<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1997
REGISTRATION FILE NOS. 33-38463/811-4460
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-6
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------
POST-EFFECTIVE AMENDMENT NO. 10
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)
M. DIANE KOKEN, VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
1050 WESTLAKES DRIVE
BERWYN, PA 19312
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
---------------------
COPIES TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
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, 1997 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 26, 1997.
================================================================================
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-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) Death Benefit; Transfers; Loan Privileges; Surrender Privilege;
Partial Withdrawal of Net Cash Surrender Value; Free-Look
Privileges; Special Transfer and Conversion Rights; Accelerated
Death Benefit
10(e) Payment and Allocation of Premiums; Accelerated Death Benefit
10(f), (g), and (h) Voting Rights, Changes in Applicable Law, Funding and Otherwise
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 (c) Payment and Allocation of Premium; Charges and Expenses;
Accelerated Death Benefit
13(d), (e), (f) and Not Applicable
(g)
13(h) Charges Against the Separate Accounts
14 Payment and Allocation of Premiums; Distribution of Policies;
Accelerated Death Benefit
15 Payment and Allocation of Premiums
16 The Separate Accounts; Market Street Fund, Inc.; The Stripped
("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A
17 See items 10(c), (d), and (e)
18(a), (b), and (c) The Separate Accounts; Death Benefit; Policy Account Value
18(d) Not Applicable
19 Policy Reports
20 Not Applicable
21(a) and (b) Loan Privileges; 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)
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
N-8B-2
ITEM CAPTION IN PROSPECTUS
- -------------------- -------------------------------------------------------------------
<S> <C>
27 Provident Mutual Life Insurance Company
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) The Market Street Fund, Inc.; Distribution of Policies
41 Distribution of Policies
42 Not Applicable
43 Not Applicable
44(a) Death Benefit; Policy Account Value; Accelerated Death Benefit
44(b) and (c) Not Applicable
45 Not Applicable
46(a) Death Benefit; Policy Account 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
[PROVIDENT MUTUAL LOGO]
PROSPECTUS
- --------------------------------------------------------------------------------
PROSPECTUS FOR
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
1050 WESTLAKES DRIVE, BERWYN, PENNSYLVANIA 19312
TELEPHONE: (610) 407-1717
- --------------------------------------------------------------------------------
This Prospectus describes a flexible premium adjustable variable life
insurance policy (the "Policy") offered by Provident Mutual Life Insurance
Company ("PMLIC"). The Policy has an insurance component and an investment
component. The primary intended purpose of the Policy is to provide insurance
coverage until the Insured's Attained Age 95. It is designed to provide
considerable flexibility in connection with premium payments, investment
options, and death benefits. It does so by giving the Policyowner ("Owner") the
right to vary the frequency and amount of premium payments (after the initial
premium), to allocate Net Premiums among investment alternatives with different
investment objectives and to increase or decrease the Death Benefit payable
under the Policy.
After certain deductions are made, Net Premiums are allocated to one or more
of the Separate Accounts, or the Guaranteed Account (which is part of PMLIC's
General Account and pays interest at declared rates guaranteed to equal or
exceed 4%) or both. The eight Separate Accounts presently available are: 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
The Market Street Fund, Inc. (the "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; American Century Variable Portfolios, Inc.; Variable Insurance
Products Fund; Variable Insurance Products Fund II; and Van Eck Worldwide
Insurance Trust (together with the MS Fund, the "Funds").
The portion of the Policy Account Value in the Separate Accounts will vary
with the investment experience of the corresponding Portfolios or series of the
Trust. The Owner bears the entire investment risk for all amounts allocated to
the Separate Accounts; there is no guaranteed minimum account value for the
Separate Accounts.
The accompanying Prospectuses for the Funds and for the Zero Coupon Trust
describe the investment objectives and the attendant risks of the Portfolios and
the Trust.
The Policy Account Value will reflect the Monthly Deductions and certain
other fees and charges such as the Mortality and Expense Risk Charge and, for
the Zero Coupon Bond Separate Account, the transaction charge. Also, a surrender
charge may be imposed if, during the first 10 Policy Years or within 10 years
after a Face Amount increase, the Policy lapses or if the Owner effects a
decrease in Face Amount. Generally, the Policy will remain in force as long as
the Net Cash Surrender Value is sufficient to pay certain monthly charges
imposed in connection with the Policy.
It may not be advantageous to purchase a Policy as a replacement for another
type of life insurance or as a means to obtain additional protection if the
purchaser already owns an adjustable variable life insurance policy.
------------------------
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, 1997
Form 15938 5.97
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Definitions.......................................................................... 1
Summary Description of the Policy.................................................... 3
The Policy Offered.............................................................. 3
Availability of Policy.......................................................... 4
The Death Benefit............................................................... 4
Flexibility to Adjust Amount of Death Benefit................................... 4
Policy Account Value............................................................ 4
Allocation of Net Premiums...................................................... 5
Transfers....................................................................... 5
Free-Look Privilege............................................................. 5
Charges Assessed in Connection with the Policy.................................. 6
Premium Tax Charge......................................................... 6
Monthly Deductions......................................................... 6
Surrender Charge and Additional Surrender Charge........................... 6
Face Amount Increase Charge................................................ 6
Transfer Charge............................................................ 6
Partial Withdrawal Charge.................................................. 6
Daily Charges Against the Separate Accounts................................ 6
Table of Fund Fees and Expenses............................................ 7
Policy Lapse and Reinstatement.................................................. 9
Loan Privilege.................................................................. 9
Partial Withdrawal of Net Cash Surrender Value.................................. 10
Surrender of the Policy......................................................... 10
Accelerated Death Benefit....................................................... 10
Tax Treatment................................................................... 10
Illustrations of Death Benefits, Policy Account Value and Net Cash Surrender
Value.......................................................................... 11
Provident Mutual Life Insurance Company, The Separate Accounts, The Funds and The
Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A......... 12
Provident Mutual Life Insurance Company......................................... 12
The Separate Accounts........................................................... 12
The Market Street Fund, Inc..................................................... 12
The Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series
A.............................................................................. 14
2006 Series................................................................ 14
The Alger American Fund......................................................... 15
The Variable Insurance Products Fund and Variable Insurance Products Fund II.... 15
VIP Fund................................................................... 16
VIP Fund II................................................................ 16
Neuberger & Berman Advisers Management Trust.................................... 18
American Century Variable Portfolios, Inc....................................... 19
Van Eck Worldwide Insurance Trust............................................... 20
Termination of Participation Agreements......................................... 21
Resolving Material Conflicts.................................................... 22
The Guaranteed Account.......................................................... 23
Detailed Description of Policy Provisions............................................ 23
Death Benefit................................................................... 23
General.................................................................... 23
Death Benefit Options...................................................... 23
Option A.............................................................. 23
Option B.............................................................. 23
Which Death Benefit Option to Choose.................................. 24
Change in Death Benefit Option........................................ 24
How the Death Benefit May Vary........................................ 25
Ability to Adjust Face Amount................................................... 25
Increase................................................................... 25
Decrease................................................................... 25
Changes Affecting the Death Benefit............................................. 26
How the Duration of the Policy May Vary......................................... 26
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Policy Account Value............................................................ 26
Calculation of Policy Account Value........................................ 27
Determination of Number of Units for the Separate Accounts................. 27
Determination of Unit Value................................................ 27
Net Investment Factor...................................................... 27
Payment and Allocation of Premiums.............................................. 27
Issuance of a Policy....................................................... 27
Amount and Timing of Premiums.............................................. 28
Premium Limitations........................................................ 28
Allocation of Net Premiums................................................. 28
Transfers.................................................................. 29
Policy Lapse............................................................... 29
Reinstatement.............................................................. 29
Charges and Deductions............................................................... 30
Premium Tax Charge.............................................................. 30
Surrender Charges............................................................... 30
Surrender Charge........................................................... 30
Additional Surrender Charge................................................ 30
Surrender Charge Upon Decrease in Face Amount.............................. 31
Allocation of Surrender Charges............................................ 31
Monthly Deductions.............................................................. 31
Cost of Insurance.......................................................... 31
Cost of Insurance Rate................................................ 32
Premium Class......................................................... 32
Administrative Charges..................................................... 32
Initial Administrative Charge......................................... 32
Monthly Administrative Charge......................................... 32
Additional Benefit Charges................................................. 32
Face Amount Increase Charge..................................................... 33
Partial Withdrawal Charge....................................................... 33
Transfer Charge................................................................. 33
Charges Against the Separate Accounts........................................... 33
Mortality and Expense Risk Charge.......................................... 33
Asset Charge Against Zero Coupon Bond Separate Account..................... 33
Charges for Income Taxes........................................................ 33
Guarantee of Certain Charges.................................................... 34
Other Charges................................................................... 34
Contract Rights...................................................................... 34
Loan Privileges................................................................. 34
General.................................................................... 34
Interest Rate Charged...................................................... 34
Allocation of Loans and Collateral......................................... 34
Interest Credited to Loan Account.......................................... 34
Effect of Policy Loan...................................................... 34
Loan Repayments............................................................ 35
Lapse With Loans Outstanding............................................... 35
Tax Considerations......................................................... 35
Surrender Privilege............................................................. 35
Partial Withdrawal of Net Cash Surrender Value.................................. 35
Accelerated Death Benefit....................................................... 37
Tax Consequence of the Rider............................................... 37
Amount of the Accelerated Death Benefit.................................... 37
Conditions for Receipt of the Accelerated Death Benefit.................... 37
Operation of the Rider..................................................... 38
Effect on Existing Policy.................................................. 38
Free-Look Privileges............................................................ 38
Free-Look for Policy....................................................... 38
Free-Look for Increase in Face Amount...................................... 39
</TABLE>
ii
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Special Transfer and Conversion Rights.......................................... 39
Transfer Right for Policy.................................................. 39
Conversion Privilege for Increase in Face Amount........................... 39
Transfer Right for Change in Investment Policy of Separate Account or
Subaccount................................................................. 39
Telephone Transfers........................................................ 39
Automatic Asset Rebalancing................................................ 39
The Guaranteed Account............................................................... 40
Minimum Guaranteed and Current Interest Rates................................... 40
Calculation of Guaranteed Account Value.................................... 40
Transfers from Guaranteed Account............................................... 41
Other Policy Provisions.............................................................. 41
Amount Payable on Final Policy Date............................................. 41
Payment of Policy Benefits...................................................... 41
The Contract.................................................................... 41
Ownership....................................................................... 41
Beneficiary..................................................................... 42
Change of Owner and Beneficiary................................................. 42
Split Dollar Arrangements....................................................... 42
Assignments..................................................................... 42
Misstatement of Age............................................................. 42
Suicide......................................................................... 42
Incontestability................................................................ 42
Dividends....................................................................... 42
Settlement Options.............................................................. 43
Supplementary Benefits............................................................... 43
Disability Waiver of Monthly Deductions......................................... 43
Disability Waiver of Premium Benefit............................................ 43
Change of Insured............................................................... 44
Final Policy Date Extension..................................................... 44
Federal Income Tax Considerations.................................................... 44
Introduction.................................................................... 44
Tax Status of the Policy........................................................ 44
Tax Treatment of Policy Benefits................................................ 45
In General................................................................. 45
Modified Endowment Contracts............................................... 46
Distributions from Policies Classified as Modified Endowment Contracts..... 46
Distributions from Policies Not Classified as Modified Endowment
Contracts.................................................................. 46
Policy Loan Interest....................................................... 47
Investment in the Policy................................................... 47
Multiple Policies.......................................................... 47
Other Tax Consequences..................................................... 47
Special Rules for Pension and Profit-Sharing Plans.............................. 47
Possible Charge for PMLIC's Taxes............................................... 47
Voting Rights........................................................................ 48
Changes in Applicable Law, Funding, and Otherwise.................................... 49
Officers and Directors of PMLIC...................................................... 49
Distribution of Policies............................................................. 51
Policy Reports....................................................................... 52
State Regulation..................................................................... 52
Experts.............................................................................. 52
Legal Matters........................................................................ 52
Appendix A--Illustration of Death Benefits, Policy Account Values and Net Cash
Surrender Values................................................................... A-1
Appendix B--Long Term Market Trends.................................................. B-1
Financial Statements................................................................. F-1
</TABLE>
iii
<PAGE> 8
THE POLICY MAY NOT BE AVAILABLE IN ALL JURISDICTIONS. 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 PRIMARY 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.
iv
<PAGE> 9
DEFINITIONS
ADDITIONAL SURRENDER
CHARGE..................... The separately determined amount deducted from the
Policy Account Value upon surrender or lapse of
the Policy within 10 years of the effective date
of an increase in Face Amount. A pro-rata
Additional Surrender Charge will be deducted for a
reduction in Face Amount within 10 years of the
effective date of a Face Amount increase. The
Maximum Additional Surrender Charge will be shown
in the Policy Schedule Pages reflecting the Face
Amount increase.
ATTAINED AGE............... The Issue Age of the Insured plus the number of
full Policy Years since the Policy Date.
BENEFICIARY................ The person(s) or entity(ies) designated to receive
all or some of the Insurance Proceeds when the
Insured dies. The Beneficiary is designated in the
application or if subsequently changed, as shown
in the latest change filed with PMLIC. If no
Beneficiary survives and unless otherwise
provided, the Insured's estate will be the
Beneficiary.
CASH SURRENDER VALUE....... The Policy Account Value minus any applicable
contingent Surrender Charge or Additional
Surrender Charge.
DEATH BENEFIT.............. Under Option A, the greater of the Face Amount or
a percentage of the Policy Account Value on the
date of death; under Option B, the greater of the
Face Amount plus the Policy Account Value on the
date of death, or a percentage of the Policy
Account Value on the date of death. The Death
Benefit Option is selected at time of application
but may be later changed.
FACE AMOUNT................ The Initial Face Amount plus any increases in Face
Amount and minus any decreases in Face Amount.
FINAL POLICY DATE.......... The Policy Anniversary nearest Insured's Attained
Age 95 at which time the Policy Account Value, if
any, (less any outstanding Policy loan and accrued
interest) will be paid to the Owner if the Insured
is living. The Policy will end on the Final Policy
Date.
GRACE PERIOD............... The 61-day period allowed for payment of a premium
following the date PMLIC mails notice of the
amount required to keep the Policy in force.
HOME OFFICE................ PMLIC's Home Office at 1050 Westlakes Drive,
Berwyn, PA 19312.
INITIAL FACE AMOUNT........ The Face Amount of the Policy on the Issue Date.
The Face Amount may be increased or decreased
after issue.
INSURANCE PROCEEDS......... The net amount to be paid to the Beneficiary when
the Insured dies.
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.
LOAN ACCOUNT............... The account to which the collateral for the amount
of any Policy loan is transferred from the
Separate Accounts and/or the Guaranteed Account.
MINIMUM FACE AMOUNT........ For the first 10 Policy Years, for Issue Ages
21-75, the Minimum Face Amount is $500,000; for
Issue Ages 1-21, $250,000. After the tenth Policy
Year, the Minimum Face Amount is $200,000.
MINIMUM INITIAL PREMIUM.... Equal to $300 (the Initial Administrative Charge)
plus the sum of three monthly deductions,
increased by any premium tax and applicable
surrender charges.
1
<PAGE> 10
MONTHLY DEDUCTIONS......... The amount deducted from the Policy Account Value
on each Policy Processing Day. It includes the
Monthly Administrative Charge, the Monthly Cost of
Insurance Charge, and the monthly cost of any
benefits provided by riders. The first Monthly
Deduction also includes the Initial Administrative
Charge.
NET AMOUNT AT RISK......... The amount by which the Death Benefit exceeds the
Policy Account Value.
NET CASH SURRENDER VALUE... The Policy Account Value minus any applicable
contingent surrender charges, minus any
outstanding Policy loans and accrued interest.
NET PREMIUM................ The remainder of a premium after the deduction of
the Premium Tax Charge.
OWNER...................... The person(s) or entity(ies) entitled to exercise
the rights granted in the Policy.
PLANNED PERIODIC PREMIUM... The premium amount which the Owner plans to pay at
the frequency selected. The Owner is entitled to
receive a reminder notice and change the amount of
the Planned Periodic Premium. The Owner is not
required to pay the designated amount.
POLICY ACCOUNT VALUE....... The sum of the Policy's values in the Separate
Accounts, the Guaranteed Account, and the Loan
Account.
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.
The Policy Date is generally the same as the Issue
Date but may be another date mutually agreed upon
by PMLIC and the proposed Insured.
POLICY ISSUE DATE.......... The date on which the Policy is issued. It is used
to measure suicide and contestable periods.
POLICY PROCESSING DAY...... The day in each calendar month which is the same
day of the month as the Policy Date. The first
Policy Processing Day is the Policy Date.
POLICY YEAR................ A year that starts on the Policy Date or on a
Policy Anniversary.
PREMIUM CLASS.............. The classification of the Insured for cost of
insurance purposes. The classes are: standard;
nonsmoker; with extra rating; and nonsmoker with
extra rating.
SURRENDER CHARGE........... The amount deducted from the Policy Account Value
upon lapse or surrender of the Policy during the
first 10 Policy Years. A pro-rata Surrender Charge
will be deducted upon a decrease in the Initial
Face Amount during the first 10 Policy Years. The
Maximum Surrender Charge is shown in the Policy.
The Surrender Charge is determined separately from
the Additional Surrender Charge.
VALUATION DAY.............. Each day that the New York Stock Exchange is open
for business and any other day on which there is a
sufficient degree of trading with respect to a
Separate Account's portfolio of securities to
materially affect the value of that Separate
Account.
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 the Policy provisions should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus.
THE POLICY OFFERED
The Flexible Premium Adjustable Variable Life Insurance Policy (the
"Policy") offered by this Prospectus is issued by Provident Mutual Life
Insurance Company ("PMLIC"). The Policy allows the Owner, subject to certain
limitations, to make premium payments in any amount and at any frequency. As
long as the Policy remains in force, it will provide for:
(1) Life insurance coverage on the named Insured up to the Insured's
Attained Age 95;
(2) A Cash Surrender Value;
(3) Surrender and withdrawal rights and Policy loan privileges; and
(4) A variety of additional insurance benefits.
The Policy described in this Prospectus is designed to provide insurance
coverage 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.
The Policy is called "flexible premium" because there is no fixed schedule
for premium payments, even though the Owner may establish a schedule of Planned
Periodic Premiums. The Policy is described as "adjustable" because the Owner
may, within limits, increase or decrease the Face Amount and may change the
Death Benefit Option. The Policy is called "variable" because, unlike a fixed
benefit whole life insurance policy, the Death Benefit under the Policy may, and
its Account Value will, vary to reflect the investment performance of the chosen
Separate Accounts, and the crediting of interest to the Guaranteed Account, as
well as other factors.
The failure to pay Planned Periodic Premiums will not itself cause the
Policy to lapse. Conversely, the payment of premiums in any amount or frequency
will not necessarily guarantee that the Policy will remain in force. In general,
the Policy will lapse if the Net Cash Surrender Value is insufficient to pay the
Monthly Deduction for cost of insurance and administrative charges.
After deduction of the Premium Tax Charge, Net Premiums are allocated to
one or more of the Separate Accounts and/or the Guaranteed Account as selected
by the Owner. The Guaranteed Account is part of PMLIC's General Account.
The assets of the Growth, Money Market, Bond, Managed, Aggressive Growth
and International Separate Accounts are invested in a corresponding portfolio of
The 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: The Alger
American Fund; Neuberger & Berman Advisers Management Trust; American Century
Variable Portfolios, Inc.; Variable Insurance Products Fund; Variable Insurance
Products Fund II; and Van Eck Worldwide Insurance 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 series of the 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.
3
<PAGE> 12
AVAILABILITY OF POLICY
This Policy can be issued for Insureds from Issue Ages 1 to 75. For Issue
Ages 21 and over, the minimum Initial Face Amount is $500,000; for Issue Ages
under 21, $250,000. (For Policies issued to residents of New York State, the
minimum Initial Face Amount is $2,500,001.) Before issuing a Policy, PMLIC will
require that the proposed Insured meet certain underwriting standards
satisfactory to PMLIC. The premium classes available are Standard, Nonsmoker,
with Extra Rating and Nonsmoker with Extra Rating. (See "Issuance of a Policy,"
Page 27.)
THE DEATH BENEFIT
As long as the Policy remains in force, PMLIC will pay the Insurance
Proceeds to the Beneficiary upon receipt of due proof of the death of the
Insured. The Insurance Proceeds will consist of the Policy's Death Benefit, plus
any dividends payable, plus any relevant additional benefits provided by a
supplementary benefit rider, less any outstanding Policy loan and accrued
interest, less any unpaid Monthly Deductions.
There are two Death Benefit Options available. Death Benefit Option A
provides for the greater of (a) the Face Amount and (b) the applicable
percentage of the Policy Account Value. Death Benefit Option B provides for the
greater of (a) the Face Amount plus the Policy Account Value and (b) the
applicable percentage of the Policy Account Value. (See "Death Benefit Options,"
Page 23.)
FLEXIBILITY TO ADJUST AMOUNT OF DEATH BENEFIT
After the first Policy Year, the Owner has significant flexibility to
adjust the Death Benefit by changing the Death Benefit Option or by increasing
or decreasing the Face Amount of the Policy. (See "Change in Death Benefit
Option," Page 24, and "Ability to Adjust Face Amount," Page 25.) The minimum
amount of a requested increase in Face Amount is $100,000 (or such lesser amount
required in a particular state) and any requested increase may require evidence
of insurability. Any decrease in Face Amount must be for at least $100,000 (or
such lesser amount required in a particular state) and during Policy Years 2
through 10 cannot result in a Face Amount less than the minimum Initial Face
Amount available; after the tenth Policy Year, the Minimum Face Amount cannot be
less than $200,000. PMLIC reserves the right to establish different Minimum Face
Amounts for Policies issued in the future.
Any change in Death Benefit Options or in the Face Amount may affect the
charges under the Policy. Any increase in the Face Amount will result in an
increase in the Monthly Deductions and any increase in Face Amount will also
increase the surrender charges which are imposed upon lapse or surrender of the
Policy or the pro-rata surrender charges imposed upon a decrease in Face Amount
within the relevant ten-year period. For any decrease in Face Amount, that part
of the surrender charges attributable to the decrease will reduce the Policy
Account Value, and the surrender charges will be reduced by this amount. A
decrease in Face Amount may also affect cost of insurance charges. (See "Cost of
Insurance," Page 31.)
To the extent that a requested decrease in Face Amount would result in
cumulative premiums exceeding the maximum premium limitations applicable under
the Internal Revenue Code for life insurance, PMLIC will not effect the
decrease.
POLICY ACCOUNT VALUE
The Policy Account Value is the total amount of value held under the Policy
at any time. It equals the sum of the amounts held in the Separate Accounts, the
Guaranteed Account and the Loan Account. (See "Calculation of Policy Account
Value," Page 27.)
The Policy Account Value in the Separate Accounts will reflect the
investment performance of the chosen Separate Accounts, any Net Premiums paid,
any transfers, any partial withdrawals, any loans, any loan repayments, any loan
interest paid or credited and any charges assessed in connection with the
Policy. The Owner bears the entire investment risk for amounts allocated to the
Separate Accounts. There is no guaranteed minimum for the portion of the Policy
Account Value in the Separate Accounts.
4
<PAGE> 13
The Guaranteed Account earns interest at rates PMLIC declares in advance
for specific periods. The rates are guaranteed to equal or exceed 4%. The
principal, after deductions, is also guaranteed. The value of the Guaranteed
Account will reflect any amounts allocated or transferred to it plus interest
credited to it, less amounts deducted, transferred or withdrawn from it. (See
"The Guaranteed Account," Page 40.)
The Loan Account will reflect any amounts transferred from the Separate
Accounts and/or Guaranteed Account as collateral for Policy loans plus interest
of at least 4% credited to such amount. (See "Loan Privileges," Page 34.)
The Policy Account Value is relevant to the computation of the Death
Benefit and cost of insurance charges.
ALLOCATION OF NET PREMIUMS
Except as described below, Net Premiums will generally be allocated to the
Separate Accounts, Subaccounts and the Guaranteed Account in accordance with the
allocation percentages which are in effect for such premium when received at
PMLIC's Home Office. These percentages will be those specified in the
application or as subsequently changed by the Owner or as specified for a
particular premium payment.
Where state law requires a return of gross premiums paid when a Policy is
returned under the Free-Look provision (see "Free-Look for Policy," Page 38) any
portion of the Initial Net Premium and any Net Premiums received before the
expiration of a 15-day period beginning on the later of the Policy Issue Date or
the date PMLIC receives the Minimum Initial Premium, which are to be allocated
to the Separate Accounts will be allocated to the Money Market Separate Account.
At the end of the 15-day period, the amount in the Money Market Separate Account
(including investment experience) will be allocated to each of the chosen
Separate Accounts based on the proportion that the allocation percentage for
such Separate Account bears to the sum of the Separate Account premium
allocation percentages. (See "Allocation of Net Premiums," Page 28.)
TRANSFERS
The Owner may make transfers of the amounts in the Separate Accounts and
Guaranteed Account between and among such accounts and between and among
Subaccounts of a Separate Account. Transfers between and among the Separate
Accounts (and/or Subaccounts) or into the Guaranteed Account will be made on the
date we receive the request. PMLIC requires a minimum amount for each such
transfer, usually $1,000. Transfers out of the Guaranteed Account may only be
made within 30 days of a Policy Anniversary and are limited in amount. If the
Owner makes more than four transfers in a Policy Year, a Transfer Charge of $25
will be deducted from the amount being transferred. (See "Transfers," Page 29.)
FREE-LOOK PRIVILEGE
The Policy provides for an initial Free-Look period. The Owner may cancel
the Policy before the latest of: (a) 45 days after Part I of the Application for
the Policy is signed; (b) 10 days after the Owner receives the Policy; and (c)
10 days after PMLIC mails or personally delivers a Notice of Withdrawal Right to
the Owner. 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 Owner will receive a refund equal to the sum of:
(i) the Policy Account Value as of the date PMLIC receives the returned Policy;
plus (ii) the amount deducted for premium taxes; plus (iii) any Monthly
Deductions charged against the Policy Account Value; plus (iv) an amount
reflecting other charges directly or indirectly deducted under the Policy. Where
state law requires a minimum refund equal to gross premiums paid, the refund
will instead equal the gross premium paid on the Policy and will not reflect the
investment experience of the Separate Accounts. (See "Free-Look Privileges,"
Page 38.)
A Free-Look privilege also applies after a requested increase in Face
Amount. (See "Free-Look For Increase in Face Amount," Page 39.)
5
<PAGE> 14
CHARGES ASSESSED IN CONNECTION WITH THE POLICY
Premium Tax Charge. A Premium Tax Charge will be deducted from each
premium payment for state and local premium taxes. This charge is based on the
rate for the Insured's residence at the time the premium is paid. PMLIC reserves
the right to change the amount of the charge deducted from future premiums if
the Insured's residence changes or applicable law is changed. (See "Premium Tax
Charge," Page 30.)
Monthly Deductions. On the Policy Date and on each Policy Processing Day
thereafter, the Policy Account Value will be reduced by a Monthly Deduction
equal to the sum of the monthly Cost of Insurance Charge, Monthly Administrative
Charge, a charge for additional benefits added by rider and, on the Policy Date
only, the Initial Administrative Charge. The monthly Cost of Insurance Charge
will be determined by multiplying the Net Amount at Risk (that is the Death
Benefit less Policy Account Value) by the applicable cost of insurance rate(s),
which will depend upon the Attained Age and Premium Class of the Insured and
PMLIC's expectations as to future mortality and expense experience, but which
will not exceed the guaranteed maximum cost of insurance rates set forth in the
Policy based on the Insured's Attained Age, Premium Class, and the "1980
Commissioners Standard Ordinary Mortality Table B." The Policy, when sold in
Massachusetts and New York State in non-employer sponsored arrangements,
utilizes sex-distinct mortality tables. For the "sex-distinct" version, cost of
insurance rates also vary based on the sex of the Insured. (See "Cost of
Insurance," Page 31.) The monthly Administrative Charge is currently $8; the
maximum permissible monthly Administrative Charge is $16. (See "Monthly
Administrative Charge," Page 32.) The Initial Administrative Charge is $300,
payable on the Policy Date. (See "Initial Administrative Charge," Page 32.)
Surrender Charge and Additional Surrender Charge. A Surrender Charge,
which is a contingent deferred sales charge, is imposed if the Policy is
surrendered or lapses at any time before the tenth Policy Year. A portion of
this Surrender Charge will be deducted if the Owner decreases the Initial Face
Amount before the end of the tenth Policy Year. (See "Surrender Charge," Page
30.) An Additional Surrender Charge will be imposed if the Policy is surrendered
or lapses at any time within ten years after the effective date of an increase
in Face Amount. (See "Additional Surrender Charge," Page 30.) A portion of an
Additional Surrender Charge will be deducted if the related increment of Face
Amount is decreased within ten years after such increase took effect. (See
"Surrender Charge Upon Decrease in Face Amount," Page 31.)
The Surrender Charge is equal to 30% of the premiums received during the
first Policy Year (or, for the Additional Surrender Charge, the first twelve
policy months after an increase) up to one target premium (which is an amount,
based on the age of the Insured, used solely for the purpose of calculating the
Surrender Charge) plus 9% of all other premiums received to the date of
surrender, lapse or decrease. The Surrender Charge and any Additional Surrender
Charges, however, will not exceed the Maximum Surrender Charge and Maximum
Additional Surrender Charges, respectively. During Policy Years one through six
(or for six years following the effective date of an increase in Face Amount),
this maximum equals 50% of the target premium for the Initial Face Amount (or
50% of the target premium for the increase, as the case may be). The maximum
declines to 40% of the relevant target premiums during the seventh year, 30%
during the eighth year, 20% during the ninth year and 10% during the tenth year.
