<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
REGISTRATION FILE NOS. 33-55470/811-4460
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
POST-EFFECTIVE AMENDMENT NO. 8
FORM S-6
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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)
ADAM SCARAMELLA, ESQ., COUNSEL
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, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of rule 485
Title of Securities Being Registered:
Interests in Flexible Premium Adjustable Survivorship Variable Life Insurance
Policies
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<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
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N-8B-2
ITEM CAPTION IN PROSPECTUS
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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 Legal Proceedings
10(a) and (b) Not Applicable
10(c) and (d) Death Benefit; Transfers; Loan Privileges; Surrender
Privilege; Withdrawal of Net Cash Surrender Value; Free-Look
Privileges; Special Transfer and Conversion Rights
10(e) Payment and Allocation of Premiums
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 Deductions
13(d), (e), (f), and (g) Not Applicable
13(h) Charges Against the Separate Accounts
14 Payment and Allocation of Premiums; Distribution of Policies
15 Payment and Allocation of Premiums
16 The Separate Accounts; The 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
21(c) Not Applicable
22 Not Applicable
23 Officers and Directors of PMLIC
24 Not Applicable
25 PMLIC
26 See Item 13(a), (b), and (c)
27 Provident Mutual Life Insurance Company
</TABLE>
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<TABLE>
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N-8B-2
ITEM CAPTION IN PROSPECTUS
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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
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
44(b) and (c) Not Applicable
45 Not Applicable
46(a) Death Benefit; Policy Account Value
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
PROSPECTUS
FOR
FLEXIBLE PREMIUM
ADJUSTABLE SURVIVORSHIP VARIABLE
LIFE INSURANCE
ISSUED BY
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
SURVIVOR OPTIONSPLUS
15988 5.98
<PAGE> 5
LOGO
PROSPECTUS
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP 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 survivorship
variable life insurance policy (the "Policy") offered by Provident Mutual Life
Insurance Company ("PMLIC"). The primary intended purpose of the Policy is to
provide insurance coverage until the younger insured's Attained Age 100. It is
designed to provide considerable flexibility in connection with premium
payments, investment options, and death benefits. It does so by giving the
Policyowner (the "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 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 or both. The eight Separate
Accounts presently available are: the Provident Mutual Variable Growth, Money
Market, Bond, Managed, Zero Coupon Bond, Aggressive Growth and International
Separate Accounts 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 which 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 twenty-two 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; Variable Insurance Products Fund; Variable Insurance Products
Fund II; American Century Variable Portfolios, Inc.; Van Eck Worldwide Insurance
Trust; and the MS Fund (together, 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 15 Policy Years the Policy lapses or
if the Owner effects a decrease in Face Amount. During the first two Policy
Years the Policy will remain in force as long as the Minimum Guarantee Premium
is paid or the Net Cash Surrender Value is sufficient to pay certain monthly
charges imposed in connection with the Policy. After the second Policy Year,
whether the Policy remains in force depends upon whether the Net Cash Surrender
Value is sufficient to pay the monthly charges under the Policy.
It may not be advantageous to purchase a Policy as a replacement for another
type of life insurance.
------------------------
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, 1998
<PAGE> 6
TABLE OF CONTENTS
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Definitions................................................. 1
Summary Description of the Policy........................... 4
The Policy Offered..................................... 4
Availability of Policy................................. 5
The Death Benefit...................................... 5
Flexibility to Adjust Amount of Death Benefit.......... 5
Policy Account Value................................... 5
Allocation of Net Premiums............................. 6
Transfers.............................................. 6
Free-Look Privilege.................................... 6
Charges Assessed in Connection with the Policy......... 7
Premium Expense Charge............................ 7
Monthly Deductions................................ 7
Surrender Charge.................................. 7
Transfer Charge................................... 7
Partial Withdrawal Charge......................... 8
Daily Charges Against the Separate Accounts....... 8
Table of Fund Fees and Expenses................... 8
Policy Lapse and Reinstatement......................... 10
Loan Privilege......................................... 10
Partial Withdrawal of Net Cash Surrender Value......... 10
Surrender of the Policy................................ 10
Tax Treatment.......................................... 11
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....... 11
Provident Mutual Life Insurance Company................ 11
The Separate Accounts.................................. 11
The Market Street Fund, Inc............................ 12
The Stripped ("Zero") U.S. Treasury Securities Fund,
Provident Mutual Series A............................. 14
The Alger American Fund................................ 15
Variable Insurance Products Fund and Variable Insurance
Products Fund II...................................... 16
VIP Fund.......................................... 16
VIP Fund II....................................... 17
Neuberger & Berman Advisers Management Trust........... 19
Van Eck Worldwide Insurance Trust...................... 20
Termination of Participation Agreement................. 21
Resolving Material Conflicts........................... 22
The Guaranteed Account................................. 22
Detailed Description of Policy Provisions................... 22
Death Benefit.......................................... 22
General........................................... 22
Death Benefit Options............................. 22
Option A..................................... 22
Option B..................................... 23
Which Death Benefit Option to Choose.............. 23
Change in Death Benefit Option.................... 23
How the Death Benefit May Vary.................... 24
Ability to Decrease Face Amount........................ 24
Changes Affecting the Death Benefit.................... 25
How the Duration of the Policy May Vary................ 25
</TABLE>
i
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PAGE
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Policy Account Value................................... 25
Calculation of Policy Account Value............... 26
Determination of Number of Units for the Separate
Accounts........................................ 26
Determination of Unit Value....................... 26
Net Investment Factor............................. 26
Payment and Allocation of Premiums..................... 26
Issuance of a Policy.............................. 26
Amount and Timing of Premiums..................... 27
Premium Limitations............................... 27
Allocation of Net Premiums........................ 28
Transfers......................................... 28
Policy Lapse...................................... 28
Reinstatement..................................... 29
Charges and Deductions...................................... 29
Premium Expense Charge................................. 29
Premium Tax Charge................................ 29
Percent of Premium Sales Charge................... 29
Federal Tax Charge................................ 29
Surrender Charge....................................... 29
Deferred Administrative Charge......................... 30
Deferred Sales Charge............................. 30
Surrender Charge Upon Decrease in Face Amount..... 30
Allocation of Surrender Charge.................... 30
Monthly Deductions..................................... 30
Cost of Insurance................................. 31
Cost of Insurance Rate....................... 31
Premium Class................................ 31
Administrative Charges............................ 31
Initial Administrative Charge................ 31
Monthly Administrative Charge................ 31
Additional Benefit Charges........................ 31
Partial Withdrawal Charge.............................. 32
Transfer Charge........................................ 32
Charges Against the Separate Accounts.................. 32
Mortality and Expense Risk Charge................. 32
Asset Charge Against Zero Coupon Bond Separate
Account......................................... 32
Other Charges.......................................... 32
Contract Rights............................................. 33
Loan Privileges........................................ 33
General........................................... 33
Interest Rate Charged............................. 33
Allocation of Loans and Collateral................ 33
Interest Credited to Loan Account................. 33
Effect of Policy Loan............................. 33
Loan Repayments................................... 33
Lapse With Loans Outstanding...................... 33
Tax Considerations................................ 34
Surrender Privilege.................................... 34
Partial Withdrawal of Net Cash Surrender Value......... 34
Free-Look Privilege.................................... 35
Free-Look for Policy.............................. 35
Special Transfer and Conversion Rights................. 36
Transfer Right for Policy......................... 36
Transfer Right for Change in Investment Policy of
Separate Account or Subaccount.................. 36
</TABLE>
ii
<PAGE> 8
<TABLE>
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Telephone Transfers............................... 36
Automatic Asset Rebalancing....................... 36
The Guaranteed Account...................................... 36
Minimum Guaranteed and Current Interest Rates.......... 37
Calculation of Guaranteed Account Value........... 37
Transfers from Guaranteed Account...................... 37
Other Policy Provisions..................................... 38
Amount Payable on Final Policy Date.................... 38
Payment of Policy Benefits............................. 38
The Contract........................................... 38
Ownership.............................................. 38
Beneficiary............................................ 38
Change of Owner and Beneficiary........................ 38
Split Dollar Arrangements.............................. 39
Assignments............................................ 39
Misstatement of Age and Sex............................ 39
Suicide................................................ 39
Incontestability....................................... 39
Dividends.............................................. 39
Settlement Options..................................... 40
Supplementary Benefits...................................... 40
Disability Waiver Benefit......................... 40
Policy Split Option............................... 40
Change of Insured................................. 40
Four Year Survivorship Term Life Insurance........ 40
Convertible Term Life Insurance................... 40
Guaranteed Minimum Death Benefit.................. 41
Final Policy Date Extension....................... 41
Dollar Cost Averaging............................. 41
Federal Income Tax Considerations........................... 42
Introduction........................................... 42
Tax Status of the Policy............................... 42
Tax Treatment of Policy Benefits....................... 43
In General........................................ 43
Modified Endowment Contracts...................... 43
Distributions from Policies Classified as Modified
Endowment Contracts................................ 44
Distributions from Policies Not Classified as
Modified Endowment Contracts....................... 44
Policy Loan Interest.............................. 44
Investment in the Policy.......................... 44
Multiple Policies................................. 45
Taxation of Policy Split.......................... 45
Other Tax Considerations.......................... 45
Possible Tax Law Changes............................... 45
Charge for PMLIC's Taxes............................... 45
Legal Developments Regarding Unisex Actuarial Tables........ 46
Voting Rights............................................... 46
Changes in Applicable Law, Funding and Otherwise............ 47
Officers and Directors of PMLIC............................. 47
Distribution of Policies.................................... 49
Policy Reports.............................................. 50
Preparing for Year 2000..................................... 50
State Regulation............................................ 50
Legal Proceedings........................................... 51
Experts..................................................... 51
</TABLE>
iii
<PAGE> 9
<TABLE>
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Legal Matters............................................... 51
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>
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> 10
DEFINITIONS
ATTAINED AGE............... For each Insured, such Insured's Issue Age 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
last surviving 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 estate of the last
surviving Insured will be the Beneficiary.
CASH SURRENDER VALUE....... The Policy Account Value minus any applicable
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.
DURATION................... The number of full years the insurance has been in
force, measured from the Policy Date.
FACE AMOUNT................ The Face Amount is shown in the Policy Schedule.
It is equal to the Initial Face Amount minus any
subsequent decreases in such amount (including any
decreases due to changes from Death Benefit Option
B to Option A). The Face Amount is used to
determine the Death Benefit.
FINAL POLICY DATE.......... The Policy Anniversary nearest the younger
Insured's Attained Age 100 at which time the
Policy Account Value, if any, (less any
outstanding Policy loan and accrued interest) will
be paid to the Owner if either 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 shown in the Policy Schedule for
the Policy on the Policy Issue Date. The Initial
Face Amount may be decreased after issue.
INSURANCE PROCEEDS......... The net amount to be paid to the Beneficiary when
the last surviving Insured dies.
INSUREDS................... The persons upon whose lives the Policy is issued.
ISSUE AGES................. The age of each Insured at his or her birthday
nearest the Policy Date. The Issue Ages are stated
in the Policy.
JOINT EQUAL AGE............ An age assigned to the two Insureds which is
actuarially determined by PMLIC based solely on
the Issue Age of each Insured.
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 ANNUAL PREMIUM..... The annual amount which is used to determine the
Minimum Guarantee Premium. This amount is stated
in each Policy.
1
<PAGE> 11
MINIMUM FACE AMOUNT........ The Minimum Face Amount is $200,000 ($225,000 in
New York State) or such amount which PMLIC would
issue under its then current rules.
MINIMUM GUARANTEE
PREMIUM.................... The Minimum Annual Premium multiplied by the
number of months since the Policy Date (including
the current month) divided by 12.
MINIMUM INITIAL PREMIUM.... Equal to the Minimum Annual Premium multiplied by
the following factor for the specified premium
payment mode at issue. Annual -- 1.0;
Semiannual -- 0.50 Quarterly -- 0.25;
Monthly -- 0.167.
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 Monthly Deduction
on the first 12 Policy Processing Days also
includes an 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 Expense 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 Insureds.
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 each Insured for cost of
insurance purposes. The classes are: standard;
nonsmoker; preferred; with extra rating; and
nonsmoker with extra rating.
PREMIUM EXPENSE CHARGE..... The amount deducted from a premium payment which
consists of the Premium Tax Charge and a Percent
of Premium Sales Charge and the Federal Tax
Charge.
2
<PAGE> 12
SURRENDER CHARGE........... The amount deducted from the Policy Account Value
upon lapse or surrender of the Policy during the
first 15 Policy Years (For New York Policies, the
first 12 Policy Years). A pro-rata Surrender
Charge will be deducted upon a decrease in the
Face Amount during the first 15 Policy Years (the
first 12 Policy Years for New York). The Maximum
Surrender Charge is shown in the Policy.
SURRENDER CHARGE
TARGET PREMIUM.......... An amount based on the Initial Face Amount and
Joint Equal Age of the Insureds used solely for
the purpose of calculating the Deferred Sales
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.
3
<PAGE> 13
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 Survivorship 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 Insureds up to Attained Age 100 of
the younger Insured;
(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 deaths of the
Insureds. 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 Death
Benefit is not payable, in whole or in part, at the time of death of the first
of the Insureds to die; it is only payable at the time of death of the last
surviving Insured. There are no changes made to the Policy as a result of the
death of the first Insured to die.
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, 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. During the
first two Policy Years the Policy will not lapse if the Minimum Guarantee
Premium has been paid, even if the Net Cash Surrender Value is insufficient.
After deduction of the Premium Expense 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. ("MS Fund"), a series mutual fund with eleven
separate investment portfolios, each intended to meet different investment
objectives. Provident Mutual Variable Separate Account consists of twenty-two
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; Van Eck Worldwide Insurance Trust; and the MS Fund (together,
the "Funds", each, a "Fund"). The Sub-Account of the Zero Coupon Bond Separate
Account invests in units of a corresponding series of The Stripped ("Zero") U.S.
Treasury Securities Fund, Provident Mutual Series A (Zero Coupon Trust or
Trust). There is no assurance that the investment objectives of a particular
Portfolio or Trust will be met. The Owner bears the entire investment risk of
amounts allocated to the Separate Accounts.
4
<PAGE> 14
A prospective Owner who already has life insurance coverage should consider
whether or not changing or adding to existing coverage would be advantageous.
Generally, it is not advisable to purchase another policy as a replacement for
an existing policy.
AVAILABILITY OF POLICY
This Policy can be issued for two Insureds each between ages 21 and 85 and
with a Joint Equal Age between 25 and 80. The Minimum Face Amount is $200,000.
(For a Policy issued in New York State the minimum Face Amount at issue is
$225,000.) Before issuing a Policy, PMLIC will require that the proposed
Insureds meet certain underwriting standards satisfactory to PMLIC. The premium
classes available for each Insured are Standard, Nonsmoker, with Extra Rating
and Nonsmoker with Extra Rating. (See "Issuance of a Policy," Page 26.)
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 both
Insureds. 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 22.)
FLEXIBILITY TO ADJUST AMOUNT OF DEATH BENEFIT
After the second Policy Year, the Owner has flexibility to adjust the Death
Benefit by changing the Death Benefit Option or by decreasing the Face Amount of
the Policy. (See "Change in Death Benefit Option," Page 24, and "Ability to
Decrease Face Amount," Page 25.) Any decrease in Face Amount must be for at
least $25,000 (or such lesser amount required in a particular state) and cannot
result in a Face Amount less than the Minimum Face Amount available at that
time. PMLIC reserves the right to establish different Minimum Face Amounts for
Policies issued in the future. (Decreases are not permitted for Policies issued
in Virginia.)
Any change in Death Benefit Options or in the Face Amount may affect the
charges under the Policy. 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 lower the 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 26.)
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.
5
<PAGE> 15
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 36.)
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 33.)
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 35) 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. The minimum amount for each transfer is $1,000,
unless a lesser minimum amount is required in a particular jurisdiction.
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 28.)
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 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 Privilege," Page 35.)
6
<PAGE> 16
CHARGES ASSESSED IN CONNECTION WITH THE POLICY
Premium Expense Charge. A Premium Expense Charge will be deducted from
each premium payment. This charge consists of:
(i) Premium Tax Charge for state and local premium taxes based on the
rate for the Insureds' 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 Insureds' residence changes or the applicable law is
changed;
(ii) Percent of Premium Sales Charge which is equal to 5% of the
amount of the premium payment in Policy Years 1 through 10. At the present
time PMLIC does not intend to apply this charge after Policy Year 10, but
reserves the right to do so.
(iii) Federal Tax Charge equal to 1.25% of the amount of the premium
payment. PMLIC reserves the right to change the amount of this charge if
the applicable Federal tax law changes PMLIC's tax burden. (See "Premium
Expense 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 first 12
Policy Processing Days, 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 Issue Age, Sex, Premium Class of
each Insured and Duration and on 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 Issue Age, Sex, Premium
Class of each Insured, the Duration and the "1980 Commissioners Standard
Ordinary Smoker and Nonsmoker Mortality Table." (See "Cost of Insurance," Page
31.) The Monthly Administrative Charge is currently $7.50 plus $.01 per $1,000
of Face Amount; the maximum permissible Monthly Administrative Charge is $12
plus $.03 per $1,000 of Face Amount. (See "Monthly Administrative Charge," Page
31.) The Initial Administrative Charge is $17.50 plus $.11 per $1,000 of Initial
Face Amount, payable on the first 12 Policy Processing Days. (See "Initial
Administrative Charge," Page 31.)
Surrender Charge. A Surrender Charge is imposed if the Policy is
surrendered or lapses at any time before the fifteenth Policy Year (twelfth
Policy Year for New York Policies). The Surrender Charge consists of a Deferred
Administrative Charge and a Deferred Sales Charge. A portion of this Surrender
Charge will be deducted if the Owner decreases the Face Amount before the end of
the fifteenth Policy Year. (See "Surrender Charge," Page 29.)
The Deferred Administrative Charge is equal to $1.50 per $1,000 of Initial
Face Amount in Policy Years 1 to 11 declining by 20% of the original amount each
year in Policy Years 12 to 15 until it is zero in Policy Year 16. (For policies
sold to residents of New York State, this charge is $1.50 per $1,000 of Initial
Face Amount in Policy Years 1 to 8 declining by 20% of the original amount each
year in Policy Years 9 to 12 until it is zero in Policy Year 13.)
The Deferred Sales Charge is equal to 25% of the premiums received during
the first Policy Year up to one Surrender Charge Target Premium plus 4% of all
other premiums received to the date of surrender, lapse or decrease. The
Deferred Sales Charge, however, will not exceed the Maximum Deferred Sales
Charge. For Joint Equal Ages 25 to 71, the Maximum Deferred Sales Charge equals
50% of the Surrender Charge Target Premium, 40% of the relevant Surrender Charge
Target Premium for Joint Equal Ages 72 to 75, and 30% for Joint Equal Ages 76 to
80. The amount of the Maximum Deferred Sales Charge remains level for Policy
Years 1 through 11 (Policy Years 1 through 8 for New York Policies) and declines
by 20% of the original amount each year in Policy Years 12 through 15 (Policy
Years 9 through 12 for New York Policies).
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 32.)
7
<PAGE> 17
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 32.)
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 annual rate which is currently 0.60% of the
average daily net assets of the Separate Accounts. This charge may be increased
in the future but in no event will it exceed an annual rate of 0.90%. (See
"Charges Against the Separate Accounts," Page 32.)
With regard to the Zero Coupon Bond Separate Account, a deduction currently
equivalent to an 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 annual rate of 0.50%. (See "Asset Charge Against
Zero Coupon Bond Separate Account," Page 32.)
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 percentage of average net assets)
Management Fees
(Investment Advisory Fees).......... 0.32% 0.25% 0.35% 0.41% 0.45% 0.75%
Other Expenses........................ 0.11% 0.14% 0.22% 0.17% 0.18% 0.27%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses............ 0.43% 0.39% 0.57% 0.58% 0.63% 1.02%
</TABLE>
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND ANNUAL EXPENSES (as
a percentage of average net assets)
Management Fees (Investment Advisory
Fees)............................... 0.70% 0.70% 0.90% 0.90%
Other Expenses........................ 0.40% 0.40% 0.40% 0.40%
---- ---- ---- ----
Total Fund Annual Expenses............ 1.10% 1.10% 1.30% 1.30%
</TABLE>
<TABLE>
<CAPTION>
SMALL
CAPITALIZATION
PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND ANNUAL EXPENSES(2)
(as a percentage of average net
assets)
Management Fees (Investment Advisory
Fees)............................... 0.85%
Other Expenses........................ 0.04%
----
Total Fund Annual Expenses............ 0.89%
</TABLE>
<TABLE>
<CAPTION>
HIGH EQUITY
INCOME INCOME GROWTH OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND ("VIP
FUND") ANNUAL EXPENSES(2)
(as a percentage of average net
assets)
Management Fees (Investment Advisory
Fees)............................... 0.59% 0.49% 0.60% 0.74%
Other Expenses (after
reimbursement)(1)................... 0.12% 0.08% 0.07% 0.16%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................... 0.71% 0.57% 0.67% 0.90%
</TABLE>
8
<PAGE> 18
<TABLE>
<CAPTION>
ASSET INDEX INVESTMENT
MANAGER 500 GRADE BOND CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND II
("VIP FUND") ANNUAL EXPENSES(2)
(as a percentage of average net
assets)
Management Fees (Investment Advisory
Fees)............................... 0.55% 0.28% 0.44% 0.59%
Other Expenses (after
reimbursement)(1)................... 0.09% 0.00% 0.14% 0.09%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................... 0.64% 0.28% 0.58% 0.68%
</TABLE>
<TABLE>
<CAPTION>
LIMITED
MATURITY
BOND PARTNERS
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
NEUBERGER & BERMAN ADVISERS MANAGEMENT
TRUST ANNUAL EXPENSES(2) (as a
percentage of average net assets)
Management Fees (Investment Advisory
Fees)............................... 0.65% 0.80%
Other Expenses........................ 0.12% 0.06%
---- ----
Total Fund Annual Expenses............ 0.77% 0.86%
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
WORLDWIDE HARD EMERGING REAL
BOND ASSETS MARKETS ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE TRUST
ANNUAL EXPENSES(2) (as a percentage
of average net assets)
Management Fees (Investment Advisory
Fees)............................... 1.00% 1.00% 1.00% 1.00%
Other Expenses (after
reimbursement)(1)................... 0.12% 0.17% 0.00% 0.17%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................... 1.12% 1.17% 1.00% 1.17%
</TABLE>
<TABLE>
<CAPTION>
ZERO
COUPON
2006
PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
MERRILL LYNCH ZERO UST SECURITIES FUND
ANNUAL EXPENSES(2) (as a percentage
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 1997. It is
anticipated that expense reimbursement and fee waiver arrangements will
continue past the current year. Absent the expense reimbursement, the 1997
Other Expenses and Total Annual Expenses would have been 0.09%, 0.58%,
respectively, for the VIP Fund Equity Income Portfolio, 0.09%, 0.69%,
respectively, for the VIP Fund Growth Portfolio, 0.17%, 0.91%, respectively,
for the VIP II Fund Overseas Portfolio, 0.10%, 0.65%, respectively, for the
VIP II Fund Asset Manager Portfolio, 0.13%, 0.40%, respectively, for the VIP
II Fund Index 500 Portfolio, 0.11%, 0.71%, respectively, for the VIP II Fund
Contrafund Portfolio, and 0.18%, 1.18%, respectively, for the Van Eck
Worldwide Hard Assets 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 1997 for these
Portfolios because the level of actual expenses and fees
9
<PAGE> 19
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 VIP Fund, the VIP II Fund, the Neuberger
& Berman ATM Fund, the Van Eck WIT Fund and the Merrill Lynch Zero Coupon
Fund are not affiliated with PMLIC.
