Code provisions which require mutual,
but not stock, life insurance companies to include the Differential Earnings
Amount (DEA) in each year's taxable income. This amount is computed by
multiplying the Company's average taxable equity base by a prescribed rate,
which is intended to reflect the difference between stock and mutual companies'
earnings rates.
The Internal Revenue Service has examined Penn Mutual's income tax returns
through the year 1994. Management believes that an adequate provision has been
made for any potential assessments.
6. REINSURANCE:
The Company has assumed and ceded reinsurance on certain life and annuity
contracts under various agreements. Reinsurance permits recovery of a portion
of losses from reinsurers, although the Company remains primarily liable as the
B-35
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
direct insurer on all risks reinsured. The Company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of present reinsurers to ensure that amounts due from reinsurers are
collectible. The table below highlights the amounts shown in the accompanying
financial statements.
<TABLE>
<CAPTION>
Assumed Ceded to
Gross from Other Other
Amount Companies Companies Amount
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998:
Life Insurance in Force ......... $3,173,518 $2,780,712 $3,004,492 $2,949,738
Premiums ........................ 16,284 -- -- 16,284
Benefits ........................ 56,200 5,728 6,341 55,587
Reserves ........................ 630,967 239,307 3,016 867,258
DECEMBER 31, 1997:
Life Insurance in Force ......... $3,319,653 $2,910,310 $3,249,025 $2,980,938
Premiums ........................ 29,761 -- -- 29,761
Benefits ........................ 55,221 4,945 7,051 53,112
Reserves ........................ 604,209 240,046 3,371 840,884
</TABLE>
During 1996, the Company had gross premiums of $25,743 and gross benefits
of $14,788, assumed benefits of $5,428 and ceded benefits of $7,091.
The Company assumes and cedes certain risks under reinsurance agreements
with Penn Mutual. Net life insurance in-force assumed from Penn Mutual totaled
$377,815 and $351,009 as of December 31, 1998 and 1997, respectively. The
Company maintained reserves related to these policies of $238,310 and $239,005
as of December 31, 1998 and 1997, respectively. Net premium and annuity
considerations assumed in connection with these agreements were $6,470 and
$7,009 in 1998 and 1997, respectively. Net premium and annuity considerations
assumed in 1996 were $7,160.
The Company's intercompany Yearly Renewable Term (YRT) reinsurance treaty
with its parent, Penn Mutual, which covers certain universal life insurance
products, provides for an experience refund to be paid to the Company by Penn
Mutual in the amount of 75% of any reinsurance gain that is generated on the
products covered by the reinsurance agreement. As a result, $5,202, $3,832 and
$4,461 was received by the Company from Penn Mutual as an experience rating
refund in 1998, 1997 and 1996, respectively.
7. RELATED PARTY TRANSACTIONS:
The Company's parent has undertaken to provide sufficient financial
support so that the Company will have adequate capital and surplus as required
by applicable laws to meet its obligation to its policyholders under the terms
of the Company's policies and contracts.
Under the terms of an expense allocation agreement, the Company reimbursed
Penn Mutual for services and facilities provided on behalf of the Company,
including direct and allocated expenses. For 1998, 1997 and 1996, the total
expenses incurred under this agreement were $7,606, $8,245 and $8,915,
respectively.
State insurance laws limit the amount of dividends that the Company may
pay to Penn Mutual.
8. COMMITMENTS AND CONTINGENCIES:
The Company and its parent are respondents in a number of proceedings,
some of which involve extracontractual damage in addition to other damages. In
addition, insurance companies are subject to assessments, up to statutory
limits, by state guaranty funds for losses of policyholders of insolvent
insurance companies. In the opinion of management, the outcome of the
proceedings and assessments are not likely to have a material adverse effect on
the financial position of the Company.
The Company, in the ordinary course of business, extends commitments
relating to its investment activities. As of December 31, 1998 and 1997, the
Company had no outstanding commitments relating to these investment activities.
B-36
<PAGE>
- --------------------------------------------------------------------------------
THE PENN INSURANCE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
9. STATUTORY INFORMATION:
State insurance regulatory authorities prescribe or permit statutory
accounting practices for calculating net income and capital and surplus which
differ in certain respects from generally accepted accounting principles
(GAAP). The significant differences relate to deferred acquisition costs, which
are charged to expenses as incurred; federal income taxes, which reflect
amounts that are currently taxable; and benefit reserves, which are determined
using prescribed mortality, morbidity and interest assumptions, and which, when
considered in light of the assets supporting these reserves, adequately provide
for obligations under policies and contracts. In addition, the recording of
impairments in the value of investments under statutory accounting principles
generally lags recognition under GAAP.
The Company's statutory capital and surplus at December 31, 1998 and 1997
was $101,798 and $100,812, respectively. The Company's net income, determined
in accordance with statutory accounting practices, for the years ended December
31, 1998, 1997 and 1996 was $19,382, $16,747 and $15,917, respectively.
10. YEAR 2000 (UNAUDITED):
The services provided by the Company depend on the smooth functioning of
computer systems. Many computer systems in use today cannot recognize the Year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated earlier in this century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. Failure of computer systems could affect pricing, account services, and
the handling of investment transactions, among other things. Penn Mutual
provides all computer services and administration for the Company. Penn Mutual
is providing all Year 2000 analysis, remediation and testing services for the
Company. Penn Mutual began preparing for the Year 2000 actively in 1996. The
effort involves assessing all computers, computer programs and related
equipment, making necessary changes and ensuring that all systems process dates
correctly. Penn Mutual believes that it has designed and implemented an
efficient process for identifying what needs to be changed and is working to
correct and test systems that research shows will be affected by dates in the
Year 2000 and beyond. Penn Mutual expects its computer systems to be Year 2000
compliant.
The Company has relationships with vendors and other service producers
that are not affiliated with the Company. As part of its plan Penn Mutual is
contacting vendors and service providers to obtain assurances that such service
providers have taken appropriate measures to address the Year 2000 issue. Penn
Mutual will assess and attempt to mitigate risks where outside service
providers are not Year 2000 ready. However, there is no assurance that the
failure of outside service providers to complete adequate preparations in a
timely manner, which results in systems interruptions or other consequences,
will not have an adverse effect, directly or indirectly, on the Company.
The cost of addressing the Year 2000 issue is significant but not material
to the Company's financial condition or results of operations. The Company will
continue to incur costs in addressing the Year 2000, but does not anticipate
that the costs will be material going forward.
The foregoing statements are designated Year 2000 Readiness Disclosure
within the meaning of The Year 2000 Information and Readiness Disclosure Act
(P.L. 105-271,S.2392).
B-37
<PAGE>
PART C
Other Information
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART B:
FINANCIAL STATEMENTS OF PENN VARIABLE ANNUITY ACCOUNT
I:
Report of Independent Auditors
Statement of Assets and Liabilities - For the years
ended December 31, 1998
Statement of Operations - For the years ended
December 31, 1998
Statements of Changes in Net Assets - For the years
ended December 31, 1998 and 1997
Notes to Financial Statements
FINANCIAL STATEMENTS OF THE PENN INSURANCE AND
ANNUITY COMPANY:
Report of Independent Auditors
Statements of Financial Condition at December 31,
1998
Statements of Operations for the years ended December
31, 1998, 1997, and 1996
Statements of Changes in Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996
Notes to Financial Statements
(b) Exhibits
1. Resolution of Board of Directors of
The Penn Insurance and Annuity
Company authorizing the
establishment of the Registrant.
Filed herewith.
2. Not applicable.
3. (a) Sales Support Agreement between
The Penn Insurance and Annuity
Company and Hornor, Townsend & Kent,
Inc. dated March 1, 1995. Filed
herewith.
(b) Agent's Agreement between the
Company, Hornor, Townsend & Kent,
Inc. and Agent, relating to
brokerdealer supervision, dated
March 1, 1995. Filed herewith.
C-1
<PAGE>
(c) Distribution Agreement between The
Penn Insurance and Annuity Company
and Hornor, Townsend & Kent, Inc.
dated March 1, 1995. Filed herewith.
(d) Form of Broker-Dealer Selling
Agreement (for broker-dealers
licensed to sell variable annuity
contracts and/or variable life
insurance contracts under state
insurance laws). Filed herewith.
(e) Form of Broker-Dealer Selling
Agreement (for broker-dealers with
affiliated corporations licensed to
sell variable annuity contracts
and/or variable life insurance
contracts under state insurance
laws). Filed herewith.
4. (a) Individual Variable and Fixed
Annuity Contract (Form IA-94).
Filed herewith.
(b) Endorsement No. PI 1534-96 to
Individual Retirement Annuity
Contract. Filed herewith.
(c) Endorsement No. PI 1542-97 to Tax
Deferred Annuity 403(b) Contract.
Filed herewith.
(d) Endorsement No. PI 1536-90-403(b)
Loan Endorsement. Filed herewith.
(e) Endorsement No. PI 1543-90 to
Non-Tranferrable Annuity -401(g).
Filed herewith.
(f) Endorsement No. PI 1542-90 to Tax
Deferred Annuity- 403(b). Filed
herewith.
5. Application for Individual Variable
and Fixed Annuity Contract (Form PI
1335). Filed herewith.
6. (a) Certificate of The Penn Insurance
and Annuity Company. Filed herewith.
(b) By-laws of The Penn Insurance and
Annuity Company. Filed herewith.
7. None.
C-2
<PAGE>
8. (a) Fund Participation Agreement
among The Penn Insurance and Annuity
Company, TCI Portfolios, Inc.
(renamed American Century Variable
Portfolios, Inc., effective May 1,
1997) and Investors Research
Corporation (renamed American
Century Investment Management, Inc.
effective May 1, 1997). Filed
herewith.
(b)(1) Sales Agreement between The Penn
Insurance and Annuity Company and
Neuberger & Berman Advisers
Management Trust. Originally filed
as Exhibit 8(b) to Pre-Effective
Amendment No. 1 to this Registration
Statement filed on February 22,
1995. Incorporated by reference to
Exhibit 8(b)(1) to Post-Effective
Amendment No. 1 to the Registration
Statement filed on April 29, 1996
(Accession No.
0000950109-96-002706).
(b)(2) Assignment and Modification
Agreement between Neuberger & Berman
Advisers Management Trust, Neuberger
& Berman Management Incorporated,
Neuberger & Berman Advisers Managers
Trust, Advisers Managers Trust and
and The Penn Insurance and Annuity
Company. Incorporated herein by
reference to Exhibit 8(b)(2) to
Post-Effective Amendment No. 1 to
the Registration Statement filed on
April 29, 1996 (Accession No.
0000950109-96-002706).
(b)(3) Amendment to Participation Agreement
between The Penn Insurance and
Annuity Company and Neuberger &
Berman Advisers Management Trust.
Incorporated herein by reference to
Exhibit 8(b)(3) to Post-Effective
Amendment No. 2 to the Registration
Statement filed on April 29, 1997
(Accession No.
0000950109-96-003327).
(c) Participation Agreement between The
Penn Insurance and Annuity Company
and Variable Insurance Products
Fund. Filed herewith.
(d) Participation Agreement between The
Penn Insurance and Annuity Company
and Variable Insurance Products Fund
II. Filed herewith.
C-3
<PAGE>
(e) Form of Sales Agreement between Penn
Series Funds, Inc. and The Penn
Insurance and Annuity Company, dated
May 1, 1999. Filed herewith.
(f) Participation Agreement between The
Penn Insurance and Annuity Company
and Morgan Stanley Universal Funds,
Inc. Incorporated herein by
reference to Exhibit 8(f) to
Post-Effective Amendment No. 2 to
the Registration Statement filed on
April 30, 1997, (Accession No.
000950109-97-003327).
9. Opinion of C. Ronald Rubley, Esq.,
Associate General Counsel to The
Penn Mutual Life Insurance Company
(parent of the Company), as to the
legality of the Contracts. Filed
herewith.
10. (a) Consent of Ernst & Young, LLP. Filed
herewith.
(b) Consent of Morgan, Lewis & Bockius
LLP. Filed herewith.
11. None.
12. None.
13. Schedule for Computation of
Performance Quotations. Filed
herewith.
14. (a) Powers of Attorney of Directors
(except Larry L. Mast). Incorporated
herein by reference to Exhibit 14(a)
to Post- Effective Amendment 2 to
the Registration Statement filed on
April 30, 1997 (Accession No.
0000950109-97-003327).
(b) Power of Attorney of Larry L. Mast,
Director. Incorporated herein by
reference to Exhibit 14(b) to
Post-Effective Amendment 4 to the
Registration Statement filed on
April 23, 1998 (Accession No.
0001036050-98-000668).
C-4
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The following table sets forth all of the directors and officers of the
Depositor.
DIRECTORS
ROBERT E. CHAPPELL ERNEST K. NOLL
NANCY S. BRODIE RUDOLPH C. SANDER
LARRY L. MAST DANIEL J. TORAN
OFFICERS
DANIEL J. TORAN STEVEN M. HERZBERG
President Treasurer
NANCY S. BRODIE FRANKLIN L. BEST, JR.
Executive Vice President and Secretary and Counsel
Chief Financial Officer
ANN M. STROOTMAN
PETER M. SHERMAN Controller
Senior Vice President and
Chief Investment Officer THOMAS F. GUMINA
Medical Director
ROBERT P. DAVIS
Vice President and Chief Actuary LAWRENCE N. SALTZMAN
Assistant Treasurer
PATRICK J. FILLETTE
Vice President LAURA M. RITZKO
Assistant Secretary
HAROLD E. MAUDE, JR.
Vice President RONALD R. TRUDEAU
Manager, Financial Reporting
RICHARD F. PLUSH
Vice President AVA P. WICKS
Director, Life and Annuity Company
The business address of the directors and officers, except Messrs. Noll and
Sander, is The Penn Mutual Life Insurance Company, Philadelphia, PA 19172. The
address of Mr. Noll is 421 Keats
C-5
<PAGE>
Road, Huntingdon Valley, PA 19006. The business address of Mr. Sander is Janney
Montgomery Scott Inc., 1801 Market Street, Philadelphia, PA 19103.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Depositor is a wholly-owned subsidiary of The Penn Mutual Life Insurance
Company.
PENN MUTUAL WHOLLY-OWNED SUBSIDIARIES
<TABLE>
<CAPTION>
CORPORATION PRINCIPAL BUSINESS STATE OF INCORPORATION
- ----------- ------------------ ----------------------
<S> <C> <C>
The Penn Insurance and Life Insurance and Annuities Delaware
Annuity Company
Independence Capital Investment Adviser Pennsylvania
Management, Inc.
Penn Janney Fund, Inc. Investments Pennsylvania
INDEPENDENCE SQUARE Holding Company Pennsylvania
PROPERTIES, INC.
The Pennsylvania Trust Trust Company Pennsylvania
Company
</TABLE>
INDEPENDENCE SQUARE PROPERTIES, INC.
WHOLLY-OWNED SUBSIDIARIES
<TABLE>
<CAPTION>
CORPORATION PRINCIPAL BUSINESS STATE OF INCORPORATION
- ----------- ------------------ ----------------------
<S> <C> <C>
Penn Glenside Corporation Real Estate Investment Pennsylvania
Penn Wayne Corporation Real Estate Investment Pennsylvania
St. James Realty Corporation Real Estate Investment Pennsylvania
Investors' Mortgage Real Estate Investment Pennsylvania
Corporation
Christie Street Properties, Real Estate Investment Pennsylvania
Inc.
INDEPRO CORPORATION Real Estate Investment Delaware
Economic Resources Real Estate Investment Delaware
Associates, Inc.
WPI Investment Company Real Estate Investment Delaware
Hornor, Townsend & Kent, Registered Broker-Dealer and Pennsylvania
Inc. Investment Adviser
Penn Tallahassee Corporation Real Estate Investment Florida
JANNEY MONTGOMERY SCOTT Registered Broker-Dealer and Delaware
INC. Investment Adviser
</TABLE>
<PAGE>
INDEPRO CORPORATION
WHOLLY-OWNED SUBSIDIARIES
<TABLE>
<CAPTION>
CORPORATION PRINCIPAL BUSINESS STATE OF INCORPORATION
- ----------- ------------------ ----------------------
<S> <C> <C>
Indepro Property Fund I Real Estate Investment Delaware
Corporation
Indepro Property Fund II Real Estate Investment Delaware
Corporation
Commons One Corporation Real Estate Investment Delaware
West Hazleton, Inc. Real Estate Investment Delaware
</TABLE>
JANNEY MONTGOMERY SCOTT, INC.
WHOLLY-OWNED SUBSIDIARIES
<TABLE>
<CAPTION>
CORPORATION PRINCIPAL BUSINESS STATE OF INCORPORATION
- ----------- ------------------ ----------------------
<S> <C> <C>
Addison Capital Investment Adviser Pennsylvania
Management, Inc.
JMS Resources, Inc. Oil and Gas Development Pennsylvania
JMS Investor Services, Inc. Insurance Sales Delaware
</TABLE>
C-6
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1999, there were:
3,341 owners of qualified individual variable annuity
contracts 2,826 owners of nonqualified individual variable
annuity contracts
ITEM 28. INDEMNIFICATION
Article 4.1 of the By-laws of The Penn Insurance and Annuity
Company provides as follows: "The Company shall indemnify any
person who was or is a party or threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding either civil, criminal, administrative or
investigative by reason of the fact that he is or was a
Director, Officer or employee of the Company or is or was
serving at the request of the Company as a director, officer
or employee of another enterprise against expenses (including
attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding to the extent
that such person is not otherwise indemnified and the power to
do so has been or may be granted by statute. For this purpose
the Board of Directors may, and on request of any such person
shall be required to, determine in each case whether or not
the applicable standards in any such statute have been met, or
such determination shall be made by independent legal counsel,
if the Board so directs or if the Board is not empowered by
statute to make such determination." Article 4.2 further
provides that the foregoing indemnification provision is not
exclusive, and Article 4.3 authorizes the Board to purchase at
the Company's expense insurance and to give other
indemnification to the extent permitted by law.
Selling Agreements entered into by The Penn Insurance and
Annuity Company ("PIA") and its affiliate, Hornor, Townsend &
Kent, Inc. ("HTK") with securities brokers and insurance
agents generally provide for indemnification of PIA and HTK
and their directors and officers in the event of liability
resulting from unauthorized acts of the brokers and insurance
agents.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, 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 a 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 the
securities being registered, the registrant
C-7
<PAGE>
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.
ITEM 29. PRINCIPAL UNDERWRITERS
Hornor, Townsend & Kent, Inc. serves as principal underwriter
of the securities of the Securities Registrant.
Hornor, Townsend & Kent, Inc. serves as principal underwriter
for Addison Capital Shares, Inc., a registered investment
company, and for variable annuity and variable life insurance
contracts issued by Penn Mutual and funded through Variable
Annuity Account III and Variable Life Account I.
HORNOR, TOWNSEND & KENT, INC. - DIRECTORS AND OFFICERS
John J. Gray, Director and Chairman of the Board
Larry L. Mast, Director
Nina M. Mulrooney, Director
Daniel J. Toran, Director
Norman T. Wilde, Jr., Director
Ronald C. Zimmerman, President and Chief Executive Officer
Michael D. Sweeney, Assistant Vice President, Director of
Compliance and Secretary
Edward G. Pecelli - Assistant Vice President, Director of
Sales and Marketing
Laura M. Ritzko, Assistant Secretary
Joseph R. Englert, Assistant Vice President, Director of
Operations
Henry S. Buck, Assistant Vice President and Assistant
Treasurer
Barbara S. Wood, Senior Vice President, Finance and Treasurer
Franklin L. Best, Jr., Counsel
Constance Flaville, Assistant Secretary
The principal business address of Messrs. Gray and Wilde is
Janney, Montgomery, Scott Inc., 1801 Market Street,
Philadelphia, Pennsylvania.
The principal business address of the other directors and
officers is Hornor, Townsend & Kent, Inc., 600 Dresher Road,
Horsham, Pennsylvania.
C-8
<PAGE>
Commissions and Other Compensation Received By Each Principal
Underwriter During Last Fiscal Year
<TABLE>
<CAPTION>
NET UNDERWRITING COMPENSATION
NAME OF PRINCIPAL DISCOUNTS AND ON BROKER OTHER
UNDERWRITER COMMISSIONS REDEMPTION COMMISSIONS COMMISSIONS
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Hornor, Townsend & $ 251,816 $0 $0 $0
Kent, Inc.
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The name and address of the person who maintains physical
possession of each account, book or other documents required
by Section 31(a) of the Investment Company Act of 1940 is as
follows:
The Penn Insurance and Annuity Company
600 Dresher Road
Horsham, Pennsylvania 19044
ITEM 31. MANAGEMENT SERVICES
See "Administrative and Recordkeeping Services" in Part B of
this Registration Statement.
ITEM 32. UNDERTAKINGS
THE PENN INSURANCE AND ANNUITY COMPANY HEREBY UNDERTAKES:
(a) to file a post-effective amendment to this
registration statement as frequently as is necessary
to ensure that the audited financial statements in
the registration statement are never more than 16
months old for so long as payments under the variable
annuity contracts may be accepted;
(b) to include either (1) as part of any application to
purchase a contract or account offered by the
prospectus, a space that an applicant can check to
request a statement of additional information, or (2)
a post card or similar written communication affixed
to or included in the prospectus that the applicant
can remove to send for a statement of additional
information;
(c) to deliver any statement of additional information
and any financial statements required to be made
available under Form N-4 promptly upon written or
oral request.
C-9
<PAGE>
Restrictions on withdrawals under Section 403(b) contracts are imposed in
reliance upon, and in compliance with, a no-action letter issued by the Chief of
the Office of Insurance Products and Legal Compliance of the Securities and
Exchange Commission to the American Council of Life Insurance on November 28,
1988.
The Penn Insurance and Annuity Company represents that the fees and charges
deducted under the Individual Variable and Fixed Annuity Contract, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the Registrant.
C-10
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
No. 5 of this Registration Statement and has caused this Post-Effective
Amendment to be signed on its behalf, in the Township of Horsham and
Commonwealth of Pennsylvania on this 23rd day of April, 1999.
PIA VARIABLE ANNUITY ACCOUNT I
(Registrant)
THE PENN INSURANCE AND ANNUITY COMPANY
(Depositor)
By: /s/ Daniel J. Toran
--------------------------------------
Daniel J. Toran
President
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons, in the capacities indicated,
on the 23rd day of April, 1999.
Signature Title
- --------- -----
*Daniel J. Toran President and Director
(Principal Executive Officer)
/s/ Nancy S. Brodie Executive Vice President,
- --------------------------- Chief Financial Officer and Director
Nancy S. Brodie (Principal Financial Officer)
/s/ Ann M. Strootman Controller
- --------------------------- (Principal Accounting Officer)
Ann M. Strootman
*Robert E. Chappell Director
*Larry L. Mast Director
*Ernest K. Noll Director
*Rudolph C. Sander Director
*By: /s/ Robert E. Chappell
-----------------------------------
Robert E. Chappell, attorney-in-fact
<PAGE>
EXHIBIT INDEX
EX-99.B 1 Resolution of Board of Directors of The Penn
Insurance and Annuity Company authorizing the
establishment of the Registrant.
EX-99.B 3(a) Sales Support Agreement between The Penn Insurance
and Annuity Company and Hornor, Townsend & Kent,
Inc., dated March 1, 1995.
EX-99.B 3(b) Agent's Agreement between the Company, Hornor,
Townsend & Kent, Inc. and Agent, relating to
broker-dealer supervision, dated March 1, 1995.
EX-99.B 3(c) Distributtion Agreement between The Penn Insurance
and Annuity Company and Hornor , Towns end & Kent,
Inc., dated March 1, 1995.
EX-99.B3(d) Form of Broker-Dealer Selling Agreement (for
broker-dealers licensed to sell variable annuity
contracts and/or variable life insurance contracts
under state insurance laws).
EX-99.B3(e) Form of Broker-Dealer Selling Agreement (for
broker-dealers with affiliated corporations licensed
to sell variable annuity contracts and/or variable
life insurance contracts under state insurance
laws).
EX-99.B 4(a) Individual Variable and Fixed Annuity Contract
(Form IA-94).
EX-99.B 4(b) Endorsement No. PI 1534-96 to the Individual Retired
Annuity Contract.
EX-99.B 4(c) Endorsement No. PI 1542-97 to the Tax Deferred
Annuity 403(b) Contract.
EX-99.B 4(d) Endorsement No. PI 1536-90-403(b) Loan Endorsement.
C-12
<PAGE>
EX-99.B 4(e) Endorsement No. PI 1543-90 to Non-Transferrable
Annuity 401(g).
EX-99.B 4(f) Endorsement No. PI 1542-90 to Tax Deferred Annuity
403(b).
EX-99.B 5 Application for Individual Variable and Fixed
Annuity Contract (Form PI 1335).
EX-99.B 6(a) Certificate of The Penn Insurance and Annuity
Company.
EX-99.B 6(b) By-laws of The Penn Insurance and Annuity Company.
EX-99.B 8(a) Fund Participation Agreement among The Penn
Insurance and Annuity Company, TCI Portfolios, Inc.
and Investment Research Corporation.
EX-99.B 8(c) Participation greement between the Penn Insurance
and Annuity Company and Neuber ger & Berger Advisers
Management Trust.
EX-99.B 8(d) Participation Agreement between the Penn Insurance
and Annuity Company and the Variable Insurance
Products Fund.
EX-99.B 8(e) Form of Sales Agreement between Penn Series Funds,
Inc. and The Penn Insurance and Annuity Company.
EX-99.B9 Opinion of C. Ronal Rubley.
EX-99.B 10(a) Consent of Ernst & Young LLP
EX-99.B 13 Consent of Morgan, Lewis & Bockius LLP
EX-99.B 13 Schedule for Computation of Performance Quotations
C-13
<PAGE>
Exhibit 1
THE PENN INSURANCE AND ANNUITY COMPANY
RESOLUTION OF BOARD OF DIRECTORS AUTHORIZING
ESTABLISHMENT OF PIA VARIABLE ANNUITY ACCOUNT I
July 13, 1994
RESOLVED, that The Penn Insurance and Annuity Company (the "Company")
hereby establishes, pursuant to Section 2932 of the Delaware Insurance Code, as
amended, a separate account, designated PIA Variable Annuity Account I (the
"Separate Account");
RESOLVED FURTHER, the Separate Account shall be used for annuity
contracts (the "Contracts") which provide for benefits based upon the investment
experience of investments held in the Separate Account;
RESOLVED FURTHER, that the Company is authorized to invest amounts held
in subaccounts of the Separate Account in shares of the following funds or
portfolios of the following registered investment companies, in accordance with
instructions from owners of and payees under the Contracts:
Penn Series Funds, Inc.: Growth Equity Fund
Value Equity Fund
Flexibly Managed Fund
International Equity Fund
Quality Bond Fund
High Yield Bond Fund
Money Market Fund
Neuberger & Berman: Limited Maturity Bond Portfolio
Advisers Management Balance Portfolio
Trust
TCI Portfolios, I: TCI Growth Portfolio
Variable Insurance: Equity-Income Portfolio
Product Fund Growth Portfolio
Variable Insurance: Asset Manager Portfolio
Product Fund II
RESOLVED FURTHER, the officers of the Company are hereby
authorized to take all action necessary to: (a) register the Separate Account as
a unit investment trust under the Investment Company Act of 1940; (b) register
the Contracts under the Securities Act of 1933 in such amounts as the officers
of the Company shall from time to time deem appropriate; (c) apply for such
exemptions from, and other orders pursuant to, the Investment Company Act of
1940, as the officers of the Company shall deem necessary or desirable for the
Separate Account; and (d) take all other action necessary or desirable to comply
with the Investment Company Act of 1940, the Securities Exchange Act of 1934,
the Securities Act of 1933 and all other applicable state and federal laws in
connection with the offering of the Contracts and the operation of the Separate
Account.
<PAGE>
SALES SUPPORT AGREEMENT
Between
THE PENN INSURANCE AND ANNUITY
And
HORNOR, TOWNSEND & KENT, INC.
Individual Variable and Fixed Annuity Contracts
Dated as of March 1, 1995
<PAGE>
AGREEMENT made as of the 1st day of March, 1995, by and between THE
PENN INSURANCE AND ANNUITY COMPANY ("PIA"), a Delaware Corporation, and HORNOR,
TOWNSEND & KENT, INC. ("HTK"), a Pennsylvania Corporation.
W I T N E S S E D:
WHEREAS, PIA is engaged in the business of issuing individual variable
and fixed annuity contracts to the public;
WHEREAS, HTK is licensed as a life insurance agent of PIA under state
insurance laws, is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Security Dealers,
Inc. ("NASD"); and
WHEREAS, PIA desires that HTK provide sales support services in
connection with the sale of individual variable and fixed annuity contracts by
designated life insurance agents of PIA, and HTK desires to provide such
services;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. PIA will furnish HTK with the names of its life insurance
agents who indicate a desire to sell individual variable and
fixed annuity contracts identified in Schedule I attached
hereto (hereinafter referred to as the "Contracts").
2. HTK, after investigation will select the life insurance agents
of PIA who are to become qualified under federal securities
laws and rules of the NASD to engage in the sale of Contracts
and will use its best efforts to cause such life insurance
agents to be qualified. Life insurance agents so qualified
will be "persons associated with" HTK under the Securities
Exchange Act of 1934 and the applicable rules of the NASD.
Upon such qualification of a life insurance agent, the
qualification shall be certified in writing to PIA by HTK.
3. Prior to permitting a life insurance agent to sell Contracts
as an associated person of HTK, PIA, HTK and the life
insurance agent will enter into an agreement pursuant to which
the life insurance agent will acknowledge that he or she will
be an associated person of HTK in connection with his or
selling Contracts and that the life insurance agent's right to
continue to sell Contracts is subject to his or her continued
compliance with such agreement and the rules and procedures
established by HTK.
4. It is contemplated that other personnel of PIA may become
qualified as associated persons of HTK in order to carry out
securities activities with respect to the sale of Contracts.
HTK will train such personnel as requested by PIA, and will
use its best efforts to cause such personnel to become
qualified as associated persons. Upon such qualification, the
qualification shall be certified in writing to PIA by HTK.
<PAGE>
5. HTK will fully comply with the requirements of NASD and of the
Securities Exchange Act of 1934 and will supervise diligently
the security activities of life insurance agents of PIA who
are associated persons of HTK. Upon request by HTK, PIA will
furnish or request any life insurance agent who is an
associated person to furnish (at PIA's or the life insurance
agent's expense) such appropriate records that may be
necessary to insure diligent supervision.
6. In the event any associated person fails or refuses to submit
to supervision by HTK in accordance with this Agreement, or
otherwise fails to meet the rules and standards imposed by HTK
on the associated person, HTK shall certify such fact to HTK
and shall immediately notify the associated person that he or
she is no longer authorized to engage in securities activities
with respect to the sale of Contracts, and HTK and PIA shall
take whatever additional action may be necessary to terminate
such securities activities of the associated person.
7. HTK will assume full responsibility for the security
activities of its associated persons with respect to the sale
of Contracts and for initial and continued compliance by
itself and its associated persons with applicable federal and
state security laws and rules of the NASD. HTK may demand and
shall be entitled to receive such assurances from PIA as HTK
deems appropriate to demonstrate compliance with the
Securities Act of 1933 and the Investment Company Act of 1940.
8. Compensation and reimbursement of expenses payable to life
insurance agents in connection with sales of Contracts shall
be paid by PIA under PIA's agency contracts and will not be an
expense of HTK. All premium payments paid under Contracts by
owners shall be paid to PIA and will not be income to HTK. HTK
shall have no interest in any commissions or other remunerate
payable to life insurance agents by PIA or in any premium
payments paid under Contracts to PIA. For regulatory purposes
of the NASD and the Securities Exchange Act of 1934,
commissions paid by Penn Mutual shall be appropriately
reflected in the books and records maintained by or on behalf
of HTK.
