<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1996
REGISTRATION NO. 33-2625/811-4460
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-6
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 16
---------------------
PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MONEY MARKET SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MANAGED SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE ZERO COUPON BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE AGGRESSIVE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE INTERNATIONAL SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE SEPARATE ACCOUNT
(EXACT NAME OF TRUST)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1050 WESTLAKES DRIVE
BERWYN, PA 19312
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
LINDA E. SENKER
SENIOR ASSOCIATE GENERAL COUNSEL
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY OF PHILADELPHIA
1050 WESTLAKES DRIVE
BERWYN, PA 19312
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPIES TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND, ASBILL & BRENNAN
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004
It is proposed that this filing will become effective (check appropriate
box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on May 1, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of rule 485
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST RECENT YEAR
WAS FILED ON FEBRUARY 27, 1996.
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<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8N-2
ITEM CAPTION IN PROSPECTUS
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<S> <C>
1 Cover Page
2 Cover Page
3 Not Applicable
4 Distribution of Policies
5 The Separate Accounts
6(a) The Separate Accounts
6(b) Not Applicable
9 Not Applicable
10(a) and (b) Not Applicable
10(c) and (d) Withdrawal of Excess Cash Value; Surrender of the Policy; Exchange
Privilege; Transfers Between Separate Accounts; Free-Look Provision;
Loan Privilege; Accelerated Death Benefit
10(e) Payment and Allocation of Premiums; Accelerated Death Benefit
10(f), (g), and Voting Rights, Changes in Applicable Law, Funding and Otherwise
(h)
10(i) Other Policy Provisions
11 Provident Mutual Life Insurance Company; The Separate Accounts; The
Funds; The Stripped ("Zero") U.S. Treasury Securities Fund, Provident
Mutual Series A
12 The Separate Accounts; The Funds; The Stripped ("Zero") U.S. Treasury
Securities Fund, Provident Mutual Series A; Distribution of Policies
13(a), (b), and Payment and Allocation of Premium; Charges and Expenses; Accelerated
(c) Death Benefit
13(d), (e), and Not Applicable
(f)
14 Availability of Policy; Payment and Allocation of Premiums;
Distribution of Policies; Accelerated Death Benefit
15 Payment and Allocation of Premiums
16 The Separate Accounts; The Funds; The Stripped ("Zero") U.S. Treasury
Securities Fund, Provident Mutual Series A
17 See items 10(c), (d), and (e)
18(a), (b), and The Separate Accounts; Death Benefit; Cash Value
(c)
18(d) Not Applicable
19 Reports
20 Not Applicable
21(a) and (b) Loan Privilege; Accelerated Death Benefit
21(c) Not Applicable
22 Not Applicable
23 Officers and Directors of PMLIC
24 Not Applicable
25 PMLIC
26 See Item 13(a), (b), and (c)
27 Provident Mutual Life Insurance Company
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
N-8N-2
ITEM CAPTION IN PROSPECTUS
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<S> <C>
28 Officers and Directors of PMLIC
29 Provident Mutual Life Insurance Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33(a) Not Applicable
33(b) Distribution of Policies
34 Not Applicable
35 Provident Mutual Life Insurance Company; State Regulation; Accelerated
Death Benefit
36 Not Applicable
37 Not Applicable
38 Distribution of Policies
39 Distribution of Policies
40(a) Distribution of Policies
40(b) Market Street Fund, Inc.; Distribution of Policies
41 Distribution of Policies
42 Not Applicable
43 Not Applicable
44(a) Death Benefit; Cash Value; Accelerated Death Benefit
44(b) and (c) Not Applicable
45 Not Applicable
46(a) Death Benefit; Cash Value; Accelerated Death Benefit
46(b) Not Applicable
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 The Separate Accounts
51 Not Applicable
52(a), (b), and(c) Voting Rights, Changes in Applicable Law, Funding and Otherwise
52(d) Not Applicable
53(a) Federal Income Tax Considerations
53(b) Not Applicable
54 Not Applicable
55 Not Applicable
</TABLE>
<PAGE> 4
(ART)
PROSPECTUS
FOR
MODIFIED PREMIUM
VARIABLE LIFE
INSURANCE
ISSUED BY
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
OPTIONS
FORM 15732 5.96
<PAGE> 5
LOGO
PROSPECTUS
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MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY:
LOGO
PROVIDENT MUTUAL LIFE INSURANCE COMPANY (PMLIC)
1050 WESTLAKES DRIVE, BERWYN, PENNSYLVANIA 19312
TELEPHONE: (610) 407-1717
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This Prospectus describes a modified premium variable life insurance policy
(Policy) offered by PMLIC. The purpose of the Policy is to provide lifetime
insurance coverage and to lessen the economic loss resulting from the death of
the Insured. The Policy is also designed to provide flexibility in connection
with premium payments and the potential for increased death benefits and gives
the Policyowner (Owner) the right to allocate Net Premiums among investment
alternatives with different investment objectives.
The Policy provides for the payment of scheduled premiums until age 100.
However, if certain conditions are met, the Owner may not be required to pay
scheduled premiums to keep the Policy in full force. The Owner may also, subject
to certain restrictions, make unscheduled premium payments.
The Policy's minimum Face Amount is currently $50,000. The Policy is
available to Insureds who have an Issue Age of 80 or less.
The Policy provides for a Death Benefit payable at the Insured's death. So
long as all required scheduled premiums are paid, and there are no outstanding
policy loans, the Death Benefit will never be less than the applicable
Guaranteed Minimum Death Benefit for the Policy, regardless of investment
experience.
Net Premiums are allocated to one or more of eight Separate Accounts
selected by the Owner: the Provident Mutual Variable Growth Separate Account,
the Provident Mutual Variable Money Market Separate Account, the Provident
Mutual Variable Bond Separate Account, the Provident Mutual Variable Managed
Separate Account, the Provident Mutual Variable Zero Coupon Bond Separate
Account, the Provident Mutual Variable Aggressive Growth Separate Account, the
Provident Mutual Variable International Separate Account and the Provident
Mutual Variable Separate Account (collectively, the Separate Accounts). The
Growth, Money Market, Bond, Managed, Aggressive Growth and International
Separate Accounts invest in shares of a designated corresponding mutual fund
portfolio. Each portfolio is a part of Market Street Fund, Inc. ("MS Fund"). The
Zero Coupon Bond Separate Account has one Sub Account, the assets of which are
used to purchase units of a corresponding series of The Stripped ("Zero") U.S.
Treasury Securities Fund, Provident Mutual Series A ("Zero Coupon Trust" or
"Trust"). The Provident Mutual Variable Separate Account has sixteen
Subaccounts, the assets of which are used to purchase shares of a designated
corresponding mutual fund portfolio (each, along with the portfolios of the MS
Fund, a "Portfolio") that is part of one of the following funds: The Alger
American Fund; Neuberger & Berman Advisers Management Trust; TCI Portfolios,
Inc.; Variable Insurance Products Fund; Variable Insurance Products Fund II;
American Fund, and Van Eck Investment Trust (together with the MS Fund, the
"Funds").
The Cash Value of the Policy will reflect the investment performance of the
Separate Accounts as well as the frequency and amount of premiums paid,
withdrawals, policy loans and the monthly charges and deductions assessed in
connection with the Policy. The Owner bears the entire investment risk for all
amounts allocated to the Separate Accounts. There is no guaranteed minimum Cash
Value.
The accompanying Prospectuses for the Funds and for the Zero Coupon Trust
describe the investment objectives and the attendant risks of the portfolios
(the Growth Portfolio, the Money Market Portfolio, the Bond Portfolio, the
Managed Portfolio, the Aggressive Growth Portfolio and the International
Portfolio) and of the Trust (2006 Series).
Replacing existing insurance with the Policy described in this Prospectus
may not be to your advantage.
------------------------
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES FOR THE
FUNDS LISTED ABOVE.
------------------------
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
------------------------
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.
------------------------
Prospectus dated May 1, 1996
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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PAGE
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Definitions........................................................................... 1
Summary Description of the Policy..................................................... 3
The Policy Offered............................................................... 3
Availability of Policy........................................................... 3
The Death Benefit................................................................ 4
Cash Value....................................................................... 4
Illustrations of Death Benefits and Cash Surrender Values........................ 4
Allocation of Net Premiums....................................................... 5
Charges Assessed in Connection with the Policy................................... 5
Premium Expense Charge...................................................... 5
Surrender Charge............................................................ 5
Monthly Deduction from Cash Value........................................... 5
Daily Charges Against the Separate Accounts................................. 5
Free-Look Provision.............................................................. 5
Loan Privilege................................................................... 6
Withdrawal of Excess Cash Value.................................................. 6
Surrender of the Policy.......................................................... 6
Accelerated Death Benefit........................................................ 6
Exchange Privilege............................................................... 7
Tax Treatment.................................................................... 7
Unisex Policies.................................................................. 7
Provident Mutual Life Insurance Company, The Separate Accounts, The Funds, The
Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A.......... 8
Provident Mutual Life Insurance Company.......................................... 8
The Separate Accounts............................................................ 8
Market Street Fund, Inc.......................................................... 8
The Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A... 10
2006 Series................................................................. 11
The Alger American Fund.......................................................... 11
The Variable Insurance Products Fund and Variable Insurance Products Fund II..... 11
VIP Fund.................................................................... 12
VIP Fund II................................................................. 12
Neuberger & Berman Advisers Management Trust..................................... 14
TCI Portfolios, Inc.............................................................. 15
Van Eck Investment Trust......................................................... 16
Detailed Description of Policy Provisions............................................. 18
Availability of the Policy....................................................... 18
Death Benefit.................................................................... 19
Availability of Death Benefit Options....................................... 19
The Guaranteed Minimum...................................................... 19
How the Death Benefit May Vary.............................................. 19
Cash Value....................................................................... 20
How the Cash Value May Vary................................................. 20
Net Investment Factor....................................................... 20
Payment and Allocation of Premiums............................................... 20
Scheduled Premiums.......................................................... 20
Amount of Scheduled Premiums................................................ 20
Unscheduled Premiums........................................................ 22
Premium Change Date......................................................... 22
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Tax Consequences............................................................ 23
Special Premium Payment Provision........................................... 23
Automatic Premium Loan...................................................... 25
Allocation of Net Premiums.................................................. 26
Transfers Between Separate Accounts......................................... 26
Grace Period for Payment of Scheduled Premiums.............................. 26
Reinstatement............................................................... 26
Options on Lapse............................................................ 26
Extended Term Insurance................................................ 26
Reduced Paid Up Insurance.............................................. 27
Backdating of Policy............................................................. 27
Free-Look Provision.............................................................. 27
Exchange Privilege............................................................... 27
Loan Privilege................................................................... 28
Interest Rate............................................................... 28
Variable Loan Interest Rate................................................. 28
Allocation of Loans and Repayments.......................................... 28
Effect of Loan.............................................................. 28
Withdrawal of Excess Cash Value.................................................. 29
Calculation of Withdrawal Single Premium.................................... 29
Effect of Withdrawal........................................................ 30
Surrender of the Policy.......................................................... 30
Accelerated Death Benefit........................................................ 30
Tax Consequences of the Rider............................................... 31
Amount of the Accelerated Death Benefit..................................... 31
Conditions for Receipt of the Accelerated Death Benefit..................... 31
Operation of the Rider...................................................... 31
Effect on Existing Policy................................................... 32
Charges and Expenses.................................................................. 32
Premium Expense Charge........................................................... 32
Premium Processing Charge................................................... 32
Sales Charge................................................................ 32
State and Local Premium Tax Charge.......................................... 33
Surrender Charge................................................................. 33
Contingent Deferred Administrative Charge................................... 33
Contingent Deferred Sales Charge............................................ 33
Monthly Deductions from Cash Value of Separate Accounts.......................... 34
Cost of Insurance........................................................... 34
Administration Charge....................................................... 35
Minimum Death Benefit Guarantee Charge...................................... 35
First Year Policy Charge.................................................... 35
Supplementary Benefit Charge................................................ 35
Daily Charges Against the Separate Accounts...................................... 35
Charge for Mortality and Expense Risks...................................... 35
Asset Charge Against Zero Coupon Bond Separate Account...................... 35
Charges for Income Taxes.................................................... 36
Guarantee of Certain Charges................................................ 36
Other Charges............................................................... 36
Federal Income Tax Considerations..................................................... 36
Introduction..................................................................... 36
Tax Status of the Policy......................................................... 36
</TABLE>
[/R]
ii
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Tax Treatment of Policy Benefits................................................. 37
In General.................................................................. 37
Modified Endowment Contracts................................................ 38
Distributions from Policies Classified as Modified Endowment Contracts...... 38
Distributions from Policies Not Classified as Modified Endowment
Contracts................................................................... 39
Policy Loan Interest........................................................ 39
Investment in the Policy.................................................... 39
Multiple Policies........................................................... 39
Other Tax Consequences...................................................... 39
Special Rules for Pension and Profit-Sharing Plans............................... 39
Possible Charge for PMLIC's Taxes................................................ 40
Other Policy Provisions............................................................... 40
Payments......................................................................... 40
The Contract..................................................................... 41
Ownership........................................................................ 41
Beneficiary...................................................................... 41
Change of Owner and Beneficiary.................................................. 41
Assignment....................................................................... 41
Misstatement of Age and Sex...................................................... 41
Suicide.......................................................................... 41
Incontestability................................................................. 41
Dividends........................................................................ 41
Settlement Options............................................................... 42
Proceeds at Interest Option................................................. 42
Instalments of a Specified Amount Option.................................... 42
Instalments for a Specified Period Option................................... 42
Life Income Option.......................................................... 42
Joint and Survivor Life Income.............................................. 42
Alternate Life Income Option................................................ 42
Supplementary Benefits........................................................... 42
Disability Waiver of Premium................................................ 42
Accidental Death Benefit.................................................... 42
Guaranteed Purchase Option.................................................. 42
Policies Issued in Conjunction with Employee Benefit Plans............................ 42
Legal Developments Regarding Unisex Actuarial Tables.................................. 43
Voting Rights......................................................................... 43
Changes in Applicable Law, Funding and Otherwise...................................... 44
Officers and Directors of PMLIC....................................................... 45
Distribution of Policies.............................................................. 47
Reports............................................................................... 48
State Regulation...................................................................... 48
Experts............................................................................... 48
Legal Matters......................................................................... 48
Appendix A--Illustrations of Death Benefits, Cash Surrender Values and Accumulated
Premiums............................................................................ A-1
Appendix B--Calculation of Net Investment Factor and Cash Value of Policy............. B-1
Appendix C--Long Term Market Trends................................................... C-1
Financial Statements.................................................................. F-1
</TABLE>
iii
<PAGE> 9
------------------------
THE POLICY IS NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF
GIVEN, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED ON.
THE PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE INSURANCE
PROTECTION. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR COMPARABLE
TO AN INVESTMENT IN A MUTUAL FUND.
------------------------
DEFINITIONS
ATTAINED AGE................ The Issue Age of the Insured plus the number of
full Policy Years since the Policy Date.
BASE PREMIUM................ Total scheduled premium minus the premium
processing charge and any premium for
supplementary benefits and extra-premium class.
CASH VALUE.................. The total amount invested under the Policy. It is
the sum of the Cash Values in the Separate
Accounts. If there is an outstanding policy loan,
the Cash Value in the General Account will be
added to the Cash Value of the Separate Accounts
to determine the Cash Value of the Policy.
DEATH BENEFIT............... The greatest of: (1) the applicable Guaranteed
Minimum Death Benefit for the Policy; (2) the
Face Amount plus the amount by which the Cash
Value on the date of death exceeds the
appropriate Special Premium Payment Single
Premium; or (3) the Cash Value on the date of
death times the appropriate Death Benefit Factor.
This amount is adjusted to determine the Proceeds
at death which is paid to the beneficiary.
FACE AMOUNT................. The Face Amount is specified in the Policy. If
scheduled premiums are paid when due and there
are no outstanding policy loans, this will be the
minimum Death Benefit.
GRACE PERIOD................ The 61-day period allowed for payment of a
scheduled premium following the due date for such
premium.
GUARANTEED MINIMUM DEATH
BENEFIT.................. Under the Basic Death Benefit Option, the Face
Amount of the Policy; under the Increasing Death
Benefit Option, the Face Amount of the Policy
plus the sum of all unscheduled premiums received
by PMLIC as of the date of death.
HOME OFFICE................. PMLIC's Home Office at 1050 Westlakes Drive,
Berwyn, PA 19312.
INSURED..................... The person upon whose life the Policy is issued.
ISSUE AGE................... The age of the Insured at his or her birthday
nearest the Policy Date. The Issue Age is stated
in the Policy.
ISSUE DATE.................. The date on which the Policy is issued.
LOAN VALUE.................. The maximum amount that may be borrowed under the
Policy.
1
<PAGE> 10
NET CASH SURRENDER VALUE.... The Cash Value of the Policy minus any
outstanding policy loan and accrued interest and
minus any surrender charge.
NET PREMIUM................. The remainder of a Base Premium after deduction
of the 7 1/2% charge for sales load and state
premium tax or the remainder of an unscheduled
premium after deduction of the Premium Expense
Charge.
POLICY ANNIVERSARY.......... The same day and month as the Policy Date in each
later year.
POLICY DATE................. The date set forth in the Policy that is used to
determine Policy Years and Policy Processing
Days.
POLICY PROCESSING DAY....... The day in each calendar month which is the same
day of the month as the Policy Date.
POLICY YEAR................. A year that starts on the Policy Date or on a
Policy Anniversary.
PROCEEDS.................... The net amount paid when the Insured dies or the
Policy is surrendered.
SPECIAL PREMIUM PAYMENT
SINGLE PREMIUM........... An amount used to determine whether the Owner is
required to pay scheduled premiums to keep the
Policy in full force.
VALUATION DAY............... Any day Monday through Friday, except days when
PMLIC is closed for holidays.
VALUATION PERIOD............ The time between two successive Valuation Days.
Each Valuation Period includes a Valuation Day
and any non-Valuation Day or consecutive
non-Valuation Days immediately preceding it.
2
<PAGE> 11
SUMMARY DESCRIPTION OF THE POLICY
The following summary of Policy information should be read in conjunction
with the detailed information appearing elsewhere in this Prospectus. Unless
otherwise stated, this summary assumes that there is no outstanding policy loan.
THE POLICY OFFERED
The Modified Premium Variable Life Insurance Policy (Policy) offered by
this Prospectus is issued by Provident Mutual Life Insurance Company (PMLIC).
The Policy is designed to provide lifetime insurance coverage and to help lessen
the economic loss resulting from the death of the Insured. It is not primarily
offered as an investment. Life insurance is not a short-term investment.
Prospective Owners should consider their need for insurance coverage and the
Policy's long-term investment potential.
In many respects the Policy is similar to a traditional fixed-benefit whole
life insurance policy with a Guaranteed Minimum Death Benefit, scheduled premium
payments, cash value, loan privileges and other features usually associated with
such insurance. Unlike a fixed-benefit life insurance policy, this Policy is
"variable" because its Death Benefit may, and its Cash Value will, vary to
reflect the investment performance of the chosen Separate Accounts, as well as
other factors.
The Policy is described as a "modified premium" policy because of the
flexibility it provides the Owner with respect to the payment of premiums. The
Policy provides for the payment of scheduled premiums. However, the Owner is
permitted, subject to certain restrictions, to make unscheduled premium
payments. Also, under certain circumstances, scheduled premiums will not be
required to keep the Policy in full force. (See "Payment and Allocation of
Premiums," Page 20.
So long as required scheduled premiums are paid, the Policy will not lapse,
even if investment experience is unfavorable. Thus, the payment of required
scheduled premiums guarantees insurance protection at least equal to the
applicable Guaranteed Minimum Death Benefit for the Policy. There is no minimum
guaranteed Cash Value.
After the deduction of Premium Expense Charges, Net Premiums are allocated
to one or more of the Separate Accounts selected by the Owner. The assets of the
Growth, Money Market, Bond, Managed, Aggressive Growth and International
Separate Accounts are invested in a corresponding portfolio of Market Street
Fund, Inc. (the MS Fund), a series mutual fund with six separate investment
portfolios, each intended to meet different investment objectives. Provident
Mutual Variable Separate Account consists of sixteen Subaccounts, the assets of
which are used to purchase shares of a designated corresponding mutual fund
portfolio (each, along with the portfolios of the MS Fund, a "Portfolio") that
is part of one of the following funds: Neuberger & Berman Advisers Management
Trust; TCI Portfolios, Inc.; Variable Insurance Products Fund; The Alger
American Fund; Variable Insurance Products Fund II; and Van Eck Investment Trust
(together with the MS Fund, the "Funds", each, a "Fund"). The Subaccount of the
Zero Coupon Bond Separate Account invests in units of a corresponding series of
The Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A
(Zero Coupon Trust or Trust).
There is no assurance that the investment objectives of a particular
Portfolio or Trust will be met. The Owner bears the entire investment risk of
amounts allocated to the Separate Accounts.
A prospective Owner who already has life insurance coverage should consider
whether or not changing or adding to existing coverage would be advantageous.
Generally, it is not advisable to purchase another policy as a replacement for
an existing policy.
AVAILABILITY OF POLICY
Under current Company rules, PMLIC ordinarily will write Policies for
individuals with a minimum Face Amount of $50,000. PMLIC may change this minimum
at a later date. The Policy can be issued for Insureds from Issue Ages 0 to 80.
Before issuing a Policy, PMLIC will require that the Insured meet certain
medical
3
<PAGE> 12
standards satisfactory to PMLIC. The premium classes available will be Standard,
Non-Smoker, Non-Smoker with Extra-Premium and Extra-Premium.
THE DEATH BENEFIT
If the Policy is in full force on the date of the Insured's death, PMLIC
will pay the Proceeds at death to the beneficiary upon receipt of due proof of
the Insured's death.
The Death Benefit is the greatest of: (1) the applicable Guaranteed Minimum
Death Benefit for the Policy; (2) the Face Amount of the Policy plus the amount
by which the Cash Value on the date of death exceeds the appropriate Special
Premium Payment Single Premium; or (3) the Cash Value on the date of death times
the Death Benefit Factor for the Insured's sex (if applicable), Attained Age and
premium class. There are two Death Benefit Options under the Policy -- the Basic
Death Benefit Option and the Increasing Death Benefit Option. The applicable
Guaranteed Minimum Death Benefit depends upon which Death Benefit Option is
chosen. Under the Basic Death Benefit Option, the Guaranteed Minimum Death
Benefit is the Face Amount of the Policy; under the Increasing Death Benefit
Option, the Guaranteed Minimum Death Benefit is the Face Amount of the Policy
plus the sum of all unscheduled premiums received by PMLIC as of the date of
death. The Increasing Death Benefit Option is subject to certain availability
restrictions. (See "Death Benefit," Page 19.)
As long as required scheduled premiums are paid, the Death Benefit will not
be less than the applicable Guaranteed Minimum Death Benefit for the Policy. The
extent to which the Death Benefit exceeds the applicable Guaranteed Minimum
Death Benefit depends on the Cash Value of the Separate Accounts at the
Insured's death and therefore will reflect the investment results of the
Accounts to which premiums are allocated. The Proceeds payable at death will be
reduced by any outstanding policy loan and accrued interest and by any unpaid
amounts due PMLIC. (See "Death Benefit," Page 19.)
CASH VALUE
Provided there is no outstanding policy loan, the Cash Value of the Policy
is equal to the sum of the Cash Values of the Separate Accounts to which
premiums are allocated. The Cash Value of each Separate Account will reflect the
amount and frequency of premium payments, the investment experience of that
Separate Account, any policy loans and withdrawals of excess Cash Value and the
imposition of charges in connection with the Policy. There is no guaranteed
minimum Cash Value for the Policy. Although the Policy offers the possibility of
Cash Value appreciation, there is no assurance that such will occur. It is also
possible, due to poor investment experience, for the Cash Value to decline to
the point of having no value. Therefore, the Owner bears the entire investment
risk for amounts allocated to the Separate Accounts. (See "Cash Value," Page
20.)
ILLUSTRATIONS OF DEATH BENEFITS AND CASH SURRENDER VALUES
Illustrations on Pages A-3 to A-10 in Appendix A show how Death Benefits
and cash surrender values may vary based on certain rate of return assumptions
and how these benefits compare with amounts which would accumulate if scheduled
premiums were invested to earn interest (after taxes) at 5% compounded annually.
Since these illustrations are based on the payment of scheduled premiums only,
they are applicable for either Death Benefit Option. The illustrations on pages
A-11 and A-12 in Appendix A assume that unscheduled premium payments are made
and show how Death Benefits and cash surrender values vary based upon whether
the Basic Death Benefit Option or Increasing Death Benefit Option is selected.
These projections of hypothetical values may be helpful in understanding
the long-term effects of different levels of investment performance, of charges
and deductions, of electing one or the other death benefit option, and generally
comparing and contrasting this Policy to other life insurance policies.
Nonetheless, the illustrations are based on hypothetical investment rates of
return and are not guaranteed. Illustrations are illustrative only and are not a
representation of past or future performance. Actual rates of return may be more
or less than those reflected in the illustrations and, therefore, actual values
will be different from those illustrated.
4
<PAGE> 13
If a Policy is surrendered in the early Policy Years, the Net Cash
Surrender Value payable will be low as compared with the premium accumulated
with interest, and consequently the insurance protection provided prior to
surrender will be costly.
ALLOCATION OF NET PREMIUMS
Net scheduled premiums will be allocated to the Separate Accounts in
accordance with the allocation percentages which are in effect when such
premiums are received at PMLIC's Home Office. These percentages will be those
indicated in the Application for the Policy, unless the Owner subsequently
changes this allocation by giving written notice to PMLIC.
Net unscheduled premiums will be allocated to the Separate Accounts in
accordance with the percentages then in effect for scheduled premiums, unless
PMLIC receives written instructions to allocate the unscheduled premium payment
in a different manner. Such instructions will only apply to that particular
unscheduled premium payment.
The Owner will bear the investment risk of Net Premiums allocated to the
Separate Accounts.
Subject to certain restrictions, the Owner may transfer amounts among
Separate Accounts and between and among subaccounts of a Separate Account. (See
"Payment and Allocation of Premiums," Page 20.)
CHARGES ASSESSED IN CONNECTION WITH THE POLICY
Premium Expense Charge. Before allocating Net Premiums to the chosen
Separate Accounts, a deduction will be made from each premium payment. The
Premium Expense Charge consists of the following: $1.00 for premium processing,
a 5% charge for sales expenses, and a 2 1/2% charge for state premium taxes.
(See "Premium Expense Charge," Page 32.)
Surrender Charge. If a Policy is surrendered or lapses during the first 9
Policy Years, a surrender charge will be deducted from the net Cash Value. The
total surrender charge is the sum of a Contingent Deferred Administration Charge
no greater than $5.00 per $1,000 of Face Amount and a Contingent Deferred Sales
Charge no greater than 25% of the scheduled Base Premium for Policy Year 1 plus
5% of the scheduled Base Premiums in Policy Years 2 through 5. (See "Surrender
Charge," Page 33.)
Monthly Deduction from Cash Value. On each Policy Processing Day (the
Policy Date and the same day of each succeeding month), the Cash Value of each
Separate Account to which Net Premiums are allocated will be reduced by its
proportional share of a monthly deduction equal to the sum of: the cost of
insurance charge based on rates that do not exceed those specified in the 1980
CSO Table; an administration charge of $3.25 plus $0.015 per $1,000 of Face
Amount; a minimum Death Benefit guarantee charge of $0.01 per $1,000 of
Guaranteed Minimum Death Benefit; and, during the first Policy Year, a policy
charge of $5.00 (See "Monthly Deductions from Cash Value of Separate Accounts,"
Page 34.)
Daily Charges Against the Separate Accounts. A daily charge for PMLIC's
assumption of certain mortality and expense risks incurred in connection with
the Policy will be imposed at an effective annual rate of 0.60% of the average
daily net assets of the Separate Accounts.
In addition, for the Zero Coupon Bond Separate Account, a deduction,
equivalent to an effective annual rate of 0.25% of the average daily net assets
of each Sub Account will be made for transaction charges associated with the
purchase of units of the Zero Coupon Trust. This 0.25% charge may be increased
in the future but in no event will it exceed an effective annual rate of 0.50%.
(See "Daily Charges Against the Separate Accounts," Page 35.)
FREE-LOOK PROVISION
The Policy provides for a free-look period. The Owner may cancel the Policy
before the latest of: 45 days after Part I of the Application is signed; 10 days
after the Owner receives the Policy; or 10 days of the mailing of the Notice of
Withdrawal Right. Upon returning the Policy to PMLIC or to an agent of PMLIC
within such time with a written request for cancellation, the Policy will be
cancelled. PMLIC will promptly pay to the
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<PAGE> 14
Owner a refund equal to either the total Cash Value of the Separate Accounts on
the date PMLIC receives the returned Policy plus: (1) any Premium Expense
Charges which were deducted from premiums; (2) monthly deductions made on any
Policy Processing Day; and (3) an amount reflecting other charges directly or
indirectly deducted under the Policy, or, where required by state law, the sum
of premiums paid. (See "Free-Look Provision," Page 27.)
LOAN PRIVILEGE
The Owner may obtain policy loans not exceeding: (1) for Policy Years 1
through 3, 75% of the cash surrender value; and (2) for Policy Years 4 and
thereafter, 90% of the cash surrender value. For policies issued to Virginia
residents, the policy loan available in all years will be 90% of the cash
surrender value.
At the time of Application, the Owner must elect one of two policy loan
interest rate options -- either a fixed 8% per year or variable rate which will
not exceed the greater of 5 1/2% per year or the Corporate Monthly Bond Yield
Average as published by Moody's Investors Service, Inc.
Loan interest is payable in arrears on each Policy Anniversary. If not paid
when due, it will be added to the loan balance, provided the Net Cash Surrender
Value at that point exceeds the due and unpaid interest.
Loans and loan repayments will be allocated to the Separate Accounts based
on the net Cash Value in each Separate Account on the date of the loan or
repayment. Amounts borrowed will be transferred from the Separate Accounts where
the loan is allocated to PMLIC's General Account. The amount maintained in the
General Account will not be credited with the investment earnings of the
Separate Accounts during the period the loan is outstanding. Instead, interest
will be credited at an annual rate 1.5% less than the annual rate then being
charged for loans. Therefore, the Cash Value of the Policy and the Death Benefit
above the guaranteed minimum may be permanently affected by a loan, whether or
not repaid. (See "Loan Privilege," Page 28.)
Depending upon the investment performance of Net Cash Surrender Value and
the amount of any Policy loan, such loans may cause a Policy to lapse. If a
Policy is not a Modified Endowment Contract, lapse of the Policy with Policy
loans outstanding may result in adverse tax consequences. (See "Tax Treatment of
Policy Benefits," Page 37.)
Loans from, or secured by, a Policy, may in certain circumstances be
treated as distributions under the Policy taxable under Section 7702A of the
Internal Revenue Code. Moreover, with certain exceptions, a 10% additional tax
would be imposed on the portion of any loan included in gross income. (See
"Federal Income Tax Considerations," Page 36.)
WITHDRAWAL OF EXCESS CASH VALUE
If the cash surrender value of the Policy exceeds an amount called the
Withdrawal Single Premium (which is the Attained Age net single premium for the
Face Amount of the Policy) the Owner may be able to withdraw such excess Cash
Value of the Policy, subject to certain conditions. A withdrawal will reduce the
Death Benefit, but not below the Guaranteed Minimum Death Benefit. (See
"Withdrawal of Excess Cash Value," Page 29.)
SURRENDER OF THE POLICY
The Owner may at any time surrender the Policy and receive the Net Cash
Surrender Value, if any. The Net Cash Surrender Value will equal the Cash Value
of the Policy minus any outstanding policy loan and accrued interest and minus a
surrender charge for such year no greater than the total surrender charge. (See
"Surrender of the Policy," Page 30.)
ACCELERATED DEATH BENEFIT
The Accelerated Death Benefit Rider permits the Owner to receive, at his or
her request and upon approval by PMLIC, accelerated payment of part of the
Policy's Death Benefit if the Insured develops a
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Terminal Illness or is permanently confined to a Nursing Care Facility. (See
"Accelerated Death Benefit," Page 30.)
EXCHANGE PRIVILEGE
Within 24 months of the Policy's Issue Date or within 6 months after the
effective date of a material change in the investment policy of any Separate
Account to which premiums are then allocated, the Policy may be exchanged for a
fixed-benefit whole life insurance policy issued by PMLIC on the life of the
Insured, subject to certain restrictions. This exchange may be made without any
requirement of insurability. The new policy will have the same Face Amount as
the original Policy. (See "Exchange Privilege," Page 27.)
TAX TREATMENT
With respect to a Policy entered into before October 21, 1988, or a Policy
entered into after October 20, 1988 that is issued on the basis of a Standard
Premium Class, PMLIC believes that the Policy will be treated as a life
insurance contract for Federal income tax purposes. For a Policy entered into
after October 20, 1988 that is issued on an Extra-premium class basis, it is not
clear whether such a Policy would qualify as a life insurance contract for
Federal income tax purposes. Assuming that a Policy qualifies as a life
insurance contract for Federal income tax purposes, as with the death benefit
payable under a fixed-benefit life insurance policy, the Proceeds at death
payable under the Policy will be excludable from the gross income of the
beneficiary. The increases in the Cash Value of the Policy will also be treated
in a manner consistent with a fixed-benefit life insurance policy.
A Policy entered into or "materially changed" after June 20, 1988, may be
treated as a "Modified Endowment Contract" depending upon the amount of premiums
paid in relation to the Death Benefit. If the policy is a Modified Endowment
Contract, then all pre-death distributions, including Policy loans and unpaid
interest thereon, will be treated first as a distribution of taxable income and
then as a return of basis or investment in the contract. In addition, prior to
age 59 1/2 the taxable income on most such distributions will be subject to a
10% additional tax.
If the policy is not a Modified Endowment Contract, distributions generally
will be treated first as a return of basis or investment in the contract and
then as disbursing taxable income. Moreover, loans will not be treated as
distributions. Finally, neither distributions nor loans from a policy that is
not a Modified Endowment Contract are subject to the 10% additional tax. (See
"Federal Income Tax Considerations," Page 36.)
UNISEX POLICIES
Policies issued in states which require "unisex" policies (currently
Montana) provide for premiums and cost of insurance charges which do not vary by
the sex of the Insured. (See "Amount of Scheduled Premiums," Page 20, and "Cost
of Insurance," Page 34.) In addition, Policies issued in conjunction with
employee benefit plans provide for premiums and cost of insurance charges which
do not vary by the sex of the Insured. (See "Policies Issued in Conjunction with
Employee Benefit Plans," Page 43.) Thus, references in this Prospectus to
sex-distinct premiums and cost of insurance charges that vary by the sex of the
Insured are not applicable to Policies issued in states which require "unisex"
policies or to Policies issued in conjunction with employee benefit plans.
Illustrations of the effect of these unisex rates on premiums, cash surrender
values, and Death Benefits are available from PMLIC on request.
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PROVIDENT MUTUAL LIFE INSURANCE COMPANY, THE SEPARATE ACCOUNTS, THE FUNDS, THE
STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND, PROVIDENT MUTUAL SERIES A
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
PMLIC, a mutual life insurance company chartered in 1865 under Pennsylvania
law, is authorized to transact life insurance and annuity business in
Pennsylvania and in 50 other jurisdictions. PMLIC assumes all insurance risks
under the Policy and its assets support the Policy's benefits. On December 31,
1995, PMLIC's assets were over $4.9 billion. (See "Financial Statements," Page
F-1.)
THE SEPARATE ACCOUNTS
The Growth, Money Market, Bond, Managed and Zero Coupon Bond Separate
Accounts were established by PMLIC on October 21, 1985 under the provisions of
the Pennsylvania Insurance Law; the Aggressive Growth Separate Account was
established on February 21, 1989, the International Separate Account on July 15,
1991 and the Variable Separate Account on June 3, 1993. Each is a separate
investment account to which assets are allocated to support the benefits payable
under the Policies as well as other variable life insurance policies PMLIC may
issue.
Each Separate Account's assets are the property of PMLIC. Each Policy
provides that the portion of the Separate Account's assets equal to the reserves
and other liabilities under the Policies with respect to the Separate Account
will not be chargeable with liabilities arising out of any other business that
PMLIC may conduct. In addition to the net assets and other liabilities for the
Policies, the Separate Account's net assets include amounts held to support
other variable life insurance policies issued by PMLIC and amounts derived from
expenses charged to the Accounts by PMLIC which it currently holds in the
Separate Accounts (see "Daily Charges Against the Separate Accounts," Page 35).
From time to time these additional amounts will be transferred in cash by PMLIC
to its General Account. Before making any such transfer, PMLIC will consider any
possible adverse impact the transfer might have on an Account.
The Separate Accounts are registered as a unit investment trust type of
investment company with the Securities and Exchange Commission (SEC) under the
Investment Company Act of 1940 (1940 Act), but such registration does not
involve any supervision of the management or investment practices or policies of
the Separate Accounts by the SEC. Each Separate Account meets the definition of
a "Separate Account" under Federal securities laws.
MARKET STREET FUND, INC.
The Growth, Money Market, Bond, Managed, Aggressive Growth and
International Separate Accounts invest in shares of Market Street Fund, Inc., a
"series" type of mutual fund which is registered with the SEC under the 1940 Act
as a diversified open-end management investment company. The MS Fund currently
issues six "series" or classes of shares, each of which represents an interest
in a separate portfolio within the MS Fund: the Growth Portfolio, the Money
Market Portfolio, the Bond Portfolio, the Managed Portfolio, the Aggressive
Growth Portfolio and the International Portfolio. Shares of each portfolio
currently are purchased and redeemed by the corresponding Separate Accounts. The
Fund sells and redeems its shares at net asset value; it does not impose a sales
charge.
The MS Fund serves as an investment medium for other variable life policies
issued by PMLIC and for variable annuity contracts issued by Providentmutual
Life and Annuity Company of America, a wholly-owned subsidiary of PMLIC. At some
later date, the MS Fund may serve as an investment medium for other variable
life policies and variable annuity contracts issued by PMLIC and may be made
available as an investment medium for variable contracts issued by other
insurance companies, including affiliated and unaffiliated companies of PMLIC.
PMLIC currently does not foresee any disadvantages to Owners arising out of the
fact that the MS Fund will offer its shares to fund products other than PMLIC's
Policies. However, the MS Fund's Board of Directors intends to monitor events in
order to identify any material irreconcilable
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<PAGE> 17
conflicts that possibly may arise and to determine what action, if any, should
be taken in response to those events or conflicts.
The investment objectives of the MS Fund's portfolios are set forth below.
The investment experience of each of the Separate Accounts depends on the
investment performance of the corresponding portfolio. There is no assurance
that any portfolio will achieve its stated objective.
The Growth Portfolio. This portfolio seeks intermediate and long-term
growth of capital by investing in common stocks of companies believed to offer
above-average growth potential over both the intermediate and the long-term.
Current income is a secondary consideration.
The Money Market Portfolio. The Money Market Portfolio seeks to provide
maximum current income consistent with capital preservation and liquidity by
investing in high-quality money market instruments.
The Bond Portfolio. The Bond Portfolio seeks to generate a high level of
current income consistent with prudent investment risk by investing in a
diversified portfolio of marketable debt securities.
The Managed Portfolio. The Managed Portfolio seeks to realize as high a
level of long-term total rate of return as is consistent with prudent investment
risk by investing in stocks, bonds, money market instruments or a combination
thereof.
The Aggressive Growth Portfolio. The Aggressive Growth Portfolio seeks to
achieve a high level of long-term capital appreciation by investing in
securities of a diverse group of smaller emerging companies.
The International Portfolio. The International Portfolio seeks long-term
growth of capital principally through investments in a diversified portfolio of
marketable equity securities of established non-United States companies.
With respect to the Growth Portfolio, the MS Fund is advised by Newbold's
Asset Management, Inc. (NAM) which is registered with the SEC as an investment
adviser under the Investment Advisers Act of 1940. As compensation for its
services, NAM receives monthly compensation at an effective annual rate of 0.50%
of the first $20 million of the average daily net assets of the Growth
Portfolio, 0.40% of the next $20 million of the average daily net assets of the
portfolio, and 0.30% of the average daily net assets in excess of $40 million.
With respect to the Money Market Portfolio, the MS Fund is advised by
Providentmutual Investment Management Company (PIMC), which is registered with
the SEC as an investment adviser under the Investment Advisers Act of 1940. As
compensation for its services, PIMC receives monthly compensation at an
effective annual rate of 0.25% of the average daily net assets of the portfolio.
With respect to the Bond, Managed and Aggressive Growth Portfolios, the MS
Fund is advised by Sentinel Advisors Company (SAC) which is registered with the
SEC as an investment adviser under the Investment Advisers Act of 1940. As
compensation for its services, SAC receives monthly compensation as follows:
Bond Portfolio -- 0.35% of the first $100 million of the average daily
net assets of the portfolio and 0.30% of the average daily net assets in
excess of $100 million.
Managed Portfolio -- 0.40% of the first $100 million of the average
daily net assets of the portfolio and 0.35% of the average daily net assets
in excess of $100 million.
Aggressive Growth Portfolio -- 0.50% of the first $20 million of the
average daily net assets of the portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio and 0.30% of the average
daily net assets in excess of $40 million.
With respect to the International Portfolio, the MS Fund is advised by PIMC
which receives monthly compensation at an effective annual rate of 0.75% of the
first $500 million of the average daily net assets of the portfolio and 0.60% of
the average daily net assets in excess of $500 million. PIMC has employed The
Boston Company Asset Management, Inc. (TBC) to provide investment advisory
services in connection with the portfolio. As compensation for the investment
advisory services rendered, PIMC pays TBC a monthly fee at
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<PAGE> 18
an effective annual rate of 0.375% of the first $500 million of the average
daily net assets of the portfolio and 0.30% of the average daily net assets in
excess of $500 million.
