-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mo1r8cMo4ZWrTHi0uv9fGFdZdI8ZIFfJ7iDIETAINqfnXFF6gWvq0g1xTReqNbkk Zzg7wyPRmpaJZPcCVYjE0Q== 0000893220-00-000508.txt : 20000425 0000893220-00-000508.hdr.sgml : 20000425 ACCESSION NUMBER: 0000893220-00-000508 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20000424 EFFECTIVENESS DATE: 20000424 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT CENTRAL INDEX KEY: 0000926998 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 333-67775 FILM NUMBER: 607500 BUSINESS ADDRESS: STREET 1: 1050 WESTLAKES DRIVE CITY: BERWYN STATE: PA ZIP: 19312 BUSINESS PHONE: 6104071717 MAIL ADDRESS: STREET 1: 1050 WESTLAKES DRIVE CITY: BERWYN STATE: PA ZIP: 19312 485BPOS 1 485BPOS - PROVIDENT MUTUAL - 333-67775 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- REGISTRATION NO. 333-67775 811-8722 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM S-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 POST-EFFECTIVE AMENDMENT NO. 2 ------------------------ PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT (EXACT NAME OF TRUST) PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA (NAME OF DEPOSITOR) 300 CONTINENTAL DRIVE NEWARK, DELAWARE 19173 (COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) JAMES G. POTTER, JR., ESQ., PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA 1000 CHESTERBROOK BOULEVARD BERWYN, PENNSYLVANIA 19312 (NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE) COPY TO: STEPHEN E. ROTH, ESQ. SUTHERLAND ASBILL & BRENNAN LLP 1275 PENNSYLVANIA AVENUE, N.W. WASHINGTON, DC 20004-2415 It is proposed that this filing will become effective (check appropriate box): [ ] Immediately upon filing pursuant to paragraph (b) of Rule 485. [X] On May 1, 2000 pursuant to paragraph (b) of Rule 485. [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485. [ ] On pursuant to paragraph (a)(1) of Rule 485. TITLE OF SECURITIES BEING OFFERED: Individual Flexible Premium Variable Life Insurance Policies. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PROSPECTUS FOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY ISSUED BY PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA 3 FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY Issued by PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT and PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA SERVICE CENTER MAIN ADMINISTRATIVE OFFICE 300 CONTINENTAL DRIVE 1000 CHESTERBROOK BLVD. NEWARK, DELAWARE 19713 BERWYN, PENNSYLVANIA 19312
TELEPHONE: (800) 688-5177 PROSPECTUS May 1, 2000 This prospectus describes a flexible premium adjustable variable life insurance policy ("Policy") issued by Providentmutual Life and Annuity Company of America (the "Company"). The Policy is a long-term investment designed to provide significant life insurance benefits for the insured. This prospectus provides information that a prospective owner should know before investing in the Policy. You should consider the Policy in conjunction with other insurance you own. It may not be advantageous to replace existing insurance with the Policy. You can allocate your Policy's values to: -- Providentmutual Variable Life Separate Account (the "Separate Account"), which invests in the portfolios listed on this page; or -- the Guaranteed Account, which credits a specified rate of interest. A prospectus for each of the portfolios available through the Separate Account must accompany this prospectus. Please read these documents before investing and save them for future reference. PLEASE NOTE THAT THE POLICIES AND THE PORTFOLIOS: -- ARE NOT GUARANTEED TO ACHIEVE THEIR GOALS; -- ARE NOT FEDERALLY INSURED; -- ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY; AND -- ARE SUBJECT TO RISKS, INCLUDING LOSS OF THE AMOUNT INVESTED. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE POLICY OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The following portfolios are available: -- THE MARKET STREET FUND, INC. All Pro Large Cap Growth Portfolio All Pro Large Cap Value Portfolio All Pro Small Cap Growth Portfolio All Pro Small Cap Value Portfolio International Portfolio Equity 500 Index Portfolio Growth Portfolio Aggressive Growth Portfolio Managed Portfolio Bond Portfolio Money Market Portfolio -- THE ALGER AMERICAN FUND Small Capitalization Portfolio -- NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST Limited Maturity Bond Portfolio Partners Portfolio -- STRONG OPPORTUNITY FUND II, INC. Strong Opportunity Fund II -- STRONG VARIABLE INSURANCE FUNDS, INC. Strong Mid Cap Growth Fund II -- VAN ECK WORLDWIDE INSURANCE TRUST Worldwide Bond Portfolio Worldwide Emerging Markets Portfolio Worldwide Hard Assets Portfolio Worldwide Real Estate Portfolio -- VARIABLE INSURANCE PRODUCTS FUND Equity-Income Portfolio Growth Portfolio High Income Portfolio Overseas Portfolio -- VARIABLE INSURANCE PRODUCTS FUND II Asset Manager Portfolio Contrafund(R) Portfolio Investment Grade Bond Portfolio 4 TABLE OF CONTENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GLOSSARY.............................. 1 POLICY SUMMARY........................ 4 Premiums............................ 4 Investment Options.................. 4 Policy Account Value................ 5 Charges and Deductions.............. 5 Annual Portfolio Operating Expenses Table............................ 7 Surrenders and Partial Withdrawals...................... 9 Death Benefit....................... 9 Transfers........................... 10 Loans............................... 10 Illustrations....................... 10 OTHER POLICIES........................ 10 RISK SUMMARY.......................... 11 THE COMPANY AND THE GUARANTEED ACCOUNT............................. 12 Providentmutual Life and Annuity Company of America............... 12 The Guaranteed Account.............. 13 THE SEPARATE ACCOUNT AND THE PORTFOLIOS.......................... 13 The Separate Account................ 13 The Portfolios...................... 14 THE POLICY............................ 18 Purchasing a Policy................. 18 When Insurance Coverage Takes Effect........................... 19 Canceling a Policy (Free Look Right)........................... 19 Ownership Rights.................... 20 PREMIUMS.............................. 21 Allocating Premiums................. 22 POLICY ACCOUNT VALUES................. 23 Policy Account Value................ 23 Net Cash Surrender Value............ 23 Subaccount Value.................... 23 Unit Value.......................... 24 Guaranteed Account Value............ 24 Special Policy Account Value Credit........................... 24 CHARGES AND DEDUCTIONS................ 25 Premium Expense Charge.............. 25 Monthly Deduction................... 25 Mortality and Expense Risk Charge... 27 Surrender Charges and Additional Surrender Charges................ 27 Face Amount Increase Charge......... 30 Partial Withdrawal Charge........... 30 Transfer Charge..................... 30 Portfolio Expenses.................. 30 DEATH BENEFIT......................... 31 Insurance Proceeds.................. 31 Death Benefit Options............... 31 Changing Death Benefit Options...... 32 Changing the Face Amount............ 32 Settlement Options.................. 34 Accelerated Death Benefit........... 34 SURRENDERS AND PARTIAL WITHDRAWALS.... 34 Surrenders.......................... 34 Partial Withdrawals................. 35 TRANSFERS............................. 35 Dollar Cost Averaging............... 36 Automatic Asset Rebalancing......... 37 LOANS................................. 38 Effect of Policy Loans.............. 39 POLICY LAPSE AND REINSTATEMENT........ 39 Lapse............................... 39 Reinstatement....................... 40 FEDERAL TAX CONSIDERATIONS............ 40 Tax Treatment of Policy Benefits.... 41 OTHER POLICY INFORMATION.............. 43 Payment of Policy Benefits.......... 43 The Policy.......................... 43 Telephone Requests.................. 44 Our Right to Contest the Policy..... 44 Split Dollar Arrangements........... 44 Suicide Exclusion................... 45 Misstatement of Age or Sex.......... 45 Modifying the Policy................ 45 Payments We Make.................... 45 Additional Transfer Rights.......... 46 Reports to Owners................... 46 Records............................. 47 Policy Termination.................. 47 Supplemental Benefits and Riders.... 47 PERFORMANCE DATA...................... 51 ADDITIONAL INFORMATION................ 51 Sale of the Policies................ 51 Potential Conflicts of Interest..... 52 Changes to the Separate Account..... 52 Standard & Poor's................... 53 Policies Issued in Conjunction with Employee Benefit Plans........... 53 Legal Developments Regarding Unisex Actuarial Tables................. 54 Voting Portfolio Shares............. 54 Legal Matters....................... 54 Legal Proceedings................... 54 Experts............................. 54 Financial Statements................ 55 Additional Information about the Company.......................... 55 PLACA's Executive Officers and Directors........................ 55 FINANCIAL STATEMENTS.................. F-1 APPENDIX A -- ILLUSTRATIONS........... A-1
5 GLOSSARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- APPLICATION The application you must complete to purchase a Policy plus all forms required by us or applicable law. ATTAINED AGE The issue age of the insured plus the number of full policy years since the policy date. BENEFICIARY The person(s) you select to receive the insurance proceeds from the Policy. CODE The Internal Revenue Code of 1986, as amended. COMPANY (WE, US, OUR, PLACA) Providentmutual Life and Annuity Company of America, Service Center: 300 Continental Drive, Newark, Delaware 19713, Main Administrative Office: 1000 Chesterbrook Boulevard, Berwyn, Pennsylvania 19312, telephone: (800) 688-5177. FACE AMOUNT The dollar amount of insurance selected by the owner. The face amount may be increased or decreased after issue, subject to certain conditions. The face amount is a factor in determining the death benefit, surrender charges, and additional surrender charges. FINAL POLICY DATE The policy anniversary nearest the insured's attained age 100, at which time the Policy will end and you will be paid the policy account value less any indebtedness and any unpaid monthly deductions. Subject to state availability, you may elect to continue the Policy beyond the insured's attained age 100 under the Final Policy Date Extension rider. FREE LOOK PERIOD The period shown on your Policy's cover page during which you may examine and return the Policy to us at our Service Center and receive a refund. The length of the free look period varies by state. FUND An investment company that is registered with the Securities and Exchange Commission. The Policy allows you to invest in certain portfolios of the funds that are listed on the front page of this prospectus. GRACE PERIOD A 61-day period after which a Policy will lapse if you do not make a sufficient payment. GUARANTEED ACCOUNT Part of our general account. Amounts allocated to the Guaranteed Account earn at least 4% annual interest. GUIDELINE ANNUAL PREMIUM The "guideline annual premium" as defined in regulations under the Investment Company Act of 1940, and used in connection with the calculation of surrender charges. It is approximately equal to the amount of premium that would be required on an annual basis to keep the Policy in force if the Policy had a mandatory fixed premium schedule assuming (among other things) a 5% net investment return. INDEBTEDNESS The total amount of all outstanding policy loans, including both principal and interest due. INITIAL FACE AMOUNT The face amount on the policy issue date. INSURANCE PROCEEDS The amount we pay to the beneficiary when we receive due proof of the insured's death. We deduct any indebtedness and unpaid monthly deductions before making any payment. INSURED The person whose life is insured by the Policy. ISSUE AGE The insured's age on the insured's birthday nearest the policy date. 1 6 LAPSE When your Policy terminates without value after a grace period. You may reinstate a lapsed Policy, subject to certain conditions. LOAN ACCOUNT The account to which we transfer collateral for a policy loan from the Subaccounts and/or the Guaranteed Account. MEC A modified endowment contract, as defined under the Code. MINIMUM GUARANTEE PREMIUM The amount necessary to guarantee the Policy will not lapse during the first 5 policy years. It is equal to the minimum annual premium (as set forth in your Policy) MULTIPLIED by the number of months since the policy date (including the current month) DIVIDED by 12. MINIMUM INITIAL PREMIUM An amount equal to the minimum annual premium (as set forth in your Policy) MULTIPLIED by the following factor for your premium billing mode: annual 1.000; semi-annual 0.500; quarterly 0.250; monthly 0.167. MONTHLY DEDUCTION This is the monthly amount we deduct from the policy account value on each policy processing day. The monthly deduction includes the cost of insurance charge, the monthly administrative charge, the initial administrative charge (during the first policy year), and charges for any riders. NET CASH SURRENDER VALUE The amount we pay when you surrender your Policy. It is equal to: (1) the policy account value as of the date of surrender; MINUS (2) any surrender charge or additional surrender charge; MINUS (3) any indebtedness. NET PREMIUMS Premiums less the premium expense charge. OWNER (YOU, YOUR) The person entitled to exercise all rights as owner under the Policy. POLICY ACCOUNT VALUE The sum of your Policy's values in the Subaccounts, the Guaranteed Account, and the Loan Account. POLICY ANNIVERSARY The same day and month as the policy date in each year following the first policy year. POLICY DATE The date set forth in the Policy that is used to determine policy anniversaries, policy processing days, and policy years. The policy date is generally the same as the policy issue date but, subject to state approval, may be another date agreed upon by us and the proposed insured. The policy date may not be more than 6 months prior to the policy issue date. POLICY ISSUE DATE The date on which the Policy is issued. It is used to measure suicide and contestable periods. POLICY PROCESSING DAY This is the same day as the policy date in each successive month. If there is no day in a calendar month that coincides with the policy date, or if that day falls on a day that is not a valuation day, then the policy processing day is the next valuation day. On each policy processing day, we determine Policy charges and deduct them from the policy account value. POLICY YEAR A year that starts on the policy date or on a policy anniversary. PORTFOLIO A separate investment portfolio of a fund. Each Subaccount invests exclusively in one portfolio of a fund. PREMIUM CLASS The classification of the insured for cost of insurance purposes. The classes are: standard, standard with extra rating; nonsmoker; nonsmoker with extra rating; and preferred. PREMIUMS All payments you make under the Policy other than repayments of indebtedness. 2 7 RIDER An amendment, addition, or endorsement to the Policy that changes the terms of the Policy by: (1) expanding Policy benefits; (2) restricting Policy benefits; or (3) excluding certain conditions from the Policy's coverage. A rider that is added to the Policy becomes part of the Policy. SEPARATE ACCOUNT Providentmutual Variable Life Separate Account. It is a separate investment account that is divided into Subaccounts, each of which invests in a corresponding portfolio. SERVICE CENTER The Technology and Service Center located at 300 Continental Drive, Newark, Delaware 19713. SUBACCOUNT A subdivision of Providentmutual Variable Life Separate Account. We invest each Subaccount's assets exclusively in shares of one portfolio. SURRENDER To cancel the Policy by signed request from the owner and return of the Policy to us at our Service Center. TARGET PREMIUM An amount of premium payments, computed separately for each increment of face amount, used to compute surrender charges and additional surrender charges. VALUATION DAY Each day that the New York Stock Exchange is open for business and any other day on which there is a sufficient degree of trading with respect to a Subaccount's portfolio of securities to materially affect the value of that Subaccount. As of the date of this prospectus, the Company is open whenever the New York Stock Exchange is open. VALUATION PERIOD The period beginning at the close of business on one valuation day (usually 4:00 p.m., Eastern time) and continuing to the close of business on the next valuation day. WRITTEN NOTICE OR REQUEST The written notice or request you must complete, sign, and send to us at our Service Center to request or exercise your rights as owner under the Policy. To be complete, each written notice or request must: (1) be in a form we accept; (2) contain the information and documentation that we determine in our sole discretion is necessary for us to take the action you request or for you to exercise the right specified; and (3) be received at our Service Center. You may obtain the necessary form by calling us at (800) 688-5177. 3 8 POLICY SUMMARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This summary describes the Policy's important features and corresponds to prospectus sections that discuss the topics in more detail. THE GLOSSARY DEFINES CERTAIN WORDS AND PHRASES USED IN THIS PROSPECTUS. PREMIUMS - - You must pay the minimum initial premium before we deliver the Policy. - - After you pay the initial premium, you can pay subsequent premiums at any time (prior to the final policy date) and in any amount (but not less than $20). You select a premium payment plan to pay planned periodic premiums quarterly, semiannually, or annually. You are not required to pay premiums according to the plan. However, you may greatly increase your risk of lapse if you do not regularly pay premiums. You may also choose to have premiums automatically deducted monthly from your bank account or other source under our automatic payment plan. - - We will not accept any premiums after the final policy date. - - PAYING YOUR PLANNED PERIODIC PREMIUMS WILL NOT NECESSARILY KEEP YOUR POLICY IN FORCE. Even if you make premium payments according to your payment plan, your Policy will lapse if the net cash surrender value is not enough to pay the monthly deduction and other charges. - - There will be a 61-day grace period before your Policy lapses. Your Policy will not lapse: -- during the first 5 policy years, if you pay premiums (less any indebtedness and partial withdrawals) in excess of the minimum guarantee premium; -- if you purchase a Guaranteed Minimum Death Benefit rider and meet certain conditions; or -- if you make a payment equal to 3 monthly deductions before the end of the grace period. You may reinstate a lapsed Policy if you meet certain requirements. - - When you receive your Policy, the free look period begins. You may return your Policy during this period and receive a refund. A free look period also begins if you request an increase in face amount. - - We deduct a premium expense charge from each premium you pay. Generally, we allocate the resulting amount (the net premium) to the Subaccounts and the Guaranteed Account in accordance with your allocation instructions. - - Some states require us to refund all premiums (less any partial withdrawals and indebtedness) if you return your Policy during the free look period. In those states, for the first 15 days following the later of the policy issue date or the date we receive the minimum initial premium, we direct your premiums into the Money Market Subaccount. After the 15 days, we allocate that value to the Subaccounts you selected. INVESTMENT OPTIONS GUARANTEED ACCOUNT: - - You may place money in the Guaranteed Account where it earns at least 4% annual interest. We may declare higher rates of interest, but are not obligated to do so. SEPARATE ACCOUNT: - - You may direct the money in your Policy to any of the Subaccounts of the Separate Account. WE DO NOT GUARANTEE ANY MONEY YOU PLACE IN THE SUBACCOUNTS. THE VALUE OF EACH SUBACCOUNT WILL INCREASE OR 4 9 DECREASE, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE CORRESPONDING PORTFOLIO. YOU COULD LOSE SOME OR ALL OF YOUR MONEY. - - Each Subaccount invests exclusively in one of the following portfolios: - - THE MARKET STREET FUND, INC. ("MARKET STREET") All Pro Large Cap Growth Portfolio All Pro Large Cap Value Portfolio All Pro Small Cap Growth Portfolio All Pro Small Cap Value Portfolio International Portfolio Equity 500 Index Portfolio Growth Portfolio Aggressive Growth Portfolio Managed Portfolio Bond Portfolio Money Market Portfolio - - THE ALGER AMERICAN FUND ("ALGER AMERICAN") Small Capitalization Portfolio - - NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST ("NEUBERGER BERMAN") Limited Maturity Bond Portfolio Partners Portfolio - - STRONG OPPORTUNITY FUND II, INC. Strong Opportunity Fund II - - STRONG VARIABLE INSURANCE FUNDS, INC. Strong Mid Cap Growth Fund II - - VAN ECK WORLDWIDE INSURANCE TRUST ("VAN ECK") Worldwide Bond Portfolio Worldwide Emerging Markets Portfolio Worldwide Hard Assets Portfolio Worldwide Real Estate Portfolio - - VARIABLE INSURANCE PRODUCTS FUND ("VIP") Equity-Income Portfolio Growth Portfolio High Income Portfolio Overseas Portfolio - - VARIABLE INSURANCE PRODUCTS FUND II ("VIP II") Asset Manager Portfolio Contrafund(R) Portfolio Investment Grade Bond Portfolio
POLICY ACCOUNT VALUE - - Policy account value is the sum of your amounts in the Subaccounts, the Guaranteed Account, and the Loan Account. Policy account value is the starting point for calculating important values under the Policy, such as the net cash surrender value and the death benefit. - - Policy account value varies from day to day, depending on the investment performance of the Subaccounts you choose, interest we credit to the Guaranteed Account, charges we deduct, and any other transactions (e.g., transfers, partial withdrawals, and loans). WE DO NOT GUARANTEE A MINIMUM POLICY ACCOUNT VALUE. CHARGES AND DEDUCTIONS $ PREMIUM EXPENSE CHARGE: We deduct a premium expense charge from each premium and credit the remaining amount (the net premium) according to your allocation instructions. The premium expense charge consists of: 1. Premium Tax Charge: for state and local premium taxes based on the rate for the insured's residence at the time the premium is paid. Premium taxes vary from state to state but range from 0% to 4%. No premium tax charge is deducted in jurisdictions that impose no premium tax. 5 10 2. Percent of Premium Charge: equal to 1.5% of each premium payment. We may increase this charge to a maximum of 3% of each premium payment. $ MONTHLY DEDUCTION: On the policy date and on each policy processing day thereafter, we deduct from the policy account value: -- the cost of insurance charge (which depends on a number of variables, such as issue age, sex, premium class, policy year, and face amount, that cause this charge to vary from Policy to Policy and from policy processing day to policy processing day) -- the $7.50 monthly administrative charge (we may increase this charge to a maximum of $12) -- the $5.00 initial administrative charge (only deducted on the first 12 policy processing days) -- charges for any riders. $ SURRENDER CHARGES AND ADDITIONAL SURRENDER CHARGES: -- Surrender Charge: During the first 12 policy years, we deduct a surrender charge if you surrender the Policy or it lapses. The surrender charge consists of: 1. Deferred Administrative Charge: the charge described in the table below less any deferred administrative charge previously paid at the time of a decrease in face amount.
CHARGE PER $1,000 POLICY YEAR(S) OF FACE AMOUNT - -------------- ----------------------- 1-6............................................... $4.90 7................................................. $4.20 8................................................. $3.50 9................................................. $2.80 10................................................ $2.10 11................................................ $1.40 12................................................ $0.70 13+............................................... $ -0-
2. Deferred Sales Charge: this charge equals the lesser of A or B (less any deferred sales charge previously paid at the time of a prior decrease in face amount), where: a = 35% of all premiums paid to the date of surrender or lapse; or b = the following percentage of target premium:
% OF TARGET PREMIUM FOR POLICY YEAR(S) THE INITIAL FACE AMOUNT - -------------- ----------------------- 1-6............................................... 70% 7................................................. 60% 8................................................. 50% 9................................................. 40% 10................................................ 30% 11................................................ 20% 12................................................ 10% 13+............................................... 0%
THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU MAY HAVE NO NET CASH SURRENDER VALUE IF YOU SURRENDER YOUR POLICY DURING THE FIRST 12 YEARS. 6 11 -- Additional Surrender Charge: Within 12 years after the effective date of an increase in face amount, we deduct an additional surrender charge if you surrender the Policy or it lapses. The additional surrender charge consists of an additional deferred administrative charge and an additional deferred sales charge. The additional surrender charge is calculated in the same manner as the surrender charge, as set forth above. -- Decrease in Face Amount: In the event of a decrease in face amount before the end of the 12th policy year or within 12 years after an increase in face amount, we deduct a charge that is a portion of the surrender charge and/or additional surrender charge. $ PARTIAL WITHDRAWAL CHARGES: For each partial withdrawal, we deduct a $25 fee from the remaining policy account value. $ FACE AMOUNT INCREASE CHARGE: On the effective date of an increase in face amount, we deduct a charge of $60 plus $0.50 per $1,000 face amount increase (but not greater than $750) from the policy account value. We may increase this charge to a maximum of $60 plus $3.00 per $1,000 face amount increase. $ MORTALITY AND EXPENSE RISK CHARGE: We deduct a daily charge equal to an annual rate of 0.75% of the average daily net assets of the Separate Account. We may increase this charge to a maximum annual rate of 0.90% $ TRANSFER CHARGE: We assess a $25 fee (from the amount transferred) for the 13th and each additional transfer among the Subaccounts or the Guaranteed Account in a policy year. $ PORTFOLIO EXPENSES: The portfolios deduct management fees and other expenses from their assets. These fees and expenses (shown in the following table) vary by portfolio and currently range from 0.40% to 1.44% per year of the average portfolio assets. The following table shows the fees and expenses charged by the portfolios for the fiscal year ended December 31, 1999. The purpose of the table is to assist you in understanding the various costs and expenses that you will bear directly and indirectly. Expenses of the portfolios may be higher or lower in the future. Please refer to the portfolios' prospectuses for more information. ANNUAL PORTFOLIO OPERATING EXPENSES (as a percentage of average portfolio assets after fee waivers and expense reimbursements)
TOTAL MANAGEMENT OTHER ANNUAL PORTFOLIO FEES EXPENSES EXPENSES --------- ---------- -------- -------- MARKET STREET FUND, INC. (1) All Pro Large Cap Growth Portfolio 0.70% 0.19% 0.89% All Pro Large Cap Value Portfolio 0.70% 0.21% 0.91% All Pro Small Cap Growth Portfolio 0.90% 0.21% 1.11% All Pro Small Cap Value Portfolio 0.90% 0.30% 1.20% International Portfolio 0.75% 0.23% 0.98% Equity 500 Index Portfolio(2) 0.24% 0.04% 0.28% Growth Portfolio 0.32% 0.16% 0.48% Aggressive Growth Portfolio 0.41% 0.16% 0.57% Managed Portfolio 0.40% 0.17% 0.57% Bond Portfolio 0.35% 0.17% 0.52% Money Market Portfolio 0.25% 0.15% 0.40% THE ALGER AMERICAN FUND (1) Small Capitalization Portfolio 0.85% 0.05% 0.90%
7 12
TOTAL MANAGEMENT OTHER ANNUAL PORTFOLIO FEES EXPENSES EXPENSES --------- ---------- -------- -------- NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST (1) Limited Maturity Bond Portfolio 0.65% 0.11% 0.76% Partners Portfolio 0.80% 0.07% 0.87% STRONG OPPORTUNITY FUND II, INC. (1) Strong Opportunity Fund II 1.00% 0.14% 1.14% STRONG VARIABLE INSURANCE FUNDS, INC. (1) Strong Mid Cap Growth Fund II 1.00% 0.15% 1.15% VAN ECK WORLDWIDE INSURANCE TRUST (1) Worldwide Bond Portfolio 1.00% 0.22% 1.22% Worldwide Emerging Markets Portfolio 1.00% 0.34% 1.34% Worldwide Hard Assets Portfolio 1.00% 0.26% 1.26% Worldwide Real Estate Portfolio 1.00% 0.44% 1.44% VARIABLE INSURANCE PRODUCTS FUND (1) Equity-Income Portfolio (initial class) 0.48% 0.08% 0.56% Growth Portfolio (initial class) 0.58% 0.07% 0.65% High Income Portfolio (initial class) 0.58% 0.11% 0.69% Overseas Portfolio (initial class) 0.73% 0.14% 0.87% VARIABLE INSURANCE PRODUCTS FUND II (1) Asset Manager Portfolio (initial class) 0.53% 0.09% 0.62% Contrafund(R) Portfolio (initial class) 0.58% 0.07% 0.65% Investment Grade Bond Portfolio (initial class) 0.43% 0.11% 0.54%
(1) For certain portfolios, certain expenses were reimbursed or fees waived during 1999. It is anticipated that expense reimbursement and fee waiver arrangements will continue for the current year. Absent the expense reimbursement, the 1999 Total Annual Expenses would have been 1.21% for the Market Street Fund All Pro Small Cap Value Portfolio, 0.57% for the VIP Fund Equity-Income Portfolio, 0.66% for the VIP Fund Growth Portfolio, 0.91% for the VIP II Fund Overseas Portfolio, 0.63% for the VIP II Fund Asset Manager Portfolio, 1.17% for the Strong Mid Cap Growth Fund II, 0.67% for the VIP II Fund Contrafund(R) Portfolio, and 3.23% for the Van Eck Worldwide Real Estate Portfolio. Similar expense reimbursement and fee waiver arrangements were also in place for the other portfolios and it is anticipated that these arrangements will continue past the current year. However, no expenses were reimbursed or fees waived during 1999 for these portfolios because the level of actual expenses and fees never exceeded the thresholds at which the reimbursement and waiver arrangements would have become operative. (2) Since the Equity 500 Index Portfolio has recently commenced operations, "Other Expenses" is based on estimated amounts for 2000. This estimate anticipates an expense reimbursement or fee waiver arrangement for 2000. Absent this arrangement, estimated Total Fund Annual Expenses would be 0.39%. The fee and expense information regarding the portfolios was provided by those portfolios. The Alger American Fund, Neuberger Berman Advisers Management Trust, Strong Opportunity Fund II, Inc., Strong Variable Insurance Funds, Inc., Van Eck Worldwide Insurance Trust, Variable Insurance Products Fund, and Variable Insurance Products Fund II are not affiliated with PLACA. 8 13 SURRENDERS AND PARTIAL WITHDRAWALS -- SURRENDER: At any time while the Policy is in force, you may make a request to surrender your Policy and receive the net cash surrender value. A surrender may have tax consequences. -- PARTIAL WITHDRAWALS: After the first policy year, you may make a written request to withdraw part of the net cash surrender value, subject to the following rules. Partial withdrawals may have tax consequences. X You must request at least $1,500. X For each partial withdrawal, we deduct a $25 fee from the remaining policy account value. X If Death Benefit Option A is in effect, we will reduce the face amount by the amount of the partial withdrawal. X Unless you specify otherwise, we will deduct the requested partial withdrawal and partial withdrawal charge from the Subaccounts and the Guaranteed Account in proportion to the value in each account. DEATH BENEFIT -- INSURANCE PROCEEDS: We pay insurance proceeds to the beneficiary upon due proof of death of the insured. The insurance proceeds equal the death benefit and any additional insurance provided by rider less any indebtedness and unpaid monthly deductions. -- DEATH BENEFIT OPTION A AND OPTION B: You may choose between two death benefit options under the Policy. After the first policy year and at least 12 months after any increase in face amount, you may change death benefit options while the Policy is in force. We calculate the amount available under each death benefit option as of the insured's date of death. -- DEATH BENEFIT OPTION A is equal to the greater of: -- the face amount (which is the amount of insurance you select); OR -- the policy account value multiplied by the applicable percentage listed in the table below. -- DEATH BENEFIT OPTION B is equal to the greater of: -- the face amount PLUS the policy account value; or -- the policy account value multiplied by the applicable percentage listed in the table below.
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE - ------------ ---------- ------------- ---------- 40 and under 250% 60 130% 45 215% 65 120% 50 185% 70 115% 55 150% 75 through 90 105% 95 through 99 100%
For attained ages not shown, the percentages decrease pro rata for each full year. -- ACCELERATED DEATH BENEFIT: Under the Accelerated Death Benefit rider, you may receive accelerated payment of part of your death benefit if the insured develops a terminal illness or is permanently confined to a nursing care facility. 9 14 TRANSFERS -- You may make transfers among the Subaccounts and the Guaranteed Account. -- We charge $25 for the 13th and each additional transfer during a policy year. -- Transfers out of the Guaranteed Account may be made only within 30 days of a policy anniversary. -- The minimum amount you may transfer from a Subaccount or the Guaranteed Account is the lesser of $1,000 or the total value in the Subaccount or Guaranteed Account. LOANS -- You may take a loan (minimum $500) from your Policy at any time. The maximum loan amount you may take is the net cash surrender value. You may increase your risk of lapse if you take a loan. Loans may have tax consequences. -- We charge you a maximum annual interest rate of 6% ("charged interest rate") on your loan. Charged interest is due and payable at the end of each policy year. Unpaid interest becomes part of the outstanding loan and accrues interest if it is not paid by the end of the policy year. -- We credit interest on amounts in the Loan Account ("earned interest rate") and we guarantee that the annual earned interest rate will not be lower than 4%. We currently credit an earned interest rate of 4% to amounts in the Loan Account until the 10th policy anniversary or attained age 60, whichever is later, and 5.75% annually thereafter. -- As collateral for the loan, we transfer an amount equal to the loan (adjusted by the earned interest rate and the charged interest rate to the next policy anniversary) from the Separate Account and Guaranteed Account to the Loan Account. -- You may repay all or part of your indebtedness at any time while the insured is alive and the Policy is in force. -- We deduct any indebtedness from the policy account value upon surrender, and from the insurance proceeds payable on the insured's death. ILLUSTRATIONS The illustrations provided in Appendix A at the end of this prospectus illustrate death benefits, policy account values, and net cash surrender values. These illustrations are based on hypothetical rates of return that are not guaranteed. The illustrations also assume costs of insurance for a hypothetical person. Your rates of return and insurance charges may be higher or lower than these illustrations. You should obtain a personalized illustration before purchasing a Policy. OTHER POLICIES We offer other variable life insurance policies that have different death benefits, policy features, and optional programs. However, these other policies also have different charges that would affect your Subaccount performance and policy account value. To obtain more information about these other policies, contact our Service Center or your agent. 10 15 RISK SUMMARY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following are some of the risks associated with the Policy. - -------------------------------------------------------------------------------- INVESTMENT RISK If you invest your policy account value in one or more Subaccounts, then you will be subject to the risk that investment performance will be unfavorable and that the policy account value will decrease. You COULD lose everything you invest. If you allocate net premiums to the Guaranteed Account, then we credit your policy account value (in the Guaranteed Account) with a declared rate of interest, but you assume the risk that the rate may decrease, although it will never be lower than a guaranteed minimum annual effective rate of 4%. - -------------------------------------------------------------------------------- RISK OF LAPSE If your net cash surrender value is not enough to pay the monthly deduction and other charges, your Policy may enter a 61-day grace period. We will notify you that the Policy will lapse unless you make a sufficient payment during the grace period. Your Policy may also lapse if your indebtedness reduces the net cash surrender value to zero. Your Policy generally will not lapse: (1) during the first 5 policy years, if you pay premiums (less any indebtedness and partial withdrawals) in excess of the minimum guarantee premium; (2) if you purchase a Guaranteed Minimum Death Benefit rider and meet certain conditions; or (3) if you make a payment equal to 3 monthly deductions before the end of the grace period. You may reinstate a lapsed Policy, subject to certain conditions. - -------------------------------------------------------------------------------- TAX RISKS We anticipate that the Policy should generally be deemed a life insurance contract under Federal tax law. However, due to limited guidance under the Federal tax law, there is some uncertainty about the application of the Federal tax law to the Policy, particularly if you pay the full amount of premiums permitted under the Policy. Assuming that a Policy qualifies as a life insurance contract for Federal income tax purposes, you should not be deemed to be in constructive receipt of policy account value under a Policy until there is a distribution from the Policy. Moreover, death benefits payable under a Policy should be completely excludable from the gross income of the beneficiary. As a result, the beneficiary generally should not be taxed on these proceeds. Depending on the total amount of premiums you pay, the Policy may be treated as a modified endowment contract ("MEC") under Federal tax laws. If a Policy is treated as a MEC, then surrenders, partial withdrawals, and loans under the Policy will be taxable as ordinary income to the extent there are earnings in the Policy. In addition, a 10% penalty tax may be imposed on surrenders, partial withdrawals, and loans taken before you reach age 59 1/2. If the Policy is not a MEC, distributions generally will be treated first as a return of basis or investment in the contract and then as taxable income. Moreover, loans will not be treated as distributions. Finally, neither distributions 11 16 nor loans from a Policy that is not a MEC are subject to the 10% penalty tax. See "Federal Tax Considerations." You should consult a qualified tax adviser for assistance in all Policy-related tax matters. - -------------------------------------------------------------------------------- SURRENDER RISKS The surrender charge under the Policy applies for 12 policy years after the policy date. An additional surrender charge will be applicable for 12 years from the date of any increase in the face amount. It is possible that you will receive no net cash surrender value if you surrender your Policy in the first few policy years. You should purchase the Policy only if you have the financial ability to keep it in force for a substantial period of time. Even if you do not ask to surrender your Policy, surrender charges and additional surrender charges may play a role in determining whether your Policy will lapse, because surrender charges and additional surrender charges affect the net cash surrender value which is a measure we use to determine whether your Policy will enter a grace period (and possibly lapse). See "Risk of Lapse," above. - -------------------------------------------------------------------------------- LOAN RISKS A policy loan, whether or not repaid, will affect policy account value over time because we subtract the amount of the loan from the Subaccounts and/or Guaranteed Account as collateral, and this loan collateral does not participate in the investment performance of the Subaccounts or receive any higher current interest rate credited to the Guaranteed Account. We reduce the amount we pay on the insured's death by the amount of any indebtedness. Your Policy may lapse if your indebtedness reduces the net cash surrender value to zero. - -------------------------------------------------------------------------------- THE COMPANY AND THE GUARANTEED ACCOUNT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA We are a stock life insurance company. We were originally incorporated under Pennsylvania law in 1958 under the name Washington Square Life Insurance Company. Our name was changed to Providentmutual Life and Annuity Company of America in 1991, and we were redomiciled as a Delaware insurance company on October 28, 1992. We are subject to regulation by the Insurance Department of the State of Delaware, as well as by the insurance departments of all other states and jurisdictions in which we do business. We established the Separate Account to support the investment options under the Policy and under other variable life insurance policies we may issue. Our general account supports the Guaranteed Account option under the Policy. As of December 31, 1999, PLACA had total assets of approximately $1.7 billion. We are a wholly owned subsidiary of Provident Mutual Life Insurance Company ("Provident Mutual"). On December 31, 1997, we entered into a support agreement with Provident Mutual whereby Provident Mutual agreed to maintain our total adjusted capital at the level of 200% of the "company action level" for risk-based capital at the end of each calendar quarter during the term of the agreement. Under the support agreement, Provident Mutual also agreed to maintain our cash or cash equivalents from time to time as may be necessary during the term of the agreement in an amount sufficient for the payment of 12 17 benefits and other contractual claims pursuant to policies and other contracts issued by us. Other than this support agreement, Provident Mutual is under no obligation to invest money in us nor is it in any way a guarantor of our contractual obligations or obligations under the Policies. IMSA. We are a member of the Insurance Marketplace Standards Association ("IMSA"). IMSA members subscribe to a set of ethical standards involving the sales and service of individually sold life insurance and annuities. As a member of IMSA, we may use the IMSA logo and language in advertisements. THE GUARANTEED ACCOUNT The Guaranteed Account is part of our general account. We own the assets in the general account, and we use these assets to support our insurance and annuity obligations other than those funded by our separate investment accounts. These assets are subject to our general liabilities from business operations. Subject to applicable law, we have sole discretion over investment of the Guaranteed Account's assets. We bear the full investment risk for all amounts allocated or transferred to the Guaranteed Account. We guarantee that the amounts allocated to the Guaranteed Account will be credited interest daily at a net effective annual interest rate of at least 4%. The principal, after charges and deductions, is also guaranteed. We will determine any interest rate credited in excess of the guaranteed rate at our sole discretion. The Guaranteed Account value will not share in the investment performance of our general account. Because we, in our sole discretion, anticipate changing the current interest rate from time to time, different allocations you make to the Guaranteed Account will be credited with different current interest rates. For each amount allocated or transferred to the Guaranteed Account, we apply the current interest rate to the end of the calendar year. At the end of that calendar year, we reserve the right to declare a new current interest rate on this amount and accrued interest thereon (which may be a different rate than the rate that applies to new allocations to the Guaranteed Account on that date). We guarantee the rate declared on this amount and accrued interest thereon at the end of each calendar year for the following calendar year. You assume the risk that interest credited to amounts in the Guaranteed Account may not exceed the minimum 4% guaranteed rate. We allocate amounts from the Guaranteed Account for partial withdrawals, transfers to the Subaccounts, or charges for the monthly deduction on a last in, first out (i.e., LIFO) basis for the purpose of crediting interest. WE HAVE NOT REGISTERED THE GUARANTEED ACCOUNT WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE GUARANTEED ACCOUNT. THE SEPARATE ACCOUNT AND THE PORTFOLIOS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE SEPARATE ACCOUNT We established Providentmutual Variable Life Separate Account as a separate investment account under Delaware law. We own the assets in the Separate Account and we are obligated to pay all benefits under the Policies. We may use the Separate Account to support other variable life insurance policies we issue. The Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940 and qualifies as a "separate account" within the meaning of the Federal securities laws. This registration does not involve supervision of the management or investment practices or policies of the Separate Account by the Securities and Exchange Commission. 13 18 We have divided the Separate Account into Subaccounts, each of which invests in shares of one portfolio of the following funds: -- The Market Street Fund, Inc. -- The Alger American Fund -- Neuberger Berman Advisers Management Trust -- Strong Opportunity Fund II, Inc. -- Strong Variable Insurance Funds, Inc. -- Van Eck Worldwide Insurance Trust -- Variable Insurance Products Fund -- Variable Insurance Products Fund II The Subaccounts buy and sell portfolio shares at net asset value. Any dividends and distributions from a portfolio are reinvested at net asset value in shares of that portfolio. Income, gains, and losses, whether or not realized, from assets allocated to the Separate Account will be credited to or charged against the Separate Account without regard to our other income, gains, or losses. Income, gains, and losses credited to, or charged against, a Subaccount reflect the Subaccount's own investment performance and not the investment performance of our other assets. The Separate Account assets are held separate from our other assets and are not part of our general account. We may not use the Separate Account's assets to pay any of our liabilities other than those arising from the Policies. If the Separate Account's assets exceed the required reserves and other liabilities, we may transfer the excess to our general account. The Separate Account may include other Subaccounts that are not available under the Policies and are not discussed in this prospectus. If investment in the funds or a particular portfolio is no longer possible, in our judgment becomes inappropriate for the purposes of the Policy, or for any other reason in our sole discretion, we may substitute another fund or portfolio without your consent. The substituted fund or portfolio may have different fees and expenses. Substitution may be made with respect to existing investments or the investment of future premiums, or both. However, no such substitution will be made without any necessary approval of the Securities and Exchange Commission. Furthermore, we may close Subaccounts to allocations of premiums or policy account value, or both, at any time in our sole discretion. The funds, which sell their shares to the Subaccounts pursuant to participation agreements, also may terminate these agreements and discontinue offering their shares to the Subaccounts. In addition, we reserve the right to make other structural and operational changes affecting the Separate Account. See "Additional Information -- Changes to the Separate Account." THE PORTFOLIOS The Separate Account invests in shares of certain portfolios. Each portfolio is part of a mutual fund that is registered with the Securities and Exchange Commission as an open-end management investment company. This registration does not involve supervision of the management or investment practices or policies of the portfolios or mutual funds by the Securities and Exchange Commission. Each portfolio's assets are held separate from the assets of the other portfolios, and each portfolio has investment objectives and policies that are different from those of the other portfolios. Thus, each portfolio operates as a separate investment fund, and the income or losses of one portfolio generally have no effect on the investment performance of any other portfolio. The following table summarizes each portfolio's investment objective(s) and identifies its investment adviser (and subadviser, if applicable). THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED OBJECTIVE(S). You can find more detailed information about the portfolios, including a description of 14 19 risks and expenses, in the prospectuses for the portfolios that accompany this prospectus. You should read these prospectuses carefully. PORTFOLIO INVESTMENT OBJECTIVE AND INVESTMENT ADVISER ALL PRO LARGE CAP GROWTH PORTFOLIO -- Seeks to achieve long-term capital appreciation. The portfolio pursues its objective by investing primarily in equity securities of companies among the 750 largest by market capitalization at the time of purchase, which the subadvisers believe show potential for growth in future earnings. Investment adviser is Market Street Investment Management Company; subadvisers are Cohen, Klingenstein & Marks, Inc. and Geewax, Terker & Co. ALL PRO LARGE CAP VALUE PORTFOLIO -- Seeks to provide long-term capital appreciation. The portfolio attempts to achieve this objective by investing primarily in undervalued equity securities of companies among the 750 largest by market capitalizations at the time of purchase that the subadvisers believe offer above-average potential for growth in future earnings. Investment adviser is Market Street Investment Management Company; subadvisers are Equinox Capital Management, Inc., Harris Associates, Inc., and Mellon Equity Associates. ALL PRO SMALL CAP GROWTH PORTFOLIO -- Seeks to achieve long-term capital appreciation. The portfolio pursues its objective by investing primarily in equity securities of companies included in the Wilshire 5000 Index at the time of purchase, which the subadvisers believe show potential for growth in future earnings. Investment adviser is Market Street Investment Management Company; subadvisers are Standish, Ayer & Wood and Husic Capital Management. ALL PRO SMALL CAP VALUE PORTFOLIO -- Seeks to provide long-term capital appreciation. The portfolio pursues this objective by investing primarily in undervalued equity securities of companies included in the Wilshire 5000 Index at the time of purchase, which the subadvisers believe offer above-average potential for growth in future earnings. Investment adviser is Market Street Investment Management Company; subadvisers are Reams Asset Management Company, LLC and Sterling Capital Management Company. INTERNATIONAL PORTFOLIO -- Seeks long-term growth of capital principally through investments in a diversified portfolio of marketable equity securities of established foreign issuer companies. Investment adviser is Market Street Investment Management Company; subadviser is The Boston Company Asset Management, Inc. EQUITY 500 INDEX PORTFOLIO -- Seeks to provide long-term capital appreciation by investing primarily in common stocks included in the Standard & Poor's 500(R) Composite Stock Price Index.* Investment adviser is Market Street Investment Management Company; subadviser is State Street Global Advisors. - --------------- * "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Provident Mutual and its affiliates and subsidiaries. The Policy is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Policy. See "Additional Information -- Standard & Poor's" below which sets forth certain additional disclaimers and limitations of liabilities on behalf of S&P. 15 20 GROWTH PORTFOLIO -- Seeks intermediate and long-term growth of capital by investing in common stocks of companies believed to offer above-average growth potential over both the intermediate and the long-term. Current income is a secondary consideration. Investment adviser is Sentinel Advisors Company. AGGRESSIVE GROWTH PORTFOLIO -- Seeks to achieve a high level of long-term capital appreciation by investing in securities of a diverse group of smaller emerging companies. Investment adviser is Sentinel Advisors Company. MANAGED PORTFOLIO -- Seeks to realize as high a level of long-term total rate of return as is consistent with prudent investment risk by investing in stocks, bonds, money market instruments, or a combination thereof. Investment adviser is Sentinel Advisors Company. BOND PORTFOLIO -- Seeks to generate a high level of current income consistent with prudent investment risk by investing in a diversified portfolio of marketable debt securities. Investment adviser is Sentinel Advisors Company. MONEY MARKET PORTFOLIO -- Seeks to provide maximum current income consistent with capital preservation and liquidity by investing in high-quality money market instruments. Investment adviser is Sentinel Advisors Company. ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO -- Seeks long-term capital appreciation. It focuses on small, fast-growing companies that offer innovative products, services or technologies to a rapidly expanding marketplace. Under normal circumstances, the portfolio invests primarily in the equity securities of small capitalization companies. A small capitalization company is one that has a market capitalization within the range of the Russell 2000 Growth Index(R) or the S&P SmallCap 600 Index(R). Investment adviser is Fred Alger Management, Inc. NEUBERGER BERMAN LIMITED MATURITY BOND PORTFOLIO -- Seeks the highest available current income consistent with low risk to principal and liquidity and secondarily, total return, through investment mainly in investment grade bonds. Investment adviser is Neuberger Berman Management Incorporated. NEUBERGER BERMAN PARTNERS PORTFOLIO -- Seeks capital growth through investment mainly in common stocks of medium- to large-capitalization companies. Investment adviser is Neuberger Berman Management Incorporated. STRONG OPPORTUNITY FUND II -- Seeks capital growth by investing primarily in stocks of medium-capitalization companies that the portfolio's manager believes are underpriced, yet have attractive growth prospects. Investment adviser is Strong Capital Management, Inc. STRONG MID CAP GROWTH FUND II -- Seeks capital growth by investing at least 65% of its assets in stocks of medium-capitalization companies that the portfolio's managers believe have favorable prospects for accelerating growth of earnings, but are selling at reasonable valuations based on earnings, cash flow, or asset value. Investment adviser is Strong Capital Management, Inc. VAN ECK WORLDWIDE BOND PORTFOLIO -- Seeks high total return through a flexible policy of investing globally, primarily in debt securities. Investment adviser is Van Eck Associates Corporation. 16 21 VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO -- Seeks long-term capital appreciation by investing primarily in equity securities in emerging markets around the world. Investment adviser is Van Eck Global Asset Management (Asia) Limited. VAN ECK WORLDWIDE HARD ASSETS PORTFOLIO -- Seeks long-term capital appreciation by investing globally, primarily in "Hard Assets Securities." Hard Assets Securities include equity securities of Hard Asset Companies and securities, including structured notes, whose value is linked to the price of a Hard Asset commodity or a commodity index. Hard Asset Companies include companies that are directly or indirectly engaged to a significant extent in the exploration, development, production, or distribution of one or more of the following (together, "Hard Assets"): (a) precious metals; (b) ferrous and non-ferrous metals; (c) gas, petroleum, petrochemicals, or other hydrocarbons; (d) forest products; (e) real estate; and (f) other basic non-agricultural commodities. Income is a secondary consideration. Investment adviser is Van Eck Associates Corporation. VAN ECK WORLDWIDE REAL ESTATE PORTFOLIO -- Seeks to maximize total return by investing primarily in equity securities of domestic and foreign companies which are principally engaged in the real estate industry or which own significant real estate assets. Investment adviser is Van Eck Associates Corporation. VIP EQUITY-INCOME PORTFOLIO -- Seeks reasonable income by investing primarily in income-producing equity securities. In choosing these securities, the VIP Equity-Income Portfolio considers the potential for capital appreciation. The portfolio's goal is to achieve a yield which exceeds the composite yield of the securities comprising the Standard and Poor's 500 Composite Stock Price Index. Investment adviser is Fidelity Management & Research Company. VIP GROWTH PORTFOLIO -- Seeks to achieve capital appreciation. The VIP Growth Portfolio normally purchases common stocks, although its investments are not restricted to any one type of security. Capital appreciation may also be found in other types of securities, including bonds and preferred stocks. Investment adviser is Fidelity Management & Research Company. VIP HIGH INCOME PORTFOLIO -- Seeks to obtain a high level of current income by investing primarily in high-yielding, lower-rated, fixed-income securities, while also considering growth of capital. Investment adviser is Fidelity Management & Research Company. VIP OVERSEAS PORTFOLIO -- Seeks long term growth of capital primarily through investments in foreign securities. The VIP Overseas Portfolio provides a means for diversification by participating in companies and economies outside of the United States. Investment adviser is Fidelity Management & Research Company; subadvisers are Fidelity Management & Research (U.K.) Inc., Fidelity Management & Research (Far East) Inc., Fidelity International Investment Advisors, and Fidelity International Investment Advisors (U.K.) Limited. VIP II ASSET MANAGER PORTFOLIO -- Seeks to obtain high total return with reduced risk over the long-term by allocating its assets among stocks, bonds and short-term money market instruments. Investment adviser is Fidelity Management & Research Company; subadvisers are Fidelity Management & Research (U.K.) Inc. and Fidelity Management & Research (Far East) Inc. 17 22 VIP II CONTRAFUND(R) Portfolio -- Seeks capital appreciation by investing in securities of companies where value is not fully recognized by the public. Investment adviser is Fidelity Management & Research Company; subadvisers are Fidelity Management & Research (U.K.) Inc. and Fidelity Management & Research (Far East) Inc. VIP II INVESTMENT GRADE BOND PORTFOLIO -- Seeks high current income by investing in investment-grade debt securities. Investment adviser is Fidelity Management & Research Company. In addition to the Separate Account, the portfolios may sell shares to other separate investment accounts established by other insurance companies to support variable annuity contracts and variable life insurance policies or qualified retirement plans, or to certain pension and retirement plans qualifying under Section 401 of the Code. It is possible that, in the future, material conflicts could arise as a result of such "mixed and shared" investing. See "Additional Information -- Potential Conflicts of Interest." THESE PORTFOLIOS ARE NOT AVAILABLE FOR PURCHASE DIRECTLY BY THE GENERAL PUBLIC, AND ARE NOT THE SAME AS OTHER MUTUAL FUND PORTFOLIOS WITH VERY SIMILAR OR NEARLY IDENTICAL NAMES THAT ARE SOLD DIRECTLY TO THE PUBLIC. However, the investment objectives and policies of certain portfolios available under the Policy are very similar to the investment objectives and policies of other portfolios that are or may be managed by the same investment adviser or manager. Nevertheless, the investment performance of the portfolios available under the Policy may be lower or higher than the investment performance of these other (publicly available) portfolios. THERE CAN BE NO ASSURANCE, AND WE MAKE NO REPRESENTATION, THAT THE INVESTMENT PERFORMANCE OF ANY OF THE PORTFOLIOS AVAILABLE UNDER THE POLICY WILL BE COMPARABLE TO THE INVESTMENT PERFORMANCE OF ANY OTHER PORTFOLIO, EVEN IF THE OTHER PORTFOLIO HAS THE SAME INVESTMENT ADVISER OR MANAGER, THE SAME INVESTMENT OBJECTIVES AND POLICIES, AND A VERY SIMILAR NAME. PLACA may receive compensation from the investment adviser of a fund (or affiliates thereof) in connection with administration, distribution, or other services provided with respect to the funds and their availability through the Policies. The amount of this compensation is based upon a percentage of the assets of the fund attributable to the Policies and other policies issued by PLACA. These percentages differ, and some advisers (or affiliates) may pay us more than others. PLEASE READ THE PORTFOLIO PROSPECTUSES TO OBTAIN MORE COMPLETE INFORMATION REGARDING THE PORTFOLIOS. KEEP THESE PROSPECTUSES FOR FUTURE REFERENCE. THE POLICY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PURCHASING A POLICY To purchase a Policy, you must submit a completed application and an initial premium to us at our Service Center. You may also send the application and initial premium to us through any licensed life insurance agent who is appointed by PLACA and who is also a registered representative of 1717 Capital Management Company ("1717"), the principal underwriter for the Policy (as well as for other variable life policies), or a registered representative of a broker-dealer having a selling agreement with 1717, or a registered representative of a broker-dealer having a selling agreement with these broker-dealers. The minimum initial face amount is $50,000 for all premium classes except preferred, and $100,000 for the preferred premium class. Generally, the Policy is available for insureds between issue ages 1-85. We can provide you with details as to our underwriting standards when you apply for a Policy. We reserve the right to modify our minimum face amount and underwriting requirements at any time. We must receive evidence of insurability that satisfies our underwriting standards before we will issue a Policy. We reserve the right to reject an application for any reason permitted by law. 18 23 WHEN INSURANCE COVERAGE TAKES EFFECT Full insurance coverage under the Policy will take effect only if the proposed insured is alive and in the same condition of health as described in the application when we deliver the Policy to you, and if the minimum initial premium has been paid. TEMPORARY INSURANCE COVERAGE. Before full insurance coverage takes effect, you may receive temporary insurance coverage, subject to our underwriting rules and Policy conditions, if: 1. You answer "no" to the health questions in the temporary insurance agreement; and 2. You pay the minimum initial premium when the application is signed. Temporary insurance coverage shall not exceed the lesser of: 1. The face amount applied for, including term insurance riders; or 2. $500,000. If we do not approve your application, we will make a full refund of the initial premium paid with the application. If insurance does not take effect under these conditions, then no insurance shall take effect unless a Policy is delivered to and accepted by the applicant, and the minimum initial premium is paid before any change in the insurability of any proposed insured since the date of application. Temporary life insurance coverage is void if the application contains any material misrepresentation. Benefits will also be denied if any proposed insured commits suicide. Temporary life insurance coverage terminates automatically, and without notice, on the earliest of: -- 5 days from the date we mail you notification of termination of coverage; or -- the date that full insurance coverage takes effect under the Policy; or -- the date a policy, other than the Policy applied for, is offered to you; or -- the 90th day from the date of the temporary agreement. FULL INSURANCE COVERAGE. Once we determine that the insured meets our underwriting requirements, full insurance coverage begins, we issue the Policy, and we begin to deduct monthly charges from your policy account value. This date is the policy issue date. CANCELING A POLICY (FREE LOOK RIGHT) INITIAL FREE LOOK. You may cancel a Policy during the free look period by providing written notice of cancellation and returning the Policy to us or to the agent who sold it. The free look period begins when you receive the Policy and generally expires upon the later of: (1) 10 days after you receive the Policy; or (2) 45 days after you signed Part I of the application. This period will be longer if required by state law. If you decide to cancel the Policy during the free look period, we will treat the Policy as if we never issued it. Within 7 days after we receive the returned Policy, we will refund an amount equal to the sum of: 1. The policy account value as of the date we receive the returned Policy, plus 2. Any premium expense charges deducted from premiums paid, plus 3. Any monthly deductions charged against the policy account value, plus 4. An amount reflecting other charges deducted (directly or indirectly) under the Policy. The free look period may be longer in some states and, where state law requires, the refund will equal all payments you made (less any partial withdrawals and indebtedness). 