POLICY LAPSE AND REINSTATEMENT
During the first two Policy Years, the Policy will lapse if the Minimum
Guarantee Premium has not been paid and 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. After the second Policy Year the Policy
will lapse if the Net Cash Surrender Value is insufficient and the Grace Period
lapses 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 28.)
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 $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 6% per year, 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 33.)
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 43.)
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 34.)
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, accrued interest and any applicable
surrender charges. (See "Surrender Privilege," Page 34.)
10
<PAGE> 20
TAX TREATMENT
Under current federal tax law, life insurance contracts receive tax-favored
treatment. The death benefit is generally excludable from the beneficiary's
gross income for federal income tax purposes, according to Section 101(a)(1) of
the Internal Revenue Code. Owners of a life insurance contract are not taxed on
any increase in the cash value while the contract remains in force.
If a life insurance contract is a modified endowment contract under federal
tax law, certain distributions made during either insured's lifetime, such as
loans and partial withdrawals from, and collateral assignments of, the contract
are includable in gross income on an income-first basis. A 10% penalty tax may
also be imposed on distributions made before the contract owner attains age
59 1/2. Life insurance contracts that are not modified endowment contracts under
federal tax law receive preferential tax treatment with respect to certain
distributions.
For a discussion of the tax issues associated with this Policy, see
"Federal Income Tax Considerations" on page 42.
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.
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,
1997, PMLIC's assets were over $7.9 billion. (See "Financial Statements," Page
F-1.)
PMLIC is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
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.
11
<PAGE> 21
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, International,
and Variable 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 eleven "series" or classes of shares, each of which represents
an interest in a separate portfolio within the MS Fund. Shares of the Growth,
Money Market, Bond, Managed, Aggressive Growth, International, All Pro Large Cap
Growth, All Pro Large Cap Value, All Pro Small Cap Growth, and All Pro Small Cap
Value Portfolios currently are purchased and redeemed by the corresponding
Separate Account or subaccount of the Variable 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 and variable annuity contracts issued by PMLIC and by Providentmutual Life
and Annuity Company of America ("PLACA"), 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 will monitor events in order
to identify any material irreconcilable 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.
12
<PAGE> 22
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.
All Pro Large Cap Growth Portfolio. The All Pro Large Cap Growth Portfolio
seeks to achieve long-term capital appreciation. The Portfolio pursues its
objective by investing primarily in common stock and other equity securities of
companies among the 750 largest by market capitalization at the time of
purchase, which the Advisers believe show potential for growth in future
earnings.
All Pro Small Cap Growth Portfolio. The All Pro Small Cap Growth Portfolio
seeks to achieve long-term capital appreciation. The Portfolio pursues its
objective by investing primarily in common stock and other equity securities of
companies that rank between 751 and 1,750 in size measured by market
capitalization at the time of purchase, which the Advisers believe show
potential for growth in future earnings.
All Pro Large Cap Value Portfolio. The All Pro Large Cap Value Portfolio
seeks to provide long-term capital appreciation. The Portfolio attempts to
achieve this objective by investing primarily in undervalued common stock and
other equity securities of companies among the 750 largest by market
capitalizations at the time of purchase that the Advisers believe offer
above-average potential for growth in future earnings.
All Pro Small Cap Value Portfolio. The All Pro Small Cap Value Portfolio
seeks to provide long-term capital appreciation. The Portfolio pursues this
objective by investing primarily in undervalued common stock and other equity
securities of companies that rank between 751 and 1,750 in size measured by
market capitalization at the time of purchase, which the Advisers believe offer
above-average potential for growth in future earnings.
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, SAC 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
Providentmutual Investment Management Company ("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, with a minimum
of $20,000 per year.
With respect to the All Pro Portfolios, the MS Fund is advised by PIMC. As
compensation for its services, PIMC receives .70% of the daily net assets of the
All Pro Large Cap Growth and All Pro Large Cap
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Value Portfolios, and .90% of the daily net assets of the All Pro Small Cap
Growth and All Pro Small Cap Value Portfolios. PIMC uses a "manager of managers"
approach for the All Pro Portfolios under which PIMC allocates each Portfolio's
assets among one or more "specialist" investment sub-advisers.
Additionally, PIMC has retained Wilshire Associates Incorporated
("Wilshire") to assist it in identifying potential sub-advisers and performing
the quantitative analysis necessary to assess such sub-advisers' styles and
performance. As compensation for these services, PIMC pays Wilshire from its
investment advisory fees, .05% of the average daily net assets of the All Pro
Portfolios.
All Pro Large Cap Growth. As of the date of this prospectus, the assets of
the All Pro Large Cap Growth Portfolio are managed in part by Cohen,
Klingenstein & Marks, Inc. ("CKM"); in part by Geewax, Terker & Co. ("Geewax");
and in part by Oak Associates, Ltd. ("Oak"); pursuant to separate investment
sub-advisory agreements. As compensation for their services PIMC pays from its
investment advisory fees the following percentages of the daily net assets of
the Portfolio: CKM -- .35%; Geewax -- .30%; Oak -- .35%.
All Pro Small Cap Growth. As of the date of this prospectus, the assets of
the All Pro Small Cap Growth Portfolio are managed in part by Standish, Ayer &
Wood ("SAW"), and in part by Husic Capital Management ("Husic"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: SAW -- .50%; Husic -- .50%.
All Pro Large Cap Value. As of the date of this prospectus, the assets of
the All Pro Large Cap Value Portfolio are managed in part by Equinox Capital
Management, Inc. ("Equinox"); in part by Harris Associates, Inc. ("Harris"); and
in part by Mellon Equity Associates ("Mellon"), pursuant to separate investment
sub-advisory agreements. As compensation for their services PIMC pays from its
investment advisory fees the following percentages of the daily net assets of
the Portfolio: Equinox -- .30% of the first $50 million of assets and .25% of
the remaining assets; Harris -- .65% of the first $50 million of assets, .60% of
the next $50 million of assets and .55% of the remaining assets; Mellon -- .30%.
All Pro Small Cap Value. As of the date of this prospectus, the assets of
the All Pro Small Cap Value Portfolio are managed in part by 1838 Investment
Advisors ("1838") and in part by Denver Investment Advisors ("DIA"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: 1838 -- .55%; DIA -- .75% of the first $25
million of assets and .65% on the remaining assets.
In addition to the fee for the investment advisory services, the MS Fund
pays its own expenses generally, including brokerage costs, administrative
costs, custodian costs, and legal, accounting and printing costs. However, PMLIC
has entered into an agreement with the MS Fund whereby it will reimburse the MS
Fund for all ordinary operating expenses, excluding advisory fees, in excess of
an annual rate of 0.40% of the average daily net assets of each portfolio except
the International Portfolio, and 0.75% for the International Portfolio. It is
anticipated that this agreement will continue; if it is terminated, MS Fund
expenses may increase.
A more extensive description of the MS Fund, its investment objectives and
policies, its risks, expenses, and all other aspects of its operation is
contained in the Prospectus for the MS Fund, which accompanies this Prospectus.
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND, PROVIDENT MUTUAL SERIES A
The Zero Coupon Bond Separate Account invests in units of The Stripped
("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A, a unit
investment trust registered with the SEC as such under the 1940 Act. The Zero
Coupon Trust consists of one series with a maturity date of February 15, 2006.
The objective of the Trust is to provide safety of capital and a high yield to
maturity through investment in 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. Since the U.S. Treasury securities have been stripped of their
unmatured interest coupons, they are purchased at a deep discount. The
securities purchased by the Trust are listed below.
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<PAGE> 24
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 32, 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 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 30) or the Premium Tax Charge (see "Premium Tax
Charge," Page 29) or any Surrender Charges (see "Surrender Charges," Page 39),
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.
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 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 32.)
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.
More detailed information may be found in the current Prospectus for The
Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A which
accompanies this Prospectus.
THE ALGER AMERICAN FUND
Provident Mutual Variable Separate Account ("Variable Account") has one
Subaccount that 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.
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<PAGE> 25
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.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
The Variable Account has eight Subaccounts that 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 II Fund"). Like the MS
Fund, the VIP Fund and the VIP II Fund 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 VIP Equity-Income Portfolio, VIP Growth Portfolio, VIP
High Income Portfolio and VIP Overseas Portfolio, respectively, of the VIP Fund.
The 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 VIP II Asset Manager Portfolio, VIP II
Contrafund Subaccount, the VIP II Index 500 Portfolio and the VIP II Investment
Grade Bond Portfolio, respectively, of the VIP II Fund. (The VIP Fund and VIP II
Fund 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 II Fund 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
VIP Equity-Income Portfolio. This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the VIP Equity-Income Portfolio considers the potential for capital
appreciation. The Portfolio's goal is to achieve a yield which exceeds the
composite yield of the securities comprising the Standard and Poor's 500
Composite Stock Price Index.
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VIP Growth Portfolio. This Portfolio seeks to achieve capital
appreciation. The VIP Growth Portfolio normally purchases common stocks,
although its investments are not restricted to any one type of security. Capital
appreciation may also be found in other types of securities, including bonds and
preferred stocks.
VIP 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.
VIP Overseas Portfolio. This Portfolio seeks long term growth of capital
primarily through investments in foreign securities. The VIP Overseas Portfolio
provides a means for diversification by participating in companies and economies
outside of the United States.
VIP II Fund
VIP 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 money market instruments.
VIP II Contrafund Portfolio. This Portfolio seeks capital appreciation by
investing in securities of companies where value is not fully recognised by the
public.
VIP II 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 a broad range of common stocks publicly traded in the
United States. In seeking this objective, the VIP II 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.
VIP II 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 VIP Equity-Income, VIP Growth, VIP High Income, and VIP Overseas
Portfolios of the VIP Fund and the VIP II Asset Manager, VIP II Contrafund, VIP
II Index 500 and VIP II Investment Grade Bond Portfolios of the VIP II Fund are
managed by Fidelity Management & Research Company ("FMR"). For managing its
investments and business affairs, each Portfolio pays FMR a monthly fee.
For the VIP Equity-Income, VIP Growth, VIP Overseas Contrafund and VIP II
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 VIP Equity-Income
Portfolio, 0.30% for the VIP Contrafund, VIP Growth and VIP II Asset
Manager Portfolios and 0.45% for the VIP 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 VIP II 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 VIP High Income and VIP II 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 0.45% for the VIP High Income Portfolio
and 0.30% for the VIP II 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.
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<PAGE> 27
On behalf of the VIP II Asset Manager Portfolio and the VIP II
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 VIP 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.
- 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,
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<PAGE> 28
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 VIP Equity-Income
and VIP Growth Portfolios, 1.25% of the average net assets of the VIP II Asset
Manager Portfolio and 0.28% of the average net assets of the VIP II Index 500
Portfolio.
A more extensive description of the VIP Fund and the VIP II Fund, 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 II Fund which accompany this Prospectus. You should note that
the VIP Fund and VIP II Fund 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 two subaccounts that invest exclusively in shares
of Portfolios of the Neuberger & Berman Advisers Management Trust ("AMT") for
new business. 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 Limited Maturity Bond Subaccount and Neuberger &
Berman Partners Subaccount of the Variable Account invest in shares of the
Limited Maturity Bond Portfolio and Partners 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 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 objectives of the Portfolios of AMT in which the Subaccounts invest
are set forth below. 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.
Limited Maturity Bond Portfolio. The Series corresponding to this
Portfolio seeks the highest current income consistent with low risk to principal
and liquidity and secondarily, total return, through investment in short to
intermediate term debt securities, primarily investment grade.
Partners Portfolio. The series corresponding to this Portfolio seeks
capital growth through investment in common stocks and other equity securities
of medium to large capitalization established companies.
The Investment Adviser for the Series of Managers Trust corresponding to
the Limited Maturity Bond and Partners Portfolios of AMT is Neuberger & Berman
Management, Incorporated ("N & B Managers"). As compensation for its services, N
& B Management receives a monthly fee from AMT at the following percentages of
daily net assets of the corresponding Portfolio: Limited Maturity Bond
Portfolio -- 0.25% of first $500 million, 0.225% of next $500 million, 0.20% of
next $500 million, 0.175% of next $500 million and 0.15% of over $2 billion;
Partners Portfolio -- 0.55% of first $250 million, 0.525% of next $250 million,
0.50% of next $250 million, 0.475% of next $250 million, 0.45% of next $500
million, and 0.425% of over $1.5 billion.
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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 Limited Maturity Bond and
Partners Portfolios of AMT which accompany this Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
The Variable Account has four Subaccounts that 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, Van Eck
Worldwide Emerging Markets, and Van Eck Worldwide Real Estate Portfolios of the
Variable Account invest in shares of the Van Eck Worldwide Bond, Van Eck
Worldwide Hard Assets, Van Eck Worldwide Emerging Markets, and Van Eck Worldwide
Real Estate Portfolios, respectively, of the Van Eck Trust. Shares of the Van
Eck Worldwide Bonds, Van Eck Worldwide Hard Assets, Van Eck Worldwide Emerging
Markets, and Van Eck Worldwide Real Estate 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 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 globally, primarily in "Hard Assets Securities." Hard
Assets Securities include equity securities of Hard Asset Companies and
securities, including structured notes, whose value is linked to the price of a
Hard Asset commodity or a commodity index. Hard Asset Companies include
companies that are directly or indirectly engaged to a significant extent in the
exploration, development, production or distribution of one or more of the
following (together, Hard Assets); (i) precious metals, (ii) ferrous and
non-ferrous metals, (iii) gas, petroleum, pretochemicals 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.
Van Eck Worldwide Real Estate Portfolio seeks to maximize total return by
investing primarily in equity securities of domestic and foreign companies which
are principally engaged in the real estate industry or which own significant
real estate assets.
The investment adviser for the Van Eck Worldwide Hard Assets, Van Eck
Worldwide Bond and Van Eck Worldwide Real Estate Portfolios is Van Eck
Associates Corporation ("Van Eck Associates"). The investment adviser for the
Van Eck Worldwide Emerging Markets Portfolio is Van Eck Global Asset Management
(Asia) Limited, a wholly-owned investment adviser subsidiary of Van Eck
Associates. As 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 and Van Eck Worldwide Real Estate Portfolios, Van Eck
Associates or its affiliate receives a monthly fee at an annual rate of 1.00% of
the Portfolio's average daily net assets.
A more extensive description of Van Eck Trust, Van Eck Worldwide Hard
Assets Portfolio, Van Eck Worldwide Bond Portfolio, Van Eck Worldwide Emerging
Markets Portfolio and Van Eck Worldwide Real
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Estate 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.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Trust
provides for termination 1) by PMLIC, Van Eck Trust or Van Eck Trust's
distributor 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 or such law precludes the use of Trust
shares, 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) by PMLIC if a Portfolio fails to meet the
diversification and other requirements of the Internal Revenue Code, or
PMLIC reasonably believes it may fail to do so, 5) 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
which 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
21
<PAGE> 31
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 MS Fund, Alger American, VIP Fund, VIP Fund II, AMT, and Van Eck Trust
are used as investment vehicles for variable life insurance policies and
variable annuity contracts issued by PMLIC and PLACA, as well as registered
separate accounts of other insurance companies offering variable life and
annuity contracts. 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.
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 death of both Insureds (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 23.
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 last surviving Insured's date of death multiplied by the
specified percentage shown in the table below:
<TABLE>
<CAPTION>
ATTAINED AGE OF ATTAINED AGE OF
YOUNGER INSURED PERCENTAGE YOUNGER INSURED PERCENTAGE
- --------------- ---------- --------------- ----------
<S> <C> <C> <C>
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 through 99 100%
</TABLE>
For Attained Ages not shown, the percentages will decrease by a ratable portion
for each full year.
22
<PAGE> 32
Illustration of Option A -- For purposes of this illustration, assume that
the younger Insured is under Attained Age 40 and there is no Policy loan
outstanding.
Under Option A, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000. The specified percentage for a policy with a
younger 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 $80,000 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 policy with a 35 year old younger Insured and a Policy Account
Value of $150,000 will have a Death Benefit of $375,000 (2.50 X $150,000); 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 $80,000, 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 last surviving Insured's date of death.)
Illustration of Option B -- For purposes of this illustration, assume that
the younger Insured is under Attained Age 40 and there is no outstanding Policy
loan.
Under Option B, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000 plus the Policy Account Value. Thus, for example, a
Policy with a $50,000 Policy Account Value will have a Death Benefit of $250,000
($200,000 plus $50,000); and a Policy Account Value of $100,000 will yield a
Death Benefit of $300,000. 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 $133,333, 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 $133,333 will increase the Death Benefit by
$2.50. A Policy with a Policy Account Value of $150,000 will therefore have a
Death Benefit of $375,000 (2.50 X $150,000); a Policy Account Value of $300,000
will yield a Death Benefit of $750,000 (2.50 X $300,000); 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 $133,333, 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 Insureds' 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 second 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
23
<PAGE> 33
that date. However, this change may not be made if it would reduce the Face
Amount to less than the Minimum Face Amount for Policies being issued at that
time.
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 $500,000 and a Policy Account Value
of $100,000 and, therefore, a Death Benefit of $500,000 and a Net Amount at Risk
of $400,000 ($500,000 - $100,000). If the Death Benefit Option is changed from
Option A to Option B, the Face Amount will decrease from $500,000 to $400,000
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.
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 43).
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 DECREASE FACE AMOUNT
Subject to certain limitations, an Owner may generally, at any time after
the second Policy Year, decrease the Policy's Face Amount by submitting a
written application to PMLIC. (Decreases are not permitted for policies issued
in Virginia.) The effective date of the decrease will be the Policy Processing
Day on or next following PMLIC's approval of the request. An increase or
decrease in Face Amount may have tax consequences (See "Tax Treatment of Policy
Benefits," Page 43). The effect of a decrease in Face Amount on Policy charges,
as well as other considerations, are described below. Decreases in Face Amount
may not be made within 12 months of a previous decrease.
The amount of a Face Amount decrease must be for at least $25,000 (or such
lesser amount required in a particular state). The Face Amount after any
decrease may not be less than the Minimum Face Amount for Policies being issued
at the time of the decrease. 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
24
<PAGE> 34
surrender charge as of the Policy Processing Day on which the decrease becomes
effective. (See "Surrender Charge Upon Decrease in Face Amount," Page 30).
Any surrender charge applicable to a decrease will be deducted from the
Policy Account Value. 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. The remaining
Surrender Charge will equal the charge prior to the decrease less the charge
deducted in connection with such decrease.
CHANGES AFFECTING THE DEATH BENEFIT
Owner may 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.
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 28).
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. Notwithstanding the foregoing,
during the first two Policy Years the Policy will not lapse if the Minimum
Guarantee Premium has been paid. 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 Policy Account Value
minus any applicable 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,
25
<PAGE> 35
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 36); plus
(3) The value attributable to the Policy in the Loan Account. (See
"Loan Privileges," Page 33).
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, the proposed insureds
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 Face Amount of a Policy
under PMLIC's rules is currently $200,000 ($225,000 in New York State). PMLIC
reserves the right to revise its rules from time to time to specify a different
Minimum Face Amount for subsequently issued policies. A Policy will be issued
only to Insureds who individually have an Issue Age of 21 to 85 and a Joint
Equal Age of 25 to 80 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 49.)
At the time the applications for the Policy are signed, the applicants 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
26
<PAGE> 36
Premium with the Application. The Minimum Initial Premium will equal the Minimum
Annual Premium multiplied by the following factor:
<TABLE>
<CAPTION>
PREMIUM BILLING MODE
SELECTED AT ISSUE FACTOR
-------------------- ------
<S> <C>
Annual.................................... 1.000
Semi-annual............................... 0.500
Quarterly................................. 0.250
Monthly................................... 0.167
</TABLE>
The amount of temporary coverage is the lesser of the Face Amount applied
for or $500,000. This coverage will end on the earliest of: (a) the 90th day
from the date of application; (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.
Where Minimum Initial Premium is not submitted with the application, it
must be submitted when the Policy is delivered.
Amount and Timing of Premiums. Each premium payment must be for at least
$25. 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, the 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 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 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.
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).
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 42).