In addition to the fee for the investment advisory services, the MS Fund
pays its own expenses generally, including brokerage costs, administrative
costs, custodian costs, and legal, accounting and printing costs. However, PMLIC
has entered into an agreement with the MS Fund whereby it will reimburse the MS
Fund for all ordinary operating expenses, excluding advisory fees, in excess of
an annual rate of 0.40% of the average daily net assets of each portfolio except
the International Portfolio and 0.75% for the International Portfolio. It is
anticipated that this agreement will continue; if it is terminated, MS Fund
expenses may increase.
A more extensive description of the MS Fund, its investment objectives and
policies, its risks, expenses, and all other aspects of its operation is
contained in the Prospectus for the MS Fund, which accompanies this Prospectus.
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND, PROVIDENT MUTUAL SERIES A
The Zero Coupon Bond Separate Account invests in units of The Stripped
("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A, a unit
investment trust registered with the SEC as such under the 1940 Act. The Zero
Coupon Trust consists of one series with a maturity date of February 15, 2006.
The objective of the Trust is to provide safety of capital and a high yield to
maturity through investment in a fixed series consisting primarily of debt
obligations issued by the United States of America that have been stripped of
their unmatured interest coupons, coupons stripped from debt obligations of the
United States, and receipts and certificates for such stripped debt obligations
and coupons. A brief summary of the securities purchased by the Trust is set
forth below.
Since the U.S. Treasury securities have been stripped of their unmatured
interest coupons, they are purchased at a deep discount. If held to maturity,
the amounts invested by the Zero Coupon Trust would grow to the face value of
the U.S. Treasury securities and therefore, a compound rate of growth to
maturity could be determined for the Trust units at the time of purchase. The
units, however, are held in Sub Accounts of the Zero Coupon Bond Separate
Account, and certain charges described under "Daily Charges Against the Separate
Accounts" on Page 35, specifically the charge for mortality and expense risks
and the transaction charge against the Zero Coupon Bond Separate Account, must
be reflected in the determination of a net return. The net rate of return to
maturity calculated below thus depends on the compound rate of growth in the
units and these underlying charges, and on the units being held to maturity. It
does not, however, reflect the applicable Monthly Deductions from Cash Value
(see "Monthly Deductions," Page 34) or the Premium Expense Charge (see "Premium
Expense Charge," Page 32) or any Surrender Charge (see "Surrender Charges," Page
33), which would affect the actual yield to an Owner. Since the value of the
Trust's units will vary daily to reflect the market value of the underlying
securities, the compound rate of growth to maturity and, hence, the net rate of
return to maturity will correspondingly vary on a daily basis. The rate of
return to maturity will differ for each Net Premium allocated to the Zero Coupon
Bond Separate Account, depending upon the rate in effect when the premium is
received.
2006 Series. This portfolio contains stripped U.S. Treasury securities
maturing on February 15, 2006. As of April 28, 1993 the net rate of return to
maturity was 6.92%.
The fluctuation in the value of units of the Zero Coupon Trust prior to
maturity is more volatile than that of units of a unit investment trust
containing unstripped U.S. Treasury securities of comparable maturities, and
because the value of units of the Zero Coupon Trust will affect the Death
Benefit (subject to the guaranteed minimum) and Cash Value of the Policy, the
Cash Value and Death Benefit will fluctuate accordingly.
Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPFS) serves as
Sponsor for the Zero Coupon Trust. Because the series invests in a fixed
portfolio, there is no investment manager. As Sponsor, MLPFS sells units of the
Zero Coupon Trust to the Zero Coupon Bond Separate Account. The price of these
units includes a transaction charge which is not paid by the Separate Account
upon acquisition. Rather, the transaction charge is paid directly by PMLIC to
MLPFS out of PMLIC's General Account assets. The
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<PAGE> 19
amount of the transaction charge paid is limited by agreement between PMLIC and
MLPFS and will not be greater than that ordinarily paid by a dealer for similar
securities. PMLIC is reimbursed for the transaction charge paid through a daily
asset charge which is made against the assets of the Sub Accounts. (See "Asset
Charge Against Zero Coupon Bond Separate Account," Page 35.)
Units of the Zero Coupon Trust are disposed of to the extent necessary for
PMLIC to provide benefits and make reallocations under the Policies. MLPFS
intends, but is not contractually obligated, to maintain a secondary market in
Trust units. As long as a secondary market exists, PMLIC will sell such units to
MLPFS at the Sponsor's repurchase price. Otherwise, units will be redeemed at
the Trust's redemption price, which is typically a lower amount.
Thirty days prior to the maturity date of the securities contained in a
series of the Trust, an Owner who has allocated Net Premiums to the Sub Account
of the Separate Account investing in that series will be notified and given the
opportunity to select the Separate Account or Sub Account into which the Cash
Value so allocated should be reallocated. If no instructions are received from
the Owner by PMLIC within the 30 day period, the Cash Value will be allocated to
the Money Market Separate Account.
More detailed information may be found in the current Prospectus for The
Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A which
accompanies this Prospectus.
THE ALGER AMERICAN FUND
The Variable Account has sixteen Subaccounts, one of which invests
exclusively in shares of a Portfolio of The Alger American Fund ("Alger
American"). Alger American is a "series" type mutual fund registered with the
SEC as a diversified open-end management investment company issuing a number of
series or classes of shares, each of which represents an interest in a Portfolio
of Alger American.
The Alger American Small Capitalization Subaccount of the Variable Account
invests in shares of the Alger American Small Capitalization Portfolio of Alger
American. (Alger American has other investment portfolios that are not offered
to the Variable Account or under the Policies.) Shares of the Alger American
Small Capitalization Portfolio are purchased and redeemed by the Variable
Account at net asset value without a sales charge. The Variable Account
purchases shares of Alger American Small Capitalization Portfolio from Alger
American in accordance with a participation agreement between Alger American and
PMLIC. The termination provisions of this participation agreement is described
below.
Alger American Small Capitalization Portfolio seeks long-term capital
appreciation by focusing on small, fast-growing companies that offer innovative
products, services or technologies to a rapidly expanding marketplace.
The investment adviser for the Alger American Small Capitalization
Portfolio is Fred Alger Management, Inc. ("Alger Management"), which is
registered with the SEC as an investment adviser under the Investment Advisors
Act of 1940. As compensation for its services, Alger Management receives a fee
at the end of each month at an annual rate of .85% of the average net assets of
the Alger American Small Capitalization Portfolio.
A more extensive description of Alger American and the Alger American Small
Capitalization Portfolio, including the Portfolio's investment objectives and
policies, risks, expenses and other aspects of its operations are contained in
the Prospectus for Alger American which accompanies this Prospectus.
THE VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
Provident Mutual Variable Separate Account (the "Variable Account") has
sixteen Subaccounts, eight of which invest exclusively in shares of Portfolios
of the Variable Insurance Products Fund (the "VIP Fund") or of the Variable
Insurance Products Fund II (the "VIP Fund II"). Like the MS Fund, the VIP Fund
and the VIP Fund II are each "series" type mutual funds registered with the SEC
as diversified open-end management investment companies issuing a number of
series or classes of shares, each of which represents an interest in a Portfolio
of the Fund.
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<PAGE> 20
The Fidelity Equity-Income Subaccount, Fidelity Growth Subaccount, Fidelity
High Income Subaccount and Fidelity Overseas Subaccount of the Variable Account
invest in shares of the Equity-Income Portfolio, Growth Portfolio, High Income
Portfolio and Overseas Portfolio, respectively, of the VIP Fund. The Fidelity
Asset Manager Subaccount, The Fidelity Contrafund Subaccount, Fidelity Index 500
Subaccount and Fidelity Investment Grade Bond Subaccount of the Variable Account
invest in shares of the Asset Manager Portfolio, Contrafund Portfolio, Index 500
Portfolio and Investment Grade Bond Portfolio, respectively, of the VIP Fund II.
(The VIP Fund and VIP Fund II have other investment portfolios that are not
offered to the Variable Account or under the Policies.) Shares of these
Portfolios are purchased and redeemed by the Variable Account at net asset value
without a sales charge. The Variable Account purchases shares of the Portfolios
from the VIP Fund and the VIP Fund II in accordance with a participation
agreement between each Fund and PMLIC. The termination provisions of these
participation agreements are described below.
The investment objectives of the Portfolios of the VIP Fund and the VIP
Fund II in which the Subaccounts invest are set forth below. The investment
experience of each Subaccount depends upon the investment performance of the
corresponding Portfolio. There is no assurance that any Portfolio will achieve
its stated objective.
VIP Fund
Equity-Income Portfolio. This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the Equity-Income Portfolio considers the potential for capital
appreciation. The Portfolio's goal is to achieve a yield which exceeds the
composite yield of the securities comprising the Standard and Poor's 500
Composite Stock Price Index.
Growth Portfolio. This Portfolio seeks to achieve capital appreciation.
The Growth Portfolio normally purchases common stocks, although its investments
are not restricted to any one type of security. Capital appreciation may also be
found in other types of securities, including bonds and preferred stocks.
High Income Portfolio. This Portfolio seeks to obtain a high level of
current income by investing primarily in high-yielding, lower-rated,
fixed-income securities, while also considering growth of capital.
Overseas Portfolio. This Portfolio seeks long term growth of capital
primarily through investments in foreign securities. The Overseas Portfolio
provides a means for diversification by participating in companies and economies
outside of the United States.
VIP Fund II
Asset Manager Portfolio. This Portfolio seeks to obtain high total return
with reduced risk over the long-term by allocating its assets among stocks,
bonds and short-term fixed-income instruments.
Contrafund Portfolio. This Portfolio seeks capital appreciation by
investing in companies believed to be undervalued due to an overly pessimistic
appraisal by the public.
Index 500 Portfolio. This Portfolio seeks to provide investment results
that correspond to the total return (i.e., the combination of capital changes
and income) of common stocks publicly traded in the United States. In seeking
this objective, the Index 500 Portfolio attempts to duplicate the composition
and total return of the Standard and Poor's 500 Composite Stock Price Index
while keeping transaction costs and other expenses low. The Portfolio is
designed as a long-term investment option.
Investment Grade Bond Portfolio. This Portfolio seeks as high a level of
current income as is consistent with the preservation of capital by investing in
a broad range of investment-grade fixed-income securities. The Portfolio will
maintain a dollar-weighted average portfolio maturity of ten years or less.
The Equity-Income, Growth, High Income, and Overseas Portfolios of the VIP
Fund and the Asset Manager, Contrafund, Index 500 and Investment Grade Bond
Portfolios of the VIP Fund II are managed by Fidelity Management & Research
Company ("FMR"). For managing its investments and business affairs, each
Portfolio pays FMR a monthly fee.
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<PAGE> 21
For the Equity-Income, Growth, Overseas and Asset Manager Portfolios, the
annual fee rate is the sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.52% and it
drops (to as low as a marginal rate of 0.30% when average group assets
exceed $174 billion) as total assets in all these funds rise.
2. An individual fund fee rate of 0.20% for the Equity-Income Portfolio,
0.30% for the Contrafund and Growth Portfolios, 0.40% for the Asset
Manager Portfolio and 0.45% for the Overseas Portfolio.
One-twelfth of the combined annual fee rate is applied to each Portfolio's
net assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
The Index 500 Portfolio pays FMR a monthly management fee at the annual
rate of 0.28% of the Portfolio's average net assets. One-twelfth of this annual
fee rate is applied to the net assets averaged over the most recent month,
giving a dollar amount which is the fee for that month.
For the High Income and Investment Grade Bond Portfolios, the annual fee
rate is the sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
drops (to as low as a marginal rate of 0.14%) as total assets in all
these funds rise.
2. An individual fund fee rate of 0.35% for the High Income Portfolio and
0.30% for the Investment Grade Bond Portfolio.
One-twelfth of the combined annual fee rate is applied to the
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.
On behalf of the Asset Manager Portfolio and the Contrafund Portfolio,
FMR has entered into sub-advisory agreements with Fidelity Management &
Research (U.K.) Inc. ("FMR (U.K.)") and Fidelity Management & Research (Far
East) Inc. ("FMR Far East"), pursuant to which these entities provide
research and investment recommendations with respect to companies based
outside the United States. FMR (U.K.) primarily focuses on companies based
in Europe while FMR Far East focuses primarily on companies based in Asia
and the Pacific Basin. Under the sub-advisory agreements, FMR and not the
Portfolios pay FMR (U.K.) and FMR Far East fees equal to 110% and 105%,
respectively, of each sub-advisor's costs incurred in connection with its
sub-advisory agreement.
On behalf of the Overseas Portfolio, FMR has entered into sub-advisory
agreements with FMR (U.K.), FMR Far East, and Fidelity International
Investment Advisors (FIIA). Under the sub-advisory agreements, FMR may
receive investment advice and research services with respect to companies
based outside the U.S. and may grant them investment management authority
as well as the authority to buy and sell securities if FMR believes it
would be beneficial to the Portfolio. FIIA, in turn, has entered into a
sub-advisory agreement with its wholly owned subsidiary Fidelity
International Investment Advisors (U.K.) Limited (FIIAL U.K.).
Currently, FMR (U.K.), FMR Far East, FIIA and FIIAL U.K. each focus on
investment opportunities in countries other than the U.S., including
countries in Europe, Asia and the Pacific Basin.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR
Far East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors
are compensated as follows:
- FMR pays FMR (U.K.) and FMR Far East fees equal to 110% and 105%,
respectively, of FMR U.K.'s and FMR Far East's costs incurred in
connection with providing investment advice and research services.
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<PAGE> 22
- FMR pays FIIA 30% of its monthly management fee with respect to the
average market value of investments held by the Portfolio for which FIIA
has provided FMR with investment advice.
- FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred
in connection with providing investment advice and research services.
For providing investment management services, the sub-advisors are
compensated according to the following formulas:
- FMR pays FMR (U.K.), FMR Far East, and FIIA 50% of its monthly management
fee with respect to the Portfolio's average net assets managed by the
sub-advisor on a discretionary basis.
- FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection
with providing investment management.
Each Portfolio utilizes Fidelity Investments Institutional Operations
Company ("FIIOC"), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each Portfolio pays fees based on the type, size, and number of accounts
in each Portfolio and the number of transactions made by shareholders of each
Portfolio.
Each Portfolio also has an agreement with Fidelity Service Co. ("Service"),
an affiliate of FMR under which each Portfolio pays Service to calculate its
daily share prices and to maintain the portfolio and general accounting records
of each Portfolio and to administer each Portfolio's securities lending program.
The fees for pricing and bookkeeping services are based on each Portfolio's
average net assets but must fall within a range of $45,000 to $750,000. The fees
for securities lending services are based on the number and duration of
individual securities loans.
FMR may, from time to time, agree to reimburse a Portfolio for management
fees and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without notice,
will increase a Portfolio's yield. If FMR discontinues a reimbursement
arrangement, each Portfolio's expenses will go up and its yield will be reduced.
FMR retains the right to be repaid by a Portfolio for expense reimbursements if
expenses fall below the limit prior to the end of a fiscal year. Repayment by a
Portfolio will lower its yield. FMR has voluntarily agreed to reimburse the
management fees and all other expenses (excluding taxes, interest and
extraordinary expenses) in excess of 1.50% of the average net assets of the
Equity-Income and Growth Portfolios, 1.25% of the average net assets of the
Asset Manager Portfolio and 0.28% of the average net assets of the Index 500
Portfolio.
A more extensive description of the VIP Fund and the VIP Fund II, the
investment objectives and policies of the Portfolios, the risks, expenses and
all other aspects of their operation is contained in the prospectuses for the
VIP and VIP II Funds which accompany this Prospectus. You should note that the
VIP Fund and VIP Fund II have other investment portfolios that are not available
with the variable life insurance policies issued by PMLIC.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
The Variable Account has sixteen Subaccounts, three of which invest
exclusively in shares of Portfolios of the Neuberger & Berman Advisers
Management Trust ("AMT"). Like the MS fund, the AMT is a "series" type mutual
fund registered with the SEC as a diversified open-end management investment
company issuing a number of series or classes of shares, each of which
represents an interest in a Portfolio of AMT.
The Neuberger & Berman Balanced Subaccount, Neuberger & Berman Growth
Subaccount and Neuberger & Berman Limited Maturity Bond Subaccount of the
Variable Account invest in shares of the Balanced Portfolio, Growth Portfolio
and Limited Maturity Bond Portfolio, respectively, of AMT. (AMT has other
investment portfolios that are not offered to the Variable Account or under the
Policies.) Shares of these Portfolios are purchased and redeemed by the Variable
Account at net asset value without a sales charge. The Variable Account
purchases shares of the Portfolios from AMT in accordance with a participation
agreement
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<PAGE> 23
between AMT and PMLIC. The termination provisions of these participation
agreements are described below.
Each Portfolio of AMT invests all of its net investable assets in its
corresponding Series (each, a "Series") of Advisers Managers Trust ("Managers
Trust"), an open-end management investment company. Each Series invests in
securities in accordance with an investment objective, policies and limitations
identical to those of its corresponding Portfolio. This "master/feeder fund"
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities. For more
information regarding this structure, see the prospectus for AMT.
In that the investment objective of each Portfolio matches that of its
corresponding Series, the following describes the investment objective of each
Series underlying the Portfolio of AMT in which the Subaccounts will invest. The
investment experience of each Subaccount depends upon the investment performance
of its corresponding Portfolio. There is no assurance that any Portfolio (or the
corresponding Series) will achieve its stated objective.
Balanced Portfolio. The Series corresponding to this 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 stocks and a
portion of its assets in debt securities.
Growth Portfolio. The Series corresponding to this Portfolio seeks capital
appreciation without regard to income through investments in common stocks of
companies that the investment adviser believes will have the maximum potential
for long-term capital appreciation.
Limited Maturity Bond Portfolio. The Series corresponding to this
Portfolio seeks the highest current income consistent with low risk to principal
and liquidity through investment in a diversified portfolio of fixed and
variable debt securities with a short to intermediate term.
The Investment Adviser for the Series of Managers Trust corresponding to
the Balanced, Growth and Limited Maturity Bond Portfolios of AMT is Neuberger &
Berman Management Incorporated. The Investment Adviser retains Neuberger &
Berman, without cost to AMT, as sub-adviser to furnish it with investment
recommendations and research information.
As compensation for its services under the Investment Advisory Agreement
AMT pays a fee to the Investment Adviser at the end of each month. For the
Balanced Portfolio this fee is paid at the annual rate of 0.80% of the average
daily net assets of the Portfolio, for the Growth Portfolio, at the annual rate
of 0.70% of the first $250 million of the average of the total net asset value
determined on each calendar day throughout the month (hereinafter called
"average asset value"), 0.675% of the next $250 million of average asset value,
0.650% of the next $250 million of average asset value, 0.625% of the next $250
million of average asset value and 0.60% of the average asset value in excess of
$1 billion and for the Limited Maturity Bond Portfolio, at the annual rate of
0.60% of the average daily net assets of the Portfolio.
In addition to the investment advisory fee, AMT incurs other expenses,
including certain costs of distributing its shares in accordance with a plan
adopted pursuant to Rule 12b-1 under the 1940 Act. The distributor, Neuberger &
Berman Management Incorporated, has agreed to reimburse each of the Portfolios
for certain expenses.
A more extensive description of AMT, the Investment objectives of the
available Portfolios, the risks, expenses and all other aspects of their
operation is contained in the prospectuses for the Balanced, Growth and Limited
Maturity Bond Portfolios of AMT which accompany this Prospectus.
TCI PORTFOLIOS, INC.
The Variable Account has sixteen Subaccounts, one of which invests
exclusively in shares of a Portfolio of the TCI Portfolios, Inc. ("TCI"). Like
the MS Fund, the TCI is a "series" type mutual fund registered with the SEC as a
diversified open-end management investment company issuing a number of series or
classes of shares, each of which represents an interest in a Portfolio of TCI.
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<PAGE> 24
The TCI Growth Subaccount of the Variable Account invests in shares of the
TCI Growth Portfolio of TCI. (TCI has other investment portfolios that are not
offered to the Variable Account or under the Policies.) Shares of the TCI Growth
Portfolio are purchased and redeemed by the Variable Account at net asset value
without a sales charge. The Variable Account purchases shares of TCI Growth
Portfolio from TCI in accordance with a participation agreement between TCI and
PMLIC. The termination provisions of these participation agreements are
described below.
TCI Growth Portfolio seeks capital growth by investing primarily in common
stocks that are considered by management to have better-than-average prospects
for appreciation. There is no assurance that TCI Growth Portfolio will achieve
its stated objective.
The investment adviser for the TCI Growth Portfolio is Investors Research
Corporation ("Investors Research"). As compensation for its services, Investors
Research receives a fee at the end of each month at an annual rate of 1% of the
average net assets of the TCI Growth Portfolio.
A more extensive description of TCI and the TCI Growth Portfolio, including
the Portfolio's investment objectives and policies, risks, expenses and other
aspects of its operations are contained in the Prospectus for TCI which
accompanies this Prospectus.
VAN ECK INVESTMENT TRUST
The Variable Account has sixteen Subaccounts, three of which invest
exclusively in shares of Portfolios of Van Eck Investment Trust (the "Van Eck
Trust"). Like the MS Fund, the Van Eck Trust is a "series" type mutual fund
registered with the SEC as a diversified open-end management investment company
issuing a number of series or classes of shares, each of which represents an
interest in a Portfolio of Van Eck Trust.
The Van Eck Global Bond Subaccount, Van Eck Gold and Natural Resources
Subaccount and Van Eck Worldwide Emerging Markets Subaccount of the Variable
Account invest in shares of the Van Eck Worldwide Bond Portfolio, the Van Eck
Gold and Natural Resources Portfolio and the Van Eck Worldwide Emerging Markets
Portfolio, respectively, of Van Eck Trust. Shares of the Van Eck Worldwide Bond
Portfolio, the Gold and Natural Resources Portfolio and Worldwide Emerging
Markets Portfolio are purchased and redeemed by the Variable Account at net
asset value without a sales charge. The Variable Account purchases shares of the
Portfolios from Van Eck Trust in accordance with a participation agreement
between the Trust and PMLIC. The termination provisions of this participation
agreement are described below.
The investment objectives of the Portfolios of Van Eck Trust are set forth
below. The investment experience of each Subaccount depends upon the investment
performance of its corresponding Portfolio. There is no assurance that these
Portfolios will achieve their stated objectives.
Van Eck Gold and Natural Resources Portfolio seeks long-term capital
appreciation by investing in equity and debt securities of companies engaged in
the exploration, development, production and distribution of gold and other
natural resources such as strategic and other metals, minerals, forest products,
oil, natural gas and coal. Current income is not an investment objective.
Van Eck Worldwide Bond Portfolio seeks high total return through a flexible
policy of investing globally, primarily in debt securities.
Van Eck Worldwide Emerging Markets Portfolio seeks long-term capital
appreciation by investing primarily in equity securities in emerging markets
around the world.
The investment adviser for the Gold and Natural Resources Portfolio, Van
Eck Worldwide Bond Portfolio and Van Eck Worldwide Emerging Markets Portfolio is
Van Eck Associates Corporation ("Van Eck Associates"). As compensation for its
services, Van Eck Associates receives a monthly fee at an annual rate of 0.75%
of the first $500 million of the average daily net assets of the Portfolios,
0.65% of the next $250 million of the daily net assets of the Portfolios, and
0.50% of the average daily net assets of the Portfolios in excess of $750
million.
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<PAGE> 25
Peregrine Asset Management (Hong Kong) Limited ("PAM") serves as
sub-investment adviser to the Worldwide Emerging Markets Portfolio pursuant to a
sub-investment advisory agreement with Van Eck Associates. As compensation for
its services, PAM is paid a monthly fee at an annual rate of 0.50% of average
daily net assets by Van Eck Associates from the advisory fees it receives from
Van Eck Trust with respect to this Portfolio.
A more extensive description of Van Eck Trust, and Van Eck Gold and Natural
Resources Portfolio, Van Eck Worldwide Bond Portfolio and Van Eck Worldwide
Emerging Markets Portfolio, including each Portfolio's investment objectives and
policies, risks, expenses and other aspects of its operations are contained in
the Prospectus for the Trust that accompanies this Prospectus.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares
to Subaccounts of the Variable Account contain varying provisions regarding
termination. The following summarizes those provisions:
The Alger American Fund. The Agreement with The Alger American Fund
provides for termination: 1) by either party on 60 days written notice to
the other; 2) by Alger if the Policies cease to qualify as annuity
contracts or life insurance policies under the Code or the Policies are not
registered, issued or sold in accordance with applicable laws; 3) by any
party in the event of a material irreconcilable conflict; 4) by PMLIC in
the event that formal proceedings are initiated against Alger or the
distributor by the SEC or another regulator; 5) by PMLIC in the event the
Portfolio or trust fails to meet the diversification requirements; 6) by
PMLIC if shares are not reasonably available; 7) by PMLIC if shares of the
Portfolio are not registered, issued or sold in accordance with applicable
laws or applicable law precludes the use of such shares; 8) by PMLIC if
Alger fails to qualify as a regulated investment company under Subchapter M
of the Code; or 9) by Alger's principal underwriter if it determines that
PMLIC has suffered a material adverse change in its business, operation,
financial condition or prospects.
Fidelity Variable Insurance Products Fund and Variable Insurance
Products Fund II. The Agreements provide for termination 1) upon six
months' advance notice by either party, 2) at PMLIC's option if shares of
the Fund are not reasonably available to meet requirements of the policies,
3) at PMLIC's option if shares of the Fund are not registered, issued, or
sold in accordance with applicable laws, if the Fund ceases to qualify as a
regulated investment company under the Code or for a Portfolio of the Fund
in the event such Portfolio fails to meet diversification requirements
under the Code, 4) at the option of the Fund or its principal underwriter
if it determines that PMLIC has suffered material adverse changes in its
business or financial condition or is subject to material adverse
publicity, 5) at the option of PMLIC if the Fund has suffered material
adverse changes in its business or financial condition or is a subject of
material adverse publicity, or 6) at the option of the Fund or its
principal underwriter if PMLIC decides to make another mutual fund
available as a funding vehicle for its policies.
Neuberger & Berman Advisers Management Trust. This Agreement may be
terminated by either party on six months' written notice to the other.
TCI Portfolios, Inc. The agreement with TCI provides for termination
1) by PMLIC or TCI upon six months prior written notice or in the event
that formal proceedings are initiated against the other party by the SEC or
another regulator, 2) by PMLIC or TCI in the event that shares of TCI
subject to the agreement are not registered, offered or sold in conformity
with applicable law, 3) by PMLIC upon reasonable notice if shares of one of
the then available Portfolios of TCI are no longer available or upon sixty
days notice if PMLIC should substitute shares of another fund or Fund for
those of TCI, 4) upon assignment of the agreement unless both parties agree
to the assignment in writing or upon termination of TCI's investment
management agreement with Investor's Research (unless a new management
agreement is entered into by TCI with Investor's Research), and 5) by TCI
if PMLIC breaches the agreement.
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<PAGE> 26
Van Eck Investment Trust. The agreement with Van Eck Trust provides
for termination 1) by PMLIC or Van Eck Trust upon six months prior written
notice or in the event that formal proceedings are initiated against the
other party by the SEC or another regulator, 2) by PMLIC or Van Eck Trust
in the event that shares of Van Eck Trust subject to the agreement are not
registered, offered or sold in conformity with applicable law, 3) by PMLIC
upon reasonable notice if shares of one of the then available Portfolios of
Van Eck Trust are no longer available or upon sixty days notice if PMLIC
should substitute shares of another fund or Fund for those of Van Eck
Trust, 4) upon assignment of the agreement unless both parties agree to the
assignment in writing.
Should an agreement between PMLIC and a Fund terminate, the Subaccounts
that invest in that Fund will not be able to purchase additional shares of such
Fund. In that event, Owners will no longer be able to allocate cash values or
net premiums to Subaccounts investing in Portfolios of such Fund.
Additionally, in certain circumstances, it is possible that a Fund or a
portfolio of a Fund may refuse to sell its shares to a Subaccount despite the
fact that the participation agreement between the Fund and PMLIC has not been
terminated. Should a Fund or portfolio of such Fund decide not to sell its
shares to PMLIC, PMLIC will not be able to honor requests by Owners to allocate
cash values or net premiums to Subaccounts investing in shares of that Fund or
portfolio.
The Company has entered into agreements with the investment advisers of
several of the Funds pursuant to which each such investment adviser will pay the
Company a servicing fee based upon an annual percentage of the average aggregate
net assets invested by the Company on behalf of the Variable Account. These
agreements reflect administrative services provided to the Funds by the Company.
Payments of such amounts by an adviser will not increase the fees paid by the
Funds or their shareholders.
RESOLVING MATERIAL CONFLICTS
The VIP Fund and VIP Fund II are used as investment vehicles for variable
life insurance policies and variable annuity contracts issued by PMLIC and
variable annuity contracts issued by Providentmutual Life and Annuity Company of
America, a subsidiary of PMLIC. AMT is used as an investment vehicle for
variable life insurance policies issued by PMLIC. In addition, the Funds, other
than MS Fund, are also available to registered separate accounts of insurance
companies, other than PMLIC or its affiliates, offering variable annuity and
variable life insurance policies. As a result, there is a possibility that a
material conflict may arise between the interests of Owners whose policy values
are allocated to the Variable Account and the owners of life insurance policies
and variable annuities issued by such other companies whose values are allocated
to one or more other separate accounts investing in any one of the Funds.
In addition, certain Funds may sell shares to certain retirement plans
qualifying under Section 401 of the Code (including cash or deferred
arrangements under Section 401(k) of the Code). As a result, there is a
possibility that a material conflict may arise between the interests of Owners
of policies generally, or certain classes of Owners, and such retirement plans
or participants in such retirement plans.
In the event of a material conflict, PMLIC will take any necessary steps,
including removing the Variable Account from that Fund, to resolve the matter.
The Board of Directors or Trustees of the Funds intend to monitor events in
order to identify any material conflicts that possibly may arise and to
determine what action, if any, should be taken in response to those events or
conflicts. See the Individual Fund Prospectuses for more information.
DETAILED DESCRIPTION OF POLICY PROVISIONS
AVAILABILITY OF THE POLICY
Under current Company rules, the minimum Face Amount for the Policy is
$50,000. However, PMLIC reserves the right to revise its rules to specify a
different minimum Face Amount for subsequently issued Policies. The Policy will
be issued for Insureds from 0-80 years old.
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<PAGE> 27
DEATH BENEFIT
Insurance coverage ordinarily begins on the Issue Date of the Policy, which
is the time the Application for insurance has been approved by PMLIC, provided
that the entire first scheduled premium has been paid. Under certain
circumstances, however, limited insurance coverage will begin prior to the
approval of the Application. If the Policy is in full force on the date of the
Insured' death, PMLIC will pay the Proceeds at death to the beneficiary upon
receipt of due proof of the Insured's death (and fulfillment of certain other
requirements).
There are two Death Benefit Options under the Policy. Under the Basic Death
Benefit Option, the Death Benefit is equal to the greatest of: (1) the Face
Amount of the Policy; (2) the Face Amount of the Policy plus the amount by which
the Cash Value of the Policy on the date of death exceeds the appropriate 7 1/2%
Special Premium Payment Single Premium (see "Special Premium Payment Provision,"
Page 23); or (3) the Cash Value of the Policy on the date of death times the
Death Benefit Factor shown in the Policy for the Insured's sex (if applicable),
Attained Age and premium class. Under the Increasing Death Benefit Option, the
Death Benefit is equal to the greatest of: (1) the Face Amount of the Policy
plus the sum of all unscheduled premiums received by PMLIC as of the date of
death; (2) the Face Amount of the Policy plus the amount by which the Cash Value
of the Policy on the date of death exceeds the appropriate 7 1/2% Special
Premium Payment Single Premium (see "Special Premium Payment Provision," Page
23); or (3) the Cash Value of the Policy on the date of death times the Death
Benefit Factor shown in the Policy for the Insured's sex (if applicable),
Attained Age and premium class.
The Death Benefit will be increased by the portion of any scheduled premium
payment which applies to a period of time beyond the date of death. The amount
payable will be reduced by any policy loans and accrued interest and, if the
Insured dies during the Grace Period, by that part of any required but unpaid
scheduled premium which applies to a period prior to the date of death. The
amount remaining after these adjustments is the Proceeds at death paid to the
beneficiary at the Insured's death.
Availability of Death Benefit Options. The Death Benefit Option is chosen
at the time of application for the Policy. If the Policy is issued with the
Basic Death Benefit, the Owner may change to the Increasing Death Benefit only
during the first Policy Year. (For a Policy issued more than one year prior to
the date the Increasing Death Benefit Option is first available in a particular
jurisdiction, the Owner may change to the Increasing Death Benefit Option only
during the 60-day period commencing with the date the Increasing Death Benefit
Option is first made available by PMLIC in such jurisdiction.) Once the
Increasing Death Benefit has been chosen, the Owner may not subsequently change
to the Basic Death Benefit. The Increasing Death Benefit Option is not yet
available in New Jersey.
The Guaranteed Minimum. As long as required scheduled premiums are paid,
the Death Benefit is guaranteed never to be less than the applicable Guaranteed
Minimum Death Benefit for the Policy. For a Policy with the Basic Death Benefit,
the Guaranteed Minimum Death Benefit is equal to the Face Amount of the Policy.
For a Policy with the Increasing Death Benefit, the Guaranteed Minimum Death
Benefit is equal to the Face Amount of the Policy plus the sum of all
unscheduled premiums received by PMLIC as of the date of death.
How the Death Benefit May Vary. For purposes of determining the cost of
insurance charge, the Death Benefit is determined on each Policy Processing Day
based on the Cash Value of the Policy (see "How the Cash Value May Vary,"
below). The Death Benefit will be adjusted to the date of death. The Death
Benefit and the Proceeds payable at the Insured's death, therefore, depend on
the Cash Value of the Policy when the Insured dies. Favorable investment
experience and premium payments in excess of scheduled premiums may result in an
increase in the Death Benefit. Unfavorable investment experience may result in
decreases in the Death Benefit, but never less than the Face Amount of the
Policy. The Death Benefit will also vary depending upon whether the Basic Death
Benefit or the Increasing Death Benefit applies.
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<PAGE> 28
CASH VALUE
The Cash Value is not guaranteed. Unless there is an outstanding policy
loan, the total Cash Value of the Policy at any time is the sum of the Cash
Values of the Separate Accounts. If there is an outstanding loan, the total Cash
Value equals the Cash Value in the General Account attributable to the loan plus
the Cash Values of the Separate Accounts.
As described below, the Cash Value of each Separate Account may increase or
decrease daily depending on the investment experience of the chosen Separate
Accounts and the deduction of charges from the Cash Value.
Although the Policy offers the possibility of Cash Value appreciation,
there is no assurance that such will occur. It is also possible, due to poor
investment experience, for the Cash Value to decline to the point of having no
value. Therefore, the Owner bears all the investment risk on the Cash Value.
How the Cash Value May Vary. The Cash Value of each Separate Account on
the Policy Date is the portion of the Net Premium allocated to that Separate
Account reduced by the portion of the monthly deduction on the first Policy
Processing Day allocated to that Separate Account. Thereafter, the Cash Value of
each Separate Account changes on each Valuation Day.
The Cash Value of each Separate Account reflects a number of factors,
including the investment performance of the underlying portfolio or series (see
"Net Investment Factor," below), the receipt of scheduled and unscheduled
premium payments, transfers from and to other Separate Accounts, transfers to
and from the General Account for a policy loan and repayment, any withdrawal of
excess Cash Value, the monthly deductions from Cash Value, and the daily charges
against the Separate Accounts. For a Policy having the Increasing Death Benefit
where unscheduled premiums are paid, the Cash Value may be slightly lower than
that of the same Policy having the Basic Death Benefit.
Net Investment Factor. Each Separate Account or Sub Account of a Separate
Account has its own Net Investment Factor. The Net Investment Factor measures
the daily investment performance of a Separate Account or Sub Account. The
factor will increase to reflect investment income and capital gains, realized
and unrealized, for the securities of the underlying portfolio or series. The
Factor will decrease to reflect any capital losses, realized and unrealized, for
the securities of the underlying portfolio or series.
The asset charge for mortality and expense risks (see "Charge for Mortality
and Expense Risks," Page 35), and the transaction charge for the Zero Coupon
Bond Separate Account (see "Asset Charge Against Zero Coupon Bond Separate
Account," Page 35) will be deducted in determining the applicable Net Investment
Factor.
A description of how the Net Investment Factor is determined and how it is
reflected in the Cash Value of the Policy is set forth in Appendix B on Page
B-1.
PAYMENT AND ALLOCATION OF PREMIUMS
Scheduled Premiums. Scheduled premiums are payable during the Insured's
lifetime on an annual basis or, if elected, more frequently. The scheduled
premium is a level amount that does not change until the Premium Change Date
(see "Premium Change Date," Page 22). If all required scheduled premiums are
paid when due, the Policy will not lapse, even if adverse investment experience
results in no Cash Value. If the Special Premium Payment Provision is in effect,
scheduled premiums do not have to be paid for the policy to stay in full force.
(See "Special Premium Payment Provision," Page 23.) If that provision is not in
effect, scheduled premiums must be paid to keep the Policy in full force. (See
"Grace Period for Payment of Scheduled Premiums," Page 26.)
Amount of Scheduled Premiums. The amount of scheduled premiums depends on
the Face Amount of the Policy, the age of the Insured, the Insured's sex and
premium class and the frequency of premium payments. The amount of scheduled
premiums payable on Policies issued in states which require "unisex" policies
(currently Montana) or in conjunction with employee benefit plans depends on all
of the preceding factors except for the sex of the Insured.
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<PAGE> 29
For purposes of calculating premium rates, there are three groupings or
"bands" of Face Amount. Each band has a different set of premium rates per
$1,000 of Face Amount. The bands are: $50,000 -- 99,999; $100,000 -- 249,999;
$250,000 and over. Generally, the premium rates per $1,000 of Face Amount will
be lower for Policies in a higher Face Amount band. Premiums generally are
higher for Policies issued for older Insureds. Premiums also are generally
higher for male Insureds than comparable female Insureds. The premium classes
available are Standard, Non-Smoker, Non-Smoker with Extra-Premium and Extra-
Premium. Lower premiums are charged to non-smokers who are at least 22 years of
age (21 years of age for policies issued to residents of Texas). Since there is
no Non-Smoker class for Insureds under the age of 22, shortly before an Insured
attains age 22 (21 in Texas), PMLIC will notify the Insured about possible
classification as a Non-Smoker and send the Insured an Application for Change in
Premium Class. If the Insured does not qualify for the Non-Smoker class or does
not return the application form, the Insured's premium class will remain
Standard and the monthly deduction for cost of insurance will be based on Smoker
Mortality Tables (see "Cost of Insurance," Page 34). If the Insured returns the
application and qualifies as a Non-Smoker, the scheduled premium for the Policy
will be reduced and the monthly deduction for cost of insurance will be based on
Non-Smoker Mortality Tables. Additional premiums are charged for a Policy with
an extra-premium class and for any supplementary insurance benefits. In certain
situations, such as term conversions, where less than normal underwriting
expenses are incurred, PMLIC may allow a credit toward the first scheduled
premium.
Representative annual Base Premium amounts payable from the Policy Date
until the Premium Change Date for Non-Smoker and Standard premium classes are
shown in the following table:
<TABLE>
<CAPTION>
$50,000 FACE AMOUNT $100,000 FACE AMOUNT
--------------------- ---------------------
NON-SMOKER STANDARD NON-SMOKER STANDARD
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Male, Issue Age 25.................................. 395.50 503.50 765.00 982.00
Female, Issue Age 35................................ 508.50 594.00 991.00 1,163.00
Male, Issue Age 45.................................. 905.00 1,216.00 1,783.00 2,405.00
Female, Issue Age 55................................ 1,236.50 1,442.00 2,445.00 2,856.00
</TABLE>
Premiums are payable on an annual, semi-annual or quarterly basis. Premiums
are payable monthly under the Automatic Payment Plan where the Owner authorizes
PMLIC to withdraw premiums from the Owner's checking account each month. If
premiums are payable under the Automatic Payment Plan and such plan is
terminated, the premium payment frequency will be changed to quarterly. The
Owner may make deposits into a Premium Deposit Fund Account (PDF Account). If
the Owner has a PDF Account, PMLIC will automatically apply the amount in such
account toward payment of the scheduled premium due on the premium due date. Any
amounts held in a PDF Account earn interest at a fixed rate which will be
declared by the Company from time to time.
If scheduled premiums are paid more often than annually, the aggregate
yearly premium will be higher. Although it is not guaranteed that Owners who pay
premiums annually and those who pay more frequently than annually will achieve
the same Cash Values, the higher premium for those who pay premiums more
frequently is intended to decrease the likelihood that the Cash Values for such
Owners will be significantly different than those of annual payors.
Since PMLIC deducts a premium processing charge of $1.00 from each premium
payment, Policies for which premiums are paid more frequently than annually will
incur higher aggregate premium processing charges than Policies with premiums
paid annually (see "Premium Processing Charge," Page 32).
The following table compares annual and monthly premiums for Insureds who
are in the Non-Smoker premium class. Note that in these examples the sum of 12
monthly premiums for a particular Policy is approximately 106% of the annual
premium for the Policy.
21
<PAGE> 30
<TABLE>
<CAPTION>
$50,000 FACE AMOUNT $100,000 FACE AMOUNT
-------------------- --------------------
MONTHLY ANNUAL MONTHLY ANNUAL
------- -------- ------- --------
<S> <C> <C> <C> <C>
Male, Issue Age 25.................................. 34.80 395.50 67.32 765.00
Female, Issue Age 35................................ 44.75 508.50 87.21 991.00
Male, Issue Age 45.................................. 79.64 905.00 156.90 1,783.00
Female, Issue Age 55................................ 108.81 1,236.50 215.16 2,445.00
</TABLE>
Unscheduled Premiums. The Owner may make unscheduled premium payments at
any time, subject to certain minimum and maximum limitations. The minimum
unscheduled premium payment is $25. The maximum unscheduled premium which PMLIC
will accept in any Policy Year, without prior approval, is a multiple of the
scheduled annual Base Premium, based on the Attained Age of the Insured, as
shown in the following table.