9. At the request of HTK, some or all of the books and records
required to be maintained by a registered broker-dealer under
the Securities Exchange Act of 1934 in connection with the
sale of Contracts will be maintained by PIA as agent for HTK.
PIA agrees that such records are and shall remain the property
of HTK, will be maintained and preserved in conformity with
the requirements of Rules 17a-3 and 17a-4 under the Securities
Exchange Act of 1934, to the extent that such requirements are
applicable to the Contracts, and will be subject to
examination by the Securities Exchange Commission in
accordance with Section 17(a) of the Securities Exchange Act
of 1934.
<PAGE>
10. A confirmation with respect to each purchase payment made
under Contracts will be sent to the owner of such Contract in
accordance with Rule 10b-10 under the Securities Exchange Act
of 1934.
11. In payment for the services performed under this Agreement,
PIA shall compensate as provided in Schedule I attached
hereto.
12. The compensation for services provided under this Agreement
shall be paid within 15 days after the end of the calendar
month in which premium payments are accepted by PIA. Should
PIA for any reason return a premium payment, HTK shall repay
PIA the total amount of any compensation which PIA may have
paid to HTK with respect to such premium payments.
13. HTK will cooperate with PIA in investigating and settling all
claims that are made against PIA in connection with the sale
of Contracts by life insurance agents of PIA who are
associated with HTK. HTK shall promptly forward to PIA any
notice of claim or relevant information concerning a potential
claim which may come into its possession, and shall promptly
forward to PIA any legal papers served on HTK involving the
sale of Contracts.
14. HTK will indemnify and hold harmless PIA and each director and
officer of PIA against any losses, damages or liabilities,
insofar as such losses, damages and liabilities arise out of
or are based upon the failure of HTK and its officers,
employees and representatives to comply with the provisions of
this Agreement.
15. PIA will indemnify and hold harmless HTK and each director and
officer of HTK against any losses, damages or liabilities, to
which HTK or such director or officer becomes subject, under
the Securities Act of 1933 or otherwise, insofar as such
losses, damages and liabilities arise out of or are based upon
any inaccurate or inadequate statement in the Registration
Statement for the Contracts.
16. This Agreement shall continue in effect until terminated.
Either party may terminate the Agreement by giving the other
party thirty days prior written notice.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year written
above.
THE PENN INSURANCE AND ANNUITY
COMPANY
Attest
By
- ------------------------------- ----------------------------------
L. Stockton Illoway
Vice President
HORNOR TOWNSEND & KENT, INC.
Attest
By
- ------------------------------- ----------------------------------
Vincent T. Cloud
President
<PAGE>
The Penn Insurance and Annuity Company
Independence Square, Philadelphia, PA 19172
National Accounts - Corporate Insurance Agents
Licensed to Sell Variable Annuities and/or Variable
Life Insurance under State Insurance Laws
(Companion Agreement - Form A-1)
CORPORATE INSURANCE AGENT SELLING AGREEMENT
THE PENN INSURANCE AND ANNUITY COMPANY (hereinafter called "PIA") and
Hornor, Townsend & Kent, Inc. (hereinafter called "Distributor") enter into this
Agreement with (hereinafter called "Corporate Insurance Agent") on this date ,
19 agree as follows:
W I T N E S S E T H:
WHEREAS, PIA is in the business of issuing annuity and life insurance
contracts to the public;
WHEREAS, Distributor is an affiliate of PIA, is registered as a
broker-dealer under the Securities Exchange Act of 1934, is a member of the
National Association of Securities Dealers, Inc., and is assisting PIA in the
distribution of such contracts;
WHEREAS, Corporate Insurance Agent is properly licensed under the
insurance laws of the state(s) in which it will act under this agreement;
WHEREAS, Corporate Insurance Agent is affiliated with , a corporation
which is registered as a broker-dealer under the Securities Exchange Act of 1934
and is a member of the National Association of Securities Dealers, Inc.
(hereinafter referred to as "Broker-Dealer");
WHEREAS, the parties desire to enter into an arrangement under which
Corporate Insurance Agent and Broker-Dealer agree to sell certain annuity and
life insurance contracts issued by PIA;
NOW THEREFORE, in consideration of these premises and mutual covenants
herein contained, the parties agree as follows:
<PAGE>
13. APPOINTMENT OF CORPORATE INSURANCE AGENT.
13.1 Subject to the terms and conditions of this agreement, PIA and
Distributor appoint Corporate Insurance Agent as a non-exclusive
agent for the solicitation of applications for, and the
servicing of, annuity and/or variable life insurance contracts
identified in the schedule(s) attached hereto, and Corporate
Insurance Agent accepts such appointment. The annuity and/or
variable life insurance contracts identified in the schedules(s)
are referred to herein as "Contracts".
13.2 Corporate Insurance Agent and its representatives shall be
independent contractors as to PIA and Distributor and, subject
to the terms and conditions of this agreement, free to exercise
their own judgment as to the time, place and means of performing
all acts hereunder. Nothing in this agreement is intended to
create a relationship of employer and employee as between PIA or
Distributor, on the one hand, and representatives of Corporate
insurance Agent on the other.
14. INSURANCE AND SECURITIES REGULATIONS - COORDINATION OF AGREEMENTS.
14.1 The sale of variable annuity and variable life insurance
contracts identified in the schedule(s) attached hereto is
subject to and regulated under federal securities laws (and may
also be subject to and regulated under certain state securities
laws), in addition to state insurance laws. It is understood and
agreed that representatives of Corporate Insurance Agent shall
be registered representative of Broker-Dealer and that
Broker-Dealer shall contemporaneously enter into a Broker-Dealer
Selling Agreement with PIA and Distributor covering the sale of
such contracts. This agreement and the Broker-Dealer Selling
Agreement shall govern the sales of such contracts.
15. SALE OF CONTRACTS.
15.1 Corporate Insurance Agent shall use its best efforts to solicit
applications for Contracts from persons for whom the Contracts
are suitable, in accordance with the terms and conditions of
this agreement.
15.2 All applications for Contracts shall be made on applications
forms authorized by PIA. Corporate Insurance Agent shall
diligently review all such applications for accuracy and
completeness and shall take all reasonable and appropriate
measures to assure that applications submitted to PIA are
accurate and complete.
15.3 All purchase payments collected by Corporate Insurance Agent for
PIA shall be received in trust and shall be remitted immediately
together with the application and any other required
documentation, to PIA at the address indicated on the
application or to such other address as PIA may specify in
writing. All checks or money orders for payments under Contracts
shall be drawn to the order of PIA.
<PAGE>
15.4 All applications are subject to acceptance or rejection by PIA
in its sole discretion. PIA may at any time in its sole
discretion discontinue issuing the Contracts or change the form
and content of new Contracts to be issued.
15.5 In soliciting applications for Contracts, Corporate Insurance
Agent may not accept risk of any kind for or on behalf of PIA
and may not bind PIA by promise or agreement or alter any
Contract in any way.
16. COMPENSATION.
16.1 In consideration of and as full compensation for the services
performed in accordance with this agreement, Corporate Insurance
Agent will receive compensation from PIA as set forth in the
schedule(s) attached to this agreement. The schedule(s) shall be
signed and dated by the parties.
16.2 Should PIA for any reason return any payment made under a
Contract to the payor, Corporate Insurance Agent shall repay PIA
the total amount of any compensation which PIA may have paid
with respect to such payment.
16.3 Corporate Insurance Agent may not withhold or deduct any part of
any premium or other payment due PIA for payment of compensation
under this agreement or for any other purpose. The right of
Corporate Insurance Agent to receive any compensation under this
agreement shall at all times be subordinate to the right of PIA
or Distributor to offset or apply such compensation against any
indebtedness of Corporate Insurance Agent to PIA or Distributor.
16.4 PIA may, in its sole discretion, change the amount, terms and
conditions, of compensation set forth in the schedule(s)
attached to this agreement with respect to payment received by
PIA under Contracts.
16.5 PIA shall not be obligated to pay any compensation which would
be in violation of applicable laws of any jurisdiction, anything
in this agreement to the contrary notwithstanding.
16.6 With respect to compensation paid in connection with the sale of
variable annuity and/or variable life insurance contracts,
Corporate Insurance Agent shall, on behalf of Broker-Dealer,
maintain such books and records as are necessary for
Broker-Dealer to comply with applicable record keeping
requirements under federal and state securities laws and under
the rules of the National Association of Securities Dealer, Inc.
Such records shall be maintained and preserved in conformity
with the requirements of Rules 17a-3 and 17a-4 under the
Securities Exchange Act of 1934, to the extent that such
requirements are applicable to the variable annuity and/or
variable life contracts. Further, with respect to such records,
Corporate Insurance Agent shall be subject to examination by the
Securities and Exchange Commission in accordance with Section
17(a) of the Securities Exchange Act of 1934.
<PAGE>
17. COMPLIANCE WITH INSURANCE LAWS AND REGULATIONS.
17.1 Corporate Insurance Agent and its representative shall not
solicit applications for Contracts in any state or jurisdiction
unless they are duly licensed and qualified to do so under the
insurance laws and regulations of the state or jurisdiction and
unless PIA has notified Corporate Insurance Agent that the
Contracts have been approved for sale in the state or
jurisdiction.
17.2 PIA may at any time in its sole discretion withhold or withdraw
authority of any representative of Corporate Insurance Agent to
solicit applications for the Contracts. Upon PIA giving written
notice to Corporate Insurance Agent of its withdrawal of
authority of a representative to solicit applications, Corporate
Insurance Agent shall immediately cause any such representative
to cease all such solicitations.
17.3 Corporate Insurance Agent shall notify PIA in writing
immediately of the termination of the employment or affiliation
of an employee or representative who is an appointed agent of
PIA pursuant to this agreement.
17.4 Corporate Insurance Agent shall keep accurate and complete books
and records of all transactions relating to the solicitation of
applications and for servicing Contracts. The books and records
shall be made available to PIA for inspection upon reasonable
request.
17.5 If Corporate Insurance Agent solicits applications for or
servicing variable life insurance contracts under this
agreement, Corporate Insurance Agent and its representative
shall observe the Standards of Suitability for the Sale of
Variable Life Insurance set forth on the reverse side of the
schedule attached hereto identifying such contacts.
17.6 Corporate Insurance Agent and its representatives shall comply
with all applicable insurance laws and regulations in soliciting
applications for and servicing Contracts. Corporate Insurance
Agent shall be fully responsible for all acts of its
representatives in soliciting applications for and servicing
Contracts.
18. ADVERTISEMENTS, SALES LITERATURE AND OTHER COMMUNICATIONS.
18.1 Corporate Insurance Agent shall not print, publish, distribute
or use any advertisements, sales literature or other writing
relating to the Contracts unless such advertisements, sales
literature or other writing shall have first been approved in
writing by PIA and Distributor.
18.2 Corporate Insurance Agent shall exercise care not to
misrepresent the Contracts or PIA and shall make no oral or
written representation which is inconsistent with the terms of
the Contracts or with the information in any Prospectus or sales
literature furnished by PIA or it misleading in any way.
<PAGE>
19. Indemnification.
19.1 Corporate Insurance Agent shall indemnify or hold harmless PIA
and Distributor and each director and officer of PIA and
Distributor against any losses, claims, damages or liabilities,
including but not limited to reasonable attorneys' fees and
court cost to which PIA or Distributor and any such director or
officer may become subject under the Securities Act of 1933 or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon any unauthorized use of sales materials or any verbal
or written misrepresentations or any unlawful sales practices,
or the failure of Corporate Insurance Agent its officers,
employees or representative to comply with the provisions of
this agreement or the willful misfeasance, bad faith, negligence
or misconduct of Corporate Insurance Agent its officers,
employees, or representatives in the solicitation of
applications for and the servicing of Contracts.
19.2 PIA and Distributor shall indemnify and hold harmless Corporate
Insurance Agent and each officer or director of Corporate
Insurance Agent against any losses, claims, damages or
liabilities, joint or several, including but not limited to
reasonable attorneys' fees and court cost to which Corporate
Insurance Agent or such officer or director becomes subject,
under the Securities Act of 1933 or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact, required to be
stated therein or necessary to make the statements therein not
misleading, contained in any registration statement or any
post-effective amendment or supplement to the prospectus, or in
any sales material written by PIA or Distributor.
19.3 In the event PIA suffers a loss resulting from Corporate
Insurance Agent activities, Corporate Insurance Agent hereby
assigns any proceeds received under its fidelity bond to PIA to
the extent of such losses. If there is any deficiency amount,
whether due to a deductible or otherwise, Corporate Insurance
Agent shall promptly pay PIA such amount on demand and Corporate
Insurance Agent shall indemnify and hold harmless PIA from any
such deficiency and from the costs of collection thereof
(including reasonable attorneys' fees).
<PAGE>
20. COMPLAINTS, INVESTIGATIONS & PROCEEDINGS.
20.1 Corporate Insurance Agent shall promptly notify PIA and
Distributor of any allegation that Corporate Insurance Agent or
any of its representatives violated any law, regulation or rule
in soliciting applications for or servicing Contracts, and shall
provide PIA with full details, including copies of all legal
documents pertaining thereto.
20.2 Corporate Insurance Agent shall cooperate fully with PIA and
Distributor in any regulatory investigation or proceeding or
judicial proceeding involving the solicitation of application
for and servicing Contracts by Corporate Insurance Agent or any
of its representatives.
21. NONWAIVER.
21.1 Forbearance by PIA or Distributor to enforce any rights under
this agreement shall not be construed as a waiver of any of the
terms and conditions of this agreement and the same shall remain
in full force and effect. No waiver of any provision of this
agreement shall be deemed to be a waiver of any other provision,
whether or not similar, nor shall any waiver of a provision of
this agreement be deemed to constitute a continuing waiver.
22. AMENDMENT.
22.1 PIA reserves the right to amend this Agreement at any time.
Corporate Insurance Agent's submission of an application for a
Contract after notice of any such amendment shall constitute
agreement of Corporate Insurance Agent to such amendment.
23. TERMINATION AND ASSIGNMENT.
23.1 This agreement may be terminated by any party, with or without
cause, upon giving written notices to the other parties. This
agreement shall automatically terminate if Corporate Insurance
Agent is adjudicated as bankrupt or avails itself of any
insolvency act or if a permanent receiver or trustee in
bankruptcy is appointed for the property of Corporate Insurance
Agent. Upon termination of this agreement, with or without
cause, all authorizations, rights and obligations shall cease,
except the rights and obligations set forth in sections 7 and 8
of this agreement and the obligations to settle account
hereunder, including the immediate forwarding of all payments
received by Corporate Insurance Agent under Contract to PIA, and
except as may be expressly stated otherwise in this agreement.
23.2 This agreement may not be assigned without the written consent
of all parties.
24. GOVERNING LAW
24.1 This Agreement shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the day and year
first written.
-------------------------------------
Name of Corporate Insurance Agent
By:
--------------------------------------
Signature
--------------------------------------
Name
--------------------------------------
Title
THE PENN INSURANCE AND ANNUITY COMPANY
By:
--------------------------------------
Signature
--------------------------------------
Name
--------------------------------------
Title
HORNOR, TOWNSEND & KENT, INC.
By:
--------------------------------------
Signature
--------------------------------------
Name
--------------------------------------
Title
<PAGE>
The Penn Insurance and Annuity Company
Independence Square, Philadelphia, PA 19172
AMENDMENT TO CORPORATE
INSURANCE AGENT SELLING AGREEMENT
(Companion Agreement - Form A-1)
Name of Corporate insurance Agent:______________________________________________
Individual Variable and Fixed Only Annuity Contracts - Pennant
Date of Corporate Selling Agreement (Companion Agreement - Form A-1) to which
this schedule is attached:
<PAGE>
1. SUBSECTION 3.3 OF SECTION 3 OF THE CORPORATE INSURANCE AGENT SELLING
AGREEMENT IS AMENDED TO PROVIDE AS FOLLOWS:
All payments collected by Corporate Insurance Agent shall be
received in trust and shall be remitted immediately together
with all required documentation, to PIA at the address stated
on the application or to such other address as PIA may specify
in writing. All checks and money orders for payments under
Contracts shall be drawn to the order of PIA. Notwithstanding
the foregoing, in cases where Corporate Insurance Agent
deducts compensation from premiums and other payments, as
provided in subsection 4.3 of Section 4 below, checks and
money orders may be made payable to Corporate Insurance Agent
and Corporate Insurance Agent may send the remaining balance
(after deducting compensation ) to PIA, provided the balance
is remitted immediately to PIA.
2. SUBSECTION 4.3 OF SECTION 4 OF THE CORPORATE INSURANCE AGENT SELLING
AGREEMENT IS AMENDED TO PROVIDE AS FOLLOWS:
Except as provided in this subsection, Corporate Insurance
Agent may not withhold or deduct any part of any premium or
other payment due PIA for payment of compensation under this
agreement or for any other purpose. Corporate Insurance Agent
may deduct compensation as set forth in Schedule 1 attached to
the Agreement from premiums and other payments due PIA under
the Agreement and may send the remaining balance to PIA,
provided that in doing so Corporate Insurance Agent complies
fully with Rule l5c3-3(k)(2)(i) under the Securities Exchange
Act of 1934, to the extent applicable. The right of Corporate
Insurance Agent to receive or retain any compensation under
this agreement shall at all times be subordinate to the right
of PIA or Distributor to offset or apply such compensation
against any indebtedness of Corporate Insurance Agent to PIA
or Distributor.
<PAGE>
Agreed:
Date:
-------------------------- ---------------------------------------
Corporate Insurance Agent
By:
--------------------------------------
Signature
--------------------------------------
Name
--------------------------------------
Title
THE PENN INSURANCE AND ANNUITY COMPANY
By:
--------------------------------------
Signature
--------------------------------------
Name
--------------------------------------
Title
HORNOR, TOWNSEND & KENT, INC.
By:
--------------------------------------
Signature
--------------------------------------
Name
--------------------------------------
Title
<PAGE>
SCHEDULE I DATED MARCH 1, 1995
To
SALES SUPPORT AGREEMENT
Between
THE PENN INSURANCE AND ANNUITY COMPANY ("PIA")
And
HORNOR, TOWNSEND KENT, INC. ("HTK")
DATED AS OF MARCH 1, 1995
INDIVIDUAL VARIABLE AND FIXED ANNUITY CONTRACTS
Individual Variable and Fixed Annuity Contracts - Flexible Purchase Payments -
Form IA-94 and variations thereof as required under state insurance laws
COMPENSATION
1. With respect to agents/registered representatives who are compensated
under the high commission schedule for sales of Contracts identified in
this Schedule I (Option A), PIA shall pay HTK .20% of purchase payments
made under the Contracts and a percentage of the Contract Values at the
annual rate of .01%.
2. With respect to agents/registered representatives who are compensated
under the medium commission schedule for sales of Contracts identified
in this Schedule I (Option B), PIA shall pay HTK . 15% of purchase
payments made under the Contracts and a percentage of the Contract
Values at the annual rate of .02%.
3. With respect to agents/registered representatives who are compensated
under the low commission schedule for sales of Contracts identified in
this Schedule I (Option C), PIA shall pay HTK .10% of purchase payments
made under the Contracts and a percentage of the Contract Values at the
annual rate of .03%.
With respect to each Contract, the asset based compensation described in the
forgoing sections (i.e. percentage of Contract Values) shall commence in the
first calendar quarter following the completion of the first contract year. The
compensation shall be paid in installments at the end of each calendar quarter.
<PAGE>
THE PENN INSURANCE AND ANNUITY COMPANY
INDEPENDENCE SQUARE, PHILADELPHIA, PA 19172
AGENT'S AGREEMENT
VARIABLE ANNUITY
AND
VARIABLE LIFE INSURANCE
CONTRACT SALES
Dated _________________
<PAGE>
______________________________________________________________
AGENT'S AGREEMENT
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE
CONTRACT SALES
THIS AGREEMENT entered into this __________day of ___________,
199___ among the The Penn Insurance and Annuity Company, a
Delaware corporation ("PIA"), Hornor, Townsend and Kent, Inc.,
a Pennsylvania corporation (the "Broker") and
_________________________, a soliciting agent of The Penn
Insurance and Annuity Company ("Agent").
______________________________________________________________
WITNESSETH
WHEREAS, Agent is engaged in the business of soliciting
applications for insurance policies and annuity contracts pursuant to a contract
with The Penn Insurance and Annuity Company or a general agent of The Penn
Insurance and Annuity Company;
WHEREAS, Agent desires to solicit applications for variable
annuity contracts and/or variable life insurance contracts ("Contracts") issues
by The Penn Insurance and Annuity Company;
WHEREAS, the Contracts may be deemed to be securities under
the securities act of 1933, and applicable state laws, and the sale of such
securities may be deemed to be through an instrumentality of interstate commerce
within the meaning of Section 15(a) of the Securities Exchange Act of 1934 (the
"1934 Act");
WHEREAS, the Broker is a wholly-owned subsidiary of The Penn
Insurance and Annuity Company, is registered as a broker-dealer under Section
15(b) of the 1934 Act and is a member of the National Association of Securities
Dealers Inc. (the "NASD");
WHEREAS, Agent is, or expects shortly to be, duly qualified to
act as a representative of the Broker under the provisions of the 1934 Act and
the applicable rules of the NASD and has agreed to accept the supervision and
control of the Broker in connection with the sale of Contracts;
WHEREAS, the parties hereto desire to set forth the duties,
authority and responsibility of each of the parties in connection with the sale
of Contracts;
<PAGE>
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
1. The Broker agrees to supervise diligently the securities
activities of Agent with respect to the sale of Contracts and agrees to
establish, from time to time, such rules and procedures as may be necessary to
insure compliance with applicable federal and state securities laws and rules of
the NASD relating to the sale of Contracts.
2. Agent agrees to comply with such rules and regulations as
the Securities and Exchange Commission, the NASD or the Broker may establish
from time to time relating to the sale of Contracts, to observe all applicable
federal and state laws relating to Contracts and to submit to such supervision
regarding sales of Contracts as may be necessary to insure compliance herewith.
In addition to such other rules as may be established by the Broker from time to
time. Agent shall adhere to high standards of commercial honor and just and
equitable principles of trade in accordance with the Rules of Fair Practice of
the NASD and the interpretation of its Board of Governors in all respects in the
sale of Contracts, and shall not use any advertising or sales literature in
connection with sales of Contracts other than that supplied by The Penn
Insurance and Annuity Company and approved by the Broker.
3. Agent agrees that he or she shall have authority to solicit
applications for Contracts only so long as (a) neither this Agreement nor
Agent's contract with The Penn Insurance and Annuity Company or with a general
agent of The Penn Insurance and Annuity Company has been terminated; (b) he or
she continues to be qualified as an associated person of the Broker pursuant to
the 1934 Act and NASD rules; (c) he or she is authorized to solicit applications
for Contracts under the laws of the state in which such solicitations are made;
and (d) all such solicitations are made in accordance with the requirements of
federal and state securities laws and the rules thereunder and the rules of the
NASD.
4. The parties agree that:
(a) Except to the extent modified hereby, Agent's contract
with The Penn Insurance and Annuity Company or with a general agent of The Penn
Insurance and Annuity Company shall continue in full force and effect according
to its terms.
(b) All commissions payable on sales of Contracts shall be
paid by The Penn Insurance and Annuity Company to Agent under Agent's contract
with The Penn Insurance and Annuity Company or with a general agent of The Penn
Insurance and Annuity Company nothing contained herein shall create any right,
title or interest in the Broker to such commissions nor any responsibility on
the part of the Broker for payment of such commissions.
(c) In the event the Broker shall notify The Penn Insurance
and Annuity Company that Agent has failed or refused to submit to supervision of
the Broker or has otherwise failed to meet the rules and standards imposed by
the Broker, Agent's authority to
<PAGE>
solicit applications for (and any other activity relating to) Contracts shall
immediately cease upon written or oral advice to Agent by the Broker or The Penn
Insurance and Annuity Company, notwithstanding anything to the contrary in
Agent's contract with The Penn Insurance and Annuity Company or with a general
agent of The Penn Insurance and Annuity Company; provided, however, withdrawal
of such authority shall not, of itself, affect the authority of Agent to solicit
applications for other annuity contracts of insurance policies under his or her
contract with The Penn Insurance and Annuity Company or with a general agent of
The Penn Insurance and Annuity Company.
(d) The Penn Insurance and Annuity Company shall have the
right to relay upon the advice of the Broker in all matters relating to the
super-vision of securities activities of Agent and the qualification of Agent to
engage in such activities. Any decision relating to such supervision or
qualification by the Broker shall be final and binding on the parties hereto.
(5) This Agreement shall continue until terminated by any
party on written notice, except that in the event the Broker shall cease to be a
registered broker-dealer under the 1934 Act, or the Agent is no longer
authorized to solicit applications for Contracts under the terms and conditions
hereof, this Agreement shall immediately terminate.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
-------------------------------
Agent
HORNOR, TOWNSEND AND KENT, INC.
By
-------------------------------
-------------------------------
Title
THE PENN INSURANCE AND ANNUITY
COMPANY
By
-------------------------------
-------------------------------
Title
<PAGE>
DISTRIBUTION AGREEMENT
Between
THE PENN INSURANCE AND ANNUITY COMPANY
(Issuer)
And
HORNOR, TOWNSEND & KENT, INC.
(Distributor)
Individual Variable and Fixed Annuity Contracts
Dated as of March 1, 1995
<PAGE>
AGREEMENT made as of the 1st day of March, 1995, between THE PENN
INSURANCE AND ANNUITY COMPANY ("PIA"), a Delaware corporation, and HORNOR,
TOWNSEND & KENT, INC. ("Distributor"), a Pennsylvania corporation.
W I T N E S S E T H:
WHEREAS, PIA is engaged in the business of issuing variable annuity and
fixed contracts to the public;
WHEREAS, Distributor is licensed as a life insurance agent of PIA under
state insurance laws, is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc.; and
WHEREAS, PIA desires to appoint Distributor to distribute variable and
fixed annuity contracts and Distributor desires to accept such appointment;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. APPOINTMENT OF DISTRIBUTOR
1.1 Subject to the terms and conditions herein contained, PIA
appoints Distributor as a nonexclusive distributor of its
variable and fixed annuity contracts (herein referred to as
the "Contracts").
2. DISTRIBUTION OF CONTRACTS THROUGH OTHER AGENT/BROKER-DEALERS
2.1 Distributor shall use its best efforts to distribute the
Contracts through qualified agent/broker-dealers in states and
jurisdictions in which Distributor may legally do so.
Distributor shall assist PIA in selecting, providing
information to, and monitoring the performance of, such
agent/broker-dealers. Distributor shall distribute the
Contracts pursuant to selling agreements among PIA,
Distributor and qualified agent/broker-dealers substantially
in the form of selling agreements attached hereto as Exhibits
A, B and C.
3. COMPLIANCE WITH LAWS AND REGULATIONS
3.1 Distributor shall strictly comply with all applicable
insurance laws and regulations in distributing Contracts and
shall take all reasonable measures to assure that its
officers, directors, employees and other individuals acting on
its behalf comply with the applicable insurance laws and
regulations.
<PAGE>
3.2 Distributor shall strictly comply with all applicable
securities laws and regulations and with the rules of the
National Association of Securities Dealers, Inc. in
distributing Contracts that are deemed to be securities within
the meaning of applicable securities laws, and shall take all
reasonable measures to assure that its officers, directors,
employees and other individuals acting on its behalf comply
with the applicable securities laws, regulations and rules.
3.3 PIA shall furnish Distributor with copies of the current
prospectus filed with the Securities and Exchange Commission
(and filed with any state securities regulatory office, if
required) and required to be used in distributing the
Contracts.
3.4 Distributor shall not print, publish, distribute or use any
advertisement, sales literature or other writing relating to
the Contracts unless such advertisement, sates literature or
other writing shall have first been approved in writing by
PIA.
4. MISCELLANEOUS
4.1 Distributor shall cooperate with PIA in investigating and
settling all claims which may be made against PIA involving
the distribution of Contracts. Distributor shall promptly
forward to PIA any notice of claim or relevant information
concerning a potential claim which may come into its
possession, and shall promptly forward to PIA any legal papers
served on Distributor involving such claim.
4.2 Distributor shall indemnify and hold harmless PIA and each
director and officer of PIA against any losses, damages or
liabilities, insofar as such losses, damages and liabilities
arise out of or are based upon any unauthorized act of
Distributor in distributing the Contracts or the failure of
Distributor and its officers, employees and representatives to
comply with the provisions of this Agreement.
4.3 PIA shall indemnify and hold harmless Distributor and each
director and officer of Distributor against any losses,
damages or liabilities, to which Distributor or such director
or officer becomes subject, under the Securities Act of 1933
or otherwise, insofar as such losses, damages and liabilities
arise out of or are based upon any inaccurate or inadequate
statement in the Registration Statement for the Contracts.
4.4 This Agreement may be terminated, without cause, by either
party upon thirty days prior written notice. This Agreement
may be terminated, for cause, by either party immediately.
4.5 This Agreement shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year written
above.
THE PENN INSURANCE AND ANNUITY
COMPANY
Attest
/s/ George F. Koch By /s/ L. Stockton Illoway
- ------------------------------- ---------------------------------
Associate Secretary L. Stockton Illoway
Vice President
HORNOR TOWNSEND & KENT, INC.
Attest
By
- ------------------------------- ---------------------------------
Vincent T. Cloud
President
<PAGE>
The Penn Insurance and Annuity Company
Independence Square, Philadelphia, PA 19172
National Accounts - Broker-Dealers Licensed
to Sell Variable Annuities and/or Variable
Life Insurance under Federal Securities and
State Insurance Laws
BROKER-DEALER SELLING AGREEMENT
THE PENN INSURANCE AND ANNUITY COMPANY (hereinafter called "PIA") and
Hornor, Townsend & Kent, Inc. (hereinafter called "Distributor) enter into this
Agreement with_______________________ (hereinafter called "Broker-Dealer")
on this date _________________________, 19____ agree as follows:
W I T N E S S E T H:
WHEREAS, PIA is in the business of issuing annuity and life insurance
contracts to the public;
WHEREAS, Distributor is an affiliate of PIA, is registered as a
broker-dealer under the Securities Exchange Act of 1934, is a member of the
National Association of Securities Dealers, Inc., and is assisting PIA in the
distribution of such contracts;
WHEREAS, Broker-Dealer is properly licensed to sell variable annuity
and variable life insurance contracts under the insurance laws of the state(s)
in which Broker-Dealer will act under this Agreement is registered as a
Broker-Dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealer, Inc.;
WHEREAS, PIA and Distributor desire to appoint Broker-Dealer to solicit
applications for certain annuity and/or variable life insurance contracts issued
by PIA and Broker-Dealer desires to accept such appointment;
NOW THEREFORE, in consideration of these premises and mutual covenants
herein contained, the parties agree as follows:
1. APPOINTMENT OF BROKER DEALER.
1.1 Subject to the terms and conditions of this agreement, PIA and
Distributor appoint Broker-Dealer as a non-exclusive Broker-Dealer for
the solicitation of applications for, and the servicing of, annuity
and/or variable life insurance contracts identified in the schedule(s)
attached hereto, and Broker-Dealer accepts such appointment The annuity
and/or variable life insurance contracts identified in the schedules(s)
are referred to herein as "Contracts".
<PAGE>
1.2 Broker-Dealer and its representatives shall be independent contractors
as to PIA and Distributor and, subject to the terms and conditions of
this agreement, free to exercise their own judgment as to the time,
place and means of performing all acts hereunder. Nothing in this
agreement is intended to create a relationship of employer and employee
as between PIA or Distributor, on the one hand, and representatives of
Broker-Dealer on the other.
2. SALE OF CONTRACTS.
2.1 Broker-Dealer shall use its best efforts to solicit applications for
Contracts from persons for whom the Contracts are suitable, and to
service such Contracts in accordance with the terms and conditions of
this agreement.