27
<PAGE> 37
Unless the Insureds provide satisfactory evidence of insurability, PMLIC
reserves the right to limit the amount of any premium payment if it increases
the Death Benefit more than it increases the Policy Account Value.
Allocation of Net Premiums. The Net Premium equals the premium paid less
the Premium Expense 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 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 35) 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 Sub-Account) 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
38).
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. During the first two
Policy Years, the Policy will not lapse if the Minimum Guarantee Premium has
been paid.
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<PAGE> 38
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 equal to three 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 Policy Date by
submitting evidence of insurability satisfactory to PMLIC for both Insureds or
evidence for the last surviving Insured and due proof that the first death
occurred before the date of lapse. 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, is
also required. 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. In the event that
there are any profits from fees and charges deducted under the Policy, including
but not limited to mortality and expense risk charges, such profits could be
used to finance the distribution of the contracts.
PREMIUM EXPENSE CHARGE
Prior to allocation of Net Premiums, premiums paid are reduced by a Premium
Expense Charge which consists of a Premium Tax Charge, a Percent of Premium
Charge and a Federal Tax Charge.
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 Insureds' residence.
Percent of Premium Sales Charge. In Policy Years 1 to 10, 5% will be
deducted from each premium payment to partially compensate PMLIC for the cost of
selling the Policy. At the present time, PMLIC does not intend to apply this
charge to premiums paid after Policy Year 10, but reserves the right to do so.
Federal Tax Charge. PMLIC will deduct 1.25% from each premium payment to
cover the cost of Federal taxes resulting from its receipt of such premium
payment under the Policy. Section 848 of the Internal Revenue Code (enacted by
the Omnibus Budget Reconciliation Act of 1990) ties PMLIC's corporate tax
liability (i.e., "tax burden"), in part, to the receipt of such premium
payments. PMLIC represents that this charge is reasonable in relation to its
increased tax burden under Section 848 of the Code. In addition, PMLIC reserves
the right to change the amount of this charge if the applicable Federal tax law
changes PMLIC's tax burden.
SURRENDER CHARGE
A Surrender Charge, which consists of a Deferred Administrative Charge and
a Deferred Sales Charge, is imposed if the Policy is surrendered or lapses at
any time before the end of the fifteenth Policy Year. For Policies sold to
residents of New York State, the Surrender Charge applies during the first 12
Policy Years. A portion of this Surrender Charge will be deducted if the Owner
decreases the Initial Face Amount before the end of the fifteenth Policy Year
(12 Policy Years for New York Policies).
The Surrender Charge is designed partially to compensate PMLIC for the cost
of administering and selling the Policy, including agent sales commissions, the
cost of printing the prospectuses and sales literature,
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<PAGE> 39
and any advertising and underwriting costs. PMLIC does not expect the surrender
charge 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.
Deferred Administrative Charge. The Deferred Administrative Charge is as
follows:
<TABLE>
<CAPTION>
FOR NEW YORK POLICIES
---------------------------------------------
CHARGE PER CHARGE PER
POLICY YEAR $1,000 OF INITIAL FACE AMOUNT POLICY YEAR $1,000 OF INITIAL FACE AMOUNT
- ----------- ----------------------------- ----------- -----------------------------
<S> <C> <C> <C>
1-11 $1.50 1-8 $1.50
12 1.20 9 1.20
13 .90 10 .90
14 .60 11 .60
15 .30 12 .30
16 and after 0 13 and after 0
</TABLE>
The actual Deferred Administrative Charge will be the charge described
above less the amount of any Deferred Administrative Charge previously paid at
the time of a decrease in Face Amount.
Deferred Sales Charge. The Deferred Sales Charge will not exceed the
Maximum Deferred Sales Charge specified in the Policy. During Policy Years 1
through 11 (Policy Years 1 through 8 for New York), this maximum equals: for
Joint Equal Ages 25 through 71, 50% of the Surrender Charge Target Premium for
the Face Amount; for Joint Equal Ages 72 through 75, 40% of the Surrender Charge
Target Premium; and for Joint Equal Ages 76 through 80, 30% of the Surrender
Charge Target Premium. The Maximum Deferred Sales Surrender Charge decreases by
20% of the original amount each year in Policy Years 12 through 15 (Policy Years
9 through 12 for New York).
<TABLE>
<CAPTION>
FOR NEW YORK POLICIES
POLICY YEAR POLICY YEAR
------------------------------------------------ -----------------------------------------------
JOINT EQUAL AGES 1-11 12 13 14 15 16 AND AFTER 1-8 9 10 11 12 13 AND AFTER
---------------- ---- --- --- --- --- ------------ --- --- --- --- --- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25-71 50% 40% 30% 20% 10% 0 50% 40% 30% 20% 10% 0
72-75 40 32 24 16 8 0 40 32 24 16 8 0
76-80 30 24 18 12 6 0 30 24 18 12 6 0
</TABLE>
The Deferred Sales Charge actually imposed will equal the lesser of this maximum
and an amount equal to 25% of the premiums actually received during the first
Policy Year up to one Surrender Charge Target Premium plus 4% of all other
premiums paid to the date of surrender or lapse, less any Deferred Sales Charge
previously paid at the time of a decrease in Face Amount.
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. The fraction will be determined by dividing the amount of the
decrease by the Face Amount immediately prior to the decrease and multiplying
the result by the Surrender Charge.
Allocation of Surrender Charge. 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
30
<PAGE> 40
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 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. In calculating the cost of
insurance charge, the rate is applied to the Net Amount at Risk. 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
Issue Age, Sex and Premium Class of each Insured and Duration. 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 Issue Age, Sex, Premium Classes of
each Insured, the Duration, and the 1980 Commissioners Standard Ordinary
Smoker/Nonsmoker Mortality Table. Any change in the cost of insurance rates will
apply to all pairs of Insureds with the same Issue Ages, Sexes, and Premium
Classes and Duration.
Premium Class. The Premium Classes of the Insureds 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, Insureds in the standard class will have a lower cost of
insurance than Insureds in a class with extra ratings. The Standard Premium
Class is divided into three categories: smoker, nonsmoker and preferred.
Nonsmoking Insureds will generally incur lower cost of insurance rates than
Insureds who are classified as smokers in the same Premium Class. Preferred
Insureds will generally incur lower cost of insurance rates than Insureds who
are classified as nonsmokers.
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. An Initial Administrative Charge of $17.50
plus $0.11 per $1,000 of Initial Face Amount will be deducted from the Policy
Account Value on each of the first 12 Policy Processing Days as part of the
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
$7.50 plus $0.01 per $1,000 of Face Amount) 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 $12 plus $0.03 per $1,000 of Face Amount 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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<PAGE> 41
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 0.60% (or a daily rate of .001644%) of the
average daily net assets of each Separate Account. This charge may be increased,
but in no event will it be greater than an annual rate of 0.90% 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
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 annual rate of 0.50%.
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.
32
<PAGE> 42
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 $500 (or such lesser minimum required in a
particular state) but not exceeding the Policy's Net Cash Surrender Value on the
date of the loan. While either 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 6% per year. 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 Sub-accounts) 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 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. Unless prohibited by a particular state, 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 25 and "Policy Lapse," Page 28.) In addition, if the
Policy is not a Modified Endowment Policy,
33
<PAGE> 43
lapse of the Policy with outstanding loans may result in adverse tax
consequences. (See "Tax Treatment of Policy Benefits," Page 43.)
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 44).
SURRENDER PRIVILEGE
After the first Policy Year, at any time before the earlier of the death of
the last surviving 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 43).
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
At any time before the earlier of the death of the last surviving 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
Partial Withdrawal Charge will be deducted from the Policy Account Value (See
"Partial Withdrawal Charge," Page 32). A partial withdrawal will not result in
the imposition of Surrender Charges. (See "Surrender Charge," Page 29.)
The amount of the partial withdrawal and the Partial Withdrawal 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 22.)
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.
For the purposes of this illustration (and the following illustrations
of partial withdrawals), assume that the Attained Age of the younger
Insured is under 40 and there is no indebtedness. The applicable percentage
is 250% for a younger Insured with an Attained Age under 40.
Under Option A, a contract with a Face Amount of $300,000 and a Policy
Account Value of $30,000 will have a Death Benefit of $300,000. Assume that
the policyowner takes a partial withdrawal of $10,000. The partial
withdrawal will reduce the Policy Account Value to $19,975
($30,000 - $10,000 - $25) and the Death Benefit and Face Amount to $290,000
($300,000 - $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 $300,000 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
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<PAGE> 44
$49,975. The partial withdrawal will reduce the Policy Account Value to
$250,000 ($300,000 - $49,975 - $25) and the Face Amount to $250,025
($300,000 - $49,975). The Death Benefit is the greater of (a) the Face
Amount of $250,025 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 $300,000 and a Policy
Account Value of $90,000 will have a Death Benefit of $390,000
($300,000 + $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 $369,975
($300,000 + $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 $300,000 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 $450,000
($300,000 + $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 $450,000. The Face Amount is
unchanged.
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 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 43).
FREE-LOOK PRIVILEGE
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 Expense 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 and any other fees and
expenses of the Fund.
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<PAGE> 45
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.
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. After exercising this
transfer right, all subsequent Net Premiums will be allocated to the Guaranteed
Account.
Transfer Right for Change in Investment Policy of Separate Account or
Subaccount. In accordance with the variable life insurance regulations of
certain states, 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 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.
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.
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<PAGE> 46
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
changes 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 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.
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OTHER POLICY PROVISIONS
Amount Payable on Final Policy Date. If one of the Insureds is living on
the Final Policy Date (at the younger Insured's Attained Age 100), 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 death of both Insureds 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 of the last surviving Insured until the 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. In order to be satisfactory, a request must contain all
information necessary to process the transaction and be signed by the contract
Owner.
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. Before the
death of the last surviving Insured, 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 Insureds, jointly unless a different Owner is
named in the application or thereafter changed. After the death of the first
Insured, the surviving Insured will be the Owner, unless otherwise provided.
While both or one of the Insureds is living, the Owner is entitled to exercise
any of the rights stated in the Policy or otherwise granted by PMLIC. If the
Insureds and the Owner are not the same, and the Owner dies while an Insured is
living, these rights will vest in the estate of the Owner, unless otherwise
provided.
Beneficiary. The Beneficiary is designated in the application for the
Policy, unless thereafter changed by the Owner before the death of the last
surviving Insured by written notice to PMLIC. Any Insurance Proceeds for which
there is not a designated Beneficiary surviving at the death of the last
surviving Insured are payable in a single sum to the executors or administrators
of the last surviving Insured.
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
one of the Insureds 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. A change in the Policy's ownership may have tax consequences.
(See "Tax Treatment of Policy Benefits," Page 43.)
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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. 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 and Sex. If the age or sex of either Insured has been
misstated in the applications, the Death Benefit and any benefits provided by
riders will be such as the most recent Monthly Deductions would have provided at
the correct ages and sexes of the Insureds.
Suicide. PMLIC's liability is limited to payment of a sum equal to the
premiums paid less any Policy loan and accrued interest on such loan and any
partial withdrawals if:
(a) both Insureds commit suicide within two years of the Policy Issue
Date (except where state law requires a shorter period) and within
90 days of each other; or
(b) the last surviving Insured dies by suicide within such two year
period and within 90 days of the death of the first of the
Insureds to die; or
(c) the last surviving Insured lives for more than 90 days beyond the
date that the first Insured's death occurred by suicide and does not
exchange the Policy as described below.
During the 90 day period following the date that the first Insured dies by
suicide, the surviving Insured may exchange the survivorship policy, without
evidence of insurability, for a fixed-benefit policy issued by PMLIC on the life
of such surviving Insured. The Policy Issue Date for the new policy will be the
91st day after the date of the first Insured's death. In the event one of the
Insureds commits suicide within two years of the Policy Issue Date and the
surviving Insured does not exercise this exchange right, coverage under the
Policy will end on the 91st day following such death.
If one of the Insureds commits suicide within two years of the Policy Issue
Date and the surviving Insured dies, other than by suicide, within 90 days of
the date of the first death, PMLIC will pay the Insurance Proceeds to the
Beneficiary.
Incontestability. The Policy will be incontestable after it has been in
force during each Insured's lifetime for two years from the Issue Date (or such
other date as required by state law). Similar incontestability will apply to
reinstatement after it has been in force during each 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.
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.
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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 Benefit. Subject to certain age and underwriting
restrictions, the Policy may include a Disability Waiver Benefit Rider for
either or both Insureds providing that in the event of such Insured's total
disability before Attained Age 60 and continuing for at least six months, PMLIC
will apply a premium payment to the Policy on each Policy Processing Day during
the first two Policy Years (the amount of the payment will be based on the
Minimum Annual Premium). PMLIC will also waive all monthly deductions after the
commencement of and during the continuance of such total disability after the
first two Policy Years. If this rider is added, the Monthly Deduction will be
increased to include the cost of this rider.
Policy Split Option. Under certain circumstances, the Policy can be split
on a 50/50 basis into two fixed-benefit life insurance policies, one on the life
of each Insured, with evidence of insurability. A policy split can be made if a
final divorce decree is issued with respect to the marriage of the two Insureds
or if the Federal Estate Tax law is changed resulting in removal of the
unlimited marital deduction or a reduction of at least 50% in the estate taxes
payable on death. The Face Amount and Policy Account Value less Policy loans and
accrued interest will be divided evenly between the two new policies. For a
discussion of the tax consequences of a policy split see "Taxation of Policy
Split" on page 44.
Change of Insured. Upon request, the Policy may include a Change of
Insured Rider by which one of the Insureds 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 and the Remaining Insured as of the effective date of the change. Making
a change under this Rider may have adverse federal income tax consequences.
Accordingly, the Owner should consult a tax adviser before deciding to exercise
a change under this Rider.
Four Year Survivorship Term Life Insurance. The Policy may include a Four
Year Survivorship Term rider which provides additional term insurance during the
first four Policy Years upon due proof of the death of both Insureds. The amount
of this term insurance is 1.25 multiplied by the Face Amount of the Policy. If
this rider is added, the Monthly Deduction will be increased to include the cost
of this rider.
Convertible Term Life Insurance. The Policy may include a Convertible Term
Life Insurance rider which provides additional term insurance on one of the
Insureds. Two riders may be included to cover each
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Insured. The amount of term insurance on either or both Insureds is shown in the
Policy Schedule. If this rider is added, the Monthly Deduction will be increased
to include the cost of this rider.
Guaranteed Minimum Death Benefit. The Policy may include a Guaranteed
Minimum Death Benefit rider which provides that the Policy will not lapse if the
sum of premiums paid less any partial withdrawals less any policy loans equals
or exceeds the Minimum Guarantee Premium. This rider expires at the later of the
policy anniversary nearest age 70 of the older Insured or the end of the tenth
Policy year. This rider is not available if Death Benefit Option B is elected at
issue and will terminate if the Policy is changed to Death Benefit Option B. If
this rider is added, the Monthly Deduction will be increased to include the cost
of this rider.
If the Guaranteed Minimum Death Benefit is lost due to insufficient premium
payments, it may be possible to regain the guarantee in future years. Federal
tax law may preclude payment of sufficient premiums to maintain the guarantee
following a decrease in Face Amount, a partial withdrawal that reduces the Face
Amount, reduction or deletion of a rider benefit or an improvement in the
Policy's Premium Class.
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 or, if the younger Insured is dead, the older Insured's 100
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.
Dollar Cost Averaging. Dollar Cost Averaging is a program which, if
elected, enables the Owner of a policy to systematically and automatically
transfer, on a monthly basis, specified dollar amounts from any selected
Subaccount to any of the policy's other Subaccounts or Guaranteed Account.
Transfers may not come from the Guaranteed Account. By allocating on a regularly
scheduled basis as opposed to allocating the total amount at one particular
time, an Owner may be less susceptible to the impact of short term market
fluctuations. PMLIC, however, makes no guarantee that Dollar Cost Averaging will
result in a profit or protect against loss.
Dollar Cost Averaging may be elected for a period of 6, 12, 24 or 36
months. To qualify for Dollar Cost Averaging, the following minimum amount must
be allocated to a Subaccount: 6 months - $3,000; 12 months - $6,000; 24
months - $12,000; 36 months - $18,000. At least $500 must be transferred from
the Subaccount each month. The amount required to be allocated to the Subaccount
can be made from an initial or subsequent investment or by transferring amounts
into the Subaccount from the other Subaccounts or from the Guaranteed Account
(which may be subject to certain restrictions). Each monthly transfer amount
will be split among the Subaccounts or the Guaranteed Account based upon the
percentages elected. Dollar Cost Averaging may not be elected if Automatic Asset
Rebalancing has been elected or if a policy loan is outstanding.
Election into this program may occur at the time of application by
completing the authorization on the Optional Features election form or at any
time after the policy is issued by completing the election form and returning it
to PMLIC by the beginning of the month. When an election form is received,
Dollar Cost Averaging will commence on the first Policy Processing Day after the
later of (a) the Policy Date; (b) the 15-day period when premiums are allocated
to the Money Market Fund in certain states; and (c) when the Subaccount value
equals or exceeds the greater of the minimum amount stated above and the amount
of the first monthly transfer.
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Once the transfers have commenced, the transfers from the Subaccount will
be processed monthly on the Policy Processing Day until the number of transfers
has been completed, or transfers will end automatically when (a) a policy loan
is requested; (b) the policy goes into the grace period; or (c) there is
insufficient value in the Subaccount to make the transfer. The Owner may
instruct PMLIC in writing to cancel the remaining monthly transfers.
Transfers made under the Dollar Cost Averaging program will not count
toward the four transfers permitted each Policy Year without imposing the
Transfer Charge. PMLIC reserves the right to discontinue offering automatic
transfers upon 30 days' written notice to the Owner. Written notice will be sent
to the Owner and agent confirming each transfer and when the Dollar Cost
Averaging program is terminated. The Owner and agent are responsible for
reviewing the confirmation to verify the transfers are as requested. Any
discrepancies must be reported to PMLIC immediately.
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
In order to qualify as a life insurance contract for federal tax purposes,
the Policy must meet the definition of a life insurance contract which is set
forth in Section 7702 of the Internal Revenue Code of 1986, as amended (the
"Code"). The manner in which Section 7702 should be applied to certain features
of the Policy offered in this Prospectus is not directly addressed by Section
7702 or any guidance issued to date under Section 7702. Nevertheless, PMLIC
believes it is reasonable to conclude that the Policy will meet the Section 7702
definition of a life insurance contract. In the absence of final regulations or
other pertinent interpretations of Section 7702, however, there is necessarily
some uncertainty as to whether a Policy will meet the statutory life insurance
contract definition, particularly if the Owner pays the full amount of premiums
permitted under the Policy. An Owner contemplating the payment of such premiums
should do so only after consulting a tax adviser. If a Contract were determined
not to be a life insurance contract for purposes of Section 7702, such contract
would not provide most of the tax advantages normally provided by a life
insurance contract.
If it is subsequently determined that a Policy does not satisfy Section
7702, PMLIC may take whatever steps are appropriate and necessary to attempt to
cause such a Policy to comply with Section 7702. For these reasons, PMLIC
reserves the right to 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 Service has stated in published rulings that a variable
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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 Service 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 Value and the investment objective of certain Portfolios (i.e. the Van
Eck Worldwide Hard Assets Portfolio) may be narrower. These differences could
result in a 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, the receipt of a
Policy in an exchange, 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
change in the Policy's Face Amount, a Policy loan, a partial withdrawal, a
surrender, a change in ownership, a change of insured, an adjustment of face
amount, a change in insurance protection, the addition of a Final Policy Date
Extension Rider to the Policy, the continuation of the Policy after the younger
Insured's 100th birthday or, if the younger Insured is dead, the older Insured's
100th birthday, 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. A person considering any such
transaction should consult a tax adviser before effecting the transaction.
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 indebtedness exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to tax.
Modified Endowment Contracts. The Internal Revenue Code 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
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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 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
and then, only after the return of all such investment in the Policy, as
distributing taxable income. An exception to this general rule occurs in the
case of a decrease in the Policy's Death Benefit or any other change that
reduces benefits under the Policy in the first 15-years after the Policy is
issued and that results in a cash distribution to the Owner in order for the
Policy to continue complying with the Section 7702 definitional limits. Such a
cash distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a Modified Endowment
Contract are not treated as distributions. Instead, such loans are treated as
indebtedness of the Owner.
Finally, neither distributions (including distributions upon surrender) 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 adviser 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
44
<PAGE> 54
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.
Taxation of Policy Split. The Policy Split Option Rider permits a Policy
to be split into two other fixed-benefit life policies upon the occurrence of a
divorce of the joint insureds or certain changes in federal estate tax law. A
policy split could have adverse tax consequences; for example, it is not clear
whether a policy split will be treated as a nontaxable exchange under Sections
1031 through 1043 of the Code. If a policy split is not treated as a nontaxable
exchange, a split could result in the recognition of taxable income in an amount
up to any gain in the Policy at the time of the split. In addition, it is not
clear whether, in all circumstances, the individual contracts that result from a
policy split would be treated as life insurance contracts for federal income tax
purposes and, if so treated, whether the individual contracts would be
classified as modified endowment contracts. Before you exercise rights provided
by the policy split option, it is important that you consult with a competent
tax advisor regarding the possible consequences of a policy split.
Other Tax Considerations. The transfer of the Policy or the designation of
a Beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate and generation-skipping
transfer taxes. For example, the transfer of the Policy to, or the designation
as beneficiary of, or the payment of proceeds to, a person who is assigned to a
generation which is two or more generations below the generation assignment of
the Owner, may have generation skipping transfer tax considerations under
Section 2601 of the Code.
The individual situation of each Owner or Beneficiary will determine the
extent, if any, to which federal, state and local transfer taxes may be imposed.
Consult with your tax adviser for specific information in connection with these
taxes. In addition, 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.
In recent years, Congress has adopted new rules relating to life insurance
owned by businesses. Any business contemplating the purchase of a new Policy or
a change in an existing Policy should consult a tax adviser.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Policy could change by
legislation or otherwise. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely modify the federal
taxation of this Policy. It is possible that any legislative change could be
retroactive (that is, effective prior to the date of the change). A tax adviser
should be consulted with respect to legislative developments and their effect on
the Policy.