19 24 FREE LOOK FOR INCREASE IN FACE AMOUNT. A free look period also begins if you request an increase in face amount. You may cancel an increase in face amount until the later of: (1) 10 days after you receive the new Policy Schedule pages reflecting the increase; or (2) 45 days after you signed the application for the increase. If you exercise this right, all monthly deductions attributable to the increase plus the face amount increase charge will be credited to the Subaccounts and the Guaranteed Account in the same proportion as they were deducted, unless you request a refund of this amount. OWNERSHIP RIGHTS The Policy belongs to the owner named in the application. While the insured is living, the owner may exercise all of the rights and options described in the Policy. The owner is the insured unless the application specifies a different person as the insured or the owner is changed thereafter. If the owner is not the insured and dies before the insured, ownership of the Policy will pass to the owner's estate, unless a contingent owner has been designated. To the extent permitted by law, Policy benefits are not subject to any legal process for the payment of any claim against the payee, and no right or benefit will be subject to claims of creditors (except as may be provided by assignment). The owner may exercise certain rights described below. SELECTING AND CHANGING THE BENEFICIARY -- You designate the beneficiary (the person to receive the insurance proceeds when the insured dies) in the application. -- You may designate more than one beneficiary. If you designate more than one beneficiary, then each beneficiary that survives the insured shares equally in any insurance proceeds unless the beneficiary designation states otherwise. -- If there is not a designated beneficiary surviving at the insured's death, we will pay the insurance proceeds in a lump sum to the insured's estate. -- You can change the beneficiary by providing us with written notice while the insured is living. -- The change is effective as of the date you complete and sign the written notice, regardless of whether the insured is living when we receive the notice. -- We are not liable for any payment or other actions we take before we receive your written notice. -- A beneficiary generally may not pledge, commute, or otherwise encumber or alienate payments under the Policy before they are due. - -------------------------------------------------------------------------------- CHANGING THE OWNER -- You may change the owner by providing a written notice to us at any time while the insured is alive. -- The change is effective as of the date you complete and sign the written notice, regardless of whether the insured is living when we receive the request. -- We are not liable for any payment or other actions we take before we receive your written notice. -- Changing the owner does not automatically change the beneficiary or the insured. 20 25 -- Changing the owner may have tax consequences. You should consult a tax adviser before changing the owner. - -------------------------------------------------------------------------------- ASSIGNING THE POLICY -- You may assign Policy rights while the insured is alive by submitting written notice to us. -- Your interests and the interests of any beneficiary or other person will be subject to any assignment. -- You retain any ownership rights that are not assigned. -- Assignments are subject to any policy loan. -- We are not: -- bound by any assignment unless we receive a written notice of the assignment; -- responsible for the validity of any assignment or determining the extent of an assignee's interest; or -- liable for any payment we make before we receive written notice of the assignment. -- Assigning the Policy may have tax consequences. See "Federal Tax Considerations -- Tax Treatment of Policy Benefits." PREMIUMS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MINIMUM INITIAL PREMIUM. The minimum initial premium is due on or before the date the Policy is delivered. No insurance will take effect until the minimum initial premium is paid, and the health and other conditions of the insured described in the application must not have changed. PREMIUM FLEXIBILITY. When you apply for a Policy, you will elect to pay premiums on a quarterly, semiannual, or annual basis (planned periodic premiums). We will then send you a premium reminder notice as each payment becomes "due." However, you do not have to pay premiums according to any schedule. You have flexibility to determine the frequency and the amount of the premiums you pay, and you can change the planned periodic premium schedule at any time. If you are submitting a premium payment pursuant to a premium reminder notice, the address for payment will be enclosed with the notice. You may also send your premium payments to our Service Center. If you have an outstanding policy loan, we will credit all payments you send to us as loan repayments unless you provide written notice for the payments to be applied as premium payments. You may also choose to have premium payments automatically deducted monthly from your bank account or other source under the automatic payment plan. Payment of the planned periodic premiums does not guarantee that the Policy will remain in force. See "Policy Lapse and Reinstatement." You may not pay any premiums after the Policy's final policy date. You may not pay premiums less than $20, and we reserve the right to increase this minimum to an amount not exceeding $500 upon 90 days written notice to you. We have the right to limit or refund any premium or portion of a premium if: 1. The premium would disqualify the Policy as a life insurance contract under the Code; 2. The amount you pay is less than the minimum dollar amount allowed (currently $20); or 3. The premium would increase the net amount at risk (unless you provide us with satisfactory evidence of insurability). 21 26 You can stop paying premiums at any time and your Policy will continue in force until the earlier of the final policy date, or the date when either: (1) the insured dies; (2) the grace period ends without a sufficient payment (see "Policy Lapse and Reinstatement"); or (3) we receive your written notice requesting a surrender of the Policy. MINIMUM GUARANTEE PREMIUM. The minimum guarantee premium is the monthly premium amount necessary to guarantee insurance coverage during the first 5 policy years. Your Policy's specifications page will show a minimum guarantee premium amount for your Policy, which is based on the insured's issue age, sex, premium class, face amount, and riders. The minimum guarantee premium will increase if you increase the face amount or add supplemental benefits to your Policy. The minimum guarantee premium will decrease for any supplemental benefit you decrease or discontinue. The minimum guarantee premium will not decrease if you decrease the face amount. See "Death Benefit -- Changing the Face Amount." PREMIUM LIMITATIONS. The Code provides for exclusion of the death benefit from a beneficiary's gross income if total premium payments do not exceed certain stated limits. In no event can the total of all premiums paid under a Policy exceed these limits. We have established procedures to monitor whether aggregate premiums paid under a Policy exceed those limits. If a premium is paid which would result in total premiums exceeding these limits, we will accept only that portion of the premium which would make total premiums equal the maximum amount which may be paid under the Policy. We will notify you of available options with regard to the excess premium. If a satisfactory arrangement is not made, we will refund this excess to you. If total premiums do exceed the maximum premium limitations established by the Code, however, the excess of a Policy's death benefit over the Policy's cash surrender value (i.e., the policy account value less any surrender charges or additional surrender charges) should still be excludable from gross income. The maximum premium limitations set forth in the Code depend in part upon the amount of the death benefit at any time. As a result, any Policy changes which affect the amount of the death benefit may affect whether cumulative premiums paid under the Policy exceed the maximum premium limitations. TAX-FREE EXCHANGES (1035 EXCHANGES). We may accept as part of your initial premium, money from another life insurance contract that qualified for a tax-free exchange under Section 1035 of the Code, contingent upon receipt of the cash from that contract. If you contemplate such an exchange, you should consult a tax adviser to discuss the potential tax effects of such a transaction. ALLOCATING PREMIUMS When you apply for a Policy, you must instruct us in the application to allocate your net premium to one or more Subaccounts of the Separate Account and/or to the Guaranteed Account according to the following rules: -- Allocation percentages must be in whole numbers and the sum of the percentages must equal 100%. -- We will allocate the net premium as of the date we receive it at our Service Center according to your current premium allocation instructions. -- You can change the allocation instructions for additional net premiums without charge by providing us with written notice. Any change in allocation instructions will be effective on the date we record the change. Investment returns from amounts allocated to the Subaccounts will vary with the investment performance of these Subaccounts and will be reduced by Policy charges. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE SUBACCOUNTS. You should periodically review your allocation schedule in light of market conditions and your overall financial objectives. Certain states require us to refund all payments (less any partial withdrawals and indebtedness) in the event you cancel the Policy during the free look period. See "Canceling a Policy (Free Look Right)." In 22 27 those states, we will allocate the Money Market Subaccount any premiums you request be allocated to Subaccount(s) which are received at our Service Center within 15 days from the later of: (1) the policy issue date; or (2) the date we receive the minimum initial premium. After this 15-day period ends, the value in the Money Market Subaccount is allocated among the Subaccounts as indicated in the application. We invest all net premiums paid thereafter based on the allocation percentages then in effect. POLICY ACCOUNT VALUES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- POLICY ACCOUNT VALUE The policy account value serves as the starting point for calculating values under a Policy. POLICY ACCOUNT VALUE: -- equals the sum of all values in the Guaranteed Account, the Loan Account, and in each Subaccount; -- is determined first on the policy date and then on each valuation day; and -- has no guaranteed minimum amount and may be more or less than premiums paid. NET CASH SURRENDER VALUE The net cash surrender value is the amount we pay to you when you surrender your Policy. We determine the net cash surrender value at the end of the valuation period when we receive your written surrender request. NET CASH SURRENDER VALUE AT THE END OF ANY VALUATION DAY EQUALS: -- the policy account value as of such date; MINUS -- any surrender charge or additional surrender charge as of such date; MINUS -- any outstanding indebtedness. SUBACCOUNT VALUE At the end of any valuation period, the Subaccount value is equal to the number of units in the Subaccount multiplied by the unit value of that Subaccount. THE NUMBER OF UNITS IN ANY SUBACCOUNT AT THE END OF ANY VALUATION DAY EQUALS: -- the initial units purchased at the unit value on the policy issue date; PLUS -- units purchased with additional net premiums; PLUS -- units purchased with special policy account value credit (see "Policy Account Values -- Special Policy Account Value Credit"); PLUS -- units purchased via transfers from another Subaccount, the Guaranteed Account, or the Loan Account; MINUS -- units redeemed to pay for monthly deductions; MINUS -- units redeemed to pay for partial withdrawals; MINUS -- units redeemed as part of a transfer to another Subaccount, the Guaranteed Account, or the Loan Account. Every time you allocate or transfer money to or from a Subaccount, we convert that dollar amount into units. We determine the number of units we credit to, or subtract from, your Policy by dividing the dollar amount of the transaction by the unit value for that Subaccount at the end of the valuation period. 23 28 UNIT VALUE We determine a unit value for each Subaccount to reflect how investment performance affects the policy account value. Unit values will vary among Subaccounts. The unit value may increase or decrease from one valuation period to the next. THE UNIT VALUE OF ANY SUBACCOUNT AT THE END OF ANY VALUATION DAY EQUALS: -- the unit value of the Subaccount on the immediately preceding valuation day; MULTIPLIED BY -- the net investment factor for that Subaccount on that valuation day. THE NET INVESTMENT FACTOR: -- measures the investment performance of a Subaccount from one valuation period to the next; -- increases to reflect investment income and capital gains (realized and unrealized) for the shares of the underlying portfolio; and -- decreases to reflect any capital losses (realized and unrealized) for the shares of the underlying portfolio, as well as the mortality and expense risk charge. GUARANTEED ACCOUNT VALUE On the policy issue date, the Guaranteed Account value is equal to the net premiums allocated to the Guaranteed Account, less the portion of the first monthly deduction taken from the Guaranteed Account. THE GUARANTEED ACCOUNT VALUE AT THE END OF ANY VALUATION DAY IS EQUAL TO: -- the net premium(s) allocated to the Guaranteed Account; PLUS -- any amounts transferred to the Guaranteed Account (including amounts transferred from the Loan Account); PLUS -- interest credited to the Guaranteed Account; MINUS -- amounts deducted to pay for monthly deductions; MINUS -- amounts withdrawn from the Guaranteed Account; MINUS -- amounts transferred from the Guaranteed Account to a Subaccount or to the Loan Account. Interest will be credited to the Guaranteed Account on each policy processing day as follows: -- for amounts in the Guaranteed Account for the entire policy month -- interest will be credited from the beginning to the end of the policy month -- for amounts allocated to the Guaranteed Account during the prior policy month -- interest will be credited from the date the net premium or loan repayment is allocated to the end of the policy month -- for amounts transferred to the Guaranteed Account during the prior policy month -- interest will be credited from the date of the transfer to the end of the policy month -- for amounts deducted or withdrawn from the Guaranteed Account during the prior policy month - - interest will be credited from the beginning of the prior policy month to the date of deduction or withdrawal SPECIAL POLICY ACCOUNT VALUE CREDIT The special policy account value credit is an amount added to the policy account value in the Subaccounts on each policy processing day, either: (1) after the Policy has been in force for at least 15 years; or (2) when the policy account value less the Loan Account value equals or exceeds $100,000. SPECIAL POLICY ACCOUNT VALUE CREDIT -- 0.03% MULTIPLIED BY IS EQUAL TO: -- the policy account value in the Subaccounts.
The special policy account value credit is intended to offset a portion of the mortality and expense risk charge. 24 29 CHARGES AND DEDUCTIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- We make certain charges and deductions under the Policy. These charges and deductions compensate us for: (1) services and benefits we provide; (2) costs and expenses we incur; and (3) risks we assume. SERVICES AND BENEFITS WE PROVIDE: -- the death benefit, cash, and loan benefits under the Policy -- investment options, including premium allocations -- administration of elective options -- the distribution of reports to owners COSTS AND EXPENSES WE INCUR: -- costs associated with processing and underwriting applications, and with issuing and administering the Policy (including any riders) -- overhead and other expenses for providing services and benefits -- sales and marketing expenses -- other costs of doing business, such as collecting premiums, maintaining records, processing claims, effecting transactions, and paying Federal, state, and local premium and other taxes and fees RISK WE ASSUME: -- that the cost of insurance charges we may deduct are insufficient to meet our actual claims because insureds die sooner than we estimate -- that the costs of providing the services and benefits under the Policies exceed the charges we deduct
PREMIUM EXPENSE CHARGE Prior to allocation of net premium, we deduct a premium expense charge from each premium to compensate us for distribution expenses and certain taxes. We credit the remaining amount (the net premium) to your policy account value according to your allocation instructions. The premium expense charge consists of: 1. Premium Tax Charge: for state and local premium taxes based on the rate for the insured's residence at the time the premium is paid. Premium taxes vary from state to state but range from 0% to 4%. No premium tax charge is deducted in jurisdictions that impose no premium tax. 2. Percent of Premium Charge: equal to 1.5% of each premium payment to compensate us partially for Federal taxes and the cost of selling the Policy. We may increase this charge to a maximum of 3% of each premium payment. MONTHLY DEDUCTION We deduct a monthly deduction from the policy account value on the policy date and on each policy processing day to compensate us for administrative expenses and for the Policy's insurance coverage. We will make deductions from each Subaccount and the Guaranteed Account in accordance with the allocation percentage for monthly deductions you chose at the time of application, or as later changed by written notice. If we cannot make a monthly deduction on this basis, we will make deductions on a pro rata basis (i.e., in the same proportion that the value in each Subaccount and the Guaranteed Account bears to the unloaned policy account value on the policy processing day). Because portions of the monthly deduction (such as the cost of insurance) can vary from month-to-month, the monthly deduction will also vary. If the policy date is set prior to the policy issue date, a monthly deduction will accrue on the policy date and on each policy processing day until the policy issue date. On the policy issue date, these accrued monthly deductions will be deducted from the policy account value. The maximum amount deducted on the policy issue date will equal the sum of 6 monthly deductions. We will then deduct a monthly deduction from the policy account value on each policy processing day thereafter as described above. 25 30 The monthly deduction has 4 components: -- the cost of insurance charge -- the monthly administrative charge -- the initial administrative charge (for the first 12 policy processing days) -- charges for any riders (as specified in the applicable rider(s)) COST OF INSURANCE. We assess a monthly cost of insurance charge to compensate us for underwriting the death benefit. The charge depends on a number of variables (issue age, sex, premium class, policy year, and face amount) that would cause it to vary from Policy to Policy and from policy processing day to policy processing day. Your Policy's specifications page indicates the guaranteed cost of insurance charge applicable to your Policy. COST OF The cost of insurance charge is equal to: INSURANCE -- the monthly cost of insurance rate; MULTIPLIED BY CHARGE -- the net amount at risk for your Policy on the policy processing day.
The net amount at risk is equal to: -- the death benefit on the policy processing day; MINUS -- the policy account value on the policy processing day.
We calculate the cost of insurance charge separately for the initial face amount and for any increase in face amount. If we approve an increase in your Policy's face amount, then a different premium class (and a different cost of insurance charge) may apply to the increase, based on the insured's circumstances at the time of the increase. If, however, the death benefit is the policy account value times the specified percentage, the rate for the premium class for the initial face amount will be used for the amount of the death benefit in excess of the total face amount. The cost of insurance charge is determined in a similar manner for any Additional Insurance Benefit rider coverage amount and for any increase in rider coverage amount. Generally, the current cost of insurance rates for this rider are lower than the current cost of insurance rates on the Policy's net amount at risk. The guaranteed cost of insurance rates under the rider are substantially the same as the guaranteed cost of insurance rates on the Policy's net amount at risk. See "Other Policy Information -- Supplemental Benefits and Riders." Net Amount at Risk. We also calculate the net amount at risk separately for the initial face amount and for any increase in face amount. In determining the net amount at risk for each increment of face amount, the policy account value is first considered part of the initial face amount. If the policy account value exceeds the initial face amount, it is then considered as part of any increases in face amount in the order these increases took effect. Cost of insurance rates. We base the cost of insurance rates on the insured's attained age, sex, premium class, number of full years the insurance has been in force, and the face amount. The actual monthly cost of insurance rates are based on our expectations as to future mortality and expense experience. The rates will never be greater than the guaranteed cost of insurance rates stated in your Policy. These guaranteed rates are based on the 1980 Commissioner's Standard Ordinary Smoker and Nonsmoker Mortality Table and the insured's attained age, sex, and premium class. For Policies issued in states which require "unisex" policies or in conjunction with employee benefit plans, the maximum cost of insurance charge depends only on the insured's attained age, premium class, and the 1980 Commissioner's Standard Ordinary Mortality Table NB and SB. Any change in the cost of insurance rates will apply to all persons of the same attained age, sex, premium class, and number of full years insurance has been in force. Premium class. The premium class of the insured will affect the cost of insurance rates. We currently place insureds into standard classes and classes with extra ratings, which reflect higher mortality risks. 26 31 -- In an otherwise identical Policy, an insured in the standard class will have a lower cost of insurance than an insured in a class with extra ratings. -- The standard premium class is divided into 3 categories: smoker, nonsmoker, and preferred. -- The preferred premium class is only available if the face amount equals or exceeds $100,000. -- Nonsmoking insureds will generally incur lower cost of insurance rates than insureds who are classified as smokers in the same premium class. The nonsmoker designation is not available for insureds under attained age 21, but shortly before an insured attains age 21, we will notify the insured about possible classification as a nonsmoker and will send the insured an application for change in premium class. If the insured does not qualify as a nonsmoker or does not return the application, cost of insurance rates will remain as shown in the Policy. However, if the insured returns the application and qualifies as a nonsmoker, the cost of insurance rates will be changed to reflect the nonsmoker classification. -- Preferred insureds will generally incur lower cost of insurance rates than insureds who are classified as nonsmokers. MONTHLY ADMINISTRATIVE CHARGE. Each month we deduct a $7.50 monthly administrative charge to compensate us for ordinary administrative expenses such as record keeping, processing death benefit claims and Policy changes, preparing and mailing reports, and overhead costs. This charge may be increased but will not exceed $12 per month. INITIAL ADMINISTRATIVE CHARGE. On the first 12 policy processing days, we deduct a $5.00 initial administrative charge for policy issue costs. CHARGES FOR RIDERS. The monthly deduction includes charges for any supplemental insurance benefits you add to your Policy by rider. See "Other Policy Information -- Supplemental Benefits and Riders." MORTALITY AND EXPENSE RISK CHARGE We deduct a daily charge from each Subaccount (but not the Guaranteed Account) to compensate us for certain mortality and expense risks we assume. The mortality risk is that an insured will live for a shorter time than we project. The expense risk is that the expenses that we incur will exceed the administrative charge limits we set in the Policy. This charge is equal to: -- the assets in each Subaccount, MULTIPLIED BY -- 0.002055%, which is the daily portion of the annual mortality and expense risk charge rate of 0.75% during all policy years. If this charge does not cover our actual costs, we absorb the loss. Conversely, if the charge more than covers actual costs, the excess is added to our surplus. We may increase this charge to a maximum annual rate of 0.90%. We expect to profit from this charge and may use these profits for any lawful purpose including covering distribution expenses. In certain situations, a portion of the mortality and expense risk charge may be offset by the special policy account value credit. See "Policy Account Value -- Special Policy Account Value Credit." SURRENDER CHARGES AND ADDITIONAL SURRENDER CHARGES Surrender charges and additional surrender charges are deducted to compensate us partially for the cost of administering, issuing, and selling the Policy, including agent sales commissions, the cost of printing the prospectuses and sales literature, any advertising costs, medical exams, review of applications for insurance, processing of the applications, establishing policy records, and Policy issue. We do not expect surrender charges and additional surrender charges to cover all of these costs. To the extent that they do not, we will 27 32 cover the short-fall from our general account assets, which may include profits from the mortality and expense risk charge and cost of insurance charge. SURRENDER CHARGE. If your Policy lapses or you fully surrender your Policy during the first 12 policy years, we deduct a surrender charge from your policy account value and pay the remaining amount (less any outstanding indebtedness) to you. The payment you receive is called the net cash surrender value. This surrender charge does not apply to partial withdrawals. The surrender charge consists of: 1. Deferred Administrative Charge: the charge described in the table below less any deferred administrative charge previously paid at the time of a decrease in face amount.
CHARGE PER $1,000 POLICY YEAR(S) OF FACE AMOUNT - -------------- ----------------- 1-6......................................................... $4.90 7........................................................... $4.20 8........................................................... $3.50 9........................................................... $2.80 10.......................................................... $2.10 11.......................................................... $1.40 12.......................................................... $0.70 13+......................................................... $ -0-
2. Deferred Sales Charge: this charge equals the lesser of a or b (less any deferred sales charge previously paid at the time of a prior decrease in face amount), where: a = 35% of all premiums paid to the date of surrender or lapse; or b = the following percentage of target premium:
% OF TARGET PREMIUM FOR THE POLICY YEAR(S) INITIAL FACE AMOUNT - -------------- ------------------- 1-6......................................................... 70% 7........................................................... 60% 8........................................................... 50% 9........................................................... 40% 10.......................................................... 30% 11.......................................................... 20% 12.......................................................... 10% 13+......................................................... 0%
ADDITIONAL SURRENDER CHARGE. Within 12 years after the effective date of an increase in face amount, we deduct an additional surrender charge if you surrender the Policy or it lapses. 28 33 The additional surrender charge consists of: 1. Additional Deferred Administrative Charge: the charge described in the table below less any additional deferred administrative charge previously paid at the time of a decrease in face amount.
CHARGE PER $1,000 12-MONTH PERIOD BEGINNING WITH FOR EACH INCREASE THE EFFECTIVE DATE OF EACH INCREASE IN FACE AMOUNT - ----------------------------------- ----------------- 1-6......................................................... $4.90 7........................................................... $4.20 8........................................................... $3.50 9........................................................... $2.80 10.......................................................... $2.10 11.......................................................... $1.40 12.......................................................... $0.70 13+......................................................... $ -0-
2. Additional Deferred Sales Charge: this charge equals the lesser of a or b (less any additional deferred sales charge for this increase previously paid at the time of a decrease in face amount), where: a = 35% of premiums allocated to the increase in face amount; or b = the following percentage of target premium:
% OF TARGET PREMIUM FOR EACH INCREASE NUMBER OF YEARS FOLLOWING THE EFFECTIVE DATE OF THE INCREASE IN FACE AMOUNT IN FACE AMOUNT - --------------------------------------------------------------------------- ------------------- 1-6................................................................ 70% 7.................................................................. 60% 8.................................................................. 50% 9.................................................................. 40% 10................................................................. 30% 11................................................................. 20% 12................................................................. 10% 13+................................................................ 0%
DECREASE IN FACE AMOUNT. In the event of a decrease in face amount before the end of the 12th policy year or within 12 years after an increase in face amount, we deduct a charge that is a portion of the surrender charge and/or additional surrender charge. -- If there have been no increases in face amount, we determine this portion by dividing the amount of the decrease by the current face amount and multiplying the result by the surrender charge and/or additional surrender charge. -- If more than one surrender charge and/or additional surrender charge is in effect because of one or more increases in face amount, we apply the surrender charge and/or additional surrender charge in the following order: (1) the most recent increase, followed by (2) the next most recent increases in succession, and (3) the initial face amount. -- Where a decrease causes a partial reduction in an increase or in the initial face amount, we will deduct a proportionate share of the surrender charge or additional surrender charge for that increase or for the initial face amount. -- We will deduct the surrender charge and/or additional surrender charge applicable to the decrease from the policy account value and the remaining surrender charge and/or additional surrender charge will be reduced by the amount deducted. 29 34 -- We will deduct the surrender charge and/or additional surrender charge from the Subaccounts and the Guaranteed Account based on the proportion that the values in the Subaccounts and the Guaranteed Account bear to the total unloaned policy account value. The surrender charge, additional surrender charge, and target premium vary based on the insured's attained age, sex, premium class, and initial face amount. The maximum target premium for any Policy is $54 per $1,000 of face amount. Your Policy's specifications page indicates the surrender charges, additional surrender charges, and target premium applicable to your Policy. THE SURRENDER CHARGE AND ADDITIONAL SURRENDER CHARGE MAY BE SIGNIFICANT. YOU SHOULD CAREFULLY CALCULATE THESE CHARGES BEFORE YOU REQUEST A SURRENDER OR DECREASE IN FACE AMOUNT. Under some circumstances the level of surrender charges and additional surrender charges might result in no net cash surrender value available. FACE AMOUNT INCREASE CHARGE If you increase the face amount, we will deduct a charge of $60 plus $0.50 per $1,000 face amount increase (but not greater than $750) from the policy account value on the effective date of this increase. This charge will be deducted from the Subaccounts and the Guaranteed Account based on the allocation schedule for monthly deductions in effect at the time of the increase. We deduct this charge to compensate us for administrative expenses incurred in connection with the increase, including medical exams, review of the application for the increase, underwriting decisions, application processing, and changing Policy records and the Policy. We may increase this charge to a maximum of $60 plus $3.00 per $1,000 face amount increase. We do not guarantee a $750 limit if we increase this charge. PARTIAL WITHDRAWAL CHARGE After the first policy year, you may request a partial withdrawal from your policy account value. For each partial withdrawal, we will deduct a $25 fee from the remaining policy account value. This charge is to compensate us for administrative costs in generating the withdrawn payment and in making all calculations which may be required because of the partial withdrawal. TRANSFER CHARGE We currently allow you to make 12 transfers among the Subaccounts or the Guaranteed Account each policy year with no additional charge. -- We deduct $25 for the 13th and each additional transfer made during a policy year to compensate us for the costs of processing these transfers. -- For purposes of assessing the transfer charge, we consider each telephone or written request to be one transfer, regardless of the number of Subaccounts (or Guaranteed Account) affected by the transfer. -- We deduct the transfer charge from the amount being transferred. -- Transfers due to dollar cost averaging, automatic asset rebalancing, loans, the exchange privilege, the special transfer right, change in Subaccount investment policy, or the initial reallocation of account values from the Money Market Subaccount do NOT count as transfers for the purpose of assessing this charge. PORTFOLIO EXPENSES The value of the net assets of each Subaccount reflects the management fees and other expenses incurred by the corresponding portfolio in which the Subaccount invests. For further information, consult the portfolios' prospectuses and the Annual Portfolio Operating Expenses table included in the summary of this prospectus. 30 35 DEATH BENEFIT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INSURANCE PROCEEDS As long as the Policy is in force, we will pay the insurance proceeds to the beneficiary once we receive satisfactory proof of the insured's death. We may require you to return the Policy. We will pay the insurance proceeds in a lump sum or under a settlement option. If the beneficiary dies before the insured, we will pay the insurance proceeds in a lump sum to the insured's estate. See "Death Benefit -- Settlement Options" and "Other Policy Information -- Payment of Policy Benefits." INSURANCE PROCEEDS EQUAL: -- the death benefit (described below); PLUS -- any additional insurance provided by rider; MINUS -- any unpaid monthly deductions; MINUS -- any outstanding indebtedness.
If all or part of the insurance proceeds are paid in one sum, we will pay interest on this sum at the annual rate of 3% or any higher rate as required by applicable state law from the date of the insured's death to the date we make payment. An increase in the face amount will increase the death benefit, and a decrease in the face amount will decrease the death benefit. We may further adjust the amount of the insurance proceeds under certain circumstances. See "Other Policy Information -- Our Right to Contest the Policy," and "Other Policy Information -- Misstatement of Age or Sex." DEATH BENEFIT OPTIONS The Policy provides two death benefit options: Option A and Option B. We calculate the amount available under each death benefit option as of the date of the insured's death. Under either option, the length of the death benefit coverage depends upon the Policy's net cash surrender value. See "Policy Lapse and Reinstatement." The Death Benefit -- the face amount; OR under OPTION A is the greater of: -- the policy account value (determined on the valuation day on or next following the date of the insured's death) multiplied by the applicable percentage listed in the table below. The Death Benefit under OPTION B is -- the face amount PLUS the policy account value (determined on the greater of: the valuation day on or next following the date of the insured's death); OR -- the policy account value (determined on the valuation day on or next following the date of the insured's death) multiplied by the applicable percentage listed in the table below.
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE - ------------ ---------- ------------ ---------- 40 and under 250% 60 130% 45 215% 65 120% 50 185% 70 115% 55 150% 75 through 90 105% 95 through 99 100%
For attained ages not shown, the percentages decrease pro rata for each full year. WHICH DEATH BENEFIT OPTION TO CHOOSE. If you prefer to have premium payments and favorable investment performance reflected partly in the form of an increasing death benefit, you should choose 31 36 Option B. If you are satisfied with the amount of the insured's existing insurance coverage and prefer to have premium payments and favorable investment performance reflected to the maximum extent in the policy account value, you should choose Option A. The amount of the death benefit may vary with the policy account value. -- Under Option A, the death benefit will vary with the policy account value whenever the policy account value multiplied by the applicable percentage is greater than the face amount. -- Under Option B, the death benefit will always vary with the policy account value. CHANGING DEATH BENEFIT OPTIONS After the first policy year or 12 months after a face amount increase, you may change death benefit options without evidence of insurability and with no additional charge while the Policy is in force. Changing the death benefit option may have tax consequences and may affect the net amount at risk over time (which would affect the monthly cost of insurance charge). However, we will not permit any change that would result in your Policy being disqualified as a life insurance contract under Section 7702 of the Code. You should consult a tax adviser before changing death benefit options. -- You must submit a written request for any change in death benefit options. -- We may require you to return your Policy to make a change. -- The effective date of the change in death benefit option will be the policy processing day on or following the date when we approve your request for a change. If you change from OPTION A TO OPTION B: X We will first decrease the face amount (beginning with the most recent increase, then the next most recent increases in succession, and then the initial face amount) and then any applicable rider coverage amounts by the policy account value on the effective date of the change. X The death benefit will NOT change on the effective date of the change. X The net amount at risk will generally remain level. This means there will be a relative increase in the cost of insurance charges over time because the net amount at risk will remain level rather than decrease as the policy account value increases (unless the death benefit is based on the applicable percentage of policy account value). X If the face amount or applicable rider coverage amount would be reduced to less than the minimum initial face amount or minimum amount in which the Policy or applicable rider could be issued, then we will not allow the change in death benefit option. If you change from OPTION B TO OPTION A: X The face amount will be increased by the policy account value on the effective date of the change. X The death benefit will NOT change on the effective date of the change. X Unless the death benefit is based on the applicable percentage of policy account value, if the policy account value increases, the net amount at risk will decrease over time, thereby reducing the cost of insurance charge. CHANGING THE FACE AMOUNT You select the face amount when you apply for the Policy. After the first policy year, you may change the face amount subject to the conditions described below. We may require you to return your Policy to make a change. We will not permit any change that would result in your Policy being disqualified as a life insurance contract under Section 7702 of the Code. However, changing the face amount may have tax consequences and you should consult a tax adviser before doing so. 32 37 INCREASING THE FACE AMOUNT -- You may increase the face amount by submitting a written application and providing evidence of insurability satisfactory to us at our Service Center. -- On the effective date of an increase, and taking the increase into account, the net cash surrender value must be equal to the monthly deductions then due and the charge for the increase. If not, the increase will not occur until you pay sufficient additional premium to increase the net cash surrender value. -- An increase will be effective on the policy processing day on or next following the date we approve your application, provided we have received any premium necessary to make the change. -- We apply a face amount increase charge. -- The minimum increase is $25,000. -- You may not increase the face amount after the insured's attained age 75 or if the face amount was increased during the prior 12-month period. -- Increasing the face amount during the first 5 policy years or purchasing the Guaranteed Minimum Death Benefit rider will increase your minimum guarantee premium. -- Each increase in face amount will begin a 12-year period during which an additional surrender charges will apply if you surrender the Policy. -- The total net amount at risk will be affected, which will increase the monthly cost of insurance charges. -- A different cost of insurance charge may apply to the increase in face amount, based on the insured's circumstances at the time of the increase. We use a special method to allocate a portion of the existing policy account value to an increase in face amount and to allocate subsequent premium payments between the initial face amount and the increase. We allocate the policy account value according to the ratio between the guideline annual premium for the initial face amount and the guideline annual premium for the total face amount on the effective date of the increase (before any deductions are made). We allocate premium payments made on or after the effective date of the increase between the initial face amount and the increase using the same ratio as is used to allocate the policy account value. In the event that there is more than one increase in face amount, guideline annual premiums for each increment of face amount are used to allocate policy account values and subsequent premium payments among the various increments of face amounts. DECREASING THE FACE AMOUNT -- You must submit a written request to decrease the face amount, but you may not decrease the face amount below the minimum initial face amount. The decrease must be for at least $25,000. -- A decrease is not allowed for 12 months following an increase in face amount. -- Any decrease will be effective on the policy processing day on or next following the date we approve your request. -- Decreasing the face amount may result in a surrender charge and/or additional surrender charge, which will reduce policy account value. -- A decrease in face amount generally will decrease the net amount at risk, which will decrease the cost of insurance charges. For purposes of determining the cost of insurance charge and any surrender charge, any decrease will first be used to reduce the most recent increase, then the next most recent increases in succession, and then the initial face amount. 33 38 -- We will not allow a decrease in face amount if this decrease would cause the Policy to no longer qualify as life insurance under the Code. -- Decreasing the face amount will not affect the minimum guarantee premium, unless you have elected the Guaranteed Minimum Death Benefit rider. SETTLEMENT OPTIONS There are several ways of receiving proceeds under the death benefit and surrender provisions of the Policy, other than in a lump sum. None of these options vary with the investment performance of the Separate Account. More detailed information concerning these settlement options is available on request from our Service Center. See "Other Policy Information -- Payment of Policy Benefits." ACCELERATED DEATH BENEFIT Under the Accelerated Death Benefit rider, you may receive an accelerated payment of part of the Policy's death benefit when one of the following two events occurs: 1. TERMINAL ILLNESS. The insured develops a non-correctable medical condition which is expected to result in his or her death within 12 months; OR 2. PERMANENT CONFINEMENT TO A NURSING CARE FACILITY. The insured has been confined to a nursing care facility for 180 days and is expected to remain in such a facility for the remainder of his or her life. There is no additional charge for this rider. However, an administrative charge, currently $100 and not to exceed $250, will be deducted from the accelerated death benefit at the time it is paid. See "Other Policy Information -- Supplemental Benefits and Riders." SURRENDERS AND PARTIAL WITHDRAWALS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SURRENDERS You may request to surrender your Policy for its net cash surrender value as calculated at the end of the valuation day when we receive your request, subject to the following conditions: -- You must complete and sign our surrender form and send it to us at our Service Center. You may obtain the surrender form by calling us at (800) 688-5177. -- The insured must be alive and the Policy must be in force when you make your request, and the request must be made before the final policy date. We may require that you return the Policy. -- If you surrender your Policy during the first 12 policy years (or during the first 12 years after an increase in the face amount), you will incur a surrender charge. See "Charges and Deductions -- Surrender Charges and Additional Surrender Charges." -- Once you surrender your Policy, all coverage and other benefits under it cease and cannot be reinstated. -- We will pay the net cash surrender value to you in a lump sum within 7 days after we receive your completed, signed surrender form unless you request other arrangements. -- A surrender may have tax consequences. See "Federal Tax Considerations -- Tax Treatment of Policy Benefits." 34 39 PARTIAL WITHDRAWALS After the first policy year, you may make a written request to withdraw part of the net cash surrender value subject to the following conditions: -- You must request at least $1,500. -- For each partial withdrawal, we deduct a $25 fee from the remaining policy account value. See "Charges and Deductions -- Partial Withdrawal Charge." -- The insured must be alive and the Policy must be in force when you make your request, and this request must be made before the final policy date. -- You can specify the Subaccount(s) and Guaranteed Account from which to make the partial withdrawal. Otherwise, we will deduct the amount (including any fee) from the Subaccounts and the Guaranteed Account on a pro-rata basis (that is, based on the proportion that each Subaccount value and the Guaranteed Account value bears to the unloaned policy account value). -- You may not make a partial withdrawal if, or to the extent that, the partial withdrawal would reduce the face amount below the minimum face amount. -- If Death Benefit Option A is in effect, we will reduce the face amount by the amount of the partial withdrawal (including the partial withdrawal fee). Any decrease in face amount due to a partial withdrawal will first reduce the most recent increase in face amount, then the next most recent increases in succession, and lastly, the initial face amount. -- If you purchased an Additional Insurance Benefit rider, partial withdrawals first decrease the Policy's face amount (beginning with the most recent increase, then the next most recent increases in succession, and then the initial face amount) and then the rider coverage amount. -- We will process the partial withdrawal at the unit values next determined after we receive your request. -- We generally will pay a partial withdrawal request within 7 days after the valuation day when we receive the request. -- A partial withdrawal can affect the face amount, death benefit, and net amount at risk (which is used to calculate the cost of insurance charge (see "Charges and Deductions -- Monthly Deduction")). -- If a partial withdrawal would cause the Policy to fail to qualify as life insurance under the Code, we will not allow the partial withdrawal. -- Partial withdrawals may have tax consequences. See "Federal Tax Considerations -- Tax Treatment of Policy Benefits." TRANSFERS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- You may make transfers between and among the Subaccounts and the Guaranteed Account. We determine the amount you have available for transfers at the end of the valuation period when we receive your written request. The following features apply to transfers under the Policy: -- You must transfer at least $1,000, or the total value in the Subaccount or Guaranteed Account, if less. -- We deduct a $25 charge from the amount transferred for the 13th and each additional transfer in a policy year. Transfers due to dollar cost averaging, automatic asset rebalancing, loans, the exchange privilege, the special transfer right, change in Subaccount investment policy, or the initial reallocation of account values from the Money Market Subaccount do NOT count as transfers for 35 40 the purpose of assessing the transfer charge. See "Transfers -- Dollar Cost Averaging," "Transfers -- Automatic Asset Rebalancing," and "Other Policy Information -- Additional Transfer Rights." -- We consider each telephone or written request to be a single transfer, regardless of the number of Subaccounts (or Guaranteed Account) involved. -- We process transfers based on unit values determined at the end of the valuation day when we receive your transfer request. The corresponding portfolio of any Subaccount determines its net asset value per each share once daily, as of the close of the regular business session of the New York Stock Exchange (usually 4:00 p.m., Eastern time), which coincides with the end of each valuation period. Therefore, we will process any transfer request we receive after the close of the regular business session of the New York Stock Exchange, using the net asset value for each share of the applicable portfolio determined as of the close of the next regular business session of the New York Stock Exchange. TRANSFERS FROM THE GUARANTEED ACCOUNT. You may make one transfer out of the Guaranteed Account within 30 days prior to or following each policy anniversary. The amount transferred may not exceed 25% of the Guaranteed Account value. However, if the Guaranteed Account value is less than $1,000, the entire Guaranteed Account value may be transferred. If we receive your written request for this transfer prior to the policy anniversary, the transfer will be made as of the policy anniversary. If this request is received after the policy anniversary, the transfer will be made as of the date we receive the written request. DOLLAR COST AVERAGING You may elect to participate in a dollar cost averaging program in the application or by completing an election form that we receive by the beginning of the month. Dollar cost averaging is an investment strategy designed to reduce the investment risks associated with market fluctuations. The strategy spreads the allocation of your premium into the Subaccounts or Guaranteed Account over a period of time by systematically and automatically transferring, on a monthly basis, specified dollar amounts from any selected Subaccount to any other Subaccount(s) or the Guaranteed Account. This allows you to potentially reduce the risk of investing most of your premium into the Subaccounts at a time when prices are high. We do not assure the success of this strategy, and success depends on market trends. We cannot guarantee that dollar cost averaging will result in a profit or protect against loss. You should carefully consider your financial ability to continue the program over a long enough period of time to purchase units when their value is low as well as when it is high. Each month on the policy processing day, we will automatically transfer equal amounts (minimum $500) from the chosen Subaccount to your designated "target accounts" in the percentages selected. You may have multiple target accounts. To participate in dollar cost averaging, you must elect a period of time and place the following minimum amount in any one Subaccount (not the Guaranteed Account):
DOLLAR COST AVERAGING PERIOD MINIMUM AMOUNT - ---------------------------- -------------- 6 months $ 3,000 12 months $ 6,000 18 months $ 9,000 24 months $12,000 30 months $15,000 36 months $18,000
36 41 If you have elected dollar cost averaging, the program will start on the first policy processing day after the later of: 1. The policy date; 2. The end of the 15-day period when premiums have been allocated to the Money Market Subaccount; or 3. When the value of the chosen Subaccount equals or exceeds the greater of: (a) the minimum amount stated above; or (b) the amount of the first monthly transfer. DOLLAR COST AVERAGING WILL END IF: -- we receive your written request to cancel your participation; -- the value in the chosen Subaccount is insufficient to make the transfer; -- the specified number of transfers has been completed; or -- the Policy enters the grace period.
You will receive written notice confirming each transfer and when the program has ended. You are responsible for reviewing the confirmation to verify that the transfers are being made as requested. There is no additional charge for dollar cost averaging. A transfer under this program is NOT considered a transfer for purposes of assessing the transfer fee. We may modify, suspend, or discontinue the dollar cost averaging program at any time upon 30 days' written notice to you. You cannot choose dollar cost averaging if you are participating in the automatic asset rebalancing program or if a policy loan is outstanding. AUTOMATIC ASSET REBALANCING We also offer an automatic asset rebalancing program under which we will automatically transfer amounts quarterly or annually to maintain a particular percentage allocation among the Subaccounts. Policy account value allocated to each Subaccount will grow or decline in value at different rates. The automatic asset rebalancing program automatically reallocates the policy account value in the Subaccounts at the end of each quarterly or annual period to match your Policy's currently effective premium allocation schedule. The automatic asset rebalancing program will transfer policy account value from those Subaccounts that have increased in value to those Subaccounts that have declined in value (or not increased as much). Over time, this method of investing may help you buy low and sell high. The automatic asset rebalancing program does not guarantee gains, nor does it assure that you will not have losses. Policy account value in the Guaranteed Account is not available for this program. TO PARTICIPATE IN THE AUTOMATIC ASSET -- you must elect this feature in the application or after REBALANCING PROGRAM: issue by submitting an automatic asset rebalancing request form to our Service Center; and -- you must have a minimum policy account value of $1,000.
There is no additional charge for the automatic asset rebalancing program. Any reallocation which occurs under the automatic asset rebalancing program will NOT be counted towards the 12 "free" transfers allowed during each policy year. You can end this program at any time. AUTOMATIC ASSET REBALANCING WILL END -- the total value in the Subaccounts is less than $1,000; IF: or -- we receive your written request to terminate the program.