2.2 All applications for Contracts shall be made on application forms
authorized by PIA. Broker-Dealer shall diligently review all such
applications for accuracy and completeness and shall take all reasonable
and appropriate measures to assure that applications submitted to PIA
are accurate and complete.
2.3 All payments collected by Broker-Dealer for PIA shall be received in
trust and shall be remitted immediately together with all required
documentation, to PIA at the address indicated on the application or to
such other address as PIA may specify in writing. All checks or money
orders for payment under Contracts shall be drawn to the order of PIA.
2.4 All applications are subject to acceptance or rejection by PIA in its
sole discretion. PIA may at any time in its sole discretion discontinue
issuing the Contracts or change the form and content of new Contracts to
be issued.
2.5 In soliciting applications for Contracts, Broker-Dealer may not accept
risks of any kind for or on behalf of PIA and may not bind PIA by
promise or agreement or alter any Contract in any way.
3. COMPENSATION.
3.1 In consideration of and as full compensation for the services performed
in accordance with this agreement, Broker-Dealer will receive
compensation from PIA as set forth in the schedule(s) attached to this
agreement.
3.2 Should PIA for any reason return any payment made under a Contract to
the payor, Broker-Dealer shall repay PIA the total amount of any
compensation which PIA may have paid with respect to such payment.
<PAGE>
3.3 Broker-Dealer may not withhold or deduct any part of any premium or
other payment due PIA for payment of compensation under this agreement
or for any other purpose. The right of Broker-Dealer to receive any
compensation under this agreement shall at all times be subordinate to
the right of PIA or Distributor to offset or apply such compensation
against any indebtedness of Broker-Dealer to PIA or Distributor.
3.4 PIA may, in its sole discretion, change the amount, terms and
conditions, of compensation with respect to payment received by PIA
under Contracts.
3.5 PIA shall not be obligated to pay any compensation which would be in
violation of applicable laws of any jurisdiction, anything in this
agreement to the contrary notwithstanding.
4. COMPLIANCE WITH INSURANCE LAWS AND REGULATIONS.
4.1 Broker-Dealer and its representative shall not solicit applications for
Contracts in any state or jurisdiction unless they are duly licensed and
qualified to do so under the insurance laws and regulations of the state
or jurisdiction and unless PIA has notified Broker-Dealer that the
Contracts have been approved for sale in the state or jurisdiction.
4.2 PIA may, at any time, in its sole discretion, withhold or withdraw
authority of any representative of Broker-Dealer to solicit applications
for the Contracts. Upon PIA giving written notice to Broker-Dealer of
its withdrawal of authority of a representative to solicit applications,
Broker-Dealer shall immediately cause any such representative to cease
all such solicitations.
4.3 Broker-Dealer shall notify PIA in writing immediately of the termination
of the employment or affiliation of an employee or representative who is
an appointed agent of PIA pursuant to this agreement.
4.4 Broker-Dealer shall keep accurate and complete books and records of all
transactions relating to the solicitation of applications and for
servicing Contacts. The books and records shall be made available to PIA
for inspection upon reasonable request.
4.5 If Broker-Dealer solicits applications for variable life insurance
contracts under this agreement, Broker-Dealer and its representative
shall observe the Standards of Suitability for the Sale of Variable Life
Insurance set forth on the reverse side of the schedule attached hereto
identifying such contracts.
4.6 Broker-Dealer and its representatives shall comply with all applicable
insurance laws and regulations in soliciting applications for the
servicing Contracts. Broker-Dealer shall be fully responsible for all
acts of its representatives in soliciting applications for and servicing
Contracts.
<PAGE>
5. COMPLIANCE WITH SECURITIES LAWS.
5.1 Broker-Dealer shall not solicit applications for variable annuity or
variable life insurance contracts unless PIA or Distributor has notified
Broker-Dealer that a registration statement required under the
Securities Act of 1933 is effective as to such contracts and unless
Broker-Dealer is duly registered as a broker-dealer under the Securities
Exchange Act of 1934, is a member in good standing of the National
Association of Securities Dealers, Inc. and is duly licensed under any
applicable securities laws of the state or jurisdiction in which
Broker-Dealer engages in such activity.
5.2 PIA or Distributor shall furnish Broker-Dealer with copies of the
current prospectuses (and current supplements thereto) required to be
used in soliciting application for variable annuity and/or variable life
insurance contracts.
5.3 Broker-Dealer and its representatives shall comply with all applicable
securities laws and regulations and with the rules of the National
Association of Securities Dealers, Inc. in soliciting applications for
and servicing variable annuity and/or variable life insurance contracts.
Broker-Dealer shall be fully responsible for all acts of its
representatives in soliciting applications for and servicing variable
annuity and/or variable life insurance contracts.
6. ADVERTISEMENTS, SALES LITERATURE AND OTHER COMMUNICATIONS.
6.1 Broker-Dealer shall not print, publish, distribute or use any
advertisements, sales literature or other writing relating to the
Contracts unless such advertisements, sales literature or other writing
shall have first been approved in writing by PIA and Distributor.
6.2 Broker-Dealer shall exercise care not to misrepresent the Contracts or
PIA and shall make no oral or written representation which is
inconsistent with the terms of the Contracts or with the information in
any prospectus or sales literature furnished by PIA or it misleading in
any way.
<PAGE>
7. INDEMNIFICATION.
7.1 Broker-Dealer shall indemnify or hold harmless PIA and Distributor and
each director and officer of PIA and Distributor against any losses,
claims, damages or liabilities, including but not limited to reasonable
attorneys' fees and court cost to which PIA or Distributor and any such
director or officer may become subject, under the Securities Act of 1933
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any
unauthorized use of sales materials or any verbal or written
misrepresentations or any unlawful sales practices, or the failure of
Broker-Dealer, its officers, employees or representative to comply with
the provisions of this agreement or the willful misfeasance, bad faith,
negligence or misconduct of Broker-Dealer, its officers, employees, or
representatives in the solicitation of applications for and the
servicing of Contracts.
7.2 PIA and Distributor shall indemnify and hold harmless Broker-Dealer and
each officer or director of Broker-Dealer against any losses, claims,
damages or liabilities, joint or several, including but not limited to
reasonable attorneys, fees and court cost to which Broker-Dealer or such
officer or director becomes subject under the Securities Act of 1933 or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact, required to be
stated therein or necessary to make the statements therein not
misleading contained in any registration statement or any post-effective
amendment or supplement to the prospectus, or in any sales material
written by PIA or Distributor.
7.3 In the event PIA suffers a loss resulting from Broker-Dealer activities,
Broker-Dealer hereby assigns any proceeds received under its fidelity
bond to PIA to the extent of such losses. If there is any deficiency
amount, whether due to a deductible or otherwise, Broker-Dealer shall
promptly pay PIA such amount on demand and Broker-Dealer shall indemnify
and hold harmless PIA from any such deficiency and from the costs of
collection thereof (including reasonable attorneys' fees).
8. COMPLAINTS, INVESTIGATIONS & PROCEEDINGS.
8.1 Broker-Dealer shall promptly notify PIA and Distributor of any
allegation that Broker-Dealer or any of its representatives violated any
law, regulation or rule in soliciting applications for or servicing
Contracts, and shall provide PIA with full details, including copies of
all legal documents pertaining thereto.
8.2 Broker-Dealer shall cooperate fully with PIA and Distributor in any
regulatory investigation or proceeding or judicial proceeding involving
the solicitation of application for and servicing Contracts by
Broker-Dealer or any of its representatives.
9. NONWAIVER.
9.1 Forbearance by PIA or Distributor to enforce any rights under this
agreement shall not be construed as a waiver of any of the terms and
conditions of this agreement and the same shall remain in full force and
effect. No waiver of any provision of this agreement shall be deemed to
be a waiver of any other provision, whether or not similar, nor shall
any waiver of a provision of this agreement be deemed to constitute a
continuing waiver.
<PAGE>
10. AMENDMENT.
10.1 PIA reserves the right to amend this Agreement at any time.
Broker-Dealer's submission of an application for a Contract after
notice of any such amendment shall constitute agreement of
Broker-Dealer to such amendment.
11. TERMINATION AND ASSIGNMENT.
11.1 This agreement may be terminated by any party, with or without cause,
upon giving written notices to the other parties. This agreement shall
automatically terminate if Broker-Dealer is adjudicated as bankrupt or
avails itself of any insolvency act or if a permanent receiver or
trustee in bankruptcy is appointed for the property of Broker-Dealer.
Upon termination of this agreement, with or without cause, all
authorizations, rights and obligations shall cease, except the rights
and obligations set forth in sections 7 and 8 of this agreement and the
obligations to settle account hereunder, including the immediate
forwarding of all payments received by Broker-Dealer under Contract to
PIA, and except as may be expressly stated otherwise in this agreement.
11.2 This agreement may not be assigned without the written consent of all
parties.
12. GOVERNING LAW.
12.1 This agreement shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the day and year
first written.
---------------------------------------
Name of Broker-Dealer
By:
------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Title
THE PENN INSURANCE AND ANNUITY COMPANY
By:
------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Title
HORNOR, TOWNSEND & KENT, INC.
By:
------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Title
<PAGE>
The Penn Insurance and Annuity Company
Independence Square, Philadelphia, PA 19172
AMENDMENT TO BROKER-DEALER SELLING AGREEMENT
Individual Variable and Fixed Annuity Contracts - Pennant
Date of Broker-Dealer Selling Agreement to which this Amendment is attached:
__________________________________________
1. SUBSECTION 2.3 OF SECTION 2 OF THE BROKER-DEALER SELLING AGREEMENT IS AMENDED
TO PROVIDE AS FOLLOWS:
All payments collected by Broker-Dealer shall be received in
trust and shall be remitted immediately, together with all
required documentation, to PIA at the address stated on the
application or to such other address as PIA may specify in
writing. All checks and money orders for payments under
Contracts shall be drawn to the order of PIA. Notwithstanding
the foregoing, in cases where Broker-Dealer deducts
compensation from premiums and other payments, as provided for
in subsection 3.3 of Section 3 below, checks and money orders
may be made payable to Broker-Dealer and the Broker-Dealer may
send the remaining balance (after deducting compensation ) to
PIA, provided the balance is remitted immediately to PIA.
2. SUBSECTION 3.3 OF SECTION 3 OF THE BROKER-DEALER SELLING AGREEMENT IS AMENDED
TO PROVIDE AS FOLLOWS:
Except as provided in this subsection, Broker-Dealer may not
withhold or deduct any part of any premium or other payment
due PIA for payment of compensation under this agreement or
for any other purpose. Broker-Dealer may deduct compensation
as set forth in Schedule 1 attached to the Agreement and may
send the remaining balance to PIA provided that in doing so
Broker-Dealer complies fully with Rule l5c3-3(k)(2)(i) under
the Securities Exchange Act of 1934, to the extent applicable.
The right of Broker-Dealer to receive or retain any
compensation under this agreement shall at all times be
subordinate to the right of PIA or Distributor to offset or
apply such compensation against any indebtedness of
Broker-Dealer to PIA or Distributor.
Agreed:
Date:
----------------------------- ---------------------------------------
Broker-Dealer
By:
------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Title
HORNOR, TOWNSEND & KENT, INC.
By:
------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Title
<PAGE>
THE PENN INSURANCE AND ANNUITY COMPANY
By:
------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Title
<PAGE>
The Penn Insurance and Annuity Company
Independence Square, Philadelphia, PA 19172
National Accounts - Broker-Dealers Licensed
to Sell Variable Annuities and/or Variable
Life Insurance under Federal Securities Laws
(Companion Agreement - Form A-2)
BROKER-DEALER SELLING AGREEMENT
THE PENN INSURANCE AND ANNUITY COMPANY (hereinafter called "PIA") and
Hornor, Townsend & Kent, Inc. (hereinafter called "Distributor") enter into this
Agreement with________________________________________(hereinafter called
"Broker-Dealer") on this date _________________________, 19 agree as follows:
W I T N E S S E T H:
WHEREAS, PIA is in the business of issuing annuity and life insurance
contracts to the public;
WHEREAS, Distributor is an affiliate of PIA, is registered as a
broker-dealer under the Securities Exchange Act of 1934, is a member of the
National Association of Securities Dealers, Inc., and is assisting PIA in the
distribution of such contracts;
WHEREAS, Broker-Dealer is registered as a Broker-Dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealer, Inc.;
WHEREAS, Broker-Dealer is affiliated with , (hereinafter referred to as
"Corporate Insurance Agent") a corporation which is properly licensed under the
insurance laws of the state(s) in which Broker-Dealer will act under this
agreement;
WHEREAS, the parties desire to enter into an arrangement under which
Broker-Dealer and Corporate Insurance Agent agree to sell certain variable
annuity and variable life insurance contracts issued by PIA;
NOW THEREFORE, in consideration of these premises and mutual covenants
herein contained, the parties agree as follows:
1. APPOINTMENT OF BROKER-DEALER
1.1 Subject to the terms and conditions of this agreement, PIA and
Distributor authorizes as a Broker-Dealer non-exclusive agent for the
solicitation of applications for, and the servicing of, variable
annuity and/or variable life insurance contracts identified in the
schedule(s) attached hereto, and Broker-Dealer accepts such
authorization. The variable annuity and/or variable life insurance
contracts identified in the schedules(s) are referred to herein as
"Contracts".
<PAGE>
1.2 Broker-Dealer and its representatives shall be independent contractors
as to PIA and Distributor and, subject to the terms and conditions of
this agreement, free to exercise their own judgment as to the time,
place and means of performing all acts hereunder. Nothing in this
agreement is intended to create a relationship of employer and employee
as between PIA or Distributor, on the one hand, and representatives of
Broker-Dealer on the other.
2. SECURITY REGULATIONS AND INSURANCE COORDINATION OF AGREEMENTS.
2.1 The sale of variable annuity and variable life insurance contracts
identified in the schedule(s) attached and Insurance hereto is subject
to and regulated under federal securities laws (and may also be subject
to and regulated under certain state securities laws), in addition to
state insurance laws. It is understood and agreed that registered
representatives of Broker-Dealer shall also be representative of
Corporate Insurance Agent and that Corporate Insurance Agent shall
contemporaneously enter into a Corporate Insurance Agent Selling
Agreement with PIA and Distributor covering the sale of such contracts.
This agreement and the Corporate Insurance Agent Selling Agreement
shall govern the sales of such contracts.
3. SALE OF CONTRACTS.
3.1 Broker-Dealer shall use its best efforts to solicit applications for
Contracts from persons for whom the Contracts are suitable, in
accordance with the terms and conditions of this agreement.
3.2 All applications for Contracts shall be made on applications forms
authorized by PIA. Broker-Dealer shall diligently review all such
applications for accuracy and completeness and shall take all
reasonable and appropriate measures to assure that applications
submitted to PIA are accurate and complete.
3.3 All purchase payments collected by Broker-Dealer for PIA shall be
received in trust and shall be remitted immediately, together with the
application and any other required documentation, to PIA at the address
indicated on the application or to such other address as PIA may
specify in writing. All checks or money orders for payments under
Contracts shall be drawn to the order of PIA, except as may be provided
in the Corporate Insurance Agent Selling Agreement (referred to in
section 21. of this Agreement).
<PAGE>
3.4 All applications are subject to acceptance or rejection by PIA in its
sole discretion. PIA may at any time in its sole discretion discontinue
issuing the Contracts or change the form and content of new Contracts
to be issued.
3.5 In soliciting applications for Contracts, Broker-Dealer may not accept
risk of any kind for or on behalf of PIA and may not bind PIA by
promise or agreement or alter any Contract in any way.
4. COMPLIANCE
4.1 In consideration of and as full compensation for the services performed
in accordance with this agreement, Corporate Insurance Agent will
receive compensation from PIA as set forth in the schedule(s) attached
to the Corporate Insurance Agent Selling Agreement referred to in
Section 2.1 of this agreement.
4.2 Should PIA for any reason return to the payor any payment made under a
Contract Broker-Dealer shall cause Corporate Insurance Agent to repay
PIA the total amount of any compensation which PIA may have paid
Corporate Insurance Agent with respect to such payment.
4.3 PIA may, in its sole discretion, change the amount, terms and
conditions of compensation with respect to payments received by PIA
under Contracts.
4.4 PIA shall not be obligated to pay any compensation which would be in
violation of applicable laws of any jurisdiction, anything in this
agreement to the contrary notwithstanding.
4.5 With respect to compensation paid to Corporate Insurance Agent in
connection with the sale of variable annuity and/or variable life
insurance contracts, Broker-Dealer shall cause Corporate Insurance
Agent to maintain, on behalf of Broker-Dealer, such books and records
as are necessary for Broker-Dealer to comply with applicable
recordkeeping requirements under federal and state securities law and
under the rules of the National Association of Securities Dealers, Inc.
5. COMPLIANCE WITH SECURITIES LAWS.
5.1 Broker-Dealer shall not solicit applications for Contracts unless PIA
or Distributor has notified Broker-Dealer that a registration statement
required under the Securities Act of 1933 is effective as to such
contracts and unless Broker-Dealer is duly registered as a
broker-dealer under the Securities Exchange Act of 1934, is a member in
good standing of the National Association of Securities Dealers, Inc.,
and is duly licensed under any applicable securities laws of the state
or jurisdiction in which Broker-Dealer engages in such activity.
<PAGE>
5.2 PIA or Distributor shall furnish Broker-Dealer with copies of the
current prospectuses (and current supplements thereto) required to be
used in soliciting applications for variable annuity and/or variable
life insurance contracts.
5.3 Broker-Dealer and its representatives shall comply with all applicable
securities laws and regulations and with the rules of the National
Association of Securities Dealers, Inc. in soliciting applications for
and servicing Contracts. Broker-Dealer shall be fully responsible for
all acts of its representatives in soliciting applications for and
servicing Contracts.
6. ADVERTISEMENTS, SALES LITERATURE AND OTHER COMMUNICATIONS.
6.1 Broker-Dealer shall not print, publish, distribute or use any
advertisements, sales literature or other writing relating to the
Contracts unless such advertisements, sales literature or other writing
shall have first been approved in writing by PIA and Distributor.
6.2 Broker-Dealer shall exercise care not to misrepresent the Contracts or
PIA and shall make no oral or written representation which is
inconsistent with the terms of the Contracts or with the information in
any prospectus or sales literature furnished by PIA or it misleading in
any way.
7. INDEMNIFICATION.
7.1 Broker-Dealer shall indemnify or hold harmless PIA and Distributor and
each director and officer of PIA and Distributor against any losses,
claims, damages or liabilities, including but not limited to reasonable
attorneys' fees and court cost to which PIA or Distributor and any such
director or officer may become subject, under the Securities Act of
1933 or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any unauthorized use of sales materials or any verbal or written
misrepresentations or any unlawful sales practices, or the failure of
Broker-Dealer, its officers, employees or representative to comply with
the provisions of this agreement or the willful misfeasance, bad faith,
negligence or misconduct of Broker-Dealer, its officers, employees, or
representatives in the solicitation of applications for and the
servicing of Contracts.
7.2 PIA and Distributor shall indemnify and hold harmless Broker-Dealer and
each officer or director of Broker-Dealer against any losses, claims,
damages or liabilities, joint or several, including but not limited to
reasonable attorneys, fees and court cost to which Broker-Dealer or
such officer or director becomes subject, under the Securities Act of
1933 or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, contained in any registration statement or any
post-effective amendment or supplement to the prospectus, or in any
sales material written by PIA or Distributor.
<PAGE>
7.3 In the event PIA suffers a loss resulting from Broker-Dealer
activities, Broker-Dealer hereby assigns any proceeds received under
its fidelity bond to PIA to the extent of such losses. If there is any
deficiency amount, whether due to a deductible or otherwise,
Broker-Dealer shall promptly pay PIA such amount on demand and
Broker-Dealer shall indemnify and hold harmless PIA from any such
deficiency and from the costs of collection thereof (including
reasonable attorneys' fees).
8. COMPLAINTS, INVESTIGATIONS & PROCEEDINGS.
8.1 Broker-Dealer shall promptly notify PIA and Distributor of any
allegation that Broker-Dealer or any of its representatives violated
any law, regulation or rule in soliciting applications for or servicing
Contracts, and shall provide PIA with full details, including copies of
all legal documents pertaining thereto.
8.2 Broker-Dealer shall cooperate fully with PIA and Distributor in any
regulatory investigation or proceeding or judicial proceeding involving
the solicitation of application for and servicing Contracts by
Broker-Dealer or any of its representatives.
9. NONWAIVER.
9.1 Forbearance by PIA or Distributor to enforce any rights under this
agreement shall not be construed as a waiver of any of the terms and
conditions of this agreement and the same shall remain in full force
and effect. No waiver of any provision of this agreement shall be
deemed to be a waiver of any other provision, whether or not similar,
nor shall any waiver of a provision of this agreement be deemed to
constitute a continuing waiver.
10. AMENDMENT
10.1 PIA reserves the right to amend this Agreement at any time.
Broker-Dealer's submission of an application for a Contract after
notice of any such amendment shall constitute agreement of
Broker-Dealer to such amendment.
<PAGE>
11. TERMINATION AND ASSIGNMENT
11.1 This agreement may be terminated by any party, with or without cause,
upon giving written notices to the other parties. This agreement shall
automatically terminate if Broker-Dealer is adjudicated as bankrupt or
avails itself of any insolvency act or if a permanent receiver or
trustee in bankruptcy is appointed for the property of Broker-Dealer.
Upon termination of this agreement with or without cause, all
authorizations, rights and obligations shall cease, except the rights
and obligations set forth in sections 7 and 8 of this agreement and the
obligations to settle account hereunder, including the immediate
forwarding of all payments received by Broker-Dealer under Contract to
PIA, and except as may be expressly stated otherwise in this agreement.
11.2 This agreement may not be assigned without the written consent of all
parties.
12. GOVERNING LAW.
12.1 This agreement shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the day and year
first written.
---------------------------------------
Name of Broker-Dealer
By:
------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Title
THE PENN INSURANCE AND ANNUITY COMPANY
By:
------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Title
HORNOR, TOWNSEND & KENT, INC.
By:
------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Title
<PAGE>
The Penn Insurance and Annuity Company
B000912C
Wilmington,Delaware
Mailing Address: Independence Square, Philadelphia, PA 19172
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Individual Variable And Fixed Annuity Contract
Flexible Purchase Payments
o Annuity Payments payable on Annuity Date
o Flexible Purchase Payments payable until Annuity Date
o Nonparticipating
o The Company will make monthly annuity payments and
other payments as set forth in this contract.
VALUES AND PAYMENTS UNDER THIS CONTRACT, WHEN BASED UPON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE. THEY MAY DECREASE OR INCREASE
AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
TEN DAY RIGHT TO REVIEW CONTRACT: The Contract Owner may cancel this contract
within ten days after its receipt. Simply return or mail it to the Company or
the representative through whom it was purchased. The Company will refund the
Contract Value as of the time notification is received.
READ YOUR POLICY CAREFULLY. This policy is a legal contract between the Contract
Owner and the Company.
Executed on the Contract Date by The Penn Insurance and Annuity Company.
[GRAPHIC OMITTED]
Secretary and Counsel
[GRAPHIC OMITTED]
Chairman of the Board and
President
IA-94
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Contract Owner: Contract Number:
Contract Date: Annuity Date:
Annuitant: Age of Annuitant:
<PAGE>
B000913I
Guide to Contract Sections
- --------------------------------------------------------------------------------
<PAGE>
1. Contract Specifications 10. Annuity Options
2. Endorsements 11. Annuity Option Tables
3. Definitions 12. Death Benefit
4. Purchase Payments 13. Transfers
5. The Separate Account 14. Withdrawal
6. The Fixed Account 15. General
7. Charges and Deductions
8. Contract Value
9. Annuity Payments
Additional Contract Specifications
and a copy of any applications
follow Section 15.
<PAGE>
1. Contract Specifications
Market Type: Non-Qualified
Separate Account: PIA Variable Annuity Account I
SCHEDULE OF PURCHASE PAYMENTS
Initial Purchase Payment of $10,000.00 was allocated to the contract on March 1,
1995 as follows:
Variable Account 70%
Fixed Account 30%
Subsequent Purchase Payments may be made subject to the provisions of the
contract.
SCHEDULE OF ANNUAL CHARGES
Contract Administration Charge*: $30 (or 2% of the variable account value if
lower)
Asset Based Contract Administration Charge**: .15%
Mortality & Expense Risk Charge**: 1.25%
Date Contract Administration Charge is Deducted each year: February 28
*THE CONTRACT ADMINISTRATION CHARGE APPLIES EACH YEAR THERE IS A VARIABLE
ACCOUNT VALUE WHICH IS LESS THAN $50,000.
**THE MORTALITY AND EXPENSE RISK CHARGE AS WELL AS THE ASSET BASED CONTRACT
ADMINISTRATION CHARGE ARE MADE DAILY AGAINST THE ASSETS OF THE SEPARATE ACCOUNT.
Schedule of Contingent Deferred Sales Charge
Number of contract years since Contingent Deferred
purchase payment Sales Charge
(% of purchase payment)
0 6%
1 6
2 5
3 4
4 3
5 2
6 1
7+ 0
REFER TO SECTION 7 OF THE CONTRACT FOR FURTHER INFORMATION ON THE CONTINGENT
DEFERRED SALES CHARGE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACT OWNER: William Penn CONTRACT NUMBER: 99999999
CONTRACT DATE: March 1, 1995 ANNUITY DATE: March 1, 2045
ANNUITANT: William Penn AGE OF ANNUITANT: 35
<PAGE>
IA-94 Page 3
<PAGE>
Page 4
2. Endorsements
B000950E
<PAGE>
3. Definitions
B000927P
ACCUMULATION UNIT: A unit of measure used to compute the Variable Account Value
under the contract prior to the Annuity Date. See Section 8.
ANNUITANT: The person during whose life annuity payments are made.
ANNUITY DATE: The date on which annuity payments start.
ANNUITY UNIT: A unit of measure used to calculate the amount of a variable
annuity payment. See Section 9.
CONTRACT OWNER: The person specified in the contract as the contract owner. The
Contract Owner has all rights to control all aspects of the contract, including,
after the Annuity Date and before the death of the Annuitant, the right to
transfer amounts among the subaccounts of the Separate Account and the right to
change the beneficiary.
FIXED ACCOUNT: The account under which amounts are held for the Contract Owner
under all fixed interest options prior to the Annuity Date.
INTEREST PERIOD: The period of time for which an interest rate declared by the
Company is guaranteed. The period begins on the first day of the calendar month
in which allocation or transfer is made.
QUALIFIED PLAN: A retirement arrangement that receives special tax treatment
under Section 401, 403, 408, or any similar provisions of the Internal Revenue
Code.
VARIABLE ACCOUNT: The account under which amounts are held for the Contract
Owner under all subaccounts of the Separate Account prior to the Annuity Date.
THE COMPANY: The Penn Insurance and Annuity Company.
<PAGE>
4. Purchase Payments
Purchase payments will be allocated to the subaccounts of the Separate Account
and to the fixed interest options of the Fixed Account as directed by the
Contract Owner in the application for this contract.
Subsequent purchase payments will continue to be allocated, as specified in the
application, to the subaccounts of the Separate Account and to the fixed
interest options of the Fixed Account unless the Contract Owner directs that the
purchase payments be allocated otherwise.
Purchase payments applied to the contract after issue may be made at any time
without prior notice to the Company. The minimum subsequent purchase payment is
$250.
Total purchase payments may not exceed $1,000,000 at any time without the
consent of the Company.
<PAGE>
5. The Separate Account
The Separate Account. The Separate Account named on Page 3 was established by
the Company for this and other variable contracts. The Separate Account is
divided into subaccounts for the investment of assets in shares of the mutual
funds which are listed in the Additional Contract Specifications Page.
The Company owns the assets held in the Separate Account. However, the portion
of the assets of each subaccount of the Separate Account equal to the reserves
and other contract liabilities with respect to the subaccount of the Separate
Account are not chargeable with the liabilities arising out of any other
business the
Page 5
<PAGE>
Page 6
B000928P
5. The Separate Account (continued)
Company may conduct. Income and realized and unrealized gains and losses from
the assets held in each subaccount are credited to or charged against the
subaccount without regard to the income, gains or losses in other investment
accounts of the Company. Shares of a mutual fund held in a subaccount will be
redeemed at current net asset value to make transfers, pay benefits and cover
applicable charges and deductions. Any dividend or capital gain distribution
from a mutual fund will be reinvested in shares of that mutual fund.
SUBSTITUTION OF INVESTMENT. If investment in a subaccount should no longer be
possible, or a subaccount's investment in a particular mutual fund should no
longer be possible, or, in the judgment of the Company, investment in a
subaccount or mutual fund becomes inappropriate to the purposes of the contract,
or, if in the judgment of the Company, investment in another subaccount, mutual
fund or insurance company separate account is in the interest of Contract Owners
of this class of contracts, the Company may substitute another subaccount,
mutual fund or insurance company separate account. Substitution may be made with
respect to existing investments and the investment of future purchase payments.
Substitution will be subject to the approval of the Insurance Department of the
jurisdiction in which this contract is delivered and all other approvals
required under applicable law.
<PAGE>
6. The Fixed Account
The Fixed Account. The Fixed Account consists of the fixed interest options
which are listed in the Additional Contract Specifications Page.
Amounts allocated or transferred to the Fixed Account under this contract become
a part of the general account assets of the Company and do not fluctuate with
regard to investment experience.
INTEREST. Amounts held in the fixed interest options of the Fixed Account will
be credited with interest at effective annual rates declared by the Company.
Amounts allocated or transferred to the Fixed Account will be credited with the
declared interest rate for the fixed interest option selected. The declared
interest rate will apply from the date of the allocation or transfer through the
end of the interest period which is indicated in the Additional Specifications
Page for that option. At the expiration of an interest period, the Company will
renew the fixed interest option that has expired at the new rate declared for
the interest period at that time. For the 25 days following the expiration of
such period, the Contract Owner may transfer all or a portion of the amount held
in such fixed interest option to other fixed interest option(s) of the Fixed
Account or to subaccount(s) of the Separate Account.
The Company will declare an effective annual rate for the One Year Fixed
Interest Option which is at least equal to the cost of living factor. The cost
of living factor is a six month average of the annualized rate of change of the
Consumer Price Index for All Urban Consumers for the six calendar months ending
one month prior to the effective date of the interest rate. The rate of change
for a month is the ratio of (a) the difference in the month's index and the
previous month's index to (b) the previous month's index. The Consumer Price
Index for All Urban Consumers is published monthly by the Bureau of Labor
Statistics of the United States Department of Labor. If this index is
discontinued or a new Index series is established on a different basis, the
Company may establish a new basis for determining the cost of living factor. The
Contract Owner will be given at least 90 days notice of any such change.
The Company will not declare rates of interest for any fixed interest option of
less than 3%.
<PAGE>
7. Charges and Deductions
B000929P
Contract Administration Charges. These charges are assessed against contracts
with a Variable Account Value. The first charge is the lesser of 2% of the
Variable Account Value at the time of the deduction or $30. This charge will
only be applied if the Variable Account Value at the time the charge is incurred
is less than $50,000. It will be deducted each year on the date specified on
Page 3. It will also be deducted when the Variable Account Value is withdrawn or
transferred in full if withdrawal or transfer is not on the date specified on
Page 3. The charge will not be deducted on or after the Annuity Date.
The second charge is an asset based contract administration charge. On an annual
basis a charge is made equal to 0.15% of the daily net asset value of the
Variable Account.
MORTALITY AND EXPENSE RISK CHARGE. This charge is made to compensate the Company
for the mortality guarantees made under this contract and for guaranteeing that
the contract administration charges will not be increased by the Company over
the life of this contract or other contracts under the same class. On an annual
basis it equals 1.25% of the daily net asset value of the Variable Account.
