<PAGE>
As filed with the Securities and Exchange Commission on November 30, 1998
FILE NO. 333-62811
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM N-4
REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933 /_/
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
-
POST-EFFECTIVE AMENDMENT NO. ___ /_/
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT of 1940 /_/
AMENDMENT NO. 23 /X/
-
--------------------------
PENN MUTUAL VARIABLE ANNUITY ACCOUNT III
(Exact Name of Registrant)
--------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY
(Name of Depositor)
--------------------------
600 Dresher Road
Horsham, Pennsylvania 19044
(Address of Principal Executive Offices of Depositor)
Depositor's Telephone Number: 215-956-8000
--------------------------
Richard F. Plush
Vice President
The Penn Mutual Life Insurance Company
600 Dresher Road
Horsham, Pennsylvania 19044
(Name and Address of Agent for Service)
Copy to:
Richard W. Grant
C. Ronald Rubley
Morgan, Lewis & Bockius LLP
1701 Market St.
Philadelphia, PA 19103
--------------------------
Approximate date of public offering: As soon as practicable after effectiveness
of the Registration Statement
Title of Securities Being Registered:
Individual Variable and Fixed Annuity Contract - Flexible Purchase Payments
<PAGE>
================================================================================
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Location in Statement of
Form N-4 Item Number Location in Prospectuses Additional Information
- - -------------------- ------------------------ ----------------------
<S> <C> <C> <C>
Item 1. Cover Page Cover Page N/A
Item 2. Definitions Special Terms N/A
Item 3. Synopsis Cover Page; Expenses N/A
or Highlights
Item 4. Condensed N/A N/A
Financial
Information
Item 5. General The Penn Mutual Life N/A
Description Insurance Company;
of Registrant, The Separate Account
Depositor and
Portfolio
Companies
Item 6. Deductions The Contract - Charges N/A
and Expenses
Item 7. General The Contract N/A
Description
of Variable
Annuity
Contracts
Item 8. Annuity Period The Contract - Annuity N/A
Options Payments
Item 9. Death Benefit The Contract - Death N/A
On Death Benefit
Item 10. Purchases and The Contract - Purchases; N/A
Contract The Contract - Accumulation
Value Units
Item 11. Redemptions The Contract - Withdrawals N/A
Item 12. Taxes Federal Income Tax N/A
Considerations
Item 13. Legal N/A N/A
Proceedings
</TABLE>
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Location in Statement of
Form N-4 Item Number Location in Prospectuses Additional Information
- - -------------------- ------------------------ ----------------------
<S> <C> <C> <C>
Item 14. Table of Table of Contents of N/A
Contents of Statement of Additional
Statement of Information
Additional
Information
Item 15. Cover Page N/A Cover Page
Item 16. Table of N/A Cover Page
Contents
Item 17. General N/A N/A
Information
and History
Item 18. Services N/A Administrative and
Recordkeeping
Services; Custodian;
Independent Auditors
Item 19. Purchase of The Contract - Purchases; Distribution of
Securities The Contract - Transfers; Contracts
Being Offered The Contract - Charges
and Expenses
Item 20. Underwriters N/A Distribution of
Contracts
Item 21. Calculation of N/A Performance Data
Performance
Data
Item 22. Annuity N/A Variable Annuity
Payments Payments
Item 23. Financial N/A Financial Statements
Statements
</TABLE>
<PAGE>
PROSPECTUS -- JANUARY 1, 1999
INDIVIDUAL VARIABLE AND FIXED ANNUITY CONTRACT -- FLEXIBLE PURCHASE PAYMENTS
- - -------------------------------------------------------------------------------
LOGO
PENN MUTUAL VARIABLE ANNUITY ACCOUNT III
THE PENN MUTUAL LIFE INSURANCE COMPANY
PHILADELPHIA, PENNSYLVANIA 19172 . TELEPHONE (215) 956-8000
- - --------------------------------------------------------------------------------
This Prospectus describes a combination variable and fixed annuity contract
offered by The Penn Mutual Life Insurance Company (the "Company"). Through Penn
Mutual Variable Annuity Account III (the "Separate Account"), you may allocate
amounts invested under the Contract among one or more of the funds as set forth
below:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
PENN SERIES FUNDS, INC. MANAGER
Growth Equity Fund Independence Capital Management, Inc. (a wholly owned
subsidiary of The Penn Mutual Life Insurance Company)
Value Equity Fund OpCap Advisors
Small Capitalization Fund OpCap Advisors
Emerging Growth Fund RS Investment Management, Inc.
Flexibly Managed Fund T. Rowe Price Associates, Inc.
International Equity Fund Vontobel USA, Inc.
Quality Bond Fund Independence Capital Management, Inc.
High Yield Bond Fund T. Rowe Price Associates, Inc.
Money Market Fund Independence Capital Management, Inc.
- - ------------------------------------------------------------------------------------------------------------------------------------
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST MANAGER
Balanced Portfolio Neuberger & Berman Management Incorporated
Limited Maturity Bond Portfolio Neuberger & Berman Management Incorporated
Partners Fund Portfolio Neuberger & Berman Management Incorporated
- - ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND MANAGER
Equity-Income Portfolio Fidelity Management and Research Company
Growth Portfolio Fidelity Management and Research Company
- - ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II MANAGER
Asset Manager Portfolio Fidelity Management and Research Company
Index 500 Portfolio Fidelity Management and Research Company
- - -----------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY UNIVERSAL FUNDS, INC. MANAGER
Emerging Markets Equity (International) Portfolio Morgan Stanley Asset Management Inc.
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In addition, you may also invest in fixed accounts. The fixed accounts are
funded through and are backed by the Company's general account.
<PAGE>
For many persons, a combination variable and fixed annuity contract may be
an attractive long-term investment vehicle. Its benefits include the manner in
which earnings on accumulated funds are taxed, the availability of multiple
investment options, and the provision of annuity and death benefit guarantees.
The Contract is not intended as a short-term investment vehicle. Early
withdrawals of purchase payments from the contract may be subject to a
contingent deferred sales charge of up to 7%, and withdrawals by an owner before
age 59 1/2 may be subject to a 10% additional income tax.
A Contract may be returned within ten days of receipt for a full refund of
the Contract Value (or purchase payments, if required under applicable law).
Longer free look periods apply in some states.
This Prospectus sets forth concisely the information a prospective investor
should know before investing. It should be retained for future reference.
A statement of additional information dated the same as this Prospectus has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. It is available, at no charge by writing The Penn Mutual
Life Insurance Company, Customer Service Group, Philadelphia, PA 19172. Or, you
can call (215) 956-8000. In addition, the Securities and Exchange Commission
maintains a Web site (http://www.sec.gov) that contains the Statement of
Additional Information, material incorporated by reference, and other
information regarding registrants that file electronically with the Commission.
The table of contents of the statement of additional information is at the end
of this Prospectus.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR EACH
APPLICABLE FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<S> <C>
- - ------------------------------------------------------------------------------
PROSPECTUS CONTENTS
- - ------------------------------------------------------------------------------
SPECIAL TERMS.................................................................
- - ------------------------------------------------------------------------------
EXPENSES......................................................................
- - ------------------------------------------------------------------------------
EXAMPLES OF FEES AND EXPENSES.................................................
- - ------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY........................................
- - ------------------------------------------------------------------------------
THE SEPARATE ACCOUNT..........................................................
Penn Series Funds, Inc...................................................
Neuberger & Berman Advisers Management Trust.............................
Fidelity Investments' Variable Insurance Products Fund...................
Fidelity Investments' Variable Insurance Products Fund II................
Morgan Stanley Universal Funds, Inc......................................
Year 2000................................................................
- - ------------------------------------------------------------------------------
CONTRACT......................................................................
- - -------------------------------------------------------------------------------
Purchases................................................................
Accumulation Units.......................................................
Annuity Payments.........................................................
Death Benefit............................................................
Transfers................................................................
Dollar Cost Averaging...............................................
Automatic Rebalancing...............................................
Withdrawals..............................................................
Systematic Withdrawals..............................................
403(b) Withdrawals..................................................
Deferment of Payments and Transfers......................................
Charges..................................................................
Administration Charges..............................................
Mortality and Expense Risk Charge...................................
Contingent Deferred Sales Charge....................................
Free Withdrawals....................................................
Enhanced Variable Account Death Benefit ............................
Premium Taxes.......................................................
Performance Information..................................................
- - ------------------------------------------------------------------------------
THE FIXED ACCOUNTS............................................................
General Information......................................................
Loans Under Section 403(b) Contracts.....................................
- - ------------------------------------------------------------------------------
FEDERAL INCOME TAX CONSIDERATIONS.............................................
- - ------------------------------------------------------------------------------
FINANCIAL STATEMENTS.........................................................
- - ------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION CONTENTS..................................
- - ------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
- - ------------------------------------------------------------------------------
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATION UNIT: A unit of measure used to compute the Variable Account
Value under the Contract prior to the Annuity Date.
ANNUITANT: The person during whose life annuity payments are made.
ANNUITY DATE: The date on which annuity payments start.
ANNUITY UNIT: A unit of measure used to calculate the amount of each
variable annuity payment.
BENEFICIARY: The person(s) named by the Contract Owner to receive the
death benefit payable upon the death of the Contract Owner or Annuitant.
CONTRACT: The combination variable and fixed annuity contract described in
this Prospectus.
CONTRACT OWNER: The person specified in the Contract as the Contract
Owner.
CONTRACT VALUE: The sum of the Variable Account Value and the Fixed
Account Value.
FIXED ACCOUNT VALUE: The value of amounts held under the Contract in all
fixed accounts.
SEPARATE ACCOUNT: Penn Mutual Variable Annuity Account III, a separate
account of The Penn Mutual Life Insurance Company that is registered as a
unit investment trust under the Investment Company Act of 1940.
VARIABLE ACCOUNT VALUE: The value of amounts held under the Contract in
all subaccounts of the Separate Account.
VALUATION PERIOD: The period from one valuation of Separate Account assets
to the next. Valuation is performed on each day the New York Stock Exchange
is open for trading.
WE OR US: A reference to "we" or "us" denotes The Penn Mutual Life
Insurance Company.
YOU: A reference to "you" denotes the Contract Owner or prospective
Contract Owner.
- - ------------------------------------------------------------------------------
EXPENSES
- - ------------------------------------------------------------------------------
<TABLE>
<S> <C>
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchase Payments...................................................None
Maximum Contingent Deferred Sales Charge..................7% of purchase payments withdrawn(a)
Transfer Fee ............................................................................None
MAXIMUM ANNUAL CONTRACT ADMINISTRATION CHARGE.............................................$40(b)
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF VARIABLE ACCOUNT VALUE)
Mortality and Expense Risk Charge........................................................1.20%
Contract Administration Charge...........................................................0.15%
-----
Total Separate Account Annual Expense....................................................1.35%(c)
</TABLE>
- - ---------------------------
(a) The charge does not apply to withdrawals of purchase payment which were
made more than seven years prior to withdrawal.
(b) The charge is 2% of the Variable Account Value if less than $40. There is
no charge under Contracts with a Variable Account Value of more than
$100,000.
(c) An enhanced Variable Account minimum death benefit rider may be purchased
with the Contract. An annual charge for the Rider is made against the
average annual Variable Account Value at the current Rate of 0.20% with a
maximum possible rate of 0.25%. See "Charges" in this Prospectus.
- - ------------------------------------------------------------------------------
PENN SERIES FUNDS, INC. (A)
UNDERLYING FUND ANNUAL EXPENSES (AS A % OF PORTFOLIO AVG. NET ASSETS)
2
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT TOTAL
FEES (AFTER OTHER FUND
WAIVER) EXPENSES EXPENSES
------------ ---------- ---------
<S> <C> <C> <C>
Growth Equity.............. 0.50% 0.27% 0.77%
Value Equity............... 0.50% 0.26% 0.76%
Small Capitalization....... 0.50% 0.35% 0.85%
Emerging Growth............ 0.80% 0.35% 1.15%
Flexibly Managed........... 0.50% 0.26% 0.76%
International Equity....... 0.75% 0.38% 1.13%
Quality Bond............... 0.45% 0.30% 0.75%
High Yield Bond............ 0.50% 0.31% 0.81%
Money Market............... 0.40% 0.30% 0.70%
</TABLE>
- - -------------------
(a) The expenses presented are for the last fiscal year. In the absence of
fee waivers by the investment adviser and administrator of the Fund, the
total expenses of the Emerging Growth Fund would have been 1.41%.
- - ------------------------------------------------------------------------------
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST (A)
UNDERLYING FUND ANNUAL EXPENSES (AS A % OF PORTFOLIO AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
MANAGEMENT,
ADVISORY AND
ADMINISTRATION OTHER TOTAL FUND
FEES EXPENSES EXPENSES
--------------- --------- -----------
<S> <C> <C> <C>
Limited Maturity Bond..... 0.65% 0.12% 0.77%
Balanced.................. 0.85% 0.19% 1.04%
Partners Fund............. 0.80% 0.06% 0.86%
</TABLE>
(a) Neuberger & Berman Advisers Management Trust (the "Trust") is divided into
portfolios ("Portfolios"), each of which invests all of its net investable
assets in a corresponding series ("Series") of Advisers Managers Trust.
Expenses in the table reflect expenses of the Portfolios and include each
Portfolio's pro rata portion of the operating expenses of each Portfolio's
corresponding Series. The Portfolios pay Neuberger & Berman Management Inc.
("NBMI") an administration fee based on the Portfolio's net asset value.
Each Portfolio's corresponding Series pays NBMI a management fee based on
the Series' average daily net assets. Accordingly, this table combines
management fees at the Series level and administration fees at the
Portfolio's level in a unified fee rate. Total Annual Expenses for each
portfolio have been restated based upon current administration fees for the
Portfolio and management fees for its corresponding Series. See "Expenses"
in the Trust's Prospectus.
3
<PAGE>
- - ------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND (a)
UNDERLYING FUND ANNUAL EXPENSES (AS A % OF PORTFOLIO AVG. NET ASSETS)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL FUND
FEE EXPENSES EXPENSES
-------------------- ----------------- -----------
<S> <C> <C> <C>
Equity-Income .................. 0.50% 0.07% 0.57%
Growth ......................... 0.60% 0.07% 0.67%
___________
</TABLE>
(a) The expenses presented are for the last fiscal year. A portion of the
brokerage commissions the fund paid was used to reduce its expenses. Without
this reduction, total expenses would have been 0.58% for the Equity Income
Portfolio and 0.69% for the Growth Portfolio.
- - -------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II
UNDERLYING FUND ANNUAL EXPENSES (AS A % OF PORTFOLIO AVG. NET ASSETS)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL FUND
FEE EXPENSES EXPENSES
----------- --------- -----------
<S> <C> <C> <C>
Asset Manager (a) ................. 0.55% 0.09% 0.64%
Index 500 (b) ..................... 0.24% 0.04% 0.28%
</TABLE>
(a) The expenses presented are for the last fiscal year. A portion of the
brokerage commissions the fund paid was used to reduce its expenses. Without
this reduction, total expenses would have been 0.65% for the Asset Manager
Portfolio.
(b) The expenses presented are for the last fiscal year. In the absence of
voluntary fee waivers by the investment adviser, total expenses would have been
0.40% for the Index 500 Portfolio.
- - ------------------------------------------------------------------------------
MORGAN STANLEY UNIVERSAL FUNDS, INC.
UNDERLYING FUND ANNUAL EXPENSES (AS A % OF PORTFOLIO AVG. NET ASSETS)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL FUND
FEE EXPENSES EXPENSES
----------- --------- -----------
<S> <C> <C> <C>
Emerging Markets Equity (International) ............ 1.25% 0.50% 1.75%
</TABLE>
- - ------------------------------------------------------------------------------
The purpose of the foregoing table is to assist you in understanding the
various costs and expenses that you will bear directly and indirectly. The table
shows Contract expenses and underlying fund expenses. See the prospectuses of
Penn Series Funds, Inc., Neuberger & Berman Advisers Management Trust,
Fidelity Investments' Variable Insurance Products Fund, Fidelity Investments'
Variable Insurance Products Fund II and Morgan Stanley Universal Funds, Inc. for
additional information on fund expenses.
Premium taxes may be applicable, but are not reflected in the tables above
or the examples below. See "CHARGES" in this Prospectus.
4
<PAGE>
- - --------------------------------------------------------------------------------
EXAMPLES OF FEES AND EXPENSES
The following examples illustrate the cumulative dollar amount of all the
above expenses that would be incurred on each $1,000 invested.
If you surrender your Contract at the end of the applicable period, you
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Penn Series Growth Equity Fund...................................... $83 $115 $147 $254
Penn Series Value Equity Fund....................................... $83 $115 $147 $253
Penn Series Small Capitalization Fund............................... $84 $117 $151 $262
Penn Series Emerging Growth Fund.................................... $87 $126 $166 $292
Penn Series Flexibly Managed Fund................................... $83 $115 $147 $253
Penn Series International Equity Fund............................... $87 $125 $165 $290
Penn Series Quality Bond Fund....................................... $83 $115 $146 $252
Penn Series High Yield Bond Fund.................................... $84 $116 $149 $258
Penn Series Money Market Fund....................................... $83 $113 $144 $247
Neuberger & Berman Limited Maturity Bond Portfolio.................. $83 $115 $147 $254
Neuberger & Berman Balanced Portfolio............................... $86 $123 $161 $281
Neuberger & Berman Partners Portfolio............................... $84 $118 $152 $263
Fidelity's Equity Income Portfolio.................................. $82 $109 $137 $233
Fidelity's Growth Portfolio......................................... $83 $112 $142 $243
Fidelity's Asset Manager Portfolio.................................. $82 $111 $141 $240
Fidelity's Index 500................................................ $79 $101 $123 $202
Morgan Stanley Emerging Markets Equity (International) Portfolio.... $93 $143 $194 $349
</TABLE>
If you do not surrender your Contract, or IF you annuitize your Contract,
you would pay the following expenses on a $1,000 investment, assuming 5% annual
return on investments:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
Penn Series Growth Equity Fund.................................... $22 $69 $118 $254
Penn Series Value Equity Fund..................................... $22 $69 $118 $253
Penn Series Small Capitalization Fund............................. $23 $71 $122 $262
Penn Series Emerging Growth Fund.................................. $26 $80 $137 $292
Penn Series Flexibly Managed Fund................................. $22 $69 $118 $253
Penn Series International Equity Fund............................. $26 $80 $136 $290
Penn Series Quality Bond Fund..................................... $22 $68 $117 $252
Penn Series High Yield Bond Fund.................................. $23 $70 $120 $258
Penn Series Money Market Fund..................................... $22 $67 $115 $247
Neuberger & Berman Limited Maturity Bond Portfolio................ $22 $69 $118 $254
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Neuberger & Berman Balanced Portfolio.............................. $25 $77 $132 $281
Neuberger & Berman Partners Portfolio.............................. $23 $72 $123 $263
Fidelity's Equity Income Portfolio................................. $20 $63 $108 $233
Fidelity's Growth Portfolio........................................ $21 $66 $113 $243
Fidelity's Asset Manager Portfolio................................. $21 $65 $111 $240
Fidelity's Index 500............................................... $17 $54 $ 93 $202
Morgan Stanley Emerging Markets Equity (International) Portfolio... $32 $98 $166 $349
</TABLE>
- - -----------------------
The examples are based upon fund data for the fiscal year ended December
31, 1997.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES UNDER YOUR CONTRACT; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN
THOSE SHOWN.
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY
The Penn Mutual Life Insurance Company ("Penn Mutual") is a Pennsylvania
mutual life insurance company. We were chartered in 1847 and have been
continuously engaged in the life insurance business since that date. Our home
office is located at 600 Dresher Road, Horsham, PA 19044. Our mailing address is
Independence Square, Philadelphia, PA 19172.
- - --------------------------------------------------------------------------------
THE SEPARATE ACCOUNT
Penn Mutual Variable Annuity Account III was established as a separate
account of Penn Mutual on April 13, 1982. 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.
The Separate Account is divided into subaccounts for investment in shares
of different Funds of Penn Series Funds, Inc., Neuberger & Berman Advisers
Management Trust, Fidelity Investments' Variable Insurance Products Fund and
Variable Insurance Products Fund II and Morgan Stanley Universal Funds, Inc.
Income, gains and losses, realized or unrealized, of a subaccount are credited
to or charged against the subaccount without regard to any other income, gains
or losses of Penn Mutual. Assets equal to the reserves and other contract
liabilities with respect to each subaccount are not chargeable with liabilities
arising out of any other business of Penn Mutual. Penn Mutual is obligated to
pay all benefits and make all payments provided under the Contracts.
Assets held in the Separate Account under the Contracts described in this
Prospectus are invested, at the direction of the Contract Owner, in one or more
Funds of Penn Series Funds, Inc., Neuberger & Berman Advisers Management Trust,
Fidelity Investments; Variable Insurance Products Fund and Variable
Insurance Products Fund II and Morgan Stanley Universal Funds, Inc.
Under the Investment Company Act of 1940, as currently interpreted,
Contract Owners and persons receiving annuity payments have the right to
instruct Penn Mutual as to the voting of the various Fund shares held in
6
<PAGE>
the Separate Account pursuant to the Contracts. The number of shares of a Fund
for which voting instructions may be given by a Contract Owner is determined by
dividing the Contract Owner's interest in the applicable subaccount of the
Separate Account by the net asset value per share of the Fund. The number of
shares of a Fund for which voting instructions may be given by a person
receiving annuity payments is determined by dividing the reserve allocated to
the applicable subaccount by the net asset value per share of the Fund. Should
the applicable law, or interpretations thereof, change so as to permit us to
vote shares of the mutual funds in our own right, we may elect to do so.
Further, we reserve the right to modify the manner in which we calculate the
weight to be given to pass through voting instructions where such a change is
necessary to comply with federal law or interpretations thereof.
Shares of Penn Series are sold not only to the Separate Account, but also
to other separate accounts of Penn Mutual and its subsidiary, The Penn Insurance
and Annuity Company, that fund benefits under variable annuity and variable life
insurance contracts. Shares of Neuberger & Berman Advisers Management Trust,
Fidelity Investments' Variable Insurance Products Fund and Variable Insurance
Products Fund II and Morgan Stanley Universal Funds, Inc. are offered not only
to variable annuity and variable life separate accounts of Penn Mutual, but also
to such accounts of other insurance companies unaffiliated with Penn Mutual and,
in the case of Neuberger & Berman Advisers Management Trust and Morgan Stanley
Universal Funds, Inc., directly to qualified pension and retirement plans. For
information on possible conflicts involved in the Separate Account investing in
Funds that are so offered, see the accompanying Fund prospectuses.
- - --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.:
GROWTH EQUITY FUND -- seeks long term growth of capital and increase of
future income by investing primarily in common stocks of well established growth
companies;
VALUE EQUITY FUND -- seeks to maximize total return (capital appreciation
and income) primarily by investing in equity securities of companies believed to
be undervalued considering such factors as assets, earnings, growth potential
and cash flows;
SMALL CAPITALIZATION FUND -- seeks capital appreciation through investment
in a diversified portfolio of securities consisting primarily of equity
securities of companies with market capitalizations under $1 billion;
EMERGING GROWTH FUND -- seeks capital appreciation by investing primarily
in common stocks of emerging growth companies with above-average growth
prospects;
FLEXIBLY MANAGED FUND -- seeks to maximize total return (capital
appreciation and income) by investing in common stocks, other equity securities,
corporate debt securities, and/or short term reserves, in proportions considered
appropriate in light of the availability of attractively valued individual
securities and current and expected economic and market conditions;
INTERNATIONAL EQUITY FUND -- seeks to maximize capital appreciation by
investing in a carefully selected diversified portfolio consisting primarily of
equity securities. The investments will consist principally of equity securities
of European and Pacific Basin countries;
QUALITY BOND FUND -- seeks the highest income over the long term consistent
with the preservation of principal through investment primarily in marketable
investment grade debt securities;
HIGH YIELD BOND FUND -- seeks high current income by investing primarily in
a diversified portfolio of long term high-yield/high-risk fixed income
securities in the medium to lower quality ranges; capital appreciation is
7
<PAGE>
a secondary objective; such securities, which are commonly referred to as "junk"
bonds, generally involve greater risks of loss of income and principal than
higher rated securities (see accompanying Penn Series prospectuses);
MONEY MARKET FUND -- seeks to preserve capital, maintain liquidity and
achieve the highest possible level of current income consistent therewith, by
investing in high quality money market instruments; an investment in the Fund is
neither insured nor guaranteed by the U.S. Government and there can be no
assurance that the fund will be able to maintain a stable net asset value of
$1.00 per share.
Independence Capital Management, Inc., Horsham, Pennsylvania is investment
adviser to each of the Funds. OpCap Advisors, New York, New York, is investment
sub-adviser to the Value Equity and Small Capitalization Funds. T. Rowe Price
Associates, Baltimore, Maryland, is investment sub-adviser to the Flexibly
Managed and High Yield Bond Funds. Vontobel USA, Inc., New York, New York, is
investment sub-adviser to the International Equity Fund. RS Investment
Management, Inc., San Francisco, California, is investment sub-adviser to the
Emerging Growth Fund.
- - --------------------------------------------------------------------------------
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST:
LIMITED MATURITY BOND PORTFOLIO -- seeks highest current income consistent
with low risk to principal and liquidity, primarily by investing in a
diversified portfolio of limited maturity debt securities. A secondary
objective is capital appreciation.
BALANCED PORTFOLIO -- seeks long-term capital growth and reasonable current
income without undue risk to principal through investment of a portion of its
assets in common stock and a portion in debt securities.
PARTNERS PORTFOLIO -- seeks capital growth by investing primarily in common
stocks of established companies, using the value oriented investment approach.
Neuberger & Berman reserves the right to make changes in the investment
objective, but will notify shareholders thirty days in advance of any proposed
material change.
Neuberger & Berman Management Incorporated, New York, New York, is
investment adviser to the Limited Maturity Bond Portfolio, the Balanced
Portfolio and the Partners Portfolio.
- - --------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND:
EQUITY-INCOME PORTFOLIO -- seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the fund
will also consider the potential for capital appreciation. The fund's goal is to
achieve a yield which exceeds the composite yield on the securities comprising
the Standard & Poor's 500 Composite Stock Price Index.
GROWTH PORTFOLIO -- seeks to achieve capital appreciation. The fund
normally purchases common stocks, although its investments are not restricted to
any one type of security. Capital appreciation may also be found in other types
of securities, including bonds and preferred stocks.
Fidelity Management & Research Company, Boston, Massachusetts, is
investment adviser to the Equity-Income Portfolio and the Growth Portfolio.
8
<PAGE>
- - --------------------------------------------------------------------------------
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II:
ASSET MANAGER PORTFOLIO -- seeks high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed income investments.
INDEX 500 PORTFOLIO -- seeks to match the total return of the S&P 500 while
keeping expenses low. The S&P 500 is an index of 500 common stocks, most of
which trade on the New York Stock Exchange.
Fidelity Management & Research Company, Boston, Massachusetts, is
investment adviser to the Asset Manager Portfolio and the Index 500 Portfolio.
- - --------------------------------------------------------------------------------
MORGAN STANLEY UNIVERSAL FUNDS, INC.:
EMERGING MARKETS EQUITY (INTERNATIONAL) PORTFOLIO -- seeks long term
capital appreciation by investing primarily in equity securities of emerging
market country issuers. The Portfolio will focus on economies which are
developing strongly and in which the markets are becoming more sophisticated.
Morgan Stanley Asset Management Inc. , New York, New York, is investment
adviser to the Emerging Markets Equity (International) Portfolio.
FOR MORE INFORMATION ON THE MUTUAL FUNDS IN WHICH THE SUBACCOUNTS INVEST, SEE
THE PROSPECTUSES FOR PENN SERIES FUNDS, INC., NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST, FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY INVESTMENTS' VARIABLE INSURANCE PRODUCTS FUND II, AND MORGAN STANLEY
UNIVERSAL FUNDS, INC. YOU SHOULD READ THE PROSPECTUSES FOR THE FUNDS IN WHICH
YOU ARE INTERESTED BEFORE INVESTING.
Year 2000:
The services provided by Penn Mutual to the Separate Account depend on the
smooth functioning of its computer systems. Many computer systems in use today
cannot recognize the year 2000, but revert to 1900 or some other date, due to
the manner in which dates were encoded and calculated. That failure could have
a negative impact on the handling of securities trades, pricing and account
services. Penn Mutual has been actively working on necessary changes to its own
systems to prepare for the year 2000 and expects that its systems will be
adapted before that date, but there are no assurances that they will be
successful, or that interaction with other non-complying computer systems will
not impair its services at that time.
Penn Mutual, and the mutual funds that serve as investment options for the
Separate Account, have relationships with investment advisers, broker-dealers
transfer agents, custodians, or other service providers that are not affiliated
with Penn Mutual. Penn Mutual is contacting these vendors and service providers
to obtain assurances that such service providers have taken appropriate measures
to address the "Year 2000" problem. There can be no assurances that the failure
of these parties to complete adequate preparations in a timely manner would not
have an adverse affect directly or indirectly on the Separate Account.
The foregoing statements are designated Year 2000 Readiness Disclosure
within the meaning of The Year 2000 Information and Readiness Disclosure Act
(P.L. 105-271, S. 2392).
9
<PAGE>
- - --------------------------------------------------------------------------------
THE CONTRACT
The Contract described in this Prospectus is a combination variable and
fixed annuity contract. The Contract provides for investment, through
subaccounts of the Separate Account, in one or more of the available funds of
Penn Series Funds, Inc., Neuberger & Berman Advisers Management Trust,
Fidelity Investments' Variable Insurance Products Fund, Fidelity Investments'
Variable Insurance Products Fund II and Morgan Stanley Universal Funds, Inc. It
also provides for investment in one or more fixed interest accounts. The fixed
accounts are guaranteed and funded by the Company through its general account.
See THE FIXED ACCOUNTS in this Prospectus. Currently, over the life of the
Contract, amounts may be allocated or transferred to one or more of the 17
funds and fixed accounts. Transfers may not be made to the Six Month Fixed
Account.
As the Contract Owner, you determine, within Contract limits (1) the amount
and frequency of the purchase payments to be made to the Company, (2) the
investment options to which the purchase payments are to be allocated, (3)
transfers among investment options, (4) the form of annuity to be paid after the
accumulation period and the person to whom it is to be paid, (5) the beneficiary
to whom death benefits are to be paid, and (6) the amount and frequency of
withdrawals from the Contract Value.
During the variable annuity payout period, you (or the beneficiary in the
event of your death or the Annuitant's death) may transfer Annuity Unit values
among up to four subaccounts of the Separate Account that must be selected at
the time of annuitization.
Upon the earlier of the death of the Contract Owner or Annuitant prior to
the Annuity Date, the beneficiary may elect to receive a death benefit in a lump
sum or in the form of an annuity. A spousal beneficiary may elect to become the
Owner of the Contract.
The Contract may be amended at any time to conform to applicable laws or
governmental regulations. If, in our judgment, investment in any of the mutual
funds becomes inappropriate to the purposes of the Contract, we may, with
approval of the Securities and Exchange Commission and the governing state
insurance department, substitute another fund for existing and future
investments.
The Contracts are available to individuals and institutions for retirement
and other funding purposes. The Contracts may also be issued as individual
retirement annuities under section 408(b) of the Internal Revenue Code (the
"Code") in connection with IRA rollovers and as tax-deferred annuities under
Section 403(b) of the Code (often referred to as qualified Contracts).
Contract Owner inquiries may be made by writing The Penn Mutual Life
Insurance Company, Customer Service Group, Philadelphia, PA 19172. Or, you may
call (215) 956-8000.
- - --------------------------------------------------------------------------------
PURCHASES
To purchase a Contract, your completed application, together with a check
for the first purchase payment, should be forwarded to our administrative
offices in Horsham, Pennsylvania. Normally, a completed application form
received at our administrative offices will be accepted within two business
days. If an incomplete application is not completed and acted upon within five
business days, the purchase payment will be returned to you unless you request
that we retain it while you complete the application. All subsequent purchase
payments are sent directly to our administrative office.
10
<PAGE>
The minimum initial purchase payment is $5,000. The minimum subsequent
purchase payment that will be accepted is $5,000. We may, in our discretion,
reduce the minimum requirements for initial and subsequent purchase payments. We
will accept total purchase payments under your Contract of up to $1 million.
Total purchase payments in excess of $1 million require our prior approval.
Purchase payments allocated to the Separate Account are credited in the
form of Accumulation Units of the subaccount selected. The number of
Accumulation Units credited is determined by dividing the purchase payment
allocated to the Separate Account by the value of the Accumulation Unit at the
end of the valuation period in which the purchase payment is received at our
administrative office or, in a case of the first purchase payment, is accepted
by us.
The principal underwriter of the Contract (under federal securities laws)
is Hornor, Townsend & Kent, Inc., 600 Dresher Road, Horsham, PA 19044, a wholly-
owned subsidiary of Penn Mutual.
- - --------------------------------------------------------------------------------
ACCUMULATION UNITS
For each subaccount of the Separate Account available under the contract
the value of an Accumulation Unit will be $10 when the subaccount commences
operation. The value of an Accumulation Unit may increase or decrease from one
valuation period to the next.
The value of an Accumulation Unit for a valuation period is determined by
multiplying the value of an Accumulation Unit for the prior valuation period by
the net investment factor for the subaccount for the current valuation period.
The net investment factor is a measure of (1) investment performance of
mutual fund shares held in the subaccount, (2) any taxes on income or gains from
investments held in the subaccount and (3) the mortality and expense risk charge
at an annual rate of 1.20% and contract administration charge at an annual rate
of 0.15% assessed against the subaccount. Under current law, no taxes are levied
against income or gain from investments held in a subaccount.
- - --------------------------------------------------------------------------------
ANNUITY PAYMENTS
You may choose one of the following forms of annuity: (1) an annuity for a
specified number of years, (2) a life annuity, (3) a life annuity with payments
guaranteed for 10 or 20 years, (4) a joint and survivor life annuity or (5) such
other form of annuity as we may agree upon. You may select any one of these
forms of annuity as a variable annuity (except for a specified number of years),
a fixed annuity, or a combination of both.
The level of the variable annuity payments is determined by various
factors, including the amount accumulated and applied under the Contract to the
variable annuity, the form of annuity chosen, the expected duration of the
annuity period, the performance of the applicable investment options, and the
annuity purchase rates and charges specified in the Contract.
You may choose annuity purchase rates based on an assumed interest rate of
3% or based on an assumed interest rate of 5%. If the annual net investment
return during the annuity payout period is greater than the rate chosen, the
level of the annuity payment increases. If the annual net investment return is
less than the rate chosen, the level of the annuity payments decreases. The
choice of a higher assumed interest rate would mean a higher first
11
<PAGE>
annuity payment but more slowly rising or more rapidly falling subsequent
payments. The choice of a lower assumed interest rate would have the opposite
effect.
The level of fixed annuity payments under a Contract is determined by
various factors, including the amount accumulated and applied under the Contract
to the fixed annuity, the form of annuity chosen, the expected duration of the
annuity period, and a guaranteed 3% rate of return.
Unless you specify otherwise, you or such other person you designate will
receive a life annuity with payments guaranteed for 10 years except for tax
deferred annuities under Section 403(b) of the Code. Annuitants under those
Contracts will receive a joint and survivor annuity. Unless you specify
otherwise, the annuity will be split between fixed and variable in the same
proportions as the Contract Value on the Annuity Date with the variable portion
invested in up to four funds selected by the Company.
Unless you specify otherwise, the Annuity Date will be the later of (1) the
first day of the next month after the Annuitant's 95th birthday or (2) 10 years
after the contract date, unless state law requires an earlier Annuity Date. The
Annuity Date under the Contract must be on the first day of a month.
You may change the Annuity Date or annuity option by giving written notice
at our administrative office at least 30 days prior to the current Annuity Date.
If the Contract Value of a Contract is less than $5,000, we may elect to pay
such amount in a lump sum in place of an annuity. Annuity payments are generally
monthly, starting with the Annuity Date, but may also be made quarterly,
semiannually or annually at your request. However, if any payment would be less
than $50, we may change the frequency of annuity payments so that payments are
at least $50 each. For information on the treatment of annuity payments, see
FEDERAL INCOME TAX CONSIDERATIONS in this Prospectus.
- - --------------------------------------------------------------------------------
DEATH BENEFIT
Upon the earlier of death of the Contract Owner or the Annuitant, prior to
the Annuity Date, we will pay a death benefit to the Beneficiary.
If the Contract Owner dies prior to the Annuity Date, we will pay the
Beneficiary the Contract Value for the valuation period in which proof of death
and any other required information needed to make payment is received at our
administrative office. If Contract Owner is also the Annuitant and dies before
the Annuity Date, we will pay the Beneficiary the death benefit described in the
next paragraph.
If the Annuitant dies before the Annuity Date, we will pay a death benefit
to the Beneficiary equal to the sum of the Variable Account death benefit and
the Fixed Account death benefit as of the date we receive proof of death. The
Variable Account death benefit is the greater of (1) the Variable Account Value
or (2) all purchase payments allocated and transfers made to the Variable
Account less withdrawals from the amounts so allocated and transferred. The
Fixed Account death benefit is the Fixed Account Value. The death benefit
generally will be paid within seven days after we receive proof of death and all
information necessary to make payment to the Beneficiary.
If the Annuitant is 75 years of age or less, you may purchase an enhanced
guaranteed minimum death benefit as part of your Contract. The enhanced
guaranteed minimum death benefit is paid in place of the Variable Account death
benefit, if it is greater, and if the Annuitant dies before the Annuity Date and
before age 90. We offer two different enhanced guaranteed minimum death
benefits - a guaranteed minimum death benefit step-up and a guaranteed minimum
death benefit rising floor. You may purchase one of them only at the time you
purchase your Contract.
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<PAGE>
The guaranteed minimum death benefit - step-up is the highest Variable
Account Value on the current and each of the prior Contract anniversary dates,
adjusted as follows. The death benefit on an anniversary date will be increased
by the amount of any purchase payments allocated and transfers made to the
Variable Account after the anniversary date and before the anniversary date and
decreased by an amount that is in the same proportion that the Variable Account
Value was decreased by transfers and withdrawals (including any deferred sales
charge) after the anniversary date and before the next anniversary date.
The guaranteed minimum death benefit - rising floor is the sum of all
purchase payments allocated and transfers made to the Variable Account minus a
reduction (as described below) for any withdrawals or transfers made from the
Variable Account plus interest at 5%, calculated as follows. Interest is
reflected from the dates amounts are allocated to or withdrawn or transferred
from the Variable Account to the date the guaranteed death benefit is paid, or
the date the Annuitant attains 80 years of age, if earlier. If a withdrawal or
transfer is made from the Variable Account, the guaranteed minimum death benefit
will be reduced by an amount that is in the same proportion that the amount
withdrawn or transferred from the Variable Account (including any contingent
deferred sales charge) was to the Variable Account Value on the date of the
withdrawal or transfer.
The enhanced guaranteed minimum death benefit will terminate if you
withdraw or transfer the full Variable Account Value from your Contract. For
information on the cost of the enhanced guaranteed minimum death benefits, see
"CHARGES."
Within one year of the date of death of the Contract Owner, the Beneficiary
may elect to receive the death benefit in single sum or in the form of an
annuity. If the death benefit becomes payable upon death of the Annuitant who
is not the Contract Owner, an election to receive the death benefit in the form
of an annuity must be made within 60 days of the death of the Annuitant. If
payment is to be received in a single sum, it must be paid within five years of
the date of death (until paid out, the death benefit will be allocated to
subaccounts of the Separate Account and/or fixed interest options as directed by
the Beneficiary). If an annuity is selected, payments must commence within one
year of the date of death and must be made over the Beneficiary's life or over a
period not longer than the Beneficiary's life expectancy. If an election is not
made within one year of the date of death of the Contract Owner or within 60
days of the death of Annuitant (who is not the Contract Owner), the death
benefit will be paid to the Beneficiary in a single sum. If the Contract Owner
dies and the Beneficiary is the Contract Owner's surviving spouse, the surviving
spouse has the right to become the Contract Owner rather than receive the death
benefit. If there is more than one surviving Beneficiary, the Beneficiaries must
choose their respective portions of the death benefit in accordance with the
above options.
If the Annuitant dies on or after the Annuity Date, the death benefit
payable, if any, will be paid in accordance with the annuity option in force.
You may designate a Beneficiary in your application. You may change the
Beneficiary at any time before your death or the death of the Annuitant,
whichever occurs first.
For information on the tax treatment of death benefits, see FEDERAL INCOME
TAX CONSIDERATIONS in this Prospectus.
- - --------------------------------------------------------------------------------
TRANSFERS
Prior to the Annuity Date, you may transfer amounts from one subaccount of
the Separate Account to another subaccount of the Separate Account. Within
certain additional limitations stated in the Contract, you may also transfer
amounts from the subaccounts of the Separate Account to the One Year Fixed
Account prior to the Annuity Date. You
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<PAGE>
may not transfer amounts from the subaccounts of the Separate Account to the Six
Month Fixed Account. You may make a transfer from the One Year Fixed Interest
Account to the Variable Account only at the completion of the interest period or
within 25 days thereafter. You may make a transfer from the Six Month Fixed
Interest Account to the Variable Account as described under "Dollar Cost
Averaging" below or 100% at any time.
After the Annuity Date and during an annuity payout period, you may
transfer amounts (upon which the annuity payments are based) from one subaccount
of the Separate Account to another. Transfers are limited to the four
subaccounts selected at the time of annuitization. Upon your death or the death
of the Annuitant, a beneficiary who is receiving annuity payments may transfer
amounts among the subaccounts of the Separate Account.
Transfers will be based on values at the end of the valuation period in
which the transfer request is received at our service office.
The minimum amount that may be transferred is $250 or, if less, the amount
held in the subaccount or the fixed account. In the case of partial transfers,
the amount remaining in the subaccount or the fixed account must be at least
$250.
A request for transfer must be received at our service office and all other
administrative requirements for transfer must be met to make the transfer. The
Separate Account and the Company will not be liable for following instructions
communicated by telephone that we reasonably believe to be genuine. We require
certain personal identifying information to process a request for transfer made
over the telephone.
DOLLAR COST AVERAGING: You may elect to have a fixed percentage of your
initial or subsequent purchase payments transferred monthly or quarterly from
one source account to other accounts. These transfers may be made only from one
of the following accounts: Money Market Subaccount, Limited Maturity Bond
Subaccount, Quality Bond Subaccount, or the Six Month Fixed Interest Account.
The dollar cost averaging term may run up to 60 months with a maximum of 6
months for the Six Month Fixed Interest Account, or until you give notice of a
change in allocation or cancellation of the feature. If you terminate the
dollar cost averaging program, any amounts remaining in the Six Month Fixed
Interest Account will be transferred into the One Year Fixed Interest Account.
AUTOMATIC REBALANCING: If you have a Contract Value of at least $10,000 you
may elect to have your investments in subaccounts of the Separate Account
automatically rebalanced. We will transfer funds under your Contract on a
quarterly (calendar) basis among the subaccounts to maintain a specified
percentage allocation among your selected variable investment options. Dollar
cost averaging and automatic rebalancing may not be in effect at the same time.
- - --------------------------------------------------------------------------------
WITHDRAWALS
Prior to the Annuity Date and prior to the earlier of the death of the
Contract Owner and Annuitant, you may withdraw all or part of your Contract
Value. Withdrawals will be based on values at the end of the valuation period in
which a proper written request for withdrawal (and the Contract, in case of a
full withdrawal) is received at our administrative office. Payment will
normally be made within seven days of receipt of the written request and the
Contract, if required. A withdrawal may result in certain tax consequences,
including an additional 10% tax under certain circumstances. For information on
the tax treatment of withdrawals, see FEDERAL INCOME TAX CONSIDERATIONS in this
Prospectus.
The minimum withdrawal is $500 or, if it is the first withdrawal in each
Contract Year, the Free Withdrawal Amount if this amount is less than $500. The
Free Withdrawal Amount is equal to 15% of the purchase payments as
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<PAGE>
of the date of the request. A partial withdrawal may be made from a subaccount
of the Separate Account or a fixed account only if the amount remaining in the
contract is at least $5,000 and the balance remaining in each subaccount or the
fixed account is at least $250. If you request a partial withdrawal without
specifying allocation of the withdrawal among investment options, it will be
taken pro rata from the variable subaccounts; if the partial withdrawal exhausts
your Variable Account Value, then any remaining withdrawal will be taken from
the fixed interest options beginning with the fixed interest option with the
shortest interest period.
SYSTEMATIC WITHDRAWALS: You may make a request for a systematic withdrawal
if there is no previous withdrawal in the current contract year. The maximum
value of a systematic withdrawal request is equal to the Free Withdrawal Amount
(as defined above). A level systematic withdrawal will begin one modal period
after the date of receipt of the request. The systematic withdrawals may be made
on a monthly, quarterly, semiannual or annual basis. The minimum Contract Value
that is eligible for a systematic withdrawal is $25,000. The minimum amount of
each withdrawal payment is $100. This provides a convenient way to take
advantage of the ability to withdraw a limited percentage of purchase payments
without incurring a contingent deferred sales charge. See "Free Withdrawals"
below. For information on the tax treatment of withdrawals, see FEDERAL INCOME
TAX CONSIDERATIONS in this Prospectus.
403(B) WITHDRAWALS: With respect to Contracts qualifying under Section
403(b) of the Code, there are certain restrictions on withdrawals. Withdrawals
may generally be made only if the Contract Owner is over the age of 59 1/2 ,
leaves the employment of the employer, dies, or becomes disabled as defined in
the Code. Withdrawals (other than withdrawals attributable to income earned on
purchase payments) may also be possible in the case of hardship as defined in
the Code. The restrictions do not apply to transfers among subaccounts and may
also not apply to transfers to other investments qualifying under Section
403(b). For information on the tax treatment of withdrawals under Section
403(b) Contracts, see FEDERAL INCOME TAX CONSIDERATIONS in this Prospectus.
- - --------------------------------------------------------------------------------
DEFERMENT OF PAYMENTS AND TRANSFERS
We reserve the right to defer a withdrawal, a transfer of values or annuity
payments funded by the Separate Account if (a) the New York Stock Exchange is
closed (other than customary weekend and holiday closings); (b) trading on the
Exchange is restricted; (c) an emergency exists such that it is not reasonably
practical to dispose of securities held in the Separate Account or to determine
the value of its assets; or (d) the Securities and Exchange Commission by order
so permits for the protection of investors. Conditions described in (b) and (c)
will be decided by, or in accordance with rules of, the Commission.
- - --------------------------------------------------------------------------------
CHARGES
ADMINISTRATION CHARGES:
Charges are assessed to reimburse us for the expenses we incur in
administering the Contract and the Separate Account. First, on an annual basis,
we deduct from the Variable Account Value a contract administration charge which
will be no greater than the lesser of $40 or 2% of the Variable Account Value.
We will not, however, deduct this charge if the Variable Account Value is
greater than $100,000. The charge is made by canceling Accumulation Units
credited to the Contract, with the charge allocated pro rata among the
subaccounts comprising the Variable Account Value. Second, we deduct from the
Separate Account a daily administration charge which will not exceed an
effective annual rate of 0.15% of the daily net asset value of the Separate
Account. These administration charges are guaranteed not to increase and are
intended to cover our average anticipated administration expenses over the
periods the Contracts are in force.
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<PAGE>
MORTALITY AND EXPENSE RISK CHARGE:
We deduct a daily mortality and expense risk charge which will not exceed
an effective annual rate of 1.20% of the daily net asset value of the Separate
Account. This charge is to compensate us for the mortality-related guarantees
we make under the Contract (e.g., the death benefit and the guarantee that the
annuity factors will never be decreased even if mortality experience is
substantially different than originally assumed), and for the risk that our
administration charges will be insufficient to cover administration expenses
over the life of the Contracts. The mortality and expense risk charge is
assessed during both the accumulation and variable annuity pay-out phases of the
Contract.
CONTINGENT DEFERRED SALES CHARGE:
A contingent deferred sales charge may be deducted from withdrawals of
purchase payments prior to the Annuity Date. This charge is made to cover sales
expenses that we have incurred. Sales expenses which are not covered by the
deferred sales charge are paid from the surplus of the Company, which may
include proceeds from the mortality and expense risk charge.
A contingent deferred sales charge, if applicable, will be imposed only on
a withdrawal of a purchase payment in cases where the purchase payment was made
within seven years of the date of the withdrawal. The following table shows the
schedule of the contingent deferred sales charge that will be applied to
withdrawal of a purchase payment, after allowing for the free withdrawals which
are described in the next subsection. Purchase payments will be treated as
withdrawn on a first-in, first-out basis.
<TABLE>
<CAPTION>
NUMBER OF FULL CONTRACT
YEARS SINCE PURCHASE PAYMENT APPLICABLE CHARGE
- - ------------------------------------------------------------------------------
<S> <C>
0 7%
- - ------------------------------------------------------------------------------
1 7%
- - ------------------------------------------------------------------------------
2 6%
- - ------------------------------------------------------------------------------
3 5%
- - ------------------------------------------------------------------------------
4 4%
- - ------------------------------------------------------------------------------
5 3%
- - ------------------------------------------------------------------------------
6 1.5%
- - ------------------------------------------------------------------------------
7+ 0%
- - ------------------------------------------------------------------------------
</TABLE>
The contingent deferred sales charge may be reduced on Contracts sold to a
trustee, employer or similar party pursuant to a retirement plan or to a group
of individuals, if such sales are expected to involve reduced sales expenses.
The amount of reduction will depend upon such factors as the size of the group,
any prior or existing relationship with the purchaser or group, the total amount
of purchase payments and other relevant factors that might tend to reduce
expenses incurred in connection with such sales. The reduction will not be
unfairly discriminatory to any Contract Owner.
FREE WITHDRAWALS:
Seven-Year-Old Purchase Payments. You may withdraw any purchase payment
---------------------------------
which was made more than 7 years before the withdrawal without incurring a
contingent deferred sales charge.
Annual Withdrawals of 15% of Purchase Payments. On the last day of the
-----------------------------------------------
first contract year and once each contract year thereafter, you may withdraw,
without incurring a contingent deferred sales charge, 15% of total purchase
16
<PAGE>
payments as of the date of the request. You may take a free withdrawal on a
single sum basis or systematically, but not both. The free withdrawal amount
will be applied to purchase payments on a first-in, first-out basis. With
respect to any withdrawal in excess of the free withdrawal limit in a contract
year, the contingent deferred sales charge schedule set forth above will apply
to the remainder of the purchase payments so withdrawn on a first-in, first-out
basis. This free withdrawal applies only to the first withdrawal request made
in a contract year and the amount is not cumulative from year to year.
Medically Related Withdrawal. Subject to applicable state law, after the
-----------------------------
first contract year and before the Annuity Date, you may withdraw, without
incurring a contingent deferred sales charge, all or part of your Contract
Value if certain medically related contingencies occur. This free withdrawal is
available if you are (1) first confined in a nursing home or hospital while this
Contract is in force and remain confined for at least 90 days in a row or (2)
first diagnosed as having a fatal illness (an illness expected to result in
death within 2 years for 80% of diagnosed cases) while this Contract is in
force. The precise terms and conditions of this benefit are set forth in the
Contract. It is not available if your age at issue is greater than 75. The
medically related contingencies that must be met for free withdrawal vary in
some states.
Disability Related Withdrawal. You may withdraw, without incurring a
------------------------------
contingent deferred sales charge, part or all of your Contract Value if you (you
or the Annuitant for qualified Contracts) become totally disabled as defined in
the Contract.
Other Withdrawals. There is no contingent deferred sales charge imposed
------------------
upon minimum distributions under qualified contracts which are required by the
Code.
ENHANCED VARIABLE ACCOUNT DEATH BENEFIT (OPTIONAL):
If you purchase an enhanced Variable Account death benefit as part of your
Contract, we will deduct a guaranteed minimum death benefit charge from the
Variable Account Value. The charge is currently 0.20% of the average annual
Variable Account Value, but may be raised to a maximum rate of 0.25% at the
discretion of Penn Mutual. The charge will be made on each Contract anniversary
and at any time the Variable Account Value is withdrawn or transferred in full.
The charge will be deducted by canceling Accumulation Units credited to your
Contract, with the charge allocated pro rata among the subaccounts comprising
the Variable Account Value.
PREMIUM TAXES:
Some states and municipalities impose premium taxes on purchase payments
received by insurance companies. Generally, any premium taxes payable will be
deducted upon annuitization, although we reserve the right to deduct such taxes
when due in jurisdictions that impose such taxes on purchase payments.
Currently, state premium taxes on purchase payments range from 0% to 3 1/2%.
- - --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
The Company may advertise total return performance and annual changes in
accumulation unit values. We may also provide information on "yields" and
"effective yields" on investments in the Money Market Fund subaccount.
Information on total return performance will include average annual rates
of total return for one, five and ten year periods, or lesser periods depending
on how long the underlying fund portfolio has been in existence. Such figures
are based on the hypothetical assumption that the Separate Account invested in
the underlying portfolios from the date those portfolios were first available to
other insurance company separate accounts. Average annual total return figures
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<PAGE>
will show the average annual rates of increase or decrease in investments in the
subaccounts, assuming a hypothetical $1,000 investment at the beginning of the
period, withdrawal of the investment at the end of the period, and the deduction
of all applicable fund and Contract charges. We may also show average annual
rates of total return, assuming other amounts invested at the beginning of the
period and no withdrawal at the end of the period. Average annual total return
figures which assume no withdrawals at the end of the period will reflect all
recurring charges, but will not reflect the contingent deferred sales charge (if
applicable, the contingent deferred sales charge would reduce the amount that
may be withdrawn under the Contracts).
The "yield" on an investment in the Money Market Fund subaccount refers to
the income generated by the investment over a 7-day period. This income is then
annualized. That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an investment in the
subaccount is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
- - --------------------------------------------------------------------------------
THE FIXED ACCOUNTS
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE
COMPANY'S GENERAL ACCOUNT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND THE GENERAL ACCOUNT HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940. THE GENERAL ACCOUNT AND ANY INTERESTS
HELD IN THE GENERAL ACCOUNT ARE THEREFORE NOT SUBJECT TO THE PROVISIONS OF THESE
ACTS. HENCE THIS PROSPECTUS GENERALLY DISCUSSES ONLY THE VARIABLE PORTION OF THE
CONTRACT. THE COMPANY HAS BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND
EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING
TO THE FIXED ACCOUNT. DISCLOSURE REGARDING THE FIXED ACCOUNT, HOWEVER, MAY BE
SUBJECT TO GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS
RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN THIS PROSPECTUS.
- - --------------------------------------------------------------------------------
GENERAL INFORMATION
You may allocate or transfer amounts to the One Year Fixed Interest
Account. We periodically declare an effective annual interest rate applicable
to allocations to the One Year Fixed Interest Account. For each amount
allocated to the One Year Fixed Interest Account we credit interest at a rate
declared by us in the month in which the allocation is made. The declared rate
of interest will apply through the end of the 12-month period which begins on
the first day of the calendar month in which the allocation is made. We will not
declare an effective annual rate of interest on allocations and transfers to the
One Year Fixed Interest Account of less than 3%.
In conjunction with the election of the dollar cost averaging program, you
may allocate amounts to the Six Month Fixed Interest Account. For each amount
allocated to the Six Month Fixed Interest Account, we credit interest at a rate
of declared by us from the date you pay the initial or subsequent purchase
payment through the end of a six month interest period. The rate will be renewed
on the first of the month following the end of the period. The rate will never
be less than 3%. If you terminate dollar cost averaging prior to six months
after your allocation to this account, any balance will be transferred as
directed or, otherwise, transferred to the One Year Fixed Interest Account.
You may transfer amounts in the Fixed Accounts to subaccounts of the
Separate Account subject to the conditions and limitations in the fixed account
provisions of your Contract. Amounts in the One Year Fixed Interest Account not
withdrawn or reallocated within 25 days after the end of an interest period are
rolled over and treated as a new allocation to the One Year Fixed Interest
Account. In accordance with state law, we may defer a withdrawal or
18
<PAGE>
transfer from the Fixed Account for up to six months if we reasonably determine
that investment conditions are such that an orderly sale of assets in the
Company's general account is not feasible.
- - --------------------------------------------------------------------------------
LOANS UNDER SECTION 403 CONTRACTS
Subject to compliance with applicable state law, Contract Owners qualifying
under Section 403(b) of the Code may be able to borrow against a portion of the
amount credited to the Fixed Account under their Contract, provided the loan
privilege has been approved in the applicable state. The loan will be made from
the general account of the Company. Because this Prospectus generally is limited
to describing the variable portion of the Contract, you should review the
Contract loan endorsement or consult your Company representative for a complete
description of the terms of the loan privilege, including minimum and maximum
loan amounts, repayment terms, and restrictions on prepayments. The following
paragraphs describe how exercise of the loan privilege may relate to the
Variable Account Value.
First, at the time a Contract loan is made and in accordance with your
direction, an amount equal to the initial loan amount will be transferred from
the Contract's investment options to an account in the Company's general account
called the "Restricted Account." Amounts transferred from investment options to
the Restricted Account will not participate in the investment experience of
those investment options. Amounts transferred to the Restricted Account will
earn interest at a current rate of 1 1/2 percentage points less than the rate of
interest charged on the loan with a minimum possible rate of 2 1/2 percentage
points less than the rate charged on the loan.
Second, on your Contract Anniversary, the accrued interest in the
Restricted Account will be transferred to your investment options in accordance
with your current payment allocation instructions.
Third, loan repayments, which are due quarterly, will result in the
transfer of an amount equal to the principal portion of the repayment from the
Restricted Account to the Money Market subaccount. You may then transfer amounts
from the Money Market subaccount to the other investment options offered under
the Contract.
Fourth, if a payment or the entire loan is in default as defined in the
Contract, the Company will report the amount of the default to the Internal
Revenue Service as a taxable distribution and, if you are then under age
59 1/2, as a premature distribution that may be subject to a 10% penalty.
Subject to restrictions in Section 403(b) of the Code, the amount of any missed
payment, plus interest, or the entire loan balance, plus interest, if the entire
loan is in default, plus any applicable contingent deferred sales charge, will
be withdrawn by us from your investment options in accordance with your
direction in the Loan Request and Agreement. We will use the net proceeds from
the withdrawal to repay the loan. If a withdrawal is restricted under the Code,
the outstanding loan balance will continue to accrue interest and the amount due
will be withdrawn when a withdrawal becomes permissible. Thus, when an event
takes place which makes withdrawal from the Contract permissible under the Code,
such as attainment of age 59 1/2, disability, or death, we will check the
Contract to determine if there is an outstanding loan balance for which one or
more payments have been missed. If so, we will withdraw from your investment
options, in accordance with your direction in the Loan Request and Agreement,
funds necessary to pay the overdue amount, plus any applicable contingent
deferred sales charge. While a loan balance is outstanding, any withdrawal or
death benefit proceeds must first be used to pay the loan.
Loans are subject to the terms of your Contract, your Section 403(b) plan
and the Code, and, in the case of plans subject to the Employee Retirement
Income Security Act of 1974, the ERISA regulations on plan loans, all of which
may impose restrictions. The Company reserves the right to suspend, modify or
terminate the availability of loans. Where there is a plan fiduciary, it is the
responsibility of the fiduciary to ensure that any Contract loans comply with
plan qualification requirements, including ERISA.
19
<PAGE>
- - --------------------------------------------------------------------------------
FEDERAL INCOME TAX CONSIDERATIONS
The following brief discussion of federal income tax considerations is
based on the law in effect on the date of this Prospectus, which may be changed
by legislative, judicial or administration action. The summary is general in
nature and does not consider any applicable state or local tax laws. For further
information, you should consult qualified tax counsel.
Under current law, no federal income taxes are imposed on increases in the
value of a Contract until distribution occurs, either in the form of a
withdrawal or death benefit or as annuity payment under an annuity option.
For a withdrawal or death benefit, the taxable portion is generally the
amount in excess of the cost basis of the Contract. Amounts withdrawn by the
Contract owner or received as a death benefit by the designated beneficiary are
treated first as taxable income to the extent of the excess of the Contract
Value over the purchase payments made under the Contract. Such taxable portion
is taxed at ordinary income tax rates. Designation of a beneficiary who is
either 37 1/2 years younger than the Contract Owner or a grandchild of the
Contract Owner may have Generation Skipping Transfer Tax consequences under
Section 2601 of the Code.
In the case of a nonqualified Contract and death of an Annuitant who was
not the Contract Owner, an election to receive the death benefit in the form of
annuity payment must be made within 60 days. If such election is not made, the
gain from the Contract will generally be taxed as a lump sum payment, as
described in the preceding paragraph.
For annuity payments, the taxable portion is generally determined by a
formula that establishes the ratio of the cost basis of the Contract (as
adjusted for any refund feature) to the expected return under the Contract. The
taxable portion, which is the amount of the annuity payment in excess of the
cost basis, is taxed at ordinary income tax rates.
An additional income tax of 10% may be imposed on the taxable portion of an
early withdrawal or distribution unless one of several exceptions apply. There
will be no additional income tax on early withdrawals which are part of a series
of substantially equal periodic payments (not less frequently than annually)
made for life (or life expectancy) of the taxpayer or the joint lives (or joint
life expectancies) of the taxpayer and a beneficiary, or on withdrawals made on
or after age 59 1/2. There also will be no additional tax on distributions made
after death or on withdrawals attributable to total and permanent disability.
Further, there will be no additional tax on distributions within certain other
exceptions to the general rule.
The transfer of a Contract may result in the transferor incurring tax. If
the transfer is for less than adequate consideration, the taxable portion would
be the Contract Value at the time of transfer over the investment in the
Contract at such time. This rule does not apply to transfers between spouses or
to transfers incident to a divorce.
Subject to certain exceptions, a Contract must be held by or on behalf of a
natural person in order to be treated as an annuity contract under federal
income tax law and to be accorded the tax treatment described in the preceding
paragraphs. If a contract is not treated as an annuity contract for federal
income tax purposes, the income on the Contract is treated as ordinary income
received or accrued by the Contract Owner during the taxable year.
Section 817(h) of the Code provides that the investments of a separate
account underlying a variable annuity contract which is not purchased under a
qualified retirement plan or certain other types of plans (or the investments of
a mutual fund, the shares of which are owned by the variable annuity separate
account) must be "adequately diversified" in order for the Contract to be
treated as an annuity contract for tax purposes. The Treasury Department has
issued regulations prescribing such diversification requirements. The Separate
Account, through each of the available funds of the Penn Series Funds, Inc.,
Neuberger & Berman Advisers Management Trust, Variable Insurance Products Fund,
20
<PAGE>
Variable Insurance Products Fund II, and Morgan Stanley Universal Funds, Inc.
intends to comply with those requirements. The requirements are briefly
discussed in the accompanying prospectuses for the underlying funds.
The Treasury Department has indicated that in regulations or revenue
rulings under Section 817(d) (relating to the definition of a variable
contract), it will provide guidance on the extent to which Contract Owners may
direct their investments to particular subaccounts without being treated as
owners of the underlying shares. It is possible that when such regulations or
rulings are issued, the Contracts may need to be modified to comply with them.
The Contracts may be used in connection with certain retirement plans that
qualify for special tax treatment under the Code. The plans include rollover
individual retirement annuities qualified under Section 408(b) of the Code
(referred to as IRAs) and certain tax deferred annuities qualified under Section
403(b) of the Code. Qualified Contracts have special provisions in order to be
treated as qualified under the Code.
For some types of qualified retirement plans, there may be no cost basis in
the Contract. In this case, the total payments received may be taxable. Before
purchasing a contract under a qualified retirement plan, the tax law provisions
applicable to the particular plan should be considered.
Distribution must generally commence from individual retirement annuities
and from contracts qualified under Section 403(b) no later than the April 1
following the calendar year in which the Contract Owner attains age 70 1/2.
Failure to make such required minimum distributions may result in a 50% tax on
the amount of the required distribution.
Generally, under a nonqualified annuity or rollover individual retirement
annuity qualified under Section 408(b), unless the Contract Owner elects to the
contrary, any amounts that are received under the Contract that the Company
believes are includable in gross income for tax purposes will be subject to
mandatory withholding to meet federal income tax obligations. The same treatment
will apply to distributions from a Section 403(b) annuity that are payable as an
annuity for the life or life expectancy of one or more individuals, or for a
period of at least 10 years, or are required minimum distributions. Other
distributions from a qualified plan or a Section 403(b) annuity are subject to
mandatory withholding, unless an election is made to receive the distribution as
a direct rollover to another eligible retirement plan.
It should be understood that the foregoing description of federal income
taxes is not exhaustive and that special rules and considerations may be
applicable. For further information, a prospective purchaser should consult
qualified tax counsel.
- - --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
The consolidated financial statements of The Penn Mutual Life Insurance
Company at December 31, 1997, and for the year then ended appear in the
Statement of Additional Information. The consolidated financial statements of
Penn Mutual should be considered only as bearing upon Penn Mutual's ability to
meet its obligations under the Contracts.
New subaccounts of the Separate Account have been established under the
Contracts. There are, therefore, no financial statements for the subaccounts at
this time.
21
<PAGE>
- - --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION CONTENTS
<TABLE>
<S> <C>
- - --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYMENTS............................................. B-
First Variable Annuity Payments.................................. B-
Subsequent Variable Annuity Payments............................. B-
Annuity Units.................................................... B-
Value of Annuity Units........................................... B-
Net Investment Factor............................................ B-
Assumed Interest Rate............................................ B-
Valuation Period................................................. B-
PERFORMANCE DATA...................................................... B-
Average Annual Total Return...................................... B-
Yields (Money Market Fund)....................................... B-
- - --------------------------------------------------------------------------------
ADMINISTRATIVE AND RECORDKEEPING SERVICES............................. B-
- - --------------------------------------------------------------------------------
DISTRIBUTION OF CONTRACTS............................................. B-
- - --------------------------------------------------------------------------------
CUSTODIAN............................................................. B-
- - --------------------------------------------------------------------------------
INDEPENDENT AUDITORS.................................................. B-
- - --------------------------------------------------------------------------------
LEGAL MATTERS......................................................... B-
- - --------------------------------------------------------------------------------
FINANCIAL STATEMENTS.................................................. B-
- - --------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION -- JANUARY 1 , 1999
- - -------------------------------------------------------------------------------
LOGO
PENN MUTUAL VARIABLE ACCOUNT III
THE PENN MUTUAL LIFE INSURANCE COMPANY
PHILADELPHIA, PENNSYLVANIA 19172 . TELEPHONE (215) 956-8000
- - -------------------------------------------------------------------------------
This statement of additional information is not a prospectus. It should be read
in conjunction with the current Prospectus for the Pennant Select Contract,
dated January 1, 1999. The Contract is funded through Penn Mutual Variable
Account III (referred to as the "Separate Account"). To obtain a prospectus you
may write to The Penn Mutual Life Insurance Company, Customer Service Group,
Philadelphia, PA 19172. Or you may call (215) 956-8000. Terms used in this
statement of additional information have the same meaning as the
Prospectus.