We may modify, suspend, or discontinue the automatic asset rebalancing program at any time. You cannot choose automatic asset rebalancing if you are participating in the dollar cost averaging program. 37 42 LOANS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- While the Policy is in force, you may submit a written request to borrow money from us using the Policy as the only collateral for the loan. You may increase your risk of lapse if you take a loan. A loan that is taken from, or secured by, a Policy may have tax consequences. LOAN CONDITIONS: -- The MINIMUM LOAN you may take is $500. -- The MAXIMUM LOAN you may take is the net cash surrender value on the date of the loan. -- To secure the loan, we transfer an amount as collateral to the Loan Account. This amount is equal to the amount of the loan (adjusted by the earned interest rate and the charged interest rate to the next policy anniversary). You may request that we transfer this amount from specific Subaccounts, but may not request that we transfer this amount from the Guaranteed Account. However, if you do not specify any specific Subaccounts, we will transfer the loan from the Subaccounts and the Guaranteed Account on a pro-rata basis based on the proportion that the values in the Subaccounts and Guaranteed Account bear to the unloaned policy account value. -- We charge you 6% interest per year (charged interest rate) on your loan. Interest is due and payable at the end of each policy year. Unpaid interest becomes part of the outstanding loan and accrues interest. Unpaid interest is allocated based on your written instructions. If there are no such instructions or the policy account value in the specified Subaccounts is insufficient to allow the collateral for the unpaid interest to be transferred, the interest is allocated based on the proportion that the Guaranteed Account value and the value in the Subaccounts bear to the total unloaned policy account value. -- Amounts in the Loan Account earn interest at an annual rate guaranteed not to be lower than 4.0% (earned interest rate). We may credit the Loan Account with an interest rate different than the rate credited to net premiums allocated to the Guaranteed Account. We currently credit 4% to amounts in the Loan Account until the 10th policy anniversary or attained age 60, whichever is later, and 5.75% annually thereafter. The tax consequences associated with loans taken from or secured by a Policy that is not a MEC are unclear when the interest earned on the loan is increased to 5.75%. -- We transfer earned loan interest to the Subaccounts and/or the Guaranteed Account and recalculate collateral: (a) when loan interest is paid or added to the loaned amount; (b) when a new loan is made; and (c) when a loan repayment is made. We also recalculate collateral under these situations. A transfer to or from the Loan Account will be made to reflect any recalculation of collateral. At any time, the amount of the outstanding loan under a Policy equals the sum of all loans (including due and unpaid charged interest added to the loan balance) minus any loan repayments. -- You may repay all or part of your indebtedness at any time while the insured is alive and the Policy is in force. Upon each loan repayment, we will allocate an amount equal to the loan repayment (but not more than the amount of the outstanding loan) from the Loan Account back to the Subaccounts and/or Guaranteed Account according to the pro rata basis upon which we originally transferred the loan collateral from the Subaccounts and/or Guaranteed Account as described above. We will allocate any repayment in excess of the amount of the outstanding loan to the Subaccounts and/or the Guaranteed Account based on the amount of interest due on the portion of the outstanding loan allocated to each such account. -- While your loan is outstanding, we will credit all payments you send to us as loan repayments unless you provide written notice for the payments to be applied as premium payments. 38 43 -- We deduct any indebtedness from the policy account value upon surrender, and from the insurance proceeds payable on the insured's death. -- If your indebtedness causes the net cash surrender value on a policy processing day to be less than the monthly deduction due, your Policy will enter a grace period. See "Policy Lapse and Reinstatement." -- We normally pay the amount of the loan within 7 days after we receive a proper loan request. We may postpone payment of loans under certain conditions. See "Other Policy Information -- Payments We Make." EFFECT OF POLICY LOANS A loan, whether or not repaid, affects the Policy, the policy account value, the net cash surrender value, and the death benefit. The insurance proceeds and net cash surrender value include reductions for the amount of any indebtedness. Repaying a loan causes the death benefit and net cash surrender value to increase by the amount of the repayment. As long as a loan is outstanding, we hold an amount as collateral for the loan in the Loan Account. This amount is not affected by the investment performance of the Subaccounts and may not be credited with the interest rates accruing on the Guaranteed Account. Amounts transferred from the Separate Account to the Loan Account will affect the policy account value, even if the loan is repaid, because we credit these amounts with an interest rate we declare rather than with a rate of return that reflects the investment performance of the Separate Account. Accordingly, the effect on the policy account value and death benefit could be favorable or unfavorable, depending on whether the investment performance of the Subaccounts and the interest credited to the Guaranteed Account is less than or greater than the interest being credited on the assets in the Loan Account while the loan is outstanding. Compared to a Policy under which no loan is made, values under a Policy with an outstanding loan will be lower when the earned interest rate is less than the investment performance of assets held in the Subaccounts and interest credited to the Guaranteed Account. The longer a loan is outstanding, the greater the effect of a policy loan is likely to be. There are risks involved in taking a loan, including the potential for a Policy to lapse if projected earnings, taking into account outstanding loans, are not achieved. If the Policy is a MEC, then a loan will be treated as a partial withdrawal for Federal income tax purposes. A loan may also have possible adverse tax consequences that could occur if a Policy lapses with loans outstanding. See "Policy Lapse and Reinstatement." In addition, if a loan is taken from a Policy that is part of a plan subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), the loan will be treated as a "prohibited transaction" subject to certain penalties unless additional ERISA requirements are satisfied. The owner of such a Policy should seek competent advice before requesting a policy loan. POLICY LAPSE AND REINSTATEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LAPSE Your Policy may enter a 61-day grace period and possibly lapse (terminate without value) if the net cash surrender value is not enough to pay the monthly deduction and other charges. If you have taken a loan, then your Policy also will enter a grace period (and possibly lapse) whenever your indebtedness reduces the net cash surrender value to zero. Your Policy will NOT lapse: 1. During the first 5 policy years, if you pay premiums (less any indebtedness and partial withdrawals) in excess of the minimum guarantee premium; 2. If you purchase a Guaranteed Minimum Death Benefit rider and meet certain conditions (see "Other Policy Information -- Supplemental Benefits and Riders"); or 39 44 3. If you make a payment equal to 3 monthly deductions before the end of the grace period. If your Policy enters a grace period, we will mail a notice to your last known address and to any assignee of record. The 61-day grace period begins on the date of the notice. The notice will indicate that the payment amount of 3 monthly deductions is required and will also indicate the final date by which we must receive the payment to keep the Policy from lapsing. If we do not receive the specified minimum payment by the end of the grace period, all coverage under the Policy will terminate and you will receive no benefits. You may reinstate a lapsed Policy if you meet certain requirements. If the insured dies during the grace period, we will pay the insurance proceeds. REINSTATEMENT Unless you have surrendered your Policy, you may reinstate a lapsed Policy at any time while the insured is alive and within 3 years after the end of the grace period (and prior to the final policy date) by submitting all of the following items to us at our Service Center: 1. A written notice requesting reinstatement; 2. Evidence of insurability we deem satisfactory; and 3. Payment of sufficient premium to keep the Policy in force for at least 3 months. The effective date of reinstatement will be the first policy processing day on or next following the date we approve your application for reinstatement. The reinstated Policy will have the same policy date as it had prior to the lapse. Upon reinstatement, the policy account value will be based upon the premium paid to reinstate the Policy. FEDERAL TAX CONSIDERATIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following summarizes some of the basic Federal income tax considerations associated with a Policy and does not purport to be complete or to cover all situations. THIS DISCUSSION IS NOT INTENDED AS TAX ADVICE. PLEASE CONSULT COUNSEL OR OTHER QUALIFIED TAX ADVISERS FOR MORE COMPLETE INFORMATION. We base this discussion on our understanding of the present Federal income tax laws as they are currently interpreted by the Internal Revenue Service (the "IRS"). Federal income tax laws and the current interpretations by the IRS may change. TAX STATUS OF THE POLICY. A Policy must satisfy certain requirements set forth in the Code in order to qualify as a life insurance contract for Federal income tax purposes and to receive the tax treatment normally accorded life insurance contracts. The manner in which these requirements are to be applied to certain features of the Policy are not directly addressed by the Code, and there is limited guidance as to how these requirements are to be applied. We believe that a Policy should satisfy the applicable Code requirements. Because of the absence of pertinent interpretations of the Code requirements, however, there is some uncertainty about the application of these requirements to the Policy, particularly if you pay the full amount of premiums permitted under the Policy. If it is subsequently determined that a Policy does not satisfy the applicable requirements, we may take appropriate steps to bring the Policy into compliance with these requirements and we reserve the right to restrict Policy transactions in order to do so. In certain circumstances, owners of variable life insurance contracts have been considered for Federal income tax purposes to be the owners of the assets of the Separate Account supporting their contracts due to their ability to exercise investment control over those assets. Where this is the case, the contract owners have been currently taxed on income and gains attributable to the Separate Account assets. There is little guidance in this area, and some features of the Policies, such as the flexibility to allocate premiums and policy account values, have not been explicitly addressed in published rulings. While we believe that the Policy does not give you investment control over Separate Account assets, we reserve the right to modify 40 45 the Policy as necessary to prevent you from being treated as the owner of the Separate Account assets supporting the Policy. In addition, the Code requires that the investments of the Separate Account be "adequately diversified" in order to treat the Policy as a life insurance contract for Federal income tax purposes. We intend that the Separate Account, through the portfolios, will satisfy these diversification requirements. The following discussion assumes that the Policy will qualify as a life insurance contract for Federal income tax purposes. TAX TREATMENT OF POLICY BENEFITS IN GENERAL. We believe that the death benefit under a Policy should be excludible from the beneficiary's gross income. Federal, state, and local transfer, and other tax consequences of ownership or receipt of Policy proceeds depend on your circumstances and the beneficiary's circumstances. You should consult a tax adviser on these consequences. Generally, you will not be deemed to be in constructive receipt of the policy account value until there is a distribution. In addition, if you elect the accelerated death benefit, the tax consequences associated with continuing the Policy after a distribution is made are unclear. Please consult a tax adviser on these consequences. When distributions from a Policy occur, or when loans are taken out from or secured by a Policy (e.g., by assignment), the tax consequences depend on whether the Policy is classified as a MEC. Moreover, if a loan from a Policy that is not a MEC is outstanding when the Policy is canceled or lapses, the amount of the outstanding indebtedness will be added to the amount distributed and will be taxed accordingly. MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance contracts are classified as MECs and receive less favorable tax treatment than other life insurance contracts. The rules are too complex to be summarized here, but generally depend on the amount of premiums paid during the first 7 policy years. Certain changes in a Policy after it is issued could also cause it to be classified as a MEC. Due to the Policy's flexibility, each Policy's circumstances will determine whether the Policy is classified as a MEC. A reduction in the death benefit at any time below the lowest level of death benefit payable during the first seven Policy years could cause the Policy to become a MEC. If you do not want your Policy to be classified as a MEC, you should consult a tax adviser to determine the circumstances, if any, under which your Policy would or would not be classified as a MEC. DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as MECs are subject to the following tax rules: -- All distributions other than death benefits from a MEC, including distributions upon surrender and partial withdrawals, will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the unloaned policy account value immediately before the distribution plus prior distributions over the owner's total investment in the Policy at that time. They will be treated as tax-free recovery of the owner's investment in the Policy only after all such excess has been distributed. "Total investment in the Policy" means the aggregate amount of any premiums or other considerations paid for a Policy, plus any previously taxed distributions. -- Loans taken from such a Policy (or secured by such a Policy, e.g., by assignment) are treated as distributions and taxed accordingly. -- A 10% additional income tax penalty is imposed on the amount included in income except where the distribution or loan is made when you have attained age 59 1/2 or are disabled, or where the distribution is part of a series of substantially equal periodic payments for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and the beneficiary. If a Policy becomes a MEC, distributions that occur during the policy year will be taxed as distributions from a MEC. In addition, distributions from a Policy within 2 years before it becomes a MEC will be 41 46 taxed in this manner. This means that a distribution from a Policy that is not a MEC at the time when the distribution is made could later become taxable as a distribution from a MEC. DISTRIBUTIONS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS. Distributions from a Policy that is not a MEC are generally treated first as a recovery of your investment in the Policy, and as taxable income after the recovery of all investment in the Policy. However, certain distributions which must be made in order to enable the Policy to continue to qualify as a life insurance contract for Federal income tax purposes if Policy benefits are reduced during the first 15 policy years may be treated in whole or in part as ordinary income subject to tax. Loans from or secured by a Policy that is not a MEC are generally not treated as distributions. However, there is some uncertainty as to the tax treatment of amounts in the Loan Account after the later of the 10th policy anniversary or attained age 60 under a Policy that is not a MEC. You should consult a tax adviser on this point. Finally, neither distributions from nor loans from (or secured by) a Policy that is not a MEC are subject to the 10% additional tax. POLICY LOANS. In general, interest you pay on a loan from a Policy will not be deductible. If a Policy loan is outstanding when a Policy is canceled or lapses, the amount of the outstanding indebtedness will be added to the amount distributed and will be taxed accordingly. Before taking out a policy loan, you should consult a tax adviser as to the tax consequences. MULTIPLE POLICIES. All MECs that we issue (and that our affiliates issue) to the same owner during any calendar year are treated as one MEC for purposes of determining the amount includible in the owner's income when a taxable distribution occurs. BUSINESS USES OF THE POLICY. The Policy may be used in various arrangements, including nonqualified deferred compensation or salary continuance plans, split dollar insurance plans, executive bonus plans, retiree medical benefit plans, and others. The tax consequences of these plans and business uses of the Policy may vary depending on the particular facts and circumstances of each individual arrangement and business uses of the Policy. Therefore, if you are contemplating using the Policy in any arrangement the value of which depends in part on its tax consequences, you should be sure to consult a tax adviser as to tax attributes of the arrangement. In recent years, moreover, Congress has adopted new rules relating to life insurance owned by businesses. Any business contemplating the purchase of a new Policy or a change in an existing Policy should consult a tax adviser. OTHER POLICY OWNER TAX MATTERS. The transfer of the Policy or designation of a beneficiary may have federal, state, and/or local transfer and inheritance tax consequences, including the imposition of gift, estate, and generation-skipping transfer taxes. For example, the transfer of the Policy to, or the designation as a beneficiary of, or the payment of proceeds to, a person who is assigned to a generation which is two or more generations below the generation assignment of the owner may have generation skipping transfer tax consequences under federal tax law. The individual situation of each owner or beneficiary will determine the extent, if any, to which federal, state, and local transfer and inheritance taxes may be imposed and how ownership or receipt of Policy proceeds will be treated for purposes of federal, state an local estate, inheritance, generation skipping and other taxes. The tax consequences of continuing the Policy beyond the insured's attained age 100 are unclear. You should consult a tax adviser if you intend to keep the Policy in force beyond the insured's attained age 100. POSSIBLE TAX LAW CHANGES. While the likelihood of legislative or other changes is uncertain, there is always a possibility that the tax treatment of the Policy could change by legislation or otherwise. It is even possible that any legislative change could be retroactive (effective prior to the date of the change). You should consult a tax adviser with respect to legislative developments and their effect on the Policy. 42 47 OTHER POLICY INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PAYMENT OF POLICY BENEFITS BENEFIT PAYABLE ON FINAL POLICY DATE. If the insured is living on the final policy date (at insured's attained age 100), we will pay you the policy account value less any indebtedness and any unpaid monthly deductions. Insurance coverage under the Policy will then end. Payment will generally be made within 7 days of the final policy date. You may elect to continue the Policy beyond insured's attained age 100 under the Final Policy Date Extension rider. INSURANCE PROCEEDS. Insurance proceeds will ordinarily be paid to the beneficiary within 7 days after we receive proof of the insured's death and all other requirements are satisfied, including receipt by us at our Service Center of all required documents. Generally, we determine the amount of a payment from the Separate Account as of the date of death. We pay insurance proceeds in a single sum unless you have selected an alternative settlement option. If insurance proceeds are paid in a single sum, we pay interest at an annual rate of 3% (unless we declare a higher rate) on the insurance proceeds from the date of death until payment is made. SETTLEMENT OPTIONS. In lieu of a single sum payment on death, surrender, or maturity, you may elect one of the following settlement options. Payment under these settlement options will not be affected by the investment performance of any Subaccounts after proceeds are applied. -- Proceeds at Interest Option. Proceeds are left on deposit to accumulate with us with interest payable at 12, 6, 3, or 1 month intervals. -- Installments of a Specified Amount Option. Proceeds are payable in equal installments of the amount elected at 12, 6, 3, or l month intervals, until proceeds applied under the option and interest on the unpaid balance and any additional interest are exhausted. -- Installments for a Specified Period Option. Proceeds are payable in a number of equal monthly installments. Alternatively, the installments may be paid at 12, 6, or 3 month intervals. Payments may be increased by additional interest which would increase the installments certain. -- Life Income Option. Proceeds are payable in equal monthly installments during the payee's life. Payments will be made either with or without a guaranteed minimum number. If there is to be a minimum number of payments, they will be for either 120 or 240 months or until the proceeds applied under the option are exhausted. -- Joint and Survivor Life Income Option. Proceeds are payable in equal monthly installments, with a number of installments certain, during the joint lives of the payee and one other person and during the life of the survivor. The minimum number of payments will be for either 120 or 240 months. A guaranteed interest rate of 3% per year applies to all settlement options. We may declare additional rates of interest in our sole discretion. See "Death Benefit -- Insurance Proceeds" and the Policy for more details. THE POLICY The Policy, application(s), policy schedule pages, and any riders are the entire contract. Only statements made in the applications can be used to void the Policy or to deny a claim. We assume that all statements in an application are made to the best of the knowledge and belief of the person(s) who made them, and, in the absence of fraud, those statements are considered representations and not warranties. We rely on those statements when we issue or change a Policy. As a result of differences in applicable state laws, certain provisions of the Policy may vary from state to state. 43 48 TELEPHONE REQUESTS We may accept telephone instructions from you or an authorized third party regarding transfers, dollar cost averaging, automatic asset rebalancing, loans, and exercise of the special transfer right, subject to the following conditions: -- You must complete and sign our telephone request form and send it to us. You also may authorize us in the application or by written notice to act upon transfer instructions given by telephone. -- You may designate in the telephone request form a third party to act on your behalf in making telephone requests. -- We will employ reasonable procedures to confirm that telephone instructions are genuine. -- If we follow these procedures, we are not liable for any loss, damage, cost, or expense from complying with telephone instructions we reasonably believe to be authentic. You bear the risk of any such loss. If we do not employ reasonable confirmation procedures, we may be liable for losses due to unauthorized or fraudulent instructions. -- These procedures may include requiring forms of personal identification prior to acting upon telephone instructions, providing written confirmation of transactions to you, and/or tape recording telephone instructions received from you. -- We reserve the right to suspend telephone instructions at any time for any class of policies for any reason. OUR RIGHT TO CONTEST THE POLICY In issuing the Policy, we rely on all statements made by or for you and/or the insured in the application or in a supplemental application. Therefore, we may contest the validity of the Policy based on material misstatements made in the application (or any supplemental application). However, we will not contest the Policy after the Policy has been in force during the insured's lifetime for 2 years, except for nonpayment of the minimum initial premium. Likewise, we will not contest any Policy change that requires evidence of insurability, or any reinstatement of the Policy, after such change or reinstatement has been in effect during the insured's lifetime for 2 years. SPLIT DOLLAR ARRANGEMENTS You may enter into a split dollar arrangement with another owner or another person(s) whereby the payment of premiums and the right to receive the benefits under the Policy (i.e., net cash surrender value or insurance proceeds) are split between the parties. There are different ways of allocating these rights. For example, an employer and employee might agree that under a Policy on the life of the employee, the employer will pay the premiums and will have the right to receive the net cash surrender value. The employee may designate the beneficiary to receive any insurance proceeds in excess of the net cash surrender value. If the employee dies while such an arrangement is in effect, the employer would receive from the insurance proceeds the amount which he would have been entitled to receive upon surrender of the policy and the employee's beneficiary would receive the balance of the proceeds. No transfer of Policy rights pursuant to a split dollar arrangement will be binding on us unless in writing and received by us at our Service Center. The parties who elect to enter into a split dollar arrangement should consult their own tax advisers regarding the tax consequences of such an arrangement. 44 49 SUICIDE EXCLUSION If the insured commits suicide, while sane or insane, within 2 years of the policy issue date, the Policy will terminate and our liability will be limited to an amount equal to the premiums paid, less any indebtedness, and less any partial withdrawals previously paid. If the insured commits suicide, while sane or insane, within 2 years from the effective date of any change which increases the death benefit, the Policy will terminate and our liability with respect to the amount of increase will be limited to the sum of the monthly deductions for the cost of insurance attributable to the increase and the expense charge for the increase in face amount previously deducted from policy account value. Certain states may require suicide exclusion provisions that differ from those stated here. MISSTATEMENT OF AGE OR SEX If the insured's age or sex was stated incorrectly in the application, we will adjust the death benefit and any benefits provided by riders to the amount that would have been payable at the correct age and sex based on the most recent monthly deduction. No adjustment will be made to the policy account value. MODIFYING THE POLICY Any modification or waiver of our rights or requirements under the Policy must be in writing and signed by our president or a vice president. No agent may bind us by making any promise not contained in the Policy. Upon notice to you, we may modify the Policy: -- to conform the Policy, our operations, or the Separate Account's operations to the requirements of any law (or regulation issued by a government agency) to which the Policy, our Company, or the Separate Account is subject; -- to assure continued qualification of the Policy as a life insurance contract under the Federal tax laws; or -- to reflect a change in the Separate Account's operation. If we modify the Policy, we will make appropriate endorsements to the Policy. If any provision of the Policy conflicts with the laws of a jurisdiction that govern the Policy, we reserve the right to amend the provision to conform with these laws. PAYMENTS WE MAKE We usually pay the amounts of any surrender, partial withdrawal, insurance proceeds, loan, or settlement options within 7 days after we receive all applicable written notices, permitted telephone requests, and/or due proofs of death. However, we can postpone these payments if: -- the New York Stock Exchange is closed, other than customary weekend and holiday closing, or trading on the New York Stock Exchange is restricted as determined by the Securities and Exchange Commission; OR -- the Securities and Exchange Commission permits, by an order, the postponement of any payment for the protection of owners; OR -- the Securities and Exchange Commission determines that an emergency exists that would make the disposal of securities held in the Separate Account or the determination of their value not reasonably practicable. 45 50 We have the right to defer payment of amounts from the Guaranteed Account for up to 6 months after receipt of the written notice. We will pay interest on any payment deferred for 30 days or more at an annual rate of 3%. If you have submitted a check or draft to our Service Center, we have the right to defer payment of surrenders, partial withdrawals, insurance proceeds, or payments under a settlement option until the check or draft has been honored. ADDITIONAL TRANSFER RIGHTS SPECIAL TRANSFER RIGHT At any one time during the first 2 years following the policy issue date, you may submit written notice requesting a transfer of the entire amount in the Separate Account to the Guaranteed Account, and the allocation of all future net premiums to the Guaranteed Account. This serves as an exchange of the Policy for the equivalent of a flexible premium fixed benefit life insurance policy. We will not assess any transfer or other charges in connection with the special transfer right, and this transfer will not count toward the 12 "free" transfers permitted each policy year. CONVERSION PRIVILEGE FOR INCREASE IN FACE AMOUNT At any one time during the first 2 years following an increase in the Policy's face amount, you may exchange the amount of the increase for a fixed benefit permanent life insurance policy without evidence of insurability. Such an exchange may have tax consequences. Premiums under this new policy will be based on our rates in effect for the same sex, attained age, and premium class of the insured on the effective date of the increase in the face amount. The new policy will have the same face amount and policy issue date as the amount and effective date of the increase. We will refund the expense charge for the increase and the monthly deductions for the increase made on each policy processing day between the effective date of the increase to the date of conversion. We will not assess any transfer charges in connection with this conversion privilege, and this transfer will not count toward the 12 "free" transfers permitted each policy year. CHANGE IN SUBACCOUNT INVESTMENT POLICY If the investment policy of a Subaccount is materially changed, you may transfer the portion of the policy account value in that Subaccount to another Subaccount or to the Guaranteed Account without a transfer charge and without having the transfer count toward the 12 transfers permitted without charge during a Policy Year. REPORTS TO OWNERS At least once each year, we will send you a report showing the following information as of the end of the report period: X the current policy account value, Guaranteed Account value, Subaccount values, and Loan Account value X the current net cash surrender value X the current death benefit X the current amount of any indebtedness X any activity since the last report (e.g., premiums paid, partial withdrawals, charges and deductions) X any other information required by law 46 51 We currently send these reports quarterly. In addition, we will send you a statement showing the status of the Policy following the transfer of amounts from one Subaccount to another (excluding automatic rebalancing), the taking of a loan, the repayment of a loan, a partial withdrawal, and the payment of any premiums (excluding those paid by bank draft or otherwise under the automatic payment plan). We can prepare a similar report for you at other times for a reasonable fee. We may limit the scope and frequency of these requested reports. We will send you a semi-annual report containing the financial statements of each portfolio in which you are invested. RECORDS We will maintain all records relating to the Separate Account and the Guaranteed Account at our Service Center. POLICY TERMINATION Your Policy will terminate on the earliest of: -- the final policy date; -- the end of the grace period without a sufficient payment; -- the date the insured dies; or -- the date you surrender the Policy. SUPPLEMENTAL BENEFITS AND RIDERS ACCELERATED DEATH BENEFIT RIDER If your state of residence has approved the Accelerated Death Benefit rider (the "ADB rider") and we have received satisfactory additional evidence of insurability, you may choose to add it to your Policy at issue. The terms of the ADB rider may vary from state-to-state. Generally, the ADB rider allows you to receive an accelerated payment of part of the Policy's death benefit when one of the following two events occurs: 1. TERMINAL ILLNESS. The insured develops a non-correctable medical condition which is expected to result in his or her death within 12 months; OR 2. PERMANENT CONFINEMENT TO A NURSING CARE FACILITY. The insured has been confined to a nursing care facility (as defined in the ADB rider) for at least 180 consecutive days and is expected to remain in such a facility for the remainder of his or her life. There is no additional charge for this rider. However, an administrative charge, currently $100 and not to exceed $250, will be deducted from the accelerated death benefit amount. TAX CONSEQUENCES OF THE ADB RIDER. The federal income tax consequences associated with adding the ADB rider or receiving the accelerated death benefit are uncertain. You should consult a tax adviser before adding the ADB rider to your Policy or requesting an accelerated death benefit. AMOUNT OF THE ACCELERATED DEATH BENEFIT. The ADB rider provides for a minimum accelerated death benefit payment of $10,000 and a maximum benefit payment equal to 75% of the eligible death benefit (as defined below) less 25% of any indebtedness. The ADB rider also restricts the total of the accelerated death benefits paid from all life insurance policies issued to you by us and our affiliates to $250,000. We may increase this $250,000 maximum to reflect inflation. 47 52 ELIGIBLE DEATH BENEFIT MEANS: the insurance proceeds payable under the Policy if the insured died at the time we approve a claim for an accelerated death benefit, MINUS 1. Any premium refund payable at death if the insured died at that time; and 2. Any insurance payable under the terms of any other rider.
You may submit written notice to request only one accelerated death benefit payment (except to pay premiums and policy loan interest). There are no restrictions on your use of the benefit. You may elect to receive the accelerated death benefit payment in a lump sum or in 12 or 24 equal monthly installments. If installments are elected and the insured dies before all of the payments have been made, the present value (at the time of the insured's death) of the remaining payments and the remaining insurance proceeds at death under the Policy will be paid to the beneficiary in a lump sum. CONDITIONS FOR RECEIPT OF THE ACCELERATED DEATH BENEFIT. To receive an accelerated death benefit payment, the Policy must be in force and you must submit written notice, "due proof of eligibility," and a completed claim form to us. Due proof of eligibility means a written certification (described more fully in the ADB rider) in a form acceptable to us from a treating physician (as defined in the ADB rider) stating that the insured has a terminal illness or is expected to be permanently confined to a nursing care facility. We may request additional medical information from the insured's physician and/or may require an independent physical examination (at our expense) before approving the claim for payment of the accelerated death benefit. We will not approve a claim for an accelerated death benefit payment if: 1. The Policy is assigned in whole or in part; 2. If the terminal illness or permanent confinement to a nursing care facility is the result of intentionally self-inflicted injury; or 3. If you are required to elect the payment in order to meet the claims of creditors or to obtain a government benefit. OPERATION OF THE ADB RIDER. The ADB rider provides that the accelerated death benefit be made in the form of a policy loan up to the amount of the maximum loan available under the Policy at the time the claim is approved. Therefore, a request for an accelerated death benefit payment in an amount less than or equal to the maximum loan available at that time will result in a policy loan being made in the amount of the requested benefit. This policy loan operates as would any loan under the Policy. See "Loans." To the extent that the amount of a requested accelerated death benefit payment exceeds the maximum available loan amount, the benefit will be advanced to you and a lien will be placed on the death benefit payable under the Policy (the "death benefit lien") in the amount of this excess. Under the ADB rider, interest will accrue daily, at a rate determined as described in the ADB rider, on the amount of this lien, and upon the death of the insured the amount of the lien and accrued interest thereon will be subtracted from the amount of insurance proceeds payable at death. EFFECT ON EXISTING POLICY. The insurance proceeds otherwise payable at the time of an insured's death will be reduced by the amount of any death benefit lien and accrued interest thereon. If you make a request for a surrender, a policy loan, or a partial withdrawal, the net cash surrender value and Loan Account value will be reduced by the amount of any outstanding death benefit lien plus accrued interest. Therefore, depending upon the size of the death benefit lien, this may result in the net cash surrender value and the Loan Account value being reduced to zero. Premiums and policy loan interest must be paid when due. However, if requested with the accelerated death benefit claim, future premiums and policy loan interest may be paid through additional accelerated death benefits. If future premiums and policy loan interest are to be paid through additional accelerated death benefits, periodic planned premiums and policy loan interest will be paid in this manner automatically. 48 53 In addition to a lapse under the applicable provisions of the Policy, the Policy will also terminate on any policy anniversary when the death benefit lien exceeds the insurance proceeds at death. TERMINATION OF THE ADB RIDER. The ADB rider will terminate on the earliest of: (1) our receipt of your written notice requesting termination of the rider; (2) surrender or other termination of the Policy; or (3) the policy anniversary when the insurance proceeds payable at death on such policy anniversary is less than or equal to zero. ADDITIONAL INSURANCE BENEFIT RIDER The Additional Insurance Benefit rider ("AIB rider") provides an additional death benefit payable on the death of the insured without increasing the Policy's face amount. The AIB rider may not be available in all states. The additional death benefit under the AIB rider is: a. the face amount plus the rider coverage amount less the Policy's death benefit (if Death Benefit Option A is in effect); or b. the face amount plus the rider coverage amount plus the policy account value less the death benefit (if Death Benefit Option B is in effect). Please note the following about the AIB rider: -- The AIB rider may be canceled separately from the Policy (i.e., it can be canceled without causing the Policy to be canceled or to lapse). The AIB rider will terminate on the earliest of: (1) our receipt of your written notice requesting termination of the rider; (2) surrender or other termination of the Policy; or (3) the policy anniversary nearest the insured's attained age 100. -- The AIB rider has a cost of insurance charge that is deducted from the policy account value as part of the monthly deduction. -- If you change from Death Benefit Option A to Death Benefit Option B, we will first decrease the Policy's face amount and then the rider coverage amount by the policy account value. See "Death Benefit -- Changing Death Benefit Options." -- If Death Benefit Option A is in effect and you make a partial withdrawal, we will first decrease the Policy's face amount and then the rider coverage amount by the amount withdrawn (including the partial withdrawal fee). See "Surrenders and Partial Withdrawals -- Partial Withdrawals." -- The AIB rider has no cash or loan value. -- The AIB rider has no surrender charge, additional surrender charge, or premium expense charge. -- Since there is no surrender charge for decreasing the rider coverage amount, such a decrease may be less expensive than a decrease of the same size in the face amount of the Policy (if the face amount decrease would be subject to a surrender charge). But, continuing coverage on such an increment of Policy face amount may have a cost of insurance charge that is higher than the same increment of coverage amount under the rider. You should consult your agent before buying an AIB rider, and before deciding whether to decrease Policy face amount or AIB rider coverage amount. -- After the first policy year and subject to certain conditions, you may increase or decrease the rider coverage amount separately from the Policy's face amount (and the Policy's face amount may be increased or decreased without affecting the rider coverage amount). -- To comply with the maximum premium limitations under the Code, insurance coverage provided by an AIB rider is treated as part of the Policy's face amount (for discussion of the tax status of the Policy, see "Federal Tax Considerations"). 49 54 OTHER RIDERS In addition to the Accelerated Death Benefit rider and Additional Insurance Benefit rider, the following riders offering supplemental benefits are available under the Policy. Most of these riders are subject to age and underwriting requirements and, unless otherwise indicated, must be purchased when the Policy is issued. We deduct any monthly charges for these riders from policy account value as part of the monthly deduction. These riders (which are summarized below) provide fixed benefits that do not vary with the investment performance of the Separate Account. Your agent can help you determine whether certain of the riders are suitable for you. These riders may not be available in all states. Please contact us for further details. -- CHANGE OF INSURED: This rider permits you to change the insured, subject to certain conditions and evidence of insurability. The Policy's face amount will remain the same, and the monthly deduction for the cost of insurance and any other benefits provided by rider will be adjusted for the attained age and premium class of the new insured as of the effective date of the change. As the change of an insured is generally a taxable event, you should consult a tax advisor before making such a change. -- CHILDREN'S TERM INSURANCE: This rider provides level term insurance on each of the insured's dependent children, until the earliest of: (1) the first policy processing day after our receipt of your written notice requesting termination of the rider; (2) surrender or other termination of the Policy; (3) the child's 25th birthday; or (4) the policy anniversary nearest the insured's 65th birthday. Upon expiration of the term insurance on the life of a child and subject to certain conditions, it may be converted without evidence of insurability to a whole life policy providing a level face amount of insurance and a level premium. The face amount of the new policy may be up to 5 times the amount of the term insurance in force on the expiration date. The rider is issued to provide between $5,000 and $15,000 of term insurance on each insured child. Each insured child under this rider will have the same amount of insurance. This rider must be selected at the time of application for the Policy or upon an increase in face amount. -- CONVERTIBLE TERM LIFE INSURANCE: This rider provides term insurance on an additional insured ("other insured"). This rider will terminate on the earliest of: (1) our receipt of your written notice requesting termination of the rider; (2) surrender or other termination of the Policy; (3) the policy anniversary nearest the other insured's attained age 100; or (4) exercise of the Policy Split Option Rider (if applicable). If the Policy is extended by the Final Policy Date Extension rider, this rider will terminate on the original final policy date. This rider and the Guaranteed Minimum Death Benefit rider may not be issued on the same Policy. -- DISABILITY WAIVER BENEFIT: This rider provides that in the event of the insured's total disability (as defined in the rider), which begins while the rider is in effect and which continues for at least 6 months, we will apply a premium payment to the Policy on each policy processing day during the first 5 policy years while the insured is totally disabled (the amount of the payment will be based on the minimum annual premium). We will also waive all monthly deductions due after the commencement of and during the continuance of the total disability after the first 5 policy years. This rider terminates on the earliest of: (1) the first policy processing day after our receipt of your written notice requesting termination of the rider; (2) surrender or other termination of the Policy; or (3) the policy anniversary nearest the insured's attained age 60 (except for benefits for a disability which began before that policy anniversary). -- DISABILITY WAIVER OF PREMIUM BENEFIT: This rider provides that, in the event of the insured's total disability before attained age 60 and continuing for at least 180 days, we will apply a premium payment to the Policy on each policy processing day prior to insured's attained age 65 and while the insured remains totally disabled. At the time of application, a monthly benefit amount is selected by you. This amount is generally intended to reflect the amount of the premiums expected to be paid monthly. In the event of insured's total disability, the amount of the premium payment applied on each policy processing day will be the lesser of: (a) the monthly benefit amount; or 50 55 (b) the monthly average of the premium payments less partial withdrawals for the Policy since its policy date. You cannot elect this rider and another disability waiver benefit rider with the same Policy. -- FINAL POLICY DATE EXTENSION: This rider extends the final policy date 20 years past the original final policy date. This benefit may be added only on or after the anniversary nearest the insured's 90th birthday. There is no additional charge for this benefit. The death benefit after the original final policy date will be the policy account value. All other riders in effect on the original final policy date will terminate on the original final policy date. Adding this benefit and/or continuing the Policy beyond the insured's attained age 100 may have tax consequences and you should consult a tax adviser before doing so. -- GUARANTEED MINIMUM DEATH BENEFIT: This rider provides a guarantee that, if the net cash surrender value is not sufficient to cover the monthly deductions, and the minimum guarantee premium has been paid, the Policy will not lapse prior to the end of the death benefit guarantee period (as defined in the rider). If this rider is added, the monthly deduction will be increased by $0.01 per every $1,000 of face amount in force under the Policy. The rider and the additional monthly deduction terminate on the earliest of: (1) our receipt of your written notice requesting termination of the rider; (2) surrender or other termination of the Policy; or (3) expiration of the death benefit guarantee period. This rider and the Convertible Term Life Insurance rider may not be issued on the same Policy. PERFORMANCE DATA - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- In order to demonstrate how the actual investment performance of the portfolios could have affected the death benefit, policy account value, and net cash surrender value of the Policy, we may provide hypothetical illustrations using the actual investment performance of each portfolio since its inception. THESE HYPOTHETICAL ILLUSTRATIONS ARE DESIGNED TO SHOW THE PERFORMANCE THAT COULD HAVE RESULTED IF THE POLICY HAD BEEN IN EXISTENCE DURING THE PERIOD ILLUSTRATED AND ARE NOT INDICATIVE OF FUTURE PERFORMANCE. The values we illustrate for death benefit, policy account value, and net cash surrender value take into account all applicable charges and deductions from the Policy (current and guaranteed), the Separate Account and the portfolios. We have not deducted premium taxes or charges for any riders. These charges would lower the performance figures significantly if reflected. ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SALE OF THE POLICIES The Policy will be sold by individuals who are licensed as our life insurance agents and appointed by us and who are also registered representatives of 1717, or registered representatives of a broker-dealer having a selling agreement with 1717, or registered representatives of a broker-dealer having a selling agreement with these broker-dealers. 1717 is located at Christiana Executive Campus, P.O. Box 15626, Wilmington, Delaware 19850, is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 as a broker-dealer, and is a member of the National Association of Securities Dealers, Inc. 1717 was organized under the laws of Pennsylvania on January 22, 1969 as an indirect wholly owned subsidiary of Provident Mutual. 1717 retains no compensation as principal underwriter of the Policies. We decide the insurance underwriting, the determination of premium class, and whether to accept or reject an application. 1717 also may reject an application if the Policy applied for is unsuitable. During the first policy year, the maximum sales commission payable to our agents or other registered representatives will be approximately 91% of premiums paid up to a specified amount, and 2% of premiums paid in excess of that amount. During policy years 2 through 10, the maximum sales 51 56 commission will not be more than 2% of premiums paid, and after policy year 10, the maximum sales commission will be 0% of premiums paid. Further, for each premium received within 10 years following an increase in face amount, a commission on that premium will be paid up to the specified amount for the increase in each year; the commission will be calculated using the commission rates for the corresponding policy year. Expense allowances and bonuses may also be paid, and agents may receive annual renewal compensation of up to 0.25% of the unloaned policy account value. Compensation may be paid in the form of non-cash compensation, subject to applicable regulatory requirements. In some circumstances and to the extent permitted by applicable regulatory requirements, 1717 may reimburse certain sales and marketing expenses or pay other forms of special compensation to selling broker-dealers. Agents may be required to return first year commission (less the deferred sales charge) if the Policy is not continued through the first policy year. POTENTIAL CONFLICTS OF INTEREST In addition to the Separate Account, the portfolios may sell shares to other separate investment accounts established by other insurance companies to support variable annuity contracts and variable life insurance policies or qualified retirement plans. It is possible that, in the future, it may become disadvantageous for variable life insurance separate accounts and variable annuity separate accounts to invest in the portfolios simultaneously. Although neither we nor the portfolios currently foresee any such disadvantages, either to variable life insurance policy owners or to variable annuity contract owners, each portfolio's Board of Directors (Trustees) will monitor events in order to identify any material conflicts between the interests of these variable life insurance policy owners and variable annuity contract owners, and will determine what action, if any, it should take. This action could include the sale of portfolio shares by one or more of the separate accounts, which could have adverse consequences. Material conflicts could result from, for example: (1) changes in state insurance laws; (2) changes in Federal income tax laws; or (3) differences in voting instructions between those given by variable life insurance policy owners and those given by variable annuity contract owners. If a portfolio's Board of Directors (Trustees) were to conclude that separate portfolios should be established for variable life insurance and variable annuity separate accounts, we will bear the attendant expenses, but variable life insurance policy owners and variable annuity contract owners would no longer have the economies of scale resulting from a larger combined portfolio. The portfolios may also sell shares directly to certain pension and retirement plans qualifying under Section 401 of the Code. As a result, there is a possibility that a material conflict may arise between the interests of owners of this Policy or other policies or contracts (including policies issued by other companies), and such retirement plans or participants in such retirement plans. In the event of any such material conflicts, we will consider what action may be appropriate, including removing the portfolio as an investment option under the Policies or replacing the portfolio with another portfolio. CHANGES TO THE SEPARATE ACCOUNT Where permitted by applicable law, we reserve the right to make certain changes to the structure and operation of the Separate Account, including, among others, the right to: 1. Remove, combine, or add Subaccounts and make the new Subaccounts available to you at our discretion; 2. Transfer assets supporting the Policies from one Subaccount to another or from the Separate Account to another separate account; 3. Combine the Separate Account with other separate accounts, and/or create new separate accounts; 52 57 4. Deregister the Separate Account under the Investment Company Act of 1940, or operate the Separate Account as a management investment company under the Investment Company Act of 1940, or as any other form permitted by law; and 5. Modify the provisions of the Policy to comply with applicable law. We will not make any such changes without receiving any necessary approval of the Securities and Exchange Commission and applicable state insurance departments. We will notify you of any changes. STANDARD & POOR'S Standard & Poor's(R), S&P 500(R), Standard & Poor's 500 and 500 are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by PLACA and the Market Street Fund, Inc. ("Market Street"). Neither the Policy nor the Equity 500 Index Portfolio is sponsored, endorsed, sold or promoted by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no representation or warranty, express or implied, to the owners of the Policy and the Equity 500 Index Portfolio or any member of the public regarding the advisability of investing in securities generally or in the Policy and the Equity 500 Index Portfolio particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to PLACA and Market Street is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index which is determined, composed and calculated by S&P without regard to PLACA, Market Street, the Policy, or the Equity 500 Index Portfolio. S&P has no obligation to take the needs of PLACA, Market Street, or the owners of the Policy or the Equity 500 Index Portfolio into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the Policy or the Equity 500 Index Portfolio or the timing of the issuance or sale of the Policy or the Equity 500 Index Portfolio or in the determination or calculation of the equation by which the Policy or the Equity 500 Index Portfolio are to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the Policy or the Equity 500 Index Portfolio. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY PLACA, MARKET STREET, OWNERS OF THE POLICY AND THE EQUITY 500 INDEX PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS Policies may be acquired in conjunction with employee benefit plans ("EBS Policies"), including the funding of qualified pension plans meeting the requirements of Section 401 of the Code. For EBS Policies, the maximum mortality rates used to determine the monthly cost of insurance charge are based on the Commissioners' 1980 Standard Ordinary Mortality Tables NB and SB. Under these tables, mortality rates are the same for male and female insureds of a particular attained age and premium class. See "Charges and Deductions -- Monthly Deduction." Illustrations reflecting the premiums and charges for EBS Policies will be provided upon request to purchasers of these Policies. There is no provision for misstatement of sex in the EBS Policies. Also, the rates used to determine the amount payable under a particular settlement option will be the same for male and female insureds. See "Death Benefit -- Settlement Options." 53 58 LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES In 1983, the United States Supreme Court held in Arizona Governing Committee v. Norris that optional annuity benefits provided under an employee's deferred compensation plan could not, under Title VII of the Civil Rights Act of 1964, vary between men and women on the basis of sex. In that case, the Supreme Court applied its decision only to benefits derived from contributions made on or after August 1, 1983. Subsequent decisions of lower federal courts indicate that, in other factual circumstances, the Title VII prohibition of sex-distinct benefits may apply at an earlier date. In addition, legislative, regulatory, or decisional authority of some states may prohibit the use of sex-distinct mortality tables under certain circumstances. The Policies offered by this prospectus other than Policies issued in states which require "unisex" policies (currently Montana) and EBS Policies, are based upon actuarial tables which distinguish between men and women and, thus, the Policy provides different benefits to men and women of the same age. Accordingly, employers and employee organizations should consider, in consultation with legal counsel, the impact of these authorities on any employment-related insurance or benefits program before purchasing the Policy and in determining whether an EBS Policy is appropriate. VOTING PORTFOLIO SHARES Even though we are the legal owner of the portfolio shares held in the Subaccounts, and have the right to vote on all matters submitted to shareholders of the portfolios, we will vote our shares only as owners instruct, so long as such action is required by law. Before a vote of a portfolio's shareholders occurs, you will receive voting materials. We will ask you to instruct us on how to vote and to return your proxy to us in a timely manner. You will have the right to instruct us on the number of portfolio shares that corresponds to the amount of policy account value you have in that portfolio (as of a date set by the portfolio). If we do not receive voting instructions on time from some owners, we will vote those shares in the same proportion as the timely voting instructions we receive. Should Federal securities laws, regulations, or interpretations change, we may elect to vote portfolio shares in our own right. If required by state insurance officials, or if permitted under Federal regulation, under certain circumstances we may disregard certain owner voting instructions. If we ever disregard voting instructions, we will send you a summary in the next annual report to owners advising you of the action and the reasons we took this action. LEGAL MATTERS Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on certain legal matters relating to the Policy under the Federal securities laws. James G. Potter, Jr., General Counsel of Provident Mutual and the Legal Officer of PLACA, has provided advice on certain matters relating to the laws of Delaware regarding the Policies and our issuance of the Policies. LEGAL PROCEEDINGS Provident Mutual and its subsidiaries, like other life insurance companies, are involved in lawsuits, including class action lawsuits. In some class action and other lawsuits involving insurers, substantial damages have been sought and/or material settlement payments have been made. Although the outcome of any litigation cannot be predicted with certainty, Provident Mutual and PLACA believe that, as of the date of this prospectus, there are no pending or threatened lawsuits that will have a materially adverse impact on them or the Separate Account. EXPERTS The Financial Statements have been included in this prospectus in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. 54 59 Actuarial matters included in the prospectus have been examined by Scott V. Carney, FSA, MAAA, Vice President and Actuary of Provident Mutual, as stated in his opinion filed as an exhibit to the Registration Statement. FINANCIAL STATEMENTS Our financial statements and the financial statements of the Separate Account appear at the end of this prospectus. Our financial statements should be distinguished from the Separate Account's financial statements and you should consider our financial statements only as bearing upon our ability to meet our obligations under the Policies. ADDITIONAL INFORMATION ABOUT THE COMPANY We are a stock life insurance company and a wholly owned subsidiary of Provident Mutual, which was chartered by the Commonwealth of Pennsylvania in 1865. We are subject to regulation by the Insurance Department of the State of Delaware, as well as by the insurance departments of all other states and jurisdictions in which we do business. We are engaged in the business of issuing life insurance policies and annuity contracts, and we are currently licensed to do business in 49 states and the District of Columbia. Our Service Center is located at 300 Continental Drive, Newark, Delaware 19713. We submit annual statements on our operations and finances to insurance officials in all states and jurisdictions in which we do business. We have filed the Policy described in this prospectus with insurance officials in those jurisdictions in which the Policy is sold. We intend to reinsure a portion of the risks assumed under the Policies. PLACA'S EXECUTIVE OFFICERS AND DIRECTORS We are governed by a board of directors. The following table sets forth the name, address, and principal occupation during the past 5 years of each of our executive officers and directors. Unless otherwise noted, each person's address is Provident Mutual Life Insurance Company, 1000 Chesterbrook Boulevard, Berwyn, Pennsylvania 19312. BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