<TABLE>
<CAPTION>
MULTIPLE OF SCHEDULED
ATTAINED AGE BASE PREMIUM
- ------------ ---------------------
<S> <C>
0-59 10
60-65 8
66-70 6
71-75 5
76-80 4
81-85 3
86+ 2
</TABLE>
The Owner may plan to pay on a regular basis a premium amount in excess of the
scheduled premium. PMLIC will show this additional amount as payable on the
premium notice. However, only the required scheduled premium shown on such
notice must be paid to keep the Policy in full force.
The Cash Value of the Policy will immediately increase as of the date an
unscheduled premium payment is received. This will increase the likelihood that
the Special Premium Provision will go into effect earlier than it otherwise
would (see "Special Premium Payment Provision," Page 23). If unscheduled premium
payments are made, the Special Premium Payment Option may go into effect
slightly later for a Policy with the Increasing Death Benefit than it would for
the same Policy with the Basic Death Benefit. Of course, the Cash Value may
subsequently increase or decrease depending upon the investment experience of
the Separate Accounts to which the net unscheduled premium is allocated.
Depending upon the circumstances, the Death Benefit may or may not increase when
an unscheduled premium payment is received (see "Death Benefit," Page 18). If
the Special Premium Payment Provision has been in effect (see "Special Premium
Payment Provision," Page 23) and scheduled premiums have been skipped, then
payment of unscheduled premiums increases the total premiums paid and therefore
can increase the amount of the surrender charge (see "Contingent Deferred Sales
Charge," Page 33).
Premium Change Date. Each Policy sets forth a scheduled premium amount
payable on the Policy Date and on each subsequent premium due date until the
Premium Change Date. Each Policy also sets forth a higher premium amount payable
on and after the Premium Change Date. The Premium Change Date is the Policy
Anniversary nearest the Insured's Attained Age 70 or the 15th Policy Year, if
later. Because of the premium change feature, the scheduled premiums payable
before the Premium Change Date are lower than would otherwise be available and
PMLIC is able to provide a Guaranteed Minimum Death Benefit, as long as
scheduled premiums are paid when due.
The higher premium amount specified in the Policy which is payable
beginning on the Premium Change Date is based on the following assumptions:
(1) no unscheduled premium payments are made;
(2) maximum cost of insurance charges are deducted in all Policy Years;
and
(3) the net rate of return for the chosen Separate Accounts is 4 1/2%.
22
<PAGE> 31
Two months prior to the Premium Change Date, PMLIC will recompute the
scheduled premium amount payable on and after such date, assuming all scheduled
premiums due before the Premium Change Date are paid. If the Owner has made
unscheduled premium payments, if the cost of insurance charges deducted are less
than the maximum charges, if the chosen Separate Accounts have a net rate of
return greater than 4 1/2%, or if any appropriate combination of these factors
occurs, the amount of scheduled premiums payable on and after the Premium Change
Date will usually be less than the premium amount payable on and after such date
as shown in the Policy; in no event will the premium be greater than that shown
in the Policy. If unscheduled premium payments are made, for a Policy with the
Increasing Death Benefit, the premium payable on and after the Premium Change
Date may be slightly higher than it would be for the same Policy with the Basic
Death Benefit.
The illustrations in Appendix A show how the premium amount payable on and
after the Premium Change Date compares with the premium amount payable before
such date for Policies issued to persons of different ages and for different
investment experience assumptions.
Tax Consequences. The amount and frequency of premium payments may affect
the tax consequences of distributions from a Policy (See "Tax Treatment of
Policy Benefits," Page 38).
Special Premium Payment Provision. If the "Special Premium Payment
Provision" is in effect, the Owner will not be required to pay scheduled
premiums to keep the Policy in full force. Generally, this provision will take
effect when the Cash Value exceeds a particular amount as described in more
detail below.
The Special Premium Payment Provision operates on an annual basis. PMLIC
will notify the Owner if this provision goes into effect and each year that it
stays in effect. To determine whether this provision will take effect for a
Policy Year, PMLIC will calculate whether the Cash Value on the Policy
Processing Day 2 months before each Policy Anniversary, plus any scheduled but
unpaid premiums due before the Policy Anniversary, exceeds an amount called the
Special Premium Payment Single Premium. This is an amount which if paid as one
sum, and given certain assumptions, which are described in the following
paragraph, would be sufficient to purchase a single premium life insurance
policy at the Insured's Attained Age with a face amount equal to the Policy's
Face Amount. If the Cash Value exceeds this amount and if the required scheduled
premiums due before the Policy Anniversary are paid, then the Special Premium
Payment Provision goes into effect on that Policy Anniversary and remains in
effect for one year. The Policy will remain in force for that year, regardless
of whether the Owner makes premium payments or the Cash Value remains greater
than the Special Premium Payment Single Premium (the "SPPSP"). If any premium
payments are paid while the Special Premium Payment Provision is in effect, they
will be considered unscheduled premium payments. Therefore, any premiums for
supplemental benefits and extra-premium class will not be deducted from such
premium payments. Instead, while the Special Premium Payment Provision is in
effect, a portion of the premiums for supplemental benefits and extra-premium
class will be deducted from the Cash Value at the premium frequency in effect
(see "Supplementary Benefit Charge," Page 35).
The assumptions on which the SPPSP is based are:
(1) Current cost of insurance rates;
(2) Expense charges described herein;
(3) A Death Benefit equal to the applicable Guaranteed Minimum Death
Benefit for the Policy;
(4) An amount sufficient to cover the cost of any supplementary
benefits and extra-premium class; and
(5) An assumed interest rate.
The assumed interest rate is 7.5% if the Special Premium Payment Provision
was not in effect for the prior Policy Year, and is 9% if the provision was in
effect for the prior Policy Year. Since the 7.5% assumed interest rate results
in a higher Special Premium Payment Single Premium than when the 9% assumed
interest rate is used, it is possible for the provision to stay in effect when
the factors affecting Cash Value are less favorable than necessary initially to
trigger the provision.
23
<PAGE> 32
Since the effectiveness of the Special Premium Payment Provision depends on
the amount of Cash Value, it depends upon all the factors that affect Cash
Value, such as the investment experience, the amount and frequency of
unscheduled premium payments, and the level of actual cost of insurance and
other charges. Greater investment performance, payment of unscheduled premiums,
and lower cost of insurance and other charges will each tend to increase the
likelihood that the provision will go into effect. The provision also depends on
the relationship between the Cash Value and the SPPSP, and the SPPSP increases
with the Insured's Attained Age. Therefore, for older Insureds the Cash Value
must be correspondingly higher to trigger this provision.
The time that the Special Premium Payment Provision goes into effect may
also depend upon whether the Policy has the Basic or Increasing Death Benefit
Option. Assuming that unscheduled premium payments have been made, for a Policy
with the Increasing Death Benefit, the Cash Value may be slightly lower and the
SPPSP higher than for the same Policy with the Basic Death Benefit. Therefore,
where unscheduled premium payments have been made, the Special Premium Payment
Provision may go into effect later for a Policy with the Increasing Death
Benefit than it would for the same Policy with the Basic Death Benefit.
For Policies issued to residents of New York State, the determination of
whether the Special Premium Payment Provision will take effect is based on
whether the Cash Value exceeds the greater of the SPPSP and the Special Premium
Payment Tabular Value (the SPPTV).
For a Policy with the Basic Death Benefit, the SPPTV is calculated like the
Cash Value of the Policy except that it is based on the following assumptions:
(1) Guaranteed (maximum) cost of insurance rates;
(2) Expense charges described herein;
(3) A net investment return of 4 1/2%;
(4) Payment of all scheduled premiums when due; and
(5) No unscheduled premium payments or policy loans.
Because these assumptions are more conservative than the assumptions used to
calculate the SPPSP, for New York Policies it is somewhat less likely, under
certain circumstances, that the Special Premium Payment Provision will go into
effect as early as it will for other Policies and New York Policies may require
a higher net rate of return in order for the Special Premium Payment Provision
to remain in effect for a subsequent year.
The examples shown below illustrate when the Special Premium Payment
Provision would first go into effect in certain representative situations. The
examples are for a Policy with a $100,000 Face Amount with a Non-Smoker premium
class, under which premiums are paid annually, with no policy loans taken or
cash withdrawals made, and current cost of insurance rates and expense charges
stated in the Policy. When the Special Premium Payment Provision goes into
effect it remains in effect for one year, until the following Policy
Anniversary. For each Policy Year thereafter, a recalculation is made to
determine if the Special Premium Payment Provision remains in effect for that
year. Since no unscheduled premiums are paid in these examples, they apply to a
Policy with either the Basic Death Benefit or the Increasing Death Benefit.
Example A: A male Insured, age 25 at issue, where only the annual
scheduled premium payments of $765.00 are made (this Policy is illustrated more
completely in Appendix A, at page A-3). With a 6% investment return the earliest
the Special Premium Payment Provision would go into effect is Policy Year 20;
with a 12% investment return, the earliest the provision would go into effect is
Policy Year 12.
Example B: A female Insured, age 55 at issue, where only the annual
scheduled premiums of $2,445.00 are paid (this Policy is illustrated more
completely in Appendix A, page A-6). With a 6% investment return the earliest
the Special Premium Payment Provision would go into effect is Policy Year 22;
with a 12% investment return, the earliest it goes into effect is Policy Year
12.
24
<PAGE> 33
Since the Special Premium Payment Provision depends largely on the Cash
Value, and since making unscheduled premium payments increases the Cash Value,
making one or more unscheduled premium payments would bring the Special Premium
Payment Provision into effect sooner than shown in the above examples. Under
Example A (male Insured, age 25), if a single unscheduled premium of $3,000 is
paid when the Policy with the Basic Death Benefit is purchased, and thereafter
only the annual scheduled premiums are paid, then with a 6% investment return
the Special Premium Payment Provision would first go into effect for Policy Year
8 (instead of Policy Year 20); with a 12% investment return, the Provision would
first go into effect for Policy Year 6 (instead of Policy Year 12). Similarly,
under Example B (female Insured, age 55), if a single unscheduled premium of
$8,600 is paid when the Policy with the Basic Death Benefit is purchased and
thereafter only the annual scheduled premiums are paid, then with a 6% return
the Special Premium Payment Provision would first go into effect for Policy Year
10 (instead of 22); with a 12% return the provision would first go into effect
for Policy Year 7 (instead of 12).
Assuming unscheduled premium payments are made, if the Policy has the
Increasing Death Benefit, then the Special Premium Payment Provision may go into
effect slightly later than it would for the same Policy with the Basic Death
Benefit. Using Example A, for a Policy with the Increasing Death Benefit, where
a single unscheduled premium of $3,000 is paid when the Policy is purchased with
annual scheduled premiums only paid thereafter, with a 6% investment return the
Special Premium Payment Provision would first go into effect for Policy Year 9
(instead of Policy Year 8); with a 12% return, the provision would first go into
effect for Policy Year 6 (the same Policy Year). Using Example B, for a Policy
with the Increasing Death Benefit, where a single unscheduled premium of $8,600
is paid when the Policy is purchased with annual scheduled premiums only paid
thereafter, with a 6% return the Special Premium Payment Provision would first
go into effect for Policy Year 12 (instead of 10); with a 12% return, the
provision would first go into effect for Policy Year 7 (the same Policy Year).
Under either Death Benefit Option, if several unscheduled premiums are
paid, (as opposed to one larger unscheduled premium as illustrated in the prior
examples) then the Special Premium Payment Provision may also go into effect
sooner than with the payment of scheduled premiums only (given the assumptions
stated above). Under Example A (male Insured, age 25), if, in addition to the
scheduled premiums, unscheduled premium payments of $700 each are made at the
beginning of each of the first 5 Policy Years, then for a Policy with the Basic
Death Benefit, with a 6% return the provision would first go into effect for
Policy Year 8; with a 12% return, the provision would first go into effect for
Policy Year 6. Under Example B (female Insured, age 55), if, in addition to the
scheduled premiums, unscheduled premium payments of $2,550 each are made at the
beginning of each of the first 5 Policy Years, then for a Policy with Basic
Death Benefit, with a 6% return the provision would first go into effect for
Policy Year 7; with a 12% return the provision would first go into effect for
Policy Year 6.
These examples are based on current cost of insurance rates. If guaranteed
(maximum) rates are used, the Special Premium Payment Provision may go into
effect under either Death Benefit Option in a later Policy Year than with
current rates. Under Example A (male Insured, age 25), with the Basic Death
Benefit Option, using guaranteed cost of insurance rates, the provision would
first go into effect for Policy Year 22 (instead of 20 using current rates) if
there is a 6% return and for Policy Year 12 (same as with current rates) if
there is a 12% return; for Example B (female Insured, age 55), with the Basic
Death Benefit Option, using guaranteed cost of insurance rates, the provision
would first go into effect for Policy Year 33 (instead of 22) if there is a 6%
return and for Policy Year 14 (instead of 12) if there is a 12% return (Appendix
A includes an illustration of each of these examples using both current and
guaranteed (maximum) cost of insurance rates, see pages A-3 and A-7 and A-6 and
A-10, respectively).
Automatic Premium Loan. The Owner may elect the Automatic Premium Loan
(APL) provision in the Application for the Policy or by written request after
the Policy is issued. The APL provision will be operative only when premiums are
payable other than monthly. If the APL provision is operative, any scheduled
premium which has not been paid by the end of the Grace Period will be paid by a
policy loan within 7 days after the end of such Grace Period, provided the
Policy has sufficient loan value and the Special Premium Payment Provision is
not in effect.
25
<PAGE> 34
Allocation of Net Premiums. In the Application for the Policy, the
Applicant elects to have net scheduled premiums (scheduled Base Premiums less
7 1/2% for sales charge and state premium tax charge, see "Premium Expense
Charge," Page 32) allocated to the Growth Account, the Money Market Account, the
Bond Account, the Managed Account, the Aggressive Growth Account, the
International Account, the Zero Coupon Bond Sub Account(s), or any combination
of them. No less than 5% of a Net Premium may be allocated to any chosen Account
or Sub Account. The allocation percentages for the chosen Accounts must be in
whole numbers. This initial allocation will remain in effect until changed by
written notification to PMLIC.
The allocation percentages in effect for net scheduled premiums will also
apply to net unscheduled premium payments (unscheduled premium payment less
Premium Expense Charges, see "Premium Expense Charge," Page 32) unless PMLIC is
notified that a different allocation is to be used for that particular
unscheduled premium. PMLIC must be notified with each unscheduled premium
payment of the allocation or the percentages for scheduled premiums will be
used.
PMLIC will allocate the first Net Premium to the Separate Accounts on the
later of the Issue Date of the Policy or the date PMLIC receives the payment at
its Home Office. PMLIC will allocate subsequent Net Premiums to the Separate
Accounts as of the date it receives the payment at its Home Office. For premiums
paid under the Automatic Payment Plan (pre-authorized check or Electronic Funds
Transfer), such will be allocated to the Separate Accounts on the date PMLIC
receives credit for the funds.
Transfers Between Separate Accounts. The Owner may redistribute the
amounts between and among in the Separate Accounts and the Subaccounts of the
Variable Account up to 4 times in each Policy Year. The redistribution will be
without charge and will be effective as of the date of receipt of the transfer
request by PMLIC's Home Office. PMLIC requires the amount transferred to be at
least $100 (or the entire balance if smaller). If a transfer would leave less
than $100 in the Separate Account (or Subaccount), PMLIC reserves the right to
transfer the entire balance. Transfers between and among the Separate Accounts
(and/or Subaccounts) are made as of the Valuation Day that the request for
transfer is received at the Home Office.
Grace Period for Payment of Scheduled Premiums. A Grace Period of 61 days
from the due date is allowed for payment of scheduled premiums after the first
scheduled premium. If scheduled premiums are paid on or before their due dates
or within the Grace Period, the Policy will remain in full force even if the
investment experience of the Separate Accounts designated by the Owner has been
so unfavorable that the Cash Value has no value. When the Special Premium
Payment Provision is not in effect and the Automatic Premium Loan provision is
not operative, the failure to pay a scheduled premium by the expiration of the
Grace Period will cause the Policy to lapse as of the date the unpaid premium
was due. If the Policy lapses, the Owner can surrender the Policy for its Net
Cash Surrender Value (see "Surrender of the Policy," Page 30), apply for
reinstatement (see "Reinstatement," below) or continue the insurance as Extended
Term Insurance or Reduced Paid Up Insurance (see "Options on Lapse," below).
Reinstatement. The Policy may be reinstated within three years from the
date the unpaid premium was due if it was not surrendered and the Owner provides
evidence of insurability. Payment of a premium will be required equal to the
greater of:
(a) all unpaid scheduled premiums with interest at 6% per year
compounded annually, plus any policy loan and accrued interest as of the
end of the Grace Period; or
(b) 110% of the increase in the cash surrender value resulting from
reinstatement plus all overdue premiums for supplementary insurance
benefits with interest at 6% compounded annually.
Upon reinstatement the Policy will have the same Cash Value and Death Benefit as
if it had not lapsed. The date of reinstatement will be the date PMLIC approves
the application for reinstatement.
Options on Lapse.
Extended Term Insurance (ETI). The Net Cash Surrender Value as of the date
this Option is applied, plus monthly deductions made on any Policy Processing
Day on or after the date of lapse, will be used as a single premium to buy
fixed-benefit Extended Term Insurance for the Insured. The amount of insurance
will
26
<PAGE> 35
equal the Death Benefit on the date of lapse minus any loan and accrued interest
as of that date. The term period will be that which the single premium will
provide for the Insured's Attained Age and sex. ETI has a Cash Value but no loan
value. ETI will not be available if the premium class is Non-Smoker with Extra-
Premium or Extra-Premium or the amount of paid up insurance would be greater
than the amount of the ETI.
Reduced Paid Up Insurance (RPU). The Net Cash Surrender Value as of the
date the Option is applied, plus monthly deductions made on any Policy
Processing Day on or after the date of lapse, will be used as a single premium
to buy that amount of fixed-benefit insurance which will continue for the
Insured's lifetime based on the Insured's Attained Age and sex. Reduced Paid Up
Insurance has a loan privilege the same as that available for premium paying
policies.
PMLIC will apply ETI automatically unless it is not available or the Owner
selects another Option. If ETI is not available, RPU will be automatic. A
selected Option will be applied on the date PMLIC receives written request at
its Home Office; PMLIC will apply an automatic Option three months after the
date of lapse. The Option will be effective as of the date of lapse.
BACKDATING OF POLICY
PMLIC will allow a Policy to be "back-dated" but only to a Policy Date not
more than six months prior to the date of the Application for the Policy. It may
be advantageous to have a Policy back-dated if the Insured's lower insurance age
will result in lower scheduled premiums. In order to back-date a Policy, PMLIC
will require that all scheduled premiums be paid from the Policy Date. When a
back-dated Policy is issued, the initial Net Premiums are allocated to the
Separate Accounts on the later of the Issue Date or the date the premium is
received. At that time all monthly deductions for the period from the Policy
Date to the Issue Date will be deducted from the Cash Value of the Separate
Accounts to which the Net Premium is allocated.
FREE-LOOK PROVISION
The Owner has a limited right to cancel and return the Policy to PMLIC. The
Owner may examine the Policy and at any time within: 10 days after receipt of
the Policy; 45 days after completion of Part I of the Application for the
Policy; or 10 days after the mailing of the Notice of Withdrawal Right,
whichever is later, may return it to PMLIC, or to an agent of PMLIC, with a
written request for cancellation. Immediately upon mailing or delivery of the
Policy to PMLIC (or to an agent of PMLIC), it shall be deemed void from the
beginning.
The Owner will receive a refund equal to either the total Cash Value of the
Separate Accounts on the date PMLIC receives the returned Policy, plus: (1) any
Premium Expense Charges which were deducted from premiums; (2) monthly
deductions made on any Policy Processing Day; and (3) amounts reflecting daily
charges against the Separate Accounts and fees and expenses for the Fund or,
where required by state law, the amount of the premiums paid. The Policy will
specify which refund amount is applicable.
EXCHANGE PRIVILEGE
Within 24 months after the Issue Date shown in the Policy or within 6
months after the effective date of a material change in the investment policy of
any chosen Separate Account or Sub Account, the Owner may exchange the Policy
for a fixed-benefit whole life insurance policy offered by PMLIC on the life of
the Insured.
No evidence of insurability is required to exercise this privilege. The new
policy will have a face amount equal to the Face Amount of the Policy and the
same issue age, issue date and premium class for the Insured as the Policy.
Premiums for the new policy will be based on the rates which were in effect for
the new policy on the Policy Date for the Policy.
The exchange will be subject to an equitable adjustment to reflect
variances, if any, in the Cash Values and dividends of the Policy and the new
policy. The method of calculating the adjustment is filed by PMLIC with the
appropriate state insurance regulatory authorities. Any policy loan and loan
interest must be repaid on or before the effective date of the exchange.
27
<PAGE> 36
LOAN PRIVILEGE
The Owner may borrow from PMLIC using the Policy as sole security for the
loan. The Owner may borrow up to the difference between the Policy's current
loan value and any outstanding policy loan and accrued interest. The minimum
amount of any policy loan is $300 ($200 for Policies issued to residents of
Connecticut), unless used to pay a scheduled premium. During Policy Years 1
through 3, the loan value of the Policy will be 75% of the cash surrender value;
during Policy Year 4 and thereafter it will be 90% of the cash surrender value.
(90% in all years for Policies issued to residents of Virginia).
If on a Policy Anniversary the outstanding policy loan and accrued interest
exceeds the cash surrender value, the Policy will terminate 31 days after PMLIC
mails notice to the Owner and any assignee of record at their last known
addresses, unless a payment of the amount of such excess is made within that
period. In no event will the required payment exceed the amount of the accrued
loan interest plus all due and unpaid scheduled premiums.
While the Insured is living, the Owner may repay all or a portion of a loan
and accrued interest. The amount of any outstanding policy loan and accrued
interest will be deducted in determining the Net Cash Surrender Value or
Proceeds at death.
Interest Rate. The interest rate charged on policy loans will be either a
fixed annual rate of 8%, or a variable loan interest rate. The Owner must select
one of these rates in the Application for the Policy. If the fixed rate is
selected, the Owner may later change to the variable rate. Such change will be
effective as of the Policy Anniversary following receipt of written notice by
PMLIC at its Home Office. The Owner is not permitted to change from the variable
rate to the fixed rate.
Interest is due at the end of each Policy Year, on the Policy Anniversary.
If not paid when due, the interest will be added to the loan and bear interest
at the applicable policy loan interest rate.
Variable Loan Interest Rate. The variable loan interest rate will be
determined by PMLIC to be effective as of the first day of each January, April,
July and October, unless the state in which this Policy is delivered requires
the determination to be made less frequently, such as yearly. The maximum
interest rate will be the greater of 5 1/2% or the Moody's Corporate Bond Yield
Average-Monthly Average Corporates as published by Moody's Investors Service,
Inc., (if this Average is no longer published, a maximum rate set by state law
or by the insurance supervisory official of the state in which the Policy is
delivered will apply), for the calendar month ending two months prior to the
date of change. If the maximum interest rate for the new period is at least
1/2% lower than the loan interest rate currently being charged, the rate for
the new period will be decreased such that it is equal to or less than the
maximum interest rate allowed for such period. If the maximum interest rate for
the new period is at least 1/2% higher than the loan interest rate currently
being charged, PMLIC may, at its discretion, increase the rate for the new
period to a rate that is no higher than the maximum interest rate allowed for
such period. Any decrease in the variable loan rate is required; any increase in
the rate is optional. PMLIC will not necessarily charge the maximum variable
loan interest rate.
Allocation of Loans and Repayments. When a loan is made, a portion of the
Cash Value equal to the amount of the loan is transferred from the Separate
Accounts (and Subaccounts) to PMLIC's General Account. Repayment of a loan will
result in a transfer back to the Separate Accounts (and Subaccounts). A loan and
any repayment will be allocated among the Separate Accounts (and Subaccounts)
based upon the net Cash Value of each Separate Account (and Subaccounts) as of
the date the loan or the repayment is made.
Effect of Loan. A loan taken from, or secured by, a Policy may, in certain
circumstances, have Federal income tax consequences (see "Federal Income Tax
Considerations," Page 36).
The amount maintained in the General Account will not reflect the
investment experience of the Separate Accounts (or Subaccounts) during the
period the loan is outstanding. Instead, interest will be credited on each
Policy Processing Day on the loaned amount at an annual rate 1.50% below the 8%
or variable interest rate charged on the policy loan.
28
<PAGE> 37
A loan, whether or not repaid, will have a permanent effect on the Cash
Value of the Policy and any Death Benefit in excess of the guaranteed minimum.
The effect could be favorable or unfavorable. This is because the investment
experience of the Separate Accounts (or Subaccounts) will only apply to the
amount remaining in the Separate Accounts (or Subaccounts) and not to the amount
transferred to the General Account. If the investment experience of the Separate
Accounts (or Subaccounts) is better than the amount being credited on loaned
amounts, the Cash Value and hence Death Benefit in excess of the guaranteed
minimum, will not increase as rapidly as they would have if no loan had been
made. However, if the investment experience of the Separate Accounts (or
Subaccounts) is not as good as the rate being credited on loaned amounts, the
Cash Value and excess Death Benefit will be higher than they would have been if
no loan had been made. The longer a loan is outstanding, the greater the effect
is likely to be.
For a male Insured, age 45 (illustrated in Appendix A at Page A-5),
assuming current cost of insurance charges, consider the following example. A
loan of $2,000 with interest payable at the fixed 8% loan interest rate is made
at the end of Policy Year 10 and repaid at the end of Policy Year 12. Loan
interest is paid when due. Upon repayment the Cash Value will be $28,079. This
amount will be less than the amount shown in the illustration for the end of
Policy Year 12 ($28,258) because the loan amount is credited with a 6 1/2% rate
of return (8% loan interest rate minus 1 1/2%) rather than the 12% gross
investment return illustrated.
Lapse With Loans Outstanding. The amount of an outstanding loan under a
Policy plus any accrued interest on outstanding loans is not part of Net Cash
Surrender Value. Therefore, the larger the amount of an outstanding loan, the
more likely it is that the Policy could lapse. In addition, if the Policy is not
a Modified Endowment Policy, lapse of the Policy with outstanding loans may
result in adverse tax consequences. (See "Tax Treatment of Policy Benefits,"
Page 37.)
WITHDRAWAL OF EXCESS CASH VALUE
The Owner may withdraw excess Cash Value from the Policy if two conditions
are met. First, a cash withdrawal may be made only to the extent that the cash
surrender value (the Cash Value minus any applicable surrender charge) is at
least $300 more than an amount called the "Withdrawal Single Premium" (See
"Calculation of Withdrawal Single Premium," below), which depends on the
Insured's Attained Age. Second, a cash withdrawal may be made only if the amount
withdrawn does not reduce the Policy's net loan value (loan value less existing
policy loan and accrued interest) to zero. (See "Loan Privilege," Page 28.) Upon
request, PMLIC will tell the Owner how much may be withdrawn.
No more than four withdrawals may be made in a Policy Year. A withdrawal
cannot be made for less than $300. Withdrawals cannot be repaid except as
premium payments, subject to Premium Expense Charges (see "Premium Expense
Charge," Page 32), and any applicable limits on premium payments (see "Payment
and Allocation of Premiums," Page 20). If the Owner does not specify an
allocation for the withdrawal, it will be allocated among the Separate Accounts
(or any Subaccount) based upon the net Cash Value of each Separate Account on
the date of the withdrawal.
Calculation of Withdrawal Single Premium. The Withdrawal Single Premium is
based on:
(1) Current cost of insurance rates;
(2) Expense charges described herein;
(3) A Death Benefit equal to the applicable Guaranteed Minimum Death
Benefit for the Policy;
(4) An interest rate of 7 1/2%; and
(5) An amount sufficient to cover the cost of additional premiums for
supplementary benefits and extra-premium class.
The Withdrawal Single Premium is the same as the Special Premium Payment
Single Premium ("SPPSP") using the 7.5% assumed rate (examples of the 7.5% SPPSP
are listed in Examples A and B on page 24), which is used to calculate whether
the Special Premium Payment Provision goes into effect (see discussion beginning
at page 23). Generally a withdrawal of excess cash cannot be made unless the
Special
29
<PAGE> 38
Premium Payment Provision is in effect. There may be limited situations,
however, where a cash withdrawal can be made although the Special Premium
Payment Provision is not in effect, because the cash surrender value may have
increased since the SPPSP was last calculated. In addition, the Special Premium
Payment Provision may be in effect during periods when cash withdrawals may not
be made, for several reasons including: (1) the withdrawal provision depends on
whether the cash surrender value exceeds the Withdrawal Single Premium, whereas
the Special Premium Payment Provision depends on whether a larger amount, the
Cash Value, exceeds the SPPSP; (2) the withdrawal provision is based on the 7.5%
SPPSP, whereas a smaller amount, the 9% SPPSP, is used to determine if the
Special Premium Payment Provision will remain in effect for another year once it
is in effect; and (3) since the minimum cash withdrawal is $300, cash
withdrawals are permitted only if the cash surrender value is at least $300
greater than the Withdrawal Single Premium.
For Policies issued to residents of New York State, the amount that may be
withdrawn is based on whether the cash surrender value is at least $300 more
than the greater of the Withdrawal Single Premium and the Withdrawal Tabular
Value.
For a Policy with the Basic Death Benefit, the Withdrawal Tabular Value is
calculated like the Cash Value of the Policy except that it is based on the
following assumptions:
(1) Guaranteed (maximum) cost of insurance rates;
(2) Expense charges described herein;
(3) A net investment return of 4 1/2%;
(4) Payment of all scheduled premiums when due; and
(5) No unscheduled premium payments or policy loans.
Because these assumptions are more conservative than the calculations used to
calculate the Withdrawal Single Premium, for New York Policies, it is somewhat
less likely under certain circumstances that there can be a Withdrawal of Excess
Cash Value.
Effect of Withdrawal. Whenever a withdrawal is made, the Death Benefit
will immediately be recalculated to take into account the reduction in Cash
Value (see "Death Benefit," Page 19). This will not change the Guaranteed
Minimum Death Benefit or the amount of scheduled premiums payable before the
Premium Change Date. The amount of scheduled premiums after the Premium Change
Date may be affected by withdrawals but in no event will they be greater than
the amount set forth in the Policy. (See "Premium Change Date," Page 22.) A
withdrawal may, under certain circumstances, have Federal income tax
consequences. (See "Federal Income Tax Considerations," Page 36.)
SURRENDER OF THE POLICY
The Policy may be surrendered at any time while the Insured is living for
its Net Cash Surrender Value. The Net Cash Surrender Value is the net Cash Value
(Cash Value minus any policy loan and accrued interest) less any surrender
charge. (See "Surrender Charge," Page 33). PMLIC will determine the Net Cash
Surrender Value on the date it receives at its Home Office a surrender request
signed by the Owner. Coverage under the Policy will end on the day the Owner
mails or otherwise sends the surrender request to PMLIC.
ACCELERATED DEATH BENEFIT
Applicants residing in states that have approved the Accelerated Death
Benefit Rider (the "ADBR") may elect to add it to their Policy at issue, subject
to PMLIC receiving satisfactory additional evidence of insurability. The ADBR is
not yet available in all states and the terms under which it is available may
vary from state-to-state. There is no assurance that the ADBR will be approved
in all states or that it will be approved under the terms described herein.
30
<PAGE> 39
The ADBR permits the Owner to receive, at his or her request and upon
approval by PMLIC, an accelerated payment of part of the Policy's Death Benefit
when one of the following two events occurs:
1. Terminal Illness. The Insured develops a non-correctable medical
condition which is expected to result in his or her death within 12
months; or
2. Permanent Confinement to a Nursing Care Facility. The Insured has been
confined to a Nursing Care Facility for 180 days and is expected to
remain in such a facility for the remainder of his or her life.
There is no charge for adding the ADBR to a Policy. However, an
administrative charge, currently $100 and not to exceed $250, will be deducted
from the accelerated death benefit at the time it is paid.
Tax Consequences of The Rider. The Federal income tax consequences
associated with adding the ADBR or receiving the accelerated death benefit are
uncertain. Accordingly, we urge you to consult a tax adviser before adding the
ADBR to your Policy or requesting an accelerated death benefit.
Amount of the Accelerated Death Benefit. The ADBR provides for a minimum
accelerated death benefit payment of $10,000 and a maximum benefit payment equal
to 75% of the Eligible Death Benefit less 25% of any outstanding policy loans
and accrued interest. The ADBR also restricts the total of the accelerated death
benefits paid from all life insurance policies issued to an Owner by PMLIC and
its subsidiaries to $250,000. This $250,000 maximum may be increased, as
provided in the ADBR, to reflect inflation. The term Eligible Death Benefit
under the ADBR means:
The Insurance Proceeds payable under a Policy if the Insured died at the
time a claim for an accelerated death benefit is approved by PMLIC, minus:
1. any dividend accumulations;
2. any dividends due and not paid;
3. any dividend payable at death if the Insured died at such time;
4. any Premium Refund payable at death if the Insured died at such time;
and
5. any insurance payable under the terms of any other rider attached
to a Policy.
An Owner may request only one accelerated death benefit payment (except to
pay premiums and policy loan interest) and there are no restrictions on the
Owner's use of the benefit. An Owner may elect to receive the accelerated death
benefit payment in a lump sum or in 12 or 24 equal monthly installments. If
installments are elected and the Insured dies before all of the payments have
been made, the present value (at the time of the Insured's death) of the
remaining payments and the remaining Insurance Proceeds at Death under the
Policy will be paid to the Beneficiary in a lump sum.
Conditions for Receipt of the Accelerated Death Benefit. In order to
receive an accelerated death benefit payment, a Policy must be in force other
than as Extended Term Insurance and an Owner must submit Due Proof of
Eligibility and a completed claim form to PMLIC at its Home Office. Due Proof of
Eligibility means a written certification (described more fully in the ADBR), in
a form acceptable to PMLIC, from a treating physician stating that the Insured
has a Terminal Illness or is expected to be permanently confined in a Nursing
Care Facility.
PMLIC may request additional medical information from an Owner's physician
and/or may require an independent physical examination (at its expense) before
approving the claim for payment of the accelerated death benefit. PMLIC will not
approve a claim for an accelerated death benefit payment if a Policy is assigned
in whole or in part, if the Terminal Illness or Permanent Confinement is the
result of intentionally self-inflicted injury or if the Owner is required to
elect it in order to meet the claims of creditors or to obtain a government
benefit.
Operation of the Rider. The ADBR provides that the accelerated death
benefit be made in the form of a policy loan up to the amount of the maximum
loan available under a Policy at the time the claim is approved. Therefore, a
request for an accelerated death benefit payment in an amount less than or equal
to the maximum
31
<PAGE> 40
loan available at that time will result in a policy loan being made in the
amount of the requested benefit. This policy loan operates as would any loan
under the Policy.
To the extent that the amount of a requested accelerated death benefit
payment exceeds the maximum available loan amount, the benefit will be advanced
to the Owner and a lien will be placed on the Death Benefit payable under the
Policy (the "death benefit lien") in the amount of this advance. Under the ADBR,
interest will accrue daily, at a rate determined as described in the ADBR, on
the amount of this advance and upon the death of the Insured the amount of the
advance and accrued interest thereon is subtracted from the amount of Insurance
Proceeds at Death.
Effect on Existing Policy. The Insurance Proceeds at Death otherwise
payable under a Policy at the time of an Insured's death will be reduced by the
amount of any death benefit lien and accrued interest thereon. If the Owner
makes a request for a surrender, a policy loan or a withdrawal, the Policy's Net
Cash Surrender Value and Loan Value will be reduced by the amount of any
outstanding death benefit lien plus accrued interest. Therefore, depending upon
the size of the death benefit lien, this may result in the Net Cash Surrender
Value and the Loan Value being reduced to zero.
Premiums and policy loan interest must be paid when due. However, if
requested with the accelerated death benefit claim, future premiums and policy
loan interest may be paid through additional accelerated death benefits.
In addition to lapse under the applicable provisions of the Policy, a
Policy will also terminate on any Policy Anniversary when the death benefit lien
exceeds the Insurance Proceeds at Death.
The foregoing description of Policy provisions is qualified by reference to
a specimen of the Policy which has been filed with the SEC as an exhibit to the
Registration Statement. General Provisions of the Policy, including Settlement
Options, are discussed under "Other Policy Provisions," Page 40.
CHARGES AND EXPENSES
PREMIUM EXPENSE CHARGE
The amounts allocated to the Separate Accounts selected by the Owner are
Net Premiums. A net scheduled premium is a scheduled Base Premium (total
scheduled premium minus the premium processing charge and premiums for any
supplementary benefits and for extra-premium class) less the sales charge and
state premium tax charge described below. A net unscheduled premium is an
unscheduled premium payment less the Premium Expense Charge. The Premium Expense
Charge, from which PMLIC expects to realize no profit, consists of the
following:
Premium Processing Charge. PMLIC will deduct a charge of $1.00 from each
premium payment to cover the cost of collecting and processing premium payments.
Policies for which premiums are paid annually will therefore incur lower
aggregate premium processing charges than Policies with premiums paid more
frequently.
Sales Charge. A sales charge is deducted from each premium payment. This
sales charge is equal to 5% of each scheduled Base Premium or unscheduled
premium remaining after the premium processing charge has been deducted. This
charge is deducted to partially compensate PMLIC for the cost of selling the
Policy. These costs include agents' commissions, advertising, printing of
prospectuses and sales literature. (There also is a Contingent Deferred Sales
Charge which is deducted only if the Policy is surrendered or lapses in the
first 9 Policy Years. See "Contingent Deferred Sales Charge," Page 33.)
The amount of the sales charge in any Policy Year cannot be specifically
related to sales expenses for that year. To the extent that sales expenses are
not recovered over the life of the Policy from sales charges, PMLIC will recover
its distribution costs from sources other than the sales charge, including any
profit derived from the mortality and expense risk charge.
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<PAGE> 41
State and Local Premium Tax Charge. A charge is deducted from each premium
payment to compensate PMLIC for paying state premium taxes. This charge is equal
to 2 1/2% of each scheduled Base Premium or unscheduled premium remaining after
the premium processing charge has been deducted. Premium taxes vary from state
to state and the 2 1/2% rate is the average rate expected to be paid on premiums
received in most states. This charge may be increased in certain localities when
substantial additional premium taxes are assessed.
SURRENDER CHARGE
If the Policy is surrendered or lapses in the first 9 Policy Years, PMLIC
will deduct a surrender charge from the net Cash Value before paying the Net
Cash Surrender Value pursuant to a surrender request or applying it to a
Settlement Option. There is no surrender charge if the Policy is surrendered or
lapses during Policy Year 10 or thereafter. The total surrender charge consists
of the Contingent Deferred Administrative Charge and the Contingent Deferred
Sales Charge.
Contingent Deferred Administrative Charge. The Contingent Deferred
Administrative Charge is to compensate PMLIC for expenses, other than sales
expenses, incurred in connection with the issuance of the Policy. Such expenses
include medical examinations; insurance underwriting costs and costs incurred in
processing applications and establishing permanent Policy records. PMLIC does
not anticipate a profit from the Contingent Deferred Administrative Charge. This
charge is as follows:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED ADMINISTRATIVE
POLICY YEAR CHARGE PER $1,000 FACE AMOUNT
- ----------- ----------------------------------
<S> <C>
1-5 $5.00
6 4.00
7 3.00
8 2.00
9 1.00
10 Zero
</TABLE>
Contingent Deferred Sales Charge. The Contingent Deferred Sales Charge is
to partially compensate PMLIC for the cost of selling the Policy.
If the Special Premium Payment Provision has never been in effect as of the
date of surrender or lapse, then the Contingent Deferred Sales Charge is a
percentage of the lesser of:
(i) the total premiums paid, less premium processing charges, to the date
of surrender or lapse; and
(ii) the scheduled Base Premiums payable up to such date (scheduled Base
Premiums are total scheduled premiums less premium processing charges
and premiums for supplementary benefits and for extra-premium class);
If the Special Premium Payment Provision has been in effect prior to the
date of surrender or lapse, then the Contingent Deferred Sales Charge is a
percentage of the lesser of:
(i) the total premiums paid, less premium processing charges, to the date
of surrender or lapse; and
(ii) the scheduled Base Premiums that would have been payable up to such
date if the Special Premium Payment Provision had never been in
effect.
The maximum Contingent Deferred Sales Charge is an amount equal to 25% of
the first year's scheduled Base Premiums, plus 5% of the scheduled Base Premiums
for Policy Years 2, 3, 4 and 5. Expressed differently, this equals 9% of the
total scheduled Base Premiums for Policy Years 1 through 5. The maximum
Contingent Deferred Sales Charge will be applied to Policies that lapse or are
surrendered during Policy Year 5. Thereafter, the Contingent Deferred Sales
Charge will be reduced each year until it becomes zero in Policy Year 10 and
thereafter.
33
<PAGE> 42
The following table shows the rates that will apply when Policies with
premiums payable annually (and for Insureds with an Issue Age of 65 or less) are
surrendered or lapse.