CHARGE FOR PMLIC'S TAXES
As a result of the Omnibus Budget Reconciliation Act of 1990, insurance
companies are generally required to capitalize and amortize certain policy
acquisition expenses associated with premium payments over a ten year period
rather than currently deducting such expenses. This treatment applies to the
deferred acquisition expenses of a Policy and results in a significantly higher
corporate income tax liability for PMLIC in early policy years. PMLIC makes a
charge to compensate for the anticipated higher corporate income taxes that
result from the receipt of premiums under a Policy (See "Federal Tax Charge,"
Page 29).
Currently, PMLIC makes no other charges (other than premium taxes) for any
federal, state or local taxes that it incurs that may be attributable to the
Separate Accounts or to the Policies. PMLIC, however,
45
<PAGE> 55
reserves the right to deduct from the Separate Accounts any such taxes which are
imposed on the investment earnings of the Separate Accounts. Currently no such
taxes are imposed.
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under an employee's
deferred compensation plan could not, under Title VII of the Civil Rights Act of
1964, vary between men and women on the basis of sex. In that case, the Court
applied its decision only to benefits derived from contributions made on or
after August 1, 1983. Subsequent decisions of lower federal courts indicate that
in other factual circumstances the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory, or
decisional authority of some states may prohibit use of sex-distinct mortality
tables under certain circumstances. The Policies offered by this Prospectus are
based upon actuarial tables which distinguish between men and women and, thus,
the Policy provides different benefits to men and women of the same age.
Accordingly, employers and employee organizations should consider, in
consultation with legal counsel, the impact of these authorities on any
employment-related insurance or benefits program before purchasing the Policy
and in determining whether this Policy is appropriate.
VOTING RIGHTS
All of the assets held in the Growth, Money Market, Bond, Managed,
Aggressive Growth and International Separate Accounts and the Subaccounts of the
Variable Account will be invested in shares of corresponding Portfolios of the
Funds. (The organizational documents governing the Trust do not contemplate
meetings of holders of the Trust units nor any action taken by vote of such
holders.) The Fund does 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 or Subaccount 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 or Subaccount 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 Sub-Account 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.
46
<PAGE> 56
Shares of the Funds other than the MS Fund are currently being offered to
variable life insurance and variable annuity separate accounts of life insurance
companies other than PMLIC that are not affiliated with PMLIC. PMLIC understands
that shares of these Funds also will be voted by such other life insurance
companies in accordance with instructions from their policyowners invested in
such separate accounts. This will dilute the effect of voting instructions of
policyowners of the Policies.
CHANGES IN APPLICABLE LAW, FUNDING AND OTHERWISE
The voting rights described in this Prospectus are created under applicable
Federal securities laws. To the extent that such laws or regulations promulgated
thereunder eliminate the necessity to solicit voting instructions from Owners or
restrict such voting rights, PMLIC reserves the right to proceed in accordance
with any such laws or regulations.
PMLIC also reserves the right, subject to compliance with applicable law,
including approval of Owners, if so required: (1) to transfer assets determined
by PMLIC to be associated with the class of policies to which the Policies
belong from one Separate Account to another Separate Account by withdrawing the
same percentage of each investment in the account with appropriate adjustments
to avoid odd lots and fractions (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 the 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 Chief Executive Officer of PMLIC; 1994 to 1996 -- President and Chief
Officer Operating Officer of PMLIC; 1986 to
Director 1994 -- President and Chief Executive Officer of
Covenant Life Insurance Company.
Edward R. Book............................... 4/96 to present -- President of USA National Tourism
Director Organization, Inc.; 1/95 to 3/96 -- Past-President
1100 New York Avenue, N.W., Suite 450 and Consultant of Travel Industry Association of
Washington, DC 20005 America; 9/89 to 12/94 -- President of Travel
Industry Association of America.
Dorothy M. Brown............................. 1992 to present -- Acting President of the
Director Pennsylvania Academy of the Fine Arts.
16 Meredith Road
Wynnewood, PA 19096
</TABLE>
47
<PAGE> 57
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
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
Philadelphia Suburban Corp. Chief 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
J. Richard Jones............................. 1981 to present -- President and Chief Executive
Director Officer of Jackson-Cross Company.
100 North 20th Street
Philadelphia, PA 19103
John P. Neafsey.............................. 1993 to present -- President of JN Associates;
Director 1990 to 1993 -- President of Greenwich Capital
13 Valley Road Markets, Inc.
So. Norwalk, CT 06854
Charles L. Orr............................... 1993 to present -- President and Chief Executive
Director Office of Shaklee Corporation; 1990 to
Shaklee Corporation 1993 -- President of Shaklee U.S., Inc.
Shaklee Terraces
444 Market Street
San Francisco, CA 94111
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.
</TABLE>
48
<PAGE> 58
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
James G. Potter, Jr. ........................ 12/97 to present -- Executive Vice President, General
Executive Vice President, Counsel and Secretary of PMLIC; 6/89 to
General Counsel and Secretary 11/97 -- Chief Legal Officer, Prudential Banks.
Joan C. Tucker............................... 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.
Mary Lynn Finelli............................ 1996 to present -- Vice President and Chief Financial
Executive Vice President and Officer of PMLIC; 1986 to 1996 -- Vice President and
Chief Financial Officer Controller of PMLIC.
Craig L. Snyder.............................. 1979 to present -- Vice President, Mortgage Loans and
Vice President -- Real Estate of PMLIC.
Mortgage Loans and
Real Estate
Linda M. Springer............................ 1996 to present -- Vice President and Controller of
Vice President and PMLIC; 1995 to 1996 -- Assistant Vice President and
Controller Actuary of PMLIC; 1992 to 1995 -- Actuary of PMLIC.
Rosanne Gatta................................ 1994 to present -- Vice President and Treasurer of
Vice President PMLIC; 1985 to 1994 -- Assistant Vice President and
and Treasurer Treasurer of PMLIC.
1205 Westlakes Dr.
Berwyn, PA 19312
</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 PML 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. The
Policies are offered and sold only in those states where their sale is lawful.
1717 receives no compensation as principal underwriter of the Policies.
49
<PAGE> 59
The insurance underwriting and the determination of the proposed Insureds'
Premium Classes and whether to accept or reject an application for a Policy is
done by PMLIC. PMLIC will refund any premiums paid if a Policy ultimately is not
issued or will refund the applicable amount if the Policy is returned under the
Free-Look provision.
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 45% of the premiums paid up to a
target amount (used only to determine commission payments) and 2% of the
premiums paid in excess of that amount. For Policy Year 2, the agent commissions
will not be more than 5 1/2% of the premiums paid; for Policy Years 3 through
10, 6 1/2%; for Policy Years 11 through 15, 4 5/6%; and for years 16 and later,
2% of the premiums paid. Agents may also receive expense allowances and annual
renewal compensation based on the unloaned Policy Account Value, depending upon
the circumstances. The agent may be required to return the first year commission
less the deferred sales 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 quarterly 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.
PREPARING FOR YEAR 2000
Like all financial services providers, Provident Mutual Life Insurance
Company and its affiliates (collectively "Provident Mutual") utilize systems
that may be affected by Year 2000 transition issues and they rely on service
providers, including banks, custodians, administrators, and investment managers
that also may be affected. Provident Mutual have developed, and are in the
process of implementing, a Year 2000 transition plan, and are confirming that
its service providers are also so engaged. The resources that are being devoted
to this effort are substantial. It is difficult to predict with precision
whether the amount of resources ultimately devoted, or the outcome of these
efforts, will have any negative impact on Provident Mutual. However, as of the
date of this prospectus, it is not anticipated that Owners will experience
negative effects on their investment, or on the services provided in connection
therewith, as a result of Year 2000 transition implementation. Provident Mutual
currently anticipate that their systems will be Year 2000 compliant on or about
January 1, 1999 but there can be no assurance that Provident Mutual will be
successful, or that interaction with other service providers will not impair
Provident Mutual's services at that time.
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
50
<PAGE> 60
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
LEGAL PROCEEDINGS
PMLIC and its subsidiaries, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PMLIC believes that at the
present time there are not pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Separate Account of PMLIC.
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, as stated in his opinion
filed as an exhibit to the Registration Statement.
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. Adam Scaramella, Esq., Counsel
of PMLIC, has provided advice on certain matters relating to the laws of
Pennsylvania regarding the Policies and PMLIC's issuance of the Policies.
51
<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 two
Insureds of given ages and sexes 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 a male
Insured, Age 55 and a female Insured, Age 55, both in the Preferred Premium
Class with a Face Amount of $1,000,000 and a Planned Periodic Premium of $10,000
paid at the beginning of each Policy Year. The Death Benefits, Policy Account
Values and Net Cash Surrender Values would be lower if either Insured was in a
nonsmoker or smoker 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 Smoker/Nonsmoker Table), a Premium Expense Charge of
8.25% (2% Premium Tax Charge, 5% of Premium Sales Charge and 1.25% Federal Tax
Charge) in all Policy Years, a maximum monthly administrative fee of $42, the
initial administrative charge of $127.50 in each of the first 12 policy months,
and a daily charge for mortality and expense risks equivalent to an annual rate
of 0.90%; the columns under the heading "Current" assume that throughout the
life of the Policy, the monthly charge for cost of insurance is based on the
current cost of insurance rate, a Premium Expense Charge of 8.25% in Policy
Years 1 through 10 and 3.25% (2% Premium Tax Charge and 1.25% Federal Tax
Charge) thereafter, the current monthly administrative fee of $17.50, the
initial administrative charge of $127.50 in each of the first 12 policy months,
and a daily charge for mortality and expense risks equivalent to an annual rate
of 0.60%.
The amounts shown in all tables reflect an averaging of certain other asset
charges described below that may be assessed under the Policy, depending upon
how premiums are allocated. The total of the asset charges reflected in the
Current and Guaranteed illustrations, including the Mortality and Expense Risk
Charge listed above, is 1.40% and 1.71%, respectively. This total charge is
based on an assumption that an Owner allocates the Policy values equally among
the Growth, Money Market, Bond, Managed, Aggressive Growth and International
Separate Accounts and among each Sub-Account of the Variable Separate Account
and of the Zero Coupon Bond Separate Account.
These asset charges reflect an investment advisory fee of 0.63% which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of 0.17% 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 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 1997. The Fund expenses, excluding advisory fees, during 1997 were 0.11% for
the Growth Portfolio, 0.14% for the Money Market Portfolio, 0.22% for the Bond
Portfolio, 0.17% for the Managed Portfolio, 0.18% for the Aggressive Growth
Portfolio and 0.27% 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.
A-1
<PAGE> 62
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 0.91%, VIP Fund II Asset Manager
Portfolio 0.65%, VIP Fund II Index 500 Portfolio 0.40%, VIP Fund II
Investment Grade Bond Portfolio 0.58%, VIP Fund II Contrafund Portfolio
0.71% and Van Eck Worldwide Hard Assets Portfolio 1.18%.
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 a 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 Insureds' Ages and Premium Classes, the Death Benefit Option, Face
Amount, Planned Periodic Premium 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.
A-2
<PAGE> 63
PROVIDENT MUTUAL
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE LIFE INSURANCE
$1,000,000 FACE AMOUNT MALE INSURED--ISSUE AGE 55--PREFERRED
FEMALE INSURED--ISSUE AGE 55--PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $10,000
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 10,500 6,956 2,956 1,000,000 7,280 3,280 1,000,000
2 21,525 15,200 10,800 1,000,000 15,870 11,470 1,000,000
3 33,101 23,171 18,371 1,000,000 24,205 19,405 1,000,000
4 45,256 30,849 25,649 1,000,000 32,263 27,063 1,000,000
5 58,019 38,210 32,610 1,000,000 40,021 34,421 1,000,000
6 71,420 45,221 39,221 1,000,000 47,449 41,449 1,000,000
7 85,491 51,843 45,443 1,000,000 54,508 48,108 1,000,000
8 100,266 58,018 51,218 1,000,000 61,131 54,331 1,000,000
9 115,779 63,673 56,473 1,000,000 67,608 60,408 1,000,000
10 132,068 68,717 61,117 1,000,000 74,004 66,404 1,000,000
11 149,171 73,051 65,051 1,000,000 80,806 72,806 1,000,000
12 167,130 76,568 69,128 1,000,000 87,523 80,083 1,000,000
13 185,986 79,156 73,576 1,000,000 94,175 88,595 1,000,000
14 205,786 80,697 76,977 1,000,000 100,754 97,034 1,000,000
15 226,575 81,041 79,181 1,000,000 107,082 105,222 1,000,000
16 248,404 79,977 79,977 1,000,000 112,850 112,850 1,000,000
17 271,324 77,144 77,144 1,000,000 118,114 118,114 1,000,000
18 295,390 72,312 72,312 1,000,000 122,702 122,702 1,000,000
19 320,660 64,911 64,911 1,000,000 126,445 126,445 1,000,000
20 347,193 54,355 54,355 1,000,000 129,170 129,170 1,000,000
25 501,135 0 0 0 120,596 120,596 1,000,000
</TABLE>
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense 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, mortality and expense risk, premium expense 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 SURVIVORSHIP VARIABLE LIFE INSURANCE
$1,000,000 FACE AMOUNT MALE INSURED--ISSUE AGE 55--PREFERRED
FEMALE INSURED--ISSUE AGE 55--PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $10,000
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 10,500 7,431 3,431 1,000,000 7,766 3,766 1,000,000
2 21,525 16,625 12,225 1,000,000 17,340 12,940 1,000,000
3 33,101 26,069 21,269 1,000,000 27,209 22,409 1,000,000
4 45,256 35,747 30,547 1,000,000 37,358 32,158 1,000,000
5 58,019 45,642 40,042 1,000,000 47,775 42,175 1,000,000
6 71,420 55,723 49,723 1,000,000 58,438 52,438 1,000,000
7 85,491 65,955 59,555 1,000,000 69,316 62,916 1,000,000
8 100,266 76,283 69,483 1,000,000 80,349 73,549 1,000,000
9 115,779 86,631 79,431 1,000,000 91,833 84,633 1,000,000
10 132,068 96,907 89,307 1,000,000 103,856 96,256 1,000,000
11 149,171 107,006 99,006 1,000,000 116,956 108,956 1,000,000
12 167,130 116,812 109,372 1,000,000 130,671 123,231 1,000,000
13 185,986 126,203 120,623 1,000,000 145,046 139,466 1,000,000
14 205,786 135,046 131,326 1,000,000 160,103 156,383 1,000,000
15 226,575 143,176 141,316 1,000,000 175,704 173,844 1,000,000
16 248,404 150,365 150,365 1,000,000 191,581 191,582 1,000,000
17 271,324 156,238 156,238 1,000,000 207,807 207,807 1,000,000
18 295,390 160,531 160,531 1,000,000 224,246 224,246 1,000,000
19 320,660 162,658 162,658 1,000,000 240,768 240,768 1,000,000
20 347,193 162,001 162,001 1,000,000 257,241 257,241 1,000,000
25 501,135 88,706 88,706 1,000,000 333,989 333,989 1,000,000
</TABLE>
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense 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, mortality and expense risk, premium expense 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 SURVIVORSHIP VARIABLE LIFE INSURANCE
$1,000,000 FACE AMOUNT MALE INSURED--ISSUE AGE 55--PREFERRED
FEMALE INSURED--ISSUE AGE 55--PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $10,000
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 10,500 7,907 3,907 1,000,000 8,253 4,253 1,000,000
2 21,525 18,108 13,708 1,000,000 18,869 14,469 1,000,000
3 33,101 29,198 24,398 1,000,000 30,451 25,651 1,000,000
4 45,256 41,244 36,044 1,000,000 43,073 37,873 1,000,000
5 58,019 54,310 48,710 1,000,000 56,817 51,217 1,000,000
6 71,420 68,466 62,466 1,000,000 71,770 65,770 1,000,000
7 85,491 83,779 77,379 1,000,000 88,017 81,617 1,000,000
8 100,266 100,308 93,508 1,000,000 105,629 98,829 1,000,000
9 115,779 118,103 110,903 1,000,000 125,043 117,843 1,000,000
10 132,068 137,210 129,610 1,000,000 146,517 138,917 1,000,000
11 149,171 157,678 149,678 1,000,000 170,815 162,815 1,000,000
12 167,130 179,559 172,119 1,000,000 197,691 190,251 1,000,000
13 185,986 202,923 197,343 1,000,000 227,437 221,857 1,000,000
14 205,786 227,851 224,131 1,000,000 260,346 256,626 1,000,000
15 226,575 254,427 252,567 1,000,000 296,603 294,743 1,000,000
16 248,404 282,714 282,714 1,000,000 336,320 336,320 1,000,000
17 271,324 312,694 312,694 1,000,000 379,945 379,945 1,000,000
18 295,390 344,505 344,505 1,000,000 427,812 427,812 1,000,000
19 320,660 378,099 378,099 1,000,000 480,334 480,334 1,000,000
20 347,193 413,511 413,511 1,000,000 538,004 538,004 1,000,000
25 501,135 626,435 626,435 1,000,000 930,320 930,320 1,000,000
</TABLE>
* Those values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense 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, mortality and expense risk, premium expense 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 SURVIVORSHIP VARIABLE LIFE INSURANCE
$1,000,000 FACE AMOUNT MALE INSURED--ISSUE AGE 55--PREFERRED
FEMALE INSURED--ISSUE AGE 55--PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $10,000
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 10,500 6,956 2,956 1,006,956 7,280 3,280 1,007,280
2 21,525 15,197 10,797 1,015,197 15,867 11,467 1,015,867
3 33,101 23,161 18,361 1,023,161 24,196 19,396 1,024,196
4 45,256 30,825 25,625 1,030,825 32,239 27,039 1,032,239
5 58,019 38,161 32,561 1,038,161 39,970 34,370 1,039,970
6 71,420 45,131 39,131 1,045,131 47,356 41,356 1,047,356
7 85,491 51,691 45,291 1,051,691 54,350 47,950 1,054,350
8 100,266 57,777 50,977 1,057,777 60,879 54,079 1,060,879
9 115,779 63,305 56,105 1,063,305 67,247 60,047 1,067,247
10 132,068 68,172 60,572 1,068,172 73,526 65,926 1,073,526
11 149,171 72,270 64,270 1,072,270 80,201 72,201 1,080,201
12 167,130 75,476 68,036 1,075,476 86,781 79,341 1,086,781
13 185,986 77,666 72,086 1,077,666 93,290 87,710 1,093,290
14 205,786 78,711 74,991 1,078,711 99,717 95,997 1,099,717
15 226,575 78,452 76,592 1,078,452 105,866 104,006 1,105,866
16 248,404 76,666 76,666 1,076,666 111,383 111,383 1,111,383
17 271,324 72,979 72,979 1,072,979 116,326 116,326 1,116,326
18 295,390 67,175 67,175 1,067,175 120,496 120,496 1,120,496
19 320,660 58,691 58,691 1,058,691 123,694 123,694 1,123,694
20 347,193 46,993 46,993 1,046,993 125,716 125,716 1,125,716
25 501,135 0 0 0 110,439 110,439 1,110,439
</TABLE>
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense 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, mortality and expense risk, premium expense 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 SURVIVORSHIP VARIABLE LIFE INSURANCE
$1,000,000 FACE AMOUNT MALE INSURED--ISSUE AGE 55--PREFERRED
FEMALE INSURED--ISSUE AGE 55--PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $10,000
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 10,500 7,430 3,430 1,007,430 7,766 3,766 1,007,766
2 21,525 16,622 12,222 1,016,622 17,337 12,937 1,017,337
3 33,101 26,058 21,258 1,026,058 27,198 22,398 1,027,198
4 45,256 35,719 30,519 1,035,719 37,329 32,129 1,037,329
5 58,019 45,581 39,981 1,045,581 47,713 42,113 1,047,713
6 71,420 55,609 49,609 1,055,609 58,320 52,320 1,058,320
7 85,491 65,756 59,356 1,065,756 69,109 62,709 1,069,109
8 100,266 75,955 69,155 1,075,955 80,006 73,206 1,080,006
9 115,779 86,112 78,912 1,086,112 91,324 84,124 1,091,324
10 132,068 96,111 88,511 1,096,111 103,153 95,553 1,103,153
11 149,171 105,819 97,819 1,105,819 116,028 108,028 1,116,028
12 167,130 115,085 107,645 1,115,085 129,485 122,045 1,129,485
13 185,986 123,749 118,169 1,123,749 143,570 137,990 1,143,570
14 205,786 131,632 127,912 1,131,632 158,301 154,581 1,158,301
15 226,575 138,516 136,656 1,138,516 173,503 171,643 1,173,503
16 248,404 144,110 144,110 1,144,110 188,828 188,828 1,188,828
17 271,324 147,943 147,943 1,147,943 204,334 204,334 1,204,334
18 295,390 149,687 149,687 1,149,687 219,812 219,812 1,219,812
19 320,660 148,635 148,635 1,148,635 235,046 235,046 1,235,046
20 347,193 144,073 144,073 1,144,073 249,801 249,801 1,249,801
25 501,135 40,914 40,914 1,040,914 306,601 306,601 1,306,601
</TABLE>
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense 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, mortality and expense risk, premium expense 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 SURVIVORSHIP VARIABLE LIFE INSURANCE
$1,000,000 FACE AMOUNT MALE INSURED--ISSUE AGE 55--PREFERRED
FEMALE INSURED--ISSUE AGE 55--PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM--10,000
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 10,500 7,906 3,906 1,007,906 8,253 4,253 1,008,253
2 21,525 18,104 13,704 1,018,104 18,866 14,466 1,018,866
3 33,101 29,186 24,386 1,029,186 30,439 25,639 1,030,439
4 45,256 41,210 36,010 1,041,210 43,039 37,839 1,043,039
5 58,019 54,237 48,637 1,054,237 56,742 51,142 1,056,742
6 71,420 68,323 62,323 1,068,323 71,622 65,622 1,071,622
7 85,491 83,520 77,120 1,083,520 87,748 81,348 1,087,748
8 100,266 99,864 93,064 1,099,864 105,165 98,365 1,105,165
9 115,779 117,374 110,174 1,117,374 124,326 117,126 1,124,326
10 132,068 136,048 128,448 1,136,048 145,485 137,885 1,145,485
11 149,171 155,874 147,874 1,155,874 169,394 161,394 1,169,394
12 167,130 176,826 169,386 1,176,826 195,796 188,356 1,195,796
13 185,986 198,869 193,289 1,198,869 224,974 219,394 1,224,974
14 205,786 221,957 218,237 1,221,957 257,206 253,486 1,257,206
15 226,575 246,005 244,145 1,246,005 292,601 290,741 1,292,601
16 248,404 270,849 270,849 1,270,849 331,107 331,107 1,331,107
17 271,324 296,144 296,144 1,296,144 373,102 373,102 1,373,102
18 295,390 321,670 321,670 1,321,670 418,728 418,728 1,418,728
19 320,660 346,816 346,816 1,346,816 468,143 468,143 1,468,143
20 347,193 370,923 370,923 1,370,923 521,510 521,510 1,521,510
25 501,135 447,443 447,443 1,447,443 853,947 853,947 1,853,947
</TABLE>
[/R]
* These values reflect investment results using maximum cost of insurance
rates, mortality and expense risk, premium expense 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, mortality and expense risk, premium expense 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 1938 and have ending periods at five year intervals.)