Face Amount Increase Charge. A charge equal to $300 will be deducted from
the Policy Account Value on the effective date of an increase in Face Amount to
compensate PMLIC for administrative expenses in connection with the increase.
(See "Face Amount Increase Charge," Page 33.)
Transfer Charge. After the fourth transfer between accounts in a Policy
Year, a $25 charge for each additional transfer will be deducted from the amount
transferred to compensate PMLIC for administrative costs in handling such
transfers. (See "Transfer Charge," Page 33.)
Partial Withdrawal Charge. A charge equal to $25 will be deducted by PMLIC
from the Policy Account Value to compensate it for its costs. (See "Partial
Withdrawal Charge," Page 33.)
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
6
<PAGE> 15
of 0.75% of the average daily net assets of the Separate Accounts. (See "Charges
Against the Separate Accounts," Page 33.)
With regard to 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 charge may be increased in the
future but in no event will it exceed an effective annual rate of 0.50%. (See
"Asset Charge Against Zero Coupon Bond Separate Account," Page 33.)
Shares of the Portfolios are purchased by the Separate Accounts at net
asset value which reflects management fees and expenses deducted from the assets
of the Portfolios.
TABLE OF FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND ANNUAL EXPENSES
(AS A % OF AVERAGE NET ASSETS)
Management Fees
(investment Advisory Fees)...... 0.33% 0.25% 0.35% 0.40% 0.47% 0.75%
Other Expenses.................... 0.17% 0.19% 0.21% 0.20% 0.21% 0.30%
Total Fund Annual Expenses........ 0.50% 0.44% 0.56% 0.60% 0.68% 1.05%
</TABLE>
<TABLE>
<CAPTION>
SMALL
CAPITALIZATION
PORTFOLIO
--------------
<S> <C>
ALGER AMERICAN FUND ANNUAL
EXPENSES(2)
(AS A % OF AVERAGE NET ASSETS)
Management Fees
(investment Advisory Fees)...... 0.85%
Other Expenses.................... 0.03%
Total Fund Annual Expenses........ 0.88%
</TABLE>
<TABLE>
<CAPTION>
HIGH EQUITY
INCOME INCOME GROWTH OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- ---------- ---------
<S> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND
ANNUAL EXPENSES(2)
(AS A % OF AVERAGE NET ASSETS)
Management Fees
(Investment Advisory Fees)...... 0.60% 0.51% 0.60% 0.76%
Other Expenses
(after reimbursement)(1)........ 0.11% 0.05% 0.07% 0.16%
Total Fund Annual Expenses
(after reimbursement)(1)........ 0.71% 0.56% 0.67% 0.92%
</TABLE>
7
<PAGE> 16
<TABLE>
<CAPTION>
ASSET INDEX INVESTMENT
MANAGER 500 GRADE BOND CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- ---------- ---------
<S> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND
II ANNUAL EXPENSES(2)
(AS A % OF AVERAGE NET ASSETS)
Management Fees
(investment Advisory Fees)...... 0.64% 0.28% 0.44% 0.61%
Other Expenses
(after reimbursement)(1)........ 0.09% 0.00% 0.14% 0.10%
Total Fund Annual Expenses
(after reimbursement)(1)........ 0.73% 0.28% 0.58% 0.71%
</TABLE>
<TABLE>
<CAPTION>
LIMITED
MATURITY
BALANCED GROWTH BOND
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- ----------
<S> <C> <C> <C>
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST ANNUAL
EXPENSES(2)
(AS A % OF AVERAGE NET ASSETS)
Management Fees
(investment Advisory Fees)...... 0.55% 0.53% 0.25%
Other Expenses.................... 0.54% 0.39% 0.53%
Total Fund Annual Expenses........ 1.09% 0.92% 0.78%
</TABLE>
<TABLE>
<CAPTION>
CAPITAL
APPRECIATION
PORTFOLIO
--------------
<S> <C>
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC. ANNUAL
EXPENSES(2)
(AS A % OF AVERAGE NET ASSETS)
Management Fees
(investment Advisory Fees)...... 1.00%
Other Expenses.................... 0.00%
Total Fund Annual Expenses........ 1.00%
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE
WORLDWIDE HARD EMERGING
BOND ASSETS MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- ----------
<S> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE TRUST
ANNUAL EXPENSES(2)
(AS A % OF AVERAGE NET ASSETS)
Management Fees
(investment Advisory Fees)...... 1.00% 1.00% 1.00%
Other Expenses
(after reimbursement)(1)........ 0.16% 0.23% 0.50%
Total Fund Annual Expenses
(after reimbursement)(1)........ 1.16% 1.23% 1.50%
</TABLE>
8
<PAGE> 17
<TABLE>
<CAPTION>
ZERO
COUPON
2006
PORTFOLIO
--------------
<S> <C>
MERRILL LYNCH ZERO UST SECURITIES
FUND ANNUAL EXPENSES(2)
(AS A % OF AVERAGE NET ASSETS)
Management Fees
(investment Advisory Fees)...... 0.00%
Other Expenses.................... 0.25%
Total Fund Annual Expenses........ 0.25%
</TABLE>
- ---------------
(1) For certain portfolios, certain expenses were reimbursed during 1996. It is
anticipated that expense reimbursement and fee waiver arrangements will
continue past the current year. Absent the expense reimbursement, the 1996
Other Expenses and Total Annual Expenses would have been 0.07%, 0.58%
respectively, for the Fidelity Equity Income Portfolio, 0.09%, 0.69%,
respectively for the Fidelity Growth Portfolio, 0.17%, 0.93%, respectively,
for the Fidelity Overseas Portfolio, 0.10%, 0.74%, respectively, for the
Fidelity Asset Manager Portfolio, 0.16%, 0.44%, respectively, for the
Fidelity Index 500 Portfolio, 0.13%, 0.74%, respectively, for the Fidelity
Contrafund Portfolio, 0.17%, 1.17%, respectively, for the VanEck Worldwide
Bond Portfolio, 0.24%, 1.24%, respectively, for the Van Eck Worldwide Hard
Assets Portfolio and 1.64%, 2.64%, respectively, for the VanEck Worldwide
Emerging Markets Portfolio. Similar expense reimbursement and fee waiver
arrangements were also in place for the other Portfolios and it is
anticipated that such arrangements will continue past the current year.
However, no expenses were reimbursed or fees waived during 1996 for these
Portfolios because the level of actual expenses and fees never exceeded the
thresholds at which the reimbursement and waiver arrangements would have
become operative.
(2) The fee and expense information regarding the Funds was provided by those
Funds. The Alger American Fund, the Variable Insurance Products Fund, the
Variable Insurance Products Fund II, the Neuberger & Berman ATM Fund, the
American Century Variable Portfolio, the Van Eck WIT Fund and the Merrill
Lynch Zero Coupon Fund are not affiliated with Provident Mutual.
POLICY LAPSE AND REINSTATEMENT
The Policy will lapse if and only if the Net Cash Surrender Value is
insufficient to cover the Monthly Deductions and a 61-day Grace Period expires
without a sufficient premium payment. The failure to pay a Planned Periodic
Premium will not itself cause a Policy to lapse. (See "Policy Lapse," Page 29.)
Subject to certain conditions, including evidence of insurability
satisfactory to PMLIC and the payment of a sufficient premium, a Policy may be
reinstated at any time within three years (or such longer period as may be
required in a particular state) after the expiration of the Grace Period and
before the Final Policy Date. (See "Reinstatement," Page 29.)
LOAN PRIVILEGE
The Owner may obtain Policy loans in a minimum amount of $1,500 (or such
lesser minimum as may be required in a particular state) but not exceeding, in
the aggregate, the Net Cash Surrender Value.
Policy loans will bear interest at a fixed rate of 8% per year (6% per year
for Policies issued in New York State), payable at the end of each Policy Year.
If interest is not paid when due, it will be added to the outstanding loan
balance. Policy loans may be repaid at any time and in any amount prior to the
Final Policy Date.
Policy loans are allocated to the Separate Accounts and the Guaranteed
Account based on the proportion that each account's value bears to the total
unloaned Policy Account Value. Based on this allocation, the collateral for the
loan is deducted from each account and transferred to the Loan Account. This
amount in the Loan Account will earn interest at an effective annual rate PMLIC
will determine prior to each calendar year. This rate will not be less than 4%.
(See "Loan Privileges," Page 34.)
9
<PAGE> 18
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 45.)
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After the first Policy Year, the Owner may, subject to certain
restrictions, request a partial withdrawal of Net Cash Surrender Value. The
minimum amount for such withdrawal is $1,500. An expense charge of $25 will be
deducted from the Policy Account Value for each withdrawal. The withdrawal
amount and expense charge will be allocated to the Separate Accounts and the
Guaranteed Account based on the proportion that the value in each account bears
to the total unloaned Policy Account Value. If Death Benefit Option A is in
effect, PMLIC will reduce the Face Amount by the amount of the withdrawal. (See
"Partial Withdrawal of Net Cash Surrender Value," Page 35.)
SURRENDER OF THE POLICY
The Owner may at any time fully surrender the Policy and receive the Net
Cash Surrender Value, if any. The Net Cash Surrender Value will equal the Policy
Account Value less any Policy loan and any applicable surrender charges. (See
"Surrender Privilege," Page 35.)
ACCELERATED DEATH BENEFIT
The Owner of a Policy with the Accelerated Death Benefit Rider may 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 Terminal Illness or is
permanently confined to a Nursing Care Facility. (See "Accelerated Death
Benefit," Page 37.)
TAX TREATMENT
PMLIC believes (based on IRS Notice 88-128 and the proposed Regulations
under Section 7702, issued on July 3, 1991), that a Policy issued on the basis
of a Standard Premium Class generally should meet the Section 7702 definition of
a life insurance contract. With respect to a Policy issued with Extra Rating or
Nonsmoker with Extra Rating (i.e., substandard) basis, there is insufficient
guidance to determine if such a Policy would satisfy the Section 7702 definition
of a life insurance contract, particularly if the Owner pays the full amount of
premiums permitted under such a Policy. An Owner of a Policy issued with extra
rating basis may, however, adopt certain self-imposed limitations on the amount
of premiums paid for such a Policy which should cause the Policy to meet the
Section 7702 definition of a life insurance contract. Any Owner contemplating
the adoption of such limitations should do so only after consulting a tax
adviser.
Assuming that a Policy qualifies as a life insurance contract for federal
income tax purposes, a Policyowner should not be deemed to be in constructive
receipt of Policy Account Value under a Policy until there is a distribution
from the Policy. Moreover, death benefits payable under a Policy should be
completely excludable from the gross income of the Beneficiary. As a result, the
Beneficiary generally should not be taxed on these proceeds. (See "Tax Status of
the Policy," Page 44.)
Under certain circumstances, a Policy may be treated as a "Modified
Endowment Contract." If the Policy is a Modified Endowment Contract, then all
pre-death distributions, including Policy loans, 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 any such distributions generally
will be subject to a 10% penalty tax. (For further discussion on the
circumstances under which a Policy will be treated as a Modified Endowment
Contract, See "Tax Treatment of Policy Benefits," Page 45.)
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
10
<PAGE> 19
Endowment Contract are subject to the 10% penalty tax. (See "Distributions from
Policies Not Classified as Modified Endowment Contracts," Page 46.)
ILLUSTRATIONS OF DEATH BENEFITS, POLICY ACCOUNT VALUE AND NET CASH SURRENDER
VALUE
Illustrations of how investment performance of the Separate Accounts may
cause Death Benefits, the Policy Account Value and the Net Cash Surrender Value
to vary are included in Appendix A commencing on page A-1. 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.
11
<PAGE> 20
PROVIDENT MUTUAL LIFE INSURANCE COMPANY, THE SEPARATE ACCOUNTS,
THE FUNDS AND 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,
1996, PMLIC's assets were over $7.1 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 (and other policies) supported by 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. 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 collectively registered with the Securities and
Exchange Commission (SEC) under the Investment Company Act of 1940 (1940 Act) as
a unit investment trust type of investment company. 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.
THE MARKET STREET FUND, INC.
The Growth, Money Market, Bond, Managed, Aggressive Growth and
International Separate Accounts invest in shares of The 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
Account. The Fund sells and redeems its shares at net asset value without a
sales charge.
The MS Fund presently 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
12
<PAGE> 21
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, Money Market, 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, PMMC receives monthly
compensation as follows:
Growth Portfolio -- 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.
Money Market Portfolio -- 0.25% of the average daily net assets of the
portfolio.
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 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
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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 will 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 the 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.
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.
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 "Charges Against the Separate
Accounts" on Page 30, 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 Policy Account
Value (see "Monthly Deductions," Page 6) or the Premium Tax Charge (see "Premium
Tax Charge," Page 6) or any Surrender Charges (see "Surrender Charges," Page
30), 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 may 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%.
Because the value of the Trust's units vary on a daily basis to reflect
market values, no net rate of return can be calculated prospectively for units
not held until maturity. 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 and Policy Account Value, the Policy Account 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 Zero Coupon Bond
Separate Account upon acquisition. Rather, the transaction charge is paid
directly by PMLIC to MLPFS out of PMLIC's General Account assets. The 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
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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 33).
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 Zero Coupon Bond Separate Account investing in that series will be
notified and given the opportunity to select the account or Sub-Account into
which the Policy Account Value attributable thereto should be reallocated. If no
instructions are received from the Owner by PMLIC within the 30-day period, the
amount in the Sub-Account will be transferred to the Money Market Separate
Account.
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.
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
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Fidelity Asset Manager Subaccount, 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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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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- 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 full 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 Fund and
VIP Fund II 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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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 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. 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.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
The Variable Account has sixteen Subaccounts, one of which invests
exclusively in shares of a Portfolio of the American Century Variable
Portfolios, Inc. ("American Century"). Like the MS Fund, the American Century 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 American Century.
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The American Century Variable Subaccount of the Variable Account invests in
shares of the American Century Variable Portfolio of American Century. (American
Century has other investment portfolios that are not offered to the Variable
Account or under the Policies.) Shares of the American Century Variable
Portfolio are purchased and redeemed by the Variable Account at net asset value
without a sales charge. The Variable Account purchases shares of American
Century Variable Portfolio from American Century in accordance with a
participation agreement between American Century and PMLIC. The termination
provisions of these participation agreements are described below.
American Century Variable 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
American Century Variable Portfolio will achieve its stated objective.
The investment adviser for the American Century Variable 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 American Century Variable
Portfolio.
A more extensive description of American Century and the American Century
Variable Portfolio, including the Portfolio's investment objectives and
policies, risks, expenses and other aspects of its operations are contained in
the Prospectus for American Century which accompanies this Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
The Variable Account has sixteen Subaccounts, three of which invest
exclusively in shares of Portfolios of Van Eck Worldwide Insurance 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 Worldwide Bond, Van Eck Worldwide Hard Assets, and Van Eck
Worldwide Emerging Markets Subaccounts of the Variable Account invest in shares
of the Van Eck Worldwide Bond, the Van Eck Worldwide Hard Assets, and Van Eck
Worldwide Emerging Markets Portfolios, respectively, of Van Eck Trust. Shares of
the Van Eck Worldwide Bond, the Worldwide Hard Assets, and Worldwide Emerging
Markets 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 Van Eck Trust in accordance with a participation agreement
between the Van Eck 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 Worldwide Hard Assets Portfolio seeks long-term capital
appreciation by investing primarily in "Hard Assets Securities." Hard Assets
Securities include equity securities of Hard Asset Companies and securities,
including structured notes, whose value is linked to the price of a Hard Asset
commodity or a commodity index. Hard Asset Companies include companies that are
directly or indirectly engaged to a significant extent in the exploration,
development, production or distribution of one or more of the following
(together, Hard Assets); (i) precious metals, (ii) ferrous and non-ferrous
metals, (iii) gas, petroleum, petrochemicals or other hydrocarbons, (iv) forest
products, (v) real estate and (vi) other basic non-agricultural commodities.
Income is a secondary consideration.
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 Van Eck Worldwide Hard Assets, Van Eck
Worldwide Bond and Van Eck Worldwide Emerging Markets Portfolios is Van Eck
Associates Corporation ("Van Eck Associates"). As
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compensation for its services to the Worldwide Hard Assets and Worldwide Bond
Portfolios, Van Eck Associates receives a monthly fee at an annual rate of 1.0%
of the first $500 million of the average daily net assets of the Portfolios,
0.90% of the next $250 million of the daily net assets of the Portfolios, and
0.70% of the average daily net assets of the Portfolios in excess of $750
million. As compensation for its services to the Worldwide Emerging Markets
Portfolio, Van Eck Associates receives a monthly fee at an annual rate of 1.0%
of the Portfolio's average daily net assets.
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, Van Eck Worldwide Hard
Assets 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.
American Century Variable Portfolios, Inc. The agreement with
American Century provides for termination 1) by PMLIC or American Century
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 American Century in the event that shares of
American Century subject to the agreement are not registered, offered or
sold in conformity with applicable law, 3) by PMLIC upon reasonable notice
if
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<PAGE> 30
shares of one of the then available Portfolios of American Century are no
longer available or upon sixty days notice if PMLIC should substitute
shares of another fund or Fund for those of American Century, 4) upon
assignment of the agreement unless both parties agree to the assignment in
writing or upon termination of American Century's investment management
agreement with Investor's Research (unless a new management agreement is
entered into by American Century with Investor's Research), and 5) by
American Century if PMLIC breaches the agreement.
Van Eck Worldwide Insurance 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 may 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.
22
<PAGE> 31
THE GUARANTEED ACCOUNT
For information on the Guaranteed Account, see page 36.
DETAILED DESCRIPTION OF POLICY PROVISIONS
DEATH BENEFIT
General. As long as the Policy remains in force, the Insurance Proceeds of
the Policy will, upon due proof of the Insured's death (and fulfillment of
certain other requirements), be paid to the named Beneficiary in accordance with
the designated Death Benefit Option. The proceeds may be paid in cash or under
one of the Settlement Options set forth in the Policy. The amount payable under
the designated Death Benefit Option will be increased by any additional
benefits, and any dividend payable and will be decreased by any outstanding
Policy loan and accrued interest and by any unpaid Monthly Deductions.
Death Benefit Options. The Policy provides two Death Benefit Options:
Option A and Option B. The Owner designates the Death Benefit Option in the
application and may change it as described in "Change in Death Benefit Option,"
Page 24.
Option A. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy and (b) the Policy Account Value on the Valuation Date on
or next following the Insured's date of death multiplied by the specified
percentage shown in the table below:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
- ------------ ---------- -------------- ----------
<S> <C> <C> <C>
Under 40 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 100%
</TABLE>
For Attained Ages not shown, the percentages will decrease by a ratable portion
for each full year.
Illustration of Option A -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no Policy loan outstanding.
Under Option A, a Policy with a Face Amount of $500,000 will generally pay
a Death Benefit of $500,000. The specified percentage for an Insured under
Attained Age 40 on the Policy Anniversary prior to the date of death is 250%.
Because the Death Benefit must be equal to or be greater than 2.50 times the
Policy Account Value, any time the Policy Account Value exceeds $200,000 the
Death Benefit will exceed the Face Amount. Each additional dollar added to the
Policy Account Value will increase the Death Benefit by $2.50. Thus, a 35 year
old Insured with a Policy Account Value of $250,000 will have a Death Benefit of
$625,000 (2.50 X $250,000); a Policy Account Value of $300,000 will yield a
Death Benefit of $750,000 (2.50 X $300,000); a Policy Account Value of $400,000
will yield a Death Benefit of $1,000,000 (2.50 X $400,000).
Similarly, any time the Policy Account Value exceeds $200,000, each dollar
taken out of the Policy Account Value will reduce the Death Benefit by $2.50. If
at any time, however, the Policy Account Value multiplied by the specified
percentage is less than the Face Amount, the Death Benefit will be the Face
Amount of the Policy.
Option B. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy plus the Policy Account Value and (b) the Policy Account
Value multiplied by the specified percentage shown in the table above. (The
Policy Account Value in each case is determined on the Valuation Day on or next
following the Insured's date of death.)
Illustration of Option B. For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no outstanding Policy loan.
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<PAGE> 32
Under Option B, a Policy with a Face Amount of $500,000 will generally pay
a Death Benefit of $500,000 plus the Policy Account Value. Thus, for example, a
Policy with a $50,000 Policy Account Value will have a Death Benefit of $550,000
($500,000 plus $50,000); a Policy Account Value of $100,000 will yield a Death
Benefit of $600,000; and a Policy Account Value of $250,000 will yield a Death
Benefit of $750,000. Since the specified percentage is 250%, the Death Benefit
will be at least 2.50 times the Policy Account Value. As a result, if the Policy
Account Value exceeds $333,333, the Death Benefit will be greater than the Face
Amount plus the Policy Account Value. Each additional dollar added to the Policy
Account Value above $333,333 will increase the Death Benefit by $2.50. An
Insured with a Policy Account Value of $350,000 will therefore have a Death
Benefit of $875,000 (2.50 X $350,000); a Policy Account Value of $400,000 will
yield a Death Benefit of $1,000,000 (2.50 X $400,000); and a Policy Account
Value of $500,000 will yield a Death Benefit of $1,250,000 (2.50 X $500,000).
Similarly, any time the Policy Account Value exceeds $333,333, each dollar taken
out of the Policy Account Value will reduce the Death Benefit by $2.50. If at
any time, however, the Policy Account Value multiplied by the applicable
percentage is less than the Face Amount plus the Policy Account Value, the Death
Benefit will be the Face Amount plus the Policy Account Value.
Which Death Benefit Option to Choose. If an Owner prefers to have premium
payments and favorable investment performance reflected partly in the form of an
increasing Death Benefit, the Owner should choose Option B. If an Owner is
satisfied with the amount of the Insured's existing insurance coverage and
prefers to have premium payments and favorable investment performance reflected
to the maximum extent in the Policy Account Value, the Owner should choose
Option A.
Change in Death Benefit Option. After the first Policy Year, at any time
when the Death Benefit would be the Face Amount (if Option A is in effect) or
the Face Amount plus the Policy Account Value (if Option B is in effect), the
Death Benefit Option in effect may be changed by sending PMLIC a written
request. No charges will be imposed to make a change in the Death Benefit
Option. The effective date of any such change will be the Policy Processing Day
on or next following the date PMLIC receives the written request.
If the Death Benefit Option is changed from Option A to Option B, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be decreased by the Policy Account Value on that date. However, this
change may not be made if it would reduce the Face Amount to less than the
Minimum Face Amount.
If the Death Benefit Option is changed from Option B to Option A, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be increased by the Policy Account Value on that date.
A change in the Death Benefit Option may affect the Net Amount at Risk over
time which, in turn, would affect the monthly Cost of Insurance Charge. Changing
from Option A to Option B will generally result in a net amount at risk that
remains level. Such a change will result in a relative increase in the cost of
insurance charges over time because the Net Amount at Risk will, unless the
Death Benefit is based on the applicable percentage of Policy Account Value,
remain level rather than decreasing as the Policy Account Value increases.
Unless the Death Benefit is based on the applicable percentage of Policy Account
Value, changing from Option B to Option A will, if the Policy Account Value
increases, decrease the Net Amount at Risk over time, thereby reducing the cost
of insurance charge.
The effects of these Death Benefit Option changes on the Face Amount, Death
Benefit and Net Amount at Risk can be illustrated as follows. Assume that a
contract under Option A has a Face Amount of $1,000,000 and a Policy Account
Value of $100,000 and, therefore, a Death Benefit of $1,000,000 and a Net Amount
at Risk of $900,000 ($1,000,000 - $100,000). If the Death Benefit Option is
changed from Option A to Option B, the Face Amount will decrease from $1,000,000
to $900,000 but the Death Benefit and Net Amount at Risk would remain the same.
Assume that a contract under Option B has a Face Amount of $500,000 and a Policy
Account Value of $50,000 and, therefore, the Death Benefit is $550,000 ($500,000
+ $50,000) and a Net Amount at Risk of $500,000 ($550,000 - $50,000). If the
Death Benefit Option is changed from Option B to Option A, the Face Amount will
increase to $550,000, but the Death Benefit and Net Amount at Risk would remain
the same.
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<PAGE> 33
If a change in the Death Benefit Option would result in cumulative premiums
exceeding the maximum premium limitations under the Internal Revenue Code for
life insurance, PMLIC will not effect the change.
A change in the Death Benefit Option may have Federal income tax
consequences. (See "Tax Treatment of Policy Benefits," Page 45).
How the Death Benefit May Vary. The amount of the Death Benefit may vary
with the Policy Account Value. The Death Benefit under Option A will vary with
the Policy Account Value whenever the specified percentage of Policy Account
Value exceeds the Face Amount of the Policy. The Death Benefit under Option B
will always vary with the Policy Account Value because the Death Benefit equals
the greater of (a) the Face Amount plus the Policy Account Value and (b) the
Policy Account Value multiplied by the specified percentage.
ABILITY TO ADJUST FACE AMOUNT
Subject to certain limitations, an Owner may generally, at any time after
the first Policy Year, increase or decrease the Policy's Face Amount by
submitting a written application to PMLIC. The effective date of the increase or
decrease will be the Policy Processing Day on or next following PMLIC's approval
of the request. An increase in Face Amount may have tax consequences. (See "Tax
Treatment of Policy Benefits," Page 45). The effect of changes in Face Amount on
Policy charges, as well as other considerations, are described below. Increases
and decreases in Face Amount may not be made within 12 months of a previous
increase or decrease, as the case may be.
Increase. A request for an increase in Face Amount may not be for less
than $100,000 (or such lesser amount required in a particular state). The Owner
may not increase the Face Amount after the Insured's Attained Age 75. To obtain
the increase, the Owner must submit an application for the increase and provide
evidence satisfactory to PMLIC of the Insured's insurability.
On the effective date of an increase, and taking the increase into account,
the Net Cash Surrender Value must be equal to the Monthly Deductions then due
and the expense charge (currently $300) for the increase. If the Net Cash
Surrender Value is not sufficient, the increase will not take effect until the
Owner makes a sufficient additional premium payment to increase the Net Cash
Surrender Value.
An increase in the Face Amount will generally affect the total Net Amount
at Risk which will increase the monthly Cost of Insurance Charges. An increase
in Face Amount will increase the amount of any Additional Surrender Charge. A
Face Amount increase expense charge will also be deducted. (See "Face Amount
Increase Charge," Page 33). In addition, different cost of insurance rates may
apply to the increase in insurance coverage. (See "Cost of Insurance," Page 31).
After increasing the Face Amount, the Owner will have the right: (i) during
the free-look period following the effective date of the increase, to have the
increase cancelled and receive a credit or refund; and (ii) during the first 24
months following the increase, to exchange the increase in Face Amount for a
fixed benefit permanent life insurance policy issued by PMLIC. (See "Conversion
Privilege for Increase in Face Amount," Page 39).
Decrease. The amount of a Face Amount decrease must be for at least
$100,000 (or such lesser amount required in a particular state). During Policy
Years 2 through 10, the Face Amount after any decrease may not be less than the
minimum Initial Face Amount for a newly issued policy. After the 10th Policy
Year, the Minimum Face Amount is $200,000. To the extent a decrease in the Face
Amount could result in cumulative premiums exceeding the maximum premium
limitations applicable for life insurance under the Internal Revenue Code, PMLIC
will not effect the decrease.
A decrease in the Face Amount generally will decrease the total Net Amount
at Risk which will decrease an Owner's monthly insurance charges. A decrease in
the Face Amount may result in the imposition of a surrender charge as of the
Policy Processing Day on which the decrease becomes effective. (See "Surrender
Charge Upon Decrease in Face Amount," Page 31).
25
<PAGE> 34
Any surrender charge applicable to a decrease will be deducted from the
Policy Account Value and the remaining surrender charge will be reduced by the
amount deducted. The surrender charge will be deducted from the Separate
Accounts and the Guaranteed Account based on the proportion that the value in
such account bears to the total unloaned Policy Account Value.
For purposes of determining the cost of insurance charge and surrender
charges, any decrease in the Face Amount will reduce the Face Amount in the
following order: (a) the Face Amount provided by the most recent increase; (b)
the next most recent increases, successively; and (c) the Initial Face Amount.
CHANGES AFFECTING THE DEATH BENEFIT
Owner may increase or decrease the Face Amount. In addition, changing the
level of premium payments, and, to a lesser extent, making a partial withdrawal
of Net Cash Surrender Value may have consequences for the Death Benefit or
charges associated therewith. The consequences of each are summarized below.
A decrease in Face Amount will, subject to applicable percentage
limitations, decrease the insurance protection. It will not reduce the Policy
Account Value, except for the deduction of any Surrender Charge applicable to
the decrease. The Monthly Deductions will generally be correspondingly lower
following the decrease.
An increase in Face Amount will generally increase the amount of insurance
protection, depending on the Policy Account Value and applicable percentage. If
the insurance protection is increased, Monthly Deductions will increase as well.
Under Death Benefit Option A, until the applicable percentage of Policy
Account Value exceeds the Face Amount, then (i) if the Owner increases the
premium payments from the current level, the amount of insurance protection will
generally be reduced, and (ii) if the Owner reduces the premium payments from
the current level, the amount of insurance protection will generally be
increased.
Under Death Benefit Option B, until the applicable percentage of Policy
Account Value exceeds the Face Amount plus the Policy Account Value, the level
of premium payments will not affect the amount of insurance protection.
(However, both the Policy Account Value and Death Benefit will be increased if
premium payments are increased and reduced if premium payments are reduced.)