<TABLE>
<CAPTION>
WHICH IS EQUAL TO THE
FOR POLICIES THE CONTINGENT DEFERRED SALES CHARGE FOLLOWING PERCENTAGE
WHICH ARE RATES WILL BE THE OF
SURRENDERED FOLLOWING PERCENTAGE OF THE SCHEDULED PREMIUMS
OR LAPSE DURING ONE SCHEDULED ANNUAL UP TO THE DATE OF
POLICY YEAR PREMIUM SURRENDER OR LAPSE
- --------------- ------------------------------------ ----------------------
<S> <C> <C>
1 25% 25.00%
2 30% 15.00%
3 35% 11.66%
4 40% 10.00%
5 45% 9.00%
6 40% 6.66%
7 30% 4.28%
8 20% 2.50%
9 10% 1.11%
10 and later Zero Zero
</TABLE>
For Insureds whose Issue Age is above 65, the rates that will apply when
Policies with premiums payable annually are surrendered or lapse will be less
than or equal to those shown in the table above.
For Policies with premiums payable more frequently than annually, the
maximum Contingent Deferred Sales Charge is also 25% of the first year's
scheduled Base Premiums due on or before the date of surrender or lapse plus 5%
of the scheduled Base Premiums for Policy Years 2, 3, 4 and 5 which are payable
on or before the date of surrender or lapse (or the same percentages of total
premiums paid, if less). The charge declines uniformly in Policy Years 6 through
9 until it becomes zero for Policy Years 10 and thereafter. Although the rate of
the Contingent Deferred Sales Charge is the same for annual premium Policies and
Policies with premiums paid more frequently than annually, for Policies
surrendered at the end of a Policy Year, the dollar amount of this charge will
be higher for Policies with premiums paid more frequently than for annual
premium Policies because the total amount of the scheduled premiums is higher.
MONTHLY DEDUCTIONS FROM CASH VALUE OF SEPARATE ACCOUNTS
On each Policy Processing Day (the Policy Date and the same day of each
succeeding month) PMLIC will deduct the following charges from the Cash Value of
the Separate Accounts.
Cost of Insurance. PMLIC deducts a cost of insurance charge to cover
anticipated mortality costs. This charge is calculated by multiplying the net
amount at risk under a Policy (the extent by which the Death Benefit as
calculated on the Policy Processing Day, discounted at an annual rate of 5%,
exceeds the Cash Value on the Policy Processing Day), by the mortality rate for
the Insured's premium class, sex and Attained Age. If any unscheduled premium
payments are made, this charge may be slightly higher for a Policy with the
Increasing Death Benefit than for the same Policy with the Basic Death Benefit.
For Policies issued in states which require "unisex" policies (currently
Montana) or in conjunction with employee benefit plans, the cost of insurance
charge depends only on the Insured's premium class and Attained Age.
Except with respect to Policies issued in states which require "unisex"
policies, or in conjunction with employee benefit plans (see "Policies Issued in
Conjunction with Employee Benefit Plans"), the maximum mortality rates are based
on the 1980 Commissioners' Standard Ordinary Mortality Table with Smoker/Non-
Smoker modifications (1980 CSO Table). Under this Table, mortality rates
generally are lower for Non-Smokers than for comparable Insureds who use
tobacco. For Insureds under Attained Age 22 (21 in Texas) the 1980 CSO Table
without modification is used. If PMLIC determines that a lesser amount than that
called for by the 1980 CSO Table will be adequate to cover future anticipated
mortality costs, a smaller deduction may be made. Currently, PMLIC has
determined to charge less than the full cost of insurance charges specified in
the 1980 CSO Table, but reserves the rights to make full cost of insurance
charges based on the 1980 CSO Table.
34
<PAGE> 43
Administration Charge. This is a charge to compensate PMLIC for expenses
incurred in the administration of the Policy such as processing claims, paying
Cash Values, making Policy changes, keeping records and communicating with the
Owner. PMLIC does not anticipate a profit from the Administration Charge.
The monthly charge will be equal to $3.25 per Policy and $0.015 per $1,000
of Face Amount. Thus, for a Policy with the minimum $50,000 Face Amount, the
deduction will be $4.00 per month ($3.25 plus $0.75) or $48 per year.
Minimum Death Benefit Guarantee Charge. This charge compensates PMLIC for
the risk it assumes by guaranteeing that, no matter how unfavorable investment
experience may be, as long as required scheduled premiums are paid when due the
Death Benefit will never be less than the Face Amount of the Policy if the Basic
Death Benefit applies and the Face Amount of the Policy plus the sum of
unscheduled premiums received by PMLIC as of the date of death if the Increasing
Death Benefit applies. This charge is equal to $0.01 per $1,000 of the
applicable Guaranteed Minimum Death Benefit. For a Policy with a Guaranteed
Minimum Death Benefit of $50,000, the deduction will be $0.50 per month or $6.00
per year.
First Year Policy Charge. A charge of $5.00 will be deducted on each of
the first 12 Policy Processing Days. This charge in conjunction with the
Contingent Deferred Administrative Charge compensates PMLIC for expenses, other
than sales expenses, incurred in conjunction with issuance of the Policy. No
profit is anticipated from this charge.
Supplementary Benefit Charge. If the Special Premium Payment Provision is
in effect (See "Special Premium Payment Provision," Page 23) charges for any
supplementary benefits or for extra-premium class will be deducted on each
Policy Processing Day a scheduled premium otherwise would be due. These charges
will be 92.5% of the premiums otherwise payable for these benefits.
The total monthly deduction will be allocated among the Separate Accounts
in the same proportion as the Cash Value of each Separate Account bears to the
total Cash Value of the Policy. PMLIC will allocate the monthly deduction for
any Policy Processing Day prior to receipt of the first premium among the
Separate Accounts based on the Cash Value in the Separate Accounts on the later
of the Issue Date or the date the first premium is received.
DAILY CHARGES AGAINST THE SEPARATE ACCOUNTS
Charge for Mortality and Expense Risks. A charge is made to compensate
PMLIC for assuming mortality and expense risks. A daily deduction is made from
the assets of each of the Separate Accounts equivalent to an effective annual
rate of 0.60% (this amounts to a daily charge of approximately .001644% per day)
of the average daily net assets of each Separate Account.
The mortality risk assumed is that Insureds may live for a shorter period
of time than estimated and, therefore, greater Death Benefits than expected will
be payable in relation to the amount of premiums received. The expense risk
assumed is that expenses incurred in issuing and administering the Policies will
be greater than estimated.
If the mortality and expense risk charge proves insufficient, PMLIC will
provide for all Death Benefits and expenses and any loss will be borne by PMLIC.
Conversely, PMLIC will realize a gain from this charge to the extent all money
collected from this charge is not needed to provide for benefits and expenses
under the Policies.
Asset Charge Against Zero Coupon Bond Separate Account. PMLIC makes a
daily asset charge against the assets of the Zero Coupon Bond Separate Account.
This charge is to reimburse PMLIC for transaction charges paid directly by PMLIC
to Merrill Lynch, Pierce, Fenner & Smith on the sale of Zero Coupon Trust units
to the Separate Account. PMLIC pays these amounts from General Account assets.
The amount of the asset charge currently is equivalent to an effective annual
rate of 0.25% (.000685% per day) of the average daily net assets of each Sub
Account. This amount may be increased in the future, but in no event will it
35
<PAGE> 44
exceed an effective annual rate of 0.50% (.001370% per day). The charge will be
cost-based (taking into account a loss of interest) with no anticipated element
of profit for PMLIC.
Charges for Income Taxes. PMLIC currently does not charge any Separate
Account for its corporate Federal income taxes. However, PMLIC may make such a
charge in the future, if there are any taxes that are attributable to that
Account. Charges for other applicable taxes attributable to the Account also may
be made. (See "Possible Charge for PMLIC's Taxes.")
Guarantee of Certain Charges. PMLIC guarantees that it will not increase
the charges deducted from premiums, and the charge to the Separate Accounts for
mortality and expense risks.
Other Charges. The Separate Accounts purchase shares of the Funds at net
asset value. The net asset value of those shares reflects management fees and
expenses already deducted from the assets of the Funds' Portfolios. The fees and
expenses for the Funds and their Portfolios are described briefly in connection
with a general description of each Fund.
More detailed information is contained in the Funds and the Zero Coupon
Trust Prospectuses which are attached to or accompany this Prospectus.
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following summary provides a general description of the Federal income
tax considerations associated with the Policy and does not purport to be
complete or to cover all situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisors should be consulted for more
complete information. This discussion is based upon PMLIC's understanding of the
present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of
continuation of the present Federal income tax laws or of the current
interpretations by the Internal Revenue Service.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code")
sets forth a definition of a life insurance contract for Federal tax purposes.
For Policies entered into after October 20, 1988, the requirements with respect
to mortality (i.e., cost of insurance) and other expense charges that are to be
used in determining compliance with Section 7702 are different from the
requirements for mortality and other expense charges that apply to Policies
entered into before October 21, 1988. The Secretary of the Treasury (the
"Treasury") has issued proposed regulations that specify what will be considered
reasonable mortality charges under Section 7702 for Policies entered into after
October 20, 1988. Overall, however, guidance as to how Section 7702 is to be
applied is limited. If a Policy were determined not to be a life insurance
contract for purposes of Section 7702, such Policy would not provide the tax
advantages normally provided by a life insurance policy.
With respect to a Policy entered into before October 21, 1988, although
there are no regulations interpreting the manner in which the tests under
Section 7702 are to be applied to such a Policy, PMLIC believes that such a
Policy should meet the definition of a life insurance contract for Federal tax
purposes. However, any change to a Policy entered into before October 21, 1988,
including an exchange thereof, might cause such a Policy to be treated as
entered into after October 20, 1988, and, in such circumstances, the Policy
would be subject to the mortality and other expense charge requirements
prescribed for Policies entered into after October 20, 1988. Accordingly, the
Owner of a Policy entered into before October 21, 1988, should contact a
competent tax adviser before exchanging, or making any other change, to such
Policy to determine whether the exchange or change would cause the Policy to be
treated as entered into after October 20, 1988.
36
<PAGE> 45
With respect to a Policy entered into after October 20, 1988 that is issued
on the basis of a standard rate class, while there is some uncertainty due to
the limited guidance under Section 7702, PMLIC nonetheless believes that such a
Policy should meet the Section 7702 definition of a life insurance contract.
With respect to a Policy entered into after October 20, 1988 that is issued
on a substandard basis (i.e., a premium class involving higher than standard
mortality risk), there is even less guidance, in particular as to how the new
mortality and other expense requirements are to be applied in determining
whether such a Policy meets the Section 7702 definition of a life insurance
contract. Thus, it is not clear whether or not such a Policy would satisfy
Section 7702, particularly if the Owner pays the full amount of premiums
permitted under the Policy.
If it is subsequently determined that a Policy does not satisfy Section
7702, PMLIC may take whatever steps are appropriate and necessary to attempt to
cause such a Policy to comply with Section 7702. For these reasons, PMLIC
reserves the right to modify the Policy as necessary to attempt to qualify it as
a life insurance contract under Section 7702.
Section 817(h) of the Code requires that the investments of each of the
Separate Accounts must be "adequately diversified" in accordance with Treasury
regulations in order for the Policy to qualify as a life insurance contract
under Section 7702 of the Code (discussed above). The Separate Accounts, through
the Fund and the Zero Coupon Trust, intend to comply with the diversification
requirements prescribed in Treas. Reg. sec.1.817-5, which affect how the Fund's
and Trust's assets are to be invested. PMLIC believes that the Separate Accounts
will, thus, meet the diversification requirements, and PMLIC will monitor
continued compliance with this requirement.
In certain circumstances, owners of variable life insurance contracts may
be considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the Policyowner), rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Owner has additional flexibility in allocating premium payments and
Policy Values and the investment objective of certain Portfolios (i.e. the Gold
and Natural Resources Portfolio) may be narrower. These differences could result
in an Owner being treated as the owner of a pro rata portion of the assets of
the Separate Accounts. In addition, PMLIC does not know what standards will be
set forth, if any, in the regulations or rulings which the Treasury Department
has stated it expects to issue. PMLIC therefore reserves the right to modify the
Policy as necessary to attempt to prevent an Owner from being considered the
owner of a pro rata share of the assets of the Separate Accounts.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
In General. PMLIC believes that the proceeds and cash value increases of a
Policy should be treated in a manner consistent with a fixed-benefit life
insurance policy for Federal income tax purposes. Thus, the Death Benefit under
the Policy should be excludable from the gross income of the beneficiary under
Section 101(a)(1) of the Code.
37
<PAGE> 46
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit Option (i.e., a change from the Basic Death Benefit
Option to the Increasing Death Benefit Option), a Policy loan, an unscheduled
premium payment, a Policy lapse with an outstanding loan, a withdrawal of excess
cash value, a surrender, the addition of an Accelerated Death Benefit Rider, the
receipt of an Accelerated Death Benefit, or an assignment of the Policy may have
tax consequences. In addition, Federal estate and state and local estate,
inheritance, and other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Owner or beneficiary.
Generally, the Owner will not be deemed to be in constructive receipt of
the Cash Value, including increments thereof, under the Policy until there is a
distribution. The tax consequences of distributions from, and loans taken from
or secured by, a Policy depend on whether the Policy is classified as a
"Modified Endowment Contract". Whether a Policy is or is not a Modified
Endowment Contract, upon a complete surrender or lapse of a Policy, or when
benefits are paid at such a Policy's maturity date, if the amount received plus
the amount of indebtedness exceeds the total investment in the Policy, the
excess will generally be treated as ordinary income subject to tax.
Modified Endowment Contracts. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts," which applies
to Policies entered into or materially changed after June 20, 1988. A Policy
entered into before June 21, 1988, may be treated as a Modified Endowment
Contract if a "material change" is made to such a Policy after June 20, 1988.
Due to the Policy's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Policy. In general,
a Policy will be a Modified Endowment Contract if the accumulated premiums paid
at any time during the first seven policy years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. The determination whether a Policy will be a Modified Endowment
Contract after a material change generally depends upon the relationship of the
Death Benefit and Cash Value at the time of such change and the additional
premiums paid in the seven years following the material change. At the time a
premium is credited which would cause the Policy to become a Modified Endowment
Contract, PMLIC will notify the Owner that unless a refund of the excess premium
is requested by the Owner, the Policy will become a Modified Endowment Contract.
The Owner will have 30 days after receiving such notification to request the
refund. The excess premium paid (with either the 4% interest or positive
Separate Account earnings, if any) will be returned to the Owner upon receipt by
PMLIC of the refund request. The amount to be refunded will be deducted from the
Cash Value in the Separate Accounts in the same proportion as the premium
payment was allocated to the Separate Accounts. In the event that earnings on
such excess premium is not at least 4%, the premium plus an amount equal to
interest at an annual rate of 4% will be returned.
The rules relating to whether a Policy will be treated as a Modified
Endowment Contract are complex. Therefore, a current or prospective Owner should
consult with a competent advisor to determine whether a policy transaction will
cause the Policy to be treated as a Modified Endowment Contract.
Distributions from Policies Classified as Modified Endowment
Contracts. Policies classified as Modified Endowment Contracts will be subject
to the following tax rules: First, all distributions, including distributions
upon surrender and benefits paid at maturity, from such a Policy are treated as
ordinary income subject to tax up to the amount equal to the excess (if any) of
the Cash Value immediately before the distribution over the investment in the
Policy (described on Page 39) at such time. Second, loans taken from or secured
by, such a Policy are treated as distributions from such a Policy and taxed
accordingly. Past due loan interest that is added to the loan amount is treated
as a loan for this purpose. Third, a 10 percent additional income tax is imposed
on the portion of any distribution from, or loan taken from or secured by, such
a Policy that is included in income except where the distribution or loan is
made on or after the Owner attains age 59 1/2, is attributable to the Owner's
becoming disabled, or is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Owner or the joint lives (or
joint life expectancies) of the Owner and the Owner's beneficiary. If a Policy
becomes a modified endowment contract after it is issued, distributions made
during the policy year in which it becomes a modified endowment contract,
distributions in any
38
<PAGE> 47
subsequent policy year and distributions within two years before the Policy
becomes a modified endowment contract will be subject to the tax treatment
described above. This means that a distribution from a Policy that is not a
modified endowment contract could later become taxable as a distribution from a
modified endowment contract.
Distributions From Policies Not Classified as Modified Endowment
Contracts. Distributions from a Policy that is not a Modified Endowment
Contract, are generally treated as first recovering the investment in the Policy
(described on Page 47) and then, only after the return of all such investment in
the Policy, as distributing taxable income. An exception to this general rule
occurs in the case of a decrease in the Policy's Death Benefit or any other
change that reduces benefits under the Policy in the first 15-years after the
Policy is issued and that results in a cash distribution to the Owner in order
for the Policy to continue complying with the Section 7702 definitional limits.
Such a cash distribution will be taxed in whole or in part as ordinary income
(to the extent of any gain in the Policy) under rules prescribed in Section
7702.
Loans from, or secured by, a Policy that is not a Modified Endowment
Contract are not treated as distributions. Instead, such loans are treated as
indebtedness of the Owner.
Finally, neither distributions (including distributions upon surrender or
lapse) nor loans from, or secured by, a Policy that is not a Modified Endowment
Contract are subject to the 10 percent additional tax.
Policy Loan Interest. Interest paid on any loan under a Policy may not be
deductible. An Owner should consult a tax adviser to determine whether policy
loan interest is deductible.
Investment in the Policy. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which is excluded from gross income
of the Owner (except that the amount of any loan (including an assignment) from,
or secured by, a Policy that is a Modified Endowment Contract, to the extent
such amount is excluded from gross income, will be disregarded), plus (iii) the
amount of any loan (including an assignment) from, or secured by, a Policy that
is a Modified Endowment Contract to the extent that such amount is included in
the gross income of the Owner.
Multiple Policies. All Modified Endowment Contracts that are issued by
PMLIC (or its affiliates) to the same Owner during any calendar year are treated
as one Modified Endowment Contract for purposes determining the amount
includible in gross income under Section 72(e) of the Code.
Other Tax Consequences. The Policy may be used in various arrangements,
including nonqualified deferred compensation or salary continuance plans, split
dollar insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Policy in any arrangement the value of which depends
in part on its tax consequences, you should be sure to consult a qualified tax
advisor regarding the tax attributes of the particular arrangement.
SPECIAL RULES FOR PENSION AND PROFIT-SHARING PLANS
If Policies are purchased by a trust forming part of a pension or
profit-sharing plan meeting the qualification requirements of Section 401(a) of
the Code, various special tax rules will apply. Because these rules are
extensive and complicated, it is not possible to describe all of them here.
Accordingly, counsel or other competent tax advisors familiar with qualified
plan matters should be consulted in connection with any such purchase.
Generally, a plan participant on whose behalf a Policy is purchased will be
treated as having annual imputed income based on a cost of insurance factor
multiplied by the net amount at risk under the Policy. This imputed income is to
be reported by the employer to the employee and the Service annually and
included in the employee's gross income. In the event of the death of a plan
participant while covered by the plan, policy proceeds paid to the participant's
beneficiary generally will not be completely excludable from the beneficiary's
gross income under Section 101(a) of the Code. Any Death Benefit in excess of
the Cash Value will be excludable. The portion of the Death Benefit equal to the
Cash Value, however, generally will be
39
<PAGE> 48
subject to Federal income tax to the extent it exceeds the sum of $5,000 plus
the participant's "investment in the contract" as defined in the Code, which
will include the imputed income noted above. Special rules may apply in certain
circumstances (e.g., to owner-employees or participants who have borrowed from
the plan).
The Service has interpreted the plan qualification provisions of the Code
to require that non-retirement benefits, including death benefits, payable under
a qualified plan be "incidental to" retirement benefits provided by the plan.
These interpretations, which are primarily set forth in a series of Revenue
Rulings issued by the Service, should be considered in connection with any
purchase of life insurance policies to provide benefits under a qualified plan.
POSSIBLE CHARGE FOR PMLIC'S TAXES
At the present time, the Company makes no charge for any Federal, state or
local taxes (other than premium taxes) that the Company incurs which may be
attributable to the Separate Accounts or to the Policies. The Company, however,
reserves the right in the future to make a charge for any such tax or other
economic burden resulting from the application of the tax laws that it
determines to be properly attributable to the Accounts or to the Policies.
If any tax charges are made in the future, they will be accumulated daily
and transferred from the applicable Separate Account to PMLIC's General Account.
Any investment earnings on tax charges accumulated in a Separate Account will be
retained by PMLIC.
OTHER POLICY PROVISIONS
PAYMENTS
Payment of the amount payable upon surrender of the Policy, policy loan or
withdrawal of excess Cash Value generally will be made within 7 days after
receipt of PMLIC's Home Office of a written request signed by the Owner.
For Policies sold in New York State, if the amount payable as a result of
surrender, withdrawal of excess Cash Value or a policy loan is not mailed or
delivered to the Owner within 10 working days of receipt by PMLIC of the
request, interest will be added to such amount at the rate required by New York
law.
Payment of the Proceeds at death will generally be made within 7 days after
PMLIC receives at its Home Office proof of the Insured's death and all other
documents required for such payment. Interest at the annual rate of 3% or any
higher rate declared by PMLIC or required by law is paid on the Proceeds at
death from the date of death until payment is made.
Generally, the amount of a payment will be determined as of the date of
receipt by PMLIC of all required documents. However, PMLIC may defer the
determination or payment of such amounts if the effective date for determining
such amounts falls within any period during which: (1) the disposal or valuation
of a Separate Account's assets is not reasonably practicable because the New
York Stock Exchange is closed or conditions are such that, under the SEC's rules
and regulations, trading is restricted or an emergency is deemed to exist; or
(2) the SEC by order permits postponement of such actions for the protection of
PMLIC policyholders.
THE CONTRACT
The Policy and copy of the Applications attached thereto are the entire
contract. Only statements made in the Applications can be used to void the
Policy or deny a claim. The statements are considered representations and not
warranties. Only the President or a Vice President of PMLIC can agree to change
or waive any provisions of the Policy and only in writing. As a result of
differences in applicable state laws, certain provisions of the Policy may vary
from state to state.
40
<PAGE> 49
OWNERSHIP
The Owner is the Insured unless a different Owner is indicated in the
Application or thereafter named. While the Insured is living, the Owner is
entitled to exercise any of the rights stated in the Policy or otherwise granted
by PMLIC. If the Insured and Owner are not the same, and the Owner dies before
the Insured, these rights will vest in the estate of the Owner, unless otherwise
provided.
BENEFICIARY
The beneficiary is as designated in the Application for the Policy, unless
thereafter changed by the Owner during the Insured's lifetime by written notice
to PMLIC. Any Proceeds for which there is not a designated beneficiary surviving
at the Insured's death are payable in a single sum to the Insured's executors or
administrators.
CHANGE OF OWNER AND BENEFICIARY
As long as the Policy is in force, the Owner or beneficiary may be changed
by written request in a form acceptable to PMLIC. The change will take effect as
of the date it is signed, whether or not the Insured is living when the request
is received by PMLIC. PMLIC will not be responsible for any payment made or
action taken before it receives the written request.
ASSIGNMENT
The Owner may assign the Policy and all rights thereunder except the right
to change the beneficiary and to make an election under the Settlement Options.
No assignment binds PMLIC unless in writing and received by PMLIC. A payee who
is not also the Owner may not assign or encumber Policy benefits, and to the
extent permitted by applicable law, such benefits are not subject to any legal
process for the payment of any claim against the payee.
MISSTATEMENT OF AGE AND SEX
If the Insured's age or sex has been misstated in the Application, any
benefits will be such as the premiums paid would have purchased at the correct
age and sex.
SUICIDE
In the event of the Insured's suicide within two years from the Issue Date
of the Policy (except where state law requires a shorter period) PMLIC's
liability is limited to the payment to the beneficiary of a sum equal to the
premiums paid less any loan and accrued interest and any withdrawals of excess
Cash Value.
INCONTESTABILITY
The Policy will be incontestable after it has been in force during the
Insured's lifetime for two years from the Issue Date (or such other date as
required by state law). Before such time, however, PMLIC may contest the
validity of the Policy (or changes) based on material misstatements in the
initial or any subsequent application.
DIVIDENDS
The Policy is participating; however, no dividends are being paid on the
Policy at this time.
If dividends are ever declared, they will be paid under one of the
following options:
(a) Paid in cash;
(b) Used to reduce a scheduled premium payment, or
(c) Applied as an unscheduled premium payment.
41
<PAGE> 50
The Owner must choose an option at the time the Application for the Policy
is signed. If no option is chosen, any dividend will be applied as an
unscheduled premium payment. The Owner may change the option by giving written
notice to PMLIC.
For Policies sold in New York State, if dividends are ever declared they
will be paid under one of the options above, or left to accumulate at interest
or used to buy paid-up additions, as chosen by the Owner.
SETTLEMENT OPTIONS
In lieu of a single sum payment of Policy Proceeds on death or surrender,
an election may be made to apply the Proceeds under any one of the fixed-benefit
Settlement Options provided in the Policy. The options are stated below.
Proceeds at Interest Option. Left on deposit to accumulate with PMLIC with
interest payable at a rate of at least 3% per year.
Instalments of a Specified Amount Option. Payable in equal instalments
until Proceeds applied under the Option and interest on the unpaid balance at 3%
per year and any additional interest are exhausted.
Instalments for a Specified Period Option. Payable in the number of equal
monthly instalments set forth in the election. Payments may be increased by
additional interest which would increase the instalments certain. The guaranteed
interest rate is 3% per year.
Life Income Option. Payable in equal monthly instalments during the
payee's life. Payments will be made either with or without a guaranteed minimum
number. If there is to be a minimum number of payments, they will be for either
120 or 240 months or until the Proceeds applied under the Option are exhausted,
as elected.
Joint and Survivor Life Income. Payable in equal monthly instalments
during the joint lives of the payee and one other person and during the life of
the survivor. The minimum number of payments will be for either 120 or 240
months, as elected.
Alternate Life Income Option. Proceeds may be taken as a life income with
the amount of the payments depending on the non-participating single premium
immediate annuity rates at the time payments begin.
SUPPLEMENTARY BENEFITS
On payment of an additional premium and subject to certain age and
insurance underwriting requirements, one or more of the following supplementary
benefits, which are subject to the restrictions and limitations set forth
therein, may be included in a Policy.
Disability Waiver of Premium. Providing that in the event of the Insured's
total disability before the Policy Anniversary nearest the Insured's 60th
birthday and continuing for at least 90 days (where permitted), PMLIC will waive
all scheduled premiums after the commencement and during the continuance of such
disability. PMLIC may offer a 180 day extended waiting period for certain
Insureds who do not qualify for the normal 90 day period.
Accidental Death Benefit. Providing for an additional fixed amount of
Death Benefit in the event the Insured dies from accidental bodily injury before
the Policy Anniversary nearest the Insured's 70th birthday.
Guaranteed Purchase Option. Providing that the Owner may purchase
additional insurance on the Insured's life at specified times without evidence
of insurability and under certain other circumstances.
POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS
Policies may be acquired in conjunction with employee benefit plans,
including the funding of qualified pension plans meeting the requirements of
Section 401 of the Code.
42
<PAGE> 51
The amount of scheduled premiums for Employee Benefit Series policies ("EBS
Policies") depends on the Face Amount, the Insured's age and premium class, and
the frequency of premium payments. For EBS Policies having the same Face
Amounts, scheduled premiums will be the same for male and female Insureds of a
particular age and premium class. (See "Amount of Scheduled Premiums," Page 20).
For EBS Policies, the maximum mortality rates used to determine the monthly
cost of insurance charge are based on the Commissioners' 1980 Standard Ordinary
Mortality Table B with Smoker/Non-Smoker modifications. Under this Table,
mortality rates are the same for male and female Insureds of a particular
Attained Age and premium class. (See "Cost of Insurance," Page 34).
Illustrations reflecting the premiums and charges for EBS Policies will be
provided to purchasers of such Policies.
There is no provision for misstatement of sex in the EBS Policies. (See
"Misstatement of Age and Sex," Page 41). Also, the rates used to determine the
amount payable under a particular Settlement Option will be the same for male
and female Insureds. (See "Settlement Options," Page 42).
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under an employee's
deferred compensation plan could not, under Title VII of the Civil Rights Act of
1964, vary between men and women on the basis of sex. In that case, the Court
applied its decision only to benefits derived from contributions made on or
after August 1, 1983. Subsequent decisions of lower federal courts indicate that
in other factual circumstances the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory, or
decisional authority of some states may prohibit use of sex-distinct mortality
tables under certain circumstances. The Policies offered by this Prospectus
(other than Policies issued in states which require "unisex" policies (currently
Montana) and EBS Policies (see "Policies Issued in Conjunction with Employee
Benefit Plans," Page 42)) are based upon actuarial tables which distinguish
between men and women and, thus, the Policy provides different benefits to men
and women of the same age. Accordingly, employers and employee organizations
should consider, in consultation with legal counsel, the impact of these
authorities on any employment-related insurance or benefits program before
purchasing the Policy and in determining whether an EBS Policy is appropriate.
VOTING RIGHTS
All of the assets held in the Growth, Money Market, Bond, Managed,
Aggressive Growth and International Separate Accounts and the Subaccounts of the
Variable Account will be invested in shares of corresponding portfolios of the
Funds. (The organizational documents governing the Trust do not contemplate
meetings of holders of Trust units nor any action taken by vote of such
holders.) The Funds do not hold routine annual shareholders' meetings.
Shareholders' meetings will be called whenever each Fund believes that it is
necessary to vote to elect the Board of Directors of the Fund and to vote upon
certain other matters that are required by the 1940 Act to be approved or
ratified by the shareholders of a mutual fund. PMLIC is the legal owner of Fund
shares and as such has the right to vote upon any matter that may be voted upon
at a shareholders' meeting. However, in accordance with its view of present
applicable law, PMLIC will vote the shares of the Funds at meetings of the
shareholders of the appropriate Fund or Portfolio in accordance with
instructions received from Owners. Fund shares held in each Separate Account or
Subaccount for which no timely instructions from Owners are received will be
voted by PMLIC in the same proportion as those shares in that Separate Account
or Subaccount for which instructions are received.
Each Owner having a voting interest will be sent proxy material and a form
for giving voting instructions. Owners may vote, by proxy or in person, only as
to the Portfolios that correspond to the Separate Accounts or Subaccounts in
which their Policy values are allocated. The number of shares held in each
Separate Account or Subaccount attributable to a Policy for which the Owner may
provide voting instructions will be determined by dividing the net Cash Value
attributable to that Account by the net asset value of one share of the
corresponding Portfolio as of the record date for the shareholder meeting.
Fractional shares will be counted.
43
<PAGE> 52
For each share of a Portfolio for which Owners have no interest, PMLIC will cast
votes, for or against any matter, in the same proportion as Owners vote.
If required by state insurance officials, PMLIC may disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the investment objectives or policies of one or more of the
Portfolios, or to approve or disapprove an investment policy or investment
adviser of one or more of the Portfolios. In addition, PMLIC may disregard
voting instructions in favor of changes initiated by an Owner or the Fund's
Board of Directors provided that PMLIC's disapproval of the change is reasonable
and is based on a good faith determination that the change would be contrary to
state law or otherwise inappropriate, considering the portfolio's objectives and
purposes, and the effect the change would have on PMLIC.
If PMLIC does disregard voting instructions, it will advise Policyholders
of that action and its reasons for such action in the next semi-annual report to
Owners.
At some later time, MS Fund shares may be held by separate accounts of
insurance companies not affiliated with PMLIC. PMLIC expects that those shares
will be voted in accordance with instructions of the owners of insurance
policies and contracts issued by those other insurance companies. This will
dilute the effect of voting instructions of Owners of Policies.
Shares of the Funds other than the MS Fund are currently being offered to
variable life insurance and variable annuity separate accounts of life insurance
companies other than PMLIC that are not affiliated with PMLIC. PMLIC understands
that shares of these Funds also will be voted by such other life insurance
companies in accordance with instructions from their policyowners invested in
such separate accounts. This will dilute the effect of voting instructions of
policyowners of the Policies.
CHANGES IN APPLICABLE LAW, FUNDING AND OTHERWISE
The voting rights described in this Prospectus are created under applicable
Federal securities laws. To the extent that such laws or regulations promulgated
thereunder eliminate the necessity to solicit voting instructions from Owners or
restrict such voting rights, PMLIC reserves the right to proceed in accordance
with any such laws or regulations.
PMLIC also reserves the right, subject to compliance with applicable law,
including approval of Owners if so required, (1) to transfer assets determined
by PMLIC to be associated with the class of policies to which the Policies
belong from one Separate Account to another Separate Account by withdrawing the
same percentage of each investment in the Account with appropriate adjustments
to avoid odd lots and fractions, (2) to create additional separate investment
accounts, to create divisions (or Subaccounts) from, or combine or remove
divisions (or Subaccounts) from, Separate Accounts, or to combine any two or
more accounts including the Separate Accounts, (or Subaccounts) (3) to operate
one or more of the Separate Accounts (or Subaccounts) as a management investment
company under the 1940 Act, or in any other form permitted by law, (4) to
deregister the unit investment trust under the 1940 Act, and (5) to modify the
provisions of the Policies to comply with applicable laws. PMLIC has reserved
all rights in respect of its corporate name and any part thereof, including
without limitation the right to withdraw its use and to grant its use to one or
more other separate accounts and other entities.
Although PMLIC believes it to be highly unlikely, it is possible that in
the judgment of its management, one or more of the Portfolios or series or
Subaccount of the Zero Coupon Trust may become unsuitable for investment by the
corresponding Separate Account because of a change in investment policy, or a
change in the tax laws, or because the shares or units are no longer available
for investment or for any other reasonable cause. In that event, PMLIC may seek
to substitute the shares of another portfolio or series or of an entirely
different mutual fund or trust. Before this would be done, the approval of the
SEC and possibly one or more state insurance departments would be obtained, to
the extent legally required.
44
<PAGE> 53
OFFICERS AND DIRECTORS OF PMLIC
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
- ------------------------------------- ------------------------------------------------------
<S> <C>
L. J. Rowell, Jr..................... 1994 to present -- Chairman and Chief Executive
Chairman of the Board Officer of PMLIC; 1992 to 1994 -- Chairman, President
and Chief Executive Officer and Chief Executive Officer of PMLIC; 1991 to
1992 -- President and Chief Executive Officer of
PMLIC; 1987 to 1991 -- President and Chief Operating
Officer of PMLIC; 1984 to 1987 -- President of
PMLIC.
Dr. Dorothy M. Brown................. 1992 to present -- Acting President of the
Director Pennsylvania Academy of the Fine Arts; 1979 to
16 Meredith Road 1991 -- President of Rosemont College.
Wynnewood, PA 19096
Robert J. Casale..................... 1988 to present -- Group President/Brokerage
Director Information Services Group of Automatic Data
2 Journal Square Processing Inc.; 1986 to 1988 -- Managing Director
Jersey City, NJ 07306 of Kidder Peabody; 1975 to 1986 -- President,
Special Markets Group of AT&T.
Nicholas DeBenedictus................ 1993 to present -- Chairman, President and Chief
Philadelphia Suburban Corp. Executive Officer of Philadelphia Suburban
762 Lancaster Avenue Corporation; 1989 to 1992 -- Senior Vice President
Bryn Mawr, PA 19010 of Philadelphia Electric Company.
Dr. Claire M. Fagin.................. 1994 to present -- Leadership Professor and Dean
Director Emeritus of the School of Nursing, University of
Nursing Education Bldg. S-2 Pennsylvania; 1993 to 1994 -- Interim President of
Philadelphia, PA 19104 University of Pennsylvania; 1992 to
1993 -- Leadership Professor and Dean Emeritus of
the School of Nursing, University of Pennsylvania;
1977 to 1992 -- Professor and Margaret Bond Simon
Dean of Nursing, School of Nursing, University of
Pennsylvania.
Philip C. Herr, II................... 1961 to present -- Partner -- Herr, Potts & Herr.
Director
Herr, Potts & Herr
100 Matsonford Road
Suite 446
Radnor, PA 19087
J. Richard Jones..................... 1981 to present -- President and Chief Executive
Director Officer of Jackson-Cross Company.
100 North 20th Street
Philadelphia, PA 19103
Robert W. Kloss...................... 1994 to present -- President and Chief Operating
President and Chief Operating Officer of PMLIC; 1986 to 1994 -- President and Chief
Officer Executive Officer of Covenant Life Insurance
Director Company.
John A. Miller....................... 1992 to present -- Chairman of the Executive Committee
Director of PMLIC; 1991 to 1992 -- Chairman of the Board of
Directors of PMLIC; 1984 to 1991 -- Chairman and
Chief Executive Officer of PMLIC.
</TABLE>
45
<PAGE> 54
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
- ------------------------------------- ------------------------------------------------------
<S> <C>
John P. Neafsey...................... 1993 to present -- President of JN Associates; 1990 to
Director 1993 -- President of Greenwich Capital Markets,
765 Hollow Tree Ridge Road Inc.; 1987 to 1990 -- Executive Vice President,
Darien, CT 06820 Director and Chief Financial Officer of Sun Company,
Inc.; 1978 to 1987 -- Senior Vice President of
Finance and Information Systems and Chief Financial
Officer of Sun Company, Inc.
Charles L. Orr....................... 1993 to present -- President and Chief Executive
Director Officer of Shaklee Corporation; 1990 to
Shaklee Corporation 1993 -- President of Shaklee U.S., Inc.
Shaklee Terraces
444 Market Street
San Francisco, CA 94111
William A. Pollard................... 1989 to present -- Retired; 1961 to 1988 -- Chairman
Director of Reliance Insurance Company.
26 Main Street
Essex, CT 06426
Donald A. Scott...................... 1964 to present -- Senior Partner -- Morgan, Lewis and
Director Bockius.
2000 One Logan Square
Philadelphia, PA 19103
John J. F. Sherrerd.................. 1969 to present -- Partner -- Miller, Anderson &
Director Sherrerd.
One Tower Bridge
West Conshohocken, PA 19428
Harold A. Sorgenti................... 1991 to present -- Partner -- The Freedom Chemical
Director Company; 1979 to 1991 -- President and Chief
Mellon Center, Suite 3905 Executive Officer of Arco Chemical Company.
1735 Market Street
Philadelphia, PA 19103
William R. Wilson.................... 1993 to present -- Retired; 1981 to 1992 -- Chairman
Director and Chief Executive Officer of Lukens, Inc.
Oaklands Business Parks, Inc.
600 West Lincoln Highway
Exton, PA 19341
Gerald B. Beam....................... 1995 to present -- Executive Vice
Executive Vice President -- President -- Individual Insurance Operations of PMLIC;
Individual Insurance Operations 1988 to 1995 -- Executive Vice
President -- Corporate of PMLIC; 1987 to
1988 -- Senior Vice President -- Corporate of PMLIC;
1983 to 1987 -- Senior Vice
President -- Administration of PMLIC.
John R. McClelland................... 1988 to present -- Executive Vice President and Chief
Executive Vice President Financial Officer of PMLIC; 1968 to 1988 -- Senior
and Chief Financial Officer Vice President and Chief Financial Officer of
Continental American Life Insurance Company.
Charlene Parsons..................... 1995 to present -- Executive Vice
Executive Vice President -- President -- Corporate of PMLIC; 1991 to 1994 -- Vice
Corporate President -- Human Resources of PMLIC; 1989 to
1991 -- Assistant Vice President -- Human Resources
of PMLIC.
</TABLE>
46
<PAGE> 55
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
- ------------------------------------- ------------------------------------------------------
<S> <C>
Stanley R. Reber..................... 1988 to present -- Executive Vice President and Chief
Executive Vice President Investment Officer of PMLIC; 1985 to 1988 -- Senior
and Chief Investment Officer Vice President -- Investments of PMLIC.
Mary Lynn Finelli.................... 1986 to present -- Vice President and Controller of
Vice President and PMLIC; 1976 to 1986 -- Principal of Arthur Young
Controller Company.
Craig L. Snyder...................... Vice President -- Mortgage Loans and Real Estate of
Vice President -- PMLIC.
Mortgage Loans and
Real Estate
Guy H. Edwards....................... Vice President -- Information Services of PMLIC.
Vice President --
Information Services
William P. Loesche................... 1994 to present -- Counsel and Secretary of PMLIC;
Counsel 1988 to 1994 -- Counsel and Assistant Secretary of
and Secretary PMLIC.
Rosanne Gatta........................ 1994 to present -- Vice President and Treasurer of
Assistant Vice President PMLIC; 1985 to 1994 -- Assistant Vice President and
and Treasurer Treasurer of PMLIC.
</TABLE>
- ---------------
* Unless otherwise indicated, the address is 1050 Westlakes Drive, Berwyn,
Pennsylvania 19312.
A Fidelity Bond in the amount of $5 million covering PMLIC's officers and
employees has been issued by National Union Insurance Company, a subsidiary of
American International Group.
DISTRIBUTION OF POLICIES
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell PMLIC's variable life insurance policies,
and who are also registered representatives of 1717 Capital Management Company
("1717") (formerly known as PML Securities Company) or registered
representatives of broker/dealers who have sales agreements with 1717. 1717,
whose address is Christiana Executive Campus, P.O. Box 15626 Wilmington,
Delaware 19850, is a registered broker/dealer under the Securities Exchange Act
of 1934 and a member of the National Association of Securities Dealers, Inc.
1717 is an indirect wholly-owned subsidiary of PMLIC. 1717 acts as the principal
underwriter, as defined in the 1940 Act, of the Policies (as well as other
variable life policies) for the Separate Accounts pursuant to a Distribution
Agreement to which the Accounts, 1717 and PMLIC are parties. 1717 is also the
principal underwriter of variable annuity contracts issued by PMLIC and variable
life and annuity contracts issued by Providentmutual Life and Annuity Company of
America, a wholly-owned subsidiary of PMLIC. 1717 receives no compensation as
principal underwriter of the Policies.
During fiscal years 1995, 1994 and 1993 no amounts were paid by PMLIC to
1717 pursuant to the Distribution Agreement. The principal underwriter may not
be changed if such change is disapproved by PMLIC, which disapproval may not be
unreasonable. In the event that PMLIC disapproves a proposed change, the proxy
statement for the next shareholder meeting of the Fund will include a summary of
the proposed change and the reasons given by PMLIC for its disapproval. The
Policies are sold in those states where their sale is lawful.