NAME POSITION WITH PLACA PRINCIPAL OCCUPATION DURING PAST 5 YEARS - ---- ------------------- ---------------------------------------- Robert W. Kloss Director and President 1996 to present -- President and Chief Executive Officer of Provident Mutual Life Insurance Company; 1994 to 1996 -- President and Chief Operating Officer of Provident Mutual Life Insurance Company James G. Potter, Jr Director, Secretary 12/97 to present -- Executive Vice President, and Legal Officer General Counsel & Secretary of Provident Mutual Life Insurance Company; 6/89 to 11/97 -- Chief Legal Officer of Prudential Banks James D. Kestner Director 1994 to present -- Vice President of Provident Mutual Life Insurance Company Sarah C. Lange Director 1983 to present -- Senior Vice President and Chief Investment Officer of Provident Mutual Life Insurance Company Alan F. Hinkle Director, Vice 1996 to present -- Executive Vice President and President and Actuary Chief Actuary of Provident Mutual Life Insurance Company; 1974 to 1996 -- Vice President and Individual Actuary of Provident Mutual Life Insurance Company
55 60
NAME POSITION WITH PLACA PRINCIPAL OCCUPATION DURING PAST 5 YEARS - ---- ------------------- ---------------------------------------- Joan C. Tucker* Director and 1996 to present -- Executive Vice President, Vice President Corporate Operations at Provident Mutual Life Insurance Company; 1996 -- Senior Vice President, Insurance Operations of Provident Mutual Life Insurance Company; 1993 to 1996 -- Vice President Individual Insurance Operations at Provident Mutual Life Insurance Company Mary Lynn Finelli Director 1996 to present -- Executive Vice President and Chief Financial Officer of Provident Mutual Life Insurance Company; 1986 to 1996 -- Vice President and Controller of Provident Mutual Life Insurance Company Mehran Assadi* Director 1998 to present -- Executive Vice President and Chief Information Officer of Provident Mutual Life Insurance Company; 1982-1998 -- Vice President, Technology and Business Development at St. Paul Company Linda M. Springer Director 1996 to present -- Vice President and Controller of Provident Mutual Life Insurance Company; 1995 to 1996 -- Assistant Vice President and Actuary of Provident Mutual Life Insurance Company Stephen L. White Vice President and 1995 to present -- Vice President and Actuary of Actuary Provident Mutual Life Insurance Company Michael Funck Financial Reporting 1995 to present -- Manager, Finance and Officer Accounting of Provident Mutual Life Insurance Company Rosanne Gatta Treasurer 1994 to present -- Vice President and Treasurer of Provident Mutual Life Insurance Company
* The address is 300 Continental Drive, Newark, Delaware 19713 We hold the Separate Account's assets physically segregated and apart from the general account. We maintain records of all purchases and sale of portfolio shares by each of the Subaccounts. A fidelity bond in the amount of $10 million per occurrence and $20 million in the aggregate covering our officers and employees has been issued by Reliance Insurance Company. 56 61 FINANCIAL STATEMENTS
PAGE ---- Providentmutual Variable Life Separate Account Report of Independent Accountants...................... F-2 Statements of Assets and Liabilities, December 31, 1999.................................................. F-3 Statements of Operations for the Year Ended December 31, 1999.............................................. F-8 Statements of Operations for the Year Ended December 31, 1998.............................................. F-13 Statements of Operations for the Year Ended December 31, 1997.............................................. F-18 Statements of Changes in Net Assets for the Year Ended December 31, 1999..................................... F-22 Statements of Changes in Net Assets for the Year Ended December 31, 1998..................................... F-27 Statements of Changes in Net Assets for the Year Ended December 31, 1997..................................... F-32 Notes to Financial Statements.......................... F-36 Providentmutual Life and Annuity Company of America Report of Independent Accountants...................... F-56 Statements of Financial Condition as of December 31, 1999 and 1998......................................... F-57 Statements of Operations for the Years Ended December 31, 1999, 1998, and 1997.............................. F-58 Statements of Equity for the Years Ended December 31, 1999, 1998, and 1997.................................. F-59 Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997.............................. F-60 Notes to Financial Statements.......................... F-61
F-1 62 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Report of Independent Accountants - -------------------------------------------------------------------------------- To the Policyholders and Board of Directors of Providentmutual Life and Annuity Company of America: In our opinion, the accompanying statements of assets and liabilities of the Providentmutual Variable Life Separate Account (comprising twenty-eight subaccounts, hereafter collectively referred to as the "Separate Account") and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of the Separate Account at December 31, 1999, the results of its operations and changes in its net assets for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the management of the Separate Account; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at December 31, 1999 by correspondence with the transfer agents, provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Philadelphia, Pennsylvania February 23, 2000 F-2 63 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Assets and Liabilities, December 31, 1999 - --------------------------------------------------------------------------------
MONEY AGGRESSIVE GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Investment in the Market Street Fund, Inc., at market value: Growth Portfolio........................... $3,904,672 Money Market Portfolio..................... $7,210,373 Bond Portfolio............................. $1,324,837 Managed Portfolio.......................... $1,164,717 Aggressive Growth Portfolio................ $2,352,333 International Portfolio.................... $3,347,428 Dividends receivable......................... 31,273 Receivable from Providentmutual Life and Annuity Company of America................. 40,427 ---------- ---------- ---------- ---------- ---------- ---------- NET ASSETS................................... $3,904,672 $7,282,073 $1,324,837 $1,164,717 $2,352,333 $3,347,428 ========== ========== ========== ========== ========== ========== Held for the benefit of policyholders........ $3,852,944 $7,255,348 $1,290,648 $1,048,734 $2,301,469 $3,299,561 Attributable to Providentmutual Life and Annuity Company of America................. 51,728 26,725 34,189 115,983 50,864 47,867 ---------- ---------- ---------- ---------- ---------- ---------- $3,904,672 $7,282,073 $1,324,837 $1,164,717 $2,352,333 $3,347,428 ========== ========== ========== ========== ========== ==========
See accompanying notes to financial statements F-3 64 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Assets and Liabilities, December 31, 1999 - --------------------------------------------------------------------------------
ALL PRO LARGE ALL PRO LARGE ALL PRO SMALL ALL PRO SMALL CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - --------------------------------------------------------------------------------------------------------------------------- ASSETS Investment in the Market Street Fund, Inc., at market value: All Pro Large Cap Growth Portfolio........................ $1,828,788 All Pro Large Cap Value Portfolio......................... $485,162 All Pro Small Cap Growth Portfolio........................ $1,043,448 All Pro Small Cap Value Portfolio......................... $573,321 ---------- -------- ---------- -------- NET ASSETS.................................................. $1,828,788 $485,162 $1,043,448 $573,321 ========== ======== ========== ======== Held for the benefit of policyholders....................... $1,747,812 $459,906 $ 998,896 $553,167 Attributable to Providentmutual Life and Annuity Company of America................................................... 80,976 25,256 44,552 20,154 ---------- -------- ---------- -------- $1,828,788 $485,162 $1,043,448 $573,321 ========== ======== ========== ========
See accompanying notes to financial statements F-4 65 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Assets and Liabilities, December 31, 1999 - --------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Investment in the Variable Insurance Products Fund, at market value: Equity-Income Portfolio..................... $12,550,381 Growth Portfolio............................ $19,190,345 High Income Portfolio....................... $2,443,033 Overseas Portfolio.......................... $6,621,461 Investment in the Variable Insurance Products Fund II, at market value: Asset Manager Portfolio..................... $3,357,990 Index 500 Portfolio......................... $21,344,259 Receivable from Providentmutual Life and Annuity Company of America.................. 48,000 ----------- ----------- ---------- ---------- ---------- ----------- NET ASSETS.................................... $12,550,381 $19,190,345 $2,443,033 $6,621,461 $3,357,990 $21,392,259 =========== =========== ========== ========== ========== =========== Held for the benefit of policyholders......... $12,492,543 $19,134,591 $2,401,393 $6,561,904 $3,305,700 $21,350,911 Attributable to Providentmutual Life and Annuity Company of America.................. 57,838 55,754 41,640 59,557 52,290 41,348 ----------- ----------- ---------- ---------- ---------- ----------- $12,550,381 $19,190,345 $2,443,033 $6,621,461 $3,357,990 $21,392,259 =========== =========== ========== ========== ========== ===========
See accompanying notes to financial statements F-5 66 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Assets and Liabilities, December 31, 1999 - --------------------------------------------------------------------------------
FIDELITY Neuberger Neuberger INVESTMENT FIDELITY BERMAN LIMITED BERMAN GRADE BOND CONTRAFUND(R) MATURITY BOND PARTNERS SUBACCOUNT Subaccount Subaccount Subaccount - ------------------------------------------------------------------------------------------------------------------------ ASSETS Investment in the Variable Insurance Products Fund II, at market value: Investment Grade Bond Portfolio........................... $1,766,878 Contrafund(R) Portfolio................................... $10,289,770 Investment in the Neuberger Berman Advisers Management Trust, at market value: Limited Maturity Bond Portfolio........................... $1,091,364 Partners Portfolio........................................ $2,525,724 ---------- ----------- ---------- ---------- NET ASSETS.................................................. $1,766,878 $10,289,770 $1,091,364 $2,525,724 ========== =========== ========== ========== Held for the benefit of policyholders....................... $1,731,973 $10,232,384 $1,065,378 $2,427,032 Attributable to Providentmutual Life and Annuity Company of America................................................... 34,905 57,386 25,986 98,692 ---------- ----------- ---------- ---------- $1,766,878 $10,289,770 $1,091,364 $2,525,724 ========== =========== ========== ==========
See accompanying notes to financial statement F-6 67 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Assets and Liabilities, December 31, 1999 - --------------------------------------------------------------------------------
VAN ECK VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - --------------------------------------------------------------------------------------------------------------------------- ASSETS Investment in the Van Eck Worldwide Insurance Trust, at market value: Van Eck Worldwide Bond Portfolio................... $529,057 Van Eck Worldwide Hard Assets Portfolio............ $577,999 Van Eck Worldwide Emerging Markets Portfolio....... $2,145,910 Van Eck Worldwide Real Estate Portfolio............ $152,847 Investment in the Alger American Fund, at market value: Alger American Small Capitalization Portfolio...... $5,744,229 -------- -------- ---------- -------- ---------- NET ASSETS........................................... $529,057 $577,999 $2,145,910 $152,847 $5,744,229 ======== ======== ========== ======== ========== Held for the benefit of policyholders................ $497,375 $540,198 $2,121,998 $131,766 $5,701,476 Attributable to Providentmutual Life and Annuity Company of America................................. 31,682 37,801 23,912 21,081 42,753 -------- -------- ---------- -------- ---------- $529,057 $577,999 $2,145,910 $152,847 $5,744,229 ======== ======== ========== ======== ==========
See accompanying notes to financial statements F-7 68 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1999 - --------------------------------------------------------------------------------
MONEY AGGRESSIVE GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends....................................... $ 9,498 $281,219 $ 17,985 $ 4,783 $ 9,548 $ 23,987 EXPENSES Mortality and expense risks..................... 21,440 38,521 8,454 5,758 12,145 16,572 -------- -------- -------- -------- -------- -------- Net investment (loss) income.................... (11,942) 242,698 9,531 (975) (2,597) 7,415 -------- -------- -------- -------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain distributions reinvested.......... 55,482 14,131 32,620 236,787 123,072 Net realized gain (loss) from redemption of investment shares............................. 51,110 (4,307) 12,101 10,420 25,236 -------- -------- -------- -------- -------- -------- Net realized gain on investments................ 106,592 9,824 44,721 247,207 148,308 -------- -------- -------- -------- -------- -------- Net unrealized appreciation (depreciation) of investments: Beginning of year............................. 197,030 26,571 38,577 133,217 65,845 End of year................................... 158,461 (44,027) (24,425) 190,731 606,265 -------- -------- -------- -------- -------- -------- Net unrealized (depreciation) appreciation of investments during the year................... (38,569) (70,598) (63,002) 57,514 540,420 -------- -------- -------- -------- -------- -------- Net realized and unrealized gains (losses) on investments................................... 68,023 (60,774) (18,281) 304,721 688,728 -------- -------- -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations............................... $ 56,081 $242,698 $(51,243) $(19,256) $302,124 $696,143 ======== ======== ======== ======== ======== ========
See accompanying notes to financial statements F-8 69 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1999 - --------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO LARGE ALL PRO LARGE SMALL SMALL CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends................................................... $ 54 $ 1,599 $ 594 EXPENSES Mortality and expense risks................................. 6,892 2,211 $ 2,993 2,592 -------- -------- -------- -------- Net investment loss......................................... (6,838) (612) (2,993) (1,998) -------- -------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain distributions reinvested...................... Net realized gain from redemption of investment shares...... 59,937 21,529 96,011 2,248 -------- -------- -------- -------- Net realized gain on investments............................ 59,937 21,529 96,011 2,248 -------- -------- -------- -------- Net unrealized appreciation (depreciation) of investments: Beginning of year......................................... 31,368 21,256 49,117 22,620 End of year............................................... 224,085 (5,174) 372,314 (5,515) -------- -------- -------- -------- Net unrealized appreciation (depreciation) of investments during the year........................................... 192,717 (26,430) 323,197 (28,135) -------- -------- -------- -------- Net realized and unrealized gains (losses) on investments... 252,654 (4,901) 419,208 (25,887) -------- -------- -------- -------- Net increase (decrease) in net assets resulting from operations................................................ $245,816 $ (5,513) $416,215 $(27,885) ======== ======== ======== ========
See accompanying notes to financial statements F-9 70 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1999 - --------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME Dividends........................................ $ 148,010 $ 20,603 $ 184,305 $ 54,422 $ 79,081 $ 132,241 EXPENSES Mortality and expense risks...................... 73,008 91,540 14,505 29,448 18,061 106,942 ---------- ---------- --------- ---------- -------- ---------- Net investment income (loss)..................... 75,002 (70,937) 169,800 24,974 61,020 25,299 ---------- ---------- --------- ---------- -------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain distributions reinvested........... 327,180 1,295,428 6,890 87,778 100,169 89,735 Net realized gain (loss) from redemption of investment shares.............................. 244,315 278,673 (27,226) 134,635 21,574 575,621 ---------- ---------- --------- ---------- -------- ---------- Net realized gain (loss) on investments.......... 571,495 1,574,101 (20,336) 222,413 121,743 665,356 ---------- ---------- --------- ---------- -------- ---------- Net unrealized appreciation (depreciation) of investments: Beginning of year.............................. 1,077,750 2,627,782 (159,189) 120,843 174,522 2,218,476 End of year.................................... 997,899 5,885,573 (156,577) 1,733,389 284,627 4,625,801 ---------- ---------- --------- ---------- -------- ---------- Net unrealized (depreciation) appreciation of investments during the year.................... (79,851) 3,257,791 2,612 1,612,546 110,105 2,407,325 ---------- ---------- --------- ---------- -------- ---------- Net realized and unrealized gain (loss) on investments.................................... 491,644 4,831,892 (17,724) 1,834,959 231,848 3,072,681 ---------- ---------- --------- ---------- -------- ---------- Net increase in net assets resulting from operations..................................... $ 566,646 $4,760,955 $ 152,076 $1,859,933 $292,868 $3,097,980 ========== ========== ========= ========== ======== ==========
See accompanying notes to financial statements F-10 71 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1999 - --------------------------------------------------------------------------------
FIDELITY Neuberger Neuberger Neuberger Neuberger INVESTMENT FIDELITY BERMAN BERMAN BERMAN LIMITED BERMAN GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND PARTNERS SUBACCOUNT Subaccount Subaccount Subaccount Subaccount Subaccount - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends................................... $ 50,917 $ 28,227 $ 9,406 $ 107,676 $ 51,545 $ 4,019 EXPENSES Mortality and expense risks................. 9,846 48,329 1,113 4,103 6,265 8,634 -------- ---------- -------- --------- -------- -------- Net investment income (loss)................ 41,071 (20,102) 8,293 103,573 45,280 (4,615) -------- ---------- -------- --------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain distributions reinvested...... 15,974 206,999 13,935 6,990 Net realized gain (loss) from redemption of investment shares......................... 790 173,375 (16,493) (112,803) (17,023) 30,465 -------- ---------- -------- --------- -------- -------- Net realized gain (loss) on investments..... 16,764 380,374 (2,558) (112,803) (17,023) 37,455 -------- ---------- -------- --------- -------- -------- Net unrealized appreciation (depreciation) of investments: Beginning of year......................... 55,564 1,044,526 12,499 32,289 5,385 18,863 End of year............................... (26,628) 2,405,959 (14,450) (17,944) -------- ---------- -------- --------- -------- -------- Net unrealized (depreciation) appreciation of investments during the year............ (82,192) 1,361,433 (12,499) (32,289) (19,835) (36,807) -------- ---------- -------- --------- -------- -------- Net realized and unrealized (loss) gain on investments............................... (65,428) 1,741,807 (15,057) (145,092) (36,858) 648 -------- ---------- -------- --------- -------- -------- Net (decrease) increase in net assets resulting from operations................. $(24,357) $1,721,705 $ (6,764) $ (41,519) $ 8,422 $ (3,967) ======== ========== ======== ========= ======== ========
See accompanying notes to financial statements F-11 72 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1999 - --------------------------------------------------------------------------------
AMERICAN VAN ECK VAN ECK CENTURY VP VAN ECK VAN ECK WORLDWIDE WORLDWIDE ALGER AMERICAN CAPITAL WORLDWIDE WORLDWIDE EMERGING REAL SMALL APPRECIATION BOND HARD ASSETS MARKETS ESTATE CAPITALIZATION SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends................................... $ 26,734 $ 4,868 $ 1,545 EXPENSES Mortality and expense risks................. $ 1,619 3,260 2,665 $ 8,384 597 $ 25,644 -------- -------- --------- ---------- -------- ---------- Net investment (loss) income................ (1,619) 23,474 2,203 (8,384) 948 (25,644) -------- -------- --------- ---------- -------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain distributions reinvested...... 11,945 446,274 Net realized gain (loss) from redemption of investment shares......................... 11,508 11,290 (29,183) (146,766) 1,132 61,846 -------- -------- --------- ---------- -------- ---------- Net realized gain (loss) on investments..... 11,508 23,235 (29,183) (146,766) 1,132 508,120 -------- -------- --------- ---------- -------- ---------- Net unrealized (depreciation) appreciation of investments: Beginning of year......................... (51,652) 65,524 (137,564) (424,268) 3,621 164,065 End of year............................... (29,178) (35,662) 775,273 (7,346) 1,355,653 -------- -------- --------- ---------- -------- ---------- Net unrealized appreciation (depreciation) of investments during the year............ 51,652 (94,702) 101,902 1,199,541 (10,967) 1,191,588 -------- -------- --------- ---------- -------- ---------- Net realized and unrealized gain (loss) on investments............................... 63,160 (71,467) 72,719 1,052,775 (9,835) 1,699,708 -------- -------- --------- ---------- -------- ---------- Net increase (decrease) in net assets resulting from operations................. $ 61,541 $(47,993) $ 74,922 $1,044,391 $ (8,887) $1,674,064 ======== ======== ========= ========== ======== ==========
See accompanying notes to financial statements F-12 73 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1998 - --------------------------------------------------------------------------------
MONEY AGGRESSIVE GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends....................................... $ 32,506 $200,082 $51,027 $13,745 $ 10,230 $ 10,981 EXPENSES Mortality and expense risks..................... 13,985 25,182 6,139 2,618 9,880 11,192 -------- -------- ------- ------- -------- -------- Net investment income (loss).................... 18,521 174,900 44,888 11,127 350 (211) -------- -------- ------- ------- -------- -------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain distributions reinvested.......... 215,993 91 17,406 97,659 92,754 Net realized gain from redemption of investment shares........................................ 25,043 10,106 16,185 41,538 7,476 -------- -------- ------- ------- -------- -------- Net realized gain on investments................ 241,036 10,197 33,591 139,197 100,230 -------- -------- ------- ------- -------- -------- Net unrealized appreciation of investments: Beginning of year............................. 172,999 12,860 29,978 155,190 29,510 End of year................................... 197,030 26,571 38,577 133,217 65,845 -------- -------- ------- ------- -------- -------- Net unrealized appreciation (depreciation) of investments during the year................... 24,031 13,711 8,599 (21,973) 36,335 -------- -------- ------- ------- -------- -------- Net realized and unrealized gains on investments................................... 265,067 23,908 42,190 117,224 136,565 -------- -------- ------- ------- -------- -------- Net increase in net assets resulting from operations.................................... $283,588 $174,900 $68,796 $53,317 $117,574 $136,354 ======== ======== ======= ======= ======== ========
See accompanying notes to financial statements F-13 74 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1998 - --------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO LARGE ALL PRO LARGE SMALL SMALL CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends EXPENSES Mortality and expense risks................................. $ 259 $ 304 $ 314 $ 329 ------- ------- ------- ------- Net investment loss......................................... (259) (304) (314) (329) ------- ------- ------- ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain distributions reinvested Net realized loss from redemption of investment shares...... (1,657) (6,212) (9,872) (9,805) ------- ------- ------- ------- Net realized loss on investments............................ (1,657) (6,212) (9,872) (9,805) ------- ------- ------- ------- Net unrealized appreciation of investments: Beginning of year......................................... End of year............................................... 31,368 21,256 49,117 22,620 ------- ------- ------- ------- Net unrealized appreciation of investments during the year...................................................... 31,368 21,256 49,117 22,620 ------- ------- ------- ------- Net realized and unrealized gains on investments............ 29,711 15,044 39,245 12,815 ------- ------- ------- ------- Net increase in net assets resulting from operations........ $29,452 $14,740 $38,931 $12,486 ======= ======= ======= =======
See accompanying notes to financial statements F-14 75 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1998 - --------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME Dividends........................................ $ 81,811 $ 29,841 $ 93,141 $ 40,087 $ 42,970 $ 63,803 EXPENSES Mortality and expense risks...................... 48,070 51,289 10,379 16,730 10,984 54,109 -------- ---------- --------- -------- -------- ---------- Net investment income (loss)..................... 33,741 (21,448) 82,762 23,357 31,986 9,694 -------- ---------- --------- -------- -------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain distributions reinvested........... 291,150 780,585 59,183 118,152 128,911 147,780 Net realized gain from redemption of investment shares......................................... 88,248 127,759 3,646 31,224 30,583 418,425 -------- ---------- --------- -------- -------- ---------- Net realized gain on investments................. 379,398 908,344 62,829 149,376 159,494 566,205 -------- ---------- --------- -------- -------- ---------- Net unrealized appreciation (depreciation) of investments: Beginning of year.............................. 689,708 749,980 92,199 12,760 120,277 762,238 End of year.................................... 1,077,750 2,627,782 (159,189) 120,843 174,522 2,218,476 -------- ---------- --------- -------- -------- ---------- Net unrealized appreciation (depreciation) of investments during the year.................... 388,042 1,877,802 (251,388) 108,083 54,245 1,456,238 -------- ---------- --------- -------- -------- ---------- Net realized and unrealized gain (loss) on investments.................................... 767,440 2,786,146 (188,559) 257,459 213,739 2,022,443 -------- ---------- --------- -------- -------- ---------- Net increase (decrease) in net assets resulting from operations................................ $801,181 $2,764,698 $(105,797) $280,816 $245,725 $2,032,137 ======== ========== ========= ======== ======== ==========
See accompanying notes to financial statements F-15 76 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1998 - --------------------------------------------------------------------------------
FIDELITY Neuberger Neuberger Neuberger & Neuberger INVESTMENT FIDELITY & BERMAN & BERMAN BERMAN LIMITED & BERMAN GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND PARTNERS SUBACCOUNT Subaccount Subaccount Subaccount Subaccount Subaccount - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends................................... $34,930 $ 15,801 $ 10,205 $35,042 EXPENSES Mortality and expense risks................. 5,834 22,599 3,166 $ 10,244 4,092 $ 241 ------- ---------- -------- --------- ------- ------- Net investment income (loss)................ 29,096 (6,798) 7,039 (10,244) 30,950 (241) ------- ---------- -------- --------- ------- ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain distributions reinvested...... 4,144 116,250 71,678 353,563 Net realized gain (loss) from redemption of investment shares......................... 3,572 53,379 (5,814) (27,730) 373 (2,190) ------- ---------- -------- --------- ------- ------- Net realized gain (loss) on investments..... 7,716 169,629 65,864 325,833 373 (2,190) ------- ---------- -------- --------- ------- ------- Net unrealized appreciation of investments: Beginning of year......................... 20,012 204,136 34,081 138,020 13,790 End of year............................... 55,564 1,044,526 12,499 32,289 5,385 18,863 ------- ---------- -------- --------- ------- ------- Net unrealized appreciation (depreciation) of investments during the year............ 35,552 840,390 (21,582) (105,731) (8,405) 18,863 ------- ---------- -------- --------- ------- ------- Net realized and unrealized gain (loss) on investments............................... 43,268 1,010,019 44,282 220,102 (8,032) 16,673 ------- ---------- -------- --------- ------- ------- Net increase in net assets resulting from operations................................ $72,364 $1,003,221 $ 51,321 $ 209,858 $22,918 $16,432 ======= ========== ======== ========= ======= =======
See accompanying notes to financial statements F-16 77 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1998 - --------------------------------------------------------------------------------
AMERICAN VAN ECK CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends................................... $ 3,318 $ 1,970 $ 5,912 EXPENSES Mortality and expense risks................. $ 4,421 3,195 2,120 5,032 $ 64 $ 13,957 -------- ------- --------- --------- ------- -------- Net investment income (loss)................ (4,421) 123 (150) 880 (64) (13,957) -------- ------- --------- --------- ------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain distributions reinvested...... 34,155 48,391 5,255 284,477 Net realized gain (loss) from redemption of investment shares......................... (42,850) 7,111 (45,006) (63,895) (5,674) (7,361) -------- ------- --------- --------- ------- -------- Net realized gain (loss) on investments..... (8,695) 7,111 3,385 (58,640) (5,674) 277,116 -------- ------- --------- --------- ------- -------- Net unrealized appreciation (depreciation) of investments: Beginning of year......................... (36,829) 7,894 (3,949) (165,992) 82,155 End of year............................... (51,652) 65,524 (137,564) (424,268) 3,621 164,065 -------- ------- --------- --------- ------- -------- Net unrealized appreciation (depreciation) of investments during the year............ (14,823) 57,630 (133,615) (258,276) 3,621 81,910 -------- ------- --------- --------- ------- -------- Net realized and unrealized gain (loss) on investments............................... (23,518) 64,741 (130,230) (316,916) (2,053) 359,026 -------- ------- --------- --------- ------- -------- Net increase (decrease) in net assets resulting from operations................. $(27,939) $64,864 $(130,380) $(316,036) $(2,117) $345,069 ======== ======= ========= ========= ======= ========
See accompanying notes to financial statements F-17 78 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1997 - --------------------------------------------------------------------------------
MONEY AGGRESSIVE GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends....................................... $ 17,576 $104,494 $12,984 $ 4,398 $ 4,527 $ 3,778 EXPENSES Mortality and expense risks..................... 6,086 13,586 1,402 898 4,955 5,375 -------- -------- ------- ------- -------- ------- Net investment income (loss).................... 11,490 90,908 11,582 3,500 (428) (1,597) -------- -------- ------- ------- -------- ------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS Realized gain distributions reinvested.......... 64,240 637 898 29,576 Net realized gain from redemption of investment shares........................................ 8,284 4,094 3,520 28,779 4,619 -------- -------- ------- ------- -------- ------- Net realized gain on investments................ 72,524 4,094 4,157 29,677 34,195 -------- -------- ------- ------- -------- ------- Net unrealized appreciation of investments: Beginning of year............................. 53,902 2,198 6,860 42,267 24,229 End of year................................... 172,999 12,860 29,978 155,190 29,510 -------- -------- ------- ------- -------- ------- Net unrealized appreciation of investments during the year............................... 119,097 10,662 23,118 112,923 5,281 -------- -------- ------- ------- -------- ------- Net realized and unrealized gains on investments................................... 191,621 14,756 27,275 142,600 39,476 -------- -------- ------- ------- -------- ------- Net increase in net assets resulting from operations............................... $203,111 $ 90,908 $26,338 $30,775 $142,172 $37,879 ======== ======== ======= ======= ======== =======
See accompanying notes to financial statements F-18 79 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1997 - --------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME Dividends........................................ $ 37,203 $ 16,922 $ 29,332 $ 10,489 $ 27,124 $ 18,761 EXPENSES Mortality and expense risks...................... 23,064 24,779 4,291 7,257 6,126 19,263 -------- -------- -------- -------- -------- -------- Net investment income (loss)..................... 14,139 (7,857) 25,041 3,232 20,998 (502) -------- -------- -------- -------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain distributions reinvested........... 187,050 75,747 3,625 41,640 68,039 38,068 Net realized gain from redemption of investment shares......................................... 56,511 29,405 10,154 24,813 3,869 78,340 -------- -------- -------- -------- -------- -------- Net realized gain on investments................. 243,561 105,152 13,779 66,453 71,908 116,408 -------- -------- -------- -------- -------- -------- Net unrealized appreciation (depreciation) of investments: Beginning of year.............................. 140,032 120,385 17,486 44,125 42,785 130,599 End of year.................................... 689,708 749,980 92,199 12,760 120,277 762,238 -------- -------- -------- -------- -------- -------- Net unrealized appreciation (depreciation) of investments during the year.................... 549,676 629,595 74,713 (31,365) 77,492 631,639 -------- -------- -------- -------- -------- -------- Net realized and unrealized gain on investments.................................... 793,237 734,747 88,492 35,088 149,400 748,047 -------- -------- -------- -------- -------- -------- Net increase in net assets resulting from operations...................... $807,376 $726,890 $113,533 $ 38,320 $170,398 $747,545 ======== ======== ======== ======== ======== ========
See accompanying notes to financial statements F-19 80 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1997 - --------------------------------------------------------------------------------
FIDELITY Neuberger Neuberger Neuberger & INVESTMENT FIDELITY & BERMAN & BERMAN BERMAN LIMITED GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND SUBACCOUNT Subaccount Subaccount Subaccount Subaccount - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME Dividends.............................................. $10,062 $ 2,887 $ 3,239 $ 3,868 EXPENSES Mortality and expense risks............................ 1,476 7,089 1,484 $ 5,067 1,400 ------- -------- ------- -------- ------- Net investment income (loss)........................... 8,586 (4,202) 1,755 (5,067) 2,468 ------- -------- ------- -------- ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain distributions reinvested................. 7,630 8,314 50,230 Net realized gain (loss) from redemption of investment shares............................................... 2,284 25,400 618 5,576 (214) ------- -------- ------- -------- ------- Net realized gain (loss) on investments................ 2,284 33,030 8,932 55,806 (214) ------- -------- ------- -------- ------- Net unrealized appreciation of investments: Beginning of year.................................... 5,863 15,525 1,403 11,488 208 End of year.......................................... 20,012 204,136 34,081 138,020 13,790 ------- -------- ------- -------- ------- Net unrealized appreciation of investments during the year................................................. 14,149 188,611 32,678 126,532 13,582 ------- -------- ------- -------- ------- Net realized and unrealized gain on investments........ 16,433 221,641 41,610 182,338 13,368 ------- -------- ------- -------- ------- Net increase in net assets resulting from operations........................................... $25,019 $217,439 $43,365 $177,271 $15,836 ======= ======== ======= ======== =======
See accompanying notes to financial statements F-20 81 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Operations for the Year Ended December 31, 1997 - --------------------------------------------------------------------------------
AMERICAN VAN ECK CENTURY VP VAN ECK VAN ECK WORLDWIDE ALGER AMERICAN CAPITAL WORLDWIDE WORLDWIDE EMERGING SMALL APPRECIATION BOND HARD ASSETS MARKETS CAPITALIZATION SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME Dividends.............................................. $3,474 $ 4,182 $ 403 EXPENSES Mortality and expense risks............................ $ 3,060 1,180 1,321 2,514 $ 5,530 -------- ------ -------- --------- -------- Net investment income (loss)........................... (3,060) 2,294 2,861 (2,111) (5,530) -------- ------ -------- --------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain distributions reinvested................. 9,129 3,087 29,556 Net realized gain (loss) from redemption of investment shares............................................... (14,973) 483 12,840 12,776 (646) -------- ------ -------- --------- -------- Net realized gain (loss) on investments................ (5,844) 483 15,927 12,776 28,910 -------- ------ -------- --------- -------- Net unrealized appreciation (depreciation) of investments: Beginning of year.................................... (33,973) 2,328 12,095 4,779 (4,261) End of year.......................................... (36,829) 7,894 (3,949) (165,992) 82,155 -------- ------ -------- --------- -------- Net unrealized appreciation (depreciation) of investments during the year.......................... (2,856) 5,566 (16,044) (170,771) 86,416 -------- ------ -------- --------- -------- Net realized and unrealized gain (loss) on investments.......................................... (8,700) 6,049 (117) (157,995) 115,326 -------- ------ -------- --------- -------- Net increase (decrease) in net assets resulting from operations........................................... $(11,760) $8,343 $ 2,744 $(160,106) $109,796 ======== ====== ======== ========= ========
See accompanying notes to financial statements F-21 82 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1999 - --------------------------------------------------------------------------------
MONEY AGGRESSIVE GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - --------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment (loss) income.............. $ (11,942) $ 242,698 $ 9,531 $ (975) $ (2,597) $ 7,415 Net realized gain on investments.......... 106,592 9,824 44,721 247,207 148,308 Net unrealized (depreciation) appreciation of investments during the year.......... (38,569) (70,598) (63,002) 57,514 540,420 ---------- ----------- ---------- ---------- ---------- ---------- Net increase (decrease) in net assets from operations.............................. 56,081 242,698 (51,243) (19,256) 302,124 696,143 ---------- ----------- ---------- ---------- ---------- ---------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums............... 1,074,495 10,836,005 332,588 194,230 412,431 661,165 Cost of insurance and administrative charges................................. (303,622) (797,781) (97,177) (89,639) (167,274) (167,001) Surrenders and forfeitures................ (189,291) (59,612) (15,922) (9,974) (27,978) (24,702) Net (withdrawals) repayments due to policy loans................................... (31,216) 4,739 (15,470) (8,925) (33,883) (12,649) Transfers between investment portfolios... 470,309 (7,352,211) (135,405) 449,128 32,008 91,516 Transfers due to death benefits........... (1,337) (1,278) ---------- ----------- ---------- ---------- ---------- ---------- Net increase in net assets derived from policy transactions..................... 1,020,675 2,631,140 68,614 534,820 213,967 547,051 ---------- ----------- ---------- ---------- ---------- ---------- Total increase in net assets.............. 1,076,756 2,873,838 17,371 515,564 516,091 1,243,194 NET ASSETS Beginning of year....................... 2,827,916 4,408,235 1,307,466 649,153 1,836,242 2,104,234 ---------- ----------- ---------- ---------- ---------- ---------- End of year............................. $3,904,672 $ 7,282,073 $1,324,837 $1,164,717 $2,352,333 $3,347,428 ========== =========== ========== ========== ========== ==========
See accompanying notes to financial statements F-22 83 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1999 - --------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO LARGE ALL PRO LARGE SMALL SMALL CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - -------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment loss........................................ $ (6,838) $ (612) $ (2,993) $ (1,998) Net realized gain on investments........................... 59,937 21,529 96,011 2,248 Net unrealized appreciation (depreciation) of investments during the year.......................................... 192,717 (26,430) 323,197 (28,135) ---------- -------- ---------- -------- Net increase (decrease) in net assets from operations...... 245,816 (5,513) 416,215 (27,885) ---------- -------- ---------- -------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums................................ 410,602 235,417 146,222 217,981 Cost of insurance and administrative charges............... (107,613) (46,883) (37,756) (35,684) Surrenders and forfeitures................................. (30,667) (6,497) (3,858) (191) Net withdrawals due to policy loans........................ (16,290) (11,460) (4,008) (5,077) Transfers between investment portfolios.................... 1,079,015 82,627 249,104 142,715 ---------- -------- ---------- -------- Net increase in net assets derived from policy transactions............................................. 1,335,047 253,204 349,704 319,744 ---------- -------- ---------- -------- Total increase in net assets............................... 1,580,863 247,691 765,919 291,859 NET ASSETS Beginning of year........................................ 247,925 237,471 277,529 281,462 ---------- -------- ---------- -------- End of year.............................................. $1,828,788 $485,162 $1,043,448 $573,321 ========== ======== ========== ========
See accompanying notes to financial statements F-23 84 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1999 - --------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - --------------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss)..................... $ 75,002 $ (70,937) $ 169,800 $ 24,974 $ 61,020 $ 25,299 Net realized gain (loss) on investments.......... 571,495 1,574,101 (20,336) 222,413 121,743 665,356 Net unrealized (depreciation) appreciation of investments during the year.................... (79,851) 3,257,791 2,612 1,612,546 110,105 2,407,325 ----------- ----------- ---------- ---------- ---------- ----------- Net increase in net assets from operations....... 566,646 4,760,955 152,076 1,859,933 292,868 3,097,980 ----------- ----------- ---------- ---------- ---------- ----------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums...................... 2,929,981 3,422,090 451,275 1,525,307 779,887 6,727,693 Cost of insurance and administrative charges..... (913,963) (1,072,275) (185,657) (338,270) (213,071) (1,698,031) Surrenders and forfeitures....................... (249,092) (370,650) (29,802) (66,192) (40,031) (426,927) Net withdrawals due to policy loans.............. (79,425) (71,729) (12,437) (44,838) (41,805) (166,653) Transfers between investment portfolios.......... 657,552 1,206,940 219,593 250,238 281,207 1,580,849 Withdrawals due to death benefits................ (10,825) (4,635) (3,418) (77,679) ----------- ----------- ---------- ---------- ---------- ----------- Net increase in net assets derived from policy transactions................................... 2,334,228 3,109,741 442,972 1,322,827 766,187 5,939,252 ----------- ----------- ---------- ---------- ---------- ----------- Total increase in net assets..................... 2,900,874 7,870,696 595,048 3,182,760 1,059,055 9,037,232 NET ASSETS Beginning of year.............................. 9,649,507 11,319,649 1,847,985 3,438,701 2,298,935 12,355,027 ----------- ----------- ---------- ---------- ---------- ----------- End of year.................................... $12,550,381 $19,190,345 $2,443,033 $6,621,461 $3,357,990 $21,392,259 =========== =========== ========== ========== ========== ===========
See accompanying notes to financial statements F-24 85 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1999 - --------------------------------------------------------------------------------
FIDELITY Neuberger Neuberger Neuberger Neuberger INVESTMENT FIDELITY BERMAN BERMAN BERMAN LIMITED BERMAN GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND PARTNERS SUBACCOUNT Subaccount Subaccount Subaccount Subaccount Subaccount - --------------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss)................ $ 41,071 $ (20,102) $ 8,293 $ 103,573 $ 45,280 $ (4,615) Net realized gain (loss) on investments..... 16,764 380,374 (2,558) (112,803) (17,023) 37,455 Net unrealized (depreciation) appreciation of investments during the year............ (82,192) 1,361,433 (12,499) (32,289) (19,835) (36,807) ---------- ----------- --------- ----------- ---------- ---------- Net (decrease) increase in net assets from operations................................ (24,357) 1,721,705 (6,764) (41,519) 8,422 (3,967) ---------- ----------- --------- ----------- ---------- ---------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums................. 408,193 2,629,902 30,596 122,455 359,023 431,555 Cost of insurance and administrative charges................................... (125,447) (641,252) (17,818) (47,317) (61,450) (148,466) Surrenders and forfeitures.................. (78,777) (232,393) (743) (4,937) (55,990) (44,451) Net (withdrawals) repayments due to policy loans..................................... (12,459) (89,980) 192 48 (6,347) (10,397) Transfers between investment portfolios..... 375,555 1,420,233 (576,638) (2,035,198) (10,622) 2,058,260 Withdrawals due to death benefits........... (5,412) (4,020) (1,057) ---------- ----------- --------- ----------- ---------- ---------- Net increase (decrease) in net assets derived from policy transactions.......... 567,065 3,081,098 (564,411) (1,968,969) 224,614 2,285,444 ---------- ----------- --------- ----------- ---------- ---------- Total increase (decrease) in net assets..... 542,708 4,802,803 (571,175) (2,010,488) 233,036 2,281,477 NET ASSETS Beginning of year......................... 1,224,170 5,486,967 571,175 2,010,488 858,328 244,247 ---------- ----------- --------- ----------- ---------- ---------- End of year............................... $1,766,878 $10,289,770 -- -- $1,091,364 $2,525,724 ========== =========== ========= =========== ========== ==========
See accompanying notes to financial statements F-25 86 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1999 - --------------------------------------------------------------------------------
AMERICAN VAN ECK CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - ---------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment (loss) income........... $ (1,619) $ 23,474 $ 2,203 $ (8,384) $ 948 $ (25,644) Net realized gain (loss) on investments.......................... 11,508 23,235 (29,183) (146,766) 1,132 508,120 Net unrealized appreciation (depreciation) of investments during the year............................. 51,652 (94,702) 101,902 1,199,541 (10,967) 1,191,588 --------- --------- -------- ---------- -------- ---------- Net increase (decrease) in net assets from operations...................... 61,541 (47,993) 74,922 1,044,391 (8,887) 1,674,064 --------- --------- -------- ---------- -------- ---------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums............ 52,425 94,818 151,588 402,320 63,311 1,102,941 Cost of insurance and administrative charges.............................. (27,936) (46,560) (35,575) (107,952) (7,593) (344,012) Surrenders and forfeitures............. (9,792) (20,025) (2,094) (14,113) (17) (208,635) Net withdrawals due to policy loans.... (2,760) (6,828) (5,013) (8,664) (22,006) Transfers between investment portfolios........................... (854,349) (135,667) 73,320 (58,680) 32,608 391,868 Withdrawals due to death benefits...... (1,499) (3,576) --------- --------- -------- ---------- -------- ---------- Net (decrease) increase in net assets derived from policy transactions..... (842,412) (114,262) 182,226 211,412 88,309 916,580 --------- --------- -------- ---------- -------- ---------- Total (decrease) increase in net assets............................... (780,871) (162,255) 257,148 1,255,803 79,422 2,590,644 NET ASSETS Beginning of year.................... 780,871 691,312 320,851 890,107 73,425 3,153,585 --------- --------- -------- ---------- -------- ---------- End of year.......................... -- $ 529,057 $577,999 $2,145,910 $152,847 $5,744,229 ========= ========= ======== ========== ======== ==========
See accompanying notes to financial statements F-26 87 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1998 - --------------------------------------------------------------------------------
MONEY AGGRESSIVE GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - --------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss)............. $ 18,521 $ 174,900 $ 44,888 $ 11,127 $ 350 $ (211) Net realized gain on investments......... 241,036 10,197 33,591 139,197 100,230 Net unrealized appreciation (depreciation) of investments during the year............................... 24,031 13,711 8,599 (21,973) 36,335 ---------- ------------ ---------- -------- ---------- ---------- Net increase in net assets from operations............................. 283,588 174,900 68,796 53,317 117,574 136,354 ---------- ------------ ---------- -------- ---------- ---------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums.............. 700,982 12,157,013 286,323 145,810 390,883 542,593 Cost of insurance and administrative charges................................ (223,112) (517,784) (74,547) (44,806) (145,982) (131,026) Surrenders and forfeitures............... (20,394) (78,839) (5,714) (1,879) (26,378) (19,231) Net withdrawals due to policy loans...... (51,892) (268,614) (4,688) 295 (41,359) (2,014) Transfers between investment portfolios............................. 517,850 (10,774,581) 447,809 134,941 273,343 242,053 ---------- ------------ ---------- -------- ---------- ---------- Net increase in net assets derived from policy transactions.................... 923,434 517,195 649,183 234,361 450,507 632,375 ---------- ------------ ---------- -------- ---------- ---------- Total increase in net assets............. 1,207,022 692,095 717,979 287,678 568,081 768,729 NET ASSETS Beginning of year...................... 1,620,894 3,716,140 589,487 361,475 1,268,161 1,335,505 ---------- ------------ ---------- -------- ---------- ---------- End of year............................ $2,827,916 $ 4,408,235 $1,307,466 $649,153 $1,836,242 $2,104,234 ========== ============ ========== ======== ========== ==========
See accompanying notes to financial statements F-27 88 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1998 - --------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO LARGE ALL PRO LARGE SMALL SMALL CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - -------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment loss........................................ $ (259) $ (304) $ (314) $ (329) Net realized loss on investments........................... (1,657) (6,212) (9,872) (9,805) Net unrealized appreciation of investments during the year..................................................... 31,368 21,256 49,117 22,620 -------- -------- -------- -------- Net increase in net assets from operations................. 29,452 14,740 38,931 12,486 -------- -------- -------- -------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums................................ 54,913 56,634 38,819 36,602 Cost of insurance and administrative charges............... (5,966) (7,965) (3,250) (5,225) Surrenders and forfeitures................................. (1) (8) Transfers between investment portfolios.................... 144,527 149,070 178,029 212,599 -------- -------- -------- -------- Net increase in net assets derived from policy transactions............................................. 193,473 197,731 213,598 243,976 -------- -------- -------- -------- Capital contribution from Providentmutual Life and Annuity Company of America....................................... 25,000 25,000 25,000 25,000 -------- -------- -------- -------- Total increase in net assets............................... 247,925 237,471 277,529 281,462 NET ASSETS Beginning of year........................................ -- -- -- -- -------- -------- -------- -------- End of year.............................................. $247,925 $237,471 $277,529 $281,462 ======== ======== ======== ========
See accompanying notes to financial statements F-28 89 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1998 - --------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - -------------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss)..................... $ 33,741 $ (21,448) $ 82,762 $ 23,357 $ 31,986 $ 9,694 Net realized gain on investments................. 379,398 908,344 62,829 149,376 159,494 566,205 Net unrealized appreciation (depreciation) of investments during the year.................... 388,042 1,877,802 (251,388) 108,083 54,245 1,456,238 ---------- ----------- ---------- ---------- ---------- ----------- Net increase (decrease) in net assets from operations..................................... 801,181 2,764,698 (105,797) 280,816 245,725 2,032,137 ---------- ----------- ---------- ---------- ---------- ----------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums...................... 2,791,625 2,817,681 644,433 991,712 538,144 4,725,165 Cost of insurance and administrative charges..... (683,360) (776,716) (141,578) (247,860) (128,200) (1,026,576) Surrenders and forfeitures....................... (100,189) (148,661) (18,862) (43,350) (27,852) (153,976) Net withdrawals due to policy loans.............. (25,809) (30,231) (12,378) (17,062) 11,088 (35,752) Transfers between investment portfolios.......... 1,325,938 1,223,266 223,803 639,706 404,187 1,912,283 Withdrawals due to death benefits................ (9,104) (52,787) (1,121) (1,235) (4,122) ---------- ----------- ---------- ---------- ---------- ----------- Net increase in net assets derived from policy transactions................................... 3,299,101 3,032,552 695,418 1,322,025 796,132 5,417,022 ---------- ----------- ---------- ---------- ---------- ----------- Return of capital to Providentmutual Life and Annuity Company of America..................... (30,000) (30,000) ---------- ----------- ---------- ---------- ---------- ----------- Total increase in net assets..................... 4,100,282 5,767,250 589,621 1,602,841 1,041,857 7,419,159 NET ASSETS Beginning of year.............................. 5,549,225 5,552,399 1,258,364 1,835,860 1,257,078 4,935,868 ---------- ----------- ---------- ---------- ---------- ----------- End of year.................................... $9,649,507 $11,319,649 $1,847,985 $3,438,701 $2,298,935 $12,355,027 ========== =========== ========== ========== ========== ===========
See accompanying notes to financial statements F-29 90 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1998 - --------------------------------------------------------------------------------
FIDELITY Neuberger Neuberger Neuberger & Neuberger INVESTMENT FIDELITY & BERMAN & BERMAN BERMAN LIMITED & BERMAN GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND PARTNERS SUBACCOUNT Subaccount Subaccount Subaccount Subaccount Subaccount - -------------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss)................ $ 29,096 $ (6,798) $ 7,039 $ (10,244) $ 30,950 $ (241) Net realized gain (loss) on investments..... 7,716 169,629 65,864 325,833 373 (2,190) Net unrealized appreciation (depreciation) of investments during the year............ 35,552 840,390 (21,582) (105,731) (8,405) 18,863 ---------- ---------- -------- ---------- -------- -------- Net increase in net assets from operations................................ 72,364 1,003,221 51,321 209,858 22,918 16,432 ---------- ---------- -------- ---------- -------- -------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums................. 310,292 1,737,346 127,973 582,452 224,085 123,418 Cost of insurance and administrative charges................................... (76,939) (364,105) (55,932) (156,359) (42,136) (8,687) Surrenders and forfeitures.................. (8,154) (53,656) (8,030) (19,760) (1,602) Net (withdrawals) repayments due to policy loans..................................... (2,779) 3,715 (16,887) (18,679) (1,363) (101) Transfers between investment portfolios..... 274,632 1,036,789 109,236 230,165 128,083 88,185 Withdrawals due to death benefits........... (2,854) (34,374) ---------- ---------- -------- ---------- -------- -------- Net increase in net assets derived from policy transactions....................... 497,052 2,357,235 156,360 583,445 307,067 202,815 ---------- ---------- -------- ---------- -------- -------- Capital contribution from Providentmutual Life and Annuity Company of America....... 25,000 ---------- ---------- -------- ---------- -------- -------- Total increase in net assets................ 569,416 3,360,456 207,681 793,303 329,985 244,247 NET ASSETS Beginning of year......................... 654,754 2,126,511 363,494 1,217,185 528,343 -- ---------- ---------- -------- ---------- -------- -------- End of year............................... $1,224,170 $5,486,967 $571,175 $2,010,488 $858,328 $244,247 ========== ========== ======== ========== ======== ========
See accompanying notes to financial statements F-30 91 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1998 - --------------------------------------------------------------------------------