CONTINGENT DEFERRED SALES CHARGE. This charge, if applicable, will be deducted
upon withdrawal, in whole or in part, of the Contract Value. For further
definition of the charge, see Section 14 - Withdrawal.
PREMATURE WITHDRAWAL CHARGE. This charge applies to withdrawals made from the
fixed interest options of the Fixed Account prior to the completion of the
interest period. Withdrawals from the One Year Fixed Interest Option are not
subject to this charge. For further definition of the charge, see Section 14
Withdrawal.
PREMIUM TAXES. The Company may deduct from the Contract Value any premium or
other taxes payable to a state or other government entity. Should the Company
elect not to assess any amount so due, the Company is not waiving any right to
collect such amounts at a later date.
DEDUCTIONS. The asset based contract administration charge and the mortality and
expense risk charge will be computed and deducted from each subaccount of the
Separate Account in which the Contract Owner is invested. This deduction will be
made daily.
The Company will deduct other charges applicable to the Variable Account by
canceling Accumulation Units or Annuity Units. The value of the canceled units
will be equal to the amount of the charges. Cancellation of Accumulation Units
will be in the ratio of the Contract Owner's share in each subaccount of the
Separate Account to the Variable Account Value.
8. CONTRACT VALUE
THE CONTRACT VALUE. The contract value is the sum of the Variable Account Value
and the Fixed Account Value.
THE FIXED ACCOUNT VALUE. The Fixed Account Value is the sum of all money
allocated or transferred to the fixed interest options of the Fixed Account plus
all interest credited to the Fixed Account. This amount shall be adjusted for
withdrawals, transfers and charges.
THE VARIABLE ACCOUNT VALUE. The Variable Account Value is the sum of the values
of the Accumulation Units held in the subaccounts of the Separate Account for
this contract.
NUMBER OF ACCUMULATION UNITS. For each subaccount of the Separate Account, the
number of Accumulation Units is the sum of (a) divided by (b), where:
(a) is each amount allocated to the subaccount; and
(b) is the value of the Accumulation Unit for that subaccount for the valuation
period in which the purchase payment was received.
The number of Accumulation Units will be adjusted for transfers, withdrawals
and charges. Adjustments will be made as of the valuation period in which
all requirements for the transaction are received.
VALUE OF EACH ACCUMULATION UNIT. For each subaccount of the Separate Account,
the value was arbitrarily set at $10 when the subaccount was established. The
value may increase or decrease from one valuation period to the.
Page 7
<PAGE>
Page 8
B000930P
8. Contract Value (continued)
next. For any valuation period the value is (a) multiplied by (b), where:
(a) is the value of an Accumulation Unit for the prior valuation period; and
(b) is the net investment factor for that subaccount for the current valuation
period.
NET INVESTMENT FACTOR. As used in this contract, net investment factor is an
index used to measure the investment performance of a subaccount from one
valuation period to the next. For any subaccount, the net investment factor for
a valuation period is found by dividing (a) by (b) and subtracting (c), where:
(a) is the net result of:
(1) net asset value per-share of the mutual fund held in the subaccount as
of the end of the valuation period; plus
(2) the per-share amount of any dividend or capital gain distributions by
the mutual fund if the "ex-dividend" date occurs in the valuation
period; plus or minus
(3) a per-share charge or credit as the Company may determine, as of the
end of the valuation period, for tax reserves.
(b) is the net result of:
(1) the net asset value per-share of the mutual fund held in the subaccount
as of the end of the last prior valuation period; plus or minus
(2) the per-share charge or credit for tax reserves as of the end of the
last prior valuation period.
(c) is the sum of the daily asset based contract administration charge, the
daily mortality and expense risk charge. On an annual basis, the sum of
such charges equals 1.40% of the daily net asset value of the Separate
Account.
VALUATION PERIOD. It is the interval of time from one valuation to the next.
Valuation is the time when shares of the applicable mutual funds are valued.
9. ANNUITY PAYMENTS
ANNUITY DATE. Unless another Annuity Date was chosen in the application or later
written notification, the Annuity Date will be the later of the first day of the
next month after the Annuitant's 85th birthday or 10 years after the Contract
Date.
The Annuity Date may not be earlier than the second contract anniversary and
must be on the first day of a month. The Contract Owner may change the Annuity
Date up to 30 days before the current Annuity Date.
ANNUITY OPTIONS. The Contract Owner may choose a fixed annuity option, a
variable annuity option, or a combination of both up to 30 days prior to the
Annuity Date.
On the Annuity Date, the Contract Value, net of premium taxes if applicable,
must be annuitized. If not otherwise specified by the Contract Owner, the
contract will be annuitized on the Annuity Date based on a life annuity with
payments guaranteed for a 10 year period. If not otherwise specified by the
Contract Owner, the Fixed Account Value will be annuitized under the fixed
annuity option and the Variable Account Value will be annuitized under the
variable annuity option.
MINIMUM ANNUITY PAYMENTS. If the Contract Value to be applied at the Annuity
Date is less than $5,000, the Company may pay such amount in a lump sum. Annuity
payments will be made monthly, quarterly, semi-annually or annually at the
Contract Owner's request. If any payment would be less than $50, the Company may
change the frequency so that payments are at least $50 each.
AMOUNT OF FIXED ANNUITY PAYMENTS. The portion of the Contract Value designated
by the Contract Owner for a fixed annuity option, will be applied to that
annuity option as of the Annuity Date. The monthly income under Option 1, Option
2, Option 3 and Option 4 which are defined in Section 10 will equal the monthly
income under a comparable single premium nonparticipating annuity available from
the Company at the time fixed annuity payments are to begin.
In no event will the monthly income under Option 1, Option 2, Option 3 and
Option 4 be less than the
<PAGE>
9. Annuity Payments (continued)
B000931P
guaranteed monthly income. The guaranteed monthly income will be equal to that
portion of the Contract Value, designated by the Contract Owner for a fixed
annuity option, applied to the Annuity Options Table in Section 11. The Annuity
Options Table shows the amount of the first payment for each $1,000 so applied,
according to the age at the Annuity Date. The tables are based on the 1983a
Individual Annuity Mortality Table, without projections, 50% male/50% female
with an effective annual interest rate of 3%. Adjusted ages are used in applying
those tables.
FIRST VARIABLE ANNUITY PAYMENT. The portion of the Contract Value designated by
the Contract Owner for a variable annuity option will be applied to the Annuity
Option Table in Section 11 for the variable annuity option chosen as of the
Annuity Date.
SUBSEQUENT VARIABLE ANNUITY PAYMENTS. Payments after the first will vary in
amount according to the investment performance of the subaccount(s). The payment
amount may change from month to month. The amount of each subsequent payment is
the sum of (a) multiplied by (b) for each applicable subaccount, where:
(a) is the number of Annuity Units for the subaccount; and
(b) is the value of an Annuity Unit for that subaccount for the valuation period
in which payment is due.
The amount of each annuity payment after the first will not be affected by
variations in expense or mortality experience.
NUMBER OF ANNUITY UNITS. The number of units for the subaccount of each
investment account chosen is (a) divided by (b), where:
(a) is the amount of the first variable annuity payment attributable to that
subaccount; and
(b) is the value of an Annuity Unit for the subaccount as of the Annuity Date.
The number of Annuity Units is fixed except for adjustments for subaccount
transfers. Adjustments will be made as of the valuation period in which all
requirements for the transfer are received.
<PAGE>
Value of Each Annuity Unit. For each subaccount, the value of an Annuity Unit
was arbitrarily set at $10 when the subaccount was established. The value may
increase or decrease from one valuation period to the next. For any valuation
period the value is (a) multiplied by (b) multiplied by (c), where:
(a) is the value of an Annuity Unit for the last prior valuation period (b) is
the net investment factor for that subaccount for the valuation period (c) is an
interest factor to neutralize the assumed investment rate of 3% built
into the annuity tables.
NET INVESTMENT FACTOR. The net investment factor is an index used to measure the
investment performance of a subaccount from one valuation period to the next.
For any subaccount, the net investment factor for a valuation period is found by
dividing (a) by (b) and subtracting (c), where:
(a) is the net result of:
(1) net asset value per-share of the mutual fund held in the subaccount as
of the end of the valuation period; plus
(2) the per-share amount of any dividend or capital gain distributions by
the mutual fund if the "ex-dividend" date occurs in the valuation
period; plus or minus
(3) a per-share charge or credit as the Company may determine, as of the end
of the valuation period, for tax reserves.
(b) is the net result of:
(1) the net asset value per-share of the mutual fund held in the subaccount
as of the end of the last prior valuation period; plus or minus
(2) the per-share charge or credit for tax reserves as of the end of the
last prior valuation period.
(c) is the sum of the daily asset based contract administration charge and the
daily mortality and expense risk charge. On an annual basis, the sum of
such charges equals 1.40% of the daily net asset value of the Separate
Account.
Page 9
<PAGE>
Page 10
B000932P
10. Annuity Options
Option 1 - Annuity for Specified Number of Years. Payments will be made for a
specified number of years, which may not be less than 5 nor more than 30. This
option is available for a fixed annuity only.
OPTION 2 - LIFE ANNUITY. Payments will be made for the life of the Annuitant.
Payments will cease with the last payment due prior to the Annuitant's death.
OPTION 3 - LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 OR 20 YEARS. Payments
will be made for the life of the Annuitant. A guaranteed payment period of
either 10 or 20 years may be chosen.
OPTION 4 - JOINT AND SURVIVOR LIFE ANNUITY. The initial payment will be made if
either the Annuitant or the designated second Annuitant are living. Subsequent
payments will continue during the joint lives of the Annuitants and thereafter
during the life of the surviving annuitant. Payments will end with the last
payment due before the death of the last Annuitant to die.
Other annuity forms may be available with the consent of the Company.
If the Annuitant dies prior to the end of the specified period under Option 1 or
the guaranteed period under Option 3, the beneficiary may choose either:
(1) To have the payments continue for the remainder of the specified or
guaranteed period, or
(2) To receive at any time in one sum the present value of the remaining
payments to be made over the specified or guaranteed period.
If the beneficiary dies while receiving annuity payments under Option 1 or the
guaranteed period of Option 3, the present value of remaining payments will be
paid in one sum to the beneficiary's estate unless otherwise specified. The
present value will be computed as of the valuation period in which due proof of
death and the necessary forms to make payment to a beneficiary are received at
our Administrative Office. At that time, the present value of the fixed annuity
option will be commuted at a rate set by the Company on the annuity date and the
present value of the variable annuity option will be commuted at 3%.
PAYMENTS. Payments will be made on the first day of the month starting with the
Annuity Date. Payments under all options will be made to or at the direction of
the Contract Owner.
<PAGE>
11. Annuity Option Tables
B000933P
The following tables show the amount of the first monthly income payment for
each $1,000 of value applied under an annuity option. "Age" as used in the
tables for Options 2,3, and 4 means an adjusted age determined in the following
manner from the actual age of the Annuitant on the birthday nearest the date of
the first payment:
DATE OF FIRST PAYMENT ADJUSTED AGE
Before calendar year 2000 Actual Age
2000-2009 Actual age decreased by 1
2010-2019 Actual age decreased by 2
2020 and later Actual age decreased by 3
OPTION 1 - ANNUITY FOR SPECIFIED NUMBER OF YEARS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Years 5 6 7 8 9 10 11 12 13 14 15 16 17
Monthly Income 17.91 15.14 13.16 11.68 10.53 9.61 8.86 8.24 7.71 7.26 6.87 6.53 6.23
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Years 18 19 20 21 22 23 24 25 26 27 28 29 30
Monthly Income 5.96 5.73 5.51 5.32 5.15 4.99 4.84 4.71 4.59 4.47 4.37 4.27 4.18
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
OPTION 2 - LIFE ANNUITY AND OPTION 3 - LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR
10 OR 20 YEARS
LIFE 10 YEARS 20 YEARS
AGE ANNUITY GUARANTEED GUARANTEED
- ------------------------------------------------------------------------------------------------------------------------------------
50 4.09 4.06 3.96
51 4.16 4.12 4.01
52 4.23 4.19 4.07
53 4.31 4.27 4.13
54 4.39 4.35 4.19
55 4.48 4.43 4.25
56 4.57 4.51 4.32
57 4.67 4.60 4.38
58 4.77 4.70 4.45
59 4.88 4.80 4.51
60 5.00 4.90 4.58
61 5.13 5.02 4.65
62 5.26 5.13 4.72
63 5.41 5.26 4.79
64 5.56 5.39 4.85
65 5.73 5.52 4.92
66 5.90 5.67 4.98
67 6.09 5.81 5.04
68 6.29 5.97 5.10
69 6.50 6.13 5.15
70 6.74 6.30 5.20
71 6.98 6.47 5.25
72 7.25 6.65 5.29
73 7.54 6.83 5.33
74 7.85 7.02 5.36
75 8.18 7.20 5.39
76 8.54 7.39 5.42
77 8.93 7.58 5.44
78 9.35 7.77 5.45
79 9.80 7.95 5.47
80 10.28 8.12 5.48
81 10.81 8.29 5.49
82 11.37 8.45 5.49
83 11.97 8.60 5.50
84 12.61 8.73 5.50
85 13.30 8.86 5.51
OPTION 4 - JOINT AND SURVIVOR LIFE ANNUITY
</TABLE>
- --------------------------------------------------------------------------------
Age 50 55 60 65 70 75 80 85 Age
50 3.62 3.74 3.83 3.91 3.97 4.02 4.05 4.06 50
55 3.74 3.90 4.05 4.18 4.28 4.35 4.41 4.44 55
60 3.83 4.05 4.26 4.46 4.64 4.77 4.86 4.92 60
65 3.91 4.18 4.46 4.76 5.03 5.27 5.44 5.56 65
70 3.97 4.28 4.64 5.03 5.45 5.83 6.15 6.38 70
75 4.02 4.35 4.77 5.27 5.83 6.42 6.97 7.41 75
80 4.05 4.41 4.86 5.44 6.15 6.97 7.83 8.60 80
85 4.06 4.44 4.92 5.56 6.38 7.41 8.60 9.83 85
Page 11
<PAGE>
Page 12
B000934P
12. Death Benefit
DEATH BEFORE THE ANNUITY DATE. The death benefit described below shall be
payable upon the earlier of the death of:
(1) the Contract Owner (other than a trustee) or (2) the Annuitant.
Prior to the Annuity Date and upon receipt of due proof of death and the
necessary forms to make payment to a beneficiary, the Company will pay to the
beneficiary the total death benefit. The total death benefit is equal to the
Fixed Account death benefit plus the Variable Account death benefit.
The Fixed Account death benefit is equal to the Fixed Account Value on the date
of receipt of due proof of death and the necessary forms to make payment to a
beneficiary.
The Variable Account death benefit is the greater of:
(1) Variable purchase payments, net of Variable Account transfers and less
the total amount of any partial withdrawals from the Variable Account;
or
(2) the Variable Account Value at the date of receipt of due proof of death
and the necessary forms to make payment to a beneficiary.
If the Contract Owner dies prior to age 80, the Variable Account death benefit
will be equal to the greater of:
(1) the Variable Account death benefit; or (2) the Enhanced Variable
Account death benefit.
The Enhanced Variable Account death benefit is the accumulation of all Variable
purchase payments, net of Variable Account transfers and less the total amount
of all withdrawals from the Variable Account. For deaths occurring prior to
attained age 70, the Enhanced Variable Account death benefit is accumulated at
5% to the date of receipt of due proof of death and the necessary forms to make
payment to a beneficiary. For deaths occurring after attained age 69 and prior
to attained age 80, the Enhanced Variable Account death benefit is accumulated
at 5 % through attained age 69 and 3% to the date of receipt of due proof of
death and the necessary forms to make payment to a beneficiary.
Within one year of the date of death, the beneficiary may elect one of the
following payout options if death occurs before the Annuity Date.
<PAGE>
(1) The death benefit may be paid in a single sum. The payment will generally
be made within 7 days of receipt of the necessary forms to make payment.
(2) The Contract Value may be paid out in a single sum within five years after
of the date of death. At the time of this election, the beneficiary must
specify the allocation of the Contract Value to the subaccounts of the
Separate Account and the fixed interest options of the Fixed Account.
During this election and within five years after the date of death, the
beneficiary may transfer amounts among the subaccounts of the Separate
Account and the fixed interest options of the Fixed Account. Transfers
from the fixed interest options are subject to the limitations imposed on
such options prior to the end of the interest period.
(3) The death benefit may be paid in the form of one of the Annuity Options.
The payments must be made over the life of the beneficiary or over a period
not extending beyond the life expectancy of the beneficiary. Payments under
this option must commence within one year after the date of death.
(4) If the beneficiary is the Contract Owner's surviving spouse, the surviving
spouse may elect to become the Contract Owner.
If no such election is made within one year of the date of death, the Company
will pay the Contract Value to the beneficiary at that time.
If there is more than one surviving beneficiary, the beneficiaries must choose
to receive their respective portions of the death benefit according to either
(1) or (2) or (3) in the preceding paragraph.
If no beneficiary survives the first to die of the Contract Owner or the
Annuitant, the death benefit will be paid in a lump sum to the Contract Owner's
estate or the Contract Owner, respectively.
DEATH AFTER THE ANNUITY DATE. This death benefit shall be payable upon the death
of the Annuitant. If death occurs after the Annuity Date, the death benefit
payable, if any, will be according to the annuity option in force.
<PAGE>
12. Death Benefit (continued)
B000935P
BENEFICIARY.THE BENEFICIARY IS THE PERSON(S) WHO IS TO RECEIVE:
(1) Payment on the earlier of the death of the Contract Owner (other than a
trustee) or the Annuitant prior to the Annuity Date, or
(2) Remaining payments under specified or guaranteed annuity payments, if
any, on death of the Annuitant on or after the Annuity Date.
The Contract Owner shall designate the beneficiary in the application. The
Contract Owner may change the beneficiary at any time before the death of the
Contract Owner or the Annuitant, whichever occurs first.
The estate of a beneficiary who dies before the first to die of the Contract
Owner or the Annuitant shall have no rights under this contract.
13. TRANSFERS
Transfers. Subject to and in accordance with the provisions of this contract and
prior to the Annuity Date, the Contract Owner may transfer amounts among the
subaccounts of the Separate Account and the fixed interest options of the Fixed
Account, provided that:
(a) the minimum amount which may be transferred is $250 or, if less, the full
amount held in the subaccount or fixed interest option;
(b) for partial transfers, the amount remaining in a subaccount or fixed
interest option must be at least $250;
(c) amounts may be transferred from fixed interest option(s) to other
subaccounts or fixed interest options only during the 25 day period
immediately following the end of the interest period for which an interest
rate is declared on such fixed interest option(s). Subject to and in
accordance with the provisions of this contract and after the Annuity
Date, the Contract Owner may transfer amounts among subaccounts of the
Separate Account. Upon death of the Contract Owner or the Annuitant and
under the election of a Variable Annuity option, the beneficiary shall
have the right to transfer amounts among the subaccounts of the Separate
Account, provided that:
(a) the minimum amount which may be transferred is $250 or, if less, the full
amount held in the subaccount;
(b) for partial transfers, the amount remaining in a subaccount must be at
least $250.
<PAGE>
14. Withdrawal
Withdrawal. Prior to the earlier of the Annuity Date, the death of the Contract
Owner or the death of the Annuitant, the Contract Owner may withdraw all or part
of the Contract Value.
WITHDRAWAL PAYMENTS. The Contract Owner may make a full or partial withdrawal.
The minimum withdrawal is $500 or, at the time of the first withdrawal in each
contract year, 15% of the total purchase payments, if less.
At the time of a partial withdrawal, the amount remaining in a subaccount or a
fixed interest option must be at least $250. If the Contract Owner makes a full
withdrawal, the contract must be returned to the Company.
Unless otherwise specified by the Contract Owner, the withdrawal will be made
first prorata from the subaccounts of the Separate Account up to the Variable
Account Value, and then from the Fixed Account beginning with the fixed interest
option with the shortest interest period. Within a fixed interest option of the
Fixed Account, partial withdrawals will be made from amounts most recently
allocated, renewed or transferred.
Page 13
<PAGE>
Page 14
B000936P
14. Withdrawal (continued)
Contingent Deferred Sales Charge. The Contingent Deferred Sales Charge will be
imposed upon withdrawals.
For purposes of calculating the Contingent Deferred Sales Charge, purchase
payments will be allocated to the amount withdrawn. The Company will allocate
the purchase payment with the earliest effective date first, then the next
earliest purchase payment until the allocation is equal to the withdrawal
amount. There will be no Contingent Deferred Sales Charge on amounts withdrawn
that exceed the total purchase payments of the contract.
The percentage charged will vary depending upon the number of full contract
years since the purchase payments were made to the time of the withdrawal in
accordance with the table shown below.
NUMBER OF CONTRACT YEARS APPLICABLE PERCENTAGE
SINCE PURCHASE PAYMENT CHARGE
0 6%
1 6
2 5
3 4
4 3
5 2
6 1
7 + 0
The Contingent Deferred Sales Charge will be equal to the sum of charges applied
to the purchase payments associated with the withdrawal. The charge applied to
each purchase payment is equal to the sum of (a) multiplied by (b) for each
purchase payment associated with the withdrawal, where :
(a) is the amount of the purchase payment associated with the withdrawal, and
(b) is the percentage that corresponds to the number of full contract years
since the purchase payment.
On the last day of the first contract year and once each contract year
thereafter, the first withdrawal of the contract year, up to the free withdrawal
amount will not be assessed a Contingent Deferred Sales Charge. The free
withdrawal amount is equal to 15% of total purchase payments.
Subject to the provisions of the contract, the free withdrawal amount will be
applied to the purchase payments that have been in the contract for the longest
length of time.
PREMATURE WITHDRAWAL CHARGE. Subject to and in accordance with provisions of
this contract, amounts withdrawn from the fixed interest options prior to the
expiration of the interest period will be assessed a premature withdrawal
charge.
The charge will be equal to (a) multiplied by (b) multiplied by (c), where:
(a) is the amount withdrawn from the fixed interest option, and (b) is the
premature withdrawal percentage listed on the Additional Contract
Specifications Page, and
(c) is the most recent interest rate applied to the fixed interest option from
which the withdrawal is made.
The first withdrawal of each contract year, up to 15% of total purchase
payments, will not incur a premature withdrawal charge. At the point in time
when the interest period expires or within 25 days after the expiration of the
interest period, the money allocated to the expired fixed interest options may
also be withdrawn free of a premature withdrawal charge.
MAXIMUM CHARGE. The total of all the premature withdrawal charges deducted from
a fixed interest option will never exceed the total amount of all interest which
has been credited to such fixed interest option.
The sum of the Contingent Deferred Sales Charge and the Premature Withdrawal
Charge deducted from an amount withdrawn from the Contract Value will never
exceed 15% of the amount withdrawn from the Contract Value.
SYSTEMATIC WITHDRAWALS. After the contract is issued and prior to the Annuity
Date, the Contract Owner may make a systematic withdrawal request if no previous
withdrawal has been made during the current contract year. The withdrawals can
be made on a monthly, quarterly, semiannual or annual basis. The minimum
Contract Value to be eligible for a withdrawal of this type is $25,000 or such
lower amount as the Company may require. The minimum systematic withdrawal
amount is $50.
<PAGE>
14. WITHDRAWAL (CONTINUED)
B000937P
A level systematic withdrawal payment will begin one modal period after the date
of receipt of the request. The maximum value of a systematic withdrawal is 15%
of total purchase payments at the time of the systematic withdrawal request.
The Contract Owner must send the Company written notice to either stop the
systematic withdrawals or to change the amount or the mode of the withdrawals.
The systematic withdrawals will terminate upon the earlier of the death of the
Contract Owner or the Annuitant.
15. GENERAL
OWNERSHIP OF CONTRACT. The Contract Owner must be named in the application. Upon
written notice to the Company, the Contract Owner may assign the contract to a
new Contract Owner.
DISABILITY. The Contract Owner may at any time withdraw all or any part of the
Contract Value free of Contingent Deferred Sales Charge and Premature Withdrawal
Charge if:
(i) the Contract Owner(other than a trustee), or the Annuitant in a Qualified
Plan, is then disabled as defined in Section 72(m)(7) of the Internal
Revenue Code and as applied under the Social Security Act, and
(ii) the disability began after the Contract Date, and (iii) the disability has
continued without interruption for four months.
MEDICALLY RELATED WITHDRAWAL. After the first contract year for contracts issued
to Contract Owners prior to their 75th birthday and prior to the Annuity Date,
the Contract Owner may request to withdraw all or any part of the Contract Value
free of Contingent Deferred Sales Charge and Premature Withdrawal Charge if
either of the following events occur.
(a) While the contract is in force, the Contract Owner is first confined to a
Medical Care Facility and remains there for at least 90 consecutive days.
The Medical Care Facility must be a state licensed facility which provides
medically necessary in-patient care. The facility must be prescribed based
on physical limitations which prohibit daily living in a non-institutional
setting by a licensed physician in writing.
(b) While the contract in force, the Contract Owner is diagnosed by a licensed
physician with a Fatal Illness which is expected to result in death within
2 years of the diagnoses for 80% of the diagnosed cases.
The Company must receive due proof of the Contract Owner's confinement or Fatal
Illness in writing. The Contract Owner must be living as of the date the
Medically Related Withdrawal proceeds are paid. The maximum payout for all
annuities with this benefit, at or issued by the Company and affiliated
companies, is $500,000.
DEFERMENT OF TRANSFERS AND PAYMENTS. Transfers and payments of withdrawals from
the Variable Account and payment of the Variable Account and Enhanced Variable
Account death benefit will be made within seven days after receipt by the
Company of all documents required for such transfer, payment of withdrawal or
payment of death benefits. However, the Company may defer a transfer, a
withdrawal, a death benefit payment, the Annuity Date or annuity payments under
the contract, if:
(1) The New York Stock Exchange is closed (other than customary weekend and
holiday closings);
(2) Trading on the New York Stock Exchange is restricted;
(3) An emergency exists such that it is not reasonably practical to dispose of
securities held in the Separate Account or to fairly determine the value
of its assets; or
(4) The Securities and Exchange Commission by order so permits for the
protection of security holders.
Conditions in (2) and (3) will be decided by, or in accordance with rules of,
the Securities and Exchange Commission.
The Company may defer a transfer or payment of a withdrawal from the Fixed
Account or payment of the Fixed Account death benefit for a period not exceeding
six months, if it reasonably determines that investment conditions are such that
an orderly sale of assets held as part of general assets is not possible. .
<PAGE>
Page 15
15. GENERAL (CONTINUED)
INCONTESTABILITY. No material misstatement made by the applicant will void the
contract unless it is contained in the written application attached to the
contract. The contract will be incontestable after it has been in force for 2
years from the Contract Date.
MISSTATEMENT OF AGE. If the age of the Annuitant or a joint payee is misstated,
any amount payable under this contract will be that amount which the purchase
payments paid would have purchased on the basis of the correct age.
If the annuity payments have been overpaid because the age of the Annuitant or
joint payee has been misstated, the amount overpaid, with interest at the rate
of 6% per year or such higher rate as state law may require, compounded
annually, will be charged against the payments still to be made under this
contract.
If the annuity payments have been underpaid because the age of the Annuitant or
joint payee has been misstated, the amount underpaid, with interest at the rate
of 6% per year or such higher rate as state law may require, compounded
annually, will be paid in full with the next payment due under this contract.
PROOF OF AGE AND SURVIVAL. The Company may require satisfactory proof of correct
age at any time. If any payment under this contract depends on the payee being
alive, the Company may require satisfactory proof of survival.
THE CONTRACT. The contract, any endorsements, any riders and its attached
application are the entire contract. It is issued in consideration of the
application and purchase payments.
Only the President, a Vice President, an Associate Actuary, an Actuary or
Secretary of the Company may change the contract. Any change must be in writing.
At any time, the Company may make such changes in this contract as are required
to make it conform with any law or regulation issued by any government agency to
which it is subject.
NONPARTICIPATING CONTRACT. The contract does not participate in divisible
surplus of the Company.
DATES. Contract years and anniversaries are measured from the Contract Date.
NOTICES, CHANGES AND CHOICES. To be effective, all notices, changes and choices
which the Contract Owner may make under the contract must be in writing.
Contract Owner should provide notification on a form provided or approved by the
Company, signed and received by the Company at its Administrative Office or
designated service office. If acceptable to the Company, notices, changes and
choices relating to beneficiaries and ownership will take effect as of the date
signed unless the Company has already acted in reliance on the prior status. The
Company is not responsible for their validity.
CONTRACT PAYMENTS. All sums payable to or by the Company are payable at its
designated service office.
PROTECTION OF PROCEEDS. Annuity payments under this contract may not be assigned
by the payee prior to their due dates. To the extent allowed by law, annuity
payments are not subject to legal process for debts of a payee.
COMPLIANCE WITH MINIMUM VALUE REQUIREMENTS. Annuity, death and withdrawal
benefits are not less than the minimum benefits required under applicable laws
and regulations of the jurisdiction in which this contract is delivered.
The benefits provided under the Fixed Account of this contract are increased by
interest credited in excess of the guaranteed minimums, if any.
PERIODIC REPORTS. As required by federal and state law and at least once each
year, the Company will furnish the Contract Owner with periodic reports. The
periodic reports will contain information on the Separate Account, the Variable
Account Value, the number of Accumulation Units, the value per Accumulation Unit
and the Fixed Account Value.
<PAGE>
ADDITIONAL CONTRACT SPECIFICATIONS
- --------------------------------------------------------------------------------
ELIGIBLE MUTUAL FUNDS
PENN SERIES FUNDS, INC.
INDEPENDENCE CAPITAL (ICMI) VONTOBEL USA
Money Market International Equity
Quality Bond
Growth Equity T. Rowe Price
High Yield Bond
QUEST FOR VALUE ADVISORS Flexibly Managed
Value Equity
Small Capitalization
TCI PORTFOLIOS, INC. NEUBERGER & BERMAN ADVISERS
TWENTIETH CENTURY MANAGEMENT TRUST
(Investors Research) NEUBERGER & BERMAN
TCI Growth Portfolio Limited Maturity Bond
Portfolio
Balanced Portfolio
VARIABLE INSURANCE PRODUCT FUNDS VARIABLE INSURANCE PRODUCT FUNDS II
FIDELITY MANAGEMENT FIDELITY MANAGEMENT
Equity Income Asset Manager
Growth
LENGTH OF
ELIGIBLE FIXED INTEREST OPTIONS INTEREST PERIOD
------------------------------- ---------------
One Year 12 calendar months
- --------------------------------------------------------------------------------
Page 17
<PAGE>
B000914B
This contract provides valuable benefits. Please contact the
Company or its agent if you have questions about this contract.
Please notify the Company promptly of any changes in address
The Penn Insurance and Annuity Company is a stock life insurance
company. It is a wholly owned subsidiary of The Penn Mutual Life
Insurance Company, Independence Square, Philadelphia,
Pennsylvania.
INDIVIDUAL VARIABLE AND FIXED ANNUITY CONTRACT
FLEXIBLE PURCHASE PAYMENTS
Wilmington, Delaware
Mailing Address: Independence Square, Philadelphia, PA 19172
IA-94
<PAGE>
2. Endorsements
B003932E
Endorsement - Individual Retirement Annuity
The contract is amended as follows:
1. CONTRACT OWNER
The definition of Contract Owner is amended by the addition of the
following provision: The contract is established for the exclusive benefit
of the individual or his or her beneficiaries.
2. PURCHASE PAYMENTS
The following provision is added to the Purchase Payments Section: There
are no fixed Purchase Payments under this contract.
No Purchase Payments under this contract may be made unless this contract
is an Individual Retirement Annuity which meets the requirements of
section 408(b) of the Internal Revenue Code ("Code") for the taxable year
of the Contract Owner for or during which the Purchase Payment is made.