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Stocks Bonds U.S. Treasury Bills
<S> <C> <C> <C>
1957 12.98 2.52 0.91
1962 15.25 2.48 1.5
1967 14.63 2.01 2.38
1972 11.67 2.95 3.39
1977 8.12 3.99 4.44
1982 8.3 4.47 6.51
1987 9.27 7.88 7.44
1992 11.33 9.54 7.7
1997 16.65 10.29 7.29
</TABLE>
- ---------------
*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 1998 Yearbook(TM), Ibbotson
Associates, Inc., Chicago. All rights reserved.
B-1
<PAGE> 70
Over the 53 20-year time periods beginning in 1926 and ending in 1997 (i.e.
1926-1945, 1927-1946, and so on through 1978-1997):
-- The compound annual return of common stocks was superior to that of
high-grade, long-term corporate bonds in 50 of the 53 periods.
-- The compound annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 53 periods.
-- Common stock compound annual returns exceeded the average annual rate of
inflation in each of the 53 periods.
Over the 43 30-year time periods beginning in 1926 and ending in 1997, 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 43 periods.
From 1926 through 1997 the compound annual return for common stocks was
11.0%, compared to 5.7% for high-grade, long-term corporate bonds, 5.2% for
Long-Term Government Bonds, 3.8% 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
1997.
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 27.8% 4.2% 11.1% 6.9% 11.1% 38.9%
5 years 10.3% 14.7% 14.7% 32.4% 17.6% 10.3%
10 years 3.2% 11.1% 34.9% 22.2% 27.0% 1.6%
20 years 0.0% 5.8% 32.1% 54.7% 7.5% 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 1998 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.
<TABLE>
<CAPTION>
Measurement Period Treasury Bills Adjusted for
(Fiscal Year Covered) Inflation
<S> <C>
1957 -2.45
1962 -1.44
1967 0.5
1972 1.02
1977 0.44
1982 0.47
1987 1.07
1992 1.4
1997 2.29
</TABLE>
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 1998 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,
1997.................................................. F-3
Statements of Operations for the Years Ended December
31, 1997, 1996 and 1995............................... F-8
Statements of Changes in Net Assets for the Years Ended
December 31, 1997, 1996, and 1995..................... F-22
Notes to Financial Statements.......................... F-36
Provident Mutual Life Insurance Company and Subsidiaries
Report of Independent Accountants...................... F-53
Consolidated Statements of Financial Condition,
December 31, 1997 and 1996............................ F-54
Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995................ F-55
Consolidated Statements of Capital and Surplus for the
Years Ended December 31, 1997, 1996 and 1995.......... F-56
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995................ F-57
Notes to Consolidated Financial Statements............. F-58
</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, 1997, 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, 1997 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, 1997, 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.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1998
F-2
<PAGE> 75
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<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................... $206,893,584
Money Market Portfolio............. $22,625,570
Bond Portfolio..................... $13,495,581
Managed Portfolio.................. $36,192,027
Aggressive Growth Portfolio........ $34,927,244
International Portfolio............ $38,762,124
Dividends receivable................. 104,280
Receivable from Provident Mutual Life
Insurance Company.................. 263,062
------------ ----------- ----------- ----------- ----------- -----------
Total Assets......................... 206,893,584 22,992,912 13,495,581 36,192,027 34,927,244 38,762,124
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to Provident Mutual Life
Insurance Company.................. 111,809 15,048 19,057
------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS........................... $206,781,775 $22,992,912 $13,480,533 $36,172,970 $34,927,244 $38,762,124
============ =========== =========== =========== =========== ===========
Held for the benefit of
policyholders...................... $206,502,297 $22,832,474 $13,364,769 $35,981,188 $34,712,042 $38,706,062
Attributable to Provident Mutual Life
Insurance Company.................. 279,478 160,438 115,764 191,782 215,202 56,062
------------ ----------- ----------- ----------- ----------- -----------
$206,781,775 $22,992,912 $13,480,533 $36,172,970 $34,927,244 $38,762,124
============ =========== =========== =========== =========== ===========
</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, 1997
- --------------------------------------------------------------------------------
<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............................................... $8,657,163
----------
LIABILITIES
Payable to Provident Mutual Life Insurance Company.......... 15,177
----------
NET ASSETS.................................................. $8,641,986
==========
Held for the benefit of policyholders....................... $8,581,416
Attributable to Provident Mutual Life Insurance Company..... 60,570
----------
$8,641,986
==========
</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, 1997
- --------------------------------------------------------------------------------
<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............ $93,799,766
Growth Portfolio................... $109,653,375
High Income Portfolio.............. $15,302,332
Overseas Portfolio................. $24,399,967
Investment in the Variable Insurance
Products Fund II, at market value:
Asset Manager Portfolio............ $42,160,660
Index 500 Portfolio................ $72,064,851
----------- ------------ ----------- ----------- ----------- -----------
NET ASSETS........................... $93,799,766 $109,653,375 $15,302,332 $24,399,967 $42,160,660 $72,064,851
=========== ============ =========== =========== =========== ===========
Held for the benefit of
policyholders...................... $93,784,846 $109,488,252 $15,261,950 $24,357,351 $42,034,887 $72,004,045
Attributable to Provident Mutual Life
Insurance Company.................. 14,920 165,123 40,382 42,616 125,773 60,806
----------- ------------ ----------- ----------- ----------- -----------
$93,799,766 $109,653,375 $15,302,332 $24,399,967 $42,160,660 $72,064,851
=========== ============ =========== =========== =========== ===========
</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, 1997
- --------------------------------------------------------------------------------
<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............. $7,897,930
Contrafund Portfolio........................ $25,431,484
Investment in the Neuberger & Berman Advisers
Management Trust, at market value:
Balanced Portfolio.......................... $6,381,375
Growth Portfolio............................ $25,140,863
Limited Maturity Bond Portfolio............. $4,222,983
---------- ----------- ---------- ----------- -------------
NET ASSETS.................................... $7,897,930 $25,431,484 $6,381,375 $25,140,863 $4,222,983
========== =========== ========== =========== =============
Held for the benefit of policyholders......... $7,884,506 $25,412,860 $6,319,112 $25,078,557 $4,191,733
Attributable to Provident Mutual Life
Insurance Company........................... 13,424 18,624 62,263 62,306 31,250
---------- ----------- ---------- ----------- -------------
$7,897,930 $25,431,484 $6,381,375 $25,140,863 $4,222,983
========== =========== ========== =========== =============
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING SMALL
APPRECIATION BOND HARD ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in American Century Variable
Portfolios, Inc., at market value:
American Century VP Capital Appreciation
Portfolio................................. $8,434,404
Investment in the Van Eck Worldwide Insurance
Trust, at market value:
Van Eck Worldwide Bond Portfolio............ $4,377,135
Van Eck Worldwide Hard Assets Portfolio..... $2,781,168
Van Eck Worldwide Emerging Markets
Portfolio................................. $6,363,909
Investment in the Alger American Fund, at
market value:
Alger American Small Capitalization
Portfolio................................. $18,732,813
---------- ---------- ---------- ---------- -----------
NET ASSETS.................................... $8,434,404 $4,377,135 $2,781,168 $6,363,909 $18,732,813
========== ========== ========== ========== ===========
Held for the benefit of policyholders......... $8,406,219 $4,347,951 $2,747,965 $6,322,118 $18,693,517
Attributable to Provident Mutual Life
Insurance Company........................... 28,185 29,184 33,203 41,791 39,296
---------- ---------- ---------- ---------- -----------
$8,434,404 $4,377,135 $2,781,168 $6,363,909 $18,732,813
========== ========== ========== ========== ===========
</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, 1997
- --------------------------------------------------------------------------------
<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.............................. $ 3,927,765 $1,265,663 $ 727,891 $1,112,725 $ 248,042 $ 268,402
EXPENSES
Mortality and expense risks............ 1,171,607 170,118 78,010 208,655 202,951 251,580
Operating expense reimbursement........ (3,041) (40) (1,390)
----------- ---------- ---------- ---------- ---------- ----------
Total expenses......................... 1,168,566 170,078 76,620 208,655 202,951 251,580
----------- ---------- ---------- ---------- ---------- ----------
Net investment income.................. 2,759,199 1,095,585 651,271 904,070 45,091 16,822
----------- ---------- ---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions
reinvested........................... 19,579,907 242,281 49,195 2,101,304
Net realized gain (loss) from
redemption of investment shares...... 4,127,983 (7,292) 956,474 577,435 504,035
----------- ---------- ---------- ---------- ---------- ----------
Net realized gain (loss) on
investments.......................... 23,707,890 (7,292) 1,198,755 626,630 2,605,339
----------- ---------- ---------- ---------- ---------- ----------
Net unrealized appreciation of
investments:
Beginning of year.................... 36,782,658 143,144 4,034,365 4,227,761 3,295,188
End of year.......................... 49,936,122 545,131 8,084,445 9,124,521 3,573,814
----------- ---------- ---------- ---------- ---------- ----------
Net unrealized appreciation of
investments during the year.......... 13,153,464 401,987 4,050,080 4,896,760 278,626
----------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain on
investments.......................... 36,861,354 394,695 5,248,835 5,523,390 2,883,965
----------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets resulting
from operations...................... $39,620,553 $1,095,585 $1,045,966 $6,152,905 $5,568,481 $2,900,787
=========== ========== ========== ========== ========== ==========
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
EXPENSES
Mortality and expense risks................................. $ 47,810
Asset charge................................................ 17,446
----------
Net investment loss......................................... (65,256)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from redemption of investment shares...... 240,323
----------
Net realized gain on investments............................ 240,323
----------
Net unrealized appreciation of investments:
Beginning of year......................................... 744,136
End of year............................................... 1,354,882
----------
Net unrealized appreciation of investments during the
year...................................................... 610,746
----------
Net realized and unrealized gain on investments............. 851,069
----------
Net increase in net assets resulting from operations........ $ 785,813
==========
</TABLE>
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, 1997
- --------------------------------------------------------------------------------
<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................................ $1,044,885 $ 527,324 $ 626,782 $ 290,204 $1,122,466 $ 358,610
EXPENSES
Mortality and expense risks.............. 533,228 649,048 80,380 144,312 255,690 355,997
----------- ----------- ---------- ---------- ---------- -----------
Net investment income (loss)............. 511,657 (121,724) 546,402 145,892 866,776 2,613
----------- ----------- ---------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain distributions reinvested... 5,253,449 2,887,725 77,467 1,152,021 2,815,676 727,665
Net realized gain from redemption of
investment shares...................... 965,614 1,224,507 123,771 156,064 391,666 814,167
----------- ----------- ---------- ---------- ---------- -----------
Net realized gain on investments......... 6,219,063 4,112,232 201,238 1,308,085 3,207,342 1,541,832
----------- ----------- ---------- ---------- ---------- -----------
Net unrealized appreciation of
investments:
Beginning of year...................... 9,654,194 12,974,029 471,856 1,745,917 4,535,884 4,431,677
End of year............................ 20,932,815 27,530,683 1,485,682 2,054,866 7,028,980 15,712,282
----------- ----------- ---------- ---------- ---------- -----------
Net unrealized appreciation of
investments during the year ........... 11,278,621 14,556,654 1,013,826 308,949 2,493,096 11,280,605
----------- ----------- ---------- ---------- ---------- -----------
Net realized and unrealized gain on
investments............................ 17,497,684 18,668,886 1,215,064 1,617,034 5,700,438 12,822,437
----------- ----------- ---------- ---------- ---------- -----------
Net increase in net assets resulting from
operations............................. $18,009,341 $18,547,162 $1,761,466 $1,762,926 $6,567,214 $12,825,050
=========== =========== ========== ========== ========== ===========
</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, 1997
- --------------------------------------------------------------------------------
<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.................................... $307,980 $ 64,609 $ 77,242 $153,994
EXPENSES
Mortality and expense risks.................. 43,496 116,135 36,171 $ 146,708 23,036
-------- ---------- -------- ---------- --------
Net investment income (loss)................. 264,484 (51,526) 41,071 (146,708) 130,958
-------- ---------- -------- ---------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested....... 170,752 198,255 1,531,297
Net realized gain (loss) from redemption of
investment shares.......................... 2,841 199,925 106,220 611,229 (6,752)
-------- ---------- -------- ---------- --------
Net realized gain (loss) on investments...... 2,841 370,677 304,475 2,142,526 (6,752)
-------- ---------- -------- ---------- --------
Net unrealized appreciation of investments:
Beginning of year.......................... 155,266 477,324 71,201 1,243,267 19,157
End of year................................ 401,371 3,332,605 595,317 4,238,015 86,785
-------- ---------- -------- ---------- --------
Net unrealized appreciation of investments
during the year............................ 246,105 2,855,281 524,116 2,994,748 67,628
-------- ---------- -------- ---------- --------
Net realized and unrealized gain on
investments................................ 248,946 3,225,958 828,591 5,137,274 60,876
-------- ---------- -------- ---------- --------
Net increase in net assets resulting from
operations................................. $513,430 $3,174,432 $869,662 $4,990,566 $191,834
======== ========== ======== ========== ========
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING SMALL
APPRECIATION BOND HARD ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................................... $105,223 $ 45,568 $ 9,541
EXPENSES
Mortality and expense risks..................... $ 56,416 25,359 12,555 31,122 $ 90,562
----------- -------- --------- ----------- ----------
Net investment income (loss).................... (56,416) 79,864 33,013 (21,581) (90,562)
----------- -------- --------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested.......... 171,163 33,634 449,342
Net realized gain (loss) from redemption of
investment shares............................. (90,120) 12,516 61,163 82,065 11,202
----------- -------- --------- ----------- ----------
Net realized gain on investments................ 81,043 12,516 94,797 82,065 460,544
----------- -------- --------- ----------- ----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year............................. (633,726) 70,532 187,278 90,708 173,011
End of year................................... (1,024,766) 61,527 (31,204) (1,437,453) 1,324,974
----------- -------- --------- ----------- ----------
Net unrealized appreciation (depreciation) of
investments during the year................... (391,040) (9,005) (218,482) (1,528,161) 1,151,963
----------- -------- --------- ----------- ----------
Net realized and unrealized gain (loss) on
investments................................... (309,997) 3,511 (123,685) (1,446,096) 1,612,507
----------- -------- --------- ----------- ----------
Net increase (decrease) in net assets resulting
from operations............................... $ (366,413) $ 83,375 $ (90,672) $(1,467,677) $1,521,945
=========== ======== ========= =========== ==========
</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, 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-13
<PAGE> 86
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------
1996 SERIES 2006 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-14
<PAGE> 87
- --------------------------------------------------------------------------------
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-15
<PAGE> 88
- --------------------------------------------------------------------------------
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-16
<PAGE> 89
- --------------------------------------------------------------------------------
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 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>
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-17
<PAGE> 90
- --------------------------------------------------------------------------------
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-18
<PAGE> 91
- --------------------------------------------------------------------------------
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 SERIES 2006 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-19
<PAGE> 92
- --------------------------------------------------------------------------------
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-20
<PAGE> 93
- --------------------------------------------------------------------------------
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-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, 1997
- --------------------------------------------------------------------------------
<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.............. $ 2,759,199 $ 1,095,585 $ 651,271 $ 904,070 $ 45,091 $ 16,822
Net realized gain (loss) on
investments...................... 23,707,890 (7,292) 1,198,755 626,630 2,605,339
Net unrealized appreciation of
investments during the year...... 13,153,464 401,987 4,050,080 4,896,760 278,626
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets from
operations....................... 39,620,553 1,095,585 1,045,966 6,152,905 5,568,481 2,900,787
------------ ------------ ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY
TRANSACTIONS
Policyholders' net premiums........ 28,779,076 41,392,009 2,883,256 5,061,216 7,652,795 9,275,052
Cost of insurance and
administrative charges........... (11,378,551) (4,214,952) (1,049,368) (2,164,675) (2,627,095) (3,135,940)
Surrenders and forfeitures......... (10,450,206) (893,804) (421,877) (1,834,332) (1,314,144) (1,656,263)
Transfers between investment
portfolios....................... (4,245,851) (38,647,233) 25,947 (1,015,633) 327,609 (19,790)
Net withdrawals due to policy
loans............................ (3,880,476) (348,424) (150,015) (428,805) (565,546) (566,895)
Withdrawals due to death
benefits......................... (453,320) (10,985) (23,685) (113,392) (12,782) (25,012)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets derived from policy
transactions..................... (1,629,328) (2,723,389) 1,264,258 (495,621) 3,460,837 3,871,152
------------ ------------ ----------- ----------- ----------- -----------
Total increase (decrease) in net
assets........................... 37,991,225 (1,627,804) 2,310,224 5,657,284 9,029,318 6,771,939
NET ASSETS
Beginning of year................ 168,790,550 24,620,716 11,170,309 30,515,686 25,897,926 31,990,185
------------ ------------ ----------- ----------- ----------- -----------
End of year...................... $206,781,775 $ 22,992,912 $13,480,533 $36,172,970 $34,927,244 $38,762,124
============ ============ =========== =========== =========== ===========
</TABLE>
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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
FROM OPERATIONS
Net investment loss......................................... $ (65,256)
Net realized gain on investments............................ 240,323
Net unrealized appreciation of investments during the
year...................................................... 610,746
----------
Net increase in net assets from operations.................. 785,813
----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................................. 2,330,310
Cost of insurance and administrative charges................ (788,189)
Surrenders and forfeitures.................................. (153,867)
Transfers between investment portfolios..................... 143,804
Net withdrawals due to policy loans......................... (88,482)
----------
Net increase in net assets derived from policy
transactions.............................................. 1,443,576
----------
Total increase in net assets................................ 2,229,389
NET ASSETS
Beginning of year......................................... 6,412,597
----------
End of year............................................... $8,641,986
==========
</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, 1997
- --------------------------------------------------------------------------------
<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)............ $ 511,657 $ (121,724) $ 546,402 $ 145,892 $ 866,776 $ 2,613
Net realized gain on investments........ 6,219,063 4,112,232 201,238 1,308,085 3,207,342 1,541,832
Net unrealized appreciation of
investments during the year........... 11,278,621 14,556,654 1,013,826 308,949 2,493,096 11,280,605
----------- ------------ ----------- ----------- ----------- -----------
Net increase in net assets from
operations............................ 18,009,341 18,547,162 1,761,466 1,762,926 6,567,214 12,825,050
----------- ------------ ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............. 23,646,606 29,144,250 3,594,929 6,932,947 8,034,994 23,023,710
Cost of insurance and administrative
charges............................... (7,387,112) (9,463,481) (1,076,133) (1,901,779) (3,249,362) (5,704,702)
Surrenders and forfeitures.............. (2,364,387) (3,547,931) (171,214) (612,736) (1,661,468) (997,451)
Transfers between investment
portfolios............................ 4,047,525 (416,903) 2,763,974 2,738,393 1,079,135 15,621,648
Net withdrawals due to policy loans..... (1,015,473) (1,502,812) (45,505) (320,179) (309,555) (1,042,356)
Withdrawals due to death benefits....... (74,532) (11,969) (5,636) (7,293) (14,147) (95,105)
----------- ------------ ----------- ----------- ----------- -----------
Net increase in net assets derived from
policy transactions................... 16,852,627 14,201,154 5,060,415 6,829,353 3,879,597 30,805,744
----------- ------------ ----------- ----------- ----------- -----------
Total increase in net assets............ 34,861,968 32,748,316 6,821,881 8,592,279 10,446,811 43,630,794
NET ASSETS
Beginning of year..................... 58,937,798 76,905,059 8,480,451 15,807,688 31,713,849 28,434,057
----------- ------------ ----------- ----------- ----------- -----------
End of year........................... $93,799,766 $109,653,375 $15,302,332 $24,399,967 $42,160,660 $72,064,851
=========== ============ =========== =========== =========== ===========
</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, 1997
- --------------------------------------------------------------------------------
<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)................. $ 264,484 $ (51,526) $ 41,071 $ (146,708) $ 130,958
Net realized gain (loss) on investments...... 2,841 370,677 304,475 2,142,526 (6,752)
Net unrealized appreciation of investments
during the year............................ 246,105 2,855,281 524,116 2,994,748 67,628
---------- ----------- ---------- ----------- ----------
Net increase in net assets from operations... 513,430 3,174,432 869,662 4,990,566 191,834
---------- ----------- ---------- ----------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................. 2,548,565 8,274,186 1,807,306 7,165,598 1,348,185
Cost of insurance and administrative
charges.................................... (747,877) (1,798,797) (639,602) (2,369,791) (271,833)
Surrenders and forfeitures................... (206,163) (425,566) (137,713) (676,292) (29,867)
Transfers between investment portfolios...... 816,573 10,232,231 (79,543) (721,651) 482,396
Net withdrawals due to policy loans.......... (22,522) (201,694) (66,441) (286,901) (15,620)
Withdrawals due to death benefits............ (1,057) (6,670) (13,455)
---------- ----------- ---------- ----------- ----------
Net increase in net assets derived from
policy transactions........................ 2,387,519 16,073,690 884,007 3,097,508 1,513,261
---------- ----------- ---------- ----------- ----------
Total increase in net assets................. 2,900,949 19,248,122 1,753,669 8,088,074 1,705,095
NET ASSETS
Beginning of year.......................... 4,996,981 6,183,362 4,627,706 17,052,789 2,517,888
---------- ----------- ---------- ----------- ----------
End of year................................ $7,897,930 $25,431,484 $6,381,375 $25,140,863 $4,222,983
========== =========== ========== =========== ==========
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -------------------------------------------------------------------------------------------------------------------
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING SMALL
APPRECIATION BOND HARD ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............... $ (56,416) $ 79,864 $ 33,013 $ (21,581) $ (90,562)
Net realized gain on investments........... 81,043 12,516 94,797 82,065 460,544
Net unrealized appreciation (depreciation)
of investments during the year........... (391,040) (9,005) (218,482) (1,528,161) 1,151,963
----------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets from
operations............................... (366,413) 83,375 (90,672) (1,467,677) 1,521,945
----------- ---------- ---------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................ 3,692,178 1,320,768 883,387 3,474,642 6,837,744
Cost of insurance and administrative
charges.................................. (1,145,513) (371,619) (246,420) (677,362) (1,662,591)
Surrenders and forfeitures................. (268,757) (100,365) (28,046) (58,433) (334,781)
Transfers between investment portfolios.... (1,462,705) 321,170 539,670 2,962,129 4,643,633
Net withdrawals due to policy loans........ (101,019) (20,808) (32,784) (81,551) (221,848)
Withdrawals due to death benefits.......... (5,826) (2,563) (19) (4,220) (15,361)
----------- ---------- ---------- ----------- -----------
Net increase in net assets derived from
policy transactions...................... 708,358 1,146,583 1,115,788 5,615,205 9,246,796
----------- ---------- ---------- ----------- -----------
Total increase in net assets............... 341,945 1,229,958 1,025,116 4,147,528 10,768,741
NET ASSETS
Beginning of year........................ 8,092,459 3,147,177 1,756,052 2,216,381 7,964,072
----------- ---------- ---------- ----------- -----------
End of year.............................. $ 8,434,404 $4,377,135 $2,781,168 $6,363,909 $18,732,813
=========== ========== ========== =========== ===========
</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, 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-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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------
1996 SERIES 2006 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-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, 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-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, 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-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, 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-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, 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-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, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------
1996 SERIES 2006 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-33
<PAGE> 106
- --------------------------------------------------------------------------------
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-34
<PAGE> 107
- --------------------------------------------------------------------------------
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-35
<PAGE> 108
- --------------------------------------------------------------------------------
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 American Century VP Capital
Appreciation (formerly TCI Growth) Subaccount invests in the corresponding
portfolio of the American Century Variable Portfolios, Inc. (formerly TCI
Portfolios, Inc.); the Van Eck Worldwide Bond, Van Eck Worldwide Hard Assets
(formerly Van Eck Gold and Natural Resources) and Van Eck Worldwide Emerging
Markets (formerly 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-36
<PAGE> 109
- --------------------------------------------------------------------------------
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 period. Actual results could differ from those
estimates.