Under either Death Benefit Option, if the Death Benefit is the applicable
percentage of Policy Account Value, then (i) if the Owner increases premium
payments from the current level, the amount of insurance protection will
increase and (ii) if the Owner reduces the premium payments from the current
level, the amount of insurance protection will be lower.
A partial withdrawal of Net Cash Surrender Value will reduce the Death
Benefit. It will not reduce the amount of insurance protection unless the Death
Benefit is based on the applicable percentage of Policy Account Value. This is
because if the Death Benefit is based on the applicable percentage, the decrease
in the Death Benefit will be greater than the amount of a withdrawal. Since the
primary use of a partial withdrawal is to withdraw cash which reduces the Policy
Account Value, the Net Cash Surrender Value is reduced, thereby increasing the
likelihood that the Policy will lapse. (See "Policy Lapse," Page 29).
HOW THE DURATION OF THE POLICY MAY VARY
The Policy will remain in force as long as the Net Cash Surrender Value of
the Policy is sufficient to pay the Monthly Deductions and the charges under the
Policy. When the Net Cash Surrender Value is insufficient to pay the charges and
the Grace Period expires without an adequate premium payment by the Owner, the
Policy will lapse and terminate without value. The Owner has certain rights to
reinstate the Policy. (See "Reinstatement," Page 29).
POLICY ACCOUNT VALUE
The Policy Account Value is the total amount of value held under the Policy
at any time. It is equal to the sum of the Policy's values in the Separate
Accounts, the Guaranteed Account and the Loan Account. The
26
<PAGE> 35
Policy Account Value minus any applicable Contingent Surrender Charge or
Additional Surrender Charge is equal to the Cash Surrender Value. There is no
guaranteed minimum for the portion of the Policy Account Value in any of the
Separate Accounts and, because the Policy Account Value on any future date
depends upon a number of variables, it cannot be predetermined.
The Policy Account Value and Cash Surrender Value will reflect the
investment performance of the chosen Separate Accounts, the crediting of
interest in excess of 4% (the guaranteed minimum) for the Guaranteed Account and
the Loan Account, any Net Premiums paid, any transfers, any partial withdrawals,
any loans, any loan repayments, any loan interest paid, and any charges assessed
in connection with the Policy.
Calculation of Policy Account Value. The Policy Account Value is
determined first on the Policy Date and thereafter on each Valuation Day. On the
Policy Date, the Policy Account Value will be the Net Premiums received less any
Monthly Deductions due on the Policy Date. On each Valuation Day after the
Policy Date, the Policy Account Value will be:
(1) The aggregate of the values attributable to the Policy in each
Separate Account, determined by multiplying the number of units the Policy
has in the Separate Account by the Separate Account's Unit Value on that
date;
(2) The value attributable to the Policy in the Guaranteed Account
(See "The Guaranteed Account," Page 40); plus
(3) The value attributable to the Policy in the Loan Account. (See
"Loan Privileges," Page 34).
Determination of Number of Units for the Separate Accounts. Amounts
allocated, transferred or added to a Separate Account under a Policy are used to
purchase units of that Separate Account; units are redeemed when amounts are
deducted, transferred or withdrawn. The number of units a Policy has in a
Separate Account equals the number of units purchased minus the number of units
redeemed up to such time. For each Separate Account, the number of units
purchased or redeemed in connection with a particular transaction is determined
by dividing the dollar amount by the unit value.
Determination of Unit Value. The unit value of a Separate Account is equal
to the unit value on the immediately preceding Valuation Day multiplied by the
Net Investment Factor for that Separate Account on that Valuation Day.
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 or unrealized, for
the securities of the underlying portfolio or series.
The asset charge for mortality and expense risks and the transaction charge
for the Zero Coupon Bond Separate Account will be deducted in determining the
applicable Net Investment Factor.
PAYMENT AND ALLOCATION OF PREMIUMS
Issuance of a Policy. In order to purchase a Policy, an individual must
make application to PMLIC through a licensed PMLIC agent who is also a
registered representative of 1717 Capital Management Company ("1717") or a
broker/dealer having a Selling Agreement with 1717 or a broker/dealer having a
Selling Agreement with such a broker/dealer. The minimum Initial Face Amount of
a Policy under PMLIC's rules is currently $500,000 for Issue Ages 21 and over
and $250,000 for Issue Ages under 21. (For Policies issued to residents of New
York State, the minimum Face Amount at issue is $2,500,001). PMLIC reserves the
right to revise its rules from time to time to specify a different minimum
Initial Face Amount for subsequently issued policies. A Policy will be issued
only to Insureds who have an Issue Age of 75 or less and who provide PMLIC with
satisfactory evidence of insurability. Acceptance is subject to PMLIC's
underwriting rules. PMLIC reserves the right to reject an application for any
reason permitted by law. (See "Distribution of Policies," Page 51.)
27
<PAGE> 36
At the time the application for a Policy is signed, an applicant can,
subject to PMLIC's underwriting rules, obtain temporary insurance protection,
pending issuance of the Policy, by answering "no" to the Health Questions of the
Temporary Agreement and submitting payment of the Minimum Initial Premium with
the Application. The Minimum Initial Premium will equal the Initial
Administrative Charge of $300 plus an amount sufficient for the first three
Monthly Deductions, increased for any Premium Tax and Surrender Charge. Where
Minimum Initial Premium is not submitted with the application, it must be
submitted when the Policy is delivered.
The amount of coverage under the Temporary Agreement is the lesser of the
Face Amount applied for or $500,000. Coverage under the agreement will end on
the earliest of: (a) the 90th day from the date of the agreement; (b) the date
that insurance takes effect under the Policy; (c) the date a policy, other than
as applied for, is offered to the Applicant; or (d) five days from the date
PMLIC mails a notice of termination of coverage.
Amount and Timing of Premiums. Each premium payment must be for at least
$100. Subject to certain limitations described below, an Owner has considerable
flexibility in determining the amount and frequency of premium payments.
At the time of application, each Owner will select a Planned Periodic
Premium schedule, based on a periodic billing mode of annual, semi-annual, or
quarterly payment. The Owner is entitled to receive a premium reminder notice
from PMLIC at the specified interval. The Owner may change the Planned Periodic
Premium frequency and amount. Also, under the Automatic Payment Plan, the Owner
can select a monthly payment schedule pursuant to which premium payments will be
automatically deducted from a bank account or other source, rather than being
"billed".
Unless prohibited by a particular state (i.e., New York), any payments made
while there is an outstanding Policy loan will be applied as loan repayments
unless PMLIC is notified in writing, that the amount is to be applied as a
premium payment. (Payments made under New York Policies will be treated as
premium payments and will only be applied as loan repayments if the Owner
specifically requests). The Owner is not required to pay the Planned Periodic
Premiums in accordance with the specified schedule. The Owner has the
flexibility to alter the amount, frequency and time period over which premiums
are paid. Payment of the Planned Periodic Premiums will not, however, guarantee
that the Policy will remain in force. Instead, the duration of the Policy
depends upon the Policy's Net Cash Surrender Value. Thus, even if Planned
Periodic Premiums are paid, the Policy will lapse whenever the Net Cash
Surrender Value is insufficient to pay the Monthly Deductions and any other
charges under the Policy and if a Grace Period expires without an adequate
payment by the Owner.
Premium Limitations. With regard to a Policy's inside build-up, the
Internal Revenue Code of 1986 (the "Code") provides for exclusion of the Death
Benefit from gross income if total premium payments do not exceed certain stated
limits. In no event can the total of all premiums paid under a Policy exceed
such limits. If at any time a premium is paid which would result in total
premiums exceeding such limits, PMLIC will only accept that portion of the
premium which would make total premiums equal the maximum amount which may be
paid under the Policy. The excess will be refunded. Even if total premiums were
to exceed the maximum premium limitations established by the Code, the excess of
a Policy's Death Benefit over the Policy's Cash Surrender Value would still be
excludable from gross income under the Code.
The maximum premium limitations set forth in the Code depend in part upon
the amount of the Death Benefit at any time. As a result, any Policy changes
which affect the amount of the Death Benefit may affect whether cumulative
premiums paid under the Policy exceed the maximum premium limitations. To the
extent that any such change would result in cumulative premiums exceeding the
maximum premium limitations, PMLIC will not effect such change. (See "Federal
Income Tax Considerations," Page 44).
Allocation of Net Premiums. The Net Premium equals the premium paid less
the Premium Tax Charge. The application for the Policy will indicate how Net
Premiums should be allocated among the Separate Accounts and/or the Guaranteed
Account. The percentages of each Net Premium that may be
28
<PAGE> 37
allocated to any account must be in whole numbers and the sum of the allocation
percentages must be 100%. PMLIC will allocate the Net Premiums on the date it
receives such premium at its Home Office.
Where state law requires a refund of premiums paid when a policy is
returned under the Free-Look provision (See "Free-Look for Policy," Page 38) any
portion of the Initial Premium and any subsequent premiums received by PMLIC
before the expiration of a 15-day period beginning on the later of the Policy
Issue Date or the date PMLIC receives the Minimum Initial Premium, which are to
be allocated to the Separate Accounts will be allocated to the Money Market
Separate Account. At the end of the 15-day period, PMLIC will allocate the
amount in the Money Market Separate Account to each of the chosen Separate
Accounts based on the proportion that the allocation percentage for such
Separate Account bears to the sum of the Separate Account premium allocation
percentages.
For example, assume a Policy was issued with Net Premiums allocated 25% to
the Growth Separate Account, 25% to the Bond Separate Account and 50% to the
Guaranteed Account. During the 15-day period stated above, 50% (25% + 25%) of
the premiums will be allocated to the Money Market Separate Account. At the end
of the 15-day period, 50% (25% / 50%) of the amount in the Money Market Separate
Account will be transferred to the Growth Separate Account and 50% to the Bond
Separate Account.
For premium payments received after the 15-day period, Net Premiums will be
allocated based on the allocation percentages then in effect. The allocation
schedules may be changed at any time by providing PMLIC with written notice.
The values of the Separate Accounts will vary with their investment
experience and the Owner bears the entire investment risk. Owners should
periodically review their allocation schedule in light of market conditions and
the Owner's overall financial objectives.
Transfers. The Owner may transfer the Policy Account Value between and
among the Separate Accounts the Subaccounts of the Variable Account and the
Guaranteed Account by making a written transfer request to PMLIC. The amount
transferred each time must be at least $1,000, unless the total value in an
account is less than $1,000, in which case the entire amount will be
transferred. 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.
The Owner may, at any time, transfer all or part of the amount in one of
the Separate Accounts (or Subaccount) to another Separate Account (or
Subaccount) and/or to the Guaranteed Account. (For transfers from the Guaranteed
Account to the Separate Accounts, see "Transfers from Guaranteed Account," Page
41).
After four transfers have been made in any Policy Year, a $25 transfer
charge will be deducted from each transfer during the remainder of such Policy
Year. All transfers included in a request are treated as one transfer
transaction. Transfers resulting from Policy loans, the exercise of exchange
privileges, and the reallocation from the Money Market Separate Account
following the 15-day period after the Issue Date, will not be subject to a
transfer charge and will not count against the four free transfers in any Policy
Year. Under present law, transfers are not taxable transactions.
Policy Lapse. The failure to make a premium payment will not itself cause
a Policy to lapse. Lapse will only occur when the Net Cash Surrender Value is
insufficient to cover the Monthly Deductions and other charges under the Policy
and the Grace Period expires without a sufficient payment.
The Policy provides for a 61-day Grace Period that is measured from the
date on which notice is sent by PMLIC. Thus, the Policy does not lapse, and the
insurance coverage continues, until the expiration of this Grace Period. In
order to prevent lapse, the Owner must during the Grace Period make a premium
payment sufficient to increase the Net Cash Surrender Value to an amount
sufficient to cover any unpaid Monthly Deductions. The notice sent by PMLIC will
specify the payment required to keep the Policy in force. Failure to make a
sufficient payment within the Grace Period will result in lapse of the Policy
without value.
Reinstatement. A Policy that lapses without value may be reinstated at any
time within three years (or longer period required in a particular state) after
the expiration of the Grace Period and before the Final
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Policy Date by submitting evidence of the Insured's insurability satisfactory to
PMLIC and payment of an amount sufficient to keep the Policy in force for at
least three months following the effective date of reinstatement, which is the
date the reinstatement application is approved. Upon reinstatement, the Policy
Account Value will be based upon the premium paid to reinstate the Policy and
the Policy will be reinstated with the same Policy Date as it had prior to the
lapse.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate PMLIC
for (a) providing the insurance benefits set forth in the Policy; (b)
administering the Policy; (c) assuming certain risks in connection with the
Policy; and (d) incurring expenses in distributing the Policy.
PREMIUM TAX CHARGE
Prior to allocation of Net Premiums, premiums paid are reduced by a Premium
Tax Charge. Various states and some of their subdivisions impose a tax on
premiums received by insurance companies. Premium taxes vary from state to
state, and range from 0.75% to 3.5%. A deduction of a percentage of the premium
will be made from each premium payment. The applicable percentage will be based
on the rate for the Insured's residence.
SURRENDER CHARGES
A Surrender Charge, which is a contingent deferred sales charge, is imposed
if the Policy is surrendered or lapses at any time before the end of the tenth
Policy Year. A portion of this Surrender Charge will be deducted if the Owner
decreases the Initial Face Amount before the end of the tenth Policy Year.
Additional Surrender Charges, which also are contingent deferred sales charges,
will be imposed if the Policy is surrendered or lapses at any time within ten
years after the effective date of an increase in Face Amount.
A portion of an Additional Surrender Charge also will be deducted if the
related increment of Face Amount is decreased within ten years after such
increase took effect. These surrender charges are designed partially to
compensate PMLIC for the cost of selling the Policy, including agent sales
commissions, the cost of printing the prospectuses and sales literature, and any
advertising and underwriting costs. PMLIC does not expect the surrender charges
to cover all of these costs. To the extent that they do not, PMLIC will cover
the short-fall from its general account assets, which may include profits from
the mortality and expense risk charge.
Surrender Charge. The Surrender Charge will not exceed the Maximum
Surrender Charge specified in the Policy. During Policy Years 1 through 6, this
maximum equals 50% of the target premium (which is an amount, based on the
Initial Face Amount and the Issue Age of the Insured, used solely for the
purpose of calculating the Surrender Charge) for the Initial Face Amount. It
equals 40% of that target premium during Policy Year 7, 30% during Policy Year
8, 20% during Policy Year 9, 10% during Policy Year 10, and 0% during Policy
Years 11 and later. The Surrender Charge actually imposed will equal the lesser
of the Maximum Surrender Charge and an amount equal to 30% of the premiums
actually received during the first Policy Year up to one target premium plus 9%
of all other premiums paid to the date of surrender or lapse, less any Surrender
Charge previously paid at the time of a decrease in Face Amount.
Additional Surrender Charge. An Additional Charge is associated with each
increase in Face Amount. Each Additional Surrender Charge is calculated in a
manner similar to the Surrender Charge associated with the Initial Face Amount.
The Maximum Additional Surrender Charge for an increase in Face Amount is 50% of
the target premium for that increase (which is an amount based upon the amount
of the increase and the Attained Age of the Insured at the time of such
increase). This maximum remains level for six years following the effective date
of an increase. It equals 40% of that target premium during the seventh year,
and declines to 0% by the beginning of the eleventh year after the effective
date of the increase. The Additional Surrender Charge actually deducted will
equal the lesser of this maximum and 30% of premiums received, up to the first
target premium for that increase, during the first twelve policy months after an
increase and 9% of all
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premiums thereafter. As explained below, only a portion of premiums received
after the effective date of an increase will be counted for this purpose.
However, as described in the following paragraph, a portion of the Policy
Account Value on the effective date of an increase also will be considered a
"premium" for purposes of calculating the amount of each Additional Surrender
Charge.
Additional premium payments may not be required to fund a requested
increase in Face Amount. Instead, a special method, based on a guideline annual
premium calculated according to SEC rules, is used to allocate a portion of the
existing Policy Account Value to the increase and to allocate subsequent premium
payments between the Initial Face Amount and the increase. The Policy Account
Value is allocated according to the ratio between the SEC guideline annual
premium for the Initial Face Amount and the SEC guideline annual premium for the
total Face Amount on the effective date of the increase before any deductions
are made. For example, if the guideline annual premium is equal to $15,000
before an increase and is equal to $20,000 after an increase, the Policy Account
Value on the effective date of the increase would be allocated 75%
($15,000/$20,000) to the Initial Face Amount and 25% to the increase. Premium
payments made on or after the effective date of the increase are allocated
between the Initial Face Amount and the increase using the same ratio as is used
to allocate the Policy Account Value. In the event there is more than one
increase in Face Amount, SEC guideline annual premiums for each increment of
Face Amount are used to allocate Policy Account Values and premium payments
among the various increments of Face Amounts.
Surrender Charge Upon Decrease in Face Amount. A surrender charge may be
deducted on a decrease in Face Amount. In the event of a decrease, the surrender
charge deducted is a fraction of the charge that would apply to a full surrender
of the Policy. If there have been no increases in Face Amount, the fraction will
be determined by dividing the amount of the decrease by the current Face Amount
and multiplying the result by the Surrender Charge. If more than one Surrender
Charge is in effect (i.e., pursuant to one or more increases in Face Amount),
the surrender charge will be applied in the following order: (1) the most recent
increase followed by (2) the next most recent increases, successively, and (3)
the Initial Face Amount. Where a decrease causes a partial reduction in an
increase or in the Initial Face Amount, a proportionate share of the Surrender
Charge for that increase or for the Initial Face Amount will be deducted.
Allocation of Surrender Charges. The Surrender Charge will be deducted
from the Policy Account Value. For surrender charges resulting from Face Amount
decreases, that part of any such surrender charge will reduce the Policy Account
Value and will be allocated among the accounts based on the proportion that the
value in each of the Separate Accounts and the Guaranteed Account Value bear to
the total unloaned Policy Account Value.
MONTHLY DEDUCTIONS
Charges will be deducted from the Policy Account Value on the Policy Date
and on each Policy Processing Day to compensate PMLIC for administrative
expenses and for the insurance coverage provided by the Policy. The Monthly
Deduction consists of four components -- (a) the cost of insurance, (b)
insurance underwriting and expenses in connection with issuing the Policy, (c)
administrative expenses, and (d) the cost of any additional benefits provided by
rider. Because portions of the Monthly Deduction, such as the cost of insurance,
can vary from month to month, the Monthly Deduction may vary in amount from
month to month. The Monthly Deduction will be deducted from the Separate
Accounts and the Guaranteed Account in accordance with the allocation
percentages for Monthly Deductions chosen by the Owner at the time of
application, or as later changed by PMLIC pursuant to the Owner's written
request. If a monthly deduction cannot be made on the basis of the allocation
schedule then in effect, the deduction will be made based on the allocation of
Policy Account Value among the Owner's Guaranteed Account Value and the value in
any Separate Account and/or Subaccount.
Cost of Insurance. Because the cost of insurance depends upon several
variables, the cost for each Policy Month can vary. PMLIC will determine the
monthly Cost of Insurance Charge by multiplying the applicable cost of insurance
rate or rates by the Net Amount at Risk for each Policy Month.
The Net Amount at Risk on any Policy Processing Day is the amount by which
the Death Benefit exceeds the Policy Account Value. The Net Amount at Risk is
determined separately for the Initial Face
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Amount and any increases in Face Amount. In determining the Net Amount at Risk
for each increment of Face Amount, the Policy Account Value is first considered
part of the Initial Face Amount. If the Policy Account Value exceeds the Initial
Face Amount, it is considered as part of any increases in Face Amount in the
order such increases took effect.
A cost of insurance rate is also determined separately for the Initial Face
Amount and any increases in Face Amount. In calculating the cost of insurance
charge, the rate for the Premium Class on the Policy Date is applied to the Net
Amount at Risk for the Initial Face Amount. For each increase in Face Amount,
the rate for the Premium Class applicable to the increase is used. If, however,
the Death Benefit is calculated as the Policy Account Value times the specified
percentage, the rate for the Premium Class for the Initial Face Amount will be
used for the amount of the Death Benefit in excess of the total Face Amount.
Any change in the Net Amount at Risk will affect the total cost of
insurance charges paid by the Owner.
Cost of Insurance Rate. The cost of insurance rate will be based on the
Attained Age and Premium Class of the Insured. The actual monthly cost of
insurance rates will be based on PMLIC's expectations as to future mortality and
expense experience. They will not, however, be greater than the guaranteed
maximum cost of insurance rates set forth in the Policy. These guaranteed
maximum rates are based on the Insured's Attained Age, Premium Class, and the
1980 Commissioners Standard Ordinary Mortality Table B. Any change in the cost
of insurance rates will apply to all persons of the same Attained Age and
Premium Class. For Policies sold in Massachusetts, New Jersey and New York State
in non-employer sponsored arrangements, cost of insurance rates, both current
and guaranteed, also vary based on the sex of the Insured.
Premium Class. The Premium Class of the Insured will affect the cost of
insurance rates. PMLIC currently places Insureds into standard classes and
classes with extra ratings, which reflect higher mortality risks. In an
otherwise identical Policy, an Insured in the standard class will have a lower
cost of insurance than an Insured in a premium class with extra ratings. The
Premium Classes are divided into two categories: smokers and nonsmokers.
Nonsmoking insureds will generally incur lower cost of insurance rates than
Insureds who are classified as smokers in the same Premium Class.
Since the nonsmoker designation is not available for Insureds under
Attained Age 21, shortly before an Insured attains age 21, PMLIC will notify the
Insured about possible classification as a nonsmoker and will send the Insured
an Application for Change in Premium Class. If the Insured does not qualify as a
nonsmoker or does not return the application, cost of insurance rates will
remain as shown in the Policy. However, if the Insured returns the application
and qualifies as a nonsmoker, the cost of insurance rates will be changed to
reflect the nonsmoker classification.
Administrative Charges. PMLIC administers the Policy and the Separate
Accounts and, therefore, will incur certain ordinary administrative expenses and
certain issuance expenses. There are two administrative charges, the Initial
Administrative Charge and the Monthly Administrative Charge.
Initial Administrative Charge. The Initial Administrative Charge of $300
will be deducted from the Policy Account Value on the Policy Date as part of the
first Monthly Deduction. The Initial Administrative Charge is intended to
reimburse PMLIC for administrative expenses in connection with the issuance of
the Policy, including medical exams, review of applications for insurance,
underwriting decisions and processing of the applications, establishing Policy
records, and Policy issue.
Monthly Administrative Charge. A Monthly Administrative Charge (presently
$8) will be deducted from the Policy Account Value on the Policy Date and each
Policy Processing Day as part of the Monthly Deduction. This charge may be
increased, but in no event will it be greater than $16 per month. This charge is
intended to reimburse PMLIC for ordinary administrative expenses expected to be
incurred, including record keeping, processing claims and certain Policy
changes, preparing and mailing reports, and overhead costs.
Additional Benefit Charges. The Monthly Deduction will include charges for
any additional benefits added to the Policy. The monthly charges will be
specified in the applicable Rider.
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FACE AMOUNT INCREASE CHARGE
If the Face Amount is increased, a $300 increase charge will be deducted
from the Policy Account Value on the effective date of such increase. This
charge will be deducted from the accounts based on the allocation schedule for
Monthly Deductions in effect at such time. This charge is intended to reimburse
PMLIC for administrative expenses in connection with the Face Amount increase,
including medical exams, review of the application for the increase,
underwriting decisions and processing of the application, and changing Policy
records and the Policy.
PARTIAL WITHDRAWAL CHARGE
A charge of $25 will be deducted from the Policy Account Value for each
partial withdrawal of Net Cash Surrender Value. This charge is intended to
compensate PMLIC for the administrative costs in effecting the requested payment
and in making all calculations which may be required by reason of the partial
withdrawal.
TRANSFER CHARGE
After four transfers have been made in any Policy Year, a transfer charge
of $25 will be deducted for each transfer during the remainder of such Policy
Year to compensate PMLIC for the costs of processing such transfers.
The transfer charge will be deducted from the amount being transferred. The
transfer charge will not apply to transfers resulting from Policy loans, the
exercise of special transfer rights and the initial reallocation of account
values from the Money Market Separate Account to other Separate Accounts. These
transfers will not count against the four free transfers in any Policy Year.
CHARGES AGAINST THE SEPARATE ACCOUNTS
Mortality and Expense Risk Charge. A daily charge will be deducted from
the value of the net assets of the Separate Accounts to compensate PMLIC for
mortality and expense risks assumed in connection with the Policy. This charge
will be deducted at an annual rate of 0.75% (or a daily rate of .002055%) of the
average daily net assets of each Separate Account. The mortality risk assumed by
PMLIC is that Insureds may live for a shorter time than projected and,
therefore, greater death benefits than expected will be paid in relation to the
amount of premiums received. The expense risk assumed is that expenses incurred
in issuing and administering the Policies will exceed the administrative charges
provided in the Policy.
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 Zero Coupon Bond 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 exceed an effective annual rate of 0.50% (.001370% per day).
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.
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GUARANTEE OF CERTAIN CHARGES
PMLIC guarantees that it will not increase 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 reflect 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.
CONTRACT RIGHTS
LOAN PRIVILEGES
General. The Owner may at any time after the Issue Date borrow money from
PMLIC using the Policy as the only security for the loan. The Owner may obtain
Policy loans in a minimum amount of $1,500 (or such lesser minimum required in a
particular state i.e., New York -- $500 minimum) but not exceeding the Policy's
Net Cash Surrender Value on the date of the loan. While the Insured is living,
the Owner may repay all or a portion of a loan and accrued interest.
Interest Rate Charged. The interest rate charged on Policy loans will be
at the fixed rate of 8% per year (6% per year for Policies issued in New York
State). Interest is due at the end of each Policy Year. If interest is not paid
when due, it will be added to the loan balance and bear interest at the same
rate.
Allocation of Loans and Collateral. PMLIC will allocate the amount of a
Policy loan among the Separate Accounts (and Subaccounts) and/or the Guaranteed
Account based upon the proportion that the value of the Separate Accounts (and
Subaccounts) and/or the Guaranteed Account Value bear to the total unloaned
Policy Account Value at the time the loan is made.
The collateral for a Policy loan will be the loan amount plus accrued
interest to the next Policy Anniversary, less interest at 4% per annum which
will be earned to such Policy Anniversary. PMLIC will deduct the collateral for
the loan from each account based on the loan allocation and transfer this amount
to the Loan Account. The collateral for any existing loan will be recalculated:
(a) when loan interest is repaid or treated as part of the loaned amount; (b)
when a new loan is made; and (c) when a loan repayment is made. A transfer to or
from the Loan Account will be made to reflect any recalculation of collateral.
At any time, the amount of the outstanding loan under a Policy equals the sum of
all loans (including due and unpaid interest added to the loan balance) minus
any loan repayments.
Interest Credited to Loan Account. As long as the Policy is in force,
PMLIC will credit the amount in the Loan Account with interest at effective
annual rates it determines, but not less than 4% or such higher minimum rate
required under state law. The rate will apply to the calendar year which follows
the date of determination. Loan interest credited will be transferred to the
accounts: (1) when loan interest is paid or treated as part of the loaned
amount; (2) when a loan repayment is made; and (3) when a new loan is made.
Effect of Policy Loan. Policy loans, whether or not repaid, will have a
permanent effect on the Policy Account Value, the Cash Surrender Value, and Net
Cash Surrender Value and may permanently affect the Death Benefit under the
Policy. The effect on the Policy Account Value and Death Benefit could be
favorable or unfavorable, depending on whether the investment performance of the
Separate Accounts (or Subaccounts) and the interest credited to the Guaranteed
Account is less than or greater than the interest being credited on the assets
in the Loan Account while the loan is outstanding. Compared to a Policy under
which no loan is made, values under a Policy will be lower when the credited
interest rate is less than the investment experience of assets held in the
Separate Accounts and interest credited to the Guaranteed
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<PAGE> 43
Account. The longer a loan is outstanding, the greater the effect a Policy loan
is likely to have. The Death Proceeds will be reduced by the amount of any
outstanding Policy loan.
Loan Repayments. PMLIC will assume that any payments made while there is
an outstanding loan on the Policy is a loan repayment unless it receives written
instructions that it is a premium payment. Repayments up to the amount of the
outstanding loan will be allocated to the accounts based on the amount of the
outstanding loan allocated to each account as of the date of repayment; any
repayment in excess of the amount of the outstanding loan will be allocated to
the accounts based on the amount of interest due on the portion of the
outstanding loan allocated to each account. For this purpose, the amount of the
interest due is determined as of the next Policy Anniversary.
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. (See "How the Duration of the
Policy May Vary," Page 26 and "Policy Lapse," Page 29.) 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 45.)
Tax Considerations. Any loans taken from a "Modified Endowment Contract"
will be treated as a taxable distribution. In addition, with certain exceptions,
a 10% additional income tax penalty will be imposed on the portion of any loan
that is included in income. (See "Distributions from Policies Classified as
Modified Endowment Contracts," Page 46).
SURRENDER PRIVILEGE
At any time before the earlier of the death of the Insured and the Final
Policy Date, the Owner may surrender the Policy for its Net Cash Surrender
Value. The Net Cash Surrender Value is the Policy Account Value minus any Policy
loan and accrued interest and less any surrender charges. The Net Cash Surrender
Value will be determined by PMLIC 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 written surrender request to PMLIC.
A surrender may have Federal income tax consequences. (See "Tax Treatment
of Policy Benefits," Page 45).