- - -------------------------------------------------------------------------------
TABLE OF CONTENTS
- - -------------------------------------------------------------------------------
VARIABLE ANNUITY PAYMENTS............................................... B-
First Variable Annuity Payments.................................... B-
Subsequent Variable Annuity Payments............................... B-
Annuity Units...................................................... B-
Value of Annuity Units............................................. B-
Net Investment Factor.............................................. B-
Assumed Interest Rate.............................................. B-
Valuation Period................................................... B-
- - ------------------------------------------------------------------------------
PERFORMANCE DATA........................................................ B-
Average Annual Total Return........................................ B-
Yields (Money Market Fund)......................................... B-
- - ------------------------------------------------------------------------------
ADMINISTRATIVE AND RECORDKEEPING SERVICES............................... B-
- - ------------------------------------------------------------------------------
DISTRIBUTION OF CONTRACTS............................................... B-
- - ------------------------------------------------------------------------------
CUSTODIAN............................................................... B-
- - ------------------------------------------------------------------------------
INDEPENDENT AUDITORS.................................................... B-
- - ------------------------------------------------------------------------------
LEGAL MATTERS........................................................... B-
- - ------------------------------------------------------------------------------
FINANCIAL STATEMENTS.................................................... B-
- - ------------------------------------------------------------------------------
<PAGE>
- - ------------------------------------------------------------------------------
VARIABLE ANNUITY PAYMENTS
- - -------------------------------------------------------------------------------
FIRST VARIABLE ANNUITY PAYMENT
When a variable annuity is effected, we will first deduct applicable
premium taxes, if any, from the Contract Value. The dollar amount of the first
monthly annuity payment will be determined by applying the net Contract Value to
the annuity table set forth in the contract for the annuity option chosen. The
annuity tables show the amount of the first monthly income payment under each
annuity option for each $1,000 of value applied, based on the Annuitant's age at
the Annuity Date. The annuity tables are based on the Annuity 2000 Basic Table
with interest rates at 3% or 5%.
- - -------------------------------------------------------------------------------
SUBSEQUENT VARIABLE ANNUITY PAYMENTS
The dollar amount of subsequent variable annuity payments will vary in
accordance with the investment experience of the subaccount(s) of the Separate
Account applicable to the annuity. Each subsequent variable annuity payment will
equal the number of annuity units credited, multiplied by the value of the
annuity unit for the valuation period. The Company guarantees that the amount of
each subsequent annuity payment will not be affected by variations in expense or
mortality experience.
- - -------------------------------------------------------------------------------
ANNUITY UNITS
For each subaccount selected, the number of annuity units is the amount of
the first annuity payment allocated to the subaccount divided by the value of an
annuity unit for the subaccount on the Annuity Date. The number of your annuity
units will not change as a result of investment experience.
- - -------------------------------------------------------------------------------
VALUE OF ANNUITY UNITS
The value of an annuity unit for each subaccount was arbitrarily set at $10
when the subaccount was established. The value may increase or decrease from one
valuation period to the next. For a valuation period, the value of an annuity
unit for a subaccount is the value of an annuity unit for the subaccount for the
last prior valuation period multiplied by the net investment factor for the
subaccount for the valuation period. The result is then multiplied by a factor
to neutralize an assumed interest rate of 3% or 5%, as applicable, built into
the annuity tables.
- - ------------------------------------------------------------------------------
NET INVESTMENT FACTOR
For any subaccount, the net investment factor for a valuation period is
determined by dividing (a) by (b) and subtracting (c):
WHERE (A) IS:
The net asset value per share of the mutual fund held in the subaccount, as
of the end of the valuation period
plus
----
The per share amount of any dividend or capital gain distributions by the
mutual fund if the "ex-dividend" date occurs in the valuation period
B-2
<PAGE>
plus or minus
-------------
A per share charge or credit, as we may determine as of the end of the
valuation period, for provision for taxes (if applicable).
WHERE (B) IS:
The net asset value per share of the mutual fund held in the subaccount as
of the end of the last prior valuation period
plus or minus
-------------
The per share charge or credit for provision for taxes as of the end of the
last prior valuation period (if applicable).
WHERE (C) IS:
The sum of the mortality and expense risk charge and the daily
administration charge. On an annual basis, the sum of such charges equals
1.35% of the daily net asset value of the subaccount.
- - ------------------------------------------------------------------------------
ASSUMED INTEREST RATE
Assumed interest rates of 3% or 5% are included in the annuity tables in
the contracts. A higher assumption would mean a higher first annuity payment but
more slowly rising or more rapidly falling subsequent payments. A lower
assumption would have the opposite effect. If the actual net investment rate on
an annual basis is equal to the assumed interest rate you have selected, annuity
payments will be level.
- - -------------------------------------------------------------------------------
VALUATION PERIOD
Valuation period is the period from one valuation of underlying fund assets
to the next. Valuation is performed each day the New York Stock Exchange is open
for trading.
- - -------------------------------------------------------------------------------
PERFORMANCE DATA
- - -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
Although the sub-accounts of the Separate Account were not available
until the effective date of this registration statement, the returns calculated
below reflect a hypothetical return as if the sub-accounts had invested in
the underlying funds for the indicated periods.
Tables 1 shows the average annual rates of total return on hypothetical
investments of $1,000, through the Separate Account, in funds of Penn Series
Funds, Inc., Neuberger and Berman Advisers Management Trust, Fidelity
Investments' Variable Insurance Products Fund and Fidelity Investments' Variable
Insurance Products Fund II, and Morgan Stanley Universal Funds, Inc. for the
periods ended December 31, 1997 and assume withdrawal of the investments at the
end of the period.
- - -------------------------------------------------------------------------------
TABLE 1
B-3
<PAGE>
________________________________________________________________________________
TABLE 1
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------------------
FROM TEN FIVE ONE
INCEPTION YEARS YEARS YEAR
INCEPTION THROUGH ENDED ENDED ENDED
FUND (MANAGER) DATE* 12/31/97 12/31/97 12/31/97 12/31/97
- - -------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Growth Equity (a)............................ 06/01/83 10.79% 11.33% 11.03% 19.17%
(Independence Capital)
Value Equity (a)............................. 03/17/87 11.67% 11.91% 15.54% 8.69%
(OpCap)
Small-Cap Fund............................... 03/01/95 8.24% 0.00% 0.00% -15.78%
(OpCap)
Emerging Growth Fund (a)(g).................. 05/01/97 21.69% 0.00% 0.00% -6.72%
(RS Investment Management)
Flexibly Managed (a)......................... 07/31/84 12.52% 10.55% 9.84% 5.63%
(T. Rowe Price)
International Equity (a)..................... 11/01/92 11.29% 0.00% 7.86% 7.80%
(Vontobel)
Quality Bond (a)............................. 03/17/87 6.76% 7.28% 5.46% 9.54%
(Independence Capital)
High Yield Bond (a).......................... 08/06/84 8.56% 7.90% 6.13% 0.85%
(T. Rowe Price)
Balanced Portfolio (c)....................... 02/28/89 7.20% 0.00% 4.64% -1.20%
(Neuberger & Berman)
Limited Maturity Bond Portfolio (c).......... 09/10/84 5.84% 4.36% 2.00% 3.04%
(Neuberger & Berman)
Partners Portfolio (c)....................... 03/22/94 17.06% 0.00% 0.00% -0.13%
(Neuberger & Berman)
Equity-Income Portfolio (d).................. 10/09/86 13.60% 14.64% 18.81% 1.52%
(Fidelity Investments)
Growth Portfolio (d)......................... 10/09/86 13.14% 14.30% 13.00% 5.72%
(Fidelity Investments)
Asset Manager Portfolio (e).................. 09/06/89 11.27% 0.00% 10.45% -4.65%
(Fidelity Investments)
Index 500 (e)................................ 08/27/92 4.46% 0.00% 2.76% 15.11%
(Fidelity Investments)
Emerging Markets Equity (International)(f)... 10/01/96 -18.40% 0.00% 0.00% -34.27%
(Morgan Stanley)
</TABLE>
- - ---------------------------------------------
* Represents the date the underlying fund was established.
(a) Penn Series Funds, Inc.
(b) American Century Variable Portfolios, Inc.
(c) Neuberger and Berman Advisers Management Trust
(d) Variable Insurance Products Fund
(e) Variable Insurance Products Fund II
(f) Morgan Stanley Universal Funds, Inc.
(g) Average Annual Total Return for period May 1, 1997 to December 31, 1997
The average annual rates of total return shown in Table 1 are computed by
finding the average annual compounded rates of return over the periods shown
that would equate the initial amount invested to the withdrawal value, in
accordance with the following formula: P(1 + T) /n/ = ERV. In the formula, P is
a hypothetical investment payment of $1,000; T is the average annual total
return; n is the number of years; and ERV is the withdrawal value at the end of
the periods shown. The annual contract administration charge is reflected
assuming an anticipated average
B-4
<PAGE>
Contract Value and assuming that the Contract
Value is allocated equally across all available subaccounts by an average
contract owner. The performance information in Table 1 is calculated in
accordance with the standard formula prescribed by the Securities and Exchange
Commission.
- - -------------------------------------------------------------------------------
Table 2 below shows the average annual rates of return on hypothetical
initial investments of $1,000, through the Separate Account, in funds of the
Penn Series Funds, Inc., Neuberger and Berman Advisers Management Trust,
Fidelity Investments' Variable Insurance Products Fund, Fidelity Investments'
Variable Insurance Products Fund II, and Morgan Stanley Universal Funds, Inc.
for the periods ended December 31, 1997 and assumes the investments are not
withdrawn at the end of the period.
________________________________________________________________________________
TABLE 2
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
------------------------------------------------------------
FROM TEN FIVE ONE
INCEPTION YEARS YEARS YEAR
INCEPTION THROUGH ENDED ENDED ENDED
FUND (MANAGER) DATE* 12/31/97 12/31/97 12/31/97 12/31/97
- - ------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Growth Equity (a)............................ 06/01/83 10.79% 11.33% 11.03% 19.17%
(Independence Capital)
Value Equity (a)............................. 03/17/87 11.67% 11.91% 15.54% 8.69%
(OpCap)
Small-Cap Fund............................... 03/01/95 8.24% 0.00% 0.00% -15.78%
(OpCap)
Emerging Growth Fund (a)(g).................. 05/01/97 21.69% 0.00% 0.00% -6.72%
(RS Investment Management)
Flexibly Managed (a)......................... 07/31/84 12.52% 10.55% 9.84% 5.63%
(T. Rowe Price)
International Equity (a)..................... 11/01/92 11.29% 0.00% 7.86% 7.80%
(Vontobel)
Quality Bond (a)............................. 03/17/87 6.76% 7.28% 5.46% 9.54%
(Independence Capital)
High Yield Bond (a).......................... 08/06/84 8.56% 7.90% 6.13% 0.85%
(T. Rowe Price)
Balanced Portfolio (c)....................... 02/28/89 7.20% 0.00% 4.64% -1.20%
(Neuberger & Berman)
Limited Maturity Bond Portfolio (c).......... 09/10/84 5.84% 4.36% 2.00% 3.04%
(Neuberger & Berman)
Partners Portfolio (c)....................... 03/22/94 17.06% 0.00% 0.00% -0.13%
(Neuberger & Berman)
Equity-Income Portfolio (d).................. 10/09/86 13.60% 14.64% 18.81% 1.52%
(Fidelity Investments)
Growth Portfolio (d)......................... 10/09/86 13.14% 14.30% 13.00% 5.72%
(Fidelity Investments)
Asset Manager Portfolio (e).................. 09/06/89 11.27% 0.00% 10.45% -4.65%
(Fidelity Investments)
Index 500 (e)................................ 08/27/92 4.46% 0.00% 2.76% 15.11%
(Fidelity Investments)
Emerging Markets Equity (International)(f)... 10/01/96 -18.40% 0.00% 0.00% -34.27%
(Morgan Stanley)
</TABLE>
- - ----------------------------------------------
* Represents the date the underlying fund was established.
(a) Penn Series Funds, Inc.
(b) American Century Variable Portfolios, Inc.
(c) Neuberger and Berman Advisers Management Trust
(d) Variable Insurance Products Fund
(e) Variable Insurance Products Fund II
(f) Morgan Stanley Universal Funds, Inc.
(g) Average Annual Total Return for period May 1, 1997 to December 31, 1997
B-5
<PAGE>
Table 3 below shows the average annual rates of return on hypothetical
initial investments of $10,000, through the Separate Account, in funds of the
Penn Series Funds, Inc., Neuberger and Berman Advisers Management Trust,
Fidelity Investments' Variable Insurance Products Fund, Fidelity Investments'
Variable Insurance Products Fund II, and Morgan Stanley Universal Funds, Inc.
for the periods ended December 31, 1997 and assumes the investments are not
withdrawn at the end of the period.
________________________________________________________________________________
TABLE 3
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------------------------
FROM TEN FIVE ONE
INCEPTION YEARS YEARS YEAR
INCEPTION THROUGH ENDED ENDED ENDED
FUND (MANAGER) DATE 12/31/97 12/31/97 12/31/97 12/31/97
- - ------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Growth Equity (a)........................... 06/01/83 10.91% 11.48% 11.23% 19.39%
(Independence Capital)
Value Equity (a)............................ 03/17/87 11.81% 12.06% 15.71% 8.90%
(OpCap)
Small-Cap Fund.............................. 03/01/95 8.43% 0.00% 0.00% -15.57%
(OpCap)
Emerging Growth Fund (a)(g)................. 05/01/97 21.97% 0.00% 0.00% -6.51%
(RS Investment Management)
Flexibly Managed (a)........................ 07/31/84 12.62% 10.69% 10.02% 5.84%
(T. Rowe Price)
International Equity (a).................... 11/01/92 11.44% 0.00% 8.05% 8.01%
(Vontobel)
Quality Bond (a)............................ 03/17/87 6.92% 7.44% 5.66% 9.75%
(Independence Capital)
High Yield Bond (a)......................... 08/06/84 8.69% 8.06% 6.33% 1.06%
(T. Rowe Price)
Balanced Portfolio (c)...................... 02/28/89 7.34% 0.00% 4.85% -0.99%
(Neuberger & Berman)
Limited Maturity Bond Portfolio (c)......... 09/10/84 5.98% 4.53% 2.21% 3.25%
(Neuberger & Berman)
Partners Portfolio (c)...................... 03/22/94 17.24% 0.00% 0.00% 0.08%
(Neuberger & Berman)
Equity-Income Portfolio (d)................. 10/09/86 13.74% 14.79% 18.97% 1.73%
(Fidelity Investments)
Growth Portfolio (d)........................ 10/09/86 13.27% 14.43% 13.17% 5.93%
(Fidelity Investments)
Asset Manager Portfolio (e)................. 09/06/89 11.43% 0.00% 10.64% -4.44%
(Fidelity Investments)
Index 500 (e)............................... 08/27/92 4.70% 0.00% 3.01% 15.32%
(Fidelity Investments)
Emerging Markets Equity (International)(f).. 10/01/96 -18.06% 0.00% 0.00% -34.06%
(Morgan Stanley)
</TABLE>
- - ----------------------------------------------
* Represents the date the underlying fund was established.
(a) Penn Series Funds, Inc.
(b) American Century Variable Portfolios, Inc.
(c) Neuberger and Berman Advisers Management Trust
(d) Variable Insurance Products Fund
(e) Variable Insurance Products Fund II
(f) Morgan Stanley Universal Funds, Inc.
(g) Average Annual Total Return for period May 1, 1997 to December 31, 1997
B-6
<PAGE>
<TABLE>
<S> <C>
Index 500 (d)................................... 08/27/92
(Fidelity Investments)
Emerging Markets Equity (International)(e)...... 10/01/96
(Morgan Stanley)
</TABLE>
- - ----------------------------------------------
* Represents the date the underlying fund was established.
(a) Penn Series Funds, Inc.
(b) Neuberger and Berman Advisers Management Trust
(c) Variable Insurance Products Fund
(d) Variable Insurance Products Fund II
(e) Morgan Stanley Universal Funds, Inc.
(f) Average Annual Total Return for period May 1, 1997 to December 31, 1997
The average annual rates of total return shown in Tables 2 and 3 are
computed by finding the average annual compounded rates of return over the
periods shown that would equate the initial amount invested to the Contract
Value at the end of the periods shown, in accordance with the following formula:
P(1 + T) /n/ = FV. In the formula, P is a hypothetical investment of $1,000 in
Table 2 and $10,000 in Table 3; T is the average annual total return; n is the
number of years; and FV is the Contract Value at the end of the periods shown.
The annual contract administrative charge is reflected assuming an anticipated
average Contract Value and assuming that the average Contract Value is allocated
equally across all available subaccounts by an average contract owner. The
average annual rates of total returns reflect all recurring charges, but do not
reflect the contingent deferred sales charge ranging from 7% to 1% which, if
applicable, would reduce the amount that may be withdrawn under the Contract.
The performance information in Tables 2 and 3 is not calculated in accordance
with the standard formula prescribed by the Securities and Exchange
Commission.
- - -------------------------------------------------------------------------------
YIELDS (MONEY MARKET FUND)
From time to time, advertisements and sales literature may quote the
current or effective yield of the Money Market subaccount.
[supply current yield]
The yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical preexisting account having a balance of
one accumulation unit of the subaccount at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from contract owner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7) with the resulting figure carried
to at least the nearest hundredth of 1%. The hypothetical charge reflects
deductions from contract owners' accounts in proportion to the length of the
base period. The annual contract administrative charge is reflected assuming an
anticipated average Contract Value and assuming that the average Contract Value
is allocated equally across all available subaccounts by an average contract
owner.
The effective yield is obtained by taking the base period return as
computed above, and then compounding the base period return by adding 1, raising
the sum to a power equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula: Effective Yield = [(base period return + 1)
/365/7/] -1.
The yields do not reflect the contingent deferred sales charge ranging from
7% to 1%. The deferred sales charge may or may not be applicable to a withdrawal
from a Contract, depending on when the withdrawal is made.
B-7
<PAGE>
THE YIELDS ON AMOUNTS HELD IN THE MONEY MARKET SUBACCOUNT NORMALLY WILL
FLUCTUATE ON A DAILY BASIS. THEREFORE, THE STATED YIELDS FOR ANY GIVEN PERIOD
ARE NOT AN INDICATION OR REPRESENTATION OF FUTURE YIELDS.
------------------------------------------
THE PERFORMANCE INFORMATION SET FORTH ABOVE IS FOR PAST PERFORMANCE OF THE
FUNDS, ASSUMING THE SUBACCOUNTS OF THE SEPARATE ACCOUNT HAD INVESTED IN THE
FUNDS FROM THEIR INCEPTION, AND IS NOT AN INDICATION OR REPRESENTATION OF FUTURE
PERFORMANCE.
- - -------------------------------------------------------------------------------
ADMINISTRATIVE AND RECORDKEEPING SERVICES
The Company performs all data processing, recordkeeping and other related
services with respect to the Contracts and the Separate Accounts.
- - ------------------------------------------------------------------------------
DISTRIBUTION OF CONTRACTS
Hornor, Townsend & Kent, Inc., a wholly owned subsidiary of The Penn Mutual
Life Insurance Company ("Penn Mutual"), serves as principal underwriter of the
Contracts. The address of Hornor, Townsend & Kent, Inc. is 600 Dresher Road,
Horsham, PA 19044.
The Contracts will be distributed by Hornor, Townsend & Kent, Inc. through
broker-dealers. Total commissions on purchase payments made under the Contract
will not exceed 7% and trailer commissions based on a percentage of Contract
Value may be paid. The offering of the Contracts is continuous, and the Company
does not anticipate discontinuing the offering of the Contract, although we
reserve the right to do so.
- - -------------------------------------------------------------------------------
CUSTODIAN
The Company is custodian of the assets held in the Separate Account.
- - -------------------------------------------------------------------------------
INDEPENDENT AUDITORS
Ernst & Young serves as independent auditors of The Penn Mutual Life
Insurance Company and Penn Mutual Variable Annuity Account III. Their offices
are located at 2001 Market Street, Suite 4000, Philadelphia, PA.
The consolidated financial statements of The Penn Mutual Life Insurance
Company at December 31, 1997, and for the year then ended, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young,
independent auditors, and at December 31, 1996, and for each of the two years in
the period ended December 31, 1996, by PricewaterhouseCoopers LLP, independent
auditors, as set forth in their respective reports thereon appearing herein, and
are included in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
- - -------------------------------------------------------------------------------
LEGAL MATTERS
Morgan, Lewis & Bockius LLP has provided advice on certain matters relating
to the federal securities laws and the offering of the Contracts. Their offices
are located at 2000 One Logan Square, Philadelphia, PA.
- - ------------------------------------------------------------------------------
FINANCIAL STATEMENTS
The consolidated financial statements of Penn Mutual are set forth on the
following pages. The consolidated financial statements of Penn Mutual should be
considered only as bearing upon Penn Mutual's ability to meet its obligations
under the Contracts.
- - -------------------------------------------------------------------------------
B-8
<PAGE>
- - --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF TRUSTEES
THE PENN MUTUAL LIFE INSURANCE COMPANY
PHILADELPHIA, PENNSYLVANIA
We have audited the accompanying consolidated balance sheet of The Penn Mutual
Life Insurance Company and subsidiaries as of December 31, 1997 and the related
consolidated income statement, statement of changes in equity and statement of
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of the Company as of December 31, 1996 and for each of the
two years in the period ended December 31, 1996 were audited by other auditors
whose report dated January 31, 1997 expressed an unqualified opinion on those
statements and included an explanatory paragraph that disclosed the Company's
adoption of several accounting principles which were not previously required to
be adopted. These changes are described in Note 1 to the financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of The Penn Mutual Life Insurance Company and subsidiaries as of December 31,
1997, and the results of their operations and their cash flows for the year
then ended, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG
Philadelphia, Pennsylvania
January 30, 1998
B-9
<PAGE>
- - --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF TRUSTEES OF
THE PENN MUTUAL LIFE INSURANCE COMPANY
PHILADELPHIA, PENNSYLVANIA
We have audited the accompanying consolidated balance sheet of The Penn Mutual
Life Insurance Company as of December 31, 1996 and the related consolidated
statements of income, changes in equity and statement of cash flows for the two
years in the period ended December 31, 1996. These consolidated 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial condition of The
Penn Mutual Life Insurance Company and subsidiaries as of December 31, 1996, and
the results of their operations and their cash flows for the two years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in 1996 the
Company adopted Financial Accounting Standards Board Interpretation No. 40 (FIN
40) and Statement of Financial Accounting Standards No. 120 (SFAS 120), which
required implementation of several accounting pronouncements not previously
adopted. The effects of adopting FIN 40 and SFAS 120 were retroactively applied
to the Company's previously issued financial statements, consistent with the
implementation guidance of those standards.
/s/ PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 31, 1997
B-10
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 1996
- - --------------------------------------------------------------------------------
<S> <C> <C>
(in thousands)
ASSETS
Debt securities, at fair value........................... $5,427,652 $5,214,788
Equity securities, at fair value......................... 12,502 16,745
Mortgage loans on real estate............................ 52,996 124,914
Real estate, net of accumulated depreciation............. 22,358 97,805
Policy loans............................................. 642,989 656,073
Short-term investments................................... 43,470 37,515
Other invested assets.................................... 88,928 94,369
---------- ----------
TOTAL INVESTMENTS....................................... 6,290,895 6,242,209
Cash and cash equivalents................................ 37,064 37,314
Investment income due and accrued........................ 103,072 103,132
Deferred acquisition costs............................... 384,542 412,595
Amounts recoverable from reinsurers...................... 63,211 58,882
Broker/dealer receivables................................ 526,797 449,150
Other assets............................................. 92,203 85,382
Separate account assets.................................. 1,869,094 1,368,384
---------- ----------
TOTAL ASSETS............................................ $9,366,878 $8,757,048
========== ==========
LIABILITIES
Reserves for payment of future policy benefits........... $2,770,015 $2,782,621
Other policyholder funds................................. 2,973,434 3,053,412
Policyholders' dividends payable......................... 35,273 35,395
Broker/dealer payables................................... 333,104 303,089
Accrued income tax payable:
Current................................................. 17,476 25,487
Deferred................................................ 75,096 35,783
Other liabilities........................................ 283,666 282,501
Separate account liabilities............................. 1,869,094 1,368,384
---------- ----------
TOTAL LIABILITIES....................................... 8,357,158 7,886,672
---------- ----------
EQUITY
Unrealized gains/(losses) on investment securities, net
of taxes and amortization of deferred acquisition costs. 152,009 85,730
Retained earnings........................................ 857,711 784,646
---------- ----------
TOTAL EQUITY............................................ 1,009,720 870,376
---------- ----------
TOTAL LIABILITIES AND EQUITY........................... $9,366,878 $8,757,048
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
B-11
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- - --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
REVENUES
Premium and annuity considerations.......... $ 195,220 $ 199,821 $ 187,907
Policy fee income........................... 102,398 89,349 80,652
Net investment income....................... 460,206 475,315 489,773
Net realized capital gains/(losses)......... 9,655 (10,078) 14,112
Broker/dealer fees and commissions.......... 290,005 241,068 200,223
Other income................................ 11,851 11,544 31,646
---------- ---------- ----------
TOTAL REVENUE.............................. 1,069,335 1,007,019 1,004,313
---------- ---------- ----------
BENEFITS AND EXPENSES
Benefits paid to policyholders and benefi-
ciaries.................................... 480,234 462,412 486,559
Policyholder dividends...................... 67,412 67,596 69,807
Increase/(decrease) in liability for future
policy benefits............................ (11,972) 42,652 38,038
General expenses............................ 202,731 178,554 186,204
Broker/dealer sales expense................. 160,730 132,724 109,492
Amortization of deferred acquisition costs.. 43,223 46,137 36,794
---------- ---------- ----------
TOTAL BENEFITS AND EXPENSES................ 942,358 930,075 926,894
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................. 126,977 76,944 77,419
---------- ---------- ----------
Income taxes:
Current.................................... 50,061 37,944 11,740
Deferred................................... 3,851 (9,919) (33,179)
---------- ---------- ----------
NET INCOME................................. $ 73,065 $ 48,919 $ 98,858
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
B-12
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION)
OF INVESTMENT RETAINED TOTAL
FOR THE YEARS ENDED DECEMBER 31, SECURITIES EARNINGS EQUITY
- - --------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1995.................. $(57,212) $636,869 $ 579,657
Net income for 1995........................ -- 98,858 98,858
Unrealized appreciation of securities...... 216,153 -- 216,153
-------- -------- ----------
BALANCE AT DECEMBER 31, 1995................ 158,941 735,727 894,668
Net income for 1996........................ -- 48,919 48,919
Unrealized depreciation of securities...... (73,211) -- (73,211)
-------- -------- ----------
BALANCE AT DECEMBER 31, 1996................ 85,730 784,646 870,376
Net income for 1997........................ -- 73,065 73,065
Unrealized appreciation of securities...... 66,279 -- 66,279
-------- -------- ----------
BALANCE AT DECEMBER 31, 1997................ $152,009 $857,711 $1,009,720
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
B-13
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- - ----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................ $ 73,065 $ 48,919 $ 98,858
Adjustments to reconcile net income to net
cash provided by operations:
Capitalization of policy acquisition
costs................................... (64,427) (60,234) (52,147)
Amortization of deferred acquisition
costs................................... 43,223 46,137 36,794
Policy fees on universal life and invest-
ment contracts.......................... (104,342) (89,349) (80,652)
Interest credited on universal life and
investment contracts.................... 160,417 171,051 186,549
Depreciation and amortization............ 18,682 11,613 13,260
Premiums due and other receivables....... (7,291) (105) (2,219)
Realized capital (gains)/losses.......... (9,655) 10,078 (14,112)
(Increase)/decrease in accrued investment
income.................................. 60 6,474 7,880
(Increase)/decrease in amounts due from
reinsurers.............................. (4,329) (14,200) 9,994
(Increase)/decrease in net broker dealer
receivables............................. (47,632) 296 (37,142)
Increase/(decrease) in future policy ben-
efit reserves........................... (13,358) 58,697 9,276
Increase/(decrease) in claims payable.... -- -- (16,322)
Increase/(decrease) in income tax pay-
able.................................... (4,526) 7,798 (59,512)
Other, net............................... (6,693) 39,625 (5,232)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVI-
TIES................................... 33,194 236,800 95,273
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments:
Debt securities available for sale....... 1,235,274 927,905 1,201,541
Equity securities........................ 20,374 25,413 153,985
Real estate.............................. 87,875 40,209 20,461
Other.................................... 14,355 15,284 10,834
Maturity and other principal repayments:
Debt securities available for sale....... 472,474 278,290 276,806
Equity securities........................ -- -- 1,992
Mortgage loans........................... 61,813 156,643 138,396
Cost of investments acquired:
Debt securities available for sale....... (1,772,007) (1,427,048) (1,448,184)
Equity securities........................ (15,268) (11,752) (80,999)
Mortgage loans........................... 0 (36,155) (115,047)
Real estate.............................. (15,600) (8,542) (15,428)
Other.................................... (15,503) (8,789) (8,420)
Change in policy loans, net............... 13,084 1,234 (18,708)
(Increase)/decrease in short-term invest-
ments, net............................... (5,955) 51,290 (80,740)
Purchases of furniture and equipment, net. (4,116) (6,449) (5,369)
----------- ----------- -----------
NET CASH (USED)/PROVIDED BY INVESTING
ACTIVITIES............................. 76,800 (2,467) 31,120
----------- ----------- -----------
</TABLE>
- CONTINUED -
The accompanying notes are an integral part of the consolidated financial
statements.
B-14
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- - ----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits for universal life and investment con-
tracts......................................... $ 653,233 $ 625,816 $ 602,956
Withdrawals from universal life and investment
contracts...................................... (552,311) (567,697) (608,416)
Transfers to separate accounts.................. (236,008) (269,735) (114,332)
Issuance/(repayment) of debt.................... 24,842 (18,424) 1,354
--------- --------- ---------
NET CASH USED BY FINANCING ACTIVITIES......... (110,244) (230,040) (118,438)
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS..... (250) 4,293 7,955
CASH AND CASH EQUIVALENTS
Beginning of the year.......................... 37,314 33,021 25,066
--------- --------- ---------
End of the year................................ $ 37,064 $ 37,314 $ 33,021
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income Taxes................................... $ 54,507 $ 20,228 $ 46,286
Interest Paid.................................. 1,384 939 5,239
</TABLE>
See Note 2 for information on unrealized gains and losses and a 1996 non-cash
transaction related to mortgage loans.
The accompanying notes are an integral part of the consolidated financial
statements.
B-15
<PAGE>
- - -------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION
The Penn Mutual Life Insurance Company (the "Company") was founded and
commenced business in 1847 as a mutual life insurance company. The Company
concentrates primarily on the sale of individual life insurance and annuity
products. The primary products that the Company currently markets are
traditional whole life, term life, universal life, variable life, immediate
annuities and deferred annuities, both fixed and variable. The Company markets
its products through a network of career agents, independent agents, and
independent marketing organizations. The Company is also involved in the
broker-dealer business which offers a variety of investment products and
services and is conducted through the Company's non-insurance subsidiaries.
The Company sells its products in all fifty states and the District of
Columbia.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include the
accounts of The Penn Mutual Life Insurance Company, its wholly owned life
insurance subsidiary, The Penn Insurance and Annuity Company ("PIA"), and non-
insurance subsidiaries (principally broker/dealer, investment advisory and
real estate subsidiaries) (the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation. The
preparation of financial statements requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and notes to the consolidated financial statements.
ACCOUNTING CHANGES
As of January 1, 1996, the Company adopted Financial Accounting Standards
Board Interpretation No. 40 (FIN 40), "Applicability of Generally Accepted
Accounting Principles to Mutual Life Insurance and Other Enterprises", as
amended by Statement of Financial Accounting Standards (SFAS) No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises for Certain
Long-Duration Participating Contracts". The initial effect of applying these
pronouncements has been reported retroactively, as of January 1, 1993. SFAS
No. 120 requires financial statements referred to as prepared in accordance
with generally accepted accounting principles (GAAP) to apply all applicable
authoritative GAAP pronouncements. Prior to the adoption of SFAS No. 120,
statutory financial statements were permitted to be referred to as being
prepared in accordance with GAAP. The significant GAAP authoritative
pronouncements requiring initial application were as follows:
. SFAS No. 60, "Accounting and Reporting by Insurance Enterprises",
. SFAS No. 87, "Employers' Accounting for Pensions",
. SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries",
. SFAS No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long Duration Contracts and for Realized Gains and Losses from the Sale of
Investments",
. SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ,
. SFAS No. 109, "Accounting for Income Taxes",
. SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts",
. Statement of Position (SOP) 95-1, "Accounting for Certain Insurance
Activities of Mutual Life Insurance Enterprises".
The cumulative effect of applying SFAS No. 120 and FIN 40 primarily consists
of the initial deferral of acquisition costs, the establishment of deferred
taxes, the change in methodology for insurance reserves, and the elimination
of the statutory asset valuation reserve and interest maintenance reserve and
the establishment of investment valuation allowances. In connection with the
adoption of FIN 40, the Company also adopted SFAS No. 115, "Accounting for
Certain Debt and Equity Securities" as of January 1, 1994.
B-16
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
As a result of the change in accounting principles, net income as previously
reported, has been restated as follows:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Net income, as previously reported.............................. $ 729
Add adjustments for the cumulative effect on prior years
Deferred acquisition costs..................................... 15,353
Policy reserves................................................ (12,079)
Deferred taxes................................................. 32,341
Investment reserves............................................ 46,640
Other, net..................................................... 15,874
Total.......................................................... 98,129
---------
Net income, as adjusted......................................... $ 98,858
=========
As a result of the change in accounting principles, equity, as previously
reported has been restated as follows:
<CAPTION>
1995
---------
<S> <C>
Balance at beginning of year, as previously reported............ $ 315,321
---------
Add adjustments for the cumulative effect on prior years of ap-
plying retroactively the new basis of accounting
Deferred acquisition costs..................................... 466,446
Policy reserves................................................ (67,526)
Deferred taxes................................................. (527)
Investment reserves............................................ 13,651
Unrealized gains/(losses)...................................... (145,759)
Other, net..................................................... (1,949)
---------
Total.......................................................... 264,336
---------
Balance at beginning of year, as adjusted....................... 579,657
---------
Net income...................................................... 98,858
Net change in unrealized gains/(losses) on investment securi-
ties........................................................... 216,153
---------
315,011
---------
Balance at end of year.......................................... $ 894,668
=========
</TABLE>
INVESTMENTS
Debt securities (bonds, notes, redeemable preferred stocks and mortgage-backed
securities) which might be sold prior to maturity are classified as available
for sale. These securities are carried at fair value, with the change in
unrealized gains and losses reported through a separate component of equity.
Interest on debt securities is credited to income as it is earned.
Equity securities are classified as available for sale and carried at fair
value. Dividends on equity securities are credited to income on their ex-
dividend dates.
The Company regularly evaluates the carrying value of debt and equity
securities based on current economic conditions, past credit loss experience
and other circumstances of the investee. A decline in a security's fair value
that is deemed to be other than temporary is treated as a realized loss and a
reduction in the cost basis of the security.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and valuation allowances. Valuation allowances on
impaired loans are based on the present value of expected future cash flows
discounted at the loan's original effective interest rate or the collateral
value if the loan is collateral dependent. However, if foreclosure is or
becomes probable, the measurement method used is collateral value.
Investment real estate, which the Company has the intent to hold, is carried at
cost less accumulated depreciation and valuation reserves. The Company
establishes valuation reserves for investment real estate when declines in
value are deemed to be permanent based on an analysis of discounted future cash
flows. Properties held for sale are carried at the lower of
B-17
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
depreciated cost or fair value less selling costs. Valuation reserves are
established for properties held for sale when the fair value less estimated
selling costs is below depreciated cost. Real estate acquired through
foreclosure is recorded at the lower of cost or fair value less estimated
selling costs at the time of foreclosure. Depreciation is calculated using the
straight-line method over the estimated useful lives of the real estate.
Policy loans are carried at the unpaid principal balances.
Short-term investments include securities purchased with a maturity date of 90
days to less than one year. Short-term investments are valued at cost.
Other invested assets primarily include joint venture real estate partnerships,
which are valued on the equity basis, and venture capital limited partnerships,
which are carried at fair value.
Realized gains and losses are determined by specific identification and are
included in income on the trade date. Unrealized gains and losses, net of
appropriate taxes and amortization of deferred acquisition costs, are accounted
for as a separate component of equity.
The Company utilizes various financial instruments, such as interest rate swaps
and financial futures, to hedge against interest rate fluctuation. These
instruments are recorded using a valuation method consistent with the valuation
method of the assets hedged. Gains and losses on these instruments are deferred
and recognized in the Consolidated Income Statements over the remaining life of
the hedged security. Changes in the fair value of these instruments are
reported as unrealized gains or losses. Realized gains or losses are recognized
when the hedged securities are sold.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, money market instruments and
other debt securities with a maturity of 90 days or less when purchased.
OTHER ASSETS
Property and equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets.
Amortization of leasehold improvements is calculated using the straight-line
method over the lesser of the term of the leases or the estimated useful life
of the improvements. Accumulated depreciation and amortization on property and
equipment and leasehold improvements was $44,329 and $40,671 at December 31,
1997 and 1996, respectively. Related depreciation and amortization expense was
$8,183, $7,510 and $6,914 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Goodwill represents the excess of the cost of the businesses acquired over the
fair value of their net assets. These costs are amortized on a straight-line
basis over not more than 40 years and are included in other assets in the
Consolidated Balance Sheets. Unamortized goodwill amounted to $16,932 and
$17,740 at December 31, 1997 and 1996 respectively. Goodwill amortization was
$808, $909 and $907 for 1997, 1996 and 1995, respectively.
DEFERRED ACQUISITION COSTS
Costs of acquiring new insurance and annuity contracts, which vary with and are
primarily related to the production of new business, have been deferred to the
extent that such costs are deemed recoverable from future gross profits. Such
costs include commissions, certain costs of policy issuance and underwriting,
and certain variable agency expenses.
Deferred acquisition costs related to participating traditional and universal
life insurance policies and annuity products without mortality risk, that
include significant surrender charges, are being amortized over the lesser of
the estimated or actual contract life in proportion to estimated gross profits
arising principally from interest, mortality, expense margins and surrender
charges. The effects on amortization of deferred acquisition costs of revisions
to estimated gross profits are reflected in earnings in the period such
estimated gross profits are revised. Deferred acquisition costs are reviewed to
determine that the unamortized portion of such costs is recoverable from future
estimated gross profits. Certain costs and expenses reported in the
Consolidated Income Statements are net of amounts deferred.
B-18
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
SEPARATE ACCOUNTS
Separate Account assets and liabilities represent segregated funds administered
and invested by the Company primarily for the benefit of variable life
insurance policyholders and annuity and pension contractholders, including
certain of the Company's benefit plans. The value of the assets in the Separate
Accounts reflects the actual investment performance of the respective accounts
and is not guaranteed by the Company. The carrying value for Separate Account
assets and liabilities approximates the estimated fair value of the underlying
assets.
INSURANCE LIABILITIES AND REVENUE RECOGNITION
Participating Traditional Life and Life Contingent Annuity Products
Future policy benefits include reserves for participating traditional life
insurance and life contingent annuity products and are established in amounts
adequate to meet the estimated future obligations of the policies in force.
Liabilities for participating traditional life products are computed using the
net level premium method, using assumptions for investment yields, mortality,
morbidity and withdrawals, which are consistent with the dividend fund interest
rate and mortality rates used in calculating cash surrender values. Interest
rate assumptions used in the calculation of the liabilities for participating
traditional life products ranged from 2.25% to 4.5%. Premiums are recognized as
income when due. Death and surrender benefits are reported in expense as
incurred.
Liabilities for life contingent annuity products are computed by estimating
future benefits and expenses. Assumptions are based on Company experience
projected at the time of policy issue, with provision for adverse deviations.
Interest rate assumptions range from 2.25% to 13.25%. Premiums are recognized
as income as they are received. Death and surrender benefits are reported in
expense as incurred.
Universal Life Products and Other Annuity Products
Other policyholder funds represent liabilities for universal life and
investment-type annuity products. The liabilities for these products are based
on the contract account value which consists of deposits received from
customers and investment earnings on the account value, less administrative and
expense charges. The liability for universal life products is also reduced by
mortality charges. Liabilities for the non-life contingent annuity products are
computed by estimating future benefits and expenses. Assumptions are based on
Company experience projected at the time of policy issue. Interest rate
assumptions range from 2.0% to 11.25%.
Contract charges assessed against account value for universal life and
investment-type annuities are reflected as policy fee income in revenue.
Interest credited to account values and universal life benefit claims in excess
of fund values are reflected as benefit expense.
Policyholders' Dividends
The majority of the Company's insurance products have been issued on a
participating basis. As of December 31, 1997, participating insurance expressed
as a percentage of insurance in force is 91%, and as a percentage of premium
income is 80%. The amount of policyholders' dividends to be paid is approved
annually by the Board of Trustees. The aggregate amount of policyholders'
dividends is calculated based on actual interest, mortality, morbidity and
expense experience for the year and on management's judgment as to the
appropriate level of equity to be retained by the Company. The carrying value
of this liability approximates the earned amount and fair value at December 31,
1997.
BROKER/DEALER REVENUE RECOGNITION
Broker-dealer transactions in securities and listed options, including related
commission revenue and expense, are recorded on a settlement-date basis.
FEDERAL INCOME TAXES
The Company files a consolidated federal income tax return with its life and
non-life insurance subsidiaries. Federal income taxes are charged or credited
to operations based upon amounts estimated to be payable or recoverable as a
result of taxable operations for the current year. Deferred income tax assets
and liabilities are established to reflect the impact of temporary differences
between the amount of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes. These deferred tax
assets or liabilities are measured by using the enacted tax rates expected to
apply to taxable income in the period in which the deferred tax liabilities or
assets are expected to be settled or realized.
B-19
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance enterprises or reinsurers under excess coverage
and coinsurance contracts. The Company has set its retention limit for
acceptance of risk on life insurance policies at various levels up to $1,250.
Insurance liabilities are reported before the effects of reinsurance.
Reinsurance receivables (including amounts related to insurance liabilities)
are reported as assets. Estimated reinsurance receivables are recognized in a
manner consistent with the liabilities related to the underlying reinsured
contracts.
RECLASSIFICATIONS
Certain 1996 and 1995 amounts have been reclassified to conform with 1997
presentation.
NOTE 2 - INVESTMENTS:
DEBT SECURITIES
The following tables summarize the Company's investment in debt securities,
including redeemable preferred stocks. All debt securities are classified as
available for sale and are carried at estimated fair value. Amortized cost is
net of cumulative writedowns for other than temporary declines in value of
$1,208 and $1,390 as of December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
Government and agency securities.. $ 107,539 $ 6,302 $ -- $ 113,841
States and political subdivisions.. 12,085 569 -- 12,654
Foreign governments................ 20,397 3,049 -- 23,446
Corporate securities............... 2,854,234 218,145 6,748 3,065,631
Mortgage and other asset-backed se-
curities.......................... 2,133,758 76,160 757 2,209,161
---------- -------- ------ ----------
Total bonds........................ 5,128,013 304,225 7,505 5,424,733
Redeemable preferred stocks........ 3,085 -- 166 2,919
---------- -------- ------ ----------
TOTAL............................. $5,131,098 $304,225 $7,671 $5,427,652
========== ======== ====== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
Government and agency securities.. $ 42,928 $ 653 $ -- $ 43,581
States and political subdivisions.. 477 21 -- 498
Foreign governments................ 20,333 2,038 -- 22,371
Corporate securities............... 2,819,418 134,505 11,911 2,942,012
Mortgage and other asset-backed se-
curities.......................... 2,192,353 27,135 16,471 2,203,017
---------- -------- ------- ----------
Total bonds........................ 5,075,509 164,352 28,382 5,211,479
Redeemable preferred stocks........ 3,575 -- 266 3,309
---------- -------- ------- ----------
TOTAL............................. $5,079,084 $164,352 $28,648 $5,214,788
========== ======== ======= ==========
</TABLE>
B-20
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
The following tables summarize the amortized cost and estimated fair value of
debt securities, including redeemable preferred stocks, by contractual
maturity.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
---------- ----------
<S> <C> <C>
Maturity:
Within one year.......................................... $ 241,759 $ 240,871
After one year through five years........................ 606,900 620,792
After five years through ten years....................... 613,951 644,749
After ten years through twenty years..................... 428,492 495,854
After twenty years....................................... 1,103,153 1,213,305
Mortgage and other asset-backed securities............... 2,133,758 2,209,162
---------- ----------
Total bonds............................................. 5,128,013 5,424,733
Redeemable preferred stocks.............................. 3,085 2,919
---------- ----------
TOTAL.................................................. $5,131,098 $5,427,652
========== ==========
</TABLE>
Expected maturities may differ from contractual maturities because certain
borrowers have the right to call or prepay obligations with or without call or
prepayment penalties. Mortgage and other asset-backed securities are presented
separately in the maturity schedule due to the potential for prepayment. The
weighted average life of these securities is 7.8 years.
At December 31, 1997, the Company held $2,209,162 in mortgage and other asset-
backed securities. The structured securities portfolio consists of commercial
and residential mortgage pass-through holdings totaling $1,961,662 and
securities backed by credit card receivables, auto loans, home equity and
manufactured housing loans totaling $247,500. These securities follow a
structured principal repayment schedule and are of high credit quality.
Securities totaling $1,810,481 are rated AAA and include $27,854 of interest
only tranches that were retained from the securitization of the Company's
mortgage loan portfolio.
At December 31, 1997, the largest industry concentration of the Company's
portfolio was investments in the finance industry of $734,428, representing 14%
of the total debt portfolio.
Effective November 30, 1995, the Company adopted the implementation guidance
contained in the Financial Accounting Series Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." As a result of adopting this guidance, the Company
reclassified all of its held-to-maturity securities to available-for-sale based
upon a reassessment of the appropriateness of the classifications of all
securities held at that time. The amortized cost and net unrealized gain of the
securities reclassified were $546,834 and $47,348 respectively, at November 30,
1995.
Proceeds during 1997, 1996 and 1995 from sales of available for sale securities
were $1,235,274, $927,905 and $1,201,541, respectively. Gross gains and gross
losses realized on those sales were $21,799 and $8,990, respectively during
1997, $15,932 and $6,899, respectively during 1996 and $62,216 and $10,201,
respectively during 1995. The change in net unrealized gains and losses on debt
securities classified as available for sale included as a separate component of
equity was $160,850, $(149,259) and $438,883 for 1997, 1996 and 1995,
respectively.
The Company's investment portfolio of debt securities is predominantly
comprised of investment grade securities. At December 31, 1997 and 1996, debt
securities with amortized cost totaling $198,943 and $184,719, respectively,
were less than investment grade. At December 31, 1997 and 1996, the Company did
not hold any securities which are either in default as to principal and/or
interest payments, are to be restructured pursuant to commenced negotiations or
are in situations where the borrowers went into bankruptcy subsequent to
acquisition (collectively, "problem debt securities"). The Company did not hold
any debt securities which were non-income producing for the preceding twelve
months as of December 31, 1997 and 1996.
EQUITY SECURITIES
During 1997, 1996 and 1995, the proceeds from sales of equity securities
amounted to $20,374, $25,413 and $153,985, respectively. The gross gains and
gross losses realized on those sales were $975 and $558, $1,369 and $247, and
$9,604 and $3,753, for 1997, 1996 and 1995, respectively.
B-21
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
MORTGAGE LOANS
On August 29, 1996, the Company securitized the majority of its mortgage loan
portfolio by transferring the loans to a trust which qualifies as a REMIC (Real
Estate Mortgage Investment Conduit) under the Internal Revenue Code. Prior to
transferring the loans with a principal value of $781,564 and a book value of
$780,942, the loans were written down to a fair market value of $755,559, and
the related reserve of $25,285 was released. The trust issued sixteen classes
of Commercial Mortgage Pass-Through Certificates with a total par value of
$781,564. The certificates evidence the entire beneficial ownership interest in
the trust. The cash flow from the mortgages will be used to repay the
certificates over an average life of 4.28 years. The actual date on which the
principal amount of the notes may be paid in full could be substantially
earlier or later based on performance of the mortgages. The cash flows of the
assets of the trust will be the sole source of payments on the notes. The
Company has not guaranteed these certificates or the mortgage loans held by the
trust. As a result of this transaction, the Company recognized a loss of $98
upon the transfer of the mortgages to the trust, representing the difference
between the fair market value of the certificates and the book value of the
mortgage loans transferred to the trust.
The Company retained the highest quality classes of certificates with a par
value of $715,126 and a fair market value of $734,326 at the time of the
securitization. As of December 31, 1997, the par value and fair value of these
securities was $570,130 and $597,248, respectively. The Company sold the lowest
rated classes of certificates with a par value of $66,438 and a fair market
value of $24,838.
The mortgage loans which were not included in the securitization and were
retained by the Company had a book value of $171,555 with a related reserve of
$21,907 and an estimated fair value of $153,405 on the date of the
securitization. Loans which the Company intended to dispose of within a period
of 6 to 24 months were written down to their estimated net realizable value.
These loans had a book value of $99,817 and an estimated net realizable value
of $81,310 at the time of the securitization. The writedown of $18,507 was
fully offset by a release in mortgage loss reserve. As of December 31, 1997,
the Company held $12,368 of these loans. The Company intended to hold mortgage
loans with a book value of $71,738 on the date of the securitization, through
their remaining terms. As of December 31, 1997, the Company continued to hold
$44,428 of these mortgages. The Company discontinued the origination of
commercial mortgage loans in 1996.
The following tables summarize the carrying value of mortgage loans, by
property type and geographic concentration, at December 31.
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Property Type
Office buildings............................................. $20,012 $ 51,510
Retail....................................................... 7,862 39,090
Dwellings.................................................... 25,237 33,540
Other........................................................ 3,685 4,174
Valuation allowance.......................................... (3,800) (3,400)
------- --------
TOTAL....................................................... $52,996 $124,914
======= ========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Geographic Concentration
Northeast.................................................... $23,313 $ 49,438
Midwest...................................................... 5,922 22,920
South........................................................ 12,502 20,717
West......................................................... 15,059 35,239
Valuation allowance.......................................... (3,800) (3,400)
------- --------
TOTAL....................................................... $52,996 $124,914
======= ========
</TABLE>
B-22
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
The following table presents changes in the mortgage loan valuation allowance
for the years presented:
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Balance at January 1............................................ $3,400 $47,192
Provision....................................................... 400 --
Charge offs..................................................... -- (43,792)
------ -------
BALANCE AT DECEMBER 31......................................... $3,800 $ 3,400
====== =======
</TABLE>
As of December 31, 1997 and 1996, the Company's mortgage loan portfolio
contained $0 and $15,726, respectively, of loans delinquent over 60 days or in
foreclosure. As of December 31, 1997 and 1996, there were no non-income
producing mortgage loans for the preceding twelve months.
During 1997, the Company did not restructure the terms of any outstanding
mortgages. During 1996, the Company restructured the terms of outstanding
mortgages with a carrying value of $4,000. As of December 31, 1997 and 1996,
the mortgage loan portfolio included $2,834 and $7,110, respectively, of
restructured mortgage loans. Restructured mortgage loans include commercial
loans for which the basic terms, such as interest rate, maturity date,
collateral or guaranty have been changed as a result of actual or anticipated
delinquency. Restructures do not include mortgages refinanced upon maturity at
or above current market rates. Gross interest income on restructured mortgage
loans on real estate that would have been recorded in accordance with the
original terms of such loans amounted to $298 and $893 in 1997 and 1996,
respectively. Gross interest income from these loans included in net investment
income totaled $262 and $674 in 1997 and 1996, respectively.
At December 31, 1997, the recorded investment in loans that are considered to
be impaired was $12,368 that, as a result of write-downs, do not have a
valuation allowance. The average recorded investment in impaired loans during
the year ended December 31, 1997 was approximately $38,096. During 1997, $1,454
was received on these impaired loans which was applied to the outstanding
principal balance or will be applied to principal at the date of foreclosure.
REAL ESTATE
The following table summarizes the carrying value of the Company's real estate
holdings at December 31.
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Investment.................................................... $19,999 $33,386
Properties held for sale...................................... 7,828 73,260
Less: valuation allowance (5,469) (8,841)
------- -------
TOTAL........................................................ $22,358 $97,805
======= =======
</TABLE>
At December 31, 1997 and 1996, accumulated depreciation on real estate amounted
to $6,498 and $38,781, respectively. Depreciation expense on real estate
totaled $5,709, $6,488 and $10,091 for the years ended December 31, 1997, 1996
and 1995, respectively. During 1997, the Company sold its largest real estate
investment for $65,007 cash to an unrelated buyer. At the date of the sale,
this property had a carrying value of $61,914, net of related reserves,
resulting in a gain of $3,093. During 1996, the Company wrote down the
statement value of this property by $16,000 to its estimated fair value, based
on changes in future valuation assumptions.
OTHER
Investments on deposit with regulatory authorities as required by law were
$7,106 and $7,085 at December 31, 1997 and 1996, respectively.
As of December 31, 1997 and 1996, the Company's investments included $597,248
and $725,806, respectively, of the tranches retained from the 1996
securitization of the Company's commercial mortgage loan portfolio. These
investments represented 59% and 86% of equity at December 31, 1997 and 1996,
respectively.
B-23
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
NOTE 3 - INVESTMENT INCOME AND CAPITAL GAINS:
The following table summarizes the sources of investment income, excluding
investment gains/(losses), for the year ended December 31.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Debt securities..................................... $390,852 $356,669 $331,644
Equity securities................................... 1,371 1,313 2,602
Mortgages........................................... 12,098 62,454 99,109
Real estate......................................... 17,519 24,143 31,661
Policy loans........................................ 40,921 40,580 41,762
Short-term investments.............................. 2,426 6,052 3,934
Other invested assets............................... 21,268 14,665 18,016
Cash and cash equivalents........................... 2 44 34
-------- -------- --------
Gross investment income............................. 486,457 505,920 528,762
Less: Investment expenses.......................... 26,251 30,605 38,989
-------- -------- --------
Investment income, net.............................. $460,206 $475,315 $489,773
======== ======== ========
</TABLE>
The following table summarizes net realized capital gains/(losses) on
investments for the year ended December 31. Net realized capital gains/(losses)
include decreases in valuation allowances of $3,154, $44,164 and $2,463 in
1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Debt securities..................................... $12,991 $ 10,412 $51,873
Equity securities................................... 417 1,122 6,652
Mortgage loans...................................... 280 (2,821) (2,799)
Real estate......................................... (684) (22,356) (41,617)
Other............................................... (811) 3,565 3
Amortization of deferred acquisition costs.......... (2,538) -- --
------- -------- -------
Realized gains/(losses)............................. $ 9,655 $(10,078) $14,112
======= ======== =======
</TABLE>
The following table summarizes the change in unrealized gains and losses for
investments carried at fair value for the year ended December 31.
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Unrealized Gains/(Losses):
Debt securities.................................. $160,850 $(149,259) $438,883
Equity securities................................ 408 (582) 2,340
Other............................................ (14,581) (1,545) 11,190
-------- --------- --------
146,677 (151,386) 452,413
-------- --------- --------
Less:
Deferred policy acquisition costs................ (45,043) 38,324 (116,992)
Deferred income taxes............................ (35,355) 39,851 (119,268)
-------- --------- --------
Net change in unrealized gains/(losses).......... $ 66,279 $ (73,211) $216,153
======== ========= ========
</TABLE>
B-24
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
NOTE 4 - FAIR VALUE INFORMATION:
The following table summarizes the carrying value and estimated fair value of
the Company's financial instruments as of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Debt securities
Available for sale........ $5,427,652 $5,427,652 $5,214,788 $5,214,788
Equity securities
Common stock.............. 3,051 3,051 660 660
Non-redeemable preferred
stocks................... 9,451 9,451 16,085 16,085
Mortgage loans............. 52,996 57,224 124,914 131,577
Policy loans............... 642,989 606,681 656,073 634,291
Cash & cash equivalents.... 37,064 37,064 37,314 37,314
Short-term investments..... 43,470 43,470 37,515 37,515
Separate account assets.... 1,869,094 1,869,094 1,368,384 1,368,384
Other invested assets...... 88,928 88,928 94,369 94,369
FINANCIAL LIABILITIES:
Investment-type contracts
Individual annuities...... $1,225,192 $1,260,639 $1,281,965 $1,317,257
Guaranteed investment con-
tracts................... 59,809 61,456 111,224 112,247
Other group annuities..... 147,061 148,257 161,889 163,524
Other policyholder funds.. 1,541,372 1,541,372 1,498,334 1,498,334
---------- ---------- ---------- ----------
Total policyholder funds. 2,973,434 3,011,724 3,053,412 3,091,362
Policyholders' dividends
payable................... 35,273 35,273 35,395 35,395
Separate account liabili-
ties...................... 1,869,094 1,869,094 1,368,384 1,368,384
</TABLE>
The estimated fair values for the Company's investments in debt and equity
securities are based on quoted market prices, where available. In situations
where market prices are not readily available, primarily private placements,
fair values are estimated using a formula pricing method based on fair values
of securities with similar characteristics. The estimated fair value of
currently performing mortgage loans is estimated by discounting the cash flows
associated with the investment, using an interest rate currently offered for
similar loans to borrowers with similar credit ratings. Loans with similar
credit quality, characteristics and time to maturity are aggregated for
purposes of discounted cash flow analysis. Assumptions regarding credit risk,
cash flows and discount rates are determined using the available market and
borrower-specific information. The estimated fair value for non-performing
loans is based on the estimated fair value of the underlying real estate, which
is based on recent appraisals or other estimation techniques. The estimated
fair value of policy loans is calculated by discounting estimated future cash
flows using interest rates currently being offered for similar loans. Loans
with similar characteristics are aggregated for purposes of the calculations.
The carrying values of cash, cash equivalents, short-term investments and
separate account assets approximate their fair values. The estimated fair value
for the venture capital limited partnerships are based on values determined by
the partnerships' managing general partners. The resulting estimated fair
values may not be indicative of the value negotiated in an actual sale.
The fair values of the Company's liabilities for individual annuities,
guaranteed investment contracts and certain group annuities are estimated by
discounting the cash flows associated with the contracts, using an interest
rate currently offered for similar contracts with maturities similar to those
remaining for the contracts being valued. The statement value for certain of
the other group annuities approximates their fair value due to the nature of
the contracts. The statement values of other policyholder funds, policyholders'
dividends payable and separate account liabilities approximate their fair
values.
Currently, disclosure of estimated fair values is not required for all the
Company's assets and liabilities. Therefore, presentation of the estimated fair
value of a significant portion of assets without a corresponding valuation of
liabilities associated with
B-25
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
insurance contracts can be misinterpreted. The estimated fair values of
liabilities under all of the Company's contracts are considered in the overall
management of interest rate risk. The continuing management of the relationship
between the maturities of the Company's investments and the amounts due under
insurance contracts reduces the Company's exposure to changing interest rates.
The Company is exposed to interest rate risk on its interest sensitive
products. The Company's investment strategy is designed to minimize interest
risk by managing the durations and anticipated cash flows of the Company's
assets and liabilities.
To minimize exposure and reduce risk from exchange and interest rate
fluctuations in the normal course of business, the Company enters into interest
rate swap programs for purposes other than trading. As of December 31, 1997 and
1996, the Company had interest rate swaps with aggregate notional amounts equal
to $105,000 and $115,000, respectively, with average unexpired terms of 19 and
29 months, respectively. Interest rate swap agreements involve the exchange of
fixed and floating rate interest payment obligations without an exchange of the
underlying notional principal amounts. During the term of the swap, the net
settlement amount is accrued as an adjustment to interest income. Gross
unrealized gains and losses, which represent fair value based on dealer-quoted
prices, were $5,164 and $0, respectively at December 31, 1997 and $7,605 and
$0, respectively, at December 31, 1996. These fair values represent the amount
at risk if the counterparties default and the amount that the Company would
receive to terminate the contracts, taking into account current interest rates
and, where appropriate, the current credit worthiness of the counterparties.
In the normal course of business, the Company loans securities under
arrangements in which collateral is obtained in amounts greater than the
current market value of loaned securities. This collateral is held in the form
of cash, cash equivalents or securities issued or guaranteed by the United
States Government. The Company is at risk to the extent the value of loaned
securities exceeds the value of the collateral obtained. The Company controls
this risk by requiring collateral of the highest quality and requiring that
additional collateral be deposited when the market value of loaned securities
increases in relation to the collateral held or the value of the collateral
held decreases in relation to the value of the loaned securities. The Company
had loaned securities outstanding of $155,356 and $0 as of December 31, 1997
and 1996, respectively.
NOTE 5 - INCOME TAXES:
The Company follows the asset and liability method of accounting for income
taxes whereby current and deferred tax assets and liabilities are recognized
utilizing currently enacted tax laws and rates. Deferred taxes are adjusted to
reflect tax rates at which future tax liabilities or assets are expected to be
settled or realized.
Deferred income taxes reflect the impact for financial statement reporting
purposes of temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities. The significant temporary
differences that give rise to the deferred tax assets and liabilities at
December 31 relate to the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS
Future policy benefits...................................... $ 88,172 $ 83,327
Dividend award.............................................. 11,970 12,005
Allowances for investment losses............................ 3,667 8,411
Employee benefit liabilities................................ 27,979 27,113
Other....................................................... 23,467 27,530
-------- --------
Total deferred tax asset................................... 155,255 158,386
-------- --------
DEFERRED TAX LIABILITIES
Deferred acquisition costs.................................. 127,495 124,660
Real estate................................................. (1,261) 299
Unrealized gains............................................ 81,553 48,233
Other....................................................... 22,564 20,977
-------- --------
Total deferred tax liability............................... 230,351 194,169
-------- --------
Net deferred tax liability.................................. $ 75,096 $ 35,783
======== ========
</TABLE>
B-26
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
The federal income taxes attributable to consolidated net income are different
from the amounts determined by multiplying consolidated net income before
federal income taxes by the expected federal income tax rate. The difference
between the amount of tax at the U.S. federal income tax rate of 35% and the
consolidated tax provision is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Tax expense at 35%................................ $44,442 $26,930 $ 27,096
Increase/(decrease) in income taxes resulting
from:
Differential earnings amount..................... 6,942 500 3,878
Resolution of tax issues......................... -- -- (57,000)
Other............................................ 2,528 595 4,587
------- ------- --------
Federal income tax expense/(benefit).............. $53,912 $28,025 $(21,439)
======= ======= ========
As a mutual life insurance company, the Company is subject to Internal Revenue
Code provisions which require mutual, but not stock, life insurance companies
to include the Differential Earnings Amount (DEA) in each year's taxable
income. This amount is computed by multiplying the Company's average taxable
equity base by a prescribed rate, which is intended to reflect the difference
between stock and mutual companies' earnings rates.
In 1995, the Company settled various tax issues with the IRS, including an
issue surrounding the tax treatment of certain traditional life insurance
policy updates. As a result of these settlements, the 1995 federal income tax
expense was decreased in the Income Statement by approximately $57,000, which
included $22,300 of interest, net of tax.
The Internal Revenue Service has examined the Company's income tax returns
through the year 1990 and is currently examining years 1991 through 1994.
Management believes that an adequate provision has been made for potential
assessments.
NOTE 6 - BENEFIT PLANS:
The Company maintains qualified and non-qualified defined benefit pension plans
covering substantially all of its employees. The plans are non-contributory and
provide pension benefits based on years of service and average annual
compensation (measured over 60 consecutive months of highest earnings in a 120-
month period). Contributions are determined by using the Projected Unit Credit
Method. The total pension expense related to these plans amounted to $5,917,
$5,963 and $5,054 in 1997, 1996 and 1995, respectively.
The Company's funding policy for its qualified defined benefit plans is to
contribute an amount between the minimum required contribution and the maximum
deductible amount in accordance with the Internal Revenue Code. The following
table summarizes the components of net periodic pension cost for the Company's
qualified defined benefit plans:
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Service cost...................................... $ 2,161 $ 2,506 $ 1,827
Interest cost on projected benefit obligation..... 4,050 3,540 2,909
Actual return on assets........................... (4,925) (3,095) (5,515)
Net amortization and deferrals.................... 2,367 919 3,736
------- ------- --------
Net periodic pension cost......................... $ 3,653 $ 3,870 $ 2,957
======= ======= ========
</TABLE>
B-27
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
The following table summarizes the funded status of the Company's qualified
defined benefit plans:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested.......................................... $ 44,964 $ 32,572 $ 29,744
Non-vested...................................... 924 935 763
-------- -------- --------
Accumulated benefit obligation................... 45,888 33,507 30,507
Provision for future salary increases............ 16,769 15,162 17,147
-------- -------- --------
Projected benefit obligation..................... 62,657 48,669 47,654
Plan assets at fair value........................ (42,783) (37,938) (34,067)
-------- -------- --------
Projected benefit obligation in excess of plan
assets.......................................... 19,874 10,731 13,587
Unrecognized prior service cost.................. (178) (203) (228)
Unrecognized net (gain) loss from past experi-
ence............................................ (9,605) (2,430) (6,859)
Unrecognized net asset obligation at transition.. (1,288) (1,609) (1,931)
-------- -------- --------
Accrued pension cost at December 31.............. $ 8,803 $ 6,489 $ 4,569
======== ======== ========
The assumptions used to measure the actuarial present value of the projected
benefit obligation were:
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Discount rate.................................... 7.00% 7.50% 7.00%
Expected long-term rate of return on plan assets. 8.00% 8.00% 8.00%
Salary scale..................................... 5.50% 5.50% 5.50%
</TABLE>
The qualified defined benefit pension plan's assets are held in trust and
administered under a participatory group annuity contract issued by the Company
with assets invested in various separate accounts of the Company. A non-
participatory annuity contract issued by the Company funds benefits accrued
prior to 1986.