F-37
<PAGE> 110
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1997, 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................................ 10,631,736 $156,957,462 $206,893,584
Money Market Portfolio.......................... 22,625,570 $22,625,570 $22,625,570
Bond Portfolio.................................. 1,229,106 $12,950,450 $13,495,581
Managed Portfolio............................... 2,121,455 $28,107,582 $36,192,027
Aggressive Growth Portfolio..................... 1,574,008 $25,802,723 $34,927,244
International Portfolio......................... 2,848,062 $35,188,310 $38,762,124
The Stripped ("Zero") U.S. Treasury Securities
Fund, Provident Mutual Series A:
2006 Series..................................... 13,633,327 $7,302,281 $8,657,163
Variable Insurance Products Fund:
Equity-Income Portfolio......................... 3,863,252 $72,866,951 $93,799,766
Growth Portfolio................................ 2,955,617 $82,122,692 $109,653,375
High Income Portfolio........................... 1,126,829 $13,816,650 $15,302,332
Overseas Portfolio.............................. 1,270,832 $22,345,101 $24,399,967
Variable Insurance Products Fund II:
Asset Manager Portfolio......................... 2,340,958 $35,131,680 $42,160,660
Index 500 Portfolio............................. 629,993 $56,352,569 $72,064,851
Investment Grade Bond Portfolio................. 628,816 $7,496,559 $7,897,930
Contrafund Portfolio............................ 1,275,400 $22,098,879 $25,431,484
Neuberger & Berman Advisers Management Trust:
Balanced Portfolio.............................. 358,504 $5,786,058 $6,381,375
Growth Portfolio................................ 823,211 $20,902,848 $25,140,863
Limited Maturity Bond Portfolio................. 299,078 $4,136,198 $4,222,983
American Century Variable Portfolios, Inc.:
American Century VP Capital Appreciation
Portfolio.................................... 871,323 $9,459,170 $8,434,404
Van Eck Worldwide Insurance Trust:
Van Eck Worldwide Bond Portfolio................ 398,283 $4,315,608 $4,377,135
Van Eck Worldwide Hard Assets Portfolio......... 176,919 $2,812,372 $2,781,168
Van Eck Worldwide Emerging Markets Portfolio.... 578,537 $7,801,362 $6,363,909
Alger American Fund:
Alger American Small Capitalization Portfolio... 428,179 $17,407,839 $18,732,813
</TABLE>
F-38
<PAGE> 111
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the years ended December 31, 1997, 1996 and 1995, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ----------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................ 803,570 831,901 1,059,897 23,511,707 19,129,435 13,655,624
Shares received from
reinvestment of:
Dividends..................... 228,102 265,374 256,696 1,161,384 1,024,419 871,001
Capital gain distributions.... 1,229,894 436,699 601,004
----------- ----------- ----------- ------------ ------------ ------------
Total shares acquired........... 2,261,566 1,533,974 1,917,597 24,673,091 20,153,854 14,526,625
Total shares redeemed........... (960,812) (904,010) (565,932) (25,932,218) (12,978,261) (10,536,224)
----------- ----------- ----------- ------------ ------------ ------------
Net increase (decrease) in
shares owned.................. 1,300,754 629,964 1,351,665 (1,259,127) 7,175,593 3,990,401
Shares owned, beginning of
year.......................... 9,330,982 8,701,018 7,349,353 23,884,697 16,709,104 12,718,703
----------- ----------- ----------- ------------ ------------ ------------
Shares owned, end of year....... 10,631,736 9,330,982 8,701,018 22,625,570 23,884,697 16,709,104
=========== =========== =========== ============ ============ ============
Cost of shares acquired......... $37,696,907 $24,791,248 $27,059,436 $ 24,673,091 $ 20,153,854 $ 14,526,625
=========== =========== =========== ============ ============ ============
Cost of shares redeemed......... $12,847,552 $11,787,104 $ 7,086,303 $ 25,932,218 $ 12,978,261 $ 10,536,224
=========== =========== =========== ============ ============ ============
</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>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO MANAGED PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 199,386 168,569 192,313 179,042 221,107 208,590
Shares received from reinvestment of:
Dividends............................... 69,359 57,612 53,908 72,155 73,728 83,429
Capital gain distributions.............. 16,767 81,745 2,072
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired..................... 268,745 226,181 246,221 267,964 376,580 294,091
Total shares redeemed..................... (87,869) (127,216) (74,556) (226,374) (198,824) (204,288)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.............. 180,876 98,965 171,665 41,590 177,756 89,803
Shares owned, beginning of year........... 1,048,230 949,265 777,600 2,079,865 1,902,109 1,812,306
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year................. 1,229,106 1,048,230 949,265 2,121,455 2,079,865 1,902,109
========== ========== ========== ========== ========== ==========
Cost of shares acquired................... $2,847,336 $2,391,808 $2,538,587 $4,189,158 $5,201,624 $3,791,908
========== ========== ========== ========== ========== ==========
Cost of shares redeemed................... $ 938,352 $1,348,647 $ 767,042 $2,579,637 $2,131,719 $2,171,165
========== ========== ========== ========== ========== ==========
</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>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 257,235 263,500 336,867 542,095 520,713 524,968
Shares received from reinvestment of:
Dividends............................... 13,532 13,575 21,751 23,400 8,442
Capital gain distributions.............. 2,684 136,800 7,271 170,284 94,861 39,890
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired..................... 273,451 413,875 344,138 734,130 638,974 573,300
Total shares redeemed..................... (97,819) (125,277) (62,003) (271,615) (117,063) (141,765)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.............. 175,632 288,598 282,135 462,515 521,911 431,535
Shares owned, beginning of year........... 1,398,376 1,109,778 827,643 2,385,547 1,863,636 1,432,101
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year................. 1,574,008 1,398,376 1,109,778 2,848,062 2,385,547 1,863,636
========== ========== ========== ========== ========== ==========
Cost of shares acquired................... $5,541,378 $6,735,426 $5,631,340 $9,578,029 $8,077,706 $6,827,356
========== ========== ========== ========== ========== ==========
Cost of shares redeemed................... $1,408,820 $1,641,455 $ 841,580 $3,084,716 $1,210,942 $1,281,772
========== ========== ========== ========== ========== ==========
</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>
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND
PROVIDENT MUTUAL SERIES A
- ----------------------------------------------------------------------------------------------------------------------
1996 SERIES 2006 SERIES
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased.................................. 118,128 364,596 4,580,927 4,208,650 2,903,418
Shares received from reinvestment of:
Dividends.......................................
Capital gain distributions......................
----------- ----------- ----------- ----------- ----------
Total shares acquired............................. 118,128 364,596 4,580,927 4,208,650 2,903,418
Total shares redeemed............................. (2,181,298) (217,641) (2,294,572) (1,223,768) (935,891)
----------- ----------- ----------- ----------- ----------
Net increase (decrease) in shares owned........... (2,063,170) 146,955 2,286,355 2,984,882 1,967,527
Shares owned, beginning of year................... 2,063,170 1,916,215 11,346,972 8,362,090 6,394,563
----------- ----------- ----------- ----------- ----------
Shares owned, end of year......................... 2,063,170 13,633,327 11,346,972 8,362,090
=========== =========== =========== =========== ==========
Cost of shares acquired........................... $ 117,132 $ 345,561 $ 2,702,211 $ 2,317,522 $1,461,490
=========== =========== =========== =========== ==========
Cost of shares redeemed........................... $ 1,949,315 $ 160,308 $ 1,068,989 $ 528,531 $ 353,785
=========== =========== =========== =========== ==========
</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>
VARIABLE INSURANCE PRODUCTS FUND
- ----------------------------------------------------------------------------------------------------------------------
EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................... 879,873 1,036,625 937,870 555,971 826,059 659,784
Shares received from reinvestment
of:
Dividends........................ 52,772 2,918 30,564 16,709 4,794 5,481
Capital gain distributions....... 265,326 83,648 42,404 74,791 121,056
----------- ----------- ----------- ----------- ----------- -----------
Total shares acquired.............. 1,197,971 1,123,191 1,010,838 647,471 951,909 665,265
Total shares redeemed.............. (137,286) (71,820) (27,488) (161,509) (69,623) (27,312)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in shares owned....... 1,060,685 1,051,371 983,350 485,962 882,286 637,953
Shares owned, beginning of year.... 2,802,567 1,751,196 767,846 2,469,655 1,587,369 949,416
----------- ----------- ----------- ----------- ----------- -----------
Shares owned, end of year.......... 3,863,252 2,802,567 1,751,196 2,955,617 2,469,655 1,587,369
=========== =========== =========== =========== =========== ===========
Cost of shares acquired............ $25,703,423 $21,875,240 $17,235,825 $21,882,557 $27,880,379 $17,731,718
=========== =========== =========== =========== =========== ===========
Cost of shares redeemed............ $ 2,120,256 $ 1,105,790 $ 427,894 $ 3,690,895 $ 1,605,197 $ 608,521
=========== =========== =========== =========== =========== ===========
</TABLE>
F-43
<PAGE> 116
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- -----------------------------------------------------------------------------------------------------------------------
HIGH INCOME PORTFOLIO OVERSEAS PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 529,057 479,606 232,086 406,870 372,206 316,944
Shares received from reinvestment of:
Dividends............................... 53,162 25,643 4,088 16,746 6,165 971
Capital gain distributions.............. 6,571 5,016 66,476 6,782 971
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired..................... 588,790 510,265 236,174 490,092 385,153 318,886
Total shares redeemed..................... (139,313) (108,022) (9,155) (58,309) (47,671) (19,077)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.............. 449,477 402,243 227,019 431,783 337,482 299,809
Shares owned, beginning of year........... 677,352 275,109 48,090 839,049 501,567 201,758
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year................. 1,126,829 677,352 275,109 1,270,832 839,049 501,567
========== ========== ========== ========== ========== ==========
Cost of shares acquired................... $7,427,218 $6,055,847 $2,687,554 $9,229,879 $6,786,632 $5,114,360
========== ========== ========== ========== ========== ==========
Cost of shares redeemed................... $1,619,163 $1,154,715 $ 98,892 $ 946,549 $ 774,233 $ 303,825
========== ========== ========== ========== ========== ==========
</TABLE>
F-44
<PAGE> 117
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased....................... 380,899 313,935 489,727 318,609 200,784 88,644
Shares received from reinvestment of:
Dividends............................ 72,745 65,522 33,935 3,902 1,531 868
Capital gain distributions........... 182,481 54,028 7,916 3,938 119
----------- ---------- ---------- ----------- ----------- ----------
Total shares acquired.................. 636,125 433,485 523,662 330,427 206,253 89,631
Total shares redeemed.................. (168,401) (277,449) (305,140) (19,452) (5,225) (14,435)
----------- ---------- ---------- ----------- ----------- ----------
Net increase in shares owned........... 467,724 156,036 218,522 310,975 201,028 75,196
Shares owned, beginning of year........ 1,873,234 1,717,198 1,498,676 319,018 117,990 42,794
----------- ---------- ---------- ----------- ----------- ----------
Shares owned, end of year.............. 2,340,958 1,873,234 1,717,198 629,993 319,018 117,990
=========== ========== ========== =========== =========== ==========
Cost of shares acquired................ $10,391,586 $6,753,590 $7,461,536 $33,442,553 $16,732,487 $5,976,098
=========== ========== ========== =========== =========== ==========
Cost of shares redeemed................ $ 2,437,871 $4,265,120 $4,552,526 $ 1,092,364 $ 285,519 $ 806,307
=========== ========== ========== =========== =========== ==========
</TABLE>
F-45
<PAGE> 118
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE CONTRAFUND
BOND PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased..................................... 322,755 260,720 148,445 947,917 378,323
Shares received from reinvestment of:
Dividends.......................................... 26,504 10,256 2,620 3,925
Capital gain distributions......................... 10,374
---------- ---------- ---------- ----------- ----------
Total shares acquired................................ 349,259 270,976 151,065 962,216 378,323
Total shares redeemed (128,693) (50,765) (17,097) (60,207) (4,932)
---------- ---------- ---------- ----------- ----------
Net increase in shares owned......................... 220,566 220,211 133,968 902,009 373,391
Shares owned, beginning of year...................... 408,250 188,039 54,071 373,391
---------- ---------- ---------- ----------- ----------
Shares owned, end of year............................ 628,816 408,250 188,039 1,275,400 373,391
========== ========== ========== =========== ==========
Cost of shares acquired.............................. $4,160,380 $3,229,467 $1,765,445 $17,279,465 $5,779,392
========== ========== ========== =========== ==========
Cost of shares redeemed.............................. $1,505,536 $ 560,842 $ 190,284 $ 886,624 $ 73,354
========== ========== ========== =========== ==========
</TABLE>
F-46
<PAGE> 119
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 110,201 108,736 74,181 184,992 263,886 228,427
Shares received from reinvestment of:
Dividends............................... 4,936 5,238 2,584 180 490
Capital gain distributions.............. 12,668 29,133 830 60,028 42,178 6,560
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired..................... 127,805 143,107 77,595 245,020 306,244 235,477
Total shares redeemed..................... (59,986) (36,401) (20,656) (83,282) (55,459) (10,148)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.............. 67,819 106,706 56,939 161,738 250,785 225,329
Shares owned, beginning of year........... 290,685 183,979 127,040 661,473 410,688 185,359
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year................. 358,504 290,685 183,979 823,211 661,473 410,688
========== ========== ========== ========== ========== ==========
Cost of shares acquired................... $2,121,797 $2,241,958 $1,276,739 $6,796,267 $7,625,308 $5,737,857
========== ========== ========== ========== ========== ==========
Cost of shares redeemed................... $ 892,244 $ 570,955 $ 322,244 $1,702,941 $1,295,598 $ 244,085
========== ========== ========== ========== ========== ==========
</TABLE>
F-47
<PAGE> 120
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER & BERMAN ADVISERS AMERICAN CENTURY
MANAGEMENT TRUST VARIABLE PORTFOLIOS, INC.
- -----------------------------------------------------------------------------------------------------------------------
LIMITED MATURITY AMERICAN CENTURY VP CAPITAL
BOND PORTFOLIO APPRECIATION PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................ 132,180 116,412 64,863 251,935 384,291 308,637
Shares received from reinvestment of:
Dividends................................. 11,526 8,274 1,128 145
Capital gain distributions................ 19,341 68,178
---------- ---------- -------- ---------- ---------- ----------
Total shares acquired....................... 143,706 124,686 65,991 271,276 452,469 308,782
Total shares redeemed....................... (23,837) (20,824) (6,437) (190,232) (80,668) (13,168)
---------- ---------- -------- ---------- ---------- ----------
Net increase in shares owned................ 119,869 103,862 59,554 81,044 371,801 295,614
Shares owned, beginning of year............. 179,209 75,347 15,793 790,279 418,478 122,864
---------- ---------- -------- ---------- ---------- ----------
Shares owned, end of year................... 299,078 179,209 75,347 871,323 790,279 418,478
========== ========== ======== ========== ========== ==========
Cost of shares acquired..................... $1,969,915 $1,724,884 $932,610 $2,680,991 $4,986,969 $3,475,266
========== ========== ======== ========== ========== ==========
Cost of shares redeemed..................... $ 332,448 $ 289,820 $ 90,095 $1,948,006 $ 723,514 $ 118,574
========== ========== ======== ========== ========== ==========
</TABLE>
F-48
<PAGE> 121
- --------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE VAN ECK WORLDWIDE
BOND PORTFOLIO HARD ASSETS PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................. 127,829 140,460 101,345 87,194 54,502 49,696
Shares received from reinvestment of:
Dividends.................................. 9,965 6,267 8,113 2,862 749 534
Capital gain distributions................. 2,113 735
---------- ---------- ---------- ---------- -------- --------
Total shares acquired........................ 137,794 146,727 109,458 92,169 55,986 50,230
Total shares redeemed........................ (23,040) (25,888) (9,283) (20,277) (13,461) (18,610)
---------- ---------- ---------- ---------- -------- --------
Net increase in shares owned................. 114,754 120,839 100,175 71,892 42,525 31,620
Shares owned, beginning of year.............. 283,529 162,690 62,515 105,027 62,502 30,882
---------- ---------- ---------- ---------- -------- --------
Shares owned, end of year.................... 398,283 283,529 162,690 176,919 105,027 62,502
========== ========== ========== ========== ======== ========
Cost of shares acquired...................... $1,474,137 $1,593,168 $1,204,346 $1,503,036 $909,495 $674,277
========== ========== ========== ========== ======== ========
Cost of shares redeemed...................... $ 235,174 $ 258,769 $ 90,782 $ 259,438 $176,559 $255,105
========== ========== ========== ========== ======== ========
</TABLE>
F-49
<PAGE> 122
- --------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE ALGER AMERICAN
EMERGING MARKETS SMALL CAPITALIZATION
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased........................................... 465,094 177,883 241,101 207,020
Shares received from reinvestment of:
Dividends................................................ 702 19 2
Capital gain distributions............................... 12,008
---------- ---------- ----------- ----------
Total shares acquired...................................... 465,796 177,902 253,109 207,022
Total shares redeemed...................................... (64,711) (450) (19,603) (12,349)
---------- ---------- ----------- ----------
Net increase in shares owned............................... 401,085 177,452 233,506 194,673
Shares owned, beginning of year............................ 177,452 194,673
---------- ---------- ----------- ----------
Shares owned, end of year.................................. 578,537 177,452 428,179 194,673
========== ========== =========== ==========
Cost of shares acquired.................................... $6,428,901 $2,130,602 $10,432,636 $8,338,053
========== ========== =========== ==========
Cost of shares redeemed.................................... $ 753,212 $ 4,929 $ 815,858 $ 546,992
========== ========== =========== ==========
</TABLE>
F-50
<PAGE> 123
- --------------------------------------------------------------------------------
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-51
<PAGE> 124
- --------------------------------------------------------------------------------
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, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
MONEY
GROWTH MARKET BOND
SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT
-------- -------- --------
<S> <C> <C> <C>
Year ending December 31,
1997.................................................. $3,041 $40 $1,390
1996.................................................. $3,491 $146 $1,087
1995.................................................. $12,376 $538 $1,846
</TABLE>
These amounts are shown as an operating expense reimbursement reducing
total expenses in the statements of operations.