Consequently, no Purchase Payments will be accepted under a SIMPLE plan
established by any employer pursuant to Code section 408(p). No transfer
or rollover of funds attributable to contributions made by a particular
employer under its SIMPLE plan will be accepted from a SIMPLE IRA, that
is, an IRS used in conjunction with a SIMPLE plan, prior to the expiration
of the 2-year period beginning on the date the individual first
participated in that employer's SIMPLE plan. Purchase Payments must be
paid in cash and either:
(a) must meet the requirements for deduction under Section 219 of the code
and must not exceed the lesser of $2,000 for the Contract Owner or
100% of the Contract Owner's compensation per year except,
(i) in the case of an Individual Retirement Annuity established by
the Contract Owner for the Contract Owner's spouse, effective
January 1, 1997, the maximum Purchase Payment per year for the
Contract Owner's spouse shall not exceed $2,000, provided that
the combined contributions of the Contract Owner and the Contract
Owner's spouse do not exceed the combined compensation of the
Contract Owner and the Contract Owner's spouse, and the contract
Owner and the Contract Owner's spouse file a joint tax return;
and
(ii) in the case of an Individual Retirement Annuity that is a
simplified employee pension plan as defined in section 408(k) of
the Code, the maximum Purchase Payment per year shall be equal to
the lesser of
(A) 15% of compensation not in excess of the first $150,000
($200,000 for benefits accruing in plan years beginning
before 1994), adjusted pursuant to Section 415 of the code,
or
(B) $30,000 (as adjusted under the Code for inflation).
(b) must be paid with funds which qualify as a rollover contribution under
section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3) of the Internal
Revenue Code.
3. REQUIRED MINIMUM DISTRIBUTIONS
Any benefits payable under the Annuity Payments Section, or Withdrawal
Section are subject to the following provision:
Notwithstanding any provisions of this contract to the contrary, the
distribution of an individual's interest shall be made in accordance with
the minimum distribution requirements of section 401(a)(9) of the Code and
the regulations thereunder, including the incidental death benefit
requirements of section 401(a)(9)(G) of the Code and the regulations
thereunder, and the minimum distribution incidental benefit requirement of
section 1.401(a)(9)-2 of the Proposed Income Tax Regulations, all of which
are herein incorporated by reference.
DISTRIBUTIONS BEFORE DEATH
The entire interest of the individual for whose benefit the contract is
maintained (a) will be distributed, no later than the first day of April
following
the calendar year in which such individual attains age 70 1/2
(required beginning date), or
Endorsement No. PI 1534-96 Page 4
<PAGE>
Page 4 (con'd)
B003933E
ENDORSEMENT - INDIVIDUAL RETIREMENT ANNUITY (CONTINUED)
(b) will begin to be distributed not later than the required beginning
date over the life of such individual, the lives of such individual
and his or her designated beneficiary, a period not extending beyond
the life expectancy of such individual, or the period not extending
beyond joint and last survivor expectancy of such individual and his
or her designated beneficiary. Distributions made under paragraph (b)
must be made in periodic payments at intervals of no longer than one
year and distributions made in years after the required beginning date
must be made on or before December 31. In addition, distributions made
under paragraph (b) must be either non-increasing or they may increase
only as provided in Q&A F-3 of section 1.401(a)(9)-1 of the Proposed
Income Tax Regulations.
For purposes of calculating the maximum period over which distributions
can be made under paragraph (b) above, life expectancy is computed by use
of the expected return multiples in Table V an VI of section 1.72-9 of the
Income Tax Regulations. Unless otherwise elected by the individual by the
time distributions are required to begin, life expectancies shall be
recalculated annually. Any affirmative election made by the individual
shall be irrevocable and shall apply to all subsequent years. The life
expectancy of a non-spouse beneficiary may not be recalculated. Instead,
life expectancy will be calculated using the attained age of such
beneficiary during the calendar year in which the individual attains ages
70 1/2, and payments for subsequent years shall be calculated based on
such life expectancy reduced by one for each calendar year which has
elapsed since the calendar year life expectancy was first calculated.
A Contract Owner who maintains more than one IRA may satisfy the minimum
distribution requirements under section 401(a)(9) of the Code by receiving
a distribution from any one or more of his or her IRAs in an amount equal
to the total amount of the required minimum distributions of all his or
her IRAs. For this purpose, the Contract Owner of two or more IRAs may use
the `alternative method' described in Notice 88-38, 1988-1 C.B. 524, to
satisfy the minimum distribution requirements described in this provision.
DISTRIBUTION UPON DEATH
DISTRIBUTIONS BEGINNING BEFORE DEATH. If the individual dies after
distribution of his or her interest has begun, the remaining portion of
such interest will continue to be distributed at least as rapidly as under
the method of distribution being used prior to the individual's death.
DISTRIBUTIONS BEGINNING AFTER DEATH. If the individual dies before
distribution of his or her interest begins, distribution of the
individual's entire interest shall be completed by December 31 of the
calendar year containing the fifth anniversary of the individual's death
except to the extent that an election is made to receive distribution in
accordance with (1) or (2) below: (1) If the individual's interest is
payable to a designated beneficiary,
then the entire interest of the individual may be distributed over the
life or over a period certain not greater than the life expectancy of
the designated beneficiary commencing on or before December 31 of the
calendar year immediately following the calendar year in which the
individual died.
(2) If the designated beneficiary is the individual's surviving spouse,
the date distributions are required to begin in accordance with (1)
above shall not be earlier than the later of (A) December 31 of the
calendar year immediately following the calendar year in which the
individual died or (B) December 31 of the calendar year in which the
individual would have attained age 70 1/2.
(3) If the designated beneficiary is the individual's surviving spouse,
the spouse may treat the contract as his or her own IRA and, in such
event, shall be treated as the Contract Owner thereafter.. This
election will be deemed to have been made if such surviving spouse
makes a regular IRA contribution to the contract, makes a rollover to
or from such contract, or fails to elect to receive a distribution
within the otherwise applicable time period described above.
Life expectancy is computed by use of the expected return multiples in
Tables V and VI of section 1.72-9 of the Income Tax Regulations. For
purposes of distributions beginning after the individual's death, unless
otherwise elected by the surviving spouse by the time distributions are
required to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable by the surviving spouse and shall apply to
Endorsement No. PI 1534-96
<PAGE>
Endorsement - Individual Retirement Annuity (continued)
all subsequent years. In the case of any other designated beneficiary,
life expectancies shall be calculated using the attained age of such
beneficiary during the calendar year in which distributions are required
to begin pursuant to this section, and payments for any subsequent
calendar year shall be calculated based on such life expectancy reduced by
one for each calendar year which has elapsed since the calendar year life
expectancy was first calculated.
Distributions under this section are considered to have begun if
distributions are made on account of the individual reaching his or her
required beginning date, or if prior to the required beginning date,
distributions irrevocably commence to an individual over a period
permitted and in an annuity form acceptable under section 1.401(a)(9)-1 of
the Proposed Income Tax Regulations.
4. ANNUITY PAYMENTS
In the Annuity Payments Section, the provision entitled "Annuity Date" is
changed to read as follows, subject to the minimum distribution
requirements of Paragraph 3 above being satisfied by such alternative
methods as may from time to time be approved by the Commissioner of
Internal Revenue.
Annuity Date. The Annuity Date shall be the first day of the month
selected by the Annuitant in the application. The Annuity Date shall not
be later than the first day of the next month after the Annuitant's 90th
birthday. The Annuitant may change the Annuity Date up to 30 days prior to
the current Annuity Date. B003934E
5. OWNERSHIP
Transferability and Forfeitability Restriction. The Annuitant is the
Contract Owner. This contract is nontransferable by the Contract Owner and
the entire interest of the Contract Owner is nonforfeitable in accordance
with section 408(b)(1) and (4) of the Code.
6. REFUND OF PURCHASE PAYMENTS
Any refund of purchase payments (other than those attributable to excess
contributions) will be applied, before the close of the calendar year
following the close of the year of the refund, toward the payment of
future Purchase Payments or the purchase of additional benefits.
7. AMENDMENT OF CONTRACT.
To the extent necessary to comply with applicable laws and regulations,
including the Internal Revenue Code and rules and regulations thereunder,
the Company reserves the right to amend this contract without the consent
of the Contract Owner. Such amendment may, to the extent necessary, have
retroactive effect. The Contract Owner will be given a copy of any such
amendments when they are made.
8. The terms of this endorsement shall override any inconsistent or
conflicting provisions in the contract. The Effective Date of this
endorsement is the Contract Date.
Wilmington, Delaware The Penn Insurance and Annuity Company
(Included at Issue)
/s/ Peter R. SXXXXX
---------------------------------------
Actuary
Endorsement No. PI 1534-96
Page 4 (con'd)
2. Endorsement
B003710E
ENDORSEMENT - TAX DEFERRED ANNUITY - 403(b)
The following provisions are added to the contract:
1. NON-TRANSFERABLE
This contract is non-transferable in accordance with section 401(g) of the
Internal Revenue Code. It may not be sold, assigned, discounted or pledged
as collateral for a loan or as security for the performance of an
obligation or for any other purpose, to any person other than the Company.
2. BENEFIT COMMENCEMENT DATE
On the Annuity Date or, if earlier, within 90 days following receipt of
the Contract Owner's written notice of intent to commence annuity benefit
payments, annuity benefit payments will commence. The form of such benefit
payments will be determined in accordance with the provisions of the
following paragraphs.
3. COMPENSATION
For purposes of determing the maximum annual contribution that can be made
under section 415 of the Internal Revenue Code, effective for
contributions made after December 31, 1997, the Contract Owner's
compensation from the employer for the year includes any elective
deferrals made under a 401(k) plan, 403(b) plan, employer contributions
made to a SEP (simplified employer pension), and any amount which is
contributed or deferred by the employer at the election of the Contract
Owner under a plan described in section 125 of the Internal Revenue Code
(a "cafeteria plan") or section 457 of the Internal Revenue Code.
4. LIMITS ON CONTRIBUTIONS
Contributions made in any calendar year cannot exceed the annual limit on
elective deferrals under section 402(g) of the Internal Revenue Code, i.e.
$9,500 as adjusted for inflation.
Solely for a Contract Owner who has completed 15 years of service with a
single qualified employer, this limit will be increased by the lesser of:
(A) $3,000,
(B) $15,000 reduced by amounts not included in gross income for prior
taxable years by reason of this rule, or
(C) the excess of $5,000 multiplied by the Contract Owner's number of
years of service with the qualified employer, over all prior elective
deferrals made on behalf of the Contract Owner by the qualified employer
in prior taxable years.
For this purpose, a qualified employer means any educational organization,
hospital, home health service agency, health and welfare service agency,
church, or convention or association of churches, including an exempt
organization controlled by or associated with a church.
5. MULTIPLE SALARY DEFERRALS
As permitted by the employer, a Contract Owner may enter into more than
one salary reduction agreement in any calendar year to defer compensation
that has not yet been paid or made available.
6. FORM OF BENEFIT - MARRIED OWNER
The term married owner shall mean a Contract Owner who has been married to
the same spouse for at least the twelve consecutive calendar months
immediately preceding the Benefit Commencement Date. Notwithstanding what
is stated in the Annuity Payments Section of the contract to the contrary,
the form of benefit for a Married Owner shall be a Qualified Joint and 50%
Survivor Annuity which is the actuarial equivalent of a single life
annuity, unless the Contract Owner elects an optional form of benefit in
accordance with Paragraph 9 below.
7. FORM OF BENEFIT - UNMARRIED OWNER
Notwithstanding what is stated in the Annuity Payments Section of the
contract to the contrary, the form of benefit for a Contract Owner who is
not a Married Owner shall be a single life annuity unless the Contract
Owner elects an optional form of benefit.
Endorsement No. PI 1542-97 Page 4
<PAGE>
Page 4 (con'd)
B003711E
ENDORSEMENT - TAX DEFERRED ANNUITY (CONTINUED)
8. PAYMENT OF DEATH BENEFIT
If a married Contract Owner dies before the date benefits begin, the death
benefit will be paid to the Contract Owner's surviving spouse in the form
of a single life annuity, unless the Contract Owner has designated another
form of payment available under the contract, or the surviving spouse
elects to receive a lump sum payment or another form of payment available
under the contract.
9. NOTICE AND ELECTION
A. Notice
The Company must provide a Contract Owner written notice within the 30
to 90 day period before the date benefits are to begin. Such written
notice shall explain:
1. The terms and conditions of the automatic forms of benefits, the
alternative forms of benefits that the Contract Owner can choose,
and information about the relative values of each form of benefits;
2. The Contract Owner's right to waive the automatic form of benefit
and the effect of such waiver;
3. The rights of the Contract Owner's spouse regarding a waiver; and 4.
The Contract Owner's right to revoke such waiver and the effect of
such revocation.
B. Election
A Contract Owner may elect a form of benefit other than the automatic
form in writing at any time during the 90 day period which ends on the
date on which payments are to begin; provided, however, that no
election can be made earlier than the date the Contract Owner receives
the notice described in Subsection A above.
If the married Contract Owner, after receiving the notice described
above in Subsection A, elects one of the available forms of
distribution and the Contract Owner's spouse consents to the form of
distribution (if necessary), payments may begin before the end of the
30 day period after the notice was given to the Contract Owner, as long
as
(A) the Contract Owner has been advised of his right to a 30 day period
to consider whether to waive the automatic form of benefit and consent
to a form of distribution other than the automatic form of benefit;
(B) payments do not begin to be paid to the Contract Owner until after
the Contract Owner receives the notice;
(C) payments do not begin before 7 days have elapsed after the notice
is provided to the Contract Owner; and
(D) the Contract Owner may revoke the election of a form of payment
until the end of the 7 day period described in (C) or the date payments
begin, if later.
Spousal Consent Requirement
A Contract Owner will automatically receive a Qualified Joint and 50%
Survivor Annuity unless the Company is satisfied that he or she is not
married on the date benefit payments are to begin. The Contract Owner
may elect an alternate form of benefit only if:
(A) the Contract Owner's spouse (or the spouse's legal guardian)
consents in writing that he or she consents to the Contract Owner's
election to waive the Qualified Joint and 50% Survivor Annuity; to the
specific alternative form elected by the Contract Owner, or to the
Contract Owner's right to choose any alternative form without any
further consent by the spouse. If a beneficiary other than the spouse
is selected, the spouse must also consent in writing to either the
specific Beneficiary or Beneficiaries designated by the Contract Owner
or to the Contract Owner's right to designate any Beneficiary or
Beneficiaries without any further consent by the spouse. The written
consent also must acknowledge the effect of the election and be
witnessed by a notary public; or
Endorsement No. PI 1542-97
<PAGE>
ENDORSEMENT - TAX DEFERRED ANNUITY (CONTINUED)
B003712E
(B) the Contract Owner satisfies the Company that his or her spouse cannot
be located, or furnishes a court order establishing that the Contract
Owner is legally separated or has been abandoned (within the meaning of
local law), unless a qualified domestic relations order pertaining to
the Contract Owner provides that the spouse's consent must be obtained.
Spousal consent shall not be effective with respect to any other
spouses of the Contract Owner, and shall become void if the
circumstances causing the consent of the spouse not to be required
cease to exist prior to the date that the Contract Owner's payments
commence.
Revocation of Election
A Contract Owner may revoke an election to waive the automatic form of
payment at any time during the election period. revocation shall not
void any prospectively effective consent given by his or her spouse in
connection with the revoked election.
10. OPTIONAL FORMS OF BENEFIT
Subject to the conditions and limitations in Paragraph 9 above, a Contract
Owner may elect any annuity payment option set forth in the Annuity
Options Section or Annuity Payments Section of the contract. The form of
benefit may not be changed after the Benefit Commencement Date.
11. BENEFIT RESTRICTIONS
Any benefits payable under the Annuity Payments Section, or the Withdrawal
Section are subject to the following added provisions:
A. Effective after December 31, 1988, withdrawals attributable to
contributions made pursuant to a salary reduction agreement may be made
only when the Contract Owner is over age 59 1/2, leaves the employment
of the employer who purchased the contract, dies, becomes disabled as
defined in section 72(m)(7) of the Code, or establishes hardship as
defined in the Code. In the case of hardship withdrawal, no income
attributable to such contributions may be withdrawn.
B. Notwithstanding any provisions of this contract to the contrary, the
distribution of an individual's interest shall be made in accordance
with the requirements of section 401(a)(31) of the Code and the minimum
distribution requirements of section 403(b)(10) of the Code and the
regulations thereunder, including the incidental death benefit
provisions of section 1.401(a)(9)-2 of the proposed regulations, all of
which are herein incorporated by reference.
C. The Contract Owner's entire interest in the contract must be
distributed, or begin to be distributed, by the Contract Owner's
required beginning date, which effective January 1, 1997, is the April
1 of the calendar year following the later of (i) the calendar year in
which the Contract Owner reaches age 70 1/2, or (ii) the calendar year
in which the Contract Owner retires. For a Contract Owner who is a 5%
owner of the employer in the plan year ending in the calendar year in
which the Contract Owner reaches age 70 1/2, such Contract Owner's
required beginning date is the April 1 following the calendar year in
which that Contract Owner reaches 70 1/2.
For each succeeding year, a distribution must be made on or before
December 31. By the required beginning date the Contract Owner may
elect to have the balance in the contract distributed in one of the
following forms:
a. a single sum payment;
b. equal or substantially equal periodic payments over the life of the
Contract Owner;
c. equal or substantially equal periodic payments over the lives of
the Contract Owner and his or her designated beneficiary;
d. equal or substantially equal periodic payments over a specified
period that may not be longer than the Contract Owner's life
expectancy ;
e. equal or substantially equal periodic payments over a specified
period that may not be longer than the joint life and last survivor
expectancy of the Contract Owner and his or her designated
beneficiary.
Endorsement No. PI 1542-97 Page 4 (con'd)
<PAGE>
Page 4 (con'd)
B003713E
ENDORSEMENT - TAX DEFERRED ANNUITY (CONTINUED)
D. If the Contract Owner dies before his or her entire interest is
distributed, the entire remaining interest will be distributed as
follows:
a. If the Contract Owner dies when or after distributions have begun
under Paragraph 11.C of this endorsement, the entire remaining
interest must be distributed at least as rapidly as provided under
Paragraph 11.C.
b. If the Contract Owner dies before distributions have begun under
Paragraph 11.C, the entire remaining interest must be distributed
as elected by the Contract Owner or, if the Contract Owner has not
so elected, as elected by the beneficiary or beneficiaries, as
follows:
1) by December 31st of the year containing the fifth anniversary of
the Contract Owner's death; or
2) in equal or substantially equal periodic payments over the life
or life expectancy of the designated beneficiary or beneficiaries
starting by December 31st of the year following the year of the
Contract Owner's death. If, however, the beneficiary is the
Contract Owner's surviving spouse, then this distribution is not
required to begin before December 31st of the year in which the
Contract Owner would have turned 70 1/2.
Unless otherwise elected by the Contract Owner prior to the
commencement of distributions under Paragraph 11.B or, if
applicable, by the surviving spouse where the Contract Owner dies
before distributions have commenced, life expectancies of a
Contract Owner or spouse beneficiary shall be recalculated annually
for purposes of distributions under Paragraphs 11.B and 11.C. An
election not to recalculate shall be irrevocable and shall apply to
all subsequent years. The life expectancy of a non-spouse
beneficiary shall not be recalculated.
An individual may satisfy the minimum distribution requirements under
sections 403(b)(10) of the Code by receiving a distribution from one TDA
that is equal to the amount required to satisfy the minimum distribution
requirements for two or more TDAs. For this purpose, the Contract Owner of
two or more TDAs may use the `alternative method' described in Notice
88-39, 1988-1 C.B. 525, to satisfy the minimum distribution requirements
described above.
12. EFFECTIVE DATE
The Effective Date of this endorsement is the Contract Date unless another
Effective Date is shown below.
Wilmington, Delaware The Penn Insurance and Annuity Company
/s/ Peter R. Shaf
--------------------------------------
Endorsement No. PI 1542-97
<PAGE>
2. Endorsement
B000948E
ENDORSEMENT - 403(b) CONTRACT LOANS
The contract is amended as follows:
1. The following is added to Section 6 - The Fixed Account Provisions:
RESTRICTED ACCOUNT. Amounts will be transferred to and from the Restricted
Account in accordance with the provisions of Section 16- Loans and the
terms of Loan Request and Agreement as provided therein. For each amount
transferred to the Restricted Account, interest will be credited at an
effective annual rate declared by the Company. Such rate will be 2 1/2%
less than the interest rate charged by the Company on the loan with respect
to which the transfer to the Restricted Account was made. Interest will be
credited at the same rate for the entire period that all or any part of the
amount is held in the Restricted Account. The declared effective annual
interest rate under the Restricted Account will never be less than 3%. On
each contract anniversary, interest credited to the Restricted Account will
be transferred to the subaccounts of the Separate Account and the fixed
interest options of the Fixed Account in accordance with the Contract
Owner's then current purchase payment allocation instructions.
2. Section 12 - Death Benefit section is amended by the addition of the
following:
Any outstanding loan balance will be repaid before any death benefit
proceeds are payable.
3. Section 14 - Withdrawal is amended by the addition of the following:
The proceeds of any full or partial withdrawal must first be applied to the
repayment of any outstanding loan balance.
4. The following provision is added to Section 15 - General:
Any outstanding loan balance must be repaid before the Contract Value can
be applied to provide annuity payments; and before the contract, or any
part thereof or right therein, is assigned, transferred or exchanged.
While a loan is outstanding, the net amount of any withdrawal, after
deduction of all applicable charges, must be at least equal to the
scheduled loan payment.
5. The following Section 16 is added to the contract:
SECTION 16 - LOANS
CONTRACT LOANS. At any time following one month after the Contract Date,
the Contract Owner may borrow funds from the general account of the Company
if this contract was issued as part of an arrangement under the provisions
of Section 403(b) of the Internal Revenue Code.
LOAN REQUEST AND AGREEMENT. To make a loan under this contract, the
Contract Owner must submit a completed Loan Request and Agreement on a form
provided by the Company.
LOAN AMOUNT. The maximum loan amount is one-half of the Contract Value but
not more than $50,000. The minimum loan amount is $2,000. No loan may be
made if the Contract Value is less than $4,000. No new loan may be made if
any part of a prior loan remains unpaid.
RESTRICTED ACCOUNT. When a loan is made, an amount equal to the amount of
the loan will be transferred to the Restricted Account from the Contract
Owner's share of the subaccount accounts of the Separate Account and the
fixed interest options of the Fixed Account in accordance with direction
provided by the Contract Owner in the Loan Request and Agreement. When a
loan payment is received by the Company, an amount equal to the portion
Endorsement No. PI 1536-90 Page 4
<PAGE>
Page 4 (con'd)
B000949E
ENDORSEMENT - 403(b) CONTRACT LOANS (CONTINUED)
which is repayment of principal will be transferred from the Restricted
Account to the Money Market Account. Transfers from the Restricted Account
will be made as of the date a loan payment is received or, if earlier, the
due date of a payment received during the grace period.
LOAN INTEREST. The loan will bear interest at a rate declared by the
Company for the entire term of the loan. Such rate will be based on the
Monthly Average of the Composite Yield on Seasoned Corporate Bonds as
published by Moody's Investor Service, Inc. for the calendar month ending
two months before the effective date of the loan. If the Monthly Average of
the Composite Yield on Seasoned Corporate Bonds is no longer published, the
rate used in its place will be as established by law or by regulation of
the insurance supervisory official of the jurisdiction in which this
contract is delivered. Interest will accrue on the outstanding loan balance
until the entire loan is repaid; provided, however, that in the event of
prepayment of the entire loan in the first loan year, the amount of
interest payable as part of the scheduled payments during the first loan
year must still be paid. If interest is not paid when due, it will be added
to the outstanding loan balance and will then bear interest at the same
rate.
TERM OF LOAN. A loan made for the purchase of a primary residence may be
made for 10 years. All other loans will be for a term of 5 years.
REPAYMENT. Each loan, together with all accrued interest, must be fully
repaid in equal quarterly payments over its term. Payments will be due
three months from the effective date of the loan and every three months
thereafter. Payments must be made to the Company at its Administrative
Office or designated service office.
GRACE PERIOD. Each scheduled loan payment shall have a grace period of 30
days from its due date during which a loan payment will not be deemed in
default. Any scheduled loan payment which is not made within the grace
period will be in default. A payment made after the grace period but before
the next scheduled bill date will be deemed an unscheduled prepayment of
principal.
PAYMENT IN DEFAULT. If a payment is in default, an amount equal to the
defaulted payment including interest accrued plus any applicable contract
charges will be withdrawn from the contract in accordance with the Contract
Owner's direction in the Loan Request and Agreement but subject to the
timing restrictions of Section 403(b)(11) of the Internal Revenue Code. The
amount withdrawn will be applied to the payment in default.
Such withdrawal will not be subject to minimum withdrawal amount or
remaining account balance.
LOAN IN DEFAULT. If at any time during the term of the loan four scheduled
payments are not made within the applicable grace periods, the entire loan
will be in default and immediately due and payable. An amount equal to the
outstanding loan balance, including all accrued interest plus any
applicable contract charges, will be withdrawn from the contract in
accordance with the Contract Owner's direction in the Loan Request and
Agreement but subject to the timing restrictions of Section 403(b)(11) of
the Internal Revenue Code. The amount withdrawn will be applied to repay
the loan in default.
Such withdrawal will not be subject to minimum withdrawal amount or
remaining account balance.
DEATH OF ANNUITANT. In the event of the death of the Annuitant, any
outstanding loan shall be considered immediately due and payable in full
from proceeds payable under the Death Benefit provisions of the contract.
6. The effective date of this endorsement is the Contract Date unless a later
date is shown below.
Wilmington, Delaware
(Included at Issue) The Penn Insurance and Annuity Company
/s/ Richard Plush
------------------------------------
Vice President and Senior Actuary
Endorsement No. PI 1536-90
<PAGE>
2. Endorsement
B000942E
ENDORSEMENT - NON-TRANSFERABLE ANNUITY - 401(g)
The following provisions are added to the contract:
1. NON-TRANSFERABLE
This contract is non-transferable in accordance with section 401(g) of the
Internal Revenue Code. It may not be sold, assigned, discounted or pledged
as collateral for a loan or as security for the performance of an
obligation or for any other purpose, to any person other than the Company.
2. BENEFIT COMMENCEMENT DATE
On the Annuity Date or, if earlier, within 90 days following receipt of
the Contract Owner's written notice of intent to commence annuity benefit
payments, annuity benefit payments will commence. The form of such benefit
payments will be determined in accordance with the provisions of the
following paragraphs.
3. FORM OF BENEFIT - MARRIED OWNER
The term married owner shall mean a Contract Owner who has been married to
the same spouse for at least the twelve consecutive calendar months
immediately preceding the Benefit Commencement Date. Notwithstanding what
is stated in the Annuity Payments Section of the contract to the contrary,
the form of benefit for a Married Owner shall be a Qualified Joint and 50%
Survivor Annuity which is the actuarial equivalent of a life annuity.
Election of an optional form of benefit may be made subject to the
conditions set forth in Paragraph 6 below.
4. FORM OF BENEFIT - UNMARRIED OWNER
Notwithstanding what is stated in the Annuity Payments Section of the
contract to the contrary, the form of benefit for a Contract Owner who is
not a Married Owner shall be a life annuity unless the Contract Owner
elects an optional form of benefit.
5. PAYMENT OF DEATH BENEFIT
If the Married Owner dies before the Benefit Commencement Date, the death
benefit will be payable to the Married Owner's surviving spouse unless the
spouse has consented to the waiver of such death benefit in a written,
notarized statement of consent.
6. NOTICE AND ELECTION
A. Notice
At least 90 days before the Annuity Date or immediately upon receipt of
the Contract Owner's written notice of intent to commence annuity
benefit payments, the Company will give the Contract Owner written
Notice. Such Notice will:
1. Set forth the optional forms of benefit available to the Contract
Owner who is not a Married Owner, and the procedure for electing
an optional form of benefit.
2. Provide, for the Married Owner, an explanation of the Qualified
Joint and Survivor Annuity and of the optional forms of benefit
available, the Married Owner's right to elect an optional form of
benefit, the spouse's right to waive the Qualified Joint and
Survivor Annuity, and the Contract Owner's rights during the
election period.
B. Election
Unless the Contract Owner notifies the Company in writing of election
of an optional form of benefit by the day before the Benefit
Commencement Date, annuity benefit payments shall be in the form of
benefit set forth in Paragraphs 3 and 4 above.
Election by a Married Owner of a form of benefit other than Qualified
Joint and Survivor Annuity will be valid only if accompanied by the
written, notarized consent to waiver of the Qualified joint and
Survivor Annuity by the Married Owner's spouse.
Endorsement No. PI 1543-90 Page 4
<PAGE>
ENDORSEMENT - NON-TRANSFERABLE ANNUITY (CONTINUED) Page 4 (con'd)
B000943E
7. BENEFIT RESTRICTIONS
Any benefits payable under the Annuity Payments Section, or the Withdrawal
Section are subject to the following added provisions:
A. Effective with respect to contributions made after December 31, 1988,
withdrawals attributable to contributions made pursuant to a salary
reduction agreement may be made only when the Contract Owner is over
age 59 1/2, leaves the employment of the employer who purchased the
contract, dies, becomes disabled as defined in section 72(m)(70) of the
Code, or establishes hardship as defined in the Code. In the case of
hardship withdrawal, no income attributable to such contributions may
be withdrawn.
B. Notwithstanding any provisions of this contract to the contrary, the
distribution of an individual's interest shall be made in accordance
with the requirement of section 401(a)(31) of the Code and the minimum
distribution requirements of section 401(a)(9) of the Code and the
regulations thereunder, including the incidental death benefit
provisions of section I.401(a)(9)-2 of the proposed regulations, all of
which are herein incorporated by reference.
C. The Contract Owner's entire interest in the contract must be
distributed, or begin to be distributed, by the Contract Owner's
required beginning date, which is the April 1 following the calendar
year in which the Contract Owner reaches age 70 1/2. For each
succeeding year, a distribution must be made on or before December 31.
By the required beginning date the Contract Owner may elect to have the
balance in the contract distributed in one of the following forms:
a. a single sum payment;
b. equal or substantially equal payments over the life of the Contract
Owner;
c. equal or substantially equal payments over the lives of the Contract
Owner and his or her designated beneficiary; d. equal or
substantially equal payments over a specified period that may not be
longer than the Contract Owner's life expectancy ;
e. equal or substantially equal payments over a specified period that
may not be longer than the joint life and last survivor expectancy
of the Contract Owner and his or her designated beneficiary.
D. If the Contract Owner dies before his or her entire interest is
distributed, the entire remaining interest will be distributed as
follows:
a. If the Contract Owner dies on or after distributions have begun
under Paragraph 8.C of this endorsement, the entire remaining
interest must be distributed at least as rapidly as provided under
Paragraph 8.C.
b. If the Contract Owner dies before distributions have begun under
Paragraph 8.C, the entire remaining interest must be distributed as
elected by the Contract Owner or, if the Contract Owner has not so
elected, as elected by the beneficiary or beneficiaries, as
follows:
1) by December 31st of the year containing the fifth anniversary of
the Contract Owner's death; or 2) in equal or substantially equal
payments over the life or life expectancy of the designated
beneficiary or beneficiaries starting by December 31st of the year
following the year of the Contract Owner's death. If, however, the
beneficiary is the Contract Owner's surviving spouse, then this
distribution is not required to begin before December 31st of the
year in which the Contract Owner would have turned 70 1/2.
E. Unless otherwise elected by the Contract Owner prior to the
commencement of distributions under Paragraph 8.B or, if applicable, by
the surviving spouse where the Contract Owner dies before distributions
have commenced, life expectancies of a Contract Owner or spouse
beneficiary shall be recalculated annually for purposes of
distributions under Paragraphs 8.B and 8.C. An election not to
recalculate shall be irrevocable and shall apply to all subsequent
years. The life expectancy of a non-spouse beneficiary shall not be
recalculated.