The Company maintains four defined contribution pension plans for substantially
all of its employees and full-time agents. For two plans, designated
contributions of up to 6% or 8% of annual compensation are eligible to be
matched by the Company. Contributions for the third plan are based on tiered
earnings of full time agents. The last plan, which covers employees of a
subsidiary, are determined on a discretionary basis by the Board of Directors
of that subsidiary. At December 31, 1997, 1996 and 1995, the expense recognized
for these plans was $8,345, $6,092 and $5,083, respectively. The estimated fair
value of the defined contribution plans' assets were $229,378, $201,679 and
$176,832, respectively.
The Company also provides certain medical, life insurance and other welfare
benefits (postretirement benefits) for retired employees and full-time agents.
Substantially all employees and full-time agents become eligible for these
benefits if they reach retirement age while working for the Company and have at
least 10 years of service. Employees retiring after January 1, 1993 receive a
defined dollar benefit under the medical plan. The Company continues to fund
postretirement benefit costs on a pay-as-you-go basis.
B-28
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
The following table sets forth the postretirement benefits plan's status,
reconciled to amounts recognized in the Company's Consolidated Balance Sheet
and Income Statements at December 31.
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees.......................................... $22,638 $21,301 $32,473
Fully eligible active plan participants........... 2,707 2,547 2,826
Other active plan participants.................... 6,068 5,710 5,672
------- ------- -------
Total............................................ 31,413 29,558 40,971
Plan assets at fair value.......................... -- -- --
------- ------- -------
Accumulated postretirement benefits obligation in
excess of plan assets............................. 31,413 29,558 40,971
Unrecognized prior service cost.................... -- -- --
Unrecognized net gain from past experience......... 13,730 16,261 5,129
------- ------- -------
Accrued postretirement benefits cost............... $45,143 $45,819 $46,100
======= ======= =======
Net periodic postretirement benefits cost includes
the following components:
Service cost...................................... 393 434 355
Interest cost on accumulated postretirement bene-
fits obligation.................................. 2,182 2,206 2,910
Actual return on assets........................... -- -- --
Net amortization and deferral..................... (1,060) (815) (573)
------- ------- -------
Net periodic postretirement benefits cost.......... $ 1,515 $ 1,825 $ 2,692
======= ======= =======
</TABLE>
At December 31, 1997, the assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation was 8.5% in 1998, grading to
5.0% in the year 2004. The weighted-average discount rate used in determining
the accumulated postretirement benefit obligation was 7.00% at December 31,
1997. At December 31, 1996, the assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation was 8.5% in 1997,
grading to 5.0% in the year 2004. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.5% at
December 31, 1996. At December 31, 1995, the assumed health care cost trend
rate used in measuring the accumulated postretirement benefit obligation was
9.0% in 1996, grading to 5.0% in the year 2004. The weighted-average discount
rate used in determining the accumulated postretirement benefit obligation was
7.0% at December 31, 1995.
If the health care cost trend rate was increased by one percentage point for
each future year, the accumulated postretirement benefit obligation as of
December 31, 1997 would increase by $1,948. The effect of this change on the
sum of the service cost and interest cost, before taxes, would be an increase
of $136.
B-29
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
NOTE 7 - REINSURANCE:
The Company has assumed and ceded reinsurance on certain life and annuity
contracts under various agreements. Reinsurance permits recovery of a portion
of losses from reinsurers, although the Company remains primarily liable as the
direct insurer on all risks reinsured. The Company evaluates the financial
strength of potential reinsurers and continually monitors the financial
condition of present reinsurers to ensure that amounts due from reinsurers are
collectable. The table below highlights the amounts shown in the accompanying
financial statements.
<TABLE>
<CAPTION>
ASSUMED CEDED TO
GROSS FROM OTHER OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997:
Life Insurance in Force.......... $31,027,764 $5,217,856 $4,620,599 $31,625,021
Premiums......................... 190,754 11,189 6,723 195,220
Benefits......................... 330,432 14,293 26,916 317,809
Reserves......................... 5,741,456 1,993 59,322 5,684,127
DECEMBER 31, 1996:
Life Insurance in Force.......... $30,057,996 $5,420,951 $3,186,567 $32,292,380
Premiums......................... 196,897 12,745 9,821 199,821
Benefits......................... 293,270 16,466 16,808 292,928
Reserves......................... 5,833,970 2,063 56,632 5,779,401
</TABLE>
During 1995, the Company had gross premiums of $184,362, assumed premiums of
$13,453 and ceded premiums of $9,908 and gross benefits of $303,911, assumed
benefits of $13,265 and ceded benefits of $14,700.
Reinsurance receivables with a carrying value of $50,617 and $50,522 were
associated with a single reinsurer at December 31, 1997 and 1996, respectively.
During 1995, the Company recaptured the portion of its disability income
business that was previously reinsured under a quota share and excess
reinsurance agreement with the Monarch Life Insurance Company ("Monarch"). As a
result of this recapture, approximately $21,200 of cash and policyholder
reserves were transferred to the Company from Monarch.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
The Company and its subsidiaries are respondents in a number of proceedings,
some of which involve extra-contractual damage in addition to other damages. In
addition, insurance companies are subject to assessments, up to statutory
limits, by state guaranty funds for losses of policyholders of insolvent
insurance companies. In the opinion of management, the outcome of the
proceedings and assessments are not likely to have a material adverse effect on
the financial position of the Company.
The Company, in the ordinary course of business, extends commitments relating
to its investment activities. As of December 31, 1997, the Company had
outstanding commitments totaling $38,326 relating to these investment
activities. The fair value of these commitments approximates the face amount.
NOTE 9 - STATUTORY INFORMATION:
State insurance regulatory authorities prescribe or permit statutory accounting
practices for calculating net income and capital and surplus which differ in
certain respects from generally accepted accounting principles (GAAP). The
significant differences relate to deferred acquisition costs, which are charged
to expenses as incurred; federal income taxes, which reflect amounts that are
currently taxable; and benefit reserves, which are determined using prescribed
mortality, morbidity and interest assumptions, and which, when considered in
light of the assets supporting these reserves, adequately provide for
obligations under policies and contracts. In addition, the recording of
impairments in the value of investments generally lags recognition under GAAP.
The combined insurance companies' statutory capital and surplus at December 31,
1997 and 1996 was $435,861 and $379,774, respectively. The combined insurance
companies' net income, determined in accordance with statutory accounting
practices, for the years ended December 31, 1997, 1996 and 1995, was $63,615,
$25,905 and $729, respectively.
B-30
<PAGE>
- - --------------------------------------------------------------------------------
THE PENN MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS OF DOLLARS)
NOTE 10 - BUSINESS SEGMENT INFORMATION:
The operations of the Company are conducted principally through two business
units: Insurance and Broker-Dealer. The insurance operations offer a diverse
portfolio of life insurance products and both individual and group annuity
products. The Broker-Dealer operations provide broad financial and investment
services.
Assets are held directly by each business unit in amounts necessary to both
fund liabilities and to provide a margin to cover business risks.
The table below summarizes the information concerning the business units:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Insurance...................................... $ 778,179 $ 765,210 $ 803,276
Broker-Dealer.................................. 291,156 241,809 201,037
---------- ---------- ----------
TOTAL......................................... $1,069,335 $1,007,019 $1,004,313
========== ========== ==========
PRETAX INCOME
Insurance...................................... $ 84,722 $ 43,765 $ 53,337
Broker-Dealer.................................. 42,255 33,178 24,082
---------- ---------- ----------
TOTAL......................................... $ 126,977 $ 76,943 $ 77,419
========== ========== ==========
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Insurance...................................... $8,784,570 $8,259,309
Broker-Dealer.................................. 582,308 497,739
---------- ----------
TOTAL......................................... $9,366,878 $8,757,048
========== ==========
</TABLE>
B-31
<PAGE>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements included in Part B:
Consolidated Financial Statements of The Penn Mutual Life
Insurance Company:
Report of Independent Accountants
Statements of Financial Condition at December 31, 1997 and 1996
Statements of Operations and Surplus for the years
ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1997
1996 and 1995
Notes to Financial Statements
(b) Exhibits
1. (a) Resolutions of Executive Committee of Board of Trustees
of The Penn Mutual Life Insurance Company authorizing
the establishment of the Registrant. Incorporated
herein by reference to Exhibit 1(a) to the Registration
Statement on Form N-4 of Penn Mutual Variable Annuity
Account III (Accession No. 0001036050-98-001504) filed
on September 3, 1998.
2. Not applicable
3. (a) Sales Support Agreement between The Penn Mutual Life
Insurance Company and Horner, Townsend & Kent, Inc., a
wholly-owned subsidiary of Penn Mutual. Filed herewith.
(b) Form of Distribution Agreement between The Penn Mutual
Life Insurance Company and Horner, Townsend & Kent,
Inc., a wholly-owned subsidiary of Penn Mutual. Filed
herewith.
(c) Form of Agent's Agreement relating to broker-dealer
supervision. Incorporated herein by reference to
Exhibit 3(c) to the Registration Statement on Form N-4
of Penn Mutual Variable Annuity Account III (Accession
No. 0001036050-98-001504) filed on September 3, 1998.
(d) Form of Broker-Dealer Selling Agreement (for broker-
dealers licensed to sell variable annuity contracts
and/or variable life insurance contracts under state
insurance laws). Filed herewith.
(e) Form of Broker-Dealer Selling Agreement (for broker-
dealers with affiliated corporations licensed to sell
variable annuity
C-1
<PAGE>
contracts and/or variable life insurance contracts
under state insurance laws. Filed herewith.
(f) Form of Addendum (Form 98-1) to Broker-Dealer Selling
Agreement. Incorporated herein by reference to Exhibit
3(f) to the Registration Statement on Form N-4 of Penn
Mutual Variable Annuity Account III (Accession No.
0001036050-98-001504) filed on September 3, 1998.
4. (a) Individual Variable and Fixed Annuity Contract (Form
VAA-98). Filed herewith.
(b) Rider -- Guaranteed Minimum Death Benefit -- Rising
Floor (GDBRF-98). Filed herewith.
(c) Rider -- Guaranteed Minimum Death Benefit -- Step Up
(GDBSU-98). Filed herewith.
(d) Endorsement No. 1534-96 to Individual Variable and
Fixed Annuity Contract. Incorporated herein by
reference to Exhibit 4(d) to the Registration Statement
on Form N-4 of Penn Mutual Variable Annuity Account III
(Accession No. 0001036050-98-001504) filed on September
3, 1998.
(e) Endorsement No. 1542-97 to Individual Variable and
Fixed Annuity Contract. Filed herewith. Incorporated
herein by reference to Exhibit 4(e) to the Registration
Statement on Form N-4 of Penn Mutual Variable Annuity
Account III (Accession No. 0001036050-98-001504) filed
on September 3, 1998.
(f) Endorsement No. 1536-90 to Individual Variable and
Fixed Annuity Contract. Incorporated herein by
reference to Exhibit 4(f) to the Registration Statement
on Form N-4 of Penn Mutual Variable Annuity Account III
(Accession No. 0001036050-98-001504) filed on September
3, 1998.
5. Application (Form 5798) for Individual Variable Annuity
Contract. Incorporated herein by reference to Exhibit 5
to the
C-2
<PAGE>
Registration Statement on Form N-4 of Penn Mutual
Variable Annuity Account III (Accession No. 0001036050-
98-001504) filed on September 3, 1998.
6. (a) Charter of The Penn Mutual Life Insurance Company (May
1983). Incorporated herein by reference to Exhibit 6(a)
to the Registration Statement on Form N-4 of Penn
Mutual Variable Annuity Account III (Accession No.
0001036050-98-001504) filed on September 3, 1998.
(b) By-laws of The Penn Mutual Life Insurance Company, as
amended through February 21, 1997. Incorporated herein
by reference to Exhibit 6(b) to the Registration
Statement on Form N-4 of Penn Mutual Variable Annuity
Account III (Accession No. 0001036050-98-001504) filed
on September 3, 1998.
7. None
8. (a) Fund Participation Agreement among The Penn Mutual Life
Insurance Company, TCI Portfolios, Inc.(renamed
American Century Variable Portfolios, Inc.) and
Investors Research Corporation (renamed American
Century Investment Management, Inc.). Incorporated
herein by reference to Exhibit 8(a) to the Registration
Statement on Form N-4 of Penn Mutual Variable Annuity
Account III (Accession No. 0001036050-98-001504) filed
on September 3, 1998.
(b)(1) Form of Sales Agreement between The Penn Mutual Life
Insurance Company and Neuberger & Berman Advisers
Management Trust. Incorporated herein by reference to
Exhibit 8(b)(1) to the Registration Statement on Form
N-4 of Penn Mutual Variable Annuity Account III
(Accession No. 0001036050-98-001504) filed on September
3, 1998.
(b)(2) Form of Assignment and Modification Agreement between
Neuberger & Berman Management Incorporated, Neuberger &
Berman Advisers Management Trust, Advisers Managers
Trust and The Penn Mutual Life Insurance Company.
Incorporated herein by reference to Exhibit 8(b)(2) to
the Registration Statement on Form N-4 of Penn Mutual
Variable Annuity Account III (Accession No. 0001036050-
98-001504) filed on September 3, 1998.
(b)(3) Amendment to Fund Participation Agreement between The
Penn Mutual Life Insurance Company and Neuberger &
Berman Advisers Management Trust. Incorporated herein
by reference to Exhibit 8(b)(3) to Post-Effective
Amendment No.5 to the Registration Statement of Penn
Mutual Variable Life Account I (File No. 33-54662)
filed on April 30, 1997 (CIK No. 0000950109 & Accession
No. 0000950109-97-003328).
C-3
<PAGE>
(c) Form of Sales Agreement between The Penn Mutual Life
Insurance Company and Penn Series Funds, Inc.
Incorporated herein by reference to Exhibit 8(c) to the
Registration Statement on Form N-4 of Penn Mutual
Variable Annuity Account III (Accession No. 0001036050-
98-001504) filed on September 3, 1998.
(d) Form of Participation Agreement between The Penn Mutual
Life Insurance Company, Variable Insurance Products
Fund and Fidelity Distributors Corporation.
Incorporated herein by reference to Exhibit 8(d) to the
Registration Statement on Form N-4 of Penn Mutual
Variable Annuity Account III (Accession No. 0001036050-
98-001504) filed on September 3, 1998.
(e) Form of Participation Agreement between The Penn Mutual
Life Insurance Company, Variable Insurance Products
Fund II and Fidelity Distributors Corporation.
Incorporated herein by reference to Exhibit 8(e) to the
Registration Statement on Form N-1A of Penn Mutual
Variable Annuity Account III (Accession No. 0001036050-
98-001504) filed on September 3, 1998.
(f) Participation Agreement between The Penn Mutual Life
Insurance Company, Morgan Stanley Universal Funds,
Inc., Morgan Stanley Asset Management Inc. and Miller
Andersen & Sherrerd LLP. Incorporated herein by
reference to Exhibit 8(f) to Post-Effective Amendment
No. 2 to the Registration Statement of PIA Variable
Annuity Account I (33-83120) filed on April 30, 1998
(CIK No. 0000928880 & Accession No. 0000950109-97-
003327).
9. Opinion of Counsel. Filed herewith.
10.(a) Consent of Ernst & Young. Filed herewith
(b) Consent of PricewaterhouseCoopers LLP. Filed herewith.
(c) Consent of Morgan, Lewis & Bockius LLP. Filed herewith.
11. Not applicable.
12. Not applicable.
13. Schedule of Computation of Performance Quotations set
forth in this Registration Statement. Filed herewith.
C-4
<PAGE>
14.(a) Powers of Attorney of Trustees (except Ms. Bloch and
Messrs. Notebaert and Rock). Incorporated herein by
reference to Exhibit 14 to Post-Effective Amendment No.
22 to the Registration Statement on Form N-4 of Penn
Mutual Variable Annuity Account III filed on April 29,
1997 (CIK No. 0000702184 & Accession No. 00001021408-
97-000161).
(b) Powers of Attorney of Edmond F. Notebaert and Robert H.
Rock. Incorporated herein by reference to Exhibit 14(b)
to Post Effective Amendment No. 24 to the Registration
Statement on Form N-4 of Penn Mutual Variable Annuity
Account III filed on April 24, 1998 (CIK No. 0000702184
& Accession No. 000095109-98-002717).
(c) Power of Attorney of Ms. Julia Chang Bloch.
Incorporated herein by reference to Exhibit 14(c) to
the Registration Statement on Form N-4 of Penn Mutual
Variable Annuity Account III (Accession No. 0001036050-
98-001504) filed on September 3, 1998.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
---------------------------------------
The following table sets forth the names of the officers and trustees
of the Depositor who are engaged directly or indirectly in activities
relating to the Registrant or the variable annuity contracts offered
by the Registrant and the executive officers of the Depositor.
ROBERT E. CHAPPELL NANCY S. BRODIE
Chairman of the Board and Chief Executive Vice President and
Executive Officer and Member of Chief Financial Officer
the Board of Trustees
DANIEL J. TORAN PETER M. SHERMAN
President and Chief Operating Senior Vice President and
Officer and Member of the Board of Chief Investment Officer
Trustees
LARRY L. MAST ANN M. STROOTMAN
Executive Vice President, Sales and Vice President and Controller
Marketing
C-5
<PAGE>
HAROLD E. MAUDE, JR. STEVEN M. HERZBERG
Senior Vice President, Assistant Vice President
Independence Financial Network and Treasurer
RICHARD F. PLUSH JAMES MCELWAIN
Vice President and Senior Actuary Assistant Vice President,
Retirement and Investment
Sales Operations
JOHN M. ALBANESE
Senior Vice President, Customer
Service and Information Systems
FREDERICK M. ROCKOVAN ROBERT P. DAVIS
Vice President, Insurance Service Vice President and Chief
Actuary
The business address of the director and officers is The Penn Mutual
Life Insurance Company, Philadelphia, PA 19172.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
-------------------------------------------------------------------
REGISTRANT
----------
PENN MUTUAL WHOLLY-OWNED SUBSIDIARIES
-------------------------------------
<TABLE>
<CAPTION>
Corporation Principal Business State of Incorporation
- - ----------- ------------------ ----------------------
<S> <C> <C>
The Penn Insurance and Life Insurance and Annuities Delaware
Annuity Company
Independence Capital Investment Adviser Pennsylvania
Management, Inc.
Penn Janney Fund, Inc. Investments Pennsylvania
INDEPENDENCE SQUARE Holding Company Pennsylvania
PROPERTIES, INC.
The Pennsylvania Trust Trust Company Pennsylvania
Company
</TABLE>
INDEPENDENCE SQUARE PROPERTIES, INC.
WHOLLY-OWNED SUBSIDIARIES
-------------------------
<TABLE>
<CAPTION>
Corporation Principal Business State of Incorporation
- - ----------- ------------------ ----------------------
<S> <C> <C>
Penn Glenside Corporation Real Estate Investment Pennsylvania
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Corporation Principal Business State of Incorporation
- - ----------- ------------------ ----------------------
<S> <C> <C>
Penn Wayne Corporation Real Estate Investment Pennsylvania
St. James Realty Corporation Real Estate Investment Pennsylvania
Investors' Mortgage Real Estate Investment Pennsylvania
Corporation
Christie Street Properties, Real Estate Investment Pennsylvania
Inc.
INDEPRO CORPORATION Real Estate Investment Delaware
Economic Resources Real Estate Investment Delaware
Associates, Inc.
WPI Investment Company Real Estate Investment Delaware
Hornor, Townsend & Kent, Registered Broker-Dealer and Pennsylvania
Inc. Investment Adviser
Penn Tallahassee Real Estate Investment Florida
Corporation
JANNEY MONTGOMERY SCOTT Registered Broker-Dealer and Delaware
INC. Investment Adviser
</TABLE>
INDEPRO CORPORATION
WHOLLY-OWNED SUBSIDIARIES
-------------------------
<TABLE>
<CAPTION>
Corporation Principal Business State of Incorporation
- - ----------- ------------------ ----------------------
<S> <C> <C>
Indepro Property Fund I Real Estate Investment Delaware
Corporation
Indepro Property Fund II Real Estate Investment Delaware
Corporation
Commons One Corporation Real Estate Investment Delaware
West Hazleton, Inc. Real Estate Investment Delaware
</TABLE>
JANNEY MONTGOMERY SCOTT, INC.
WHOLLY-OWNED SUBSIDIARIES
-------------------------
C-7
<PAGE>
<TABLE>
<CAPTION>
Corporation Principal Business State of Incorporation
- - ----------- ------------------ ----------------------
<S> <C> <C>
Addison Capital Investment Adviser Pennsylvania
Management, Inc.
JMS Resources, Inc. Oil and Gas Development Pennsylvania
JMS Investor Services, Inc. Insurance Sales Delaware
</TABLE>
ITEM 27. NUMBER OF CONTRACT OWNERS
-------------------------
As of August 1, 1998, there were no contracts being registered under
this Registration Statement outstanding.
ITEM 28. INDEMNIFICATION
---------------
Section 6.2 of the By-laws of The Penn Mutual Life Insurance Company
provides that, in accordance with the provisions of the Section, the
Company shall indemnify trustees and officers against expenses
(including attorneys' fees), judgments, fines, excise taxes and
amounts paid in settlement actually and reasonably incurred in
connection with actions, suits and proceedings, to the extent such
indemnification is not prohibited by law, and may provide other
indemnification to the extent not prohibited by law. The By-laws are
filed as Exhibit 6(b) to Post-Effective Amendment No. 12 to this
Registration Statement and are incorporated in this Post-Effective
Amendment by reference.
Pennsylvania law (15 Pa. C.S.A. (S)(S) 1741-1750) authorizes
Pennsylvania corporations to provide indemnification to directors,
officers and other persons.
Penn Mutual owns a directors and officers liability insurance policy
covering liabilities directors and officers of Penn Mutual and its
subsidiaries may incur in acting as directors and officers.
Selling Agreements entered into by The Penn Mutual Life Insurance
Company ("Penn Mutual") and its subsidiary, Hornor, Townsend & Kent,
Inc. ("HTK") with securities brokers and insurance agents generally
provide for indemnification of Penn Mutual and HTK and their directors
and officers in the event of liability resulting from unauthorized
acts of the brokers and insurance agents.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is
C-8
<PAGE>
asserted by such director, officer or controlling person in connection
with the 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.
ITEM 29. PRINCIPAL UNDERWRITERS
----------------------
Hornor Townsend & Kent, Inc. serves as principal underwriters of the
securities of the Registrant.
Hornor Townsend & Kent, Inc. serves as principal underwriter for
Addison Capital Shares, Inc., a registered investment company.
Hornor, Townsend & Kent, Inc. - Directors and Officers
------------------------------------------------------
John J. Gray, Director and Chairman of the Board
Harold E. Maude, Jr., Director
Nina M. Mulrooney, Director
Norman T. Wilde, Jr., Director
Daniel J. Toran, Director
Ronald C. Zimmerman, President and Chief Executive Officer
Michael D. Sweeney, Assistant Vice President, Director of Compliance
and Secretary
Edward G. Pecelli - Assistant Vice President, Director of Sales and
Marketing
Laura M. Ritzko, Assistant Secretary
Henry S. Buck, Assistant Vice President and Assistant Treasurer
Barbara S. Wood, Senior Vice President, Finance and Treasurer
Bruce Ohrenich, Vice President, Sales
Joseph R. Englert, Assistant Vice President, Director of Operations
William H. Pentz, Counsel
Constance Flaville, Assistant Secretary
The principal business address of Messrs. Gray and Wilde is Janney,
Montgomery, Scott Inc., 1801 Market Street, Philadelphia,
Pennsylvania. The principal business address of Mses. Mulrooney and
Ritzko and Messrs. Maude, Toran and Pentz is The Penn Mutual Life
Insurance Company, Philadelphia, Pennsylvania, 19172. The principal
business address of the other directors and officers of Hornor,
Townsend & Kent, Inc., Dresher Road, Horsham, Pennsylvania.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
The name and address of the person who maintains physical possession
of each account, book or other documents required by Section 31(a) of
the Investment Company Act of 1940 is as follows:
C-9
<PAGE>
The Penn Mutual Life Insurance Company
600 Dresher Road
Horsham, Pennsylvania 19044
ITEM 31. MANAGEMENT SERVICES
-------------------
See "Administrative and Recordkeeping Services" in Part B of this
Registration Statement.
ITEM 32. UNDERTAKINGS
------------
The Penn Mutual Life Insurance Company hereby undertakes:
(a) to file a post-effective amendment to this Registration Statement
as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more
than 16 months old for so long as payments under the variable
annuity contracts may be accepted;
(b) to include either (1) as part of any application to purchase a
contract or account offered by the prospectus, a space that an
applicant can check to request a statement of additional
information, or (2) a post card or similar written communication
affixed to or included in the prospectus that the applicant can
remove to send for a statement of additional information;
(c) to deliver any statement of additional information and any
financial statements required to be made available under Form N-4
promptly upon written or oral request.
Restrictions on withdrawals under Section 403(b) Contracts are imposed
in reliance upon, and in compliance with, a no-action letter issued by
the Chief of the Office of Insurance Products and Legal Compliance of
the Securities and Exchange Commission to the American Council of Life
Insurance on November 28, 1988.
The Penn Mutual Life Insurance Company represents that the fees and
charges deducted under the Individual Variable and Fixed Annuity
Contract, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed
by the Registrant.
C-10
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant has caused this Pre-Effective Amendment #1 to the
Registration Statement to be signed on its behalf, by the undesigned, thereunto
duly authorized, in the Township of Horsham and Commonwealth of Pennsylvania on
this 25th day of November, 1998.
PENN MUTUAL VARIABLE ANNUITY ACCOUNT III
(Registrant)
By: THE PENN MUTUAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ ROBERT E. CHAPPELL
-------------------------------------------------
Robert E. Chappell
Chairman of the Board of Trustees
and Chief Executive Officer
As required by the Securities Act of 1933, this Pre-Effective Amendment
#1 to the Registration Statement has been signed by the following persons, in
the capacities indicated, on the 25th day of November, 1998.
Signature Title
- - --------- -----
/s/ ROBERT E. CHAPPELL Chairman of the Board of Trustees
- - ----------------------
Robert E. Chappell and Chief Executive Officer
/s/ NANCY S. BRODIE Executive Vice President and
- - --------------------
Nancy S. Brodie Chief Financial Officer
*JULIA CHANG BLOCH Trustee
*JAMES A. HAGEN Trustee
*PHILLIP E. LIPPINCOTT Trustee
*JOHN F. MCCAUGHAN Trustee
*ALAN B. MILLER Trustee
*EDMOND F. NOTEBAERT Trustee
*ROBERT H. ROCK Trustee
*DANIEL J. TORAN Trustee
*NORMAN T. WILDE, JR. Trustee
*WESLEY S. WILLIAMS, JR. Trustee
*By:/s/ ROBERT E. CHAPPELL
-------------------------------------
Robert E. Chappell, attorney-in-fact
<PAGE>
EXHIBIT INDEX
EX.99 B 3. (a) Sales Support Agreement between The Penn Mutual Life
Insurance Company and Horner, Townsend & Kent, Inc.
(b) Form of Distribution Agreement between The Penn Mutual Life
Insurance Company and Horner, Townsend & Kent, Inc.
(d) Form of Broker-Dealer Selling Agreement (for broker-dealers
licensed to sell variable annuity contracts and/or variable
life insurance contracts under state insurance laws).
(e) Form of Broker-Dealer Selling Agreement (for broker-dealers
with affiliated corporations licensed to sell variable
annuity contracts and/or variable life insurance contracts
under state insurance laws).
EX.99 B 4. (a) Individual Variable and Fixed Anuity Contact (Form VAB-4D).
EX.99 B 4. (b) Rider - Guranteed Minimum Death Benefit - Rising Floor
(LGDBRF-98).
EX.99 B 4. (c) Rider - Guaranteed Minimum Death Benefit - Step up
(CGDB5U-98).
EX.99 B 9. Opinion of Counsel
EX.99 B 10. (a) Consent of Ernst & Young LLP.
EX.99 B 10. (b) Consent of PricewaterhouseCoopers LLP.
EX.99 B 10. (c) Consent of Morgan, Lewis & Bockius LLP.
<PAGE>
EXHIBIT 3(a)
SALES SUPPORT AGREEMENT
AGREEMENT made as of the 1st day of December, 1998, by and between THE PENN
MUTUAL LIFE INSURANCE COMPANY ("Penn Mutual"), a Pennsylvania Corporation, and
HORNOR, TOWNSEND & KENT, INC. ("HTK"), a Pennsylvania Corporation.
W I T N E S S E D:
WHEREAS, Penn Mutual is engaged in the business of issuing fixed and
variable annuity contracts to the public;
WHEREAS, HTK is licensed as a life insurance agent of Penn Mutual under
state insurance laws, is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association of Security
Dealers, Inc.; and
WHEREAS, Penn Mutual desires that HTK provide sales support services in
connection with the sale of fixed and variable annuity contracts by designated
life insurance agents of Penn Mutual, and HTK desires to provide such services;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. Training and Education
----------------------
1.1 HTK will provide training and educational services to designated
life insurance agents of Penn Mutual in connection with the sale of fixed and
variable annuity contract identified in Schedule I attached hereto. The fixed
and variable annuity contracts include individual contracts, group contracts and
certificates evidencing interest in group contracts, and are collectively
referred to herein as "contracts." Designated life insurance agents of Penn
Mutual are those life insurance agents who are designated by Penn Mutual and are
associated persons of HTK.
2. Compliance
----------
2.1 Penn Mutual will furnish HTK with the names of its life insurance
agents who indicate a desire to sell variable annuity contracts.
2.2 HTK, after investigation, will select the life insurance agents
of Penn Mutual who are to become qualified under federal and state securities
laws and rules of the NASD to engage in the sale of variable annuity contracts
and will use its best efforts to cause such life insurance agents to be
qualified. Life insurance agents so qualified will be "persons associated with"
HTK under the Securities Exchange Act of 1934 and the applicable rules of the
<PAGE>
NASD. Upon such qualification of a life insurance agent, the fact will be
certified in writing to Penn Mutual by HTK.
2.3 Prior to permitting a life insurance agent to sell variable
annuity contracts, Penn Mutual, HTK, the life insurance agent and the supervisor
of the life insurance agent designed by HTK will enter into a mutual
satisfactory agreement pursuant to which the life insurance agent will
acknowledge that he will be an associated person of HTK in connection with his
selling activities relating to variable annuity contract, that such activities
will be under the supervision and control of HTK and the supervisor designated
by HTK, and that the life insurance agent's right to continue to sell variable
annuity contracts is subject to his or her continued compliance with such
agreement and the rules and procedures established by HTK.
2.4 It is contemplated that other personnel of Penn Mutual will
become qualified as associated persons of HTK in order to carry out securities
activities with respect to the sale of variable annuity contracts. HTK will
train such personnel as requested by Penn Mutual, and will use its best efforts
to cause such personnel to become qualified as associated persons. Upon such
qualification, the fact will be certified in writing to Penn Mutual by HTK.
2.5 HTK will fully comply with the requirements of NASD and of the
Securities Exchange Act of 1934 and will supervise diligently the security
activities of life insurance agents of Penn Mutual who are associated persons of
HTK. Upon request by HTK, Penn Mutual will furnish or request any life
insurance agent who is an associated person to furnish (at Penn Mutual's or the
life insurance agent's expense) such appropriate records that may be necessary
to insure diligent supervision.
2.6 In the event any associated person fails or refuses to submit to
supervision by HTK in accordance with this Agreement, or otherwise fails to meet
the rules and standards imposed by HTK on the associated person, HTK shall
certify such fact to Penn Mutual and shall immediately notify the associated
person that he or she is no longer authorized to engage in securities activities
with respect to the sale of variable annuity contracts, and HTK and Penn Mutual
shall take whatever additional action may be necessary to terminate such
securities activities of the associated person.
2.7 HTK will assume full responsibility for the security activities
of its associated persons with respect to the sale of variable annuity contracts
and for initial and continued compliance by itself and its associated persons
with applicable federal and state security laws and rules of the NASD, and in
connection therewith may demand and shall be entitled to receive such assurances
from Penn Mutual as HTK deems appropriate to demonstrate compliance with the
Securities Act of 1933 and the Investment Company Act of 1940.
2.8 Compensation and reimbursement of expenses payable to life
insurance agents in connection with sales of variable annuity contracts shall be
paid by Penn Mutual under Penn Mutual's agency contracts and will not be an
expense of HTK. All purchase payments paid under variable annuity contracts by
contract owners shall be paid to Penn Mutual and will not be income to HTK. HTK
shall have no interest in any commissions or other remuneration payable to life
insurance agents by Penn Mutual or in any purchase payments paid under '
variable annuity contracts to Penn Mutual. For regulatory purposes of the NASD
and the Securities Exchange Act of 1934, commissions paid by Penn Mutual shall
be appropriately reflected in the books and records maintained by or on behalf
of HTK.
2
<PAGE>
2.9 At the request of HTK, some or all of the books and records
required to be maintained by a registered broker-dealer under the Securities
Exchange Act of 1934 in connection with the sale of variable annuity contracts
will be maintained by Penn Mutual as agent for HTK. 'Penn Mutual agrees that
such records are and shall remain the property of HTK, will be maintained and
preserved in conformity with the requirements of Rules 17a-3 and 17a-4 under the
Securities Exchange Act of 1934, to the extent that such requirements are
applicable to the variable annuity contracts, and will be subject to examination
by the Securities Exchange Commission in accordance with Section 17(a) of the
Securities Exchange Act of 1934.
2.1 A confirmation with respect to each purchase payment made under
variable annuity contracts will be sent to the holder of such contract in
accordance with Rule 15cl-4 under the Securities Exchange Act of 1934.
3. Compensation
------------
3.1 In payment for the services performed under this Agreement, Penn
Mutual shall compensate HTK as provided in Schedule I attached hereto.
3.2 The compensation for services provided under this Agreement shall
be paid within 15 days after the end of the calendar month in which purchase
payments are accepted by Penn Mutual. Should Penn Mutual for any reason return
a purchase payment, HTK shall repay Penn Mutual the total amount of any
compensation which Penn Mutual may have paid to HTK with respect to such
purchase payments.
4. General
-------
4.1 Schedule I attached to this Agreement shall be signed by the
parties to this Agreement and may be revised from time to time by agreement and
signature of the parties.
4.2 This Agreement shall continue in effect until terminated. Either
party may terminate the Agreement by giving the other party thirty days prior
written notice.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year written
above.
Attest THE PENN MUTUAL LIFE
INSURANCE COMPANY
_________________________ By______________________________
Richard F. Plush
Vice President, Products & Programs
Attest HORNOR, TOWNSEND & KENT, INC.
_________________________ By______________________________
Ronald C. Zimmerman
President and Chief Executive Officer
4
<PAGE>
Schedule I
To
Sales Support Agreement Dated December 1, 1998
INDIVIDUAL ANNUITY CONTRACTS:
- - -----------------------------
DIVERSIFIER II Individual Variable and Fixed Annuity Contracts - Flexible
Purchase Payments. Policy forms DI-283-F, DI-883-F, DI-1182-V, DI-783-V, DV-790
and DV-790-F and variations thereof as required under state insurance laws.
PENN MUTUAL OPTIMIZER Group Variable and Fixed Annuity Contract - Flexible
Purchase Payments. Policy form EB1555 and variations thereof as required under
state insurance laws.
TRADEWIND Individual Deferred Annuity Contract-Single Purchase Payment. Policy
SPDA-96 and variations thereof as required under state insurance laws.
PENNANT SELECT Individual Variable and Fixed Annuity Contract - Flexible
Purchase Payments. Policy form VAA-98 and variations thereof as required under
state insurance laws.
COMMANDER Individual Variable and Fixed Annuity Contract - Flexible Purchase
Payments. Policy form VAB-98 and variations thereof as required under state
insurance laws.
COMPENSATION:
- - -------------
With respect to Individual Annuity Contracts sold by designated Penn Mutual
agents/registered representative contracted through a Penn Mutual Career Agency
office (CAS), Penn Mutual shall compensate HTK as follows:
1. 0.37% of Diversifier II purchase payments. Amounts transferred from a Fixed
Annuity Contract to an Variable Contract or vice versa are not purchase
payments under the contract to which the amounts are transferred.
2. 0.37% of Penn Mutual Optimizer purchase payments.
3. 0.07% of Tradewind purchase payments.
4. 0.30% of Pennant Select purchase payments.
5. 0.10% of Commander purchase payments
<PAGE>
With respect to Individual Annuity Contracts sold by designated Penn Mutual
agents/registered representative contracted through a Penn Mutual Regional
office (IFN) or the DiCerbo Agency, PCP (DiCerbo), Penn Mutual shall compensate
HTK as follows:
1. 0.35% of Diversifier II purchase payments. Amounts transferred from a Fixed
Annuity Contract to an Variable Contract or vice versa are not purchase
payments under the contract to which the amounts are transferred.
2. 0.35% of Penn Mutual Optimizer purchase payments.
3. 0.20% of Pennant Select purchase payments.
4. 0.075% of Commander purchase payments
Agreed
Attest The Penn Mutual Life Insurance Company
___________________________ By: _______________________________
Richard F. Plush
Vice President Products & Programs
Attest Hornor, Townsend and Kent, Inc.
___________________________ By: _______________________________
Ronald C. Zimmerman
President and Chief Executive
Officer
Date: _______________
<PAGE>
EXHIBIT 3(b)
DISTRIBUTION AGREEMENT
BETWEEN
THE PENN MUTUAL LIFE INSURANCE COMPANY
(ISSUER)
AND
HORNOR, TOWNSEND & KENT, INC.
(DISTRIBUTOR)
INDIVIDUAL VARIABLE AND FIXED ANNUITY CONTRACTS
-----------------------------------------------
DATED AS OF DECEMBER 1, 1998
<PAGE>
AGREEMENT made as of the 1st day of December, 1998, between THE PENN MUTUAL
LIFE INSURANCE COMPANY ("Penn Mutual"), a Delaware corporation, and HORNOR,
TOWNSEND & KENT, INC. ("Distributor"), a Pennsylvania corporation.
WITNESSETH:
WHEREAS, Penn Mutual is engaged in the business of issuing variable annuity
and fixed contracts to the public;
WHEREAS, Distributor is licensed as a life insurance agent of Penn Mutual
under state insurance laws, is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc.; and
WHEREAS, Penn Mutual desires to appoint Distributor to distribute variable
and fixed annuity contracts and Distributor desires to accept such appointment;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. APPOINTMENT OF DISTRIBUTOR
--------------------------
1.1 Subject to the terms and conditions herein contained, Penn Mutual
appoints Distributor as a nonexclusive distributor of its variable and fixed
annuity contracts (herein referred to as the "Contracts").
2. DISTRIBUTION OF CONTRACTS THROUGH OTHER AGENT/BROKER-DEALERS
------------------------------------------------------------
2.1 Distributor shall use its best efforts to distribute the Contracts
through qualified agent/broker-dealers in states and jurisdictions in which
Distributor may legally do so. Distributor shall assist Penn Mutual in
selecting, providing information to, and monitoring the performance of, such
agent/broker-dealers. Distributor shall distribute the Contracts pursuant to
selling agreements among Penn Mutual, Distributor and qualified agent/broker-
dealers.
3. COMPLIANCE WITH LAWS AND REGULATIONS
------------------------------------
3.1 Distributor shall strictly comply with all applicable insurance laws
and regulations in distributing Contracts and shall take all reasonable measures
to assure that its officers, directors, employees and other individuals acting
on its behalf comply with the applicable insurance laws and regulations.
1
<PAGE>
3.2 Distributor shall strictly comply with all applicable securities laws
and regulations and with the rules of the National Association of Securities
Dealers, Inc. in distributing Contracts that are deemed to be securities within
the meaning of applicable securities laws, and shall take all reasonable
measures to assure that its officers, directors, employees and other individuals
acting on its behalf comply with the applicable securities laws, regulations and
rules.
3.3 Penn Mutual shall furnish Distributor with copies of the current
prospectus filed with the Securities and Exchange Commission (and filed with any
state securities regulatory office, if required) and required to be used in
distributing the Contracts.
3.4 Distributor shall not print, publish, distribute or use any
advertisement, sales literature or other writing relating to the Contracts
unless such advertisement, sales literature or other writing shall have first
been approved in writing by Penn Mutual.
4. MISCELLANEOUS
-------------
4.1 Distributor shall cooperate with Penn Mutual in investigating and
settling all claims which may be made against Penn Mutual involving the
distribution of Contracts. Distributor shall promptly forward to Penn Mutual any
notice of claim or relevant information concerning a potential claim which may
come into its possession, and shall promptly forward to Penn Mutual any legal
papers served on Distributor involving such claim.
4.2 Distributor shall indemnify and hold harmless Penn Mutual and each
director and officer of Penn Mutual against any losses, damages, or liabilities,
insofar as such losses, damages, and liabilities arise out of or are based upon
any unauthorized act of Distributor in distributing the Contracts or the failure
of Distributor and its officers, employees and representatives to comply with
the provisions of this Agreement.
4.3 Penn Mutual shall indemnify and hold harmless Distributor and each
director and officer against any losses, damages or liabilities, to which
Distributor or such director or officer becomes subject, under the Securities
Act of 1933 or otherwise, insofar as such losses, damages and liabilities arise
out of or are based upon any inaccurate or inadequate statement in the
Registration Statement for the Contracts.
4.4 This Agreement may be terminated, without cause, by either party upon
thirty days prior written notice. This Agreement may be terminated, for cause,
by either party immediately.
4.5 This Agreement shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year written
above.
THE PENN MUTUAL LIFE INSURANCE COMPANY
Attest
_____________________________ By_______________________________________
ASSOCIATE SECRETARY Richard F. Plush
Vice President, Products and Service
HORNOR TOWNSEND & KENT, INC.
Attest
_____________________________ By_______________________________________
Rohn C. Zimmerman
President and Chief Executive Officer
3
<PAGE>
Exhibit 3(d)
National Accounts - Broker-Dealers Licensed
to Sell Variable Annuities and/or Variable
Life Insurance under Federal Securities and
State Insurance Laws
BROKER-DEALER SELLING AGREEMENT
THE PENN MUTUAL LIFE INSURANCE COMPANY (hereinafter called "Penn
Mutual") and Hornor, Townsend & Kent, Inc. (hereinafter called
"Distributor") enter into this Agreement with __________________
_______________________ (hereinafter called "Broker-Dealer") on
this date ______________, 19_______ agree as follows:
W I T N E S S E T H :
WHEREAS, Penn Mutual is in the business of issuing annuity and
life insurance contracts to the public;
WHEREAS, Distributor is a wholly owned subsidiary of Penn Mutual,
is registered as a broker-dealer under the Securities Exchange
Act of 1934, is a member of the National Association of
Securities Dealers, Inc., and is assisting Penn Mutual in the
distribution of such contracts;
WHEREAS, Broker-Dealer is properly licensed to sell variable
annuity and variable life insurance contracts under the insurance
laws of the state(s) in which Broker-Dealer will act under this
agreement, is registered as a Broker-Dealer under the Securities
Exchange Act of 1934 and is a member of the National Association
of Securities Dealer, Inc.;
NOW THEREFORE, in consideration of these premises and mutual
covenants herein contained, the parties agree as follows:
1. Appointment of 1.1 Subject to the terms and conditions of this
agreement, Penn Mutual and Distributor appoint Broker-
Broker-Dealer Dealer as a non-exclusive Broker-Dealer for the
solicitation of applications for, and the servicing of,
annuity and/or variable life insurance contracts
identified in the schedule(s) attached hereto, and
Broker-Dealer accepts such appointment. The annuity
and/or variable life insurance contracts identified in
the schedules(s) are referred to herein as "Contracts".
1.2 Broker-Dealer and its representatives shall be
independent contractors as to Penn Mutual and
Distributor and, subject to the terms and conditions of
this agreement, free to exercise their own judgment as
to the time, place and means of performing all acts
hereunder. Nothing in this agreement is intended to
create a relationship of employer and employee as
between Penn Mutual or Distributor, on the one hand, and
representatives of Broker-Dealer on the other.
2. Sale of Contracts. 2.1 Broker-Dealer shall use its best efforts to solicit
applications for Contracts from persons for whom the
Contracts are suitable,and to service such Contracts in
accordance with the terms and conditions of this
agreement.
2.2 All applications for Contracts shall be made on
application forms authorized by Penn Mutual. Broker-
Dealer shall diligently review all such applications for
accuracy and completeness and shall take all reasonable
and appropriate measures to assure that applications
submitted to Penn Mutual are accurate and complete.
2.3 All payments collected by Broker-Dealer for Penn
Mutual shall be received in trust and shall be remitted
immediately together with all required documentation, to
Penn Mutual at the address indicated on the application
or to such other address as Penn Mutual may specify in
writing. All checks or money orders for payment under
Contracts shall be drawn to the order of Penn Mutual.
<PAGE>
2.4 All applications are subject to acceptance or
rejection by Penn Mutual in its sole discretion. Penn
Mutual may at any time in its sole discretion
discontinue issuing the Contracts or change the form and
content of new Contracts to be issued.
2.5 In soliciting applications for Contracts, Broker-
Dealer may not accept risks of any kind for or on behalf
of Penn Mutual and may not bind Penn Mutual by promise
or agreement or alter any Contract in any way.
3. Compensation. 3.1 In consideration of and as full compensation for the
services performed in accordance with this agreement,
Broker-Dealer will receive compensation from Penn Mutual
as set forth in the schedule(s) attached to this
agreement.
3.2. Should Penn Mutual for any reason return any
payment made under a Contract to the payor, Broker-
Dealer shall repay Penn Mutual the total amount of any
compensation which Penn Mutual may have paid with
respect to such payment.
3.3 Broker-Dealer may not withhold or deduct any part of
any premium or other payment due Penn Mutual for payment
of compensation under this agreement or for any other
purpose. The right of Broker-Dealer to receive any
compensation under this agreement shall at all times be
subordinate to the right of Penn Mutual or Distributor
to offset or apply such compensation against any
indebtedness of Broker-Dealer to Penn Mutual or
Distributor.
3.4 Penn Mutual may, in its sole discretion, change the
amount, terms and conditions, of compensation with
respect to payment received by Penn Mutual under
Contracts.
3.5 Penn Mutual shall not be obligated to pay any
compensation which would be in violation of applicable
laws of any jurisdiction, anything in this agreement to
the contrary notwithstanding.
4. Compliance With 4.1 Broker-Dealer and its representative shall not
solicit applications for Contracts in any state or
Insurance Laws jurisdiction unless they are duly licensed and qualified
to do so under the insurance laws and regulations of the
and Regulations. state or jurisdiction and unless Penn Mutual has
notified Broker-Dealer that the Contracts have been
approved for sale in the state or jurisdiction.
4.2 Penn Mutual may at any time, in its sole discretion,
withhold or withdraw authority of any representative of
Broker-Dealer to solicit applications for the Contracts.
Upon Penn Mutual giving written notice to Broker-Dealer
of its withdrawal of authority of a representative to
solicit applications, Broker-Dealer shall immediately
cause any such representative to cease all such
solicitations.
4.3 Broker-Dealer shall notify Penn Mutual in writing
immediately of the termination of the employment or
affiliation of an employee or representative who is an
appointed agent of Penn Mutual pursuant to this
agreement.
4.4 Broker-Dealer shall keep accurate and complete books
and records of all transactions relating to the
solicitation of applications and for servicing
Contracts. The books and records shall be made available
to Penn Mutual for inspection upon reasonable request.
4.5 If Broker-Dealer solicits applications for variable
life insurance contracts under this agreement, Broker-
Dealer and its representative shall observe the
Standards of Suitability for the Sale of Variable Life
Insurance set forth on the reverse side of the schedule
attached hereto identifying such contacts.
4.6 Broker-Dealer and its representatives shall comply
with all applicable insurance laws and regulations in
soliciting applications for and servicing Contracts.
Broker-Dealer shall be fully responsible for all acts of
its representatives in soliciting applications for and
servicing Contracts.
5. Compliance With 5.1 Broker-Dealer shall not solicit applications for
variable annuity or variable life insurance contracts
Securities Laws. unless Penn Mutual or Distributor has notified Broker-
Dealer that a registration statement required under the
Securities Act of 1933 is effective as to such contracts
and unless Broker-Dealer is duly registered as a broker-
dealer under the Securities Exchange Act of 1934, is a
member in good standing of the National Association of
Securities Dealers, Inc. and is duly licensed under any
applicable
<PAGE>
securities laws of the state or jurisdiction in which
Broker-Dealer engages in such activity.
5.2 Penn Mutual or Distributor shall furnish Broker-
Dealer with copies of the current prospectuses (and
current supplements thereto) required to be used in
soliciting application for variable annuity and/or
variable life insurance contracts.
5.3 Broker-Dealer and its representatives shall comply
with all applicable securities laws and regulations and
with the rules of the National Association of
Securities Dealers, Inc. in soliciting applications for
and servicing variable annuity and/or variable life
insurance contracts. Broker-Dealer shall be fully
responsible for all acts of its representatives in
soliciting applications for and servicing variable
annuity and/or variable life insurance contracts.
6. Advertisements, 6.1 Broker-Dealer shall not print, publish, distribute
or use any advertisements, sales literature or other
Sales Literature writing relating to the Contracts unless such
advertisements, sales literature or other writing shall
have first been approved in writing by Penn Mutual and
Distributor.
6.2 Broker-Dealer shall exercise care not to
misrepresent the Contracts or Penn Mutual and shall
make no oral or written representation which is
inconsistent with the terms of the Contracts or with
the information in any prospectus or sales literature
furnished by Penn Mutual or it misleading in any way.
7. Indemnification. 7.1 Broker-Dealer shall indemnify or hold harmless Penn
Mutual and Distributor and each director and officer of
Penn Mutual and Distributor against any losses, claims,
damages or liabilities, including but not limited to
reasonable attorneys' fees and court cost to which Penn
Mutual or Distributor and any such director or officer
may become subject, under the Securities Act of 1933 or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out
of or are based upon any unauthorized use of sales
materials or any verbal or written misrepresentations
or any unlawful sales practices, or the failure of
Broker-Dealer, its officers, employees or
representative to comply with the provisions of this
agreement or the willful misfeasance, bad faith,
negligence or misconduct of Broker-Dealer, its
officers, employees, or representatives in the
solicitation of applications for and the servicing of
Contracts.
7.2 Penn Mutual and Distributor shall indemnify and
hold harmless Broker-Dealer and each officer or
director of Broker-Dealer against any losses, claims,
damages or liabilities, joint or several, including but
not limited to reasonable attorneys' fees and court
cost, to which Broker-Dealer or such officer or
director becomes subject, under the Securities Act of
1933 or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact, required
to be stated therein or necessary to make the
statements therein not misleading, contained in any
registration statement or any post-effective amendment
or supplement to the prospectus, or in any sales
material written by Penn Mutual or Distributor.
7.3 In the event Penn Mutual suffers a loss resulting
from Broker-Dealer activities, Broker-Dealer hereby
assigns any proceeds received under its fidelity bond
to Penn Mutual to the extent of such losses. If there
is any deficiency amount, whether due to a deductible
or otherwise, Broker-Dealer shall promptly pay Penn
Mutual such amount on demand and Broker-Dealer shall
indemnify and hold harmless Penn Mutual from any such
deficiency and from the costs of collection thereof
(including reasonable attorneys' fees).
8. Complaints, 8.1 Broker-Dealer shall promptly notify Penn Mutual and
Distributor of any allegation that Broker-Dealer or any
Investigations of its representatives violated any law, regulation or
rule in soliciting applications for or servicing
& Proceedings. Contracts,and shall provide Penn Mutual with full
details, including copies of all legal documents
pertaining thereto.
8.2 Broker-Dealer shall cooperate fully with Penn
Mutual and Distributor in any regulatory investigation
or proceeding or judicial proceeding involving the
solicitation of application for and servicing Contracts
by Broker-Dealer or any of its representatives.
<PAGE>
9. Nonwaiver. 9.1 Forbearance by Penn Mutual or Distributor to enforce
any rights under this agreement shall not be construed
as a waiver of any of the terms and conditions of this
agreement and the same shall remain in full force and
effect. No waiver of any provision of this agreement
shall be deemed to be a waiver of any other provision,
whether or not similar, nor shall any waiver of a
provision of this agreement be deemed to constitute a
continuing waiver.
10. Amendment. 10.1 Penn Mutual reserves the right to amend this
Agreement at any time. Broker-Dealer's submission of an
application for a Contract after notice of any such
amendment shall constitute agreement of Broker-Dealer to
such amendment.
11. Termination and 11.1 This agreement may be terminated by any party, with
or without cause, upon giving written notices to the
Assignment. other parties. This agreement shall automatically
terminate if Broker-Dealer is adjudicated as bankrupt or
avails itself of any insolvency act or if a permanent
receiver or trustee in bankruptcy is appointed for the
property of Broker-Dealer. Upon termination of this
agreement, with or without cause, all authorizations,
rights and obligations shall cease, except the rights
and obligations set forth in sections 7 and 8 of this
agreement and the obligations to settle account
hereunder, including the immediate forwarding of all
payments received by Broker-Dealer under Contract to
Penn Mutual, and except as may be expressly stated
otherwise in this agreement.
11.2 This agreement may not be assigned without the
written consent of all parties.
12. Governing Law. 12.1 This agreement shall be construed in accordance
with and governed by the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated
below on the day and year first written.
___________________________________________________
___________________
Name of Broker-Dealer
By:
___________________________________________________
__________________
Signature
___________________________________________________
________________
Name
___________________________________________________
________________
<PAGE>
Title
THE PENN MUTUAL LIFE INSURANCE COMPANY
By:
___________________________________________________
_______________
Signature
___________________________________________________
________________
Name
___________________________________________________
________________
Title
HORNOR, TOWNSEND & KENT, INC.
By:
___________________________________________________
Signature
___________________________________________________
Name
___________________________________________________
Title
<PAGE>
SCHEDULE A TO THE FOLLOWING SELLING AGREEMENTS:
BROKER-DEALER SELLING AGREEMENT
BROKER-DEALER SELLING AGREEMENT - FORM A-2
CORPORATE INSURANCE AGENT
SELLING AGREEMENT - FORM A-1
(EDITION OF OCTOBER, 1997)
Subject to the conditions and limitations of the
Broker's Selling Agreement, Broker is authorized to
solicit applications for the following contracts
issued by Penn Mutual (hereinafter referred to as
"contracts"), prior to termination of Broker's
Selling Agreement. No fee shall be paid with respect
to a purchase payment made after the Broker's Selling
Agreement has been terminated. Amounts transferred
among contracts are not purchase payments within the
meaning of the Broker's Selling Agreement or this
Schedule. This Schedule replaces and supersedes any
and all prior Schedules attached to the Broker's
Selling Agreement.
1. INDIVIDUAL FIXED ANNUITY CONTRACTS - DIVERSIFIER
II Subject to the conditions and limitations of the
Broker's Selling Agreement and this Schedule, Broker
shall be paid a fee for placing or servicing a
Diversifier II Individual Variable and Fixed Annuity
Contract equal to 6% of any purchase payment made
under such contract and a fee for placing and
servicing a Diversifier II Fixed-Only Annuity
Contract equal to 5% of any purchase payment under
such contract. If the Annuitant or Contractowner
(other than a trustee of a qualified plan) is over
age 81 on the date the Diversifier II contract is
issued, the fee shall be limited as follows: 80% of
such fee if the Annuitant or contractowner is age 82;
60% of such fee if the Annuitant or contractowner is
age 83; 40% of such fee if the Annuitant or
contractowner is age 84; 20% of such fee if the
Annuitant or contractowner is age 85.
2. INDIVIDUAL FIXED ANNUITY CONTRACTS - TRADEWIND
Subject to the conditions and limitations of the
Broker's Selling Agreement and this Schedule, Broker
shall be paid a fee for placing or servicing
TradeWind Annuity (TM) Contract equal to 6% of any
purchase payment under such contact. If the Annuitant
or Contractowner (other than a trustee of a qualified
plan) is over age 81 on the date the TradeWind (TM)
contract is issued, the fee shall be limited as
follows: 80% of such fee if the Annuitant or
contractowner is age 82; 60% of such fee if
<PAGE>
the Annuitant or contractowner is age 83; 40% of such
fee if the Annuitant or contractowner is age 84; 20%
of such fee if the Annuitant or contractowner is age
85.
3. SINGLE PREMIUM IMMEDIATE ANNUITIES Subject to the
conditions and limitations of the Broker's Selling
Agreement and this Schedule, Broker shall be paid a
fee for placing a Single Premium Immediate Annuity
equal to 4% of the single premium received under such
contract.
4. GROUP COVERAGES Subject to the conditions and
limitations of the Broker's Selling Agreement and
this Schedule, Broker shall be paid a fee for
placing, or servicing group annuity policies,
specifically, a group annuity contract of Penn Mutual
on Contract Forms D1-1088 (N.Y.), D1-1088A (N.Y.) and
any other policies in the D1-1088 series, (a contract
on any such form being hereinafter called a
"Diversifier I Flex Group Annuity"), placed in force
through Broker under this agreement in amounts
equivalent to a percentage of such premiums. Such
percentage or table of percentages shall be as agreed
in amounts equivalent to a percentage of such
premiums. Said written documentation of Broker's fee
shall be submitted to Penn Mutual with the
Diversifier I Flex Group Annuity application on a
form signed by the plan trustee and agreed to by the
Penn Mutual home office. No compensation shall be
payable pursuant to this agreement which would be in
excess of the limits of Section 4228 of the Insurance
Law of the State of New York for the sale of
insurance products.
5. VARIABLE ESTATEMAX
During the period the Broker-Dealer Selling Agreement
is in effect, and subject to and in accordance with
the provisions thereof, Broker-Dealer shall be
compensated as follows with respect to a policy of
Penn Mutual know as the Last Survivor Flexible
Premium Adjustable Variable Life Insurance Policy
(Policy Forms VALJ-94(S) and VALJ-94(U)), (a policy
on any such form being hereinafter called a "Variable
EstateMax Policy"), that is placed in force under
this agreement. With respect to each Variable
EstateMax Policy, Broker-Dealer may elect to receives
fees under Option 1 or 2. If no option is selected
the default will be Option 1. Once each policy is in
force, no changes will be permitted to the choice of
compensation.
A. OPTION 1.
---------
(a) Basic First Year Compensation
-----------------------------
A fee for the first policy year of 50% of A plus 2.0% of B where A is
equal to the lesser of:
(i) the premium paid in year 1
(ii) the target premium for the policy, or
(iii) the lesser of the premium scheduled to be paid in year 1 or 2,
and B is equal to the excess of the premium paid in year 1 over A.
Target premiums are maintained on file in Penn Mutual's Home Office.
<PAGE>
(b) Renewal Compensation
--------------------
A fee for the second through fifteenth years equal to 2.0% of the
premium paid for the policy year in question, and a fee for the
sixteenth and later policy years equal to 1.2% of the premium paid for
the policy year in question.
B. OPTION 2
--------
(a) Basic First Year Compensation
-----------------------------
Basic First Year Compensation is the same as in Option 1.
(b) Renewal Compensation
--------------------
Additionally, for the second through tenth policy years equal to 1.0% of
the premium paid for the policy year in question, and no fee for the
eleventh and later policy years. Additionally, for the second through
tenth policy years, an fee equal to 0.008333% of the policy value on
each monthly anniversary. Monthly anniversary is defined as the day in
each calendar month which is the same day of the month as the Policy
Date. For the eleventh and later policy years, fee equal to 0.020833% of
the policy value on each monthly anniversary. Policy value is as defined
in the policy.
C. EXPENSE ALLOWANCE
-----------------
For each calendar month while Broker-Dealer Selling Agreement is in
effect and before its termination, Broker-Dealer shall be entitled to the
expense from Penn Mutual described below, provided that the amount payable
as an expense allowance shall be limited to the total of reasonable
business expenses incurred by Broker-Dealer that are directly related to
the sale or service of Penn Mutual policies, and provided further that no
such allowance shall be payable to Broker-Dealer that would cause the total
of such allowances to exceed the limits of Section 4228 of the Insurance
Law of the State of New York. No payment pursuant to this agreement will be
used by Broker-Dealer to effect compensation for the sale of insurance in
excess of the limits of said Section 4228. Such allowance shall be 60% of
an amount equal to the Basic First Year Compensation during the calendar
month for which this allowance is being calculated.
D. COMPENSATION CHARGEBACKS
------------------------
A percentage of total compensation (including expense allowance, if any)
will be charged back for lapses, surrenders or if a policy is unwound
during the first policy year and during the 12 policy months following an
increase. The percentage is shown below and will vary depending on the
policy month of lapse/surrender/unwind.
Month of Chargeback
Lapse/Surrender/ Percentage
Unwind
------
0-6 100%
7-12 50%
6. CORNERSTONE VARIABLE UNIVERSAL LIFE
During the period the Broker-Dealer Selling Agreement is in effect, and subject
to and in accordance with the provisions thereof, Broker-Dealer shall be
compensated as follows with respect to a policy of Penn Mutual know as the
Flexible Premium Adjustable Variable Life Insurance Policy (Policy Forms VU-
90(S) and VU-90(U)), (a policy on any such form being hereinafter called a
"Cornerstone VUL Policy"), that is placed in force through Agent under this
agreement:
A. OPTION 1
--------
(a) Basic First Year Compensation
-----------------------------
A fee for the first policy year of 50% of A plus 3.75% of B where
A is equal to the lesser of:
(i) the premium paid in year 1
(ii) the target premium for the policy, or
(iii) the lesser of the premium scheduled to be paid in year
1 or 2, and B is equal to the excess of the premium paid in
year 1 over A. Target premiums are maintained on file in Penn
Mutual's Home Office.
<PAGE>
If the insured is over attained age 75 when the policy is issued, the
fee for the first policy year will be limited to 35% of A plus 3.75%
of B.
(b) Renewal Compensation
--------------------
A fee for the second and third policy years of 4% (4.0% where the
insured has an attained age greater than 75) of an amount equal to
premium paid for the policy year in question, a fee for the fourth
through fifteenth years, equal to 4.0% of the premium paid for the
policy year in question, and a fee for the sixteenth and later policy
years equal to 1.2% of the premium paid for the policy year in question.
(c) Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of insurance, a fee
of 46% (31% where the insured has an attained age greater than 75 of C
where: C is equal to the lesser of:
(i) the premium paid in the twelve months following the
effective date of the increase,
(ii) the target premium for the amount of the increase, or
(iii) the increase in the scheduled premium.
B. OPTION 2
--------
(a) Basic First Year Compensation
-----------------------------
Basic First Year Compensation is the same as in Option 1.
(b) Renewal Compensation
--------------------
A fee for the second through tenth policy years equal to 3.0% of the
premium paid for the policy year in question, and no fee for the
eleventh and later policy years. Additionally, for the second through
tenth policy years, an fee equal to 0.008333% of the policy value on
each monthly anniversary. Monthly anniversary is defined as the day in
each calendar month which is the same day of the month as the Policy
Date. For the eleventh and later policy years, fee equal to 0.020833% of
the policy value on each monthly anniversary. Policy value is as defined
in the policy.
(c) Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of insurance, a fee
of 47% (32% where the insured has an attained age greater than 75) of C
where:
C is equal to the lesser of:
(i) the premium paid in the twelve months following the effective
date of the increase
(ii) the target premium for the amount of the increase, or
(iii) the increase in the scheduled premium.
C. EXPENSE ALLOWANCE
-----------------
For each calendar month while Broker-Dealer Selling Agreement is en effect
and before its termination, Broker-Dealer shall be entitled to the expense
from Penn Mutual described below, provided that the amount payable as an
expense allowance shall be limited to the total of reasonable business
expenses incurred by Broker-Dealer that are directly related to the sale or
service of Penn Mutual policies, and provided further that no such
allowance shall be payable to Broker-Dealer that would cause the total of
such allowances to exceed the limits of Section 4228 of the Insurance Law
of the State of New York. No payment pursuant to this agreement will be
used by Broker-Dealer to effect compensation for the sale of insurance in
excess of the limits of said Section 4228. Such allowance shall be 60% of
an amount equal to the Basic First Year Compensation during the calendar
month for which this allowance is being calculated.
D. COMPENSATION CHARGEBACKS
------------------------
A percentage of total compensation (including expense allowance, if any)
will be charged back for lapses, surrenders or if a policy is unwound
during the first policy year and during the 12 policy months following an
increase. The percentage is shown below and will vary depending on the
policy month of lapse/surrender/unwind.
Month of Chargeback
Lapse/Surrender/ Percentage
Unwind
------
0-3 100%
<PAGE>
4-6 75%
7-9 50%
10-12 25%
7. CORNERSTONE VARIABLE UNIVERSAL LIFE II
During the period the Broker-Dealer Selling Agreement is in effect, and subject
to and in accordance with the provisions thereof, Broker-Dealer shall be paid a
fee for soliciting applications and servicing a policy of Penn Mutual known as
the Flexible Premium Adjustable Variable Universal Life Insurance Policy (Policy
Forms VU-94(S) and VU-94(U)), (a policy on any such form being hereinafter
called a "Cornerstone VUL II Policy"), that is placed in force before
termination of this agreement. With respect to each Cornerstone VUL II Policy,
Broker-Dealer may elect to receives fees under Option 1 or 2. If no option is
selected the default will be Option 1. Once each policy is in force, no changes
will be permitted to the choice of compensation.
A. OPTION 1
--------
(a) Basic First Year Compensation
-----------------------------
A fee for the first policy year equal to 50% of A plus 3.3% of B where
A is equal to the lesser of:
(i) the premium paid in year 1
(ii) the target premium for the policy, or
(iii) the lesser of the premium scheduled to be paid in year 1
or 2, and
B is equal to the excess of the premium paid in year 1 over A. Target
premiums are maintained on file in Penn Mutual's Home Office. If the
insured is over attained age 75 when the policy is issued, the fee for
the first policy year will be limited to 35% of A plus 3.3% of B.
(b) Renewal Compensation
--------------------
A fee for the second through fifteenth years equal to 3.0% of the
premium paid for the policy year in question, and a fee for the
sixteenth and later policy years equal to 1.2% of the premium paid for
the policy year in question.
(c) Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of insurance, a fee
of 47% (32% where the insured has an attained age greater than 75) of C
where:
C is equal to the lesser of:
(i) the premium paid in the twelve months following the effective
date of the increase
(ii) the target premium for the amount of the increase, or
(iii) the increase in the scheduled premium.
B. OPTION 2
--------
(a) Basic First Year Compensation
-----------------------------
Basic First Year Compensation is the same as in Option 1.
(b) Renewal Compensation
--------------------
A fee for the second through tenth policy years equal to
2.0% of the premium paid for the policy year in question, and no fee for
the eleventh and later policy years. Additionally, for the second
through tenth policy years, an fee equal to 0.008333% of the policy
value on each monthly anniversary. Monthly anniversary is defined as the
day in each calendar month which is the same day of the month as the
Policy Date. For the eleventh and later policy years, fee equal to
0.020833% of the policy value on each monthly anniversary. Policy value
is as defined in the policy.