AMERICAN VAN ECK CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - --------------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss)................ $ (4,421) $ 123 $ (150) $ 880 $ (64) $ (13,957) Net realized gain (loss) on investments..... (8,695) 7,111 3,385 (58,640) (5,674) 277,116 Net unrealized appreciation (depreciation) of investments during the year............ (14,823) 57,630 (133,615) (258,276) 3,621 81,910 -------- -------- --------- --------- ------- ---------- Net increase (decrease) in net assets from operations................................ (27,939) 64,864 (130,380) (316,036) (2,117) 345,069 -------- -------- --------- --------- ------- ---------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums................. 236,573 249,745 134,991 375,034 13,909 1,139,641 Cost of insurance and administrative charges................................... (91,415) (44,347) (33,980) (98,968) (1,364) (248,405) Surrenders and forfeitures.................. (22,461) (4,079) (4,253) (5,110) (30,009) Net withdrawals due to policy loans......... (10,745) (1,174) (969) (2,809) (16,982) Transfers between investment portfolios................................ 79,336 141,529 (7,393) 259,476 37,997 531,504 Withdrawals due to death benefits........... (29,065) -------- -------- --------- --------- ------- ---------- Net increase in net assets derived from policy transactions....................... 191,288 341,674 88,396 527,623 50,542 1,346,684 -------- -------- --------- --------- ------- ---------- Capital contribution from Providentmutual Life and Annuity Company of America....... 10,000 25,000 -------- -------- --------- --------- ------- ---------- Total increase in net assets................ 163,349 406,538 (41,984) 221,587 73,425 1,691,753 NET ASSETS Beginning of year......................... 617,522 284,774 362,835 668,520 -- 1,461,832 -------- -------- --------- --------- ------- ---------- End of year............................... $780,871 $691,312 $ 320,851 $ 890,107 $73,425 $3,153,585 ======== ======== ========= ========= ======= ==========
See accompanying notes to financial statements F-31 92 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1997 - --------------------------------------------------------------------------------
MONEY AGGRESSIVE GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - --------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss).............. $ 11,490 $ 90,908 $ 11,582 $ 3,500 $ (428) $ (1,597) Net realized gain on investments.......... 72,524 4,094 4,157 29,677 34,195 Net unrealized appreciation of investments during the year......................... 119,097 10,662 23,118 112,923 5,281 ---------- ----------- -------- -------- ---------- ---------- Net increase in net assets from operations.............................. 203,111 90,908 26,338 30,775 142,172 37,879 ---------- ----------- -------- -------- ---------- ---------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums............... 606,490 12,818,390 174,094 62,606 504,056 534,082 Cost of insurance and administrative charges................................. (123,739) (377,001) (29,359) (18,265) (103,540) (94,480) Surrenders and forfeitures................ (8,110) (2,037) (655) (561) (7,104) (7,124) Net withdrawals due to policy loans....... (1,427) (2,750) (2,918) (647) (6,952) (2,905) Transfers between investment portfolios... 392,712 (9,338,827) 290,953 207,288 267,938 418,275 Withdrawals due to death benefits......... (2,251) (880) (1,330) (1,025) (490) ---------- ----------- -------- -------- ---------- ---------- Net increase in net assets derived from policy transactions..................... 863,675 3,096,895 430,785 250,421 653,373 847,358 ---------- ----------- -------- -------- ---------- ---------- Total increase in net assets.............. 1,066,786 3,187,803 457,123 281,196 795,545 885,237 NET ASSETS Beginning of year....................... 554,108 528,337 132,364 80,279 472,616 450,268 ---------- ----------- -------- -------- ---------- ---------- End of year............................. $1,620,894 $ 3,716,140 $589,487 $361,475 $1,268,161 $1,335,505 ========== =========== ======== ======== ========== ==========
See accompanying notes to financial statements F-32 93 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1997 - --------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - ------------------------------------------------------------------------------------------------------------------------------ FROM OPERATIONS Net investment income (loss)..................... $ 14,139 $ (7,857) $ 25,041 $ 3,232 $ 20,998 $ (502) Net realized gain on investments................. 243,561 105,152 13,779 66,453 71,908 116,408 Net unrealized appreciation (depreciation) of investments during the year.................... 549,676 629,595 74,713 (31,365) 77,492 631,639 ---------- ---------- ---------- ---------- ---------- ---------- Net increase in net assets from operations....... 807,376 726,890 113,533 38,320 170,398 747,545 ---------- ---------- ---------- ---------- ---------- ---------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums...................... 1,800,681 2,077,217 315,730 708,468 230,559 2,291,230 Cost of insurance and administrative charges..... (378,890) (507,915) (76,002) (144,645) (67,535) (452,765) Surrenders and forfeitures....................... (26,461) (71,933) (6,335) (7,458) (5,894) (27,300) Net withdrawals due to policy loans.............. (29,476) (25,572) (465) (12,515) (13,101) (34,119) Transfers between investment portfolios.......... 1,407,893 1,003,643 537,410 688,760 201,574 935,324 Withdrawals due to death benefits................ (3,109) (3,873) (3,581) ---------- ---------- ---------- ---------- ---------- ---------- Net increase in net assets derived from policy transactions................................... 2,770,638 2,471,567 770,338 1,232,610 345,603 2,708,789 ---------- ---------- ---------- ---------- ---------- ---------- Total increase in net assets..................... 3,578,014 3,198,457 883,871 1,270,930 516,001 3,456,334 NET ASSETS Beginning of year.............................. 1,971,211 2,353,942 374,493 564,930 741,077 1,479,534 ---------- ---------- ---------- ---------- ---------- ---------- End of year.................................... $5,549,225 $5,552,399 $1,258,364 $1,835,860 $1,257,078 $4,935,868 ========== ========== ========== ========== ========== ==========
See accompanying notes to financial statements F-33 94 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1997 - --------------------------------------------------------------------------------
FIDELITY Neuberger Neuberger Neuberger & INVESTMENT FIDELITY & BERMAN & BERMAN BERMAN LIMITED GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND SUBACCOUNT Subaccount Subaccount Subaccount Subaccount - ------------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss)........................... $ 8,586 $ (4,202) $ 1,755 $ (5,067) $ 2,468 Net realized gain (loss) on investments................ 2,284 33,030 8,932 55,806 (214) Net unrealized appreciation of investments during the year................................................. 14,149 188,611 32,678 126,532 13,582 -------- ---------- -------- ---------- -------- Net increase in net assets from operations............. 25,019 217,439 43,365 177,271 15,836 -------- ---------- -------- ---------- -------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums............................ 250,638 899,768 108,720 437,297 147,394 Cost of insurance and administrative charges........... (33,229) (140,720) (35,701) (106,436) (17,164) Surrenders and forfeitures............................. (4,629) (4,872) (1,492) (4,296) (843) Net withdrawals due to policy loans.................... (2,142) (14,814) (191) (676) (580) Transfers between investment portfolios................ 265,581 900,755 83,895 175,334 333,959 Withdrawals due to death benefits...................... (2,005) -------- ---------- -------- ---------- -------- Net increase in net assets derived from policy transactions......................................... 474,214 1,640,117 155,231 501,223 462,766 -------- ---------- -------- ---------- -------- Total increase in net assets........................... 499,233 1,857,556 198,596 678,494 478,602 NET ASSETS Beginning of year.................................... 155,521 268,955 164,898 538,691 49,741 -------- ---------- -------- ---------- -------- End of year.......................................... $654,754 $2,126,511 $363,494 $1,217,185 $528,343 ======== ========== ======== ========== ========
See accompanying notes to financial statements F-34 95 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Statements of Changes in Net Assets for the Year Ended December 31, 1997 - --------------------------------------------------------------------------------
AMERICAN VAN ECK CENTURY VP VAN ECK VAN ECK WORLDWIDE ALGER AMERICAN CAPITAL WORLDWIDE WORLDWIDE EMERGING SMALL APPRECIATION BOND HARD ASSETS MARKETS CAPITALIZATION SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT - ----------------------------------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income (loss)......................... $ (3,060) $ 2,294 $ 2,861 $ (2,111) $ (5,530) Net realized gain (loss) on investments.............. (5,844) 483 15,927 12,776 28,910 Net unrealized appreciation (depreciation) of investments during the year........................ (2,856) 5,566 (16,044) (170,771) 86,416 -------- -------- -------- --------- ---------- Net increase (decrease) in net assets from operations......................................... (11,760) 8,343 2,744 (160,106) 109,796 -------- -------- -------- --------- ---------- FROM VARIABLE LIFE POLICY TRANSACTIONS Policyholders' net premiums.......................... 302,126 134,179 131,149 362,026 708,739 Cost of insurance and administrative charges......... (80,091) (24,944) (29,372) (51,528) (131,231) Surrenders and forfeitures........................... (4,824) (957) (2,265) (1,605) (3,435) Net withdrawals due to policy loans.................. (694) (1,431) (341) (528) (13,587) Transfers between investment portfolios.............. 63,153 71,029 111,374 441,995 424,465 -------- -------- -------- --------- ---------- Net increase in net assets derived from policy transactions....................................... 279,670 177,876 210,545 750,360 984,951 -------- -------- -------- --------- ---------- Total increase in net assets......................... 267,910 186,219 213,289 590,254 1,094,747 NET ASSETS Beginning of year.................................. 349,612 98,555 149,546 78,266 367,085 -------- -------- -------- --------- ---------- End of year........................................ $617,522 $284,774 $362,835 $ 668,520 $1,461,832 ======== ======== ======== ========= ==========
See accompanying notes to financial statements F-35 96 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements - -------------------------------------------------------------------------------- 1. ORGANIZATION The Providentmutual Variable Life Separate Account (Separate Account) was established by Providentmutual Life and Annuity Company of America ("PLACA") under the provisions of Delaware law and commenced operations on February 1, 1995. PLACA is a wholly-owned subsidiary of Provident Mutual Life Insurance Company. The Separate Account is an investment account to which assets are allocated to support the benefits payable under flexible premium adjustable variable life insurance policies (the Policies). The Policies are distributed principally through personal producing general agents and brokers. PLACA has structured the Separate Account as a unit investment trust registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended. The Separate Account is comprised of twenty-five subaccounts: the Growth, Money Market, Bond, Managed, Aggressive Growth, International, All Pro Large Cap Growth, All Pro Large Cap Value, All Pro Small Cap Growth and All Pro Small Cap Value Subaccounts invest in the corresponding portfolios of the Market Street Fund, Inc.; the Fidelity Equity-Income, Fidelity Growth, Fidelity High Income and Fidelity Overseas Subaccounts invest in the corresponding portfolios of the Variable Insurance Products Fund; the Fidelity Asset Manager, Fidelity Index 500, Fidelity Investment Grade Bond and Fidelity Contrafund(R) Subaccounts invest in the corresponding portfolios of the Variable Insurance Products Fund II; Neuberger Berman Limited Maturity Bond and Neuberger Berman Partners Subaccounts invest in the corresponding portfolios of the Neuberger Berman Advisers Management Trust; the Van Eck Worldwide Bond, Van Eck Worldwide Hard Assets, Van Eck Worldwide Emerging Markets and Van Eck Worldwide Real Estate Subaccounts invest in the corresponding portfolios of the Van Eck Worldwide Insurance Trust; and the Alger American Small Capitalization Subaccount invests in the corresponding portfolio of the Alger American Fund. At the close of business on April 30, 1999, the Neuberger Berman Growth Subaccount, Neuberger Berman Balanced Subaccount and American Century VP Capital Appreciation Subaccount were terminated and the investments were transferred to the Neuberger Berman Partners Subaccount, the Managed Subaccount and the All Pro Large Cap Growth Subaccount, respectively. Net premiums from in-force Policies are allocated to the Subaccounts in accordance with policyholder instructions and are recorded as variable life policy transactions in the statements of changes in net assets. Such amounts are used to provide money to pay benefits under the Policies (Note 4). The Separate Account's assets are the property of PLACA. Transfers between investment portfolios include transfers between the Subaccounts and the Guaranteed Account (not shown), which is part of PLACA's General Account. F-36 97 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the significant accounting policies followed by the Separate Account in the financial statements. Investment Valuation: Investment shares are valued at the net asset values of the respective Portfolios. Transactions are recorded on the trade date. Dividend income is recorded on the ex-dividend date. Realized Gains and Losses: Realized gains and losses on sales of investment shares are determined using the specific identification basis for financial reporting and income tax purposes. Federal Income Taxes: The operations of the Separate Account are included in the Federal income tax return of PLACA. Under the provisions of the Policies, PLACA has the right to charge the Separate Account for Federal income tax attributable to the Separate Account. No charge is currently being made against the Separate Account for such tax. Estimates: The preparation of the accompanying financial statements required management to make estimates and assumptions that affect the reported values of assets and liabilities and the reported amounts from operations and policy transactions during the period. Actual results could differ from those estimates. F-37 98 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS At December 31, 1999, the investments of the respective Subaccounts are as follows:
- -------------------------------------------------------------------------------------------------- SHARES COST MARKET VALUE - -------------------------------------------------------------------------------------------------- Market Street Fund, Inc.: Growth Portfolio........................................ 206,160 $3,746,211 $3,904,672 Money Market Portfolio.................................. 7,210,373 $7,210,373 $7,210,373 Bond Portfolio.......................................... 125,221 $1,368,864 $1,324,837 Managed Portfolio....................................... 69,370 $1,189,142 $1,164,717 Aggressive Growth Portfolio............................. 107,070 $2,161,602 $2,352,333 International Portfolio................................. 200,685 $2,741,163 $3,347,428 All Pro Large Cap Growth Portfolio...................... 123,818 $1,604,703 $1,828,788 All Pro Large Cap Value Portfolio....................... 48,613 $490,336 $485,162 All Pro Small Cap Growth Portfolio...................... 55,414 $671,134 $1,043,448 All Pro Small Cap Value Portfolio....................... 75,736 $578,836 $573,321 Variable Insurance Products Fund: Equity-Income Portfolio................................. 488,152 $11,552,482 $12,550,381 Growth Portfolio........................................ 349,360 $13,304,772 $19,190,345 High Income Portfolio................................... 216,006 $2,599,610 $2,443,033 Overseas Portfolio...................................... 241,307 $4,888,072 $6,621,461 Variable Insurance Products Fund II: Asset Manager Portfolio................................. 179,860 $3,073,363 $3,357,990 Index 500 Portfolio..................................... 127,496 $16,718,458 $21,344,259 Investment Grade Bond Portfolio......................... 145,302 $1,793,506 $1,766,878 Contrafund(R) Portfolio................................. 352,994 $7,883,811 $10,289,770 Neuberger Berman Advisers Management Trust: Limited Maturity Bond Portfolio......................... 82,429 $1,105,814 $1,091,364 Partners Portfolio...................................... 128,601 $2,543,668 $2,525,724 Van Eck Worldwide Insurance Trust: Van Eck Worldwide Bond Portfolio........................ 49,491 $558,235 $529,057 Van Eck Worldwide Hard Assets Portfolio................. 52,737 $613,661 $577,999 Van Eck Worldwide Emerging Markets Portfolio............ 150,485 $1,370,637 $2,145,910 Van Eck Worldwide Real Estate Portfolio................. 16,705 $160,193 $152,847 Alger American Fund: Alger American Small Capitalization Portfolio........... 104,156 $4,388,576 $5,744,229
F-38 99 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED During the years ended December 31, 1999, 1998 and 1997, transactions in investment shares were as follows: - --------------------------------------------------------------------------------
MARKET STREET FUND, INC. - ----------------------------------------------------------------------------------------------------------------------------- GROWTH PORTFOLIO MONEY MARKET PORTFOLIO - ----------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Shares purchased............................... 73,102 73,135 50,220 8,932,793 10,866,458 11,393,078 Shares received from reinvestment of: Dividends.................................... 512 1,893 1,003 268,224 197,496 88,801 Capital gain distributions................... 2,993 13,090 4,035 ---------- ---------- -------- ----------- ----------- ----------- Total shares acquired.......................... 76,607 88,118 55,258 9,201,017 11,063,954 11,481,879 Total shares redeemed.......................... (20,708) (21,151) (2,578) (6,346,192) (9,925,488) (8,717,947) ---------- ---------- -------- ----------- ----------- ----------- Net increase in shares owned................... 55,899 66,967 52,680 2,854,825 1,138,466 2,763,932 Shares owned, beginning of year................ 150,261 83,294 30,614 4,355,548 3,217,082 453,150 ---------- ---------- -------- ----------- ----------- ----------- Shares owned, end of year...................... 206,160 150,261 83,294 7,210,373 4,355,548 3,217,082 ========== ========== ======== =========== =========== =========== Cost of shares acquired........................ $1,459,551 $1,524,498 $986,013 $ 9,201,017 $11,063,954 $11,481,879 ========== ========== ======== =========== =========== =========== Cost of shares redeemed........................ $ 344,226 $ 341,507 $ 38,324 $ 6,346,192 $ 9,925,488 $ 8,717,947 ========== ========== ======== =========== =========== ===========
F-39 100 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
MARKET STREET FUND, INC. - -------------------------------------------------------------------------------------------------------------------------- BOND PORTFOLIO MANAGED PORTFOLIO - -------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- Shares purchased......................................... 36,328 77,640 50,228 46,775 18,495 16,278 Shares received from reinvestment of: Dividends.............................................. 1,653 4,610 1,233 286 832 282 Capital gain distributions............................. 1,299 8 1,951 1,087 44 -------- -------- -------- -------- -------- -------- Total shares acquired.................................... 39,280 82,258 51,461 49,012 20,414 16,604 Total shares redeemed.................................... (30,589) (19,415) (10,179) (16,359) (4,885) (884) -------- -------- -------- -------- -------- -------- Net increase in shares owned............................. 8,691 62,843 41,282 32,653 15,529 15,720 Shares owned, beginning of year.......................... 116,530 53,687 12,405 36,717 21,188 5,468 -------- -------- -------- -------- -------- -------- Shares owned, end of year................................ 125,221 116,530 53,687 69,370 36,717 21,188 ======== ======== ======== ======== ======== ======== Cost of shares acquired.................................. $419,905 $908,607 $552,874 $843,762 $346,281 $268,677 ======== ======== ======== ======== ======== ======== Cost of shares redeemed.................................. $331,936 $204,339 $106,413 $265,196 $ 67,202 $ 10,599 ======== ======== ======== ======== ======== ========
F-40 101 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
MARKET STREET FUND, INC. - -------------------------------------------------------------------------------------------------------------------------- AGGRESSIVE GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO - -------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- Shares purchased......................................... 25,961 31,265 38,091 60,220 56,397 64,862 Shares received from reinvestment of: Dividends.............................................. 508 508 247 1,831 813 306 Capital gain distributions............................. 12,602 4,846 49 9,395 7,315 2,397 -------- -------- -------- -------- -------- -------- Total shares acquired.................................... 39,071 36,619 38,387 71,446 64,525 67,565 Total shares redeemed.................................... (15,809) (9,961) (6,756) (22,691) (10,722) (3,015) -------- -------- -------- -------- -------- -------- Net increase in shares owned............................. 23,262 26,658 31,631 48,755 53,803 64,550 Shares owned, beginning of year.......................... 83,808 57,150 25,519 151,930 98,127 33,577 -------- -------- -------- -------- -------- -------- Shares owned, end of year................................ 107,070 83,808 57,150 200,685 151,930 98,127 ======== ======== ======== ======== ======== ======== Cost of shares acquired.................................. $747,203 $753,159 $796,588 $993,410 $866,730 $916,201 ======== ======== ======== ======== ======== ======== Cost of shares redeemed.................................. $288,626 $163,105 $113,966 $290,636 $134,336 $ 36,245 ======== ======== ======== ======== ======== ========
F-41 102 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
MARKET STREET FUND, INC. - --------------------------------------------------------------------------------------------------------- ALL PRO ALL PRO LARGE CAP LARGE CAP GROWTH VALUE PORTFOLIO PORTFOLIO - --------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 - --------------------------------------------------------------------------------------------------------- Shares purchased............................................ 125,649 24,150 41,597 28,950 Shares received from reinvestment of: Dividends................................................. 5 161 Capital gain distributions................................ ---------- -------- -------- -------- Total shares acquired....................................... 125,654 24,150 41,758 28,950 Total shares redeemed....................................... (22,900) (3,086) (17,132) (4,963) ---------- -------- -------- -------- Net increase in shares owned................................ 102,754 21,064 24,626 23,987 Shares owned, beginning of year............................. 21,064 23,987 ---------- -------- -------- -------- Shares owned, end of year................................... 123,818 21,064 48,613 23,987 ========== ======== ======== ======== Cost of shares acquired..................................... $1,626,858 $248,497 $424,442 $265,246 ========== ======== ======== ======== Cost of shares redeemed..................................... $ 238,712 $ 31,940 $150,321 $ 49,031 ========== ======== ======== ========
F-42 103 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
MARKET STREET FUND, INC. - ------------------------------------------------------------------------------------------------------- ALL PRO ALL PRO SMALL CAP SMALL CAP GROWTH VALUE PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------- Shares purchased............................................ 47,453 32,753 52,030 43,816 Shares received from reinvestment of: Dividends................................................. 73 Capital gain distributions................................ -------- -------- -------- -------- Total shares acquired....................................... 47,453 32,753 52,103 43,816 Total shares redeemed....................................... (20,358) (4,434) (10,483) (9,700) -------- -------- -------- -------- Net increase in shares owned................................ 27,095 28,319 41,620 34,116 Shares owned, beginning of year............................. 28,319 34,116 -------- -------- -------- -------- Shares owned, end of year................................... 55,414 28,319 75,736 34,116 ======== ======== ======== ======== Cost of shares acquired..................................... $601,240 $272,699 $396,338 $340,167 ======== ======== ======== ======== Cost of shares redeemed..................................... $158,518 $ 44,287 $ 76,344 $ 81,325 ======== ======== ======== ========
F-43 104 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND - ----------------------------------------------------------------------------------------------------------------------------- EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO - ----------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Shares purchased................................ 127,157 153,199 135,989 82,042 94,179 76,083 Shares received from reinvestment of: Dividends..................................... 6,224 3,495 1,879 495 887 536 Capital gain distributions.................... 13,759 12,437 9,447 31,095 23,197 2,400 ---------- ---------- ---------- ---------- ---------- ---------- Total shares acquired........................... 147,140 169,131 147,315 113,632 118,263 79,019 Total shares redeemed........................... (38,591) (18,079) (12,497) (16,548) (15,647) (4,951) ---------- ---------- ---------- ---------- ---------- ---------- Net increase in shares owned.................... 108,549 151,052 134,818 97,084 102,616 74,068 Shares owned, beginning of year................. 379,603 228,551 93,733 252,276 149,660 75,592 ---------- ---------- ---------- ---------- ---------- ---------- Shares owned, end of year....................... 488,152 379,603 228,551 349,360 252,276 149,660 ========== ========== ========== ========== ========== ========== Cost of shares acquired......................... $3,726,855 $4,057,867 $3,254,127 $5,084,590 $4,350,414 $2,711,400 ========== ========== ========== ========== ========== ========== Cost of shares redeemed......................... $ 746,130 $ 345,627 $ 225,789 $ 471,685 $ 460,966 $ 142,538 ========== ========== ========== ========== ========== ==========
F-44 105 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND - ---------------------------------------------------------------------------------------------------------------------------- HIGH INCOME PORTFOLIO OVERSEAS PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- Shares purchased................................... 66,264 69,235 69,137 96,724 81,679 70,577 Shares received from reinvestment of: Dividends........................................ 17,034 7,523 2,488 2,832 2,130 605 Capital gain distributions....................... 636 4,781 307 4,567 6,278 2,403 -------- ---------- -------- ---------- ---------- ---------- Total shares acquired.............................. 83,934 81,539 71,932 104,123 90,087 73,585 Total shares redeemed.............................. (28,204) (13,926) (9,180) (34,322) (14,199) (7,953) -------- ---------- -------- ---------- ---------- ---------- Net increase in shares owned....................... 55,730 67,613 62,752 69,801 75,888 65,632 Shares owned, beginning of year.................... 160,276 92,663 29,911 171,506 95,618 29,986 -------- ---------- -------- ---------- ---------- ---------- Shares owned, end of year.......................... 216,006 160,276 92,663 241,307 171,506 95,618 ======== ========== ======== ========== ========== ========== Cost of shares acquired............................ $934,435 $1,006,130 $916,751 $2,201,082 $1,741,880 $1,433,652 ======== ========== ======== ========== ========== ========== Cost of shares redeemed............................ $341,999 $ 165,121 $107,593 $ 630,868 $ 247,122 $ 131,357 ======== ========== ======== ========== ========== ==========
F-45 106 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND II - ----------------------------------------------------------------------------------------------------------------------------- ASSET MANAGER PORTFOLIO INDEX 500 PORTFOLIO - ----------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Shares purchased.................................. 58,391 63,645 23,488 48,111 53,123 28,249 Shares received from reinvestment of: Dividends....................................... 4,685 2,657 1,757 944 555 204 Capital gain distributions...................... 5,934 7,972 4,410 641 1,285 414 ---------- ---------- -------- ---------- ---------- ---------- Total shares acquired............................. 69,010 74,274 29,655 49,696 54,963 28,867 Total shares redeemed............................. (15,743) (17,480) (3,629) (9,669) (10,643) (2,318) ---------- ---------- -------- ---------- ---------- ---------- Net increase in shares owned...................... 53,267 56,794 26,026 40,027 44,320 26,549 Shares owned, beginning of year................... 126,593 69,799 43,773 87,469 43,149 16,600 ---------- ---------- -------- ---------- ---------- ---------- Shares owned, end of year......................... 179,860 126,593 69,799 127,496 87,469 43,149 ========== ========== ======== ========== ========== ========== Cost of shares acquired........................... $1,204,348 $1,257,524 $494,496 $7,454,952 $6,814,303 $2,998,568 ========== ========== ======== ========== ========== ========== Cost of shares redeemed........................... $ 255,398 $ 269,912 $ 55,987 $ 873,045 $ 851,382 $ 173,873 ========== ========== ======== ========== ========== ==========
F-46 107 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
Variable Insurance Products Fund II - ---------------------------------------------------------------------------------------------------------------------------- INVESTMENT GRADE CONTRAFUND(R) BOND PORTFOLIO Portfolio - ---------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- Shares purchased................................... 85,128 43,614 43,904 136,907 123,430 95,855 Shares received from reinvestment of: Dividends........................................ 4,150 2,904 866 1,179 817 175 Capital gain distributions....................... 1,302 344 8,647 6,008 464 ---------- -------- -------- ---------- ---------- ---------- Total shares acquired.............................. 90,580 46,862 44,770 146,733 130,255 96,494 Total shares redeemed.............................. (39,735) (4,535) (5,346) (18,247) (12,392) (6,090) ---------- -------- -------- ---------- ---------- ---------- Net increase in shares owned....................... 50,845 42,327 39,424 128,486 117,863 90,404 Shares owned, beginning of year.................... 94,457 52,130 12,706 224,508 106,645 16,241 ---------- -------- -------- ---------- ---------- ---------- Shares owned, end of year.......................... 145,302 94,457 52,130 352,994 224,508 106,645 ========== ======== ======== ========== ========== ========== Cost of shares acquired............................ $1,108,475 $586,720 $548,044 $3,738,001 $2,721,969 $1,758,817 ========== ======== ======== ========== ========== ========== Cost of shares redeemed............................ $ 483,575 $ 52,856 $ 62,960 $ 296,631 $ 201,903 $ 89,872 ========== ======== ======== ========== ========== ==========
F-47 108 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST - --------------------------------------------------------------------------------------------------------------------------- BALANCED PORTFOLIO GROWTH PORTFOLIO - --------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- Shares purchased...................................... 1,894 19,377 11,617 3,434 29,928 19,122 Shares received from reinvestment of: Dividends........................................... 628 673 207 Capital gain distributions.......................... 930 4,722 531 4,649 14,622 1,969 -------- -------- -------- ---------- ---------- -------- Total shares acquired................................. 3,452 24,772 12,355 8,083 44,550 21,091 Total shares redeemed................................. (38,408) (10,237) (2,292) (84,556) (7,932) (2,132) -------- -------- -------- ---------- ---------- -------- Net (decrease) increase in shares owned............... (34,956) 14,535 10,063 (76,473) 36,618 18,959 Shares owned, beginning of year....................... 34,956 20,421 10,358 76,473 39,855 20,896 -------- -------- -------- ---------- ---------- -------- Shares owned, end of year............................. -- 34,956 20,421 -- 76,473 39,855 ======== ======== ======== ========== ========== ======== Cost of shares acquired............................... $ 53,427 $390,678 $202,808 $ 193,400 $1,104,028 $605,607 ======== ======== ======== ========== ========== ======== Cost of shares redeemed............................... $612,103 $161,415 $ 36,890 $2,171,599 $ 204,994 $ 53,645 ======== ======== ======== ========== ========== ========
F-48 109 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST - -------------------------------------------------------------------------------------------------------------------- LIMITED MATURITY PARTNERS BOND PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 - -------------------------------------------------------------------------------------------------------------------- Shares purchased............................................ 54,409 30,075 34,180 130,332 13,985 Shares received from reinvestment of: Dividends................................................. 3,965 2,621 290 222 Capital gain distributions................................ 387 -------- -------- -------- ---------- -------- Total shares acquired....................................... 58,374 32,696 34,470 130,941 13,985 Total shares redeemed....................................... (38,053) (8,006) (592) (15,243) (1,082) -------- -------- -------- ---------- -------- Net increase in shares owned................................ 20,321 24,690 33,878 115,698 12,903 Shares owned, beginning of year............................. 62,108 37,418 3,540 12,903 -------- -------- -------- ---------- -------- Shares owned, end of year................................... 82,429 62,108 37,418 128,601 12,903 ======== ======== ======== ========== ======== Cost of shares acquired..................................... $775,612 $447,958 $473,413 $2,587,656 $247,264 ======== ======== ======== ========== ======== Cost of shares redeemed..................................... $522,741 $109,568 $ 8,393 $ 269,372 $ 21,880 ======== ======== ======== ========== ========
F-49 110 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. - -------------------------------------------------------------------------------------------- AMERICAN CENTURY VP CAPITAL APPRECIATION PORTFOLIO - -------------------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------------------- Shares purchased............................................ 4,498 33,759 35,982 Shares received from reinvestment of: Dividends................................................. Capital gain distributions................................ 3,550 1,032 -------- -------- -------- Total shares acquired....................................... 4,498 37,309 37,014 Total shares redeemed....................................... (91,069) (14,532) (7,362) -------- -------- -------- Net (decrease) increase in shares owned..................... (86,571) 22,777 29,652 Shares owned, beginning of year............................. 86,571 63,794 34,142 -------- -------- -------- Shares owned, end of year................................... -- 86,571 63,794 ======== ======== ======== Cost of shares acquired..................................... $ 40,967 $343,650 $360,144 ======== ======== ======== Cost of shares redeemed..................................... $873,490 $165,478 $ 89,378 ======== ======== ========
F-50 111 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST - -------------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE VAN ECK WORLDWIDE BOND PORTFOLIO HARD ASSETS PORTFOLIO - -------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- Shares purchased......................................... 12,314 36,665 23,946 22,265 17,397 19,029 Shares received from reinvestment of: Dividends.............................................. 2,315 302 329 545 154 263 Capital gain distributions............................. 1,034 3,792 194 -------- -------- -------- -------- -------- -------- Total shares acquired.................................... 15,663 36,967 24,275 22,810 21,343 19,486 Total shares redeemed.................................... (22,468) (6,583) (7,242) (4,948) (9,549) (5,349) -------- -------- -------- -------- -------- -------- Net increase in shares owned............................. (6,805) 30,384 17,033 17,862 11,794 14,137 Shares owned, beginning of year.......................... 56,296 25,912 8,879 34,875 23,081 8,944 -------- -------- -------- -------- -------- -------- Shares owned, end of year................................ 49,491 56,296 25,912 52,737 34,875 23,081 ======== ======== ======== ======== ======== ======== Cost of shares acquired.................................. $173,521 $419,483 $258,716 $234,961 $243,416 $309,179 ======== ======== ======== ======== ======== ======== Cost of shares redeemed.................................. $241,074 $ 70,575 $ 78,063 $ 79,715 $151,785 $ 79,846 ======== ======== ======== ======== ======== ========
F-51 112 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
VAN ECK WORLDWIDE INSURANCE TRUST - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO REAL ESTATE PORTFOLIO - ---------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 - ---------------------------------------------------------------------------------------------------------------------- Shares purchased............................................ 64,480 75,726 58,300 11,666 11,645 Shares received from reinvestment of: Dividends................................................. 605 30 167 Capital gain distributions................................ 538 -------- -------- -------- ---------- ---------- Total shares acquired....................................... 64,480 76,869 58,330 11,833 11,645 Total shares redeemed....................................... (39,010) (12,629) (3,821) (2,824) (3,949) -------- -------- -------- ---------- ---------- Net increase in shares owned................................ 25,470 64,240 54,509 9,009 7,696 Shares owned, beginning of year............................. 125,015 60,775 6,266 7,696 -------- -------- -------- ---------- ---------- Shares owned, end of year................................... 150,485 125,015 60,775 16,705 7,696 ======== ======== ======== ========== ========== Cost of shares acquired..................................... $622,693 $649,297 $804,526 $ 115,470 $ 110,595 ======== ======== ======== ========== ========== Cost of shares redeemed..................................... $566,431 $169,434 $ 43,501 $ 25,081 $ 40,791 ======== ======== ======== ========== ==========
F-52 113 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 3. INVESTMENTS, CONTINUED - --------------------------------------------------------------------------------
ALGER AMERICAN FUND - -------------------------------------------------------------------------------------------------- ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO - -------------------------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------------------------- Shares purchased............................................ 31,023 37,591 26,913 Shares received from reinvestment of: Dividends Capital gain distributions................................ 11,270 7,022 790 ---------- ---------- ---------- Total shares acquired....................................... 42,293 44,613 27,703 Total shares redeemed....................................... (9,858) (6,305) (3,263) ---------- ---------- ---------- Net increase in shares owned................................ 32,435 38,308 24,440 Shares owned, beginning of year............................. 71,721 33,413 8,973 ---------- ---------- ---------- Shares owned, end of year................................... 104,156 71,721 33,413 ========== ========== ========== Cost of shares acquired..................................... $1,781,809 $1,870,715 $1,143,613 ========== ========== ========== Cost of shares redeemed..................................... $ 382,753 $ 260,872 $ 135,282 ========== ========== ==========
F-53 114 - -------------------------------------------------------------------------------- The Providentmutual Variable Life Separate Account of Providentmutual Life and Annuity Company of America Notes to Financial Statements -- continued - -------------------------------------------------------------------------------- 4. RELATED PARTY TRANSACTIONS PLACA makes certain deductions from premiums before amounts are allocated to each Subaccount selected by the policyholder. The deductions may include (1) state premium taxes, (2) sales charges and (3) Federal tax charges. Premiums adjusted for these deductions are recorded as net premiums in the statement of changes in net assets. See original policy documents for specific charges assessed. In addition to the aforementioned charges, a daily charge will be deducted from the Separate Account for mortality and expense risks assumed by PLACA. The charge is deducted at an annual rate of 0.65% -- 0.75% of the average daily net assets of the Separate Account. This charge may be increased on a prospective basis, but in no event will it be greater than 0.90% of the average daily net assets of the Separate Account. The Separate Account is also charged monthly by PLACA for the cost of insurance protection. The amount of the charge is computed based upon the amount of insurance provided during the year and the insured's attained age. Additional monthly deductions may be made for (1) administrative charges, (2) minimum death benefit charges, (3) first year policy charges and (4) supplementary charges. See original policy documents for additional monthly charges. These charges are included in the statements of changes in net assets. During any given policy year, the first twelve transfers by a policyholder of amounts in the Subaccounts are free of charge. A fee of $25 is assessed for each additional transfer. No transfer fees were incurred during the years ended December 31, 1999, 1998 and 1997. The Policies provide for an initial free-look period. If a policy is cancelled within certain time constraints, the policyholder will receive a refund equal to the policy account value plus reimbursements of certain deductions previously made under the policy. Where state law requires a minimum refund equal to gross premiums paid, the refund will instead equal the gross premiums paid on the policy and will not reflect investment experience. If a policy is surrendered or lapses within the first 10-15 policy years (depending on the policy), a contingent deferred sales load charge and/or contingent deferred administrative charge are assessed. A deferred sales charge will be imposed if a policy is surrendered or lapses at any time within 10-15 years after the effective date of an increase in face amount. A portion of the deferred sales charge will be deducted if the related increment of face amount is decreased within 10-15 years after such increase took effect. These charges are recorded as administrative charges in the statements of changes in net assets. F-54 115 PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA (A WHOLLY-OWNED SUBSIDIARY OF PROVIDENT MUTUAL LIFE INSURANCE COMPANY) REPORT ON AUDITS OF FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 116 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Providentmutual Life and Annuity Company of America In our opinion, the accompanying statements of financial condition and the related statements of operations, of equity and of cash flows present fairly, in all material respects, the financial position of Providentmutual Life and Annuity Company of America (a wholly-owned stock life insurance subsidiary of Provident Mutual Life Insurance Company), at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Philadelphia, Pennsylvania February 7, 2000 F-56 117 PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS)
DECEMBER 31, ------------------------ 1999 1998 ---------- ---------- ASSETS Investments: Fixed maturities: Available for sale, at market (cost: 1999-$320,293; 1998-$352,107)........................................ $ 304,681 $ 359,442 Held to maturity, at amortized cost (market: 1999-$41,906; 1998-$57,419)........................... 42,263 54,671 Equity securities, at market (cost: 1999-$232; 1998-$1,278)........................................... 400 1,360 Mortgage loans............................................ 58,179 58,907 Real estate............................................... 1,794 484 Policy loans and premium notes............................ 11,168 8,454 Other invested assets..................................... 2,041 88 ---------- ---------- Total investments.................................... 420,526 483,406 ---------- ---------- Cash and cash equivalents................................... 6,010 5,581 Investment income due and accrued........................... 6,868 7,304 Deferred policy acquisition costs........................... 133,347 104,913 Reinsurance recoverable..................................... 3,515 3,054 Separate account assets..................................... 1,127,941 880,417 Other assets................................................ 1,179 1,312 ---------- ---------- Total assets......................................... $1,699,386 $1,485,987 ========== ========== LIABILITIES Policy liabilities: Future policyholder benefits.............................. $ 482,673 $ 517,625 Other policy obligations.................................. 1,744 1,181 ---------- ---------- Total policy liabilities............................. 484,417 518,806 ---------- ---------- Payable to parent........................................... 917 -- Federal income taxes payable: Current................................................... 2,676 6,281 Deferred.................................................. 1,246 2,474 Separate account liabilities................................ 1,124,803 877,713 Other liabilities........................................... 5,191 3,447 ---------- ---------- Total liabilities.................................... 1,619,250 1,408,721 ---------- ---------- COMMITMENTS AND CONTINGENCIES -- NOTE 10 EQUITY Common stock, $10 par value; authorized 500,000 shares; issued and outstanding 250,000 shares.................. 2,500 2,500 Contributed capital in excess of par...................... 44,165 44,165 Retained earnings......................................... 37,306 28,346 Accumulated other comprehensive income: Net unrealized (depreciation) appreciation on securities............................................ (3,835) 2,255 ---------- ---------- Total equity......................................... 80,136 77,266 ---------- ---------- Total liabilities and equity......................... $1,699,386 $1,485,987 ========== ==========
See accompanying notes to financial statements F-57 118 PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ------- ------- ------- REVENUES Premiums.................................................... $18,031 $13,269 $13,904 Policy and contract charges................................. 29,386 18,239 11,729 Net investment income....................................... 34,876 35,262 32,314 Other income................................................ 2,927 2,705 4,815 Net realized (losses) gains on investments.................. (1,887) 2,010 69 ------- ------- ------- Total revenues............................................ 83,333 71,485 62,831 ------- ------- ------- BENEFITS AND EXPENSES Policy and contract benefits................................ 13,435 13,884 15,606 Change in future policyholder benefits...................... 32,415 24,791 19,254 Commissions and operating expenses.......................... 22,736 19,859 15,271 Policyholder dividends...................................... 1,090 958 773 ------- ------- ------- Total benefits and expenses............................... 69,676 59,492 50,904 ------- ------- ------- Income before income taxes............................. 13,657 11,993 11,927 Income tax expense: Current................................................... 2,645 3,776 2,470 Deferred.................................................. 2,052 436 1,979 ------- ------- ------- Total income tax expense............................... 4,697 4,212 4,449 ------- ------- ------- Net Income........................................... $ 8,960 $ 7,781 $ 7,478 ======= ======= =======
See accompanying notes to financial statements F-58 119 PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA STATEMENTS OF EQUITY YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
NET CONTRIBUTED UNREALIZED COMMON CAPITAL APPRECIATION STOCK COMMON IN EXCESS RETAINED (DEPRECIATION) TOTAL SHARES STOCK OF PAR EARNINGS ON SECURITIES EQUITY ------ ------ ----------- -------- -------------- ------- Balance at January 1, 1997.......... 2,500 $2,500 $37,665 $13,087 $ 897 $54,149 ------- Comprehensive income Net income..................... -- -- -- 7,478 -- 7,478 Other comprehensive income, net of tax: Change in unrealized appreciation (depreciation) on securities................ -- -- -- -- 1,962 1,962 ------- Total comprehensive income........ 9,440 Capital contribution from parent......................... -- -- 6,500 -- -- 6,500 ----- ------ ------- ------- ------- ------- Balance at December 31, 1997........ 2,500 2,500 44,165 20,565 2,859 70,089 ------- Comprehensive income Net income..................... -- -- -- 7,781 -- 7,781 Other comprehensive income, net of tax: Change in unrealized appreciation (depreciation) on securities................ -- -- -- -- (604) (604) ------- Total comprehensive income........ 7,177 ----- ------ ------- ------- ------- ------- Balance at December 31, 1998........ 2,500 2,500 44,165 28,346 2,255 77,266 ------- Comprehensive income Net income..................... -- -- -- 8,960 -- 8,960 Other comprehensive income, net of tax: Change in unrealized appreciation (depreciation) on securities................ -- -- -- -- (6,090) (6,090) ------- Total comprehensive income........ 2,870 ----- ------ ------- ------- ------- ------- Balance at December 31, 1999........ 2,500 $2,500 $44,165 $37,306 $(3,835) $80,136 ===== ====== ======= ======= ======= =======
See accompanying notes to financial statements F-59 120 PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 8,960 $ 7,781 $ 7,478 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Interest credited to variable universal life and investment products..................................... 24,461 21,927 15,076 Amortization of deferred policy acquisition costs......... 16,426 14,804 9,445 Capitalization of deferred policy acquisition costs....... (31,369) (35,985) (31,404) Deferred Federal income taxes............................. 2,052 436 1,979 Depreciation, amortization and accretion.................. (371) 372 625 Net realized losses (gains) on investments................ 1,887 (2,010) (69) Change in investment income due and accrued............... 436 (258) (437) Change in reinsurance recoverable......................... (461) 71,620 5,672 Change in policy liabilities.............................. (894) (77,582) (12,255) Change in other liabilities............................... 1,744 (3,444) 3,250 Change in current Federal income taxes payable............ (3,605) 2,353 (809) Other, net................................................ 294 (2,236) (2,676) --------- --------- --------- Net cash provided by (used in) operating activities..... 19,560 (2,222) (4,125) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of investments: Available for sale securities............................. 27,345 21,681 21,382 Equity securities......................................... 652 370 100 Real estate............................................... -- 5,324 772 Other invested assets..................................... 566 248 333 Proceeds from maturities of investments: Held to maturity securities............................... 13,801 10,128 19,184 Available for sale securities............................. 58,546 56,894 28,439 Mortgage loans............................................ 8,631 4,436 2,599 Purchases of investments: Held to maturity securities............................... (1,080) (2,000) (2,029) Available for sale securities............................. (55,525) (119,639) (72,520) Equity securities......................................... -- (207) (609) Mortgage loans............................................ (8,825) (17,166) (7,179) Real estate............................................... (65) (195) (99) Other invested assets..................................... (2,507) -- (302) Contributions of separate account seed money................ -- (330) -- Withdrawals of separate account seed money.................. -- 265 -- Policy loans and premium notes, net......................... (2,714) (1,729) (373) --------- --------- --------- Net cash provided by (used in) investing activities..... 38,825 (41,920) (10,302) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Variable universal life and investment product deposits..... 212,196 302,071 232,307 Variable universal life and investment product withdrawals............................................... (270,152) (252,348) (228,871) Capital contribution from parent............................ -- -- 6,500 --------- --------- --------- Net cash (used in) provided by financing activities..... (57,956) 49,723 9,936 --------- --------- --------- Net change in cash and cash equivalents................. 429 5,581 (4,491) Cash and cash equivalents, beginning of year................ 5,581 -- 4,491 --------- --------- --------- Cash and cash equivalents, end of year...................... $ 6,010 $ 5,581 $ -- ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for income taxes.................. $ 6,246 $ 1,434 $ 3,280 ========= ========= ========= Foreclosure of mortgage loans............................... $ 1,245 $ 500 $ -- ========= ========= =========
See accompanying notes to financial statements F-60 121 PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Providentmutual Life and Annuity Company of America (the Company) is a stock life insurance company and a wholly-owned subsidiary of Provident Mutual Life Insurance Company (Provident Mutual). On October 13, 1998, the Board of Directors of Provident Mutual unanimously approved and adopted a Plan of Conversion (Plan) to reorganize Provident Mutual Life Insurance Company, utilizing a mutual holding company structure. The Insurance Department of the Commonwealth of Pennsylvania reviewed the Plan and rendered its Decision and Order approving the Plan, subject to certain conditions, on November 6, 1998. A Special Meeting of policyholders to consider and vote upon the Plan was held on February 9, 1999. Approximately 90% of the voting policyholders approved the Plan. Subsequent to the Special Meeting, a group of dissident policyholders filed a lawsuit to block the Plan. On February 11, 1999, a Philadelphia Common Pleas Court judge issued an order granting a preliminary injunction blocking the Plan until the Court conducted a hearing. Provident Mutual continued to provide information to the Court at hearings held on March 16, 1999 and June 22, 1999. On September 16, 1999, the judge issued a permanent injunction blocking the Plan until certain additional disclosures were made. On October 29, 1999, Provident Mutual announced that it was abandoning the Plan due to practical barriers to completing all of the required steps before the December 31, 1999 deadline mandated in the Pennsylvania Insurance Department's order approving the Plan. The Company sells life and annuity products principally through a personal producing general agency (PPGA) and a brokerage sales force. The Company is licensed to operate in 49 states and the District of Columbia, each of which has regulatory oversight. Sales in 16 states accounted for 78% of the Company's sales for the year ended December 31, 1999. For many of the life and annuity products, the insurance departments of the states in which the Company conducts business must approve products and policy forms in advance of sales. In addition, selected benefit elements and policy provisions are determined by statutes and regulations in each of these states. BASIS OF PRESENTATION The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). Certain prior year amounts have been reclassified to conform to the current year presentation, including short-term investments reclassified as cash and cash equivalents. The Company prepares financial statements for filing with regulatory authorities in conformity with the accounting practices prescribed or permitted by the Insurance Department of the State of Delaware (SAP). Practices under SAP vary from GAAP primarily with respect to the deferral and subsequent amortization of policy acquisition costs, the valuation of policy reserves, the accounting for deferred taxes, the inclusion of statutory asset valuation and interest maintenance reserves and the establishment of investment valuation allowances. Amounts disclosed in the footnotes are denoted in thousands of dollars. Statutory net income was $886, $1,702 and $1,792 for the years ended December 31, 1999, 1998 and 1997, respectively. Statutory surplus was $44,161 and $44,730 as of December 31, 1999 and 1998, respectively. F-61 122 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The preparation of the accompanying financial statements required management to make estimates and assumptions that affect the reported values of assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates. The Company is subject to interest rate risk to the extent its investment portfolio cash flows are not matched to its insurance liabilities. Management believes it manages this risk through modeling of the cash flows under reasonable scenarios. INVESTED ASSETS Fixed maturity securities (bonds) which may be sold are designated as "available for sale" and are reported at market value. Unrealized appreciation/depreciation on these securities is recorded directly in equity, net of related Federal income taxes and amortization of deferred policy acquisition costs. Fixed maturity securities that the Company has the intent and ability to hold to maturity are designated as "held to maturity" and are reported at amortized cost. Equity securities (common and preferred stocks) are reported at market value. Unrealized appreciation/ depreciation on these securities is recorded directly in equity, net of related Federal income taxes and amortization of deferred policy acquisition costs. Fixed maturity and equity securities that have experienced an other than temporary decline in value are written down to fair value by a charge to realized losses. This fair value becomes the new cost basis of the particular security. Mortgage loans are carried at unpaid principal balances, less impairment reserves. For mortgage loans considered impaired, a specific reserve is established. A general reserve is also established for probable losses arising from the portfolio but not attributable to specific loans. Mortgage loans are considered impaired when it is probable that the Company will be unable to collect amounts due according to the contractual terms of the loan agreement. Upon impairment, a reserve is established for the difference between the unpaid principal of the mortgage loan and its fair value. Fair value is based on either the present value of expected future cash flows discounted at the mortgage loan's effective interest rate or the fair value of the underlying collateral. Changes in the reserve are credited (charged) to operations. Reserves totaled $740 and $1,064 at December 31, 1999 and 1998, respectively. Policy loans are reported at unpaid principal balances. Foreclosed real estate is carried at lower of cost or fair value and is held for sale. Other invested assets consist of limited partnerships carried at the lower of cost or market value. Cash and cash equivalents include cash and all highly liquid investments with a maturity of three months or less when purchased, reduced by the amount of outstanding checks. It is the Company's policy to use derivatives (exchange-traded or over-the-counter financial instruments whose value is based upon or derived from a specific underlying index or commodity) for the purpose of reducing exposure to interest rate fluctuations, but not for income generation or speculative purposes. Derivatives utilized by the Company are long and short positions on United States Treasury notes and bond futures and certain interest rate swaps. The net interest effect of futures transactions is settled on a daily basis. Cash paid or received is recorded daily, along with a receivable/payable, to settle the futures contract prior to the contract termination. The receivable/payable is carried until the contract is terminated and the remaining balance is included in either net investment income or realized gain or loss. Upon termination of a futures contract that is identified to a specific security, any gain or loss is deferred and amortized to net investment income over the expected remaining life of the hedged security. If the futures contract is not identified to a specific security, any gain or loss on termination is reported as a realized gain or loss. F-62 123 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Interest rate swaps are settled on the contract date. Cash paid or received is reported as an adjustment to net investment income. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement requires that all derivatives be recorded at fair value in the statement of financial condition as either assets or liabilities. The accounting for changes in the fair value of a derivative depends on its intended use and its resulting designation. This Statement is effective for fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of SFAS No. 133", which changed the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company plans to adopt the provisions of SFAS No. 133 effective January 1, 2001. The Company is currently reviewing SFAS No. 133 and has not yet determined its impact on the financial statements. Effective January 1, 1999, the Company adopted Statement of Position (SOP) No. 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides guidance for determining measurement and recognition of a liability or an asset for insurance-related assessments. The adoption of this statement did not have a material effect on the results of operations or the financial position of the Company. BENEFIT RESERVES AND POLICYHOLDER CONTRACT DEPOSITS Traditional Life Insurance Products Traditional life insurance products include those contracts with fixed and guaranteed premiums and benefits, and consist principally of whole life and term insurance policies, limited-payment life insurance policies and certain annuities with life contingencies. Most traditional life insurance policies are participating. In addition to guaranteeing benefits, they pay dividends, as declared annually by the Company based on its experience. Reserves on traditional life insurance products are calculated by using the net level premium method. For participating traditional life insurance policies, reserve assumptions are based on mortality rates consistent with those underlying the cash values and investment rates consistent with the Company's dividend practices. For most policies, reserves are based on the 1958 or 1980 Commissioners' Standard Ordinary (CSO) mortality table at interest rates ranging from 3.5% to 4.5%. Variable Life and Investment-Type Products Variable life products are flexible premium variable universal life. Investment-type products consist primarily of single premium and flexible premium annuity contracts. Benefit reserves and policyholder contract deposits on these products are determined following the retrospective deposit method and consist of policy values that accrue to the benefit of the policyholder, before deduction of surrender charges. PREMIUMS, CHARGES AND BENEFITS Traditional Life Insurance Premiums for individual life policies are recognized when due. Benefit claims (including an estimated provision for claims incurred but not reported), benefit reserve changes, and expenses (except those deferred) are charged to income as incurred. F-63 124 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Variable Life and Investment-Type Products Revenues for variable life and investment-type products consist of policy charges for the cost of insurance, policy initiation, administration and surrenders during the period. Premiums received and the accumulated value portion of benefits paid are excluded from the amounts reported in the statements of operations. Expenses include interest credited to policy account balances and benefit payments made in excess of policy account balances. Many of these policies are variable life or variable annuity policies, in which investment performance credited to the account balance is based on the investment performance of separate accounts chosen by the policyholder. For other policies, the account balances were credited at interest rates which ranged from 4.5% to 6.5% in 1999. Deferred Policy Acquisition Costs The costs that vary with and are directly related to the production of new business have been deferred to the extent deemed recoverable. Such costs include commissions and certain costs of underwriting, policy issue and marketing. Deferred policy acquisition costs on traditional participating life insurance policies are amortized in proportion to the present value of expected gross margins. Gross margins include margins from mortality, investments and expenses, net of policyholder dividends. Expected gross margins are redetermined regularly, based on actual experience and current assumptions of mortality, persistency, expenses, and investment experience. The average investment yields, before realized capital gains and losses, in the calculation of expected gross margins was 8.0% for 1999, 8.25% for 1998 and 8.0% for 1997. Deferred policy acquisition costs for variable life and investment-type products are amortized in relation to the incidence of expected gross profits, including realized investment gains and losses, over the expected lives of the policies. Deferred policy acquisition costs are subject to recoverability testing at the time of policy issuance and loss recognition testing at the end of each accounting period. The effect on the amortization of deferred policy acquisition costs of revisions in estimated experience is reflected in earnings in the period such estimates are revised. In addition, the effect on the deferred policy acquisition cost asset that would result from the realization of unrealized gains (losses) is recognized through an offset to Other Comprehensive Income as of the balance sheet date. CAPITAL GAINS AND LOSSES Realized capital gains and losses on sales of investments are based upon specific identification of the investments sold. A realized capital loss is recorded at the time a decline in the value of an investment is determined to be other than temporary. POLICYHOLDER DIVIDENDS Annually, the Board of Directors declares the amount of dividends to be paid to participating policyholders in the following calendar year. Dividends are earned by the policyholders ratably over the policy year. Dividends are included in the accompanying financial statements as a liability and as a charge to operations. REINSURANCE Premiums, benefits and expenses are recorded net of experience refunds, reserve adjustments and amounts assumed from or ceded to reinsurers, including commission and expense allowances. F-64 125 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) SEPARATE ACCOUNTS Separate account assets and liabilities reflect segregated funds administered and invested by the Company for the benefit of variable annuity contractholders and variable life insurance policyholders. The contractholders/policyholders bear the investment risk on separate account assets except in instances where the Company guarantees a fixed return and on the Company's seed money. The separate account assets are carried at fair value. FEDERAL INCOME TAXES Deferred income tax assets and liabilities have been recorded for temporary differences between the reported amounts of assets and liabilities in the accompanying financial statements and those in the Company's income tax returns. 2. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the fair values and carrying values of the Company's financial instruments at December 31, 1999 and 1998:
DECEMBER 31, 1999 DECEMBER 31, 1998 ------------------------ ------------------------ FAIR CARRYING FAIR CARRYING VALUE VALUE VALUE VALUE ---------- ---------- ---------- ---------- ASSETS Fixed maturities: Available for sale.............. $304,681 $304,681 $359,442 $359,442 Held to maturity................ $41,906 $42,263 $57,419 $54,671 Equity securities................. $400 $400 $1,360 $1,360 Mortgage loans.................... $57,261 $58,179 $64,225 $58,907 LIABILITIES FOR INVESTMENT-TYPE INSURANCE CONTRACTS Supplementary contracts without life contingencies.............. $7,407 $7,428 $7,479 $7,142 Individual annuities.............. $1,346,732 $1,384,023 $1,181,520 $1,215,896
The underlying investment risk of the Company's variable life and variable annuity contracts is assumed by the policyholder. These reserve liabilities are primarily reported in the separate accounts. The liabilities in the separate accounts are recorded at amounts equal to the related assets at fair value. Fair values for the Company's insurance contracts other than investment-type contracts are not required to be disclosed under Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments." However, the estimated fair value and future cash flows of liabilities under all insurance contracts are taken into consideration in the Company's overall management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts. The estimated fair value of all assets without a corresponding revaluation of all liabilities associated with insurance contracts can be misinterpreted. The following notes summarize the major methods and assumptions used in estimating the fair values of financial instruments: INVESTMENT SECURITIES Bonds, common stocks and preferred stocks are valued based upon quoted market prices, where available. If quoted market prices are not available, as in the case of private placements, fair values are based on quoted market prices of comparable instruments (see Note 3). F-65 126 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) MORTGAGE LOANS Mortgage loans are valued using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. For mortgage loans classified as nonperforming, the fair value was set equal to the lesser of the unpaid principal balance or the market value of the underlying property. POLICY LOANS Policy loans are issued with either fixed or variable interest rates, depending upon the terms of the policies. For those loans with fixed interest rates, the interest rates range from 5% to 8%. For loans with variable interest rates, the interest rates are primarily adjusted quarterly based upon changes in a corporate bond index. Future cash flows of policy loans are uncertain and difficult to predict. As a result, management deems it impractical to calculate the fair value of policy loans. INDIVIDUAL ANNUITIES AND SUPPLEMENTARY CONTRACTS The fair value of individual annuities and supplementary contracts without life contingencies is based primarily on surrender values. For those individual annuities and supplementary contracts that are not surrenderable, discounted future cash flows are used for calculating fair value. POLICYHOLDER DIVIDENDS AND ACCUMULATIONS The policyholder dividend and accumulation liabilities will ultimately be settled in cash, applied toward the payment of premiums, or left on deposit with the Company at interest. Management deems it impractical to calculate the fair value of these liabilities due to valuation difficulties involving the uncertainties of final settlement. 3. MARKETABLE SECURITIES The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of investments in fixed maturity securities and equity securities as of December 31, 1999 and 1998 are as follows:
DECEMBER 31, 1999 -------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR AVAILABLE FOR SALE COST GAINS LOSSES VALUE ------------------ --------- ---------- ---------- --------- U.S. Treasury securities and obligations of U.S. government corporations and agencies.......... $ 1,714 $ 1 $ 67 $ 1,648 Obligations of states and political subdivisions.................................. 952 37 -- 989 Corporate securities............................ 290,080 751 15,499 275,332 Mortgage-backed securities...................... 27,547 155 990 26,712 -------- ------ ------- -------- Subtotal -- fixed maturities.................. 320,293 944 16,556 304,681 Equity securities............................... 232 171 3 400 -------- ------ ------- -------- Total......................................... $320,525 $1,115 $16,559 $305,081 ======== ====== ======= ========
F-66 127 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999 -------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR HELD TO MATURITY COST GAINS LOSSES VALUE ---------------- --------- ---------- ---------- --------- U.S. Treasury securities and obligations of U.S. government corporations and agencies........... $ 4,165 $182 $ 23 $ 4,324 Corporate securities............................. 36,770 99 653 36,216 Mortgage-backed securities....................... 1,328 38 -- 1,366 ------- ---- ---- ------- Total.......................................... $42,263 $319 $676 $41,906 ======= ==== ==== =======
DECEMBER 31, 1998 -------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR AVAILABLE FOR SALE COST GAINS LOSSES VALUE ------------------ --------- ---------- ---------- --------- U.S. Treasury securities and obligations of U.S. government corporations and agencies.......... $ 562 $ 38 $ -- $ 600 Obligations of states and political subdivisions.................................. 3,416 215 -- 3,631 Corporate securities............................ 317,068 9,330 3,340 323,058 Mortgage-backed securities...................... 31,061 1,121 29 32,153 -------- ------- ------ -------- Subtotal -- fixed maturities.................. 352,107 10,704 3,369 359,442 Equity securities............................... 1,278 495 413 1,360 -------- ------- ------ -------- Total......................................... $353,385 $11,199 $3,782 $360,802 ======== ======= ====== ========
DECEMBER 31, 1998 -------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR HELD TO MATURITY COST GAINS LOSSES VALUE ---------------- --------- ---------- ---------- --------- U.S. Treasury securities and obligations of U.S. government corporations and agencies........... $ 4,655 $ 594 $-- $ 5,249 Corporate securities............................. 46,618 1,849 1 48,466 Mortgage-backed securities....................... 3,398 306 -- 3,704 ------- ------ --- ------- Total.......................................... $54,671 $2,749 $ 1 $57,419 ======= ====== === =======
The amortized cost and estimated fair value of fixed maturity securities at December 31, 1999, by contractual maturity, are as follows:
AMORTIZED ESTIMATED AVAILABLE FOR SALE COST FAIR VALUE ------------------ --------- ---------- Due in one year or.......................................... $ 13,041 $ 13,064 Due after one year through five years....................... 117,657 115,895 Due after five years through ten years...................... 106,214 98,939 Due after ten years......................................... 83,381 76,783 -------- -------- Total..................................................... $320,293 $304,681 ======== ========
F-67 128 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AMORTIZED ESTIMATED HELD TO MATURITY COST FAIR VALUE ---------------- --------- ---------- Due in one year or less..................................... $ 5,416 $ 5,413 Due after one year through five years....................... 19,961 19,773 Due after five years through ten years...................... 13,993 13,984 Due after ten years......................................... 2,893 2,736 ------- -------- Total..................................................... $42,263 $ 41,906 ======= ========
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are included based on their contractual maturity. Realized (losses) gains on investments for the years ended December 31, 1999, 1998 and 1997 are summarized as follows:
1999 1998 1997 ------- ------ ------- Fixed maturities....................................... $(1,506) $ (292) $ 1,135 Equity securities...................................... (393) (273) (1,360) Mortgage loans......................................... -- (194) 104 Real estate............................................ -- 2,735 133 Other invested assets.................................. 12 34 57 ------- ------ ------- $(1,887) $2,010 $ 69 ======= ====== =======
Net unrealized (depreciation) appreciation on available for sale securities as of December 31, 1999 and 1998 is summarized as follows:
1999 1998 -------- ------- Net unrealized (depreciation) appreciation before adjustments for the following:............................ $(15,444) $ 7,417 Amortization of deferred policy acquisition costs......... 9,545 (3,947) Deferred Federal income taxes............................. 2,064 (1,215) -------- ------- Net unrealized (depreciation) appreciation.................. $ (3,835) $ 2,255 ======== =======
F-68 129 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Net investment income, by type of investment, is as follows for the years ending December 31, 1999, 1998 and 1997:
1999 1998 1997 ------- ------- ------- Gross investment income: Fixed maturities: Available for sale.................................. $25,413 $25,294 $22,559 Held to maturity.................................... 4,126 4,686 5,692 Equity securities..................................... 2 66 92 Mortgage loans........................................ 5,099 4,485 3,924 Real estate........................................... 183 523 591 Policy loans.......................................... 427 299 214 Cash and cash equivalents............................. 255 431 258 Other, net............................................ 119 781 9 ------- ------- ------- 35,624 36,565 33,339 Less investment expenses.............................. (748) (1,303) (1,025) ------- ------- ------- Net investment income................................. $34,876 $35,262 $32,314 ======= ======= =======
4. MORTGAGE LOANS The carrying value of impaired loans was $0 and $2,363, which were net of reserves of $0 and $474 as of December 31, 1999 and 1998, respectively. A reconciliation of the reserve balance, including general reserves, for mortgage loans for 1999 and 1998 is as follows:
1999 1998 ------ ------ Balance at January 1........................................ $1,064 $1,170 Provision, net of recoveries................................ (324) 124 Releases due to foreclosures................................ -- (230) ------ ------ Balance at December 31...................................... $ 740 $1,064 ====== ======
The average recorded investment in impaired loans was $1,418 and $2,624 during 1999 and 1998, respectively. Interest income recognized on impaired loans during 1999, 1998 and 1997 was $124, $237 and $284, respectively. All interest income on impaired loans was recognized on the cash basis. 5. REAL ESTATE Real estate totaled $1,794 and $484 as of December 31, 1999 and 1998, respectively. Depreciation expense was $0, $116 and $113 for the years ended December 31, 1999, 1998 and 1997, respectively. F-69 130 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. DEFERRED POLICY ACQUISITION COSTS A reconciliation of the deferred policy acquisition cost (DAC) asset for 1999, 1998 and 1997 is as follows (in thousands):
1999 1998 1997 -------- -------- ------- Balance at January 1,............................... $104,913 $ 83,291 $62,520 Expenses deferred................................... 31,369 35,985 31,404 Amortization of DAC................................. (16,426) (14,804) (9,445) Effect on DAC from unrealized losses (gains)........ 13,491 441 (1,188) -------- -------- ------- Balance at December 31,............................. $133,347 $104,913 $83,291 ======== ======== =======
7. FEDERAL INCOME TAXES The Company is included in a consolidated Federal income tax return with Provident Mutual. The tax liability is accrued on a separate company basis, adjusted for an allocation of an equity tax from Provident Mutual. The provision for Federal income taxes from operations differs from the normal relationship of Federal income tax to pretax income as follows:
YEAR ENDED DECEMBER 31, -------------------------- 1999 1998 1997 ------ ------ ------ Federal income tax at statutory rate..................... $4,780 $4,198 $4,174 Current year equity tax................................ 817 664 900 True down of prior years' equity tax................... (900) (650) (625) ------ ------ ------ Provision for Federal income tax from operations......... $4,697 $4,212 $4,449 ====== ====== ======
Deferred income tax assets and liabilities reflect the income tax effects of cumulative temporary differences between the reported values of assets and liabilities for financial statement purposes and income tax return purposes. Components of the Company's net deferred income tax liability are as follows at December 31, 1999 and 1998:
1999 1998 ------- ------- DEFERRED TAX LIABILITY Deferred policy acquisition costs........................... $36,685 $32,648 Net unrealized gain on available for sale securities........ -- 1,215 ------- ------- Total deferred tax liability.............................. 36,685 33,863 ------- ------- DEFERRED TAX ASSET Reserves.................................................... 32,505 30,671 Invested assets............................................. 422 353 Policyholder dividends...................................... 203 189 Net unrealized loss on available for sale securities........ 2,065 -- Other....................................................... 244 176 ------- ------- Total deferred tax asset.................................. 35,439 31,389 ------- ------- Net deferred tax liability.................................. $ 1,246 $ 2,474 ======= =======
Under current tax law, stock life insurance companies are taxed at current rates on distributions from the special surplus account for the benefit of policyholders designated "Policyholder Surplus" (the Account). The Tax Reform Act of 1984 eliminated further additions to the Account after December 31, 1983. The F-70 131 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) aggregate accumulation at December 31, 1983 was $2,037. The Company has no present plans to make any distributions which would subject the Account to current taxation. The Company's Federal income tax returns have been audited through 1995. All years through 1985 are closed. Years 1986 through 1995 have been audited and are closed with the exception of several issues for which claims for refund have been filed. Years 1996 and subsequent remain open. In the opinion of management, adequate provision has been made for the possible effect of potential assessments related to prior years' taxes. 8. REINSURANCE In the normal course of business, the Company assumes risks from and cedes certain parts of its risks to other insurance companies. The primary purpose of ceded reinsurance is to limit losses from large exposures. For life insurance, the Company retains no more than $1,500 on any single life. Reinsurance contracts do not relieve the Company of its obligations to policyholders. To the extent that reinsuring companies are later unable to meet obligations under reinsurance agreements, the Company would be liable for these obligations. The Company evaluates the financial condition of its reinsurers and limits its exposure to any one reinsurer. The tables below highlight the amounts shown in the accompanying financial statements, which are net of reinsurance activity:
CEDED TO ASSUMED GROSS OTHER FROM OTHER NET AMOUNT COMPANIES COMPANIES AMOUNT ---------- ---------- ---------- -------- DECEMBER 31, 1999 Life insurance in force..................... $3,304,015 $2,454,842 $25,319 $874,492 ========== ========== ======= ======== Premiums.................................... $ 18,580 $ 639 $ 90 $ 18,031 ========== ========== ======= ======== Future policyholder benefits................ $ 482,673 $ 3,515 $ 1,968 $481,126 ========== ========== ======= ======== DECEMBER 31, 1998: Life insurance in force..................... $2,763,532 $1,980,669 $34,968 $817,831 ========== ========== ======= ======== Premiums.................................... $ 13,771 $ 666 $ 164 $ 13,269 ========== ========== ======= ======== Future policyholder benefits................ $ 517,625 $ 3,054 $ 2,378 $516,949 ========== ========== ======= ======== DECEMBER 31, 1997: Life insurance in force..................... $2,153,084 $1,591,141 $50,233 $612,176 ========== ========== ======= ======== Premiums.................................... $ 14,367 $ 614 $ 151 $ 13,904 ========== ========== ======= ======== Future policyholder benefits................ $ 516,591 $ 74,674 $ 3,102 $445,019 ========== ========== ======= ========
On January 1, 1998, the Company terminated its reinsurance agreement with Metropolitan Life Insurance Company (Metropolitan). Prior to 1998, the Company had ceded 65 percent of the premiums and reserves related to its single premium deferred annuity (SPDA) product to Metropolitan. The Company recaptured $71,995 in reserves and received cash totaling $70,140. A coinsurance agreement exists between Provident Mutual and the Company with respect to annuities. Prior to 1992, the agreement covered SPDA's issued after 1984. The agreement was amended in 1992 to include single premium immediate annuities and supplementary contracts. Pursuant to this agreement, the Company has no reinsurance recoverables at December 31, 1999 and 1998. Deposits ceded during 1999 and 1998 were $2,627 and $2,749, respectively. F-71 132 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Approximately $1,668,604 and $1,481,828 of the Company's life insurance in force is ceded to Provident Mutual under two reinsurance agreements and a modified coinsurance agreement at December 31, 1999 and 1998, respectively. Premiums and deposits ceded were $4,146 and $4,103 during 1999 and 1998, respectively. Reinsurance recoverables at December 31, 1999 and 1998 were $132 and $134, respectively. 9. RELATED PARTY TRANSACTIONS Provident Mutual and its subsidiaries provide certain investment and administrative services to the Company. Generally, fees for these services are based on an allocation of costs upon either a specific identification basis or a proportional cost allocation basis which management believes to be reasonable. These costs include direct salaries and related benefits, including pension and other postretirement benefits as well as overhead costs. These costs were $15,941, $16,581 and $13,964 for 1999, 1998 and 1997, respectively. The contractual obligations under the Company's SPDA contracts in force and issued before September 1, 1988 are guaranteed by Provident Mutual. Total SPDA contracts affected by this guarantee in force at December 31, 1999 and 1998 approximated $73,957 and $81,050, respectively. 10. COMMITMENTS AND CONTINGENCIES FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its borrowers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include investment commitments related to its interests in mortgage loans, marketable securities lending and interest rate futures contracts. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statements of financial condition. At December 31, 1999, the Company had outstanding mortgage loan and limited partnership commitments of approximately $3,768. The mortgage loan commitments, which expire through December 2000, totaled $3,275 and were issued during 1999 at interest rates consistent with rates applicable on December 31, 1999. As a result, the fair value of these commitments approximates the face amount. Derivatives are used for hedging existing bonds (including cash reserves) against adverse price or interest rate movements and for fixing liability costs at the time of product sales. The Company had no hedge activity in 1999. The Company closed out hedge positions consisting of 226 treasury futures contracts with a dollar value of $25,727 in 1998. The approximate net losses generated from the hedge positions were $33 in 1998. There were no open hedge positions at December 31, 1999 and 1998. Periodically, the Company enters securities lending agreements to earn additional investment income on its securities. The borrower must provide cash collateral prior to or at the inception of the loan. There were no securities lending positions at December 31, 1999 or 1998. INVESTMENT PORTFOLIO CREDIT RISK Bonds The Company's bond investment portfolio is predominately comprised of investment grade securities. At December 31, 1999 and 1998, approximately $34,449 and $23,488, respectively, in debt security investments (9.5% and 5.8%, respectively, of the total debt security portfolio) are considered "below investment grade." During 1999, the Company increased its allocation of assets to "below investment grade" securities. Securities are classified as "below investment grade" primarily by utilizing rating criteria established by independent bond rating agencies. F-72 133 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Debt security investments with a carrying value at December 31, 1999 of $600 were non-income producing for the year ended December 31, 1999. The Company had debt security investments in the financial services industry at both December 31, 1999 and 1998 that exceeded 5% of total assets. Mortgage Loans The Company originates mortgage loans either directly or through mortgage correspondents and brokers throughout the country. Loans are primarily related to underlying real property investments in office and apartment buildings and retail/commercial and industrial facilities. Mortgage loans are collateralized by the related properties and such collateral generally approximates a minimum 133% of the original loan value at the time the loan is made. At December 31, 1999 and 1998, there were no delinquent mortgage loans (i.e., loans where payments on principal and/or interest are over 90 days past due). The Company had no loans in any state where principal balances in the aggregate exceeded 20% of the Company's equity. LITIGATION AND UNASSERTED CLAIMS The Company is involved in various litigation, as both plaintiff and defendant, which has arisen in the ordinary course of business, which, in the opinion of management and legal counsel, will not have a material effect on the Company's financial position or its results of operations. Insurance companies are subject to assessments, up to statutory limits, by state guaranty funds for losses of policyholders of insolvent insurance companies. In the opinion of management, the outcome of the proceedings and assessments will not have a material adverse effect on the financial statements. Guaranty fund assessments totaled $79, $109 and $236 in 1999, 1998 and 1997, respectively. Of those amounts, $76, $56 and $117 in 1999, 1998 and 1997, respectively, are creditable against future years' premium taxes. F-73 134 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 11. COMPREHENSIVE INCOME The components of other comprehensive income are as follows:
BEFORE TAX TAX (EXPENSE) NET OF TAX AMOUNT BENEFIT AMOUNT ---------- --------- ---------- YEAR ENDED DECEMBER 31, 1999: Unrealized (depreciation) appreciation on securities.................................... $(11,256) $ 3,939 $(7,317) Less: reclassification adjustment for losses realized in net income........................ 1,887 (660) 1,227 -------- ------- ------- Net change in unrealized (depreciation) appreciation on securities.................... $ (9,369) $ 3,279 $(6,090) ======== ======= ======= YEAR ENDED DECEMBER 31, 1998: Unrealized appreciation (depreciation) on securities.................................... $ 1,081 $ (378) $ 703 Less: reclassification adjustment for gains realized in net income........................ (2,010) 703 (1,307) -------- ------- ------- Net change in unrealized (depreciation) appreciation on securities.................... $ (929) $ 325 $ (604) ======== ======= ======= YEAR ENDED DECEMBER 31, 1997: Unrealized appreciation (depreciation) on securities.................................... $ 3,088 $(1,081) $ 2,007 Less: reclassification adjustment for gains realized in net income........................ (69) 24 (45) -------- ------- ------- Net change in unrealized appreciation (depreciation) on securities.................. $ 3,019 $(1,057) $ 1,962 ======== ======= =======
F-74 135 APPENDIX A -- ILLUSTRATIONS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following illustrations have been prepared to help show how certain values under the Policy change with different rates of investment performance over an extended period of time. THE HYPOTHETICAL INVESTMENT RETURNS ARE PROVIDED ONLY TO ILLUSTRATE THE MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST OR FUTURE PERFORMANCE. Actual rates of return for a particular Policy may be more or less than the hypothetical investment rates of return. The actual return on your policy account value will depend on factors such as the amounts you allocate to particular portfolios, the amounts deducted for the Policy's monthly charges, the portfolios' expense ratios, and your policy loan and partial withdrawal history. The following illustrations show how certain values under a sample Policy would change with different rates of fictional investment performance over an extended period of time. In particular, the illustrations show how the death benefit, policy account value, and net cash surrender value under a Policy covering a male insured of Age 40 on the policy date in the preferred premium class with a face amount of $100,000, would change over time if the planned premiums were paid and the return on the assets in the Subaccounts were a uniform gross annual rate (before any expenses) of 0%, 6% or 12%. The tables also show how the Policy would operate if premiums accumulated at 5% interest. The tables illustrate policy account values that would result based on assumptions that you pay the premiums indicated, you do not increase your face amount, and you do not make any partial withdrawals or take any policy loans. The death benefits, policy account values, and net cash surrender values would be lower if the insured was in a nonsmoker or smoker class or a class with extra ratings since the cost of insurance charges would increase. The values under the Policy will be different from those shown even if the returns averaged 0%, 6% or 12%, but fluctuated over and under those averages throughout the years shown. The columns shown under the heading "Guaranteed" assume that throughout the life of the policy, the monthly charge for cost of insurance is based on the maximum level permitted under the Policy, a premium expense charge of 5%, maximum monthly administrative fee of $12, an initial administrative charge of $5, and a daily charge for mortality and expense risks equivalent to an annual rate of 0.90%, with the additional Subaccount credit of 0.03% per month after the Policy is in force for 15 years or the sum of the values in the Subaccount and Guaranteed Account equal or exceed $100,000. The guaranteed premium expense charge assumes a 2% premium tax charge. However, certain states may impose higher premium taxes. For those Policies, the death benefit, policy account value, and net cash surrender value would be lower since the guaranteed premium expense charge would be higher. The columns under the heading "Current" assume that throughout the life of the policy, the monthly charge for cost of insurance is based on the current cost of insurance rate, a premium expense charge of 3.5%, current monthly administrative fee of $7.50, and a daily charge for mortality and expense risks equivalent to an annual rate of 0.75%, with the additional Subaccount credit of 0.03% per month after the Policy is in force for 15 years or the sum of the values in the Subaccount and Guaranteed Account equal or exceed $100,000. The illustrations assume no charges for Federal or state taxes or charges for supplemental benefits. The amounts shown in all tables reflect an averaging of certain other asset charges described below that may be assessed under the Policy, depending upon how premiums are allocated. The total of the asset charges reflected in the Current and Guaranteed illustrations, including the mortality and expense risk charge listed above, is 1.58% and 1.73%, respectively. This total charge is based on an assumption that an owner allocates the Policy values equally among each Subaccount of the Separate Account. The illustrations assume that the assets in the portfolios are subject to an annual expense ratio of 0.83% of the average daily net assets. This annual expense ratio is based on the average of the expense ratios of each of the portfolios for the last fiscal year and takes into account current expense reimbursement arrangements. Values illustrated would be lower if expense reimbursement arrangements were not reflected. For information on portfolio expenses, consult the Annual Portfolio Operating Expenses table in the Summary of this prospectus, and the respective expense and fee tables set forth in the portfolios' prospectuses. A-1 136 After deducting portfolio expenses and mortality and expense risk charges, the illustrated gross annual investment rates of return of 0%, 6%, and 12% would correspond to approximate net annual rates of (1.73)%, 4.17%, and 10.06%, respectively, assuming guaranteed charges, and net annual rates of (1.58)%, 4.33%, and 10.23%, respectively, assuming current charges. Upon request, we will provide illustrations of future benefits under the Policy based upon the proposed insured's age and premium class, the death benefit option, face amount, planned periodic premiums, and riders requested. We reserve the right to charge a reasonable fee for this service to persons who request more than one policy illustration during a policy year. A-2 137 PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE $100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
GUARANTEED* (NET RATE OF -1.73%) CURRENT** (NET RATE OF -1.58%) PREMIUMS -------------------------------- -------------------------------- END OF ACCUMULATED POLICY NET CASH POLICY NET CASH POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ ----------- -------- ---------- -------- -------- ---------- -------- 1 1,050 506 0 100,000 621 0 100,000 2 2,153 1,047 0 100,000 1,275 85 100,000 3 3,310 1,562 197 100,000 1,903 538 100,000 4 4,526 2,049 684 100,000 2,501 1,136 100,000 5 5,802 2,509 1,144 100,000 3,070 1,705 100,000 6 7,142 2,938 1,573 100,000 3,606 2,241 100,000 7 8,549 3,335 2,165 100,000 4,117 2,947 100,000 8 10,027 3,699 2,724 100,000 4,600 3,625 100,000 9 11,578 4,029 3,249 100,000 5,056 4,276 100,000 10 13,207 4,322 3,737 100,000 5,481 4,896 100,000 11 14,917 4,576 4,186 100,000 5,878 5,488 100,000 12 16,713 4,785 4,590 100,000 6,239 6,044 100,000 13 18,599 4,944 4,944 100,000 6,564 6,564 100,000 14 20,579 5,047 5,047 100,000 6,848 6,848 100,000 15 22,657 5,087 5,087 100,000 7,086 7,086 100,000 16 24,840 5,079 5,079 100,000 7,419 7,419 100,000 17 27,132 4,994 4,994 100,000 7,718 7,718 100,000 18 29,539 4,828 4,828 100,000 7,984 7,984 100,000 19 32,066 4,575 4,575 100,000 8,217 8,217 100,000 20 34,719 4,224 4,224 100,000 8,414 8,414 100,000 25 50,113 466 466 100,000 8,787 8,787 100,000 30 69,761 0 0 0 7,568 7,568 100,000
- --------------- * These values reflect investment results using guaranteed cost of insurance rates, mortality and expense risk, premium expense and administrative charges. ** These values reflect investment results using current cost of insurance rates, mortality and expense risk, premium expense and administrative charges. The death benefit may, and the policy account values and net cash surrender values will differ if premiums are paid in different amounts or frequencies. It is emphasized that the hypothetical investment results are illustrative only and should not be deemed a representation of past or future investment results. Actual investment results may be more or less than those shown. The death benefit, policy account value and net cash surrender value for a policy would be different from those shown if actual rates of investment return applicable to the policy averaged 0%, 6% or 12% over a period of years, but also fluctuated above or below that average for individual policy years. The death benefit, policy account value and net cash surrender value for a policy would also be different from those shown, depending on the investment allocations made to the Separate Accounts and the different rates of return of the Separate Accounts if the actual rates of investment return applicable to the policy averaged 0%, 6% or 12%, but varied above or below that average for particular Separate Accounts. No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. A-3 138 PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE $100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
GUARANTEED* (NET RATE OF -1.73%) CURRENT** (NET RATE OF -1.58%) PREMIUMS -------------------------------- -------------------------------- END OF ACCUMULATED POLICY NET CASH POLICY NET CASH POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ ----------- -------- ---------- -------- -------- ---------- -------- 1 1,050 505 0 100,505 620 0 100,620 2 2,153 1,042 0 101,042 1,271 81 101,271 3 3,310 1,553 188 101,553 1,894 529 101,894 4 4,526 2,033 668 102,033 2,486 1,121 102,486 5 5,802 2,485 1,120 102,485 3,047 1,682 103,047 6 7,142 2,904 1,539 102,904 3,572 2,207 103,572 7 8,549 3,289 2,119 103,289 4,070 2,900 104,070 8 10,027 3,639 2,664 103,639 4,538 3,563 104,538 9 11,578 3,952 3,172 103,952 4,976 4,196 104,976 10 13,207 4,224 3,639 104,224 5,381 4,796 105,381 11 14,917 4,456 4,066 104,456 5,754 5,364 105,754 12 16,713 4,640 4,445 104,640 6,090 5,895 106,090 13 18,599 4,770 4,770 104,770 6,384 6,384 106,384 14 20,579 4,841 4,841 104,841 6,634 6,634 106,634 15 22,657 4,846 4,846 104,846 6,835 6,835 106,835 16 24,840 4,797 4,797 104,797 7,133 7,133 107,133 17 27,132 4,669 4,669 104,669 7,394 7,394 107,394 18 29,539 4,457 4,457 104,457 7,618 7,618 107,618 19 32,066 4,155 4,155 104,155 7,805 7,805 107,805 20 34,719 3,754 3,754 103,754 7,953 7,953 107,953 25 50,113 0 0 0 8,015 8,015 108,015 30 69,761 0 0 0 6,366 6,366 106,366
- --------------- * These values reflect investment results using guaranteed cost of insurance rates, mortality and expense risk, premium expense and administrative charges. ** These values reflect investment results using current cost of insurance rates, mortality and expense risk, premium expense and administrative charges. The death benefit may, and the policy account values and net cash surrender values will differ if premiums are paid in different amounts or frequencies. It is emphasized that the hypothetical investment results are illustrative only and should not be deemed a representation of past or future investment results. Actual investment results may be more or less than those shown. The death benefit, policy account value and net cash surrender value for a policy would be different from those shown if actual rates of investment return applicable to the policy averaged 0%, 6% or 12% over a period of years, but also fluctuated above or below that average for individual policy years. The death benefit, policy account value and net cash surrender value for a policy would also be different from those shown, depending on the investment allocations made to the Separate Accounts and the different rates of return of the Separate Accounts if the actual rates of investment return applicable to the policy averaged 0%, 6% or 12%, but varied above or below that average for particular Separate Accounts. No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. A-4 139 PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE $100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
GUARANTEED* (NET RATE OF 4.17%) CURRENT** (NET RATE OF 4.33%) PREMIUMS -------------------------------- ----------------------------- END OF ACCUMULATED POLICY NET CASH POLICY NET CASH POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ ----------- -------- ---------- -------- ------- --------- ------- 1 1,050 549 0 100,000 668 0 100,000 2 2,153 1,165 0 100,000 1,408 218 100,000 3 3,310 1,790 425 100,000 2,165 800 100,000 4 4,526 2,422 1,057 100,000 2,934 1,569 100,000 5 5,802 3,061 1,696 100,000 3,717 2,352 100,000 6 7,142 3,705 2,340 100,000 4,510 3,145 100,000 7 8,549 4,351 3,181 100,000 5,321 4,151 100,000 8 10,027 4,999 4,024 100,000 6,148 5,173 100,000 9 11,578 5,646 4,866 100,000 6,992 6,212 100,000 10 13,207 6,289 5,704 100,000 7,851 7,266 100,000 11 14,917 6,927 6,537 100,000 8,726 8,336 100,000 12 16,713 7,553 7,358 100,000 9,613 9,418 100,000 13 18,599 8,161 8,161 100,000 10,509 10,509 100,000 14 20,579 8,744 8,744 100,000 11,413 11,413 100,000 15 22,657 9,295 9,295 100,000 12,319 12,319 100,000 16 24,840 9,842 9,842 100,000 13,385 13,385 100,000 17 27,132 10,344 10,344 100,000 14,476 14,476 100,000 18 29,539 10,795 10,795 100,000 15,596 15,596 100,000 19 32,066 11,186 11,186 100,000 16,745 16,745 100,000 20 34,719 11,503 11,503 100,000 17,924 17,924 100,000 25 50,113 11,370 11,370 100,000 24,267 24,267 100,000 30 69,761 5,734 5,734 100,000 31,133 31,133 100,000
- --------------- * These values reflect investment results using guaranteed cost of insurance rates, mortality and expense risk, premium expense and administrative charges. ** These values reflect investment results using current cost of insurance rates, mortality and expense risk, premium expense and administrative charges. The death benefit may, and the policy account values and net cash surrender values will differ if premiums are paid in different amounts or frequencies. It is emphasized that the hypothetical investment results are illustrative only and should not be deemed a representation of past or future investment results. Actual investment results may be more or less than those shown. The death benefit, policy account value and net cash surrender value for a policy would be different from those shown if actual rates of investment return applicable to the policy averaged 0%, 6% or 12% over a period of years, but also fluctuated above or below that average for individual policy years. The death benefit, policy account value and net cash surrender value for a policy would also be different from those shown, depending on the investment allocations made to the Separate Accounts and the different rates of return of the Separate Accounts if the actual rates of investment return applicable to the policy averaged 0%, 6% or 12%, but varied above or below that average for particular Separate Accounts. No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. A-5 140 PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE $100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
GUARANTEED* (NET RATE OF 4.17%) CURRENT** (NET RATE OF 4.33%) PREMIUMS -------------------------------- ----------------------------- END OF ACCUMULATED POLICY NET CASH POLICY NET CASH POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ ----------- -------- ---------- -------- ------- --------- ------- 1 1,050 547 0 100,547 666 0 100,666 2 2,153 1,159 0 101,159 1,404 214 101,404 3 3,310 1,779 414 101,779 2,155 790 102,155 4 4,526 2,403 1,038 102,403 2,916 1,551 102,916 5 5,802 3,032 1,667 103,032 3,688 2,323 103,688 6 7,142 3,661 2,296 103,661 4,466 3,101 104,466 7 8,549 4,289 3,119 104,289 5,258 4,088 105,258 8 10,027 4,913 3,938 104,913 6,061 5,086 106,061 9 11,578 5,532 4,752 105,532 6,876 6,096 106,876 10 13,207 6,140 5,556 106,140 7,699 7,114 107,699 11 14,917 6,737 6,347 106,737 8,531 8,141 108,531 12 16,713 7,313 7,118 107,313 9,367 9,172 109,367 13 18,599 7,861 7,861 107,861 10,201 10,201 110,201 14 20,579 8,373 8,373 108,373 11,031 11,031 111,031 15 22,657 8,839 8,839 108,839 11,850 11,850 111,850 16 24,840 9,285 9,285 109,285 12,828 12,828 112,828 17 27,132 9,668 9,668 109,668 13,817 13,817 113,817 18 29,539 9,981 9,981 109,981 14,817 14,817 114,817 19 32,066 10,212 10,212 110,212 15,830 15,830 115,830 20 34,719 10,346 10,346 110,346 16,852 16,852 116,852 25 50,113 8,863 8,863 108,863 22,004 22,004 122,004 30 69,761 1,210 1,210 101,210 26,536 26,536 126,536
- --------------- * These values reflect investment results using guaranteed cost of insurance rates, mortality and expense risk, premium expense and administrative charges. ** These values reflect investment results using current cost of insurance rates, mortality and expense risk, premium expense and administrative charges. The death benefit may, and the policy account values and net cash surrender values will differ if premiums are paid in different amounts or frequencies. It is emphasized that the hypothetical investment results are illustrative only and should not be deemed a representation of past or future investment results. Actual investment results may be more or less than those shown. The death benefit, policy account value and net cash surrender value for a policy would be different from those shown if actual rates of investment return applicable to the policy averaged 0%, 6% or 12% over a period of years, but also fluctuated above or below that average for individual policy years. The death benefit, policy account value and net cash surrender value for a policy would also be different from those shown, depending on the investment allocations made to the Separate Accounts and the different rates of return of the Separate Accounts if the actual rates of investment return applicable to the policy averaged 0%, 6% or 12%, but varied above or below that average for particular Separate Accounts. No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. A-6 141 PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE $100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
GUARANTEED* (NET RATE OF 10.06%) CURRENT** (NET RATE OF 10.23%) PREMIUMS -------------------------------- -------------------------------- END OF ACCUMULATED POLICY NET CASH POLICY NET CASH POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ ----------- -------- ---------- -------- -------- ---------- -------- 1 1,050 591 0 100,000 714 0 100,000 2 2,153 1,288 98 100,000 1,547 357 100,000 3 3,310 2,038 673 100,000 2,449 1,084 100,000 4 4,526 2,845 1,480 100,000 3,423 2,058 100,000 5 5,802 3,713 2,348 100,000 4,477 3,112 100,000 6 7,142 4,647 3,282 100,000 5,616 4,251 100,000 7 8,549 5,652 4,482 100,000 6,855 5,685 100,000 8 10,027 6,733 5,758 100,000 8,204 7,229 100,000 9 11,578 7,897 7,117 100,000 9,674 8,894 100,000 10 13,207 9,150 8,565 100,000 11,276 10,691 100,000 11 14,917 10,500 10,110 100,000 13,024 12,634 100,000 12 16,713 11,952 11,757 100,000 14,930 14,735 100,000 13 18,599 13,513 13,513 100,000 17,008 17,008 100,000 14 20,579 15,189 15,189 100,000 19,275 19,275 100,000 15 22,657 16,987 16,987 100,000 21,748 21,748 100,000 16 24,840 18,987 18,987 100,000 24,640 24,640 100,000 17 27,132 21,145 21,145 100,000 27,827 27,827 100,000 18 29,539 23,478 23,478 100,000 31,347 31,347 100,000 19 32,066 26,007 26,007 100,000 35,238 35,238 100,000 20 34,719 28,748 28,748 100,000 39,543 39,543 100,000 25 50,113 46,557 46,557 100,000 69,224 69,224 100,000 30 69,761 75,414 75,414 100,000 119,317 119,317 138,408
- --------------- * These values reflect investment results using guaranteed cost of insurance rates, mortality and expense risk, premium expense and administrative charges. ** These values reflect investment results using current cost of insurance rates, mortality and expense risk, premium expense and administrative charges. The death benefit may, and the policy account values and net cash surrender values will differ if premiums are paid in different amounts or frequencies. It is emphasized that the hypothetical investment results are illustrative only and should not be deemed a representation of past or future investment results. Actual investment results may be more or less than those shown. The death benefit, policy account value and net cash surrender value for a policy would be different from those shown if actual rates of investment return applicable to the policy averaged 0%, 6% or 12% over a period of years, but also fluctuated above or below that average for individual policy years. The death benefit, policy account value and net cash surrender value for a policy would also be different from those shown, depending on the investment allocations made to the Separate Accounts and the different rates of return of the Separate Accounts if the actual rates of investment return applicable to the policy averaged 0%, 6% or 12%, but varied above or below that average for particular Separate Accounts. No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. A-7 142 PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE $100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
GUARANTEED* (NET RATE OF 10.06%) CURRENT** (NET RATE OF 10.23%) PREMIUMS -------------------------------- -------------------------------- END OF ACCUMULATED POLICY NET CASH POLICY NET CASH POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT - ------ ----------- -------- ---------- -------- -------- ---------- -------- 1 1,050 589 0 100,589 713 0 100,713 2 2,153 1,282 92 101,282 1,542 352 101,542 3 3,310 2,026 661 102,026 2,438 1,073 102,438 4 4,526 2,822 1,457 102,822 3,402 2,037 103,402 5 5,802 3,677 2,312 103,677 4,441 3,076 104,441 6 7,142 4,591 3,226 104,591 5,560 4,195 105,560 7 8,549 5,568 4,398 105,568 6,772 5,602 106,772 8 10,027 6,613 5,638 106,613 8,084 7,109 108,084 9 11,578 7,731 6,951 107,731 9,507 8,727 109,507 10 13,207 8,925 8,340 108,925 11,047 10,462 111,047 11 14,917 10,199 9,809 110,199 12,718 12,328 112,718 12 16,713 11,556 11,361 111,556 14,526 14,331 114,526 13 18,599 12,995 12,995 112,995 16,481 16,481 116,481 14 20,579 14,519 14,519 114,519 18,594 18,594 118,594 15 22,657 16,126 16,126 116,126 20,874 20,874 120,874 16 24,840 17,884 17,884 117,884 23,552 23,552 123,552 17 27,132 19,740 19,740 119,740 26,478 26,478 126,478 18 29,539 21,700 21,700 121,700 29,680 29,680 129,680 19 32,066 23,766 23,766 123,766 33,185 33,185 133,185 20 34,719 25,937 25,937 125,937 37,024 37,024 137,024 25 50,113 38,214 38,214 138,214 62,466 62,466 162,466 30 69,761 51,741 51,741 151,741 102,393 102,393 202,393
- --------------- * These values reflect investment results using guaranteed cost of insurance rates, mortality and expense risk, premium expense and administrative charges. ** These values reflect investment results using current cost of insurance rates, mortality and expense risk, premium expense and administrative charges. The death benefit may, and the policy account values and net cash surrender values will differ if premiums are paid in different amounts or frequencies. It is emphasized that the hypothetical investment results are illustrative only and should not be deemed a representation of past or future investment results. Actual investment results may be more or less than those shown. The death benefit, policy account value and net cash surrender value for a policy would be different from those shown if actual rates of investment return applicable to the policy averaged 0%, 6% or 12% over a period of years, but also fluctuated above or below that average for individual policy years. The death benefit, policy account value and net cash surrender value for a policy would also be different from those shown, depending on the investment allocations made to the Separate Accounts and the different rates of return of the Separate Accounts if the actual rates of investment return applicable to the policy averaged 0%, 6% or 12%, but varied above or below that average for particular Separate Accounts. No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. A-8 143 PART II OTHER INFORMATION UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. RULE 484 UNDERTAKING Article VIII of PLACA's By-Laws provides, in part: To the fullest extent permitted by law, the Company shall indemnify any present, former or future Director, officer, or employee of the Company or any person who may serve or has served at its request as officer or Director of another corporation of which the Company is a creditor or stockholder, against the reasonable expenses, including attorney's fees, necessarily incurred in connection with the defense of any action, suit or other proceeding to which any of them is made a party because of service as Director, officer or employee of the Company or such other corporation, or in connection with any appeal therein, and against any amounts paid by such Director, officer or employee in settlement of, or in satisfaction of a judgement or fine in, any such action or proceeding, except expenses incurred in defense of or amounts paid in connection with any action, suit or other proceeding in which such Director, officer or employee shall be adjudged to be liable for negligence or misconduct in the performance of his duty. Insofar as indemnification or liability arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provision, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that any claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. REASONABLENESS REPRESENTATION Providentmutual Life and Annuity Company of America hereby represents that the fees and charges deducted under the Policy, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Providentmutual Life and Annuity Company of America. II-1 144 CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following papers and documents: The facing sheet. The Prospectus consisting of 178 pages. The undertaking to file reports. Rule 484 undertaking. Reasonableness Representation. The signatures. The following exhibits: 1.A.1.a. Resolution of the Board of Directors of Providentmutual Life and Annuity Company of America authorizing establishment of the Providentmutual Variable Life Separate Account(4) 1.A.1.b. Resolution of the Board of Directors of Providentmutual Life and Annuity Company of America authorizing additional Subaccounts of the Providentmutual Variable Life Separate Account(4) 1.A.1.c. Resolution of the Board of Directors of Providentmutual Life and Annuity Company of America authorizing additional Subaccounts of the Providentmutual Variable Life Separate Account 1.A.2. None 1.A.3.a.i. Form of Underwriting Agreement among Providentmutual Life and Annuity Company of America, PML Securities, Inc. and Providentmutual Variable Life Separate Account(4) 1.A.3.b.i. Personal Producing General Agent's Agreement and Supplement(4) 1.A.3.b.ii. Personal Producing Agent's Agreement and Supplement(4) 1.A.3.b.iii. Producing General Agent's Agreement and Supplement(4) 1.A.3.c.iv. Form of Selling Agreement between PML Securities, Inc. and Broker/Dealers(4) 1.A.4. Inapplicable 1.A.5. Individual Flexible Premium Adjustable Variable Life Insurance Policy (Form VL201)(5) 1.A.5.a. Convertible Term Life Rider (PLC308)(4) 1.A.5.b. Additional Insurance Benefit Rider (R2308)(5) 1.A.5.c. Guaranteed Minimum Death Benefit Ride (PLC320)(4) 1.A.5.d. Children's Term Rider (PLC306)(5) 1.A.5.e. Extension of Final Policy Date Rider (PLC822)(4) 1.A.5.f. Change of Insured Rider (PLC905)(4) 1.A.5.g. Disability Waiver Benefit Rider (R2901)(5) 1.A.5.h. Disability Waiver of Premium Benefit Rider (PLC903)(5) 1.A.5.i. Qualify as Section 403(b) Rider (PLC827)(2) 1.A.5.j. Accelerated Death Benefit Rider (PLC/0904)(1) 1.A.6.a. Charter of Providentmutual Life and Annuity Company of America(1) 1.A.6.b. By-Laws of Providentmutual Life and Annuity Company of America(1) 1.A.7. Inapplicable
II-2 145 1.A.8. Inapplicable 1.A.9. Inapplicable 1.A.10. Form of Application 1.A.10.a. Supplemental Application for Flexible Premium(3) 1.A.10.b. Initial Allocation Selection(3) 2. See Exhibits 1.A 3. Opinion and consent of James G. Potter, Jr., Esquire 4. Inapplicable 5. Inapplicable 6. Opinion and consent of Scott V. Carney, FSA, MAAA 7.A. Consent of Sutherland Asbill & Brennan LLP 7.B. Consent of PricewaterhouseCoopers LLP 8. Description of Providentmutual Life and Annuity Company of America's Issuance, Transfer and Redemption Procedures for Policies 9. Powers of Attorney 10.A. Participation Agreement among Market, Street Fund, Inc., Providentmutual Life and Annuity Company of America and PML Securities, Inc.(1) 10.B. Participation Agreement among Variable Insurance Products Fund, Fidelity Corporation and Providentmutual Life and Annuity Company of America(2) 10.C. Participation Agreement among Variable Insurance Products Fund II, Fidelity Corporation and Providentmutual Life and Annuity Company of America(2) 10.D. Form of Fund Participation Agreement among Neuberger & Berman Advisers Managers Trust and Providentmutual Life and Annuity Company of America(1) 10.E. Participation Agreement between Van Eck Investment Trust and Providentmutual Life and Annuity Company of America(1) 10.F. Participation Agreement among The Alger American Fund, Providentmutual Life and Annuity Company of America and Fred Alger and Company Incorporated(2) 10.G. Support Agreement between Provident Mutual Life Insurance Company and Providentmutual Life and Annuity Company of America.(1) 10.H. Form of Participation Agreement between Strong Opportunity Fund II, Inc., Strong Variable Insurance Funds, Inc. and Providentmutual Life and Annuity Company of America 27. Inapplicable
- --------------- (1) Incorporated herein by reference to Post-Effective Amendment No. 5 to the Form S-6 Registration Statement for Provident Mutual Life Insurance Company filed on May 1, 1998, File No. 33-65512. (2) Incorporated herein by reference to Post-Effective Amendment No. 18 to the Form S-6 Registration Statement for Provident Mutual Life Insurance Company filed on May 1, 1998, File No. 33-2625. (3) Incorporated herein by reference to Post-Effective Amendment No. 11 to the Form S-6 Registration Statement for Provident Mutual Life Insurance Company filed on May 1, 1998, File No. 33-42133. (4) Incorporated herein by reference to Post-Effective Amendment No. 4 to the Form S-6 Registration Statement for Providentmutual Life and Annuity Company of America filed on May 1, 1998, File No. 33-83138. II-3 146 (5) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form S-6 Registration Statement for Provident Mutual Life Insurance Company filed on March 4, 1999, File No. 333-67775. II-4 147 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, Providentmutual Variable Life Separate Account, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Registration Statement and has duly caused this Post-Effective Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the County of New Castle and State of Delaware, on the 24th day of April, 2000. PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT (Registrant) By: PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA (Depositor) Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS ------------------------------------------ - ----------------------------------------------------- Robert W. Kloss James G. Potter, Jr. President
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA (Depositor) Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS ------------------------------------------ - ----------------------------------------------------- Robert W. Kloss James G. Potter, Jr. President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities indicated on April 24, 2000.