The insurance underwriting and the determination of a proposed Insured's
premium class and whether to accept or reject an application for a Policy is
done by PMLIC. PMLIC will refund any premiums paid if a Policy ultimately is not
issued or will refund the applicable amount if the Policy is returned under the
"free-look" provision.
47
<PAGE> 56
The agents who are both registered representatives of 1717 and career
agents of PMLIC are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. The maximum percent of
the first scheduled yearly premium which is payable to an agent for selling a
Policy is 50%; the maximum percent of scheduled yearly premiums is 7% for year 2
and 5% for years 3 through 10. If the Special Premium Payment Provision is in
effect, the maximum percent of an unscheduled premium payment which is payable
to the agent is 7% for such premiums received during Policy Year 2 and 5% for
those received during Policy Years 3 through 10; for unscheduled premium
payments greater than an amount equal to two years' scheduled premiums, the
maximum percent of such excess amount which is payable to the agent is 2%. If
the Special Premium Payment Provision is not in effect, the maximum percent of
an unscheduled premium payment which is payable to the agent is 2%. Agents may
also receive expense allowances.
Agents with less than three years of service with PMLIC may be paid on a
different basis. Agents who meet certain productivity and/or persistency
standards with respect to the sale of policies issued by PMLIC may be eligible
for additional compensation.
REPORTS
In each Policy Year a statement will be sent to the Owner describing the
status of the Policy, including setting forth the current Death Benefit, any
policy loans and accrued interest, the current Cash Value, scheduled and
unscheduled premiums paid since the last report, charges deducted since the last
report, and any withdrawals since the last report. In addition, a statement will
be sent to an Owner showing the status of the Policy following the transfer of
amounts from one Separate Account or Sub Account of a Separate Account to
another, the taking out of a loan, a repayment of a loan, the withdrawal of
excess Cash Value, and the payment of any unbilled premium payments (except
those paid by Automatic Payment Plan).
An Owner will be sent a semi-annual report containing the financial
statements of the Separate Accounts and the Funds and Trust as required by the
1940 Act.
STATE REGULATION
PMLIC is subject to regulation and supervision by the Insurance Department
of the Commonwealth of Pennsylvania which periodically examines its affairs. It
is also subject to the insurance laws and regulations of all jurisdictions where
it is authorized to do business. A copy of the form of Policy has been filed
with, and where required approved by, insurance officials in each jurisdiction
where the Policies are sold. PMLIC is required to submit annual statements of
its operations, including financial statements, to the insurance departments of
the various jurisdictions in which it does business for the purposes of
determining solvency and compliance with local insurance laws and regulations.
EXPERTS
The Financial Statements listed on Page F-1 have been included in this
Prospectus, in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
Actuarial matters included in the Prospectus have been examined by Scott V.
Carney, FSA, MAAA, Actuary of PMLIC.
LEGAL MATTERS
Sutherland, Asbill & Brennan of Washington, D.C. has provided advice on
legal matters relating to certain aspects of Federal securities law applicable
to the issue and sale of the Policies. Matters of the Commonwealth of
Pennsylvania law pertaining to the Policies, including PMLIC's right to issue
the Policies and its qualification to do so under applicable laws and
regulations issued thereunder, have been passed upon by Linda E. Senker, Senior
Associate General Counsel of PMLIC.
48
<PAGE> 57
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS,
CASH SURRENDER VALUES AND ACCUMULATED PREMIUMS
Tables on Pages A-3 to A-12 illustrate the Death Benefit and cash surrender
value of the Policy and are provided to assist in the comparison of the Policy
with other variable life policies issued by PMLIC or other companies. The
illustrations show how the Death Benefit and the cash surrender value
(reflecting the deduction of the Premium Expense Charge and the Surrender
Charge, if any), may vary over an extended period of time for different issue
ages and premium classes, assuming hypothetical rates of investment return for
the Separate Accounts equivalent to constant gross annual rates of 0%, 6% and
12%. The tables on Pages A-3 to A-10 are for males and females at certain ages,
for various Face Amounts and Non-Smoker premium class. These illustrations
assume the payment of scheduled premiums only and thus are applicable for
Policies with either the Basic Death Benefit or Increasing Death Benefit.
The amounts shown are as of the end of each Policy Year. The tables on
Pages A-3 to A-6 assume that the current monthly cost of insurance rates and the
current transaction charge for the Zero Coupon Bond Separate Account will be
charged for the entire period illustrated while the tables on Pages A-7 to A-12
are based on guaranteed (maximum) cost of insurance rates and the maximum
transaction charge for the Zero Coupon Bond Separate Account. The amounts shown
in all tables reflect daily charges for mortality and expense risks equivalent
to an effective annual charge of 0.60%, and in addition, reflect an averaging of
certain other asset charges that may be assessed under the Policy, depending
upon how premiums are allocated. The total of the asset charges reflected in the
illustrations, including the 0.60% mortality and expense risk charge listed
above, is 1.37% for the illustrations on Pages A-3 to A-6 and 1.39% for the
illustrations on Pages A-7 to A-12. The total charge is based on an assumption
that an Owner allocates the Policy values equally among the Growth, Money
Market, Bond, Managed, Aggressive Growth and International Separate Accounts and
among each Sub-Account of the Variable Separate Account and of the Zero Coupon
Bond Separate Account.
These asset charges reflect an investment advisory fee of 0.55% which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of 0.24% which is based on an average of the
actual expenses incurred by the Portfolios during the most recent fiscal year.
For all of the Portfolios, the annual expenses used in the illustrations are net
of certain reimbursements that may or may not continue.
Currently there is an expense reimbursement agreement between PMLIC and the
MS Fund pursuant to which PMLIC reimburses MS Fund expenses, excluding
investment advisory fees, in excess of 0.40% for all Portfolios except the
International Portfolio and 0.75% for the International Portfolio. There was no
reimbursement in 1995. The Fund expenses, excluding advisory fees, during 1995
were 0.27% for the Growth Portfolio, 0.25% for the Money Market Portfolio, 0.25%
for the Bond Portfolio, 0.26% for the Managed Portfolio, 0.27% for the
Aggressive Growth Portfolio and 0.40% for the International Portfolio. It is
anticipated that this agreement will continue past the current year. If it does
not continue, Fund expenses may increase.
Absent reimbursements, the investment advisory fees and other expenses
during the most recent fiscal years for the portfolios were:
VIP Fund Equity-Income Portfolio 0.61%, VIP Fund Growth Portfolio
0.70%, VIP Fund High Income Portfolio 0.71%, VIP Fund overseas Portfolio
0.91%, VIP Fund II Asset Manager Portfolio 0.81%, VIP Fund II Index 500
Portfolio 0.47%, VIP Fund II Investment Grade Bond Portfolio 0.59%, VIP
Fund II Contrafund Portfolio 0.72%, Alger American Small Capitalization
Portfolio 0.92%, AMT Growth Portfolio 0.89%, AMT Balanced Portfolio 0.97%,
AMT Limited Maturity Bond Portfolio 0.72%, TCI Growth Portfolio 1.0%, and
Van Eck Worldwide Bond Portfolio 0.98% and Van Eck Gold and Natural
Resources Portfolio 0.96%. Van Eck Worldwide Emerging Markets portfolio was
not available in 1995.
A-1
<PAGE> 58
The tables also reflect the fact that no charges for Federal or state
income taxes are currently made against the Separate Accounts. If such a charge
is made in the future, it would take a higher gross annual rate of return to
produce the same Policy values.
The second column of each table shows the amount to which the premiums
would accumulate if an amount equal to those premiums were invested to earn
interest, after taxes, at 5% compounded annually.
The illustrations also provide information about the premiums payable on
and after the Premium Change Date. The tables illustrate the Policy values that
would result if scheduled premiums are paid when due and the year, if any, in
which the Special Premium Payment Provision initially goes into effect. That
year is shown by use of an asterisk (*). If the Special Premium Payment
Provision goes into effect for a Policy Year not shown in the illustration, the
asterisk is shown for the first Policy Year illustrated after it goes into
effect.
The Tables on Pages A-11 and A-12 illustrate the Death Benefit and cash
surrender value of the Policy with the Basic Death Benefit and the Increasing
Death Benefit, respectively. In addition to the assumptions regarding
hypothetical rates of investment return for the Separate Accounts and charges
and expenses, these illustrations are for a male, age 35 having a Policy with a
$100,000 Face Amount and an unscheduled premium of $10,000 when the Policy is
purchased. The year in which the Special Premium Payment Provision goes into
effect under each Death Benefit Option is also shown.
PMLIC will furnish upon request an illustration reflecting the proposed
Insured's age, sex, if applicable, premium class, and the Face Amount and
frequency of premium payments requested. This illustration will assume a
hypothetical rate of investment return for the Separate Accounts equivalent to a
constant gross annual rate of 0% and at least one other rate between 0% and 12%
as chosen by the applicant. In addition, an illustration will be included at the
delivery of a Policy.
For Policies issued in states requiring "unisex" policies (currently
Montana) or in conjunction with employee benefit plans, PMLIC will furnish upon
request illustrations based on unisex cost of insurance rates, the proposed
Insured's age, and the Face Amount requested. PMLIC reserves the right to charge
a reasonable fee for this service to persons who request more than one policy
illustration during a policy year.
A-2
<PAGE> 59
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 25
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$765 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFIT CASH SURRENDER VALUE
ACCUMULATED ----------------------------------------- -----------------------------------------
END OF AT 5 PCT. ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 803 100,000 100,000 100,000 0 0 0
2 1,647 100,000 100,000 100,000 170 264 363
3 2,532 100,000 100,000 100,000 606 794 997
4 3,462 100,000 100,000 100,000 1,039 1,352 1,704
5 4,438 100,000 100,000 100,000 1,466 1,938 2,491
6 5,464 100,000 100,000 100,000 2,064 2,729 3,541
7 6,540 100,000 100,000 100,000 2,691 3,587 4,724
8 7,670 100,000 100,000 100,000 3,310 4,474 6,010
9 8,857 100,000 100,000 100,000 3,918 5,389 7,410
10 10,103 100,000 100,000 100,260 4,516 6,334 8,935
11 11,412 100,000 100,000 101,315 4,925 7,131 10,417
12 12,785 100,000 100,000 102,492 5,322 7,957 12,047*
13 14,228 100,000 100,000 103,804 5,703 8,813 13,839
14 15,743 100,000 100,000 105,266 6,069 9,699 15,808
15 17,333 100,000 100,000 106,894 6,418 10,614 17,971
16 19,003 100,000 100,000 108,708 6,749 11,559 20,348
17 20,756 100,000 100,299 110,726 7,060 12,532 22,959
18 22,597 100,000 100,680 112,972 7,351 13,536 25,828
19 24,530 100,000 101,058 115,469 7,619 14,569 28,980
20 26,560 100,000 101,434 118,248 7,866 15,632* 32,446
25 38,337 100,000 103,217 150,698 8,691 21,387 55,608
30 53,367 100,000 104,680 213,200 8,585 27,796 91,896
35 72,550 100,000 105,590 295,542 6,933 34,580 147,771
40 97,032 100,000 105,641 407,776 2,909 41,485 233,014
45 128,279 100,000 104,488 559,996 0 47,935 361,288
50 174,332 100,000 107,838 773,288 0 59,445 552,348
55 233,108 100,000 110,788 1,074,947 0 70,438 833,292
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$393.98 semiannually, $200.43 quarterly, or $67.32 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,105
assuming a 0 pct. rate of return; $1,829 assuming a 6 pct. rate of return;
and $765 assuming a 12 pct. rate of return.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE SEPARATE ACCOUNTS CHOSEN BY AN OWNER. THE DEATH BENEFIT,
CASH SURRENDER VALUE AND PREMIUM ON THE PREMIUM CHANGE DATE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 6%, AND
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES
FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY PMLIC THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-3
<PAGE> 60
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$991 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFIT CASH SURRENDER VALUE
ACCUMULATED ----------------------------------------- -----------------------------------------
END OF AT 5 PCT. ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,041 100,000 100,000 100,000 0 0 0
2 2,133 100,000 100,000 100,000 509 642 780
3 3,280 100,000 100,000 100,000 1,116 1,379 1,663
4 4,485 100,000 100,000 100,000 1,703 2,141 2,635
5 5,750 100,000 100,000 100,000 2,269 2,928 3,700
6 7,078 100,000 100,000 100,000 3,013 3,939 5,070
7 8,472 100,000 100,000 100,000 3,782 5,024 6,601
8 9,936 100,000 100,000 100,000 4,528 6,134 8,258
9 11,474 100,000 100,000 100,000 5,251 7,270 10,055
10 13,088 100,000 100,000 100,445 5,952 8,435 12,007
11 14,783 100,000 100,000 101,825 6,431 9,431 13,927
12 16,563 100,000 100,000 103,368 6,889 10,459 16,035*
13 18,431 100,000 100,000 105,089 7,327 11,522 18,350
14 20,393 100,000 100,000 107,006 7,744 12,622 20,894
15 22,454 100,000 100,000 109,143 8,141 13,760 23,690
16 24,617 100,000 100,000 111,521 8,515 14,936 26,763
17 26,888 100,000 100,176 114,167 8,865 16,150 30,142
18 29,273 100,000 100,658 117,110 9,190 17,403 33,855
19 31,777 100,000 101,136 120,380 9,486 18,692 37,936
20 34,407 100,000 101,614 124,018 9,754 20,020* 42,424
25 49,662 100,000 103,905 163,054 10,604 27,259 72,468
30 69,113 100,000 105,796 233,283 10,311 35,471 119,62
35 93,983 100,000 106,968 326,616 7,736 44,194 192,127
40 128,077 100,000 109,407 453,699 4,879 55,519 302,466
45 171,591 100,000 110,842 628,620 0 66,255 465,644
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$510.37 semiannually, $259.64 quarterly, or $87.21 monthly. The death
benefits and cash surrender values shown would be affected by more frequent
premium payments. The annual premium on the Premium Change Date assuming
current cost of insurance charges will be as follows: $1,767 assuming a 0
pct. rate of return; $1,401 assuming a 6 pct. rate of return; and $991
assuming a 12 pct. rate of return.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE SEPARATE ACCOUNTS CHOSEN BY AN OWNER. THE DEATH BENEFIT,
CASH SURRENDER VALUE AND PREMIUM ON THE PREMIUM CHANGE DATE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 6%, AND
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES
FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY PMLIC THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-4
<PAGE> 61
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 45
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$1,783 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFIT CASH SURRENDER VALUE
ACCUMULATED ----------------------------------------- -----------------------------------------
END OF AT 5 PCT. ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,872 100,000 100,000 100,000 230 313 397
2 3,838 100,000 100,000 100,000 1,338 1,580 1,832
3 5,902 100,000 100,000 100,000 2,407 2,885 3,403
4 8,069 100,000 100,000 100,000 3,435 4,229 5,124
5 10,345 100,000 100,000 100,000 4,420 5,611 7,010
6 12,734 100,000 100,000 100,000 5,639 7,311 9,356
7 15,243 100,000 100,000 100,000 6,898 9,136 11,987
8 17,877 100,000 100,000 100,000 8,103 10,994 14,834
9 20,643 100,000 100,000 100,000 9,251 12,884 17,916
10 23,548 100,000 100,000 100,000 10,333 14,800 21,256
11 26,597 100,000 100,000 100,386 11,069 16,463 24,605
12 29,799 100,000 100,000 102,904 11,733 18,150 28,258
13 33,161 100,000 100,000 105,720 12,329 19,868 32,245*
14 36,692 100,000 100,000 108,864 12,852 21,615 36,600
15 40,398 100,000 100,000 112,368 13,296 23,390 41,358
16 44,290 100,000 100,000 116,270 13,654 25,189 46,555
17 48,377 100,000 100,000 120,616 13,919 27,010 52,235
18 52,668 100,000 100,000 125,448 14,078 28,849 58,442
19 57,174 100,000 100,000 130,820 14,119 30,699 65,223
20 61,904 100,000 100,000 136,789 14,027 32,555 72,633
25 89,352 100,000 100,000 187,952 11,142 41,876* 121,259
30 129,176 100,000 104,110 271,904 7,801 55,717 194,217
35 180,002 100,000 109,995 389,203 0 69,644 301,708
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$918.25 semiannually, $467.15 quarterly, or $156.90 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,947
assuming a 0 pct. rate of return; $2,609 assuming a 6 pct. rate of return;
and $1,783 assuming a 12 pct. rate of return.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE SEPARATE ACCOUNTS CHOSEN BY AN OWNER. THE DEATH BENEFIT,
CASH SURRENDER VALUE AND PREMIUM ON THE PREMIUM CHANGE DATE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 6%, AND
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES
FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY PMLIC THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-5
<PAGE> 62
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 55
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$2,445 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFIT CASH SURRENDER VALUE
ACCUMULATED ----------------------------------------- -----------------------------------------
END OF AT 5 PCT. ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,567 100,000 100,000 100,000 485 599 713
2 5,263 100,000 100,000 100,000 1,970 2,299 2,642
3 8,093 100,000 100,000 100,000 3,405 4,055 4,761
4 11,065 100,000 100,000 100,000 4,796 5,876 7,095
5 14,186 100,000 100,000 100,000 6,140 7,762 9,667
6 17,462 100,000 100,000 100,000 7,779 10,057 12,845
7 20,903 100,000 100,000 100,000 9,484 12,538 16,432
8 24,515 100,000 100,000 100,000 11,122 15,075 20,329
9 28,308 100,000 100,000 100,000 12,681 17,661 24,564
10 32,291 100,000 100,000 100,000 14,151 20,290 29,171
11 36,472 100,000 100,000 102,743 15,182 22,617 33,834
12 40,863 100,000 100,000 106,368 16,114 24,987 38,919*
13 45,474 100,000 100,000 110,417 16,946 27,407 44,473
14 50,315 100,000 100,000 114,939 17,681 29,884 50,550
15 55,398 100,000 100,000 119,978 18,312 32,423 57,204
16 60,969 100,000 100,000 125,585 19,378 35,255 64,488
17 66,819 100,000 100,000 132,816 20,308 38,154 72,456
18 72,961 100,000 100,000 139,732 21,072 41,110 81,162
19 79,410 100,000 100,000 146,406 21,635 44,113 90,666
20 86,182 100,000 101,025 154,922 21,962 47,137 101,034
25 125,473 100,000 106,887 226,568 19,015 62,300* 167,828
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$1,259.18 semiannually, $640.59 quarterly, or $215.16 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $3,039
assuming a 0 pct. rate of return; $2,668 assuming a 6 pct. rate of return;
and $2,445 assuming a 12 pct. rate of return.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE SEPARATE ACCOUNTS CHOSEN BY AN OWNER. THE DEATH BENEFIT,
CASH SURRENDER VALUE AND PREMIUM ON THE PREMIUM CHANGE DATE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 6%, AND
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED OVER OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY PMLIC THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-6
<PAGE> 63
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 25
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$765 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFIT CASH SURRENDER VALUE
ACCUMULATED ----------------------------------------- -----------------------------------------
END OF AT 5 PCT. ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 803 100,000 100,000 100,000 0 0 0
2 1,647 100,000 100,000 100,000 168 262 361
3 2,532 100,000 100,000 100,000 604 790 993
4 3,462 100,000 100,000 100,000 1,035 1,347 1,699
5 4,438 100,000 100,000 100,000 1,461 1,932 2,484
6 5,464 100,000 100,000 100,000 2,057 2,722 3,532
7 6,540 100,000 100,000 100,000 2,683 3,577 4,712
8 7,670 100,000 100,000 100,000 3,301 4,462 5,995
9 8,857 100,000 100,000 100,000 3,908 5,375 7,391
10 10,103 100,000 100,000 100,000 4,504 6,317 8,910
11 11,412 100,000 100,000 100,904 4,912 7,111 10,388
12 12,785 100,000 100,000 102,048 5,306 7,934 12,013*
13 14,228 100,000 103,000 103,322 5,686 8,786 13,798
14 15,743 100,000 100,000 104,744 6,050 9,667 15,759
15 17,333 100,000 100,000 106,328 6,397 10,578 17,914
16 19,003 100,000 100,000 108,093 6,725 11,517 20,281
17 20,756 100,000 100,000 110,058 7,034 12,486 22,881
18 22,597 100,000 100,000 112,247 7,322 13,485 25,737
19 24,530 100,000 100,320 114,681 7,588 14,513 28,875
20 26,560 100,000 100,639 117,391 7,832 15,572 32,323
25 38,337 100,000 102,067 150,017 8,642 21,301* 55,357
30 53,367 100,000 103,019 212,025 8,515 27,693 91,390
35 72,550 100,000 103,166 293,330 6,757 34,436 146,665
40 97,032 100,000 102,096 402,519 2,191 41,097 230,010
45 128,279 100,000 100,000 546,973 0 46,873 352,886
50 175,185 100,000 101,157 742,215 0 57,705 530,153
55 235,050 100,000 102,183 1,055,688 0 67,284 779,603
</TABLE>
(1) If premiums are paid more frequently than annually, the payments would be
$393.98 semiannually, $200.43 quarterly, or $67.32 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,105
assuming a 0 pct. rate of return; $1,976 assuming a 6 pct. rate of return;
and $765 assuming a 12 pct. rate of return.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE SEPARATE ACCOUNTS CHOSEN BY AN OWNER. THE DEATH BENEFIT,
CASH SURRENDER VALUE AND PREMIUM ON THE PREMIUM CHANGE DATE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 6%, AND
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED OVER OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY PMLIC THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-7
<PAGE> 64
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 35
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$991 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING GUARANTEED MAXIMUM COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFIT CASH SURRENDER VALUE
ACCUMULATED ----------------------------------------- -----------------------------------------
END OF AT 5 PCT. ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,041 100,000 100,000 100,000 0 0 0
2 2,133 100,000 100,000 100,000 508 640 777
3 3,280 100,000 100,000 100,000 1,113 1,375 1,660
4 4,485 100,000 100,000 100,000 1,699 2,136 2,629
5 5,750 100,000 100,000 100,000 2,263 2,921 3,692
6 7,078 100,000 100,000 100,000 3,005 3,930 5,058
7 8,472 100,000 100,000 100,000 3,773 5,012 6,586
8 9,936 100,000 100,000 100,000 4,517 6,118 8,238
9 11,474 100,000 100,000 100,000 5,237 7,251 10,030
10 13,088 100,000 100,000 100,000 5,936 8,412 11,975
11 14,783 100,000 100,000 100,707 6,412 9,403 13,891
12 16,563 100,000 100,000 102,158 6,864 10,424 15,991
13 18,431 100,000 100,000 103,779 7,292 11,474 18,293*
14 20,393 100,000 100,000 105,587 7,693 12,554 20,817
15 22,454 100,000 100,000 107,605 8,067 13,665 23,586
16 24,617 100,000 100,000 109,852 8,412 14,805 26,621
17 26,888 100,000 100,000 112,356 8,725 15,976 29,950
18 29,273 100,000 100,000 115,142 9,004 17,175 33,601
19 31,777 100,000 100,000 118,241 9,243 18,401 37,603
20 34,407 100,000 100,000 121,689 9,443 19,654 41,994
25 49,662 100,000 100,683 160,200 9,817 26,378 71,200
30 69,133 100,000 101,298 227,200 8,792 33,812 116,513
35 93,983 100,000 100,787 314,595 4,919 41,346* 186,055
40 129,870 100,000 102,598 431,340 0 52,576 287,560
45 175,672 100,000 103,152 587,501 0 62,950 435,186
</TABLE>
(1) If premiums are paid more frequently than annually, the payment would be
$510.37 semiannually, $259.64 quarterly, or $87.21 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $1,767
assuming a 0 pct. rate of return; $1,710 assuming a 6 pct. rate of return;
and $991 assuming a 12 pct. rate of return.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE SEPARATE ACCOUNTS CHOSEN BY AN OWNER. THE DEATH BENEFIT,
CASH SURRENDER VALUE, AND PREMIUM ON THE PREMIUM CHANGE DATE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 6%, AND
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED OVER OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY PMLIC THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-8
<PAGE> 65
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 45
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$1,783 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING GUARANTEED MAXIMUM COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFIT CASH SURRENDER VALUE
ACCUMULATED ----------------------------------------- -----------------------------------------
END OF AT 5 PCT. ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,872 100,000 100,000 100,000 228 312 395
2 3,838 100,000 100,000 100,000 1,334 1,575 1,827
3 5,902 100,000 100,000 100,000 2,400 2,877 3,395
4 8,069 100,000 100,000 100,000 3,425 4,218 5,112
5 10,345 100,000 100,000 100,000 4,407 5,596 6,992
6 12,734 100,000 100,000 100,000 5,622 7,291 9,332
7 15,243 100,000 100,000 100,000 6,878 9,111 11,956
8 17,877 100,000 100,000 100,000 8,079 10,963 14,792
9 20,643 100,000 100,000 100,000 9,221 12,845 17,864
10 23,548 100,000 100,000 100,000 10,299 14,753 21,191
11 26,597 100,000 100,000 100,000 11,029 16,406 24,524
12 29,799 100,000 100,000 100,995 11,683 18,080 28,169
13 33,161 100,000 100,000 103,654 12,260 19,773 32,146
14 36,692 100,000 100,000 106,626 12,754 21,486 36,483*
15 40,398 100,000 100,000 109,943 13,157 23,212 41,213
16 44,290 100,000 100,000 113,642 13,458 24,947 46,372
17 48,377 100,000 100,000 117,764 13,648 26,685 52,000
18 52,668 100,000 100,000 122,354 13,713 28,419 58,139
19 57,174 100,000 100,000 127,459 13,633 30,138 64,835
20 61,904 100,000 100,000 133,136 13,390 31,831 72,137
25 89,352 100,000 100,000 185,077 9,039 39,654 119,404
30 130,760 100,000 100,000 263,343 1,801 51,938 188,102
35 183,607 100,000 100,000 367,850 0 63,685* 285,155
</TABLE>
(1) If premiums are paid more frequently than annually, the payments would be
$918.25 semiannually, $467.15 quarterly, or $156.90 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,947
assuming a 0 pct. rate of return; $2,882 assuming a 6 pct. rate of return;
and $1,783 assuming a 12 pct. rate of return.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE SEPARATE ACCOUNTS CHOSEN BY AN OWNER. THE DEATH BENEFIT,
CASH SURRENDER VALUE AND PREMIUM ON THE PREMIUM CHANGE DATE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 6%, AND
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED OVER OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY PMLIC THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-9
<PAGE> 66
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 55
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$2,445 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING GUARANTEED MAXIMUM COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFIT CASH SURRENDER VALUE
ACCUMULATED ----------------------------------------- -----------------------------------------
END OF AT 5 PCT. ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,567 100,000 100,000 100,000 396 507 618
2 5,263 100,000 100,000 100,000 1,784 2,102 2,434
3 8,093 100,000 100,000 100,000 3,118 3,742 4,420
4 11,065 100,000 100,000 100,000 4,400 5,433 6,601
5 14,186 100,000 100,000 100,000 5,631 7,177 8,996
6 17,462 100,000 100,000 100,000 7,148 9,315 11,971
7 20,903 100,000 100,000 100,000 8,722 11,620 15,324
8 24,515 100,000 100,000 100,000 10,219 13,962 18,951
9 28,308 100,000 100,000 100,000 11,621 16,328 22,873
10 32,291 100,000 100,000 100,000 12,915 18,706 27,118
11 36,472 100,000 100,000 100,000 13,751 20,751 31,381
12 40,863 100,000 100,000 100,487 14,467 22,806 36,055
13 45,474 100,000 100,000 103,972 15,082 24,874 41,161
14 50,315 100,000 100,000 107,894 15,539 26,963 46,737*
15 55,398 100,000 100,000 112,273 15,888 29,073 52,831
16 61,336 100,000 100,000 117,152 16,645 31,770 59,490
17 67,572 100,000 100,000 122,580 17,232 34,505 66,761
18 74,120 100,000 100,000 128,609 17,610 37,259 74,688
19 80,994 100,000 100,000 135,304 17,730 40,014 83,321
20 88,213 100,000 100,000 142,739 17,544 42,753 92,717
25 130,095 100,000 100,000 205,878 10,224 56,176* 152,502
</TABLE>
(1) If premiums are paid more frequently than annually the payment would be
$1,259.18 semiannually, $640.59 quarterly, or $215.16 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $3,039
assuming a 0 pct. rate of return; $3,039 assuming a 6 pct. rate of return;
and $2,445 assuming a 12 pct. rate of return.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE SEPARATE ACCOUNTS CHOSEN BY AN OWNER. THE DEATH BENEFIT,
CASH SURRENDER VALUE, AND PREMIUM ON THE PREMIUM CHANGE DATE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 6%, AND
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES
FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY PMLIC THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-10
<PAGE> 67
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$1,143 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
WITH $10,000 UNSCHEDULED PREMIUM PAID AT POLICY ISSUE
USING CURRENT COST OF INSURANCE CHARGES
WITH BASIC DEATH BENEFIT
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFIT CASH SURRENDER VALUE
ACCUMULATED ----------------------------------------- -----------------------------------------
END OF AT 5 PCT. ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 11,700 100,725 101,326 101,927 9,100 9,701 10,302
2 13,485 101,011 102,279 103,619 9,723* 10.992* 12,332*
3 15,360 101,193 103,198 105,435 10,329 12,336 14,571
4 17,328 101,330 104,147 107,454 10,915 13,732 17,040
5 19,394 101,419 105,120 109,608 11,482 15,184 19,761
6 21,564 101,459 106,122 112,191 12,242 16,900 23,076
7 23,843 101,448 107,150 114,959 13,037 18,741 26,550
8 26,235 101,382 108,209 118,035 13,810 20,636 30,463
9 28,747 101,262 109,294 121,449 14,559 22,591 34,746
10 31,384 101,087 110,411 125,411 15,286 24,609 39,437
11 34,154 100,851 111,555 136,611 15,772 26,475 44,354
12 37,062 100,554 112,729 148,221 16,231 28,406 49,739
13 40,115 100,194 113,933 160,779 16,664 30,403 55,633
14 43,321 100,000 115,168 173,835 17,068 32,168 62,084
15 46,687 100,000 116,432 187,375 17,441 34,602 69,142
16 50,221 100,000 117,727 201,386 17,780 36,806 76,865
17 53,932 100,000 119,050 216,675 18,081 39,080 85,305
18 57,829 100,000 120,401 232,527 18,339 41,422 94,523
19 61,921 100,000 121,782 249,949 18,549 43,031 104,581
20 66,217 100,000 123,190 268,066 18,705# 46,300 115,545
25 91,143 100,000 130,715 374,032 18,559 59,706 187,016
30 122,956 100,000 139,035 516.129 16,333 74,879 208,073
35 163,558 100,000 148,220 713,322 10,502 91,668 460,207
40 215,378 100,000 158,368 986,589 3,562 109,976 704,706
45 281,514 100,000 169,842 1,372,880 0 129,491 1,064,256
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$588.65 semiannually, $299.47 quarterly, or $100.58 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,239
assuming a 0 pct. rate of return; $1,143 assuming a 6 pct. rate of return;
and $1,143 assuming a 12 pct. rate of return.
# First year shown in which Special Premium Payment Provision ceases to be in
effect.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE SEPARATE ACCOUNTS CHOSEN BY AN OWNER. THE DEATH BENEFIT,
CASH SURRENDER VALUE, AND PREMIUM ON THE PREMIUM CHANGE DATE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 6%, AND
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES
FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY PMLIC THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-11
<PAGE> 68
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 FACE AMOUNT
$1,143 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
WITH $10,000 UNSCHEDULED PREMIUM PAID AT POLICY ISSUE
USING CURRENT COST OF INSURANCE CHARGES
WITH INCREASING DEATH BENEFIT
<TABLE>
<CAPTION>
PREMIUMS DEATH BENEFIT CASH SURRENDER VALUE
ACCUMULATED ----------------------------------------- -----------------------------------------
END OF AT 5 PCT. ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ ------------ ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 11,700 110,000 110,000 110,000 9,084 9,685 10,286
2 13,485 110,000 111,143 111,143 9,691 10,957* 12,297*
3 15,360 110,000 112,286 112,286 10,279 12,280 14,518
4 17,328 110,000 113,429 113,429 10,849 13,653 16,963
5 19,394 110,000 114,572 114,572 11,397 15,078 19,661
6 21,564 110,000 115,715 115,715 12,139 16,770 22,851
7 23,843 110,000 116,858 116,858 12,013 18,572 26,403
8 26,235 110,000 118,001 118,001 13,665 20,429 30,294
9 28,747 110,000 119,144 119,144 14,390 22,342 34,558
10 31,384 110,000 120,287 124,784 15,091 24,313 39,234
11 34,154 110,000 121,430 135,916 15,549 26,127 44,128
12 37,062 110,000 122,573 147,475 15,978 28,000 49,488
13 40,115 110,000 123,716 159,977 16,375 29,933 55,355
14 43,321 110,000 124,859 172,974 16,740 31,928 61,776
15 46,687 110,000 126,002 186,463 17,070 33,984 68,802
16 50,221 110,000 127,145 200,400 17,353 36,104 76,188
17 53,932 110,000 128,288 215,818 17,614 38,285 84,889
18 57,829 110,000 129,431 231,397 17,816 40,524 94,064
19 61,921 110,000 130,574 248,737 17,966 42,820 104,074
20 66,217 110,000 131,717 266,770 18,054 45,170 114,987
25 91,143 110,000 137,432 372,234 17,456 57,749 186,117
30 122,956 110,000 143,147 515,638 14,494 71,899 294,650
35 163,558 110,000 148,862 709,887 7,402 88,728 457,991
40 215,378 110,000 154,577 981,827 0 102,668 701,304
45 281,514 110,000 160,292 1,386,247 0 119,329 1,059,106
</TABLE>
(1) If premiums are paid more frequently than annually, the payments would be
$588.65 semiannually, $299.47 quarterly, or $100.58 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,239
assuming a 0 pct. rate of return; $1,143 assuming a 6 pct. rate of return;
and $1,143 assuming a 12 pct. rate of return.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE SEPARATE ACCOUNTS CHOSEN BY AN OWNER. THE DEATH BENEFIT,
CASH SURRENDER VALUE AND PREMIUM ON THE PREMIUM CHANGE DATE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 6%, AND
12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES
FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE BY PMLIC THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-12
<PAGE> 69
APPENDIX B
CALCULATION OF NET INVESTMENT FACTOR
AND CASH VALUE OF THE POLICY
Following is a description of how the Net Investment Factor is calculated
and how the Net Investment Factor is used to determine the Cash Value of the
Policy.
Net Investment Factor. Each Separate Account has its own Net Investment
Factor. The Net Investment Factor of the Separate Account for a Valuation Period
is a. divided by b., minus c. and minus d., where:
a. is:
1. the value of the assets in the Separate Account for the
preceding Valuation Period; plus
2. the investment income and capital gains, realized or unrealized,
credited to those assets during the Valuation Period for which the Net
Investment Factor is being determined; minus
3. the capital losses, realized or unrealized, charged against
those assets during the Valuation Period; minus
4. any amount charged against the Separate Account for taxes, or
any amount PMLIC sets aside during the Valuation Period as a reserve for
taxes attributable to the operation or maintenance of the Separate
Account; and
b. is the value of the assets for the preceding Valuation Period; and
c. is a charge no greater than 0.60% per year (.001644% for each day
in the Valuation Period) for mortality and expense risks; and
d. is a charge, for the Zero Coupon Bond Separate Account only, no
greater than 0.50% per year (.001370% for each day in the Valuation Period)
for transaction charges associated with the purchase of units.
The charges in c. and d. are expressed as a percentage of assets in the
Account at the beginning of each day during the Valuation Period.
Calculation of Cash Value. When the first net scheduled premium is
allocated to the Separate Accounts, the Cash Value of each Separate Account on
the Policy Date will equal the Net Premium allocated to that Separate Account
minus the first monthly deduction allocated to that Separate Account.
Thereafter, on each Valuation Day, the Cash Value of each Separate Account will
equal:
1. the Cash Value of the Separate Account on the previous Valuation
Day times the Net Investment Factor for the current Valuation Period;
2. plus any Net Premiums received during the current Valuation Period
which are allocated to that Separate Account;
3. plus any Cash Value which, during the current Valuation Period;
a. is transferred to the Separate Account from the General Account
when any loan amount is repaid, including interest credited to loaned
amounts; and
b. is transferred to the Separate Account from another Separate
Account when requested by the Owner;
4. minus any Cash Value which, during the current Valuation Period:
a. is transferred from the Separate Account to the General Account
when the Owner borrows on the Policy or fails to pay interest when due;
and
b. is transferred from the Separate Account to another Separate
Account when requested by the Owner;
B-1
<PAGE> 70
5. plus any dividends credited to the Separate Account during the
current Valuation Period;
6. minus the monthly deductions allocated to the Separate Account
during the current Valuation Period;
7. minus any partial withdrawal during the current Valuation Period
which are allocated to the Separate Account.
The Cash Value of the Policy is equal to: (a) the sum of the Cash Value of
each Separate Account; plus (b) the Cash Value in the General Account
attributable to any outstanding policy loans.
B-2
<PAGE> 71
APPENDIX C
LONG TERM MARKET TRENDS
The information below is a record of the compound annual returns of common
stocks, high-grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The compound annual returns assume the reinvestment of
dividends, capital gains and interest. This is an historical record and is not
intended as a projection of future performance. Charges associated with a
variable life policy are not reflected.
The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high-grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods of
time. To the extent that cash value is allocated to separate accounts which
invest in common stocks, these trends indicate the potential advantages of
holding a variable life insurance policy for a long period of time.
The following chart illustrates the compound annual returns of the S&P 500
Composite Stock Price Index for each of the 20-year periods shown. These returns
are compared to the compound annual returns of high-grade corporate bonds and
U.S. Treasury bills for the same periods. (The 20-year periods selected for the
chart begin in 1936 and have ending periods at five year intervals.)
LOGO
- ---------------
* Sources: Common stock returns -- Standard & Poor's 500 Composite Stock Price
Index. Corporate bond returns -- Salomon Brothers Long Term High Grade Corporate
Bond Index, and U.S. Treasury Bill returns -- C.R.S.P. U.S. Government Bond File
through 1976 and The Wall Street Journal thereafter. All data from: (C)Ibbotson,
Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills and Inflation (SBBI),
1982, updated in Stocks, Bonds, Bills and Inflation 1996 Yearbook(TM), Ibbotson
Associates, Inc., Chicago. All rights reserved.
C-1
<PAGE> 72
Over the 51 20-year time periods beginning in 1926 and ending in 1995 (i.e.
1926-1945, 1927-1946, and so on through 1976-1995):
-- The compound annual return of common stocks was superior to that of
high-grade, long-term corporate bonds in 48 of the 51 periods.
-- The compound annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 51 periods.
-- Common stock compound annual returns exceeded the average annual rate of
inflation in each of the 51 periods.
Over the 41 30-year time periods beginning in 1926 and ending in 1995, the
compound annual return of common stocks was superior to that of high-grade,
long-term corporate bonds, U.S. Treasury bills and inflation in all 41 periods.
From 1926 through 1995 the compound annual return for common stocks was
10.5%, compared to 5.7% for high-grade, long-term corporate bonds, 5.2% for
Long-Term Government Bonds, 3.7% for U.S. Treasury bills and 3.1% for the
Consumer Price Index.
------------------------
SUMMARY TABLE: HISTORIC S&P 500 COMPOSITE STOCK INDEX RESULTS FOR
SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Composite Stock Index, with dividends reinvested, over one-year,
five-year, ten-year and twenty-year periods beginning in 1926 and ending in
1995.
The chart shows that historically, the longer that a portfolio matching the
S&P 500 Composite Stock Index was held, the less likely was the chance of a
loss. Conversely, the shorter the holding period of such a portfolio, the more
likely was the chance of a loss. The chart also shows that shorter term results
tend to be more extreme than longer term results.
THE CHART IS NOT A PROJECTION OR REPRESENTATION OF FUTURE STOCK MARKET
RESULTS. IT CANNOT BE TAKEN AS REPRESENTATIVE OF THE PERFORMANCE OF ANY ONE
SEPARATE ACCOUNT. RATHER IT SHOWS THE HISTORIC PERFORMANCE OF A BROAD INDEX OF
STOCKS OVER ARBITRARILY SELECTED TIME PERIODS.
PERCENT OF HOLDING PERIODS WITH THE FOLLOWING RETURNS:
<TABLE>
<CAPTION>
GREATER
THAN
HOLDING NEGATIVE 0-5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
------------------------------ -------- ------- ----------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
1 year 28.6% 4.3% 11.4% 7.1% 11.4% 37.1%
5 years 10.6% 15.2% 15.2% 33.3% 16.7% 9.1%
10 years 3.3% 11.7% 36.1% 23.0% 24.6% 1.6%
20 years 0.0% 5.9% 33.3% 54.9% 5.9% 0.0%
</TABLE>
- ---------------
Source: All basic data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield,
Stocks, Bonds, Bills and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills
and Inflation 1996 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
TREASURY BILLS ADJUSTED FOR INFLATION
The data below show the annual rate of return over 20-year holding periods
of U.S. Treasury Bills after adjusting for inflation as measured by the Urban
Consumer Price Index. This annual rate, as adjusted, is also
C-2
<PAGE> 73
called the real interest rate and is represented as the real interest rate in
the chart below. U.S. Treasury Bills are considered to be one of the safest
kinds of investments, as they are backed by the U.S. government. However, the
highest inflation-adjusted return of U.S. Treasury Bills over the historic
20-year periods presented below has been modest.
LOGO
Selected 20-year periods ending on year shown above.