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After the first Policy Year, at any time before the earlier of the death of
the Insured and the Final Policy Date, the Owner may withdraw a portion of the
Policy's Net Cash Surrender Value. The minimum amount which may be withdrawn is
$1,500. A withdrawal charge will be deducted from the Policy Account Value. A
partial withdrawal will not result in the imposition of pro-rata surrender
charges.
The withdrawn amount and expense charge will be allocated based on the
proportion that the value in the Separate Accounts (or any Subaccount) and the
Guaranteed Account Value bear to the total unloaned Policy Account Value.
The effect of a partial withdrawal on the Death Benefit and Face Amount
will vary depending upon the Death Benefit Option in effect and whether the
Death Benefit is based on the applicable percentage of Policy Account Value.
(See "Death Benefit Options," Page 23.)
Option A. The effect of a partial withdrawal on the Face Amount and Death
Benefit under Option A can be described as follows:
If the Death Benefit equals the Face Amount, a partial withdrawal will
reduce the Face Amount and the Death Benefit by the amount of the partial
withdrawal.
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For the purposes of this illustration (and the following illustrations
of partial withdrawals), assume that the Attained Age of the Insured is
under 40 and there is no indebtedness. The applicable percentage is 250%
for an Insured with an Attained Age under 40.
Under Option A, a contract with a Face Amount of $600,000 and a Policy
Account Value of $30,000 will have a Death Benefit of $600,000. Assume that
the policyowner takes a partial withdrawal of $10,000. The partial
withdrawal will reduce the Policy Account Value to $19,975
($20,000 - $10,000 - $25) and the Death Benefit and Face Amount to $590,000
($600,000 - $10,000).
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, the Face Amount
will be reduced by an amount equal to the amount of the partial withdrawal.
The Death Benefit will be reduced to equal the greater of (a) the Face
Amount after the partial withdrawal, and (b) the applicable percentage of
the Policy Account Value after deducting the amount of the partial
withdrawal and the expense charge.
Under Option A, a policy with a Face Amount of $600,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000. Assume
that the policyowner takes a partial withdrawal of $49,975. The partial
withdrawal will reduce the Policy Account Value to $250,000
($300,000 - $49,975 - 25) and the Face Amount to $550,025
($600,000 - $49,975). The Death Benefit is the greater of (a) the Face
Amount of $550,025 and (b) the applicable percentage of the Policy Account
Value $625,000 ($250,000 X 2.5). Therefore, the Death Benefit will be
$625,000.
Option B. The Face Amount will never be decreased by a partial withdrawal.
A partial withdrawal will, however, always decrease the Death Benefit.
If the Death Benefit equals the Face Amount plus the Policy Account
Value, a partial withdrawal will reduce the Policy Account Value by the
amount of the partial withdrawal and expense charge and thus the Death
Benefit will also be reduced by the amount of the partial withdrawal and
the expense charge.
Under Option B, a policy with a Face Amount of $500,000 and a Policy
Account Value of $90,000 will have a Death Benefit of $590,000
($500,000 + $90,000). Assume the policyowner takes a partial withdrawal of
$20,000. The partial withdrawal will reduce the Policy Account Value to
$69,975 ($90,000 - $20,000 - $25) and the Death Benefit to $569,975
($500,000 + $69,975). The Face Amount is unchanged.
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, the Death
Benefit will be reduced to equal the greater of (a) the Face Amount plus
the Policy Account Value after deducting the partial withdrawal and expense
charge and (b) the applicable percentage of Policy Account Value after
deducting the amount of the partial withdrawal and the expense charge.
Under Option B, a policy with a Face Amount of $500,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000
($300,000 X 2.5). Assume the policyowner takes a partial withdrawal of
$149,975. The partial withdrawal will reduce the Policy Account Value to
$150,000 ($300,000 - $149,975 - $25) and the Death Benefit to the greater
of (a) the Face Amount plus the Policy Account Value - $650,000
($500,000 + $150,000) and (b) the Death Benefit based on the applicable
percentage of the Policy Account Value - $375,000 ($150,000 X 2.5).
Therefore, the Death Benefit will be $650,000. The Face Amount is
unchanged.
Any decrease in Face Amount due to a partial withdrawal will first reduce
the most recent increase in Face Amount, then the most recent increases,
successively, and lastly, the Initial Face Amount.
Because a partial withdrawal can affect the Face Amount and the Death
Benefit as described above, a partial withdrawal may also affect the Net Amount
at Risk which is used to calculate the cost of insurance charge under the
Policy. (See "Cost of Insurance," Page 31). A request for partial withdrawal may
not be allowed if or to the extent such withdrawal would reduce the Face Amount
below the Minimum Face Amount for the Policy. Also, if a partial withdrawal
would result in cumulative premiums exceeding the maximum
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premium limitations applicable under the Code for life insurance, PMLIC will not
allow such partial withdrawal.
A partial withdrawal of Net Cash Surrender Value may have Federal income
tax consequences. (See "Tax Treatment of Policy Benefits," Page 45).
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.
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 Consequence 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
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physician stating that the Insured has a Terminal Illness or is expected to be
permanently continued 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 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 will be 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 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. If
future premiums and policy loan interest are to be paid through additional
accelerated death benefits, Periodic Premiums and policy loan interest will be
paid in this manner automatically.
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.
FREE-LOOK PRIVILEGES
Free-Look for Policy. The Policy provides for an initial Free-Look Period.
The Owner may cancel the Policy until the latest of: (a) 45 days after Part I of
the application for the Policy is signed; (b) 10 days after the Owner receives
the Policy; and (c) 10 days after PMLIC mails the Notice of Withdrawal Right to
the Owner. Upon giving notice of cancellation and returning the Policy, the
Owner will receive a refund equal to the sum of: (i) the Policy Account Value as
of the date the returned Policy is received by PMLIC at its Home Office or the
PMLIC representative through whom the Policy was purchased; plus (ii) any
Premium Tax Charges deducted from premiums paid; plus (iii) any Monthly
Deductions charged against the accounts; plus (iv) any Mortality and Expense
Risk charges deducted from the value of the net assets of the Separate Accounts
attributable to the Policy; plus (v) any advisory fees charged by the Fund
against the net asset value in the Fund Portfolios attributable to the Policy's
value in the corresponding Separate Accounts.
When state law requires a refund equal to gross premiums paid, the refund
will instead equal the gross premiums paid on the Policy and will not reflect
the investment experience of the Separate Accounts or interest earnings for the
Guaranteed Account.
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Free-Look for Increase in Face Amount. Any requested increase in Face
Amount is also subject to a Free-Look privilege. The Owner may cancel a
requested increase in Face Amount until the latest of: (a) 45 days after the
application for the increase is signed; (b) 10 days after the Owner receives the
new Policy Schedule pages reflecting the increase; and (c) 10 days after PMLIC
mails a Notice of Withdrawal Right to the Owner.
Upon requesting cancellation of the increase, all cost of insurance charges
attributable to the increase plus the increase expense charge will be
reallocated to the accounts in the same proportion as they were deducted, unless
the Owner requests a refund of such amount.
SPECIAL TRANSFER AND CONVERSION RIGHTS
Transfer Right for Policy. During the first two years following Policy
issue, the Owner may, on one occasion, transfer the entire Policy Account Value
in the Separate Accounts (or a Subaccount) to the Guaranteed Account without
such transfer counting toward the four transfers permitted without charge during
a Policy Year. If such transfer is made after four transfers have been made
during a Policy Year, no transfer charge will be deducted.
Conversion Privilege for Increase in Face Amount. During the first two
years following an increase in Face Amount, the Owner may, on one occasion,
without evidence of insurability, exchange the amount of the increase in Face
Amount for a fixed-benefit permanent life insurance policy. (Such an exchange
may, however, have Federal income tax consequences. See "Tax Treatment of Policy
Benefits," Page 45). Premiums under this new policy will be based on the
Attained Age and Premium Class of the Insured on the effective date of the
increase in the Face Amount of the Policy. The new policy will have the same
Face Amount as the amount of the increase. PMLIC will make a partial withdrawal
of Net Cash Surrender Value from the Policy equal to the cash value of the new
policy as of the date of conversion and apply such amount to the new policy. No
charge will apply to this partial withdrawal.
Transfer Right for Change in Investment Policy of Separate Account or
Subaccount. If the investment policy of a Separate Account or Subaccount is
materially changed, the Owner may transfer the portion of the Policy Account
Value in such Separate Account (or Subaccount) to another Separate Account (or
Subaccount) or to the Guaranteed Account without having such transfer count
toward the four transfers permitted without charge during a Policy Year. If such
transfer is made after four transfers have been made during a Policy Year, no
transfer charge will be deducted.
Telephone Transfers. Transfers will be made based upon instructions given
by telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to PMLIC. PMLIC reserves the
right to suspend telephone transfer privileges at any time, for any class of
policies, for any reason.
PMLIC will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and if it follows such procedures it will
not be liable for any losses due to unauthorized or fraudulent instructions.
PMLIC, however, may be liable for such losses if it does not follow those
reasonable procedures. The procedures PMLIC will follow for telephone transfers
include requiring some form of personal identification prior to acting on
instructions received by telephone, providing written confirmation of the
transaction and making a tape-recording of the instructions given by telephone.
Automatic Asset Rebalancing. Automatic asset rebalancing is a feature
which, if elected, authorizes periodic transfers of policy values among the
separate accounts or subaccounts in order to maintain the allocation of such
values in percentages that match the then current premium allocation
percentages. Election of this feature may occur at the time of application or at
any time after the policy is issued by properly completing the election form and
returning it to PMLIC. The election may be revoked at any time. Rebalancing may
be done annually. Rebalancing will not occur when the total value in the
separate accounts or subaccounts is less than $1,000. PMLIC reserves the right
to suspend automatic asset rebalancing at any time, for any class of policies or
contracts, for any reason.
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THE GUARANTEED ACCOUNT
An Owner may allocate some or all of the Net Premiums and transfer some or
all of the Policy Account Value to the Guaranteed Account, which is part of
PMLIC's General Account and pays interest at declared rates guaranteed for each
calendar year (subject to a minimum guaranteed interest rate of 4%). The
principal, after deductions, is also guaranteed. PMLIC's General Account
supports its insurance and annuity obligations. The Guaranteed Account has not,
and is not required to be, registered with the SEC under the Securities Act of
1933, and neither the Guaranteed Account nor PMLIC's General Account has been
registered as an investment company under the Investment Company Act of 1940.
Therefore, neither PMLIC's General Account, the Guaranteed Account, nor any
interests therein are generally subject to regulation under the 1933 Act or the
1940 Act. The disclosures relating to these accounts which are included in this
Prospectus are for your information and have not been reviewed by the SEC.
However, such disclosures may be subject to certain generally applicable
provisions of the Federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
The portion of the Policy Account Value allocated to the Guaranteed Account
will be credited with rates of interest, as described below. Since the
Guaranteed Account is part of PMLIC's General Account, PMLIC assumes the risk of
investment gain or loss on this amount. All assets in the General Account are
subject to PMLIC's general liabilities from business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES.
The Guaranteed Account Value is guaranteed to accumulate at a minimum
effective annual interest rate of 4%. PMLIC will credit the Guaranteed Account
Value with current rates in excess of the minimum guarantee but is not obligated
to do so. These current interest rates are influenced by, but do not necessarily
correspond to, prevailing general market interest rates. Since PMLIC, in its
sole discretion, anticipates changing the current interest rate from time to
time, different allocations to and from the Guaranteed Account Value will be
credited with different current interest rates. The interest rate to be credited
to each amount allocated or transferred to the Guaranteed Account will apply to
the end of the calendar year in which such amount is received or transferred. At
the end of the calendar year, PMLIC reserves the right to declare a new current
interest rate on such amount and accrued interest thereon (which may be a
different current interest rate than the current interest rate on new
allocations to the Guaranteed Account on that date). The rate declared on such
amount and accrued interest thereon at the end of each calendar year will be
guaranteed for the following calendar year. Any interest credited on the amounts
in the Guaranteed Account in excess of the minimum guaranteed rate of 4% per
year will be determined in the sole discretion of PMLIC. The Owner assumes the
risk that interest credited may not exceed the guaranteed minimum rate.
Amounts deducted from the Guaranteed Account for partial withdrawals,
Policy loans, transfers to the Separate Accounts, Monthly Deductions or other
charges are currently, for the purpose of crediting interest, accounted for on a
last in, first out ("LIFO") method. For example, a withdrawal is satisfied by
taking out Guaranteed Account Value attributable to the amount most recently
transferred or allocated to the Guaranteed Account.
PMLIC reserves the right to change the method of crediting interest from
time to time, provided that such changes do not have the effect of reducing the
guaranteed rate of interest below 4% per annum or shorten the period for which
the interest rate applies to less than a calendar year (except for the year in
which such amount is received or transferred).
Calculation of Guaranteed Account Value. The Guaranteed Account Value at
any time is equal to amounts allocated and transferred to it plus interest
credited to it, minus amounts deducted, transferred or withdrawn from it.
Interest will be credited to the Guaranteed Account on each Policy
Processing Day as follows: for amounts in the account for the entire Policy
Month, from the beginning to the end of the month; for amounts allocated to the
account during the prior Policy Month, from the date the Net Premium or loan
repayment is allocated to the end of the month; for amounts transferred to the
account during the Policy Month, from the
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date of transfer to the end of the month; and for amounts deducted or withdrawn
from the account during the prior Policy Month, from the beginning of the month
to the date of deduction or withdrawal.
TRANSFERS FROM GUARANTEED ACCOUNT.
Within 30 days prior to or following any Policy Anniversary, one transfer
is allowed from the Guaranteed Account to any or all of the Separate Accounts
(or Subaccounts). The amount transferred from the Guaranteed Account may not
exceed 25% of the value of such account. If the written request for such
transfer is received prior to the Policy Anniversary, the transfer will be made
as of the Policy Anniversary; if the written request is received after the
Policy Anniversary, the transfer will be made as of the date PMLIC receives the
written request at its Home Office.
OTHER POLICY PROVISIONS
Amount Payable on Final Policy Date. If the Insured is living on the Final
Policy Date (at Insured's Attained Age 95), PMLIC will pay the Owner the Policy
Account Value less any outstanding Policy loan and accrued interest and any
unpaid Monthly Deductions. Insurance coverage under the Policy will then end.
Payment will generally be made within seven days of the Final Policy Date.
Payment of Policy Benefits. Insurance Proceeds under a Policy will
ordinarily be paid to the Beneficiary within seven days after PMLIC receives
proof of the Insured's death at its Home Office and all other requirements are
satisfied.
Interest at the annual rate of 3% or any higher rate declared by PMLIC or
required by law is paid on the Insurance Proceeds from the date of death until
payment is made.
Any amounts payable as a result of the exercise of the free-look right,
surrender, partial withdrawal, or Policy loan will ordinarily be paid within
seven days of receipt of written request at PMLIC's Home Office in a form
satisfactory to PMLIC.
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 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. PMLIC also may defer the determination or payment of
amounts from the Guaranteed Account for up to six months.
The Owner may decide the form in which proceeds will be paid. During the
Insured's lifetime, the Owner may arrange for the Insurance Proceeds to be paid
in a lump sum or under a Settlement Option. These choices are also available
upon surrender of the Policy for its Net Cash Surrender Value and for payment of
the Policy Account Value on the Final Policy Date. If no election is made,
payment will be made in a lump sum. The Beneficiary may also arrange for payment
of the Insurance Proceeds in a lump sum or under a Settlement Option.
The Contract. The Policy and a 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.
Ownership. The Owner is the Insured unless a different Owner is named in
the application or thereafter changed. 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.
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Beneficiary. The Beneficiary is designated in the application for the
Policy, unless thereafter changed by the Owner during the Insured's lifetime by
written notice to PMLIC. Any Insurance 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.
Split Dollar Arrangements. The Owner or Owners may enter into a Split
Dollar Arrangement between each other or another person or persons whereby the
payment of premiums and the right to receive the benefits under the Policy
(i.e., Net Cash Surrender Value or Death Proceeds) are split between the
parties. There are different ways of allocating such rights.
For example, an employer and employee might agree that under a Policy on
the life of the employee, the employer will pay the premiums and will have the
right to receive the Net Cash Surrender Value. The employee may designate the
Beneficiary to receive any Death Proceeds in excess of the Net Cash Surrender
Value. If the employee dies while such an arrangement is in effect, the employer
would receive from the Death Proceeds the amount which he would have been
entitled to receive upon surrender of the policy and the employee's Beneficiary
would receive the balance of the proceeds.
No transfer of Policy rights pursuant to a Split Dollar Arrangement will be
binding on PMLIC unless in writing and received by PMLIC.
The parties who elect to enter into a Split Dollar Arrangement should
consult their own tax advisers regarding the tax consequences of such an
arrangement.
Assignments. The Owner may assign any and all rights under the Policy. No
assignment binds PMLIC unless in writing and received by PMLIC. PMLIC assumes no
responsibility for determining whether an assignment is valid and the extent of
the assignee's interest. All assignments will be subject to any Policy loan. The
interest of any Beneficiary or other person will be subordinate to any
assignment. 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. If the Insured's age has been misstated in the
application, the Death Benefit and any benefits provided by riders will be such
as the most recent Monthly Deductions would have provided at the correct age.
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 Policy loan and accrued interest and any partial
withdrawals.
If the Insured commits suicide within two years (or shorter period required
by state law) from the effective date of any Policy change which increases the
Death Benefit, the amount which PMLIC will pay with respect to the increase will
be the deductions previously made for such increase.
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). Similar incontestability will apply to an
increase in Face Amount or reinstatement after it has been in force during the
Insured's lifetime for two years from its effective date. Before such times,
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 expected
to be paid on the Policy.
If dividends are ever declared, they will be paid under one of the
following options:
(a) Paid in cash; or
(b) Applied as a Net Premium.
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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 a Net Premium
payment. The Owner may change the option by giving written notice to PMLIC.
Settlement Options. In lieu of a single sum payment 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 described 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.
SUPPLEMENTARY BENEFITS
The following supplementary benefits, which are subject to the restrictions
and limitations set forth therein, may be included in a Policy:
Disability Waiver of Monthly Deductions. Subject to certain age and
underwriting restrictions, the Policy may include a Disability Waiver of Monthly
Deductions Rider providing that in the event of the Insured's total disability
before Attained Age 60 and continuing for at least six months, PMLIC will waive
all monthly deductions after the commencement of and during the continuance of
such total disability. If this rider is added, the Monthly Deduction will be
increased to include the cost of this rider.
Disability Waiver of Premium Benefit. Subject to certain age and
underwriting restrictions, a Policy may include the Disability Waiver of Premium
Benefit providing that, in the event of the Insured's total disability before
Attained Age 60 and continuing for at least 180 days, PMLIC will apply a premium
payment to the Policy on each Policy Processing Day prior to Insured's Attained
Age 65 and while the Insured remains totally disabled.
At the time of application, a Monthly Benefit Amount is selected by the
applicant. This amount is generally intended to reflect the amount of the
premiums expected to be paid monthly. In the event of Insured's total disability
the amount of the premium payment applied on each Policy Processing Day will be
the lesser of: (a) the Monthly Benefit Amount; or (b) the monthly average of the
premium payments less partial withdrawals for the Policy since its Policy Date.
If the Policy is issued with the Disability Waiver of Premium Benefit
Rider, each Monthly Deduction will be increased to include the cost of the rider
which is a specified percentage of the Monthly Benefit Amount.
This supplementary benefit must be selected at the time of application and
cannot be added after issue. However, for Policies issued prior to the date the
Disability Waiver of Premium Benefit Rider is approved in a particular state,
the Rider can be added as a supplementary benefit to the Policy within 6 months
after state approval. PMLIC reserves the right to require evidence of
insurability to add this rider to an existing Policy.
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An Owner cannot elect to have both this rider and another disability waiver
benefit rider attached as supplementary benefits with the same Policy.
Change of Insured. Upon request, the Policy may include a Change of
Insured Rider by which the Insured under a Policy may be changed to a New
Insured, subject to certain conditions and evidence of insurability. The Monthly
Deduction for cost of insurance will be changed to that for the New Insured as
of the effective date of the change. A change of insured is treated as a taxable
event.
Final Policy Date Extension. Upon request, the policy may include a Final
Policy Date Extension Rider. This rider extends the final policy date of a
policy 20 years from the original final policy date. It may only be added on or
after the anniversary nearest the younger insured's 90th birthday. There is no
charge for adding this rider.
When this rider is added, the final policy date is extended 20 years beyond
the original final policy date stated in the policy. The death benefit after the
original final policy date will be the policy account value. All other riders
attached and in effect on the original final policy date will terminate on the
original final policy date.
The tax consequences of (1) adding a Final Policy Date Extension Rider to
the Policy, and (2) the Policy continuing in force after the younger Insured's
100th birthday are uncertain. Prospective purchasers of a Policy and Owners
considering the addition of a Final Policy Date Extension to a Policy should
consult their own legal or other advisors as to such consequences.
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 (the "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.
This definition can be satisfied by complying with one of two tests set forth in
Section 7702. Although the Secretary of the Treasury (the "Treasury") is
authorized to prescribe regulations implementing Section 7702, while proposed
regulations and other interim guidance has been issued, final regulations have
not been adopted. 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.
PMLIC believes (largely in reliance on IRS Notice 88-128 and the proposed
regulations under Section 7702 issued on July 3, 1991) that a Policy issued on
the basis of a Standard Premium Class should meet the Section 7702 definition of
a life insurance contract, as long as the Owner does not pay the full amount of
premiums permitted under such a Policy. With respect to a Policy issued on a
Special or Nonsmoker Special basis (i.e., a Premium Class involving higher than
standard mortality risk), there is insufficient guidance to determine if such a
Policy would satisfy the Section 7702 definition of a life insurance contract,
particularly if the Owner pays the full amount of premiums permitted under the
Policy. An Owner of a Policy issued on a Special basis may, however, adopt
certain self-imposed limitations on the amount of premiums paid for such a
Policy which should cause the Policy to meet the Section 7702 definition of a
life insurance contract. An Owner contemplating the adoption of such limitations
should do so only after consulting a tax adviser. If it is subsequently
determined that a Policy does not satisfy Section 7702, PMLIC
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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 restrict Policy transactions 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 requirement, 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. Van Eck
Worldwide Hard Assets 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.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit Option (i.e., a change from Death Benefit Option A to
Death Benefit Option B or vice versa), a Policy loan, a partial withdrawal, a
surrender, the addition of an Accelerated Death Benefit Rider, the receipt of an
Accelerated Death Benefit, the addition of a Final Policy Extension Date Rider
to the Policy, the continuation of the Policy began the Insured's 100th
Birthday, a change in ownership, or an assignment of the Policy may have Federal
income tax consequences. In addition, Federal, state and local transfer, 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 Policy Account Value, including increments thereof, 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 a Policy's maturity date, if the amount received plus the
amount of
45
<PAGE> 54
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.
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 of whether a Policy will be a Modified Endowment
Contract after a material change generally depends upon the relationship of the
Death Benefit and Policy Account 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%
required 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 Policy Account Value in the Separate
Accounts and in the Guaranteed Account in the same proportion as the premium
payment was allocated to such 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 and cannot be fully described in the limited
confines of this summary. 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 Contract will be subject
to the following tax rules: First, all distributions, including distributions
upon surrender and partial withdrawals from such a Policy are treated as
ordinary income subject to tax up to the amount equal to the excess (if any) of
the Policy Account Value immediately before the distribution over the investment
in the Policy (described below) 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 will
be treated as a loan. 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 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 below) 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.
46
<PAGE> 55
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) 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 generally
is not deductible. An owner should consult a tax advisor before deducting any
policy loan interest.
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 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 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 of determining the amount
includible in the 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, Insurance 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 Policy Account Value will be excludable. The portion of the
Death Benefit equal to the Policy Account Value, however, generally will be
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, PMLIC makes no charge for any Federal, state or local
taxes (other than state premium taxes) that the Company incurs that may be
attributable to the Separate Accounts or to the Policies.
47
<PAGE> 56
PMLIC, 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.
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 policyowners. Fund shares held in each Separate
Account for which no timely instructions from policyowners are received will be
voted by PMLIC in the same proportion as those shares in that Separate Account
for which instructions are received.
Each policyowner having a voting interest will be sent proxy material and a
form for giving voting instructions. Policyowners 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 Subaccounts attributable to a Policy for which
the policyowner may provide voting instructions will be determined by dividing
the Policy's value in 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. For each share of a Portfolio for which
policyowners have no interest, PMLIC will cast votes, for or against any matter,
in the same proportion as policyowners 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 a policyowner 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 policyowners of that action and its reasons
for such action in the next semi-annual report to policyowners.
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 policyowners.
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.
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<PAGE> 57
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 (such transfers will not count against the four
free transfers during a Policy Year); (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 of the
Zero Coupon Trust may become unsuitable for investment by the corresponding
Separate Account or Subaccount 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.
OFFICERS AND DIRECTORS OF PMLIC
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
- ------------------------------------- ------------------------------------------------------
<S> <C>
Robert W. Kloss...................... 1996 to present -- President and Chief Executive
President and Officer of PMLIC; 1994 to 1996 -- President and Chief
Chief Executive Officer Operating Officer of PMLIC; 1986 to
Director 1994 -- President and Chief Executive Officer of
Covenant Life Insurance Company.
Dorothy M. Brown..................... 1992 to present -- Acting President of the
Director Pennsylvania Academy of the Fine Arts.
16 Meredith Road
Wynnewood, PA 19096
Robert J. Casale..................... 1988 to present -- Group President/Brokerage
Director Information Services Group of Automatic Data
2 Journal Square Processing Inc.
Jersey City, NJ 07306
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.
Philip C. Herr, II................... 1961 to present -- Partner -- Herr, Potts & Herr.
Director
Herr, Potts & Herr
100 Matsonford Road, Suite 446
Radnor, PA 19087
</TABLE>
49
<PAGE> 58
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
- ------------------------------------- ------------------------------------------------------
<S> <C>
J. Richard Jones..................... 1981 to present -- President and Chief Executive
Director Officer of Jackson-Cross Company.
100 North 20th Street
Philadelphia, PA 19103
John A. Miller....................... 1992 to present -- Chairman of the Executive Committee
Director of PMLIC.
John P. Neafsey...................... 1993 to present -- President of JN Associates; 1990 to
Director 1993 -- President of Greenwich Capital Markets, Inc.
13 Valley Road
So. Norwalk, CT 06854
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................... 1996 to present -- Partner -- Sorgenti Investment
Director Partners; 1991 to 1996 -- Partner -- The Freedom Group
Mellon Center, Suite 3905 Partnership.
1735 Market Street
Philadelphia, PA 19103
Alan F. Hinkle....................... 1996 to present -- Executive Vice President and Chief
Executive Vice President and Actuary of PMLIC; 1974 to 1996 -- Vice President and
Chief Actuary Individual Actuary.
Joan C. Turnbull..................... 1996 to present -- Executive Vice President, Insurance
Executive Vice President Operations at PMLIC; 1996 -- Senior Vice President,
Insurance Operations Insurance Operations of PMLIC; 1993 to 1996 -- Vice
President Individual Insurance Operations at PMLIC;
1989 to 1993 -- Assistant Vice President Agency
Administration at PMLIC.
Stanley R. Reber..................... 1988 to present -- Executive Vice President and Chief
Executive Vice President Investment Officer of PMLIC.
and Chief Investment Officer
Mary Lynn Finelli.................... 1996 to present -- Executive Vice President and Chief
Executive Vice President Financial Officer of PMLIC; 1986 to 1996 -- Vice
and Chief Financial Officer President and Controller of PMLIC.
Craig L. Snyder...................... 1979 to present -- Vice President Mortgage Loans and
Vice President -- Mortgage Loans Real Estate of PMLIC.
and Real Estate
Guy H. Edwards....................... 1982 to present -- Vice President, Information
Vice President -- Information Services of PMLIC.
Services
</TABLE>
50
<PAGE> 59
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
- ------------------------------------- ------------------------------------------------------
<S> <C>
M. Diane Koken....................... 1995 to present -- Vice President, General Counsel and
Vice President, General Counsel Secretary of PMLIC; 1992 to 1995 -- Associate
and Secretary General Counsel of PMLIC; 1984 to 1992 -- Assistant
General Counsel of PMLIC.
Linda M. Springer.................... 1996 to present -- Vice President and Controller of
Vice President and Controller PMLIC; 1995 to 1996 -- Assistant Vice President and
Actuary of PMLIC; 1992 to 1995 -- Actuary.
Rosanne Gatta........................ 1994 to present -- Vice President and Treasurer of
Vice President and Treasurer PMLIC; 1985 to 1994 -- Assistant Vice President and
Treasurer of PMLIC.
</TABLE>
- ---------------
* Unless otherwise indicated, the address is 1050 Westlakes Drive, Berwyn,
Pennsylvania 19312.
A Fidelity Bond in the amount of $10 million covering PMLIC's officers and
employees has been issued by Aetna Casualty and Surety Company.
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") or registered representatives of broker/dealers who have Selling
Agreements with 1717 or registered representatives of broker/dealers who have
Selling Agreements with such broker/dealers. 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 (the "1934 Act") and a
member of the National Association of Securities Dealers, Inc. (the "NASD").
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 an Underwriting
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 insurance policies and variable 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. 1717 has
entered into a Selling Agreement with The Wolper Ross Corporation ("TWRC"), a
registered broker/dealer under the 1934 Act and a member of the NASD, whereby
registered representatives of TWRC will solicit applications for the Policy.
Under the terms of the Selling Agreement, TWRC may also enter into selling
agreements with other broker/dealers with respect to distribution of the Policy.
The Policies are offered and sold only 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. In determining whether to accept an application, PMLIC may also
consider the total number of Policies and total Face Amount of Policies issued
in the aggregate as well as issued with respect to applications taken by
individual registered representatives of a particular broker/dealer. 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.
Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. During the first Policy
Year, agent commissions will not be more than 40% of the premiums paid up to a
target amount (used only to determine commission payments) and 5% of the
premiums paid in excess of that amount. For Policy Years 2 through 10, the agent
commissions will not be more than 5% of the premiums paid; and for years 11 and
later, the agent commissions will not be more than 2% of the premiums paid.
However, for each premium received within 10 years following an increase in Face
Amount, agent commissions on the premium paid up to the target amount for the
increase in each year will be
51
<PAGE> 60
calculated using the commission rates for the corresponding Policy Year. Agents
may also receive expense allowances. The agent may be required to return the
first year commission less the surrender charge imposed if a Policy is not
continued through the second Policy Year.
POLICY REPORTS
At least once each Policy Year a statement will be sent to the Owner
describing the status of the Policy, including setting forth the Face Amount,
the current Death Benefit, any Policy loans and accrued interest, the current
Policy Account Value, the Guaranteed Account Value, the Loan Account Value, the
value in each Separate Account, premiums paid since the last report, charges
deducted since the last report, any partial withdrawals since the last report,
and the current Net Cash Surrender Value. At the present time, PMLIC plans to
send these Policy Statements on a monthly basis. 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, a partial withdrawal
and the payment of any premiums (excluding those paid by bank draft or otherwise
under the 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 Policy form 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, Vice President and Actuary of PMLIC.
LEGAL MATTERS
Sutherland, Asbill & Brennan, L.L.P., 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. M. Diane Koken, Vice
President, General Counsel and Secretary of PMLIC, has provided advice on
certain matters relating to the laws of Pennsylvania regarding the Policies and
PMLIC's issuance of the Policies.
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<PAGE> 61
APPENDIX A
ILLUSTRATION OF DEATH BENEFITS, POLICY ACCOUNT VALUES
AND NET CASH SURRENDER VALUES
The following tables illustrate how the Death Benefits, Policy Account
Values and Net Cash Surrender Values of a Policy may change with the investment
experience of the Separate Accounts. The tables show how the Death Benefits,
Policy Account Values and Net Cash Surrender Values of a Policy issued to an
Insured of a given age would vary over time if the investment return on the
assets held in each Portfolio of the Fund and Trust were a uniform, gross,
annual rate of 0%, 6% and 12%.
The tables on pages A-3 to A-8 illustrate a Policy issued to an Insured,
Age 40 in the Nonsmoker Premium Class with a Face Amount of $1,000,000 and a
Planned Periodic Premium of $12,000 paid at the beginning of each Policy Year.
The Death Benefits, Policy Account Values and Net Cash Surrender Values would be
lower if the Insured was a smoker or in a special class or a class with extra
ratings since the cost of insurance charges would increase. Also, the values
would be different from those shown if the gross annual investment returns
averaged 0%, 6% and 12% over a period of years, but fluctuated above and below
those averages for individual Policy Years.
The second column of the tables show 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 columns shown under the heading
"Guaranteed" assume that throughout the life of the policy, the monthly charge
for cost of insurance is based on the maximum level permitted under the Policy
(based on the 1980 CSO Table B) and maximum monthly administrative fee of $16;
the columns under the heading "Current" assume that throughout the life of the
Policy, the monthly charge for cost of insurance is based on the current cost of
insurance rate and current monthly administrative fee of $8.
The amounts shown in all tables reflect daily charges for mortality and
expense risks equivalent to an effective annual charge of 0.75%, and in
addition, reflect an averaging of certain other asset charges described below
that may be assessed under the Policy, depending upon how premiums are
allocated. The total of the asset charges reflected in the Current and
Guaranteed illustrations, including the 0.75% mortality and expense risk charge
listed above, is 1.52% and 1.53%, respectively. This total charge is based on an
assumption that an Owner allocates the Policy values equally among the Growth,
Managed, Aggressive Growth, International, Money Market and Bond Separate
Accounts and to each Sub-Account of the Variable Separate Account and the Zero
Coupon Bond Separate Account.
These asset charges reflect an investment advisory fee of 0.57% which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of 0.20% 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 1996. The Fund expenses, excluding advisory fees, during 1996
were 0.17% for the Growth Portfolio, 0.19% for the Money Market Portfolio, 0.21%
for the Bond Portfolio, 0.20% for Managed Portfolio, 0.21% for the Aggressive
Growth Portfolio and 0.30% 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 year for the portfolios were:
VIP Fund Equity Income Portfolio 0.58%, VIP Fund Growth Portfolio
0.69%, VIP Fund Overseas Portfolio 0.93%, VIP Fund II Asset Manager
Portfolio 0.74%, VIP Fund II Index 500 Portfolio 0.44%, VIP Fund II
Contrafund Portfolio 0.74%, Van Eck Worldwide Bond Portfolio 1.17%, Van Eck
Worldwide Hard Assets Portfolio 1.24% and Van Eck Worldwide Emerging Market
Portfolio 2.64%.
A-1
<PAGE> 62
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 tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid and allocated as
indicated, no amounts are allocated to the Guaranteed Account, and no Policy
loans are made. The tables are also based on the assumption that the Owner has
not requested an increase or decrease in the Face Amount, that no partial
withdrawals have been made and no transfers have been made in any Policy Year.
Upon request, PMLIC will provide a comparable illustration based upon the
proposed Insured's Age and Premium Class, the Death Benefit Option, Face Amount,
Planned Periodic Premiums and riders 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.
The following illustrations are based on cost of insurance rates that, in
turn, are based on non sex-distinct mortality tables and a Face Amount of
$1,000,000. For Policies sold in New York State, the minimum Face Amount is
$2,500,001. Also, for Policies sold in Massachusetts, New Jersey and New York
State for non employer-sponsored arrangements, sex-distinct mortality tables are
utilized and cost of insurance rates, both guaranteed and current, vary based on
the sex of the Insured. An illustration for a "sex-distinct" Policy should be
requested.
A-2
<PAGE> 63
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 NONSMOKER
DEATH BENEFIT OPTION A ANNUAL PREMIUM $12,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------------- -----------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 12,600 8,247 5,151 1,000,000 10,092 6,996 1,000,000
2 25,830 16,434 12,258 1,000,000 20,230 16,054 1,000,000
3 39,722 24,270 19,470 1,000,000 30,131 25,331 1,000,000
4 54,308 31,725 26,925 1,000,000 39,789 34,989 1,000,000
5 69,623 38,817 34,017 1,000,000 49,220 44,420 1,000,000
6 85,704 45,507 40,707 1,000,000 58,420 53,620 1,000,000
7 102,589 51,794 47,954 1,000,000 67,282 63,442 1,000,000
8 120,319 57,670 54,790 1,000,000 75,824 72,944 1,000,000
9 138,935 63,132 61,212 1,000,000 84,054 82,134 1,000,000
10 158,481 68,134 67,174 1,000,000 92,008 91,048 1,000,000
11 179,006 72,656 72,656 1,000,000 99,717 99,717 1,000,000
12 200,556 76,645 76,645 1,000,000 107,161 107,161 1,000,000
13 223,184 80,053 80,053 1,000,000 114,321 114,321 1,000,000
14 246,943 82,808 82,808 1,000,000 121,176 121,176 1,000,000
15 271,890 84,845 84,845 1,000,000 127,707 127,707 1,000,000
16 298,084 86,128 86,128 1,000,000 133,870 133,870 1,000,000
17 325,589 86,599 86,599 1,000,000 139,675 139,675 1,000,000
18 354,468 86,245 86,245 1,000,000 145,094 145,094 1,000,000
19 384,791 85,024 85,024 1,000,000 150,111 150,111 1,000,000
20 416,631 82,872 82,872 1,000,000 154,726 154,726 1,000,000
25 601,361 53,205 53,205 1,000,000 172,043 172,043 1,000,000
30 837,129 0 0 0 172,027 172,027 1,000,000
</TABLE>
* These values reflect investment results using guaranteed cost of insurance
rates and administrative charges and the maximum transaction charge for the
zero coupon bond account.
** These values reflect investment results using current cost of insurance rates
and administrative charges and the current transaction charge for the zero
coupon bond account.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-3
<PAGE> 64
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 NONSMOKER
DEATH BENEFIT OPTION A ANNUAL PREMIUM $12,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------------- -----------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 12,600 8,827 5,731 1,000,000 10,731 7,635 1,000,000
2 25,830 18,121 13,945 1,000,000 22,149 17,973 1,000,000
3 39,722 27,593 22,793 1,000,000 33,984 29,184 1,000,000
4 54,308 37,218 32,418 1,000,000 46,247 41,447 1,000,000
5 69,623 47,018 42,218 1,000,000 58,970 54,170 1,000,000
6 85,704 56,961 52,161 1,000,000 72,168 67,368 1,000,000
7 102,589 67,049 63,209 1,000,000 85,751 81,911 1,000,000
8 120,319 77,279 74,399 1,000,000 99,755 96,875 1,000,000
9 138,935 87,655 85,735 1,000,000 114,204 112,284 1,000,000
10 158,481 98,138 97,178 1,000,000 129,152 128,192 1,000,000
11 179,006 108,715 108,715 1,000,000 144,654 144,654 1,000,000
12 200,556 119,338 119,338 1,000,000 160,717 160,717 1,000,000
13 223,184 129,967 129,967 1,000,000 177,346 177,346 1,000,000
14 246,943 140,536 140,536 1,000,000 194,552 194,552 1,000,000
15 271,890 150,987 150,987 1,000,000 212,345 212,345 1,000,000
16 298,084 161,288 161,288 1,000,000 230,717 230,717 1,000,000
17 325,589 171,388 171,388 1,000,000 249,709 249,709 1,000,000
18 354,468 181,276 181,278 1,000,000 269,332 269,332 1,000,000
19 384,791 190,923 190,923 1,000,000 289,612 289,612 1,000,000
20 416,631 200,271 200,271 1,000,000 310,591 310,591 1,000,000
25 601,361 238,342 238,342 1,000,000 427,939 427,939 1,000,000
30 837,129 246,137 246,137 1,000,000 567,411 567,411 1,000,000
</TABLE>
* These values reflect investment results using guaranteed cost of insurance
rates and administrative charges and the maximum transaction charge for the
zero coupon bond account.
** These values reflect investment results using current cost of insurance rates
and administrative charges and the current transaction charge for the zero
coupon bond account.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-4
<PAGE> 65
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 NONSMOKER
DEATH BENEFIT OPTION A ANNUAL PREMIUM $12,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ------------------------------------- -------------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 12,600 9,409 6,313 1,000,000 11,371 8,275 1,000,000
2 25,830 19,880 15,704 1,000,000 24,144 19,968 1,000,000
3 39,722 31,197 26,397 1,000,000 38,149 33,349 1,000,000
4 54,308 43,419 38,619 1,000,000 53,506 48,707 1,000,000
5 69,623 56,658 51,858 1,000,000 70,371 65,571 1,000,000
6 85,704 70,983 66,184 1,000,000 88,895 84,095 1,000,000
7 102,589 86,513 82,673 1,000,000 109,142 105,302 1,000,000
8 120,319 103,368 100,488 1,000,000 131,314 128,434 1,000,000
9 138,935 121,697 119,777 1,000,000 155,622 153,702 1,000,000
10 158,481 141,621 140,661 1,000,000 182,330 181,370 1,000,000
11 179,006 163,305 163,305 1,000,000 211,727 211,727 1,000,000
12 200,556 186,904 186,904 1,000,000 244,084 244,084 1,000,000
13 223,184 212,606 212,606 1,000,000 279,705 279,705 1,000,000
14 246,943 240,603 240,603 1,000,000 318,931 318,931 1,000,000
15 271,890 271,131 271,131 1,000,000 362,147 362,147 1,000,000
16 298,084 304,488 304,488 1,000,000 409,766 409,766 1,000,000
17 325,589 341,003 341,003 1,000,000 462,296 462,296 1,000,000
18 354,468 381,083 381,093 1,000,000 520,280 520,280 1,000,000
19 384,791 425,218 425,218 1,000,000 584,342 584,342 1,000,000
20 416,631 473,898 473,898 1,000,000 655,193 655,193 1,000,000
25 601,361 809,856 809,856 1,000,000 1,137,883 1,137,883 1,388,217
30 837,129 1,366,144 1,366,144 1,584,727 1,918,236 1,918,236 2,225,154
</TABLE>
* These values reflect investment results using guaranteed cost of insurance
rates and administrative charges and the maximum transaction charge for the
zero coupon bond account.
** These values reflect investment results using current cost of insurance rates
and administrative charges and the current transaction charge for the zero
coupon bond account.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-5
<PAGE> 66
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 NONSMOKER
DEATH BENEFIT OPTION B ANNUAL PREMIUM $12,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------------- -----------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 12,600 8,218 5,122 1,008,218 10,080 6,984 1,010,080
2 25,830 16,349 12,173 1,016,349 20,193 16,017 1,020,193
3 39,722 24,096 19,296 1,024,096 30,053 25,253 1,030,053
4 54,308 31,428 26,628 1,031,428 39,654 34,854 1,039,654
5 69,623 38,360 33,560 1,038,360 49,010 44,210 1,049,010
6 85,704 44,849 40,049 1,044,849 58,115 53,315 1,058,115
7 102,589 50,892 47,052 1,050,892 66,853 63,013 1,066,853
8 120,319 56,475 53,595 1,056,475 75,240 72,360 1,075,240
9 138,935 61,596 59,676 1,061,596 82,282 81,362 1,083,282
10 158,481 66,202 65,242 1,066,202 91,013 90,053 1,091,013
11 179,006 70,272 70,272 1,070,272 98,467 98,467 1,098,467
12 200,556 73,743 73,743 1,073,743 105,620 105,620 1,105,620
13 223,184 76,567 76,567 1,076,567 112,446 112,446 1,112,446
14 246,943 78,663 78,663 1,078,663 118,921 118,921 1,118,921
15 271,890 79,964 79,964 1,079,964 125,019 125,019 1,125,019
16 298,084 80,431 80,431 1,080,431 130,687 130,687 1,130,687
17 325,589 80,009 80,009 1,080,009 135,932 135,932 1,135,932
18 354,468 78,691 78,691 1,078,691 140,721 140,721 1,140,721
19 384,791 76,441 76,441 1,076,441 145,030 145,030 1,145,030
20 416,631 73,203 73,203 1,073,203 148,857 148,857 1,148,857
25 601,361 37,746 37,746 1,037,746 161,048 161,048 1,161,048
30 837,129 0 0 0 152,320 152,320 1,152,320
</TABLE>
* These values reflect investment results using guaranteed cost of insurance
rates and administrative charges and the maximum transaction charge for the
zero coupon bond account.
** These values reflect investment results using current cost of insurance rates
and administrative charges and the current transaction charge for the zero
coupon bond account.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-6
<PAGE> 67
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 NONSMOKER
DEATH BENEFIT OPTION B ANNUAL PREMIUM $12,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------------- -----------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 12,600 8,797 5,701 1,008,797 10,718 7,622 1,010,718
2 25,830 18,026 13,850 1,018,026 22,107 17,931 1,022,107
3 39,722 27,393 22,593 1,027,393 33,894 29,094 1,033,894
4 54,308 36,863 32,063 1,036,863 46,086 41,286 1,046,086
5 69,623 46,451 41,651 1,046,451 58,710 53,910 1,058,710
6 85,704 56,110 51,310 1,056,110 71,775 66,975 1,071,775
7 102,589 65,835 61,995 1,065,835 85,179 81,339 1,085,179
8 120,319 75,606 72,726 1,075,606 98,945 96,065 1,098,945
9 138,935 85,416 83,496 1,085,416 113,091 111,171 1,113,091
10 158,481 95,205 94,245 1,095,205 127,663 126,703 1,127,663
11 179,006 104,942 104,942 1,104,942 142,711 142,711 1,142,711
12 200,556 114,552 114,552 1,114,552 158,224 158,224 1,158,224
13 223,184 123,969 123,969 1,123,969 174,193 174,193 1,174,193
14 246,943 133,092 133,092 1,133,092 190,608 190,608 1,190,608
15 271,890 141,827 141,827 1,141,827 207,456 207,456 1,207,456
16 298,084 150,104 150,104 1,150,104 224,695 224,695 1,224,695
17 325,589 157,833 157,833 1,157,833 242,343 242,343 1,242,343
18 354,468 164,968 164,968 1,164,968 260,376 260,376 1,260,376
19 384,791 171,434 171,434 1,171,434 278,782 278,782 1,278,782
20 416,631 177,128 177,128 1,177,128 297,565 297,565 1,297,565
25 601,361 187,362 187,362 1,187,362 397,771 397,771 1,397,771
30 837,129 144,231 144,231 1,144,231 499,572 499,572 1,499,572
</TABLE>
* These values reflect investment results using guaranteed cost of insurance
rates and administrative charges and the maximum transaction charge for the
zero coupon bond account.
** These values reflect investment results using current cost of insurance rates
and administrative charges and the current transaction charge for the zero
coupon bond account.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-7
<PAGE> 68
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 40
DEATH BENEFIT OPTION B NONSMOKER
ANNUAL PREMIUM $12,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------------- -------------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 12,600 9,377 6,281 1,009,377 11,357 8,261 1,011,357
2 25,830 19,775 15,599 1,019,775 24,099 19,923 1,024,099
3 39,722 30,969 26,169 1,030,969 38,047 33,247 1,038,047
4 54,308 42,998 38,198 1,042,998 53,316 48,516 1,053,316
5 69,623 55,957 51,157 1,055,957 70,051 65,251 1,070,051
6 85,704 69,892 65,092 1,069,892 88,394 83,594 1,088,394
7 102,589 84,890 81,050 1,084,890 108,383 104,543 1,108,383
8 120,319 101,041 98,161 1,101,041 130,198 127,318 1,130,198
9 138,935 118,453 116,533 1,118,453 154,028 152,108 1,154,028
10 158,481 137,191 136,231 1,137,191 180,110 179,150 1,180,110
11 179,006 157,362 157,362 1,157,362 208,711 208,711 1,208,711
12 200,556 179,037 179,037 1,179,037 240,055 240,055 1,240,055
13 223,184 202,309 202,309 1,202,309 274,396 274,396 1,274,396
14 246,943 227,247 227,247 1,227,247 312,009 312,009 1,312,009
15 271,890 253,938 253,938 1,253,938 353,199 353,199 1,353,199
16 298,084 282,509 282,509 1,282,509 398,273 398,273 1,398,273
17 325,589 313,080 313,080 1,313,080 447,630 447,630 1,447,630
18 354,468 345,837 345,837 1,345,837 501,668 501,668 1,501,668
19 384,791 380,950 380,950 1,380,950 560,838 560,838 1,560,838
20 416,631 418,588 418,588 1,418,588 625,659 625,659 1,625,659
25 601,361 648,829 648,829 1,648,829 1,057,101 1,057,101 2,057,101
30 837,129 960,343 960,343 1,960,343 1,736,311 1,736,311 2,736,311
</TABLE>
* These values reflect investment results using guaranteed cost of insurance
rates and administrative charges and the maximum transaction charge for the
zero coupon bond account.
** These values reflect investment results using current cost of insurance rates
and administrative charges and the current transaction charge for the zero
coupon bond account.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-8
<PAGE> 69
APPENDIX B
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 1937 and have ending periods at five year intervals.)
[Compound Annual Returns (Per Annum) -- Twenty Year Holding Periods Bar Graph]
- ---------------
* 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 1997 Yearbook(TM), Ibbotson
Associates, Inc., Chicago. All rights reserved.
B-1
<PAGE> 70
Over the 52 20-year time periods beginning in 1926 and ending in 1996 (i.e.
1926-1945, 1927-1946, and so on through 1977-1996):
-- The compound annual return of common stocks was superior to that of
high-grade, long-term corporate bonds in 49 of the 52 periods.
-- The compound annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 52 periods.
-- Common stock compound annual returns exceeded the average annual rate of
inflation in each of the 52 periods.
Over the 42 30-year time periods beginning in 1926 and ending in 1996, 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 42 periods.
From 1926 through 1996 the compound annual return for common stocks was
10.7%, compared to 5.6% for high-grade, long-term corporate bonds, 5.1% 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
1996.
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 28.2% 4.2% 11.3% 7.0% 11.3% 38.0%
5 years 10.5% 14.9% 14.9% 32.8% 17.9% 9.0%
10 years 3.2% 11.3% 35.5% 22.6% 25.8% 1.6%
20 years 0.0% 5.8% 32.7% 55.7% 5.8% 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 1997 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
B-2
<PAGE> 71
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 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.
[Treasury Bills Adjusted for Inflation -- Average
Annual Returns -- Twenty-Year Holding Periods Bar Graph]
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 1997 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
B-3
<PAGE> 72
continue investing in both rising and falling markets. The dollar cost averaging
method of investing demonstrates this.
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.
B-4
<PAGE> 73
FINANCIAL STATEMENTS
The financial statements of PMLIC included herein should be distinguished
from the financial statements of the Separate Accounts and should be considered
only as bearing upon the ability of PMLIC to meet its obligations under the
Policies.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
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.
Report of Independent Accountants................................................ F-2
Statements of Assets and Liabilities, December 31, 1996.......................... F-3
Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994.... F-8
Statements of Changes in Net Assets for the Years Ended December 31, 1996, 1995,
and 1994........................................................................ F-21
Notes to Financial Statements.................................................... F-34
Provident Mutual Life Insurance Company and Subsidiaries
Report of Independent Accountants................................................ F-46
Consolidated Statements of Financial Condition, December 31, 1996 and 1995....... F-47
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995
and 1994........................................................................ F-48
Consolidated Statements of Capital and Surplus for the Years Ended December 31,
1996, 1995 and 1994............................................................. F-49
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995
and 1994........................................................................ F-50
Notes to Consolidated Financial Statements....................................... F-51
</TABLE>
F-1
<PAGE> 74
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Policyholders and
Board of Directors of
Provident Mutual Life Insurance
Company
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, 1996, and the related statements of operations and changes in net
assets for each of the three years in the period then ended. These financial
statements are the responsibility of the management of the Provident Mutual
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, 1996 by correspondence with
the transfer agents. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our 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, 1996, and the
results of their operations and the changes in their net assets for each of the
three years in the period then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 10, 1997
F-2
<PAGE> 75
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<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................ $ 168,890,765
Money Market Portfolio.......... $ 23,884,697
Bond Portfolio.................. $ 11,184,610
Managed Portfolio............... $ 30,532,426
Aggressive Growth Portfolio..... $25,897,926
International Portfolio......... $31,990,185
Dividends receivable.............. 103,332
Receivable from Provident Mutual
Life Insurance Company.......... 632,687
------------ ----------- ----------- ----------- ----------- -----------
Total Assets...................... 168,890,765 24,620,716 11,184,610 30,532,426 25,897,926 31,990,185
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to Provident Mutual Life
Insurance Company............... 100,215 14,301 16,740
------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS........................ $ 168,790,550 $ 24,620,716 $ 11,170,309 $ 30,515,686 $25,897,926 $31,990,185
============ =========== =========== =========== =========== ===========
Held for the benefit of
policyholders................... $ 168,591,808 $ 24,469,133 $ 11,066,910 $ 30,361,494 $25,727,632 $31,923,627
Attributable to Provident Mutual
Life Insurance Company.......... 198,742 151,583 103,399 154,192 170,294 66,558
------------ ----------- ----------- ----------- ----------- -----------
$ 168,790,550 $ 24,620,716 $ 11,170,309 $ 30,515,686 $25,897,926 $31,990,185
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 76
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO
COUPON
BOND
SEPARATE
ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
2006
SERIES
SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investment in the Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A, at
market value:
2006 Series........................................................................................ $6,413,195
----------
LIABILITIES
Payable to Provident Mutual Life Insurance Company................................................... 598
----------
NET ASSETS........................................................................................... $6,412,597
==========
Held for the benefit of policyholders................................................................ $6,351,576
Attributable to Provident Mutual Life Insurance Company.............................................. 61,021
----------
$6,412,597
==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 77
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable
Insurance Products Fund, at
market value:
Equity-Income Portfolio......... $58,937,978
Growth Portfolio................ $76,905,059
High Income Portfolio........... $8,480,451
Overseas Portfolio.............. $15,807,688
Investment in the Variable
Insurance Products Fund II, at
market value:
Asset Manager Portfolio......... $31,713,849
Index 500 Portfolio............. $28,434,057
LIABILITIES
Payable to Provident Mutual Life
Insurance Company............... 180
----------- ----------- ---------- ----------- ----------- -----------
NET ASSETS........................ $58,937,798 $76,905,059 $8,480,451 $15,807,688 $31,713,849 $28,434,057
=========== =========== ========== =========== =========== ===========
Held for the benefit of
policyholders................... $58,919,649 $76,792,371 $8,444,658 $15,766,083 $31,620,765 $28,397,260
Attributable to Provident Mutual
Life Insurance Company.......... 18,149 112,688 35,793 41,605 93,084 36,797
----------- ----------- ---------- ----------- ----------- -----------
$58,937,798 $76,905,059 $8,480,451 $15,807,688 $31,713,849 $28,434,057
=========== =========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 78
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
NEUBERGER
FIDELITY NEUBERGER NEUBERGER & BERMAN
INVESTMENT FIDELITY & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance Products
Fund II, at market value:
Investment Grade Bond Portfolio............ $4,996,981
Contrafund Portfolio....................... $6,183,362
Investment in the Neuberger & Berman Advisers
Management Trust, at market value:
Balanced Portfolio......................... $4,627,706
Growth Portfolio........................... $17,052,789
Limited Maturity Bond Portfolio............ $ 2,517,888
---------- ---------- ---------- ----------- ----------
NET ASSETS................................... $4,996,981 $6,183,362 $4,627,706 $17,052,789 $ 2,517,888
========== ========== ========== =========== ==========
Held for the benefit of policyholders........ $4,984,047 $6,152,800 $4,575,512 $17,004,246 $ 2,488,736
Attributable to Provident Mutual Life
Insurance Company.......................... 12,934 30,562 52,194 48,543 29,152
---------- ---------- ---------- ----------- ----------
$4,996,981 $6,183,362 $4,627,706 $17,052,789 $ 2,517,888
========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 79
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
VAN ECK VAN ECK GOLD VAN ECK ALGER AMERICAN
WORLDWIDE AND NATURAL EMERGING SMALL
TCI GROWTH BOND RESOURCES MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in TCI Portfolios, Inc., at
market value:
Growth Portfolio........................ $8,092,459
Investment in the Van Eck Worldwide
Insurance Trust, at market value:
Worldwide Bond Portfolio................ $3,147,177
Gold and Natural Resources Portfolio.... $1,756,052
Emerging Markets Portfolio.............. $2,216,381
Investment in the Alger American Fund, at
market value:
Small Capitalization Portfolio.......... $7,964,072
---------- ---------- ---------- ---------- ----------
NET ASSETS................................ $8,092,459 $3,147,177 $1,756,052 $2,216,381 $7,964,072
========== ========== ========== ========== ==========
Held for the benefit of policyholders..... $8,057,461 $3,118,867 $1,724,983 $2,188,336 $7,935,282
Attributable to Provident Mutual Life
Insurance Company....................... 34,998 28,310 31,069 28,045 28,790
---------- ---------- ---------- ---------- ----------
$8,092,459 $3,147,177 $1,756,052 $2,216,381 $7,964,072
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 80
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<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.............................. $ 4,325,341 $ 1,024,420 $ 606,893 $ 1,018,010 $ 206,506 $ 289,229
----------- -------- ---------- ---------- ---------- ----------
EXPENSES
Mortality and expense risks............ 954,536 141,194 66,990 179,326 151,081 191,387
Operating expense reimbursement........ (3,491) (146) (1,087)
----------- -------- ---------- ---------- ---------- ----------
Total expenses......................... 951,045 141,048 65,903 179,326 151,081 191,387
----------- -------- ---------- ---------- ---------- ----------
Net investment income.................. 3,374,296 883,372 540,990 838,684 55,425 97,842
----------- -------- ---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions
reinvested........................... 6,799,388 1,102,736 2,080,731 1,172,472
Net realized gain (loss) from
redemption of investment shares...... 3,053,590 (2,425) 628,270 460,172 273,023
----------- -------- ---------- ---------- ---------- ----------
Net realized gain (loss) on
investments.......................... 9,852,978 (2,425) 1,731,006 2,540,903 1,445,495
----------- -------- ---------- ---------- ---------- ----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year.................... 23,244,683 443,614 3,562,768 2,711,686 2,138,159
End of year.......................... 36,782,658 143,144 4,034,365 4,227,761 3,295,188
----------- -------- ---------- ---------- ---------- ----------
Net unrealized appreciation
(depreciation) of investments during
the year............................. 13,537,975 (300,470) 471,597 1,516,075 1,157,029
----------- -------- ---------- ---------- ---------- ----------
Net realized and unrealized gain (loss)
on investments....................... 23,390,953 (302,895) 2,202,603 4,056,978 2,602,524
----------- -------- ---------- ---------- ---------- ----------
Net increase in net assets resulting
from operations...................... $ 26,765,249 $ 883,372 $ 238,095 $ 3,041,287 $4,112,403 $2,700,366
=========== ======== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 81
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
2006
1996 SERIES SERIES
SUBACCOUNT** SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EXPENSES
Mortality and expense risks......................................................... $ 4,977 $ 33,364
Asset charge........................................................................ 1,982 12,204
-------- ---------
Net investment loss................................................................. (6,959) (45,568)
-------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from redemption of investment shares.............................. 230,886 132,042
-------- ---------
Net realized gain on investments.................................................... 230,886 132,042
-------- ---------
Net unrealized appreciation (depreciation) of investments:
Beginning of year................................................................. 195,315 910,239
End of year....................................................................... 744,136
-------- ---------
Net unrealized depreciation of investments during the year.......................... (195,315) (166,103)
-------- ---------
Net realized and unrealized gain (loss) on investments.............................. 35,571 (34,061)
-------- ---------
Net increase (decrease) in net assets resulting from operations..................... $ 28,612 $ (79,629)