SIGNATURES TITLE ---------- ----- /s/ ROBERT W. KLOSS Director and President (Principal Executive - --------------------------------------------------- Officer) Robert W. Kloss /s/ STEPHEN L. WHITE Actuarial Officer (Principal Financial Officer) - --------------------------------------------------- Stephen L. White /s/ MICHAEL FUNCK Financial Reporting Officer (Principal Accounting - --------------------------------------------------- Officer) Michael Funck * Vice President and Actuary - --------------------------------------------------- Scott V. Carney * Director - --------------------------------------------------- Mary Lynn Finelli /s/ JAMES G. POTTER, JR. Director, Secretary and Legal Officer - --------------------------------------------------- James G. Potter, Jr. * Director - --------------------------------------------------- James D. Kestner
II-5 148
SIGNATURES TITLE ---------- ----- * Director - --------------------------------------------------- Sarah C. Lange * Director, Vice President and Actuary - --------------------------------------------------- Alan F. Hinkle * Director and Vice President - --------------------------------------------------- Joan C. Tucker * Director - --------------------------------------------------- Mehran Assadi * Director - --------------------------------------------------- Linda M. Springer * Treasurer - --------------------------------------------------- Rosanne Gatta *By: /s/ JAMES G. POTTER, JR. --------------------------------------------- James G. Potter, Jr. Attorney-in-fact pursuant to Power of Attorney
II-6 149 EXHIBIT INDEX
EXHIBITS - -------- 1.A.1.c. Resolution authorizing additional Subaccounts. 1.A.10. Form of Application 3. Opinion and consent of James G. Potter, Jr., Esq. 6. Opinion and consent of Scott V. Carney, FSA, MAAA 7.A. Consent of Sutherland Asbill & Brennan LLP 7.B. Consent of PricewaterhouseCoopers LLP, Independent Accountants 8. Description of Issuance, Transfer and Redemption Procedures. 9. Powers of Attorney 10.H. Form of Participation Agreement between Strong Opportunity Fund II, Inc., Strong Variable Insurance Funds, Inc. and Providentmutual Life and Annuity Company of America
II-7 EX-99.A.1.A.1.C 2 RESOLUTION AUTHORIZING ADDITIONAL SUBACCOUNTS 1 Exhibit 1 PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA - RESOLUTIONS OF THE BOARD OF DIRECTORS ADOPTED APRIL 24, 2000 RESOLUTION APPROVING CREATION OF ADDITIONAL SUBACCOUNTS OF PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT WHEREAS, Providentmutual Life and Annuity Company of America (the "Company") established the Providentmutual Variable Life Separate Account (the "Account") pursuant to the provisions of the Delaware Insurance Code, the subaccounts of which are available under variable life insurance policies issued by the Company (the "Policies"); and WHEREAS, such Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940; and WHEREAS, the Company now desires to establish two additional subaccounts within the Account, each of which will invest in shares of a designated mutual fund portfolio and to which net premiums under the Policies shall be allocated in accordance with instructions received from owners of such Policies; NOW, THEREFORE, BE IT RESOLVED, that the following subaccounts are hereby established within the Account; the Strong Opportunity Fund II Subaccount and the Strong VIF Mid Cap Growth Fund Subaccount (the "Subaccounts"); and FURTHER RESOLVED, that the portion of the assets of the Account and the Subaccounts equal to the reserves and other contract liabilities with respect to the Account and the Subaccounts shall not be chargeable with liabilities arising out of any other business the Company may conduct; and FURTHER RESOLVED, that the income, gains and losses, realized or unrealized, from assets allocated to the Account or the Subaccounts shall, in accordance with the Policies, be credited to or charged against such Account or Subaccounts without regard to other income, gains or losses of the Company; and FURTHER RESOLVED, that the President is hereby authorized to take all necessary and appropriate action to enter into agreements for the sale of shares and to take such other actions and execute such other agreements as they deem necessary or desirable to carry out the foregoing resolutions and the intent and purposes thereof. EX-99.A.1.A.10 3 FORM OF APPLICATION 1 Exhibit PC 0125 ==================================================================================================================================== 1. COMPANY & PRODUCT a) PLEASE CHOOSE ONE: [ ] PROVIDENT MUTUAL LIFE INSURANCE COMPANY [ ] PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA, A Stock Life Insurance Company b) PRODUCT NAME ________________________________________________________________________________________________________________ ==================================================================================================================================== 2. FIRST INSURED Name of First Insured (First, Middle, Last) Social Security Number --------------------------------------------------------------------------------------------------------------------------------- Sex Date of Birth Birth Place Driver's License State & Number Month Day Year [ ] Male [ ] Female / / --------------------------------------------------------------------------------------------------------------------------------- RESIDENCE: Street City State Zip --------------------------------------------------------------------------------------------------------------------------------- Years at this Address Citizenship: Area Code & Home Phone Number [ ] U.S. [ ] Other: ___________________ --------------------------------------------------------------------------------------------------------------------------------- Occupation (include duties) No. of Years --------------------------------------------------------------------------------------------------------------------------------- BUSINESS NAME --------------------------------------------------------------------------------------------------------------------------------- Street City State Zip --------------------------------------------------------------------------------------------------------------------------------- Area Code & Business Phone Number E-mail Address ==================================================================================================================================== 3. SECOND INSURED Complete for Survivorship Policies or for an Other Insured Rider on a single life policy. Name of Second Insured (First, Middle, Last) Social Security Number --------------------------------------------------------------------------------------------------------------------------------- Sex Date of Birth Birth Place Driver's License State & Number Month Day Year [ ] Male [ ] Female / / --------------------------------------------------------------------------------------------------------------------------------- RESIDENCE: Street [ ] Same as First Insured City State Zip --------------------------------------------------------------------------------------------------------------------------------- Years at this Address Citizenship: Area Code & Phone Number (Daytime) [ ] U.S. [ ] Other: ___________________ --------------------------------------------------------------------------------------------------------------------------------- Occupation (include duties) No. of Years --------------------------------------------------------------------------------------------------------------------------------- BUSINESS NAME --------------------------------------------------------------------------------------------------------------------------------- Street City State Zip ==================================================================================================================================== 4. CHILDREN'S TERM RIDER Not available with all products. CHILDREN MAY NOT EXCEED AGE 18. Insurance Amount per child: $ --------------------------------------------------------------------------------------------------------------------------------- Full Name Relationship Date of Birth Sex Height Weight Social Security Number --------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------- ==================================================================================================================================== A3 1.99 Page 1 of 10 (Rev. 5.00)
2 PC 0125 ==================================================================================================================================== 5. OWNER Complete only if Owner to be other than Insured [ ] Individual Owner [ ] Corporation, Partnership Multiple Owners. [ ] tenants in common [ ] joint with right of survivorship Trust (Living Trust or Pension Trust) --------------------------------- ------------------------------------------------------ (Date for Living Trust) (Trustees) [ ] Irrevocable [ ] Revocable [ ] Pension - ------------------------------------------------------------------------------------------------------------------------------------ Name(s) (First, Middle, Last) of Owner(s), Trust, Corporation or Partnership - ------------------------------------------------------------------------------------------------------------------------------------ Street Soc. Sec. No. or Tax ID No. - ------------------------------------------------------------------------------------------------------------------------------------ City State Zip Date of Birth Month Day Year - ------------------------------------------------------------------------------------------------------------------------------------ Area Code & Phone Number (daytime) E-mail Address Relationship to Insured ==================================================================================================================================== 6. CONTINGENT OWNER At owner's death, owner will be: [ ] Estate of Owner [ ] Insured [ ] Other (complete below) - ------------------------------------------------------------------------------------------------------------------------------------ Name(s) (First, Middle, Last) Soc. Sec. No. or Tax ID No. - ------------------------------------------------------------------------------------------------------------------------------------ Street Date of Birth Month Day Year - ------------------------------------------------------------------------------------------------------------------------------------ City State Zip Relationship to Insured ==================================================================================================================================== 7. PREMIUM BILLING ADDRESS Complete only if premium payor is other than Owner Payor Name Relationship to the Insured - ------------------------------------------------------------------------------------------------------------------------------------ Street City State Zip ==================================================================================================================================== 8. PRIMARY BENEFICIARY To designate the Beneficiary for the Other insured Rider also complete Q.#10 FULL NAME OF BENEFICIARY RELATIONSHIP TO INSURED - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== 9. CONTINGENT BENEFICIARY Will be Beneficiary if Primary Beneficiary dies before the Insured. To designate the Contingent Beneficiary for the Other Insured Rider also complete. Q.#11 FULL NAME OF BENEFICIARY RELATIONSHIP TO INSURED - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== 10. BENEFICIARY FOR OTHER INSURED RIDER Primary Beneficiary for Other Insured Rider FULL NAME OF BENEFICIARY RELATIONSHIP TO INSURED - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== 11. CONTINGENT BENEFICIARY FOR OTHER INSURED RIDER Will be Beneficiary if Primary Beneficiary dies before Other Insured FULL NAME OF BENEFICIARY RELATIONSHIP TO INSURED - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== A3 1.99 Page 2 of 10 (Rev 5.00)
3
12. FACE AMOUNT & DEATH BENEFIT OPTION a) Face Amount $__________________________ b) Death Benefit Option: / / Option A - Level / / Option B - Increasing 13. RIDERS Not all Riders are available in all States SINGLE LIFE PRODUCTS: Waiver Benefit (choose either #1 or #2) 1. / / Disability Waiver of Premium Benefit: (choose either "a." or "b.") a. / / Monthly Equivalent of Planned Periodic Premium b. / / Other Monthly Amount $______________________________ 2. / / Disability Waiver of Monthly Deductions / / Change of Insured Rider / / Accelerated Death Benefit Rider / / Other Insured Rider - Insurance Amount $______________________ / / Primary Insured Term Rider $__________________________________ / / Guaranteed Death Benefit Rider________________________________ / / ______________________________________________________________ SURVIVORSHIP PRODUCTS: / / Disability Waiver of Monthly Deductions: / / Insured 1 / / Insured 2 / / Policy Split Option / / Change of Insured Rider / / Single Life Term Insurance Rider / / Insured 1 Amount $___________________________________ / / Insured 2 Amount $___________________________________ / / Guaranteed Death Benefit Rider / / Estate Protection Rider / / __________________________________________________________ 14. PREMIUM & MODE Initial Premium Paid with Application $________________________ / / No initial premium paid with application Planned Periodic Premium: / / Annual $___________________________________ / / Semi-Annual $______________________________ / / Quarterly $________________________________ / / Monthly List Bill $________________________ List Bill Number___________________ If adding to an existing list bill only. / / Automatic Premium Payment (APP) $_______________________________________ Attach completed authorization and void check. / / None Is this a 403(b)? / / Yes
Policy loan interest rate for all products will be fixed. A3 1.99 Page 3 of 10 (Rev. 5.00) 4 PC 0125 - ------------------------------------------------------------------------------------------------------------------------------- 15. DOLLAR COST AVERAGING Not available with Automatic Asset Rebalancing Not applicable to Universal Life Please transfer $______________ each month from the ____________________________ Subaccount (excludes Guaranteed Account) to the Subaccount(s) designated in Q.#16 over the period indicated: / / 6 months ($3,000 minimum) / / 18 months ($9,000 minimum) / / 30 months ($15,000 minimum) / / 12 months ($6,000 minimum) / / 24 months ($12,000 minimum) / / 36 months ($18,000 minimum) - ---------------------------------------------------------------------------------------------------------------------------------- 16. INITIAL ALLOCATION Whole Percentages Only Not applicable to Universal Life Separate Account/Subaccount Investing in: MONTHLY DOLLAR COST PREMIUMS DEDUCTIONS AVERAGING ALL PRO PORTFOLIOS Large Cap Growth(1) ............. ______ % ______ % ______ % Large Cap Value(1) .............. ______ % ______ % ______ % Small Cap Growth(1) ............. ______ % ______ % ______ % Small Cap Value(1) .............. ______ % ______ % ______ % SENTINEL ADVISORS COMPANY Growth(1) ....................... ______ % ______ % ______ % Aggressive Growth(1) ............ ______ % ______ % ______ % Bond(1) ......................... ______ % ______ % ______ % Managed(1) ...................... ______ % ______ % ______ % Money Market(1) ................. ______ % ______ % ______ % STATE STREET GLOBAL ADVISORS Equity 500 Index(1) ............. ______ % ______ % ______ % THE BOSTON COMPANY ASSET MGMT. International(1) ................ ______ % ______ % ______ % ALGER MANAGEMENT Small Capitalization(2) ......... ______ % ______ % ______ % FIDELITY MANAGEMENT & RESEARCH Asset Manager(4) ................ ______ % ______ % ______ % Contrafund(4) ................... ______ % ______ % ______ % Equity-Income(3) ................ ______ % ______ % ______ % Growth(3) ....................... ______ % ______ % ______ % High Income(3) .................. ______ % ______ % ______ % Investment Grade Bond(4) ........ ______ % ______ % ______ % Overseas(3) ..................... ______ % ______ % ______ % NEUBERGER BERMAN MANAGEMENT Limited Maturity Bond(5) ........ ______ % ______ % ______ % Partners(5) ..................... ______ % ______ % ______ % STRONG CAPITAL MANAGEMENT Mid Cap Growth Fund II(8) ....... ______ % ______ % ______ % Opportunity Fund II(7) .......... ______ % ______ % ______ % VAN ECK ASSOCIATES Worldwide Bond(8) ............... ______ % ______ % ______ % Worldwide Emerging Markets(8) ... ______ % ______ % ______ % Worldwide Hard Assets(8) ........ ______ % ______ % ______ % Worldwide Real Estate(8) ........ ______ % ______ % ______ % ZERO COUPON BOND 2006 Trust(9) ................... ______ % ______ % ______ % (Not available with all products) GUARANTEED ACCOUNT ______ % ______ % ______ % _________________________________ ______ % ______ % ______ % _________________________________ ______ % ______ % ______ % TOTAL 100% 100% 100% - ---------------------------------------------------------------------------------------------------------------------------------- Portfolio of (1)Market Street Fund; (2)Alger American Fund; (3)VIP Fund; (4)VIP II Fund; (5)Advisers Management Trust; (6)Strong Variable Insurance Fund; (7)Strong Opportunity Fund II; (8)Van Eck Worldwide Insurance Trust; (9)Series of The Stripped ("Zero") U.S. Treasury Securities Fund
A3 1.99 Page 4 of 10 (Rev. 5.00) 5 PC0125 - -------------------------------------------------------------------------------- 17. AUTOMATIC ASSET REBALANCING Not available with Dollar Cost Averaging Not applicable to Universal Life [ ] Annually [ ] Quarterly The Owner hereby authorizes and directs the Company to transfer funds in order to reallocate the subaccount balances to maintain the premium allocation percentages currently in effect. Note, that where applicable: - - changes to the premium allocation percentages for the policy or contract will affect automatic asset rebalancing. - - automatic asset rebalancing could result in a subaccount balance insufficient to support specified monthly deductions. - - automatic asset rebalancing does not affect account value invested in the Guaranteed Account. - -------------------------------------------------------------------------------- 18. TELEPHONE AUTHORIZATION Not applicable to Universal Life [ ] NOT ELECTED I (we) hereby authorize and direct the Company to make allowable transfers of funds or changes to my (our) allocation of future premiums among available subaccounts or to complete other transactions as may be permitted by my (our) Policy and allowed by the Company at the time of request, based upon instructions received from me (us) by telephone. I (we) agree that, to the extent permitted by law or regulation, the Company will not be responsible for, and I (we) hereby indemnify it from and against, any claim, loss, liability or expense in connection with action taken in reliance on a telephone instruction received by the Company, provided such action was taken in good faith reliance on this authorization after following reasonable procedures for identifying persons so authorized through verification methods which may include a request for Social Security numbers or other personal information. I (we) understand that: a) all telephone transactions will be recorded; and b) this authorization will continue to be in force until the earlier of (1) receipt by the Company of my (our) written revocation of this authorization; or (2) discontinuance of this program by the Company. - -------------------------------------------------------------------------------- 19. THIRD-PARTY AUTHORIZATION Not applicable to Universal Life [ ] NOT ELECTED I (we) hereby authorize _____________________________________________ ("TP") to (please print name) make on my (our) behalf allowable transfers of funds or changes to my (our) allocation of future premiums among available subaccounts or to complete other transactions as may be permitted by my (our) Policy and allowed by the Company at the time of request, based upon instructions received from TP in writing or by telephone. I (we) agree that, to the extent permitted by law or regulation, the Company will not be responsible for, and I (we) hereby indemnify it from and against, any claim, loss, liability or expense in connection with action taken in reliance on a written or telephone instruction received from TP by the Company provided such action was taken in good faith reliance on this authorization after following reasonable procedures for identifying persons so authorized through verification methods which may include a request for Social Security numbers or other personal information. I (we) understand that: a) all telephone transactions will be recorded; b) this authorization relates to specific actions permitted by my (our) Policy and allowed by the Company at the time of request and does not confer discretionary authority on TP with regard to any policies owned by me (us); and c) this authorization will continue until the earlier of (1) receipt by the Company of my (our) written revocation of this authorization; (2) notice by the Company that it will no longer acknowledge this authorization; or (3) discontinuance of this program by the Company. Signature of Third Party ________________________ Date Signed __________________ (Month, Day, Year) - -------------------------------------------------------------------------------- 20. SUITABILITY Not applicable to Universal Life Suitability Statement by Applicant(s): Yes No A. HAVE YOU RECEIVED THE MOST RECENT PROSPECTUS? [ ] [ ] B. DO YOU UNDERSTAND THAT UNDER THE POLICY APPLIED FOR, THE AMOUNT [ ] [ ] OR DURATION OF THE DEATH BENEFIT MAY VARY UNDER SPECIFIED CONDITIONS; POLICY VALUES MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNTS AND MAY INCREASE IN ACCORDANCE WITH THE INTEREST CREDITED TO THE GUARANTEED ACCOUNT; AND THE AMOUNT PAYABLE AT THE FINAL POLICY DATE IS NOT GUARANTEED BUT IS DEPENDENT ON THE POLICY ACCOUNT VALUE AT THAT TIME? C. DO YOU BELIEVE THAT THIS POLICY WILL MEET YOUR INSURANCE NEEDS AND [ ] [ ] FINANCIAL OBJECTIVES: - -------------------------------------------------------------------------------- A3 1.99 Page 5 of 10 (Rev. 5.00)
6
PC 0125 ==================================================================================================================================== 21. INSURANCE INFORMATION a. List all Life Insurance now in force. If none, write "NONE." - ------------------------------------------------------------------------------------------------------------------------------------ FACE YEAR POLICY INSURED'S NAME | COMPANY | POLICY NUMBER | AMOUNT | ISSUED | TO BE - ------------------------------------------------------------------------------------------------------------------------------------ [ ] Replaced - ------------------------------------------------------------------------------------------------------------------------------------ [ ] Replaced - ------------------------------------------------------------------------------------------------------------------------------------ [ ] Replaced - ------------------------------------------------------------------------------------------------------------------------------------ [ ] Replaced - ------------------------------------------------------------------------------------------------------------------------------------ [ ] Replaced - ------------------------------------------------------------------------------------------------------------------------------------ [ ] Replaced - ------------------------------------------------------------------------------------------------------------------------------------ YES NO b. Is the insurance now applied for intended to replace insurance or annuities in this or any other company? (If "yes," indicate above)......................................................................................... [ ] [ ] c. Are you (or anyone here proposed for coverage) now applying for Life Insurance with any other company?............. [ ] [ ] If "yes," state the company, kind of policy, and face amount being applied for ---------------------------------- ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- ==================================================================================================================================== 22. TOBACCO USE YES NO Within the past 12 months, has anyone proposed for insurance on this application used any substance containing [ ] [ ] tobacco or nicotine or any nicotine cessation product? (If "yes," provide name of person, type and frequency of use.) --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ==================================================================================================================================== 23. PERSONAL INFORMATION THE QUESTIONS IN THIS PART APPLY TO ALL PERSONS WHO ARE BEING PROPOSED FOR INSURANCE ON THIS APPLICATION, INCLUDING ALL CHILDREN LISTED IN QUESTION 4. YES NO a. Have you ever had any application for Life or Disability Insurance (or for reinstatement of Life or Disability Insurance) declined, postponed, rated or limited? (If "yes," provide details below)................................ [ ] [ ] b. In the past 3 years, have you engaged in, or do you intend to engage in flying as a pilot, student pilot, or crew member; racing of an automobile, motorcycle, or any type of motor-powered vehicle; scuba diving, mountain or rock climbing, hang gliding, parachuting, sky diving, or any type of similar hazardous activity? If "yes," complete an Aviation/Avocation Questionnaire (Form A14)........................................................................ [ ] [ ] c. Have you ever had your driver's license suspended or revoked; or been convicted of driving while impaired or intoxicated; or been convicted in the past three years of a moving violation? (If "yes," provide details below).... [ ] [ ] d. Are you a member, or do you intend to become a member, of the armed forces, including the reserves? (If "yes," provide details below)............................................................................................. [ ] [ ] e. Do you intend to travel or reside outside of the United States? (If "yes," provide details below).................. [ ] [ ] f. Have you ever been convicted of a felony? (If "yes," provide details below including parole and probation status).. [ ] [ ] g. Have you been actively at work for the past 2 years? (If "no," provide details below).............................. [ ] [ ] DETAILS: ------------------------------------------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- ====================================================================================================================================
A3 1.99 Page 6 of 10 (Rev 5.00) 7
PC 0125 =================================================================================================================================== - ----------------------------------------------------------------------------------------------------------------------------------- 24. PERSONAL PHYSICIANS NAME AND ADDRESS OF PERSONAL PHYSICIAN(S); GIVE DATE AND REASON LAST CONSULTED. (If no personal physician, list physician last consulted, date and reason last consulted) - ----------------------------------------------------------------------------------------------------------------------------------- First Insured's Physician's Name Phone No. Date Last Seen - ----------------------------------------------------------------------------------------------------------------------------------- Address: (Street, City, State, Zip) - ----------------------------------------------------------------------------------------------------------------------------------- Reason Last Seen: =================================================================================================================================== Second Insured's Physician's Name Phone No. Date Last Seen - ----------------------------------------------------------------------------------------------------------------------------------- Address: (Street, City, State, Zip) - ----------------------------------------------------------------------------------------------------------------------------------- Reason Last Seen: =================================================================================================================================== Children's Physician's Name Phone No. Date Last Seen - ----------------------------------------------------------------------------------------------------------------------------------- Address: (Street, City, State, Zip) - ----------------------------------------------------------------------------------------------------------------------------------- Reason Last Seen: =================================================================================================================================== 25. MEDICAL QUESTIONS THE QUESTIONS IN THIS PART APPLY TO ALL PERSONS WHO ARE BEING PROPOSED FOR INSURANCE ON THIS APPLICATION, INCLUDING ALL CHILDREN LISTED IN QUESTION 4. FOR ANY PROPOSED INSURED COMPLETING AN EXAM, PROCEED TO QUESTION 30. IF ANY ANSWERS TO QUESTIONS 25a THROUGH 25p ARE "YES," INCLUDE DETAILS IN QUESTION 27. To the best of your knowledge and belief, has anyone proposed for insurance on this application ever been treated for or been diagnosed as having: YES NO a. heart attack, angina (or other pain, discomfort, or tightness of the chest), shortness of breath, palpitation, irregular or rapid pulse, heart murmur, rheumatic fever, or any other disease of the heart or blood vessels? ................................................................................ [ ] [ ] b. high blood pressure, elevated cholesterol, anemia, or any other disease of the blood?................... [ ] [ ] c. dizziness or headaches, fainting spells, convulsions, seizures, epilepsy, stroke, Alzheimer's disease, multiple sclerosis, neurosis, affective disorder, psychosis, or any other brain, nervous or mental disorder? .............................................................................................. [ ] [ ] d. asthma, emphysema, tuberculosis, coughing or spitting blood, bronchitis, persistent cough, or any other disease of the lungs or respiratory system? ............................................................ [ ] [ ] e. any disorder or disease of the eyes (not fully corrected by glasses), ears, nose or throat, hearing or speech? ................................................................................................ [ ] [ ] f. recurrent indigestion or abdominal pain, colitis, ulcer, hernia, persistent diarrhea, rectal bleeding, or any other disease or disorder of the stomach, intestines, or rectum? ................................... [ ] [ ] g. nephritis, sexually transmitted disease, or any other disease of the kidneys, bladder, prostate, testes, breasts, uterus, ovaries, or any other part of the urinary tract or reproductive system? ............... [ ] [ ] h. sugar, albumin, blood, or pus in the urine? ............................................................ [ ] [ ] i. diabetes, jaundice, or any disease of the liver, pancreas, thyroid, or gallbladder? .................... [ ] [ ] j. disorder of any glands or immune system disease or disorder? ........................................... [ ] [ ] k. cancer, or any malignant or benign tumor or cyst (lumps or growth), or any disease of the skin or lymph glands? ................................................................................................ [ ] [ ] l. arthritis, rheumatism, chorea, or gout; or any chronic back, neck, spine, joint, or muscle condition? .. [ ] [ ] m. phlebitis, swelling of legs or ankles, varicose veins, or any deformity, paralysis, or loss of limb? ... [ ] [ ] n. use of alcohol, marijuana, hallucinogens, stimulants, sedatives, or narcotics or taken any treatment for alcohol or drug use? (kind and amount used) ............................................................ [ ] [ ] o. AIDS (acquired immune deficiency syndrome)? ............................................................ [ ] [ ] p. any chronic or persistent disease, infection, or disorder, injury or operation not mentioned previously? ............................................................................................ [ ] [ ] =================================================================================================================================== A3 1.99 Page 7 of 10 (Rev. 5.00)
8 PC 0125 ================================================================================ 26. ADDITIONAL MEDICAL INFORMATION
Within the past 5 years has anyone on this application proposed for insurance: YES NO a. consulted, or been examined or treated by any physician, chiropractor, or other medical practitioner or by any hospital, clinic, or other medical facility not previously mentioned?..................... / / / / b. had any X-rays, electrocardiograms, or other medical tests that were not covered above?............. / / / / c. been advised to have surgery, hospitalization, treatment, or test that was not completed?........... / / / / d. taken any drug or medicine prescribed by a physician or other practitioner?......................... / / / /
================================================================================ 27. DETAILS OF MEDICAL HISTORY
Question No. & Letter Person Date Details (Be specific. Give full names, addresses of physicians, hospitals, etc.) - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ====================================================================================================================================
If necessary, continue to Question 30 Remarks. A 31.99 Page 8 of 10 (Rev. 5.00) 9
PC 0125 - ---------------------------------------------------------------------------------------------------------------- Weight 28. PHYSICAL ------------------------ Reason for Weight MEASUREMENTS Insured Height Current 1 Year Ago Gain or Loss -------------- ----------------- ---------- ----------- ----------------- First Insured ____ Ft. ____ In. ____ Lbs. ____ Lbs. Second Insured ____ Ft. ____ In. ____ Lbs. ____ Lbs. - ---------------------------------------------------------------------------------------------------------------- 28. FAMILY First Insured Age if Age at HISTORY Person listed in Q.#2 Living Death Cause of Death --------------------- ------ ------ ----------------------------------- Father Mother Brothers & Sisters ------------------ Number Living ___ Number Dead ___ ------------------------------------------------------------------------------------------- Second Insured Age if Age at Person listed in Q.#3 Living Death Cause of Death --------------------- ------ ------ ----------------------------------- Father Mother Brothers & Sisters ------------------ Number Living ___ Number Dead ___ - ---------------------------------------------------------------------------------------------------------------- 30. SPECIAL INSTRUCTIONS OR REMARKS ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------- Amendments (Reserve for Service Center Use) - ---------------------------------------------------------------------------------------------------------------- A3 1.99 Page 9 of 10 (Rev. 5.00)
10 PC 0125 / / Provident Mutual Life Insurance Company Service Center, P.O. Box 15750, Wilmington, DE 19850-5750, (800)688-5177 / / Providentmutual Life and Annuity Company of America, A Stock Life Insurance Company Service Center, P.O. Box 15750, Wilmington, DE 19850-5750, (800)688-5177 AGREEMENT, AUTHORIZATION AND SIGNATURES I have read this application. I understand each of the questions. All of the answers and statements on this application are complete and true to the best of my knowledge and belief. I understand and agree that: 1. This application as well as any forms the Company designates as part of the application including any related medical questionnaires signed by me will become part of the Policy and are the basis of any insurance issued upon this application. I will be bound by all statements and answers in the above application, forms and medical questionnaires. 2. No medical examiner and no agent or other representative of the Company may accept risks or make or change any contract, or waive or change any of the Company's rights or requirements. 3. UNLESS OTHERWISE PROVIDED IN AN AGREEMENT FOR TEMPORARY LIFE INSURANCE OF A LIMITED AMOUNT DULY ISSUED AND DELIVERED, NO LIABILITY ON THE PART OF THE COMPANY WILL EXIST UNDER ANY POLICY APPLIED FOR HEREIN UNTIL SUCH POLICY IS DELIVERED TO THE PROPOSED INSURED OR TO THE APPLICANT AND THE FULL FIRST PREMIUM IS PAID WHILE THE PROPOSED INSURED IS ALIVE AND WHILE HIS/HER HEALTH AND OTHER CONDITIONS AFFECTING HIS/HER INSURABILITY ARE AS DESCRIBED IN THIS APPLICATION, AND AMENDMENTS, AND ANY MEDICAL QUESTIONNAIRES. 4. Acceptance of a policy issued on this application will ratify any amendment made by the Company in the space entitled "Amendments" except that any amendment as to amount or plan of insurance, age at issue, classification of risk or additional benefits must be agreed to in writing. I authorize: any licensed physician or medical practitioner, any hospital, clinic or other medical or medically related facility, any insurance company; the Medical Information Bureau; or any other organization, institution or person who has knowledge of me to give that information to the Medical Director of the Company, or its reinsurers. If children's term insurance is applied for, this authorization shall pertain also to children. No information obtained from MIB pertaining to Human Immunodeficiency Virus (HIV) or Acquired Immune Deficiency Syndrome (AIDS) will affect the issuance or the underwriting of this policy, except upon written consent to be medically tested for HIV or AIDS and the results of such testing prove positive. The Proposed Insured authorizes the Company to obtain an investigative consumer report on him/her. This authorization, or a copy of it, will be valid for a period of two years from the date it was signed. This authorization includes information about drugs, alcoholism, mental illness, Acquired Immune Deficiency Syndrome (AIDS), Human Immunodeficiency Virus (HIV), or sexually transmitted disease (STD). I understand that I or my authorized representative may ask to receive a copy of this Authorization. Copies of the "Notice of Insurance Information Practices," "Fair Credit Reporting Act Notice" and the "MIB Disclosure Notice" have also been received. I hereby certify, under penalties of perjury, that the social security number or taxpayer identification number I am providing is correct and I am neither currently subject to backup withholding, nor have been so notified by the Internal Revenue Service. Any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance or statement of claim containing any materially false information or conceals for the purpose of misleading, information concerning any fact material thereto commits a fraudulent insurance act, which is a crime and subjects such person to criminal and civil penalties. Signed at on -------------------------------- ------------------------------------- City and State Month, Day, Year - ----------------------------------------- ------------------------------------- Proposed First Insured's Signature Proposed Second Insured's Signature - ----------------------------------------- ------------------------------------- Applicant's or Owner's Signature(s) Relationship (if other than Proposed Insured) I have truly and accurately recorded all Proposed Insured's answers on this application and have witnessed his/her/their signature(s) hereon. - -------------------------------------------------------------------------------- A3 1.99 Agent's Signature(s) (Rev. 5.00) Page 10 of 10 EX-99.A.3 4 OPINION AND CONSENT OF JAMES G. POTTER, JR., ESQ. 1 Exhibit 3 [PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA LETTERHEAD] April 24, 2000 Providentmutual Life and Annuity Company of America 300 Continental Drive Newark, DE 19713 Directors: I hereby consent to the reference to my name under the caption "Legal Matters" in the Prospectus filed as part of the Post-Effective Amendment No. 2 of the Registration Statement on Form S-6 (File No. 333-67775) for the Providentmutual Variable Life Separate Account. Sincerely, /s/ James G. Potter, Jr. - ------------------------ James G. Potter, Jr., Legal Officer EX-99.A.6 5 OPINION AND CONSENT OF SCOTT V. CARNEY, FSA, MAAA 1 Exhibit 6 [PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA LETTERHEAD] April 24, 2000 Providentmutual Life and Annuity Company of America 300 Continental Drive Newark, DE 19713 Directors: I hereby consent to the reference to my name under the caption "Experts" in the Prospectus filed as part of the Post-Effective Amendment No. 2 of the Registration Statement on Form S-6 (File No. 333-67775) for the Providentmutual Variable Life Separate Account. Sincerely, /s/ Scott V. Carney - ------------------- Scott V. Carney, FSA, MAAA Actuary EX-99.A.7.A 6 CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP 1 Exhibit 7.A [Sutherland Asbill & Brennan LLP Letterhead] April 24, 2000 Board of Directors Providentmutual Life and Annuity Company of America 300 Continental Drive Newark, DE 19173 RE: PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT FILE NO. 333-67775 Directors: We hereby consent to the reference to our name under the caption "Legal Matters" in the Statement of Additional Information filed as part of the Post-Effective Amendment No. 2 of the Registration Statement on Form S-6 for Providentmutual Variable Life Separate Account (File No. 333-67775). In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. Sincerely, SUTHERLAND ASBILL & BRENNAN LLP By: /s/ Stephen E. Roth --------------------------- Stephen E. Roth EX-99.A.7.B 7 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 Exhibit 7.B CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion, in this Post-Effective Amendment No. 2 to the Registration Statement under the Securities Act of 1933, as amended, filed on Form S-6 (File No. 333-67775) for the Providentmutual Variable Life Separate Account, of the following reports: 1. Our report dated February 7, 2000 on our audits of the financial statements of Providentmutual Life and Annuity Company of America as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999. 2. Our report dated February 23, 2000 on our audits of the financial statements of the Providentmutual Variable Life Separate Account (comprising twenty-eight subaccounts) as of December 31, 1999 and for each of the three years in the period ended December 31, 1999. We also consent to the reference to our Firm under the caption "Experts". PRICEWATERHOUSECOOPERS LLP Philadelphia, Pennsylvania April 24, 2000 EX-99.A.8 8 DESCRIPTION OF ISSURANCE, TRANSFER AND REDEMPTION 1 Exhibit 8 Description of PLACA's Issuance, Transfer and Redemption Procedures for Policies Pursuant to Rule 6e-3(T)(b)(12)(iii) Set forth below is the information called for under Rule 6e-3(T)(b)(12)(iii) under the Investment Company Act of 1940 ("1940 Act"). That rule provides an exemption for separate accounts, their investment advisers, principal underwriters and sponsoring insurance company from Sections 22(c), 22(d), 22(e), and 27(c)(1) of the 1940 Act, and Rule 22(c)-1 promulgated thereunder for issuance, transfer and redemption procedures under flexible premium variable life insurance policies to the extent necessary to comply with Rule 6e-3(T), state administrative laws or established administrative procedures of the life insurance company. In order to qualify for the exemption, procedures must be reasonable, fair and not discriminatory and they must be disclosed in the registration statement filed by the separate accounts. PLACA's Separate Accounts (the Growth Separate Account, the Money Market Separate Account, the Bond Separate Account, the Managed Separate Account, the Zero Coupon Bond Separate Account, the Aggressive Growth Separate Account and the International Separate Account) are registered under the 1940 Act. Procedures described herein apply equally to each Separate Account. For purposes of this description, procedures are defined in terms of one Account except where a discussion of all or any particular Account is necessary. PLACA believes its procedures meet the requirements of Rule 6e-3(T)(b)(12)(iii) and states the following: 1. Because of the insurance nature of PLACA's flexible premium adjustable variable life insurance policies ("policies") and due to the requirements of state insurance laws, the procedures necessarily differ in significant respects from procedures for mutual funds and contractual plans for which the 1940 Act was designed. 2. In structuring its procedures to comply with Rule 6e-3(T), state insurance laws and administrative procedures of PLACA, it has attempted to comply with the intent of the 1940 Act, to the extent deemed feasible. 3. In general, state insurance laws require that PLACA's procedures be reasonable, fair and not discriminatory. 4. Because of the nature of the insurance product, it is often difficult to determine precisely when PLACA's procedures deviate from those required under Sections 22(c), 22(d), 22(e), or 27(c)(1) of the 1940 Act or Rule 22c-1 thereunder. Accordingly, set out below is a summary of the principal policy provisions and procedures which may be deemed to constitute, either directly or indirectly, such a deviation. The summary, while comprehensive, does not attempt to treat each and every procedure or variation which might occur and does include certain procedural steps which do not constitute deviations from the above-cited Sections or Rule. 1 2 I. "Redemption Procedures": Surrender and Related Transactions This section will outline those procedures which differ in certain significant respects from redemption procedures for mutual funds and contractual plans. PLACA's policies provide for the payment of monies to a policyowner or beneficiary upon presentation of a policy. The principal difference between PLACA's "redemption" procedures and those in a mutual fund or contractual plan context is that the payee will not receive a pro rata or proportionate share of the Account's assets within the meaning of the 1940 Act. The amount received by the payee will depend upon the particular benefit for which the policy is presented, including, for example, the net cash surrender value or part thereof, or proceeds at death. There are also certain policy provisions -- such as the loan privilege -- under which the policy will not be presented to PLACA but which will affect the policyowner's benefits and involve a transfer of the assets supporting the policy reserve out of the Account. Finally, state insurance laws may require that certain requirements be met before PLACA is permitted to make payments to the payee. a. Surrender for Net Cash Surrender Value A policyowner may surrender the policy for its net cash surrender value at any time while the insured is living. PLACA will ordinarily pay the net cash surrender value within seven days after receipt, at its Home Office, of the policy and a signed request for surrender. Computations with respect to the investment experience of the Account will be made at the close of trading of the New York Stock Exchange on each day during which the New York Stock Exchange is open for trading and any other day in which there is a sufficient degree of trading of an Account's portfolio of securities to materially affect the value of such Account. This will enable PLACA to pay a net cash surrender value on surrender based on the next computed value after a request is received. The surrender is effective on the date the policyholder transmits the request to PLACA. The net cash surrender value at any time during the first 10 policy years or within 10 years after the effective date of an increase in the policy's face amount is the policy account value less any outstanding policy loan and accrued interest, minus any surrender charge and any additional surrender charges. The surrender charge consists of a Deferred Administrative Charge and a Deferred Sales Charge. The Deferred Administrative Charge is equal to an amount per $1,000 Face Amount (shown below) in Policy Years 1 to 6, reducing by 20% each year for Policy Years 7 through 10.
Issue Age* Charge per $1,000 Face Amount --------- ----------------------------- 1-5 $2.00 15 3.00 25 4.00 35-80 5.00
* For Issue Ages not shown the Charge will increase by a ratable portion for each full year. 2 3 The Deferred Sales Charge is equal to 28% of the premiums received during the first policy year (or, for the additional surrender charge, the first twelve policy months after an increase) up to one target premium (which is an amount, based on age, sex and premium class of the insured, used solely for the purpose of calculating the deferred sales charge) plus 7% of all other premiums received to the date of surrender, lapse or decrease. The deferred sales charge and any deferred additional sales charge, however, will not exceed the maximum deferred sales charge and maximum deferred additional sales charge, respectively. During policy years one through six (or for six years following the effective date of an increase in face amount), this maximum equals 60% of the target premium for the initial face amount (or 60% of the target premium for the increase, as the case may be). The maximum declines to 48% of the relevant target premiums during the seventh year, 36% during the eighth year, 24% during the ninth year and 12% during the tenth year. If the face amount is increased and within 10 years if the effective date of such increase the face amount is decreased or the policy is surrendered, a deferred additional sales charge will be deducted. Any surrender charge or additional surrender charge applicable upon surrender of the policy will be deducted from the policy account value. Any pro rata surrender charge or pro rata additional surrender charge applicable upon a decrease in face amount will be allocated based on the proportion that the guaranteed account value and the value in the Accounts bear to the total unloaned policy account value. PLACA will make the payment of the net cash surrender value out of its general account and, at the same time, transfer assets from the Account to the general account in an amount equal to the portion of the policy account value in the Account. In lieu of payment of the net cash surrender value in a single sum upon surrender of a policy, an election may be made to apply all or a portion of the proceeds under one of the fixed benefit payment options described in the policies or, with the approval of PLACA, a combination of options. The election may be made by the policyowner during his or her lifetime, or, or no election is in effect at his or her death, by the beneficiary. An option in effect at death may not be changed to another form of benefit after death. The fixed benefit settlement options are subject to the restrictions and limitations set forth in the policies. b. Partial Withdrawal of Net Cash Surrender Value A policyowner may make partial withdrawal of net cash surrender value from the policy. The minimum amount of a partial withdrawn is $1500. A $25 expense charge will be deducted from the policy account value for each withdrawal. The amount of the withdrawal and the expense charge will be allocated based on the proportion that the guaranteed account value and the value in the Accounts bear to the total unloaned policy account value. 3 4 PLACA will ordinarily pay the amount of the partial withdrawal to the policyowner within 7 days after receipt at its Home Office of the withdrawal request. c. Death Claims PLACA will ordinarily pay a death benefit to the beneficiary within seven days after receipt, at its Home Office, of a certified death certificate, the claimant's statement signed by the beneficiary, and any other requirements necessary to make payment. There are two Death Benefit Options available under the policy. Under Death Benefit Option A, the death benefit is equal to the greater of: (1) the face amount of the policy; and (2) the policy account value on the date of death times the applicable percentage for the insured's attained age. Under Death Benefit Option B, the death benefit is equal to the greater of: (1) the face amount of the policy plus the policy account value on the date of death; and (2) the policy account value on the date of death times the applicable percentage for the insured's attained age. The Death Benefit Option is chosen at the time of application for the policy. After the second policy year, the owner may request a change from Option A to Option B or vice versa by completing an application for change. The change will be effective as of the policy processing day that coincides with or next follows the date PLACA approves the request. The change does not require evidence of insurability. If the policyowner changes from Option A to B, PLACA will decrease the face amount by the policy account value; if the change is from Option B to A, PLACA will increase the face amount by the policy account value. No surrender charge nor expense charge will be imposed for a decrease or increase in face amount resulting from the change. The policyowner may also request an increase or decrease in the face amount after the first policy year by completing an application for change. The minimum amount of any increase or decrease is $25,000 and the face amount may not have been increased during the prior 12-months. After a decrease the face amount may not be less than the minimum face amount for a newly issued policy ($50,000). Evidence of insurability is required to increase the face amount and the Insured's attained age must be 75 or less. If approved, the change will be effective as of the policy processing day that coincides with or next follows the date of approval and new policy schedule pages will be issued. If the change is not approved, the policy will remain as is. For a decrease in face amount, a pro rata surrender charge or pro rata additional surrender charge may be applied. For a face amount increase, PLACA will deduct a charge of $100 plus $1.00 per $1,000 Face Amount increase from the policy account value allocated in accordance with the schedule for monthly deductions in effect at that time. To determine the proceeds at death payable to the beneficiary, the death benefit will be increased to reflect any insurance benefits added by rider, and decreasing by any outstanding policy loans and accrued interest and any unpaid monthly deductions. The proceeds at death also reflects interest from the date of death to the date of payment. 4 5 If the insured dies by suicide within 2 years from the policy issue date, PLACA will pay the beneficiary the sum of all premiums paid for the policy, decreased by any policy loans and accrued interest and any partial withdrawals of net cash surrender value. If the insured dies by suicide within 2 years of the effective date of a policy change which increases the death benefit, PLACA will pay the beneficiary the sum of monthly deductions for the cost of insurance attributable to such increase, and the expense charge for the increase which was deducted from the policy account value. If the insured's stated age is not correct, the death benefit and the amount of any benefits provided by rider shall be those which would have been purchased based on the most recent deduction for cost of insurance and such benefits, at the correct age. PLACA will make payment of the death benefit out of its general account, and will transfer assets from the Account to the general account in an amount equal to the investment base in that Account. In lieu of payment of the death benefit in a single sum, a settlement option may be elected as described immediately above with respect to surrender for net cash surrender value. d. Payment of Policy Account Value on Final Policy Date On the final policy date (policy anniversary nearest Insured's attained age 100), PLACA will pay the policy account value less any outstanding policy loans and accrued interest and any unpaid monthly deductions to the policyowner and coverage under the policy will end. PLACA will ordinarily pay this amount within 7 days of the final policy date. e. Exchange of Policy During the first 2 years following issuance of the policy, the policyowner may, on one occasion, transfer the entire policy account value in the Accounts to the Guaranteed Account without such counting as a "transfer". Within 6 months after the effective date of a material change in the investment policy of a chosen Account, the policyowner may transfer the portion of the policy account value in such Account to any of the other Accounts or to the Guaranteed Account without such counting as a "transfer". Within 2 years following the effective date of a face amount increase, the policyowner may, on one occasion, exchange the amount of the increase in face amount, without submission of new evidence of insurability, for a fixed benefit permanent life insurance policy ("new policy"). The new policy will have a face amount and issue date equal to the amount and effective date of the face amount increase. Premiums for the new policy will be based on the premium rates in effect for the same attained age and premium class of the insured as of the effective date of the increase. PLACA will make a refund equal to the sum of the monthly deductions and expense charge for such increase. There is currently more than one policy into which a policyowner may exchange. This exchange privilege is designed to permit the policyowner to change his or her 5 6 mind ab initio and obtain a fixed benefit policy based on the original issue age for the increase -- just as if the policyowner had originally decided to buy fixed benefit insurance policy. f. Default and Lapse The duration of the insurance coverage under the policy depends upon whether the net cash surrender value is sufficient to cover the monthly deductions except that during the first 2 policy years, the policy will not lapse if the cumulative premiums paid (less the amount of any policy loans and partial withdrawals) equals or exceeds the Minimum Guarantee Premium. The Minimum Guarantee Premium is the Minimum Annual Premium multiplied by the number of months since the Policy Date (including the current month) divided by 12. If the net cash surrender value at the beginning of any policy month is less than the deductions for that month and, during the first 2 policy years the Minimum Guarantee Premium has not been paid, PLACA will send written notice to the policyowner at the address shown in PLACA's records stating that a grace period of 61 days began on the day PLACA mailed the notice. The notice will indicate the amount of three monthly deductions. If PLACA does not receive such amount before the end of the 61-day grace period, PLACA will withdraw the policy account value, including any applicable surrender charge and notify the policyowner that the policy has lapsed without value. The amount withdrawn will be transferred to PLACA's general account. If the Insured dies during the grace period, the insurance proceeds will be paid and any overdue monthly deductions will be deducted in determining the amount payable to the beneficiary. g. Policy Loan A policyowner may borrow from PLACA using the policy as sole security. The policyowner may borrow up to the net cash surrender value. The minimum loan amount is $1500 or such smaller minimum required by a particular state. The net cash surrender value for this purpose will be the net cash surrender value computed on the date a written request for a loan is received by PLACA. Payment of the loan from PLACA's general account will generally be made to the policyowner within seven days of receipt. Interest on the loan accrues daily at a fixed annual rate of 6%. The policyowner may repay all or a portion of any loan and accrued interest while the Insured is living and the policy is in force. PLACA will allocate the amount of a loan based on the proportion that the guaranteed account value and the value of the Accounts bear to the total unloaned policy account value at the time the loan is made. The collateral for the loan will be the loan amount plus accrued interest to the next policy anniversary less interest at 4% per annum. The collateral for the loan will be deducted from each account and transferred to the loan account. PLACA will credit the loan account with interest at effective annual rates it determines in advance of each calendar year, but not less than 4%. The collateral will be recalculated and interest credited transferred to the accounts (1) when loan interest is paid or treated as part of the loaned amount; (2) when a new loan is made; and (3) when a loan repayment is made. A transfer to or from the loan account will be made to reflect any recalculation of collateral. 6 7 Repayments up to the amount of the outstanding loan will be allocated to the accounts based on the amount of the outstanding loan allocated to each Account as of the date of repayment. Any repayment in excess of the amount of the outstanding loan will be allocated to the Accounts based on the amount of interest due on the portion of the outstanding loan allocated to each Account. The amount of interest due is determined as of the next policy anniversary. The amount of any outstanding loan plus accrued loan interest is subtracted from the death benefit or the cash surrender value on payment. h. Accelerated Death Benefit Payments An applicant may elect to have the Accelerated Death Benefit Rider (ADBR) added to a policy at the time it is issued. The ADBR permits the policyowner to receive accelerated payment of part of the policy's death benefit if the insured develops a Terminal Illness or is permanently confined to a Nursing Care Facility. To add the ADBR to a policy, however, the Insured must submit such additional evidence of insurability as if required by PLACA. The ADBR can generally be added to policies having a face amount of $50,000 or more. The minimum payment amount under the ADBR is $10,000; the maximum payment amount is 75% of the Eligible Death Benefit less 25% of any outstanding policy loans and accrued interest on such loans. The Eligible Death Benefit is the insurance proceeds payable under the policy if the insured died at the time payment of the accelerated death benefit is approved by PLACA minus: any dividend accumulations; any dividends due and not paid; any dividend payable at death if the insured died at such time; any premium refund at death if the insured died at such time; and any insurance payable under the terms of any other rider attached to the policy. The maximum aggregate payment amount from accelerated death benefits under all policies issued by PLACA and its subsidiaries is currently $250,000 (this amount will be adjusted each year, as described in the ADBR, based on the CPI Index). The accelerated death benefit payment will be made in a lump sum or in 12 or 24 equal monthly installments, as elected at the time the claim form for the benefit is submitted to PLACA. If installments are elected and the insured dies before all payments have been made, the present value (at the time of the insured's death) of the remaining payments will be paid to the beneficiary in a lump sum. Payment of an accelerated death benefit is subject to approval by PLACA of due proof of eligibility. Due proof of eligibility requires submission by the policyowner of a claim form including certification by a physician treating the insured that such insured has a Terminal Illness or is expected to be permanently confined in a Nursing Care Facility and the diagnosis of the Terminal Illness or of the disease or disorder resulting in the permanent confinement. A Terminal Illness is a noncorrectable medical condition which, with reasonable medical certainty, can be expected to result in the insured's death within 12 month. Permanent confinement in a Nursing Care Facility requires that the insured has resided in such facility for 180 consecutive days and has a disease or disorder which, with reasonable medical certainty necessitates the insured's continued residence in such facility until the time of his or her death. 