- ---------------
Source: All basic data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield,
Stocks, Bonds, Bills and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills
and Inflation 1996 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
---------------------------
THE "DOLLAR COST AVERAGING" INVESTMENT METHOD
As the Compound Annual Returns graph indicates, the investment performance
of many common stocks has generally been positive over certain relatively long
periods. Common stocks have, however, also been subject to market declines,
often dramatic ones, and general volatility of prices over shorter time periods.
The price fluctuations of common stocks has historically been greater than that
of high-grade debt securities.
The relative volatility of common stock prices as compared with prices of
high-grade debt instruments offers both advantages and disadvantages to
investors. Unfortunately, many investors who otherwise might be interested in
common stocks see only the disadvantages and not the advantages of stock price
fluctuation.
The primary disadvantage, of course, is that price declines can be prolonged and
substantial, and when this occurs, investors cannot liquidate their investments
without realizing losses. Price declines, however, also offer investors
important opportunities.
Opportunity arises from the fact that investors can purchase more common
stock for the same amount of money than they would before prices declined.
Investors may take advantage of this if they remain willing to continue
investing in both rising and falling markets. The dollar cost averaging method
of investing demonstrates this.
C-3
<PAGE> 74
In this method of investing:
- Relatively constant dollar amounts are invested at regular intervals
(monthly, quarterly, or annually).
- Stock market fluctuations, especially the savings on purchases from price
declines, are exploited for the investor's benefit.
HOW DOLLAR COST AVERAGING WORKS
<TABLE>
<CAPTION>
INVESTMENTS AT COMMON STOCK SHARES
REGULAR INTERVALS MARKET PRICE PURCHASED
- ----------------- ------------ ---------
<S> <C> <C>
$ 150 $ 20 7.5
150 15 10.0
150 10 15.0
150 5 30.0
150 10 15.0
150 15 10.0
------ ---------
$ 900 87.5
Total Value of 87.5 shares @ $15/share $1,312.50
Less Investment made (900.00)
---------
Gain/Profit $ 412.50
</TABLE>
Though the market price has not returned to the initial high of $20 per
share, dollar cost averaging has permitted the investor to purchase more shares
at a savings and thus realize a significant gain. Obviously, the dollar cost
averaging method only works if the investor continues to invest relatively
constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss
in declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of marketing fluctuations.
How does the dollar cost averaging method relate to a variable life
insurance policy? A policyowner may invest his or her net premiums in a separate
account, and, although a Policy's value in the separate accounts is affected by
several factors other than investment experience (e.g., cash value charges and
charges against the separate account), the dollar cost averaging method can be
generally applied to the Policy to the extent that the policyowner pays premiums
on a regular basis and he or she allocates net premiums to separate accounts
which invest in common stocks in relatively constant amounts.
C-4
<PAGE> 75
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Policyowners and
Board of Directors of
The Provident Mutual Life Insurance
Company
Philadelphia, Pennsylvania
We have audited the accompanying statements of assets and liabilities of the
Provident Mutual Variable Separate Accounts (Growth, Money Market, Bond,
Managed, Aggressive Growth, International, Zero Coupon Bond and Variable) as of
December 31, 1995, and the related statements of operations and changes in net
assets for each of the three years in the period then ended for the Growth,
Money Market, Bond, Managed, Aggressive Growth, International and Zero Coupon
Bond Separate Accounts and for each of the two years in the period ended
December 31, 1995 and the period July 30, 1993 (Date of Inception) to December
31, 1993 for the Variable Separate Account. These financial statements are the
responsibility of the management of the Variable Separate Accounts. 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. Our procedures included
confirmation of securities owned as of December 31, 1995 by correspondence with
the transfer agents and trustees. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Provident Mutual Variable
Separate Accounts (Growth, Money Market, Bond, Managed, Aggressive Growth,
International, Zero Coupon Bond and Variable) as of December 31, 1995, and the
results of their operations and the changes in their net assets for each of the
three years in the period then ended for the Growth, Money Market, Bond,
Managed, Aggressive Growth, International and Zero Coupon Bond Separate Accounts
and for each of the two years in the period ended December 31, 1995 and the
period July 30, 1993 (Date of Inception) to December 31, 1993 for the Variable
Separate Account in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 14, 1996
F-2
<PAGE> 76
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Investment in the Market Street
Fund, Inc., at market value:
Growth Portfolio................ $ 142,348,646
Money Market Portfolio.......... $ 16,709,104
Bond Portfolio.................. $ 10,441,919
Managed Portfolio............... $ 26,990,924
Aggressive Growth Portfolio..... $19,287,880
International Portfolio......... $23,966,392
Dividends receivable.............. 76,160
Receivable from Provident Mutual
Life Insurance Company.......... 227,315
------------ ----------- ----------- ----------- ----------- -----------
Total Assets...................... 142,348,646 17,012,579 10,441,919 26,990,924 19,287,880 23,966,392
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to Provident Mutual Life
Insurance Company............... 87,709 14,465 14,918
------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS........................ $ 142,260,937 $ 17,012,579 $ 10,427,454 $ 26,976,006 $19,287,880 $23,966,392
============ =========== =========== =========== =========== ===========
Held for the benefit of
policyowners.................... $ 141,926,198 $ 16,676,873 $ 10,117,971 $ 26,816,653 $19,206,123 $23,911,718
Attributable to Provident Mutual
Life Insurance Company.......... 334,739 335,706 309,483 159,353 81,757 54,674
------------ ----------- ----------- ----------- ----------- -----------
$ 142,260,937 $ 17,012,579 $ 10,427,454 $ 26,976,006 $19,287,880 $23,966,392
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 77
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
1996 2006
SERIES SERIES
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Investment in the Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual
Series A, at market value:
1996 Series......................................................................... $2,027,498
2006 Series......................................................................... $4,790,307
LIABILITIES
Payable to Provident Mutual Life Insurance Company.................................... 896 545
---------- ----------
NET ASSETS............................................................................ $2,026,602 $4,789,762
========== ==========
Held for the benefit of policyowners.................................................. 1,916,584 4,682,891
Attributable to Provident Mutual Life Insurance Company............................... 110,018 106,871
---------- ----------
$2,026,602 $4,789,762
========== ==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 78
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INVESTMENT
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 GRADE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Investment in the Variable
Insurance Products Fund, at
market value:
Equity-Income Portfolio.... $33,745,541
Growth Portfolio........... $46,351,182
High Income Portfolio...... $3,315,059
Overseas Portfolio......... $8,551,710
Investment in the Variable
Insurance Products Fund II,
at market value:
Asset Manager Portfolio.... $27,114,550
Index 500 Portfolio........ $8,932,987
Investment Grade Bond
Portfolio................ $2,346,721
LIABILITIES
Payable to Provident Mutual
Life Insurance Company..... 15,054 14,453 14,721
----------- ----------- -------- ---------- ----------- ---------- --------
NET ASSETS................... $33,730,487 $46,336,729 $3,300,338 $8,551,710 $27,114,550 $8,932,987 $2,346,721
=========== =========== ======== ========== =========== ========== ========
Held for the benefit of
policyowners............... $33,706,861 $46,246,171 $3,270,966 $8,517,818 $27,067,302 $8,919,408 $2,317,925
Attributable to Provident
Mutual Life Insurance
Company.................... 23,626 90,558 29,372 33,892 47,248 13,579 28,796
----------- ----------- -------- ---------- ----------- ---------- --------
$33,730,487 $46,336,729 $3,300,338 $8,551,710 $27,114,550 $8,932,987 $2,346,721
=========== =========== ======== ========== =========== ========== ========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 79
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------
NEUBERGER NEUBERGER NEUBERGER VAN ECK VAN ECK
& BERMAN & BERMAN & BERMAN LIMITED TCI WORLDWIDE GOLD AND NATURAL
BALANCED GROWTH MATURITY BOND GROWTH BOND RESOURCES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Investment in the Neuberger &
Berman Advisers Management
Trust, at market value:
Balanced Portfolio.......... $3,223,304
Growth Portfolio............ $10,620,383
Limited Maturity Bond
Portfolio................. $1,108,362
Investment in TCI Portfolios,
Inc., at market value:
TCI Growth Portfolio........ $5,046,844
Investment in the Van Eck
Worldwide Insurance Trust,
at market value:
Worldwide Bond Portfolio.... $1,812,368
Gold and Natural Resources
Portfolio................. $901,280
LIABILITIES
Payable to Provident Mutual
Life Insurance Company...... 14,478 15,068
---------- ----------- ---------- ---------- ---------- --------
NET ASSETS.................... $3,223,304 $10,605,905 $1,108,362 $5,031,776 $1,812,368 $901,280
========== =========== ========== ========== ========== ========
Held for the benefit of
policyowners................ $3,175,584 $10,567,704 $1,080,510 $4,997,910 $1,786,055 $872,076
Attributable to Provident
Mutual Life Insurance
Company..................... 47,720 38,201 27,852 33,866 26,313 29,204
---------- ----------- ---------- ---------- ---------- --------
$3,223,304 $10,605,905 $1,108,362 $5,031,776 $1,812,368 $901,280
========== =========== ========== ========== ========== ========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 80
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends................................ $ 3,702,641 $ 817,140 $ 548,703 $ 1,057,761 $ 94,132
EXPENSES
Mortality and expense risks.............. 767,425 101,404 56,053 152,755 $ 106,115 139,362
Operating expense reimbursement.......... (12,376) (538) (1,846)
----------- -------- ---------- ---------- ---------- ----------
Total expenses........................... 755,049 100,866 54,207 152,755 106,115 139,362
----------- -------- ---------- ---------- ---------- ----------
Net investment income (loss)............. 2,947,592 716,274 494,496 905,006 (106,115) (45,230)
----------- -------- ---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain distributions reinvested... 7,782,999 24,410 109,290 444,778
Net realized gain from redemption of
investment shares...................... 1,322,359 8,291 502,630 169,077 440,185
----------- -------- ---------- ---------- ---------- ----------
Net realized gain on investments......... 9,105,358 8,291 527,040 278,367 884,963
----------- -------- ---------- ---------- ---------- ----------
Net unrealized appreciation
(depreciation)
of investments:
Beginning of year...................... 3,760,116 (660,717) (168,478) 1,000,654 372,684
End of year............................ 23,244,683 443,614 3,562,768 2,711,686 2,138,159
----------- -------- ---------- ---------- ---------- ----------
Net unrealized appreciation of
investments during the year............ 19,484,567 1,104,331 3,731,246 1,711,032 1,765,475
----------- -------- ---------- ---------- ---------- ----------
Net realized and unrealized gain
on investments......................... 28,589,925 1,112,622 4,258,286 1,989,399 2,650,438
----------- -------- ---------- ---------- ---------- ----------
Net increase in net assets resulting
from operations........................ $ 31,537,517 $ 716,274 $ 1,607,118 $ 5,163,292 $1,883,284 $ 2,605,208
=========== ======== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 81
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
1996 2006
SERIES SERIES
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
EXPENSES
Mortality and expense risks........................................................... $ 11,204 $ 24,226
Asset charge.......................................................................... 4,511 8,855
-------- ---------
Net investment loss................................................................... (15,715) (33,081 )
-------- ---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from redemption of investment shares................................ 46,689 103,889
-------- ---------
Net realized gain on investments...................................................... 46,689 103,889
-------- ---------
Net unrealized appreciation (depreciation) of investments:
Beginning of year................................................................... 89,755 (32,676 )
End of year......................................................................... 195,315 910,239
-------- ---------
Net unrealized appreciation of investments during the year............................ 105,560 942,915
-------- ---------
Net realized and unrealized gain on investments....................................... 152,249 1,046,804
-------- ---------
Net increase in net assets resulting from operations.................................. $136,534 $1,013,723
======== =========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 82
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INVESTMENT
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 GRADE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends.................... $ 537,930 $ 119,536 $ 41,451 $ 14,561 $ 459,474 $ 50,011 $ 28,403
EXPENSES
Mortality and expense
risks...................... 149,976 229,692 10,896 39,734 171,262 35,351 9,588
---------- ---------- -------- -------- ---------- ---------- --------
Net investment income
(loss)..................... 387,954 (110,156 ) 30,555 (25,173) 288,212 14,660 18,815
---------- ---------- -------- -------- ---------- ---------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Realized gain distributions
reinvested................. 640,717 14,561 6,844
Net realized gain (loss) from
redemption of investment
shares..................... 38,430 50,953 6,119 5,737 (74,582 ) 89,812 11,650
---------- ---------- -------- -------- ---------- ---------- --------
Net realized gain (loss)
on investments............. 679,147 50,953 6,119 20,298 (74,582 ) 96,656 11,650
---------- ---------- -------- -------- ---------- ---------- --------
Net unrealized appreciation
(depreciation) of
investments:
Beginning of year.......... 80,034 60,179 (1,350) (77,282) (1,113,746) 20,259 (2,065)
End of year................ 5,231,207 8,695,334 207,596 502,338 2,425,055 1,377,575 173,631
---------- ---------- -------- -------- ---------- ---------- --------
Net unrealized appreciation
of investments during the
year....................... 5,151,173 8,635,155 208,946 579,620 3,538,801 1,357,316 175,696
---------- ---------- -------- -------- ---------- ---------- --------
Net realized and unrealized
gain on investments........ 5,830,320 8,686,108 215,065 599,918 3,464,219 1,453,972 187,346
---------- ---------- -------- -------- ---------- ---------- --------
Net increase in net assets
resulting from
operations................. $6,218,274 $8,575,952 $245,620 $574,745 $3,752,431 $1,468,632 $206,161
========== ========== ======== ======== ========== ========== ========
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 83
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
NEUBERGER NEUBERGER NEUBERGER VAN ECK VAN ECK
& BERMAN & BERMAN & BERMAN LIMITED TCI WORLDWIDE GOLD AND NATURAL
BALANCED GROWTH MATURITY BOND GROWTH BOND RESOURCES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends..................... $ 38,294 $ 10,198 $ 15,353 $ 1,318 $ 89,753 $ 7,028
EXPENSES
Mortality and expense risks... 17,742 47,689 4,199 18,644 8,303 4,526
-------- ---------- ------- -------- -------- -------
Net investment income
(loss)...................... 20,552 (37,491 ) 11,154 (17,326) 81,450 2,502
-------- ---------- ------- -------- -------- -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Realized gain distributions
reinvested.................. 12,309 136,648
Net realized gain (loss) from
redemption of investment
shares...................... 14,321 (13,352 ) 2,057 24,415 9,650 (2,771)
-------- ---------- ------- -------- -------- -------
Net realized gain (loss)
on investments.............. 26,630 123,296 2,057 24,415 9,650 (2,771)
-------- ---------- ------- -------- -------- -------
Net unrealized appreciation
(depreciation) of
investments:
Beginning of year........... (87,659) (221,388 ) 267 25,541 9,600 (11,497)
End of year................. 337,802 1,140,571 44,695 584,114 70,122 65,442
-------- ---------- ------- -------- -------- -------
Net unrealized appreciation of
investments during the
year........................ 425,461 1,361,959 44,428 558,573 60,522 76,939
-------- ---------- ------- -------- -------- -------
Net realized and unrealized
gain on investments......... 452,091 1,485,255 46,485 582,988 70,172 74,168
-------- ---------- ------- -------- -------- -------
Net increase in net assets
resulting from operations... $472,643 $1,447,764 $ 57,639 $565,662 $151,622 $ 76,670
======== ========== ======= ======== ======== =======
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 84
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends.............................. $ 2,895,053 $346,198 $ 417,963 $ 846,092 $ 22,011
EXPENSES
Mortality and expense risks............ 613,808 52,749 42,772 132,673 $ 69,831 89,444
Operating expense reimbursement........ (14,824) (1,594) (2,834)
----------- -------- ---------- ---------- ---------- ----------
Total expenses......................... 598,984 51,155 39,938 132,673 $ 69,831 89,444
----------- -------- ---------- ---------- ---------- ----------
Net investment income (loss)........... 2,296,069 295,043 378,025 713,419 (69,831) (67,433)
----------- -------- ---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized gain distributions
reinvested........................... 72,943 182,646 937,642 153,775
Net realized gain from redemption of
investment shares.................... 1,247,733 24,007 370,225 17,586 167,183
----------- -------- ---------- ---------- ---------- ----------
Net realized gain on investments....... 1,320,676 206,653 1,307,867 17,586 320,958
----------- -------- ---------- ---------- ---------- ----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year.................... 5,664,372 383,384 2,400,938 960,399 894,279
End of year.......................... 3,760,116 (660,717) (168,478) 1,000,654 372,684
----------- -------- ---------- ---------- ---------- ----------
Net unrealized appreciation
(depreciation) of investments during
the year............................. (1,904,256) (1,044,101) (2,569,416) 40,255 (521,595)
----------- -------- ---------- ---------- ---------- ----------
Net realized and unrealized gain (loss)
on investments....................... (583,580) (837,448) (1,261,549) 57,841 (200,637)
----------- -------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations............ $ 1,712,489 $295,043 $ (459,423) $ (548,130) $ (11,990) $(268,070)
=========== ======== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 85
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
1996 2006
SERIES SERIES
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
EXPENSES
Mortality and expense risks........................................................... $ 9,707 $ 15,822
Asset charge.......................................................................... 4,021 5,887
-------- ---------
Net investment loss................................................................... (13,728 ) (21,709 )
-------- ---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from redemption of investment shares................................ 133,126 174,318
-------- ---------
Net realized gain on investments...................................................... 133,126 174,318
-------- ---------
Net unrealized appreciation (depreciation) of investments:
Beginning of year................................................................... 216,172 367,021
End of year......................................................................... 89,755 (32,676 )
-------- ---------
Net unrealized depreciation of investments during the year............................ (126,417 ) (399,697 )
-------- ---------
Net realized and unrealized gain (loss) on investments................................ 6,709 (225,379 )
-------- ---------
Net decrease in net assets resulting from operations.................................. $ (7,019 ) $(247,088 )
======== =========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 86
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INVESTMENT
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 GRADE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends.................... $188,377 $ 37,485 $ 147,161
EXPENSES
Mortality and expense
risks...................... 48,837 90,831 $ 859 $ 5,635 100,744 $ 8,356 $ 827
---------- ---------- -------- -------- ---------- ---------- --------
Net investment income
(loss)..................... 139,540 (53,346) (859) (5,635) 46,417 (8,356) (827)
---------- ---------- -------- -------- ---------- ---------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Realized gain distributions
reinvested................. 183,020 396,740 221,249 1,061
Net realized gain (loss) from
redemption of investment
shares..................... (4,249) (15,721) 36 (3,069 ) (4,737) 76
---------- ---------- -------- -------- ---------- ---------- --------
Net realized gain (loss)
on investments............. 178,771 381,019 36 218,180 (3,676) 76
---------- ---------- -------- -------- ---------- ---------- --------
Net unrealized appreciation
(depreciation) of
investments:
Beginning of year.......... 17,789 73,837 177,220 (5,191)
End of year................ 80,034 60,179 (1,350) (77,282) (1,113,746 ) 20,259 (2,065)
---------- ---------- -------- -------- ---------- ---------- --------
Net unrealized appreciation
of investments during the
year....................... 62,245 (13,658) (1,350) (77,282) (1,290,966 ) 25,450 (2,065)
---------- ---------- -------- -------- ---------- ---------- --------
Net realized and unrealized
gain on investments........ 241,016 367,361 (1,314) (77,282) (1,072,786 ) 21,774 (1,989)
---------- ---------- -------- -------- ---------- ---------- --------
Net increase in net assets
resulting from
operations................. $380,556 $314,015 $ (2,173) $(82,917) $(1,026,369) $ 13,418 $ (2,816)
========== ========== ======== ======== ========== ========== ========
</TABLE>
See accompanying notes to financial statements
F-13
<PAGE> 87
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
NEUBERGER NEUBERGER NEUBERGER VAN ECK VAN ECK
& BERMAN & BERMAN & BERMAN LIMITED TCI WORLDWIDE GOLD AND NATURAL
BALANCED GROWTH MATURITY BOND GROWTH BOND RESOURCES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends..................... $ 18,165 $ 7,036 $ 105 $ 627
EXPENSES
Mortality and expense risks... 10,179 16,940 $ 296 $ 2,373 1,180 613
-------- ---------- ------- -------- -------- -------
Net investment income
(loss)...................... 7,986 (9,904 ) (296) (2,373) (1,075) 14
-------- ---------- ------- -------- -------- -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Realized gain distributions
reinvested.................. 30,012 145,411
Net realized gain (loss) from
redemption of investment
shares...................... (11,081) (22,663 ) 730 (264) 349 171
-------- ---------- ------- -------- -------- -------
Net realized gain (loss) on
investments................. 18,931 122,748 730 (264) 349 171
-------- ---------- ------- -------- -------- -------
Net unrealized appreciation
(depreciation) of
investments:
Beginning of year........... 3,604 9,662
End of year................. (87,659) (221,388 ) 267 25,541 9,600 (11,497)
-------- ---------- ------- -------- -------- -------
Net unrealized appreciation
(depreciation) of
investments during the
year........................ (91,263) (231,050 ) 267 25,541 9,600 (11,497)
-------- ---------- ------- -------- -------- -------
Net realized and unrealized
gain (loss) on
investments................. (72,332) (108,302 ) 997 25,277 9,949 (11,326)
-------- ---------- ------- -------- -------- -------
Net increase (decrease) in net
assets resulting from
operations.................. $(64,346) $(118,206 ) $ 701 $ 22,904 $ 8,874 $(11,312)
======== ========== ======= ======== ======== =======
</TABLE>
See accompanying notes to financial statements
F-14
<PAGE> 88
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends.................................. $ 2,598,029 $ 204,473 $ 351,046 $ 478,546 $ 14,646 $ 13,459
EXPENSES
Mortality and expense risks................ 569,882 29,751 36,204 100,735 50,939 24,339
Operating expense reimbursement............ (18,542) (3,065) (3,863)
------------ ---------- ---------- --------- ---------- -----------
Total expenses............................. 551,340 26,686 32,341 100,735 50,939 24,339
------------ ---------- ---------- --------- ---------- -----------
Net investment income (loss)............... 2,046,689 177,787 318,705 377,811 (36,293) (10,880)
------------ ---------- ---------- --------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested..... 3,362,822 34,873
Net realized gain (loss) from redemption of
investment shares........................ 2,239,680 139,331 230,241 (48,475) 25,580
------------ ---------- ---------- --------- ---------- -----------
Net realized gain (loss) on investments.... 5,602,502 139,331 230,241 (48,475) 60,453
------------ ---------- ---------- --------- ---------- -----------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year........................ 4,658,841 232,292 1,379,794 290,576 (48,462)
End of year.............................. 5,664,372 383,384 2,400,938 960,399 894,279
------------ ---------- ---------- --------- ---------- -----------
Net unrealized appreciation of investments
during the year.......................... 1,005,531 151,092 1,021,144 669,823 942,741
------------ ---------- ---------- --------- ---------- -----------
Net realized and unrealized gain on
investments.............................. 6,608,033 290,423 1,251,385 621,348 1,003,194
------------ ---------- ---------- --------- ---------- -----------
Net increase in net assets resulting from
operations............................... $ 8,654,722 $ 177,787 $ 609,128 $ 1,629,196 $585,055 $ 992,314
============ ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-15
<PAGE> 89
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
1996 2006
SERIES SERIES
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
EXPENSES
Mortality and expense risks........................................................... $ 8,737 $ 12,021
Asset charge.......................................................................... 3,791 4,500
-------- ---------
Net investment loss................................................................... (12,528) (16,521)
-------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from redemption of investment shares................................ 209,652 83,620
-------- ---------
Net realized gain on investments...................................................... 209,652 83,620
-------- ---------
Net unrealized appreciation (depreciation) of investments:
Beginning of year................................................................... 304,301 123,553
End of year......................................................................... 216,172 367,021
-------- ---------
Net unrealized appreciation (depreciation) of investments during the year............. (88,129) 243,468
-------- ---------
Net realized and unrealized gain on investments....................................... 121,523 327,088
-------- ---------
Net increase in net assets resulting from operations.................................. $108,995 $310,567
======== =========
</TABLE>
See accompanying notes to financial statements
F-16
<PAGE> 90
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Period July 30, 1993 (Date of Inception)
to December 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
FIDELITY NEUBERGER NEUBERGER
FIDELITY FIDELITY ASSET FIDELITY & BERMAN & BERMAN
EQUITY-INCOME GROWTH MANAGER INDEX 500 BALANCED GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends.............................. $18,298 $ 6,687
EXPENSES
Mortality and expense risks............ 2,985 $ 5,658 $ 4,248 326 $ 373 $ 897
------- ------- -------- ------ ------ -------
Net investment income (loss)........... 15,313 (5,658) (4,248) 6,361 (373) (897)
------- ------- -------- ------ ------ -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions
reinvested........................... 2,821
Net realized gain from redemption of
investment shares.................... 261 92 740 1,534
------- ------- -------- ------ ------ -------
Net realized gain on investments....... 261 2,913 740 1,534
------- ------- -------- ------ ------ -------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period....................
End of period.......................... 17,789 73,837 177,220 (5,191) 3,604 9,662
------- ------- -------- ------ ------ -------
Net unrealized appreciation
(depreciation) of investments during
the period........................... 17,789 73,837 177,220 (5,191) 3,604 9,662
------- ------- -------- ------ ------ -------
Net realized and unrealized gain (loss)
on investments....................... 18,050 73,837 177,220 (2,278) 4,344 11,196
------- ------- -------- ------ ------ -------
Net increase in net assets resulting
from operations...................... $33,363 $ 68,179 $172,972 $ 4,083 $3,971 $ 10,299
======= ======= ======== ====== ====== =======
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE> 91
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss).... $ 2,947,592 $ 716,274 $ 494,496 $ 905,006 $ (106,115) $ (45,230)
Net realized gain on
investments................... 9,105,358 8,291 527,040 278,367 884,963
Net unrealized appreciation of
investments during the year... 19,484,567 1,104,331 3,731,246 1,711,032 1,765,475
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets
from operations............... 31,537,517 716,274 1,607,118 5,163,292 1,883,284 2,605,208
------------ ------------ ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyowners' net premiums...... 31,018,881 25,991,971 2,748,728 5,437,753 6,979,778 9,246,142
Cost of insurance and
administrative charges........ (10,800,913) (2,892,532) (854,427) (2,184,118) (2,095,129) (2,653,024)
Surrenders and forfeitures...... (6,000,652) (483,482) (459,150) (1,593,554) (741,748) (749,885)
Transfers between investment
portfolios.................... (3,728,068) (18,394,049) (5,935) (1,219,218) 939,005 (706,696)
Net withdrawals due to
policy loans.................. (2,394,343) (216,018) (159,387) (166,162) (463,436) (428,384)
Withdrawals due to death
benefits...................... (179,253) (13) (742) (86,605) (962) (2,302)
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets
derived from policy
transactions.................. 7,915,652 4,005,877 1,269,087 188,096 4,617,508 4,705,851
------------ ------------ ----------- ----------- ----------- -----------
Return of capital to Provident
Mutual Life Insurance
Company....................... (500,000)
------------ ------------ ----------- ----------- ----------- -----------
Total increase in net assets.... 39,453,169 4,222,151 2,876,205 5,351,388 6,500,792 7,311,059
NET ASSETS
Beginning of year............. 102,807,768 12,790,428 7,551,249 21,624,618 12,787,088 16,655,333
------------ ------------ ----------- ----------- ----------- -----------
End of year................... $ 142,260,937 $ 17,012,579 $ 10,427,454 $ 26,976,006 $19,287,880 $23,966,392
============ ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE> 92
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
1996 2006
SERIES SERIES
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss................................................................... $ (15,715 ) $ (33,081 )
Net realized gain on investments...................................................... 46,689 103,889
Net unrealized appreciation of investments during the year............................ 105,560 942,915
---------- ----------
Net increase in net assets from operations............................................ 136,534 1,013,723
---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyowners' net premiums............................................................ 343,230 1,330,797
Cost of insurance and administrative charges.......................................... (138,727 ) (557,882 )
Surrenders and forfeitures............................................................ (43,836 ) (118,177 )
Transfers between investment portfolios............................................... 9,271 435,416
Net withdrawals due to policy loans................................................... (10,176 ) (42,959 )
Withdrawals due to death benefits..................................................... (6,089 ) (13,021 )
---------- ----------
Net increase in net assets derived from policy transactions........................... 153,673 1,034,174
---------- ----------
Total increase in net assets.......................................................... 290,207 2,047,897
NET ASSETS
Beginning of year................................................................... 1,736,395 2,741,865
---------- ----------
End of year......................................................................... $2,026,602 $4,789,762
========== ==========
</TABLE>
See accompanying notes to financial statements
F-19
<PAGE> 93
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INVESTMENT
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 GRADE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income
(loss)..................... $ 387,954 $ (110,156 ) $ 30,555 $ (25,173 ) $ 288,212 $ 14,660 $ 18,815
Net realized gain (loss)
on investments............. 679,147 50,953 6,119 20,298 (74,582 ) 96,656 11,650
Net unrealized appreciation
of investments during the
year....................... 5,151,173 8,635,155 208,946 579,620 3,538,801 1,357,316 175,696
----------- ----------- ---------- ---------- ----------- ---------- ----------
Net increase in net assets
from operations............ 6,218,274 8,575,952 245,620 574,745 3,752,431 1,468,632 206,161
----------- ----------- ---------- ---------- ----------- ---------- ----------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyowners' net premiums... 13,095,871 17,511,135 1,445,564 3,784,564 10,792,167 4,239,917 1,185,287
Cost of insurance and
administrative charges..... (3,309,981 ) (4,789,358 ) (294,993 ) (928,908 ) (3,421,593 ) (917,384 ) (302,207 )
Surrenders and forfeitures... (472,892 ) (862,489 ) (37,516 ) (109,478 ) (1,270,363 ) (258,007 ) (19,498 )
Transfers between investment
portfolios................. 6,941,542 6,044,742 1,436,977 2,186,754 (3,131,839 ) 2,120,394 724,450
Net withdrawals due to
policy loans............... (527,820 ) (732,057 ) (11,036 ) (116,872 ) (272,150 ) (126,445 ) (43,336 )
Withdrawals due to
death benefits............. (944 ) (4,026 ) (1,606 ) (650 ) (842 )
----------- ----------- ---------- ---------- ----------- ---------- ----------
Net increase in net assets
derived from policy
transactions............... 15,725,776 17,167,947 2,537,390 4,815,410 2,695,380 5,058,475 1,544,696
----------- ----------- ---------- ---------- ----------- ---------- ----------
Total increase in net
assets..................... 21,944,050 25,743,899 2,783,010 5,390,155 6,447,811 6,527,107 1,750,857
NET ASSETS
Beginning of year.......... 11,786,437 20,592,830 517,328 3,161,555 20,666,739 2,405,880 595,864
----------- ----------- ---------- ---------- ----------- ---------- ----------
End of year................ $33,730,487 $46,336,729 $3,300,338 $8,551,710 $27,114,550 $8,932,987 $2,346,721
=========== =========== ========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE> 94
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------
NEUBERGER NEUBERGER NEUBERGER VAN ECK VAN ECK
& BERMAN & BERMAN & BERMAN LIMITED TCI WORLDWIDE GOLD AND NATURAL
BALANCED GROWTH MATURITY BOND GROWTH BOND RESOURCES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income
(loss)...................... $ 20,552 $ (37,491 ) $ 11,154 $ (17,326 ) $ 81,450 $ 2,502
Net realized gain (loss) on
investments................. 26,630 123,296 2,057 24,415 9,650 (2,771)
Net unrealized appreciation of
investments during the
year........................ 425,461 1,361,959 44,428 558,573 60,522 76,939
---------- ---------- -------- ---------- -------- --------
Net increase in net assets
from operations............. 472,643 1,447,764 57,639 565,662 151,622 76,670
---------- ---------- -------- ---------- -------- --------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyowners' net premiums.... 1,179,627 4,320,950 436,960 2,085,717 756,804 418,351
Cost of insurance and
administrative charges...... (478,895 ) (1,153,245 ) (99,801) (491,728 ) (179,695 ) (130,611)
Surrenders and forfeitures.... (151,809 ) (214,306 ) (1,233) (119,956 ) (36,252 ) (39,102)
Transfers between investment
portfolios.................. 415,228 2,575,178 495,684 1,896,269 507,453 179,444
Net withdrawals due to policy
loans....................... (56,816 ) (129,622 ) (2,306) (35,265 ) (25,846 ) (8,641)
Withdrawals due to death
benefits.................... (22 ) (5,466 ) (502 )
---------- ---------- -------- ---------- -------- --------
Net increase in net assets
derived from policy
transactions................ 907,313 5,393,489 829,304 3,334,535 1,022,464 419,441
---------- ---------- -------- ---------- -------- --------
Total increase in net
assets...................... 1,379,956 6,841,253 886,943 3,900,197 1,174,086 496,111
NET ASSETS
Beginning of year........... 1,843,348 3,764,652 221,419 1,131,579 638,282 405,169
---------- ---------- -------- ---------- -------- --------
End of year................. $3,223,304 $10,605,905 $1,108,362 $5,031,776 $1,812,368 $ 901,280
========== ========== ======== ========== ======== ========
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE> 95
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss).... $ 2,296,069 $ 295,043 $ 378,025 $ 713,419 $ (69,831) $ (67,433)
Net realized gain on
investments................... 1,320,676 206,653 1,307,867 17,586 320,958
Net unrealized appreciation
(depreciation) of investments
during the year............... (1,904,256) (1,044,101) (2,569,416) 40,255 (521,595)
------------ ----------- ---------- ----------- ----------- -----------
Net increase (decrease) in net
assets from operations........ 1,712,489 295,043 (459,423) (548,130) (11,990) (268,070)
------------ ----------- ---------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyowners' net premiums...... 32,073,847 26,832,956 2,395,570 6,730,502 5,400,860 8,417,599
Cost of insurance and
administrative charges........ (11,488,613) (1,844,311) (722,171) (2,516,072) (1,702,505) (2,137,893)
Surrenders and forfeitures...... (6,074,016) (379,092) (390,546) (1,279,553) (491,142) (415,597)
Transfers between investment
portfolios.................... (11,701,585) (19,508,999) (117,956) (938,232) (295,222) 3,419,821
Net withdrawals due to
policy loans.................. (1,190,781) (65,552) (159,300) (317,032) (115,478) (151,310)
Withdrawals due to
death benefits................ (34,657) (293) (23,244) (79,354) (1,117)
------------ ----------- ---------- ----------- ----------- -----------
Net increase in net assets
derived from policy
transactions.................. 1,584,195 5,034,709 982,353 1,600,259 2,795,396 9,132,620
------------ ----------- ---------- ----------- ----------- -----------
Return of capital to Provident
Mutual Life Insurance
Company....................... (1,300,000) (2,500,000) (500,000) (100,000)
------------ ----------- ---------- ----------- ----------- -----------
Total increase in net assets.... 1,996,684 2,829,752 22,930 952,129 2,783,406 8,864,550
NET ASSETS
Beginning of year............. 100,811,084 9,960,676 7,528,319 20,672,489 10,003,682 7,790,783
------------ ----------- ---------- ----------- ----------- -----------
End of year................... $ 102,807,768 $ 12,790,428 $ 7,551,249 $ 21,624,618 $12,787,088 $16,655,333
============ =========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-22
<PAGE> 96
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
1996 2006
SERIES SERIES
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss................................................................... $ (13,728 ) $ (21,709 )
Net realized gain on investments...................................................... 133,126 174,318
Net unrealized depreciation of investments during the year............................ (126,417 ) (399,697 )
---------- ----------
Net decrease in net assets from operations............................................ (7,019 ) (247,088 )
---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyowners' net premiums............................................................ 298,778 1,319,905
Cost of insurance and administrative charges.......................................... (123,276 ) (520,009 )
Surrenders and forfeitures............................................................ (239,993 ) (59,803 )
Transfers between investment portfolios............................................... (163,212 ) (57,040 )
Net repayments (withdrawals) due to policy loans...................................... 110,200 (21,660 )
Withdrawals due to death benefits..................................................... (76,716 )
---------- ----------
Net increase (decrease) in net assets derived from policy transactions................ (117,503 ) 584,677
---------- ----------
Total increase (decrease) in net assets............................................... (124,522 ) 337,589
NET ASSETS
Beginning of year................................................................... 1,860,917 2,404,276
---------- ----------
End of year......................................................................... $1,736,395 $2,741,865
========== ==========
</TABLE>
See accompanying notes to financial statements
F-23
<PAGE> 97
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY INVESTMENT
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500 GRADE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income
(loss)..................... $ 139,540 $ (53,346 ) $ (859) $ (5,635 ) $ 46,417 $ (8,356 ) $ (827)
Net realized gain (loss) on
investments................ 178,771 381,019 36 218,180 (3,676 ) 76
Net unrealized appreciation
(depreciation) of
investments during the
year....................... 62,245 (13,658 ) (1,350) (77,282 ) (1,290,966 ) 25,450 (2,065)
----------- ----------- -------- ---------- ----------- ---------- --------
Net increase (decrease) in
net assets from
operations................. 380,556 314,015 (2,173) (82,917 ) (1,026,369 ) 13,418 (2,816)
----------- ----------- -------- ---------- ----------- ---------- --------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyowners' net premiums... 5,551,283 10,832,297 186,378 1,050,375 9,671,149 1,598,160 241,144
Cost of insurance and
administrative charges..... (1,265,129 ) (2,671,488 ) (31,764) (170,165 ) (2,399,851 ) (314,407 ) (32,175)
Surrenders and forfeitures... (132,728 ) (309,821 ) (928) (34,253 ) (272,749 ) (9,218 ) (1,015)
Transfers between investment
portfolios................. 4,261,977 6,924,780 347,006 2,369,734 10,242,354 782,658 365,717
Net repayments (withdrawals)
due to policy loans........ (46,568 ) (199,085 ) (6,191) 3,781 (3,620 ) (2,272 ) 9
----------- ----------- -------- ---------- ----------- ---------- --------
Net increase in net assets
derived from policy
transactions............... 8,368,835 14,576,683 494,501 3,219,472 17,237,283 2,054,921 573,680
----------- ----------- -------- ---------- ----------- ---------- --------
Capital contribution from
Provident Mutual Life
Insurance Company.......... 25,000 25,000 25,000
----------- ----------- -------- ---------- ----------- ---------- --------
Total increase in net
assets..................... 8,749,391 14,890,698 517,328 3,161,555 16,210,914 2,068,339 595,864
NET ASSETS
Beginning of year.......... 3,037,046 5,702,132 -- -- 4,455,825 337,541 --
----------- ----------- -------- ---------- ----------- ---------- --------
End of year................ $11,786,437 $20,592,830 $517,328 $3,161,555 $20,666,739 $2,405,880 $595,864
=========== =========== ======== ========== =========== ========== ========
</TABLE>
See accompanying notes to financial statements
F-24
<PAGE> 98
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
NEUBERGER NEUBERGER NEUBERGER VAN ECK VAN ECK
& BERMAN & BERMAN & BERMAN LIMITED TCI WORLDWIDE GOLD AND NATURAL
BALANCED GROWTH MATURITY BOND GROWTH BOND RESOURCES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income
(loss)...................... $ 7,986 $ (9,904 ) $ (296) $ (2,373 ) $ (1,075) $ 14
Net realized gain (loss) on
investments................. 18,931 122,748 730 (264 ) 349 171
Net unrealized appreciation
(depreciation) of
investments during the
year........................ (91,263 ) (231,050 ) 267 25,541 9,600 (11,497)
---------- ---------- -------- ---------- -------- --------
Net increase (decrease) in net
assets from operations...... (64,346 ) (118,206 ) 701 22,904 8,874 (11,312)
---------- ---------- -------- ---------- -------- --------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyowners' net premiums.... 860,866 2,004,874 71,398 441,248 198,216 130,837
Cost of insurance and
administrative charges...... (276,705 ) (534,031 ) (16,110) (84,751 ) (34,637) (26,284)
Surrenders and forfeitures.... (7,129 ) (46,226 ) (8) (29,550 ) (19,484) (905)
Transfers between investment
portfolios.................. 933,031 1,446,509 140,427 751,260 455,077 291,264
Net repayments (withdrawals)
due to policy loans......... (11,834 ) (11,021 ) 11 5,468 5,236 (3,431)
---------- ---------- -------- ---------- -------- --------
Net increase in net assets
derived from policy
transactions................ 1,498,229 2,860,105 195,718 1,083,675 604,408 391,481
---------- ---------- -------- ---------- -------- --------
Capital contribution from
Provident Mutual Life
Insurance Company........... 25,000 25,000 25,000 25,000
---------- ---------- -------- ---------- -------- --------
Total increase in net
assets...................... 1,433,883 2,741,899 221,419 1,131,579 638,282 405,169
NET ASSETS
Beginning of year........... 409,465 1,022,753 -- -- -- --
---------- ---------- -------- ---------- -------- --------
End of year................. $1,843,348 $3,764,652 $221,419 $1,131,579 $638,282 $405,169
========== ========== ======== ========== ======== ========
</TABLE>
See accompanying notes to financial statements
F-25
<PAGE> 99
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss)....... $ 2,046,689 $ 177,787 $ 318,705 $ 377,811 $ (36,293) $ (10,880)
Net realized gain on investments... 5,602,502 139,331 230,241 (48,475) 60,453
Net unrealized appreciation of
investments during the year...... 1,005,531 151,092 1,021,144 669,823 942,741
------------ ----------- ---------- ----------- ----------- -----------
Net increase in net assets from
operations....................... 8,654,722 177,787 609,128 1,629,196 585,055 992,314
------------ ----------- ---------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyowners' net premiums......... 41,302,955 10,659,122 2,468,712 7,263,463 5,847,548 3,008,029
Cost of insurance and
administrative charges........... (12,735,311) (1,045,287) (629,254) (2,012,715) (1,657,184) (650,724)
Surrenders and forfeitures......... (5,570,627) (248,023) (359,714) (848,018) (363,244) (121,576)
Transfers between investment
portfolios....................... (9,049,583) (7,297,047) (10,380) 1,964,338 (604,558) 3,054,327
Net withdrawals due to
policy loans..................... (1,665,759) (101,482) (114,126) (417,872) (193,321) (36,628)
Net withdrawals due to
death benefits................... (140,557) (5,269) (69,455) (32,332) (4,857) (10,187)
------------ ----------- ---------- ----------- ----------- -----------
Net increase in net assets derived
from policy transactions......... 12,141,118 1,962,014 1,285,783 5,916,864 3,024,384 5,243,241
------------ ----------- ---------- ----------- ----------- -----------
Total increase in net assets....... 20,795,840 2,139,801 1,894,911 7,546,060 3,609,439 6,235,555
NET ASSETS
Beginning of year................ 80,015,244 7,820,875 5,633,408 13,126,429 6,394,243 1,555,228
------------ ----------- ---------- ----------- ----------- -----------
End of year...................... $ 100,811,084 $ 9,960,676 $ 7,528,319 $ 20,672,489 $10,003,682 $ 7,790,783
============ =========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-26
<PAGE> 100
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
1996 2006
SERIES SERIES
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss................................................................... $ (12,528 ) $ (16,521 )
Net realized gain on investments...................................................... 209,652 83,620
Net unrealized appreciation (depreciation) of investments during the year............. (88,129 ) 243,468
---------- ----------
Net increase in net assets from operations............................................ 108,995 310,567
---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyowners' net premiums............................................................ 270,276 948,636
Cost of insurance and administrative charges.......................................... (104,956 ) (281,444 )
Surrenders and forfeitures............................................................ (45,800 ) (38,202 )
Transfers between investment portfolios............................................... 386,445 145,014
Net repayments (withdrawals) due to policy loans...................................... (121,456 ) (3,520 )
---------- ----------
Net increase in net assets derived from policy transactions........................... 384,509 770,484
---------- ----------
Total increase in net assets.......................................................... 493,504 1,081,051
NET ASSETS
Beginning of year................................................................... 1,367,413 1,323,225
---------- ----------
End of year......................................................................... $1,860,917 $2,404,276
========== ==========
</TABLE>
See accompanying notes to financial statements
F-27
<PAGE> 101
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Period July 30, 1993 (Date of
Inception) to December 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY NEUBERGER NEUBERGER
EQUITY- FIDELITY ASSET FIDELITY & BERMAN & BERMAN
INCOME GROWTH MANAGER INDEX 500 BALANCED GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss)....... $ 15,313 $ (5,658 ) $ (4,248 ) $ 6,361 $ (373) $ (897 )
Net realized gain on investments... 261 2,913 740 1,534
Net unrealized appreciation
(depreciation) of investments
during the period................ 17,789 73,837 177,220 (5,191) 3,604 9,662
---------- ---------- ---------- -------- -------- ----------
Net increase in net assets from
operations....................... 33,363 68,179 172,972 4,083 3,971 10,299
---------- ---------- ---------- -------- -------- ----------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyowners' net premiums......... 808,888 1,331,780 990,009 109,112 141,640 342,464
Cost of insurance and
administrative charges........... (97,822 ) (207,265 ) (123,856 ) (15,141) (17,846) (39,761 )
Surrenders and forfeitures......... (22,039 ) (29,822 ) (16,190 ) (2,298 )
Transfers between investment
portfolios....................... 2,286,678 4,524,451 3,406,898 217,374 257,438 686,249
Net repayments (withdrawals) due to
policy loans..................... 2,978 (10,191 ) 992 (2,887) (738) 800
---------- ---------- ---------- -------- -------- ----------
Net increase in net assets derived
from policy transactions......... 2,978,683 5,608,953 4,257,853 308,458 380,494 987,454
---------- ---------- ---------- -------- -------- ----------
Capital contribution from Provident
Mutual Life Insurance Company.... 25,000 25,000 25,000 25,000 25,000 25,000
---------- ---------- ---------- -------- -------- ----------
Total increase in net assets....... 3,037,046 5,702,132 4,455,825 337,541 409,465 1,022,753
NET ASSETS
Beginning of period
---------- ---------- ---------- -------- -------- ----------
End of period...................... $3,037,046 $5,702,132 $4,455,825 $337,541 $409,465 $1,022,753
========== ========== ========== ======== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-28
<PAGE> 102
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Growth, Money Market, Bond, Managed, Aggressive Growth, International,
Zero Coupon Bond and Variable Separate Accounts (Separate Accounts) were
established by Provident Mutual Life Insurance Company (Provident Mutual) under
the provisions of the Pennsylvania Insurance Law. Each Separate Account is a
separate investment account to which assets are allocated to support the
benefits payable under single premium, modified premium, scheduled premium and
flexible premium adjustable variable life insurance policies (the Policies). The
Aggressive Growth, International, and Variable Separate Accounts are not
available with single premium and scheduled premium policies. The Zero Coupon
Bond Separate Account is not available with scheduled premium policies.