(c) Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of insurance, a fee
of 47% (32% where the insured has an attained age greater than 75) of C
where:
C is equal to the lesser of:
(i) the premium paid in the twelve months following the effective
date of the increase
(ii) the target premium for the amount of the increase, or
(iii) the increase in the scheduled premium.
C. EXPENSE ALLOWANCE
-----------------
<PAGE>
For each calendar month while Broker-Dealer Selling Agreement is
in effect and before its termination, Broker-Dealer shall be
entitled to the expense from Penn Mutual described below, provided
that the amount payable as an expense allowance shall be limited to
the total of reasonable business expenses incurred by Broker-Dealer
that are directly related to the sale or service of Penn Mutual
policies, and provided further that no such allowance shall be
payable to Broker-Dealer that would cause the total of such
allowances to exceed the limits of Section 42289 of the Insurance
Law of the State of New York. No payment pursuant to this agreement
will be used by Broker-Dealer to effect compensation for the sale of
insurance in excess of the limits of said Section 4228. Such
allowance shall be 60% of an amount equal to the Basic First Year
Compensation during the calendar month for which this allowance is
being calculated.
D. COMPENSATION CHARGEBACKS
------------------------
A percentage of total compensation (including expense allowance, if
any) will be charged back for lapses, surrenders or if a policy is
unwound during the first policy year and during the 12 policy months
following an increase. The percentage is shown below and will vary
depending on the policy month of lapse/surrender/unwind.
Month of Lapse/ Chargeback
Surrender/ Unwind Percentage
----------------- ----------
0-3 100%
4-6 75%
7-9 50%
10-12 25%
8. REPLACEMENT OF PENN MUTUAL POLICES
It is agreed that the compensation otherwise payable to Broker-Dealer for any
policy shall be reduced in accordance with the replacement control program in
effect at the time such policy is placed in force. It is anticipated that such
replacement control program may be changed form time to time as to policies in
force after such change.
9. POLICY DELIVERY RECEIPT
It is agreed that the Broker-Dealer shall be responsible for obtaining a signed
policy delivery receipt in accordance with Company policy.
<PAGE>
The Penn Mutual Life Insurance Company
Philadelphia, PA 19172
Independent Broker/Dealers
SCHEDULE A TO THE FOLLOWING SELLING AGREEMENTS:
BROKER-DEALER SELLING AGREEMENT
BROKER-DEALER SELLING AGREEMENT - FORM A-2
CORPORATE INSURANCE AGENT SELLING AGREEMENT - FORM A-1
(EDITION OF NOVEMBER, 1998)
Subject to the conditions and limitations of the Broker's Selling Agreement,
Broker is authorized to solicit applications for the following contracts issued
by Penn Mutual (hereinafter referred to as "contracts"), prior to termination of
Broker's Selling Agreement. No fee shall be paid with respect to a purchase
payment made after the Broker's Selling Agreement has been terminated. Amounts
transferred among contracts are not purchase payments within the meaning of the
Broker's Selling Agreement or this Schedule. This Schedule replaces and
supersedes any and all prior Schedules attached to the Broker's Selling
Agreement.
1. INDIVIDUAL FIXED ANNUITY CONTRACTS - DIVERSIFIER II
Subject to the conditions and limitations of the Broker's Selling Agreement and
this Schedule, Broker shall be paid a fee for placing or servicing a Diversifier
II Individual Variable and Fixed Annuity Contract equal to 6% of any purchase
payment made under such contract and a fee for placing and servicing a
Diversifier II Fixed-Only Annuity Contract equal to 5% of any purchase payment
under such contract. If the Annuitant or Contractowner (other than a trustee of
a qualified plan) is over age 81 on the date the Diversifier II contract is
issued, the fee shall be limited as follows: 80% of such fee if the Annuitant or
contractowner is age 82; 60% of such fee if the Annuitant or contractowner is
age 83; 40% of such fee if the Annuitant or contractowner is age 84; 20% of such
fee if the Annuitant or contractowner is age 85.
2. INDIVIDUAL FIXED ANNUITY CONTRACTS - TRADEWIND
Subject to the conditions and limitations of the Broker's Selling Agreement and
this Schedule, Broker shall be paid a fee for placing or servicing TradeWind
Annuity Contract equal to 6% of any purchase payment under such contact. If the
Annuitant or Contractowner (other than a trustee of a qualified plan) is over
age 81 on the date the TradeWind contract is issued, the fee shall be limited as
follows: 80% of such fee if the Annuitant or contractowner is age 82; 60% of
such fee if the Annuitant or contractowner is age 83; 40% of such fee if the
Annuitant or contractowner is age 84; 20% of such fee if the Annuitant or
contractowner is age 85.
3. SINGLE PREMIUM IMMEDIATE ANNUITIES
Subject to the conditions and limitations of the Broker's Selling Agreement and
this Schedule, Broker shall be paid a fee for placing a Single Premium Immediate
Annuity equal to 4% of the single premium received under such contract.
4. GROUP COVERAGES
Subject to the conditions and limitations of the Broker's Selling Agreement and
this Schedule, Broker shall be paid a fee for placing, or servicing group
annuity policies, specifically, a group annuity contract of Penn Mutual on
Contract Forms D1-1088 (N.Y.), D1-1088A (N.Y.) and any other policies in the D1-
1088 series, (a contract on any such form being hereinafter called a
"Diversifier I Flex Group Annuity"), placed in force through Broker under this
agreement in amounts equivalent to a percentage of such premiums. Such
percentage or table of percentages shall be as agreed in amounts equivalent to a
percentage of such premiums. Said written documentation of Broker's fee shall be
1
<PAGE>
submitted to Penn Mutual with the Diversifier I Flex Group Annuity application
on a form signed by the plan trustee and agreed to by the Penn Mutual home
office. No compensation shall be payable pursuant to this agreement which would
be in excess of the limits of Section 4228 of the Insurance Law of the State of
New York for the sale of insurance products.
<PAGE>
5. VARIABLE ESTATEMAX
During the period the Broker-Dealer Selling Agreement is in effect,
and subject to and in accordance with the provisions thereof, Broker-
Dealer shall be compensated as follows with respect to a policy of
Penn Mutual know as the Last Survivor Flexible Premium Adjustable
Variable Life Insurance Policy (Policy Forms VALJ-94(S) and VALJ-
94(U)), (a policy on any such form being hereinafter called a
"Variable EstateMax Policy"), that is placed in force under this
agreement. With respect to each Variable EstateMax Policy, Broker-
Dealer may elect to receives fees under Option 1 or 2. If no option is
selected the default will be Option 1. Once each policy is in force,
no changes will be permitted to the choice of compensation.
A. OPTION 1.
---------
(a) Basic First Year Compensation
-----------------------------
A fee for the first policy year of 50% of A plus 2.0% of B
where A is equal to the lesser of:
(i) the premium paid in year 1
(ii) the target premium for the policy, or
(iii) the lesser of the premium scheduled to be paid in year 1
or 2, and
B is equal to the excess of the premium paid in year 1 over A.
Target premiums are maintained on file in Penn Mutual's Home
Office.
(b) Renewal Compensation
--------------------
A fee for the second through fifteenth years equal to 2.0% of the
premium paid for the policy year in question, and a fee for the
sixteenth and later policy years equal to 1.2% of the premium
paid for the policy year in question.
B. OPTION 2
--------
(a) Basic First Year Compensation
------------------------------
Basic First Year Compensation is the same as in Option 1.
(b) Renewal Compensation
--------------------
Additionally, for the second through tenth policy years equal to
1.0% of the premium paid for the policy year in question, and no
fee for the eleventh and later policy years. Additionally, for
the second through tenth policy years, an fee equal to 0.08333%
of the policy value on
3
<PAGE>
each monthly anniversary. Monthly anniversary is defined as the
day in each calendar month which is the same day of the month as
the Policy Date. For the eleventh and later policy years, fee
equal to 0.020833% of the policy value on each monthly
anniversary. Policy value is as defined in the policy.
C. EXPENSE ALLOWANCE
-----------------
For each calendar month while Broker-Dealer Selling
Agreement is in effect and before its termination, Broker-Dealer
shall be entitled to the expense from Penn Mutual described
below, provided that the amount payable as an expense allowance
shall be limited to the total of reasonable business expenses
incurred by Broker-Dealer that are directly related to the sale
or service of Penn Mutual policies, and provided further that no
such allowance shall be payable to Broker-Dealer that would cause
the total of such allowances to exceed the limits of Section 4228
of the Insurance Law of the State of New York. No payment
pursuant to this agreement will be used by Broker-Dealer to
effect compensation for the sale of insurance in excess of the
limits of said Section 4228. Such allowance shall be 60% of an
amount equal to the Basic First Year Compensation during the
calendar month for which this allowance is being calculated.
D. COMPENSATION CHARGEBACKS
------------------------
A percentage of total compensation (including expense
allowance, if any) will be charged back for lapses, surrenders or
if a policy is unwound during the first policy year and during
the 12 policy months following an increase. The percentage is
shown below and will vary depending on the policy month of
lapse/surrender/unwind.
Month of Chargeback
Lapse/Surrender/ Percentage
Unwind
------
0-6 100%
7-12 50%
<PAGE>
6. CORNERSTONE VARIABLE UNIVERSAL LIFE
During the period the Broker-Dealer Selling Agreement is in effect,
and subject to and in accordance with the provisions thereof, Broker-
Dealer shall be compensated as follows with respect to a policy of
Penn Mutual know as the Flexible Premium Adjustable Variable Life
Insurance Policy (Policy Forms VU-90(S) and VU-90(U)), (a policy on
any such form being hereinafter called a "Cornerstone VUL Policy"),
that is placed in force through Agent under this agreement:
A. OPTION 1
--------
(a) Basic First Year Compensation
-----------------------------
A fee for the first policy year of 50% of A plus
3.75% of B where
A is equal to the lesser of:
(i) the premium paid in year 1
(ii) the target premium for the policy, or
(iii) the lesser of the premium scheduled to be paid in year 1 or 2,
and B is equal to the excess of the premium paid in year 1 over A.
Target premiums are maintained on file in Penn Mutual's Home Office.
(b) Renewal Compensation
--------------------
A fee for the second and third policy years of 4% of an amount equal
to premium paid for the policy year in question, a fee for the fourth
through fifteenth years, equal to 4.0% of the premium paid for the
policy year in question, and a fee for the sixteenth and later policy
years equal to 1.2% of the premium paid for the policy year in
question.
(c) Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of insurance, a fee
of 46% of C where:
C is equal to the lesser of:
(i) the premium paid in the twelve months following the
effective date of the increase,
(ii) the target premium for the amount of the increase, or
5
<PAGE>
(iii) the increase in the scheduled premium.
B. OPTION 2
--------
(a) Basic First Year Compensation
-----------------------------
Basic First Year Compensation is the same as in Option 1.
(b) Renewal Compensation
--------------------
A fee for the second through tenth policy years equal to 3.0% of the
premium paid for the policy year in question, and no fee for the
eleventh and later policy years. Additionally, for the second through
tenth policy years, an fee equal to 0.08333% of the policy value on
each monthly anniversary. Monthly anniversary is defined as the day in
each calendar month which is the same day of the month as the Policy
Date. For the eleventh and later policy years, fee equal to 0.020833%
of the policy value on each monthly anniversary. Policy value is as
defined in the policy.
(c) Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of insurance, a fee
of 47% of C where:
C is equal to the lesser of:
(i) the premium paid in the twelve months following the
effective date of the increase
(ii) the target premium for the amount of the increase, or
(iii) the increase in the scheduled premium.
C. EXPENSE ALLOWANCE
-----------------
For each calendar month while Broker-Dealer Selling Agreement is en
effect and before its termination, Broker-Dealer shall be entitled to
the expense from Penn Mutual described below, provided that the amount
payable as an expense allowance shall be limited to the total of
reasonable business expenses incurred by Broker-Dealer that are
directly related to the sale or service of Penn Mutual policies, and
provided further that no such allowance shall be payable to Broker-
Dealer that would cause the total of such allowances to exceed the
limits of Section 4228 of the Insurance Law of the State of New York.
No payment pursuant to this agreement will be used by Broker-Dealer to
effect compensation for the sale of insurance in excess of the limits
of said Section 4228. Such allowance shall be 60% of an amount equal
to the Basic First Year Compensation during the calendar month for
which this allowance is being calculated.
<PAGE>
D. COMPENSATION CHARGEBACKS
------------------------
A percentage of total compensation (including expense allowance,
if any) will be charged back for lapses, surrenders or if a
policy is unwound during the first policy year and during the 12
policy months following an increase. The percentage is shown
below and will vary depending on the policy month of
lapse/surrender/unwind.
Month of Chargeback
Lapse/Surrender/ Percentage
Unwind
------
0-3 100%
4-6 75%
7-9 50%
10-12 25%
7. Cornerstone UNIVERSAL LIFE II
During the period the Broker-Dealer Selling Agreement is in
effect, and subject to and in accordance with the provisions
thereof, Broker-Dealer shall be paid a fee for soliciting
applications and servicing a policy of Penn Mutual known as the
Flexible Premium Adjustable Variable Universal Life Insurance
Policy (Policy Forms VU-94(S) and VU-94(U)), (a policy on any
such form being hereinafter called a "Cornerstone VUL II
Policy"), that is placed in force before termination of this
agreement. With respect to each Cornerstone VUL II Policy,
Broker-Dealer may elect to receives fees under Option 1 or 2. If
no option is selected the default will be Option 1. Once each
policy is in force, no changes will be permitted to the choice of
compensation.
A. OPTION 1
--------
(a) Basic First Year Compensation
-----------------------------
A fee for the first policy year equal to 50% of A
plus 3.3% of B where
A is equal to the lesser of:
(i) the premium paid in year 1
(ii) the target premium for the policy, or
(iii) the lesser of the premium scheduled to be
paid in year 1 or 2, and
<PAGE>
B is equal to the excess of the premium paid in year 1 over A.
Target premiums are maintained on file in Penn Mutual's Home
Office.
(b) Renewal Compensation
--------------------
A fee for the second through fifteenth years equal to 3.0% of the
premium paid for the policy year in question, and a fee for the
sixteenth and later policy years equal to 1.2% of the premium
paid for the policy year in question.
(c) Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of insurance,
a fee of 47% of C where:
C is equal to the lesser of:
(i) the premium paid in the twelve months following
the effective date of the increase
(ii) the target premium for the amount of the increase
or
(iii) the increase in the scheduled premium.
B. OPTION 2
--------
(a) Basic First Year Compensation
-----------------------------
Basic First Year Compensation is the same as in Option 1.
(b) Renewal Compensation
--------------------
A fee for the second through tenth policy years equal to 2.0% of
the premium paid for the policy year in question, and no fee for
the eleventh and later policy years. Additionally, for the second
through tenth policy years, an fee equal to 0.08333% of the
policy value on each monthly anniversary. Monthly anniversary is
defined as the day in each calendar month which is the same day
of the month as the Policy Date. For the eleventh and later
policy years, fee equal to 0.020833% of the policy value on each
monthly anniversary. Policy value is as defined in the policy.
9
<PAGE>
(c) Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of
insurance, a fee of 47% of C where:
C is equal to the lesser of:
(i) the premium paid in the twelve months following
the effective date of the increase
(ii) the target premium for the amount of the increase
or
(iii) the increase in the scheduled premium.
C. EXPENSE ALLOWANCE
-----------------
For each calendar month while Broker-Dealer Selling
Agreement is en effect and before its termination, Broker-Dealer
shall be entitled to the expense from Penn Mutual described
below, provided that the amount payable as an expense allowance
shall be limited to the total of reasonable business expenses
incurred by Broker-Dealer that are directly related to the sale
or service of Penn Mutual policies, and provided further that no
such allowance shall be payable to Broker-Dealer that would cause
the total of such allowances to exceed the limits of Section 4228
of the Insurance Law of the State of New York. No payment
pursuant to this agreement will be used by Broker-Dealer to
effect compensation for the sale of insurance in excess of the
limits of said Section 4228. Such allowance shall be 60% of an
amount equal to the Basic First Year Compensation during the
calendar month for which this allowance is being calculated.
D. COMPENSATION CHARGEBACKS
------------------------
A percentage of total compensation (including expense allowance,
if any) will be charged back for lapses, surrenders or if a
policy is unwound during the first policy year and during the 12
policy months following an increase. The percentage is shown
below and will vary depending on the policy month of
lapse/surrender/unwind.
Month of Lapse/ Chargeback
Surrender/Unwind Percentage
---------------- ----------
0-3 100%
4-6 75%
7-9 50%
10-12 25%
<PAGE>
8. PENNANT SELECT(TM)
During the period the Broker-Dealer Selling Agreement is in
effect, and subject to and in accordance with the provisions
thereof, Broker-Dealer shall be paid a fee for soliciting
applications and servicing Contracts of Penn Mutual known as the
Pennant Select Individual Variable and Fixed Annuity Contract
(Policy Form VAA-98 and any variation thereof), (a policy on any
such form being hereinafter called a "Pennant Select Annuity
Contract"), that is placed in force before termination of this
agreement. With respect to each Pennant Select Annuity Contract,
Broker-Dealer may elect to receives fees under Option 1, 2 or 3.
If no option is selected the default will be Option 1. Once each
policy is in force, no changes will be permitted to the choice of
compensation.
A. OPTION 1
--------
(a) 7.00% (4.2% where the insured has an attained age
greater than 80) of aggregate purchase payments up to
$1,000,000 per Contract; aggregate purchase payments in
excess of $1,000,000 require a separate written agreement
with the Home Office.
B. OPTION 2
--------
(a) 6.7% (4.0% where the insured has an attained age
greater than 80) of aggregate purchase payments up to
$1,000,000 per Contract; aggregate purchase payments in
excess of $1,000,000 require a separate written agreement
with the Home Office.
(b) 0.50% of the Account Value, for the eighth and later
contract years, calculated on a quarterly basis and paid at
a quarter of the stated rate, and commencing with the first
calendar quarter of the eight Contract year and payable at
the end of each calendar quarter.
C. OPTION 3
--------
(a) 5.85% (3.5% where the insured has an attained age
greater than 80) of aggregate purchase payments in excess of
$1,000,000 require a separate written agreement with the
Home Office.
(b) 0.20% of the Account Value, for the second through
seventh contract years, calculated on a quarterly basis and
paid at a quarter of the stated rate, and commencing with
the first calendar quarter of following the first Contract
anniversary year and payable at the end of each calendar
quarter.
(c) 0.50% of the Account Value, for the eighth and later
contract years, calculated on a quarterly basis and paid at
a quarter of the stated rate, and commencing with the first
calendar quarter of the eight Contract year and payable at
the end of each calendar quarter.
<PAGE>
9. Commander(TM)
During the period the Broker-Dealer Selling Agreement is in effect, and subject
to and in accordance with the provisions thereof, Broker-Dealer shall be paid a
fee for soliciting applications and servicing Contracts of Penn Mutual known as
the Commander Individual Variable and Fixed Annuity Flexible Purchase Payment
Annuity Contract (Policy Forms VAB-98 and any variation thereof), (a policy on
any such form being hereinafter called a "Commander Annuity Contract"), that is
placed in force before termination of this agreement.
A. 1.00% of aggregate purchase payments up to
$1,000,000 per Contract; aggregate purchase payments in
excess of $1,000,000 require a separate written
agreement with the Home Office; and
B. 1.00% of the Account Value, for the second through
seventh contract years, calculated on a quarterly basis
and paid at a quarter of the stated rate, and
commencing with the first calendar quarter of following
the first Contract anniversary year and payable at the
end of each calendar quarter.
10. REPLACEMENT OF PENN MUTUAL POLICES
It is agreed that the compensation otherwise payable to Broker-Dealer for any
policy shall be reduced in accordance with the replacement control program in
effect at the time such policy is placed in force. It is anticipated that such
replacement control program may be changed form time to time as to policies in
force after such change.
13
<PAGE>
11. POLICY DELIVERY RECEIPT
It is agreed that the Broker-Dealer shall be responsible for obtaining a signed
policy delivery receipt in accordance with Company policy.
<PAGE>
Exhibit 3(e)
PENN THE PENN MUTUAL LIFE INSURANCE COMPANY
MUTUAl Independence Square, Philadelphia, PA 19172
- - --------------------------------------------------------------------------------
National Accounts - Corporate Insurance Agents
Licensed to Sell Variable Annuities and/or Variable
Life Insurance under State Insurance Laws
(Companion Agreement - Form A-1)
CORPORATE INSURANCE AGENT SELLING AGREEMENT
THE PENN MUTUAL LIFE INSURANCE COMPANY (hereinafter
called "Penn Mutual"), and Horner Townsend & Kent, Inc.
(hereinafter called "Distributor") enter into this
Agreement with __________________________________
(hereinafter called "Corporate Insurance Agent") on
this date ______________, 19____ agrees as follows:
WITNESSETH:
WHEREAS, Penn Mutual is in the business of issuing
annuity and life insurance contracts to the public;
WHEREAS, Distributor is a wholly owned subsidiary of
Penn Mutual, is registered as a broker-dealer under the
Securities Exchange Act of 1934, is a member of the
National Association of Securities Dealers, Inc., and
is assisting Penn Mutual in the distribution of such
contracts;
WHEREAS, Corporate Insurance Agent is properly licensed
under the insurance laws of the state(s) in which it
will act under this agreement;
WHEREAS, Corporate Insurance Agent is affiliated with
______________________________ a corporation which is
registered as a broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. (hereinafter
referred to as "Broker-Dealer");
WHEREAS, the parties desire to enter into an
arrangement under which Corporate Insurance Agent and
Broker-Dealer agree to sell certain annuity and life
insurance contracts issued by Penn Mutual;
NOW THEREFORE, in consideration of these premises and
mutual covenants herein contained, the parties agree as
follows:
- - --------------------------------------------------------------------------------
1. APPOINTMENT OF 1.1 Subject to the terms and conditions of this
CORPORATE agreement, Penn Mutual and Distributor appoint
INSURANCE AGENT. Corporate Insurance Agent as a non-exclusive agent
for the solicitation of applications for, and the
servicing of, annuity Insurance Agent and/or
variable life insurance contracts identified in
the schedule(s) attached hereto, and Corporate
Insurance Agent accepts such appointment. The
annuity and/or variable life insurance contracts
identified in the schedules(s) are referred to
herein as "Contracts".
1.2 Corporate Insurance Agent and its representatives
shall be independent contractors as to Penn Mutual
and Distributor and, subject to the terms and
conditions of this agreement, free to exercise
their own judgment as to the time, place and means
of performing all acts hereunder. Nothing in this
agreement is intended to create a relationship of
employer and employee as between Penn Mutual or
Distributor, on the one hand, and representatives
of Corporate Insurance Agent on the other.
- - --------------------------------------------------------------------------------
2. INSURANCE AND 2.1 The sale of variable annuity and variable life
SECURITIES insurance contracts identified in the schedule(s)
REGULATIONS- attached hereto is subject to and regulated under
COORDINATION OF federal securities laws (and may also be subject
AGREEMENTS. to and regulated under certain state securities
laws), in addition to state insurance laws. It is
understood and agreed that representatives of
Corporate Insurance Agent shall be registered
representative of Broker-Dealer and that Broker-
Dealer shall contemporaneously enter into a
Broker-Dealer Selling Agreement with Penn Mutual
and Distributor covering the sale of such
contracts. This agreement and the Broker-Dealer
Selling Agreement shall govern the sales of such
contracts.
- - --------------------------------------------------------------------------------
3. SALE OF CONTRACTS. 3.1 Corporate insurance Agent shall use its best
efforts to solicit applications for Contracts from
persons for whom the Contracts are suitable, in
accordance with the terms and conditions of this
agreement.
<PAGE>
3.2 All applications for Contracts shall be made on
applications forms authorized by Penn Mutual.
Corporate Insurance Agent shall diligently review
all such applications for accuracy and
completeness and shall take all reasonable and
appropriate measures to assure that applications
submitted to Penn Mutual are accurate and
complete.
3.3 All purchase payments collected by Corporate
Insurance Agent for Penn Mutual shall be received
in trust and shall be remitted immediately
together with the application and any other
required documentation, to Penn Mutual at the
address indicated on the application or to such
other address as Penn Mutual may specify in
writing. All checks or money orders for payments
under Contracts shall be drawn to the order of
Penn Mutual.
3.4 All applications are subject to acceptance or
rejection by Penn Mutual in its sole discretion.
Penn Mutual may at any time in its sole discretion
discontinue issuing the Contracts or change the
form and content of new Contracts to be issued.
3.5 In soliciting applications for Contracts,
Corporate Insurance Agent may not accept risk of
any kind for or on behalf of Penn Mutual and may
not bind Penn Mutual by promise or agreement or
alter any Contract in any way.
- - --------------------------------------------------------------------------------
4. COMPENSATION. 4.1 In consideration of and as full compensation for
the services performed in accordance with this
agreement, Corporate Insurance Agent will receive
compensation from Penn Mutual as set forth in the
schedule(s) attached to this agreement. The
schedule(s) shall be signed and dated by the
parties.
4.2 Should Penn Mutual for any reason return any
payment made under a Contract to the payor,
Corporate Insurance Agent shall repay Penn Mutual
the total amount of any compensation which Penn
Mutual may have paid with respect to such payment.
4.3 Corporate Insurance Agent may not withhold or
deduct any part of any premium or other payment
due Penn Mutual for payment of compensation under
this agreement or for any other purpose. The right
of Corporate Insurance Agent to receive any
compensation under this agreement shall at all
times be subordinate to the right of Penn Mutual
or Distributor to offset or apply such
compensation against any indebtedness of Corporate
Insurance Agent to Penn Mutual or Distributor.
4.4 Penn Mutual may, in its sole discretion, change
the amount, terms and conditions, of compensation
set forth in the schedule(s) attached to this
agreement, with respect to payment received by
Penn Mutual under Contracts.
4.5 Penn Mutual shall not be obligated to pay any
compensation which would be in violation of
applicable laws of any jurisdiction, anything in
this agreement to the contrary notwithstanding.
4.6 With respect to compensation paid in connection
with the sale of variable annuity and/or variable
life insurance contracts, Corporate Insurance
Agent shall, on behalf of Broker-Dealer, maintain
such books and records as are necessary for
Broker-Dealer to comply with applicable record
keeping requirements under federal and state
securities laws and under the rules of the
National Association of Securities Dealer, Inc.
Such records shall be maintained and preserved in
conformity with the requirements of Rules 17a-3
and 17a-4 under the Securities Exchange Act of
1934, to the extent that such requirements are
applicable to the variable annuity and/or variable
life contracts. Further, with respect to such
records, Corporate Insurance Agent shall be
subject to examination by the Securities and
Exchange Commission in accordance with Section
17(a) of the Securities Exchange Act of 1934.
- - --------------------------------------------------------------------------------
5. COMPLIANCE WITH 5.1 Corporate Insurance Agent and its representative
INSURANCE LAWS shall not solicit applications for Contracts in
AND REGULATIONS. any state or jurisdiction unless they are duly
licensed and qualified to do so under the
insurance laws and regulations of the state or
jurisdiction and unless Penn Mutual has notified
Corporate Insurance Agent that the Contracts have
been approved for sale in the state or
jurisdiction.
5.2 Penn Mutual may at any time in its sole discretion
withhold or withdraw authority of any
representative of Corporate Insurance Agent to
solicit applications for the Contracts. Upon Penn
Mutual giving written notice to Corporate
Insurance Agent of its withdrawal of authority of
a representative to solicit applications,
Corporate Insurance Agent shall immediately cause
any such representative to cease all such
solicitations.
<PAGE>
5.3 Corporate Insurance Agent shall notify Penn Mutual
in writing immediately of the termination of the
employment or affiliation of an employee or
representative who is an appointed agent of Penn
Mutual pursuant to this agreement.
5.4 Corporate Insurance Agent shall keep accurate and
complete books and records of all transactions
relating to the solicitation of applications and
for servicing Contracts. The books and records
shall be made available to Penn Mutual for
inspection upon reasonable request.
5.5 If Corporate Insurance Agent solicits applications
for or servicing variable life insurance contracts
under this agreement, Corporate Insurance Agent
and its representative shall observe the Standards
of Suitability for the Sale of Variable Life
Insurance set forth on the reverse side of the
schedule attached hereto identifying such
contacts.
5.6 Corporate Insurance Agent and its representatives
shall comply with all applicable insurance laws
and regulations in soliciting applications for and
servicing Contracts. Corporate Insurance Agent
shall be fully responsible for all acts of its
representatives in soliciting applications for and
servicing Contracts.
- - --------------------------------------------------------------------------------
6. ADVERTISEMENTS, 6.1 Corporate Insurance Agent shall not print,
SALES LITERATURE publish, distribute or use any advertisements,
AND OTHER sales literature or other writing relating to the
COMMUNICATIONS. Contracts unless such advertisements, sales
literature or other writing shall have first been
approved in writing by Penn Mutual and
Distributor.
6.2 Corporate Insurance Agent shall exercise care not
to misrepresent the Contracts or Penn Mutual and
shall make no oral or written representation which
is inconsistent with the terms of the Contracts or
with the information in any prospectus or sales
literature furnished by Penn Mutual or it
misleading in any way.
- - --------------------------------------------------------------------------------
7. INDEMNIFICATION. 7.1 Corporate Insurance Agent shall indemnify or hold
harmless Penn Mutual and Distributor and each
director and officer of Penn Mutual and
Distributor against any losses, claims, damages or
liabilities, including but not limited to
reasonable attorneys' fees and court cost to which
Penn Mutual or Distributor and any such director
or officer may become subject, under the
Securities Act of 1933 or otherwise, insofar as
such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are
based upon any unauthorized use of sales materials
or any verbal or written misrepresentations or any
unlawful sales practices, or the failure of
Corporate Insurance Agent, its officers, employees
or representative to comply with the provisions of
this agreement or the willful misfeasance, bad
faith, negligence or misconduct of Corporate
Insurance Agent, its officers, employees, or
representatives in the solicitation of
applications for and the servicing of Contracts.
7.2 Penn Mutual and Distributor shall indemnify and
hold harmless Corporate Insurance Agent and each
officer or director of Corporate Insurance Agent
against any losses, claims, damages or
liabilities, joint or several, including but not
limited to reasonable attorneys' fees and court
cost, to which Corporate Insurance Agent or such
officer or director becomes subject, under the
Securities Act of 1933 or otherwise, insofar as
such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue
statement of a material fact, required to be
stated therein or necessary to make the statements
therein not misleading, contained in any
registration statement or any post-effective
amendment or supplement to the prospectus, or in
any sales material written by Penn Mutual or
Distributor.
7.3 In the event Penn Mutual suffers a loss resulting
from Corporate Insurance Agent activities,
Corporate Insurance Agent hereby assigns any
proceeds received under its fidelity bond to Penn
Mutual to the extent of such losses. If there is
any deficiency amount, whether due to a deductible
or otherwise, Corporate Insurance Agent shall
promptly pay Penn Mutual such amount on demand and
Corporate Insurance Agent shall indemnify and hold
harmless Penn Mutual from any such deficiency and
from the costs of collection thereof (including
reasonable attorneys' fees).
- - --------------------------------------------------------------------------------
8. COMPLAINTS, 8.1 Corporate Insurance Agent shall promptly notify
INVESTIGATIONS & Penn Mutual and Distributor of any allegation that
PROCEEDINGS. Corporate Insurance Agent or any of its
representatives violated any law, regulation or
rule in soliciting applications for or servicing
Contracts, and shall provide Penn Mutual with full
details, including copies of all legal documents
pertaining thereto.
<PAGE>
8.2 Corporate Insurance Agent shall cooperate fully
with Penn Mutual and Distributor in any regulatory
investigation or proceeding or judicial proceeding
involving the solicitation of application for and
servicing Contracts by Corporate Insurance Agent
or any of its representatives.
- - --------------------------------------------------------------------------------
9. NONWAIVER. 9.1 Forbearance by Penn Mutual or Distributor to
enforce any rights under this agreement shall not
be construed as a waiver of any of the terms and
conditions of this agreement and the same shall
remain in full force and effect. No waiver of any
provision of this agreement shall be deemed to be
a waiver of any other provision, whether or not
similar, nor shall any waiver of a provision of
this agreement be deemed to constitute a
continuing waiver.
- - --------------------------------------------------------------------------------
10. AMENDMENT. 10.1 Penn Mutual reserves the right to amend this
Agreement at any time. Corporate Insurance Agent's
submission of an application for a Contract after
notice of any such amendment shall constitute
agreement of Corporate Insurance Agent to such
amendment.
- - --------------------------------------------------------------------------------
11. TERMINATION AND 11.1 This agreement may be terminated by any party,
ASSIGNMENT. with or without cause, upon giving written notices
to the other parties. This agreement shall
automatically terminate if Corporate Insurance
Agent is adjudicated as bankrupt or avails itself
of any insolvency act or if a permanent receiver
or trustee in bankruptcy is appointed for the
property of Corporate Insurance Agent. Upon
termination of this agreement, with or without
cause, all authorizations, rights and obligations
shall cease, except the rights and obligations set
forth in sections 7 and 8 of this agreement and
the obligations to settle account hereunder,
including the immediate forwarding of all payments
received by Corporate Insurance Agent under
Contract to Penn Mutual, and except as may be
expressly stated otherwise in this agreement.
11.2 This agreement may not be assigned without the
written consent of all parties.
- - --------------------------------------------------------------------------------
12. GOVERNING LAW. 12.1 This agreement shall be construed in accordance
with and governed by the laws of the Commonwealth
of Pennsylvania.
- - --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their officers designated below on the day and year first written.
_____________________________________________________
Name of Corporate Insurance Agent
By: ______________________________________________
Signature
______________________________________________
Name
______________________________________________
Title
THE PENN MUTUAL LIFE INSURANCE COMPANY
By: ______________________________________________
Signature
______________________________________________
Name
______________________________________________
Title
HORNOR, TOWNSEND & KENT, INC.
By: ______________________________________________
Signature
______________________________________________
Name
______________________________________________
Title
<PAGE>
PENN THE PENN MUTUAL LIFE INSURANCE COMPANY
MUTUAL Independence Square, Philadelphia, PA 19172
- - --------------------------------------------------------------------------------
SCHEDULE 1 TO CORPORATE INSURANCE AGENT SELLING AGREEMENT
Individual Variable and Fixed Annuity Contracts -
Diversifier II
Individual Fixed - Only Annuity Contracts - Diversifier II
Date of Corporate Insurance Agent Selling Agreement to which
this schedule is attached: _____________
- - --------------------------------------------------------------------------------
1. AUTHORIZATION Subject to the conditions and limitations of the Corporate
TO SELL. Insurance Agent Selling Agreement, Corporate Insurance Agent
is authorized to solicit applications for Diversifier II
Individual Variable and Fixed Annuity Contracts and
Diversifier II Individual Fixed-Only Annuity Contracts
issued by Penn Mutual (hereinafter referred to as
"Contracts").
- - --------------------------------------------------------------------------------
2. COMPENSATION. Subject to the conditions and limitations of the Corporate
Insurance Agent Selling Agreements and this Schedule,
Corporate Insurance Agent shall be paid a fee for placing or
servicing a Diversifier II Individual Variable and Fixed
Annuity Contract equal to _____% of any purchase payment
made under such Contract and a fee for placing and servicing
a Diversifier II Fixed-Only Annuity Contract equal to _____%
of any purchase payment made under such Contract. No fee
shall be paid with respect to a purchase payment made under
a contract after the Corporate Insurance Agent Selling
Agreement has been terminated. If the Annuitant or
Contractowner (other than a trustee of a Qualified Plan) is
over age 81 on the date the Diversifier II Contract is
issued, the fee shall be limited as follows: 80% of such fee
if the Annuitant or Contractowner is age 82; 60% of such fee
if the Annuitant or Contractowner is age 83; 40% of such fee
if the Annuitant or Contractowner is age 84; and 20% of such
fee if the Annuitant of Contractowner is age 85. Amounts
transferred among Contracts are not purchase payments with
the meaning of the Corporate Insurance Agent Selling
Agreement of this Schedule.
This Schedule 1 replaces and supersedes any and all prior
Schedule 1's attached to the Corporate Insurance Agent
Selling Agreement.
Agreed:
Date: ____________________ ___________________________________________
Corporate Insurance Agent
By: ______________________________________
Signature
______________________________________
Name
______________________________________
Title
THE PENN MUTUAL LIFE INSURANCE COMPANY
By: ______________________________________
Signature
______________________________________
Name
______________________________________
Title
HORNOR, TOWNSEND & KENT, INC.
By: ______________________________________
Signature
______________________________________
Name
______________________________________
<PAGE>
Title
PENN THE PENN MUTUAL LIFE INSURANCE COMPANY
MUTUAL Independence Square, Philadelphia, PA 19172
- - --------------------------------------------------------------------------------
SCHEDULE 3 TO CORPORATE INSURANCE AGENT SELLING AGREEMENT
Variable Universal Life Insurance Contracts - Penn Mutual
Cornerstone VUL II Date of Corporate Insurance Agent Selling
Agreement to which this schedule is attached:
________________________________________________
- - --------------------------------------------------------------------------------
1. AUTHORIZATION Subject to and in accordance with the provision of the
TO SELL. Corporate Insurance Agent Selling Agreement, Corporate
Insurance Agent is authorized to solicit applications for
Form VU-94(s) and Form VU-94(u) Flexible Premium Adjustable
Variable Universal Life Insurance Policies and such
variations of such form of contract as may be designated by
Penn Mutual and approved under applicable state insurance
laws ("Cornerstone VUL II Policies").
- - --------------------------------------------------------------------------------
2. COMPENSATION. During the period the Corporate Insurance Agent Selling
Agreement and this schedule is in effect, and subject to and
in accordance with the provisions thereof, Corporate
Insurance Agent shall be compensated as follows:
2.1 Basic First Year Compensation
-----------------------------
A fee for the first policy year of 50% of an amount
equal to the first T of premium paid for the first
policy year and 3.3% of an amount equal to the premium
paid for the first policy year in excess of T. However,
if the insured is over attained age 75 on the date the
policy is issued, the fee for the first policy year
will be limited to 35% of an amount equal to the first
T of premium paid for the first policy year and 3.3% of
an amount equal to premium paid for the first policy
year in excess of T. T is equal to the amount set forth
in Table 1 below for each $1,000 or fraction thereof
the initial Specified Amount of insurance as set forth
in the policy in question. In calculating compensation
payable pursuant to this subsection, it will be deemed
that any increase in Specified Amount of the policy in
question that is effective during the first six policy
months of such policy took place prior to the issuance
of such policy, and the calculations pursuant to this
subsection shall be based upon an initial Specified
Amount as so adjusted.
2.2 Renewal Compensation
--------------------
A fee for the second through fifteen policy years of
3.00% of an amount equal to premium paid for the policy
year in question, and a fee for the sixteenth and later
policy years equal to 1.20% of premium paid for the
policy year in question.
2.3 Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of
insurance, a fee of 47% (32% where the insured has an
attained age greater than 75) of an amount equal to the
smaller of (1) the first T of premium paid for the
twelve months following the effective date of any
increase in Specified Amount of the policy in question
and (2) total increase in scheduled annual basis
premium. Such fee shall be paid only once for each such
increase. T is defined in subsection 2.1 above.
- - --------------------------------------------------------------------------------
<PAGE>
2.4 Expense Allowance
-----------------
For each calendar month while Corporate Insurance Agent
Selling Agreement is in effect and before its
termination, Corporate Insurance Agent shall be
entitled to the expense from Penn Mutual described
below, provided that the amount payable as an expense
allowance shall be limited to the total of reasonable
business expenses incurred by Corporate Insurance Agent
that are directly related to the sale or service of
Penn Mutual policies, and provided further that no such
allowance shall be payable to Corporate Insurance Agent
that would cause the total of such allowances to exceed
the limits of Section 4228 of the Insurance Law of the
State of New York. No payment pursuant to this
agreement will be used by Corporate Insurance Agent to
effect compensation for the sale of insurance in excess
of the limits of said Section 4228. Such allowance
shall be 60% of an amount equal to the Basic First Year
Compensation and Basic Compensation on Regular
increases for the Cornerstone, VUL Policies during the
calendar month for which this allowance is being
calculated.
2.5 Compensation Chargebacks
------------------------
A percentage of total compensation (including expense
allowance) will be charged back for lapses/surrenders
during the first policy year and during the 12 policy
months following an increase. The percentage is shown
below and is dependent on the policy month of
lapse/surrender.
Policy Month of Chargeback
Lapse/Surrender Percentage
--------------- ----------
1-3 100%
4-6 75%
7-9 50%
10-12 25%
13+ 0%
2.6 Replacement of Penn Mutual Policies
-----------------------------------
It is agreed that the compensation otherwise payable to
Corporate Insurance Agent for any policy shall be
reduced in accordance with the replacement control
program of Penn Mutual in effect at the time such
policy is placed in force. It is anticipated that such
replacement control program may be changed from time to
time as to policies in force after such change.
2.7 Policy Delivery Receipt
-----------------------
it is agreed that the Corporate Insurance Agent shall
be responsible for obtaining a signed policy delivery
receipt. No compensation otherwise payable to the
Corporate Insurance Agent for any policy shall be paid
until Penn Mutual is in possession of a signed policy
delivery receipt (or facsimile copy thereof) for said
policy.
This Schedule 3 replaces and supersedes any and
all prior Schedule 3's attached to the Corporate
Insurance Agent Selling Agreement.
Agreed:
Date: ____________________ _________________________________________
Name of Corporate Insurance Agent
By: _____________________________________
Signature
_____________________________________
Name
_____________________________________
Title
THE PENN MUTUAL LIFE INSURANCE COMPANY
By: _____________________________________
Signature
_____________________________________
<PAGE>
Name
_____________________________________
Title
HORNOR, TOWNSEND & KENT, INC.
By: _____________________________________
Signature
_____________________________________
Name
_____________________________________
Title
<PAGE>
TABLE 1
Variable Universal Life
Target Premiums
<TABLE>
<CAPTION>
Male Female Unisex Male Female Unisex
---- ------ ------ ---- ------ ------
Age NS SM NS SM NS SM Age NS SM NS SM NS SM
- - --- -- -- -- -- -- -- --- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 N/A 2.82 N/A 2.44 N/A 2.77 41 11.35 13.61 9.72 11.40 11.01
1 N/A 2.81 N/A 2.45 N/A 2.77 42 11.88 14.27 10.15 11.91 11.53
2 N/A 2.91 N/A 2.53 N/A 2.86 43 12.45 14.96 10.60 12.43 12.07
3 N/A 3.00 N/A 2.61 N/A 2.96 44 13.04 15.68 11.08 12.98 12.64
4 N/A 3.11 N/A 2.70 N/A 3.06 45 13.67 16.45 11.58 13.56 13.24
5 N/A 3.22 N/A 2.79 N/A 3.17 46 14.34 17.26 12.11 14.16 13.88
6 N/A 3.33 N/A 2.89 N/A 3.28 47 15.05 18.11 12.67 14.80 14.56
7 N/A 3.46 N/A 2.99 N/A 3.40 48 15.80 19.02 13.26 15.47 15.27
8 N/A 3.59 N/A 3.10 N/A 3.53 49 16.60 19.97 13.89 16.17 16.03
9 N/A 3.73 N/A 3.21 N/A 3.67 50 17.45 20.98 14.55 16.91 16.84
10 N/A 3.87 N/A 3.33 N/A 3.81 51 18.35 22.05 15.24 17.69 17.70
11 N/A 4.03 N/A 3.45 N/A 3.96 52 19.31 23.19 15.98 18.51 18.61
12 N/A 4.19 N/A 3.59 N/A 4.12 53 20.33 24.39 16.77 19.38 19.58
13 N/A 4.36 N/A 3.72 N/A 4.28 54 21.42 25.65 17.59 20.29 20.60
14 N/A 4.53 N/A 3.86 N/A 4.45 55 22.57 26.99 18.47 21.26 21.70
15 N/A 4.70 N/A 4.01 N/A 4.62 56 23.80 28.40 19.40 22.28 22.86
16 N/A 4.88 N/A 4.16 N/A 4.79 57 25.10 29.88 20.40 23.36 24.09
17 N/A 5.06 N/A 4.32 N/A 4.96 58 26.50 31.46 21.46 24.51 25.40
18 N/A 5.25 N/A 4.48 N/A 5.13 59 27.98 33.13 22.59 25.74 26.81
19 N/A 5.44 N/A 4.65 N/A 5.31 60 29.57 34.91 23.82 27.07 28.31
20 4.83 5.65 4.17 4.82 4.70 5.50 61 31.27 36.80 25.13 28.50 29.92
21 5.00 5.84 4.32 5.01 4.86 5.69 62 33.09 38.80 26.54 30.03 31.63
22 5.17 6.05 4.49 5.20 5.04 5.90 63 35.03 40.93 28.06 31.68 33.47
23 5.36 6.27 4.66 5.41 5.22 6.12 64 37.11 43.18 29.69 33.43 35.43
24 5.56 6.51 4.84 5.62 5.41 6.35 65 39.33 45.54 31.43 35.29 37.53
25 5.76 6.76 5.02 5.83 5.62 6.59 66 41.69 48.04 33.29 37.27 39.76
26 5.99 7.03 5.22 6.08 5.83 6.85 67 44.22 50.00 35.28 39.38 42.15
27 6.22 7.31 5.43 6.32 6.06 7.13 68 46.93 50.00 37.44 41.65 44.71
28 6.47 7.62 5.65 6.58 6.31 7.43 69 49.85 50.00 39.78 44.12 47.46
29 6.74 7.94 5.87 6.85 6.57 7.74 70 50.00 50.00 42.33 46.80 50.00
30 7.02 8.28 6.11 7.14 6.84 8.07 71 50.00 50.00 45.12 49.74 50.00
31 7.31 8.64 6.37 7.44 7.12 8.42 72 50.00 50.00 48.16 50.00 50.00
32 7.63 9.03 6.63 7.75 7.43 8.79 73 50.00 50.00 50.00 50.00 50.00
33 7.96 9.43 6.91 8.08 7.75 9.18 74 50.00 50.00 50.00 50.00 50.00
34 8.31 9.86 7.20 8.43 8.08 9.59 75 50.00 50.00 50.00 50.00 50.00
35 8.67 10.31 7.51 8.80 8.44 10.03 76 50.00 50.00 50.00 50.00 50.00
36 9.06 10.79 7.84 9.19 8.81 10.49 77 50.00 50.00 50.00 50.00 50.00
37 9.47 11.30 8.18 9.59 9.21 10.97 78 50.00 50.00 50.00 50.00 50.00
38 9.90 11.83 8.53 10.01 9.62 11.48 79 50.00 50.00 50.00 50.00 50.00
39 10.36 12.39 8.91 10.46 10.06 12.02 80 50.00 50.00 50.00 50.00 50.00
- - ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
40 10.84 12.99 9.30 10.92 10.52 12.58
</TABLE>
NS is to be used for both Nonsmoker Standard and Preferred.
THE PENN MUTUAL LIFE INSURANCE COMPANY
Standards of Suitability for Sale
---------------------------------
of Variable Life Insurance
--------------------------
The Standards of suitability for the sale of Variable Life Insurance Policies
are as follows:
(1) The applicant is furnished with a prospectus effective under the Securities
Act of 1933 which accurately and adequately inform the applicant of all
relevant particulars of the Variable Life Insurance Policy, including the
investment risks assumed under the Policy.
(2) The purchase of the Variable Life Insurance Policy by the applicant is
reasonably consistent with the insurance needs and financial objectives
expressed by the applicant; and
(3) The purchase of the Variable Life Insurance Policy by the applicant is
reasonably consistent with the insurance needs and financial objectives of
the applicant, as determined objectively by the Company's sales agent after
reasonable inquiry into the relevant financial and family situation of the
applicant.
No recommendation shall be made to an applicant to purchase a Variable Life
Insurance Policy in the absence of reasonable grounds to believe that the Policy
is not unsuitable for the applicant. Reasonable grounds for believing that the
Policy is not unsuitable shall be based upon information furnished after
reasonable inquiry of the applicant concerning the applicant's insurance and
investment objectives, financial situation and needs and any other information
known to the Company or the sales agent making the recommendation.
<PAGE>
PENN THE PENN MUTUAL LIFE INSURANCE COMPANY
MUTUAL Independence Square, Philadelphia, PA 19172
- - --------------------------------------------------------------------------------
SCHEDULE 4 TO CORPORATE INSURANCE AGENT SELLING AGREEMENT
Variable Universal Life Insurance Contracts - Penn Mutual
Variable EstateMax
Date of Corporate Insurance Agent Selling Agreement to
which this schedule is attached: ________________________
- - --------------------------------------------------------------------------------
1. AUTHORIZATION Subject to and in accordance with the provision of the
TO SELL. Corporate Insurance Agent Selling Agreement, Corporate
Insurance Agent is authorized to solicit applications for
Form VALJ-94(u) and Form VALJ-94(u) Last Survivor Flexible
Premium Adjustable Variable Life Insurance Policy and such
variations of such form of contract as may be designated by
Penn Mutual and approved under applicable state insurance
laws ("Variable EstateMax").
- - --------------------------------------------------------------------------------
2. COMPENSATION. During the period the Corporate Insurance Agent Selling
Agreement and this schedule is in effect, and subject to
and in accordance with the provisions thereof, Corporate
Insurance Agent shall be compensated as follows:
2.1 Basic First Year Compensation
-----------------------------
A fee for the first policy year of 50% of an amount
equal to the first R of premium paid for the first
policy year and 2.00% of an amount equal to the
premium paid for the first policy year in excess of R.
R is equal to seventyfive percent (75%) of an Adjusted
Guideline Annual Premium for each $1,000 or fraction
thereof of the initial Specified Amount of insurance
as set forth in the Variable EstateMax Policy in
question. The Adjusted Guideline Annual Premium is the
Guideline Annual Premium as defined in Section 7702 of
the Internal Revenue Service Code of 1986, as amended,
or as set forth in any applicable successor provision
thereto, adjusted to reflect four percent (4%)
interest from the date of issue through the policy
maturity date, and excluding the effect of any per
policy expense loads and substandard ratings. The
policy maturity date is the date that the younger
insured would reach attained age 100.
2.2 Renewal Compensation
--------------------
A fee for the second through fifteen policy years of
2.0% of an amount equal to premium paid for the policy
year in question, and a fee for the sixteenth and
later policy years equal to 1.2% of premium paid for
the policy year in question.
2.3 Expense Allowance
-----------------
For each calendar month while Corporate Insurance
Agent Selling Agreement is in effect and before its
termination, Corporate Insurance Agent shall be
entitled to the expense from Penn Mutual described
below, provided that the amount payable as an expense
allowance shall be limited to the total of reasonable
business expenses incurred by Corporate Insurance
Agent that are directly related to the sale or service
of Penn Mutual policies, and provided further that no
such allowance shall be payable to Corporate Insurance
Agent that would cause the total of such allowances to
exceed the limits of Section 4228 of the Insurance Law
of the State of New York. No payment pursuant to this
agreement will be used by Corporate Insurance Agent to
effect compensation for the sale of insurance in
excess of the limits of said Section 4228. Such
allowance shall be 60% of an amount equal to the Basic
First Year Compensation and Basic Compensation on
Regular increases for the Variable EstateMax during
the calendar month for which this allowance is being
calculated.
2.4 Compensation Chargebacks
------------------------
A percentage of total compensation (including expense
allowance) will be charged back for lapses/surrenders
during the first policy year and during the 12 policy
months following an increase. The percentage is shown
below and is dependent on the policy month of
lapse/surrender.
<PAGE>
Policy Month of Chargeback
Lapse/Surrender Percentage
--------------- ----------
1-3 100%
4-6 100%
7-9 50%
10-12 50%
13+ 0%
2.5 Replacement of Penn Mutual Policies
-----------------------------------
It is agreed that the compensation otherwise payable
to Corporate Insurance Agent for any policy shall be
reduced in accordance with the replacement control
program of Penn Mutual in effect at the time such
policy is placed in force. It is anticipated that such
replacement control program may be changed from time
to time as to policies in force after such change.
2.6 Policy Delivery Receipt
-----------------------
it is agreed that the Corporate Insurance Agent shall
be responsible for obtaining a signed policy delivery
receipt. No compensation otherwise payable to the
Corporate Insurance Agent for any policy shall be paid
until Penn Mutual is in possession of a signed policy
delivery receipt (or facsimile copy thereof) for said
policy.
This Schedule 4 replaces and supersedes any and
all prior Schedule 4's attached to the Corporate
Insurance Agent Selling Agreement.
Agreed:
Date:____________________ ---------------------------------------------
Name of Corporate Insurance Agent
By: ---------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Title
THE PENN MUTUAL LIFE INSURANCE COMPANY
By: ---------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Title
HORNOR, TOWNSEND & KENT, INC.
By: ---------------------------------------
Signature
---------------------------------------
Name
---------------------------------------
Title
<PAGE>
THE PENN MUTUAL LIFE INSURANCE COMPANY
Standards of Suitability for Sale
---------------------------------
of Variable Life Insurance
--------------------------
The Standards of suitability for the sale of Variable Life Insurance Policies
are as follows:
(1) The applicant is furnished with a prospectus effective under the Securities
Act of 1933 which accurately and adequately inform the applicant of all
relevant particulars of the Variable Life Insurance Policy, including the
investment risks assumed under the Policy.
(2) The purchase of the Variable Life Insurance Policy by the applicant is
reasonably consistent with the insurance needs and financial objectives
expressed by the applicant; and
(3) The purchase of the Variable Life Insurance Policy by the applicant is
reasonably consistent with the insurance needs and financial objectives of
the applicant, as determined objectively by the Company''s sales agent
after reasonable inquiry into the relevant financial and family situation
of the applicant.
No recommendation shall be made to an applicant to purchase a Variable Life
Insurance Policy in the absence of reasonable grounds to believe that the Policy
is not unsuitable for the applicant. Reasonable grounds for believing that the
Policy is not unsuitable shall be based upon information furnished after
reasonable inquiry of the applicant concerning the applicant's insurance and
investment objectives, financial situation and needs and any other information
known to the Company or the sales agent making the recommendation.
<PAGE>
PENN THE PENN MUTUAL LIFE INSURANCE COMPANY
MUTUAL Independence Square, Philadelphia, PA 19172
- - --------------------------------------------------------------------------------
National Accounts - Broker-Dealers Licensed
to Sell Variable Annuities and/or Variable
Life Insurance under Federal Securities Laws
(Companion Agreement - Form A-2)
BROKER-DEALER SELLING AGREEMENT
THE PENN MUTUAL LIFE INSURANCE COMPANY (hereinafter called
"Penn Mutual") and Hornor, Townsend & Kent, Inc.
(hereinafter called "Distributor") enter into this
Agreement with __________________________________
(hereinafter called "Broker-Dealer") on this date
_________________, 19___ agree as follows:
WITNESSETH:
WHEREAS, Penn Mutual is in the business of issuing annuity
and life insurance contracts to the public;
WHEREAS, Distributor is a wholly owned subsidiary of Penn
Mutual, is registered as a broker-dealer under the
Securities Exchange Act of 1934, is a member of the
National Association of Securities Dealers, Inc., and is
assisting Penn Mutual in the distribution of such
contracts;
WHEREAS, Broker-Dealer is registered as a Broker-Dealer
under the Securities Exchange Act of 1934 and is a member
of the National Association of Securities Dealers, Inc.;
WHEREAS, Broker-Dealer is affiliated with ____________
______________, (hereinafter referred to as "Corporate
Insurance Agent") a corporation which is properly licensed
under the insurance laws of the state(s) in which Broker-
Dealer will act under this agreement;
WHEREAS, the parties desire to enter into an arrangement
under which Broker-Dealer and Corporate Insurance Agent
agree to sell certain variable annuity and variable life
insurance contracts issued by Penn Mutual;
NOW THEREFORE, in consideration of these premises and
mutual covenants herein contained, the parties agree as
follows:
- - --------------------------------------------------------------------------------
1. APPOINTMENT OF 1.1 Subject to the terms and conditions of this agreement,
BROKER-DEALER Penn Mutual and Distributor authorizes Broker-Dealer
as a non-exclusive agent for the solicitation of
applications for, and the servicing of, variable
annuity and/or variable life insurance contracts
identified in the schedule(s) attached hereto, and
Broker-Dealer accepts such authorization. The variable
annuity and/or variable life insurance contracts
identified in the schedule(s) are referred to herein
as "Contracts".
1.2 Broker-Dealer and its representatives shall be
independent contractors as to Penn Mutual and
Distributor and, subject to the terms and conditions
of this agreement, free to exercise their own judgment
as to the time, place and means of performing all acts
hereunder. Nothing in this agreement is intended to
create a relationship of employer and employee as
between Penn Mutual or Distributor, on the one hand,
and representatives of Broker-Dealer on the other.
- - --------------------------------------------------------------------------------
2. SECURITY 2.1 The sale of variable annuity and variable life
REGULATIONS AND insurance contracts identified in the schedule(s)
INSURANCE attached hereto is subject to and regulated under
COORDINATION OF state insurance laws and regulations, in addition to
AGREEMENTS. federal securities laws and regulations, and in some
cases, state securities laws. It is understood and
agreed that registered representatives of Broker-
Dealer shall also be representative of Corporate
Insurance Agent and that Corporate Insurance Agent
shall contemporaneously enter into a Corporate
Insurance Agent Selling Agreement with Penn Mutual and
Distributor covering the sale of such contracts. This
agreement and the Corporate Insurance Agent Selling
Agreement shall govern the sales of such contracts.
- - --------------------------------------------------------------------------------
3. SALE OF 3.1 Broker-Dealer shall use its best efforts to solicit
CONTRACTS. applications for Contracts from persons for whom the
Contracts are suitable, in accordance with the terms
and conditions of this agreement.
<PAGE>
3.2 All applications for Contracts shall be made on
applications forms authorized by Penn Mutual. Broker-
Dealer shall diligently review all such applications
for accuracy and completeness and shall take all
reasonable and appropriate measures to assure that
applications submitted to Penn Mutual are accurate and
complete.
3.3 All purchase payments collected by Broker-Dealer for
Penn Mutual shall be received in trust and shall be
remitted immediately, together with the application
and any other required documentation, to Penn Mutual
at the address indicated on the application or to such
other address as Penn Mutual may specify in writing.
All checks or money orders for payments under
Contracts shall be drawn to the order of Penn Mutual,
except as may be provided in the Corporate Insurance
Agent Selling Agreement (referred to in Section 2.1 of
this agreement).
3.4 All applications are subject to acceptance or
rejection by Penn Mutual in its sole discretion. Penn
Mutual may at any time in its sole discretion
discontinue issuing the Contracts or change the form
and content of new Contracts to be issued.
3.5 In soliciting applications for Contracts, Broker-
Dealer may not accept risk of any kind for or on
behalf of Penn Mutual and may not bind Penn Mutual by
promise or agreement or alter any Contract in any way.
- - --------------------------------------------------------------------------------
4. COMPENSATION. 4.1 In consideration of and as full compensation for the
services performed in accordance with this agreement,
Corporate lnsurance Agent will receive compensation
from Penn Mutual as set forth in the schedule(s)
attached to the Corporate Insurance Agent Selling
Agreement referred to in Section 2.1 of this
agreement.
4.2 Should Penn Mutual for any reason return to the payor
any payment made under a Contract Broker-Dealer shall
cause Corporate Insurance Agent to repay Penn Mutual
the total amount of any compensation which Penn Mutual
may have paid Corporate Insurance Agent with respect
to such payment.
4.3 Penn Mutual may, in its sole discretion, change the
amount, terms and conditions of compensation with
respect to payment received by Penn Mutual under
Contracts.
4.4 Penn Mutual shall not be obligated to pay any
compensation which would be in violation of applicable
laws of any jurisdiction, anything in this agreement
to the contrary notwithstanding.
4.5 With respect to compensation paid to Corporate
Insurance Agent in connection with the sale of
variable annuity and/or variable life insurance
contracts, Broker-Dealer shall cause Corporate
Insurance Agent to maintain, on behalf of Broker-
Dealer, such books and records as are necessary for
Broker-Dealer to comply with applicable recordkeeping
requirements under federal and state securities laws
and under the rules of the National Association of
Securities Dealers, Inc.
- - --------------------------------------------------------------------------------
5. COMPLIANCE WITH 5.1 Broker-Dealer shall not solicit applications for
SECURITIES LAW. Contracts unless Penn Mutual or Distributor has
notified Broker-Dealer that a registration statement
required under the Securities Act of 1933 is effective
as to such contracts and unless Broker-Dealer is duly
registered as a broker-dealer under the Securities
Exchange Act of 1934, is a member in good standing of
the National Association of Securities Dealers, Inc.,
and is duly licensed under any applicable securities
laws of the state or jurisdiction in which Broker-
Dealer engages in such activity.
5.2 Penn Mutual or Distributor shall furnish Broker-Dealer
with copies of the current prospectuses (and current
supplements thereto) required to be used in soliciting
applications for variable annuity and/or variable life
insurance contracts.
5.3 Broker-Dealer and its representatives shall comply
with all applicable securities laws and regulations
and with the rules of the National Association of
Securities Dealers, Inc. in soliciting applications
for and servicing Contracts. Broker-Dealer shall be
fully responsible for all acts of its representatives
in soliciting applications for and servicing
Contracts.
- - --------------------------------------------------------------------------------
6. ADVERTISEMENTS, 6.1 Broker-Dealer shall not print, publish, distribute or
SALES LITERATURE use any advertisements, sales literature or other
AND OTHER writing relating to the Contracts unless such
COMMUNICATIONS. advertisements, sales literature or other writing
shall have first been approved in writing by Penn
Mutual and Distributor.
<PAGE>
6.2 Broker-Dealer shall exercise care not to misrepresent
the Contracts or Penn Mutual and shall make no oral or
written representation which is inconsistent with the
terms of the Contracts or with the information in any
prospectus or sales literature furnished by Penn
Mutual or it misleading in any way.
- - --------------------------------------------------------------------------------
7. INDEMNIFICATION. 7.1 Broker-Dealer shall indemnify or hold harmless Penn
Mutual and Distributor and each director and officer
of Penn Mutual and Distributor against any losses,
claims, damages or liabilities, including but not
limited to reasonable attorneys' fees and court cost
to which Penn Mutual or Distributor and any such
director or officer may become subject, under the
Securities Act of 1933 or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any
unauthorized use of sales materials or any verbal or
written misrepresentations or any unlawful sales
practices, or the failure of Broker-Dealer, its
officers, employees or representatives to comply with
the provisions of this agreement or the willful
misfeasance, bad faith, negligence or misconduct of
Broker-Dealer, its officers, employees, or
representatives in the solicitation of applications
for and the servicing of
Contracts.
7.2 Penn Mutual and Distributor shall indemnify and hold
harmless Broker-Dealer and each officer or director of
Broker-Dealer against any losses, claims, damages or
liabilities, joint or several, including but not
limited to reasonable attorneys' fees and court cost,
to which Broker-Dealer or such officer or director
becomes subject, under the Securities Act of 1933 or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged
untrue statement of a material fact, required to be
stated therein or necessary to make the statements
therein not misleading, contained in any registration
statement or any post-effective amendment or
supplement to the prospectus, or in any sales material
written by Penn Mutual or Distributor.
7.3 In the event Penn Mutual suffers a loss resulting from
Broker-Dealer activities, Broker-Dealer hereby assigns
any proceeds received under its fidelity bond to Penn
Mutual to the extent of such losses. If there is any
deficiency amount, whether due to a deductible or
otherwise, Broker-Dealer shall promptly pay Penn
Mutual such amount on demand and Broker-Dealer shall
indemnify and hold harmless Penn Mutual from any such
deficiency and from the costs of collection thereof
(including reasonable attorneys' fees).
- - --------------------------------------------------------------------------------
8. COMPLAINTS, 8.1 Broker-Dealer shall promptly notify Penn Mutual and
INVESTIGATIONS & Distributor of any allegation that Broker-Dealer or
PROCEEDINGS. any of its representatives violated any law,
regulation or rule in solicitin applications for or
servicing Contracts, and shall provide Penn Mutual
with full details, including copies of all legal
documents pertaining thereto.
8.2 Broker-Dealer shall cooperate fully with Penn Mutual
and Distributor in any regulatory investigation or
proceeding or judicial proceeding involving the
solicitation of application for and servicing
Contracts by Broker-Dealer or any of its
representatives.
- - --------------------------------------------------------------------------------
9. NONWAIVER. 9.1 Forbearance by Penn Mutual or Distributor to enforce
any rights under this agreement shall not be construed
as a waiver of any of the terms and conditions of this
agreement and the same shall remain in full force and
effect. No waiver of any provision of this agreement
shall be deemed to be a waiver of any other provision,
whether or not similar, nor shall any waiver of a
provision of this agreement be deemed to constitute a
continuing waiver.
- - --------------------------------------------------------------------------------
10.AMENDMENT. 10.1 Penn Mutual reserves the right to amend this Agreement
at any time. Broker-Dealer's submission of an
application for a Contract after notice of any such
amendment shall constitute agreement of Broker-Dealer
to such amendment.
- - --------------------------------------------------------------------------------
11.TERMINATION AND 11.1 This agreement may be terminated by any party, with or
ASSIGNMENT. without cause, upon giving written notices to the
other parties. This agreement shall automatically
terminate if Broker-Dealer is adjudicated as bankrupt
or avails itself of any insolvency act or if a
permanent receiver or trustee in bankruptcy is
appointed for the property of Broker-Dealer. Upon
termination of this agreement, with or without cause,
all authorizations, rights and obligations shall
cease, except the rights and obligations set forth in
sections 7 and 8 of this agreement and the obligations
to settle account hereunder, including the immediate
forwarding of all payments received by Broker-Dealer
under Contract to Penn Mutual, and except as may be
expressly stated otherwise in this agreement.
11.2 This agreement may not be assigned without the written
consent of all parties.
- - --------------------------------------------------------------------------------
12.GOVERNING LAW. 12.1 This agreement shall be construed in accordance with
and governed by the laws of the Commonwealth of
Pennsylvania.
- - --------------------------------------------------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their officers designated below on the day and year first written.
____________________________________________
Name of Broker-Dealer
By: _______________________________________
Signature
_______________________________________
Name
_______________________________________
Title
THE PENN MUTUAL LIFE INSURANCE COMPANY
By: _______________________________________
Signature
_______________________________________
Name
_______________________________________
Title
HORNOR, TOWNSEND & KENT, INC.