Provident Mutual makes a daily asset charge against the assets of the Zero
Coupon Bond Separate Account. The charge is to reimburse Provident Mutual for
the transaction charge paid directly by Provident Mutual to MLPFS on the sale of
the Zero Coupon Trust units to the Zero Coupon Bond Separate Account. Provident
Mutual pays these amounts from General Account assets. The amount of the asset
charge currently is equivalent to an effective annual rate of .25% of the
average daily net assets of each Subaccount. This amount may be increased in the
future, but in no event will it exceed an effective annual rate of .50%. The
charge will be cost based (taking into account the loss of interest) with no
anticipated element of profit for Provident Mutual.
F-52
<PAGE> 125
- --------------------------------------------------------------------------------
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,
1997 and 1996, 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, 1997. 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, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted in 1996 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.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 20, 1998
F-53
<PAGE> 126
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Consolidated Statements of Financial Condition (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
- --------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: 1997-$2,647,954;
1996-$2,513,377)....................................... $2,758,069 $2,564,903
Held to maturity, at amortized cost (market:
1997-$455,776; 1996-$518,665).......................... 436,181 510,874
Equity securities, at market (cost: 1997-$22,706;
1996-$27,770)............................................. 23,818 23,809
Mortgage loans.............................................. 663,285 708,982
Real estate................................................. 52,543 71,444
Policy loans and premium notes.............................. 358,670 358,522
Other invested assets....................................... 14,546 20,781
Short-term investments...................................... 18,519 60,407
---------- ----------
Total Investments........................................... 4,325,631 4,319,722
---------- ----------
Cash........................................................ 17,985 5,551
Premiums due and deferred................................... 12,960 13,106
Investment income due and accrued........................... 73,997 74,212
Deferred acquisition costs.................................. 629,635 602,587
Reinsurance recoverable..................................... 499,488 530,326
Separate account assets..................................... 2,284,118 1,510,101
Other assets................................................ 77,059 68,045
---------- ----------
Total Assets................................................ $7,920,873 $7,123,650
========== ==========
LIABILITIES
Policy Liabilities:
Future policyholder benefits.............................. $4,344,591 $4,426,517
Policyholders' funds...................................... 146,871 149,106
Policyholder dividends payable............................ 33,258 32,697
Other policy obligations.................................. 16,638 20,332
---------- ----------
Total Policy Liabilities.................................. 4,541,358 4,628,652
---------- ----------
Expenses payable............................................ 45,013 38,540
Taxes payable............................................... 3,047 2,129
Federal income taxes payable:
Current................................................... 39,114 35,157
Deferred.................................................. 64,216 51,029
Separate account liabilities................................ 2,279,124 1,505,990
Other liabilities........................................... 104,719 104,876
---------- ----------
Total Liabilities........................................... 7,076,591 6,366,373
---------- ----------
COMMITMENTS AND CONTINGENCIES -- NOTE 9
CAPITAL AND SURPLUS
Unassigned surplus.......................................... 813,618 746,567
Net unrealized appreciation on securities................... 30,664 10,710
---------- ----------
Total Capital and Surplus................................... 844,282 757,277
---------- ----------
Total Liabilities, Capital and Surplus...................... $7,920,873 $7,123,650
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-54
<PAGE> 127
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Consolidated Statements of Operations (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $220,952 $235,615 $255,509
Policy and contract charges................................. 106,449 73,873 63,387
Net investment income....................................... 331,524 333,938 336,827
Other income................................................ 47,520 43,839 37,084
Net realized gains on investments........................... 2,360 7,873 3,691
-------- -------- --------
Total Revenues.............................................. 708,805 695,138 696,498
-------- -------- --------
BENEFITS AND EXPENSES
Policy and contract benefits................................ 234,117 241,042 228,143
Change in future policyholder benefits...................... 122,463 130,147 145,545
Operating expenses.......................................... 82,310 94,786 88,880
Amortization of deferred acquisition costs.................. 73,582 56,092 63,666
Policyholder dividends...................................... 65,736 65,184 64,943
Noninsurance commissions and expenses....................... 24,962 20,520 15,903
-------- -------- --------
Total Benefits and Expenses................................. 603,170 607,771 607,080
-------- -------- --------
Income Before Income Taxes.................................. 105,635 87,367 89,418
Income tax expense (benefit):
Current................................................... 35,971 (6,613) 39,817
Deferred.................................................. 2,613 12,441 (725)
-------- -------- --------
Total Income Tax Expense.................................... 38,584 5,828 39,092
-------- -------- --------
Net Income.................................................. $ 67,051 $ 81,539 $ 50,326
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-55
<PAGE> 128
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Consolidated Statements of Capital and Surplus for the Years Ended December 31,
1997, 1996 and 1995 (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, 1995.................................. $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
Net income................................................ 67,051 -- 67,051
Change in unrealized appreciation (depreciation).......... -- 19,954 19,954
-------- -------- --------
Balance at December 31, 1997................................ $813,618 $ 30,664 $844,282
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-56
<PAGE> 129
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Consolidated Statements of Cash Flows (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 67,051 $ 81,539 $ 50,326
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to variable universal life and
investment products................................... 108,773 117,038 117,873
Policy fees assessed on variable universal life and
investment products................................... (106,449) (73,873) (63,387)
Amortization of deferred policy acquisition costs....... 73,582 56,092 63,666
Capitalization of deferred policy acquisition costs..... (127,593) (119,031) (100,480)
Deferred Federal income taxes........................... 2,613 12,441 (725)
Depreciation and amortization expense................... 4,309 5,292 6,088
Realized gains on investments........................... (2,360) (7,873) (3,691)
Change in investment income due and accrued............. 215 991 4,719
Change in premiums due and deferred..................... 146 2,757 903
Change in reinsurance recoverable....................... 30,838 14,173 (85,199)
Change in policy liabilities and other policyholders'
funds of traditional life products.................... (44,638) (18,335) 86,570
Change in other liabilities............................. 100 1,933 (6,047)
Change in current Federal income taxes payable.......... 3,786 (43,161) 13,934
Other, net.............................................. (2,777) (6,819) (4,747)
--------- --------- ---------
Net cash provided by operating activities........... 7,596 23,164 79,803
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities........................... 370,224 285,514 249,231
Equity securities....................................... 8,288 8,147 11,170
Real estate............................................. 17,347 21,902 22,879
Other invested assets................................... 7,424 6,078 7,210
Proceeds from maturities of investments:
Held to maturity securities............................. 96,045 109,582 84,601
Available for sale securities........................... 207,455 165,980 146,547
Mortgage loans.......................................... 99,673 124,190 106,257
Purchases of investments:
Held to maturity securities............................. (21,721) (76,730) (71,937)
Available for sale securities........................... (705,348) (533,650) (504,337)
Equity securities....................................... (7,052) (2,966) (4,966)
Mortgage loans.......................................... (54,659) (94,254) (102,632)
Real estate............................................. (1,823) (11,449) (13,172)
Other invested assets................................... (1,807) (127) (3,976)
Net withdrawals of separate account seed money............ 29 5,985 --
Policy loans and premium notes, net....................... (148) 7,580 12,152
Net sales (purchases) of short-term investments........... 41,888 35,983 (22,365)
--------- --------- ---------
Net cash provided by (used in) investing
activities........................................ 55,815 51,765 (83,338)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits... 836,694 668,437 578,441
Variable universal life and investment product
withdrawals............................................. (887,671) (740,686) (573,177)
--------- --------- ---------
Net cash (used in) provided by financing
activities........................................ (50,977) (72,249) 5,264
--------- --------- ---------
Net change in cash.................................. 12,434 2,680 1,729
Cash, beginning of year..................................... 5,551 2,871 1,142
--------- --------- ---------
Cash, end of year........................................... $ 17,985 $ 5,551 $ 2,871
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes................ $ 31,805 $ 36,329 $ 24,109
========= ========= =========
Foreclosure of mortgage loans............................. $ 1,744 $ 7,665 $ 14,766
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-57
<PAGE> 130
- --------------------------------------------------------------------------------
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 10 states accounted for 72% of the Company's sales for the year ended
December 31, 1997. 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.
Basis of Presentation
The consolidated financial statements include the accounts of Provident
Mutual and its wholly-owned subsidiaries. Intercompany transactions have been
eliminated.
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
F-58
<PAGE> 131
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
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 94, "Consolidation of All Majority-Owned Subsidiaries,"
-- 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 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 the Impairment of Long-Lived Assets and for
Long- Lived Assets to Be Disposed Of."
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, the
elimination of the statutory asset valuation reserve and the establishment of
investment valuation allowances.
F-59
<PAGE> 132
- --------------------------------------------------------------------------------
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 for 1995 as
previously reported, has been restated as follows (in millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
<S> <C>
Net income, as previously reported.......................... $ 37.4
Effect of changing to a different basis of accounting:
Deferred acquisition costs................................ 36.8
Net policyholder liabilities.............................. (32.2)
Deferred income taxes..................................... .7
Adjustment in valuation of investments.................... 8.5
Retirement benefits....................................... 3.6
Termination of real estate lease.......................... (8.9)
Net income (SAP) of unconsolidated subsidiaries........... 4.5
Other, net................................................ (.1)
------
Net income, as adjusted..................................... $ 50.3
======
</TABLE>
As a result of the change in accounting principles, capital and surplus as
of December 31, 1995 as previously reported, has been restated as follows (in
millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
<S> <C>
Balance at beginning of year, as previously reported........ $268.4
Add adjustment for the cumulative effect on prior years of
applying retroactively the new basis of accounting:
Deferred acquisition costs................................ 530.0
Net policyholder liabilities.............................. (161.1)
Deferred income taxes..................................... (34.0)
Adjustment in valuation of investments.................... (12.2)
Asset valuation reserve................................... 44.9
Retirement benefits....................................... (21.8)
Other, net................................................ .5
------
Balance at beginning of year, as adjusted................... 614.7
Net income.................................................. 50.3
Add adjustment for the cumulative effect on prior years of
applying accounting change -- securities.................. (32.1)
Change in unrealized gains (losses) on investment
securities................................................ 62.4
------
Balance at end of year...................................... $695.3
======
</TABLE>
The Company prepares financial statements for filing with regulatory
authorities in conformity with the accounting practices prescribed or permitted
by the Insurance Departments of the Commonwealth of
F-60
<PAGE> 133
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
Pennsylvania and the State of Delaware (SAP). Practices under SAP vary from GAAP
primarily with respect to the initial deferral of acquisition costs, the
establishment of deferred taxes, the accrual of postretirement benefits, the
elimination of the statutory asset valuation reserve and the establishment of
investment valuation allowances.
Statutory net income was $58.4 million, $34.4 million and $37.4 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Statutory
surplus was $374.4 million and $343.1 million as of December 31, 1997 and 1996,
respectively.
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
The Company is subject to interest rate risk to the extent its investment
portfolio cash flows are not matched to its insurance liabilities. Management
believes it manages this risk through modeling of the cash flows under
reasonable scenarios.
Invested Assets
Fixed maturity securities (bonds) which may be sold are designated as
"available for sale" and are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in capital
and surplus net of related Federal income taxes and 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 net of related Federal income taxes and amortization of deferred
acquisition costs.
Fixed maturity and equity securities that have experienced an other than
temporary decline in value are written down to fair value by a charge to
realized losses. This fair value becomes the new cost basis of the particular
security.
Mortgage loans are carried at unpaid principal balances, less impairment
reserves. For mortgage loans considered impaired, a specific reserve is
established. A general reserve is also established for probable losses arising
from the portfolio but not attributable to specific loans. Mortgage loans are
considered impaired when it is probable that the Company will be unable to
collect amounts due according to the contractual terms of the loan agreement.
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
F-61
<PAGE> 134
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Invested Assets -- continued
and its fair value. Fair value is based on either the present value of expected
future cash flows discounted at the mortgage loan's effective interest rate or
the fair value of the underlying collateral. The reserve is charged to realized
capital losses.
Policy loans and premium notes are reported at unpaid principal balances.
Real estate is carried at cost, less encumbrances and accumulated
depreciation. 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.
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. Derivatives utilized by the Company are long and short positions on
United States Treasury notes and bond futures and certain interest rate swaps.
The net interest effect of futures transactions is settled on a daily
basis. Cash paid or received is recorded daily, along with a receivable/payable,
to settle the futures contract prior to the contract termination. The
receivable/payable is carried until the contract is terminated and the remaining
balance is included in either net investment income or realized gain or loss.
Upon termination of a futures contract that is identified to a specific
security, any gain or loss is deferred and amortized to net investment income
over the expected remaining life of the hedged security. If the futures contract
is not identified to a specific security, any gain or loss on termination is
reported as a realized gain or loss.
Interest rate swaps are settled on the contract date. Cash paid or received
is reported as an adjustment to net investment income.
Investment Valuation Reserves
Investment valuation reserves have been provided for impairments of
mortgage loans and totalled $13.1 million and $14.4 million at December 31, 1997
and 1996, respectively. Changes in the reserves are reflected as realized
capital gains and losses.
F-62
<PAGE> 135
- --------------------------------------------------------------------------------
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
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%.
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
F-63
<PAGE> 136
- --------------------------------------------------------------------------------
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
Variable Life and Investment-Type Products -- continued
accounts chosen by the policyholder. For other account balances, credited
interest rates ranged from 3.8% to 9.1% in 1997.
Deferred Policy Acquisition Costs
The costs that vary with and are directly related to the production of new
business, have been deferred to the extent deemed recoverable. Such costs
include commissions and certain costs of underwriting, policy issue and
marketing.
Deferred policy acquisition costs on traditional participating life
insurance policies are amortized in proportion to the present value of
expected gross margins. Gross margins include margins from mortality,
investments and expenses, net of policyholder dividends. Expected gross
margins are redetermined regularly, based on actual experience and current
assumptions of mortality, persistency, expenses, and investment experience.
The average investment yield, before realized capital gains and losses, in
the calculation of expected gross margins was 8.0% for 1997.
Deferred policy acquisition costs for variable life and investment-type
products are amortized in relation to the incidence of expected gross
profits, including realized investment gains and losses, over the expected
life of the policies.
The costs deferred during 1997, 1996 and 1995 were $127.6 million, $119.0
million, and $100.5 million, respectively. Amortization of deferred policy
acquisition costs was $73.6 million, $56.1 million and $63.7 million during
1997, 1996 and 1995, 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 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, 1997, 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.
F-64
<PAGE> 137
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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.
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-65
<PAGE> 138
- --------------------------------------------------------------------------------
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, 1997 and 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
(IN MILLIONS) (IN MILLIONS)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale........................ $2,758.1 $2,758.1 $2,564.9 $2,564.9
Held to maturity.......................... $455.8 $436.2 $518.7 $510.9
Equity securities........................... $23.8 $23.8 $23.8 $23.8
Commercial mortgage loans................... $726.0 $662.8 $740.6 $708.2
Residential mortgage loans.................. $.6 $.5 $.9 $.8
LIABILITIES FOR INVESTMENT-TYPE INSURANCE
CONTRACTS
Guaranteed interest contracts............... $240.7 $234.3 $321.8 $316.9
Group annuities............................. $1,345.8 $1,353.2 $1,101.8 $1,118.3
Supplementary contracts without life
contingencies............................. $30.8 $30.6 $31.4 $31.4
Individual annuities........................ $1,740.3 $1,799.6 $1,544.6 $1,597.5
</TABLE>
The underlying investment risk of the Company's variable life and variable
annuity contracts is assumed by the policyholder. These reserve liabilities are
primarily reported in the separate accounts. The liabilities in the separate
accounts are recorded at amounts equal to the related assets at fair value.
Fair values for the Company's insurance contracts other than
investment-type contracts are not required to be disclosed under Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." However, the estimated fair value and future cash flows
of liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts. The estimated fair value of all assets
without a corresponding revaluation of all liabilities associated with insurance
contracts can be misinterpreted.
F-66
<PAGE> 139
- --------------------------------------------------------------------------------
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 5% to 8%. For loans with variable interest
rates, the interest rates are primarily adjusted quarterly based upon changes in
a corporate bond index. Future cash flows of policy loans are uncertain and
difficult to predict. As a result, management deems it impractical to calculate
the fair value of policy loans.
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 $237.1 million and $240.9 million,
respectively, at December 31, 1997 and $319.4 million and $322.4 million,
respectively, at December 31, 1996.
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-67
<PAGE> 140
- --------------------------------------------------------------------------------
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, 1997 and 1996 are as follows (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------
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... $ 53.4 $ 2.0 $ .1 $ 55.3
Obligations of states and political
subdivisions................................ 66.7 3.3 .2 69.8
Debt securities issued by foreign
governments................................. 1.0 .1 -- 1.1
Corporate securities.......................... 2,257.1 104.2 10.8 2,350.5
Mortgage-backed securities.................... 269.8 11.7 .1 281.4
-------- ------ ----- --------
Subtotal -- fixed maturities............. 2,648.0 121.3 11.2 2,758.1
Equity securities............................. 22.7 4.8 3.7 23.8
-------- ------ ----- --------
Total............................... $2,670.7 $126.1 $14.9 $2,781.9
======== ====== ===== ========
</TABLE>
F-68
<PAGE> 141
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------
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... $ 17.3 $ 1.1 $ -- $ 18.4
Obligations of states and political
subdivisions................................ 9.1 .6 .1 9.6
Debt securities issued by foreign
governments................................. 6.5 .8 -- 7.3
Corporate securities.......................... 393.9 19.1 2.5 410.5
Mortgage-backed securities.................... 9.4 .6 -- 10.0
-------- -------- --------- --------
Total............................... $436.2 $22.2 $ 2.6 $455.8
======== ======== ========= ========
</TABLE>
<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-69
<PAGE> 142
- --------------------------------------------------------------------------------
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>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1997, 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..................................... $ 110.2 $ 110.6
Due after one year through five years....................... 653.3 674.2
Due after five years through ten years...................... 739.8 768.8
Due after ten years......................................... 1,144.7 1,204.5
-------- --------
Total............................................. $2,648.0 $2,758.1
======== ========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less..................................... $ 23.0 $ 23.0
Due after one year through five years....................... 110.7 114.2
Due after five years through ten years...................... 181.3 190.5
Due after ten years......................................... 121.2 128.1
-------- --------
Total............................................. $436.2 $455.8
======== ========
</TABLE>
F-70
<PAGE> 143
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are included based on their
contractual maturity.
Realized gains (losses) on investments for the years ended December 31,
1997, 1996 and 1995 are summarized as follows (in millions):
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------
Fixed maturities........................................... $ 7.9 $ 6.0 $ 2.0
Equity securities.......................................... (3.8) .3 .7
Mortgage loans............................................. 1.1 (1.4) .2
Real estate................................................ (2.2) 2.8 2.9
Policy loans and premium notes............................. -- .9 .1
Other invested assets...................................... (.6) (.7) (2.2)
----- ----- -----
$ 2.4 $ 7.9 $ 3.7
===== ===== =====
</TABLE>
Net unrealized appreciation (depreciation) on available for sale securities
as of December 31, 1997 and 1996 is summarized as follows (in millions):
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) before
adjustments for the following:............................ $111.2 $47.5
Amortization of deferred policy acquisition costs......... (64.0) (31.0)
Deferred Federal income taxes............................. (16.5) (5.8)
------ -----
Net unrealized appreciation................................. $ 30.7 $10.7
====== =====
</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 has been amortized to realized capital gains/losses.
F-71
<PAGE> 144
- --------------------------------------------------------------------------------
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, 1997, 1996 and 1995 (in millions):
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
Gross investment income:
Fixed maturities:
Available for sale................................... $201.2 $193.5 $194.1
Held to maturity..................................... 39.6 45.1 47.1
Equity securities...................................... .8 1.2 2.1
Mortgage loans......................................... 62.9 69.0 72.2
Real estate............................................ 10.7 11.4 11.8
Policy loans and premium notes......................... 23.4 23.4 24.0
Other invested assets.................................. 8.0 5.5 4.9
Short-term investments................................. 2.5 3.8 2.0
Other, net............................................. (.2) .5 .5
------ ------ ------
348.9 353.4 358.7
Less investment expenses............................... (17.4) (19.5) (21.9)
------ ------ ------
Net investment income.................................. $331.5 $333.9 $336.8
====== ====== ======
</TABLE>
4. MORTGAGE LOANS
Impaired mortgage loans and the related reserves are as follows at December
31, 1997 and 1996 (in millions):
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
Impaired mortgage loans..................................... $ 54.3 $65.5
Reserves.................................................... (6.4) (7.2)
------ -----
Net impaired mortgage loans................................. $ 47.9 $58.3
====== =====
</TABLE>
F-72
<PAGE> 145
- --------------------------------------------------------------------------------
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 1997 and 1996 is as follows (in millions):
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
Balance at January 1........................................ $ 14.4 $16.2
Losses charged, net of recoveries........................... (1.3) (.5)
Releases due to foreclosures................................ -- (1.3)
------ -----
Balance at December 31...................................... $ 13.1 $14.4
====== =====
</TABLE>
The average recorded investment in impaired loans was $59.9 million and
$66.7 million during 1997 and 1996, respectively. Interest income recognized on
impaired loans during 1997, 1996 and 1995 was $4.9 million, $6.9 million and
$7.3 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, 1997 and 1996 (in
millions):
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------
Occupied by the Company..................................... $ 32.0 $38.0
Foreclosed.................................................. 18.8 28.0
Investment.................................................. 1.7 5.4
------ -----
$ 52.5 $71.4
====== =====
</TABLE>
Depreciation expense was $3.0 million, $3.2 million and $4.7 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Accumulated
depreciation for real estate totalled $12.6 million and $15.2 million at
December 31, 1997 and 1996, respectively. Permanent impairment writedowns were
$6.1 million, $1.3 million and $1.9 million for the years ended December 31,
1997, 1996 and 1995.
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. The Company provides a contributory defined
F-73
<PAGE> 146
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
6. BENEFIT PLANS, CONTINUED
contribution plan qualified under Section 401(k) of the Internal Revenue Code.