The Policies are distributed principally through career agents and brokers.
Provident Mutual has structured the Separate Accounts as unit investment
trusts registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended.
The Growth, Money Market, Bond, Managed, Aggressive Growth and
International Separate Accounts invest in the corresponding portfolios of the
Market Street Fund, Inc.
The Zero Coupon Bond Separate Account is comprised of two Subaccounts.
Funds are transferred to Merrill Lynch, Pierce, Fenner & Smith (MLPFS), who
serves as sponsor of The Stripped ("Zero") U.S. Treasury Securities Fund,
Provident Mutual Series A (Zero Coupon Trust). The 1996 Series and the 2006
Series Subaccounts invest in the designated series of the Zero Coupon Trust.
The Variable Separate Account is comprised of thirteen Subaccounts: the
Fidelity Equity-Income, Fidelity Growth, Fidelity High Income and Fidelity
Overseas Subaccounts invest in the corresponding portfolios of the Variable
Insurance Products Fund; the Fidelity Asset Manager, Fidelity Index 500 and
Fidelity Investment Grade Bond Subaccounts invest in the corresponding
portfolios of the Variable Insurance Products Fund II; the Neuberger & Berman
Balanced, Neuberger & Berman Growth and Neuberger & Berman Limited Maturity Bond
Subaccounts invest in the corresponding portfolios of the Neuberger & Berman
Advisers Management Trust; the TCI Growth Subaccount invests in the
corresponding portfolio of the TCI Portfolios, Inc.; and the Van Eck Worldwide
Bond and Van Eck Gold and Natural Resources Subaccounts invest in the
corresponding portfolios of the Van Eck Worldwide Insurance Trust. During 1995,
the Van Eck Worldwide Bond Subaccount changed its name from the Van Eck Global
Bond Subaccount and the Van Eck Worldwide Insurance Trust changed its name from
the Van Eck Investment Trust.
Net premiums from in-force Policies are allocated to the Separate Accounts
in accordance with policyowner instructions and are recorded as variable life
policy transactions in the statements of changes in net assets. Such amounts are
used to provide money to pay benefits under the Policies (Note 4). Each Separate
Account's assets are the property of Provident Mutual.
F-29
<PAGE> 103
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. ORGANIZATION, CONTINUED:
Transfers between investment portfolios include transfers between the
Separate Accounts and the Guaranteed Account (not shown), which is part of
Provident Mutual's General Account.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Separate Accounts included in the financial statements.
Investment Valuation:
Investment shares are valued at the net asset values of the respective
Portfolios. Transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date.
Realized Gains and Losses:
Realized gains and losses on sales of investment shares are determined
using the specific identification basis for financial reporting and income tax
purposes.
Federal Income Taxes:
The operations of the Separate Accounts are included in the Federal income
tax return of Provident Mutual. Under the provisions of the Policies, Provident
Mutual has the right to charge the Separate Accounts for Federal income tax
attributable to the Separate Accounts. No charge is currently being made against
the Separate Accounts for such tax.
Estimates:
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities as of December 31, 1995 and the reported amounts from
operations and policy transactions during 1995, 1994 and 1993. Actual results
could differ from those estimates.
F-30
<PAGE> 104
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1995, the investments of the respective Separate
Accounts/Subaccounts are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Market Street Fund, Inc.:
Growth Portfolio................................ 8,701,018 $119,103,963 $142,348,646
Money Market Portfolio.......................... 16,709,104 $16,709,104 $16,709,104
Bond Portfolio.................................. 949,265 $9,998,305 $10,441,919
Managed Portfolio............................... 1,902,109 $23,428,156 $26,990,924
Aggressive Growth Portfolio..................... 1,109,778 $16,576,194 $19,287,880
International Portfolio......................... 1,863,636 $21,828,233 $23,966,392
The Stripped ("Zero") U.S. Treasury Securities
Fund, Provident Mutual Series A:
1996 Series..................................... 2,063,170 $1,832,183 $2,027,498
2006 Series..................................... 8,362,090 $3,880,068 $4,790,307
Variable Insurance Products Fund:
Equity-Income Portfolio......................... 1,751,196 $28,514,334 $33,745,541
Growth Portfolio................................ 1,587,369 $37,655,848 $46,351,182
High Income Portfolio........................... 275,109 $3,107,463 $3,315,059
Overseas Portfolio.............................. 501,567 $8,049,372 $8,551,710
Variable Insurance Products Fund II:
Asset Manager Portfolio......................... 1,717,198 $24,689,495 $27,114,550
Index 500 Portfolio............................. 117,990 $7,555,412 $8,932,987
Investment Grade Bond Portfolio................. 188,039 $2,173,090 $2,346,721
Neuberger & Berman Advisers Management Trust:
Balanced Portfolio.............................. 183,979 $2,885,502 $3,223,304
Growth Portfolio................................ 410,688 $9,479,812 $10,620,383
Limited Maturity Bond Portfolio................. 75,347 $1,063,667 $1,108,362
TCI Portfolios, Inc.:
TCI Growth Portfolio............................ 418,478 $4,462,730 $5,046,844
Van Eck Worldwide Insurance Trust:
Worldwide Bond Portfolio........................ 162,690 $1,742,246 $1,812,368
Gold and Natural Resources Portfolio............ 62,502 $835,838 $901,280
</TABLE>
F-31
<PAGE> 105
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the years ended December 31, 1995, 1994 and 1993, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................... 1,059,897 1,080,717 1,707,590 13,655,624 17,190,183 6,775,142
Shares received from reinvestment
of:
Dividends........................ 256,696 209,566 192,436 871,001 311,999 203,382
Capital gain distributions....... 601,004 5,192 256,623
----------- ----------- ----------- ----------- ------------ ----------
Total shares acquired.............. 1,917,597 1,295,475 2,156,649 14,526,625 17,502,182 6,978,524
Total shares redeemed.............. (565,932) (1,109,401) (813,191) (10,536,224) (14,410,319) (5,032,299)
----------- ----------- ----------- ----------- ------------ ----------
Net increase in shares owned....... 1,351,665 186,074 1,343,458 3,990,401 3,091,863 1,946,225
Shares owned, beginning of year.... 7,349,353 7,163,279 5,819,821 12,718,703 9,626,840 7,680,615
----------- ----------- ----------- ----------- ------------ ----------
Shares owned, end of year.......... 8,701,018 7,349,353 7,163,279 16,709,104 12,718,703 9,626,840
=========== =========== =========== =========== ============ ==========
Cost of shares acquired............ $27,059,436 $18,166,403 $29,090,935 $14,526,625 $17,502,182 $ 6,978,524
=========== =========== =========== =========== ============ ==========
Cost of shares redeemed............ $ 7,086,303 $14,301,798 $ 9,048,483 $10,536,224 $14,410,319 $ 5,032,299
=========== =========== =========== =========== ============ ==========
</TABLE>
F-32
<PAGE> 106
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO MANAGED PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 192,313 215,657 241,829 208,590 404,364 529,511
Shares received from reinvestment of:
Dividends............................... 53,908 41,462 31,894 83,429 69,944 37,456
Capital gain distributions.............. 16,975 2,072 74,713
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired..................... 246,221 274,094 273,723 294,091 549,021 566,967
Total shares redeemed..................... (74,556) (169,094) (126,024) (204,288) (289,831) (84,997)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.............. 171,665 105,000 147,699 89,803 259,190 481,970
Shares owned, beginning of year........... 777,600 672,600 524,901 1,812,306 1,553,116 1,071,146
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year................. 949,265 777,600 672,600 1,902,109 1,812,306 1,553,116
========== ========== ========== ========== ========== ==========
Cost of shares acquired................... $2,538,587 $2,786,406 $3,027,281 $3,791,908 $6,775,390 $7,352,456
========== ========== ========== ========== ========== ==========
Cost of shares redeemed................... $ 767,042 $1,716,106 $1,271,745 $2,171,165 $3,176,894 $ 888,939
========== ========== ========== ========== ========== ==========
</TABLE>
F-33
<PAGE> 107
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
------------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......................... 336,867 285,002 303,002 524,968 844,765 497,174
Shares received from reinvestment of:
Dividends.............................. 1,011 8,442 1,888 1,536
Capital gain distributions............. 7,271 39,890 13,188 3,981
---------- ---------- ---------- ---------- ---------- -----------
Total shares acquired.................... 344,138 285,002 304,013 573,300 859,841 502,691
Total shares redeemed.................... (62,003) (101,582) (93,130) (141,765) (74,503) (28,201)
---------- ---------- ---------- ---------- ---------- -----------
Net increase in shares owned............. 282,135 183,420 210,883 431,535 785,338 474,490
Shares owned, beginning of year.......... 827,643 644,223 433,340 1,432,101 646,763 172,273
---------- ---------- ---------- ---------- ---------- -----------
Shares owned, end of year................ 1,109,778 827,643 644,223 1,863,636 1,432,101 646,763
---------- ---------- ---------- ---------- ---------- -----------
Cost of shares acquired.................. $5,631,340 $4,286,558 $4,279,618 $6,827,356 $10,211,219 $5,451,619
========== ========== ========== ========== ========== ===========
Cost of shares redeemed.................. $ 841,580 $1,492,974 $1,374,378 $1,281,772 $ 711,372 $ 267,159
========== ========== ========== ========== ========== ===========
</TABLE>
F-34
<PAGE> 108
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES
FUND, PROVIDENT MUTUAL SERIES A
------------------------------------------------------------------------------------------------------------------
1996 SERIES 2006 SERIES
------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 364,596 405,453 992,348 2,903,418 3,167,109 2,172,457
Shares received from reinvestment of:
Dividends...............................
Capital gain distributions..............
---------- ---------- ---------- ---------- ---------- -----------
Total shares acquired..................... 364,596 405,453 992,348 2,903,418 3,167,109 2,172,457
Total shares redeemed..................... (217,641) (552,954) (574,388) (935,891) (1,839,197) (556,458)
---------- ---------- ---------- ---------- ---------- -----------
Net increase (decrease) in shares owned... 146,955 (147,501) 417,960 1,967,527 1,327,912 1,615,999
Shares owned, beginning of year........... 1,916,215 2,063,716 1,645,756 6,394,563 5,066,651 3,450,652
---------- ---------- ---------- ---------- ---------- -----------
Shares owned, end of year................. 2,063,170 1,916,215 2,063,716 8,362,090 6,394,563 5,066,651
========== ========== ========== ========== ========== ===========
Cost of shares acquired................... $ 345,561 $ 365,288 $ 885,300 $1,461,490 $1,375,238 $ 997,897
========== ========== ========== ========== ========== ===========
Cost of shares redeemed................... $ 160,308 $ 365,268 $ 303,737 $ 353,785 $ 633,039 $ 167,747
========== ========== ========== ========== ========== ===========
</TABLE>
F-35
<PAGE> 109
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND
------------------------------------------------------------------------------------------------------------------
EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
1995 1994 1993* 1995 1994 1993*
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased....................... 937,870 565,671 192,238 659,784 702,697 241,595
Shares received from reinvestment of:
Dividends............................ 30,564 12,305 1,198 5,481 1,723
Capital gain distributions........... 42,404 12,169 18,232
----------- ---------- ---------- ----------- ----------- ----------
Total shares acquired.................. 1,010,838 590,145 193,436 665,265 722,652 241,595
Total shares redeemed.................. (27,488) (15,098) (637) (27,312) (14,831)
----------- ---------- ---------- ----------- ----------- ----------
Net increase in shares owned........... 983,350 575,047 192,799 637,953 707,821 241,595
Shares owned, beginning of year........ 767,846 192,799 949,416 241,595
----------- ---------- ---------- ----------- ----------- ----------
Shares owned, end of year.............. 1,751,196 767,846 192,799 1,587,369 949,416 241,595
=========== ========== ========== =========== =========== ==========
Cost of shares acquired................ $17,235,825 $8,978,638 $2,968,531 $17,731,718 $15,362,715 $5,502,172
=========== ========== ========== =========== =========== ==========
Cost of shares redeemed................ $ 427,894 $ 231,263 $ 9,503 $ 608,521 $ 332,236 $
=========== ========== ========== =========== =========== ==========
</TABLE>
* For the period July 30, 1993 (date of inception) to December 31, 1993.
F-36
<PAGE> 110
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND
------------------------------------------------------------------------------------------------------------------
HIGH INCOME PORTFOLIO OVERSEAS PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased.............................................. 232,086 49,207 316,944 201,774
Shares received from reinvestment of:
Dividends................................................... 4,088 971
Capital gain distributions.................................. 971
---------- -------- ---------- ----------
Total shares acquired......................................... 236,174 49,207 318,886 201,774
Total shares redeemed......................................... (9,155) (1,117) (19,077) (16)
---------- -------- ---------- ----------
Net increase in shares owned.................................. 227,019 48,090 299,809 201,758
Shares owned, beginning of year............................... 48,090 201,758
---------- -------- ---------- ----------
Shares owned, end of year..................................... 275,109 48,090 501,567 201,758
========== ======== ========== ==========
Cost of shares acquired....................................... $2,687,554 $530,853 $5,114,360 $3,239,101
========== ======== ========== ==========
Cost of shares redeemed....................................... $ 98,892 $ 12,052 $ 303,825 $ 264
========== ======== ========== ==========
</TABLE>
* For the period July 30, 1993 (date of inception) to December 31, 1993.
F-37
<PAGE> 111
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
------------------------------------------------------------------------------------------------------------------
ASSET MANAGER PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1993*
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................................. 489,727 1,215,379 280,749
Shares received from reinvestment of:
Dividends.................................................................. 33,935 9,853
Capital gain distributions................................................. 14,760
---------- ----------- ----------
Total shares acquired........................................................ 523,662 1,239,992 280,749
Total shares redeemed........................................................ (305,140) (22,065)
---------- ----------- ----------
Net increase in shares owned................................................. 218,522 1,217,927 280,749
Shares owned, beginning of year.............................................. 1,498,676 280,749
---------- ----------- ----------
Shares owned, end of year.................................................... 1,717,198 1,498,676 280,749
========== =========== ==========
Cost of shares acquired...................................................... $7,461,536 $17,945,452 $4,151,925
========== =========== ==========
Cost of shares redeemed...................................................... $4,552,526 $ 316,892
========== =========== ==========
</TABLE>
* For the period July 30, 1993 (date of inception) to December 31, 1993.
F-38
<PAGE> 112
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE
INDEX 500 PORTFOLIO BOND PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1993* 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased......................................... 88,644 42,480 5,665 148,445 55,695
Shares received from reinvestment of:
Dividends.............................................. 868 120 2,620
Capital gain distributions............................. 119 19 51
---------- ---------- -------- ---------- --------
Total shares acquired.................................... 89,631 42,499 5,836 151,065 55,695
Total shares redeemed.................................... (14,435) (5,494) (47) (17,097) (1,624)
---------- ---------- -------- ---------- --------
Net increase in shares owned............................. 75,196 37,005 5,789 133,968 54,071
Shares owned, beginning of year.......................... 42,794 5,789 54,071
---------- ---------- -------- ---------- --------
Shares owned, end of year................................ 117,990 42,794 5,789 188,039 54,071
========== ========== ======== ========== ========
Cost of shares acquired.................................. $5,976,098 $2,369,165 $330,466 $1,765,445 $615,840
========== ========== ======== ========== ========
Cost of shares redeemed.................................. $ 806,307 $ 311,392 $ 2,618 $ 190,284 $ 17,911
========== ========== ======== ========== ========
</TABLE>
* For the period July 30, 1993 (date of inception) to December 31, 1993.
F-39
<PAGE> 113
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1993*
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased................................................................ 74,181 112,008 26,901
Shares received from reinvestment of:
Dividends..................................................................... 2,584 1,201
Capital gain distributions.................................................... 830 1,985
---------- ---------- --------
Total shares acquired........................................................... 77,595 115,194 26,901
Total shares redeemed........................................................... (20,656) (13,992) (1,063)
---------- ---------- --------
Net increase in shares owned.................................................... 56,939 101,202 25,838
Shares owned, beginning of year................................................. 127,040 25,838
---------- ---------- --------
Shares owned, end of year....................................................... 183,979 127,040 25,838
========== ========== ========
Cost of shares acquired......................................................... $1,276,739 $1,747,257 $415,727
========== ========== ========
Cost of shares redeemed......................................................... $ 322,244 $ 216,239 $ 15,738
========== ========== ========
</TABLE>
* For the period July 30, 1993 (date of inception) to December 31, 1993.
F-40
<PAGE> 114
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
------------------------------------------------------------------------------------------------------------------
LIMITED MATURITY
GROWTH PORTFOLIO BOND PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1993* 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased......................................... 228,427 148,623 42,605 64,863 22,298
Shares received from reinvestment of:
Dividends.............................................. 490 326 1,128
Capital gain distributions............................. 6,560 6,741
---------- ---------- -------- ------- -------
Total shares acquired.................................... 235,477 155,690 42,605 65,991 22,298
Total shares redeemed.................................... (10,148) (11,266) (1,670) (6,437) (6,505)
---------- ---------- -------- ------- -------
Net increase in shares owned............................. 225,329 144,424 40,935 59,554 15,793
Shares owned, beginning of year.......................... 185,359 40,835 15,793
---------- ---------- -------- ------- -------
Shares owned, end of year................................ 410,688 185,359 40,935 75,347 15,793
========== ========== ======== ======== ========
Cost of shares acquired.................................. $5,737,857 $3,274,504 $1,022,479 $932,610 $311,339
========== ========== ======== ======== ========
Cost of shares redeemed.................................. $ 244,085 $ 272,703 $ 38,240 $ 90,095 $ 90,187
========== ========== ======== ======== ========
</TABLE>
* For the period July 30, 1993 (date of inception) to December 31, 1993.
F-41
<PAGE> 115
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TCI PORTFOLIOS, INC. VAN ECK WORLDWIDE INSURANCE TRUST
------------------------------------------------------------------------------------------------------------------
TCI GROWTH PORTFOLIO WORLDWIDE BOND GOLD AND NATURAL
PORTFOLIO RESOURCES PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................... 308,637 124,514 101,345 64,509 49,696 31,344
Shares received from reinvestment of:
Dividends.................................... 145 8,113 534
Capital gain distributions................... 11 46
---------- ---------- ---------- ---------- -------- --------
Total shares acquired.......................... 308,782 124,514 109,458 64,520 50,230 31,390
Total shares redeemed.......................... (13,168) (1,650) (9,283) (2,005) (18,610) (508)
---------- ---------- ---------- ---------- -------- --------
Net increase in shares owned................... 295,614 122,864 100,175 62,515 31,620 30,882
Shares owned, beginning of year................ 122,864 62,515 30,882
---------- ---------- ---------- ---------- -------- --------
Shares owned, end of year...................... 418,478 122,864 162,690 62,515 62,502 30,882
========== ========== ========== ========== ======== ========
Cost of shares acquired........................ $3,475,266 $1,121,214 $1,204,346 $648,828 $674,277 $423,320
========== ========== ========== ========== ======== ========
Cost of shares redeemed........................ $ 118,574 $ 15,176 $ 90,782 $ 20,146 $255,105 $ 6,654
========== ========== ========== ========== ======== ========
</TABLE>
F-42
<PAGE> 116
- --------------------------------------------------------------------------------
The Variable Separate Accounts of
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
Provident Mutual makes certain deductions from premiums before amounts are
allocated to each Separate Account selected by the policyowner. The deductions
may include (1) administrative charges, (2) state premium taxes, (3) premium
processing charges, (4) premiums for supplementary benefits, (5) premiums for
extra mortality risks, (6) sales charges, (7) premiums for optional benefits,
and (8) a risk charge for the guaranteed minimum death benefit. See original
policy documents for specific charges assessed.
In addition to the aforementioned charges, each Separate Account is charged
for mortality and expense risks assumed by Provident Mutual. The annual rates
charged to cover these risks are:
For scheduled premium and single premium policies -- currently 0.35% of the
net assets held for the benefit of policyowners.
For modified premium policies -- currently 0.60% of the net assets held for
the benefit of policyowners.
For flexible premium adjustable policies ("OptionsPlus") -- currently 0.75%
of the net assets held for the benefit of policyowners, guaranteed not to
exceed 0.90%.
For flexible premium adjustable survivorship policies ("Survivor
OptionsPlus") -- currently 0.60% of the net assets held for the benefit of
policyowners, guaranteed not to exceed 0.90%.
For flexible premium adjustable policies (other than "OptionsPlus") --
currently 0.75% of the net assets held for the benefit of policyowners.
Each Separate Account is also charged by Provident Mutual for the cost of
insurance protection. For single premium policies, the charge is accrued daily
and deducted from the amount provided for investment annually. For scheduled
premium, modified premium and flexible premium adjustable policies, the charge
is deducted monthly. The amount of the charge is computed based upon the amount
of insurance provided during the year and the insured's attained age. Depending
upon the type of policy, additional monthly deductions may be made for (1)
administrative charges, (2) minimum death benefit charges, (3) first year policy
charges and (4) supplementary charges. See original policy documents for
additional monthly charges. These charges are included in the statements of
changes in net assets.
The policies provide for an initial free-look period. If a policy is
cancelled within certain time constraints, the policyowner will receive a refund
equal to the policy account value plus certain deductions made under the policy.
Where state law requires a minimum refund equal to gross premiums paid, the
refund will instead equal the gross premiums paid on the policy and will not
reflect investment experience.
F-43
<PAGE> 117
- --------------------------------------------------------------------------------
The Variable Separate Accounts of
Provident Mutual Life Insurance Company
Notes to Financial Statements -- concluded
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS, CONTINUED
If a single premium or modified premium policy is surrendered within the
first nine policy years, a contingent deferred sales load charge and/or
contingent deferred administrative charge are assessed. These same charges are
assessed if a flexible premium adjustable policy is surrendered within the first
ten policy years. These charges are assessed if a flexible premium adjustable
survivorship policy is surrendered before the fifteenth policy year (twelfth
policy year for New York policies). These charges are recorded as administrative
charges in the statements of changes in net assets.
For scheduled premium and single premium policies, Provident Mutual has
agreed to make a daily adjustment to the net rate of return of the Growth, Money
Market and Bond Separate Accounts to offset completely all Market Street Fund,
Inc. expenses charged to the portfolios in which the Separate Accounts invest,
except for (1) all brokers' commissions, (2) transfer taxes, investment advisory
fees and other fees and expenses for services relating to purchases and sales of
portfolio investments, and (3) income tax liabilities. The total amounts
reimbursed for the Growth, Money Market and Bond Separate Accounts for the years
ended December 31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
MONEY
GROWTH MARKET BOND
SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT
-------- -------- --------
<S> <C> <C> <C>
Year ending December 31,
1995........................................................ $ 12,376 $ 538 $1,846
1994........................................................ $ 14,824 $1,594 $2,834
1993........................................................ $ 18,542 $3,065 $3,863
</TABLE>
These amounts are shown as an operating expense reimbursement reducing
total expenses in the statements of operations.
Provident Mutual makes a daily asset charge against the assets of the Zero
Coupon Bond Separate Account. The charge is to reimburse Provident Mutual for
the transaction charge paid directly by Provident Mutual to MLPFS on the sale of
the Zero Coupon Trust units to the Zero Coupon Bond Separate Account. Provident
Mutual pays these amounts from General Account assets. The amount of the asset
charge currently is equivalent to an effective annual rate of .25% of the
average daily net assets of each Subaccount. This amount may be increased in the
future, but in no event will it exceed an effective annual rate of .50%. The
charge will be cost based (taking into account the loss of interest) with no
anticipated element of profit for Provident Mutual.
F-44
<PAGE> 118
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors of Provident Mutual
Life Insurance Company
We have audited the accompanying statements of financial condition of Provident
Mutual Life Insurance Company as of December 31, 1995 and 1994, and the related
statements of operations, changes in surplus and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Provident Mutual Life Insurance
Company as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with accounting principles prescribed or permitted by the
Insurance Department of the Commonwealth of Pennsylvania, which are considered
generally accepted accounting principles for mutual life insurance companies.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 6, 1996
F-45
<PAGE> 119
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Statements of Financial Condition
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
- ---------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ADMITTED ASSETS
Bonds.......................................................... $2,312,791 $2,257,935
Preferred stocks............................................... 14,675 16,831
Common stocks.................................................. 11,864 9,651
Investments in unconsolidated subsidiaries..................... 36,784 36,993
Investment in real estate...................................... 37,988 41,398
Real estate occupied by the company............................ 31,544 28,912
Policy loans................................................... 357,810 369,373
Mortgage loans................................................. 649,351 664,663
Other long-term investments.................................... 38,475 41,750
Cash and short-term investments................................ 81,195 55,973
---------- ----------
Total cash and invested assets............................ 3,572,477 3,523,479
Premiums due and deferred...................................... 67,403 69,388
Investment income due and accrued.............................. 62,853 66,807
Other assets................................................... 18,832 13,253
Separate account assets........................................ 1,210,583 969,112
---------- ----------
Total admitted assets..................................... $4,932,148 $4,642,039
========== ==========
LIABILITIES
Aggregate policy and claim reserves............................ $2,996,817 $2,978,388
Policyowners dividends payable................................. 65,174 63,502
Other policyowner obligations.................................. 164,623 169,120
Other liabilities.............................................. 141,153 153,632
Asset valuation reserve........................................ 42,366 40,596
Interest maintenance reserve................................... 7,278 8,071
Separate account liabilities................................... 1,202,644 960,360
---------- ----------
Total liabilities......................................... 4,620,055 4,373,669
---------- ----------
SURPLUS
Unassigned surplus............................................. 306,684 263,212
Contingency reserve............................................ 5,409 5,158
---------- ----------
Total surplus............................................. 312,093 268,370
---------- ----------
Total liabilities and surplus............................. $4,932,148 $4,642,039
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE> 120
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Premium and annuity income.......................... $687,004 $677,740 $607,421
Net investment income............................... 278,732 230,542 218,150
Other income........................................ 16,036 14,044 15,811
-------- -------- --------
Total income................................... 981,772 922,326 841,382
-------- -------- --------
BENEFITS AND EXPENSES
Life, accident and health, and other policy
benefits......................................... 576,349 561,967 532,488
Increase in aggregate policy reserves............... 48,990 84,628 81,537
Transfers to (from) separate account, net........... 53,593 20,951 (27,551)
-------- -------- --------
678,932 667,546 586,474
-------- -------- --------
Commissions......................................... 38,586 37,563 34,513
General insurance expenses.......................... 106,030 106,175 97,477
Insurance taxes, licenses and fees.................. 14,836 13,775 12,547
Federal income taxes................................ 34,346 18,668 21,531
-------- -------- --------
Total benefits and expenses.................... 872,730 843,727 752,542
-------- -------- --------
Net income before dividends to policyowners
and realized capital losses................. 109,042 78,599 88,840
Dividends to policyowners........................... 65,439 57,288 60,388
-------- -------- --------
Net income before realized capital losses...... 43,603 21,311 28,452
Realized capital losses, net of tax................. (6,210) (7,227) (8,694)
-------- -------- --------
Net income....................................... $ 37,393 $ 14,084 $ 19,758
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE> 121
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Statements of Changes in Surplus
For the Years Ended December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SURPLUS
- ----------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C>
Balance, January 1, 1993.................................................... $191,321
Net income.................................................................. 19,758
Net unrealized capital loss on investments.................................. (1,340)
Change in asset valuation reserve........................................... (3,868)
Other changes, net of decrease in non-admitted assets....................... 2,099
--------------
Balance, December 31, 1993.................................................. 207,970
Net income.................................................................. 14,084
Net unrealized capital loss on investments.................................. (2,274)
Surplus received in merger.................................................. 45,110
Change in asset valuation reserve........................................... 195
Other changes, net of increase in non-admitted assets....................... 3,285
--------------
Balance, December 31, 1994.................................................. 268,370
Net income.................................................................. 37,393
Net unrealized capital gain on investments.................................. 3,533
Change in asset valuation reserve........................................... (1,770)
Other changes, net of decrease in non-admitted assets....................... 4,567
--------------
Balance, December 31, 1995.................................................. $312,093
============
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE> 122
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH PROVIDED
Net cash provided by operations:
Premiums and annuity considerations...................... $ 674,497 $ 657,954 $ 595,275
Other deposits received.................................. 14,381 12,604 14,880
Allowances and reserve adjustments received on
reinsurance............................................ 4,366 7,508 1,252
Investment income received, net of expenses.............. 284,470 231,401 210,533
Other income received.................................... 11,915 9,196 2,051
Life, accident and health claims paid.................... (78,638) (67,241) (78,411)
Surrender benefits paid.................................. (236,450) (279,727) (223,730)
Other benefits paid to policyowners...................... (258,037) (209,564) (220,065)
Commissions, insurance expenses and other taxes paid..... (172,318) (167,698) (144,628)
Funds transferred from (to) separate accounts............ (73,313) 13,142 (20,700)
Dividends paid to policyowners........................... (63,615) (62,700) (67,196)
Federal income taxes paid................................ (23,723) (15,950) (15,369)
Net decrease in policy loans and premium notes........... 13,141 19,047 18,268
-------- ------- -------
Net cash provided by operations........................ 96,676 147,972 72,160
-------- ------- -------
Investments sold, matured or repaid:
Bonds.................................................... 370,526 327,229 922,024
Stocks................................................... 9,303 18,407 19,229
Mortgage loans........................................... 94,292 90,777 78,218
Real estate and other invested assets.................... 26,647 39,933 26,118
-------- ------- -------
Total investments sold, matured or repaid.............. 500,768 476,346 1,045,589
Cash and short-term investments of merged companies........ -- 18,591 18,613
Other cash provided........................................ 4,348 11,056 6,360
-------- ------- -------
Total cash provided.................................... 601,792 653,965 1,142,722
-------- ------- -------
CASH APPLIED
Cost of investments acquired:
Bonds.................................................... 426,569 526,143 1,070,410
Stocks................................................... 4,286 9,855 17,201
Mortgage loans........................................... 80,812 81,787 58,226
Real estate and other invested assets.................... 31,036 20,218 16,557
-------- ------- -------
Total investments acquired............................. 542,703 638,003 1,162,394
Other cash applied......................................... 33,867 5,631 4,433
-------- ------- -------
Total cash applied..................................... 576,570 643,634 1,166,827
-------- ------- -------
Net change in cash and short-term investments.......... 25,222 10,331 (24,105)
Cash and short-term investments:
Beginning of year.......................................... 55,973 45,642 69,747
-------- ------- -------
End of year................................................ $ 81,195 $ 55,973 $ 45,642
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE> 123
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Provident Mutual Life Insurance Company (the Company) is organized as a
mutual life insurance company which conducts its business for the benefit of its
policyowners.
The Company sells life, annuity and pension products directly and through
its wholly-owned subsidiaries. The Company distributes its products principally
through a career distribution sales force. The Company is licensed to operate in
50 states, which are responsible for product regulation. Sales in 14 states
accounted for 83% of the Company's sales for the year ended December 31, 1995.
For many of the life and annuity products, the insurance departments of the
states in which the Company conducts business must approve products and policy
forms in advance of sales.
The Company's wholly-owned subsidiaries are Providentmutual Life and
Annuity Company of America (PLACA), Provident Mutual International Life
Insurance Company (PMILIC) and Providentmutual Holding Company (PHC).
PLACA specializes primarily in the development and sale of various annuity
products and sells certain traditional and variable life products, also sold by
Provident Mutual, through a personal producing general agency sales force.
PMILIC's business consists of life insurance assumed from Provident Mutual.
PHC is a downstream holding company whose major subsidiary is Sigma
American Corporation (Sigma). Sigma is a general partner in a joint venture that
provides investment advisory, mutual fund distribution, trust and administrative
services to a group of mutual funds and other parties.
Effective November 1, 1994, Covenant Life Insurance Company (Covenant), a
Pennsylvania mutual life insurance company, was merged into Provident Mutual.
The transaction was accounted for similar to a pooling of interests, whereby the
assets, liabilities and surplus of each company were combined at their
respective book values. The statement of operations for the year ended December
31, 1994 includes the activity of Covenant since November 1, 1994. Surplus of
Covenant as of November 1, 1994 has been included as an addition to surplus. The
Covenant policyowners became entitled to the same rights and privileges as
Provident Mutual's policyowners. Costs of completing the merger were
approximately $3,225, net of related income taxes.
F-50
<PAGE> 124
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Organization, continued
Covenant sold traditional and universal life insurance products and
individual annuities primarily to the religious community. Summary financial
information of Covenant is as follows (in thousands):
<TABLE>
<CAPTION>
TEN MONTHS ENDED YEAR ENDED
OCTOBER 31, 1994 DECEMBER 31, 1993
---------------- -----------------
<S> <C> <C>
Statement of Operations Data:
Revenues, excl. capital gains (losses)............... $ 78,802 $ 105,397
-------- --------
Net income (loss).................................... $ (8,889) $ 5,543
======== ========
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, 1994 DECEMBER 31, 1993
---------------- -----------------
<S> <C> <C>
Statement of Financial Condition Data:
Assets............................................... $630,917 $ 627,157
Liabilities.......................................... 585,807 574,776
-------- --------
Surplus.............................................. $ 45,110 $ 52,381
======== ========
</TABLE>
Continental American Life Insurance Company (CALIC) was a wholly-owned
stock life insurance company until January 31, 1993, at which time it was
converted to a mutual company and merged into Provident Mutual, whereby the
CALIC policyowners became entitled to the same rights and privileges as
Provident Mutual's policyowners. CALIC provided life and health insurance
products primarily through direct response marketing. The transaction was
accounted for similar to a pooling of interests, whereby the assets, liabilities
and surplus of each company were combined at their respective book values. Costs
of completing the merger were approximately $3,137, including related taxes. As
a result of the merger, PMILIC became a direct subsidiary of the Company. The
statement of operations and statement of cash flows for the year ended December
31, 1993 include the activity of CALIC since January 31, 1993, the date of the
merger.
Basis of Presentation
The accompanying financial statements have been prepared on the basis of
accounting principles prescribed or permitted by the National Association of
Insurance Commissioners (NAIC) and the Insurance Department of the Commonwealth
of Pennsylvania. The financial statements vary from those filed for statutory
purposes only as to presentation. In accordance with Pennsylvania Insurance Law
and Regulations, the Company's subsidiaries are not consolidated for statutory
filing purposes.
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities as of December 31, 1995 and 1994 and the reported amounts
of revenues and expenses during 1995, 1994 and 1993. Actual results could differ
from those estimates.
F-51
<PAGE> 125
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation, continued
In January 1995, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standards No. 120, "Accounting and Reporting
by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts" (SFAS 120). SFAS 120 extends the
requirements of FASB Statements No. 60, "Accounting and Reporting by Insurance
Enterprises", No. 97, "Accounting and Reporting by Insurance Enterprises for
Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investments", and No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," to mutual life insurance companies.
The American Institute of Certified Public Accountants has established
accounting for certain participating life insurance contracts of mutual life
insurance enterprises in its Statement of Position 95-1, "Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises" (SOP 95-1).
SFAS 120 is effective for financial statements issued for fiscal years beginning
after December 15, 1995 and will be applied retroactively to the earliest year
presented when adopted.
SFAS 120 also amends FASB Interpretation No. 40, "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises" (Interpretation No. 40), to defer the effective date of the general
provisions of that Interpretation to fiscal years beginning after December 15,
1995, so that Interpretation No. 40, SFAS 120, and SOP 95-1 are concurrently
effective. When the Company prepares financial statements in conformity with
Interpretation No. 40, the accounting treatment for certain items, such as
policy reserves, new business acquisition costs, asset valuation reserves and
income taxes will be different than for financial statements issued in
conformity with statutory accounting principles. In addition, the Company
believes surplus presented in accordance with Interpretation No. 40 will be
greater than surplus presented in accordance with statutory accounting
principles.
Invested Assets
Bonds are stated at amortized cost, except bonds in default which are
stated at market value as prescribed by the NAIC. Private placements are stated
as prescribed by the NAIC or at amortized cost.
Common stocks are carried at market value. The cost of common stocks was
$13,848 and $12,936 at December 31, 1995 and 1994, respectively. Preferred
stocks are carried at cost if designated "in good standing", otherwise at market
value as prescribed by the NAIC.
Short-term investments include those investments whose maturities at the
time of acquisition were one year or less. These investments are carried at
amortized cost which approximates market value.
Investments in unconsolidated subsidiaries are carried on the equity
method. Changes in the investments in unconsolidated subsidiaries, excluding
additional amounts invested and return of capital distributions, are included in
unrealized capital gains or losses. Dividends received from these subsidiaries
are included in net investment income.
F-52
<PAGE> 126
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Invested Assets, continued
Mortgage and policy loans are stated primarily at unpaid principal
balances.
Real estate investments are carried at cost, less encumbrances and
accumulated depreciation. The Company uses the constant yield method of
depreciation for real estate investments acquired before December 31, 1990 and
the straight-line method for acquisitions made thereafter. Foreclosed real
estate is carried at lower of cost or market value and is held for sale.
Foreclosed real estate is depreciated using the straight-line method. Real
estate occupied by the Company is depreciated using the straight-line and
constant yield methods of depreciation. Accumulated depreciation for real estate
totalled $9,914 and $9,080 at December 31, 1995 and 1994, respectively.