By: _______________________________________
Signature
_______________________________________
Name
_______________________________________
Title
<PAGE>
PENN THE PENN MUTUAL LIFE INSURANCE COMPANY
MUTUAL Independence Square, Philadelphia, PA 19172
- - --------------------------------------------------------------------------------
SCHEDULE 1 TO BROKER-DEALER SELLING AGREEMENT
Individual Variable and Fixed Annuity Contracts -
Diversifier II Individual Fixed - Only Annuity Contracts -
Diversifier II
Date of Broker-Dealer Selling Agreement to which this
schedule is attached: ________________
- - --------------------------------------------------------------------------------
1. AUTHORIZATION Subject to the conditions and limitations of the Broker-
TO SELL. Dealer Selling Agreement, Broker-Dealer is authorized to
solicit applications for Diversifier II Individual Variable
and Fixed Annuity Contracts and Diversifier II Individual
Fixed-Only Annuity Contracts issued by Penn Mutual
(hereinafter referred to as "Contracts").
This Schedule 1 replaces and supersedes any and all prior Schedule 1's attached
to the Broker-Dealer Selling Agreement.
Agreed:
Date:___________________________ _____________________________________________
Name of Broker-Dealer
By:__________________________________________
Signature
__________________________________________
Name
__________________________________________
Title
THE PENN MUTUAL LIFE INSURANCE COMPANY
By:__________________________________________
Signature
__________________________________________
Name
__________________________________________
Title
HORNOR, TOWNSEND & KENT, INC.
By:__________________________________________
Signature
__________________________________________
Name
__________________________________________
Title
<PAGE>
PENN THE PENN MUTUAL LIFE INSURANCE COMPANY
MUTUAL Independence Square, Philadelphia, PA 19172
- - --------------------------------------------------------------------------------
SCHEDULE 3 TO BROKER-DEALER SELLING AGREEMENT
Variable Universal Life Insurance Contracts - Penn Mutual
Cornerstone VUL II
Date of Broker-Dealer Selling Agreement to which this
schedule is attached:____________
- - --------------------------------------------------------------------------------
1. AUTHORIZATION Subject to and in accordance with the provisions of the
TO SELL. Broker-Dealer Selling Agreement, Broker-Dealer is
authorized to solicit applications for Form VU-94(s) and
Form VU-94(u) Flexible Premium Adjustable Variable
Universal Life Insurance Policies and such variations of
such form of contracts as may be designated by Penn Mutual
and approved under applicable state insurance laws
("Cornerstone VUL II Policies").
This Schedule 3 replaces and supersedes any and all prior Schedule 3's attached
to the Broker-Dealer Selling Agreement.
Agreed:
Date:___________________________ _____________________________________________
Name of Broker-Dealer
By:__________________________________________
Signature
__________________________________________
Name
__________________________________________
Title
THE PENN MUTUAL LIFE INSURANCE COMPANY
By:__________________________________________
Signature
__________________________________________
Name
__________________________________________
Title
HORNOR, TOWNSEND & KENT, INC.
By:__________________________________________
Signature
__________________________________________
Name
__________________________________________
Title
<PAGE>
PENN THE PENN MUTUAL LIFE INSURANCE COMPANY
MUTUAL Independence Square, Philadelphia, PA 19172
- - --------------------------------------------------------------------------------
SCHEDULE 4 TO BROKER-DEALER SELLING AGREEMENT
Variable Universal Life Insurance Contracts-Penn Mutual
Variable EstateMax
Date of Broker-Dealer Selling Agreement to which this
schedule is attached:____________
- - --------------------------------------------------------------------------------
1. AUTHORIZATION Subject to and in accordance with the provision of the
TO SELL. Broker-Dealer Selling Agreement, Broker-Dealer is
authorized to solicit applications for Form VALJ-94(s) and
Form VALJ-94(u) Last Survivor Adjustable Variable Life
Insurance Policies and such variations of such form of
contract as may be designated by Penn Mutual and approved
under applicable state insurance laws ("Variable EstateMax
Policies").
This Schedule 4 replaces and supersedes any and all prior Schedule 4's attached
to the Broker-Dealer Selling Agreement.
Agreed:
Date:___________________________ _____________________________________________
Name of Broker-Dealer
By:__________________________________________
Signature
__________________________________________
Name
__________________________________________
Title
THE PENN MUTUAL LIFE INSURANCE COMPANY
By:__________________________________________
Signature
__________________________________________
Name
__________________________________________
Title
HORNOR, TOWNSEND & KENT, INC.
By:__________________________________________
Signature
__________________________________________
Name
__________________________________________
Title
<PAGE>
The Penn Mutual Life Insurance Company
Philadelphia, PA 19172
Independent Broker/Dealers
SCHEDULE A TO THE FOLLOWING SELLING AGREEMENTS:
BROKER-DEALER SELLING AGREEMENT
BROKER-DEALER SELLING AGREEMENT - FORM A-2
CORPORATE INSURANCE AGENT SELLING AGREEMENT - FORM A-1
(EDITION OF NOVEMBER, 1998)
Subject to the conditions and limitations of the Broker's Selling Agreement,
Broker is authorized to solicit applications for the following contracts issued
by Penn Mutual (hereinafter referred to as "contracts"), prior to termination of
Broker's Selling Agreement. No fee shall be paid with respect to a purchase
payment made after the Broker's Selling Agreement has been terminated. Amounts
transferred among contracts are not purchase payments within the meaning of the
Broker's Selling Agreement or this Schedule. This Schedule replaces and
supersedes any and all prior Schedules attached to the Broker's Selling
Agreement.
1. INDIVIDUAL FIXED ANNUITY CONTRACTS - DIVERSIFIER II
Subject to the conditions and limitations of the Broker's Selling Agreement and
this Schedule, Broker shall be paid a fee for placing or servicing a Diversifier
II Individual Variable and Fixed Annuity Contract equal to 6% of any purchase
payment made under such contract and a fee for placing and servicing a
Diversifier II Fixed-Only Annuity Contract equal to 5% of any purchase payment
under such contract. If the Annuitant or Contractowner (other than a trustee of
a qualified plan) is over age 81 on the date the Diversifier II contract is
issued, the fee shall be limited as follows: 80% of such fee if the Annuitant or
contractowner is age 82; 60% of such fee if the Annuitant or contractowner is
age 83; 40% of such fee if the Annuitant or contractowner is age 84; 20% of such
fee if the Annuitant or contractowner is age 85.
2. INDIVIDUAL FIXED ANNUITY CONTRACTS - TRADEWIND
Subject to the conditions and limitations of the Broker's Selling Agreement and
this Schedule, Broker shall be paid a fee for placing or servicing TradeWind
Annuity Contract equal to 6% of any purchase payment under such contact. If the
Annuitant or Contractowner (other than a trustee of a qualified plan) is over
age 81 on the date the TradeWind contract is issued, the fee shall be limited as
follows: 80% of such fee if the Annuitant or contractowner is age 82; 60% of
such fee if the Annuitant or contractowner is age 83; 40% of such fee if the
Annuitant or contractowner is age 84; 20% of such fee if the Annuitant or
contractowner is age 85.
3. SINGLE PREMIUM IMMEDIATE ANNUITIES
Subject to the conditions and limitations of the Broker's Selling Agreement and
this Schedule, Broker shall be paid a fee for placing a Single Premium Immediate
Annuity equal to 4% of the single premium received under such contract.
4. GROUP COVERAGES
Subject to the conditions and limitations of the Broker's Selling Agreement and
this Schedule, Broker shall be paid a fee for placing, or servicing group
annuity policies, specifically, a group annuity contract of Penn Mutual on
Contract Forms D1-1088 (N.Y.), D1-1088A (N.Y.) and any other policies in the D1-
1088 series, (a contract on any such form being hereinafter called a
"Diversifier I Flex Group Annuity"), placed in force through Broker under this
agreement in amounts equivalent to a percentage of such premiums. Such
percentage or table of percentages shall be as agreed in amounts equivalent to a
percentage of such premiums. Said written documentation of Broker's fee shall be
1
<PAGE>
submitted to Penn Mutual with the Diversifier I Flex Group Annuity application
on a form signed by the plan trustee and agreed to by the Penn Mutual home
office. No compensation shall be payable pursuant to this agreement which would
be in excess of the limits of Section 4228 of the Insurance Law of the State of
New York for the sale of insurance products.
<PAGE>
5. VARIABLE ESTATEMAX
During the period the Broker-Dealer Selling Agreement is in effect,
and subject to and in accordance with the provisions thereof, Broker-
Dealer shall be compensated as follows with respect to a policy of
Penn Mutual know as the Last Survivor Flexible Premium Adjustable
Variable Life Insurance Policy (Policy Forms VALJ-94(S) and VALJ-
94(U)), (a policy on any such form being hereinafter called a
"Variable EstateMax Policy"), that is placed in force under this
agreement. With respect to each Variable EstateMax Policy, Broker-
Dealer may elect to receives fees under Option 1 or 2. If no option is
selected the default will be Option 1. Once each policy is in force,
no changes will be permitted to the choice of compensation.
A. OPTION 1.
---------
(a) Basic First Year Compensation
-----------------------------
A fee for the first policy year of 50% of A plus 2.0% of B
where A is equal to the lesser of:
(i) the premium paid in year 1
(ii) the target premium for the policy, or
(iii) the lesser of the premium scheduled to be paid in year
1 or 2, and
B is equal to the excess of the premium paid in year 1 over A.
Target premiums are maintained on file in Penn Mutual's Home
Office.
(b) Renewal Compensation
--------------------
A fee for the second through fifteenth years equal to 2.0% of the
premium paid for the policy year in question, and a fee for
the sixteenth and later policy years equal to 1.2% of the
premium paid for the policy year in question.
B. OPTION 2
--------
(a) Basic First Year Compensation
-----------------------------
Basic First Year Compensation is the same as in Option 1.
(b) Renewal Compensation
--------------------
Additionally, for the second through tenth policy years equal to
1.0% of the premium paid for the policy year in question, and no
fee for the eleventh and later policy years. Additionally, for the
second through tenth policy years, an fee equal to 0.08333% of the
policy value on
3
<PAGE>
each monthly anniversary. Monthly anniversary is defined as the
day in each calendar month which is the same day of the month as
the Policy Date. For the eleventh and later policy years, fee
equal to 0.020833% of the policy value on each monthly
anniversary. Policy value is as defined in the policy.
C. EXPENSE ALLOWANCE
-----------------
For each calendar month while Broker-Dealer Selling
Agreement is en effect and before its termination, Broker-Dealer
shall be entitled to the expense from Penn Mutual described
below, provided that the amount payable as an expense allowance
shall be limited to the total of reasonable business expenses
incurred by Broker-Dealer that are directly related to the sale
or service of Penn Mutual policies, and provided further that no
such allowance shall be payable to Broker-Dealer that would cause
the total of such allowances to exceed the limits of Section 4228
of the Insurance Law of the State of New York. No payment
pursuant to this agreement will be used by Broker-Dealer to
effect compensation for the sale of insurance in excess of the
limits of said Section 4228. Such allowance shall be 60% of an
amount equal to the Basic First Year Compensation during the
calendar month for which this allowance is being calculated.
D. COMPENSATION CHARGEBACKS
------------------------
A percentage of total compensation (including expense
allowance, if any) will be charged back for lapses, surrenders or
if a policy is unwound during the first policy year and during
the 12 policy months following an increase. The percentage is
shown below and will vary depending on the policy month of
lapse/surrender/unwind.
Month of Chargeback
Lapse/Surrender/ Percentage
Unwind
------
0-6 100%
7-12 50%
<PAGE>
6. CORNERSTONE VARIABLE UNIVERSAL LIFE
During the period the Broker-Dealer Selling Agreement is in effect,
and subject to and in accordance with the provisions thereof, Broker-
Dealer shall be compensated as follows with respect to a policy of
Penn Mutual know as the Flexible Premium Adjustable Variable Life
Insurance Policy (Policy Forms VU-90(S) and VU-90(U)), (a policy on
any such form being hereinafter called a "Cornerstone VUL Policy"),
that is placed in force through Agent under this agreement:
A. OPTION 1
--------
(a) Basic First Year Compensation
-----------------------------
A fee for the first policy year of 50% of A plus
3.75% of B where
A is equal to the lesser of:
(i) the premium paid in year 1
(ii) the target premium for the policy, or
(iii) the lesser of the premium scheduled to be paid in year 1 or 2,
and B is equal to the excess of the premium paid in year 1 over A.
Target premiums are maintained on file in Penn Mutual's Home Office.
(b) Renewal Compensation
--------------------
A fee for the second and third policy years of 4% of an amount equal
to premium paid for the policy year in question, a fee for the fourth
through fifteenth years, equal to 4.0% of the premium paid for the
policy year in question, and a fee for the sixteenth and later policy
years equal to 1.2% of the premium paid for the policy year in
question.
(c) Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of insurance, a fee
of 46% of C where:
C is equal to the lesser of:
(i) the premium paid in the twelve months following the
effective date of the increase,
(ii) the target premium for the amount of the increase, or
5
<PAGE>
(iii) the increase in the scheduled premium.
B. OPTION 2
--------
(a) Basic First Year Compensation
-----------------------------
Basic First Year Compensation is the same as in Option 1.
(b) Renewal Compensation
--------------------
A fee for the second through tenth policy years equal to 3.0% of the
premium paid for the policy year in question, and no fee for the
eleventh and later policy years. Additionally, for the second through
tenth policy years, an fee equal to 0.08333% of the policy value on
each monthly anniversary. Monthly anniversary is defined as the day in
each calendar month which is the same day of the month as the Policy
Date. For the eleventh and later policy years, fee equal to 0.020833%
of the policy value on each monthly anniversary. Policy value is as
defined in the policy.
(c) Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of insurance, a fee
of 47% of C where:
C is equal to the lesser of:
(i) the premium paid in the twelve months following the
effective date of the increase
(ii) the target premium for the amount of the increase, or
(iii) the increase in the scheduled premium.
C. EXPENSE ALLOWANCE
-----------------
For each calendar month while Broker-Dealer Selling Agreement is en
effect and before its termination, Broker-Dealer shall be entitled to
the expense from Penn Mutual described below, provided that the amount
payable as an expense allowance shall be limited to the total of
reasonable business expenses incurred by Broker-Dealer that are
directly related to the sale or service of Penn Mutual policies, and
provided further that no such allowance shall be payable to Broker-
Dealer that would cause the total of such allowances to exceed the
limits of Section 4228 of the Insurance Law of the State of New York.
No payment pursuant to this agreement will be used by Broker-Dealer to
effect compensation for the sale of insurance in excess of the limits
of said Section 4228. Such allowance shall be 60% of an amount equal
to the Basic First Year Compensation during the calendar month for
which this allowance is being calculated.
<PAGE>
D. COMPENSATION CHARGEBACKS
------------------------
A percentage of total compensation (including expense allowance,
if any) will be charged back for lapses, surrenders or if a
policy is unwound during the first policy year and during the 12
policy months following an increase. The percentage is shown
below and will vary depending on the policy month of
lapse/surrender/unwind.
Month of Chargeback
Lapse/Surrender/ Percentage
Unwind
------
0-3 100%
4-6 75%
7-9 50%
10-12 25%
7. Cornerstone UNIVERSAL LIFE II
During the period the Broker-Dealer Selling Agreement is in
effect, and subject to and in accordance with the provisions
thereof, Broker-Dealer shall be paid a fee for soliciting
applications and servicing a policy of Penn Mutual known as the
Flexible Premium Adjustable Variable Universal Life Insurance
Policy (Policy Forms VU-94(S) and VU-94(U)), (a policy on any
such form being hereinafter called a "Cornerstone VUL II
Policy"), that is placed in force before termination of this
agreement. With respect to each Cornerstone VUL II Policy,
Broker-Dealer may elect to receives fees under Option 1 or 2. If
no option is selected the default will be Option 1. Once each
policy is in force, no changes will be permitted to the choice of
compensation.
A. OPTION 1
--------
(a) Basic First Year Compensation
-----------------------------
A fee for the first policy year equal to 50% of A
plus 3.3% of B where
A is equal to the lesser of:
(i) the premium paid in year 1
(ii) the target premium for the policy, or
(iii) the lesser of the premium scheduled to be
paid in year 1 or 2, and
<PAGE>
B is equal to the excess of the premium paid in year 1 over A.
Target premiums are maintained on file in Penn Mutual's Home
Office.
(b) Renewal Compensation
--------------------
A fee for the second through fifteenth years equal to 3.0% of the
premium paid for the policy year in question, and a fee for the
sixteenth and later policy years equal to 1.2% of the premium
paid for the policy year in question.
(c) Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of insurance,
a fee of 47% of C where:
C is equal to the lesser of:
(i) the premium paid in the twelve months following
the effective date of the increase
(ii) the target premium for the amount of the increase
or
(iii) the increase in the scheduled premium.
B. OPTION 2
--------
(a) Basic First Year Compensation
-----------------------------
Basic First Year Compensation is the same as in Option 1.
(b) Renewal Compensation
--------------------
A fee for the second through tenth policy years equal to 2.0% of
the premium paid for the policy year in question, and no fee for
the eleventh and later policy years. Additionally, for the second
through tenth policy years, an fee equal to 0.08333% of the
policy value on each monthly anniversary. Monthly anniversary is
defined as the day in each calendar month which is the same day
of the month as the Policy Date. For the eleventh and later
policy years, fee equal to 0.020833% of the policy value on each
monthly anniversary. Policy value is as defined in the policy.
9
<PAGE>
(c) Basic Compensation on Increases
-------------------------------
In the case of an increase in the Specified Amount of
insurance, a fee of 47% of C where:
C is equal to the lesser of:
(i) the premium paid in the twelve months following
the effective date of the increase
(ii) the target premium for the amount of the increase
or
(iii) the increase in the scheduled premium.
C. EXPENSE ALLOWANCE
-----------------
For each calendar month while Broker-Dealer Selling
Agreement is en effect and before its termination, Broker-Dealer
shall be entitled to the expense from Penn Mutual described
below, provided that the amount payable as an expense allowance
shall be limited to the total of reasonable business expenses
incurred by Broker-Dealer that are directly related to the sale
or service of Penn Mutual policies, and provided further that no
such allowance shall be payable to Broker-Dealer that would cause
the total of such allowances to exceed the limits of Section 4228
of the Insurance Law of the State of New York. No payment
pursuant to this agreement will be used by Broker-Dealer to
effect compensation for the sale of insurance in excess of the
limits of said Section 4228. Such allowance shall be 60% of an
amount equal to the Basic First Year Compensation during the
calendar month for which this allowance is being calculated.
D. COMPENSATION CHARGEBACKS
------------------------
A percentage of total compensation (including expense allowance,
if any) will be charged back for lapses, surrenders or if a
policy is unwound during the first policy year and during the 12
policy months following an increase. The percentage is shown
below and will vary depending on the policy month of
lapse/surrender/unwind.
Month of Lapse/ Chargeback
Surrender/Unwind Percentage
---------------- ----------
0-3 100%
4-6 75%
7-9 50%
10-12 25%
<PAGE>
8. PENNANT SELECT(TM)
During the period the Broker-Dealer Selling Agreement is in
effect, and subject to and in accordance with the provisions
thereof, Broker-Dealer shall be paid a fee for soliciting
applications and servicing Contracts of Penn Mutual known as the
Pennant Select Individual Variable and Fixed Annuity Contract
(Policy Form VAA-98 and any variation thereof), (a policy on any
such form being hereinafter called a "Pennant Select Annuity
Contract"), that is placed in force before termination of this
agreement. With respect to each Pennant Select Annuity Contract,
Broker-Dealer may elect to receives fees under Option 1, 2 or 3.
If no option is selected the default will be Option 1. Once each
policy is in force, no changes will be permitted to the choice of
compensation.
A. OPTION 1
--------
(a) 7.00% (4.2% where the insured has an attained age
greater than 80) of aggregate purchase payments up to
$1,000,000 per Contract; aggregate purchase payments in
excess of $1,000,000 require a separate written agreement
with the Home Office.
B. OPTION 2
--------
(a) 6.7% (4.0% where the insured has an attained age
greater than 80) of aggregate purchase payments up to
$1,000,000 per Contract; aggregate purchase payments in
excess of $1,000,000 require a separate written agreement
with the Home Office.
(b) 0.50% of the Account Value, for the eighth and later
contract years, calculated on a quarterly basis and paid at
a quarter of the stated rate, and commencing with the first
calendar quarter of the eight Contract year and payable at
the end of each calendar quarter.
C. OPTION 3
--------
(a) 5.85% (3.5% where the insured has an attained age
greater than 80) of aggregate purchase payments in excess of
$1,000,000 require a separate written agreement with the
Home Office.
(b) 0.20% of the Account Value, for the second through
seventh contract years, calculated on a quarterly basis and
paid at a quarter of the stated rate, and commencing with
the first calendar quarter of following the first Contract
anniversary year and payable at the end of each calendar
quarter.
(c) 0.50% of the Account Value, for the eighth and later
contract years, calculated on a quarterly basis and paid at
a quarter of the stated rate, and commencing with the first
calendar quarter of the eight Contract year and payable at
the end of each calendar quarter.
<PAGE>
9. Commander(TM)
During the period the Broker-Dealer Selling Agreement is in
effect, and subject to and in accordance with the provisions
thereof, Broker-Dealer shall be paid a fee for soliciting
applications and servicing Contracts of Penn Mutual known as
the Commander Individual Variable and Fixed Annuity Flexible
Purchase Payment Annuity Contract (Policy Forms VAB-98 and
any variation thereof), (a policy on any such form being
hereinafter called a OCommander Annuity ContractO), that is
placed in force before termination of this agreement.
A. 1.00% of aggregate purchase payments up to
$1,000,000 per Contract; aggregate purchase payments in
excess of $1,000,000 require a separate written
agreement with the Home Office; and
B. 1.00% of the Account Value, for the second through
seventh contract years, calculated on a quarterly basis
and paid at a quarter of the stated rate, and
commencing with the first calendar quarter of following
the first Contract anniversary year and payable at the
end of each calendar quarter.
10. REPLACEMENT OF PENN MUTUAL POLICES
It is agreed that the compensation otherwise payable to Broker-Dealer for any
policy shall be reduced in accordance with the replacement control program in
effect at the time such policy is placed in force. It is anticipated that such
replacement control program may be changed form time to time as to policies in
force after such change.
13
<PAGE>
11. POLICY DELIVERY RECEIPT
It is agreed that the Broker-Dealer shall be responsible for obtaining a signed
policy delivery receipt in accordance with Company policy.
<PAGE>
The Penn Mutual Life Insurance Company
Founded 1847
Contract Owner William Penn 9999999 Contract Number
Contract Date August 7, 1998 September 1, 2058 Annuity Date
Annuitant William Penn 35 Age of Annuitant
VALUES AND PAYMENTS UNDER THIS CONTRACT, WHEN BASED UPON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE. THEY MAY DECREASE OR INCREASE
AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
RIGHT TO REVIEW CONTRACT: The Contract Owner may cancel this contract within
ten days after its receipt. Simply return or mail it to the Company or the
representative through whom it was purchased. The Company will refund the
Contract Value as of the time notification is received.
This is a legal contract between the Contract Owner and Penn Mutual. Please
read the contract carefully.
Executed on the Contract Date by The Penn Mutual Life Insurance Company.
/s/ Laura M. Ritzko /s/ Robert E. Chappell
Secretary Chairman and
Chief Executive Officer
Individual Variable and Fixed
Annuity Contract
Flexible Purchase Payments
. Annuity Payments payable on Annuity Date
. Flexible Purchase Payments payable
until Annuity Date
. Participating
. The Company will make monthly annuity
payments and other payments as set
forth in this contract.
The Penn Mutual Life Insurance Company, Philadelphia, Pennsylvania 19172
A004260C
VAA-98
<PAGE>
Guide to Contract Sections
1. Contract Specifications 10. Fixed Annuity Payments
2. Endorsements 11. Variable Annuity Payments
3. Definitions 12. Annuity Options
4. Purchase Payments 13. Death Benefit
5. The Separate Account 14. Transfers
6. The Fixed Account 15. Withdrawal
7. Charges and Deductions 16. General
8. Contract Value
9. Annuity Payments
Additional Contract Specifications
and a copy of any applications follow
Section 16.
<PAGE>
1. Contract Specifications
- - --------------------------------------------------------------------------------
Contract Owner: William Penn Contract Number: 9999999
Contract Date: August 7, 1998 Annuity Date: September 1, 2058
Annuitant: William Penn Age of Annuitant: 35
- - --------------------------------------------------------------------------------
Market Type: Non-Qualified
Separate Account: PML Variable Annuity Account III
Schedule of Purchase Payments
- - -----------------------------
Initial Purchase Payment of $10,000.00 was allocated to the contract on
August 7, 1998 as follows:
Variable Account 70%
Fixed Account 30%
Subsequent Purchase Payments may be made subject to the provisions of the
contract.
Schedule of Annual Charges
- - --------------------------
Annual Contract Administration Charge*: $40
Asset Based Contract Administration Charge**: .15%
Mortality & Expense Risk Charge**: 1.20%
Date Annual Charges are deducted each year: August 6
*THE CONTRACT ADMINISTRATION CHARGE APPLIES EACH YEAR THERE IS A VARIABLE
ACCOUNT VALUE WHICH IS LESS THAN $100,000.
**THE MORTALITY AND EXPENSE RISK CHARGE AS WELL AS THE ASSET BASED CONTRACT
ADMINISTRATION CHARGE ARE MADE DAILY AGAINST THE ASSETS OF THE SEPARATE ACCOUNT.
Schedule of Contingent Deferred Sales Charge
- - --------------------------------------------
Number of contract years since Contingent Deferred
purchase payment Sales Charge
(% of purchase payment)
0 7.0%
1 7.0
2 6.0
3 5.0
4 4.0
5 3.0
6 1.5
7+ 0.0
Refer to Section 7 of the contract for further information on the Contingent
Deferred Sales Charge.
Page 3
<PAGE>
2. Endorsements
To be made only by the Company
This page is intentionally
left blank.
Page 4
B004253E
<PAGE>
3. Definitions
Accumulation Unit: A unit of measure used to compute the Variable Account Value
under the contract prior to the Annuity Date. See Section 8.
Annuitant: The person during whose life annuity payments are made.
Annuity Date: The date on which annuity payments start.
Annuity Unit: A unit of measure used to calculate the amount of a variable
annuity payment. See Section 11.
Contract Owner: The person specified in the contract as the contract owner.
The Contract Owner has all rights to control all aspects of the contract,
including, after the Annuity Date and before the death of the Annuitant, the
right to transfer amounts among the subaccounts of the Separate Account and the
right to change the beneficiary.
Fixed Account: The account under which amounts are held for the Contract Owner
under all fixed interest options prior to the Annuity Date.
Interest Period: The period of time for which an interest rate declared by the
Company is guaranteed. The period begins on the first day of the calendar month
in which allocation or transfer is made.
Qualified Plan: A retirement arrangement that receives special tax treatment
under Section 403, 408, or any similar provisions of the Internal Revenue Code.
Variable Account: The account under which amounts are held for the Contract
Owner under all subaccounts of the Separate Account prior to the Annuity Date.
The Company: The Penn Mutual Life Insurance Company.
4. Purchase Payments
Purchase payments will be allocated to the subaccounts of the Separate Account
and to the fixed interest options of the Fixed Account as directed by the
Contract Owner in the application for this contract.
Subsequent purchase payments will be allocated, as specified in the allocation
section of the application, to the subaccounts of the Separate Account and to
the fixed interest options of the Fixed Account unless the Contract Owner
directs that the purchase payments be allocated otherwise.
Purchase payments applied to the contract after issue may be made at any time
without prior notice to the Company. The minimum subsequent purchase payment is
$5,000.
Total purchase payments may not exceed $1,000,000 at any time without the
consent of the Company.
5. The Separate Account
The Separate Account. The Separate Account named on Page 3 was established by
the Company for this and other variable contracts. The Separate Account is
divided into subaccounts for the investment of assets in shares of the mutual
funds which are listed in the Additional Contract Specifications Page.
The Company owns the assets held in the Separate Account. However, the portion
of the assets of each subaccount of the Separate Account equal to the reserves
and other contract liabilities with respect to the subaccount of the Separate
Account are not chargeable with the liabilities arising out of any other
business the
Page 5
A004291P
<PAGE>
Page 6
5. The Separate Account (continued)
Company may conduct. Income and realized and unrealized gains and losses from
the assets held in each subaccount are credited to or charged against the
subaccount without regard to the income, gains or losses in other investment
accounts of the Company. Shares of a mutual fund held in a subaccount will be
redeemed at current net asset value to make transfers, pay benefits and cover
applicable charges and deductions. Any dividend or capital gain distribution
from a mutual fund will be reinvested in shares of that mutual fund.
Substitution of Investment. If investment in a subaccount should no longer be
possible, or a subaccount's investment in a particular mutual fund should no
longer be possible, or, in the judgment of the Company, investment in a
subaccount or mutual fund becomes inappropriate to the purposes of the contract,
or, if in the judgment of the Company, investment in another subaccount, mutual
fund or insurance company separate account is in the interest of Contract Owners
of this class of contracts, the Company may substitute another subaccount,
mutual fund or insurance company separate account. Substitution may be made with
respect to existing investments and the investment of future purchase payments.
Substitution will be subject to all approvals required under applicable law.
6. The Fixed Account
The Fixed Account. The Fixed Account consists of the fixed interest options
which are listed in the Additional Contract Specifications Page.
Amounts allocated or transferred to the Fixed Account under this contract become
a part of the general account assets of the Company and do not fluctuate with
regard to investment experience.
Six Month Fixed Interest Option. Amounts may be only allocated to this fixed
interest option in conjunction with an election of the dollar cost averaging
program. If the dollar cost averaging program is terminated at the request of
the Contract Owner, the remaining balance will be transferred to the One Year
Fixed Interest Option unless otherwise directed by the Contract Owner.
Amounts held in the Six Month Fixed Interest Option of the Fixed Account will be
credited with interest at effective annual rates declared by the Company. The
declared interest rate will apply from the date of the allocation through the
end of a six month interest period. At the expiration of the interest period,
the Company will declare a rate not less than 3% for that portion of the fixed
interest option.
One Year Fixed Interest Option. Amounts may be allocated or transferred to this
fixed interest option. Amounts held in this fixed interest option of the Fixed
Account will be credited with interest at effective annual rates declared by the
Company. The declared interest rate will apply from the date of the allocation
or transfer through the end of a one year interest period. At the expiration of
an interest period, the Company will renew the portion of the fixed interest
option that has expired at the new rate declared for the interest period at that
time. For the 25 days following the expiration of such period, the Contract
Owner may transfer all or a portion of the amount held in such fixed interest
option to subaccount(s) of the Separate Account.
The Company will not declare rates of interest for any fixed interest option of
less than 3%.
7. Charges and Deductions
Contract Administration Charges. These charges are assessed against contracts
with a Variable Account Value. The first charge is the Annual Contract
Administration Charge which will be no greater than the lesser of 2% of the
Variable Account Value or dollar amount specified on Page 3. This charge will
only be applied if the Variable Account Value at the time the charge is incurred
is less
A004292P
<PAGE>
7. Charges and Deductions(continued)
than $100,000. It will be deducted annually on the dates specified on Page 3. It
will also be deducted when the Variable Account Value is withdrawn or
transferred in full if withdrawal or transfer is not on the date specified on
Page 3. The charge will not be deducted after the Annuity Date.
The second charge is an asset based contract administration charge. On an annual
basis the charge will be a percentage of the daily net asset value of the
Variable Account which will not exceed the charge shown on Page 3.
Mortality and Expense Risk Charge. This charge is made to compensate the Company
for the mortality guarantees made under this contract and for guaranteeing that
the contract administration charges will not be increased by the Company over
the life of this contract or other contracts under the same class. On an annual
basis the charge will be a percentage of the daily net asset value of the
Variable Account. The charge will not exceed the value shown on Page 3.
Contingent Deferred Sales Charge. This charge, if applicable, will be deducted
upon withdrawal, in whole or in part, of the Contract Value. This charge will
not be applied on payment at time of annuitization, on a death benefit payment,
medically related withdrawal payment or disability withdrawal payment . For
further definition of the charge, see Section 15 - Withdrawal.
Premium Taxes. The Company may deduct from the Contract Value any premium or
other taxes payable to a state or other government entity. Should the Company
elect not to assess any amount so due, the Company does not waive the right to
collect such amounts at a later date.
Deductions. The asset based contract administration charge and the mortality and
expense risk charge will be computed and deducted from each subaccount of the
Separate Account in which the Contract Owner is invested. These deductions will
be made daily.
The Company will deduct other charges applicable to the Variable Account by
canceling Accumulation Units or Annuity Units. The value of the canceled units
will be equal to the amount of the charges. Cancellation of Accumulation Units
will be in the ratio of the Contract Owner's share in each subaccount of the
Separate Account to the Variable Account Value.
8. Contract Value
The Contract Value. The contract value is the sum of the Variable Account Value
and the Fixed Account Value.
The Fixed Account Value. The Fixed Account Value is the sum of all money
allocated or transferred to the fixed interest options of the Fixed Account plus
all interest credited to the Fixed Account. This amount shall be adjusted for
withdrawals, transfers and charges.
The Variable Account Value. The Variable Account Value is the sum of the values
of the Accumulation Units held in the subaccounts of the Separate Account for
this contract.
Number of Accumulation Units. For each subaccount of the Separate Account, the
number of Accumulation Units is the sum of (a) divided by (b), where:
(a) is each amount allocated to the subaccount; and
(b) is the value of the Accumulation Unit for that subaccount for the valuation
period in which the purchase payment was received.
The number of Accumulation Units will be adjusted for transfers, withdrawals and
charges. Adjustments will be made as of the valuation period in which all
requirements for the transaction are received.
Value of Each Accumulation Unit. For each subaccount of the Separate Account,
the value was arbitrarily set at $10 when the subaccount was established. The
value may increase or decrease from one valuation period to the next. For any
valuation period the value is (a) multiplied by (b), where:
(a) is the value of an Accumulation Unit for the prior valuation period; and
(b) is the net investment factor for that subaccount for the current valuation
period.
Net Investment Factor. As used in this contract, net investment factor is an
index used to measure the investment performance of a subaccount from one
valuation period to the next.
Page 7
A004293P
<PAGE>
Page 8
8. Contract Value (continued)
For any subaccount, the net investment factor for a valuation period is found by
dividing (a) by (b) and subtracting (c), where:
(a) is the net result of:
(1) net asset value per-share of the mutual fund held in the subaccount as
of the end of the valuation period; plus
(2) the per-share amount of any dividend or capital gain distributions by
the mutual fund if the "ex-dividend" date occurs in the valuation
period; plus or minus
(3) a per-share charge or credit as the Company may determine, as of the
end of the valuation period, for tax reserves.
(b) is the net result of:
(1) the net asset value per-share of the mutual fund held in the
subaccount as of the end of the last prior valuation period; plus or
minus
(2) the per-share charge or credit for tax reserves as of the end of the
last prior valuation period.
(c) is the sum of the daily asset based contract administration charge, the
daily mortality and expense risk charge. On an annual basis, the sum of
such charges will not exceed the values shown on Page 3.
Valuation Period. It is the interval of time from one valuation to the next.
Valuation is the time when shares of the applicable mutual funds are valued.
9. Annuity Payments
Annuity Date. Unless another Annuity Date was chosen in the application or later
written notification, the Annuity Date will be the later of the first day of the
next month after the Annuitant's 95th birthday or 10 years after the Contract
Date.
The Annuity Date must be on the first day of a month. The Contract Owner may
change the Annuity Date up to 30 days before the current Annuity Date.
Annuity Options. The Contract Owner may choose a fixed annuity option, a
variable annuity option, or a combination of both up to 30 days prior to the
Annuity Date.
On the Annuity Date, the Contract Value, net of premium taxes if applicable,
must be annuitized. If not otherwise specified by the Contract Owner, the
contract will be annuitized on the Annuity Date based on a life annuity with
payments guaranteed for a 10 year period. If not otherwise specified by the
Contract Owner, the Fixed Account Value will be annuitized under the fixed
annuity option and the Variable Account Value will be annuitized under the
variable annuity option.
Minimum Annuity Payments. If the Contract Value to be applied at the Annuity
Date is less than $5,000, the Company may pay such amount in a lump sum. Annuity
payments will be made monthly, quarterly, semi-annually or annually at the
Contract Owner's request. If any payment would be less than $50, the Company may
change the frequency so that payments are at least $50 each.
10. Fixed Annuity Payments
Amount of Fixed Annuity Payments. The portion of the Contract Value designated
by the Contract Owner for a fixed annuity option, will be applied to that
annuity option as of the Annuity Date. In no event will the monthly income under
Option 1, Option 2, Option 3 and Option 4 be less than the guaranteed monthly
income. The guaranteed monthly income will be equal to that portion of the
Contract Value, designated by the Contract Owner for a fixed annuity option,
applied to the Fixed Annuity Options Table in this section. The Fixed Annuity
Options Table shows the amount of the first payment for each $1,000 so applied,
according to the age at the Annuity Date. The tables are based on the Annuity
2000 Basic Table, without projections, 50% male/50% female with an effective
annual interest rate of 3%. Adjusted ages are used in applying those tables.
A004294P
<PAGE>
10. Fixed Annuity Payments (continued)
Fixed Annuity Option Tables
The following tables show the amount of the first monthly income payment for
each $1,000 of value applied under an annuity option. "Age" as used in the
tables for Options 2,3, and 4 means an adjusted age determined in the following
manner from the actual age of the Annuitant on the birthday nearest the date of
the first payment:
Date of First Payment Adjusted Age
Before calendar year 2010 Actual Age
2010-2019 Actual age decreased by 1
2020-2029 Actual age decreased by 2
2030 and later Actual age decreased by 3
<TABLE>
<CAPTION>
Option 1 - Annuity for Specified Number of Years
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Years 5 6 7 8 9 10 11 12 13 14 15 16 17
Monthly Income 17.91 15.14 13.16 11.68 10.53 9.61 8.86 8.24 7.71 7.26 6.87 6.53 6.23
- - ------------------------------------------------------------------------------------------------------------------------------------
Number of Years 18 19 20 21 22 23 24 25 26 27 28 29 30
Monthly Income 5.96 5.73 5.51 5.32 5.15 4.99 4.84 4.71 4.59 4.47 4.37 4.27 4.18
- - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Option 2 - Life Annuity and Option 3 - Life Annuity with Payments Guaranteed for 10 or 20 Years
- - ------------------------------------------------------------------------------------------------------------------------------------
Life 10 Years 20 Years Life 10 Years 20 Years
Age Annuity Guaranteed Guaranteed Age Annuity Guaranteed Guaranteed
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 3.95 3.93 3.86 75 7.61 6.88 5.34
51 4.02 3.99 3.91 76 7.93 7.06 5.37
52 4.08 4.06 3.96 77 8.27 7.25 5.40
53 4.16 4.12 4.02 78 8.64 7.44 5.42
54 4.23 4.20 4.08 79 9.03 7.62 5.44
55 4.31 4.27 4.14 80 9.46 7.81 5.46
56 4.39 4.35 4.20 81 9.91 7.99 5.47
57 4.48 4.43 4.26 82 10.41 8.16 5.48
58 4.58 4.52 4.33 83 10.93 8.32 5.49
59 4.68 4.61 4.39 84 11.50 8.48 5.50
60 4.78 4.71 4.46 85 12.11 8.62 5.50
61 4.90 4.81 4.53 86 12.76 8.76 5.51
62 5.02 4.92 4.60 87 13.46 8.88 5.51
63 5.15 5.03 4.66 88 14.20 8.99 5.51
64 5.28 5.15 4.73 89 14.98 9.09 5.51
65 5.43 5.28 4.80 90 15.81 9.17 5.51
66 5.59 5.41 4.87 91 16.68 9.25 5.51
67 5.76 5.55 4.93 92 17.59 9.32 5.51
68 5.94 5.70 4.99 93 18.55 9.38 5.51
69 6.13 5.85 5.05 94 19.55 9.44 5.51
70 6.33 6.01 5.11 95 20.62 9.48 5.51
71 6.56 6.17 5.17
72 6.79 6.34 5.21
73 7.05 6.51 5.26
74 7.32 6.69 5.30
<CAPTION>
Option 4 - Joint and Survivor Life Annuity
- - ----------------------------------------------------------------------------------------------------------------
Age 50 55 60 65 70 75 80 85 90 95 Age
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 3.53 3.64 3.73 3.80 3.85 3.89 3.92 3.93 3.94 3.95 50
55 3.64 3.79 3.92 4.04 4.13 4.20 4.24 4.27 4.29 4.30 55
60 3.73 3.92 4.12 4.30 4.45 4.57 4.65 4.71 4.74 4.76 60
65 3.80 4.04 4.30 4.56 4.81 5.02 5.17 5.28 5.35 5.38 65
70 3.85 4.13 4.45 4.81 5.18 5.52 5.80 6.01 6.15 6.23 70
75 3.89 4.20 4.57 5.02 5.52 6.04 6.52 6.91 7.19 7.37 75
80 3.92 4.24 4.65 5.17 5.80 6.52 7.27 7.96 8.50 8.87 80
85 3.93 4.27 4.71 5.28 6.01 6.91 7.96 9.03 9.99 10.73 85
90 3.94 4.29 4.74 5.35 6.15 7.19 8.50 9.99 11.48 12.78 90
95 3.95 4.30 4.76 5.38 6.23 7.37 8.87 10.73 12.78 14.74 95
</TABLE>
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<PAGE>
Page 10
11. Variable Annuity Payments
First Variable Annuity Payment. The portion of the Contract Value designated by
the Contract Owner for a variable annuity option will be applied to one of the
Variable Annuity Option Tables in this section for the variable annuity option
and the assumed interest rate chosen as of the Annuity Date. The tables are
based on the Annuity 2000 Basic Table, without projections, 50% male/50% female
with an effective annual interest rate stipulated on the table. Adjusted ages
are used in applying those tables.
Subsequent Variable Annuity Payments. Payments after the first will vary in
amount according to the investment performance of the subaccount(s). The
payment amount may change from month to month. The amount of each subsequent
payment is the sum of (a) multiplied by (b) for each applicable subaccount,
where:
(a) is the number of Annuity Units for the subaccount; and
(b) is the value of an Annuity Unit for that subaccount for the valuation period
in which payment is due.
The amount of each annuity payment after the first will not be affected by
variations in expense or mortality experience.
Number of Annuity Units. The number of units for the subaccount of each
investment account chosen is (a) divided by (b), where:
(a) is the amount of the first variable annuity payment attributable to that
subaccount; and
(b) is the value of an Annuity Unit for the subaccount as of the Annuity Date.
The number of Annuity Units is fixed except for adjustments for subaccount
transfers. Adjustments will be made as of the valuation period in which all
requirements for the transfer are received.
Value of Each Annuity Unit. For each subaccount, the value of an Annuity Unit
was arbitrarily set at $10 when the subaccount was established. The value may
increase or decrease from one valuation period to the next. For any valuation
period the value is (a) multiplied by (b) multiplied by (c), where:
(a) is the value of an Annuity Unit for the last prior valuation period
(b) is the net investment factor for that subaccount for the valuation period
(c) is an interest factor to neutralize the assumed interest rate built into the
annuity tables.
Net Investment Factor. The net investment factor is an index used to measure
the investment performance of a subaccount from one valuation period to the
next. For any subaccount, the net investment factor for a valuation period is
found by dividing (a) by (b) and subtracting (c), where:
(a) is the net result of:
(1) net asset value per-share of the mutual fund held in the subaccount as of
the end of the valuation period; plus
(2) the per-share amount of any dividend or capital gain distributions by the
mutual fund if the "ex-dividend" date occurs in the valuation period; plus
or minus
(3) a per-share charge or credit as the Company may determine, as of the end
of the valuation period, for tax reserves.
(b) is the net result of:
(1) the net asset value per-share of the mutual fund held in the subaccount as
of the end of the last prior valuation period; plus or minus
(2) the per-share charge or credit for tax reserves as of the end of the last
prior valuation period.
(c) is the sum of the daily asset based contract administration charge and the
daily mortality and expense risk charge. On an annual basis, this charge
will be a percentage of the daily net asset value of the Separate Account.
The sum of such charges will not exceed the values shown on Page 3.
A004296P
<PAGE>
11. Variable Annuity Payments(continued)
Variable Annuity Option Tables - 3% Interest Option
The following tables show the amount of the first monthly income payment for
each $1,000 of value applied under an annuity option. "Age" as used in the
tables for Options 2,3, and 4 means an adjusted age determined in the following
manner from the actual age of the Annuitant on the birthday nearest the date of
the first payment:
Date of First Payment Adjusted Age
Before calendar year 2010 Actual Age
2010-2019 Actual age decreased by 1
2020-2029 Actual age decreased by 2
2030 and later Actual age decreased by 3
<TABLE>
<CAPTION>
Option 2 - Life Annuity and Option 3 - Life Annuity with Payments Guaranteed for 10 or 20 Years
- - ------------------------------------------------------------------------------------------------------------------------------------
Life 10 Years 20 Years Life 10 Years 20 Years
Age Annuity Guaranteed Guaranteed Age Annuity Guaranteed Guaranteed
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 3.95 3.93 3.86 75 7.61 6.88 5.34
51 4.02 3.99 3.91 76 7.93 7.06 5.37
52 4.08 4.06 3.96 77 8.27 7.25 5.40
53 4.16 4.12 4.02 78 8.64 7.44 5.42
54 4.23 4.20 4.08 79 9.03 7.62 5.44
55 4.31 4.27 4.14 80 9.46 7.81 5.46
56 4.39 4.35 4.20 81 9.91 7.99 5.47
57 4.48 4.43 4.26 82 10.41 8.16 5.48
58 4.58 4.52 4.33 83 10.93 8.32 5.49
59 4.68 4.61 4.39 84 11.50 8.48 5.50
60 4.78 4.71 4.46 85 12.11 8.62 5.50
61 4.90 4.81 4.53 86 12.76 8.76 5.51
62 5.02 4.92 4.60 87 13.46 8.88 5.51
63 5.15 5.03 4.66 88 14.20 8.99 5.51
64 5.28 5.15 4.73 89 14.98 9.09 5.51
65 5.43 5.28 4.80 90 15.81 9.17 5.51
66 5.59 5.41 4.87 91 16.68 9.25 5.51
67 5.76 5.55 4.93 92 17.59 9.32 5.51
68 5.94 5.70 4.99 93 18.55 9.38 5.51
69 6.13 5.85 5.05 94 19.55 9.44 5.51
70 6.33 6.01 5.11 95 20.62 9.48 5.51
71 6.56 6.17 5.17
72 6.79 6.34 5.21
73 7.05 6.51 5.26
74 7.32 6.69 5.30
<CAPTION>
Option 4 - Joint and Survivor Life Annuity
- - ----------------------------------------------------------------------------------------------------------------------
Age 50 55 60 65 70 75 80 85 90 95 Age
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 3.53 3.64 3.73 3.80 3.85 3.89 3.92 3.93 3.94 3.95 50
55 3.64 3.79 3.92 4.04 4.13 4.20 4.24 4.27 4.29 4.30 55
60 3.73 3.92 4.12 4.30 4.45 4.57 4.65 4.71 4.74 4.76 60
65 3.80 4.04 4.30 4.56 4.81 5.02 5.17 5.28 5.35 5.38 65
70 3.85 4.13 4.45 4.81 5.18 5.52 5.80 6.01 6.15 6.23 70
75 3.89 4.20 4.57 5.02 5.52 6.04 6.52 6.91 7.19 7.37 75
80 3.92 4.24 4.65 5.17 5.80 6.52 7.27 7.96 8.50 8.87 80
85 3.93 4.27 4.71 5.28 6.01 6.91 7.96 9.03 9.99 10.73 85
90 3.94 4.29 4.74 5.35 6.15 7.19 8.50 9.99 11.48 12.78 90
95 3.95 4.30 4.76 5.38 6.23 7.37 8.87 10.73 12.78 14.74 95
</TABLE>
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<PAGE>
Page 12
11. Variable Annuity Payments(continued)
Variable Annuity Option Tables - 5% Interest Option
The following tables show the amount of the first monthly income payment for
each $1,000 of value applied under an annuity option. "Age" as used in the
tables for Options 2,3, and 4 means an adjusted age determined in the following
manner from the actual age of the Annuitant on the birthday nearest the date of
the first payment:
<TABLE>
<CAPTION>
Date of First Payment Adjusted Age
Before calendar year 2010 Actual Age
2010-2019 Actual age decreased by 1
2020-2029 Actual age decreased by 2
2030 and later Actual age decreased by 3
Option 2 - Life Annuity and Option 3 - Life Annuity with Payments Guaranteed for 10 or 20 Years
- - ------------------------------------------------------------------------------------------------------------------------------------
Life 10 Years 20 Years Life 10 Years 20 Years
Age Annuity Guaranteed Guaranteed Age Annuity Guaranteed Guaranteed
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50 5.17 5.14 5.04 75 8.79 7.93 6.35
51 5.23 5.19 5.09 76 9.11 8.10 6.38
52 5.29 5.25 5.13 77 9.45 8.28 6.41
53 5.36 5.31 5.18 78 9.82 8.46 6.43
54 5.43 5.38 5.23 79 10.22 8.64 6.44
55 5.50 5.45 5.29 80 10.65 8.81 6.46
56 5.58 5.52 5.34 81 11.12 8.98 6.47
57 5.67 5.60 5.40 82 11.62 9.14 6.48
58 5.76 5.68 5.45 83 12.15 9.29 6.49
59 5.86 5.77 5.51 84 12.73 9.44 6.50
60 5.96 5.86 5.57 85 13.34 9.58 6.50
61 6.07 5.96 5.63 86 14.00 9.70 6.51
62 6.19 6.06 5.69 87 14.71 9.81 6.51
63 6.32 6.17 5.75 88 15.46 9.92 6.51
64 6.45 6.28 5.82 89 16.25 10.01 6.51
65 6.60 6.40 5.88 90 17.08 10.09 6.51
66 6.75 6.53 5.94 91 17.96 10.17 6.51
67 6.92 6.66 5.99 92 18.88 10.23 6.51
68 7.10 6.80 6.05 93 19.84 10.29 6.51
69 7.29 6.95 6.10 94 20.84 10.34 6.51
70 7.50 7.10 6.15 95 21.91 10.38 6.51
71 7.72 7.25 6.20
72 7.96 7.42 6.24
73 8.22 7.58 6.28
74 8.49 7.75 6.32
<CAPTION>
Option 4 - Joint and Survivor Life Annuity
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Age 50 55 60 65 70 75 80 85 90 95 Age
50 4.74 4.83 4.92 4.99 5.04 5.09 5.12 5.14 5.15 5.16 50
55 4.83 4.96 5.09 5.20 5.29 5.36 5.42 5.45 5.47 5.49 55
60 4.92 5.09 5.26 5.43 5.58 5.71 5.80 5.86 5.90 5.93 60
65 4.99 5.20 5.43 5.68 5.92 6.13 6.29 6.41 6.49 6.54 65
70 5.04 5.29 5.58 5.92 6.27 6.61 6.90 7.12 7.27 7.37 70
75 5.09 5.36 5.71 6.13 6.61 7.12 7.60 8.01 8.30 8.50 75
80 5.12 5.42 5.80 6.29 6.90 7.60 8.34 9.03 9.59 9.99 80
85 5.14 5.45 5.86 6.41 7.12 8.01 9.03 10.11 11.07 11.84 85
90 5.15 5.47 5.90 6.49 7.27 8.30 9.59 11.07 12.57 13.87 90
95 5.16 5.49 5.93 6.54 7.37 8.50 9.99 11.84 13.87 15.83 95
</TABLE>
A004298P
<PAGE>
12. Annuity Options
Option 1 - Annuity for Specified Number of Years. Payments will be made for a
specified number of years, which may not be less than 5 nor more than 30. This
option is available for a fixed annuity only.
Option 2 - Life Annuity. Payments will be made for the life of the Annuitant.
Payments will cease with the last payment due prior to the Annuitant's death.
Option 3 - Life Annuity with Payments Guaranteed for 10 or 20 years. Payments
will be made for the life of the Annuitant. A guaranteed payment period of
either 10 or 20 years may be chosen.
Option 4 - Joint and Survivor Life Annuity. The initial payment will be made if
either the Annuitant or the designated second Annuitant are living. Subsequent
payments will continue during the joint lives of the Annuitants and thereafter
during the life of the surviving annuitant. Payments will end with the last
payment due before the death of the last Annuitant to die.
Other annuity forms may be available with the consent of the Company.
If the Annuitant dies prior to the end of the specified period under Option 1 or
the guaranteed period under Option 3, the beneficiary may choose either:
(1) To have the payments continue for the remainder of the specified or
guaranteed period, or
(2) To receive at any time in one sum the present value of the remaining
payments to be made over the specified or guaranteed period.
If the beneficiary dies while receiving annuity payments under Option 1 or the
guaranteed period of Option 3, the present value of remaining payments will be
paid in one sum to the beneficiary's estate unless otherwise specified. The
present value will be computed as of the valuation period in which due proof of
death and the necessary forms to make payment to a beneficiary are received at
our Administrative Office. At that time, the present value of the fixed annuity
option will be commuted at a rate set by the Company on the annuity date and the
present value of the variable annuity option will be commuted at the assumed
interest rate built into the annuity table chosen at annuitization.
Payments. Payments will be made on the first day of the month starting with the
Annuity Date. Payments under all options will be made to or at the direction of
the Contract Owner.
13. Death Benefit
Death Before the Annuity Date. A death benefit shall be payable upon the earlier
of the death of:
(1) the Contract Owner or
(2) the Annuitant.
Prior to the Annuity Date and upon receipt of due proof of death and the
necessary forms to make payment to a beneficiary, the Company will pay a death
benefit to the beneficiary.
Upon the Contract Owner's death, the death benefit is equal to the Contract
Value on the date of receipt of due proof of death.
Upon the Annuitant's death, the death benefit is equal to the Fixed Account
death benefit plus the Variable Account death benefit. The Fixed Account death
benefit is equal to the Fixed Account Value on the date of receipt of due proof
of death and the necessary forms to make payment to a beneficiary. The Variable
death benefit is the greater of:
(1) the Variable purchase payments, net of Variable Account transfers and
less the total amount of any partial withdrawals from the Variable Account;
or
(2) the Variable Account Value at the date of receipt of due proof of death
and the necessary forms to make payment to a beneficiary.
Within one year of the date of death, the beneficiary may elect one of the
following payout options if death occurs before the Annuity Date.
(1) The death benefit may be paid in a single sum. The payment will generally be
made within 7 days of receipt of the necessary forms to make payment.
Page 13
A004299P
<PAGE>
Page 14
13. Death Benefit (continued)
(2) The Contract Value may be paid out in a single sum within five years after
the date of death. At the time of this election, the beneficiary must
specify the allocation of the Contract Value to the subaccounts of the
Separate Account and the fixed interest options of the Fixed Account.
During this election and within five years after the date of death, the
beneficiary may transfer amounts among the subaccounts of the Separate
Account and the fixed interest options of the Fixed Account. Transfers from
the fixed interest options are subject to the limitations imposed on such
options prior to the end of the interest period.
(3) The death benefit may be paid in the form of one of the Annuity Options. If
the death benefit becomes payable upon the death of the Annuitant, election
to receive the death benefit in the form of an annuity must be made within
60 days of the death of the Annuitant. The payments must be made over the
life of the beneficiary or over a period not extending beyond the life
expectancy of the beneficiary. Payments under this option must commence
within one year after the date of death.
(4) If the beneficiary is the Contract Owner's surviving spouse, the surviving
spouse may elect to become the Contract Owner.
If no such election is made within one year of the date of death, the Company
will pay the Contract Value to the beneficiary at that time. If there is more
than one surviving beneficiary, the beneficiaries must choose to receive their
respective portions of the death benefit according to either (1) or (2) or (3)
in the preceding paragraph. If no beneficiary survives the first to die of the
Contract Owner or the Annuitant, the death benefit will be paid in a lump sum to
the Contract Owner's estate or the Contract Owner, respectively.
Death After the Annuity Date. This death benefit shall be payable upon the death
of the Annuitant. If death occurs after the Annuity Date, the death benefit
payable, if any, will be according to the annuity option in force.
Beneficiary. The beneficiary is the person(s) who is to receive:
(1) Payment on the earlier of the death of the Contract Owner or the Annuitant
prior to the Annuity Date, or
(2) Remaining payments under specified or guaranteed annuity payments, if any,
on death of the Annuitant on or after the Annuity Date.
The Contract Owner shall designate the beneficiary in the application. The
Contract Owner may change the beneficiary at any time before the death of the
Contract Owner or the Annuitant, whichever occurs first.
The estate of a beneficiary who dies before the first to die of the Contract
Owner or the Annuitant shall have no rights under this contract.
14. Transfers
Transfers. Subject to and in accordance with the provisions of this contract and
prior to the Annuity Date, the Contract Owner may transfer amounts among the
subaccounts of the Separate Account and the one year fixed interest option of
the Fixed Account, provided that:
(a) the minimum amount which may be transferred is $250 or, if less, the full
amount held in the subaccount or fixed interest option;
(b) for partial transfers, the amount remaining in a subaccount or fixed
interest option must be at least $250;
(c) amounts may be transferred from the one year fixed interest option(s) to
other subaccounts only during the 25 day period immediately following the
end of the interest period for which an interest rate is declared on such
fixed interest option(s).
Subject to and in accordance with the provisions of this contract and after the
Annuity Date, the Contract Owner may transfer amounts among subaccounts of the
Separate Account. Upon death of the Contract Owner or the Annuitant and under
the election of a Variable Annuity option, the beneficiary shall have the right
to transfer amounts among the subaccounts of the Separate Account, provided
that:
(a) the minimum amount which may be transferred is $250 or, if less, the full
amount held in the subaccount;
(b) for partial transfers, the amount remaining in a subaccount must be at least
$250.
A004300P
<PAGE>
15. Withdrawal
Withdrawal. Prior to the earlier of the Annuity Date, the death of the Contract
Owner or the death of the Annuitant, the Contract Owner may withdraw all or part
of the Contract Value.
Withdrawal Payments. The Contract Owner may make a full or partial withdrawal.
The minimum withdrawal is $500 or, at the time of the first withdrawal in each
contract year, the free withdrawal amount defined below, if less.
At the time of a partial withdrawal, the amount remaining in the contract must
be at least $5,000 or such lower amount as the Company may require. A minimum
balance of $250 must be in each subaccount or a fixed interest option. If the
Contract Owner makes a full withdrawal, the contract must be returned to the
Company.
Unless otherwise specified by the Contract Owner, the withdrawal will be made
first prorata from the subaccounts of the Separate Account up to the Variable
Account Value, and then from the Fixed Account beginning with the fixed interest
option with the shortest interest period. Within a fixed interest option,
partial withdrawals will be made from amounts most recently allocated, renewed
or transferred.
Free Withdrawal. Prior to the Annuity Date, on the last day of the first
contract year and once each Contract year thereafter, the first withdrawal of
the contract year, up to the free withdrawal amount will not be assessed a
Contingent Deferred Sales Charge.
Free Withdrawal Amount. The free withdrawal amount is equal to 15% of the
purchase payments as of the date of the request.
Contingent Deferred Sales Charge. The Contingent Deferred Sales Charge will be
imposed upon withdrawals.
For purposes of calculating the Contingent Deferred Sales Charge, purchase
payments will be allocated to the amount withdrawn. The Company will allocate
the purchase payment with the earliest effective date first, then the next
earliest purchase payment until the allocation is equal to the withdrawal
amount. There will be no Contingent Deferred Sales Charge on amounts withdrawn
that exceed the total purchase payments of the contract. Subject to the
provisions of the contract, the free withdrawal amount will be applied to the
purchase payments that have been in the contract for the longest length of time.
The percentage charged will vary depending upon the number of full contract
years since the purchase payments were made to the time of the withdrawal in
accordance with the table shown on Page 3
The Contingent Deferred Sales Charge will be equal to the sum of charges applied
to the purchase payments associated with the withdrawal. The charge applied to
each purchase payment is equal to the product of (a) multiplied by (b) for each
purchase payment associated with the withdrawal, where:
(a) is the amount of the purchase payment associated with the withdrawal, and
(b) is the percentage that corresponds to the number of full contract years
since the purchase payment.
Systematic Withdrawals. After the contract is issued and prior to the Annuity
Date, the Contract Owner may withdraw systematically if no previous free
withdrawal has been made during the current contract year. The minimum Contract
Value to be eligible for a withdrawal of this type is $25,000 or such lower
amount as the Company may require. The maximum systematic withdrawal amount is
set annually; it is equal to the Free Withdrawal Amount as defined in the
provision above. The minimum systematic withdrawal amount is $100. The
withdrawals can be made on a monthly, quarterly, semiannual or annual basis.
A level systematic withdrawal payment will begin one modal period after the date
of receipt of the request. No Contingent Deferred Sales Charge will be applied
to systematic withdrawals under this provision.
The Contract Owner must send the Company written notice to either stop the
systematic withdrawals or to change the amount or the mode of the withdrawals.
The systematic withdrawals will terminate upon the earlier of the death of the
Contract Owner or the Annuitant.
Page 15
A004301P
<PAGE>
Page 16
16. General
Ownership of Contract. The Contract Owner must be named in the application.
Upon written notice to the Company, the Contract Owner may assign the contract
to a new Contract Owner.
Disability. The Contract Owner may at any time withdraw all or any part of the
Contract Value free of Contingent Deferred Sales Charge if:
(i) the Contract Owner, or the Annuitant in a Qualified Plan, is then disabled
as defined in Section 72(m)(7) of the Internal Revenue Code and as applied
under the Social Security Act, and
(ii) the disability began after the Contract Date, and
(iii) the disability has continued without interruption for four months.
Medically Related Withdrawal. After the first contract year for contracts
issued to Contract Owners prior to their 75th birthday and prior to the Annuity
Date, the Contract Owner may request to withdraw all or any part of the Contract
Value free of Contingent Deferred Sales
Charge if either of the following events occur.
(a) While the contract is in force, the Contract Owner is first confined to a
Medical Care Facility and remains there for at least 90 consecutive days.
The Medical Care Facility must be a state licensed facility which provides
medically necessary in-patient care. The facility must be prescribed based
on physical limitations which prohibit daily living in a non-institutional
setting by a licensed physician in writing.
(b) While the contract is in force, the Contract Owner is diagnosed by a
licensed physician with a Fatal Illness which is expected to result in death
within 2 years of the diagnoses for 80% of the diagnosed cases.
The Company must receive due proof of the Contract Owner's confinement or Fatal
Illness in writing. The Contract Owner must be living as of the date the
Medically Related Withdrawal proceeds are paid. The maximum payout for all
annuities with this benefit, at or issued by the Company and affiliated
companies, is $500,000.
Deferment of Transfers and Payments. Transfers and payments of withdrawals from
the Variable Account and payment of the Variable Account death benefit will be
made within seven days after receipt by the Company of all documents required
for such transfer, payment of withdrawal or payment of death benefits. However,
the Company may defer a transfer, a withdrawal, a death benefit payment, the
Annuity Date or annuity payments under the contract, if:
(1) The New York Stock Exchange is closed (other than customary weekend and
holiday closings);
(2) Trading on the New York Stock Exchange is restricted;
(3) An emergency exists such that it is not reasonably practical to dispose of
securities held in the Separate Account or to fairly determine the value of
its assets; or
(4) The Securities and Exchange Commission by order so permits for the
protection of security holders.
Conditions in (2) and (3) will be decided by, or in accordance with rules of,
the Securities and Exchange Commission.
The Company may defer a transfer or payment of a withdrawal from the Fixed
Account or payment of the Fixed Account death benefit for a period not exceeding
six months, if it reasonably determines that investment conditions are such that
an orderly sale of assets held as part of general assets is not possible.
Incontestability. No material misstatement made by the applicant will void the
contract unless it is contained in the written application attached to the
contract. The contract will be incontestable after it has been in force for 2
years from the Contract Date.
Misstatement of Age. If the age of the Annuitant or a joint payee is misstated,
any amount payable under this contract will be that amount which the purchase
payments paid would have purchased on the basis of the correct age.
If the annuity payments have been overpaid because the age of the Annuitant or
joint payee has been misstated, the amount overpaid, with interest at the rate
of 6% per year or such higher rate as state law may require, compounded
annually, will be charged against the payments still to be made under this
contract.
If the annuity payments have been underpaid because the age of the Annuitant or
joint payee has been misstated, the amount underpaid, with interest at the rate
of 6% per year or such higher rate as state law may require, compounded
annually, will be paid in full with the next payment due under this contract.
A004302P
<PAGE>
16. General (continued)
Proof of Age and Survival. The Company may require satisfactory proof of correct
age at any time. If any payment under this contract depends on the payee being
alive, the Company may require satisfactory proof of survival.
The Contract. The contract, any endorsements, any riders and its attached
application are the entire contract. It is issued in consideration of the
application and purchase payments.
Only the President, a Vice President, an Associate Actuary, an Actuary or
Secretary of the Company may change the contract. Any change must be in writing.
At any time, the Company may make such changes in this contract as are required
to make it conform with any law or regulation issued by any government agency to
which it is subject.
Participating Contract. The contract may participate in divisible surplus of
Penn Mutual. Divisible surplus, if any, to be apportioned to the contract shall
be apportioned annually and shall be paid in cash or credited to the Contract
Value at the end of the contract year. No divisible surplus is expected to be
apportioned to this contract in the foreseeable future.
Dates. Contract years and anniversaries are measured from the Contract Date.
Notices, Changes and Choices. To be effective, all notices, changes and choices
which the Contract Owner may make under the contract must be in writing.
Contract Owner should provide notification on a form provided or approved by the
Company, signed and received by the Company at its Administrative Office or
designated service office. If acceptable to the Company, notices, changes and
choices relating to beneficiaries and ownership will take effect as of the date
signed unless the Company has already acted in reliance on the prior status. The
Company is not responsible for their validity.
Contract Payments. All sums payable to or by the Company are payable at its
designated service office.
Protection of Proceeds. Annuity payments under this contract may not be assigned
by the payee prior to their due dates. To the extent allowed by law, annuity
payments are not subject to legal process for debts of a payee.
Compliance with Minimum Value Requirements. Annuity, death and withdrawal
benefits are not less than the minimum benefits required under applicable laws
and regulations of the jurisdiction in which this contract is delivered.
The benefits provided under the Fixed Account of this contract are increased by
interest credited in excess of the guaranteed minimums, if any.