======== =========
</TABLE>
** For the period January 1, 1996 to May 15, 1996 (date of maturity).
See accompanying notes to financial statements
F-9
<PAGE> 82
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 55,034 $ 133,186 $289,256 $ 105,244 $ 989,396 $ 114,956
EXPENSES
Mortality and expense risks.............. 324,906 435,364 40,586 83,411 196,306 106,980
---------- ---------- -------- ---------- ---------- ----------
Net investment income (loss)............. (269,872) (302,178) 248,670 21,833 793,090 7,976
---------- ---------- -------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain distributions reinvested... 1,577,632 3,362,939 56,594 115,769 815,818 295,601
Net realized gain from redemption of
investment shares...................... 292,479 461,027 136,266 72,206 42,369 108,595
---------- ---------- -------- ---------- ---------- ----------
Net realized gain on investments......... 1,870,111 3,823,966 192,860 187,975 858,187 404,196
---------- ---------- -------- ---------- ---------- ----------
Net unrealized appreciation of
investments:
Beginning of year...................... 5,231,207 8,695,334 207,596 502,338 2,425,055 1,377,575
End of year............................ 9,654,194 12,974,029 471,856 1,745,917 4,535,884 4,431,677
---------- ---------- -------- ---------- ---------- ----------
Net unrealized appreciation of
investments during the year............ 4,422,987 4,278,695 264,260 1,243,579 2,110,829 3,054,102
---------- ---------- -------- ---------- ---------- ----------
Net realized and unrealized gain on
investments............................ 6,293,098 8,102,661 457,120 1,431,554 2,969,016 3,458,298
---------- ---------- -------- ---------- ---------- ----------
Net increase in net assets resulting from
operations............................. $6,023,226 $7,800,483 $705,790 $1,453,387 $3,762,106 $3,466,274
========== ========== ======== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 83
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------
FIDELITY NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................. $122,049 $ 79,943 $ 4,468 $111,448
-------- -------- -------- ---------- --------
EXPENSES
Mortality and expense risks................ 40,295 $ 9,544 27,615 98,600 11,344
-------- -------- -------- ---------- --------
Net investment income (loss)............... 81,754 (9,544) 52,328 (94,132) 100,104
-------- -------- -------- ---------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested..... 444,565 1,045,605
Net realized gain (loss) from redemption of
investment shares........................ 34,895 3,778 14,849 96,798 (8,673)
-------- -------- -------- ---------- --------
Net realized gain (loss) on investments.... 34,895 3,778 459,414 1,142,403 (8,673)
-------- -------- -------- ---------- --------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year........................ 173,631 337,802 1,140,571 44,695
End of year.............................. 155,266 477,324 71,201 1,243,267 19,157
-------- -------- -------- ---------- --------
Net unrealized appreciation (depreciation)
of investments during the year........... (18,365) 477,324 (266,601) 102,696 (25,538)
-------- -------- -------- ---------- --------
Net realized and unrealized gain (loss) on
investments.............................. 16,530 481,102 192,813 1,245,099 (34,211)
-------- -------- -------- ---------- --------
Net increase in net assets resulting from
operations............................... $ 98,284 $471,558 $245,141 $1,150,967 $ 65,893
======== ======== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 84
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------
VAN ECK GOLD VAN ECK ALGER AMERICAN
AND NATURAL EMERGING SMALL
TCI GROWTH RESOURCES MARKETS CAPITALIZATION
SUBACCOUNT VAN ECK SUBACCOUNT SUBACCOUNT SUBACCOUNT
WORLDWIDE
BOND
SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................. $ 65,988 $ 12,742 $ 219 $ 95
--------- ------- -------- ------- -------
EXPENSES
Mortality and expense risks............... $ 49,667 15,456 10,810 4,045 17,365
--------- ------- -------- ------- -------
Net investment income (loss).............. (49,667) 50,532 1,932 (3,826) (17,270)
--------- ------- -------- ------- -------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions reinvested.... 728,835 12,496
Net realized gain (loss) from redemption
of investment shares.................... 127,215 20,012 40,140 470 (59,161)
--------- ------- -------- ------- -------
Net realized gain (loss) on investments... 856,050 20,012 52,636 470 (59,161)
--------- ------- -------- ------- -------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year....................... 584,114 70,122 65,442
End of year............................. (633,726) 70,532 187,278 90,708 173,011
--------- ------- -------- ------- -------
Net unrealized appreciation (depreciation)
of investments during the year.......... (1,217,840) 410 121,836 90,708 173,011
--------- ------- -------- ------- -------
Net realized and unrealized gain (loss) on
investments............................. (361,790) 20,422 174,472 91,178 113,850
--------- ------- -------- ------- -------
Net increase (decrease) in net assets
resulting from operations............... $ (411,457) $ 70,954 $176,404 $ 87,352 $ 96,580
========= ======= ======== ======= =======
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 85
- --------------------------------------------------------------------------------
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-13
<PAGE> 86
- --------------------------------------------------------------------------------
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-14
<PAGE> 87
- --------------------------------------------------------------------------------
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-15
<PAGE> 88
- --------------------------------------------------------------------------------
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-16
<PAGE> 89
- --------------------------------------------------------------------------------
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-17
<PAGE> 90
- --------------------------------------------------------------------------------
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-18
<PAGE> 91
- --------------------------------------------------------------------------------
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-19
<PAGE> 92
- --------------------------------------------------------------------------------
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-20
<PAGE> 93
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<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........... $ 3,374,296 $ 883,372 $ 540,990 $ 838,684 $ 55,425 $ 97,842
Net realized gain (loss) on
investments................... 9,852,978 (2,425) 1,731,006 2,540,903 1,445,495
Net unrealized appreciation
(depreciation) of investments
during the year............... 13,537,975 (300,470) 471,597 1,516,075 1,157,029
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets from
operations.................... 26,765,249 883,372 238,095 3,041,287 4,112,403 2,700,366
------------ ------------ ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyholders' net premiums..... 30,021,490 38,804,263 2,684,818 5,312,990 7,299,202 8,944,269
Cost of insurance and
administrative charges........ (10,923,039) (3,577,047) (907,984) (2,141,363) (2,409,140) (2,851,005)
Surrenders and forfeitures...... (8,868,122) (807,207) (593,919) (1,485,140) (1,084,540) (949,465)
Transfers between investment
portfolios.................... (6,972,133) (27,374,079) (359,010) (488,185) (814,283) 567,594
Net withdrawals due to policy
loans......................... (2,932,321) (111,880) (106,211) (604,659) (468,999) (321,175)
Withdrawals due to death
benefits...................... (361,511) (9,285) (12,934) (95,250) (24,597) (66,791)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets derived from policy
transactions.................. (35,636) 6,924,765 704,760 498,393 2,497,643 5,323,427
------------ ------------ ----------- ----------- ----------- -----------
Return of capital to Provident
Mutual Life Insurance
Company....................... (200,000) (200,000) (200,000)
------------ ------------ ----------- ----------- ----------- -----------
Total increase in net assets.... 26,529,613 7,608,137 742,855 3,539,680 6,610,046 8,023,793
NET ASSETS
Beginning of year............. 142,260,937 17,012,579 10,427,454 26,976,006 19,287,880 23,966,392
------------ ------------ ----------- ----------- ----------- -----------
End of year................... $ 168,790,550 $ 24,620,716 $ 11,170,309 $ 30,515,686 $25,897,926 $31,990,185
============ ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE> 94
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
2006
1996 SERIES SERIES
SUBACCOUNT** SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM OPERATIONS
Net investment loss................................................................. $ (6,959) $ (45,568)
Net realized gain on investments.................................................... 230,886 132,042
Net unrealized depreciation of investments during the year.......................... (195,315) (166,103)
---------- ----------
Net increase (decrease) in net assets from operations............................... 28,612 (79,629)
---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums......................................................... 134,184 1,694,055
Cost of insurance and administrative charges........................................ (53,122) (662,460)
Surrenders and forfeitures.......................................................... (64,059) (111,668)
Transfers between investment portfolios............................................. (1,958,937) 932,017
Net withdrawals due to policy loans................................................. (2,908) (90,247)
Withdrawals due to death benefits................................................... (9,233)
---------- ----------
Net increase (decrease) in net assets derived from policy transactions.............. (1,944,842) 1,752,464
---------- ----------
Return of capital to Provident Mutual Life Insurance Company........................ (110,372) (50,000)
---------- ----------
Total increase (decrease) in net assets............................................. (2,026,602) 1,622,835
NET ASSETS
Beginning of year................................................................. 2,026,602 4,789,762
---------- ----------
End of year....................................................................... -- $6,412,597
========== ==========
</TABLE>
** For the period January 1, 1996 to May 15, 1996 (date of maturity).
See accompanying notes to financial statements
F-22
<PAGE> 95
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............. $ (269,872) $ (302,178) $ 248,670 $ 21,833 $ 793,090 $ 7,976
Net realized gain on investments......... 1,870,111 3,823,966 192,860 187,975 858,187 404,196
Net unrealized appreciation of
investments during the year............ 4,422,987 4,278,695 264,260 1,243,579 2,110,829 3,054,102
----------- ----------- ---------- ---------- ----------- ----------
Net increase in net assets from
operations............................. 6,023,226 7,800,483 705,790 1,453,387 3,762,106 3,466,274
----------- ----------- ---------- ---------- ----------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.............. 20,410,261 27,775,181 3,074,003 5,377,187 8,617,164 11,388,269
Cost of insurance and administrative
charges................................ (5,694,885) (7,871,429) (690,043) (1,404,523) (3,144,049) (2,553,289)
Surrenders and forfeitures............... (1,264,322) (1,872,916) (55,762) (332,401) (1,388,200) (317,366)
Transfers between investment
portfolios............................. 6,265,641 5,416,680 2,218,407 2,222,639 (2,961,158) 7,671,836
Net withdrawals due to policy loans...... (479,134) (618,794) (72,022) (55,225) (258,013) (159,156)
Withdrawals due to death benefits........ (53,476) (60,875) (260) (5,086) (28,551) (5,498)
----------- ----------- ---------- ---------- ----------- ----------
Net increase in net assets derived from
policy transactions.................... 19,184,085 22,767,847 4,474,323 5,802,591 837,193 16,024,796
----------- ----------- ---------- ---------- ----------- ----------
Capital contribution from Provident
Mutual Life Insurance Company.......... 10,000
----------- ----------- ---------- ---------- ----------- ----------
Total increase in net assets............. 25,207,311 30,568,330 5,180,113 7,255,978 4,599,299 19,501,070
NET ASSETS
Beginning of year........................ 33,730,487 46,336,729 3,300,338 8,551,710 27,114,550 8,932,987
----------- ----------- ---------- ---------- ----------- ----------
End of year.............................. $58,937,798 $76,905,059 $8,480,451 $15,807,688 $31,713,849 $28,434,057
=========== =========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-23
<PAGE> 96
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------
FIDELITY NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................... $ 81,754 $ (9,544) $ 52,328 $ (94,132) $ 100,104
Net realized gain (loss) on investments........ 34,895 3,778 459,414 1,142,403 (8,673)
Net unrealized appreciation (depreciation) of
investments during the year.................. (18,365) 477,324 (266,601) 102,696 (25,538)
----------- ----------- ---------- ---------- -----------
Net increase in net assets from operations..... 98,284 471,558 245,141 1,150,967 65,893
----------- ---------- ---------- ---------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................... 2,130,821 1,896,133 1,626,992 6,888,258 785,194
Cost of insurance and administrative charges... (507,709) (242,291) (624,216) (2,046,331) (171,297)
Surrenders and forfeitures..................... (104,535) (16,144) (154,980) (371,468) (24,959)
Transfers between investment portfolios........ 1,064,874 4,057,384 346,579 1,059,064 758,312
Net withdrawals due to policy loans............ (28,781) (8,278) (35,100) (226,752) (3,617)
Withdrawals due to death benefits.............. (2,694) (14) (6,854)
----------- ---------- ---------- ---------- -----------
Net increase in net assets derived from policy
transactions................................. 2,551,976 5,686,804 1,159,261 5,295,917 1,343,633
----------- ---------- ---------- ---------- -----------
Capital contribution from Provident Mutual Life
Insurance Company............................ 25,000
----------- ---------- ---------- ---------- -----------
Total increase in net assets................... 2,650,260 6,183,362 1,404,402 6,446,884 1,409,526
NET ASSETS
Beginning of year.............................. 2,346,721 -- 3,223,304 10,605,905 1,108,362
----------- ---------- ---------- ---------- -----------
End of year.................................... $4,996,981 $6,183,362 $4,627,706 $17,052,789 $2,517,888
=========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-24
<PAGE> 97
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------
VAN ECK VAN ECK GOLD VAN ECK ALGER AMERICAN
WORLDWIDE AND NATURAL EMERGING SMALL
TCI GROWTH BOND RESOURCES MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............... $ (49,667) $ 50,532 $ 1,932 $ (3,826) $ (17,270)
Net realized gain (loss) on investments.... 856,050 20,012 52,636 470 (59,161)
Net unrealized appreciation (depreciation)
of investments during the year........... (1,217,840) 410 121,836 90,708 173,011
------------ ----------- ---------- ----------- -----------
Net increase (decrease) in net assets from
operations............................... (411,457) 70,954 176,404 87,352 96,580
------------ ----------- ---------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................ 4,409,737 1,208,131 620,876 591,991 2,284,400
Cost of insurance and administrative
charges.................................. (1,147,704) (293,018) (188,073) (84,624) (343,153)
Surrenders and forfeitures................. (213,245) (71,799) (66,529) (9,852) (29,701)
Transfers between investment portfolios.... 472,972 425,637 330,253 1,616,051 5,942,776
Net withdrawals due to policy loans........ (49,208) (3,329) (17,924) (9,537) (11,830)
Withdrawals due to death benefits.......... (412) (1,767) (235)
------------ ----------- ---------- ----------- -----------
Net increase in net assets derived from
policy transactions...................... 3,472,140 1,263,855 678,368 2,104,029 7,842,492
------------ ----------- ---------- ----------- -----------
Capital contribution from Provident Mutual
Life Insurance Company................... 25,000 25,000
------------ ----------- ---------- ----------- -----------
Total increase in net assets............... 3,060,683 1,334,809 854,772 2,216,381 7,964,072
NET ASSETS
Beginning of year........................ 5,031,776 1,812,368 901,280 -- --
------------ ----------- ---------- ----------- -----------
End of year.............................. $8,092,459 $3,147,177 $1,756,052 $2,216,381 $7,964,072
============ =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-25
<PAGE> 98
- --------------------------------------------------------------------------------
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
Policyholders' 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-26
<PAGE> 99
- --------------------------------------------------------------------------------
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
Policyholders' 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-27
<PAGE> 100
- --------------------------------------------------------------------------------
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
Policyholders' 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-28
<PAGE> 101
- --------------------------------------------------------------------------------
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
Policyholders' 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-29
<PAGE> 102
- --------------------------------------------------------------------------------
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
Policyholders' 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-30
<PAGE> 103
- --------------------------------------------------------------------------------
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
Policyholders' 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-31
<PAGE> 104
- --------------------------------------------------------------------------------
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
Policyholders' 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-32
<PAGE> 105
- --------------------------------------------------------------------------------
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
Policyholders' 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-33
<PAGE> 106
- --------------------------------------------------------------------------------
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 the 2006 Series
Subaccount. 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 2006 Series Subaccount
invests in the 2006 Series Portfolio of the Zero Coupon Trust. On May 15, 1996,
a second Subaccount was terminated due to the maturity of the underlying series
of the Zero Coupon Trust.
The Variable Separate Account is comprised of sixteen 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, Fidelity
Investment Grade Bond and Fidelity Contrafund 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.; the Van Eck
Worldwide Bond, Van Eck Gold and Natural Resources and Van Eck Emerging Markets
Subaccounts invest in the corresponding portfolios of the Van Eck Worldwide
Insurance Trust; and the Alger American Small Capitalization Subaccount invests
in the corresponding portfolio of the Alger American Fund.
Net premiums from in-force Policies are allocated to the Separate Accounts in
accordance with policyholder instructions and are recorded as variable life
policy transactions in the statements of changes in net assets. Such amounts are
used to provide money to pay benefits under the Policies (Note 4). Each Separate
Account's assets are the property of Provident Mutual.
F-34
<PAGE> 107
- --------------------------------------------------------------------------------
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 and the reported amounts from operations and policy transactions
during the periods. Actual results could differ from those estimates.
F-35
<PAGE> 108
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1996, 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................................ 9,330,982 $132,108,107 $168,890,765
Money Market Portfolio.......................... 23,884,697 $23,884,697 $23,884,697
Bond Portfolio.................................. 1,048,230 $11,041,466 $11,184,610
Managed Portfolio............................... 2,079,865 $26,498,061 $30,532,426
Aggressive Growth Portfolio..................... 1,398,376 $21,670,165 $25,897,926
International Portfolio......................... 2,385,547 $28,694,997 $31,990,185
The Stripped ("Zero") U.S. Treasury Securities
Fund, Provident Mutual Series A:
2006 Series..................................... 11,346,972 $5,669,059 $6,413,195
Variable Insurance Products Fund:
Equity-Income Portfolio......................... 2,802,567 $49,283,784 $58,937,978
Growth Portfolio................................ 2,469,655 $63,931,030 $76,905,059
High Income Portfolio........................... 677,352 $8,008,595 $8,480,451
Overseas Portfolio.............................. 839,049 $14,061,771 $15,807,688
Variable Insurance Products Fund II:
Asset Manager Portfolio......................... 1,873,234 $27,177,965 $31,713,849
Index 500 Portfolio............................. 319,018 $24,002,380 $28,434,057
Investment Grade Bond Portfolio................. 408,250 $4,841,715 $4,996,981
Contrafund Portfolio............................ 373,391 $5,706,038 $6,183,362
Neuberger & Berman Advisers Management Trust:
Balanced Portfolio.............................. 290,685 $4,556,505 $4,627,706
Growth Portfolio................................ 661,473 $15,809,522 $17,052,789
Limited Maturity Bond Portfolio................. 179,209 $2,498,731 $2,517,888
TCI Portfolios, Inc.:
TCI Growth Portfolio............................ 790,279 $8,726,185 $8,092,459
Van Eck Worldwide InsuranceTrust:
Worldwide Bond Portfolio........................ 283,529 $3,076,645 $3,147,177
Gold and Natural Resources Portfolio............ 105,027 $1,568,774 $1,756,052
Emerging Markets Portfolio...................... 177,452 $2,125,673 $2,216,381
Alger American Fund
Small Capitalization Portfolio.................. 194,673 $7,791,061 $7,964,072
</TABLE>
F-36
<PAGE> 109
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the years ended December 31, 1996, 1995 and 1994 transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
---------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO BOND PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares
purchased.... 831,901 1,059,897 1,080,717 19,129,435 13,655,624 17,190,183 168,569 192,313 215,657
Shares
received from
reinvestment
of:
Dividends.... 265,374 256,696 209,566 1,024,419 871,001 311,999 57,612 53,908 41,462
Capital gain
distributions 436,699 601,004 5,192 16,975
----------- ----------- ----------- ----------- ----------- ----------- -------- --------- --------
Total shares
acquired..... 1,533,974 1,917,597 1,295,475 20,153,854 14,526,625 17,502,182 226,181 246,221 274,094
Total shares
redeemed..... (904,010) (565,932) (1,109,401) (12,978,261) (10,536,224) (14,410,319) (127,216) (74,556) (169,094)
----------- ----------- ----------- ----------- ----------- ----------- -------- --------- --------
Net increase
in shares
owned........ 629,964 1,351,665 186,074 7,175,593 3,990,401 3,091,863 98,965 171,665 105,000
Shares owned,
beginning of
year......... 8,701,018 7,349,353 7,163,279 16,709,104 12,718,703 9,626,840 949,265 777,600 672,600
----------- ----------- ----------- ----------- ----------- ----------- -------- --------- --------
Shares owned,
end of
year......... 9,330,982 8,701,018 7,349,353 23,884,697 16,709,104 12,718,703 1,048,230 949,265 777,600
=========== =========== =========== =========== =========== =========== ========= ========= =========
Cost of shares
acquired..... $24,791,248 $27,059,436 $18,166,403 $ 20,153,854 $ 14,526,625 $17,502,182 $2,391,808 $2,538,587 $2,786,406
=========== =========== =========== =========== =========== =========== ========= ========= =========
Cost of shares
redeemed..... $11,787,104 $ 7,086,303 $14,301,798 $ 12,978,261 $ 10,536,224 $14,410,319 $1,348,647 $ 767,042 $1,716,106
=========== =========== =========== =========== =========== =========== ========= ========= =========
</TABLE>
F-37
<PAGE> 110
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
------------------------------------------------------------------------------------------------------------------
MANAGED PORTFOLIO AGGRESSIVE INTERNATIONAL PORTFOLIO
GROWTH PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares purchased..... 221,107 208,590 404,364 263,500 336,867 285,002 520,713 524,968 844,765
Shares received from
reinvestment of:
Dividends........... 73,728 83,429 69,944 13,575 23,400 8,442 1,888
Capital gain
distributions..... 81,745 2,072 74,713 136,800 7,271 94,861 39,890 13,188
---------- ---------- ---------- ---------- ---------- ----------- --------- --------- ----------
Net increase in
shares owned........ 177,756 89,803 259,190 288,598 282,135 183,420 521,911 431,535 785,338
Shares owned,
beginning
of year............. 1,902,109 1,812,306 1,553,116 1,109,778 827,643 644,223 1,863,636 1,432,101 646,763
---------- ---------- ---------- ---------- ---------- ----------- --------- --------- ----------
Shares owned, end of
year................ 2,079,865 1,902,109 1,812,306 1,398,376 1,109,778 827,643 2,385,547 1,863,636 1,432,101
========== ========== ========== ========== ========== =========== ========= ========= ==========
Cost of shares
acquired............ $5,201,624 $3,791,908 $6,775,390 $6,735,426 $5,631,340 $4,286,558 $8,077,706 $6,827,356 $10,211,219
========== ========== ========== ========== ========== =========== ========= ========= ==========
Cost of shares
redeemed............ $2,131,719 $2,171,165 $3,176,894 $1,641,455 $ 841,580 $1,492,974 $1,210,942 $1,281,772 $ 711,372
========== ========== ========== ========== ========== =========== ========= ========= ==========
</TABLE>
F-38
<PAGE> 111
- --------------------------------------------------------------------------------
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 VARIABLE INSURANCE
FUND, PROVIDENT MUTUAL SERIES A PRODUCTS FUND
------------------------------------------------------------------------------------------------------------------
1996 SERIES 2006 SERIES EQUITY-INCOME PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares purchased... 118,128 364,596 405,453 4,208,650 2,903,418 3,167,109 1,036,625 937,870 565,671
Shares received
from reinvestment
of:
Dividends......... 2,918 30,564 12,305
Capital gain
distributions... 83,648 42,404 12,169
---------- ---------- ---------- ---------- ---------- ----------- --------- --------- ----------
Total shares
acquired.......... 118,128 364,596 405,453 4,208,650 2,903,418 3,167,109 1,123,191 1,010,838 590,145
Total shares
redeemed.......... (2,181,298) (217,641) (552,954) (1,223,768) (935,891) (1,839,197) (71,820) (27,488) (15,098)
---------- ---------- ---------- ---------- ---------- ----------- --------- --------- ----------
Net increase
(decrease) in
shares owned...... (2,063,170) 146,955 (147,501) 2,984,882 1,967,527 1,327,912 1,051,371 983,350 575,047
Shares owned,
beginning of
year.............. 2,063,170 1,916,215 2,063,716 8,362,090 6,394,563 5,066,651 1,751,196 767,846 192,799
---------- ---------- ---------- ---------- ---------- ----------- --------- --------- ----------
Shares owned, end
of year........... 2,063,170 1,916,215 11,346,972 8,362,090 6,394,563 2,802,567 1,751,196 767,846
========== ========== ========== ========== ========== =========== ========= ========= ==========
Cost of shares
acquired.......... $ 117,132 $ 345,561 $ 365,288 $2,317,522 $1,461,490 $ 1,375,238 $21,875,240 $17,235,825 $8,978,638
========== ========== ========== ========== ========== =========== ========= ========= ==========
Cost of shares
redeemed.......... $1,949,315 $ 160,308 $ 365,268 $ 528,531 $ 353,785 $ 633,039 $ 1,105,790 $ 427,894 $ 231,263
========== ========== ========== ========== ========== =========== ========= ========= ==========
</TABLE>
F-39
<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
- --------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO HIGH INCOME PORTFOLIO
- --------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......... 826,059 659,784 702,697 479,606 232,086 49,207
Shares received from
reinvestment of:
Dividends................ 4,794 5,481 1,723 25,643 4,088
Capital gain
distributions.......... 121,056 18,232 5,016
----------- ----------- ----------- ---------- ---------- --------
Total shares acquired..... 951,909 665,265 722,652 510,265 236,174 49,207
Total shares redeemed..... (69,623) (27,312) (14,831) (108,022) (9,155) (1,117)
----------- ----------- ----------- ---------- ---------- --------
Net increase (decrease) in
shares owned............. 882,286 637,953 707,821 402,243 227,019 48,090
Shares owned, beginning of
year..................... 1,587,369 949,416 241,595 275,109 48,090
----------- ----------- ----------- ---------- ---------- --------
Shares owned, end of
year..................... 2,469,655 1,587,369 949,416 677,352 275,109 48,090
=========== =========== =========== ========== ========== ========
Cost of shares acquired... $27,880,379 $17,731,718 $15,362,715 $6,055,847 $2,687,554 $530,853
=========== =========== =========== ========== ========== ========
Cost of shares redeemed... $ 1,605,197 $ 608,521 $ 332,236 $1,154,715 $ 98,892 $ 12,052
=========== =========== =========== ========== ========== ========
<CAPTION>
- ---------------------------------------------------------------
OVERSEAS PORTFOLIO
- ---------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased.......... 372,206 316,944 201,774
Shares received from
reinvestment of:
Dividends................ 6,165 971
Capital gain
distributions.......... 6,782 971
---------- ---------- ----------
Total shares acquired..... 385,153 318,886 201,774
Total shares redeemed..... (47,671) (19,077) (16)
---------- ---------- ----------
Net increase (decrease) in
shares owned............. 337,482 299,809 201,758
Shares owned, beginning of
year..................... 501,567 201,758
---------- ---------- ----------
Shares owned, end of
year..................... 839,049 501,567 201,758
========== ========== ==========
Cost of shares acquired... $6,786,632 $5,114,360 $3,239,101
========== ========== ==========
Cost of shares redeemed... $ 774,233 $ 303,825 $ 264
========== ========== ==========
</TABLE>
F-40
<PAGE> 113
- --------------------------------------------------------------------------------
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 INDEX 500 PORTFOLIO
- --------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.............. 313,935 489,727 1,215,379 200,784 88,644 42,480
Shares received from
reinvestment of:
Dividends.................... 65,522 33,935 9,853 1,531 868
Capital gain distributions... 54,028 14,760 3,938 119 19
---------- ---------- ----------- ----------- ---------- ----------
Total shares acquired......... 433,485 523,662 1,239,992 206,253 89,631 42,499
Total shares redeemed......... (277,449) (305,140) (22,065) (5,225) (14,435) (5,494)
---------- ---------- ----------- ----------- ---------- ----------
Net increase in shares
owned........................ 156,036 218,522 1,217,927 201,028 75,196 37,005
Shares owned, beginning of
year......................... 1,717,198 1,498,676 280,749 117,990 42,794 5,789
---------- ---------- ----------- ----------- ---------- ----------
Shares owned, end of year..... 1,873,234 1,717,198 1,498,676 319,018 117,990 42,794
========== ========== =========== =========== ========== ==========
Cost of shares acquired....... $6,753,590 $7,461,536 $17,945,452 $16,732,487 $5,976,098 $2,369,165
========== ========== =========== =========== ========== ==========
Cost of shares redeemed....... $4,265,120 $4,552,526 $ 316,892 $ 285,519 $ 806,307 $ 311,392
========== ========== =========== =========== ========== ==========
<CAPTION>
- -----------------------------------------------------------------------------
INVESTMENT GRADE CONTRAFUND
BOND PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------
1996 1995 1994 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased.............. 260,720 148,445 55,695 378,323
Shares received from
reinvestment of:
Dividends.................... 10,256 2,620
Capital gain distributions...