Effective January 1, 1996, properties previously depreciated using the constant
yield method will prospectively be depreciated using the straight-line method
over the remaining useful lives of the properties.
Other invested assets consist primarily of real estate joint ventures
carried on the equity basis and limited partnerships carried at lower of cost or
market value.
Investment Valuation Reserves
The asset valuation reserve (AVR) is designed to mitigate the effect of
valuation and credit-related losses on surplus. The interest maintenance reserve
(IMR) is designed to reduce fluctuations in surplus resulting from market
interest rate movements. The AVR covers all invested asset classes with risk of
loss, including bonds, common stocks, mortgage loans and real estate. The IMR
captures realized gains on the sale of all types of fixed income securities
which resulted from changes in the overall level of interest rates. These gains
are amortized into income over the remaining life of each investment sold.
Separate investment valuation reserves in addition to the AVR have been
provided for impairments of real estate, mortgage loans and other invested
assets and totalled $25,341 and $33,877 at December 31, 1995 and 1994,
respectively. Changes in these reserves are reflected as charges or credits to
surplus in unrealized capital gains and losses.
Policy Reserves
Reserves for traditional life insurance policies are computed principally
on the net level premium method and the Commissioners' Reserve Valuation Method
using the 1941, 1958 and 1980 Commissioners' Standard Ordinary (CSO) mortality
tables and the American Experience mortality tables with assumed interest rates
ranging from 2.25% to 6%. Reserves for variable life insurance policies are
computed principally on the preliminary term method using the 1958 and 1980 CSO
mortality tables with assumed interest rates ranging from 4% to 5.5%.
Reserves for deferred annuities are computed principally on the
Commissioners' Annuity Reserve Valuation Method (CARVM) using the 1951 Group
Annuity Mortality (GAM) Table, the 1955 American
F-53
<PAGE> 127
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Policy Reserves, continued
Annuity Mortality (AAM) Table and the 1971 and 1983 Individual Annuity Mortality
(IAM) Table at assumed interest rates ranging from 2% to 8.5%. Reserves for
variable annuities are computed principally on the CARVM using the 1983 IAM
mortality table with assumed interest rates ranging from 5.5% to 6.25%. Reserves
for immediate annuities and supplementary contracts with life contingencies are
based principally on the 1951 GAM mortality table, the 1955 AAM mortality table
and the 1983 IAM mortality table at assumed interest rates ranging from 2% to
8.25%. Reserves for deposit funds, including immediate participation guarantee
funds and guaranteed interest contracts, are based upon the accumulated balance
values, including accrued interest.
Premium and Expense Recognition
Life insurance premiums are recognized as income when due. Annuity and
pension fund deposits are recognized as income when received. Policy acquisition
costs, such as commissions, marketing and policy issuance costs incurred in
connection with acquiring new business, are charged to operations as incurred.
Capital Gains and Losses
Realized capital gains and losses on sales of investments, net of related
Federal income taxes, resulting from changes in interest rates are included in
the IMR and are amortized into operating income over the remaining lives of the
investments sold. Credit-related realized gains and losses are recorded as
capital gains and losses in the statements of operations. Capital gains and
losses are recognized on a specific identification basis.
Unrealized gains and losses on investments are reflected as a change in
unassigned surplus and represent the difference between cost and market values
as prescribed by the NAIC.
Policyowner Dividends
A significant amount of the Company's life insurance business is written on
a participating basis. Annually, the Board of Directors declares the amount of
dividends to be paid in the following calendar year. At December 31, 1995 and
1994, the Company had guaranteed the payment of $10,000 in policyowner dividends
payable in 1996 and 1995, respectively. Bonds have been placed in trust to
secure this guarantee. Declared dividends are included in the accompanying
financial statements as a liability and as a charge to operations.
Reinsurance
Premiums, benefits and expenses are recorded net of experience refunds,
reserve adjustments and amounts assumed from or ceded to reinsurers, including
commission and expense allowances.
F-54
<PAGE> 128
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Separate Accounts
Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the benefit of pension and annuity
contractowners, variable life insurance policyowners, several of the Company's
retirement plans and guaranteed interest contractowners (GIC). With the
exception of GIC-related assets, separate account assets are primarily carried
at market values determined as of the balance sheet date. Assets related to
GIC's are held at values prescribed by the NAIC, primarily amortized cost.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the fair values and statement values of the
Company's financial instruments at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------- -------------------------
FAIR STATEMENT FAIR STATEMENT
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Bonds.............................. $2,435,653 $2,312,791 $2,152,129 $2,257,935
Common stock....................... $11,864 $11,864 $9,651 $9,651
Redeemable preferred stocks........ $8,744 $8,036 $7,780 $8,128
Nonredeemable preferred stocks..... $5,784 $6,639 $8,004 $8,703
Commercial mortgage loans.......... $700,677 $648,251 $669,737 $663,146
Residential mortgage loans......... $1,186 $1,100 $1,506 $1,517
LIABILITIES FOR INVESTMENT-TYPE
INSURANCE CONTRACTS
Guaranteed interest contracts...... $386,454 $374,893 $378,462 $387,898
Group annuities.................... $1,005,040 $1,003,843 $853,590 $899,353
Supplementary contracts without
life contingencies............... $26,333 $26,183 $27,683 $27,695
Individual annuities............... $477,154 $480,788 $463,797 $467,678
</TABLE>
The underlying investment risk of the Company's variable life and variable
annuity contracts is assumed by the owner. These reserve liabilities are
primarily reported in the separate accounts. The liabilities in the separate
accounts are recorded at amounts equal to the related assets at market value.
Fair values for the Company's insurance contracts other than
investment-type contracts are not required to be disclosed under Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Values of
Financial Instruments." However, the estimated fair value and future cash flows
of
F-55
<PAGE> 129
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts. The estimated fair value of all assets
without a corresponding revaluation of all liabilities associated with insurance
contracts can be misinterpreted.
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments:
Investment Securities
Bonds, common stocks and preferred stocks are valued based upon quoted
market prices, where available. If quoted market prices are not available, as in
the case of private placements, fair values are based on quoted market prices of
comparable instruments. (See Note 3).
Mortgage Loans
Mortgage loans are valued using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. For mortgage loans classified as nonperforming, the
fair value was set equal to the lesser of the unpaid principal balance or the
market value of the underlying property.
Policy Loans
Policy loans are issued with either fixed or variable interest rates,
depending upon the terms of the policies. For those loans with fixed interest
rates, the interest rates range from 4% to 8%. For loans with variable interest
rates, the interest rates are primarily adjusted quarterly based upon changes in
a corporate bond index. Future cash flows of policy loans are uncertain and
difficult to predict. As a result, management deems it impractical to calculate
the fair value of policy loans.
Guaranteed Interest Contracts
The fair value of guaranteed interest contract liabilities is based upon
discounted future cash flows. Contract account balances are accumulated to the
maturity dates at the guaranteed rate of interest. Accumulated values are
discounted using interest rates for which liabilities with similar durations
could be sold. The statement value and fair value of the assets backing up the
guaranteed interest contract liabilities were $378,493 and $386,748,
respectively, at December 31, 1995 and $387,112 and $378,444, respectively, at
December 31, 1994.
F-56
<PAGE> 130
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Group Annuities
The fair value of group annuities is primarily based upon termination
value, which is calculated by applying contractual market value adjustments to
the account balances. For those contracts not subject to market value
adjustments at termination, book value represents fair value.
Individual Annuities and Supplementary Contracts
The fair value of individual annuities and supplementary contracts without
life contingencies is based primarily on surrender values. For those individual
annuities and supplementary contracts that are not surrenderable, discounted
future cash flows are used for calculating fair value.
Policyowner Dividends and Coupon Accumulations
The policyowners' dividend and coupon accumulation liabilities will
ultimately be settled in cash, applied towards the payment of premiums, or left
on deposit with the Company at interest. Management deems it impractical to
calculate the fair value of these liabilities due to valuation difficulties
involving the uncertainties of final settlement.
3. DEBT SECURITIES AND REDEEMABLE PREFERRED STOCKS
The statement value and estimated fair value of investments in debt
securities and redeemable preferred stocks as of December 31, 1995 and 1994 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies............ $ 102,901 $ 5,415 $ 275 $ 108,041
Obligations of states and political
subdivisions......................... 102,143 4,034 653 105,524
Debt securities issued by foreign
governments.......................... 22,116 1,073 64 23,125
Corporate securities including
mortgage-backed securities........... 2,085,631 128,857 15,525 2,198,963
---------- -------- -------- ----------
Subtotal--bonds................. 2,312,791 139,379 16,517 2,435,653
Redeemable preferred stocks............ 8,036 715 7 8,744
---------- -------- -------- ----------
Total........................... $2,320,827 $ 140,094 $ 16,524 $2,444,397
========== ======== ======== ==========
</TABLE>
F-57
<PAGE> 131
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. DEBT SECURITIES AND REDEEMABLE PREFERRED STOCKS, CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------------------------------
GROSS GROSS ESTIMATED
STATEMENT UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies............ $ 103,041 $ 723 $ 2,848 $ 100,916
Obligations of states and political
subdivisions......................... 94,918 1,226 5,812 90,332
Debt securities issued by foreign
governments.......................... 36,983 495 2,970 34,508
Corporate securities including
mortgage-backed securities........... 2,022,993 16,790 113,410 1,926,373
---------- -------- -------- ----------
Subtotal--bonds................. 2,257,935 19,234 125,040 2,152,129
Redeemable preferred stocks............ 8,128 49 397 7,780
---------- -------- -------- ----------
Total........................... $2,266,063 $ 19,283 $ 125,437 $2,159,909
========== ======== ======== ==========
</TABLE>
The statement value and estimated fair value of debt securities and
redeemable preferred stocks at December 31, 1995, by contractual maturity, are
as follows:
<TABLE>
<CAPTION>
STATEMENT ESTIMATED
VALUE FAIR VALUE
---------- ----------
<S> <C> <C>
Due in one year or less......................................... $ 62,132 $ 63,823
Due after one year through five years........................... 461,412 478,517
Due after five years through ten years.......................... 816,306 868,775
Due after ten years............................................. 972,941 1,024,538
---------- ----------
Subtotal--bonds.......................................... 2,312,791 2,435,653
Redeemable preferred stocks..................................... 8,036 8,744
---------- ----------
Total.................................................... $2,320,827 $2,444,397
========== ==========
</TABLE>
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are included based on their
final maturity.
Proceeds from sales and maturities of investments in debt securities during
1995, 1994 and 1993 were $370,526, $327,229 and $922,024, respectively. Gross
gains of $2,781, $6,513 and $15,803 and gross losses of $2,356, $11,334 and
$5,088 were realized on those sales in 1995, 1994 and 1993, respectively.
F-58
<PAGE> 132
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
The Company's common stock values of its wholly-owned subsidiaries are
summarized as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
CAPITAL LOSSES AND
DECEMBER 31, OTHER SURPLUS DECEMBER 31,
1994 NET INCOME TRANSACTIONS 1995
------------ ---------- ------------------ ------------
<S> <C> <C> <C> <C>
Provident Mutual International Life
Insurance Company.................... $ 1,637 $ 140 $ 1,777
Providentmutual Holding Company........ 5,974 1,746 $ (3,350) 4,370
Providentmutual Life and Annuity
Company of America................... 29,382 1,581 (326) 30,637
------- ------ ------- -------
$ 36,993 $3,467 $ (3,676) $ 36,784
======= ====== ======= =======
</TABLE>
The Company's unconsolidated subsidiaries had combined assets of $640,745
and $520,846 and liabilities of $603,961 and $483,853 at December 31, 1995 and
1994, respectively.
Effective with the Covenant merger on November 1, 1994, the common stock of
Covenant Financial Services, Inc., with a value of $558, was contributed by the
Company to PHC.
5. BENEFIT PLANS
The Company has two non-contributory pension plans (one defined benefit and
one defined contribution) covering substantially all of its employees and
agents. Pension expense for these plans was $1,590, $2,151 and $2,374 in 1995,
1994 and 1993, respectively. The Company's funding policy is to contribute
annually the maximum amount deductible for Federal income tax purposes.
A comparison of the accumulated plan benefits and assets for the defined
benefit plan, determined as of the most recent actuarial valuation dates, is
presented below:
<TABLE>
<CAPTION>
JANUARY 1,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of accumulated plan benefits at 8%:
Vested........................................................... $ 67,731 $ 58,549
Nonvested........................................................ 2,242 1,941
------- -------
$ 69,973 $ 60,490
======= =======
Net assets available for benefits................................ $123,586 $106,456
======= =======
</TABLE>
Effective January 1, 1995, the Covenant Life Insurance Company Pension Plan
was merged into the Company's defined benefit plan. The actuarial present value
of accumulated plan benefits at 7.5% as of
F-59
<PAGE> 133
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
5. BENEFIT PLANS, CONTINUED
January 1, 1994, the most recent actuarial valuation date, was $17,868 for
vested participants and $831 for non-vested participants. The net assets
available for plan benefits as of January 1, 1994 was $31,228.
The Company also sponsors several non-qualified unfunded excess benefit,
supplemental executive retirement and deferred compensation plans and
contributory investment plans qualified under Section 401(k) of the Internal
Revenue Code. Total expense recorded for these plans was $3,619, $3,411 and
$2,829 in 1995, 1994 and 1993, respectively. At December 31, 1995 and 1994, the
actuarially determined accrued liability of the unfunded plans was $9,419 and
$10,130, respectively.
Effective November 1, 1994, the Covenant Life Insurance Company Profit
Sharing and 401(k) Plan was merged into the Company's corresponding plan.
In addition, the Company provides certain health care and life insurance
benefits (postretirement benefits) for retired employees. Substantially all of
the Company's employees may become eligible for post-retirement benefits if they
reach normal retirement age while still working for the Company.
On January 1, 1993, the Company changed its method of accounting for the
costs of its retiree benefit plans to the accrual method, and elected to
amortize its transition obligation of $31,681 over 20 years. As of December 31,
1995 and 1994, the unamortized transition obligation was $26,929 and $28,513,
respectively.
Net postretirement benefit costs for the years ended December 31, 1995,
1994 and 1993 were $3,168, $3,416 and $4,072, respectively, and include the
expected costs of such benefits for newly eligible or vested employees,
including interest costs, the amortization of the transition obligation, offset
by the expected return on plan assets.
At December 31, 1995 and 1994, the unfunded postretirement benefit
obligation for retirees and other fully eligible or vested plan participants was
$33,262 and $33,321, respectively. The obligation at December 31, 1994 included
$2,519 attributable to Covenant which had been fully recognized prior to 1993.
The estimated cost of the benefit obligation for active non-vested employees was
$4,187 and $3,609, respectively. The discount rate used in determining the
accumulated postretirement benefit obligation as of December 31, 1995 was 7.0%,
and the health care cost trend rate was 8.3%, graded to 5.1% over 7 years.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the postretirement
benefit obligation as of December 31, 1995 by $1,985 and the estimated
eligibility cost and interest cost components of net periodic postretirement
benefit cost for 1995 by $142.
In January 1991, the Company established a retiree health account under the
provisions of Section 401(h) of the Internal Revenue Code. In December 1995, the
Company transferred $1,573 of
F-60
<PAGE> 134
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
5. BENEFIT PLANS, CONTINUED
excess assets from the defined benefit pension plan to pay for 1995 qualified
retiree health benefits. An additional transfer of excess assets in the amount
of $1,600 was made in December 1994 to pay for 1994 qualified retiree health
benefits. In December 1993, $1,384 of excess assets were transferred to pay 1993
qualified retiree health benefits.
6. POLICY AND CLAIMS RESERVES
The withdrawal characteristics of the Company's annuity actuarial reserves
and deposit liabilities as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
Reserves
Subject to discretionary withdrawal--with adjustment:
--with market value adjustment.............................................. $ 999,058
--at book value less surrender charges...................................... 393,246
----------
Subtotal............................................................... 1,392,304
Subject to discretionary withdrawal--without adjustment:
--at book value (minimal or no charge or adjustment)........................ 632,068
Not subject to discretionary withdrawal provision........................... 444,834
----------
Total annuity actuarial reserves and deposit liabilities (gross)....... 2,469,206
Less: reinsurance........................................................... 393,888
----------
Total annuity actuarial reserves and deposit liabilities (net)......... $2,075,318
==========
</TABLE>
The amounts above are included in the statement of financial condition as
aggregate policy and claim reserves totalling $1,268,967 and separate account
liabilities totalling $806,351.
F-61
<PAGE> 135
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
7. REINSURANCE
The Company has assumed and ceded reinsurance on certain life, accident and
health and annuity contracts under various agreements. The tables below
highlight the amounts shown in the accompanying financial statements which are
net of reinsurance activity:
<TABLE>
<CAPTION>
CEDED ASSUMED
GROSS TO OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1995:
Life insurance in force.......... $29,415,103 $11,295,744 $921,414 $19,040,773
=========== ========== ======== ===========
Premiums......................... $ 778,274 $ 95,149 $ 3,879 $ 687,004
=========== ========== ======== ===========
Reserves......................... $ 3,477,099 $ 481,719 $ 1,437 $ 2,996,817
=========== ========== ======== ===========
December 31, 1994:
Life insurance in force.......... $27,633,503 $ 8,803,212 $536,150 $19,366,530
=========== ========== ======== ===========
Premiums......................... $ 804,175 $ 130,760 $ 4,325 $ 677,740
=========== ========== ======== ===========
Reserves......................... $ 3,384,945 $ 415,467 $ 8,910 $ 2,978,388
=========== ========== ======== ===========
December 31, 1993:
Life Insurance in force.......... $23,138,172 $ 9,914,609 $332,243 $13,555,806
=========== ========== ======== ===========
Premiums......................... $ 621,265 $ 16,506 $ 2,662 $ 607,421
=========== ========== ======== ===========
Reserves......................... $ 2,709,467 $ 320,529 $ 1,249 $ 2,390,187
=========== ========== ======== ===========
</TABLE>
The Company is party to various coinsurance, modified coinsurance and
yearly renewable term agreements which provide for reinsurance ceded of selected
individual traditional and variable life insurance and annuity policies.
The Company also has assumed a small amount of yearly renewable term
reinsurance from unaffiliated insurers.
The Company has a reinsurance agreement with a third party to cede 65
percent of the premiums and reserves related to its single premium deferred
annuity (SPDA) product. Total premiums ceded and reserve credits taken related
to this treaty were $55,437 and $312,875 respectively, at December 31, 1995,
$99,888 and $278,573, respectively, at December 31, 1994, and $24,413 and
$193,039, respectively, at December 31, 1993.
A coinsurance agreement exists between the Company and PLACA with respect
to annuities issued after 1984. The agreement includes SPDA's, single premium
immediate annuities and supplementary
F-62
<PAGE> 136
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
7. REINSURANCE, CONTINUED
contracts. PLACA retains full statutory minimum reserves on all policies and
supplementary contracts covered. Pursuant to this agreement, PLACA has taken no
reserve credits at December 31, 1995, 1994 and 1993.
Approximately $733,258, $235,712 and $133,489 of PLACA's life insurance in
force was assumed by the Company under reinsurance agreements at December 31,
1995, 1994 and 1993, respectively.
The Company remains contingently liable with respect to ceded insurance
should any reinsurer be unable to meet its contractual obligations.
8. FEDERAL INCOME TAXES
The Company files a consolidated Federal income tax return with its
wholly-owned life insurance subsidiaries. The tax liability is accrued on a
separate company basis and includes an equity tax, a portion of which is
allocated to the subsidiaries. In accordance with statutory accounting
practices, no deferred taxes are provided for timing differences between pretax
accounting income and taxable income.
The provision for Federal income tax includes an equity tax of $7,375, $158
and $5,755 for the years ended December 31, 1995, 1994 and 1993, respectively,
and includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
Gross current year equity tax expense....................... $8,000 $ 6,375 $6,175
Subsidiary equity tax allocation............................ (625) (550) (420)
True down of prior years' equity tax........................ -- (5,667) --
------ ------- ------
$7,375 $ 158 $5,755
====== ======== ======
</TABLE>
The provision for Federal income taxes from operations differs from the
normal relationship of Federal income tax to pretax income as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal income tax at statutory rate...................... $27,282 $13,993 $17,495
Equity tax................................................ 7,375 158 5,755
Specified policy acquistion costs......................... 4,135 4,804 4,624
Difference between statutory and tax reserves............. (807) 1,215 (57)
Policyholder dividends.................................... 588 (1,798) (5,918)
Bad debt.................................................. (2,999) (922) --
Other..................................................... (1,228) 1,218 (368)
------- ------- -------
Provision for Federal income tax from operations.......... $34,346 $18,668 $21,531
======= ======= =======
</TABLE>
F-63
<PAGE> 137
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
8. FEDERAL INCOME TAXES, CONTINUED
The Company's Federal income tax returns through the year 1982 have been
audited by the Internal Revenue Service (IRS) and are closed; years 1983 through
1987 are at the appeals office of the IRS and are still open; and years 1988
through the present are still open. In the opinion of management, adequate
provision has been made for the possible effect of potential assessments related
to prior years' taxes.
9. RELATED PARTY TRANSACTIONS
Agreements
The contractual obligations under PLACA's SPDA contracts in force and
issued before September 1988 are guaranteed by the Company. Total annuity
contracts affected by this guarantee in force at December 31, 1995 and 1994
totaled approximately $117,169 and $134,097, respectively.
The Company provides various administrative services to its subsidiaries
under service agreements which provide for the allocation of costs to the
subsidiaries. Fees for services charged to subsidiaries by the Company totaled
$12,377, $9,457 and $9,740 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Lease Guarantee
The Company is the guarantor of payments required under a lease in the
event of default by its indirect subsidiary, Sigma. The lease period is for ten
years commencing January 1990, with an average annual rent cost of approximately
$555.
10. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space, data processing equipment and certain
other equipment under operating leases expiring on various dates between 1996
and 2003. Most of the leases contain renewal and purchase options based on
prevailing fair market values.
F-64
<PAGE> 138
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES, CONTINUED
Future minimum rent payments required and related sublease rentals
receivable under non-cancelable operating leases in effect at December 31, 1995,
and which have initial or remaining terms of one year or more, are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER RENTAL SUBLEASE RENTALS
31: PAYMENTS RECEIVABLE
----------------------- -------- ----------------
<S> <C> <C>
1996................... $11,789 $ 183
1997................... 10,552 1,547
1998................... 9,428 1,968
1999................... 3,257 --
2000................... 1,931 --
Thereafter............. 2,264 --
------- -------
$39,221 $3,698
======= =======
</TABLE>
Rent expense for the years ended December 31, 1995, 1994 and 1993 relating
to these leases amounted to $17,382, $18,032 and $16,732, respectively.
Financial Instruments With Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its borrowers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include investment commitments related to its interests in
real estate and mortgage loans, financial guarantees of indebtedness, marketable
securities lending and interest rate futures contracts. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of amounts recognized in the statements of financial condition.
At December 31, 1995, the Company had outstanding mortgage loan, real
estate and limited partnership commitments of approximately $30,461. The
mortgage loan commitments, which expire through April 1996, were issued during
1995 at interest rates consistent with rates applicable on December 31, 1995. As
a result, the fair value of these commitments approximates the face amount.
The Company guarantees indebtedness of certain real estate partnerships of
which it is an investor. Any estimated deficiencies between the amount of debt
guaranteed and the partnerships' ability to service the debt is provided for in
the asset valuation process through reserves.
It is the Company's policy to use derivatives (exchange-traded or
over-the-counter financial instruments whose value is based upon or derived from
a specific underlying index or commodity) for the purpose of reducing exposure
to interest rate fluctuations, and not for income generation or speculative
purposes. Derivative options utilized by the Company are long and short
positions on United States Treasury notes and bond futures and certain interest
rate swaps.
F-65
<PAGE> 139
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES, CONTINUED
Financial Instruments With Off-Balance-Sheet Risk, continued
Derivatives are used for hedging existing bonds (including cash reserves)
against adverse price or interest rate movements and for fixing liability costs
at the time of product sales. The Company closed out hedge positions consisting
of 160 treasury futures contracts with a dollar value of $16,000 in 1995, 2,253
treasury futures contracts with a dollar value of $225,300 in 1994, and 711
treasury futures contracts with a dollar value of $71,100 in 1993. The
approximate net (losses) gains generated from the hedge positions were $(153),
$1,121 and $439 for the years ended December 31, 1995, 1994 and 1993,
respectively. The Company uses interest rate swaps to synthetically convert a
floating rate bond into a fixed rate bond and thereby match fixed rate
liabilities. The Company had two swaps outstanding with a notional principal
amount of $8,000 as of December 31, 1995 and 1994, respectively. The average
unexpired term of the swaps outstanding was .9 years as of December 31, 1995.
Periodically the Company enters securities lending agreements to earn
additional investment income on its securities. The borrower must provide cash
collateral prior to or at the inception of the loan. There were no securities
lending positions at December 31, 1995.
Investment Portfolio Credit Risk
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1995 and 1994, approximately
$101,001 and $92,026, respectively, in debt security investments (4.4% and
4.0%, respectively, of the total debt security portfolio) were considered
"below investment grade". Securities are classified as "below investment
grade" by utilizing rating criteria established by the NAIC. These criteria
are not necessarily equivalent to the rating criteria employed by
independent bond rating agencies.
The Company had debt security investments in the financial services
industry at both December 31, 1995 and 1994 that exceeded 5% of total
assets.
Mortgage Loans
The Company originates mortgage loans either directly or through
mortgage correspondents and brokers throughout the country. Loans are
primarily related to underlying real property investments in office and
apartment buildings and retail/commercial and industrial facilities.
Mortgage loans are collateralized by the related properties and such
collateral generally approximates a minimum 133% of the original loan value
at the time the loan is made.
At December 31, 1995, there were no delinquent mortgage loans (i.e.,
loans where payments on principal and/or interest are over 90 days past
due). At December 31, 1994, delinquent mortgage loans totalled $11,571, or
1.7%, of the mortgage loan portfolio.
F-66
<PAGE> 140
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES, CONTINUED
The Company had loans outstanding in California, Pennsylvania and
Virginia (1994 only) where principal balances in the aggregate exceeded 20%
of the Company's surplus.
Lines of Credit
The Company has approximately $42.0 million of available unused lines of
credit at December 31, 1995.
Litigation and Unasserted Claims
The Company is involved in various litigation, as both plaintiff and
defendant, which has arisen in the ordinary course of business and as a result
of the merger with Covenant and which, in the opinion of management and legal
counsel, will not have a material effect on the Company's financial position.
Insurance companies are subject to assessments, up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of management, the outcome of the proceedings and
assessments will not have a material adverse effect on the financial position of
the Company. Guaranty fund assessments totalled $2,230, $2,174 and $1,442 in
1995, 1994 and 1993, respectively. Of those amounts, $1,522, $1,653 and $700 in
1995, 1994 and 1993, respectively, are creditable against future years' premium
taxes.
F-67
<PAGE> 141
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article VIII of PMLIC's By-Laws provides, in part:
To the fullest extent permitted by law, the Company shall indemnify
any present, former or future Director, officer, or employee of the Company
or any person who may serve or has served at its request as officer or
Director of another corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including attorney's fees,
necessarily incurred in connection with the defense of any action, suit or
other proceeding to which any of them is made a party because of service as
Director, officer or employee of the Company or such other corporation, or
in connection with any appeal therein, and against any amounts paid by such
Director, officer or employee in settlement of, or in satisfaction of a
judgement or fine in, any such action or proceeding, except expenses
incurred in defense of or amounts paid in connection with any action, suit
or other proceeding in which such Director, officer or employee shall be
adjudged to be liable for negligence or misconduct in the performance of
his duty.
Insofar as indemnification or liability arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-in of the information shown in the Prospectus with
items of Form N-8B-2.
The Prospectus consisting of pages.
The undertaking to file reports.
Rule 484 undertaking.
Representations pursuant to Rule 6e-3(T).
The signatures.
II-1
<PAGE> 142
The following exhibits:
<TABLE>
<S> <C> <C> <C> <C>
1.A. (1) (a) Resolution adopted by the Board of Directors of PMLIC establishing the
Provident Mutual Variable Growth Separate Account, Provident Mutual
Variable Money Market Separate Account, Provident Mutual Variable Bond
Separate Account, Provident Mutual Variable Managed Separate Account, and
Provident Mutual Variable Zero Coupon Bond Separate Account(1)
(b) Resolution adopted by the Board of Directors of PMLIC establishing the
Provident Mutual Variable Aggressive Growth Separate Account(2)
(c) Resolution adopted by the Board of Directors of PMLIC establishing the
Provident Mutual Variable International Separate Account(3)
(d) Resolution adopted by the Board of Directors of PMLIC establishing the
Provident Mutual Variable Separate Account(4)
(2) None
(3) (a) (i) Underwriting Agreement(5)
(ii) Amendments to Underwriting Agreement(2) and (3)
(iii) Amendment to Underwriting Agreement(4)
(b) (i) Personal Producing General Agent's Agreement, Supplement and commission
schedule(6)
(ii) Personal Producing Agent's Agreement, Supplement and commission schedule(6)
(iii) Special Agent's Career Agreement and Supplement(6)
(iv) Special Agent's Agreement(6)
(v) Corporate Agent's Agreement and Supplement(6)
(c) Commission Schedules.
(i) See Exhibits(3)(B)(i) and (3)(B)(ii) above
(ii) Commission Schedule for Variable Life Insurance Products for Agents under
Special Agent's Career Agreement(6)
(iii) Commission Schedule for Variable Life Insurance Products for Agents under
Special Agent's Agreement(6)
(iv) Commission Schedule for Variable Life Insurance Products for Corporate
Agents with Special Agent's Career Agreement(6)
(d) Form of Selling Agreement between PML and Broker/Dealers(6)
(4) None
(5) (a) Modified Premium Variable Life Insurance Policy and Applications(7)
(b) Modified Premium Variable Life Insurance Policy and Applications (New York)(8)
(c) Modified Premium Variable Life Insurance Policy -- "Unisex" Version(9)
(d) Modified Premium Variable Life Insurance Policy -- Employee Benefit Series(9)
(e) Modified Premium Variable Life Insurance Policy -- Employee Benefit Series
(New York)(9)
(f) Increasing Death Benefit Rider for Modified Premium Policies(10)
(g) Endorsement-Separate Accounts(2)
(h) Accelerated Death Benefit Rider(11)
(i) Description of Separate Accounts-Form VLSA(4)
(j) Supplementary Application for Variable Life Insurance Policy-Form A7VL
7.93(4)
(k) Initial Allocation Schedule-Form A58 7.93(4)
</TABLE>
II-2
<PAGE> 143
<TABLE>
<S> <C> <C> <C> <C>
(6) (a) Charter of PMLIC1
(b) By-Laws of PMLIC12
(7) None
(8) Sponsorship Agreement between PMLIC and MLPFS7
(9) None
(10) The form of Applications are contained in the specimen copies of the
Modified Premium Variable Life Insurance Policy (see Exhibit 1.A.(5)
above).
2. See Exhibit 1.A.(5)
3. (a) Consent of Linda E. Senker, Esquire
(b) Consent of Sutherland, Asbill & Brennan
4. None
5. Inapplicable
6. Consent of Scott V. Carney, FSA, MAAA
7. Consent of Coopers & Lybrand L.L.P., Independent Accountants
8. Memorandum on Issuance, Transfer and Redemption13
9. Powers of Attorney7
10. (a) Participation Agreement among Market Street Fund, Inc., Provident Mutual
Life Insurance Company of Philadelphia and PML Securities Company6
(b) Participation Agreement among Variable Insurance Products Fund, Fidelity
Distributors Corporation and PMLIC4
(c) Participation Agreement among Variable Insurance Products Fund II, Fidelity
Distributors Corporation and PMLIC4
(d) Sales Agreement between Neuberger & Berman Advisers Management Trust and
PMLIC4
(e) Participation Agreement among The Alger American Fund, Provident Mutual
Life Insurance Company, Providentmutual Life and Annuity Company of America
and Fred Alger and Company Incorporated.
</TABLE>
- ---------------
<TABLE>
<S> <C>
1 Incorporated by reference to the Registration Statement filed on Form S-6 on November 4,
1985, File No. 33-1331.
2 Incorporated by reference to Post-Effective Amendment No. 5 to the Registration Statement
filed on Form S-6 on March 2, 1989, File No. 33-2625.
3 Incorporated by reference to the Registration Statement filed on Form S-6 on August 7,
1991, File No. 33-42133
4 Incorporated by reference to Post-Effective Amendment No. 11 to the Registration
Statement filed on Form S-6 on June 22, 1993, File No. 33-2625.
5 Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration Statement
filed on Form S-6 on April 16, 1986, File No. 33-1331.
6 Incorporated by reference to Post-Effective Amendment No. 8 to the Registration Statement
filed on Form S-6 on May 1, 1992, File No. 33-2625.
7 Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration Statement
filed on Form S-6 on June 20, 1986, File No. 33-2625.
8 Incorporated by reference to Post-Effective Amendment No. 1 to the Registration Statement
filed on Form S-6 on April 14, 1987, File No. 33-2625.
9 Incorporated by reference to Post-Effective Amendment No. 2 to the Registration Statement
filed on Form S-6 on September 18, 1987, File No. 33-2625.
10 Incorporated by reference to Post-Effective Amendment No. 3 to the Registration Statement
filed on Form S-6 on March 3, 1988, File No. 33-2625.
</TABLE>
II-3
<PAGE> 144
<TABLE>
<S> <C>
11 Incorporated by reference to Post-Effective Amendment No. 2 to the Registration Statement
filed on Form S-6 on July 31, 1992, File No. 33-38463.
12 Incorporated by reference to the Registration Statement filed on Form S-6 on December 7,
1989, File No. 33-32478.
13 Incorporated by reference to Post-Effective Amendment No. 9 to the Registration Statement
filed on Form S-6 on July 31, 1992, File No. 33-2625.
</TABLE>
II-4
<PAGE> 145
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, PROVIDENT
MUTUAL LIFE INSURANCE COMPANY CERTIFIES THAT IT MEETS ALL THE REQUIREMENTS FOR
EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT PURSUANT TO RULE 485(B) UNDER THE
SECURITIES ACT OF 1933 AND, HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
PHILADELPHIA AND COMMONWEALTH OF PENNSYLVANIA ON THE DAY OF APRIL, 1996.
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY
By: /s/ L. J. ROWELL, JR.
------------------------------------
L. J. Rowell, Jr.
Chairman and Chief Executive Officer
Attest: /s/ LINDA E.
SENKER
- ---------------------------------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------------------- --------------------------------- ---------------
<C> <S> <C>
Chairman of the Board and April , 1996
/s/ L. J. ROWELL, JR. Chief Executive Officer
- ---------------------------------------- (Principal Executive Officer)
L. J. ROWELL, JR.
/s/ JOHN R. MCCLELLAND Executive Vice President and April , 1996
- ---------------------------------------- Chief Financial Officer
JOHN R. MCCLELLAND (Principal Financial Officer)
/s/ MARY LYNN FINELLI Vice President and Controller April , 1996
- ---------------------------------------- (Principal Accounting Officer)
MARY LYNN FINELLI
DOROTHY M. BROWN* Director April , 1996
ROBERT J. CASALE* Director April , 1996
NICHOLAS DEBENEDICTUS* Director April , 1996
CLAIRE M. FAGIN* Director April , 1996
PHILIP C. HERR* Director April , 1996
</TABLE>
II-5
<PAGE> 146
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------------------- --------------------------------- ---------------
<C> <S> <C>
J. RICHARD JONES* Director April , 1996
ROBERT W. KLOSS* Director April , 1996
JOHN A. MILLER* Director April , 1996
JOHN P. NEAFSEY* Director April , 1996
CHARLES L. ORR* Director April , 1996
/s/ WILLIAM A. POLLARD Director April , 1996
- ----------------------------------------
WILLIAM A. POLLARD
DONALD A. SCOTT* Director April , 1996
JOHN J. F. SHERRERD* Director April , 1996
HAROLD A. SORGENTI* Director April , 1996
WILLIAM R. WILSON* Director April , 1996
*By: /s/ LINDA E. April , 1996
SENKER
- ----------------------------------------
LINDA E. SENKER
Attorney-in-fact,
Pursuant to Power of Attorney
</TABLE>
II-6
<PAGE> 147
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Provident
Mutual Variable Growth Separate Account, Provident Mutual Variable Money Market
Separate Account, Provident Mutual Variable Bond Separate Account, Provident
Mutual Variable Managed Separate Account, Provident Mutual Variable Zero Coupon
Bond Separate Account, Provident Mutual Variable Aggressive Growth Separate
Account, Provident Mutual Variable International Separate Account and Provident
Mutual Variable Separate Account certify that they meet all the requirements for
effectiveness of this Post-Effective Amendment pursuant to Rule 485(b) under the
Securities Act of 1933 and, have duly caused this post-effective amendment to
the Registration Statement under the Securities Act of 1933 to be signed on
their behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia and Commonwealth of Pennsylvania on the day of April, 1996.
PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MONEY MARKET SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MANAGED SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE ZERO COUPON BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE AGGRESSIVE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE INTERNATIONAL SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE SEPARATE ACCOUNT
(Registrant)
By: PROVIDENT MUTUAL LIFE INSURANCE
COMPANY
(DEPOSITOR)
By: /s/ L. J. ROWELL, JR.
---------------------------------------
L. J. ROWELL, JR.
Chairman and Chief Executive Officer
Attest:
/s/ LINDA E. SENKER
- ------------------------------------------
II-7
<PAGE> 148
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
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<S> <C> <C>
3.(a) Consent of Linda E. Senker, Esquire
(b) Consent of Sutherland, Asbill and Brennan
6. Consent of Scott V. Carney, FSA, MAAA
7. Consent of Coopers & Lybrand L.L.P., Independent Accountants
</TABLE>
<PAGE> 1
EXHIBIT 3(a)
April 19, 1996
Provident Mutual Life Insurance Company
1600 Market Street
Philadelphia, Pennsylvania 19103
Gentlemen:
I hereby consent to the use of my name under the heading "Legal Matters" in the
Prospectus filed as part of Post-Effective Amendment No. 16 to the Registration
Statement on Form S-6 (File No. 33-2625) for the Provident Mutual Variable
Growth Separate Account, the Provident Mutual Variable Money Market Separate
Account, the Provident Mutual Variable Bond Separate Account, the Provident
Mutual Variable Managed Separate Account, the Provident Mutual Variable Zero
Coupon Bond Separate Account, the Provident Mutual Variable Aggressive Growth
Separate Account, the Provident Mutual Variable International Separate Account
and the Provident Mutual Variable Separate Account.
Sincerely,
Linda E. Senker
LES/ja
<PAGE> 1
EXHIBIT 3(b)
SUTHERLAND, ASBILL & BRENNAN LETTERHEAD
ATLANTA
TEL: (202) 383-0100 1275 PENNSYLVANIA AVENUE, N.W. AUSTIN
FAX: (202) 839-3603 WASHINGTON, D.C. 20004-2404 NEW YORK
WASHINGTON
April 29, 1996
Provident Mutual Life Insurance Company
1600 Market Street
Philadelphia, Pennsylvania 19103
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus for certain modified premium variable life insurance
policies filed as part of post-effective amendment No. 16 to the registration
statement on Form S-6 for Provident Mutual Variable Growth Separate Account,
Provident Mutual Variable Money Market Separate Account, Provident Mutual
Variable Bond Separate Account, Provident Mutual Variable Managed Separate
Account, Provident Mutual Variable Zero Coupon Bond Separate Account, Provident
Mutual Variable Aggressive Growth Separate Account, Provident Mutual Variable
International Separate Account and Provident Mutual Variable Separate Account
(File No. 33-2625). 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,
SUTHERLAND, ASBILL & BRENNAN
By: ________________________
Stephen E. Roth
<PAGE> 1
EXHIBIT 6
April 19, 1996
Provident Mutual Life Insurance Company
1600 Market Street
Philadelphia, Pennsylvania 19103
Gentlemen:
I hereby consent to the use of my name under the heading "Experts" in the
Prospectus filed as part of Post-Effective Amendment No. 16 to the Registration
Statement on Form S-6 (File No. 33-2625) for the Provident Mutual Variable
Growth Separate Account, the Provident Mutual Variable Money Market Separate
Account, the Provident Mutual Variable Bond Separate Account, the Provident
Mutual Variable Managed Separate Account, the Provident Mutual Variable Zero
Coupon Bond Separate Account, the Provident Mutual Variable Aggressive Growth
Separate Account, the Provident Mutual Variable International Separate Account
and the Provident Mutual Variable Separate Account.
Sincerely,
Scott V. Carney, FSA, MAAA
Assistant Vice President & Actuary
SVC/LES/ja
<PAGE> 1
EXHIBIT 7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Post-Effective Amendment
No. 16 to the Registration Statement under the Securities Act of 1933, as
amended, filed on Form S-6 (File No. 33-2625) for the Provident Mutual Variable
Separate Accounts (Growth, Money Market, Bond, Managed, Zero Coupon Bond,
Aggressive Growth, International and Variable), of the following reports:
1. Our report dated February 6, 1996 on our audits of the
financial statements of Provident Mutual Life Insurance Company
as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995.
2. Our report dated February 14, 1996 on our audits of the
financial statements of the Provident Mutual Variable Separate
Accounts (Growth, Money Market, Bond, Managed, Aggressive
Growth, International, Zero Coupon Bond and Variable) as of
December 31, 1995 and for each of the three years in the period
ended December 31, 1995 for the Growth, Money Market, Bond,
Managed, Aggressive Growth, International and Zero Coupon Bond
Separate Accounts and for each of the two years in the period
ended December 31, 1995 and the period July 30, 1993 (Date of
Inception) to December 31, 1993 for the Variable Separate
Account.
We also consent to the reference to our Firm under the caption
"Experts".
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 24, 1996