Periodic Reports. As required by federal and state law and at least once each
year, the Company will furnish the Contract Owner with periodic reports. The
periodic reports will contain information on the Separate Account, the Variable
Account Value, the number of Accumulation Units, the value per Accumulation Unit
and the Fixed Account Value.
A004303P
<PAGE>
Page 17
Additional Contract Specifications
Eligible Mutual Funds
- - ---------------------
Penn Series Funds, Inc.
Independence Capital (ICMI) Vontobel USA
Money Market International Equity
Quality Bond
Growth Equity T. Rowe Price
High Yield Bond
OpCap Advisors Flexibly Managed
Value Equity
Small Capitalization
Neuberger & Berman Advisers Management Trust
Neuberger & Berman
Limited Maturity Bond Portfolio
Balanced Portfolio
Variable Insurance Product Funds Variable Insurance Product Funds II
Fidelity Management Fidelity Management
Equity Income Asset Manager
Growth
Eligible Fixed Interest Options
-------------------------------
Six Month
One Year
EXCEPT WITH THE CONSENT OF PENN MUTUAL, THERE CAN BE NO ALLOCATION OF PURCHASE
PAYMENTS AND TRANSFERS TO MORE THAN 17 OF THE FUNDS AND THE FIXED INTEREST
ACCOUNTS PRIOR TO THE ANNUITY DATE. FOLLOWING THE ANNUITY DATE, THE INITIAL
ALLOCATION AND SUBSEQUENT TRANSFERS CAN BE TO NO MORE THAN 1 FIXED INTEREST
OPTION AND 3 FUNDS OVER THE PHASE OF THE CONTRACT.
A004386P
<PAGE>
Please notify the Company promptly of any change in address.
Annual Election - The Company is a mutual life insurance company. It has no
stockholders. The Contract Owner of this contract is a member of The Company
while this contract is in force during the life of the Annuitant before the
Annuity Date and before total withdrawal of the Contract Value. Members have the
right to vote in person or by proxy at the annual election of Trustees held at
the Home Office, on the first Tuesday of March. If more information is desired,
it may be obtained from the Secretary.
VALUES AND PAYMENTS UNDER THIS CONTRACT, WHEN BASED UPON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT.
Individual Variable and Fixed
Annuity Contract
Flexible Purchase Payments
. Annuity Payments payable on Annuity Date
. Flexible Purchase Payments payable until
Annuity Date
. Participating
. The Company will make monthly annuity
payments and other payments as set forth
in this contract.
The Penn Mutual Life Insurance Company, Philadelphia, Pennsylvania 19172
VAA-98
A004261P
<PAGE>
Rider - Guaranteed Minimum Death Benefit - Rising Floor
The Penn Mutual Life Insurance Company agrees, subject to the provisions of this
supplemental agreement, to provide the Guaranteed Minimum Death Benefit as
applied for on the application. The Company also agrees to provide all of the
other benefits which are stated in this agreement.
This agreement is a part of the policy to which it is attached. It is subject
to all of the provisions of the policy unless stated otherwise in this
agreement. This agreement enhances the death benefit section in the contract
to which it is attached.
Death Before the Annuity Date - Prior to the Annuity Date and upon receipt of
due proof of the Annuitant's death and the necessary forms to make payment to a
beneficiary, the Company will pay to the beneficiary the Guaranteed Minimum
Death Benefit in place of the Variable Account Death Benefit if it is greater.
The Guaranteed Minimum Death Benefit will be the sum of the purchase payments
paid into the Variable Account less any reduction for a withdrawal from the
Variable Account as described below accumulated with interest at an effective
annual rate of 5%. The accumulation will be from the effective date of the
purchase payment or the withdrawal to the date of payment of the Guaranteed
Minimum Death Benefit or to age 80, if earlier. After age 80, the purchase
payments and withdrawals will be reflected in the Guaranteed Minimum Death
Benefit value but will not accumulate further interest.
When part of the Variable Account Value is withdrawn, the withdrawal will reduce
the Guaranteed Minimum Death Benefit in the same proportion that the Variable
Account Value was reduced on the date of withdrawal. For each withdrawal, the
Guaranteed Minimum Death Benefit reduction is calculated by multiplying the
Guaranteed Minimum Death Benefit on the date of withdrawal by a fraction, the
numerator of which is the amount of the withdrawal including any applicable
Contingent Deferred Sales Charge and the denominator of which is the Variable
Account Value immediately prior to the withdrawal.
Transfers into the Variable Account will be treated as purchase payments
allocated to the Variable Account for the Guaranteed Minimum Death Benefit
calculation described above. Similarly, transfers out of the Variable Account
will be treated as withdrawals from the Variable Account.
Charge - While this agreement is in force, an asset based charge will be
assessed. The charge will be a percentage of the average variable account
value. On an annual basis the percentage will not exceed the amount shown on
Page 3 of the contract. The charge will be deducted on the dates specified on
Page 3. It will also be deducted when the Variable Account Value is withdrawn
or transferred in full if withdrawal or transfer is not on the date specified on
Page 3. The charge will be deducted on the date of payment of the Death Benefit
and on the date of annuitization. If the charge is deducted on a date other
than that specified on Page 3, only a fraction of the charge will be deducted.
The fraction will be equal to the portion of the year that the contract was
inforce.
Average Variable Account Values - The average variable account value is equal to
the variable account value at the beginning of the contract year plus the
variable account value at the time the charge is assessed divided by two. At
the time of the first deduction, the beginning of the contract year value will
be equal to the initial purchase payment allocated to the variable account.
Termination of Agreement - This agreement will terminate upon :
(a) the Termination Date for this agreement shown on Page 3 of the Contract;
(b) surrender of this contract;
(c) full withdrawal of the variable account;
(d) annuitization; or
(e) receipt by the Company of a written request by the Owner to discontinue it.
Effective Date - The effective date of this agreement is the same as the Date of
Issue of this policy unless another effective date is shown below.
/s/ Robert E. Chappell
Chairman and
Chief Executive Offer
GDBRF-98
A004263R
<PAGE>
Rider - Guaranteed Minimum Death Benefit - Step Up
The Penn Mutual Life Insurance Company agrees, subject to the provisions of this
supplemental agreement, to provide the Guaranteed Minimum Death Benefit as
applied for on the application. The Company also agrees to provide all of the
other benefits which are stated in this agreement.
This agreement is a part of the policy to which it is attached. It is subject
to all of the provisions of the policy unless stated otherwise in this
agreement. This agreement enhances the death benefit section in the contract
to which it is attached.
Death Before the Annuity Date. Prior to the Annuity Date and upon receipt of
due proof of the Annuitant's death and the necessary forms to make payment to a
beneficiary, the Company will pay to the beneficiary the Guaranteed Minimum
Death Benefit in place of the Variable Account Death Benefit if it is greater.
On each Contract Anniversary, the Guaranteed Minimum Death Benefit will be equal
to the greater of:
(1) the Guaranteed Minimum Death Benefit currently in effect; or
(2) the Variable Account Value on the current Contract Anniversary.
The Guaranteed Minimum Death Benefit after the Contract Anniversary will be the
Guaranteed Minimum Death Benefit on the Contract Anniversary plus the sum of
purchase payments paid into the Variable Account after the Contract Anniversary
less any reduction for a withdrawal from the Variable Account as described
below.
When part of the Variable Account Value is withdrawn, the withdrawal will reduce
the Guaranteed Minimum Death Benefit in the same proportion that the Variable
Account Value was reduced on the date of withdrawal. For each withdrawal, the
Guaranteed Minimum Death Benefit reduction is calculated by multiplying the
Guaranteed Minimum Death Benefit on the date of withdrawal by a fraction, the
numerator of which is the amount of the withdrawal including any applicable
Contingent Deferred Sales Charge and the denominator of which is the Variable
Account Value immediately prior to the withdrawal.
Transfers into the Variable Account will be treated as purchase payments
allocated to the Variable Account for the Guaranteed Minimum Death Benefit
calculation described above. Similarly, transfers out of the Variable Account
will be treated as withdrawals from the Variable Account.
Charge--While this agreement is in force, an asset based charge will be
assessed. The charge will be a percentage of the average variable account
value. On an annual basis the percentage will not exceed the amount shown on
Page 3 of the contract. The charge will be deducted on the dates specified on
Page 3. It will also be deducted when the Variable Account Value is withdrawn
or transferred in full if withdrawal or transfer is not on the date specified on
Page 3. The charge will be deducted on the date of payment of the Death Benefit
and on the date of annuitization. If the charge is deducted on a date other
than that specified on Page 3, only a fraction of the charge will be deducted.
The fraction will be equal to the portion of the year that the contract was
inforce.
Average Variable Account Values-- The average variable account value is equal to
the variable account value at the beginning of the contract year plus the
variable account value at the time the charge is assessed divided by two. At
the time of the first deduction, the beginning of the contract year value will
be equal to the initial purchase payment allocated to the variable account.
Termination of Agreement--This agreement will terminate upon :
(a) the Termination Date for this agreement shown on Page 3 of the Contract;
(b) surrender of this contract;
(c) full withdrawal of the variable account;
(d) annuitization; or
(e) receipt by the Company of a written request by the Owner to discontinue it.
Effective Date--The effective date of this agreement is the same as the Date of
Issue of this policy unless another effective date is shown below.
/s/ Robert E. Chappell
Chairman and
Chief Executive Offer
GDBSU-98
A004264R
<PAGE>
EXHIBIT 5
<TABLE>
<S> <C>
APPLICATION FOR INDIVIDUAL
THE PENN MUTUAL LIFE INSURANCE COMPANY VARIABLE AND FIXED ANNUITY
Philadelphia, Pa. 19172
====================================================================================================================================
1 MARKET TYPE: (Choose one) 2 DEATH BENEFIT OPTION: (Choose one)
[_] Non-Qualified [_] Standard If no option is elected, the contract
[_] IRA - (Select Type) [_] Rising Floor will be issued with a Standard
[_] Rollover [_] Transfer [_] Custodial [_] Step Up Death Benefit.
[_] 403(b) Transfer
====================================================================================================================================
3 CONTRACT OWNER: 4 ANNUITANT: (If different from Contract Owner)
________________________________________________________ _____________________________________________________
Name (First, Middle, Last) (Please Print) Name (First, Middle, Last) (Please Print)
________________________________________________________ _____________________________________________________
Address Address
________________________________________________________ _____________________________________________________
City State Zip Code City State Zip Code
________________________________________________________ _____________________________________________________
Date of Birth Sex Date of Birth Sex
________________________________________________________ _____________________________________________________
Social Security No./Tax ID Social Security No./Tax ID
________________________________________________________ _____________________________________________________
Daytime Telephone Number Daytime Telephone Number
________________________________________________________ _____________________________________________________
Employer Name Employer Name
________________________________________________________ _____________________________________________________
City State Zip Code City State Zip Code
====================================================================================================================================
5 BENEFICIARIES: 6 ANNUITY DATE:
PRIMARY BENEFICIARY:____________________________________ SELECT ANNUITY DATE:
Social Security No.:____________________________________
MO DAY YR
Relationship to Annuitant:______________________________
01
CONTINGENT BENEFICIARY:_________________________________
If no date is selected, the Annuity Date will be the
Social Security No.:____________________________________ later of the first day of the month following the
Annuitant's 95th birthday or 10 years after the issue
Relationship to Annuitant:______________________________ date.
====================================================================================================================================
7 PURCHASE PAYMENT: ($5,000 Minimum) MAKE CHECK PAYABLE TO:
PURCHASE PAYMENT $______________________________________ The Penn Mutual Life Insurance Company
====================================================================================================================================
8 DOLLAR COST AVERAGING:
Allocate ___% of my initial purchase payment to the following Dollar Cost Averaging Source Account (select one):
[_] Six Month Fixed Interest Option; [_] AMT Limited Maturity Bond Fund; [_] Quality Bond Fund; [_] Money Market Fund.
Over a ___ month period (maximum is 60 months; MUST BE 6 MONTHS FOR SIX MONTH FIXED INTEREST OPTION) transfer the initial
allocated purchase payment in equal monthly payments based on the allocation listed in the Fund Allocation section below. The
first monthly transfer will take place on the 15th of the month following the date of issue and each month thereafter for the
period indicated above. The Dollar Cost Averaging Program will terminate on the earlier of the end of the period indicated above
or after exhausting all amounts for the source account indicated above.
====================================================================================================================================
9 FUND ALLOCATION: (Indicate whole percentages. Total allocations in this section must equal 100%.)
Select the Variable Investment Options and/or Fixed Interest Options that will be used to allocate the initial purchase payment
(less the Dollar Cost Averaging Amount); the subsequent purchase payments and the monthly dollar cost averaging transactions.
FIDELITY INVESTMENTS NEUBERGER & BERMAN VONTOBEL USA
____% VIP Equity Income ____ % AMT Limited Maturity Bond ____% International Equity
____% VIP Growth ____ % AMT Balanced
____% VIP II Asset Manager ____ % AMT Partners MORGAN STANLEY
____% VIP II Index 500 ____% Emerging Markets Equity (Int'l)
INDEPENDENCE CAPITAL (ICMI) OPCAP ADVISORS THE PENN MUTUAL LIFE INSURANCE COMPANY
____% Money Market ____% Value Equity FIXED INTEREST OPTIONS
____% Quality Bond ____% Small Capitalization ____% 1 Year Fixed Interest (not available
____% Growth Equity T. ROWE PRICE with Dollar Cost Averaging)
ICMI/ROBERTSON STEPHENS ____% High Yield Bond
____% Emerging Growth ____% Flexibly Managed
VALUES AND PAYMENTS UNDER THIS CONRACT, WHEN BASED UPON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE. THEY MAY
DECREASE OR INCREASE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PM5790 VERSION 8/98
Page 1 of 2
<PAGE>
<TABLE>
<S> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
10 REPLACEMENT: IS THIS ANNUITY INTENDED TO REPLACE OR CHANGE EXISTING LIFE INSURANCE OR ANNUITIES? [_] Yes [_] No
If yes, list insurance company and policy number in the Remarks Section. If this is an exchange under IRC Section 1035, attach
necessary 1035 Exchange Forms.
===================================================================================================================================
11 NOTICES:
FRAUD - Any person, who knowingly and with intent to defraud any insurance company or other person, files an application for
-----
insurance or a 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.
====================================================================================================================================
12 ACKNOWLEDGEMENT:
I hereby represent that my answers to the above sections are correct and true to the best of my knowledge and belief. By
signing below, I understand that:
a) The contract value and annuity payments, when based on investment experience of a separate account, are variable and are not
guaranteed as to a fixed dollar amount;
b) This annuity is a long term commitment to meet insurance needs and financial goals; and I acknowledge receipt of the most
recent prospectus;
c) The annuity applied for is suitable for my investment objectives and my financial situation and needs; and
d) The owner has the privilege of Telephone Transfers.
VALUES AND PAYMENTS UNDER THIS CONTRACT, WHEN BASED UPON THE INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE. THEY MAY
DECREASE OR INCREASE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
SIGNATURES:
Signed at:_____________________________________ __________________________________________ _____________________________
City State Date Signed
_______________________________________________ __________________________________________________
Signature of Contract Owner Signature of Annuitant (if different from Contract
Owner)
- - ------------------------------------------------------------------------------------------------------------------------------------
13 REGISTERED REPRESENTATIVE:
Do you have any reason to believe the contract applied for is to replace existing insurance or annuities? [_] Yes [_] No
_______________________________________________ ________________________________________________________________________________
Signature of Registered Representative Printed Name of Registered Representative State License Number
(Resident agent if required by law)
_______________________________________________ ________________________________________________________________________________
Telephone No. Office Code (3 digit) Representative Code (5 digit)
_______________________________________________ ________________________________________________________________________________
Office/Firm Name Broker/Dealer Name
Commission Information Office 5-Digit
Representative Code Number Representative Code Percent (%)
_________________________________ ______________________________ _____________________________ __________________________
_________________________________ ______________________________ _____________________________ __________________________
_________________________________ ______________________________ _____________________________ __________________________
====================================================================================================================================
14 SEND APPLICATION, CHECK & OTHER REQUIRED FORMS TO:
The Penn Mutual Life Insurance Company
600 Dresher Road - C2L
Horsham, PA 19044
====================================================================================================================================
15 REMARKS:
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 2
PM5790
<PAGE>
[Penn Mutual Letter Head]
November 30, 1998
Board of Trustees
The Penn Mutual Life Insurance Company
Philadelphia, PA 19172
Re: Individual Variable and Fixed Annuity Contracts
SEC Registration Statement - SEC File No. 333-62811
---------------------------------------------------
Ladies and Gentlemen:
In my opinion the individual variable annuity contract, registered with
the U.S. Securities and Exchange Commission under the above-reference
registration statement, will, when issued, be legally issued and represent legal
obligations of the Company.
I hereby consent to the inclusion of this opinion in the above
referenced registration statement as an exhibit.
Sincerely,
/s/ Franklin L. Best, Jr.
Franklin L. Best, Jr
Associate General Counsel
<PAGE>
EXHIBIT B.10.A
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Statements" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information, and to the inclusion in the Pre-Effective Amendment
Number 23 to the Registration Statement (Form N-4 No. 333-62811) and related
prospectus of the Penn Mutual Variable Annuity Account III of those references
and of our report dated January 30, 1998 on The Penn Mutual Life Insurance
Company.
Philadelphia, Pennsylvania
November 25, 1998
<PAGE>
EXHIBIT B.10.B
[LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Statement of Additional Information of this
Registration Statement on Form N-4, filed on behalf of the Penn Mutual Life
Insurance Company and Penn Mutual Variable Annuity Account III under the
Securities Act of 1933 and as Amendment No. 23 under the Investment Company Act
of 1940 (file No. 2-77283), of our report, which includes an explanatory
paragraph regarding the adoption of several accounting pronouncements, dated
January 31, 1997 on our audits of the consolidated financial statements of The
Penn Mutual Life Insurance Company as of December 31, 1996 and for the two year
period ended December 31, 1996.
/s/ PricewaterhouseCoopers LLP
November 25, 1998
<PAGE>
Exhibit 10(c)
1701 Market Street Morgan, Lewis
Philadelphia, PA 19103-2921 & Bockius LLP
215-963-5000 Counselors At Law
Fax: 215-963-5299
November 30, 1998
Board of Trustees
The Penn Mutual Life Insurance Company
Philadelphia, PA 19172
Re: Penn Mutual Variable Annuity Account III (the "Separate Account")
Registration Statement on Form N-4 File No. 333-62811 File No.
811-03457
------------------------------------------------------------------------
Dear Ladies and Gentlemen:
We hereby consent to the reference of our name under the caption "Legal Matters"
in the Statement of Additional Information filed as part of Pre-Effective
Amendment No. 1 to the above referenced Registration Statement on Form N-4 under
the Securities Act of 1933 on behalf of the Separate Account and as Amendment
No. 23 to the Separate Account's Registration Statement under the Investment
Company Act of 1940. In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
- - -------------------------------
Morgan, Lewis & Bockius LLP
<PAGE>
1yr pens 3 bkup
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Table 3 - Pennant Select Variable/Fixed Annuity Contracts Pennant Select - 1 YR - Tbl 3
- - ------------------------------------------------------------------------------------------------------------------------------------
Average
Q = qualified $40 Contract # of units Annual Total
N = nonqualified Beginning # of units fee & deferred at end of Ending return for
- - ------------------------------------------------------------------------------------------------------------------------------------
amethod system fund qnonq accdate unitval Value at $1000 sales load period Value 1yr
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS EMGGRO Q 10/31/97 10.693572 10000.000000 935.141223 0.000000 935.141223 10000.000000 -6.51%
3 PENS EMGGRO Q 10/31/98 10.000000 9351.412232 935.141223 0.235290 934.905933 9349.059332 -6.51%
3 PENS EMGMKT Q 10/31/97 15.159409 10000.000000 659.656323 0.000000 659.656323 10000.000000 -34.06%
3 PENS EMGMKT Q 10/31/98 10.000000 6596.563230 659.656323 0.235290 659.421033 6594.210330 -34.06%
3 PENS FIDASM Q 10/31/97 10.461735 10000.000000 955.864395 0.000000 955.864395 10000.000000 -4.44%
3 PENS FIDASM Q 10/31/98 10.000000 9558.643953 955.864395 0.235290 955.629105 9556.291053 -4.44%
3 PENS FIDEQI Q 10/31/97 9.827337 10000.000000 1017.569663 0.000000 1017.569663 10000.000000 1.73%
3 PENS FIDEQI Q 10/31/98 10.000000 10175.696631 1017.569663 0.235290 1017.334373 10173.343731 1.73%
3 PENS FIDGRO Q 10/31/97 9.438321 10000.000000 1059.510479 0.000000 1059.510479 10000.000000 5.93%
3 PENS FIDGRO Q 10/31/98 10.000000 10595.104786 1059.510479 0.235290 1059.275189 10592.751886 5.93%
3 PENS FIDIND Q 10/31/97 8.669827 10000.000000 1153.425553 0.000000 1153.425553 10000.000000 15.32%
3 PENS FIDIND Q 10/31/98 10.000000 11534.255528 1153.425553 0.235290 1153.190263 11531.902628 15.32%
3 PENS FLEXMN Q 10/31/97 9.446061 10000.000000 1058.642327 0.000000 1058.642327 10000.000000 5.84%
3 PENS FLEXMN Q 10/31/98 10.000000 10586.423272 1058.642327 0.235290 1058.407037 10584.070372 5.84%
3 PENS GROWEQ Q 10/31/97 8.374502 10000.000000 1194.100855 0.000000 1194.100855 10000.000000 19.39%
3 PENS GROWEQ Q 10/31/98 10.000000 11941.008552 1194.100855 0.235290 1193.865565 11938.655652 19.39%
3 PENS HIBOND Q 10/31/97 9.892647 10000.000000 1010.851797 0.000000 1010.851797 10000.000000 1.06%
3 PENS HIBOND Q 10/31/98 10.000000 10108.517973 1010.851797 0.235290 1010.616507 10106.165073 1.06%
3 PENS INTLEQ Q 10/31/97 9.256089 10000.000000 1080.369906 0.000000 1080.369906 10000.000000 8.01%
3 PENS INTLEQ Q 10/31/98 10.000000 10803.699057 1080.369906 0.235290 1080.134616 10801.346157 8.01%
3 PENS LIMMAT Q 10/31/97 9.683001 10000.000000 1032.737681 0.000000 1032.737681 10000.000000 3.25%
3 PENS LIMMAT Q 10/31/98 10.000000 10327.376812 1032.737681 0.235290 1032.502391 10325.023912 3.25%
3 PENS PARTNR Q 10/31/97 9.989274 10000.000000 1001.073752 0.000000 1001.073752 10000.000000 0.08%
3 PENS PARTNR Q 10/31/98 10.000000 10010.737517 1001.073752 0.235290 1000.838462 10008.384617 0.08%
3 PENS QUALBD Q 10/31/97 9.109501 10000.000000 1097.754970 0.000000 1097.754970 10000.000000 9.75%
3 PENS QUALBD Q 10/31/98 10.000000 10977.549703 1097.754970 0.235290 1097.519680 10975.196803 9.75%
3 PENS SMLCAP Q 10/31/97 11.840723 10000.000000 844.543023 0.000000 844.543023 10000.000000 -15.57%
3 PENS SMLCAP Q 10/31/98 10.000000 8445.430233 844.543023 0.235290 844.307733 8443.077333 -15.57%
3 PENS VALUEQ Q 10/31/97 9.180814 10000.000000 1089.228036 0.000000 1089.228036 10000.000000 8.90%
3 PENS VALUEQ Q 10/31/98 10.000000 10892.280358 1089.228036 0.235290 1088.992746 10889.927458 8.90%
</TABLE>
Page 1
<PAGE>
10yr pens 3 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS HIBOND Q 10/31/89 4.698176 10219.068790 2175.114085 0.500811 10216.715890 2174.613273 8.06%
3 PENS HIBOND Q 10/31/90 4.107856 8932.998183 2174.613273 0.572781 8930.645283 2174.040493 8.06%
3 PENS HIBOND Q 10/31/91 5.420737 11784.901739 2174.040493 0.434055 11782.548839 2173.606437 8.06%
3 PENS HIBOND Q 10/31/92 6.145141 13357.118037 2173.606437 0.382888 13354.765137 2173.223550 8.06%
3 PENS HIBOND Q 10/31/93 7.348796 15970.576528 2173.223550 0.320175 15968.223628 2172.903375 8.06%
3 PENS HIBOND Q 10/31/94 7.118262 15467.295522 2172.903375 0.330544 15464.942622 2172.572830 8.06%
3 PENS HIBOND Q 10/31/95 7.716869 16765.459926 2172.572830 0.304903 16763.107026 2172.267927 8.06%
3 PENS HIBOND Q 10/31/96 8.595628 18672.007017 2172.267927 0.273732 18669.654117 2171.994195 8.06%
3 PENS HIBOND Q 10/31/97 9.892647 21486.771856 2171.994195 0.237843 21484.418956 2171.756352 8.06%
3 PENS HIBOND Q 10/31/98 10.000000 21717.563515 2171.756352 0.235290 21715.210615 2171.521062 8.06%
3 PENS INTLEQ Q 10/31/93 6.780778 10000.000000 1474.757026 0.000000 10000.000000 1474.757026 0.00%
3 PENS INTLEQ Q 10/31/94 7.185245 10596.490550 1474.757026 0.327463 10594.137650 1474.429564 0.00%
3 PENS INTLEQ Q 10/31/95 7.111342 10485.172882 1474.429564 0.330866 10482.819982 1474.098698 0.00%
3 PENS INTLEQ Q 10/31/96 8.188589 12070.788382 1474.098698 0.287339 12068.435482 1473.811359 0.00%
3 PENS INTLEQ Q 10/31/97 9.256089 13641.729108 1473.811359 0.254200 13639.376208 1473.557159 0.00%
3 PENS INTLEQ Q 10/31/98 10.000000 14735.571587 1473.557159 0.235290 14733.218687 1473.321869 0.00%
3 PENS LIMMAT Q 10/31/88 6.409040 10000.000000 1560.296082 0.000000 10000.000000 1560.296082 4.53%
3 PENS LIMMAT Q 10/31/89 6.900156 10766.286371 1560.296082 0.340992 10763.933471 1559.955089 4.53%
3 PENS LIMMAT Q 10/31/90 7.320476 11419.613794 1559.955089 0.321414 11417.260894 1559.633676 4.53%
3 PENS LIMMAT Q 10/31/91 7.969560 12429.594159 1559.633676 0.295236 12427.241259 1559.338440 4.53%
3 PENS LIMMAT Q 10/31/92 8.477709 13219.617528 1559.338440 0.277540 13217.264628 1559.060900 4.53%
3 PENS LIMMAT Q 10/31/93 8.955965 13962.894858 1559.060900 0.262719 13960.541958 1558.798182 4.53%
3 PENS LIMMAT Q 10/31/94 8.840839 13781.083758 1558.798182 0.266140 13778.730858 1558.532042 4.53%
3 PENS LIMMAT Q 10/31/95 9.478367 14772.338674 1558.532042 0.248239 14769.985774 1558.283803 4.53%
3 PENS LIMMAT Q 10/31/96 9.174547 14296.547989 1558.283803 0.256460 14294.195089 1558.027343 4.53%
3 PENS LIMMAT Q 10/31/97 9.683001 15086.380324 1558.027343 0.242993 15084.027424 1557.784350 4.53%
3 PENS LIMMAT Q 10/31/98 10.000000 15577.843505 1557.784350 0.235290 15575.490605 1557.549060 4.53%
3 PENS PARTNR Q 10/31/94 4.796650 10000.000000 2084.788342 0.000000 10000.000000 2084.788342 0.00%
3 PENS PARTNR Q 10/31/95 5.895340 12290.536103 2084.788342 0.399112 12288.183203 2084.389230 0.00%
3 PENS PARTNR Q 10/31/96 7.375327 15373.052167 2084.389230 0.319023 15370.699267 2084.070207 0.00%
3 PENS PARTNR Q 10/31/97 9.989274 20818.348332 2084.070207 0.235543 20815.995432 2083.834664 0.00%
3 PENS PARTNR Q 10/31/98 10.000000 20838.346642 2083.834664 0.235290 20835.993742 2083.599374 0.00%
3 PENS QUALBD Q 10/31/88 4.871573 10000.000000 2052.725064 0.000000 10000.000000 2052.725064 7.44%
3 PENS QUALBD Q 10/31/89 5.336973 10955.338245 2052.725064 0.440868 10952.985345 2052.284196 7.44%
3 PENS QUALBD Q 10/31/90 5.552432 11395.168446 2052.284196 0.423760 11392.815546 2051.860436 7.44%
3 PENS QUALBD Q 10/31/91 6.285700 12897.379144 2051.860436 0.374326 12895.026244 2051.486110 7.44%
3 PENS QUALBD Q 10/31/92 6.767127 13882.667048 2051.486110 0.347696 13880.314148 2051.138415 7.44%
</TABLE>
Page 3
<PAGE>
1 yr pens 2 bkup
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Table 2 - Pennant Select Variable/ Pennant Select - 1 YR
Fixed Annuity Contracts - Tbl 2
- - -----------------------------------------------------------------------------------------------------------------------------------
Average
Q = qualified $40 Contract # of units Annual Total
N = nonqualified Beginning # of units fee & deferred at end of Ending return for
- - -----------------------------------------------------------------------------------------------------------------------------------
amethod system fund qnonq accdate unitval Value at $1000 sales load period Value 1yr
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS BALFND Q 10/31/97 10.097183 1000.000000 99.037524 0.000000 99.037524 1000.000000 -1.20%
2 PENS BALFND Q 10/31/98 10.000000 990.375236 99.037524 0.235290 98.802234 988.022336- -1.20%
2 PENS EMGGRO Q 10/31/97 10.693572 1000.000000 93.514122 0.000000 93.514122 1000.000000 -6.72%
2 PENS EMGGRO Q 10/31/98 10.000000 935.141223 93.514122 0.235290 93.278832 932.788323- -6.72%
2 PENS EMGMKT Q 10/31/97 15.159409 1000.000000 65.965632 0.000000 65.965632 1000.000000 -34.27%
2 PENS EMGMKT Q 10/31/98 10.000000 659.656323 65.965632 0.235290 65.730342 657.303423 -34.27%
2 PENS FIDASM Q 10/31/97 10.461735 1000.000000 95.586440 0.000000 95.586440 1000.000000 -4.65%
2 PENS FIDASM Q 10/31/98 10.000000 955.864395 95.586440 0.235290 95.351150 953.511495 -4.65%
2 PENS FIDEQI Q 10/31/97 9.827337 1000.000000 101.756966 0.000000 101.756966 1000.000000 1.52%
2 PENS FIDEQI Q 10/31/98 10.000000 1017.569663 101.756966 0.235290 101.521676 1015.216763 1.52%
2 PENS FIDGRO Q 10/31/97 9.438321 1000.000000 105.951048 0.000000 105.951048 1000.000000 5.72%
2 PENS FIDGRO Q 10/31/98 10.000000 1059.510479 105.951048 0.235290 105.715758 1057.157579 5.72%
2 PENS FIDIND Q 10/31/97 8.669827 1000.000000 115.342555 0.000000 115.342555 1000.000000 15.11%
2 PENS FIDIND Q 10/31/98 10.000000 1153.425553 115.342555 0.235290 115.107265 1151.072653 15.11%
2 PENS FLEXMN Q 10/31/97 9.446061 1000.000000 105.864233 0.000000 105.864233 1000.000000 5.63%
2 PENS FLEXMN Q 10/31/98 10.000000 1058.642327 105.864233 0.235290 105.628943 1056.289427 5.63%
2 PENS GROWEQ Q 10/31/97 8.374502 1000.000000 119.410086 0.000000 119.410086 1000.000000 19.17%
2 PENS GROWEQ Q 10/31/98 10.000000 1194.100855 119.410086 0.235290 119.174796 1191.747955 19.17%
2 PENS HIBOND Q 10/31/97 9.892647 1000.000000 101.085180 0.000000 101.085180 1000.000000 0.85%
2 PENS HIBOND Q 10/31/98 10.000000 1010.851797 101.085180 0.235290 100.849890 1008.498897 0.85%
2 PENS INTLEQ Q 10/31/97 9.256089 1000.000000 108.036991 0.000000 108.036991 1000.000000 7.80%
2 PENS INTLEQ Q 10/31/98 10.000000 1080.369906 108.036991 0.235290 107.801701 1078.017006 7.80%
2 PENS LIMMAT Q 10/31/97 9.683001 1000.000000 103.273768 0.000000 103.273768 1000.000000 3.04%
2 PENS LIMMAT Q 10/31/98 10.000000 1032.737681 103.273768 0.235290 103.038478 1030.384781 3.04%
2 PENS PARTNR Q 10/31/97 9.989274 1000.000000 100.107375 0.000000 100.107375 1000.000000 -0.13%
2 PENS PARTNR Q 10/31/98 10.000000 1001.073752 100.107375 0.235290 99.872085 998.720852 -0.13%
2 PENS QUALBD Q 10/31/97 9.109501 1000.000000 109.775497 0.000000 109.775497 1000.000000 9.54%
2 PENS QUALBD Q 10/31/98 10.000000 1097.754970 109.775497 0.235290 109.540207 1095.402070 9.54%
2 PENS SMLCAP Q 10/31/97 11.840723 1000.000000 84.454302 0.000000 84.454302 1000.000000 -15.78%
2 PENS SMLCAP Q 10/31/98 10.000000 844.543023 84.454302 0.235290 84.219012 842.190123 -15.78%
2 PENS VALUEQ Q 10/31/97 9.180814 1000.000000 108.922804 0.000000 108.922804 1000.000000 8.69%
2 PENS VALUEQ Q 10/31/98 10.000000 1089.228036 108.922804 0.235290 108.687514 1086.875136 8.69%
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
1yr pens 1a bkup
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Table 1A - Pennant Select Variable/Fixed Annuity Contracts Pennant Select - 1 YR - Tbl 1a
- - ------------------------------------------------------------------------------------------------------------------------------------
(assuming no purchase payments made after first contract year)
- - ------------------------------------------------------------------------------------------------------------------------------------
Average
Q = qualified $40 Contract # of units Annual Total
N = nonqualified Beginning # of units fee & deferred at end of Ending return for
- - ------------------------------------------------------------------------------------------------------------------------------------
amethod system fund qnonq accdate unitval Value at $1000 sales load period Value 1yr
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1a PENS BALFND Q 10/31/97 10.097183 1000.000000 99.037524 0.000000 99.037524 1000.000000 -1.20%
1a PENS BALFND Q 10/31/98 10.000000 990.375236 99.037524 0.235290 98.802234 988.022336 -1.20%
1a PENS EMGGRO Q 10/31/97 10.693572 1000.000000 93.514122 0.000000 93.514122 1000.000000 -6.72%
1a PENS EMGGRO Q 10/31/98 10.000000 935.141223 93.514122 0.235290 93.278832 932.788323 -6.72%
1a PENS EMGMKT Q 10/31/97 15.159409 1000.000000 65.965632 0.000000 65.965632 1000.000000 -34.27%
1a PENS EMGMKT Q 10/31/98 10.000000 659.656323 65.965632 0.235290 65.730342 657.303423 -34.27%
1a PENS FIDASM Q 10/31/97 10.461735 1000.000000 95.586440 0.000000 95.586440 1000.000000 -4.65%
1a PENS FIDASM Q 10/31/98 10.000000 955.864395 95.586440 0.235290 95.351150 953.511495 -4.65%
1a PENS FIDEQI Q 10/31/97 9.827337 1000.000000 101.756966 0.000000 101.756966 1000.000000 1.52%
1a PENS FIDEQI Q 10/31/98 10.000000 1017.569663 101.756966 0.235290 101.521676 1015.216763 1.52%
1a PENS FIDGRO Q 10/31/97 9.438321 1000.000000 105.951048 0.000000 105.951048 1000.000000 5.72%
1a PENS FIDGRO Q 10/31/98 10.000000 1059.510479 105.951048 0.235290 105.715758 1057.157579 5.72%
1a PENS FIDIND Q 10/31/97 8.669827 1000.000000 115.342555 0.000000 115.342555 1000.000000 15.11%
1a PENS FIDIND Q 10/31/98 10.000000 1153.425553 115.342555 0.235290 115.107265 1151.072653 15.11%
1a PENS FLEXMN Q 10/31/97 9.446061 1000.000000 105.864233 0.000000 105.864233 1000.000000 5.63%
1a PENS FLEXMN Q 10/31/98 10.000000 1058.642327 105.864233 0.235290 105.628943 1056.289427 5.63%
1a PENS GROWEQ Q 10/31/97 8.374502 1000.000000 119.410086 0.000000 119.410086 1000.000000 19.17%
1a PENS GROWEQ Q 10/31/98 10.000000 1194.100855 119.410086 0.235290 119.174796 1191.747955 19.17%
1a PENS HIBOND Q 10/31/97 9.892647 1000.000000 101.085180 0.000000 101.085180 1000.000000 0.85%
1a PENS HIBOND Q 10/31/98 10.000000 1010.851797 101.085180 0.235290 100.849890 1008.498897 0.85%
1a PENS INTLEQ Q 10/31/97 9.256089 1000.000000 108.036991 0.000000 108.036991 1000.000000 7.80%
1a PENS INTLEQ Q 10/31/98 10.000000 1080.369906 108.036991 0.235290 107.801701 1078.017006 7.80%
1a PENS LIMMAT Q 10/31/97 9.683001 1000.000000 103.273768 0.000000 103.273768 1000.000000 3.04%
1a PENS LIMMAT Q 10/31/98 10.000000 1032.737681 103.273768 0.235290 103.038478 1030.384781 3.04%
1a PENS PARTNR Q 10/31/97 9.989274 1000.000000 100.107375 0.000000 100.107375 1000.000000 -0.13%
1a PENS PARTNR Q 10/31/98 10.000000 1001.073752 100.107375 0.235290 99.872085 998.720852 -0.13%
1a PENS QUALBD Q 10/31/97 9.109501 1000.000000 109.775497 0.000000 109.775497 1000.000000 9.54%
1a PENS QUALBD Q 10/31/98 10.000000 1097.754970 109.775497 0.235290 109.540207 1095.402070 9.54%
1a PENS SMLCAP Q 10/31/97 11.840723 1000.000000 84.454302 0.000000 84.454302 1000.000000 -15.78%
1a PENS SMLCAP Q 10/31/98 10.000000 844.543023 84.454302 0.235290 84.219012 842.190123 -15.78%
1a PENS VALUEQ Q 10/31/97 9.180814 1000.000000 108.922804 0.000000 108.922804 1000.000000 8.69%
1a PENS VALUEQ Q 10/31/98 10.000000 1089.228036 108.922804 0.235290 108.687514 1086.875136 8.69%
</TABLE>
Page 1
<PAGE>
5yr pens 3 bkup
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Table 3 - Pennant Select Variable/Fixed Annuity Contracts Pennant Select - 5 YR - Tbl 3
- - ------------------------------------------------------------------------------------------------------------------------------------
Average
Q = qualified $40 Contract # of units Annual Total
N = nonqualified Beginning # of units fee & deferred at end of Ending return for
- - ------------------------------------------------------------------------------------------------------------------------------------
amethod system fund qnonq accdate unitval bvalue bunits cunits rvalue eunits 5yr
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS EMGGRO Q 10/31/97 10.693572 10000.000000 935.141223 0.000000 10000.000000 935.141223 0.00%
3 PENS EMGGRO Q 10/31/98 10.000000 9351.412232 935.141223 0.235290 9349.059332 934.905933 0.00%
3 PENS EMGMKT Q 10/31/96 14.458904 10000.000000 691.615353 0.000000 10000.000000 691.615353 0.00%
3 PENS EMGMKT Q 10/31/97 15.159409 10484.480013 691.615353 0.155211 10482.127113 691.460143 0.00%
3 PENS EMGMKT Q 10/31/98 10.000000 6914.601429 691.460143 0.235290 6912.248529 691.224853 0.00%
3 PENS FIDASM Q 10/31/93 6.023530 10000.000000 1660.156088 0.000000 10000.000000 1660.156088 10.64%
3 PENS FIDASM Q 10/31/94 6.017591 9990.140333 1660.156088 0.391004 9987.787433 1659.765084 10.64%
3 PENS FIDASM Q 10/31/95 6.360709 10557.282709 1659.765084 0.369912 10554.929809 1659.395173 10.64%
3 PENS FIDASM Q 10/31/96 6.861890 11386.587141 1659.395173 0.342894 11384.234241 1659.052279 10.64%
3 PENS FIDASM Q 10/31/97 10.461735 17356.565292 1659.052279 0.224905 17354.212392 1658.827373 10.64%
3 PENS FIDASM Q 10/31/98 10.000000 16588.273734 1658.827373 0.235290 16585.920834 1658.592083 10.64%
3 PENS FIDEQI Q 10/31/93 4.190811 10000.000000 2386.172987 0.000000 10000.000000 2386.172987 18.97%
3 PENS FIDEQI Q 10/31/94 4.585389 10941.531365 2386.172987 0.513130 10939.178465 2385.659857 18.97%
3 PENS FIDEQI Q 10/31/95 5.523350 13176.834370 2385.659857 0.425991 13174.481470 2385.233865 18.97%
3 PENS FIDEQI Q 10/31/96 6.372224 15199.244482 2385.233865 0.369243 15196.891582 2384.864622 18.97%
3 PENS FIDEQI Q 10/31/97 9.827337 23436.868341 2384.864622 0.239424 23434.515441 2384.625198 18.97%
3 PENS FIDEQI Q 10/31/98 10.000000 23846.251981 2384.625198 0.235290 23843.899081 2384.389908 18.97%
3 PENS FIDGRO Q 10/31/93 5.379675 10000.000000 1858.848351 0.000000 10000.000000 1858.848351 13.17%
3 PENS FIDGRO Q 10/31/94 5.354891 9953.930302 1858.848351 0.439393 9951.577402 1858.408958 13.17%
3 PENS FIDGRO Q 10/31/95 7.272629 13515.518880 1858.408958 0.323528 13513.165980 1858.085430 13.17%
3 PENS FIDGRO Q 10/31/96 7.267510 13503.654441 1858.085430 0.323756 13501.301541 1857.761674 13.17%
3 PENS FIDGRO Q 10/31/97 9.438321 17534.151018 1857.761674 0.249292 17531.798118 1857.512381 13.17%
3 PENS FIDGRO Q 10/31/98 10.000000 18575.123815 1857.512381 0.235290 18572.770915 1857.277091 13.17%
3 PENS FIDIND Q 10/31/93 8.611003 10000.000000 1161.304903 0.000000 10000.000000 1161.304903 3.01%
3 PENS FIDIND Q 10/31/94 8.799264 10218.628422 1161.304903 0.267397 10216.275522 1161.037505 3.01%
3 PENS FIDIND Q 10/31/95 5.479617 6362.040851 1161.037505 0.429391 6359.687951 1160.608114 3.01%
3 PENS FIDIND Q 10/31/96 6.678923 7751.612226 1160.608114 0.352287 7749.259326 1160.255827 3.01%
3 PENS FIDIND Q 10/31/97 8.669827 10059.217292 1160.255827 0.271389 10056.864392 1159.984437 3.01%
3 PENS FIDIND Q 10/31/98 10.000000 11599.844371 1159.984437 0.235290 11597.491471 1159.749147 3.01%
3 PENS FLEXMN Q 10/31/93 6.195974 10000.000000 1613.951253 0.000000 10000.000000 1613.951253 10.02%
3 PENS FLEXMN Q 10/31/94 6.582611 10624.013271 1613.951253 0.357442 10621.660371 1613.593811 10.02%
3 PENS FLEXMN Q 10/31/95 7.520572 12135.148435 1613.593811 0.312862 12132.795535 1613.280949 10.02%
</TABLE>
Page 1
<PAGE>
5yr pens 3 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS FLEXMN Q 10/31/96 8.143869 13138.348711 1613.280949 0.288917 13135.995811 1612.992033 10.02%
3 PENS FLEXMN Q 10/31/97 9.446061 15236.421132 1612.992033 0.249088 15234.068232 1612.742945 10.02%
3 PENS FLEXMN Q 10/31/98 10.000000 16127.429446 1612.742945 0.235290 16125.076546 1612.507655 10.02%
3 PENS GROWEQ Q 10/31/93 5.866512 10000.000000 1704.590394 0.000000 10000.000000 1704.590394 11.23%
3 PENS GROWEQ Q 10/31/94 5.389393 9186.707536 1704.590394 0.436580 9184.354636 1704.153814 11.23%
3 PENS GROWEQ Q 10/31/95 6.525015 11119.629198 1704.153814 0.360597 11117.276298 1703.793217 11.23%
3 PENS GROWEQ Q 10/31/96 6.662855 11352.127155 1703.793217 0.353137 11349.774255 1703.440080 11.23%
3 PENS GROWEQ Q 10/31/97 8.374502 14265.462358 1703.440080 0.280960 14263.109458 1703.159120 11.23%
3 PENS GROWEQ Q 10/31/98 10.000000 17031.591202 1703.159120 0.235290 17029.238302 1702.923830 11.23%
3 PENS HIBOND Q 10/31/93 7.348796 10000.000000 1360.767124 0.000000 10000.000000 1360.767124 6.33%
3 PENS HIBOND Q 10/31/94 7.118262 9686.296912 1360.767124 0.330544 9683.944012 1360.436580 6.33%
3 PENS HIBOND Q 10/31/95 7.716869 10498.310872 1360.436580 0.304903 10495.957972 1360.131677 6.33%
3 PENS HIBOND Q 10/31/96 8.595628 11691.185924 1360.131677 0.273732 11688.833024 1359.857944 6.33%
3 PENS HIBOND Q 10/31/97 9.892647 13452.594615 1359.857944 0.237843 13450.241715 1359.620101 6.33%
3 PENS HIBOND Q 10/31/98 10.000000 13596.201012 1359.620101 0.235290 13593.848112 1359.384811 6.33%
3 PENS INTLEQ Q 10/31/93 6.780778 10000.000000 1474.757026 0.000000 10000.000000 1474.757026 8.05%
3 PENS INTLEQ Q 10/31/94 7.185245 10596.490550 1474.757026 0.327463 10594.137650 1474.429564 8.05%
3 PENS INTLEQ Q 10/31/95 7.111342 10485.172882 1474.429564 0.330866 10482.819982 1474.098698 8.05%
3 PENS INTLEQ Q 10/31/96 8.188589 12070.788382 1474.098698 0.287339 12068.435482 1473.811359 8.05%
3 PENS INTLEQ Q 10/31/97 9.256089 13641.729108 1473.811359 0.254200 13639.376208 1473.557159 8.05%
3 PENS INTLEQ Q 10/31/98 10.000000 14735.571587 1473.557159 0.235290 14733.218687 1473.321869 8.05%
3 PENS LIMMAT Q 10/31/93 8.955965 10000.000000 1116.574261 0.000000 10000.000000 1116.574261 2.21%
3 PENS LIMMAT Q 10/31/94 8.840839 9871.453272 1116.574261 0.266140 9869.100372 1116.308121 2.21%
3 PENS LIMMAT Q 10/31/95 9.478367 10580.778055 1116.308121 0.248239 10578.425155 1116.059882 2.21%
3 PENS LIMMAT Q 10/31/96 9.174547 10239.343842 1116.059882 0.256460 10236.990942 1115.803422 2.21%
3 PENS LIMMAT Q 10/31/97 9.683001 10804.325655 1115.803422 0.242993 10801.972755 1115.560430 2.21%
3 PENS LIMMAT Q 10/31/98 10.000000 11155.604296 1115.560430 0.235290 11153.251396 1115.325140 2.21%
3 PENS PARTNR Q 10/31/94 4.796650 10000.000000 2084.788342 0.000000 10000.000000 2084.788342 0.00%
3 PENS PARTNR Q 10/31/95 5.895340 12290.536103 2084.788342 0.399112 12288.183203 2084.389230 0.00%
3 PENS PARTNR Q 10/31/96 7.375327 15373.052167 2084.389230 0.319023 15370.699267 2084.070207 0.00%
3 PENS PARTNR Q 10/31/97 9.989274 20818.348332 2084.070207 0.235543 20815.995432 2083.834664 0.00%
3 PENS PARTNR Q 10/31/98 10.000000 20838.346642 2083.834664 0.235290 20835.993742 2083.599374 0.00%
3 PENS QUALBD Q 10/31/93 7.584102 10000.000000 1318.547667 0.000000 10000.000000 1318.547667 5.66%
3 PENS QUALBD Q 10/31/94 7.024905 9262.672100 1318.547667 0.334937 9260.319200 1318.212730 5.66%
3 PENS QUALBD Q 10/31/95 8.166115 10764.676750 1318.212730 0.288130 10762.323850 1317.924601 5.66%
3 PENS QUALBD Q 10/31/96 8.585287 11314.760941 1317.924601 0.274062 11312.408041 1317.650539 5.66%
3 PENS QUALBD Q 10/31/97 9.109501 12003.138900 1317.650539 0.258291 12000.786000 1317.392248 5.66%
3 PENS QUALBD Q 10/31/98 10.000000 13173.922480 1317.392248 0.235290 13171.569580 1317.156958 5.66%
3 PENS SMLCAP Q 10/31/95 8.013464 10000.000000 1247.899785 0.000000 10000.000000 1247.899785 0.00%
</TABLE>
Page 2
<PAGE>
5yr pens 3 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS SMLCAP Q 10/31/96 9.216480 11501.243407 1247.899785 0.255293 11498.890507 1247.644492 0.00%
3 PENS SMLCAP Q 10/31/97 11.840723 14773.012832 1247.644492 0.198713 14770.659932 1247.445779 0.00%
3 PENS SMLCAP Q 10/31/98 10.000000 12474.457794 1247.445779 0.235290 12472.104894 1247.210489 0.00%
3 PENS VALUEQ Q 10/31/93 4.815291 10000.000000 2076.717690 0.000000 10000.000000 2076.717690 15.71%
3 PENS VALUEQ Q 10/31/94 5.092570 10575.830204 2076.717690 0.462026 10573.477304 2076.255663 15.71%
3 PENS VALUEQ Q 10/31/95 6.236119 12947.777392 2076.255663 0.377302 12945.424492 2075.878362 15.71%
3 PENS VALUEQ Q 10/31/96 7.461407 15488.973338 2075.878362 0.315343 15486.620438 2075.563019 15.71%
3 PENS VALUEQ Q 10/31/97 9.180814 19055.358021 2075.563019 0.256284 19053.005121 2075.306734 15.71%
3 PENS VALUEQ Q 10/31/98 10.000000 20753.067344 2075.306734 0.235290 20750.714444 2075.071444 15.71%
</TABLE>
Page 3
<PAGE>
5 yr pens 2 bkup
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Table 2 - Pennant Select Variable/Fixed Annuity Contracts Pennant Select - 5 YR - Tbl 2
- - -----------------------------------------------------------------------------------------------------------------------------------
Average
Q = qualified $40 Contract # of units Annual Total
N = nonqualified Beginning # of units fee & deferred at end of Ending return for
- - -----------------------------------------------------------------------------------------------------------------------------------
amethod system fund qnonq accdate unitval bvalue bunits cunits rvalue eunits 5yr
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS BALFND Q 10/31/93 7.888625 1000.000000 126.764804 0.000000 1000.000000 126.764804 4.64%
2 PENS BALFND Q 10/31/94 7.702363 976.388534 126.764804 0.305478 974.035634 126.459326 4.64%
2 PENS BALFND Q 10/31/95 9.132473 1154.886381 126.459326 0.257641 1152.533481 126.201685 4.64%
2 PENS BALFND Q 10/31/96 8.204726 1035.450246 126.201685 0.286774 1033.097346 125.914911 4.64%
2 PENS BALFND Q 10/31/97 10.097183 1271.385901 125.914911 0.233025 1269.033001 125.681886 4.64%
2 PENS BALFND Q 10/31/98 10.000000 1256.818859 125.681886 0.235290 1254.465959 125.446596 4.64%
2 PENS EMGGRO Q 10/31/97 10.693572 1000.000000 93.514122 0.000000 1000.000000 93.514122 0.00%
2 PENS EMGGRO Q 10/31/98 10.000000 935.141223 93.514122 0.235290 932.788323 93.278832 0.00%
2 PENS EMGMKT Q 10/31/96 14.458904 1000.000000 69.161535 0.000000 1000.000000 69.161535 0.00%
2 PENS EMGMKT Q 10/31/97 15.159409 1048.448001 69.161535 0.155211 1046.095101 69.006325 0.00%
2 PENS EMGMKT Q 10/31/98 10.000000 690.063248 69.006325 0.235290 687.710348 68.771035 0.00%
2 PENS FIDASM Q 10/31/93 6.023530 1000.000000 166.015609 0.000000 1000.000000 166.015609 10.45%
2 PENS FIDASM Q 10/31/94 6.017591 999.014033 166.015609 0.391004 996.661133 165.624605 10.45%
2 PENS FIDASM Q 10/31/95 6.360709 1053.489917 165.624605 0.369912 1051.137017 165.254694 10.45%
2 PENS FIDASM Q 10/31/96 6.861890 1133.959529 165.254694 0.342894 1131.606629 164.911800 10.45%
2 PENS FIDASM Q 10/31/97 10.461735 1725.263547 164.911800 0.224905 1722.910647 164.686894 10.45%
2 PENS FIDASM Q 10/31/98 10.000000 1646.868944 164.686894 0.235290 1644.516044 164.451604 10.45%
2 PENS FIDEQI Q 10/31/93 4.190811 1000.000000 238.617299 0.000000 1000.000000 238.617299 18.81%
2 PENS FIDEQI Q 10/31/94 4.585389 1094.153136 238.617299 0.513130 1091.800236 238.104169 18.81%
2 PENS FIDEQI Q 10/31/95 5.523350 1315.132661 238.104169 0.425991 1312.779761 237.678177 18.81%
2 PENS FIDEQI Q 10/31/96 6.372224 1514.538586 237.678177 0.369243 1512.185686 237.308934 18.81%
2 PENS FIDEQI Q 10/31/97 9.827337 2332.114869 237.308934 0.239424 2329.761969 237.069510 18.81%
2 PENS FIDEQI Q 10/31/98 10.000000 2370.695102 237.069510 0.235290 2368.342202 236.834220 18.81%
2 PENS FIDGRO Q 10/31/93 5.379675 1000.000000 185.884835 0.000000 1000.000000 185.884835 13.00%
2 PENS FIDGRO Q 10/31/94 5.354891 995.393030 185.884835 0.439393 993.040130 185.445442 13.00%
2 PENS FIDGRO Q 10/31/95 7.272629 1348.675902 185.445442 0.323528 1346.323002 185.121914 13.00%
2 PENS FIDGRO Q 10/31/96 7.267510 1345.375363 185.121914 0.323756 1343.022463 184.798158 13.00%
2 PENS FIDGRO Q 10/31/97 9.438321 1744.184338 184.798158 0.249292 1741.831438 184.548866 13.00%
2 PENS FIDGRO Q 10/31/98 10.000000 1845.488660 184.548866 0.235290 1843.135760 184.313576 13.00%
2 PENS FIDIND Q 10/31/93 8.611003 1000.000000 116.130490 0.000000 1000.000000 116.130490 2.76%
</TABLE>
Page 1
<PAGE>
5yr pens 2 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS FIDIND Q 10/31/94 8.799264 1021.862842 116.130490 0.267397 1019.509942 115.863093 2.76%
2 PENS FIDIND Q 10/31/95 5.479617 634.885373 115.863093 0.429391 632.532473 115.433702 2.76%
2 PENS FIDIND Q 10/31/96 6.678923 770.972804 115.433702 0.352287 768.619904 115.081414 2.76%
2 PENS FIDIND Q 10/31/97 8.669827 997.735952 115.081414 0.271389 995.383052 114.810025 2.76%
2 PENS FIDIND Q 10/31/98 10.000000 1148.100247 114.810025 0.235290 1145.747347 114.574735 2.76%
2 PENS FLEXMN Q 10/31/93 6.195974 1000.000000 161.395125 0.000000 1000.000000 161.395125 9.84%
2 PENS FLEXMN Q 10/31/94 6.582611 1062.401327 161.395125 0.357442 1060.048427 161.037684 9.84%
2 PENS FLEXMN Q 10/31/95 7.520572 1211.095494 161.037684 0.312862 1208.742594 160.724822 9.84%
2 PENS FLEXMN Q 10/31/96 8.143869 1308.921893 160.724822 0.288917 1306.568993 160.435905 9.84%
2 PENS FLEXMN Q 10/31/97 9.446061 1515.487345 160.435905 0.249088 1513.134445 160.186817 9.84%
2 PENS FLEXMN Q 10/31/98 10.000000 1601.868170 160.186817 0.235290 1599.515270 159.951527 9.84%
2 PENS GROWEQ Q 10/31/93 5.866512 1000.000000 170.459039 0.000000 1000.000000 170.459039 11.03%
2 PENS GROWEQ Q 10/31/94 5.389393 918.670754 170.459039 0.436580 916.317854 170.022460 11.03%
2 PENS GROWEQ Q 10/31/95 6.525015 1109.399099 170.022460 0.360597 1107.046199 169.661863 11.03%
2 PENS GROWEQ Q 10/31/96 6.662855 1130.432390 169.661863 0.353137 1128.079490 169.308726 11.03%