Endorsement No. PI 1543-90 Page 4
<PAGE>
ENDORSEMENT - NON-TRANSFERABLE ANNUITY (CONTINUED) Page 4 (con'd)
B000944E
8. BENEFITS UNDER $3,500
If the Contract Value is less than $3,500, upon the earlier of the Annuity
Date or the August 1st of the year in which the Contract Owner attains age
70 1/2, the Contract Value will be paid in a lump sum to the Contract
Owner.
9. OPTIONAL FORMS OF BENEFIT
Subject to the conditions and limitations in Paragraph 6 above, an
Contract Owner may elect any annuity payment option set forth in the
Annuity Options Section or Annuity Payments Section of the contract. The
form of benefit may not be changed after the Benefit Commencement Date.
10. EFFECTIVE DATE
The Effective Date of this endorsement is the Contract Date.
Wilmington, Delaware The Penn Insurance and Annuity Company
(Included at Issue)
/s/ Richard Plush
------------------------------------
Vice President and Senior Actuary
Endorsement No. PI 1543-90
<PAGE>
2. Endorsement
B000945E
ENDORSEMENT - TAX DEFERRED ANNUITY - 403(b)
The following provisions are added to the contract:
1. NON-TRANSFERABLE
This contract is non-transferable in accordance with section 401(g) of the
Internal Revenue Code. It may not be sold, assigned, discounted or pledged
as collateral for a loan or as security for the performance of an
obligation or for any other purpose, to any person other than the Company.
2. BENEFIT COMMENCEMENT DATE
On the Annuity Date or, if earlier, within 90 days following receipt of
the Contract Owner's written notice of intent to commence annuity benefit
payments, annuity benefit payments will commence. The form of such benefit
payments will be determined in accordance with the provisions of the
following paragraphs.
3. FORM OF BENEFIT - MARRIED OWNER
The term married owner shall mean a Contract Owner who has been married to
the same spouse for at least the twelve consecutive calendar months
immediately preceding the Benefit Commencement Date. Notwithstanding what
is stated in the Annuity Payments Section of the contract to the contrary,
the form of benefit for a Married Owner shall be a Qualified Joint and 50%
Survivor Annuity which is the actuarial equivalent of a life annuity.
Election of an optional form of benefit may be made subject to the
conditions set forth in Paragraph 6 below.
4. FORM OF BENEFIT - UNMARRIED OWNER
Notwithstanding what is stated in Annuity Payments Section of the contract
to the contrary, the form of benefit for a Contract Owner who is not a
Married Owner shall be a life annuity unless the Contract Owner elects an
optional form of benefit.
5. PAYMENT OF DEATH BENEFIT
If the Married Owner dies before the Benefit Commencement Date, the death
benefit will be payable to the Married Owner's surviving spouse unless the
spouse has consented to the waiver of such death benefit in a written,
notarized statement of consent.
6. NOTICE AND ELECTION
A. Notice
At least 90 days before the Annuity Date or immediately upon receipt of
the Contract Owner's written notice of intent to commence annuity
benefit payments, the Company will give the Contract Owner written
Notice. Such Notice will:
1. Set forth the optional forms of benefit available to the Contract
Owner who is not a Married Owner, and the procedure for electing
an optional form of benefit.
2. Provide, for the Married Owner, an explanation of the Qualified
Joint and Survivor Annuity and of the optional forms of benefit
available, the Married Owner's right to elect an optional form of
benefit, the spouse's right to waive the Qualified Joint and
Survivor Annuity, and the Contract Owner's rights during the
election period.
B. Election
Unless the Contract Owner notifies the Company in writing of election
of an optional form of benefit by the day before the Benefit
Commencement Date, annuity benefit payments shall be in the form of
benefit set forth in Paragraphs 3 and 4 above. This election will also
apply to the minimum distribution payments.
Election by a Married Owner of a form of benefit other than Qualified
Joint and Survivor Annuity will be valid only if accompanied by the
written, notarized consent to waiver of the Qualified Joint and
Survivor Annuity by the Married Owner's spouse.
Endorsement No. PI 1542-90 Page 4
<PAGE>
Page 4 (con'd)
ENDORSEMENT - TAX DEFERRED ANNUITY (CONTINUED)
B000946E
7. OPTIONAL FORMS OF BENEFIT
Subject to the conditions and limitations in Paragraph 6 above, a Contract
Owner may elect any annuity payment option set forth in the Annuity
Options Section or Annuity Payments Section of the contract. The form of
benefit may not be changed after the Benefit Commencement Date.
8. BENEFIT RESTRICTIONS
Any benefits payable under the Annuity Payments Section, or the Withdrawal
Section are subject to the following added provisions:
A. Effective with respect to contributions made after December 31, 1988,
withdrawals attributable to contributions made pursuant to a salary
reduction agreement may be made only when the Contract Owner is over
age 59 1/2, leaves the employment of the employer who purchased the
contract, dies, becomes disabled as defined in section 72(m)(70) of the
Code, or establishes hardship as defined in the Code. In the case of
hardship withdrawal, no income attributable to such contributions may
be withdrawn.
B. Notwithstanding any provisions of this contract to the contrary, the
distribution of an individual's interest shall be made in accordance
with the requirements of section 401(a)(31) of the Code and the minimum
distribution requirements of section 403(b)(10) of the Code and the
regulations thereunder, including the incidental death benefit
provisions of section I.401(a)(9)-2 of the proposed regulations, all of
which are herein incorporated by reference.
C. The Contract Owner's entire interest in the contract must be
distributed, or begin to be distributed, by the Contract Owner's
required beginning date, which is the April 1 following the calendar
year in which the Contract Owner reaches age 70 1/2. For each
succeeding year, a distribution must be made on or before December 31.
By the required beginning date the Contract Owner may elect to have the
balance in the contract distributed in one of the following forms:
a. a single sum payment;
b. equal or substantially equal payments over the life of the Contract
Owner;
c. equal or substantially equal payments over the lives of the Contract
Owner and his or her designated beneficiary;
d. equal or substantially equal payments over a specified period that
may not be longer than the Contract Owner's life expectancy;
e. equal of substantially equal payments over a specified period that
may not be longer than the joint life and last survivor expectancy
of the Contract Owner and his or her designated beneficiary.
D. If the Contract Owner dies before his or her entire interest is
distributed, the entire remaining interest will be distributed as
follows:
a. If the Contract Owner dies on or after distributions have begun
under Paragraph 8.C of this endorsement, the entire remaining
interest must be distributed at least as rapidly as provided under
Paragraph 8.C.
b. If the Contract Owner dies before distributions have begun under
Paragraph 8.C, the entire remaining interest must be distributed as
elected by the Contract Owner or, if the Contract Owner has not so
elected, as elected by the beneficiary or beneficiaries, as
follows:
1) by December 31st of the year containing the fifth anniversary of
the Contract Owner's death; or
2) in equal or substantially equal payments over the life or life
expectancy of the designated beneficiary or beneficiaries starting
by December 31st of the year following the year of the Contract
Owner's death. If, however, the beneficiary is the Contract Owner's
surviving spouse, then this distribution is not required to begin
before December 31st of the year in which the Contract Owner would
have turned 70 1/2.
Endorsement No. PI 1542-90
<PAGE>
Page 4 (con'd)
ENDORSEMENT - TAX DEFERRED ANNUITY (CONTINUED)
Unless otherwise elected by the Contract Owner prior to the
commencement of distributions under Paragraph 8.B or, if
applicable, by the surviving spouse where the Contract Owner dies
before distributions have commenced, life expectancies of a
Contract Owner or spouse beneficiary shall be recalculated annually
for purposes of distributions under Paragraphs 8.B and 8.C. An
election not to recalculate shall be irrevocable and shall apply to
all subsequent years. The life expectancy of a non-spouse
beneficiary shall not be recalculated.
B000947E
An individual may satisfy the minimum distribution requirements under
sections 403(b)(10) of the Code by receiving a distribution from one TDA
that is equal to the amount required to satisfy the minimum distribution
requirements for two or more TDAs. For this purpose, the Contract Owner of
two or more TDAs may use the `alternative method' described in Notice
88-39, 1988-1 C.B. 525, to satisfy the minimum distribution requirements
described above.
9. EFFECTIVE DATE
The Effective Date of this endorsement is the Contract Date.
Wilmington, Delaware The Penn Insurance and Annuity Company
(Included at Issue)
/s/ Richard Plush
------------------------------------
Vice President and Senior Actuary
Endorsement No. PI 1542-90
<PAGE>
The Penn Mutual Life Insurance Company
--------------------------------------
"I have reviewed or supervised the review of the policy forms contained in this
filing and hereby certify that they are in compliance with the applicable
statutes, regulations and bulletins of the State of South Carolina. I further
certify that they will be revised and/or discontinued in the event of future
changes in the statutes, regulations or bulletins which would prohibit the use
of such forms."
Peter R. Schaefer, FSA, MA
Actuary
February 19, 1998
Date
State of Pennsylvania
- ---------------------------
County of Montgomery
--------------
Personally appeared before me the above named Peter R. Schaefer personally known
to me, who, being duly sworn, deposes and says that he executed the above
statement and that the information contained therein is true and correct..
Subscribed and sworn to before me this 19th day of February, 1998 .
Notary Public
<PAGE>
The Penn Insurance and Annuity
<TABLE>
<CAPTION>
Application for Individual Variable and Fixed Annuity
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Name (First, Middle, Last) (Please Print) Social Security No./Tax ID
________________________________________________ ________________________________________________
Address Daytime Telephone Number
Contract ________________________________________________ ________________________________________________
Owner City State Zip Code Employer Name
Information ________________________________________________ ________________________________________________
Date of Birth Sex City State
________________________________________________ ________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
Name (First, Middle, Last) (Please Print) Social Security No./Tax ID
Annuitant ________________________________________________ ________________________________________________
(If different Address
from Contract ________________________________________________ Date of Birth Sex
Owner) City State Zip Code ________________________________________________
________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
Primary Beneficiary: Contingent Beneficiary:
Beneficiary ________________________________________________ ________________________________________________
Designation Social Security No. Social Security No.
________________________________________________ ________________________________________________
Relationship to Contract Owner Relationship to Contract Owner
________________________________________________ ________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
| | Market Type:
Purchase Purchase | Select Annuity Date: | (check one and indicate type, if applicable)
Payment Payment $_____________ | | Mo.| Day | Yr. |
| | | 01 | | o Non-Qualified
($5,000 min. Make check payable to: | | o 401(g)
for Non- | If no date is selected, | o 403(b) Transfer
Qualified) The Penn Insurance | the Annuity Date will be | o IRA-408 For Tax Year ________
and Annuity Company | the later of the first | o Rollover o Transfer o Custodial
| day of the month |
| following the Annuitant's |
| 85th birthday or 10 years |
| after the issue date. |
---------------------------------------------------------------------------------------------------------------
($2,000 min. Is this Annuity intended to replace or change existing life insurance or annuities?
for Qualified) [ ] Yes [ ] No If yes, list insurance company and policy number in the Remarks Section. If this is an
exchange under IRC Section 1035, attach necessary 1035 Exchange Forms.
- ------------------------------------------------------------------------------------------------------------------------------------
Allocate payment to the Variable Investment Options and/or Fixed Interest Options using whole percentages.
Fidelity Investments Neuberger & Berman American Century
Purchase _____ % VIP Equity Income _____ % AMT Limited Maturity Bond _____ % VP Capital Appreciation
Payment _____ % VIP Growth _____ % AMT Balanced Morgan Stanley
Allocation _____ % VIP II Asset Manager _____ % AMT Partners _____ % Emerging Markets Equity (Int'l)
_____ % VIP II Index 500 OpCap Advisors The Penn Insurance
(Total Independence Capital (ICMI) _____ % Value Equity and Annuity Company
Allocations _____ % Money Market _____ % Small Capitalization Fixed Interest Options
must equal _____ % Quality Bond T. Rowe Price _____ % 1 Year Fixed Interest
100%) _____ % Growth Equity _____ % High Yield Bond _____ % 3 Year Fixed Interest
ICMI / Robertson Stephens _____ % Flexibly Managed _____ % 5 Year Fixed Interest
_____ % Emerging Growth ($5,000 minimum)
Vontobel USA _____ % 7 Year Fixed Interest
_____ % International Equity ($5,000 minimum)
VALUES AND PAYMENTS UNDER THIS CONTRACT, WHEN BASED UPON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE
VARIABLE. THEY MAY DECREASE OR INCREASE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] Yes [ ] No If answered Yes, the Contract Owner authorizes and directs PIA to accept telephone
Request for instructions to transfer contract values among the variable subaccounts and fixed interest options and/or
Telephone change the allocation of future purchase payments. This authorization is subject to the terms and conditions
Transfer in the contract. PIA will not be held liable for any loss, liability, cost, or expense for acting in good
Privileges faith on the telephone instructions. This authorization shall continue in force until and unless the earlier
of (a) written revocation is received by PIA or (b) PIA discontinues this privilege.
- ------------------------------------------------------------------------------------------------------------------------------------
Remarks: | Home Office
| Use Only
|
|
|
- ------------------------------------------------------------------------------------------------------------------------------------
Version 5/97 Page 1 of 2
PI1355
</TABLE>
<PAGE>
Dollar Cost Averaging ($10,000 Contract Minimum)
Sufficient funds must be allocated to the source account indicated below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Transfer $______ Monthly (minimum $100) over a ______ Month period (12 months minimum, 60 months maximum).
Transfer from the following source account (check one only): o Money Market o Quality Bond
o AMT Limited Maturity Bond o One Year Fixed Interest Option
Into the following account(s) based on the dollar amounts indicated below ($50 per account minimum):
$_____VIP Equity Income $_____Quality Bond $_____Quality Bond $_____Flexibly managed
$_____VIP Growth $_____Growth Equity $_____Growth Equity $_____VP Capital Appreciation
$_____VIP II Asset Manager $_____Emerging Growth $_____Emerging Growth $_____Emerging Markets
$_____VIP II Index 500 $_____International Equity $_____International Equity Equity (Int'l)
$_____Money Market $_____AMT Limited Maturity Bond $_____AMT Limited Maturity Bond
The first monthly transfer will take place on the15th of the month following the date of the issue and each month
there after for the period indicated above. The Dollar Cost Averaging Program will terminate on the earlier of
the end of the period indicated above, or after exhausting all amounts from the source account indicated above.
- ------------------------------------------------------------------------------------------------------------------------------------
Acknowledgement:
By signing below, the Contract Owner understands that:
a) The contract value and annuity payments, when based on investment experience of a separate account, are
variable and are not guaranteed as to a fixed dollar amount;
b) This annuity is a long term commitment to meet insurance needs and financial goals; and I acknowledge receipt
of the most recent prospectus; and
c) The annuity applied for is suitable for my investment objectives and my financial situation and needs.
- ------------------------------------------------------------------------------------------------------------------------------------
Signatures:
Signed at:_______________________ _________________________________ _________________________________
City State Date Signed
_______________________________ ______________________________________________
Signature of Contract Owner Signature of Annuitant (if different from Contract Owner)
- ------------------------------------------------------------------------------------------------------------------------------------
Notice:
I hereby represent that my answers to the above sections are correct and true to the best of my knowledge and
belief and I agree that this application shall be part of any annuity contract issued by the Company. Under
penalty of perjury, I certify that (1) I am exempt from backup withholding, (2) I have indicated my correct
taxpayer identification number, (3) I am not subject to backup withholding either because I have not been
notified by the IRS that I am subject to backup withholding as result of failure to report all interest or
dividends, of the IRS has notified me that I am no longer subject to backup withholding, and (4) I have received
the W-9 Backup Withholding Instructions Form.
o Check this box if you are subject to backup withholding under the provisions of Section 3406 (a) (1) (c) of the
Internal Revenue Code.
Contract No. Date of Issue
Does the proposed Contract Owner already own a PIA Annuity contract? [ ] No [ ] Yes _______________ _______________
______________________________________________________________________ _______________________________
Signature of Contract Owner Date signed
- ------------------------------------------------------------------------------------------------------------------------------------
Registered Representative:
Do you have any reason to believe the contract applied for is to replace existing insurance or annuities Yes No
__________________________________________________ ___________________________________________________ ______________________
Signature of Registered Representative Printed Name of registered Representative State License Number
(resident agent if required by law)
__________________________________________________ _____________________________________________________________________________
Telephone No. Office Code (3 digit) Representative code (5 digit)
__________________________________________________ ____________________________________________________________________________
Office/firm Name Broker/Dealer Name
Commission Information Office 5-digit
Representation Code Number Representative Code Percent (%)
_________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
Send Application, Check & Other Required Forms to:
The Penn Insurance & Annuity Company
600 Dresher Road - C2L
Horsham, PA 19044
page 2 of 2
</TABLE>
<PAGE>
CERTIFICATE OF INCORPORATION
OF
THE PENN INSURANCE AND ANNUITY COMPANY
FIRST: The name of the corporation is The Penn Insurance and Annuity Company.
SECOND: The address of the registered office of the corporation in the State of
Delaware is No. 100 West Tenth Street, Wilmington, New Castle County,
Delaware. The name of the registered agent of the corporation at such
address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted is:
To engage in the business of insurance, in business activities
reasonably and necessarily incidental to the insurance business, in
business activities reasonably relating to the management, supervision,
servicing of and protection of its interests as to its lawful
investments and to the full utilization of its facilities, and in any
lawful act or activity for which corporations may be organized under
the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall have
authority to issue is One Thousand (1,000) and the par value of each of
such shares is Two Thousand Dollars ($2,000).
FIFTH: The incorporator is Catherine B. Strauss, Esq., whose mailing address
is Independence Square, Philadelphia, Pennsylvania 19172.
SIXTH: The names and mailing addresses of each of the directors, who shall
serve until the first annual meeting or until their successors are
elected and qualify, are:
Robert O. Purcifull Independence Square
Philadelphia, PA 19172
William T. Spock Independence Square
Philadelphia, PA 19172
Frank K. Tarbox Independence Square
Philadelphia, PA 19172
SEVENTH: The corporation is to have perpetual existence.
<PAGE>
EIGHTH: The business and affairs of the corporation shall be managed by the
board of directors, and the directors need not be elected by ballot
unless required by the by-laws of the corporation.
NINTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the board of directors is expressly
authorized to adopt, amend, or repeal by-laws.
I, the undersigned, being the incorporator, for the purpose of forming
a corporation pursuant to the General Corporation of Law of the State of
Delaware do make this certificate, hereby declaring and certifying that this is
my act and deed and the facts herein stated are true, and, accordingly, have
hereto set my hand and seal this 2nd day of July, 1980.
/s/ Catherine B. Strauss
---------------------------
Catherine B. Strauss
<PAGE>
BY-LAWS OF
THE PENN INSURANCE AND ANNUITY COMPANY
As amended through
April 9, 1996
<PAGE>
BY-LAWS OF
THE PENN INSURANCE AND ANNUITY COMPANY
ARTICLE
SHAREHOLDERS
------------
11.1 MEETINGS.
(a) PLACE. Meetings of the Shareholders shall be held at such place
within or without the State of Delaware, as may be designated by the Board of
Directors.
(b) ANNUAL MEETING. An annual meeting of the corporation shall be held
at such time, date and place as the Board of Directors shall determine.
(c) SPECIAL MEETING. Special meetings of' the shareholders may be
called at any time by the President, or the Board of Directors, or the holders
of at least one-fifth of the outstanding shares of stock of the Company entitled
to vote at the meeting.
(d) NOTICE. Written notice of the time and place of all meetings of
Shareholders and of the general nature of the business to be transacted at each
special meeting of Shareholders shall be given to each Shareholder entitled to
vote at the meeting not less than ten nor more than sixty days before the date
of the meeting, unless a greater period of notice is required by law in a
particular case.
(e) QUORUM. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of stock of the Company entitled to vote on a
particular matter shall constitute a quorum for the purpose of considering such
matter. If a quorum is not present no business shall be transacted except to
adjourn to a future time.
(f) PARTICIPATION. One or more Shareholders may participate in a
Shareholders' meeting by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.
(g) VOTING RIGHTS. Except as otherwise provided herein, or in the
articles of incorporation, or by law, every Shareholder shall have the right at
every Shareholders' meeting to one vote for every share standing in his name on
the books of the Company which is entitled to vote at such meeting. Every
Shareholder may vote either in person or by proxy.
1.2 FINANCIAL STATEMENTS. Financial statements need not be sent to Shareholders.
<PAGE>
ARTICLE
DIRECTORS
---------
2.1 ELECTION OF DIRECTORS. Subject to the provisions of applicable law,
at its Annual Meeting of the Stockholders of The Penn Insurance and Annuity
Company, the stockholders or their designees shall elect a Board of Directors to
serve until the next Annual Meeting and until their successors shall be elected
and qualified.
2.2 NUMBER AND TERM. Subject to the provisions of applicable law, the
Board of Directors shall have authority to (i) determine the number of Directors
to constitute the Board, and (ii) fix the terms of office of the Directors and
classify the Directors in respect to the time for which they shall severally
hold office. Except as otherwise fixed by the Board of Directors under the
authority given above, each Director elected to the Board, unless he sooner
resigns or is removed or disqualified, shall hold office until the next annual
meeting of the Shareholders.
2.3 POWERS. The business of the Company shall be managed by the Board
of Directors which shall have all powers conferred by law and these by-laws,
including the power to regulate the internal affairs and business of the Company
in such manner as the Board may determine.
2.4 MEETINGS.
(a) PLACE. Meetings of the Board of Directors shall be held at such
place as may be designated by the Board or in the notice of the meeting.
(b) REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times as the board may designate by resolution. Notice of
regular meetings need not be given.
(c) SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called at any time by the President and shall be called by him upon the
written request of onethird of the Directors. Notice (which need not be written)
of the time and place of each special meeting shall be given to each Director at
least two days before the meeting.
(d) QUORUM. A majority of all the Directors in office shall
constitute a quorum for the transaction of business at any meeting and, except
as otherwise provided herein, the acts of a majority of the Directors present at
any meeting at which a quorum is present shall be the acts of the Board of
Directors.
(e) PARTICIPATION. One or more Directors may participate in a
meeting of the Board or a committee of the Board by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
2.5 VACANCIES. Vacancies in the Board of Directors shall be filled by
vote of a majority of the remaining members of the board though less than a
quorum.
<PAGE>
2.6 COMMITTEES. The Board of Directors may by resolution adopted by a
majority of the whole Board designate one or more committees, each committee to
consist of two or more Directors and such alternate members (also Directors) as
may be designated by the Board. Any such committee, to the extent provided in
such resolution, shall have and exercise the authority of the Board of Directors
in the management of the business and affairs of the Company. In the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of any such absent or disqualified member.
ARTICLE
OFFICERS, AGENTS AND EMPLOYEES
------------------------------
3.1 ELECTION OF OFFICERS. At its first meeting after each annual
meeting of the Shareholders, the Board of Directors shall elect a President,
Treasurer, and a Secretary. At any time and in their discretion, the Board of
Directors may elect or appoint one or more Vice Presidents, Assistant
Secretaries and Assistant Treasurers and such other Officers as the Board of
Directors may determine for the proper conduct of the business of the Company.
Except in the case of the President, any person may hold more than one of the
foregoing offices.
3.2 TERMS. Unless otherwise specified by the Board of Directors in any
particular election or appointment, each Officer shall hold office and be
removable at the pleasure of the Board of Directors.
3.3 VACANCIES. Vacancies in any office may be filled by the Board of
Directors for the balance of the Officer's unexpired Term, or if permitted by
law, the Directors may transfer the duties of such Officer to another Officer or
Officers until the next following annual election of Officers.
3.4 AUTHORITY, Duties and Compensation of Officers. The Officers shall
have such authority, perform such duties and serve for such compensation as may
be determined by resolution of the Board of Directors. Except as otherwise
provided by Board resolution (i) the President shall be the chief executive
officer of the Company, shall have general supervision over the business and
operations of the Company, may perform any act and execute any instrument for
the conduct of such business and operations and shall preside at all meetings of
the Board and Shareholders, (ii) the other Officers shall have the duties
usually related to their offices, and (iii) the Vice President, or Vice
Presidents in the order determined by the board, shall in the absence of the
President have the authority and perform the duties of the President.
3.5 AGENTS AND EMPLOYEES. The President or any Officer of the Company
upon authorization by the Board of Directors may appoint or employ such agents
and employees as shall be considered necessary for the proper conduct of the
business of the Company, and may fix their compensation and conditions of
employment subject to removal by the appointing or employing person.
<PAGE>
ARTICLE
INDEMNIFICATION
---------------
4.1 RIGHT TO INDEMNIFICATION. The Company shall indemnify any person
who was or is a party or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding either civil, criminal,
administrative or investigative by reason of the fact that he is or was a
Director, Officer or employee of the Company or is or was serving at the request
of the Company as a director, officer or employee of another enterprise against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the extent that such person is not otherwise
indemnified and the power to do so has been or may be granted by statute. For
this purpose the Board of Directors may, and on request of any such person shall
be required to, determine in each case whether or not the applicable standards
in any such statute have been met, or such determination shall be made by
independent legal counsel, if the Board so directs or if the Board is not
empowered by statute to make such determination.
4.2 INDEMNIFICATION NOT EXCLUSIVE. The foregoing indemnification shall
not be deemed exclusive of any other right to which one indemnified may be
entitled, both as to action in his official capacity and as to action in another
capacity while holding such office, and shall inure to the benefit of the heirs,
executors and administrators of any such person.
4.3 INSURANCE AND OTHER INDEMNIFICATION. The Board of Directors shall
have the power to (i) purchase and maintain, at the Company's expense, insurance
on behalf of the Company and on behalf of others to the extent that power to do
so has been or may be granted by statute, and (ii) give other indemnification to
the extent permitted by law.
ARTICLE
SHARE CERTIFICATES
------------------
5.1 SHARE CERTIFICATES. Every Shareholder of record shall be entitled
to a share certificate representing the shares held by him. Every share
certificate shall bear the corporate seal (which may be a facsimile) and the
signature of the President or a Vice President and the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer of the Company. Where a
certificate is signed by a transfer agent or registrar the signature of any
corporate Officer may be a facsimile.
5.2 REGISTRAR AND TRANSFER AGENT. The Company may but until required by
law need not, employ a registrar, transfer agent, or both for its shares with
such duties and for such compensation as may be determined by the President and
approved by the Board of Directors,
<PAGE>
5.3 TRANSFERS. Transfers of share certificates and the shares
represented thereby shall be made on the books of the Company upon production by
the registered holder of such shares, or by duly authorized attorney, of
satisfactory evidence of the legality of the transfer, payment of all taxes
payable in connection with such transfer, and surrender of the certificate for
the shares to be transferred.
5.4 RECORD DATES. The Board of Directors may fix in advance, as
permitted by law, dates as of which there shall be determined from the records
of the Company the Shareholders entitled to vote at any meeting, to receive
payments of any dividends, to receive any allotments of rights in connection
with the Company's shares or to exercise any other rights of Shareholders.
5.5 LOST CERTIFICATES. Upon application of the registered owner of a
share certificate, or of the duly authorized attorney, accompanied by a proof of
its loss or destruction and by an agreement secured by the bond of a corporate
surety to indemnify the Company, its registrar and transfer agent, if any,
against any damage arising out of the alleged loss or the issuance to the
Shareholder of a new certificate for such shares in the name of the registered
owner, such new certificate shall be issued if any Vice President and another
Officer of the Company shall be satisfied as to the sufficiency of the proof of
loss or destruction and as to the adequacy of such bond or indemnity and shall
so certify in writing for the records of the Company and of its registrar and
transfer agent, if any.
ARTICLE
GENERAL PROVISIONS
------------------
6.1 EXECUTION OF DOCUMENTS AND OBLIGATIONS. The contracts, bonds,
undertakings, recognizances, checks and other rights which the Company is
authorized to make and which require execution shall be executed by the
president, any vice president, secretary or any other officer designated by the
board of directors and such execution shall be in accordance with applicable
law.
6.2 SECRETARY. In addition to the duties customarily attributed to his
office the Secretary shall deliver to the Secretary of The Penn Mutual Life
Insurance Company a certified copy of the minutes of each meeting of
Shareholders and of each meeting of the board of Directors within 30 days
following the date of each respective meeting.
6.3 TREASURER. In addition to the duties customarily attributed to his
office the Treasurer shall deliver to the Secretary of The Penn Mutual Life
Insurance Company a certified copy of all financial statements within 30 days
following the date of preparation of each financial statement.
6.4 COMPANY BOOKS AND RECORDS. The books and records of the Company
shall be available for inspection at any time by any duly authorized
representative of The Penn Mutual Life Insurance Company.
<PAGE>
6.5 CONTRIBUTIONS. The Board of Directors shall have the authority from
time to time to make such contributions as the Directors in their discretion
shall determine for such public and charitable purposes which are authorized
under the laws of the State of Delaware.
6.6 DEPOSITORIES. The money and securities of the Company shall be kept
safe in such manner and in such places as the Board of Directors may approve.
6.7 WAIVER OF NOTICE. Any Shareholder or Director by properly executed
writing may waive any notice required by these by-laws.
6.8 FISCAL YEAR. The fiscal year of the Company shall be fixed by
resolution of the Board of Directors.
<PAGE>
ARTICLE
AMENDMENTS
----------
These by-laws may be amended at any regular or special meeting of the
Board of Directors by the vote of a majority of all the Directors in office or
at any annual or special meeting of Shareholders by the vote of the holders of a
majority of the outstanding stock entitled to vote. Notice of any such meeting
of Shareholders shall set forth the proposed change or a summary thereof.
<PAGE>
FUND PARTICIPATION AGREEMENT
The PENN INSURANCE AND ANNUITY COMPANY, a Delaware life insurance
company (the "Company"), and TCI PORTFOLIOS, INC. ("TCIP") and its investment
adviser, INVESTORS RESEARCH CORPORATION ("Investors Research") hereby agree to
an arrangement whereby shares of TCI Growth (the "Fund") shall be made available
to serve as underlying investment media for variable annuity and variable life
insurance contracts (the "Contracts") to be offered to the public by the
Company, subject to the following provisions:
1. ESTABLISHMENT OF ACCOUNT; AVAILABILITY OF FUND.
(a) The Company represents that it has established the PIA Variable
Annuity Account I (the "Account"), a separate account under Pennsylvania
Insurance law, and has registered the Account as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act") to serve as an investment
vehicle for the Contracts. The Contracts provide for the allocation of net
amounts received by the Company to separate subaccounts of the Account for
investment in the shares of one of more specified investment companies selected
among those companies available through the Account to act as underlying
investment media. Selection of a particular investment company is made by the
Contract owner who may change such selection from time to time in accordance
with the terms of the applicable Contract.
(b) Investors Research represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the Securities Act of 1933
and duly authorized for issuance, and shall be issued in compliance in all
material respects with applicable law, and that TCIP is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold to the
Account hereunder. Investors Research further represents and warrants that the
Fund currently qualifies as, and will make every reasonable effort to continue
to qualify as, a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986 (the "Code"), and to maintain such qualification (under
Subchapter M or any successor or similar provision), and that Investors Research
will notify the Company immediately upon having a reasonable basis for believing
that the Fund has ceased to so qualify or that the Fund might not so qualify in
the immediate future. Investors Research further represents and warrants that it
will make every reasonable effort to cause the Fund to comply with Section
817(h) of the Code, and all regulations issued thereunder, and that Investors
Research will notify the Company immediately upon having a reasonable basis for
believing that the Fund has ceased to so comply or that the Fund might not so
qualify in the immediate future.