7 8 An administrative charge, currently $100 and not to exceed $250, will be deducted from the accelerated death benefit at the time it is paid. Upon approval of the request for payment of the accelerated death benefit, PLACA will make a policy loan for up to the amount of the maximum loan available under the policy at the time the claim is approved. A request for a payment amount which is less than or equal to the maximum policy loan available will therefore result in a policy loan being made in the amount of the requested benefit payment. This policy loan operates as would any loan under the policy (see I.g. above). To the extent that the amount of the accelerated death benefit payment exceeds the maximum loan available under the policy, the excess amount will be advanced to the policyowner and a lien will be placed on the policy's death benefit for the amount of such advance plus interest which will accrue thereon from the date of payment until the date of death. The rate of interest is determined on the date payment is made and is the greater of: (a) Moody's Corporate Bond Yield Average for the calendar month ending two months before the beginning of the calendar quarter in which payment is made; and (b) 5%. Upon the death of the insured the amount of advance and accrued interest thereon is subtracted from the amount of insurance proceeds at death. The insurance proceeds at death otherwise payable under a policy at the time of an insured's death will be reduced by the amount of any death benefit lien and accrued interest thereon. The net cash surrender value and loan value of a policy otherwise available will be reduced by the amount of any outstanding death benefit lien plus accrued interest. Therefore, depending upon the size of the death benefit lien, this may result in the net cash surrender value and the loan value being reduced to zero. Planned periodic premiums and policy loan interest must be paid on schedule under the ADBR. However, if requested with the accelerated death benefit claim, future premiums and policy loan interest may be paid through additional accelerated death benefits. A policy will terminate on the policy anniversary when the death benefit lien exceeds the insurance proceeds at death. i. Redistributions and Transfers Among Accounts A policyowner may redistribute the policy account value in the Accounts up to 4 times a year without charge. The redistribution will be effective as of the date of receipt of the written transfer request at PLACA's Home Office. The amount transferred must be at least $1,000 (or the entire Account balance, if smaller). After 4 transfers in a policy year, a $25 transfer charge will be deducted from the amount being transferred. All transfers included in a request are treated as one "transfer" transaction. j. Right of Cancellation 8 9 PLACA's policies provide that the policyowner, within 45 days after signing Part I of the policy application, within 10 days after receipt of the policy or within 10 days after the mailing of the Notice of Withdrawal Right, whichever is latest, may return the policy and receive a refund. The refund is equal to the policy account value when the cancellation request is received, plus: (1) any premium expense charges which were deducted from premiums: (2) monthly deductions made on any policy processing day; and (3) daily charges against the Accounts and the investment advisory fees and expenses for the fund. Such a provision is required under the insurance laws of a number of states (PLACA will refund the premiums paid if such is required by state law). k. Rewrite Privilege Pursuant to an administrative procedure of PLACA known as "rewriting," PLACA policyowners may, subject to the terms of the policy, substitute another policy currently offered by PLACA for a policy issued within the six month period immediately preceding the date of rewrite. The new policy will typically have the same face amount as the original policy. The original policy will be deemed to be void and the new policy will be backdated to the issue date of the original policy in accordance with PLACA's standard backdating procedures. There is currently more than one policy into which a policyowner may rewrite. l. Refund of Excess Premiums for Modified Endowment Contracts At the time a premium is credited which would cause the policy to become a Modified Endowment Contract (MEC), PLACA will notify the policyowner that unless a refund of the excess premium is requested by the policyowner, the policy will become a MEC. The policyowner will have 30 days after receiving such notice to request the refund. The excess premium paid (with any required interest or earnings) will be returned to the policyowner upon receipt by PLACA of the request. The amount refunded will be deducted from the Accounts in the same proportion as the premium was allocated to the Accounts. II. "Public Offering Price": Purchase and Related Transactions - Section 22(d) and Rule 22c-1 This section outlines those principal policy provisions and administrative procedures which might be deemed to constitute, either directly or indirectly, a "purchase" transaction. Because of the insurance nature of the policies, the procedures involved necessarily differ in certain significant respects from the purchase procedures for mutual funds and contractual plans. The chief differences revolve around the premium rate structure and the insurance underwriting (i.e., evaluation of risk) process. There are also certain policy provisions -- such as loan repayment -- which do not result in the issuance of a policy but which require certain repayments by the policyowner and involve a transfer of assets supporting the policy reserve into the Account. a. Premium Schedules and Underwriting Standards Cost of insurance rates for PLACA's policies will not be the same for all policyholders. The chief reason is that the principle of pooling and distribution of mortality risks is based upon the 9 10 assumption that each policyowner pays an amount commensurate with the insured's mortality risk which is actuarially determined based upon factors such as age, health, smoking status and occupation. In the contest of life insurance, a uniform cost of insurance (or "public offering price") for all insureds would discriminate unfairly in favor of those insureds representing greater mortality risks to the disadvantage of those representing lesser risks. Accordingly, although there will be no uniform "public offering price" for all policyholders, there will be a single "price" for all policyholders in a given actuarial category. Lower cost of insurance rates will be charged for nonsmokers who are at least 21 years of age and who are standard risks in other respects. Additional rates will be charged for a policy involving "special" premium class or for supplementary benefits. In setting its cost of insurance rates, PLACA will take into consideration actuarial estimates of death and surrender benefits, premium payments, expenses, investment experience and an amount to be contributed to PLACA's surplus. In addition, the cost of insurance will depend upon the face amount of the policy and the age and sex of the person insured. The policies will be offered and sold pursuant to established underwriting standards and in accordance with state insurance laws. The underwriting standards and premium processing practices followed by PLACA are similar to those followed in connection with the offer and sale of fixed-benefit life insurance, modified where necessary to meet the requirements of the federal securities laws. State insurance laws prohibit unfair discrimination among policyholders, but recognize that premiums must be based upon factors such as age, sex, health and occupation. The minimum initial premium is equal to one sixth of the Minimum Annual Premium. No insurance will take effect until the minimum initial premium is paid. Prior to the final policy date, the owner may pay additional premiums at any time (subject to a $25 minimum). The policyowner may schedule planned periodic premiums for which PLACA will send a reminder notice. The policyowner is not required to pay the planned periodic premiums and may change their frequency and amount; the policy will not lapse unless the net cash surrender value is insufficient for the monthly deductions. b. Application and Initial Premium Processing Upon receipt of a completed application from a proposed policyowner, PLACA will follow certain insurance underwriting (i.e., evaluation of risks) procedures designed to determine whether the applicant is insurable. This process may require that further information be provided by the proposed insured before a determination can be made. The date on which a policy is issued is referred to as the issue date. The issue date represents the commencement of the suicide and contestable periods for purposes of the policies. For states which require a refund of the premiums paid when a policy is returned under the Free-Look provision, the portion of the minimum net initial premium and any premiums received prior to 15 days from the later of the issue date or the date the minimum initial premium is received which is to be allocated to the Accounts will be credited upon receipt to the Money 10 11 Market Separate Account. At the expiration of the 15-day period, the amount in the Money Market Separate Account will be allocated to the Accounts selected at the time of application. Insurance coverage will also typically begin on the later of the issue date or the date the minimum initial premium is received. PLACA may, however, provide temporary life insurance coverage, the death benefit of which shall not exceed $500,000, prior to the policy's issue date, provided the minimum initial premium has been paid. The policy date is the date used to determine the policy anniversary date. In addition, the insurance age of the insured will be determined as of that date. The policyowner determines the policy date. In no case may the policy date be more than six months prior to the issue date. c. Premium Processing Whenever a premium is received, PLACA will subtract the Premium Expense Charge from the premium. The Premium Expense Charge consists of the Premium Tax Charge (based on State of residence) and Percent of Premium Charge (currently 2% up until 20% of the sales load target premium is collected) and the Federal Tax Charge (currently 1.5%). What is left (the Net Premium) will be invested in the chosen Accounts as of the date received. (except for premiums received during the 15-day period specified in II b., above). d. Payment of Planned Periodic Premiums Under Automatic Premium Plan Premiums may be paid monthly under the Automatic Premium Plan (APP) where the policyowner authorized PLACA to withdraw the planned periodic premiums from the policyowner's checking account each month. The premiums are paid either through "checks" drawn on the policyowner's account or via electronic funds transfer (EFT). For all policyowners who elect APP, net premiums will be credited to the policy on the same date of each month (currently it is anticipated that this will be the 18th of each month; if the 18th falls on a weekend day or holiday, it ordinarily will be on the next following business day). The net premium will be allocated to the Separate Accounts on the day the funds are available to PLACA. e. Refund of Excess premiums for Modifies Endowment Contracts See I (1) above f. Reinstatement A policy not surrendered for its net cash surrender value may be reinstated within three years from the date of lapse in accordance with the policy. To reinstate, the policyowner generally must submit a written application for reinstatement providing evidence of insurability satisfactory to PLACA and pay PLACA an amount sufficient to keep the policy in force for at least three months after the date of reinstatement, which is the date the reinstatement application is approved. 11 12 Upon reinstatement, the policy account value will be based upon the premium paid to reinstate the policy and the policy will be reinstated with the same policy date as it had prior to the lapse. g. Repayment of Loan A loan made under PLACA's policies may be repaid while the insured is living and the policy is in force with an amount equal to the monies borrowed plus interest at a fixed annual rate of 6%. Repayments up to the amount of the outstanding loan will be allocated to the Accounts based on the allocation of the outstanding loans to each Account as of the date of the repayment. PLACA will allocate any repayment in excess of the amount of the outstanding loan to the Accounts based on the amount of interest due as of the next policy anniversary on the outstanding loan allocated to each Account. h. Correction of Misstatement of Age If PLACA discovers that the Insured's stated age is not correct, the death benefit will be that which would have been purchased by the most recent deduction for cost of insurance. i. Redistribution Into Accounts This is the other side of the transaction described in I (i) above. Method of Computing Adjustments in Payments and Cash Values Upon Conversion to Fixed Benefit Policies Pursuant to Rule 6e-3(T) 1. Conversions during the first 24 months for new issues: Any conversion during the first 24 months after issue will be executed by transferring the portion of the Policy Account Value in the Separate Accounts to the Guaranteed Account as of the date we receive the conversion request. No charge will be made for such transfer. 2. Conversion during the first two years after an increase in Face Amount: Any conversion during the first two years after the effective date of an increase in Face Amount will be made solely with respect to the increase in Face Amount. The increase in Face Amount on the original flexible premium adjustable variable contract will be cancelled. A refund will be made equal to the monthly deductions for such increase plus the expense charge for the increase. A new flexible premium adjustable variable life policy with the premium allocated 100% to the Guaranteed Account will be issued as of the effective date of the increase with a Face Amount equal the amount of the increase in Face Amount under the original policy. A conversion premium will be required to pay the premium from the effective date of the 12 13 increase in Face Amount to the date we receive the conversion request. The amount of the conversion premium will be based on the minimum annual premium. The refund from the cancelled increase will be applied to reduce the conversion premium. 13 EX-99.A.9 9 POWERS OF ATTORNEY 1 EXHIBIT 9 POWER OF ATTORNEY Know all men by these presents: That I, a member of the Board of Directors of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA, do hereby make, constitute and appoint as my true and lawful attorney in fact, James G. Potter, Jr., for me and in my name, place and stead to sign the following registration statements and any and all amendments thereto on behalf of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA and PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT filed with the Securities and Exchange Commission: Registration Statements for the registration under the Securities Act of 1933 and/or the Investment Company Act of 1940 of certain variable annuity contracts and variable life insurance policies for the appropriate Separate Accounts. Such appointment shall remain valid and in effect for so long as I shall be a member of the Board of Directors of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA and for so long as James G. Potter, Jr., shall be an officer of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of April, 2000. /s/ Mary Lynn Finelli -------------------------- Mary Lynn Finelli /s/ Alan F. Hinkle -------------------------- Alan F. Hinkle /s/ James D. Kestner -------------------------- James D. Kestner /s/ Sarah C. Lange -------------------------- Sarah C. Lange /s/ Joan C. Tucker -------------------------- Joan C. Tucker /s/ Linda M. Springer -------------------------- Linda M. Springer /s/ Mehran Assadi -------------------------- Mehran Assadi EX-99.A.10.H 10 PARTICIPATION AGREEMENT 1 Exhibit (10)(H) PARTICIPATION AGREEMENT THIS AGREEMENT, is made as of ____________, 2000, by and among Providentmutual Life and Annuity Company of America ("Company"), on its own behalf and on behalf of ______________________ Separate Account, a segregated asset account of the Company ("Account"), Strong Variable Insurance Funds, Inc. ("Strong Variable") on behalf of the Portfolios of Strong Variable listed on the attached Exhibit A as such Exhibit may be amended from time to time (the "Designated Portfolios"), Strong Opportunity Fund II, Inc. ("Opportunity Fund II"), Strong Capital Management, Inc. (the "Adviser"), the investment adviser and transfer agent for the Opportunity Fund II and Strong Variable, and Strong Investments, Inc. ("Distributors"), the distributor for Strong Variable and the Opportunity Fund II (each, a "Party" and collectively, the "Parties"). PRELIMINARY STATEMENTS A. Beneficial interests in Strong Variable are divided into several series of shares, each representing the interest in a particular managed portfolio of securities and other assets (each, a "Portfolio"). B. To the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares of Opportunity Fund II and the Designated Portfolios ("Fund" or "Funds" shall be deemed to refer to each Designated Portfolio and to the Opportunity Fund II to the extent the context requires), on behalf of the Account to fund the variable annuity contracts that use the Funds as an underlying investment medium (the "Contracts"). C. The Company, Adviser and Distributors desire to facilitate the purchase and redemption of shares of the Funds by the Company for the Account through one or more accounts, which number shall be as mutually agreed upon by the parties, in each Fund (each an "Omnibus Account"), to be maintained of record by the Company, subject to the terms and conditions of this Agreement. D. The Company desires to provide administrative services and functions (the "Services") for purchasers of Contracts ("Owners") who are beneficial owners of shares of the Funds on the terms and conditions set forth in this Agreement. AGREEMENTS The parties to this Agreement agree as follows: 1. Performance of Services. Company agrees to perform the administrative functions and services specified in Exhibit B attached to this Agreement with respect to the shares of the Funds beneficially owned by the Owners and included in the Account. Nothing in this Agreement shall limit Company's right to engage one or more of its wholly owned subsidiaries (each, a "Designee") to provide all or any portion of the Services, but no such engagement shall relieve Company of its duties, responsibilities or liabilities under this Agreement. 2 2. The Omnibus Accounts. 2.1 Each Omnibus Account will be opened based upon the information contained in Exhibit C to this Agreement. In connection with each Omnibus Account, Company represents and warrants that it is authorized to act on behalf of each Owner effecting transactions in the Omnibus Account and that the information specified on Exhibit C to this Agreement is correct. 2.2 Each Fund shall designate each Omnibus Account with an account number. These account numbers will be the means of identification when the Parties are transacting in the Omnibus Accounts. The assets in the Accounts are segregated from the Company's own assets. The Adviser agrees to cause the Omnibus Accounts to be kept open on each Fund's books, as applicable, regardless of a lack of activity or small position size except to the extent the Company takes specific action to close an Omnibus Account or to the extent a Fund's prospectus reserves the right to close accounts which are inactive or of a small position size. In the latter two cases, the Adviser will give prior notice to the Company before closing and Omnibus Account. 2.3 The Company agrees to provide Adviser such information as Adviser or Distributors may reasonably request concerning Owners as may be necessary or advisable to enable Adviser and Distributors to comply with applicable laws, including state "Blue Sky" laws relating to the sales of shares of the Funds to the Accounts. 3. Fund Shares Transactions. 3.1 In General. Shares of the Funds shall be sold on behalf of the Funds by Distributors and purchased by Company for the Account and, indirectly for the appropriate subaccount thereof at the net asset value next computed after receipt by Distributors of each order of the Company or its Designee, in accordance with the provisions of this Agreement, the then current prospectuses of the Funds, and the Contracts. Company may purchase shares of the Funds for its own account subject to (a) receipt of prior written approval by Distributors; and (b) such purchases being in accordance with the then current prospectuses of the Fund and the Contracts. The Board of Directors of each Fund ("Directors") may refuse to sell shares of the applicable Fund to any person, or suspend or terminate the offering of shares of the Fund if such action is required by law or by regulatory authorities having jurisdiction. Company agrees to purchase and redeem the shares of the Funds in accordance with the provisions of this Agreement, of the Contracts and of the then current prospectuses for the Contracts and Funds. Except as necessary to implement transactions initiated by Owners, or as otherwise permitted by state or federal laws or regulations, Company shall not redeem shares of Funds attributable to the Contracts. 3.2 Purchase and Redemption Orders. On each day that a Fund is open for business (a "Business Day"), the Company or its Designee shall aggregate and calculate the net purchase or redemption order it receives for the Account from the Owners for shares of the Fund that it received prior to the close of trading on the New York Stock Exchange (the "NYSE") (i.e. 3:00 p.m., Central time, unless the NYSE closes at an earlier time in which case such earlier time shall apply) and communicate to Distributors, by telephone or facsimile (or by such other means as the 2 3 Parties to this Agreement may agree to in writing), the net aggregate purchase or redemption order (if any) for the Omnibus Account for such Business Day (such Business Day is sometimes referred to herein as the "Trade Date"). The Company or its Designee will communicate such orders to Distributors prior to 9:00 a.m., Central time, on the next Business Day following the Trade Date. All trades communicated to Distributors by the foregoing deadline shall be treated by Distributors as if they were received by Distributors prior to the close of the trading on the Trade Date. 3.3 Settlement of Transactions. (a) Purchases. Company or its Designee will wire, or arrange for the wire of, the purchase price of each purchase order to the custodian for the Fund in accordance with written instructions provided by Distributors to the Company so that either (i) such funds are received by the custodian for the Fund prior to 10:30 a.m., Central time, on the next Business Day following the Trade Date, or (ii) Distributors is provided with a Federal Funds wire system reference number prior to such 10:30 a.m. deadline evidencing the entry of the wire transfer of the purchase price to the applicable custodian into the Federal Funds wire system prior to such time. Company agrees that if it fails to provide funds to the Fund's custodian by the close of business on the next Business Day following the Trade Date, then, at the option of Distributors, (A) the transaction may be canceled, or (B) the transaction may be processed at the next-determined net asset value for the applicable Fund after purchase order funds are received. In such event, the Company shall indemnify and hold harmless Distributors, Adviser and the Funds from any liabilities, costs and damages either may suffer as a result of such failure. (b) Redemptions. The Adviser will use its best efforts to cause to be transmitted to such custodian account as Company shall direct in writing, the proceeds of all redemption orders placed by Company or its Designee by 9:00 a.m., Central time, on the Business Day immediately following the Trade Date, by wire transfer on that Business Day. Should Adviser need to extend the settlement on a trade, it will contact Company to discuss the extension. For purposes of determining the length of settlement, Adviser agrees to treat the Account no less favorably than order shareholders of the Funds. Each wire transfer of redemption proceeds shall indicate, on the Federal Funds wire system, the amount thereof attributable to each Fund; provided, however, that if the number of entries would be too great to be transmitted through the Federal Funds wire system, the Adviser shall, on the day the wire is sent, fax such entries to Company or if possible, send via direct or indirect systems access until otherwise directed by the Company in writing. 3.4 Book Entry Only. Issuance and transfer of shares of a Fund will be by book entry only. Stock certificates will not be issued to the Company or the Account. Shares of the Funds ordered from Distributors will be recorded in the appropriate book entry title for the Account. 3.5 Distribution Information. The Adviser or Distributors shall provide the Company with all distribution announcement information as soon as it is announced by the Funds. The distribution information shall set forth, as applicable, ex-dates, record date, payable date, distribution rate per share, record date share balances, cash and reinvested payment amounts and all other information reasonably requested by the Company. Where possible, the Adviser or 3 4 Distributors shall provide the Company with direct or indirect systems access to the Adviser's systems for obtaining such distribution information. 3.6 Reinvestment. All dividends and capital gains distributions will be automatically reinvested on the payable date in additional shares of the applicable Fund at net asset value in accordance with each Fund's then current prospectus. 3.7 Pricing Information. Distributors shall use its best efforts to furnish to the Company prior to 6:00 p.m., Central time, on each Business Day each Fund's closing net asset value for that day, and for those Funds for which such information is calculated, the daily accrual for interest rate factor (mil rate). Such information shall be communicated via fax, or indirect or direct systems access acceptable to the Company. 3.8 Price Errors. (a) Notification. If an adjustment is required in accordance with a Fund's then current policies on reimbursement ("Fund Reimbursement Policies") to correct any error in the computation of the net asset value of Fund shares ("Prices Error"), Adviser or Distributors shall notify Company as soon as practicable after discovering the Price Error. Notice may be made via facsimile or via direct or indirect systems access and shall state the incorrect price, the correct price, the correct price and, to the extent communicated to the Fund's shareholders, the reason for the price change. (b) Underpayments. If a Price Error causes an Account to receive less than the amount to which it otherwise would have been entitled, Adviser shall make all necessary adjustments (subject to the Fund Reimbursement Policies) so that the Account receives the amount to which it would have been entitled. (c) Overpayments. If a Price Error causes an Account to receive more than the amount to which it otherwise would have been entitled, Company, when requested by Adviser (in accordance with the Fund Reimbursement Policies), will use its best efforts to collect such excess amounts from the applicable Owners. (d) Fund Reimbursement Policies. Adviser agrees to treat Company's customers no less favorably than Adviser treats its retail shareholders in applying the provisions of paragraphs 3.8(b) and 3.8(c). (e) Expenses. Adviser shall reimburse Company for all reasonable and necessary out-of-pocket expenses incurred by Company for payroll overtime, stationery and postage in adjusting Owner accounts affected by a Price Error described in paragraphs 3.8(b) and 3.8(c). Company shall use its best efforts to mitigate all expenses which may be reimbursable under this section 3.8(e) and agrees that payroll overtime shall not include any time spent programming computers or otherwise customizing Company's recordkeeping system. Upon requesting reimbursement, Company shall present an itemized bill to Adviser detailing the costs for which it seeks reimbursement. 4 5 3.9 Agency. Distributors hereby appoints the Company or its Designee as its agents for the limited purpose of accepting purchase and redemption instructions from the Owners for the purchase and redemption of shares of the Funds by the Company on behalf of Account. 3.10 Quarterly Reports. Adviser agrees to provide Company a statement of Fund assets as soon as practicable and in any event within 30 days after the end of each fiscal quarter, and a statement certifying the compliance by the Funds during that fiscal quarter with the diversification requirements and qualification as a regulated investment company. In the event of a breach of Section 6.4(a), Adviser will take all reasonable steps (a) to notify Company of such breach and (b) to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Treasury Regulation 1.817-5. 4. Proxy Solicitations and Voting. The Company shall, at its expense, distribute or arrange for the distribution of all proxy materials furnished by the Funds to the Account and shall: (a) solicit voting instructions from Owners: (b) vote the Funds shares in accordance with instructions received from Owners; and (c) vote the Fund shares for which no instructions have been received, as well as shares attributable to it, in the same proportion as Fund shares for which instructions have been received from Owners, so long as and to the extent that the Securities and Exchange Commission (the "SEC") continues to interpret the Investment Company Act of 1940, as amended (the "1940 Act"), to require pass-through voting privileges for various contract owners. The Company and its Designees will not recommend action in connection with, or oppose or interfere with, the solicitation of proxies for the Fund shares held for Owners. 5. Customer Communications. 5.1 Prospectus. The Adviser or Distributors, at its expense, will provide the Company with as many copies of the current prospectus for the Funds as the Company may reasonably request for distribution, at the Company's expense, to existing or prospective Owners. 5.2 Shareholder Materials. The Adviser and Distributors shall, as applicable, provide in bulk to the Company or its authorized representative, at a single address and at no expense to the Company, the following shareholder communications materials prepared for circulation to Owners in quantities requested by the Company which are sufficient to allow mailing thereof by the Company and, to the extent required by applicable law, to all Owners: proxy or information statements, annual reports, semi-annual reports, and all initial and updated prospectuses, supplements and amendments thereof. None of the Funds, the Adviser or Distributors shall responsible for the cost of distributing such materials to Owners. 6. Representations and Warranties. 6.1 The Company represents and warrants that: (a) It is an insurance company duly organized and in good standing under the laws of the State of Delaware and that it has legally and validly established the Account prior to any issuance or sale thereof as a segregated asset account and that the Company has and will maintain the capacity to issue all Contracts that may be sold; and that it is and will remain duly 5 6 registered, licensed, qualified and in good standing to sell the Contracts in all the jurisdictions in which such Contracts are to be offered or sold; (b) It and each of its Designees is and will remain duly registered and licensed in all material respects under all applicable federal and state securities and insurance laws and shall perform its obligations under this Agreement in compliance in all materials respects with any applicable state and federal laws; (c) The Contracts are and will be registered under the Securities Act of 1933, as amended (the "1933 Act"), and are and will be registered and qualified for sale in the states where so required; and the Account is and will be registered as a unit investment trust in accordance with the 1940 Act and shall be a segregated investment account for the Contracts; (d) The Contracts are currently treated as annuity contracts, under applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and the Company will maintain such treatment and will notify Adviser, Distributors and Funds promptly 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; (e) It and each of its Designees is registered as a transfer agent pursuant to Section 17A of the Securities Exchange Act of 1934, as amended (the "1934 Act"), or is not required to be registered as such; (f) The arrangements provided for in this Agreement will be disclosed to the Owners; and (g) It is registered as a broker-dealer under the 1934 Act and any applicable state securities laws, including as a result of entering into and performing the Services set forth in this Agreement, or is not required to be registered as such. 6.2 The Funds each represent and warrant that Fund shares sold pursuant to this Agreement are and will be registered under the 1933 Act and the Fund is and will be registered as a registered investment company under the Investment Company Act of 1940, in each case, except to the extent the Company is so notified in writing; 6.3 Distributors represents and warrants that: (a) It is and will be a member in good standing of the National Association of Securities Dealers, Inc. ("NASD") and is and will be registered as a broker-dealer with the SEC; and (b) It will sell and distribute Fund shares in accordance with all applicable state and federal laws and regulations. 6.4 Adviser represents and warrants that: (a) It will cause each Fund to invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable annuity contracts under the 6 7 Code and the regulations issued thereunder, and that each Fund will comply with Section 817(h) of the Code as amended from time to time and with all applicable regulations promulgated thereunder; and (b) It is and will remain duly registered and licensed in all material respects under all applicable federal and state securities and insurance laws and shall perform its obligations under this Agreement in compliance in all material respects with any applicable state and federal laws. 6.5 Each of the Parties to this Agreement represents and warrants to the others that: (a) It has full power and authority under applicable law, and has taken all action necessary, to enter into and perform this Agreement and the person executing this Agreement on its behalf is duly authorized and empowered to execute and deliver this Agreement; (b) This Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms and it shall comply in all material respects with all laws, rules and regulations applicable to it by virtue of entering into this Agreement; (c) No consent or authorization of, filing with, or other act by or in respect of any governmental authority, is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement; (d) The execution, performance and delivery of this Agreement will not result in it violating any applicable law or breaching or otherwise impairing any of its contractual obligations; (e) Each Party to this Agreement is entitled to rely on any written records or instructions provided to it by another Party; and (f) Its directors, officers, employees, and investment advisers, and other individuals/entities dealing with the money or securities of a 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 amount required by the applicable rules of the NASD and the federal securities laws, which bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 7. Sales Material and Information 7.1 NASD Filings. The Company shall promptly inform Distributors as to the status of all sales literature filings pertaining to the Funds and shall promptly notify Distributors of all approvals or disapprovals of sales literature filings with the NASD. For purposes of this Section 7, the phrase "sales literature or other promotional material" shall be construed in accordance with all applicable securities laws and regulations. 7.2 Company Representations. Neither the Company nor any of its Designees shall make any material representations concerning the Adviser, the Distributors, or a Fund other than 7 8 the information or representations contained in: (a) a registration statement of the Fund or prospectus of a Fund, as amended or supplemented from time to time; (b) published reports or statements of the Funds which are in the public domain or are approved by Distributors or the Funds; or (c) sales literature or other promotional material of the Funds. 7.3 Adviser, Distributors and Fund Representations. None of Adviser, Distributors or any Fund shall make any material representations concerning the Company or its Designees other than the information or representations contained in: (a) a registration statement or prospectus for the Contracts, as amended or supplemented from time to time; (b) published reports or statements of the Contracts or the Account which are in the public domain or are approved by the Company; or (c) sales literature or other promotional material of the Company. 7.4 Trademarks, etc. Except to the extent required by applicable law, no Party shall use any other Party's names, logos, trademarks or service marks, whether registered or unregistered, without the prior consent of such Party. 7.5 Information From Distributors and Adviser. Upon request, Distributors or Adviser will provide to Company at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, proxy statements, solicitations for voting instructions, applications for exemptions, requests for no action letters, and all amendments to any of the above, that relate to the Funds, in final form as filed with the SEC, NASD and other regulatory authorities. 7.6 Information From Company. Company will provide to Distributors 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 a Fund and the Contracts, in final form as filed with the SEC, NASD and other regulatory authorities. 7.7 Review of Marketing Materials. If so requested by Company, the Adviser or Distributors will use its best efforts to review sales literature and other marketing materials prepared by Company which relate to the Funds, the Adviser or Distributors for factual accuracy as to such entities, provided that the Adviser or Distributors is provided at least five (5) Business Days to review such materials. Neither the Adviser nor Distributors will review such materials for compliance with applicable laws. Company shall provide the Adviser with copies of all sales literature and other marketing materials which refer to the Funds, the Adviser or Distributors within five (5) Business Days after their first use, regardless of whether the Adviser or Distributors has previously reviewed such materials. If so requested by the Adviser or Distributors, Company shall cease to use any sales literature or marketing materials which refer to the Funds, the Adviser or Distributors that the Adviser or Distributors determines to be inaccurate, misleading or otherwise unacceptable. 8. Fees and Expenses. 8.1 Fund Registration Expenses. Fund or Distributors shall bear the cost of registration and qualification of Fund shares; preparation and filing of Fund prospectuses and 8 9 registration statements, proxy materials and reports; preparation of all other statements and notices relating to the Fund or Distributors required by any federal or state law; payment of all applicable fees, including, without limitation, any fees due under Rule 24f-2 of the 1940 Act, relating to a Fund; and all taxes on the issuance or transfer of Fund shares on the Fund's records. 8.2 Contract Registration Expenses. The Company shall bear the expenses for the costs of preparation and filing of the Company's prospectus and registration statement with respect to the Contracts; preparation of all other statements and notices relating to the Account or the Contracts required by any federal or state law; expenses for the solicitation and sale of the Contracts including all costs of printing and distributing all copies of advertisements, prospectuses, Statements of Additional Information, proxy materials, and reports to Owners or potential purchasers of the Contracts as required by applicable state and federal law; payment of all applicable fees relating to the Contracts; all costs of drafting, filing and obtaining approvals of the Contracts in the various states under applicable insurance laws; filing of annual reports on form N-SAR, and all other costs associated with ongoing compliance with all such laws and its obligations under this Agreement. 9. Indemnification. 9.1 Indemnification By Company. (a) Company agrees to indemnify and hold harmless the Funds, Adviser and Distributors and each of their directors, officers, employees and agents, and each person, if any, who controls any of them within the meaning of Section 15 of the 1933 Act (each, an "Indemnified Party" and collectively, the "Indemnified Parties" for purposes of this Section 9.1) from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Company), and expenses including reasonable legal fees and expenses, (collectively, hereinafter "Losses"), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise insofar as such Losses: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement, prospectus or sales literature for the Contracts or contained in 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 paragraph 9.1(a) 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 written information furnished to Company by or on behalf of a Fund, Distributors or Adviser for use in the registration statement or prospectus for the Contracts or in the Contracts (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 or wrongful conduct of Company, its Designees or its agents, with respect to the sale or distribution of the Contracts or Fund shares; or 9 10 (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 a 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 written information furnished to a Fund, Adviser or Distributors by or on behalf of Company; or (iv) arise out of, or as a result of, any failure by Company, its Designees or persons under the Company's or Designees' control to provide the Services and furnish the materials contemplated under the terms of this Agreement; or (v) arise out of, or result from, any material breach of any representation or warranty made by Company, its Designees or persons under the Company's or Designees' control in this Agreement or arise out of or result from any other material breach of this Agreement by Company, its Designees or persons under the Company's or Designees' control; as limited by and in accordance with the provisions of Sections 9.1(b) and 9.1(c) hereof; or (vi) arise out of, or as a result of, adherence by Adviser or Distributors to instructions that it reasonably believes were originated by authorized agents of Company. This indemnification provision is in addition to any liability which the Company or its Designees may otherwise have. (b) Company shall not be liable under this indemnification provision with respect to any Losses 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 or duties under this Agreement. (c) 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 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 Company of any such claim shall not relieve Company from any liability which it may have to the Indemnified Party otherwise than on account of this indemnification provision. In case any such action is brought against any Indemnified Party, and it notified the indemnifying Party of the commencement thereof, the indemnifying Party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such Indemnified Party. After notice from the indemnifying Party of its intention to assume the defense of an action, the Indemnified Party shall bear the expenses of any additional counsel obtained by it, and the indemnifying Party shall not be liable to such Indemnified Party under this Section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party may not settle any action without the written consent of the indemnifying Party. The indemnifying Party may not settle 10 11 any action without the written consent of the Indemnified Party unless such settlement completely and finally releases the Indemnified Party from any and all liability. In either event, consent shall not be unreasonably withheld. (d) The Indemnified Parties will promptly notify Company of the commencement of any litigation or proceedings against the Indemnified Parties in connection with the issuance or sale of Fund shares or the Contracts or the operation of a Fund. 9.2 Indemnification by Adviser and Distributors. (a) Adviser and Distributors agrees to indemnify and hold harmless Company and each of its directors, officers, employees and agents and each person, if any, who controls Company within the meaning of Section 15 of the 1933 Act (each, an "Indemnified Party" and collectively, the "Indemnified Parties" for purposes of this Section 9.2) from and against any and all Losses to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, 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 or prospectus or sales literature of a 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 Section 9.2(a) 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 written information furnished to a Fund, Adviser or Distributors by or on behalf of Company for use in the registration statement or prospectus for a 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 or wrongful conduct of Adviser or Distributors or persons under its control, with respect to the sale or distribution of 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 statements therein not misleading, if such statement or omission was made in reliance upon written information furnished to Company by or on behalf of Adviser or Distributors; or (iv) arise out of, or as a result of, any failure by Adviser or Distributors or persons under its control to provide the services and furnish the materials contemplated under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation or warranty made by Adviser or Distributors or persons under its control in this Agreement or arise out of or result from any other material breach of this Agreement by Adviser 11 12 or Distributors or persons under its control; as limited by and in accordance with the provisions of Sections 9.2(b) and 9.2(c) hereof. This indemnification provision is in addition to any liability which Adviser and Distributors may otherwise have. (b) Adviser and Distributors shall not be liable under this indemnification provision with respect to any Losses 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. (c) Adviser and Distributors 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 Adviser and Distributors 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 Adviser and Distributors of any such claim shall not relieve Adviser and Distributors from any liability which it may have to the Indemnified Party otherwise than on account of this indemnification provision. In case any such action is brought against any Indemnified Party, and it notified the indemnifying Party of the commencement thereof, the indemnifying Party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such Indemnified Party. After notice from the indemnifying Party of its intention to assume the defense of an action, the Indemnified Party shall bear the expenses of any additional counsel obtained by it, and the indemnifying Party shall not be liable to such Indemnified Party under this Section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party may not settle any action without the written consent of the indemnifying Party. The indemnifying Party may not settle any action without the written consent of the Indemnified Party unless such settlement completely and finally releases the Indemnified Party from any and all liability. In either event, consent shall not be unreasonably withheld. (d) The Indemnified Parties will promptly notify Adviser and Distributors of the commencement of any litigation or proceedings against the Indemnified Parties in connection with the issuance or sale of the Contracts or the operation of the Account. 10. Potential Conflicts. 10.1 Monitoring by Directors for Conflicts of Interest. The Directors of each Fund will monitor the Fund for any potential or existing material irreconcilable conflict of interest between the interests of the contract owners of all separate accounts investing in the Fund, including such conflict of interest with any other separate account of any other insurance company 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 interpretive letter, or any similar action by insurance, tax or securities regulatory authorities; 12 13 (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of the Fund are being managed; (e) a difference in voting instructions given by variable annuity contract owners and variable life insurance contract owners or by contract owners of different life insurance companies utilizing the Fund; or (f) a decision by Company to disregard the voting instructions of Owners. The Directors shall promptly inform the Company, in writing, if they determine that an irreconcilable material conflict exists and the implications thereof. 10.2 Monitoring by the Company for Conflicts of Interest. The Company will promptly notify the Directors, in writing, of any potential or existing material irreconcilable conflicts of interest, as described in Section 10.1 above, of which it is aware. The Company will assist the Directors in carrying out their responsibilities under any applicable provisions of the federal securities laws and any exemptive orders granted by the SEC ("Exemptive Order"), by providing the Directors, in a timely manner, with all information reasonably necessary for the Directors to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Directors whenever Owner voting instructions are disregarded. 10.3 Remedies. If it is determined by a majority of the Directors, or a majority of disinterested Directors, that a material irreconcilable conflict exists, as described in Section 10.1 above, the Company shall, at its own expense take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including, but not limited to: (a) withdrawing the assets allocable to some or all of the separate accounts from the applicable Fund and reinvesting such assets in a different investment medium, including (but not limited to) another fund managed by the Adviser, or submitting the question whether such segregation should be implemented to a vote of all affected Owners and, as appropriate, segregating the assets of any particular group that votes in favor of such segregation, or offering to the affected owners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. 10.4 Causes of Conflicts of Interest. (a) State Insurance Regulators. 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 applicable Fund and terminate this Agreement with respect to such Account within the period of time permitted by such decision, but in no event later than six months after the Directors inform 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 Directors. Until the end of the foregoing period, the Distributors and Funds shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund to the extent such actions do not violate applicable law. (b) Disregard of Owner Voting. If a material irreconcilable conflict arises because of Company's decision to disregard Owner voting instructions and that decision represents a minority position or would preclude a majority vote, Company may be required, at 13 14 the applicable Fund's election, to withdraw the Account's investment in said Fund. No charge or penalty will be imposed against the Account as a result of such withdrawal. 10.5 Limitations on Consequences. For purposes of Sections 10.3 through 10.5 of this Agreement, a majority of the disinterested Directors shall determine whether any proposed action adequately remedies any irreconcilable material conflict. In no event will a Fund, the Adviser or the Distributors be required to establish a new funding medium for any of the Contracts. The Company shall not be required by Section 10.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Owners affected by the irreconcilable material conflict. In the event that the Directors determine that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the applicable Fund and terminate this Agreement as quickly as may be required to comply with applicable law, but in no event later than six (6) months after the Directors inform 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. 10.6 Changes in Laws. 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 Funds' Exemptive Order) on terms and conditions materially different from those contained in the Funds' Exemptive Order, then (a) the Funds and/or the Adviser, 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 10.1, 10.2, 10.3 and 10.4 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. 11. Maintenance of Records. (a) Recordkeeping and other administrative services to Owners shall be the responsibility of the Company and shall not be the responsibility of the Funds, Adviser or Distributors. None of the Funds, the Adviser or Distributors shall maintain separate accounts or records for Owners. Company shall maintain and preserve all records as required by law to be maintained and preserved in connection with providing the Services and in making shares of the Funds available to the Account. (b) Upon the request of the Adviser or Distributors, the Company shall provide copies of all the historical records relating to transactions between the Funds and the Account, written communications regarding the Funds to or from the Account and other materials, in each case (1) as are maintained by the Company in the ordinary course of its business and in compliance with applicable law, and (2) as may reasonably be requested to enable the Adviser and Distributors, or its representatives, including without limitation its auditors or legal counsel, to (A) monitor and review the Services, (B) comply with any request of a governmental body or self-regulatory organization or the Owners, (C) verify compliance by the Company with the terms of this Agreement, (D) make required regulatory reports, (E) verify to Advisor's reasonable satisfaction that all purchase and redemption orders aggregated for each Trade Date were received by Company prior to the, close of trading on the NYSE on such Trade 14 15 Date, or (F) perform general customer supervision. The Company agrees that it will permit the Adviser and Distributors or such representatives of either to have reasonable access to its personnel and records in order to facilitate the monitoring of the quality of the Services. (c) Upon the request of the Company, the Adviser and Distributors shall provide copies of all the historical records relating to transactions between the Funds and the Account, written communications regarding the Funds to or from the Account and other materials, in each case (1) as are maintained by the Adviser and Distributors, as the case may be, in the ordinary course of its business and in compliance with applicable law, and (2) as may reasonably be requested to enable the Company, or its representatives, including without limitation its auditors or legal counsel, to (A) comply with any request of a governmental body or self-regulatory organization or the Owners, (B) verify compliance by the Adviser and Distributors with the terms of this Agreement, (C) make required regulatory reports, or (D) perform general customer supervision. (d) The Parties agree to cooperate in good faith in providing records to one another pursuant to this Section 11. 12. Term and Termination. 12.1 Term and Termination Without Cause. The initial term of this Agreement shall be for a period of one year from the date hereof. Unless terminated as to any Fund upon not less than thirty (30) days prior written notice to the other Parties, this Agreement shall thereafter automatically renew for the remaining Funds from year to year, subject to termination at the next applicable renewal date upon not less than 30 days prior written notice. Any Party may terminate this Agreement as to any Fund following the initial term upon six (6) months advance written notice to the other Parties. 12.2 Termination by Fund, Distributors or Adviser for Cause. Adviser, Fund or Distributors may terminate this Agreement by written notice to the Company, if any of them shall determine, in its sole judgment exercised in good faith, that (a) the Company 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 (b) any of the Contracts are not registered, issued or sold in accordance with applicable state and federal law or such law precludes the use of Fund shares as the underlying investment media of the Contracts issued or to be issued by the Company. 12.3 Termination by Company for Cause. Company may terminate this Agreement by written notice to the Adviser, Funds and Distributors in the event that (a) any of the Fund shares are not registered, issued or sold in accordance with applicable state 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; (b) the Funds cease to qualify as Regulated Investment Companies under Subchapter M of the Code or under any successor or similar provision, or if the Company reasonably believes that the Funds may fail to so qualify; or (c) a Fund fails to meet the diversification requirements specified in Section 6.4(a). 15 16 12.4 Termination by any Party. This Agreement may be terminated as to any Fund by any Party at any time (a) by giving 30 days' written notice to the other Parties in the event of a material breach of this Agreement by the other Party or Parties that is not cured during such 30-day period, and (b) (i) upon institution of formal proceedings relating to the legality of the terms and conditions of this Agreement against the Account, Company, any Designee, the Funds, Adviser or Distributors by the NASD, the SEC or any other regulatory body provided that the terminating Party has a reasonable belief that the institution of formal proceedings is not without foundation and will have a material adverse impact on the terminating Party, (ii) by the non-assigning Party upon the assignment of this Agreement in contravention of the terms hereof, or (iii) as is required by law, order or instruction by a court of competent jurisdiction or a regulatory body or self-regulatory organization with jurisdiction over the terminating Party. 12.5 Limit on Termination. Notwithstanding the termination of this Agreement with respect to any or all Funds, for so long as any Contracts remain outstanding and invested in a Fund each Party to this Agreement shall continue to perform such of its duties under this Agreement as are necessary to ensure the continued tax deferred status thereof and the payment of benefits thereunder, except to the extent proscribed by law, the SEC or other regulatory body. Notwithstanding the foregoing, nothing in this Section 12.5 obligates a Fund to continue in existence. In the event that any Fund elects to terminate its operations, the Company shall, as soon as practicable, obtain an exemptive order or order of substitution from the SEC to remove all Owners from the applicable Fund. 13. Notices. All notices under this Agreement shall be given in writing (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile, by registered or certified mail or by overnight delivery (postage prepaid, return receipt requested) to the respective Parties as follows: If to Strong Variable: Strong Variable Insurance Funds, Inc. 100 Heritage Reserve Milwaukee, WI 53051 Attention: General Counsel Facsimile No.: 414/359-3948 If to Opportunity Fund II: Strong Opportunity Fund II, Inc. 100 Heritage Reserve Milwaukee, WI 53051 Attention: General Counsel Facsimile No.: 414/359-3948 16 17 If to Adviser: Strong Capital Management, Inc. 100 Heritage Reserve Milwaukee, WI 53051 Attention: General Counsel Facsimile No.: 414/359-3948 If to Distributors: Strong Investments, Inc. 100 Heritage Reserve Milwaukee, WI 53051 Attention: General Counsel Facsimile No.: 414/359-3948 If to Company: Providentmutual Life and Annuity Company of America 1000 Chesterbrook Blvd. Berwyn, PA 19312 Attention: Ms. Nancy Mitchell Facsimile No.:_________________ 14. Miscellaneous. 14.1 Captions. The captions in this Agreement are included for convenience of reference only and in no way affect the construction or effect of any provisions hereof. 14.2 Enforceability. If any portion 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. 14.3 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 14.4 Remedies not Exclusive. 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 to this Agreement are entitled to under state and federal laws. 14.5 Confidentiality. Subject to the requirements of legal process and regulatory authority, the Funds and Distributors shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by the Company to this Agreement and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the Company until such time as it may come into the public domain. 17 18 14.6 Governing Law. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of Wisconsin applicable to agreements fully executed and to be performed therein; exclusive of conflicts of laws. 14.7 Survivability. Sections 6, 7.2, 7.3, 7.4, 9, 11 and 12.5 hereof shall survive termination of this Agreement. In addition, all provisions of this Agreement shall survive termination of this Agreement in the event that any Contracts are invested in a Fund at the time the termination becomes effective and shall survive for so long as such Contracts remain so invested. 14.8 Amendment and Waiver. No modification of any provision of this Agreement will be binding unless in writing and executed by the Party to be bound thereby. No waiver of any provision of this Agreement will be binding unless in writing and executed by the Party granting such waiver. Notwithstanding anything in this Agreement to the contrary, the Adviser may unilaterally amend Exhibit A to this Agreement to add additional series of Strong Variable Funds ("New Funds") as Funds by sending to the Company a written notice of the New Funds. Any valid waiver of a provision set forth herein shall not constitute a waiver of any other provision of this Agreement. In addition, any such waiver shall constitute a present waiver of such provision and shall not constitute a permanent future waiver of such provision. 14.9 Assignment. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and assigns; provided, however that neither this Agreement nor any rights, privileges, duties or obligations of the Parties may be assigned by any Party without the written consent of the other Parties or as expressly contemplated by this Agreement. 14.10 Entire Agreement. This Agreement contains the full and complete understanding between the Parties with respect to the transactions covered and contemplated under this Agreement, and supersedes all prior agreements and understandings between the Parties relating to the subject matter hereof, whether oral or written, express or implied. 14.11 Relationship of Parties; No Joint Venture, Etc. Except for the limited purpose provided in Section 3.8, it is understood and agreed that the Company and each of its Designees shall be acting as an independent contractor and not as an employee or agent of the Adviser, Distributors or the Funds, and none of the Parties shall hold itself out as an agent of any other Party with the authority to bind such Party. Neither the execution nor performance of this Agreement shall be deemed to create a partnership or joint venture by and among any of the Company, any Designees, Funds, Adviser, or Distributors. 14.12 Expenses. All expenses incident to the performance by each Party of its respective duties under this Agreement shall be paid by that Party. 14.13 Time of Essence. Time shall be of the essence in this Agreement. 14.14 Non-Exclusivity. Each of the Parties acknowledges and agrees that this Agreement and the arrangements described herein are intended to be non-exclusive and that each of the Parties is free to enter into similar agreements and arrangements with other entities. 18 19 14.15 Operations of Funds. In no way shall the provisions of this Agreement limit the authority of the Funds, the Adviser or Distributors to take such action as it may deem appropriate or advisable in connection with all matters relating to the operation of such Fund and the sale of its shares. In no way shall the provisions of this Agreement limit the authority of the Company to take such action as it may deem appropriate or advisable in connection with all matters relating to the provision of Services or the shares of funds other than the Funds offered to the Account. PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA ----------------------------------------- By Name: Title: STRONG CAPITAL MANAGEMENT, INC., STRONG INVESTMENTS, INC., STRONG OPPORTUNITY FUND II, INC., and STRONG VARIABLE INSURANCE FUNDS, INC. on behalf of the Designated Portfolios /s/ Stephen J. Shenkenberg ------------------------------------------- Stephen J. Shenkenberg, Vice President 19 20 EXHIBIT A The following is a list of Designated Portfolios under this Agreement: Strong Mid Cap Growth Fund II 20 21 EXHIBIT B THE SERVICES Company or its Designees shall perform the following services. Such services shall be the responsibility of the Company and shall not be the responsibility of the Funds, Adviser or Distributors. 1. Maintain separate records for each Account, which records shall reflect Fund shares ("Shares") purchased and redeemed, including the date and price for all transactions, Share balances, and the name and address of each Owner, including zip codes and tax identification numbers. 2. Credit contributions to individual Owner accounts and invest such contributions in shares of the Funds to the extent so designated by the Owner. 3. Disburse or credit to the Owners, and maintain records of, all proceeds of redemptions of Fund shares and all other distributions not reinvested in shares. 4. Prepare and transmit to the Owners, periodic account statements showing, among other things, the total number of Fund shares owned as of the statement closing date, purchases and redemptions of shares during the period covered by the statement, the net asset value of the Funds as of a recent date, and the dividends and other distributions paid during the statement period (whether paid in cash or reinvested in shares). 5. Transmit to the Owners, as required by applicable law, prospectuses, proxy materials, shareholder reports, and other information provided by the Adviser, Distributors or Funds and required to be sent to shareholders under the Federal securities laws. 6. Transmit to Distributors purchase orders and redemption requests placed by the Account and arrange for the transmission of funds to and from the Funds. 7. Transmit to Distributors such periodic reports as Distributors shall reasonably conclude is necessary to enable the Funds to comply with applicable Federal securities and state Blue Sky requirements. 8. Transmit to each Account confirmations of purchase orders and redemption requests placed by each Account. 9. Maintain all account balance information for the Account and daily and monthly purchase summaries expressed in shares and dollar amounts. 10. Prepare, transmit and file any Federal, state and local government reports and returns as required by law with respect to each account maintained on behalf of the Account. 11. Respond to Owners' inquiries regarding, among other things, share prices, account balances, dividend options, dividend amounts, and dividend payment dates. 21 22 SCHEDULE C-ACCOUNT INFORMATION (FOR ACCOUNTS TO HAVE DIVIDENDS AND CAPITAL GAINS REINVESTED AUTOMATICALLY) 1. Entity in whose name each Account will be opened: ___________________________ Mailing address: ___________________________ ___________________________ ___________________________ 2. Employer ID number (For internal usage only): 3. Authorized contact persons: The following persons are authorized on behalf of the Company to effect transactions in each Account: Name:_____________________________ Phone:_________________________________ Name:_____________________________ Phone:_________________________________ Name:_____________________________ Phone:_________________________________ Name:_____________________________ Phone:_________________________________ 4. Will the Accounts have telephone exchange? _____Yes _____ No (This option lets Company redeem shares by telephone and apply the proceeds for purchase in another identically registered Account.) 5. Will the Accounts have telephone redemption? _____Yes _____ No (This option lets Company sell shares by telephone. The proceeds will be wired to the bank account specified below.) 6. All dividends and capital gains will be reinvested automatically. 7. Instructions for all outgoing wire transfers: ___________________________ ___________________________ ___________________________ ___________________________ 8. If this Account Information Form contains changed information, the undersigned authorized officer has executed this amended Account Information Form as of the date set forth below and acknowledges the agreements and representations set forth in the Services Agreement between the Company, Strong Capital Management, Inc. and Strong Investments, Inc. 9. COMPANY CERTIFIES UNDER PENALTY OF PERJURY THAT: (i) THE NUMBER SHOWN ON THIS FORM IS THE CORRECT EMPLOYER ID NUMBER (OR THAT COMPANY IS WAITING TO BE ISSUED AN EMPLOYER ID NUMBER), AND (ii) COMPANY IS NOT SUBJECT TO BACKUP WITHHOLDING BECAUSE (A) COMPANY IS EXEMPT FROM BACKUP WITHHOLDING, OR (B) COMPANY HAS NOT BEEN NOTIFIED BY THE INTERNAL 22 23 REVENUE SERVICE ("IRS") THAT IT IS SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS NOTIFIED THE COMPANY THAT IT IS NO LONGER SUBJECT TO BACKUP WITHHOLDING. (CROSS OUT (II) IF COMPANY HAS BEEN NOTIFIED BY THE IRS THAT IT IS SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON ITS TAX RETURN.) THE IRS DOES NOT REQUIRE COMPANY'S CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. _________________________________ __________________ (Signature of Authorized Officer) (Date) (Company shall inform Adviser and Distributors of any changes to information provided in this Account Information Form pursuant to Section 13 of the Agreement.) Please Note: Distributors employs reasonable procedures to confirm that instructions communicated by telephone are genuine and may not be liable for losses due to unauthorized or fraudulent instructions. Please see the prospectus for the applicable Fund for more information on the telephone exchange and redemption privileges. 23 24 SCHEDULE C--ACCOUNT INFORMATION (FOR ACCOUNTS TO HAVE DIVIDENDS AND CAPITAL GAINS PAID OUT) 1. Entity in whose name each Account will be opened: _________________________ Mailing address: _________________________ _________________________ _________________________ 2. Employer ID number (For internal usage only): 3. Authorized contact persons: The following persons are authorized on behalf of the Company to effect transactions in each Account: Name:_____________________________ Phone:_________________________________ Name:_____________________________ Phone:_________________________________ Name:_____________________________ Phone:_________________________________ Name:_____________________________ Phone:_________________________________ 4. Will the Accounts have telephone exchange? _____Yes _____ No (This option lets Company redeem shares by telephone and apply the proceeds for purchase in another identically registered Account.) 5. Will the Accounts have telephone redemption? _____Yes _____ No (This option lets Company sell shares by telephone. The proceeds will be wired to the bank account specified below.) 6. All dividends and capital gains will NOT be reinvested automatically. 7. Instructions for all outgoing wire transfers: ________________________ ________________________ ________________________ ________________________ 8. If this Account Information Form contains changed information, the undersigned authorized officer has executed this amended Account Information Form as of the date set forth below and acknowledges the agreements and representations set forth in the Services Agreement between the Company, Strong Capital Management, Inc. and Strong Investments, Inc. 9. COMPANY CERTIFIES UNDER PENALTY OF PERJURY THAT: (i) THE NUMBER SHOWN ON THIS FORM IS THE CORRECT EMPLOYER ID NUMBER (OR THAT COMPANY IS WAITING TO BE ISSUED AN EMPLOYER ID NUMBER), AND (ii) COMPANY IS NOT SUBJECT TO BACKUP WITHHOLDING BECAUSE (A) COMPANY IS EXEMPT FROM BACKUP WITHHOLDING, OR (B) COMPANY HAS NOT BEEN NOTIFIED BY THE INTERNAL 24 25 REVENUE SERVICE ("IRS") THAT IT IS SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS NOTIFIED THE COMPANY THAT IT IS NO LONGER SUBJECT TO BACKUP WITHHOLDING. (CROSS OUT (II) IF COMPANY HAS BEEN NOTIFIED BY THE IRS THAT IT IS SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON ITS TAX RETURN.) THE IRS DOES NOT REQUIRE COMPANY'S CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. ___________________________________ _________________ (Signature of Authorized Officer) (Date) (Company shall inform Company and Distributors of any changes to information provided in this Account Information Form pursuant to Section 13 of this Agreement.) Please Note: Distributors employs reasonable procedures to confirm that instructions communicated by telephone are genuine and maY not be liable for losses due to unauthorized or fraudulent instructions. Please see the prospectus for the applicable Fund or more information on the telephone exchange and redemption privileges. 25 -----END PRIVACY-ENHANCED MESSAGE-----