---------- ---------- -------- ----------
Total shares acquired......... 270,976 151,065 55,695 378,323
Total shares redeemed......... (50,765) (17,097) (1,624) (4,932)
---------- ---------- -------- ----------
Net increase in shares
owned........................ 220,211 133,968 54,071 373,391
Shares owned, beginning of
year......................... 188,039 54,071
---------- ---------- -------- ----------
Shares owned, end of year..... 408,250 188,039 54,071 373,391
========== ========== ======== ==========
Cost of shares acquired....... $3,229,467 $1,765,445 $615,840 $5,779,392
========== ========== ======== ==========
Cost of shares redeemed....... $ 560,842 $ 190,284 $ 17,911 $ 73,354
========== ========== ======== ==========
</TABLE>
F-41
<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
- --------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO GROWTH PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................... 108,736 74,181 112,008 263,886 228,427 148,623
Shares received from reinvestment
of:
Dividends.......................... 5,238 2,584 1,201 180 490 326
Capital gain distributions......... 29,133 830 1,985 42,178 6,560 6,741
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired............... 143,107 77,595 115,194 306,244 235,477 155,690
Total shares redeemed............... (36,401) (20,656) (13,992) (55,459) (10,148) (11,266)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned........ 106,706 56,939 101,202 250,785 225,329 144,424
Shares owned, beginning of year..... 183,979 127,040 25,838 410,688 185,359 40,935
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year........... 290,685 183,979 127,040 661,473 410,688 185,359
========== ========== ========== ========== ========== ==========
Cost of shares acquired............. $2,241,958 $1,276,739 $1,747,257 $7,625,308 $5,737,857 $3,274,504
========== ========== ========== ========== ========== ==========
Cost of shares redeemed............. $ 570,955 $ 322,244 $ 216,239 $1,295,598 $ 244,085 $ 272,703
========== ========== ========== ========== ========== ==========
<CAPTION>
TCI PORTFOLIOS, INC.
- --------------------------------------------------------------------------------------------------------
LIMITED MATURITY
BOND PORTFOLIO TCI GROWTH PORTFOLIO
- --------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................... 116,412 64,863 22,298 384,291 308,637 124,514
Shares received from reinvestment
of:
Dividends.......................... 8,274 1,128 145
Capital gain distributions......... 68,178
---------- -------- -------- ---------- ---------- ----------
Total shares acquired............... 124,686 65,991 22,298 452,469 308,782 124,514
Total shares redeemed............... (20,824) (6,437) (6,505) (80,668) (13,168) (1,650)
---------- -------- -------- ---------- ---------- ----------
Net increase in shares owned........ 103,862 59,554 15,793 371,801 295,614 122,864
Shares owned, beginning of year..... 75,347 15,793 418,478 122,864
---------- -------- -------- ---------- ---------- ----------
Shares owned, end of year........... 179,209 75,347 15,793 790,279 418,478 122,864
========== ======== ======== ========== ========== ==========
Cost of shares acquired............. $1,724,884 $932,610 $311,339 $4,986,969 $3,475,266 $1,121,214
========== ======== ======== ========== ========== ==========
Cost of shares redeemed............. $ 289,820 $ 90,095 $ 90,187 $ 723,514 $ 118,574 $ 15,176
========== ======== ======== ========== ========== ==========
</TABLE>
F-42
<PAGE> 115
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK WORLDWIDE INSURANCE TRUST ALGER AMERICAN
FUND
------------------------------------------------------------------------------------------------------------------
WORLDWIDE BOND GOLD AND NATURAL
PORTFOLIO RESOURCES PORTFOLIO EMERGING SMALL
MARKETS CAPITALIZATION
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares purchased.............. 140,460 101,345 64,509 54,502 49,696 31,344 177,883 207,020
Shares received from
reinvestment of:
Dividends..................... 6,267 8,113 749 534 19 2
Capital gain distributions.... 11 735 46
---------- ---------- -------- -------- -------- -------- ---------- ----------
Total shares acquired......... 146,727 109,458 64,520 55,986 50,230 31,390 177,902 207,022
Total shares redeemed......... (25,888) (9,283) (2,005) (13,461) (18,610) (508) (450) (12,349)
---------- ---------- -------- -------- -------- -------- ---------- ----------
Net increase in shares
owned........................ 120,839 100,175 62,515 42,525 31,620 30,882 177,452 194,673
Shares owned, beginning of
year......................... 162,690 62,515 62,502 30,882
---------- ---------- -------- -------- -------- -------- ---------- ----------
Shares owned, end of year..... 283,529 162,690 62,515 105,027 62,502 30,882 177,452 194,673
========== ========== ======== ======== ======== ======== ========== ==========
Cost of shares acquired....... $1,593,168 $1,204,346 $648,828 $909,495 $674,277 $423,320 $2,130,602 $8,338,053
========== ========== ======== ======== ======== ======== ========== ==========
Cost of shares redeemed....... $ 258,769 $ 90,782 $ 20,146 $176,559 $255,105 $ 6,654 $ 4,929 $ 546,992
========== ========== ======== ======== ======== ======== ========== ==========
</TABLE>
F-43
<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 policyholder. 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. Premiums
adjusted for these deductions are recorded as net premiums in the statement of
changes in net assets. See original policy documents for specific charges
assessed.
In addition to the aforementioned charges, 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 policyholders.
For modified premium policies -- currently 0.60% of the net assets held for
the benefit of policyholders.
For flexible premium adjustable policies ("OptionsPlus") -- currently 0.75%
of the net assets held for the benefit of policyholders, 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
policyholders, 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
policyholders.
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 policyholder 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-44
<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, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
MONEY
GROWTH MARKET BOND
SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT
-------- -------- --------
<S> <C> <C> <C>
Year ending December 31,
1996.................................................. $3,491 $146 $1,087
1995.................................................. $12,376 $538 $1,846
1994.................................................. $14,824 $1,594 $2,834
</TABLE>
These amounts are shown as an operating expense reimbursement reducing
total expenses in the statement 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-45
<PAGE> 118
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors of
Provident Mutual Life Insurance
Company
We have audited the accompanying consolidated statements of financial condition
of Provident Mutual Life Insurance Company and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations, capital
and surplus, and cash flows for each of the three years in the period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Provident Mutual
Life Insurance Company and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 120 (SFAS 120) and
Financial Accounting Standards Board Interpretation No. 40 (FIN 40) which
required implementation of several accounting pronouncements not previously
adopted. The effects of adopting SFAS 120 and FIN 40 were retroactively applied
to the Company's previously issued financial statements, consistent with the
implementation guidance of those standards.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 14, 1997
F-46
<PAGE> 119
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Consolidated Statements of Financial Condition (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: 1996-$2,513,377; 1995-$2,427,192).............. $2,564,903 $2,560,179
Held to maturity, at amortized cost (market: 1996-$518,665; 1995-$555,557) 510,874 543,992
Equity securities, at market (cost: 1996-$27,770; 1995-$32,635)......................... 23,809 28,170
Mortgage loans.......................................................................... 708,982 747,945
Real estate............................................................................. 71,444 74,662
Policy loans and premium notes.......................................................... 358,522 365,217
Other invested assets................................................................... 20,781 29,672
Short-term investments.................................................................. 60,407 95,455
---------- ----------
Total Investments....................................................................... 4,319,722 4,445,292
---------- ----------
Cash.................................................................................... 5,551 2,871
Premiums due and deferred............................................................... 13,106 15,863
Investment income due and accrued....................................................... 74,212 75,203
Deferred acquisition costs.............................................................. 602,587 501,305
Reinsurance recoverable................................................................. 530,326 544,499
Separate account assets................................................................. 1,510,101 1,030,965
Other assets............................................................................ 68,045 50,091
---------- ----------
Total Assets............................................................................ $7,123,650 $6,666,089
========== ==========
LIABILITIES
Policy Liabilities:
Future policyholder benefits.......................................................... $4,426,517 $4,489,990
Policyholders' funds.................................................................. 149,106 148,717
Policyholder dividends payable........................................................ 32,697 32,825
Other policy obligations.............................................................. 20,332 14,259
---------- ----------
Total Policy Liabilities.............................................................. 4,628,652 4,685,791
---------- ----------
Expenses payable........................................................................ 38,540 27,646
Taxes payable........................................................................... 2,129 2,776
Federal income taxes payable:
Current............................................................................... 35,157 78,318
Deferred.............................................................................. 51,029 51,541
Separate account liabilities............................................................ 1,505,990 1,021,745
Other liabilities....................................................................... 104,876 102,943
---------- ----------
Total Liabilities....................................................................... 6,366,373 5,970,760
---------- ----------
COMMITMENTS AND CONTINGENCIES -- NOTE 9
CAPITAL AND SURPLUS
Unassigned surplus...................................................................... 746,567 665,028
Net unrealized appreciation on securities............................................... 10,710 30,301
---------- ----------
Total Capital and Surplus............................................................... 757,277 695,329
---------- ----------
Total Liabilities, Capital and Surplus.................................................. $7,123,650 $6,666,089
========== ==========
</TABLE>
See accompanying notes to financial statements
F-47
<PAGE> 120
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Consolidated Statements of Operations (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums....................................................................... $ 235,615 $ 255,509 $ 276,377
Policy and contract charges.................................................... 73,873 63,387 49,574
Net investment income.......................................................... 333,938 336,827 319,928
Other income................................................................... 43,839 37,084 31,816
Realized gains (losses) on investments......................................... 7,873 3,691 (3,975)
-------- -------- --------
Total Revenues................................................................. 695,138 696,498 673,720
-------- -------- --------
BENEFITS AND EXPENSES
Policy and contract benefits................................................... 241,042 228,143 221,122
Change in future policyholder benefits......................................... 130,147 145,545 155,322
Commissions and operating expenses............................................. 171,398 168,449 172,221
Policyholder dividends......................................................... 65,184 64,943 66,139
-------- -------- --------
Total Benefits and Expenses.................................................... 607,771 607,080 614,804
-------- -------- --------
Income Before Income Taxes..................................................... 87,367 89,418 58,916
Income tax expense (benefit):
Current...................................................................... (6,613) 39,817 23,839
Deferred..................................................................... 12,441 (725) (1,960)
-------- -------- --------
Total Income Tax Expense....................................................... 5,828 39,092 21,879
-------- -------- --------
Net Income..................................................................... $ 81,539 $ 50,326 $ 37,037
======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-48
<PAGE> 121
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Consolidated Statements of Capital and Surplus for the Years Ended December 31,
1996, 1995 and 1994 (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION TOTAL
UNASSIGNED (DEPRECIATION) CAPITAL AND
SURPLUS ON SECURITIES SURPLUS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1994........................................ $577,665 $ 37,103 $ 614,768
Net income...................................................... 37,037 -- 37,037
Change in unrealized appreciation (depreciation)................ -- (69,192) (69,192)
----------- -------- ----------
Balance at December 31, 1994...................................... 614,702 (32,089) 582,613
Net income...................................................... 50,326 -- 50,326
Change in unrealized appreciation (depreciation)................ -- 62,390 62,390
----------- -------- ----------
Balance at December 31, 1995...................................... 665,028 30,301 695,329
Net income...................................................... 81,539 -- 81,539
Change in unrealized appreciation (depreciation)................ -- (19,591) (19,591)
----------- -------- ----------
Balance at December 31, 1996...................................... $746,567 $ 10,710 $ 757,277
=========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-49
<PAGE> 122
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Consolidated Statements of Cash Flows (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................ $ 81,539 $ 50,326 $ 37,037
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to variable universal life and investment products.... 117,038 117,873 107,983
Policy fees assessed on variable universal life and investment
products.............................................................. (73,873) (63,387) (49,574)
Amortization of deferred policy acquisition costs....................... 56,092 63,666 60,619
Capitalization of deferred policy acquisition costs..................... (119,031) (100,480) (100,361)
Deferred Federal income taxes........................................... 12,441 (725) (1,960)
Depreciation and amortization expense................................... 5,292 6,088 6,556
Realized (gains) losses on investments.................................. (7,873) (3,691) 3,975
Change in investment income due and accrued............................. 991 4,719 (2,981)
Change in premiums due and deferred..................................... 2,757 903 (848)
Change in reinsurance recoverable....................................... 14,173 (85,199) (112,943)
Change in policy liabilities and other policyholders' funds of
traditional life products............................................. (18,335) 86,570 159,056
Change in other liabilities............................................. 1,933 (6,047) 14,784
Change in current Federal income taxes payable.......................... (43,161) 13,934 3,028
Other, net.............................................................. (6,819) (4,747) 6,616
--------- --------- ---------
Net cash provided by operating activities........................... 23,164 79,803 130,987
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities........................................... 285,514 249,231 271,792
Equity securities....................................................... 8,147 11,170 36,345
Real estate............................................................. 21,902 22,879 30,262
Other invested assets................................................... 6,078 7,210 13,046
Proceeds from maturities of investments:
Held to maturity securities............................................. 109,582 84,601 104,240
Available for sale securities........................................... 165,980 146,547 172,516
Mortgage loans.......................................................... 124,190 106,257 88,951
Purchases of investments:
Held to maturity securities............................................. (76,730) (71,937) (145,802)
Available for sale securities........................................... (533,650) (504,337) (594,405)
Equity securities....................................................... (2,966) (4,966) (12,759)
Mortgage loans.......................................................... (94,254) (102,632) (108,208)
Real estate............................................................. (11,449) (13,172) (8,011)
Other invested assets................................................... (127) (3,976) (6,174)
Net withdrawals of separate account seed money............................ 5,985 -- --
Policy loans and premium notes, net....................................... 7,580 12,152 19,523
Net sales (purchases) of short-term investments........................... 35,983 (22,365) (4,790)
--------- --------- ---------
Net cash provided by (used in) investing activities................. 51,765 (83,338) (143,474)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits................... 668,437 578,441 568,635
Variable universal life and investment product withdrawals................ (740,686) (573,177) (562,854)
--------- --------- ---------
Net cash (used in) provided by financing activities................. (72,249) 5,264 5,781
--------- --------- ---------
Net change in cash.................................................. 2,680 1,729 (6,706)
Cash, beginning of year..................................................... 2,871 1,142 7,848
--------- --------- ---------
Cash, end of year........................................................... $ 5,551 $ 2,871 $ 1,142
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes................................ $ 36,329 $ 24,109 $ 17,370
========= ========= =========
Foreclosure of mortgage loans............................................. $ 7,665 $ 14,766 $ 9,160
========= ========= =========
</TABLE>
See accompanying notes to financial statements
F-50
<PAGE> 123
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Provident Mutual Life Insurance Company (Provident Mutual) is organized as
a mutual life insurance company which conducts its business for the benefit of
its policyholders.
Provident Mutual'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) and, in
aggregate, are defined as the "Company."
The Company sells individual traditional and variable life insurance
products, annuities, and a variety of pension products and maintains a block of
direct response-marketed life and health insurance products. The Company
distributes its products through a variety of distribution channels, principally
career agents, personal producing general agents and brokers. The Company is
licensed to operate in 50 states, which are responsible for product regulation.
Sales in 11 states accounted for 73% of the Company's sales for the year ended
December 31, 1996. For many of the life and annuity products, the insurance
departments of the states in which the Company conducts business must approve
products and policy forms in advance of sales. In addition, benefits are
determined by statutes and regulations in each of these states.
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 Covenant policyholders became entitled to the same
rights and privileges as Provident Mutual's policyholders. Costs of completing
the merger were approximately $6.7 million, net of related income taxes.
Covenant sold traditional and universal life insurance products and individual
annuities primarily to the religious community.
Basis of Presentation
The consolidated financial statements include the accounts of Provident
Mutual and its wholly-owned subsidiaries. Intercompany transactions have been
eliminated.
F-51
<PAGE> 124
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
As of January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 120, "Accounting and Reporting by Mutual Life
Insurance Enterprises for Certain Long-Duration Participating Contracts", an
amendment to Financial Accounting Standards Board Interpretation 40 (FIN 40),
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises." The initial effect of applying this statement
has been reported retroactively through restatement of previously issued
financial statements presented herein for comparative purposes. SFAS 120
requires financial statements referred to as prepared in accordance with
generally accepted accounting principles (GAAP) to apply to all applicable
authoritative GAAP pronouncements. Prior to the adoption of SFAS 120, statutory
financial statements were permitted to be referred to as being prepared in
accordance with GAAP. The significant GAAP authoritative pronouncements
requiring initial application were as follows:
-- SFAS 60, "Accounting and Reporting by Insurance Enterprises,"
-- SFAS 87, "Employers' Accounting for Pensions,"
-- SFAS 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long Duration Contracts and for Realized Gains and Losses from the Sale
of Investments,"
-- SFAS 94, "Consolidation of All Majority-Owned Subsidiaries,"
-- SFAS 106, "Employers Accounting for Postretirement Benefits Other Than
Pensions,"
-- SFAS 109, "Accounting for Income Taxes,"
-- SFAS 113, "Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts,"
-- SFAS 114, "Accounting by Creditors for Impairment of a Loan,"
-- Statement of Position (SOP) 95-1, "Accounting for Certain Insurance
Activities of Mutual Life Insurance Enterprises,"
-- SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities" and
-- SFAS 121, "Accounting for Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed."
The cumulative effective on policyholders' equity of adopting the above
pronouncements primarily consists of the initial deferral of acquisition costs,
the establishment of deferred taxes, the accrual of postretirement benefits, and
the elimination of the statutory asset valuation reserve and the establishment
of investment valuation allowances.
F-52
<PAGE> 125
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
As a result of the change in accounting principles, net income as
previously reported, has been restated as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
====================================================================================
<S> <C> <C>
Net income, as previously reported............................. $ 41.9 $ 15.7
Effect of changing to a different basis of accounting:
Deferred acquisition costs................................... 36.8 39.7
Net policyholder liabilities................................. (32.2) (17.7)
Deferred income taxes........................................ .7 2.0
Adjustment in valuation of investments....................... 8.5 2.9
Merger of Covenant Life...................................... -- (8.9)
Retirement benefits.......................................... 3.6 1.6
Termination of real estate lease............................. (8.9) --
Other, net................................................... (.1) 1.7
------ ------
Net income, as adjusted........................................ $ 50.3 $ 37.0
====== ======
</TABLE>
As a result of the change in accounting principles, capital and surplus, as
previously reported has been restated as follows (in millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1995 1994
------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year, as previously reported......... $ 268.4 $ 208.0
Add adjustment for the cumulative effect on prior years of
applying retroactively the new basis of accounting:
Deferred acquisition costs................................. 530.0 490.1
Net policyholder liabilities............................... (161.1) (144.4)
Deferred income taxes...................................... (34.0) (38.6)
Adjustment in valuation of investments..................... (12.2) (20.9)
Asset valuation reserve.................................... 44.9 43.7
Merger of Covenant Life.................................... -- 62.1
Retirement benefits........................................ (21.8) (25.4)
Other, net................................................. .5 3.1
------ ------
Balance at beginning of year, as adjusted.................. 614.7 577.7
Net income................................................. 50.3 37.0
Add adjustment for the cumulative effect on prior years of
applying accounting change-securities................... (32.1) 37.1
Change in unrealized gains(losses) on investment
securities.............................................. 62.4 (69.2)
------ ------
Balance at end of year..................................... $ 695.3 $ 582.6
====== ======
</TABLE>
The Company prepares financial statements for filing with regulatory
authorities which are prepared in conformity with the accounting practices
prescribed or permitted by the Insurance Departments of the Commonwealth of
Pennsylvania and the State of Delaware (SAP). Practices under SAP vary from GAAP
F-53
<PAGE> 126
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
primarily with respect to the initial deferral of acquisition costs, the
establishment of deferred taxes, the accrual of postretirement benefits, and the
elimination of the statutory asset valuation reserve and the establishment of
investment valuation allowances.
Statutory net income was $39.9 million, $41.9 million and $15.7 million for
the years ended December 31, 1996, 1995 and 1994, respectively. Statutory
surplus was $343.1 million and $312.1 million as of December 31, 1996 and 1995,
respectively.
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the report values of
assets and liabilities and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
The Company is subject to interest rate risk to the extent its investment
portfolio cash flow's are not matched to its insurance liabilities. Management
believes it manages this risk through modeling of the cash flows under
reasonable scenarios.
Invested Assets
Fixed maturity securities (bonds) which may be sold are designated as
"available for sale" and are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in capital
and surplus net of Federal income taxes and related amortization of deferred
acquisition costs. Fixed maturity securities that the Company has the intent and
ability to hold to maturity are designated as "held to maturity" and are
reported at amortized cost.
Equity securities (common stocks, redeemable preferred stocks and
nonredeemable preferred stocks) are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in capital
and surplus.
Fixed maturity and equity securities that have experienced an other than
temporary decline in value are written down to fair value by a charge to
realized losses. This fair value becomes the new cost basis of the particular
security.
Mortgage loans are carried at unpaid principal balances, less impairment
reserves. For mortgage loans considered impaired, a specific reserve is
established. A general reserve is also established for probable losses arising
from the portfolio but not attributable to specific loans. Mortgage loans are
considered impaired when it is probable that the Company will be unable to
collect amounts due according to the contractual terms of the loan agreement.
When a mortgage loan has been determined to be impaired, a reserve is
established for the difference between the unpaid principal of the mortgage loan
and its fair value. Fair value is based on either the present value of expected
future cash flows discounted
F-54
<PAGE> 127
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Invested Assets -- continued
at the mortgage loan's effective interest rate or the fair value of the
underlying collateral. The reserve is charged to realized capital losses.
Policy loans and premium notes are reported at unpaid principal balances.
Real estate investments and real estate occupied by the Company are carried
at cost, less encumbrances and accumulated depreciation. Foreclosed real estate
is carried at lower of cost or fair value less accumulated depreciation from the
date of foreclosure. The straight-line method of depreciation is used for all
real estate.
Other invested assets consist primarily of real estate joint ventures
carried on the equity basis and limited partnerships carried at the lower of
cost or market value.
Cash includes demand deposits and cash on hand.
Short-term investments include money market funds, certificates of deposit
and short-term investments whose maturities at the time of acquisition were one
year or less. These investments are carried at amortized cost which approximates
market value.
Investment Valuation Reserves
Investment valuation reserves have been provided for impairments of real
estate, mortgage loans and other invested assets and totalled $26.5 million and
$32.5 million at December 31, 1996 and 1995, respectively. Changes in the
reserves are reflected as realized capital gains and losses.
Benefit Reserves and Policyholder Contract Deposits
Traditional Life Insurance Products
Traditional life insurance products include those contracts with fixed and
guaranteed premiums and benefits, and consist principally of whole life and
term insurance policies, limited-payment life insurance policies and
certain annuities with life contingencies. Most traditional life insurance
policies are participating: in addition to guaranteed benefits, they pay
dividends, as declared annually by the Company based on its experience.
Reserves on traditional life insurance products are calculated by using the
net level premium method. For participating traditional life insurance
policies, the assumptions are based on mortality rates consistent with the
cash values and investment rates consistent with the Company's dividend
practices. For most such policies, reserves are based on the 1958 or 1980
Commissioners' Standard Ordinary (CSO) mortality table at interest rates
ranging from 3.5% to 4.5%.
F-55
<PAGE> 128
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Benefit Reserves and Policyholder Contract Deposits -- continued
Variable Life and Investment-Type Products
Variable life products include fixed premium variable life and flexible
premium variable universal life. Investment-type products consist primarily
of guaranteed investment contracts (GICs) and single premium and flexible
premium annuity contracts.
Benefit reserves and policyholder contract deposits on these products are
determined following the retrospective deposit method and consist of policy
values that accrue to the benefit of the policyholder, before deduction of
surrender charges.
Premiums, Charges and Benefits
Traditional Life Insurance and Accident and Health Insurance Products
Premiums for individual life policies are recognized when due; premiums for
accident and health and all other policies are reported as earned
proportionately over their policy terms.
Benefit claims (including an estimated provision for claims incurred but
not reported), benefit reserve changes, and expenses (except those
deferred) are charged to income as incurred.
Variable Life and Investment-Type Products
Revenues for variable life and investment-type products consist of policy
charges for the cost of insurance, policy initiation, administration and
surrenders during the period. Expenses include interest credited to policy
account balances and benefit payments made in excess of policy account
balances. Many of these policies are variable life or variable annuity
policies, in which investment performance credited to the account balance
is based on the investment performance of separate accounts chosen by the
policyholder. For other account balances, credited interest rates ranged
from 4.28% to 9.46% in 1996.
Deferred Policy Acquisition Costs
The costs that vary with and are directly related to the production of new
business, have been deferred to the extent deemed recoverable. Such costs
include commissions and certain costs of underwriting, policy issue and
marketing.
Deferred policy acquisition costs on traditional participating life
insurance policies are amortized in proportion to the present value of
expected gross margins. Gross margins include margins from mortality,
investments and expenses, net of policyholder dividends. Expected gross
margins are redetermined regularly, based on actual experience and current
assumptions of mortality, persis-
F-56
<PAGE> 129
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Premiums, Charges and Benefits -- continued
Deferred Policy Acquisition Costs -- continued
tency, expenses, and investment experience. The average investment yield,
before realized capital gains and losses, in the calculation of expected
gross margins was 8.15% for 1996.
Deferred policy acquisition costs for variable life and investment-type
products are amortized in relation to the incident of expected gross
profits, including realized investment gains and losses, over the expected
life of the policies.
The costs deferred during 1996, 1995 and 1994 were $119.0 million, $100.5
million, and $100.4 million, respectively. Amortization of deferred policy
acquisition costs was $56.1 million, $63.7 million, and $60.6 million
during 1996, 1995 and 1994, respectively.
Capital Gains and Losses
Realized capital gains and losses on sales of investments are based upon
specific identification of the investments sold and do not include amounts
allocable to separate accounts. A realized capital loss is also recorded at the
time a decline in the value of an investment is determined to be other than
temporary.
Policyholder Dividends
As of December 31, 1996, approximately 98% of the Company's in force life
insurance business was written on a participating basis. Dividends are earned by
the policyholders ratably over the policy year. Dividends are included in the
accompanying financial statements as a liability and as a charge to operations.
Reinsurance
Premiums, benefits and expenses are recorded net of experience refunds,
reserve adjustments and amounts assumed from or ceded to reinsurers, including
commission and expense allowances.
Separate Accounts
Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the benefit of pension and annuity
contractholders, variable life insurance policyholders and several of the
Company's retirement plans.
Premiums received and the accumulated value portion of benefits paid are
excluded from the amounts reported in the consolidated statements of operations.
Fees charged on policyholder and contractholder account values are reported as
revenues.
F-57
<PAGE> 130
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Separate Accounts -- continued
The contractholders/policyholders bear the investment risk on separate
account assets except in instances where the Company guarantees a fixed return.
When the contractholder/policyholder bears the investment risk, separate account
assets and liabilities are carried at fair value.
For guaranteed contracts, the separate account assets and liabilities are
carried at historical cost. The guaranteed contracts are maintained in a
separate account for statutory purposes. Due to the guaranteed return, this
separate account is included in the general account assets and liabilities for
GAAP purposes.
Federal Income Taxes
Deferred income tax assets and liabilities have been recorded for temporary
differences between the reported amounts of assets and liabilities in the
accompanying financial statements and those in the Company's income tax returns.
F-58
<PAGE> 131
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the fair values and carrying values of the
Company's financial instruments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
(IN MILLIONS) (IN MILLIONS)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale........................ $2,564.9 $2,564.9 $2,560.2 $2,560.2
Held to maturity.......................... $518.7 $510.9 $555.6 $544.0
Equity securities........................... $23.8 $23.8 $28.2 $28.2
Commercial mortgage loans................... $740.6 $708.2 $809.8 $746.8
Residential mortgage loans.................. $.9 $.8 $1.2 $1.1
LIABILITIES FOR INVESTMENT-TYPE INSURANCE
CONTRACTS
Guaranteed interest contracts............... $321.8 $316.9 $386.5 $374.9
Group annuities............................. $1,101.8 $1,118.3 $1,005.0 $1,003.8
Supplementary contracts without life
contingencies............................. $31.4 $31.4 $31.1 $30.6
Individual annuities........................ $1,172.6 $1,225.5 $1,379.4 $1,420.1
</TABLE>
The underlying investment risk of the Company's variable life and variable
annuity contracts is assumed by the holder. These reserve liabilities are
primarily reported in the separate accounts. The liabilities in the separate
accounts are recorded at amounts equal to the related assets at fair value.
Fair values for the Company's insurance contracts other than
investment-type contracts are not required to be disclosed under Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments". However, the estimated fair value and future cash flows
of liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts. The estimated fair value of all assets
without a corresponding revaluation of all liabilities associated with insurance
contracts can be misinterpreted.
F-59
<PAGE> 132
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
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 $319.4 million and $322.4 million,
respectively, at December 31, 1996 and $378.5 million and $386.7 million,
respectively, at December 31, 1995.
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.
F-60
<PAGE> 133
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Individual Annuities and Supplementary Contracts
The fair value of individual annuities and supplementary contracts without
life contingencies is based primarily on surrender values. For those individual
annuities and supplementary contracts that are not surrenderable, discounted
future cash flows are used for calculating fair value.