<PAGE>
2. MARKETING AND PROMOTION.
The Company agrees to make every reasonable effort to market its
Contracts. The prospectuses and sales literature for the Contracts will not give
undue emphasis to investment choices offered under the Contracts other than the
Fund to the detriment of the Fund. In addition, the Company shall not impose any
fee, condition or requirement for the use by Contract owners of the Fund as an
investment option that operated to the specific prejudice of the Fund, vis-a-vis
the other investment options offered by the Company to Contract owners. In
marketing and administering its Contracts, the Company will comply in all
material respects with all applicable state and Federal laws.
3. PRICING INFORMATION; ORDERS; SETTLEMENT.
(a) TCIP will make shares available to be purchased by the Company on
behalf of the Account at the net asset value applicable to each order. Fund
shares shall be purchased and redeemed in such quantity and at such time
determined by the Company to be necessary to meet the requirements of those
Contracts for which the Fund serves as underlying investment media.
(b) TCIP hereby appoints the Company as its agent for the limited
purpose of accepting purchase and redemption orders for Fund shares from
Contract owners and the Account, which will be based on allocations of net
amounts received by the Company to subaccounts of the Account and other
transactions relating to the Contracts or the Account. Orders for Fund shares
for the Account, based on premiums and transaction requests received by the
Company from Contract owners prior to the close of regular trading (the "Close
<PAGE>
of Trading") on the New York Stock Exchange (the "Exchange") on any given day on
which the Exchange is open for business (each, a "Business Day") and other
Contract transactions effected as of the close of business on such Business Day
will be executed by TCIP at the net asset value determined as of the Close of
Trading on such Business Day. Any orders for Fund shares received by the Company
on such day but after the Close of Trading will be executed by TCIP at the net
asset value determined as of the Close of Trading on the next Business Day
following the day of receipt of such order. The day on which an Order is
executed by TCIP pursuant to the provisions set forth above is referred to
herein as the "Effective Trade Date".
(c) TCIP will use its best efforts to provide to the Company closing
net asset value, dividend and capital gain information at the Close of Trading
each Business Day by 6:00 p.m. Eastern time on such day. The Company will send
directly to TCIP or its specified agent orders to purchase and/or redeem Fund
shares on the basis of such closing net asset value by 10:00 a.m. Eastern Time
the following business day. Payment for purchases of Fund shares (net of
proceeds payable on contemporaneous redemptions of Fund shares) will be wired by
the Company to a custodial account designated by TCIP on the Business Day
following the Effective Trade Date.
(d) Payments for net redemptions of shares of the Fund will be wired by
TCIP from the TCIP custodial account to an account designated by the Company.
Redemption transactions will settle within the time period set forth in the
Fund's then-current prospectus; provided, however, investors Research will use
all reasonable efforts to settle all redemptions within one Business Day
following the Effective Trade Date. On any Business Day when the Federal Reserve
Wire Transfer System is closed, all communication and processing rules will be
suspended for the settlement of Orders and Orders will be settled on the next
Business Day on which the Federal Reserve Wire Transfer System is open.
<PAGE>
4. EXPENSES.
(a) Except as otherwise provided in this Agreement, all expenses
incident to the performance by TCIP under this Agreement shall be paid by
Investors Research or TCIP, including the cost of registration of TCIP's shares
with the Securities and Exchange Commission (the "SEC") and in states where
required and all expenses incident to the performance of administrative services
by the Company under this Agreement shall be paid by the Company.
(b) TCIP shall provide to the Company its proxy materials, periodic
fund reports to shareholders and other materials that are required by law to be
sent to Contract owners and, at the request of the Company, a sufficient
quantity of such materials for distribution by the Company to Contract owners.
In addition, TCIP shall provide the Company with a sufficient quantity of its
prospectuses to be used in connection with the offerings and transactions
contemplated by this Agreement. The cost of preparing and printing such
materials shall be paid by either TCIP or Investors Research, and the cost of
distributing such materials shall be paid by the Company; provided, however,
that at any time TCIP reasonably deems the usage of such materials to be
excessive, it may request that the Company pay the cost of printing (including
press time and paper) of any additional copies of such materials requested by
the Company.
5. REPRESENTATIONS.
The Company and its agents shall not, without the written consent of
TCIP, make representations concerning TCIP or the Fund shares except those
contained in the then-current prospectus and in the then-current printed sales
literature of TCIP.
6. ADMINISTRATION OF ACCOUNT.
(a) The provision of administrative services to the Contract owners and
the Account (except in the Account's capacity as a shareholder of the Fund) is
the responsibility of the Company and shall not be the responsibility of TCIP or
Investors Research. The provision of administrative services for the Fund and
the Account (but only in its capacity as a shareholder of the Fund) is the
responsibility of Investors Research.
<PAGE>
(b) The Account shall be the sole shareholder of Fund shares purchased
for the Contract owners pursuant to this Agreement. The Company shall properly
complete any applications or other forms required by Investors Research or TCIP.
Investors Research acknowledges that it will derive a substantial savings in
administrative expenses, such as a reduction in expenses related to postage,
shareholder communications and recordkeeping, by virtue of having a single
shareholder account for the Account rather than having each Contract owner as a
shareholder.
(c) The parties understand that Investors Research customarily pays,
out of its management fee, another affiliated corporation for the type of
administrative services to be provided by the Company to the Contract owners and
participants. In consideration of the administrative savings resulting from such
arrangement, and to compensate the Company for its administrative service costs,
Investors Research agrees to pay to the Company an amount equal to 15 basis
points (0.15%) per annum of the average aggregate amount invested by the Company
under this Agreement, commencing with the month in which the average aggregate
market value of investments by the Company (on behalf of the Contract owners and
participants) in the Fund exceeds $10 million. No payment obligation shall arise
until the Company's average aggregate investment in the Fund reaches $10
million, and such payment obligation, once commenced, shall be suspended with
respect to any month during which the Company's average aggregate investment in
the Fund drops below $10 million. The parties agree that Investors Research's
payments to the Company, like Investors Research's payments to its affiliated
corporation, are for administrative services only and do not constitute payment
in any manner for investment advisory services or for costs of distribution.
(d) For the purposes of computing the administrative fee reimbursement
contemplated by this SECTION 6, the average aggregate amount invested by the
Company over a one month period shall be computed by totalling the Company's
aggregate investment (share net asset value multiplied by total number of shares
held by the Company) on each business day during the month and dividing by the
total number of business days during such month.
<PAGE>
(i) Investors Research will calculate the reimbursement of
administrative expenses at the end of each calendar quarter and will make such
reimbursement to the Company within 30 days thereafter. The reimbursement check
will be accompanied by a statement showing the calculation of the monthly
amounts payable by Investors Research and such other supporting data as may be
reasonably requested by the Company.
7. TERMINATION.
This agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of either the Company or TCIP upon six months'
advance written notice to the other; PROVIDED, HOWEVER, that the Company may
terminate this Agreement immediately upon written notice to TCIP as to the sale
and issuance of new Contracts if the Company reasonably determines in good faith
that it is no longer in the best interests of Contract owners or consistent with
the purposes of the Contracts to continue to offer the Fund as an investment
option;
(b) at the option of the Company if TCIP shares are not available for
any reason to meet the requirement of Contracts as determined by the Company,
provided that reasonable advance notice of election to terminate shall be
furnished by Company;
(c) at the option of either the Company or TCIP, upon institution of
formal proceedings against the broker-dealer or broker-dealers marketing the
Contracts, the Account, the Company, or TCIP by the National Association of
Securities Dealers, Inc. (the "NASD"), the SEC or any other regulatory body;
(d) upon termination of the Management Agreement between TCIP and
Investors Research, provided that notice of such termination shall be promptly
furnished to the Company. This SUBSECTION (d) shall not be deemed to apply if
contemporaneously with such termination a new contract of substantially similar
terms is entered into between TCIP and Investors Research;
(e) upon the requisite vote of Contract owners or participants having
an interest in TCIP to substitute for TCIP's shares the shares of another
investment company in accordance with the terms of Contracts for which TCIP's
shares had been selected to serve as the underlying investment medium, provided
that the Company shall give 60 days' written notice to TCIP of any proposed vote
to replace the Fund's shares;
<PAGE>
(f) upon assignment of this Agreement unless made with the written
consent of all other parties hereto;
(g) if TCIP's shares are not registered, issued or sold in conformance
with Federal law or such law precludes the use of Fund shares as an underlying
investment medium of Contracts issued or to be issued by the Company, provided,
that prompt notice shall be given by either party should such situation occur;
or
(h) at the option of TCIP, if TCIP reasonably determines in food faith
that the Company is not offering shares of the Fund in conformity with the terms
of this Agreement or applicable law.
8. CONTINUATION OF AGREEMENT.
Termination as the result of any cause listed in SECTION 7 shall not
affect TCIP's obligation to furnish its shares to Contracts then in force for
which its shares serve or may serve as the underlying medium unless such further
sale of Fund shares is proscribed by law or the SEC or other regulatory body.
9. ADVERTISING MATERIALS; FILED DOCUMENTS.
(a) Advertising and sales literature with respect to TCIP prepared by
the Company or its agents for use in marketing its Contracts will be submitted
to TCIP for review before such material is submitted to the SEC or NASD for
review. Advertising and sales literature that identifies the Company, the
Account or the Contracts, which is prepared by Investors Research or TCIP for
use in marketing TCIP or the Fund, will be submitted to the Company for review
before use.
(b) TCIP will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
annual and semiannual reports, proxy statements and all amendments or
supplements to any of the above that relate to the Fund promptly after the
filing of such document with the SEC or other regulatory authorities. The
Company will provide to TCIP at least one complete copy of all registration
statements, prospectuses, statements of additional information, annual and
semi-annual reports, proxy statements, and all amendments or supplements to any
of the above that relate to the Account promptly after the filing of such
document with the SEC or other regulatory authority.
<PAGE>
10. PROXY VOTING.
(a) The Company shall provide pass-through voting privileges to all
Contract owners and participants so long as the SEC continues to interpret the
1940 Act as requiring such privileges. It shall be the responsibility of the
Company to assure that it and the separate accounts of the other Participating
Companies (as defined in SECTION 12(a) below) participating in the Fund
calculate voting privileges in a consistent manner. The Company shall calculate
voting privileges in a manner that is consistent with manner used by the Penn
Mutual Life Insurance Company ("Penn") with respect to shares of the Fund owned
from time to time by the separate accounts which are the subject of that certain
Fund Participation Agreement dated as of February 26, 1993, as amended by the
First Amendment to Fund Participation Agreement dated as of June 21, 1993 (as
amended, the "Penn Agreement"), by and among Penn, TCIP, and Investors Research.
Investors Research hereby confirms that the manner in which Penn calculates
voting privileges under the Penn Agreement is consistent with the manner in
which other Participating Companies so calculate voting privileges. Investors
Research will notify the Company if it becomes aware that another Participating
Company has changed the manner in which it so calculates voting privileges.
(b) So long as it shall by required to provide pass-through voting
privileges, the Company will distribute to Contract owners all proxy material
furnished by TCIP and will vote shares in accordance with instructions received
from such Contract owners. The Company shall vote TCIP shares for which no
instructions have been received in the same proportion as shares for which such
instructions have been received. The Company and its agents shall not oppose or
interfere with the solicitation of proxies for TCIP shares held for such
Contract owners unless it reasonably concludes in good faith that under
applicable law that it has a duty to do so.
<PAGE>
11. INDEMNIFICATION.
(a) Investors Research agrees to indemnify and hold harmless the
Company and its officers, directors, employees, agents, affiliates and each
person, if any, who controls the Company within the meaning of the Securities
Act of 1933 (collectively, the "Indentified Parties" for purposes of this
SECTION 11(a)) against any losses, claims, expenses, damages or liabilities
(including amounts paid in settlement thereof) or litigation expenses (including
legal and other expenses) (collectively, "Losses"), to which the Indemnified
Parties may become subject, insofar as such Losses: (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement, prospectus or sales literature of the
Fund, TCIP or Investors Research, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; or (ii)
result from a breach by Investors Research or TCIP of a material provision of
this Agreement. Investors Research will reimburse any legal or other expenses
reasonably incurred by the Indemnified Parties in connection with investigating
or defending any such Losses. Notwithstanding anything contained herein,
Investors Research shall not be liable for indemnification hereunder if such
Losses are attributable to the negligence or misconduct of the Company in
performing its obligations under this Agreement or to the extent such Losses
arise out of or are based upon an untrue statement or omission or alleged
omission made in TCIP's registration statements, prospectuses, or sales
literature in conformity with written materials furnished to TCIP by the Company
specifically for use therein. This indemnity agreement will be in addition to
any liability which Investors Research may otherwise have.
<PAGE>
(b) The Company agrees to indemnify and hold harmless investors
Research and TCIP and their respective officers, directors, employees, agents,
affiliates and each person, if any, who controls TCIP or Investors Research
within the meaning of the Securities Act of 1933 (collectively, the "Indemnified
Parties" for purposes of this Section 11(b)) against any Losses to which the
Indemnified Parties may become subject, insofar as such Losses: (i) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement, prospectus or sales
literature of the Company or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or arise out of or
as a result of conduct, statements or representations (other than statements or
representations contained in the prospectuses, statements of additional
information or sales literature of TCIP) of the Company or its agents, with
respect to the sale and distribution of Contracts for which the Fund is the
underlying investment; or (ii) result from a breach by the Company of a material
provision of this Agreement. The Company will reimburse any legal or other
expenses reasonably incurred by the Indemnified Parties in connection with
investigating or defending any such Losses. Notwithstanding anything contained
herein, the Company shall not be liable for indemnification hereunder if such
Losses are attributable to the negligence or misconduct of Investors Research or
TCIP in performing their obligations under this Agreement or to the extent such
Losses arise out of or are based upon an untrue statement or omission or alleged
omission made in the Company's or the Account's registration statements,
prospectuses or sales literature in conformity with written materials furnished
to the Company by TCIP specifically for use therein. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Section 11. In case
<PAGE>
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish to, assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this SECTION 11 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
(d) If the indemnifying party assumes the defense of any such action,
the indemnifying party shall not, without the prior written consent of the
indemnified parties in such action, settle or compromise the liability of the
indemnified parties in such action, or permit a default or consent to the entry
of any judgement in respect thereof, unless in connection with such settlement,
compromise or consent, each indemnified party receives from such claimant an
unconditional release from all liability in respect of such claim.
12. POTENTIAL CONFLICTS.
(a) The Company has received a copy of an application for exemptive
relief, as amended, filed by TCIP on December 21, 1987, with the SEC and the
order issued by the SEC in response thereto (the "Shared Funding Exemptive
Order"). The Company has reviewed the conditions to the requested relief set
forth in such application for exemptive relief. As set forth in such
application, the Board of Directors of TCIP (the "Board") will monitor TCIP for
the existence of any material irreconcilable conflict between the interests of
the contract owner of all separate accounts ("Participating Companies")
investing in TCIP. An irreconcilable material conflict may arise for a variety
of reasons, including: (i) an action by any state insurance regulatory
authority; (ii) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling, no
action or interpretative letter, or any similar actions by insurance, tax or
securities regulatory authorities; (iii) an administrative or judicial decision
<PAGE>
in any relevant proceeding; (iv) the manner in which the investments of any
portfolio are being managed; (v) a difference in voting instructions given by
variable annuity contract owner and variable life insurance contract owner or
(vi) a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
(c) If a majority of the Board, or a majority of its disinterested
Board members, determines that a material irreconcilable conflict exists with
regard to contract owner investments in a Fund, the Board shall give prompt
notice to all Participating Companies. If the Board determines that the Company
is responsible for causing or creating said conflict, the Company shall at its
sole cost and expense, and to the extent reasonably practicable (as determined
by a majority of the disinterested Board members), take such action as is
necessary to remedy or eliminate the irreconcilable material conflict. Such
necessary action may include but shall not be limited to:
i. withdrawing the assets allocable to the Account from
the Fund and reinvesting such assets in a different
investment medium or submitting the question of
whether such segregation should be implemented to a
vote of all affected contract owners and as
appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract
owners of one or more Participating Companies) that
votes in favor of such segregation, or offering to
the affected contract owners the option of making
such a change; and/or
<PAGE>
ii. establishing a new registered management investment
company or managed separate account.
(d) If a material irreconcilable conflict arises as a result of a
decision by the Company o disregard its contract owner voting instructions and
said decision represents a minority position or would preclude a majority vote
by all of its contract owners having an interest in TCIP, the company at its
sole cost, may be required, at the Board's election, to withdraw an Account's
investment in TCFP and terminate this Agreement; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
(e) For the purpose of this Section 12, a majority of the disinterested
Board members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will TCIP be
required to establish a new funding medium for any Contract. The Company shall
not be required by this Section 12 to establish a new funding medium for any
Contract if an offer to do so has been declined by vote of a majority of the
Contract owners materially adversely affected by the irreconcilable material
conflict.
13. MISCELLANEOUS.
(a) Amendment and Waiver. Neither this Agreement, nor any provision
hereof, may be amended, waived, discharged or terminated orally, but only by an
instrument in writing signed by all parties hereto.
(b) Notices. All notices and other communications hereunder shall be
given or made in writing and shall be delivered personally, or sent by telex,
telecopier or registered or certified mail, postage prepaid, return receipt
requested, to the party or parties to whom they are directed at the following
addresses, or at such other addresses as may be designated by notice from such
party to all other parties.
<PAGE>
To the Company:
The Penn Insurance and Annuity Company
Independence Square
Philadelphia, Pennsylvania 19172
Attention: C. Ronald Rubley
To TCIP or Investors Research:
TCI Portfolios, Inc.
4500 Main Street
Kansas City, Missouri 64111
Attention: Charles A. Etherington
Any notice, demand or other communication given in a manner prescribed in this
Section 13(b) shall be deemed to have been delivered on receipt.
(c) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Agreement by signing any such counterpart.
(e) Severability. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
(f) Entire Agreement. This Agreement constitutes the entire agreement
and understanding between the parties hereto and supersedes all prior agreement
and understandings relating to the subject matter hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by
their duly authorized officers as of the 1st day of March, 1995.
<PAGE>
THE PENN INSURANCE AND
ANNUITY COMPANY
By:/s/ L. Stockton Illoway
-----------------------------------
L. Stockton Illoway
Vice President
INVESTORS RESEARCH CORPORATION
By:/s/ William M. Lyons
-----------------------------------
William M. Lyons
Executive Vice President
TCI PORTFOLIOS, INC.
By:/s/ William M. Lyons
-----------------------------------
William M. Lyons
Executive Vice President
<PAGE>
AMENDMENT NO. 1 TO
FUND PARTICIPATION AGREEMENT
THIS AMENDMENT NO. 1 FUND TO PARTICIPATION AGREEMENT ("Amendment No.
1") is made and entered into as of the 31st day of October, 1995, by and among
PENN INSURANCE AND ANNUITY COMPANY (the "Company"), TCI PORTFOLIOS, INC.
("TCIP") and the investment adviser of TCIP, INVESTORS RESEARCH CORPORATION
("Investors Research").
W I T N E S S E T H
WHEREAS, the Company, TCIP and Investors Research are parties to a Fund
Participation Agreement, dated as of March 1, 1995 (the "Agreement"): and
WHEREAS, the Company, the TCIP and Investors Research now desire to
modify the Agreement to increase the administrative services fee reimbursement
from 15 basis points to 20 basis points per annum of the average aggregate
amount invested by the Company under the Agreement in the Fund.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises expressed herein, the parties agree as follows:
1. Effective January 1, 1996, the administrative services payment
under Section 6(c) of the Agreement shall be increased to 20
basis points (0.20%) per annum of the average aggregate amount
invested by the Company under the Agreement.
2. After the date hereof, all reference to the term "Agreement"
shall be deemed to mean the Agreement, as amended by this
Amendment No. 1.
3. In the event that there is any conflict between the terms of
this Amendment No. 1 and the Agreement, it is the intention of
the parties hereto that the terms of this Amendment No. 1
shall control, and the Agreement shall be interpreted on that
basis. To the extent that the provisions of the Agreement have
not been amended by this Amendment No. 1, the parties hereto
hereby confirm and ratify the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as
of the date first above written.
PENN INSURANCE AND ANNUITY INVESTORS RESEARCH
COMPANY CORPORATION
By:/s/ William M. Lyons
---------------------------------
William M. Lyons
Executive Vice President
TCI PORTFOLIOS, INC.
By:/s/ William M. Lyons
----------------------------------
William M. Lyons
Executive Vice President
1-PH:1017651.1
19
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
THE PENN INSURANCE AND ANNUITY COMPANY
THIS AGREEMENT, made and entered into as of the 21st day of December,
1994 by and among THE PENN INSURANCE AND ANNUITY COMPANY, (hereinafter the
"Company"), a Delaware corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND II, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the " 1940 Act") and Rules 6e-2(b) (I 5) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the " 1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the " 1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1. 1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 10:00 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
<PAGE>
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article III
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The variable annuity
contracts and/or variable life insurance policies issued by the Company, under
which amounts may be invested in the Fund (the "Contracts"), are listed on
Schedule A attached hereto and incorporated herein by reference, as such
Schedule A may be amended from time to time by mutual written agreement of all
of the parties hereto. The Company will give the Fund and the Underwriter 45
days written notice of its intention to make available in the future, as a
funding vehicle under the Contracts, any other investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2. 1 0 and 2. 1 1, upon receipt by the Fund of the
federal funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Fund.
<PAGE>
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
1.11. The Fund and the Company shall cooperate and communicate with
each other to assure each other than purchases and sales of shares of Portfolios
of the Fund are processed in a timely and accurate manner, in accordance with
the Investment Company Act of 1940, as amended, and the rules and regulations
thereunder. The Fund and the Company shall provide the necessary personnel at
the end of the work day to facilitate good communication and confirmation that
the days' transactions have been adequately and accurately recorded. The parties
shall cooperate with each other in maintaining compatible and easily
transmittable electronic files in order to facilitate efficiency in
communicating and recording information. The Fund shall electronically confirm
shares transactions and balances not later than 2:00 p.m. on the day following
the date of the transaction.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 2932 of the Delaware Insurance Code and has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
<PAGE>
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Delaware and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
life insurance policies or annuity contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-I under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-I Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b- 1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Delaware and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Delaware to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Delaware and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
<PAGE>
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Delaware and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount not less $5 million. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera- ready film or computer diskettes
containing the Fund's prospectus and Statement of Additional Information, and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or Statement of Additional
Information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document, and to
have the Statement of Additional Information for the Fund and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Fund's prospectus and/or its Statement
of Additional Information in combination with other fund companies' prospectuses
and statements of additional information. Except as provided in the following
three sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure as required by
the 1933 Act and/or the 1940 Act, the cost of printing shall be borne by the
Fund. If the Company chooses to receive camera-ready film or computer diskettes
in lieu of receiving printed copies of the Fund's prospectus, the Fund will
reimburse the Company in an amount equal to the product of A and B where A is
the number of such prospectuses distributed to owners of the Contracts, and B is
the Fund's per unit cost of typesetting and printing the Fund's prospectus. The
same procedures shall be followed with respect to the Fund's Statement of
Additional Information.
<PAGE>
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund, the Underwriter and the Company shall follow the procedures,
and shall have the corresponding responsibilities, for the handling of proxy and
voting instruction solicitations, as set forth in Schedule B attached hereto and
incorporated herein by reference. Participating Insurance Companies shall be
responsible for assuring that each of their separate accounts participating in
the Fund calculates voting privileges in a manner consistent with the standards
set forth on Schedule B, which standards will also be provided to the other
Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
<PAGE>
3.6. The Fund and the Underwriter shall use reasonable efforts to
provide Fund prospectuses, reports to shareholders, proxy materials and other
Fund communications (or camera-ready equivalents) to the Company sufficiently in
advance of the Company's mailing dates to enable the Company to complete, at
reasonable cost, the printing, assembling and/or distribution of the
communications in accordance with applicable laws and regulations.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least ten Business Days prior to its use. No such material shall be
used if the Fund or its designee reasonably objects to such use within fifteen
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least ten Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably objects to
such use within ten Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
<PAGE>
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in the Fund under the Contracts, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V.FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b- 1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund. Currently,
no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
<PAGE>
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance with the grace period afforded by Regulation
817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be complemented to a
vote of all affected Contract owners and, as appropriate, segregating the assets
of any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
<PAGE>
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
<PAGE>
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7. 1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8. 1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained in
the Contracts or sales literature for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on behalf of
the Fund for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in
the Registration Statement, prospectus or sales literature of the Fund
not supplied by the Company, or persons under its control and other
than statements or representations authorized by the Fund or the
Underwriter) or unlawful conduct of the Company or persons under its
control, with respect to the sale or distribution of the Contracts or
Fund Shares; or
<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon and in conformity with information furnished to
the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company, as limited by and in accordance with the provisions of
Sections 8.1 (b) and 8.1 (c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
<PAGE>
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature of the Fund
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Underwriter or Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in
the Registration Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons under its control
and other than statements or representations authorized by the Company)
or unlawful conduct of the Fund, Adviser or Underwriter or persons
under their control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not
misleading, if such statement or omission as made in reliance upon
information furnished to the Company by or on behalf of the Fund; or
<PAGE>
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith
or otherwise, to comply with the diversification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Underwriter; as limited by and in accordance with
the provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
<PAGE>
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
<PAGE>
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event
any of the Portfolio's shares are not registered, issued or
sold in accordance with applicable state and/or federal law
or such law precludes the use of such shares as the
underlying investment media of the Contracts issued or to be
issued by the Company; or
(d) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event
that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under
any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event
that such Portfolio fails to meet the diversification
requirements specified in Article VI hereof, or
<PAGE>
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or
the Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change
in its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of
material adverse publicity; or
(g) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice
to the Company, if the Company gives the Fund and the
Underwriter the written notice specified in Section 1.6
hereof and at the time such notice was given there was no
notice of termination outstanding under any other provision
of this Agreement; provided, however any termination under
this Section 10.1 (h) shall be effective forty-five (45) days
after the notice specified in Section 1.6 was given.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
<PAGE>
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
The Penn Insurance and Annuity Company
510 Walnut Street
Philadelphia, Pennsylvania 19172
Attention: Legal Department
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
<PAGE>
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any),
as soon as practical and in any event within 90 days after
the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days
after the end of each quarterly period;
(c) any financial statement, proxy statement, notice or report of
the Company sent to stockholders and/or policyholders, as
soon as practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as
practical after the filing thereof;
<PAGE>
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
THE PENN INSURANCE AND ANNUITY COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
VARIABLE INSURANCE PRODUCTS FUND II
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
FIDELITY DISTRIBUTORS CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
------------------------------------------
Name of Separate Account and Policy Form Numbers of Contracts Funded
Date Established by Board of Directors By Separate Account
- -------------------------------------- -------------------
PIA Variable Annuity Account I Form IA-94
(established July 13, 1994)
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund by the
Underwriter, the Fund and the Company. The defined terms herein shall have the
meanings assigned in the Participation Agreement except that the term "Company"
shall also include the department or third party assigned by the Company to
perform the steps delineated below.
1. The proxy proposals are given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to enable the Company to consider and prepare for the
solicitation of voting instructions from owners of the Contracts and to
facilitate the establishment of tabulation procedures. At this time the
Underwriter will inform the Company of the Record, Mailing and Meeting
dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting
instruction solicitation material. Underwriter will provide the last
Annual Report to the Company pursuant to the terms of Section 3.3 of
the Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Legal Department of the Underwriter or its affiliate ("Fidelity
Legal") must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed
by the Fund)
<PAGE>
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to
Company for insertion into envelopes (envelopes and return envelopes
are provided and paid for by the Company). Contents of envelope sent to
Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company)
addressed to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is
a small, single sheet of paper that requests
Customers to vote as quickly as possible and that
their vote is important. One copy will be supplied by
the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to
why they did not complete the system. Any questions on those Cards are
usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if reasonable and
if required to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. Fidelity Legal will provide a standard form for each
Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
<PAGE>
SCHEDULE C
The Company is planning to offer the following portfolios of the following
investment companies in March 1995:
<TABLE>
<CAPTION>
FUNDS MANAGERS
- ----- --------
<S> <C>
Penn Series Funds, Inc. Independence Capital Management, Inc. (a
Growth Equity Fund subsidiary of The Penn Mutual Life
Insurance Company)
Flexibly Managed Fund T. Rowe Price Associates, Inc.
Value Equity Fund Quest for Value Advisors (a subsidiary of
Oppenheimer Capital)
Small Capitalization Fund Quest for Value Advisors
International Equity Fund Vontobel USA (a subsidiary of Vontobel
Holding Ltd.)
Quality Bond Fund Independence Capital Management, Inc.
High Yield Bond Fund T. Rowe Price Associates, Inc.
Money Market Fund Independence Capital Management, Inc.
TCI Portfolios, Inc.
TCI Growth Portfolio Investors Research Corporation (a Twentieth
Century Company)
Neuberger & Berman Advisers Management Trust
Balanced Portfolio Neuberger & Berman Management Incorporated
Limited Maturity Bond Portfolio Neuberger & Berman Management Incorporated
Variable Insurance Products Fund
Equity-Income Portfolio Fidelity Management & Research Company
Growth Portfolio Fidelity Management & Research Company
Variable Insurance Products Fund II
Asset Manager Portfolio Fidelity Management & Research Company
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
THE PENN INSURANCE AND ANNUITY COMPANY
THIS AGREEMENT, made and entered into as of the 21st day of
December, 1994 by and among THE PENN INSURANCE AND ANNUITY COMPANY, (hereinafter
the "Company"), a Delaware corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter refer-red to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts (hereinafter
the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end
management investment company and is available to act as the investment vehicle
for separate accounts established for variable life insurance policies and
variable annuity contracts (collectively, the "Variable Insurance Products") to
be offered by insurance companies which have entered into participation
agreements with the Fund and the Underwriter (hereinafter "Participating
Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities
and Exchange Commission, dated October 15, 1985 (File No. 812-6102), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and
1
<PAGE>
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the
"Adviser") is duly registered as an investment adviser under the federal
Investment Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain
variable life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to the aforesaid variable annuity
contracts; and
WHEREAS, the Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with
the Securities and Exchange Commission ("SEC") under the Securities Exchange Act
of 1934, as amended, (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios on
behalf of each Account to fund certain of the aforesaid variable life and
variable annuity contracts and the Underwriter is authorized to sell such shares
to unit investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I SALE OF FUND SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund;
2
<PAGE>
provided that the Fund receives notice of such order by 10:00 a.m. Boston time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the Securities and Exchange
Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The variable annuity
contracts and/or variable life insurance policies issued by the Company, under
which amounts may be invested in the Fund (the "Contracts"), are listed on
Schedule A attached hereto and incorporated herein by reference, as such
Schedule A may be amended from time to time by mutual written agreement of all
of the parties hereto. The Company will give the Fund and the Underwriter 45
days written notice of its intention to make available in the future, as a
funding vehicle under the Contracts, any other investment company.
3
<PAGE>
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net value per
share available by 7 p.m. Boston time.
1.11. The Fund and the Company shall cooperate and communicate with
each other assure each other than purchases and sales of shares of Portfolios of
the Fund are processed in a timely and accurate manner, in accordance with the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder. The Fund and the Company shall provide the necessary personnel at
the end of the work day to facilitate good communication and confirmation that
the days' transactions have been adequately and accurately recorded. The parties
shall cooperate with each other in maintaining compatible and easily
transmittable electronic files in order to facilitate efficiency in
communicating and recording information. The Fund shall electronically confirm
shares transactions and balances not later than 2:00 p.m. on the day following
the date of the transaction.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good
4
<PAGE>
standing under applicable law and that it has legally and validly established
each Account prior to any issuance or sale thereof as a segregated asset account
under Section 2932 of the Delaware Insurance Code and has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Delaware and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
life insurance policies or annuity contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Delaware and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Delaware to the extent required to perform this
Agreement.