2 PENS GROWEQ Q 10/31/97 8.374502 1417.876263 169.308726 0.280960 1415.523363 169.027766 11.03%
2 PENS GROWEQ Q 10/31/98 10.000000 1690.277658 169.027766 0.235290 1687.924758 168.792476 11.03%
2 PENS HIBOND Q 10/31/93 7.348796 1000.000000 136.076712 0.000000 1000.000000 136.076712 6.13%
2 PENS HIBOND Q 10/31/94 7.118262 968.629691 136.076712 0.330544 966.276791 135.746168 6.13%
2 PENS HIBOND Q 10/31/95 7.716869 1047.535398 135.746168 0.304903 1045.182498 135.441265 6.13%
2 PENS HIBOND Q 10/31/96 8.595628 1164.202728 135.441265 0.273732 1161.849828 135.167533 6.13%
2 PENS HIBOND Q 10/31/97 9.892647 1337.164686 135.167533 0.237843 1334.811786 134.929689 6.13%
2 PENS HIBOND Q 10/31/98 10.000000 1349.296893 134.929689 0.235290 1346.943993 134.694399 6.13%
2 PENS INTLEQ Q 10/31/93 6.780778 1000.000000 147.475703 0.000000 1000.000000 147.475703 7.86%
2 PENS INTLEQ Q 10/31/94 7.185245 1059.649055 147.475703 0.327463 1057.296155 147.148240 7.86%
2 PENS INTLEQ Q 10/31/95 7.111342 1046.421459 147.148240 0.330866 1044.068559 146.817374 7.86%
2 PENS INTLEQ Q 10/31/96 8.188589 1202.227134 146.817374 0.287339 1199.874234 146.530035 7.86%
2 PENS INTLEQ Q 10/31/97 9.256089 1356.295047 146.530035 0.254200 1353.942147 146.275835 7.86%
2 PENS INTLEQ Q 10/31/98 10.000000 1462.758350 146.275835 0.235290 1460.405450 146.040545 7.86%
2 PENS LIMMAT Q 10/31/93 8.955965 1000.000000 111.657426 0.000000 1000.000000 111.657426 2.00%
2 PENS LIMMAT Q 10/31/94 8.840839 987.145327 111.657426 0.266140 984.792427 111.391286 2.00%
2 PENS LIMMAT Q 10/31/95 9.478367 1055.807491 111.391286 0.248239 1053.454591 111.143047 2.00%
2 PENS LIMMAT Q 10/31/96 9.174547 1019.687110 111.143047 0.256460 1017.334210 110.886588 2.00%
2 PENS LIMMAT Q 10/31/97 9.683001 1073.714940 110.886588 0.242993 1071.362040 110.643595 2.00%
2 PENS LIMMAT Q 10/31/98 10.000000 1106.435948 110.643595 0.235290 1104.083048 110.408305 2.00%
2 PENS PARTNR Q 10/31/94 4.796650 1000.000000 208.478834 0.000000 1000.000000 208.478834 0.00%
2 PENS PARTNR Q 10/31/95 5.895340 1229.053610 208.478834 0.399112 1226.700710 208.079722 0.00%
</TABLE>
Page 2
<PAGE>
5yr pens 2 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS PARTNR Q 10/31/96 7.375327 1534.655994 208.079722 0.319023 1532.303094 207.760699 0.00%
2 PENS PARTNR Q 10/31/97 9.989274 2075.378551 207.760699 0.235543 2073.025651 207.525157 0.00%
2 PENS PARTNR Q 10/31/98 10.000000 2075.251566 207.525157 0.235290 2072.898666 207.289867 0.00%
2 PENS QUALBD Q 10/31/93 7.584102 1000.000000 131.854767 0.000000 1000.000000 131.854767 5.46%
2 PENS QUALBD Q 10/31/94 7.024905 926.267210 131.854767 0.334937 923.914310 131.519830 5.46%
2 PENS QUALBD Q 10/31/95 8.166115 1074.006055 131.519830 0.288130 1071.653155 131.231700 5.46%
2 PENS QUALBD Q 10/31/96 8.585287 1126.661809 131.231700 0.274062 1124.308909 130.957638 5.46%
2 PENS QUALBD Q 10/31/97 9.109501 1192.958737 130.957638 0.258291 1190.605837 130.699347 5.46%
2 PENS QUALBD Q 10/31/98 10.000000 1306.993475 130.699347 0.235290 1304.640575 130.464057 5.46%
2 PENS SMLCAP Q 10/31/95 8.013464 1000.000000 124.789978 0.000000 1000.000000 124.789978 0.00%
2 PENS SMLCAP Q 10/31/96 9.216480 1150.124341 124.789978 0.255293 1147.771441 124.534686 0.00%
2 PENS SMLCAP Q 10/31/97 11.840723 1474.580718 124.534686 0.198713 1472.227818 124.335973 0.00%
2 PENS SMLCAP Q 10/31/98 10.000000 1243.359732 124.335973 0.235290 1241.006832 124.100683 0.00%
2 PENS VALUEQ Q 10/31/93 4.815291 1000.000000 207.671769 0.000000 1000.000000 207.671769 15.54%
2 PENS VALUEQ Q 10/31/94 5.092570 1057.583020 207.671769 0.462026 1055.230120 207.209743 15.54%
2 PENS VALUEQ Q 10/31/95 6.236119 1292.184615 207.209743 0.377302 1289.831715 206.832441 15.54%
2 PENS VALUEQ Q 10/31/96 7.461407 1543.261023 206.832441 0.315343 1540.908123 206.517098 15.54%
2 PENS VALUEQ Q 10/31/97 9.180814 1895.995067 206.517098 0.256284 1893.642167 206.260814 15.54%
2 PENS VALUEQ Q 10/31/98 10.000000 2062.608138 206.260814 0.235290 2060.255238 206.025524 15.54%
</TABLE>
Page 3
<PAGE>
5yr pens 1a bkup
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Table 1A - Pennant Select Variable/Fixed Annuity Contracts Pennant Select - 5 YR - Tbl 1a
- - ------------------------------------------------------------------------------------------------------------------------------------
(assuming no purchase payments made after first contract year)
- - ------------------------------------------------------------------------------------------------------------------------------------
Average
Q = qualified $40 Contract # of units Annual Total
N = nonqualified Beginning # of units fee & deferred at end of Ending return for
- - ------------------------------------------------------------------------------------------------------------------------------------
amethod system fund qnonq accdate unitval bvalue bunits cunits rvalue eunits 5yr
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1a PENS BALFND Q 10/31/93 7.888625 1000.000000 126.764804 0.000000 1000.000000 126.764804 4.64%
1a PENS BALFND Q 10/31/94 7.702363 976.388534 126.764804 0.305478 974.035634 126.459326 4.64%
1a PENS BALFND Q 10/31/95 9.132473 1154.886381 126.459326 0.257641 1152.533481 126.201685 4.64%
1a PENS BALFND Q 10/31/96 8.204726 1035.450246 126.201685 0.286774 1033.097346 125.914911 4.64%
1a PENS BALFND Q 10/31/97 10.097183 1271.385901 125.914911 0.233025 1269.033001 125.681886 4.64%
1a PENS BALFND Q 10/31/98 10.000000 1256.818859 125.681886 0.235290 1254.465959 125.446596 4.64%
1a PENS EMGGRO Q 10/31/97 10.693572 1000.000000 93.514122 0.000000 1000.000000 93.514122 0.00%
1a PENS EMGGRO Q 10/31/98 10.000000 935.141223 93.514122 0.235290 932.788323 93.278832 0.00%
1a PENS EMGMKT Q 10/31/96 14.458904 1000.000000 69.161535 0.000000 1000.000000 69.161535 0.00%
1a PENS EMGMKT Q 10/31/97 15.159409 1048.448001 69.161535 0.155211 1046.095101 69.006325 0.00%
1a PENS EMGMKT Q 10/31/98 10.000000 690.063248 69.006325 0.235290 687.710348 68.771035 0.00%
1a PENS FIDASM Q 10/31/93 6.023530 1000.000000 166.015609 0.000000 1000.000000 166.015609 10.45%
1a PENS FIDASM Q 10/31/94 6.017591 999.014033 166.015609 0.391004 996.661133 165.624605 10.45%
1a PENS FIDASM Q 10/31/95 6.360709 1053.489917 165.624605 0.369912 1051.137017 165.254694 10.45%
1a PENS FIDASM Q 10/31/96 6.861890 1133.959529 165.254694 0.342894 1131.606629 164.911800 10.45%
1a PENS FIDASM Q 10/31/97 10.461735 1725.263547 164.911800 0.224905 1722.910647 164.686894 10.45%
1a PENS FIDASM Q 10/31/98 10.000000 1646.868944 164.686894 0.235290 1644.516044 164.451604 10.45%
1a PENS FIDEQI Q 10/31/93 4.190811 1000.000000 238.617299 0.000000 1000.000000 238.617299 18.81%
1a PENS FIDEQI Q 10/31/94 4.585389 1094.153136 238.617299 0.513130 1091.800236 238.104169 18.81%
1a PENS FIDEQI Q 10/31/95 5.523350 1315.132661 238.104169 0.425991 1312.779761 237.678177 18.81%
1a PENS FIDEQI Q 10/31/96 6.372224 1514.538586 237.678177 0.369243 1512.185686 237.308934 18.81%
1a PENS FIDEQI Q 10/31/97 9.827337 2332.114869 237.308934 0.239424 2329.761969 237.069510 18.81%
1a PENS FIDEQI Q 10/31/98 10.000000 2370.695102 237.069510 0.235290 2368.342202 236.834220 18.81%
1a PENS FIDGRO Q 10/31/93 5.379675 1000.000000 185.884835 0.000000 1000.000000 185.884835 13.00%
1a PENS FIDGRO Q 10/31/94 5.354891 995.393030 185.884835 0.439393 993.040130 185.445442 13.00%
1a PENS FIDGRO Q 10/31/95 7.272629 1348.675902 185.445442 0.323528 1346.323002 185.121914 13.00%
1a PENS FIDGRO Q 10/31/96 7.267510 1345.375363 185.121914 0.323756 1343.022463 184.798158 13.00%
1a PENS FIDGRO Q 10/31/97 9.438321 1744.184338 184.798158 0.249292 1741.831438 184.548866 13.00%
1a PENS FIDGRO Q 10/31/98 10.000000 1845.488660 184.548866 0.235290 1843.135760 184.313576 13.00%
1a PENS FIDIND Q 10/31/93 8.611003 1000.000000 116.130490 0.000000 1000.000000 116.130490 2.76%
</TABLE>
Page 1
<PAGE>
5yr pens 1a bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1a PENS FIDIND Q 10/31/94 8.799264 1021.862842 166.130490 0.267397 1019.509942 115.863093 2.76%
1a PENS FIDIND Q 10/31/95 5.479617 634.885373 115.863093 0.429391 632.532473 115.433702 2.76%
1a PENS FIDIND Q 10/31/96 6.678923 770.972804 115.433702 0.352287 768.619904 115.081414 2.76%
1a PENS FIDIND Q 10/31/97 8.669827 997.735952 115.081414 0.271389 995.383052 114.810025 2.76%
1a PENS FIDIND Q 10/31/98 10.000000 1148.100247 114.810025 0.235290 1145.747347 114.574735 2.76%
1a PENS FLEXMN Q 10/31/93 6.195974 1000.000000 161.395125 0.000000 1000.000000 161.395125 9.84%
1a PENS FLEXMN Q 10/31/94 6.582611 1062.401327 161.395125 0.357442 1060.048427 161.037684 9.84%
1a PENS FLEXMN Q 10/31/95 7.520572 1211.095494 161.037684 0.312862 1208.742594 160.724822 9.84%
1a PENS FLEXMN Q 10/31/96 8.143869 1308.921893 160.724822 0.288917 1306.568993 160.435905 9.84%
1a PENS FLEXMN Q 10/31/97 9.446061 1515.487345 160.435905 0.249088 1513.134445 160.186817 9.84%
1a PENS FLEXMN Q 10/31/98 10.000000 1601.868170 160.186817 0.235290 1599.515270 159.951527 9.84%
1a PENS GROWEQ Q 10/31/93 5.866512 1000.000000 170.459039 0.000000 1000.000000 170.459039 11.03%
1a PENS GROWEQ Q 10/31/94 5.389393 918.670754 170.459039 0.436580 916.317854 170.022460 11.03%
1a PENS GROWEQ Q 10/31/95 6.525015 1109.399099 170.022460 0.360597 1107.046199 169.661863 11.03%
1a PENS GROWEQ Q 10/31/96 6.662855 1130.432390 169.661863 0.353137 1128.079490 169.308726 11.03%
1a PENS GROWEQ Q 10/31/97 8.374502 1417.876263 169.308726 0.280960 1415.523363 169.027766 11.03%
1a PENS GROWEQ Q 10/31/98 10.000000 1690.277658 169.027766 0.235290 1687.924758 168.792476 11.03%
1a PENS HIBOND Q 10/31/93 7.348796 1000.000000 136.076712 0.000000 1000.000000 136.076712 6.13%
1a PENS HIBOND Q 10/31/94 7.118262 968.629691 136.076712 0.330544 966.276791 135.746168 6.13%
1a PENS HIBOND Q 10/31/95 7.716869 1047.535398 135.746168 0.304903 1045.182498 135.441265 6.13%
1a PENS HIBOND Q 10/31/96 8.595628 1164.202728 135.441265 0.273732 1161.849828 135.167533 6.13%
1a PENS HIBOND Q 10/31/97 9.892647 1337.164686 135.167533 0.237843 1334.811786 134.929689 6.13%
1a PENS HIBOND Q 10/31/98 10.000000 1349.296893 134.929689 0.235290 1346.943993 134.694399 6.13%
1a PENS INTLEQ Q 10/31/93 6.780778 1000.000000 147.475703 0.000000 1000.000000 147.475703 7.86%
1a PENS INTLEQ Q 10/31/94 7.185245 1059.649055 147.475703 0.327463 1057.296155 147.148240 7.86%
1a PENS INTLEQ Q 10/31/95 7.111342 1046.421459 147.148240 0.330866 1044.068559 146.817374 7.86%
1a PENS INTLEQ Q 10/31/96 8.188589 1202.227134 146.817374 0.287339 1199.874234 146.530035 7.86%
1a PENS INTLEQ Q 10/31/97 9.256089 1356.295047 146.530035 0.254200 1353.942147 146.275835 7.86%
1a PENS INTLEQ Q 10/31/98 10.000000 1462.758350 146.275835 0.235290 1460.405450 146.040545 7.86%
1a PENS LIMMAT Q 10/31/93 8.955965 1000.000000 111.657426 0.000000 1000.000000 111.657426 2.00%
1a PENS LIMMAT Q 10/31/94 8.840839 987.145327 111.657426 0.266140 984.792427 111.391286 2.00%
1a PENS LIMMAT Q 10/31/95 9.478367 1055.807491 111.391286 0.248239 1053.454591 111.143047 2.00%
1a PENS LIMMAT Q 10/31/96 9.174547 1019.687110 111.143047 0.256460 1017.334210 110.886588 2.00%
1a PENS LIMMAT Q 10/31/97 9.683001 1073.714940 110.886588 0.242993 1071.362040 110.643595 2.00%
1a PENS LIMMAT Q 10/31/98 10.000000 1106.435948 110.643595 0.235290 1104.083048 110.408305 2.00%
1a PENS PARTNR Q 10/31/94 4.796650 1000.000000 208.478834 0.000000 1000.000000 208.478834 0.00%
1a PENS PARTNR Q 10/31/95 5.895340 1229.053610 208.478834 0.399112 1226.700710 208.079722 0.00%
</TABLE>
Page 2
<PAGE>
5yr pens 1a bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1a PENS PARTNR Q 10/31/96 7.375327 1534.655994 208.079722 0.319023 1532.303094 207.760699 0.00%
1a PENS PARTNR Q 10/31/97 9.989274 2075.378551 207.760699 0.235543 2073.025651 207.525157 0.00%
1a PENS PARTNR Q 10/31/98 10.000000 2075.251566 207.525157 0.235290 2072.898666 207.289867 0.00%
1a PENS QUALBD Q 10/31/93 7.584102 1000.000000 131.854767 0.000000 1000.000000 131.854767 5.46%
1a PENS QUALBD Q 10/31/94 7.024905 926.267210 131.854767 0.334937 923.914310 131.519830 5.46%
1a PENS QUALBD Q 10/31/95 8.166115 1074.006055 131.519830 0.288130 1071.653155 131.231700 5.46%
1a PENS QUALBD Q 10/31/96 8.585287 1126.661809 131.231700 0.274062 1124.308909 130.957638 5.46%
1a PENS QUALBD Q 10/31/97 9.109501 1192.958737 130.957638 0.258291 1190.605837 130.699347 5.46%
1a PENS QUALBD Q 10/31/98 10.000000 1306.993475 130.699347 0.235290 1304.640575 130.464057 5.46%
1a PENS SMLCAP Q 10/31/95 8.013464 1000.000000 124.789978 0.000000 1000.000000 124.789978 0.00%
1a PENS SMLCAP Q 10/31/96 9.216480 1150.124341 124.789978 0.255293 1147.771441 124.534686 0.00%
1a PENS SMLCAP Q 10/31/97 11.840723 1474.580718 124.534686 0.198713 1472.227818 124.335973 0.00%
1a PENS SMLCAP Q 10/31/98 10.000000 1243.359732 124.335973 0.235290 1241.006832 124.100683 0.00%
1a PENS VALUEQ Q 10/31/93 4.815291 1000.000000 207.671769 0.000000 1000.000000 207.671769 15.54%
1a PENS VALUEQ Q 10/31/94 5.092570 1057.583020 207.671769 0.462026 1055.230120 207.209743 15.54% 7.86%
1a PENS VALUEQ Q 10/31/95 6.236119 1292.184615 207.209743 0.377302 1289.831715 206.832441 15.54%
1a PENS VALUEQ Q 10/31/96 7.461407 1543.261023 206.832441 0.315343 1540.908123 206.517098 15.54%
1a PENS VALUEQ Q 10/31/97 9.180814 1895.995067 206.517098 0.256284 1893.642167 206.260814 15.54%
1a PENS VALUEQ Q 10/31/98 10.000000 2062.608138 206.260814 0.235290 2060.255238 206.025524 15.54%
</TABLE>
Page 3
<PAGE>
10yr pens 3 bkup
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Table 3 - Pennant Select Variable/Fixed Annuity Contracts Pennant Select - 10 YR - Tbl 3
- - ------------------------------------------------------------------------------------------------------------------------------------
$40 Contract Average
Q = qualified fee & # of units Annual Total
N = nonqualified Beginning # of units deferred at end of Ending return for
- - -----------------------------------------------------------------------------------------------------------------------------------
amethod system fund qnonq accdate unitval bvalue bunits cunits rvalue eunits 10yr
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS EMGGRO Q 10/31/97 10.693572 10000.000000 935.141223 0.000000 10000.000000 935.141223 0.00%
3 PENS EMGGRO Q 10/31/98 10.000000 9351.412232 935.141223 0.235290 9349.059332 934.905933 0.00%
3 PENS EMGMKT Q 10/31/96 14.458904 10000.000000 691.615353 0.000000 10000.000000 691.615353 0.00%
3 PENS EMGMKT Q 10/31/97 15.159409 10484.480013 691.615353 0.155211 10482.127113 691.460143 0.00%
3 PENS EMGMKT Q 10/31/98 10.000000 6914.601429 691.460143 0.235290 6912.248529 691.224853 0.00%
3 PENS FIDASM Q 10/31/89 3.703246 10000.000000 2700.333707 0.000000 10000.000000 2700.333707 0.00%
3 PENS FIDASM Q 10/31/90 3.638900 9826.244327 2700.333707 0.646596 9823.891427 2699.687111 0.00%
3 PENS FIDASM Q 10/31/91 4.627039 12491.557549 2699.687111 0.508511 12489.204649 2699.178600 0.00%
3 PENS FIDASM Q 10/31/92 5.048272 13626.187748 2699.178600 0.466080 13623.834848 2698.712520 0.00%
3 PENS FIDASM Q 10/31/93 6.023530 16255.775823 2698.712520 0.390618 16253.422923 2698.321901 0.00%
3 PENS FIDASM Q 10/31/94 6.017591 16237.397589 2698.321901 0.391004 16235.044689 2697.930898 0.00%
3 PENS FIDASM Q 10/31/95 6.360709 17160.753343 2697.930898 0.369912 17158.400443 2697.560986 0.00%
3 PENS FIDASM Q 10/31/96 6.861890 18510.366755 2697.560986 0.342894 18508.013855 2697.218092 0.00%
3 PENS FIDASM Q 10/31/97 10.461735 28217.580919 2697.218092 0.224905 28215.228019 2696.993187 0.00%
3 PENS FIDASM Q 10/31/98 10.000000 26969.931870 2696.993187 0.235290 26967.578970 2696.757897 0.00%
3 PENS FIDEQI Q 10/31/88 2.512627 10000.000000 3979.898330 0.000000 10000.000000 3979.898330 14.79%
3 PENS FIDEQI Q 10/31/89 2.848104 11335.164352 3979.898330 0.826129 11332.811452 3979.072201 14.79%
3 PENS FIDEQI Q 10/31/90 2.201191 8758.697917 3979.072201 1.068921 8756.345017 3978.003280 14.79%
3 PENS FIDEQI Q 10/31/91 3.031632 12059.842039 3978.003280 0.776117 12057.489139 3977.227163 14.79%
3 PENS FIDEQI Q 10/31/92 3.390167 13483.464280 3977.227163 0.694037 13481.111380 3976.533126 14.79%
3 PENS FIDEQI Q 10/31/93 4.190811 16664.898768 3976.533126 0.561443 16662.545868 3975.971684 14.79%
3 PENS FIDEQI Q 10/31/94 4.585389 18231.376823 3975.971684 0.513130 18229.023923 3975.458554 14.79%
3 PENS FIDEQI Q 10/31/95 5.523350 21957.849004 3975.458554 0.425991 21955.496104 3975.032562 14.79%
3 PENS FIDEQI Q 10/31/96 6.372224 25329.797895 3975.032562 0.369243 25327.444995 3974.663319 14.79%
3 PENS FIDEQI Q 10/31/97 9.827337 39060.355900 3974.663319 0.239424 39058.003000 3974.423895 14.79%
3 PENS FIDEQI Q 10/31/98 10.000000 39744.238953 3974.423895 0.235290 39741.886053 3974.188605 14.79%
3 PENS FIDGRO Q 10/31/88 2.591972 10000.000000 3858.066368 0.000000 10000.000000 3858.066368 14.43%
3 PENS FIDGRO Q 10/31/89 3.235152 12481.431127 3858.066368 0.727292 12479.078227 3857.339076 14.43%
3 PENS FIDGRO Q 10/31/90 2.633718 10159.143357 3857.339076 0.893376 10156.790457 3856.445700 14.43%
3 PENS FIDGRO Q 10/31/91 3.942101 15202.498451 3856.445700 0.596864 15200.145551 3855.848836 14.43%
</TABLE>
Page 1
<PAGE>
10yr pens 3 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS FIDGRO Q 10/31/92 4.127327 15914.349008 3855.848836 0.570078 15911.996108 3855.278757 14.43%
3 PENS FIDGRO Q 10/31/93 5.379675 20740.146749 3855.278757 0.437368 20737.793849 3854.841389 14.43%
3 PENS FIDGRO Q 10/31/94 5.354891 20642.255460 3854.841389 0.439393 20639.902560 3854.401996 14.43%
3 PENS FIDGRO Q 10/31/95 7.272629 28031.635735 3854.401996 0.323528 28029.282835 3854.078468 14.43%
3 PENS FIDGRO Q 10/31/96 7.267510 28009.553808 3854.078468 0.323756 28007.200908 3853.754712 14.43%
3 PENS FIDGRO Q 10/31/97 9.438321 36372.974028 3853.754712 0.249292 36370.621128 3853.505420 14.43%
3 PENS FIDGRO Q 10/31/98 10.000000 38535.054199 3853.505420 0.235290 38532.701299 3853.270130 14.43%
3 PENS FIDIND Q 10/31/92 7.611036 10000.000000 1313.881579 0.000000 10000.000000 1313.881579 0.00%
3 PENS FIDIND Q 10/31/93 8.611003 11313.838221 1313.881579 0.273243 11311.485321 1313.608336 0.00%
3 PENS FIDIND Q 10/31/94 8.799264 11558.786540 1313.608336 0.267397 11556.433640 1313.340939 0.00%
3 PENS FIDIND Q 10/31/95 5.479617 7196.605334 1313.340939 0.429391 7194.252434 1312.911547 0.00%
3 PENS FIDIND Q 10/31/96 6.678923 8768.835130 1312.911547 0.352287 8766.482230 1312.559260 0.00%
3 PENS FIDIND Q 10/31/97 8.669827 11379.661710 1312.559260 0.271389 11377.308810 1312.287870 0.00%
3 PENS FIDIND Q 10/31/98 10.000000 13122.878704 1312.287870 0.235290 13120.525804 1312.052580 0.00%
3 PENS FLEXMN Q 10/31/88 3.614109 10000.000000 2766.933703 0.000000 10000.000000 2766.933703 10.69%
3 PENS FLEXMN Q 10/31/89 4.267152 11806.926686 2766.933703 0.551398 11804.573786 2766.382305 10.69%
3 PENS FLEXMN Q 10/31/90 3.804689 10525.224326 2766.382305 0.618421 10522.871426 2765.763884 10.69%
3 PENS FLEXMN Q 10/31/91 4.997659 13822.344767 2765.763884 0.470800 13819.991867 2765.293084 10.69%
3 PENS FLEXMN Q 10/31/92 5.386857 14896.238405 2765.293084 0.436785 14893.885505 2764.856298 10.69%
3 PENS FLEXMN Q 10/31/93 6.195974 17130.977738 2764.856298 0.379747 17128.624838 2764.476552 10.69%
3 PENS FLEXMN Q 10/31/94 6.582611 18197.473759 2764.476552 0.357442 18195.120859 2764.119110 10.69%
3 PENS FLEXMN Q 10/31/95 7.520572 20787.756784 2764.119110 0.312862 20785.403884 2763.806248 10.69%
3 PENS FLEXMN Q 10/31/96 8.143869 22508.076027 2763.806248 0.288917 22505.723127 2763.517331 10.69%
3 PENS FLEXMN Q 10/31/97 9.446061 26104.353288 2763.517331 0.249088 26102.000388 2763.268244 10.69%
3 PENS FLEXMN Q 10/31/98 10.000000 27632.682435 2763.268244 0.235290 27630.329535 2763.032954 10.69%
3 PENS GROWEQ Q 10/31/88 3.366636 10000.000000 2970.324086 0.000000 10000.000000 2970.324086 11.48%
3 PENS GROWEQ Q 10/31/89 4.245562 12610.695068 2970.324086 0.554202 12608.342168 2969.769884 11.48%
3 PENS GROWEQ Q 10/31/90 3.510568 10425.579122 2969.769884 0.670233 10423.226222 2969.099650 11.48%
3 PENS GROWEQ Q 10/31/91 4.720759 14016.403897 2969.099650 0.498416 14014.050997 2968.601235 11.48%
3 PENS GROWEQ Q 10/31/92 4.986739 14803.639553 2968.601235 0.471831 14801.286653 2968.129403 11.48%
3 PENS GROWEQ Q 10/31/93 5.866512 17412.566763 2968.129403 0.401073 17410.213863 2967.728330 11.48%
3 PENS GROWEQ Q 10/31/94 5.389393 15994.254290 2967.728330 0.436580 15991.901390 2967.291751 11.48%
3 PENS GROWEQ Q 10/31/95 6.525015 19361.623182 2967.291751 0.360597 19359.270282 2966.931154 11.48%
3 PENS GROWEQ Q 10/31/96 6.662855 19768.232072 2966.931154 0.353137 19765.879172 2966.578017 11.48%
3 PENS GROWEQ Q 10/31/97 8.374502 24843.613535 2966.578017 0.280960 24841.260635 2966.297057 11.48%
3 PENS GROWEQ Q 10/31/98 10.000000 29662.970568 2966.297057 0.235290 29660.617668 2966.061767 11.48%
3 PENS HIBOND Q 10/31/88 4.597460 10000.000000 2175.114085 0.000000 10000.000000 2175.114085 8.06%
</TABLE>
Page 2
<PAGE>
10yr pens 3 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS HIBOND Q 10/31/89 4.698176 10219.068790 2175.114085 0.500811 10216.715890 2174.613273 8.06%
3 PENS HIBOND Q 10/31/90 4.107856 8932.998183 2174.613273 0.572781 8930.645283 2174.040493 8.06%
3 PENS HIBOND Q 10/31/91 5.420737 11784.901739 2174.040493 0.434055 11782.548839 2173.606437 8.06%
3 PENS HIBOND Q 10/31/92 6.145141 13357.118037 2173.606437 0.382888 13354.765137 2173.223550 8.06%
3 PENS HIBOND Q 10/31/93 7.348796 15970.576528 2173.223550 0.320175 15968.223628 2172.903375 8.06%
3 PENS HIBOND Q 10/31/94 7.118262 15467.295522 2172.903375 0.330544 15464.942622 2172.572830 8.06%
3 PENS HIBOND Q 10/31/95 7.716869 16765.459926 2172.572830 0.304903 16763.107026 2172.267927 8.06%
3 PENS HIBOND Q 10/31/96 8.595628 18672.007017 2172.267927 0.273732 18669.654117 2171.994195 8.06%
3 PENS HIBOND Q 10/31/97 9.892647 21486.771856 2171.994195 0.237843 21484.418956 2171.756352 8.06%
3 PENS HIBOND Q 10/31/98 10.000000 21717.563515 2171.756352 0.235290 21715.210615 2171.521062 8.06%
3 PENS INTLEQ Q 10/31/93 6.780778 10000.000000 1474.757026 0.000000 10000.000000 1474.757026 0.00%
3 PENS INTLEQ Q 10/31/94 7.185245 10596.490550 1474.757026 0.327463 10594.137650 1474.429564 0.00%
3 PENS INTLEQ Q 10/31/95 7.111342 10485.172882 1474.429564 0.330866 10482.819982 1474.098698 0.00%
3 PENS INTLEQ Q 10/31/96 8.188589 12070.788382 1474.098698 0.287339 12068.435482 1473.811359 0.00%
3 PENS INTLEQ Q 10/31/97 9.256089 13641.729108 1473.811359 0.254200 13639.376208 1473.557159 0.00%
3 PENS INTLEQ Q 10/31/98 10.000000 14735.571587 1473.557159 0.235290 14733.218687 1473.321869 0.00%
3 PENS LIMMAT Q 10/31/88 6.409040 10000.000000 1560.296082 0.000000 10000.000000 1560.296082 4.53%
3 PENS LIMMAT Q 10/31/89 6.900156 10766.286371 1560.296082 0.340992 10763.933471 1559.955089 4.53%
3 PENS LIMMAT Q 10/31/90 7.320476 11419.613794 1559.955089 0.321414 11417.260894 1559.633676 4.53%
3 PENS LIMMAT Q 10/31/91 7.969560 12429.594159 1559.633676 0.295236 12427.241259 1559.338440 4.53%
3 PENS LIMMAT Q 10/31/92 8.477709 13219.617528 1559.338440 0.277540 13217.264628 1559.060900 4.53%
3 PENS LIMMAT Q 10/31/93 8.955965 13962.894858 1559.060900 0.262719 13960.541958 1558.798182 4.53%
3 PENS LIMMAT Q 10/31/94 8.840839 13781.083758 1558.798182 0.266140 13778.730858 1558.532042 4.53%
3 PENS LIMMAT Q 10/31/95 9.478367 14772.338674 1558.532042 0.248239 14769.985774 1558.283803 4.53%
3 PENS LIMMAT Q 10/31/96 9.174547 14296.547989 1558.283803 0.256460 14294.195089 1558.027343 4.53%
3 PENS LIMMAT Q 10/31/97 9.683001 15086.380324 1558.027343 0.242993 15084.027424 1557.784350 4.53%
3 PENS LIMMAT Q 10/31/98 10.000000 15577.843505 1557.784350 0.235290 15575.490605 1557.549060 4.53%
3 PENS PARTNR Q 10/31/94 4.796650 10000.000000 2084.788342 0.000000 10000.000000 2084.788342 0.00%
3 PENS PARTNR Q 10/31/95 5.895340 12290.536103 2084.788342 0.399112 12288.183203 2084.389230 0.00%
3 PENS PARTNR Q 10/31/96 7.375327 15373.052167 2084.389230 0.319023 15370.699267 2084.070207 0.00%
3 PENS PARTNR Q 10/31/97 9.989274 20818.348332 2084.070207 0.235543 20815.995432 2083.834664 0.00%
3 PENS PARTNR Q 10/31/98 10.000000 20838.346642 2083.834664 0.235290 20835.993742 2083.599374 0.00%
3 PENS QUALBD Q 10/31/88 4.871573 10000.000000 2052.725064 0.000000 10000.000000 2052.725064 7.44%
3 PENS QUALBD Q 10/31/89 5.336973 10955.338245 2052.725064 0.440868 10952.985345 2052.284196 7.44%
3 PENS QUALBD Q 10/31/90 5.552432 11395.168446 2052.284196 0.423760 11392.815546 2051.860436 7.44%
3 PENS QUALBD Q 10/31/91 6.285700 12897.379144 2051.860436 0.374326 12895.026244 2051.486110 7.44%
3 PENS QUALBD Q 10/31/92 6.767127 13882.667048 2051.486110 0.347696 13880.314148 2051.138415 7.44%
</TABLE>
Page 3
<PAGE>
10yr pens 3 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS QUALBD Q 10/31/93 7.584102 15556.042954 2051.138415 0.310241 15553.690054 2050.828174 7.44%
3 PENS QUALBD Q 10/31/94 7.024905 14406.873092 2050.828174 0.334937 14404.520192 2050.493237 7.44%
3 PENS QUALBD Q 10/31/95 8.166115 16744.563579 2050.493237 0.288130 16742.210679 2050.205107 7.44%
3 PENS QUALBD Q 10/31/96 8.585287 17601.599254 2050.205107 0.274062 17599.246354 2049.931045 7.44%
3 PENS QUALBD Q 10/31/97 9.109501 18673.848907 2049.931045 0.258291 18671.496007 2049.672754 7.44%
3 PENS QUALBD Q 10/31/98 10.000000 20496.727545 2049.672754 0.235290 20494.374645 2049.437464 7.44%
3 PENS SMLCAP Q 10/31/95 8.013464 10000.000000 1247.899785 0.000000 10000.000000 1247.899785 0.00%
3 PENS SMLCAP Q 10/31/96 9.216480 11501.243407 1247.899785 0.255293 11498.890507 1247.644492 0.00%
3 PENS SMLCAP Q 10/31/97 11.840723 14773.012832 1247.644492 0.198713 14770.659932 1247.445779 0.00%
3 PENS SMLCAP Q 10/31/98 10.000000 12474.457794 1247.445779 0.235290 12472.104894 1247.210489 0.00%
3 PENS VALUEQ Q 10/31/88 3.194640 10000.000000 3130.243157 0.000000 10000.000000 3130.243157 12.06%
3 PENS VALUEQ Q 10/31/89 3.538815 11077.351439 3130.243157 0.664884 11074.998539 3129.578274 12.06%
3 PENS VALUEQ Q 10/31/90 2.913098 9116.768210 3129.578274 0.807697 9114.415310 3128.770577 12.06%
3 PENS VALUEQ Q 10/31/91 3.916254 12253.060287 3128.770577 0.600804 12250.707387 3128.169773 12.06%
3 PENS VALUEQ Q 10/31/92 4.405568 13781.364651 3128.169773 0.534074 13779.011751 3127.635699 12.06%
3 PENS VALUEQ Q 10/31/93 4.815291 15060.476033 3127.635699 0.488631 15058.123133 3127.147068 12.06%
3 PENS VALUEQ Q 10/31/94 5.092570 15925.215345 3127.147068 0.462026 15922.862445 3126.685042 12.06%
3 PENS VALUEQ Q 10/31/95 6.236119 19498.379998 3126.685042 0.377302 19496.027098 3126.307740 12.06%
3 PENS VALUEQ Q 10/31/96 7.461407 23326.654456 3126.307740 0.315343 23324.301556 3125.992397 12.06%
3 PENS VALUEQ Q 10/31/97 9.180814 28699.154766 3125.992397 0.256284 28696.801866 3125.736113 12.06%
3 PENS VALUEQ Q 10/31/98 10.000000 31257.361129 3125.736113 0.235290 31255.008229 3125.500823 12.06%
</TABLE>
Page 4
<PAGE>
10 yr pens 2 bkup
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Table 2 - Pennant Select Variable/Fixed Annuity Contracts Pennant Select - 10 YR - Tbl 2
- - ------------------------------------------------------------------------------------------------------------------------------------
Average
Q = qualified $40 Contract # of units Annual Total
N = nonqualified Beginning # of units fee & deferred at end of Ending return for
- - ------------------------------------------------------------------------------------------------------------------------------------
amethod system fund qnonq accdate unitval bvalue bunits cunits rvalue eunits 10yr
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS BALFND Q 10/31/89 5.730320 1000.000000 174.510324 0.000000 1000.000000 174.510324 0.00%
2 PENS BALFND Q 10/31/90 5.460737 952.954983 174.510324 0.430876 950.602083 174.079448 0.00%
2 PENS BALFND Q 10/31/91 6.701046 1166.514390 174.079448 0.351124 1164.161490 173.728324 0.00%
2 PENS BALFND Q 10/31/92 7.182450 1247.795000 173.728324 0.327590 1245.442100 173.400734 0.00%
2 PENS BALFND Q 10/31/93 7.888625 1367.893363 173.400734 0.298265 1365.540463 173.102469 0.00%
2 PENS BALFND Q 10/31/94 7.702363 1333.298051 173.102469 0.305478 1330.945151 172.796991 0.00%
2 PENS BALFND Q 10/31/95 9.132473 1578.063856 172.796991 0.257641 1575.710956 172.539350 0.00%
2 PENS BALFND Q 10/31/96 8.204726 1415.638091 172.539350 0.286774 1413.285191 172.252576 0.00%
2 PENS BALFND Q 10/31/97 10.097183 1739.265785 172.252576 0.233025 1736.912885 172.019551 0.00%
2 PENS BALFND Q 10/31/98 10.000000 1720.195509 172.019551 0.235290 1717.842609 171.784261 0.00%
2 PENS EMGGRO Q 10/31/97 10.693572 1000.000000 93.514122 0.000000 1000.000000 93.514122 0.00%
2 PENS EMGGRO Q 10/31/98 10.000000 935.141223 93.514122 0.235290 932.788323 93.278832 0.00%
2 PENS EMGMKT Q 10/31/96 14.458904 1000.000000 69.161535 0.000000 1000.000000 69.161535 0.00%
2 PENS EMGMKT Q 10/31/97 15.159409 1048.448001 69.161535 0.155211 1046.095101 69.006325 0.00%
2 PENS EMGMKT Q 10/31/98 10.000000 690.063248 69.006325 0.235290 687.710348 68.771035 0.00%
2 PENS FIDASM Q 10/31/89 3.703246 1000.000000 270.033371 0.000000 1000.000000 270.033371 0.00%
2 PENS FIDASM Q 10/31/90 3.638900 982.624433 270.033371 0.646596 980.271533 269.386774 0.00%
2 PENS FIDASM Q 10/31/91 4.627039 1246.463110 269.386774 0.508511 1244.110210 268.878263 0.00%
2 PENS FIDASM Q 10/31/92 5.048272 1357.370608 268.878263 0.466080 1355.017708 268.412183 0.00%
2 PENS FIDASM Q 10/31/93 6.023530 1616.788837 268.412183 0.390618 1614.435937 268.021565 0.00%
2 PENS FIDASM Q 10/31/94 6.017591 1612.844157 268.021565 0.391004 1610.491257 267.630561 0.00%
2 PENS FIDASM Q 10/31/95 6.360709 1702.320120 267.630561 0.369912 1699.967220 267.260650 0.00%
2 PENS FIDASM Q 10/31/96 6.861890 1833.913179 267.260650 0.342894 1831.560279 266.917756 0.00%
2 PENS FIDASM Q 10/31/97 10.461735 2792.422828 266.917756 0.224905 2790.069928 266.692850 0.00%
2 PENS FIDASM Q 10/31/98 10.000000 2666.928504 266.692850 0.235290 2664.575604 266.457560 0.00%
2 PENS FIDEQI Q 10/31/88 2.512627 1000.000000 397.989833 0.000000 1000.000000 397.989833 14.64%
2 PENS FIDEQI Q 10/31/89 2.848104 1133.516435 397.989833 0.826129 1131.163535 397.163704 14.64%
2 PENS FIDEQI Q 10/31/90 2.201191 874.233172 397.163704 1.068921 871.880272 396.094783 14.64%
2 PENS FIDEQI Q 10/31/91 3.031632 1200.813619 396.094783 0.776117 1198.460719 395.318666 14.64%
2 PENS FIDEQI Q 10/31/92 3.390167 1340.196298 395.318666 0.694037 1337.843398 394.624630 14.64%
</TABLE>
Page 1
<PAGE>
10 yr pens 2 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS FIDEQI Q 10/31/93 4.190811 1653.797240 394.624630 0.561443 1651.444340 394.063187 14.64%
2 PENS FIDEQI Q 10/31/94 4.585389 1806.933004 394.063187 0.513130 1804.580104 393.550057 14.64%
2 PENS FIDEQI Q 10/31/95 5.523350 2173.714709 393.550057 0.425991 2171.361809 393.124066 14.64%
2 PENS FIDEQI Q 10/31/96 6.372224 2505.074608 393.124066 0.369243 2502.721708 392.754823 14.64%
2 PENS FIDEQI Q 10/31/97 9.827337 3859.734001 392.754823 0.239424 3857.381101 392.515399 14.64%
2 PENS FIDEQI Q 10/31/98 10.000000 3925.153988 392.515399 0.235290 3922.801088 392.280109 14.64%
2 PENS FIDGRO Q 10/31/88 2.591972 1000.000000 385.806637 0.000000 1000.000000 385.806637 14.30%
2 PENS FIDGRO Q 10/31/89 3.235152 1248.143113 385.806637 0.727292 1245.790213 385.079345 14.30%
2 PENS FIDGRO Q 10/31/90 2.633718 1014.190402 385.079345 0.893376 1011.837502 384.185969 14.30%
2 PENS FIDGRO Q 10/31/91 3.942101 1514.499893 384.185969 0.596864 1512.146993 383.589105 14.30%
2 PENS FIDGRO Q 10/31/92 4.127327 1583.197668 383.589105 0.570078 1580.844768 383.019026 14.30%
2 PENS FIDGRO Q 10/31/93 5.379675 2060.517880 383.019026 0.437368 2058.164980 382.581658 14.30%
2 PENS FIDGRO Q 10/31/94 5.354891 2048.683076 382.581658 0.439393 2046.330176 382.142265 14.30%
2 PENS FIDGRO Q 10/31/95 7.272629 2779.178919 382.142265 0.323528 2776.826019 381.818737 14.30%
2 PENS FIDGRO Q 10/31/96 7.267510 2774.871489 381.818737 0.323756 2772.518589 381.494981 14.30%
2 PENS FIDGRO Q 10/31/97 9.438321 3600.672090 381.494981 0.249292 3598.319190 381.245689 14.30%
2 PENS FIDGRO Q 10/31/98 10.000000 3812.456887 381.245689 0.235290 3810.103987 381.010399 14.30%
2 PENS FIDIND Q 10/31/92 7.611036 1000.000000 131.388158 0.000000 1000.000000 131.388158 0.00%
2 PENS FIDIND Q 10/31/93 8.611003 1131.383822 131.388158 0.273243 1129.030922 131.114915 0.00%
2 PENS FIDIND Q 10/31/94 8.799264 1153.714747 131.114915 0.267397 1151.361847 130.847517 0.00%
2 PENS FIDIND Q 10/31/95 5.479617 716.994279 130.847517 0.429391 714.641379 130.418126 0.00%
2 PENS FIDIND Q 10/31/96 6.678923 871.052620 130.418126 0.352287 868.699720 130.065838 0.00%
2 PENS FIDIND Q 10/31/97 8.669827 1127.648318 130.065838 0.271389 1125.295418 129.794449 0.00%
2 PENS FIDIND Q 10/31/98 10.000000 1297.944490 129.794449 0.235290 1295.591590 129.559159 0.00%
2 PENS FLEXMN Q 10/31/88 3.614109 1000.000000 276.693370 0.000000 1000.000000 276.693370 10.55%
2 PENS FLEXMN Q 10/31/89 4.267152 1180.692669 276.693370 0.551398 1178.339769 276.141972 10.55%
2 PENS FLEXMN Q 10/31/90 3.804689 1050.634324 276.141972 0.618421 1048.281424 275.523551 10.55%
2 PENS FLEXMN Q 10/31/91 4.997659 1376.972754 275.523551 0.470800 1374.619854 275.052751 10.55%
2 PENS FLEXMN Q 10/31/92 5.386857 1481.669835 275.052751 0.436785 1479.316935 274.615965 10.55%
2 PENS FLEXMN Q 10/31/93 6.195974 1701.513381 274.615965 0.379747 1699.160481 274.236219 10.55%
2 PENS FLEXMN Q 10/31/94 6.582611 1805.190350 274.236219 0.357442 1802.837450 273.878777 10.55%
2 PENS FLEXMN Q 10/31/95 7.520572 2059.725061 273.878777 0.312862 2057.372161 273.565915 10.55%
2 PENS FLEXMN Q 10/31/96 8.143869 2227.884975 273.565915 0.288917 2225.532075 273.276998 10.55%
2 PENS FLEXMN Q 10/31/97 9.446061 2581.391196 273.276998 0.249088 2579.038296 273.027910 10.55%
2 PENS FLEXMN Q 10/31/98 10.000000 2730.279104 273.027910 0.235290 2727.926204 272.792620 10.55%
2 PENS GROWEQ Q 10/31/88 3.366636 1000.000000 297.032409 0.000000 1000.000000 297.032409 11.33%
2 PENS GROWEQ Q 10/31/89 4.245562 1261.069507 297.032409 0.554202 1258.716607 296.478206 11.33%
</TABLE>
Page 2
<PAGE>
10 yr pens 2 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS GROWEQ Q 10/31/90 3.510568 1040.806904 296.478206 0.670233 1038.454004 295.807973 11.33%
2 PENS GROWEQ Q 10/31/91 4.720759 1396.438151 295.807973 0.498416 1394.085251 295.309557 11.33%
2 PENS GROWEQ Q 10/31/92 4.986739 1472.631687 295.309557 0.471831 1470.278787 294.837726 11.33%
2 PENS GROWEQ Q 10/31/93 5.866512 1729.669057 294.837726 0.401073 1727.316157 294.436653 11.33%
2 PENS GROWEQ Q 10/31/94 5.389393 1586.834836 294.436653 0.436580 1584.481936 294.000073 11.33%
2 PENS GROWEQ Q 10/31/95 6.525015 1918.354887 294.000073 0.360597 1916.001987 293.639476 11.33%
2 PENS GROWEQ Q 10/31/96 6.662855 1956.477252 293.639476 0.353137 1954.124352 293.286339 11.33%
2 PENS GROWEQ Q 10/31/97 8.374502 2456.127035 293.286339 0.280960 2453.774135 293.005379 11.33%
2 PENS GROWEQ Q 10/31/98 10.000000 2930.053793 293.005379 0.235290 2927.700893 292.770089 11.33%
2 PENS HIBOND Q 10/31/88 4.597460 1000.000000 217.511408 0.000000 1000.000000 217.511408 7.90%
2 PENS HIBOND Q 10/31/89 4.698176 1021.906879 217.511408 0.500811 1019.553979 217.010597 7.90%
2 PENS HIBOND Q 10/31/90 4.107856 891.448283 217.010597 0.572781 889.095383 216.437817 7.90%
2 PENS HIBOND Q 10/31/91 5.420737 1173.252480 216.437817 0.434055 1170.899580 216.003761 7.90%
2 PENS HIBOND Q 10/31/92 6.145141 1327.373569 216.003761 0.382888 1325.020669 215.620873 7.90%
2 PENS HIBOND Q 10/31/93 7.348796 1584.553811 215.620873 0.320175 1582.200911 215.300698 7.90%
2 PENS HIBOND Q 10/31/94 7.118262 1532.566780 215.300698 0.330544 1530.213880 214.970154 7.90%
2 PENS HIBOND Q 10/31/95 7.716869 1658.896519 214.970154 0.304903 1656.543619 214.665251 7.90%
2 PENS HIBOND Q 10/31/96 8.595628 1845.182640 214.665251 0.273732 1842.829740 214.391519 7.90%
2 PENS HIBOND Q 10/31/97 9.892647 2120.899613 214.391519 0.237843 2118.546713 214.153675 7.90%
2 PENS HIBOND Q 10/31/98 10.000000 2141.536753 214.153675 0.235290 2139.183853 213.918385 7.90%
2 PENS INTLEQ Q 10/31/93 6.780778 1000.000000 147.475703 0.000000 1000.000000 147.475703 0.00%
2 PENS INTLEQ Q 10/31/94 7.185245 1059.649055 147.475703 0.327463 1057.296155 147.148240 0.00%
2 PENS INTLEQ Q 10/31/95 7.111342 1046.421459 147.148240 0.330866 1044.068559 146.817374 0.00%
2 PENS INTLEQ Q 10/31/96 8.188589 1202.227134 146.817374 0.287339 1199.874234 146.530035 0.00%
2 PENS INTLEQ Q 10/31/97 9.256089 1356.295047 146.530035 0.254200 1353.942147 146.275835 0.00%
2 PENS INTLEQ Q 10/31/98 10.000000 1462.758350 146.275835 0.235290 1460.405450 146.040545 0.00%
2 PENS LIMMAT Q 10/31/88 6.409040 1000.000000 156.029608 0.000000 1000.000000 156.029608 4.36%
2 PENS LIMMAT Q 10/31/89 6.900156 1076.628637 156.029608 0.340992 1074.275737 155.688616 4.36%
2 PENS LIMMAT Q 10/31/90 7.320476 1139.714776 155.688616 0.321414 1137.361876 155.367202 4.36%
2 PENS LIMMAT Q 10/31/91 7.969560 1238.208241 155.367202 0.295236 1235.855341 155.071966 4.36%
2 PENS LIMMAT Q 10/31/92 8.477709 1314.655006 155.071966 0.277540 1312.302106 154.794427 4.36%
2 PENS LIMMAT Q 10/31/93 8.955965 1386.333469 154.794427 0.262719 1383.980569 154.531708 4.36%
2 PENS LIMMAT Q 10/31/94 8.840839 1366.189952 154.531708 0.266140 1363.837052 154.265568 4.36%
2 PENS LIMMAT Q 10/31/95 9.478367 1462.185671 154.265568 0.248239 1459.832771 154.017329 4.36%
2 PENS LIMMAT Q 10/31/96 9.174547 1413.039226 154.017329 0.256460 1410.686326 153.760870 4.36%
2 PENS LIMMAT Q 10/31/97 9.683001 1488.866655 153.760870 0.242993 1486.513755 153.517877 4.36%
2 PENS LIMMAT Q 10/31/98 10.000000 1535.178769 153.517877 0.235290 1532.825869 153.282587 4.36%
</TABLE>
Page 3
<PAGE>
10 yr pens 2 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS PARTNR Q 10/31/94 4.796650 1000.000000 208.478834 0.000000 1000.000000 208.478834 0.00%
2 PENS PARTNR Q 10/31/95 5.895340 1229.053610 208.478834 0.399112 1226.700710 208.079722 0.00%
2 PENS PARTNR Q 10/31/96 7.375327 1534.655994 208.079722 0.319023 1532.303094 207.760699 0.00%
2 PENS PARTNR Q 10/31/97 9.989274 2075.378551 207.760699 0.235543 2073.025651 207.525157 0.00%
2 PENS PARTNR Q 10/31/98 10.000000 2075.251566 207.525157 0.235290 2072.898666 207.289867 0.00%
2 PENS QUALBD Q 10/31/88 4.871573 1000.000000 205.272506 0.000000 1000.000000 205.272506 7.28%
2 PENS QUALBD Q 10/31/89 5.336973 1095.533824 205.272506 0.440868 1093.180924 204.831639 7.28%
2 PENS QUALBD Q 10/31/90 5.552432 1137.313745 204.831639 0.423760 1134.960845 204.407878 7.28%
2 PENS QUALBD Q 10/31/91 6.285700 1284.846601 204.407878 0.374326 1282.493701 204.033552 7.28%
2 PENS QUALBD Q 10/31/92 6.767127 1380.720962 204.033552 0.347696 1378.368062 203.685857 7.28%
2 PENS QUALBD Q 10/31/93 7.584102 1544.774315 203.685857 0.310241 1542.421415 203.375616 7.28%
2 PENS QUALBD Q 10/31/94 7.024905 1428.694380 203.375616 0.334937 1426.341480 203.040679 7.28%
2 PENS QUALBD Q 10/31/95 8.166115 1658.053534 203.040679 0.288130 1655.700634 202.752549 7.28%
2 PENS QUALBD Q 10/31/96 8.585287 1740.688825 202.752549 0.274062 1738.335925 202.478487 7.28%
2 PENS QUALBD Q 10/31/97 9.109501 1844.477983 202.478487 0.258291 1842.125083 202.220197 7.28%
2 PENS QUALBD Q 10/31/98 10.000000 2022.201966 202.220197 0.235290 2019.849066 201.984907 7.28%
2 PENS SMLCAP Q 10/31/95 8.013464 1000.000000 124.789978 0.000000 1000.000000 124.789978 0.00%
2 PENS SMLCAP Q 10/31/96 9.216480 1150.124341 124.789978 0.255293 1147.771441 124.534686 0.00%
2 PENS SMLCAP Q 10/31/97 11.840723 1474.580718 124.534686 0.198713 1472.227818 124.335973 0.00%
2 PENS SMLCAP Q 10/31/98 10.000000 1243.359732 124.335973 0.235290 1241.006832 124.100683 0.00%
2 PENS VALUEQ Q 10/31/88 3.194640 1000.000000 313.024316 0.000000 1000.000000 313.024316 11.91%
2 PENS VALUEQ Q 10/31/89 3.538815 1107.735144 313.024316 0.664884 1105.382244 312.359432 11.91%
2 PENS VALUEQ Q 10/31/90 2.913098 909.933637 312.359432 0.807697 907.580737 311.551735 11.91%
2 PENS VALUEQ Q 10/31/91 3.916254 1220.115730 311.551735 0.600804 1217.762830 310.950932 11.91%
2 PENS VALUEQ Q 10/31/92 4.405568 1369.915474 310.950932 0.534074 1367.562574 310.416857 11.91%
2 PENS VALUEQ Q 10/31/93 4.815291 1494.747500 310.416857 0.488631 1492.394600 309.928227 11.91%
2 PENS VALUEQ Q 10/31/94 5.092570 1578.331189 309.928227 0.462026 1575.978289 309.466200 11.91%
2 PENS VALUEQ Q 10/31/95 6.236119 1929.868053 309.466200 0.377302 1927.515153 309.088899 11.91%
2 PENS VALUEQ Q 10/31/96 7.461407 2306.238071 309.088899 0.315343 2303.885171 308.773556 11.91%
2 PENS VALUEQ Q 10/31/97 9.180814 2834.792584 308.773556 0.256284 2832.439684 308.517271 11.91%
2 PENS VALUEQ Q 10/31/98 10.000000 3085.172714 308.517271 0.235290 3082.819814 308.281981 11.91%
</TABLE>
Page 4
<PAGE>
10yr pens 1a bkup
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Table 1A - Pennant Select Variable/Fixed Annuity Contracts Pennant Select - 10 YR - Tbl 1a
- - ------------------------------------------------------------------------------------------------------------------------------------
(assuming no purchase payments made after first contract year)
- - ------------------------------------------------------------------------------------------------------------------------------------
Average
Q = qualified $40 Contract # of units Annual Total
N = nonqualified Beginning # of units fee & deferred at end of Ending return for
- - ------------------------------------------------------------------------------------------------------------------------------------
amethod system fund qnonq accdate unitval bvalue bunits cunits rvalue eunits 10yr
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1a PENS BALFND Q 10/31/89 5.730320 1000.000000 174.510324 0.000000 1000.000000 174.510324 0.00%
1a PENS BALFND Q 10/31/90 5.460737 952.954983 174.510324 0.430876 950.602083 174.079448 0.00%
1a PENS BALFND Q 10/31/91 6.701046 1166.514390 174.079448 0.351124 1164.161490 173.728324 0.00%
1a PENS BALFND Q 10/31/92 7.182450 1247.795000 173.728324 0.327590 1245.442100 173.400734 0.00%
1a PENS BALFND Q 10/31/93 7.888625 1367.893363 173.400734 0.298265 1365.540463 173.102469 0.00%
1a PENS BALFND Q 10/31/94 7.702363 1333.298051 173.102469 0.305478 1330.945151 172.796991 0.00%
1a PENS BALFND Q 10/31/95 9.132473 1578.063856 172.796991 0.257641 1575.710956 172.539350 0.00%
1a PENS BALFND Q 10/31/96 8.204726 1415.638091 172.539350 0.286774 1413.285191 172.252576 0.00%
1a PENS BALFND Q 10/31/97 10.097183 1739.265785 172.252576 0.233025 1736.912885 172.019551 0.00%
1a PENS BALFND Q 10/31/98 10.000000 1720.195509 172.019551 0.235290 1717.842609 171.784261 0.00%
1a PENS EMGGRO Q 10/31/97 10.693572 1000.000000 93.514122 0.000000 1000.000000 93.514122 0.00%
1a PENS EMGGRO Q 10/31/98 10.000000 935.141223 93.514122 0.235290 932.788323 93.278832 0.00%
1a PENS EMGMKT Q 10/31/96 14.458904 1000.000000 69.161535 0.000000 1000.000000 69.161535 0.00%
1a PENS EMGMKT Q 10/31/97 15.159409 1048.448001 69.161535 0.155211 1046.095101 69.006325 0.00%
1a PENS EMGMKT Q 10/31/98 10.000000 690.063248 69.006325 0.235290 687.710348 68.771035 0.00%
1a PENS FIDASM Q 10/31/89 3.703246 1000.000000 270.033371 0.000000 1000.000000 270.033371 0.00%
1a PENS FIDASM Q 10/31/90 3.638900 982.624433 270.033371 0.646596 980.271533 269.386774 0.00%
1a PENS FIDASM Q 10/31/91 4.627039 1246.463110 269.386774 0.508511 1244.110210 268.878263 0.00%
1a PENS FIDASM Q 10/31/92 5.048272 1357.370608 268.878263 0.466080 1355.017708 268.412183 0.00%
1a PENS FIDASM Q 10/31/93 6.023530 1616.788837 268.412183 0.390618 1614.435937 268.021565 0.00%
1a PENS FIDASM Q 10/31/94 6.017591 1612.844157 268.021565 0.391004 1610.491257 267.630561 0.00%
1a PENS FIDASM Q 10/31/95 6.360709 1702.320120 267.630561 0.369912 1699.967220 267.260650 0.00%
1a PENS FIDASM Q 10/31/96 6.861890 1833.913179 267.260650 0.342894 1831.560279 266.917756 0.00%
1a PENS FIDASM Q 10/31/97 10.461735 2792.422828 266.917756 0.224905 2790.069928 266.692850 0.00%
1a PENS FIDASM Q 10/31/98 10.000000 2666.928504 266.692850 0.235290 2664.575604 266.457560 0.00%
1a PENS FIDEQI Q 10/31/88 2.512627 1000.000000 397.989833 0.000000 1000.000000 397.989833 14.64%
1a PENS FIDEQI Q 10/31/89 2.848104 1133.516435 397.989833 0.826129 1131.163535 397.163704 14.64%
1a PENS FIDEQI Q 10/31/90 2.201191 874.233172 397.163704 1.068921 871.880272 396.094783 14.64%
1a PENS FIDEQI Q 10/31/91 3.031632 1200.813619 396.094783 0.776117 1198.460719 395.318666 14.64%
1a PENS FIDEQI Q 10/31/92 3.390167 1340.196298 395.318666 0.694037 1337.843398 394.624630 14.64%
</TABLE>
Page 1
<PAGE>
10yr pens 1a bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1a PENS FIDEQI Q 10/31/93 4.190811 1653.797240 394.624630 0.561443 1651.444340 394.063187 14.64%
1a PENS FIDEQI Q 10/31/94 4.585389 1806.933004 394.063187 0.513130 1804.580104 393.550057 14.64%
1a PENS FIDEQI Q 10/31/95 5.523350 2173.714709 393.550057 0.425991 2171.361809 393.124066 14.64%
1a PENS FIDEQI Q 10/31/96 6.372224 2505.074608 393.124066 0.369243 2502.721708 392.754823 14.64%
1a PENS FIDEQI Q 10/31/97 9.827337 3859.734001 392.754823 0.239424 3857.381101 392.515399 14.64%
1a PENS FIDEQI Q 10/31/98 10.000000 3925.153988 392.515399 0.235290 3922.801088 392.280109 14.64%
1a PENS FIDGRO Q 10/31/88 2.591972 1000.000000 385.806637 0.000000 1000.000000 385.806637 14.30%
1a PENS FIDGRO Q 10/31/89 3.235152 1248.143113 385.806637 0.727292 1245.790213 385.079345 14.30%
1a PENS FIDGRO Q 10/31/90 2.633718 1014.190402 385.079345 0.893376 1011.837502 384.185969 14.30%
1a PENS FIDGRO Q 10/31/91 3.942101 1514.499893 384.185969 0.596864 1512.146993 383.589105 14.30%
1a PENS FIDGRO Q 10/31/92 4.127327 1583.197668 383.589105 0.570078 1580.844768 383.019026 14.30%
1a PENS FIDGRO Q 10/31/93 5.379675 2060.517880 383.019026 0.437368 2058.164980 382.581658 14.30%
1a PENS FIDGRO Q 10/31/94 5.354891 2048.683076 382.581658 0.439393 2046.330176 382.142265 14.30%
1a PENS FIDGRO Q 10/31/95 7.272629 2779.178919 382.142265 0.323528 2776.826019 381.818737 14.30%
1a PENS FIDGRO Q 10/31/96 7.267510 2774.871489 381.818737 0.323756 2772.518589 381.494981 14.30%
1a PENS FIDGRO Q 10/31/97 9.438321 3600.672090 381.494981 0.249292 3598.319190 381.245689 14.30%
1a PENS FIDGRO Q 10/31/98 10.000000 3812.456887 381.245689 0.235290 3810.103987 381.010399 14.30%
1a PENS FIDIND Q 10/31/92 7.611036 1000.000000 131.388158 0.000000 1000.000000 131.388158 0.00%
1a PENS FIDIND Q 10/31/93 8.611003 1131.383822 131.388158 0.273243 1129.030922 131.114915 0.00%
1a PENS FIDIND Q 10/31/94 8.799264 1153.714747 131.114915 0.267397 1151.361847 130.847517 0.00%
1a PENS FIDIND Q 10/31/95 5.479617 716.994279 130.847517 0.429391 714.641379 130.418126 0.00%
1a PENS FIDIND Q 10/31/96 6.678923 871.052620 130.418126 0.352287 868.699720 130.065838 0.00%
1a PENS FIDIND Q 10/31/97 8.669827 1127.648318 130.065838 0.271389 1125.295418 129.794449 0.00%
1a PENS FIDIND Q 10/31/98 10.000000 1297.944490 129.794449 0.235290 1295.591590 129.559159 0.00%
1a PENS FLEXMN Q 10/31/88 3.614109 1000.000000 276.693370 0.000000 1000.000000 276.693370 10.55%
1a PENS FLEXMN Q 10/31/89 4.267152 1180.692669 276.693370 0.551398 1178.339769 276.141972 10.55%
1a PENS FLEXMN Q 10/31/90 3.804689 1050.634324 276.141972 0.618421 1048.281424 275.523551 10.55%
1a PENS FLEXMN Q 10/31/91 4.997659 1376.972754 275.523551 0.470800 1374.619854 275.052751 10.55%
1a PENS FLEXMN Q 10/31/92 5.386857 1481.669835 275.052751 0.436785 1479.316935 274.615965 10.55%
1a PENS FLEXMN Q 10/31/93 6.195974 1701.513381 274.615965 0.379747 1699.160481 274.236219 10.55%
1a PENS FLEXMN Q 10/31/94 6.582611 1805.190350 274.236219 0.357442 1802.837450 273.878777 10.55%
1a PENS FLEXMN Q 10/31/95 7.520572 2059.725061 273.878777 0.312862 2057.372161 273.565915 10.55%
1a PENS FLEXMN Q 10/31/96 8.143869 2227.884975 273.565915 0.288917 2225.532075 273.276998 10.55%
1a PENS FLEXMN Q 10/31/97 9.446061 2581.391196 273.276998 0.249088 2579.038296 273.027910 10.55%
1a PENS FLEXMN Q 10/31/98 10.000000 2730.279104 273.027910 0.235290 2727.926204 272.792620 10.55%
1a PENS GROWEQ Q 10/31/88 3.366636 1000.000000 297.032409 0.000000 1000.000000 297.032409 11.33%
1a PENS GROWEQ Q 10/31/89 4.245562 1261.069507 297.032409 0.554202 1258.716607 296.478206 11.33%
</TABLE>
Page 2
<PAGE>
10yr pens 1a bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1a PENS GROWEQ Q 10/31/90 3.510568 1040.806904 296.478206 0.670233 1038.454004 295.807973 11.33%
1a PENS GROWEQ Q 10/31/91 4.720759 1396.438151 295.807973 0.498416 1394.085251 295.309557 11.33%
1a PENS GROWEQ Q 10/31/92 4.986739 1472.631687 295.309557 0.471831 1470.278787 294.837726 11.33%
1a PENS GROWEQ Q 10/31/93 5.866512 1729.669057 294.837726 0.401073 1727.316157 294.436653 11.33%
1a PENS GROWEQ Q 10/31/94 5.389393 1586.834836 294.436653 0.436580 1584.481936 294.000073 11.33%
1a PENS GROWEQ Q 10/31/95 6.525015 1918.354887 294.000073 0.360597 1916.001987 293.639476 11.33%
1a PENS GROWEQ Q 10/31/96 6.662855 1956.477252 293.639476 0.353137 1954.124352 293.286339 11.33%
1a PENS GROWEQ Q 10/31/97 8.374502 2456.127035 293.286339 0.280960 2453.774135 293.005379 11.33%
1a PENS GROWEQ Q 10/31/98 10.000000 2930.053793 293.005379 0.235290 2927.700893 292.770089 11.33%
1a PENS HIBOND Q 10/31/88 4.597460 1000.000000 217.511408 0.000000 1000.000000 217.511408 7.90%
1a PENS HIBOND Q 10/31/89 4.698176 1021.906879 217.511408 0.500811 1019.553979 217.010597 7.90%
1a PENS HIBOND Q 10/31/90 4.107856 891.448283 217.010597 0.572781 889.095383 216.437817 7.90%
1a PENS HIBOND Q 10/31/91 5.420737 1173.252480 216.437817 0.434055 1170.899580 216.003761 7.90%
1a PENS HIBOND Q 10/31/92 6.145141 1327.373569 216.003761 0.382888 1325.020669 215.620873 7.90%
1a PENS HIBOND Q 10/31/93 7.348796 1584.553811 215.620873 0.320175 1582.200911 215.300698 7.90%
1a PENS HIBOND Q 10/31/94 7.118262 1532.566780 215.300698 0.330544 1530.213880 214.970154 7.90%
1a PENS HIBOND Q 10/31/95 7.716869 1658.896519 214.970154 0.304903 1656.543619 214.665251 7.90%
1a PENS HIBOND Q 10/31/96 8.595628 1845.182640 214.665251 0.273732 1842.829740 214.391519 7.90%
1a PENS HIBOND Q 10/31/97 9.892647 2120.899613 214.391519 0.237843 2118.546713 214.153675 7.90%
1a PENS HIBOND Q 10/31/98 10.000000 2141.536753 214.153675 0.235290 2139.183853 213.918385 7.90%
1a PENS INTLEQ Q 10/31/93 6.780778 1000.000000 147.475703 0.000000 1000.000000 147.475703 0.00%
1a PENS INTLEQ Q 10/31/94 7.185245 1059.649055 147.475703 0.327463 1057.296155 147.148240 0.00%
1a PENS INTLEQ Q 10/31/95 7.111342 1046.421459 147.148240 0.330866 1044.068559 146.817374 0.00%
1a PENS INTLEQ Q 10/31/96 8.188589 1202.227134 146.817374 0.287339 1199.874234 146.530035 0.00%
1a PENS INTLEQ Q 10/31/97 9.256089 1356.295047 146.530035 0.254200 1353.942147 146.275835 0.00%
1a PENS INTLEQ Q 10/31/98 10.000000 1462.758350 146.275835 0.235290 1460.405450 146.040545 0.00%
1a PENS LIMMAT Q 10/31/88 6.409040 1000.000000 156.029608 0.000000 1000.000000 156.029608 4.36%
1a PENS LIMMAT Q 10/31/89 6.900156 1076.628637 156.029608 0.340992 1074.275737 155.688616 4.36%
1a PENS LIMMAT Q 10/31/90 7.320476 1139.714776 155.688616 0.321414 1137.361876 155.367202 4.36%
1a PENS LIMMAT Q 10/31/91 7.969560 1238.208241 155.367202 0.295236 1235.855341 155.071966 4.36%
1a PENS LIMMAT Q 10/31/92 8.477709 1314.655006 155.071966 0.277540 1312.302106 154.794427 4.36%
1a PENS LIMMAT Q 10/31/93 8.955965 1386.333469 154.794427 0.262719 1383.980569 154.531708 4.36%
1a PENS LIMMAT Q 10/31/94 8.840839 1366.189952 154.531708 0.266140 1363.837052 154.265568 4.36%
1a PENS LIMMAT Q 10/31/95 9.478367 1462.185671 154.265568 0.248239 1459.832771 154.017329 4.36%
1a PENS LIMMAT Q 10/31/96 9.174547 1413.039226 154.017329 0.256460 1410.686326 153.760870 4.36%
1a PENS LIMMAT Q 10/31/97 9.683001 1488.866655 153.760870 0.242993 1486.513755 153.517877 4.36%
1a PENS LIMMAT Q 10/31/98 10.000000 1535.178769 153.517877 0.235290 1532.825869 153.282587 4.36%
</TABLE>
Page 3
<PAGE>
10yr pens 1a bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1a PENS PARTNR Q 10/31/94 4.796650 1000.000000 208.478834 0.000000 1000.000000 208.478834 0.00%
1a PENS PARTNR Q 10/31/95 5.895340 1229.053610 208.478834 0.399112 1226.700710 208.079722 0.00%