Policyholder Dividends and Coupon Accumulations
The policyholders' 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. MARKETABLE SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investments in fixed maturity securities and equity
securities as of December 31, 1996 and 1995 are as follows (in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies... $ 62.6 $ 2.2 $ .4 $ 64.4
Obligations of states and political
subdivisions................................ 79.5 2.4 1.1 80.8
Debt securities issued by foreign
governments................................. 12.4 .1 .7 11.8
Corporate securities.......................... 2,070.2 66.4 23.9 2,112.7
Mortgage-backed securities.................... 288.7 8.5 2.0 295.2
-------- ----- ----- --------
Subtotal -- fixed maturities............. 2,513.4 79.6 28.1 2,564.9
Equity securities............................. 27.8 4.5 8.5 23.8
-------- ----- ----- --------
Total............................... $ 2,541.2 $ 84.1 $ 36.6 $ 2,588.7
======== ===== ===== ========
</TABLE>
F-61
<PAGE> 134
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies... $ 17.6 $ .8 $ .1 $ 18.3
Obligations of states and political
subdivisions................................ 11.3 .3 .1 11.5
Debt securities issued by foreign
governments................................. 6.8 .5 -- 7.3
Corporate securities.......................... 464.8 10.1 4.2 470.7
Mortgage-backed securities.................... 10.4 .5 -- 10.9
------ ----- ---- ------
Total............................... $510.9 $ 12.2 $4.4 $518.7
====== ===== ==== ======
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies... $ 93.0 $ 5.4 $ .2 $ 98.2
Obligations of states and political
subdivisions................................ 92.4 4.1 .5 96.0
Debt securities issued by foreign
governments................................. 14.8 .5 -- 15.3
Corporate securities.......................... 1,954.0 123.1 12.2 2,064.9
Mortgage-backed securities.................... 273.0 13.0 .2 285.8
-------- ----- ----- --------
Subtotal -- fixed maturities............. 2,427.2 146.1 13.1 2,560.2
Equity securities............................. 32.6 1.9 6.3 28.2
-------- ----- ----- --------
Total............................... $ 2,459.8 $148.0 $ 19.4 $ 2,588.4
======== ===== ===== ========
</TABLE>
F-62
<PAGE> 135
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies... $ 18.4 $ .6 $ .1 $ 18.9
Obligations of states and political
subdivisions................................ 15.9 .3 .1 16.1
Debt securities issued by foreign
governments................................. 7.3 .6 -- 7.9
Corporate securities.......................... 489.1 13.3 3.6 498.8
Mortgage-backed securities.................... 13.3 .6 -- 13.9
-------- ----- ----- --------
Total............................... $ 544.0 $ 15.4 $3.8 $ 555.6
======== ===== ===== ========
</TABLE>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1996, by contractual maturity, are as follows (in millions):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE
----------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less....................................... $ 93.3 $ 93.7
Due after one year through five years......................... 604.0 618.3
Due after five years through ten years........................ 756.3 778.4
Due after ten years........................................... 1,059.8 1,074.5
-------- --------
Total............................................... $ 2,513.4 $ 2,564.9
======== ========
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE
----------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less....................................... $ 15.0 $ 15.1
Due after one year through five years......................... 134.0 135.9
Due after five years through ten years........................ 217.5 221.0
Due after ten years........................................... 144.4 146.7
------ ------
Total............................................... $510.9 $518.7
====== ======
</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
contractual maturity.
F-63
<PAGE> 136
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
Realized gains (losses) on investments for the years ended December 31,
1996, 1995 and 1994 are summarized as follows (in millions):
<TABLE>
<S> <C> <C> <C>
--------------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------------
Fixed maturities........................................... $ 6.0 $ 2.0 $(6.7)
Equity securities.......................................... .3 .7 8.6
Mortgage loans............................................. (1.4) .2 (4.3)
Real estate................................................ 2.8 2.9 (.8)
Policy loans and premium notes............................. .9 .1 .2
Other invested assets...................................... (.7) (2.2) (1.0)
----- ----- -----
$ 7.9 $ 3.7 $(4.0)
===== ===== =====
</TABLE>
Net unrealized appreciation (depreciation) on available for sale securities
as of December 31, 1996 and 1995 is summarized as follows (in millions):
<TABLE>
<S> <C> <C>
------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) before adjustments for
the following:................................................. $ 47.5 $128.6
Amortization of deferred policy acquisition costs.............. (31.0) (79.6)
Deferred Federal income taxes.................................. (5.8) (18.7)
------ ------
Net unrealized appreciation (depreciation)....................... $ 10.7 $ 30.3
====== ======
</TABLE>
In late 1995, the Financial Accounting Standards Board issued "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities". This report permits a one-time reclassification of
securities from held to maturity to available for sale. In response to this
report, the Company transferred fixed income securities with a combined
amortized cost of $172.3 million from the held to maturity portfolio to the
available for sale portfolio. An additional transfer of fixed income securities
with a combined cost of $24.2 million and an estimated fair value of $24.6
million was made from the available for sale portfolio to the held to maturity
portfolio. The $.4 million difference between the amortized cost and the
estimated fair value is being amortized to realized capital gains/losses over
the remaining lives of the securities.
F-64
<PAGE> 137
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
Net investment income, by type of investment, is as follows for the years
ending December 31, 1996, 1995 and 1994 (in millions):
<TABLE>
<S> <C> <C> <C>
-------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------------------
Gross investment income:
Fixed maturities:
Available for sale................................... $193.5 $194.1 $170.1
Held to maturity..................................... 45.1 47.1 56.7
Equity securities...................................... 1.2 2.1 3.7
Mortgage loans......................................... 69.0 72.2 74.8
Real estate............................................ 11.4 11.8 13.4
Policy loans and premium notes......................... 23.4 24.0 24.4
Other invested assets.................................. 5.5 4.9 1.2
Short-term investments................................. 3.8 2.0 .3
Other, net............................................. .5 .5 .8
----- ----- -----
353.4 358.7 345.4
Less: investment expenses.............................. (19.5) (21.9) (25.5)
----- ----- -----
Net investment income.................................. $333.9 $336.8 $319.9
===== ===== =====
</TABLE>
4. MORTGAGE LOANS
Impaired mortgage loans and the related reserves are as follows at December
31, 1996 and 1995 (in millions):
<TABLE>
<S> <C> <C>
-------------------------------------------------------------------------------------
1996 1995
-------------------------------------------------------------------------------------
Impaired mortgage loans............................................. $65.5 $67.8
Reserves............................................................ (7.2) (8.7)
----- -----
Net impaired mortgage loans......................................... $58.3 $59.1
===== =====
</TABLE>
F-65
<PAGE> 138
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
4. MORTGAGE LOANS, CONTINUED
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1996 and 1995 is as follows (in millions):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
1996 1995
-------------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1................................................ $16.2 $23.5
Losses charged, net of recoveries................................... (.5) .3
Releases due to foreclosures........................................ (1.3) (7.6)
----- -----
Balance at December 31.............................................. $14.4 $16.2
===== =====
</TABLE>
The average recorded investment in impaired loans was $66.7 million and
$80.0 million during 1996 and 1995, respectively. Interest income recognized on
impaired loans during 1996, 1995 and 1994 was $6.9 million, $7.3 million and
$7.1 million, respectively. All interest income on impaired mortgage loans was
recognized on the cash basis.
5. REAL ESTATE
Real estate holdings are as follows at December 31, 1996 and 1995 (in
millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------
<S> <C> <C>
Occupied by the Company........................................... $38.0 $ 29.4
Foreclosed........................................................ 31.1 42.1
Investment........................................................ 7.7 13.5
----- ------
76.8 85.0
Less: valuation reserves.......................................... (5.4) (10.3)
----- ------
$71.4 $ 74.7
===== ======
</TABLE>
Depreciation expense was $3.2 million, $4.7 million and $5.0 million for
the years ended December 31, 1996, 1995 and 1994, respectively. Accumulated
depreciation for real estate totalled $15.2 million and $15.4 million at
December 31, 1996 and 1995, respectively.
6. BENEFIT PLANS
The Company maintains a funded noncontributory defined benefit pension plan
that covers substantially all of its employees and a funded noncontributory
defined contribution plan that covers substantially all of its agents. The
Company's funding policy is to contribute annually the maximum amount deductible
for Federal income tax purposes.
F-66
<PAGE> 139
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
6. BENEFIT PLANS, CONTINUED
The status of the funded defined benefit pension plan and the amounts
recognized on the balance sheets as of December 31, 1996 and 1995 are as follows
(in millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested......................................................... $ 72.7 $ 74.9
Nonvested...................................................... 2.7 2.7
----- ------
Accumulated benefit obligation.............................. 75.4 77.6
Additional obligation for future salary increases.............. 19.2 21.2
----- ------
Projected benefit obligation................................ 94.6 98.8
Plan assets at fair value........................................ 148.7 141.3
----- ------
Plan assets in excess of projected benefit obligation.......... 54.1 42.5
Unrecognized transition asset.................................. (23.7) (25.9)
Unrecognized prior service cost................................ .5 .5
Unrecognized net (gain) loss................................... (16.4) (4.7)
----- ------
Prepaid pension cost........................................ $ 14.5 $ 12.4
===== ======
</TABLE>
The Company also sponsors several unfunded nonqualified defined benefit
excess benefit, supplemental executive retirement and deferred compensation
plans. The status of these unfunded defined benefit plans and the amounts
recognized on the balance sheets as of December 31, 1996 and 1995 are as follows
(in millions):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested......................................................... $ 8.6 $ 8.3
Nonvested...................................................... 2.9 2.7
----- ------
Accumulated benefit obligation.............................. 11.5 11.0
Additional obligation for future salary increases.............. 5.2 5.9
----- ------
Projected benefit obligation................................ 16.7 16.9
Unrecognized transition obligation............................. 4.2 4.6
Unrecognized prior service cost................................ 3.4 4.0
Unrecognized net loss (gain)................................... 2.7 3.5
Other net...................................................... (5.1) (1.1)
----- ------
Accrued pension cost........................................ $(11.5) $(5.9)
===== ======
</TABLE>
F-67
<PAGE> 140
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
6. BENEFIT PLANS, CONTINUED
The following assumptions were used to determine the projected benefit
obligation at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
1996 1995
----------------------------------------------------------------------------------
<S> <C> <C>
Discount rate...................................................... 7.5% 7.0%
Expected rate of return on assets.................................. 8.0% 9.0%
Rate of increase in salaries:
Deferred compensation plan....................................... N/A N/A
All other plans.................................................. 5.5% 6.0%
</TABLE>
Net periodic pension (benefit) cost included the following components for
the years ended December 31, 1996, 1995 and 1994 (in millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost........................................... $ 4.0 $ 4.2 $ 3.6
Interest cost.......................................... 6.9 8.0 7.0
Expected return on assets.............................. (21.9) (10.8) (9.3)
Net amortization (deferral)............................ 7.3 (1.6) (1.0)
----- ------ -----
Net pension (benefit) cost........................... $ (3.7) $ (.2) $ .3
===== ====== =====
</TABLE>
The Company provides a contributory defined contribution plan qualified
under Section 401(k) of the Internal Revenue Code. The pension cost of the
defined contribution plans was $2.6 million, $2.8 million and $3.1 million for
the years ended December 31, 1996, 1995 and 1994, respectively.
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.
F-68
<PAGE> 141
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
6. BENEFIT PLANS, CONTINUED
The status of the postretirement benefit plans and the amounts recognized
on the balance sheets as of December 31, 1996 and 1995 are as follows (in
millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and surviving spouses................................. $(28.2) $(29.3)
Fully eligible active employees................................ (1.1) (1.1)
Other active employees......................................... (4.9) (5.1)
------ ------
Total....................................................... (34.2) (35.5)
Plan assets at fair value........................................ 7.9 7.3
Accumulated postretirement benefit obligation in excess of plan
assets...................................................... (26.3) (28.2)
Unrecognized amounts:
Net gain....................................................... (12.1) (10.7)
Prior service cost............................................. (.4) (.5)
------ ------
Total....................................................... (12.5) (11.2)
------ ------
Accrued postretirement benefit cost.............................. $(38.8) $(39.4)
====== ======
</TABLE>
The following assumptions were used to determine the projected benefit
obligation at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate........................................................ 7.0% 7.0%
Expected rate of return on assets.................................... 7.5% 7.5%
Rate of increase in salaries......................................... 6.0% 6.0%
</TABLE>
Net periodic postretirement benefit cost included the following components
for the years ended December 31, 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost.................................................. $ .4 $ .4 $ .4
Interest cost................................................. 2.4 2.6 2.5
Expected return on assets..................................... (.5) (.5) (.5)
Net amortization and deferral................................. (.4) (.5) (.3)
---- ---- ----
Net periodic postretirement benefit cost.................... $1.9 $2.0 $2.1
==== ==== ====
</TABLE>
F-69
<PAGE> 142
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
6. BENEFIT PLANS, CONTINUED
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, 1996 by $1.8 million and the estimated
eligibility cost and interest cost components of net periodic postretirement
benefit cost for 1996 by $.1 million.
In January 1991, the Company established a retiree health account under the
provisions of Section 401(h) of the Internal Revenue Code. In December 1996, the
Company transferred $1.6 million of excess assets from the defined benefit
pension plan to pay for 1996 qualified retiree health benefits. An additional
transfer of excess assets in the amount of $1.6 million was made in December
1995 to pay for 1995 qualified retiree health benefits. In December 1994, excess
assets totalling $1.6 million were transferred to pay for 1994 qualified retiree
health benefits.
7. FEDERAL INCOME TAXES
The Company files separate consolidated Federal income tax returns for its
life insurance and non-insurance subsidiaries. Each tax provision is accrued on
a separate company basis. The life company tax provisions include an equity tax.
The provision for Federal income taxes from operations differs from the
normal relationship of Federal income tax to pretax income as follows (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate..................... $ 30.6 $31.3 $20.6
Current year equity tax................................ 8.5 8.0 6.4
True down of prior years' equity tax................... (5.1) -- (6.0)
Tax settlement......................................... (28.3) -- --
Other.................................................. .1 (.2) .9
---- ----- -----
Provision for Federal income tax from operations......... $ 5.8 $39.1 $21.9
==== ===== =====
</TABLE>
In 1996, the Company settled various tax issues with the IRS, including an
issue relating to the tax treatment of certain traditional life insurance policy
updates. As a result of the settlements, the 1996 Federal income tax expense in
the Statement of Operations was decreased by approximately $28.3 million which
includes $15.9 million of interest net of taxes.
Deferred income tax assets and liabilities reflect the income tax effects
of cumulative temporary differences between the reported values of assets and
liabilities for financial statement purposes and
F-70
<PAGE> 143
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
7. FEDERAL INCOME TAXES, CONTINUED
income tax return purposes. Components of the Company's net deferred income tax
liability are as follows at December 31, 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX LIABILITY
Deferred policy acquisition costs................................ $186.5 $172.9
Prepaid pension asset............................................ 5.1 4.4
Net unrealized gain on available for sale securities............. 5.8 18.7
------ ------
Total deferred tax liability................................ 197.4 196.0
------ ------
DEFERRED TAX ASSET
Reserves......................................................... 112.4 105.9
Employee benefit accruals........................................ 14.1 14.3
Invested assets.................................................. 4.3 10.2
Policyholder dividends........................................... 7.9 8.0
Deferred rent.................................................... 2.8 3.0
Other............................................................ 4.9 3.1
------ ------
Total deferred tax asset.................................... 146.4 144.5
------ ------
Net deferred tax liability....................................... $ 51.0 $ 51.5
====== ======
</TABLE>
The Company's Federal income tax returns have been audited through 1992.
All years through 1985 are closed. Years 1986 and 1987 have been audited and are
closed with the exception of 2 issues for which claims for refund have been
filed. Years 1988 through the present remain open. In the opinion of management,
adequate provision has been made for the possible effect of potential
assessments related to prior years' taxes.
8. REINSURANCE
In the normal course of business, the Company assumes risks from and cedes
certain parts of its risks with other insurance companies. The primary purposes
of ceded reinsurance is to limit losses from large exposures. For life
insurance, the Company retains no more than $1,500,000 on any single life. A
portion on individual fixed rate annuity business is also reinsured.
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company would be liable for these
obligations. The Company evaluates the financial condition of its reinsurers and
limits its exposure to any one reinsurer.
F-71
<PAGE> 144
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
8. REINSURANCE, CONTINUED
At December 31, 1996, there were $383.1 million of individual fixed annuity
account values coinsured by the Company, or approximately 31.2% of total
individual fixed annuity account values outstanding.
The tables below highlight the amounts shown in the accompanying financial
statements which are net of reinsurance activity (in millions):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
ASSUMED
GROSS FROM OTHER NET
AMOUNT CEDED TO COMPANIES AMOUNT
OTHER
COMPANIES
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996:
Life insurance in force.................... $37,066.8 $6,559.3 $208.9 $30,716.4
========= ======== ====== =========
Premiums................................... $ 247.8 $ 15.2 $ 3.0 $ 235.6
========= ======== ====== =========
Future policyholder benefits............... $ 530.3 $ 5.1
======== ======
December 31, 1995:
Life insurance in force.................... $24,910.6 $5,829.8 $230.0 $19,310.8
========= ======== ====== =========
Premiums................................... $ 267.3 $ 12.7 $ .9 $ 255.5
========= ======== ====== =========
Future policyholder benefits............... $ 544.5 $ 5.3
======== ======
December 31, 1994:
Life insurance in force.................... $24,276.4 $4,797.8 $247.5 $19,726.1
========= ======== ====== =========
Premiums................................... $ 288.5 $ 13.4 $ 1.3 $ 276.4
========= ======== ====== =========
Future policyholder benefits............... $ 459.3 $ 13.4
======== ======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space, data processing equipment and certain
other equipment under operating leases expiring on various dates between 1997
and 2003. Most of the leases contain renewal and purchase options based on
prevailing fair market values.
F-72
<PAGE> 145
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED
Leases -- continued
Future minimum rent payments required and related sublease rentals
receivable under noncancelable operating leases in effect at December 31, 1996,
and which have initial or remaining terms of one year or more, are summarized as
follows (in millions):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
RENTAL
PAYMENTS SUBLEASE RENTALS
RECEIVABLE
----------------------------------------------------------------------------------------
<S> <C> <C>
YEAR ENDING DECEMBER 31:
1997................................................... $ 14.8 $2.1
1998................................................... 11.9 2.0
1999................................................... 5.5 .3
2000................................................... 3.2 .1
2001................................................... 1.6 --
Thereafter............................................. 1.4 --
----- ----
$ 38.4 $4.5
===== ====
</TABLE>
Total related rent expense was $26.5 million, $17.6 million and $17.4
million in 1996, 1995 and 1994, respectively, which were net of sublease income
of $.5 million in 1996 and $.3 million in each of 1995 and 1994.
During 1995 the Company recorded a charge to operations for certain unused
leased facilities in the amount of $8.9 million, net of anticipated sublease
income.
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 the amount recognized in the statements of financial condition.
At December 31, 1996, the Company had outstanding mortgage loan, real
estate and limited partnership commitments of approximately $20 million. The
mortgage loan commitments, which expire through July 1997, totalled $16.1
million and were issued during 1996 at interest rates consistent with rates
applicable on December 31, 1996. As a result, the fair value of these
commitments approximates the face amount.
F-73
<PAGE> 146
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED
Financial Instruments With Off-Balance-Sheet Risk -- continued
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.
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 162 treasury futures contracts with a dollar value of $17.3 million in 1996,
568 treasury futures contracts with a dollar value of $56.8 million in 1995, and
2,253 treasury futures contracts with a dollar value of $225.3 million in 1994.
The approximate net (losses) gains generated from the hedge positions were $(.3)
million for the year ended December 31, 1996, $(.1) million for the year ended
December 31, 1995 and $1.1 million for the year ended December 31, 1994. There
were 62 open hedge positions at December 31, 1996 with a value of $6.6 million
and a maturity of March 1997. 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 no swaps outstanding as of
December 31, 1996.
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. For bonds, cash collateral
totalling 105% of market value plus accrued interest is required. For equities,
cash collateral totalling 105% of market value is required. There were no
securities lending positions at December 31, 1996.
Investment Portfolio Credit Risk
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1996 and 1995, approximately
$162.2 million and $148.4 million, respectively, in debt security
investments (5.4% and 5.0%, respectively, of the total debt security
portfolio) are considered "below investment grade". Securities are
classified as "below investment grade" primarily by utilizing rating
criteria established by independent bond rating agencies.
Debt security investments with a carrying value at December 31, 1996 of
$4.3 million were non-income producing for the year ended December 31,
1996.
F-74
<PAGE> 147
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- concluded
- --------------------------------------------------------------------------------
9. COMITTMENTS AND CONTINGENCIES, CONTINUED
Investment Portfolio Credit Risk -- continued
Bonds -- continued
The Company had debt security investments in the financial services
industry at both December 31, 1996 and 1995 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, 1996 and 1995, there were no delinquent mortgage loans
(i.e., loans where payments on principal and/or interest are over 90 days
past due).
The Company had loans outstanding in Pennsylvania where principal balances
in the aggregate exceeded 20% of the Company's surplus.
Lines of Credit
The Company has approximately $50 million of available unused lines of
credit at December 31, 1996.
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 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 statements.
Guaranty fund assessments totalled $1.6 million, $2.6 million and $2.5 million
in 1996, 1995 and 1994, respectively. Of those amounts, $.9 million in 1996 and
$1.8 million in each of 1995 and 1994 are creditable against future years'
premium taxes.
F-75
<PAGE> 148
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.
REPRESENTATION OF REASONABLENESS
Provident Mutual Life Insurance Company hereby represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by Provident Mutual Life Insurance Company.
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 52 pages.
The undertaking to file reports.
Rule 484 undertaking.
II-1
<PAGE> 149
Representations pursuant to Rule 6e-3(T).
The signatures.
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 Account1
(b) Resolution adopted by the Board of Directors of PMLIC establishing the
Provident Mutual Variable Aggressive Growth Separate Account2
(c) Resolution adopted by the Board of Directors of PMLIC establishing the
Provident Mutual Variable International Separate Account3
(d) Resolution adopted by the Board of Directors of PMLIC establishing the
Provident Mutual Variable Separate Account4
(2) None
(3) (a) (i) Underwriting Agreement5
(ii) Amendments to Underwriting Agreement2 and 3
(iii) Amendment to Underwriting Agreement4
(b) Selling Agreement between PMLIC, PML and The Wolper Ross Corporation6
(c) Form of Selling Agreement between The Wolper Ross Corporation and
Broker/Dealers7
(d) Amendment to Special Agent's Career Agreement7
(4) None
(5) (a) Individual Flexible Premium Adjustable Variable Life Insurance Policy,
Applications and Waiver of Monthly Deductions and Change of Insured Riders
(Form C122 (return of premium with performance); Form C122(PA) (return of
premium paid))8
(b) Accelerated Death Benefit Rider9
(c) Disability Waiver of Premium Benefit Rider9
(d) Description of Separate Accounts -- Form VLSA4
(e) Supplementary Application for Variable Life Insurance Policy -- Form A57
7.9310
(f) Initial Allocation Schedule -- Form A58 7.934
(6) (a) Charter of PMLIC1
(b) By-Laws of PMLIC11
(7) None
(8) None
(9) (a) The form of Application is contained in the specimen copy of the Individual
Flexible Premium Adjustable Variable Life Insurance Policy (see Exhibit
1.A.(5)
See Exhibit 1.A.(5)
3.A. Consent of M. Diane Koken, Esquire
B. Consent of Sutherland, Asbill & Brennan, L.L.P.
4. None
</TABLE>
II-2
<PAGE> 150
<TABLE>
<S> <C> <C> <C> <C>
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 Redemption9
9. None
10. (a) Participation Agreement among Market Street Fund, Inc., Provident Mutual
Life Insurance Company of Philadelphia and PML Securities Company12
(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.
11. Sponsorship Agreement between PMLIC and MPPFS for Zero Coupon Trust13
27. Financial Data Schedule
</TABLE>
- ---------------
<TABLE>
<C> <S>
1 Incorporated herein by reference to the Registration Statement filed on Form S-6 on
November 4, 1985, (File No. 33-1331).
2 Incorporated herein 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 herein by reference to the Registration Statement filed on Form S-6 on
August 7, 1991, (File No. 33-42133).
4 Incorporated herein 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 herein 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 herein by reference to Post-Effective Amendment No. 1 to the Registration
Statement filed on Form S-6 on March 15, 1991, (File No. 33-38463).
9 Incorporated herein 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).
10 Incorporated herein by reference to Post-Effective Amendment No. 4 to the Registration
Statement filed on Form S-6 on June 21, 1993, (File No. 33-42133).
11 Incorporated herein by reference to the Registration Statement filed on Form S-6 on
December 7, 1989, (File No. 33-32478).
12 Incorporated herein by reference to the Post-Effective Amendment No. 8 to the
Registration Statement filed on Form S-6 on May 1, 1992 (File No. 33-2625).
13 Incorporated herein 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).
</TABLE>
II-3
<PAGE> 151
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 BERWYN AND
COMMONWEALTH OF PENNSYLVANIA ON THE 29TH DAY OF APRIL, 1997.
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY
<TABLE>
<S> <C>
Attest: /s/ M. DIANE KOKEN By: /s/ ROBERT W. KLOSS
--------------------- ---------------------------
ROBERT W. KLOSS
Chief Executive Officer
</TABLE>
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>
/s/ ROBERT W. KLOSS Chief Executive Officer April 29, 1997
- ---------------------------------------- (Principal Executive Officer)
ROBERT W. KLOSS
/s/ MARY LYNN FINELLI Executive Vice President and April 29, 1997
- ---------------------------------------- Chief Financial Officer
MARY LYNN FINELLI (Principal Financial Officer)
/s/ LINDA M. SPRINGER Vice President and Controller April 29, 1997
- ---------------------------------------- (Principal Accounting Officer)
LINDA M. SPRINGER
/s/ DOROTHY M. BROWN Director April 29, 1997
- ----------------------------------------
DOROTHY M. BROWN
/s/ ROBERT J. CASALE Director April 29, 1997
- ----------------------------------------
ROBERT J. CASALE
/s/ NICHOLAS DEBENEDICTUS Director April 29, 1997
- ----------------------------------------
NICHOLAS DEBENEDICTUS
/s/ PHILIP C. HERR, II Director April 29, 1997
- ----------------------------------------
PHILIP C. HERR, II
</TABLE>
II-4
<PAGE> 152
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------------------- --------------------------------- ---------------
<C> <S> <C>
/s/ J. RICHARD JONES Director April 29, 1997
- ----------------------------------------
J. RICHARD JONES
/s/ JOHN A. MILLER Director April 29, 1997
- ----------------------------------------
JOHN A. MILLER
/s/ JOHN P. NEAPSEY Director April 29, 1997
- ----------------------------------------
JOHN P. NEAFSEY
/s/ CHARLES L. ORR Director April 29, 1997
- ----------------------------------------
CHARLES L. ORR
/s/ WILLIAM A. POLLARD Director April 29, 1997
- ----------------------------------------
WILLIAM A. POLLARD
/s/ DONALD A. SCOTT Director April 29, 1997
- ----------------------------------------
DONALD A. SCOTT
/s/ JOHN J. F. SHERRERD Director April 29, 1997
- ----------------------------------------
JOHN J. F. SHERRERD
/s/ HAROLD A. SORGENTI Director April 29, 1997
- ----------------------------------------
HAROLD A. SORGENTI
</TABLE>
II-5
<PAGE> 153
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
Berwyn and Commonwealth of Pennsylvania on the 29th day of April, 1997.
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/ ROBERT W. KLOSS
---------------------------------------
ROBERT W. KLOSS
Chief Executive Officer
Attest: /s/ M. DIANE KOKEN
--------------------------------
II-6
<PAGE> 154
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------- ----
<S> <C> <C>
3.A. Consent of M. Diane Koken, Esquire
B. Consent of Sutherland, Asbill & Brennan, L.L.P.
6. Consent of Scott V. Carney, FSA, MAAA
7. Consent of Coopers & Lybrand L.L.P., Independent Accountants
27. Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3(A)
LOGO
PROVIDENT MUTUAL
1050 WESTLAKES DRIVE, BERWYN, PA 19312-2419
P.O. BOX 1717, VALLEY FORGE, PA 19482-1717
(610) 407-1239, (800) 523-4681, FAX: (610) 407-1379
M. DIANE KOKEN
VICE PRESIDENT & GENERAL COUNSEL
April 28, 1997
Provident Mutual Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
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. 10 to the Registration
Statement on Form S-6 (File No. 33-38463) 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.
Very truly yours,
/s/ M. DIANE KOKEN
-------------------------------
M. Diane Koken
MDK/ja Vice President, General Counsel
& Secretary
A HERITAGE OF STRENGTH FOR TOMORROW'S FINANCIAL NEEDS
<PAGE> 1
EXHIBIT 3.B
SUTHERLAND, ASBILL & BRENNAN
Atlanta - Austin - New York - Washington
1275 PENNSYLVANIA AVENUE, N.W. TEL: (202) 383-0100
WASHINGTON, D.C. 20004-2404 FAX: (202) 637-3593
April 24, 1997
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
Provident Mutual Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
Re: Provident Mutual Life Insurance Company
Provident Mutual Variable Growth Separate Account, et. al.
(File No. 33-38463)
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of post-effective amendment number 10
to the Form S-6 registration statement (File No. 33-38463) for the Provident
Mutual Variable Growth Separate Account, et. al. In giving this consent, we do
not admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: /s/ Stephen E. Roth
------------------------
Stephen E. Roth
<PAGE> 1
EXHIBIT 6
LOGO
PROVIDENT MUTUAL
1050 WESTLAKES DRIVE, BERWYN, PA 19312-2419
TELEPHONE (610) 407-1717, FAX (610) 407-1438
April 28, 1997
Provident Mutual Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
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. 10 to the Registration
Statement on Form S-6 (File No. 33-38463) 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.
Very truly yours,
/s/ SCOTT V. CARNEY
--------------------------
Scott V. Carney, FSA, MAAA
SVC/ja Vice President & Actuary
A HERITAGE OF STRENGTH FOR TOMORROW'S FINANCIAL NEEDS
<PAGE> 1
EXHIBIT 7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Post-Effective Amendment
No. 10 to the Registration Statement under the Securities Act of 1933, as
amended, filed on Form S-6 (File No. 33-38463) 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 14, 1997 on our audits of the financial
statements of Provident Mutual Life Insurance Company and
Subsidiaries as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996.
2. Our report dated February 10, 1997 on our audits of the financial
statements of Provident Mutual Variable Separate Accounts (Growth,
Money Market, Bond, Managed, Aggressive Growth, International,
Zero Coupon Bond and Variable) as of December 31, 1996 and for each
of the three years in the period ended December 31, 1996.
We also consent to the reference to our Firm under the caption
"Experts".
COOPERS & LYBRAND, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 25, 1997
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