5
<PAGE>
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Delaware and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Delaware and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(l) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount not less $5 million. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film or computer diskettes
containing the Fund's prospectus and Statement of Additional Information, and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or Statement of Additional
Information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document, and to
have the Statement of Additional
6
<PAGE>
Information for the Fund and the Statement of Additional Information for the
Contracts printed together in one document. Alternatively, the Company may print
the Fund's prospectus and/or its Statement of Additional Information in
combination with other fund companies' prospectuses and statements of additional
information. Except as provided in the following three sentences, all expenses
of printing and distributing Fund prospectuses and Statements of Additional
Information shall be the expense of the Company. For prospectuses and Statements
of Additional Information provided by the Company to its existing owners of
Contracts in order to update disclosure as required by the 1933 Act and/or the
1940 Act, the cost of printing shall be borne by the Fund. If the Company
chooses to receive camera-ready film or computer diskettes in lieu of receiving
printed copies of the Fund's prospectus, the Fund will reimburse the Company in
an amount equal to the product of A and B where A is the number of such
prospectuses distributed to owners of the Contracts, and B is the Fund's per
unit cost of typesetting and printing the Fund's prospectus. The same procedures
shall be followed with respect to the Fund's Statement of Additional
Information.
The Company agrees to provide the Fund or its designee with
such information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of printing any prospectuses or
Statements of Additional Information other than those actually distributed to
existing owners of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract
owners;
(ii) vote the Fund shares in accordance with
instructions received from Contract owners;
and
(iii) vote Fund shares for which no instructions
have been received in the same proportion
as Fund shares of such portfolio for which
instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund, the Underwriter and the Company shall follow the procedures,
and shall have the corresponding responsibilities, for the handling of proxy and
voting instruction solicitations, as set forth in Schedule B attached hereto and
incorporated herein
7
<PAGE>
by reference. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule B, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
3.6. The Fund and the Underwriter shall use reasonable efforts to
provide Fund prospectuses, reports to shareholders, proxy materials and other
Fund communications (or camera-ready equivalents) to the Company sufficiently in
advance of the Company's mailing dates to enable the Company to complete, at
reasonable cost, the printing, assembling and/or distribution of the
communications in accordance with applicable laws and regulations.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least ten Business Days prior to its use. No such material shall be
used if the Fund or its designee reasonably objects to such use within fifteen
Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least ten Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably objects to
such use within ten Business Days after receipt of such material.
8
<PAGE>
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in the Fund under the Contracts, contemporaneously with the filing of such
document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise
9
<PAGE>
payable to the Underwriter, past profits of the Underwriter or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing
the Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance with the grace period afforded by Regulation
817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in
10
<PAGE>
voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions of contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board
11
<PAGE>
informs the Company in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Underwriter and Fund shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7. 1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the
Fund and each trustee of the Board and officers and each person, if any, who
controls the Fund within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8. 1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or
12
<PAGE>
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in the Registration Statement or prospectus for the
Contracts or contained in the Contracts or sales literature
for the Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the
Fund for use in the Registration Statement or prospectus for
the Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature of the Fund not supplied by the Company, or persons
under its control and other than statements or representations
authorized by the Fund or the Underwriter) or unlawful conduct
of the Company or persons under its control, with respect to
the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a
Registration Statement, prospectus, or sales literature of the
Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company
to provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material breach
of any representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company, as limited
by and in accordance with the provisions of Sections 8.1(b)
and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an
13
<PAGE>
Indemnified Party as such may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Fund,
whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. INDEMNIFICATION BY THE UNDERWRITER
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the Registration Statement or prospectus
or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged
omission to state therein a material fact
14
<PAGE>
required to be stated therein or necessary to make
the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Underwriter or Fund by or on behalf
of the Company for use in the Registration Statement
or prospectus for the Fund or in sales literature (or
any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Registration
Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons
under its control and other than statements or
representations authorized by the Company) or
unlawful conduct of the Fund, Adviser or Underwriter
or persons under their control, with respect to the
sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
Registration Statement, prospectus, or sales
literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statement or statements therein not misleading,
if such statement or omission was made in reliance
upon information furnished to the Company by or on
behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise,
to comply with the diversification requirements
specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the
Underwriter in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Underwriter; as limited by and in
accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such
15
<PAGE>
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter
of the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Fund) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith or willful misconduct of the Board
or any member thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure to
comply with the diversification requirements
specified in Article VI of this Agreement);or
16
<PAGE>
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund
in this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Fund, the Underwriter or each
Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to
notify the Fund of the commencement of any litigation or proceedings against it
or any of its respective officers or directors in connection with this
Agreement, the issuance or sale of the Contracts, with respect to the operation
of either Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant
17
<PAGE>
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and
effect until the first to occur of:
(a) termination by any party for any reason by sixty (60)
days advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the
Fund and the Underwriter with respect to any
Portfolio based upon the Company's determination that
shares of such Portfolio are not reasonably available
to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the
Fund and the Underwriter with respect to any
Portfolio in the event any of the Portfolio's shares
are not registered, issued or sold in accordance with
applicable state and/or federal law or such law
precludes the use of such shares as the underlying
investment media of the Contracts issued or to be
issued by the Company; or
(d) termination by the Company by written notice to the
Fund and the Underwriter with respect to any
Portfolio in the event that such Portfolio ceases to
qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or
similar provision, or if the Company reasonably
believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the
Fund and the Underwriter with respect to any
Portfolio in the event that such Portfolio fails to
meet the diversification requirements specified in
Article VI hereof; or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both
of the Fund or the Underwriter respectively, shall
determine, in their sole judgment exercised in good
faith, that the Company and/or its affiliated
companies has suffered a material adverse change in
its business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
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<PAGE>
(g) termination by the Company by written notice to the
Fund and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good
faith, that either the Fund or the Underwriter has
suffered a material adverse change in its business,
operations, financial condition or prospects since
the date of this Agreement or is the subject of
material adverse publicity; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund
and the Underwriter the written notice specified in
Section 1.6 hereof and at the time such notice was
given there was no notice of termination outstanding
under any other provision of this Agreement;
provided, however any termination under this Section
10.1(h) shall be effective forty five (45) days after
the notice specified in Section 1.6 was given.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VH of this
Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
19
<PAGE>
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered
or certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
The Penn Insurance and Annuity Company
510 Walnut Street
Philadelphia, Pennsylvania 19172
Attention: Legal Department
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
20
<PAGE>
12.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared
under statutory accounting principles) and
annual report (prepared under generally
accepted accounting principles ("GAAP"), if
any), as soon as practical and in any event
within 90 days after the end of each fiscal
year;
(b) the Company's quarterly statements
(statutory) (and GAAP, if any), as soon as
practical and in any event within 45 days
after the end of each quarterly period:
(c) any financial statement, proxy statement,
notice or report of the Company sent to
stockholders and/or policyholders, as soon
as practical after the delivery thereof to
stockholders;
(d) any registration statement (without
exhibits) and financial reports of the
Company filed with the Securities and
Exchange
21
<PAGE>
Commission or any state insurance regulator,
as soon as practical after the filing
thereof;
(e) any other report submitted to the Company by
independent accountants in connection with
any annual, interim or special audit made by
them of the books of the Company, as soon as
practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
22
<PAGE>
THE PENN INSURANCE AND ANNUITY COMPANY
By:_______________________________
Name:____________________________
Title:_____________________________
VARIABLE INSURANCE PRODUCTS FUND
By:_______________________________
Name:____________________________
Title:_____________________________
FIDELITY DISTRIBUTORS CORPORATION
By:_______________________________
Name:____________________________
Title:_____________________________
23
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
<TABLE>
<CAPTION>
<S> <C>
Name of Separate Account and Policy Form Numbers of Contracts Funded
Date Established by Board of Directors By Separate Account
PIA Variable Annuity Account I Form IA-94
(established July 13, 1994)
</TABLE>
24
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund by the
Underwriter, the Fund and the Company. The defined terms herein shall have the
meanings assigned in the Participation Agreement except that the term "Company"
shall also include the department or third party assigned by the Company to
perform the steps delineated below.
1. The proxy proposals are given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to enable the Company to consider and prepare for the
solicitation of voting instructions from owners of the Contracts and to
facilitate the establishment of tabulation procedures. At this time the
Underwriter will inform the Company of the Record, Mailing and Meeting
dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting
instruction solicitation material. Underwriter will provide the last
Annual Report to the Company pursuant to the terms of Section 3.3 of
the Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Legal Department of the Underwriter or its affiliate ("Fidelity
Legal") must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
25
<PAGE>
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed
by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to
Company for insertion into envelopes (envelopes and return envelopes
are provided and paid for by the Company). Contents of envelope sent to
Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company)
addressed to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is
a small, single sheet of paper that requests
Customers to vote as quickly as possible and that
their vote is important. One copy will be supplied by
the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
26
<PAGE>
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to
why they did not complete the system. Any questions on those Cards are
usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if reasonable and
if required to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. Fidelity Legal will provide a standard form for each
Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
27
<PAGE>
SCHEDULE C
The Company is planning to offer the following portfolios of the following
investment companies in March 1995:
<TABLE>
<CAPTION>
FUNDS MANAGERS
- ----- --------
<S> <C>
Penn Series Funds, Inc. Independence Capital Management, Inc. (a
Growth Equity Fund subsidiary of The Penn Mutual Life Insurance
Company)
Flexibly Managed Fund T. Rowe Price Associates, Inc.
Value Equity Fund Quest for Value Advisors (a subsidiary of
Oppenheimer Capital)
Small Capitalization Fund Quest for Value Advisors
International Equity Fund Vontobel USA Inc. (a subsidiary of Vontobel
Holding Ltd.)
Quality Bond Fund Independence Capital Management, Inc.
High Yield Bond Fund T. Rowe Price Associates, Inc.
Money Market Fund Independence Capital Management, Inc.
TCI Portfolios, Inc.
TCI Growth Portfolio Investors Research Corporation (a Twentieth
Century company)
Neuberger & Bennan Advisers
Management Trust
Balanced Portfolio Neuberger & Berman Management Incorporated
Limited Maturity Bond Portfolio Neuberger & Berman Management Incorporated
Variable Insurance Products Fund
Equity-Income Portfolio Fidelity Management & Research Company
Growth Portfolio Fidelity Management & Research Company
Variable Insurance Products Fund II
Asset Manager Portfolio Fidelity Management & Research Company
</TABLE>
28
<PAGE>
Sales Agreement
Between
Penn Series Funds, Inc.
and
The Penn Insurance and Annuity Company
for
PIA Variable Annuity Account I
May 1, 1999
<PAGE>
Agreement made as of the 1st day of May, 1999, between Penn Series
Funds, Inc., a Maryland Corporation ("Penn Series") and The Penn Insurance and
Annuity Company, a Pennsylvania corporation ("PIA").
WHEREAS, Penn Series is engaged in business as a diversified open-end
management investment company and is registered as such under the Investment
Company Act of 1940;
WHEREAS, PIA is engaged in the business of issuing life insurance
policies and annuity contracts and as part of that business has established a
separate account known as PIA Variable Annuity Account I (the "Separate
Account") for the purposes of segregating assets for certain variable annuity
contracts;
WHEREAS, Penn Series desires to sell to PIA for the Separate Account
separate classes of shares of common stock that participate in separate
investment funds and PIA desires to purchase such shares for the Separate
Account.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed as follows:
1. Subject to and in accordance with the applicable law, Penn Series
will sell to PIA for the Separate Account shares of the following classes of
Common Stock, par value $.10 per share ("Shares"), at such times and in such
amounts as PIA shall specify:
Penn Series Growth Equity Fund Common Stock
Penn Series Value Equity Fund Common Stock
Penn Series Small Capitalization Fund
Penn Series Emerging Growth Fund
Penn Series Flexibly Managed Fund Common Stock
Penn Series International Equity Fund Common Stock
Penn Series Quality Bond Fund Common Stock
Penn Series High Yield Bond Fund Common Stock
Penn Series Money Market Fund Common Stock
2. The price per Share shall be equal to the net asset value of the
Share as determined form time to time in accordance with the Investment Company
Act of 1940 and as described in the prospectus of Penn Series in effect under
the Securities Act of 1933 at the time of the sale of such Share.
3. No commission or other fee shall be charged or paid to any person or
entity in connection with the sale of Shares to PIA for the Separate Account.
4. PIA will pay cash for the Shares.
5. PIA shall not purchase Shares with the view to distribution of such
Shares.
<PAGE>
6. Penn Series will provide PIA with copies of the then current
prospectus and statement of additional information of Penn series and copies of
all other periodic reports, proxy materials and all other stockholder
communications of a general nature as may be necessary for the sale and
maintenance of variable annuity contracts issued by PIA and funded in whole or
in part through the Separate Account.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first written above.
PENN SERIES FUNDS, INC.
Attest:________________________ By_____________________________
Assistant Secretary James B. McElwain
Executive Vice President
THE PENN INSURANCE AND ANNUITY COMPANY
Attest:________________________ By_____________________________
Secretary Richard F. Plush
Vice President
<PAGE>
[Letterhead - The Penn Insurance and Annuity Company]
February 15, 1995
The Penn Insurance and Annuity Company
Independence Square
Philadelphia, PA 19172
Ladies and Gentlemen:
In my capacity as Associate General Counsel of The Penn Mutual Life Insurance
Company, I have provided legal advice to The Penn Insurance and Annuity Company
("PIA"), a wholly-owned subsidiary of The Penn Mutual Life Insurance Company,
with respect to PIA Variable Annuity Account I (the "Separate Account") and the
individual variable and fixed annuity contracts funded through the Separate
Account (the "Contracts"). Further, I have made such examination of law and have
examined such records and other documents, as I have judged to be necessary or
appropriate, in order to provide an opinion as to the legality of the securities
registered under the Securities Act of 1933 in Registration Statement No.
2-83120.
In my opinion the Contracts and the securities arising therefrom, when issued as
set forth in the Registration Statement, will be legal and binding obligations
of PIA in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ C. Ronald Rubley
- -------------------------
C. Ronald Rubley
Associate General Counsel
<PAGE>
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information, and to the use of our report dated
January 29, 1999 accompanying the financial statements of the Penn Mutual Life
Insurance Company and Annuity Company for the year ended December 31, 1998, and
to the use of our report dated April 2, 1999 accompanying the financial
statements of PIA Annuity Account I for the year ended December 31, 1998 in the
Post-Effective Amendment Number 5 to Registration Statement Number 33-83120 on
Form N-4 of PIA Annuity Account I.
/s/ Ernst & Young LLP
- ----------------------------
Philadelphia, Pennsylvania
April 20, 1999
<PAGE>
April 20, 1999
Board of Directors
The Penn Insurance and Annuity Company
Philadelphia, PA 19172
Re: Penn Variable Annuity Account (the "Separate Account")
SEC Registration Statement on Form N-4 (File No. 33-83120)
------------------------------------------------------------------
Dear Ladies and Gentleman:
We hereby consent to the reference of our name under the caption "Legal Matters"
in the Statement of Additional Information filed as part of Post-Effective
Amendment No. 5 to the above referred Registration Statement on Form N-4 under
the Securities Act of 1933 on behalf of the Separate Account and as Amendment
No. 5 to the Separate Account's Registration Statement under the Investment
Company Act of 1940. In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
Morgan, Lewis & Bockius LLP
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PIA Pennant Table 1 - 1 Year Calculations
Beginning Beginning Ending
Fund Name Begin Date Unit Value Value Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation 12/31/97 $11.54 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund 12/31/97 $13.79 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager 12/31/97 $15.43 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income 12/31/97 $17.94 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth 12/31/97 $18.01 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 12/31/97 $12.15 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 12/31/97 $15.24 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund 12/31/97 $17.34 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 12/31/97 $14.06 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund 12/31/97 $14.90 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
MS Emerging Markets International 12/31/97 $8.97 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced 12/31/97 $14.47 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity 12/31/97 $11.57 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners 12/31/97 $12.40 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 12/31/97 $12.28 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Small Capitalization Fund 12/31/97 $15.97 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 12/31/97 $19.23 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Ending Ending
Fund Name Unit Value Value Charges Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation $11.13 $915.22 $49.62 -8.48%
- --------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund $18.46 $1,269.24 $68.92 26.92%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager $17.50 $1,075.98 $58.54 7.60%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income $19.74 $1,043.55 $57.21 4.35%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth $24.77 $1,304.69 $70.83 30.47%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 $15.38 $1,200.08 $65.35 20.01%
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund $15.95 $987.57 $58.60 -1.24%
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund $24.22 $1,324.66 $72.33 32.47%
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $14.53 $979.52 $53.84 -2.05%
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund $17.47 $1,109.74 $62.24 10.97%
- --------------------------------------------------------------------------------------------------------------------------
MS Emerging Markets International $6.70 $709.20 $38.48 -29.08%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced $16.00 $1,047.93 $58.25 4.79%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity $11.91 $973.61 $55.79 -2.64%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners $12.74 $971.67 $55.93 -2.83%
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $13.34 $1,030.14 $56.22 3.01%
- --------------------------------------------------------------------------------------------------------------------------
Small Capitalization Fund $14.30 $849.08 $46.68 -15.09%
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund $20.78 $1,021.57 $59.07 2.16%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PIA Pennant Table 2 - 1 Year Calculations
Beginning Beginning Ending
Fund Name Begin Date Unit Value Value Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation 12/31/97 $11.54 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund 12/31/97 $13.79 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager 12/31/97 $15.43 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income 12/31/97 $17.94 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth 12/31/97 $18.01 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 12/31/97 $12.15 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 12/31/97 $15.24 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund 12/31/97 $17.34 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 12/31/97 $14.06 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund 12/31/97 $14.90 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
MS Emerging Markets International 12/31/97 $8.97 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced 12/31/97 $14.47 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity 12/31/97 $11.57 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners 12/31/97 $12.40 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 12/31/97 $12.28 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Small Capitalization Fund 12/31/97 $15.97 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 12/31/97 $19.23 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Ending Ending
Fund Name Unit Value Value Charges Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation $11.13 $964.42 $0.41 -3.56%
- --------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund $18.46 $1,337.49 $0.67 33.75%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager $17.50 $1,133.84 $0.68 13.38%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income $19.74 $1,099.69 $1.07 9.97%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth $24.77 $1,374.84 $0.68 37.48%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 $15.38 $1,264.61 $0.81 26.46%
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund $15.95 $1,040.92 $5.25 4.09%
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund $24.22 $1,395.91 $1.08 39.59%
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $14.53 $1,032.22 $1.14 3.22%
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund $17.47 $1,169.51 $2.47 16.95%
- --------------------------------------------------------------------------------------------------------------------------
MS Emerging Markets International $6.70 $747.33 $0.35 -25.27%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced $16.00 $1,104.35 $1.83 10.43%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity $11.91 $1,026.10 $3.29 2.61%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners $12.74 $1,024.08 $3.52 2.41%
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $13.34 $1,085.54 $0.82 8.55%
- --------------------------------------------------------------------------------------------------------------------------
Small Capitalization Fund $14.30 $894.76 $1.00 -10.52%
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund $20.78 $1,076.68 $3.96 7.67%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PIA Pennant Table 3 - 1 Year Calculations
Beginning Beginning Ending
Fund Name Begin Date Unit Value Value Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation 12/31/97 $11.54 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund 12/31/97 $13.79 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager 12/31/97 $15.43 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income 12/31/97 $17.94 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth 12/31/97 $18.01 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 12/31/97 $12.15 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 12/31/97 $15.24 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund 12/31/97 $17.34 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 12/31/97 $14.06 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund 12/31/97 $14.90 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
MS Emerging Markets International 12/31/97 $8.97 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced 12/31/97 $14.47 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity 12/31/97 $11.57 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners 12/31/97 $12.40 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 12/31/97 $12.28 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Small Capitalization Fund 12/31/97 $15.97 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 12/31/97 $19.23 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Ending Ending
Fund Name Unit Value Value Charges Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation $11.13 $9,647.94 $0.41 -3.52%
- --------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund $18.46 $13,380.94 $0.67 33.81%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager $17.50 $11,344.48 $0.68 13.44%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income $19.74 $11,006.50 $1.07 10.06%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth $24.77 $13,754.48 $0.68 37.54%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 $15.38 $12,653.43 $0.81 26.53%
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund $15.95 $10,456.46 $5.25 4.56%
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund $24.22 $13,968.81 $1.08 39.69%
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $14.53 $10,332.51 $1.14 3.33%
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund $17.47 $11,717.30 $2.47 17.17%
- --------------------------------------------------------------------------------------------------------------------------
MS Emerging Markets International $6.70 $7,476.47 $0.35 -25.24%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced $16.00 $11,059.96 $1.83 10.60%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity $11.91 $10,290.66 $3.29 2.91%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners $12.74 $10,272.49 $3.52 2.72%
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $13.34 $10,862.83 $0.82 8.63%
- --------------------------------------------------------------------------------------------------------------------------
Small Capitalization Fund $14.30 $8,956.64 $1.00 -10.43%
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund $20.78 $10,802.44 $3.96 8.02%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PIA Pennant Table 2 - 5 Year Calculations
Beginning Beginning Ending
Fund Name Begin Date Unit Value Value Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation 12/31/93 $10.19 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager 12/31/93 $10.74 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income 12/31/93 $9.02 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth 12/31/93 $9.94 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 12/31/93 $5.61 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 12/31/93 $9.41 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund 12/31/93 $10.40 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 12/31/93 $10.45 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund 12/31/93 $11.46 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced 12/31/93 $9.98 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity 12/31/93 $9.93 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 12/31/93 $10.15 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 12/31/93 $9.19 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Ending Ending
Fund Name Unit Value Value Charges Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation $11.13 $1,090.77 $2.05 1.75%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager $17.50 $1,624.47 $3.40 10.18%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income $19.74 $2,182.29 $5.35 16.88%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth $24.77 $2,487.36 $3.40 19.98%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 $15.38 $2,735.28 $4.05 22.28%
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund $15.95 $1,662.47 $26.25 10.69%
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund $24.22 $2,320.06 $5.40 18.32%
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $14.53 $1,382.84 $5.70 6.69%
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund $17.47 $1,508.25 $12.35 8.56%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced $16.00 $1,591.52 $9.15 9.73%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity $11.91 $1,182.37 $16.45 3.41%
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $13.34 $1,310.14 $4.10 5.55%
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund $20.78 $2,233.32 $19.80 17.42%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PIA Pennant Table 3 - 5 Year Calculations
Beginning Beginning Ending
Fund Name Begin Date Unit Value Value Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation 12/31/93 $10.19 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager 12/31/93 $10.74 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income 12/31/93 $9.02 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth 12/31/93 $9.94 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 12/31/93 $5.61 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 12/31/93 $9.41 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund 12/31/93 $10.40 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 12/31/93 $10.45 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund 12/31/93 $11.46 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced 12/31/93 $9.98 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity 12/31/93 $9.93 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 12/31/93 $10.15 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 12/31/93 $9.19 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Ending Ending
Fund Name Unit Value Value Charges Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation $11.13 $10,925.71 $2.05 1.79%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager $17.50 $16,286.13 $3.40 10.24%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income $19.74 $21,891.63 $5.35 16.95%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth $24.77 $24,925.47 $3.40 20.03%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 $15.38 $27,416.13 $4.05 22.34%
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund $15.95 $16,920.44 $26.25 11.09%
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund $24.22 $23,285.93 $5.40 18.41%
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $14.53 $13,890.60 $5.70 6.79%
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund $17.47 $15,228.50 $12.35 8.77%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced $16.00 $16,021.53 $9.15 9.88%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity $11.91 $11,985.00 $16.45 3.69%
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $13.34 $13,144.46 $4.10 5.62%
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund $20.78 $22,592.81 $19.80 17.69%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PIA Pennant Table 2 - 10 Year Calculations
Beginning Beginning Ending
Fund Name Begin Date Unit Value Value Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation 12/31/88 $5.58 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income 12/31/88 $5.35 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth 12/31/88 $4.83 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 12/31/88 $5.44 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund 12/31/88 $5.95 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 12/31/88 $6.53 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity 12/31/88 $7.10 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 12/31/88 $6.49 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 12/31/88 $6.04 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Ending Ending
Fund Name Unit Value Value Charges Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation $11.13 $1,990.70 $0.41 7.12%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income $19.74 $3,665.34 $1.07 13.86%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth $24.77 $5,106.52 $0.68 17.70%
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund $15.95 $2,842.75 $5.25 11.01%
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund $24.22 $4,045.45 $1.08 14.99%
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $14.53 $2,208.44 $1.14 8.24%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity $11.91 $1,636.72 $3.29 5.05%
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $13.34 $2,044.75 $0.82 7.41%
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund $20.78 $3,356.81 $3.96 12.87%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PIA Pennant Table 3 - 10 Year Calculations
Beginning Beginning Ending
Fund Name Begin Date Unit Value Value Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation 12/31/88 $5.58 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income 12/31/88 $5.35 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth 12/31/88 $4.83 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 12/31/88 $5.44 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund 12/31/88 $5.95 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 12/31/88 $6.53 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity 12/31/88 $7.10 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 12/31/88 $6.49 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 12/31/88 $6.04 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Ending Ending
Fund Name Unit Value Value Charges Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation $11.13 $19,949.39 $0.41 7.15%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income $19.74 $36,863.60 $1.07 13.93%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth $24.77 $51,221.61 $0.68 17.74%
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund $15.95 $29,228.07 $5.25 11.32%
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund $24.22 $40,679.20 $1.08 15.05%
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $14.53 $22,246.22 $1.14 8.32%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity $11.91 $16,728.18 $3.29 5.28%
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $13.34 $20,548.65 $0.82 7.46%
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund $20.78 $34,321.36 $3.96 13.12%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PIA Pennant Table 1 - Since Inception Calculations
Beginning Beginning Ending
Fund Name Begin Date Unit Value Value Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation Portfolio 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund 05/01/97 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
MS Emerging Markets International 05/01/97 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager Portfolio 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income Portfolio 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth Equity Portfolio 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 05/01/97 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund - qualified 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners 05/01/97 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Small Capitalization 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Ending Ending
Fund Name Unit Value Value Charges Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation Portfolio $11.13 $1,111.03 $0.41 2.78%
- --------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund $18.46 $1,750.21 $94.76 39.86%
- --------------------------------------------------------------------------------------------------------------------------
MS Emerging Markets International $6.70 $640.90 $28.81 -23.40%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager Portfolio $17.50 $1,746.05 $0.68 15.63%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income Portfolio $19.74 $1,967.51 $1.07 19.28%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth Equity Portfolio $24.77 $2,472.36 $0.68 26.59%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 $15.38 $1,521.61 $13.86 28.61%
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund $15.95 $1,564.11 $5.25 12.36%
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund - qualified $24.22 $2,415.17 $1.08 25.83%
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $14.53 $1,446.46 $1.14 10.09%
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund $17.47 $1,716.47 $17.21 15.11%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced $16.00 $1,593.15 $1.83 12.89%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity $11.91 $1,173.91 $3.29 4.27%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners $13.10 $1,266.46 $3.52 13.48%
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $13.27 $1,321.20 $0.82 7.71%
- --------------------------------------------------------------------------------------------------------------------------
Small Capitalization $12.92 $1,243.48 $1.00 8.70%
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund $20.53 $2,021.75 $3.96 20.58%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PIA Pennant Table 2 - Since Inception Calculations
Beginning Beginning Ending
Fund Name Begin Date Unit Value Value Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation 11/20/87 $5.41 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund 05/01/97 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager 09/06/89 $6.39 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income 10/09/86 $4.54 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth 10/09/86 $4.15 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 08/27/92 $4.87 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 07/31/84 $2.76 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund 06/01/83 $3.68 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 08/06/84 $4.27 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund 11/01/92 $8.27 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
MS Emerging Markets International 10/01/96 $9.28 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced 02/28/89 $6.40 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity 09/10/84 $4.89 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners 03/22/94 $5.69 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 03/17/87 $6.15 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Small Capitalization Fund 03/01/95 $10.00 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 03/17/87 $5.20 $1,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Ending Ending
Fund Name Unit Value Value Charges Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation $11.13 $2,051.29 $0.41 6.67%
- --------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund $18.46 $1,844.30 $0.67 44.32%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager $17.50 $2,726.98 $0.68 11.36%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income $19.74 $4,313.02 $1.07 12.69%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth $24.77 $5,942.70 $0.68 15.68%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 $15.38 $3,147.19 $0.81 19.79%
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund $15.95 $5,609.40 $5.25 12.70%
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund $24.22 $6,529.20 $1.08 12.79%
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $14.53 $3,368.09 $1.14 8.79%
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund $17.47 $2,089.17 $2.47 12.69%
- --------------------------------------------------------------------------------------------------------------------------
MS Emerging Markets International $6.70 $721.05 $0.35 -13.53%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced $16.00 $2,471.02 $1.83 9.63%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity $11.91 $2,366.59 $3.29 6.20%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners $12.74 $2,215.36 $3.52 18.10%
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $13.34 $2,154.15 $0.82 6.72%
- --------------------------------------------------------------------------------------------------------------------------
Small Capitalization Fund $14.30 $1,425.98 $1.00 9.69%
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund $20.78 $3,890.08 $3.96 12.20%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PIA Pennant Table 3 - Since Inception Calculations
Beginning Beginning Ending
Fund Name Begin Date Unit Value Value Date
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation 11/20/87 $5.41 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund 05/01/97 $10.00 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager 09/06/89 $6.39 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income 10/09/86 $4.54 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth 10/09/86 $4.15 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 08/27/92 $4.87 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund 07/31/84 $2.76 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund 06/01/83 $3.68 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund 08/06/84 $4.27 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund 11/01/92 $8.27 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
MS Emerging Markets International 10/01/96 $9.28 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced 02/28/89 $6.40 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity 09/10/84 $4.89 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners 03/22/94 $5.69 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund 03/17/87 $6.15 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Small Capitalization Fund 03/01/95 $10.00 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund 03/17/87 $5.20 $10,000.00 12/31/98
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Ending Ending
Fund Name Unit Value Value Charges Return
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACI Capital Appreciation $11.13 $20,568.15 $0.41 6.70%
- --------------------------------------------------------------------------------------------------------------------------
Emerging Growth Fund $18.46 $18,455.28 $0.67 44.38%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Asset Manager $17.50 $27,372.51 $0.68 11.41%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Equity Income $19.74 $43,429.53 $1.07 12.75%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Growth $24.77 $59,659.17 $0.68 15.72%
- --------------------------------------------------------------------------------------------------------------------------
Fidelity Index 500 $15.38 $31,567.17 $0.81 19.85%
- --------------------------------------------------------------------------------------------------------------------------
Flexibly Managed Fund $15.95 $57,701.59 $5.25 12.92%
- --------------------------------------------------------------------------------------------------------------------------
Growth Equity Fund $24.22 $65,774.20 $1.08 12.84%
- --------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund $14.53 $33,958.48 $1.14 8.85%
- --------------------------------------------------------------------------------------------------------------------------
International Equity Fund $17.47 $21,099.68 $2.47 12.87%
- --------------------------------------------------------------------------------------------------------------------------
MS Emerging Markets International $6.70 $7,219.31 $0.35 -13.49%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Balanced $16.00 $24,966.08 $1.83 9.74%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Limited Maturity $11.91 $24,281.43 $3.29 6.39%
- --------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Partners $12.74 $22,373.90 $3.52 18.35%
- --------------------------------------------------------------------------------------------------------------------------
Quality Bond Fund $13.34 $21,672.93 $0.82 6.77%
- --------------------------------------------------------------------------------------------------------------------------
Small Capitalization Fund $14.30 $14,297.31 $1.00 9.76%
- --------------------------------------------------------------------------------------------------------------------------
Value Equity Fund $20.78 $39,872.88 $3.96 12.44%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