1a PENS PARTNR Q 10/31/96 7.375327 1534.655994 208.079722 0.319023 1532.303094 207.760699 0.00%
1a PENS PARTNR Q 10/31/97 9.989274 2075.378551 207.760699 0.235543 2073.025651 207.525157 0.00%
1a PENS PARTNR Q 10/31/98 10.000000 2075.251566 207.525157 0.235290 2072.898666 207.289867 0.00%
1a PENS QUALBD Q 10/31/88 4.871573 1000.000000 205.272506 0.000000 1000.000000 205.272506 7.28%
1a PENS QUALBD Q 10/31/89 5.336973 1095.533824 205.272506 0.440868 1093.180924 204.831639 7.28%
1a PENS QUALBD Q 10/31/90 5.552432 1137.313745 204.831639 0.423760 1134.960845 204.407878 7.28%
1a PENS QUALBD Q 10/31/91 6.285700 1284.846601 204.407878 0.374326 1282.493701 204.033552 7.28%
1a PENS QUALBD Q 10/31/92 6.767127 1380.720962 204.033552 0.347696 1378.368062 203.685857 7.28%
1a PENS QUALBD Q 10/31/93 7.584102 1544.774315 203.685857 0.310241 1542.421415 203.375616 7.28%
1a PENS QUALBD Q 10/31/94 7.024905 1428.694380 203.375616 0.334937 1426.341480 203.040679 7.28%
1a PENS QUALBD Q 10/31/95 8.166115 1658.053534 203.040679 0.288130 1655.700634 202.752549 7.28%
1a PENS QUALBD Q 10/31/96 8.585287 1740.688825 202.752549 0.274062 1738.335925 202.478487 7.28%
1a PENS QUALBD Q 10/31/97 9.109501 1844.477983 202.478487 0.258291 1842.125083 202.220197 7.28%
1a PENS QUALBD Q 10/31/98 10.000000 2022.201966 202.220197 0.235290 2019.849066 201.984907 7.28%
1a PENS SMLCAP Q 10/31/95 8.013464 1000.000000 124.789978 0.000000 1000.000000 124.789978 0.00%
1a PENS SMLCAP Q 10/31/96 9.216480 1150.124341 124.789978 0.255293 1147.771441 124.534686 0.00%
1a PENS SMLCAP Q 10/31/97 11.840723 1474.580718 124.534686 0.198713 1472.227818 124.335973 0.00%
1a PENS SMLCAP Q 10/31/98 10.000000 1243.359732 124.335973 0.235290 1241.006832 124.100683 0.00%
1a PENS VALUEQ Q 10/31/88 3.194640 1000.000000 313.024316 0.000000 1000.000000 313.024316 11.91%
1a PENS VALUEQ Q 10/31/89 3.538815 1107.735144 313.024316 0.664884 1105.382244 312.359432 11.91%
1a PENS VALUEQ Q 10/31/90 2.913098 909.933637 312.359432 0.807697 907.580737 311.551735 11.91%
1a PENS VALUEQ Q 10/31/91 3.916254 1220.115730 311.551735 0.600804 1217.762830 310.950932 11.91%
1a PENS VALUEQ Q 10/31/92 4.405568 1369.915474 310.950932 0.534074 1367.562574 310.416857 11.91%
1a PENS VALUEQ Q 10/31/93 4.815291 1494.747500 310.416857 0.488631 1492.394600 309.928227 11.91%
1a PENS VALUEQ Q 10/31/94 5.092570 1578.331189 309.928227 0.462026 1575.978289 309.466200 11.91%
1a PENS VALUEQ Q 10/31/95 6.236119 1929.868053 309.466200 0.377302 1927.515153 309.088899 11.91%
1a PENS VALUEQ Q 10/31/96 7.461407 2306.238071 309.088899 0.315343 2303.885171 308.773556 11.91%
1a PENS VALUEQ Q 10/31/97 9.180814 2834.792584 308.773556 0.256284 2832.439684 308.517271 11.91%
1a PENS VALUEQ Q 10/31/98 10.000000 3085.172714 308.517271 0.235290 3082.819814 308.281981 11.91%
</TABLE>
Page 4
<PAGE>
SI pens 3 bkup
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Table 3 - Pennant Select Variable/Fixed Annuity Contracts Pennant Select - SI Tbl 3
- - ------------------------------------------------------------------------------------------------------------------------------------
Average
Q = qualified $40 Contract # of units Annual Total
N = nonqualified Beginning # of units fee & deferred at end of Ending return for
- - ------------------------------------------------------------------------------------------------------------------------------------
amethod system fund qnonq accdate unitval bvalue bunits cunits eunits rvalue Since Inception
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS EMGGRO Q 5/1/97 7.424869 10000.000000 1346.825109 0.000000 1346.825109 10000.000000 21.91%
3 PENS EMGGRO Q 5/1/98 13.299640 17912.289092 1346.825109 0.176915 1346.648194 17909.936192 21.91%
3 PENS EMGGRO Q 10/31/98 10.000000 13466.481944 1346.648194 0.235290 1346.412904 13464.129044 21.91%
3 PENS EMGMKT Q 10/1/96 15.125369 10000.000000 661.140895 0.000000 661.140895 10000.000000 -18.06%
3 PENS EMGMKT Q 10/1/97 18.026562 11918.097337 661.140895 0.130524 661.010371 11915.744437 -18.06%
3 PENS EMGMKT Q 10/1/98 8.818564 5829.162262 661.010371 0.266812 660.743559 5826.809362 -18.06%
3 PENS EMGMKT Q 10/31/98 10.000000 6607.435589 660.743559 0.235290 660.508269 6605.082689 -18.06%
3 PENS FIDASM Q 9/6/89 3.707079 10000.000000 2697.541649 0.000000 2697.541649 10000.000000 11.43%
3 PENS FIDASM Q 9/6/90 3.701784 9985.716517 2697.541649 0.635612 2696.906037 9983.363617 11.43%
3 PENS FIDASM Q 9/6/91 4.564429 12309.836125 2696.906037 0.515486 2696.390551 12307.483225 11.43%
3 PENS FIDASM Q 9/6/92 5.050681 13618.608523 2696.390551 0.465858 2695.924693 13616.255623 11.43%
3 PENS FIDASM Q 9/6/93 5.848698 15767.649359 2695.924693 0.402295 2695.522398 15765.296459 11.43%
3 PENS FIDASM Q 9/6/94 6.046703 16299.023371 2695.522398 0.389121 2695.133277 16296.670471 11.43%
3 PENS FIDASM Q 9/6/95 6.437360 17349.543152 2695.133277 0.365507 2694.767770 17347.190252 11.43%
3 PENS FIDASM Q 9/6/96 6.497827 17510.134775 2694.767770 0.362106 2694.405664 17507.781875 11.43%
3 PENS FIDASM Q 9/6/97 10.543503 28408.474205 2694.405664 0.223161 2694.182503 28406.121305 11.43%
3 PENS FIDASM Q 9/6/98 9.316527 25100.424034 2694.182503 0.252551 2693.929952 25098.071134 11.43%
3 PENS FIDASM Q 10/31/98 10.000000 26939.299520 2693.929952 0.235290 2693.694662 26936.946620 11.43%
3 PENS FIDEQI Q 10/9/86 2.110230 10000.000000 4738.819939 0.000000 4738.819939 10000.000000 13.74%
3 PENS FIDEQI Q 10/9/87 2.496539 11830.648792 4738.819939 0.942465 4737.877474 11828.295892 13.74%
3 PENS FIDEQI Q 10/9/88 2.507939 11882.307695 4737.877474 0.938181 4736.939294 11879.954795 13.74%
3 PENS FIDEQI Q 10/9/89 3.066831 14527.392271 4736.939294 0.767209 4736.172085 14525.039371 13.74%
3 PENS FIDEQI Q 10/9/90 2.253112 10671.126158 4736.172085 1.044289 4735.127796 10668.773258 13.74%
3 PENS FIDEQI Q 10/9/91 2.913777 13797.106463 4735.127796 0.807509 4734.320287 13794.753563 13.74%
3 PENS FIDEQI Q 10/9/92 3.261808 15442.443787 4734.320287 0.721348 4733.598939 15440.090887 13.74%
3 PENS FIDEQI Q 10/9/93 4.186079 19815.219112 4733.598939 0.562077 4733.036861 19812.866212 13.74%
3 PENS FIDEQI Q 10/9/94 4.442010 21024.197069 4733.036861 0.529693 4732.507169 21021.844169 13.74%
3 PENS FIDEQI Q 10/9/95 5.533974 26189.571627 4732.507169 0.425174 4732.081995 26187.218727 13.74%
3 PENS FIDEQI Q 10/9/96 6.342406 30012.785238 4732.081995 0.370979 4731.711016 30010.432338 13.74%
3 PENS FIDEQI Q 10/9/97 10.345782 48953.250659 4731.711016 0.227426 4731.483590 48950.897759 13.74%
</TABLE>
Page 1
<PAGE>
SI pens 3 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS FIDEQI Q 10/9/98 9.085583 42988.286870 4731.483590 0.258971 4731.224619 42985.933970 13.74%
3 PENS FIDEQI Q 10/31/98 10.000000 47312.246193 4731.224619 0.235290 4730.989329 47309.893293 13.74%
3 PENS FIDGRO Q 10/9/86 2.219589 10000.000000 4505.338601 0.000000 4505.338601 10000.000000 13.27%
3 PENS FIDGRO Q 10/9/87 2.794585 12590.551674 4505.338601 0.841950 4504.496651 12588.198774 13.27%
3 PENS FIDGRO Q 10/9/88 2.627312 11834.718106 4504.496651 0.895554 4503.601097 11832.365206 13.27%
3 PENS FIDGRO Q 10/9/89 3.453052 15551.168776 4503.601097 0.681397 4502.919700 15548.815876 13.27%
3 PENS FIDGRO Q 10/9/90 2.717667 12237.436272 4502.919700 0.865779 4502.053921 12235.083372 13.27%
3 PENS FIDGRO Q 10/9/91 3.704124 16676.165977 4502.053921 0.635211 4501.418710 16673.813077 13.27%
3 PENS FIDGRO Q 10/9/92 3.905408 17579.876640 4501.418710 0.602472 4500.816237 17577.523740 13.27%
3 PENS FIDGRO Q 10/9/93 5.319156 23940.543694 4500.816237 0.442345 4500.373893 23938.190794 13.27%
3 PENS FIDGRO Q 10/9/94 5.040555 22684.382127 4500.373893 0.466794 4499.907099 22682.029227 13.27%
3 PENS FIDGRO Q 10/9/95 6.853791 30841.422776 4499.907099 0.343299 4499.563800 30839.069876 13.27%
3 PENS FIDGRO Q 10/9/96 7.385733 33232.576843 4499.563800 0.318574 4499.245226 33230.223943 13.27%
3 PENS FIDGRO Q 10/9/97 10.041818 45180.601700 4499.245226 0.234310 4499.010916 45178.248800 13.27%
3 PENS FIDGRO Q 10/9/98 8.635697 38852.095071 4499.010916 0.272462 4498.738454 38849.742171 13.27%
3 PENS FIDGRO Q 10/31/98 10.000000 44987.384540 4498.738454 0.235290 4498.503164 44985.031640 13.27%
3 PENS FIDIND Q 8/27/92 7.515122 10000.000000 1330.650387 0.000000 1330.650387 10000.000000 4.70%
3 PENS FIDIND Q 8/27/93 8.469429 11269.848979 1330.650387 0.277811 1330.372576 11267.496079 4.70%
3 PENS FIDIND Q 8/27/94 8.814306 11726.310982 1330.372576 0.266941 1330.105635 11723.958082 4.70%
3 PENS FIDIND Q 8/27/95 5.272321 7012.743873 1330.105635 0.446274 1329.659361 7010.390973 4.70%
3 PENS FIDIND Q 8/27/96 6.303954 8382.111449 1329.659361 0.373242 1329.286119 8379.758549 4.70%
3 PENS FIDIND Q 8/27/97 8.657590 11508.414214 1329.286119 0.271773 1329.014346 11506.061314 4.70%
3 PENS FIDIND Q 8/27/98 9.486329 12607.467334 1329.014346 0.248031 1328.766316 12605.114434 4.70%
3 PENS FIDIND Q 10/31/98 10.000000 13287.663157 1328.766316 0.235290 1328.531026 13285.310257 4.70%
3 PENS FLEXMN Q 7/31/84 1.834377 10000.000000 5451.442097 0.000000 5451.442097 10000.000000 12.62%
3 PENS FLEXMN Q 7/31/85 2.099944 11447.723123 5451.442097 1.120458 5450.321639 11445.370223 12.62%
3 PENS FLEXMN Q 7/31/86 2.546749 13880.601183 5450.321639 0.923884 5449.397755 13878.248283 12.62%
3 PENS FLEXMN Q 7/31/87 3.171517 17282.857620 5449.397755 0.741885 5448.655870 17280.504720 12.62%
3 PENS FLEXMN Q 7/31/88 3.478405 18952.631823 5448.655870 0.676431 5447.979440 18950.278923 12.62%
3 PENS FLEXMN Q 7/31/89 4.324401 23559.247737 5447.979440 0.544098 5447.435341 23556.894837 12.62%
3 PENS FLEXMN Q 7/31/90 4.376365 23839.965367 5447.435341 0.537638 5446.897703 23837.612467 12.62%
3 PENS FLEXMN Q 7/31/91 4.932479 26866.708536 5446.897703 0.477022 5446.420681 26864.355636 12.62%
3 PENS FLEXMN Q 7/31/92 5.390482 29358.832647 5446.420681 0.436492 5445.984190 29356.479747 12.62%
3 PENS FLEXMN Q 7/31/93 5.892481 32090.358365 5445.984190 0.399305 5445.584884 32088.005465 12.62%
3 PENS FLEXMN Q 7/31/94 6.330658 34474.135512 5445.584884 0.371668 5445.213217 34471.782612 12.62%
3 PENS FLEXMN Q 7/31/95 7.411073 40354.872650 5445.213217 0.317484 5444.895732 40352.519750 12.62%
3 PENS FLEXMN Q 7/31/96 7.683499 41835.850915 5444.895732 0.306228 5444.589505 41833.498015 12.62%
</TABLE>
Page 2
<PAGE>
SI pens 3 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS FLEXMN Q 7/31/97 9.379572 51067.919270 5444.589505 0.250854 5444.338651 51065.566370 12.62%
3 PENS FLEXMN Q 7/31/98 9.927646 54049.466832 5444.338651 0.237005 5444.101646 54047.113932 12.62%
3 PENS FLEXMN Q 10/31/98 10.000000 54441.016462 5444.101646 0.235290 5443.866356 54438.663562 12.62%
3 PENS GROWEQ Q 8/11/83 2.060623 10000.000000 4852.901283 0.000000 4852.901283 10000.000000 10.91%
3 PENS GROWEQ Q 8/11/84 2.101702 10199.352332 4852.901283 1.119521 4851.781762 10196.999432 10.91%
3 PENS GROWEQ Q 8/11/85 2.354240 11422.258694 4851.781762 0.999431 4850.782331 11419.905794 10.91%
3 PENS GROWEQ Q 8/11/86 2.912736 14129.048323 4850.782331 0.807797 4849.974534 14126.695423 10.91%
3 PENS GROWEQ Q 8/11/87 3.857584 18709.184161 4849.974534 0.609941 4849.364592 18706.831261 10.91%
3 PENS GROWEQ Q 8/11/88 3.164945 15347.972219 4849.364592 0.743425 4848.621167 15345.619319 10.91%
3 PENS GROWEQ Q 8/11/89 4.241409 20564.985455 4848.621167 0.554745 4848.066422 20562.632555 10.91%
3 PENS GROWEQ Q 8/11/90 4.038526 19579.042295 4848.066422 0.582614 4847.483808 19576.689395 10.91%
3 PENS GROWEQ Q 8/11/91 4.579790 22200.457871 4847.483808 0.513757 4846.970051 22198.104971 10.91%
3 PENS GROWEQ Q 8/11/92 4.931387 23902.285100 4846.970051 0.477127 4846.492924 23899.932200 10.91%
3 PENS GROWEQ Q 8/11/93 5.579417 27040.605010 4846.492924 0.421711 4846.071213 27038.252110 10.91%
3 PENS GROWEQ Q 8/11/94 5.183410 25119.173987 4846.071213 0.453929 4845.617284 25116.821087 10.91%
3 PENS GROWEQ Q 8/11/95 6.267074 30367.842096 4845.617284 0.375438 4845.241846 30365.489196 10.91%
3 PENS GROWEQ Q 8/11/96 6.183124 29958.731143 4845.241846 0.380536 4844.861310 29956.378243 10.91%
3 PENS GROWEQ Q 8/11/97 8.418608 40786.988183 4844.861310 0.279488 4844.581822 40784.635283 10.91%
3 PENS GROWEQ Q 8/11/98 10.019551 48540.534639 4844.581822 0.234831 4844.346991 48538.181739 10.91%
3 PENS GROWEQ Q 10/31/98 10.000000 48443.469911 4844.346991 0.235290 4844.111701 48441.117011 10.91%
3 PENS HIBOND Q 8/6/84 3.047682 10000.000000 3281.182223 0.000000 3281.182223 10000.000000 8.69%
3 PENS HIBOND Q 8/6/85 3.530850 11585.362252 3281.182223 0.666383 3280.515840 11583.009352 8.69%
3 PENS HIBOND Q 8/6/86 3.935119 12909.220210 3280.515840 0.597923 3279.917916 12906.867310 8.69%
3 PENS HIBOND Q 8/6/87 4.154796 13627.389838 3279.917916 0.566309 3279.351607 13625.036938 8.69%
3 PENS HIBOND Q 8/6/88 4.477318 14682.699977 3279.351607 0.525515 3278.826091 14680.347077 8.69%
3 PENS HIBOND Q 8/6/89 4.920680 16134.053971 3278.826091 0.478166 3278.347926 16131.701071 8.69%
3 PENS HIBOND Q 8/6/90 4.683387 15353.772056 3278.347926 0.502393 3277.845533 15351.419156 8.69%
3 PENS HIBOND Q 8/6/91 5.152426 16888.856547 3277.845533 0.456659 3277.388874 16886.503647 8.69%
3 PENS HIBOND Q 8/6/92 6.131284 20094.601966 3277.388874 0.383753 3277.005121 20092.249066 8.69%
3 PENS HIBOND Q 8/6/93 7.102660 23275.453192 3277.005121 0.331270 3276.673851 23273.100292 8.69%
3 PENS HIBOND Q 8/6/94 7.125386 23347.565982 3276.673851 0.330214 3276.343637 23345.213082 8.69%
3 PENS HIBOND Q 8/6/95 7.561812 24775.094630 3276.343637 0.311156 3276.032481 24772.741730 8.69%
3 PENS HIBOND Q 8/6/96 8.290276 27159.213456 3276.032481 0.283814 3275.748667 27156.860556 8.69%
3 PENS HIBOND Q 8/6/97 9.668436 31671.366339 3275.748667 0.243359 3275.505308 31669.013439 8.69%
3 PENS HIBOND Q 8/6/98 10.610229 34753.861409 3275.505308 0.221758 3275.283550 34751.508509 8.69%
3 PENS HIBOND Q 10/31/98 10.000000 32752.835504 3275.283550 0.235290 3275.048260 32750.482604 8.69%
3 PENS INTLEQ Q 11/1/92 5.215133 10000.000000 1917.496639 0.000000 1917.496639 10000.000000 11.44%
</TABLE>
Page 3
<PAGE>
SI pens 3 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS INTLEQ Q 11/1/93 6.785711 13011.578036 1917.496639 0.346743 1917.149896 13009.225136 11.44%
3 PENS INTLEQ Q 11/1/94 7.174722 13755.017535 1917.149896 0.327943 1916.821953 13752.664635 11.44%
3 PENS INTLEQ Q 11/1/95 7.105999 13620.934880 1916.821953 0.331115 1916.490838 13618.581980 11.44%
3 PENS INTLEQ Q 11/1/96 8.219051 15751.735940 1916.490838 0.286274 1916.204564 15749.383040 11.44%
3 PENS INTLEQ Q 11/1/97 9.255747 17735.904647 1916.204564 0.254210 1915.950355 17733.551747 11.44%
3 PENS INTLEQ Q 10/31/98 10.000000 19159.503546 1915.950355 0.235290 1915.715065 19157.150646 11.44%
3 PENS LIMMAT Q 9/10/84 4.387405 10000.000000 2279.251631 0.000000 2279.251631 10000.000000 5.98%
3 PENS LIMMAT Q 9/10/85 5.087810 11596.399238 2279.251631 0.462458 2278.789172 11594.046338 5.98%
3 PENS LIMMAT Q 9/10/86 5.850945 13333.070113 2278.789172 0.402140 2278.387032 13330.717213 5.98%
3 PENS LIMMAT Q 9/10/87 6.036510 13753.506103 2278.387032 0.389778 2277.997254 13751.153203 5.98%
3 PENS LIMMAT Q 9/10/88 6.327504 14414.036736 2277.997254 0.371853 2277.625401 14411.683836 5.98%
3 PENS LIMMAT Q 9/10/89 6.804029 15497.029280 2277.625401 0.345810 2277.279591 15494.676380 5.98%
3 PENS LIMMAT Q 9/10/90 7.240829 16489.392105 2277.279591 0.324949 2276.954642 16487.039205 5.98%
3 PENS LIMMAT Q 9/10/91 7.835249 17840.506584 2276.954642 0.300297 2276.654345 17838.153684 5.98%
3 PENS LIMMAT Q 9/10/92 8.535410 19432.178267 2276.654345 0.275663 2276.378682 19429.825367 5.98%
3 PENS LIMMAT Q 9/10/93 8.966750 20411.718548 2276.378682 0.262403 2276.116279 20409.365648 5.98%
3 PENS LIMMAT Q 9/10/94 8.838600 20117.681347 2276.116279 0.266207 2275.850072 20115.328447 5.98%
3 PENS LIMMAT Q 9/10/95 9.377802 21342.471357 2275.850072 0.250901 2275.599171 21340.118457 5.98%
3 PENS LIMMAT Q 9/10/96 9.000226 20480.906825 2275.599171 0.261427 2275.337744 20478.553925 5.98%
3 PENS LIMMAT Q 9/10/97 9.590485 21821.592506 2275.337744 0.245337 2275.092407 21819.239606 5.98%
3 PENS LIMMAT Q 9/10/98 10.004307 22760.722896 2275.092407 0.235189 2274.857219 22758.369996 5.98%
3 PENS LIMMAT Q 10/31/98 10.000000 22748.572186 2274.857219 0.235290 2274.621929 22746.219286 5.98%
3 PENS PARTNR Q 3/22/94 4.798001 10000.000000 2084.201316 0.000000 2084.201316 10000.000000 17.24%
3 PENS PARTNR Q 3/22/95 4.942303 10300.754418 2084.201316 0.476074 2083.725243 10298.401518 17.24%
3 PENS PARTNR Q 3/22/96 6.760792 14087.632951 2083.725243 0.348021 2083.377221 14085.280051 17.24%
3 PENS PARTNR Q 3/22/97 8.276638 17243.359079 2083.377221 0.284282 2083.092939 17241.006179 17.24%
3 PENS PARTNR Q 3/22/98 11.467358 23887.572482 2083.092939 0.205182 2082.887757 23885.219582 17.24%
3 PENS PARTNR Q 10/31/98 10.000000 20828.877569 2082.887757 0.235290 2082.652467 20826.524669 17.24%
3 PENS QUALBD Q 3/17/87 4.580492 10000.000000 2183.171589 0.000000 2183.171589 10000.000000 6.92%
3 PENS QUALBD Q 3/17/88 4.719480 10303.434653 2183.171589 0.498551 2182.673039 10301.081753 6.92%
3 PENS QUALBD Q 3/17/89 4.827724 10537.343013 2182.673039 0.487373 2182.185666 10534.990113 6.92%
3 PENS QUALBD Q 3/17/90 5.316426 11601.428613 2182.185666 0.442572 2181.743094 11599.075713 6.92%
3 PENS QUALBD Q 3/17/91 5.827333 12713.743532 2181.743094 0.403770 2181.339325 12711.390632 6.92%
3 PENS QUALBD Q 3/17/92 6.352485 13856.925341 2181.339325 0.370390 2180.968934 13854.572441 6.92%
3 PENS QUALBD Q 3/17/93 7.196811 15696.021217 2180.968934 0.326936 2180.641998 15693.668317 6.92%
3 PENS QUALBD Q 3/17/94 7.381135 16095.612973 2180.641998 0.318772 2180.323226 16093.260073 6.92%
3 PENS QUALBD Q 3/17/95 7.508607 16371.190235 2180.323226 0.313360 2180.009865 16368.837335 6.92%
</TABLE>
Page 4
<PAGE>
SI pens 3 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 PENS QUALBD Q 3/17/96 8.241019 17965.502721 2180.009865 0.285511 2179.724355 17963.149821 6.92%
3 PENS QUALBD Q 3/17/97 8.575914 18693.128609 2179.724355 0.274361 2179.449993 18690.775709 6.92%
3 PENS QUALBD Q 3/17/98 9.392582 20470.662776 2179.449993 0.250506 2179.199487 20468.309876 6.92%
3 PENS QUALBD Q 10/31/98 10.000000 21791.994870 2179.199487 0.235290 2178.964197 21789.641970 6.92%
3 PENS SMLCAP Q 3/1/95 7.425236 10000.000000 1346.758541 0.000000 1346.758541 10000.000000 8.43%
3 PENS SMLCAP Q 3/1/96 8.584180 11560.817730 1346.758541 0.274097 1346.484444 11558.464830 8.43%
3 PENS SMLCAP Q 3/1/97 9.891750 13319.087494 1346.484444 0.237865 1346.246579 13316.734594 8.43%
3 PENS SMLCAP Q 3/1/98 12.504643 16834.332856 1346.246579 0.188162 1346.058417 16831.979956 8.43%
3 PENS SMLCAP Q 10/31/98 10.000000 13460.584165 1346.058417 0.235290 1345.823127 13458.231265 8.43%
3 PENS VALUEQ Q 3/17/87 2.723688 10000.000000 3671.492476 0.000000 3671.492476 10000.000000 11.81%
3 PENS VALUEQ Q 3/17/88 2.849947 10463.558969 3671.492476 0.825594 3670.666882 10461.206069 11.81%
3 PENS VALUEQ Q 3/17/89 3.316410 12173.436354 3670.666882 0.709472 3669.957410 12171.083454 11.81%
3 PENS VALUEQ Q 3/17/90 3.470492 12736.557832 3669.957410 0.677973 3669.279437 12734.204932 11.81%
3 PENS VALUEQ Q 3/17/91 3.659051 13426.080593 3669.279437 0.643036 3668.636401 13423.727693 11.81%
3 PENS VALUEQ Q 3/17/92 4.226303 15504.769029 3668.636401 0.556728 3668.079674 15502.416129 11.81%
3 PENS VALUEQ Q 3/17/93 4.608178 16903.164055 3668.079674 0.510592 3667.569081 16900.811155 11.81%
3 PENS VALUEQ Q 3/17/94 4.907783 17999.633190 3667.569081 0.479422 3667.089659 17997.280290 11.81%
3 PENS VALUEQ Q 3/17/95 5.339192 19579.295772 3667.089659 0.440685 3666.648975 19576.942872 11.81%
3 PENS VALUEQ Q 3/17/96 6.652655 24392.950635 3666.648975 0.353678 3666.295296 24390.597735 11.81%
3 PENS VALUEQ Q 3/17/97 8.023246 29415.589071 3666.295296 0.293260 3666.002036 29413.236171 11.81%
3 PENS VALUEQ Q 3/17/98 10.557696 38704.535031 3666.002036 0.222861 3665.779175 38702.182131 11.81%
3 PENS VALUEQ Q 10/31/98 10.000000 36657.791748 3665.779175 0.235290 3665.543885 36655.438848 11.81%
</TABLE>
Page 5
<PAGE>
SI pens 2 bkup
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
Table 2 - Pennant Select Variable/Fixed Annuity Contracts Pennant Select - SI Tbl 2
- - -----------------------------------------------------------------------------------------------------------------------
Q = qualified $40 Contract # of units
N = nonqualified Beginning # of units fee & deferred at end of
- - -----------------------------------------------------------------------------------------------------------------------
amethod system fund qnonq accdate unitval bvalue bunits cunits eunits
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS BALFND Q 2/28/89 5.023853 1000.000000 199.050410 0.000000 199.050410
2 PENS BALFND Q 2/28/90 5.595775 1113.841309 199.050410 0.420478 198.629932
2 PENS BALFND Q 2/28/91 6.274346 1246.272920 198.629932 0.375003 198.254929
2 PENS BALFND Q 2/28/92 7.192074 1425.864120 198.254929 0.327152 197.927777
2 PENS BALFND Q 2/28/93 7.383797 1461.458527 197.927777 0.318657 197.609120
2 PENS BALFND Q 2/28/94 7.940090 1569.034197 197.609120 0.296332 197.312788
2 PENS BALFND Q 2/28/95 7.849108 1548.729385 197.312788 0.299767 197.013022
2 PENS BALFND Q 2/28/96 9.405566 1853.018979 197.013022 0.250160 196.762861
2 PENS BALFND Q 2/28/97 9.037750 1778.293550 196.762861 0.260341 196.502520
2 PENS BALFND Q 2/28/98 10.521344 2067.470610 196.502520 0.223631 196.278889
2 PENS BALFND Q 10/31/98 10.000000 1962.788889 196.278889 0.235290 196.043599
2 PENS EMGGRO Q 5/1/97 7.424869 1000.000000 134.682511 0.000000 134.682511
2 PENS EMGGRO Q 5/1/98 13.299640 1791.228909 134.682511 0.176915 134.505596
2 PENS EMGGRO Q 10/31/98 10.000000 1345.055963 134.505596 0.235290 134.270306
2 PENS EMGMKT Q 10/1/96 15.125369 1000.000000 66.114090 0.000000 66.114090
2 PENS EMGMKT Q 10/1/97 18.026562 1191.809734 66.114090 0.130524 65.983565
2 PENS EMGMKT Q 10/1/98 8.818564 581.880295 65.983565 0.266812 65.716753
2 PENS EMGMKT Q 10/31/98 10.000000 657.167533 65.716753 0.235290 65.481463
2 PENS FIDASM Q 9/6/89 3.707079 1000.000000 269.754165 0.000000 269.754165
2 PENS FIDASM Q 9/6/90 3.701784 998.571652 269.754165 0.635612 269.118552
2 PENS FIDASM Q 9/6/91 4.564429 1228.372525 269.118552 0.515486 268.603066
2 PENS FIDASM Q 9/6/92 5.050681 1356.628404 268.603066 0.465858 268.137208
2 PENS FIDASM Q 9/6/93 5.848698 1568.253554 268.137208 0.402295 267.734914
2 PENS FIDASM Q 9/6/94 6.046703 1618.913506 267.734914 0.389121 267.345793
2 PENS FIDASM Q 9/6/95 6.437360 1721.001111 267.345793 0.365507 266.980286
2 PENS FIDASM Q 9/6/96 6.497827 1734.791708 266.980286 0.362106 266.618180
2 PENS FIDASM Q 9/6/97 10.543503 2811.089580 266.618180 0.223161 266.395019
2 PENS FIDASM Q 9/6/98 9.316527 2481.876385 266.395019 0.252551 266.142468
2 PENS FIDASM Q 10/31/98 10.000000 2661.424676 266.142468 0.235290 265.907178
2 PENS FIDEQI Q 10/9/86 2.110230 1000.000000 473.881994 0.000000 473.881994
<CAPTION>
- - -------------------------------------------
Average
Annual Total
Ending return for
- - -------------------------------------------
amethod rvalue Since Inception
- - -------------------------------------------
<S> <C> <C>
2 1000.000000 7.20%
2 1111.488409 7.20%
2 1243.920020 7.20%
2 1423.511220 7.20%
2 1459.105627 7.20%
2 1566.681297 7.20%
2 1546.376485 7.20%
2 1850.666079 7.20%
2 1775.940650 7.20%
2 2065.117710 7.20%
2 1960.435989 7.20%
2 1000.000000 21.69%
2 1788.876009 21.69%
2 1342.703063 21.69%
2 1000.000000 -18.40%
2 1189.456834 -18.40%
2 579.527395 -18.40%
2 654.814633 -18.40%
2 1000.000000 11.27%
2 996.218752 11.27%
2 1226.019625 11.27%
2 1354.275504 11.27%
2 1565.900654 11.27%
2 1616.560606 11.27%
2 1718.648211 11.27%
2 1732.438808 11.27%
2 2808.736680 11.27%
2 2479.523485 11.27%
2 2659.071776 11.27%
2 1000.000000 13.60%
</TABLE>
Page 1
<PAGE>
SI pens 2 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS FIDEQI Q 10/9/87 2.496539 1183.064879 473.881994 0.942465 472.939529 1180.711979 13.60%
2 PENS FIDEQI Q 10/9/88 2.507939 1186.103490 472.939529 0.938181 472.001348 1183.750590 13.60%
2 PENS FIDEQI Q 10/9/89 3.066831 1447.548367 472.001348 0.767209 471.234140 1445.195467 13.60%
2 PENS FIDEQI Q 10/9/90 2.253112 1061.743295 471.234140 1.044289 470.189851 1059.390395 13.60%
2 PENS FIDEQI Q 10/9/91 2.913777 1370.028372 470.189851 0.807509 469.382342 1367.675472 13.60%
2 PENS FIDEQI Q 10/9/92 3.261808 1531.035078 469.382342 0.721348 468.660994 1528.682178 13.60%
2 PENS FIDEQI Q 10/9/93 4.186079 1961.851943 468.660994 0.562077 468.098916 1959.499043 13.60%
2 PENS FIDEQI Q 10/9/94 4.442010 2079.300067 468.098916 0.529693 467.569224 2076.947167 13.60%
2 PENS FIDEQI Q 10/9/95 5.533974 2587.515927 467.569224 0.425174 467.144050 2585.163027 13.60%
2 PENS FIDEQI Q 10/9/96 6.342406 2962.817225 467.144050 0.370979 466.773071 2960.464325 13.60%
2 PENS FIDEQI Q 10/9/97 10.345782 4829.132435 466.773071 0.227426 466.545645 4826.779535 13.60%
2 PENS FIDEQI Q 10/9/98 9.085583 4238.839180 466.545645 0.258971 466.286674 4236.486280 13.60%
2 PENS FIDEQI Q 10/31/98 10.000000 4662.866741 466.286674 0.235290 466.051384 4660.513841 13.60%
2 PENS FIDGRO Q 10/9/86 2.219589 1000.000000 450.533860 0.000000 450.533860 1000.000000 13.14%
2 PENS FIDGRO Q 10/9/87 2.794585 1259.055167 450.533860 0.841950 449.691910 1256.702267 13.14%
2 PENS FIDGRO Q 10/9/88 2.627312 1181.480952 449.691910 0.895554 448.796356 1179.128052 13.14%
2 PENS FIDGRO Q 10/9/89 3.453052 1549.717156 448.796356 0.681397 448.114959 1547.364256 13.14%
2 PENS FIDGRO Q 10/9/90 2.717667 1217.827237 448.114959 0.865779 447.249180 1215.474337 13.14%
2 PENS FIDGRO Q 10/9/91 3.704124 1656.666421 447.249180 0.635211 446.613969 1654.313521 13.14%
2 PENS FIDGRO Q 10/9/92 3.905408 1744.209767 446.613969 0.602472 446.011497 1741.856867 13.14%
2 PENS FIDGRO Q 10/9/93 5.319156 2372.404728 446.011497 0.442345 445.569152 2370.051828 13.14%
2 PENS FIDGRO Q 10/9/94 5.040555 2245.915817 445.569152 0.466794 445.102358 2243.562917 13.14%
2 PENS FIDGRO Q 10/9/95 6.853791 3050.638536 445.102358 0.343299 444.759059 3048.285636 13.14%
2 PENS FIDGRO Q 10/9/96 7.385733 3284.871659 444.759059 0.318574 444.440485 3282.518759 13.14%
2 PENS FIDGRO Q 10/9/97 10.041818 4462.990466 444.440485 0.234310 444.206175 4460.637566 13.14%
2 PENS FIDGRO Q 10/9/98 8.635697 3836.029935 444.206175 0.272462 443.933713 3833.677035 13.14%
2 PENS FIDGRO Q 10/31/98 10.000000 4439.337131 443.933713 0.235290 443.698423 4436.984231 13.14%
2 PENS FIDIND Q 8/27/92 7.515122 1000.000000 133.065039 0.000000 133.065039 1000.000000 4.46%
2 PENS FIDIND Q 8/27/93 8.469429 1126.984898 133.065039 0.277811 132.787228 1124.631998 4.46%
2 PENS FIDIND Q 8/27/94 8.814306 1170.427259 132.787228 0.266941 132.520287 1168.074359 4.46%
2 PENS FIDIND Q 8/27/95 5.272321 698.689491 132.520287 0.446274 132.074013 696.336591 4.46%
2 PENS FIDIND Q 8/27/96 6.303954 832.588501 132.074013 0.373242 131.700771 830.235601 4.46%
2 PENS FIDIND Q 8/27/97 8.657590 1140.211276 131.700771 0.271773 131.428998 1137.858376 4.46%
2 PENS FIDIND Q 8/27/98 9.486329 1246.778712 131.428998 0.248031 131.180967 1244.425812 4.46%
2 PENS FIDIND Q 10/31/98 10.000000 1311.809671 131.180967 0.235290 130.945677 1309.456771 4.46%
2 PENS FLEXMN Q 7/31/84 1.834377 1000.000000 545.144210 0.000000 545.144210 1000.000000 12.52%
2 PENS FLEXMN Q 7/31/85 2.099944 1144.772312 545.144210 1.120458 544.023751 1142.419412 12.52%
</TABLE>
Page 2
<PAGE>
SI pens 2 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS FLEXMN Q 7/31/86 2.546749 1385.491945 544.023751 0.923884 543.099868 1383.139045 12.52%
2 PENS FLEXMN Q 7/31/87 3.171517 1722.450463 543.099868 0.741885 542.357983 1720.097563 12.52%
2 PENS FLEXMN Q 7/31/88 3.478405 1886.540719 542.357983 0.676431 541.681552 1884.187819 12.52%
2 PENS FLEXMN Q 7/31/89 4.324401 2342.448246 541.681552 0.544098 541.137454 2340.095346 12.52%
2 PENS FLEXMN Q 7/31/90 4.376365 2368.215012 541.137454 0.537638 540.599816 2365.862112 12.52%
2 PENS FLEXMN Q 7/31/91 4.932479 2666.497238 540.599816 0.477022 540.122794 2664.144338 12.52%
2 PENS FLEXMN Q 7/31/92 5.390482 2911.522198 540.122794 0.436492 539.686302 2909.169298 12.52%
2 PENS FLEXMN Q 7/31/93 5.892481 3180.091282 539.686302 0.399305 539.286997 3177.738382 12.52%
2 PENS FLEXMN Q 7/31/94 6.330658 3414.041540 539.286997 0.371668 538.915329 3411.688640 12.52%
2 PENS FLEXMN Q 7/31/95 7.411073 3993.940846 538.915329 0.317484 538.597845 3991.587946 12.52%
2 PENS FLEXMN Q 7/31/96 7.683499 4138.316002 538.597845 0.306228 538.291617 4135.963102 12.52%
2 PENS FLEXMN Q 7/31/97 9.379572 5048.944980 538.291617 0.250854 538.040764 5046.592080 12.52%
2 PENS FLEXMN Q 7/31/98 9.927646 5341.478234 538.040764 0.237005 537.803759 5339.125334 12.52%
2 PENS FLEXMN Q 10/31/98 10.000000 5378.037587 537.803759 0.235290 537.568469 5375.684687 12.52%
2 PENS GROWEQ Q 8/11/83 2.060623 1000.000000 485.290128 0.000000 485.290128 1000.000000 10.79%
2 PENS GROWEQ Q 8/11/84 2.101702 1019.935233 485.290128 1.119521 484.170607 1017.582333 10.79%
2 PENS GROWEQ Q 8/11/85 2.354240 1139.853810 484.170607 0.999431 483.171176 1137.500910 10.79%
2 PENS GROWEQ Q 8/11/86 2.912736 1407.350079 483.171176 0.807797 482.363379 1404.997179 10.79%
2 PENS GROWEQ Q 8/11/87 3.857584 1860.757253 482.363379 0.609941 481.753438 1858.404353 10.79%
2 PENS GROWEQ Q 8/11/88 3.164945 1524.723134 481.753438 0.743425 481.010012 1522.370234 10.79%
2 PENS GROWEQ Q 8/11/89 4.241409 2040.160196 481.010012 0.554745 480.455268 2037.807296 10.79%
2 PENS GROWEQ Q 8/11/90 4.038526 1940.331090 480.455268 0.582614 479.872654 1937.978190 10.79%
2 PENS GROWEQ Q 8/11/91 4.579790 2197.715982 479.872654 0.513757 479.358897 2195.363082 10.79%
2 PENS GROWEQ Q 8/11/92 4.931387 2363.904232 479.358897 0.477127 478.881769 2361.551332 10.79%
2 PENS GROWEQ Q 8/11/93 5.579417 2671.881085 478.881769 0.421711 478.460059 2669.528185 10.79%
2 PENS GROWEQ Q 8/11/94 5.183410 2480.054653 478.460059 0.453929 478.006130 2477.701753 10.79%
2 PENS GROWEQ Q 8/11/95 6.267074 2995.699787 478.006130 0.375438 477.630691 2993.346887 10.79%
2 PENS GROWEQ Q 8/11/96 6.183124 2953.249791 477.630691 0.380536 477.250156 2950.896891 10.79%
2 PENS GROWEQ Q 8/11/97 8.418608 4017.781977 477.250156 0.279488 476.970668 4015.429077 10.79%
2 PENS GROWEQ Q 8/11/98 10.019551 4779.031929 476.970668 0.234831 476.735837 4776.679029 10.79%
2 PENS GROWEQ Q 10/31/98 10.000000 4767.358366 476.735837 0.235290 476.500547 4765.005466 10.79%
2 PENS HIBOND Q 8/6/84 3.047682 1000.000000 328.118222 0.000000 328.118222 1000.000000 8.56%
2 PENS HIBOND Q 8/6/85 3.530850 1158.536225 328.118222 0.666383 327.451839 1156.183325 8.56%
2 PENS HIBOND Q 8/6/86 3.935119 1288.561953 327.451839 0.597923 326.853915 1286.209053 8.56%
2 PENS HIBOND Q 8/6/87 4.154796 1358.011340 326.853915 0.566309 326.287606 1355.658440 8.56%
2 PENS HIBOND Q 8/6/88 4.477318 1460.893372 326.287606 0.525515 325.762090 1458.540472 8.56%
2 PENS HIBOND Q 8/6/89 4.920680 1602.971003 325.762090 0.478166 325.283925 1600.618103 8.56%
</TABLE>
Page 3
<PAGE>
SI pens 2 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS HIBOND Q 8/6/90 4.683387 1523.430505 325.283925 0.502393 324.781532 1521.077605 8.56%
2 PENS HIBOND Q 8/6/91 5.152426 1673.412810 324.781532 0.456659 324.324873 1671.059910 8.56%
2 PENS HIBOND Q 8/6/92 6.131284 1988.527907 324.324873 0.383753 323.941120 1986.175007 8.56%
2 PENS HIBOND Q 8/6/93 7.102660 2300.843637 323.941120 0.331270 323.609850 2298.490737 8.56%
2 PENS HIBOND Q 8/6/94 7.125386 2305.845094 323.609850 0.330214 323.279636 2303.492194 8.56%
2 PENS HIBOND Q 8/6/95 7.561812 2444.579833 323.279636 0.311156 322.968481 2442.226933 8.56%
2 PENS HIBOND Q 8/6/96 8.290276 2677.497844 322.968481 0.283814 322.684666 2675.144944 8.56%
2 PENS HIBOND Q 8/6/97 9.668436 3119.856043 322.684666 0.243359 322.441307 3117.503143 8.56%
2 PENS HIBOND Q 8/6/98 10.610229 3421.176110 322.441307 0.221758 322.219550 3418.823210 8.56%
2 PENS HIBOND Q 10/31/98 10.000000 3222.195496 322.219550 0.235290 321.984260 3219.842596 8.56%
2 PENS INTLEQ Q 11/1/92 5.215133 1000.000000 191.749664 0.000000 191.749664 1000.000000 11.29%
2 PENS INTLEQ Q 11/1/93 6.785711 1301.157804 191.749664 0.346743 191.402921 1298.804904 11.29%
2 PENS INTLEQ Q 11/1/94 7.174722 1373.262745 191.402921 0.327943 191.074978 1370.909845 11.29%
2 PENS INTLEQ Q 11/1/95 7.105999 1357.778600 191.074978 0.331115 190.743863 1355.425700 11.29%
2 PENS INTLEQ Q 11/1/96 8.219051 1567.733538 190.743863 0.286274 190.457589 1565.380638 11.29%
2 PENS INTLEQ Q 11/1/97 9.255747 1762.827258 190.457589 0.254210 190.203379 1760.474358 11.29%
2 PENS INTLEQ Q 10/31/98 10.000000 1902.033794 190.203379 0.235290 189.968089 1899.680894 11.29%
2 PENS LIMMAT Q 9/10/84 4.387405 1000.000000 227.925163 0.000000 227.925163 1000.000000 5.84%
2 PENS LIMMAT Q 9/10/85 5.087810 1159.639924 227.925163 0.462458 227.462705 1157.287024 5.84%
2 PENS LIMMAT Q 9/10/86 5.850945 1330.871775 227.462705 0.402140 227.060565 1328.518875 5.84%
2 PENS LIMMAT Q 9/10/87 6.036510 1370.653369 227.060565 0.389778 226.670786 1368.300469 5.84%
2 PENS LIMMAT Q 9/10/88 6.327504 1434.260307 226.670786 0.371853 226.298934 1431.907407 5.84%
2 PENS LIMMAT Q 9/10/89 6.804029 1539.744507 226.298934 0.345810 225.953124 1537.391607 5.84%
2 PENS LIMMAT Q 9/10/90 7.240829 1636.087931 225.953124 0.324949 225.628175 1633.735031 5.84%
2 PENS LIMMAT Q 9/10/91 7.835249 1767.852931 225.628175 0.300297 225.327878 1765.500031 5.84%
2 PENS LIMMAT Q 9/10/92 8.535410 1923.265823 225.327878 0.275663 225.052215 1920.912923 5.84%
2 PENS LIMMAT Q 9/10/93 8.966750 2017.986946 225.052215 0.262403 224.789812 2015.634046 5.84%
2 PENS LIMMAT Q 9/10/94 8.838600 1986.827231 224.789812 0.266207 224.523605 1984.474331 5.84%
2 PENS LIMMAT Q 9/10/95 9.377802 2105.537908 224.523605 0.250901 224.272704 2103.185008 5.84%
2 PENS LIMMAT Q 9/10/96 9.000226 2018.505018 224.272704 0.261427 224.011277 2016.152118 5.84%
2 PENS LIMMAT Q 9/10/97 9.590485 2148.376790 224.011277 0.245337 223.765940 2146.023890 5.84%
2 PENS LIMMAT Q 9/10/98 10.004307 2238.623159 223.765940 0.235189 223.530751 2236.270259 5.84%
2 PENS LIMMAT Q 10/31/98 10.000000 2235.307512 223.530751 0.235290 223.295461 2232.954612 5.84%
2 PENS PARTNR Q 3/22/94 4.798001 1000.000000 208.420132 0.000000 208.420132 1000.000000 17.06%
2 PENS PARTNR Q 3/22/95 4.942303 1030.075442 208.420132 0.476074 207.944058 1027.722542 17.06%
2 PENS PARTNR Q 3/22/96 6.760792 1405.866524 207.944058 0.348021 207.596037 1403.513624 17.06%
2 PENS PARTNR Q 3/22/97 8.276638 1718.197246 207.596037 0.284282 207.311755 1715.844346 17.06%
</TABLE>
Page 4
<PAGE>
SI pens 2 bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 PENS PARTNR Q 3/22/98 11.467358 2377.318107 207.311755 0.205182 207.106572 2374.965207 17.06%
2 PENS PARTNR Q 10/31/98 10.000000 2071.065722 207.106572 0.235290 206.871282 2068.712822 17.06%
2 PENS QUALBD Q 3/17/87 4.580492 1000.000000 218.317159 0.000000 218.317159 1000.000000 6.76%
2 PENS QUALBD Q 3/17/88 4.719480 1030.343465 218.317159 0.498551 217.818608 1027.990565 6.76%
2 PENS QUALBD Q 3/17/89 4.827724 1051.568123 217.818608 0.487373 217.331236 1049.215223 6.76%
2 PENS QUALBD Q 3/17/90 5.316426 1155.425432 217.331236 0.442572 216.888664 1153.072532 6.76%
2 PENS QUALBD Q 3/17/91 5.827333 1263.882469 216.888664 0.403770 216.484894 1261.529569 6.76%
2 PENS QUALBD Q 3/17/92 6.352485 1375.217044 216.484894 0.370390 216.114504 1372.864144 6.76%
2 PENS QUALBD Q 3/17/93 7.196811 1555.335239 216.114504 0.326936 215.787567 1552.982339 6.76%
2 PENS QUALBD Q 3/17/94 7.381135 1592.757166 215.787567 0.318772 215.468795 1590.404266 6.76%
2 PENS QUALBD Q 3/17/95 7.508607 1617.870505 215.468795 0.313360 215.155435 1615.517605 6.76%
2 PENS QUALBD Q 3/17/96 8.241019 1773.100027 215.155435 0.285511 214.869924 1770.747127 6.76%
2 PENS QUALBD Q 3/17/97 8.575914 1842.705990 214.869924 0.274361 214.595563 1840.353090 6.76%
2 PENS QUALBD Q 3/17/98 9.392582 2015.606419 214.595563 0.250506 214.345056 2013.253519 6.76%
2 PENS QUALBD Q 10/31/98 10.000000 2143.450565 214.345056 0.235290 214.109766 2141.097665 6.76%
2 PENS SMLCAP Q 3/1/95 7.425236 1000.000000 134.675854 0.000000 134.675854 1000.000000 8.24%
2 PENS SMLCAP Q 3/1/96 8.584180 1156.081773 134.675854 0.274097 134.401757 1153.728873 8.24%
2 PENS SMLCAP Q 3/1/97 9.891750 1329.468578 134.401757 0.237865 134.163892 1327.115678 8.24%
2 PENS SMLCAP Q 3/1/98 12.504643 1677.671572 134.163892 0.188162 133.975730 1675.318672 8.24%
2 PENS SMLCAP Q 10/31/98 10.000000 1339.757298 133.975730 0.235290 133.740440 1337.404398 8.24%
2 PENS VALUEQ Q 3/17/87 2.723688 1000.000000 367.149248 0.000000 367.149248 1000.000000 11.67%
2 PENS VALUEQ Q 3/17/88 2.849947 1046.355897 367.149248 0.825594 366.323653 1044.002997 11.67%
2 PENS VALUEQ Q 3/17/89 3.316410 1214.879427 366.323653 0.709472 365.614181 1212.526527 11.67%
2 PENS VALUEQ Q 3/17/90 3.470492 1268.861091 365.614181 0.677973 364.936208 1266.508191 11.67%
2 PENS VALUEQ Q 3/17/91 3.659051 1335.320198 364.936208 0.643036 364.293173 1332.967298 11.67%
2 PENS VALUEQ Q 3/17/92 4.226303 1539.613329 364.293173 0.556728 363.736445 1537.260429 11.67%
2 PENS VALUEQ Q 3/17/93 4.608178 1676.162284 363.736445 0.510592 363.225853 1673.809384 11.67%
2 PENS VALUEQ Q 3/17/94 4.907783 1782.633665 363.225853 0.479422 362.746431 1780.280765 11.67%
2 PENS VALUEQ Q 3/17/95 5.339192 1936.772840 362.746431 0.440685 362.305746 1934.419940 11.67%
2 PENS VALUEQ Q 3/17/96 6.652655 2410.295132 362.305746 0.353678 361.952068 2407.942232 11.67%
2 PENS VALUEQ Q 3/17/97 8.023246 2904.030478 361.952068 0.293260 361.658807 2901.677578 11.67%
2 PENS VALUEQ Q 3/17/98 10.557696 3818.283742 361.658807 0.222861 361.435946 3815.930842 11.67%
2 PENS VALUEQ Q 10/31/98 10.000000 3614.359461 361.435946 0.235290 361.200656 3612.006561 11.67%
</TABLE>
Page 5
<PAGE>
SI pens 1a bkup
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Table 1A - Pennant Select Variable/Fixed Annuity Contracts Pennant Select - SI - Tbl 1a
- - -----------------------------------------------------------------------------------------------------------------------------------
(assuming no purchase payments made after first contract year)
- - -----------------------------------------------------------------------------------------------------------------------------------
Average
Q = qualified $40 Contract # of units Annual Total
N = nonqualified Beginning # of units fee & deferred at end of Ending return for
- - -----------------------------------------------------------------------------------------------------------------------------------
amethod system fund qnonq accdate unitval bvalue bunits cunits eunits rvalue Since Inception
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1a PENS BALFND Q 10/31/89 5.730320 1000.000000 174.510324 0.000000 174.510324 1000.000000 7.20%
1a PENS BALFND Q 10/31/90 5.460737 952.954983 174.510324 0.430876 174.079448 950.602083 7.20%
1a PENS BALFND Q 10/31/91 6.701046 1166.514390 174.079448 0.351124 173.728324 1164.161490 7.20%
1a PENS BALFND Q 10/31/92 7.182450 1247.795000 173.728324 0.327590 173.400734 1245.442100 7.20%
1a PENS BALFND Q 10/31/93 7.888625 1367.893363 173.400734 0.298265 173.102469 1365.540463 7.20%
1a PENS BALFND Q 10/31/94 7.702363 1333.298051 173.102469 0.305478 172.796991 1330.945151 7.20%
1a PENS BALFND Q 10/31/95 9.132473 1578.063856 172.796991 0.257641 172.539350 1575.710956 7.20%
1a PENS BALFND Q 10/31/96 8.204726 1415.638091 172.539350 0.286774 172.252576 1413.285191 7.20%
1a PENS BALFND Q 10/31/97 10.097183 1739.265785 172.252576 0.233025 172.019551 1736.912885 7.20%
1a PENS BALFND Q 10/31/98 10.000000 1720.195509 172.019551 0.235290 171.784261 1717.842609 7.20%
1a PENS EMGGRO Q 10/31/97 10.693572 1000.000000 93.514122 0.000000 93.514122 1000.000000 21.69%
1a PENS EMGGRO Q 10/31/98 10.000000 935.141223 93.514122 0.235290 93.278832 932.788323 21.69%
1a PENS EMGMKT Q 10/31/96 14.458904 1000.000000 69.161535 0.000000 69.161535 1000.000000 -18.40%
1a PENS EMGMKT Q 10/31/97 15.159409 1048.448001 69.161535 0.155211 69.006325 1046.095101 -18.40%
1a PENS EMGMKT Q 10/31/98 10.000000 690.063248 69.006325 0.235290 68.771035 687.710348 -18.40%
1a PENS FIDASM Q 10/31/89 3.703246 1000.000000 270.033371 0.000000 270.033371 1000.000000 11.27%
1a PENS FIDASM Q 10/31/90 3.638900 982.624433 270.033371 0.646596 269.386774 980.271533 11.27%
1a PENS FIDASM Q 10/31/91 4.627039 1246.463110 269.386774 0.508511 268.878263 1244.110210 11.27%
1a PENS FIDASM Q 10/31/92 5.048272 1357.370608 268.878263 0.466080 268.412183 1355.017708 11.27%
1a PENS FIDASM Q 10/31/93 6.023530 1616.788837 268.412183 0.390618 268.021565 1614.435937 11.27%
1a PENS FIDASM Q 10/31/94 6.017591 1612.844157 268.021565 0.391004 267.630561 1610.491257 11.27%
1a PENS FIDASM Q 10/31/95 6.360709 1702.320120 267.630561 0.369912 267.260650 1699.967220 11.27%
1a PENS FIDASM Q 10/31/96 6.861890 1833.913179 267.260650 0.342894 266.917756 1831.560279 11.27%
1a PENS FIDASM Q 10/31/97 10.461735 2792.422828 266.917756 0.224905 266.692850 2790.069928 11.27%
1a PENS FIDASM Q 10/31/98 10.000000 2666.928504 266.692850 0.235290 266.457560 2664.575604 11.27%
1a PENS FIDEQI Q 10/31/88 2.512627 1000.000000 397.989833 0.000000 397.989833 1000.000000 13.60%
1a PENS FIDEQI Q 10/31/89 2.848104 1133.516435 397.989833 0.826129 397.163704 1131.163535 13.60%
1a PENS FIDEQI Q 10/31/90 2.201191 874.233172 397.163704 1.068921 396.094783 871.880272 13.60%
1a PENS FIDEQI Q 10/31/91 3.031632 1200.813619 396.094783 0.776117 395.318666 1198.460719 13.60%
1a PENS FIDEQI Q 10/31/92 3.390167 1340.196298 395.318666 0.694037 394.624630 1337.843398 13.60%
</TABLE>
Page 1
<PAGE>
SI pens 1a bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1a PENS FIDEQI Q 10/31/93 4.190811 1653.797240 394.624630 0.561443 394.063187 1651.444340 13.60%
1a PENS FIDEQI Q 10/31/94 4.585389 1806.933004 394.063187 0.513130 393.550057 1804.580104 13.60%
1a PENS FIDEQI Q 10/31/95 5.523350 2173.714709 393.550057 0.425991 393.124066 2171.361809 13.60%
1a PENS FIDEQI Q 10/31/96 6.372224 2505.074608 393.124066 0.369243 392.754823 2502.721708 13.60%
1a PENS FIDEQI Q 10/31/97 9.827337 3859.734001 392.754823 0.239424 392.515399 3857.381101 13.60%
1a PENS FIDEQI Q 10/31/98 10.000000 3925.153988 392.515399 0.235290 392.280109 3922.801088 13.60%
1a PENS FIDGRO Q 10/31/88 2.591972 1000.000000 385.806637 0.000000 385.806637 1000.000000 13.14%
1a PENS FIDGRO Q 10/31/89 3.235152 1248.143113 385.806637 0.727292 385.079345 1245.790213 13.14%
1a PENS FIDGRO Q 10/31/90 2.633718 1014.190402 385.079345 0.893376 384.185969 1011.837502 13.14%
1a PENS FIDGRO Q 10/31/91 3.942101 1514.499893 384.185969 0.596864 383.589105 1512.146993 13.14%
1a PENS FIDGRO Q 10/31/92 4.127327 1583.197668 383.589105 0.570078 383.019026 1580.844768 13.14%
1a PENS FIDGRO Q 10/31/93 5.379675 2060.517880 383.019026 0.437368 382.581658 2058.164980 13.14%
1a PENS FIDGRO Q 10/31/94 5.354891 2048.683076 382.581658 0.439393 382.142265 2046.330176 13.14%
1a PENS FIDGRO Q 10/31/95 7.272629 2779.178919 382.142265 0.323528 381.818737 2776.826019 13.14%
1a PENS FIDGRO Q 10/31/96 7.267510 2774.871489 381.818737 0.323756 381.494981 2772.518589 13.14%
1a PENS FIDGRO Q 10/31/97 9.438321 3600.672090 381.494981 0.249292 381.245689 3598.319190 13.14%
1a PENS FIDGRO Q 10/31/98 10.000000 3812.456887 381.245689 0.235290 381.010399 3810.103987 13.14%
1a PENS FIDIND Q 10/31/92 7.611036 1000.000000 131.388158 0.000000 131.388158 1000.000000 4.46%
1a PENS FIDIND Q 10/31/93 8.611003 1131.383822 131.388158 0.273243 131.114915 1129.030922 4.46%
1a PENS FIDIND Q 10/31/94 8.799264 1153.714747 131.114915 0.267397 130.847517 1151.361847 4.46%
1a PENS FIDIND Q 10/31/95 5.479617 716.994279 130.847517 0.429391 130.418126 714.641379 4.46%
1a PENS FIDIND Q 10/31/96 6.678923 871.052620 130.418126 0.352287 130.065838 868.699720 4.46%
1a PENS FIDIND Q 10/31/97 8.669827 1127.648318 130.065838 0.271389 129.794449 1125.295418 4.46%
1a PENS FIDIND Q 10/31/98 10.000000 1297.944490 129.794449 0.235290 129.559159 1295.591590 4.46%
1a PENS FLEXMN Q 10/31/88 3.614109 1000.000000 276.693370 0.000000 276.693370 1000.000000 12.52%
1a PENS FLEXMN Q 10/31/89 4.267152 1180.692669 276.693370 0.551398 276.141972 1178.339769 12.52%
1a PENS FLEXMN Q 10/31/90 3.804689 1050.634324 276.141972 0.618421 275.523551 1048.281424 12.52%
1a PENS FLEXMN Q 10/31/91 4.997659 1376.972754 275.523551 0.470800 275.052751 1374.619854 12.52%
1a PENS FLEXMN Q 10/31/92 5.386857 1481.669835 275.052751 0.436785 274.615965 1479.316935 12.52%
1a PENS FLEXMN Q 10/31/93 6.195974 1701.513381 274.615965 0.379747 274.236219 1699.160481 12.52%
1a PENS FLEXMN Q 10/31/94 6.582611 1805.190350 274.236219 0.357442 273.878777 1802.837450 12.52%
1a PENS FLEXMN Q 10/31/95 7.520572 2059.725061 273.878777 0.312862 273.565915 2057.372161 12.52%
1a PENS FLEXMN Q 10/31/96 8.143869 2227.884975 273.565915 0.288917 273.276998 2225.532075 12.52%
1a PENS FLEXMN Q 10/31/97 9.446061 2581.391196 273.276998 0.249088 273.027910 2579.038296 12.52%
1a PENS FLEXMN Q 10/31/98 10.000000 2730.279104 273.027910 0.235290 272.792620 2727.926204 12.52%
1a PENS GROWEQ Q 10/31/88 3.366636 1000.000000 297.032409 0.000000 297.032409 1000.000000 10.79%
1a PENS GROWEQ Q 10/31/89 4.245562 1261.069507 297.032409 0.554202 296.478206 1258.716607 10.79%
</TABLE>
Page 2
<PAGE>
SI pens 1a bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1a PENS GROWEQ Q 10/31/90 3.510568 1040.806904 296.478206 0.670233 295.807973 1038.454004 10.79%
1a PENS GROWEQ Q 10/31/91 4.720759 1396.438151 295.807973 0.498416 295.309557 1394.085251 10.79%
1a PENS GROWEQ Q 10/31/92 4.986739 1472.631687 295.309557 0.471831 294.837726 1470.278787 10.79%
1a PENS GROWEQ Q 10/31/93 5.866512 1729.669057 294.837726 0.401073 294.436653 1727.316157 10.79%
1a PENS GROWEQ Q 10/31/94 5.389393 1586.834836 294.436653 0.436580 294.000073 1584.481936 10.79%
1a PENS GROWEQ Q 10/31/95 6.525015 1918.354887 294.000073 0.360597 293.639476 1916.001987 10.79%
1a PENS GROWEQ Q 10/31/96 6.662855 1956.477252 293.639476 0.353137 293.286339 1954.124352 10.79%
1a PENS GROWEQ Q 10/31/97 8.374502 2456.127035 293.286339 0.280960 293.005379 2453.774135 10.79%
1a PENS GROWEQ Q 10/31/98 10.000000 2930.053793 293.005379 0.235290 292.770089 2927.700893 10.79%
1a PENS HIBOND Q 10/31/88 4.597460 1000.000000 217.511408 0.000000 217.511408 1000.000000 8.56%
1a PENS HIBOND Q 10/31/89 4.698176 1021.906879 217.511408 0.500811 217.010597 1019.553979 8.56%
1a PENS HIBOND Q 10/31/90 4.107856 891.448283 217.010597 0.572781 216.437817 889.095383 8.56%
1a PENS HIBOND Q 10/31/91 5.420737 1173.252480 216.437817 0.434055 216.003761 1170.899580 8.56%
1a PENS HIBOND Q 10/31/92 6.145141 1327.373569 216.003761 0.382888 215.620873 1325.020669 8.56%
1a PENS HIBOND Q 10/31/93 7.348796 1584.553811 215.620873 0.320175 215.300698 1582.200911 8.56%
1a PENS HIBOND Q 10/31/94 7.118262 1532.566780 215.300698 0.330544 214.970154 1530.213880 8.56%
1a PENS HIBOND Q 10/31/95 7.716869 1658.896519 214.970154 0.304903 214.665251 1656.543619 8.56%
1a PENS HIBOND Q 10/31/96 8.595628 1845.182640 214.665251 0.273732 214.391519 1842.829740 8.56%
1a PENS HIBOND Q 10/31/97 9.892647 2120.899613 214.391519 0.237843 214.153675 2118.546713 8.56%
1a PENS HIBOND Q 10/31/98 10.000000 2141.536753 214.153675 0.235290 213.918385 2139.183853 8.56%
1a PENS INTLEQ Q 10/31/93 6.780778 1000.000000 147.475703 0.000000 147.475703 1000.000000 11.29%
1a PENS INTLEQ Q 10/31/94 7.185245 1059.649055 147.475703 0.327463 147.148240 1057.296155 11.29%
1a PENS INTLEQ Q 10/31/95 7.111342 1046.421459 147.148240 0.330866 146.817374 1044.068559 11.29%
1a PENS INTLEQ Q 10/31/96 8.188589 1202.227134 146.817374 0.287339 146.530035 1199.874234 11.29%
1a PENS INTLEQ Q 10/31/97 9.256089 1356.295047 146.530035 0.254200 146.275835 1353.942147 11.29%
1a PENS INTLEQ Q 10/31/98 10.000000 1462.758350 146.275835 0.235290 146.040545 1460.405450 11.29%
1a PENS LIMMAT Q 10/31/88 6.409040 1000.000000 156.029608 0.000000 156.029608 1000.000000 5.84%
1a PENS LIMMAT Q 10/31/89 6.900156 1076.628637 156.029608 0.340992 155.688616 1074.275737 5.84%
1a PENS LIMMAT Q 10/31/90 7.320476 1139.714776 155.688616 0.321414 155.367202 1137.361876 5.84%
1a PENS LIMMAT Q 10/31/91 7.969560 1238.208241 155.367202 0.295236 155.071966 1235.855341 5.84%
1a PENS LIMMAT Q 10/31/92 8.477709 1314.655006 155.071966 0.277540 154.794427 1312.302106 5.84%
1a PENS LIMMAT Q 10/31/93 8.955965 1386.333469 154.794427 0.262719 154.531708 1383.980569 5.84%
1a PENS LIMMAT Q 10/31/94 8.840839 1366.189952 154.531708 0.266140 154.265568 1363.837052 5.84%
1a PENS LIMMAT Q 10/31/95 9.478367 1462.185671 154.265568 0.248239 154.017329 1459.832771 5.84%
1a PENS LIMMAT Q 10/31/96 9.174547 1413.039226 154.017329 0.256460 153.760870 1410.686326 5.84%
1a PENS LIMMAT Q 10/31/97 9.683001 1488.866655 153.760870 0.242993 153.517877 1486.513755 5.84%
1a PENS LIMMAT Q 10/31/98 10.000000 1535.178769 153.517877 0.235290 153.282587 1532.825869 5.84%
</TABLE>
Page 3
<PAGE>
SI pens 1a bkup
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1a PENS PARTNR Q 10/31/94 4.796650 1000.000000 208.478834 0.000000 208.478834 1000.000000 17.06%
1a PENS PARTNR Q 10/31/95 5.895340 1229.053610 208.478834 0.399112 208.079722 1226.700710 17.06%
1a PENS PARTNR Q 10/31/96 7.375327 1534.655994 208.079722 0.319023 207.760699 1532.303094 17.06%
1a PENS PARTNR Q 10/31/97 9.989274 2075.378551 207.760699 0.235543 207.525157 2073.025651 17.06%
1a PENS PARTNR Q 10/31/98 10.000000 2075.251566 207.525157 0.235290 207.289867 2072.898666 17.06%
1a PENS QUALBD Q 10/31/88 4.871573 1000.000000 205.272506 0.000000 205.272506 1000.000000 6.76%
1a PENS QUALBD Q 10/31/89 5.336973 1095.533824 205.272506 0.440868 204.831639 1093.180924 6.76%
1a PENS QUALBD Q 10/31/90 5.552432 1137.313745 204.831639 0.423760 204.407878 1134.960845 6.76%
1a PENS QUALBD Q 10/31/91 6.285700 1284.846601 204.407878 0.374326 204.033552 1282.493701 6.76%
1a PENS QUALBD Q 10/31/92 6.767127 1380.720962 204.033552 0.347696 203.685857 1378.368062 6.76%
1a PENS QUALBD Q 10/31/93 7.584102 1544.774315 203.685857 0.310241 203.375616 1542.421415 6.76%
1a PENS QUALBD Q 10/31/94 7.024905 1428.694380 203.375616 0.334937 203.040679 1426.341480 6.76%
1a PENS QUALBD Q 10/31/95 8.166115 1658.053534 203.040679 0.288130 202.752549 1655.700634 6.76%
1a PENS QUALBD Q 10/31/96 8.585287 1740.688825 202.752549 0.274062 202.478487 1738.335925 6.76%
1a PENS QUALBD Q 10/31/97 9.109501 1844.477983 202.478487 0.258291 202.220197 1842.125083 6.76%
1a PENS QUALBD Q 10/31/98 10.000000 2022.201966 202.220197 0.235290 201.984907 2019.849066 6.76%
1a PENS SMLCAP Q 10/31/95 8.013464 1000.000000 124.789978 0.000000 124.789978 1000.000000 8.24%
1a PENS SMLCAP Q 10/31/96 9.216480 1150.124341 124.789978 0.255293 124.534686 1147.771441 8.24%
1a PENS SMLCAP Q 10/31/97 11.840723 1474.580718 124.534686 0.198713 124.335973 1472.227818 8.24%
1a PENS SMLCAP Q 10/31/98 10.000000 1243.359732 124.335973 0.235290 124.100683 1241.006832 8.24%
1a PENS VALUEQ Q 10/31/88 3.194640 1000.000000 313.024316 0.000000 313.024316 1000.000000 11.67%
1a PENS VALUEQ Q 10/31/89 3.538815 1107.735144 313.024316 0.664884 312.359432 1105.382244 11.67%
1a PENS VALUEQ Q 10/31/90 2.913098 909.933637 312.359432 0.807697 311.551735 907.580737 11.67%
1a PENS VALUEQ Q 10/31/91 3.916254 1220.115730 311.551735 0.600804 310.950932 1217.762830 11.67%
1a PENS VALUEQ Q 10/31/92 4.405568 1369.915474 310.950932 0.534074 310.416857 1367.562574 11.67%
1a PENS VALUEQ Q 10/31/93 4.815291 1494.747500 310.416857 0.488631 309.928227 1492.394600 11.67%
1a PENS VALUEQ Q 10/31/94 5.092570 1578.331189 309.928227 0.462026 309.466200 1575.978289 11.67%
1a PENS VALUEQ Q 10/31/95 6.236119 1929.868053 309.466200 0.377302 309.088899 1927.515153 11.67%
1a PENS VALUEQ Q 10/31/96 7.461407 2306.238071 309.088899 0.315343 308.773556 2303.885171 11.67%
1a PENS VALUEQ Q 10/31/97 9.180814 2834.792584 308.773556 0.256284 308.517271 2832.439684 11.67%
1a PENS VALUEQ Q 10/31/98 10.000000 3085.172714 308.517271 0.235290 308.281981 3082.819814 11.67%
</TABLE>
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