The pension cost of the defined contribution plans was $3.4 million, $2.6
million and $2.8 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
The status of the funded defined benefit pension plan and the amounts
recognized on the balance sheets as of December 31, 1997 and 1996 are as follows
(in millions):
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested................................................. $(73.7) $(72.7)
Nonvested.............................................. (3.6) (2.7)
------ ------
Accumulated benefit obligation......................... (77.3) (75.4)
Additional obligation for future salary increases...... (18.7) (19.2)
------ ------
Projected benefit obligation......................... (96.0) (94.6)
Plan assets at fair value................................... 165.8 148.7
------ ------
Plan assets in excess of projected benefit
obligation............................................ 69.8 54.1
Unrecognized transition asset.......................... (21.4) (23.7)
Unrecognized prior service cost........................ .5 .5
Unrecognized net gain.................................. (31.0) (16.4)
------ ------
Prepaid pension cost................................. $ 17.9 $ 14.5
====== ======
</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
F-74
<PAGE> 147
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
6. BENEFIT PLANS, CONTINUED
benefit plans and the amounts recognized on the balance sheets as of December
31, 1997 and 1996 are as follows (in millions):
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested.................................................... $ (9.1) $ (8.6)
Nonvested................................................. (4.1) (2.9)
------ ------
Accumulated benefit obligation......................... (13.2) (11.5)
Additional obligation for future salary increases......... (7.4) (5.2)
------ ------
Projected benefit obligation........................... (20.6) (16.7)
Unrecognized transition obligation........................ 3.8 4.2
Unrecognized prior service cost........................... 3.2 3.4
Unrecognized net loss..................................... 4.3 2.7
Other, net................................................ (3.9) (5.1)
------ ------
Accrued pension cost................................... $(13.2) $(11.5)
====== ======
</TABLE>
The following assumptions were used to determine the projected benefit
obligation at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Discount rate............................................... 7.0% 7.5%
Expected rate of return on assets........................... 9.0% 9.0%
Rate of increase in salaries................................ 5.0% 5.5%
</TABLE>
Net periodic pension benefit included the following components for the
years ended December 31, 1997, 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost........................................... $ 4.3 $ 4.6 $ 4.2
Interest cost.......................................... 8.3 8.1 8.0
Actual return on assets................................ (31.8) (21.9) (10.8)
Net amortization (deferral)............................ 17.1 8.1 (1.6)
------ ------ -----
Net pension benefit.................................. $ (2.1) $ (1.1) $ (.2)
====== ====== =====
</TABLE>
F-75
<PAGE> 148
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
6. BENEFIT PLANS, CONTINUED
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 postretirement benefits if they
reach normal retirement age while still working for the Company.
The status of the postretirement benefit plans and the amounts recognized
on the balance sheets as of December 31, 1997 and 1996 are as follows (in
millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and surviving spouses............................ $(23.4) $(28.2)
Fully eligible active employees........................... (1.0) (1.1)
Other active employees.................................... (5.4) (4.9)
------ ------
Total.................................................. (29.8) (34.2)
Unrecognized amounts:
Net gain.................................................. (16.0) (12.1)
Prior service cost........................................ 7.0 7.5
------ ------
Total.................................................. (9.0) (4.6)
------ ------
Accrued postretirement benefit cost......................... $(38.8) $(38.8)
====== ======
</TABLE>
The following assumptions were used to determine the projected benefit
obligation at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Discount rate............................................... 7.0% 7.5%
Rate of increase in salaries................................ 5.0% 5.5%
</TABLE>
Net periodic postretirement benefit cost included the following components
for the years ended December 31, 1997, 1996 and 1995 (in millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost................................................ $ .5 $ .4 $ .4
Interest cost............................................... 2.0 1.9 2.1
Net amortization and deferral............................... (.4) (.4) (.5)
---- ---- ----
Net periodic postretirement benefit cost.................. $2.1 $1.9 $2.0
==== ==== ====
</TABLE>
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rate by one percentage point in each year would
F-76
<PAGE> 149
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
6. BENEFIT PLANS, CONTINUED
increase the postretirement benefit obligation as of December 31, 1997 by $1.7
million and the estimated eligibility cost and interest cost components of net
periodic postretirement benefit cost for 1997 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 1997, the
Company transferred $1.6 million of excess assets from the defined benefit
pension plan to pay for 1997 qualified retiree health benefits. A transfer of
excess assets in the amount of $1.6 million was made in December 1996 to pay for
1996 qualified retiree health benefits. In December 1995, excess assets
totalling $1.6 million were transferred to pay for 1995 qualified retiree health
benefits.
7. FEDERAL INCOME TAXES
Beginning in 1996, the Company began filing a consolidated Federal income
tax return with its life insurance and non-insurance subsidiaries. Prior to
1996, the Company filed 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,
- -----------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate..................... $ 37.0 $30.6 $31.3
Current year equity tax................................ 8.8 8.5 8.0
True down of prior years' equity tax................... (8.0) (5.1) --
Tax settlement......................................... -- (28.3) --
Other.................................................. .8 .1 (.2)
------ ----- -----
Provision for Federal income tax from operations......... $ 38.6 $ 5.8 $39.1
====== ===== =====
</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-77
<PAGE> 150
- --------------------------------------------------------------------------------
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, 1997 and 1996 (in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX LIABILITY
Deferred policy acquisition costs........................... $196.5 $186.5
Prepaid pension asset....................................... 6.3 5.1
Net unrealized gain on available for sale securities........ 16.5 5.8
------ ------
Total deferred tax liability........................... 219.3 197.4
------ ------
DEFERRED TAX ASSET
Reserves.................................................... 123.8 112.4
Employee benefit accruals................................... 14.1 14.1
Invested assets............................................. 8.3 4.3
Policyholder dividends...................................... 8.1 7.9
Deferred rent............................................... 1.4 2.8
Other....................................................... (.6) 4.9
------ ------
Total deferred tax asset............................... 155.1 146.4
------ ------
Net deferred tax liability.................................. $ 64.2 $ 51.0
====== ======
</TABLE>
Under current law, stock life insurance companies are taxed at current
rates on distributions from the special surplus account for the benefit of
policyholders designated "Policyholder Surplus" (the Account). The Tax Reform
Act of 1984 eliminated further additions to the Account after December 31, 1983.
PLACA's aggregate accumulation at December 31, 1983 was $2 million. The Company
has no present plans to make any distributions which would subject the Account
to current taxation.
The Company's Federal income tax returns have been audited through 1992.
All years through 1985 are closed. Years 1986 through 1992 have been audited and
are closed with the exception of several issues for which claims for refund have
been filed. Years 1993 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.
F-78
<PAGE> 151
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
8. REINSURANCE, CONTINUED
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.
At December 31, 1997, there were $352.7 million of individual fixed annuity
account values coinsured by the Company, or approximately 29.7% 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>
- ----------------------------------------------------------------------------------------------
CEDED TO ASSUMED
GROSS OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997:
Life insurance in force.................... $36,961.7 $7,549.1 $238.6 $29,651.2
========= ======== ====== =========
Premiums................................... $ 232.7 $ 15.0 $ 3.2 $ 220.9
========= ======== ====== =========
Future policyholder benefits............... $ 499.5 $ 3.9
======== ======
December 31, 1996:
Life insurance in force.................... $33,695.9 $6,559.3 $208.9 $27,345.5
========= ======== ====== =========
Premiums................................... $ 247.8 $ 15.2 $ 3.0 $ 235.6
========= ======== ====== =========
Future policyholder benefits............... $ 530.3 $ 5.1
======== ======
December 31, 1995:
Life insurance in force.................... $30,558.1 $5,829.8 $230.0 $24,958.3
========= ======== ====== =========
Premiums................................... $ 267.3 $ 12.7 $ .9 $ 255.5
========= ======== ====== =========
Future policyholder benefits............... $ 544.5 $ 5.3
======== ======
</TABLE>
F-79
<PAGE> 152
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- continued
- --------------------------------------------------------------------------------
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 1998
and 2003. Most of the leases contain renewal and purchase options based on
prevailing fair market values.
Future minimum rent payments required and related sublease rentals
receivable under non-cancelable operating leases in effect at December 31, 1997,
and which have initial or remaining terms of one year or more, are summarized as
follows (in millions):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
RENTAL SUBLEASE RENTALS
PAYMENTS RECEIVABLE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
YEAR ENDING DECEMBER 31:
1998................................................... $13.9 $2.7
1999................................................... 7.1 .5
2000................................................... 4.1 .3
2001................................................... 2.2 --
2002................................................... 1.3 --
Thereafter............................................. .4 --
----- ----
$29.0 $3.5
===== ====
</TABLE>
Total related rent expense was $12.7 million, $18.4 million and $26.5
million in 1997, 1996 and 1995, respectively, which were net of sublease income
of $1.9 million, $.5 million and $.3 million in 1997, 1996 and 1995,
respectively.
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, 1997, the Company had outstanding mortgage loan, real
estate and limited partnership commitments of approximately $18.2 million. The
mortgage loan commitments, which expire
F-80
<PAGE> 153
- --------------------------------------------------------------------------------
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
through April 1998, totalled $14.4 million and were issued during 1997 at
interest rates consistent with rates applicable on December 31, 1997. As a
result, the fair value of these commitments approximates the face amount.
The Company guarantees indebtedness of certain real estate partnerships of
which it is an investor. Any estimated deficiencies between the amount of debt
guaranteed and the partnerships' ability to service the debt is provided for in
the asset valuation process through reserves or writedowns.
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 239 treasury futures contracts with a dollar value of $25.2 million in 1997,
162 treasury futures contracts with a dollar value of $17.3 million in 1996, and
568 treasury futures contracts with a dollar value of $56.8 million in 1995. The
approximate net losses generated from the hedge positions were $(.1) million for
the year ended December 31, 1997, $(.3) million for the year ended December 31,
1996 and $(.1) million for the year ended December 31, 1995. There were no open
hedge positions at December 31, 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, 1997.
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, 1997.
Investment Portfolio Credit Risk
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1997 and 1996, approximately
$164.6 million and $162.2 million, respectively, in debt security
investments (5.3% and 5.4%, 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, 1997 of $5.7
million were non-income producing for the year ended December 31, 1997.
The Company had debt security investments in the financial services industry
at both December 31, 1997 and 1996 that exceeded 5% of total assets.
F-81
<PAGE> 154
- --------------------------------------------------------------------------------
Provident Mutual Life Insurance Company
and Subsidiaries
Notes to Consolidated Financial Statements -- concluded
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED
Investment Portfolio Credit Risk -- continued
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, 1997, there was one significant mortgage loan totaling $3.2
million in which payments on principal and/or interest were over 90 days
past due. There were no delinquent mortgage loans at December 31, 1996.
The Company had no loans outstanding in any state 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, 1997.
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, including sales
practices, and as a result of the merger with Covenant which, in the opinion of
management and legal counsel, will not have a material adverse effect on the
Company's financial position or its operations.
Insurance companies are subject to assessments, up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of management, the outcome of the proceedings and
assessments will not have a material adverse effect on the financial statements.
Guaranty fund assessments totalled $1.1 million, $1.6 million and $2.6 million
in 1997, 1996 and 1995, respectively. Of those amounts, $.8 million, $.9 million
and $1.8 million in 1997, 1996 and 1995, respectively, are creditable against
future years' premium taxes.
10. SUBSEQUENT EVENT
On January 5, 1998, the Board of Directors of Provident Mutual unanimously
approved and adopted a Plan of Conversion to reorganize Provident Mutual Life
Insurance Company, utilizing a mutual holding company structure. The proposed
conversion plan has been submitted to the Insurance Department of the
Commonwealth of Pennsylvania and is awaiting approval.
F-82
<PAGE> 155
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.
II-1
<PAGE> 156
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 50 pages.
The undertaking to file reports.
Rule 484 undertaking.
Representations pursuant to Rule 6e-3(T).
The signatures.
The following exhibits:
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<S> <C> <C>
1.A.1.a. Resolution adopted by the Board of Directors of Provident
Mutual Life Insurance Company authorizing establishment of
the Provident Mutual Variable Growth Separate Account,
Provident Mutual Variable Money Market Separate Account,
Provident Mutual Variable Bond Separate Account, Provident
Mutual Variable Managed Separate Account, and Provident
Mutual Variable Zero Coupon Bond Separate Account(1)
1.A.1.b. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable Aggressive Growth Separate Account(1)
1.A.1.c. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable International Separate Account(1)
1.A.1.d. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable Separate Account(1)
1.A.1.e. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company Approving Creation of additional
Subaccounts of Provident Mutual Variable Separate Account(1)
1.A.1.f. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company Approving Creation of additional
Subaccounts of Provident Mutual Variable Separate Account(1)
1.A.2. None
1.A.3.a.i. Underwriting Agreement(1)
1.A.3.a.ii. Amendment to Underwriting Agreement(1)
Amendment to Underwriting Agreement(1)
1.A.3.a.iii.
1.A.3.a.iv. Amendment to Underwriting Agreement(1)
1.A.3.a.vi. Amendment to Underwriting Agreement(1)
1.A.3.b.i. PPGA's Agreement and Supplements(1)
1.A.3.b.ii. PPA's Agreement and Supplements(1)
PGA's Agreement and Supplements(1)
1.A.3.b.iii.
1.A.3.b.iv. Special Agent's Career Agreement and Supplement(1)
</TABLE>
II-2
<PAGE> 157
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<S> <C> <C>
1.A.3.b.v. Special Agent's Agreement(1)
1.A.3.b.vi. Corporate Agent's Agreement and Supplement(1)
1.A.3.c.i. PPGA Commission Schedules(1)
1.A.3.c.ii. PPA Commission Schedules(1)
PGA Commission Schedules(1)
1.A.3.c.iii.
1.A.3.c.iv. Commission Schedules for Variable Life Insurance Products
for Agents under Special Career Agent's Career Agreement(1)
1.A.3.c.v. Commission Schedules for Variable Life Insurance Products
for Agents under Special Agent's Agreement(1)
1.A.3.c.vi. Commission Schedules for Variable Life Insurance Products
for Corporate Agents with Special Agent's Career
Agreement(1)
1.A.3.d. Form of Selling Agreement between 1717 Capital Management
Company and Broker/Dealers(1)
1.A.4. None
1.A.5. Individual Flexible Premium Adjustable Survivorship Variable
Life Insurance Policy Forms (C130 & C130A)
1.A.5.a. Convertible Term Life Rider (C308)(2)
1.A.5.b. Extension of Final Policy Date Rider (C822)(2)
1.A.5.c. Disability Waiver Benefit Rider (C902)(2)
1.A.5.d. 4 Year Survivorship Term Life Rider (C309)
1.A.5.e. Guaranteed Minimum Death Benefit Rider (C320)
1.A.5.f. Policy Split Option Rider (C615)
1.A.5.g. Change of Insured Rider (C905)
1.A.6.a. Charter of Provident Mutual Life Insurance Company(1)
1.A.6.b. By-Laws of Provident Mutual Life Insurance Company(1)
1.A.7. None
1.A.8. Sponsorship Agreement between Provident Mutual Life
Insurance Company and MLPFS for Zero Coupon Trust(1)
1.A.9. None
1.A.10. Form of Application(1)
1.A.10.a. Application for Flexible Premium(2)
1.A.10.b. Initial Allocation Selection(1)
2. See Exhibit 1.A.5.
3.A. Consent of Adam Scaramella, Esquire
3.B. Consent of Sutherland, Asbill & Brennan, L.L.P.
4. None
5. Inapplicable
6. Consent of Scott V. Carney, FSA, MAAA
7. Consent of Coopers & Lybrand L.L.P., Independent Accountants
8. Description of Provident Mutual Life Insurance Company's
Issuance, Transfer and Redemption Procedures for Policies(1)
10.a. Participation Agreement by and among Market Street Fund,
Inc., Provident Mutual Life Insurance Company and PML
Securities, Inc.(1)
10.b. Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Provident Mutual
Life Insurance Company(1)
10.c. Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and Provident
Mutual Life Insurance Company(1)
10.d. Sales Agreement between Neuberger & Berman Advisers
Management Trust and Provident Mutual Life Insurance
Company(1)
</TABLE>
II-3
<PAGE> 158
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<S> <C> <C>
10.e. Participation Agreement among The Alger American Fund,
Provident Mutual Life Insurance Company, and Fred Alger and
Company Incorporated(1)
27. Inapplicable
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 18, filed
on May 1, 1998, File No. 33-2625.
(2) Incorporated herein by reference to Post-Effective Amendment No. 11, filed
on May 1, 1998, File No. 33-42133.
II-4
<PAGE> 159
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 1ST DAY OF MAY, 1998.
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY
By: /s/ ROBERT W. KLOSS
------------------------------------
ROBERT W. KLOSS
Chief Executive Officer
Attest: /s/ JAMES POTTER
--------------------------------
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 DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ROBERT W. KLOSS Chief Executive Officer May 1, 1998
- ------------------------------------------------ (Principal Executive Officer)
ROBERT W. KLOSS
/s/ MARY LYNN FINELLI Executive Vice President and May 1, 1998
- ------------------------------------------------ Chief Financial Officer
MARY LYNN FINELLI (Principal Financial Officer)
/s/ LINDA M. SPRINGER Vice President and Controller May 1, 1998
- ------------------------------------------------ (Principal Accounting Officer)
LINDA M. SPRINGER
* Director May 1, 1998
- ------------------------------------------------
EDWARD R. BOOK
* Director May 1, 1998
- ------------------------------------------------
DOROTHY M. BROWN
* Director May 1, 1998
- ------------------------------------------------
ROBERT J. CASALE
* Director May 1, 1998
- ------------------------------------------------
NICHOLAS DEBENEDICTUS
* Director May 1, 1998
- ------------------------------------------------
PHILIP C. HERR, II
</TABLE>
II-5
<PAGE> 160
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director May 1, 1998
- ------------------------------------------------
J. RICHARD JONES
* Director May 1, 1998
- ------------------------------------------------
JOHN P. NEAFSEY
* Director May 1, 1998
- ------------------------------------------------
CHARLES L. ORR
* Director May 1, 1998
- ------------------------------------------------
DONALD A. SCOTT
* Director May 1, 1998
- ------------------------------------------------
JOHN J. F. SHERRERD
* Director May 1, 1998
- ------------------------------------------------
HAROLD A. SORGENTI
*By: WILLIAM P. LOESCHE
- ------------------------------------------------
WILLIAM P. LOESCHE
Attorney-in-fact
pursuant to Power of Attorney
</TABLE>
II-6
<PAGE> 161
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 1st day of May, 1998.
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/ JAMES POTTER
- --------------------------------------
II-7
<PAGE> 162
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C> <C>
1.A.5. Individual Flexible Premium Adjustable Survivorship Variable
Life Insurance Policy Forms (C130 & C130A)
1.A.5.d. 4 Year Survivorship Term Life Rider (C309)
1.A.5.e. Guaranteed Minimum Death Benefit Rider (C320)
1.A.5.f. Policy Split Option Rider (C615)
1.A.5.g. Change of Insured Rider (C905)
3.A. Consent of Adam Scaramella, Esquire
3.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
</TABLE>
<PAGE> 1
PROVIDENT MUTUAL LIFE
INSURANCE COMPANY OF
PHILADELPHIA
PHILADELPHIA, PENNSYLVANIA
<TABLE>
<S> <C> <C> <C>
INSURED 1 JOHN DOE 35, MALE ISSUE AGE/SEX
INSURED 2 JANE DOE 35, FEMALE ISSUE AGE/SEX
POLICY NUMBER 9,0O0,000 01-01-1996 POLICY ISSUE DATE
FACE AMOUNT $200,000 01-01-1996 POLICY DATE
DEATH BENEFIT OPTION A
</TABLE>
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA agrees:
- To pay the Beneficiary of this Policy the Insurance Proceeds upon receipt
of due proof of the death of both Insureds;
- To provide you (the Policy Owner) with the other rights and benefits under
this Policy. These agreements are subject to the provisions of this Policy. The
Policy does not pay a benefit upon the death of the first of the Insureds to
die, but only upon the death of the last surviving Insured.
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE INSURANCE COVERAGE, OR
BOTH, MAY BE VARIABLE OR FIXED, AS DESCRIBED ON PAGE 10.
THE PORTION OF THE POLICY ACCOUNT VALUE THAT IS IN A SEPARATE ACCOUNT MAY
INCREASE OR DECREASE, DEPENDING UPON THE UNIT VALUE OF SUCH SEPARATE ACCOUNT,
WHICH IN TURN DEPENDS UPON THE INVESTMENT EXPERIENCE OF THE CORRESPONDING
PORTFOLIO OF A DESIGNATED INVESTMENT COMPANY. THE INVESTMENT OPTIONS FOR THIS
POLICY ARE DESCRIBED ON PAGE 6. THERE IS NO GUARANTEED MINIMUM FOR THE PORTION
OF YOUR POLICY ACCOUNT VALUE IN THE SEPARATE ACCOUNTS.
The portion of the Policy Account Value that is in the Guaranteed Account and
the Loan Account will accumulate, after deductions, at rates of interest we
determine. Such rates will not be less than 4% a year.
Please read this Policy with care. A guide to its provisions is on the last
page. A description is on page 2. Any additional benefit riders and copies of
the Applications are included in this Policy after page 20.
This is a legal contract between the Owner and
Provident Mutual Life Insurance Company of Philadelphia.
READ THIS POLICY CAREFULLY
RIGHT TO EXAMINE POLICY. YOU MAY EXAMINE THIS POLICY AND IF FOR ANY REASON YOU
ARE NOT SATISFIED WITH IT, YOU MAY CANCEL IT BY RETURNING THE POLICY TO US WITH
A WRITTEN REQUEST NO LAW THAN: (a) 10 DAYS AFTER YOU RECEIVE IT., (b) OR 45 DAYS
AFTER PART I OF THE APPLICATION WAS SIGNED. ALL YOU HAVE TO DO IS TAKE THIS
POLICY OR MAIL IT TO OUR HOME OFFICE AT 1600 MARKET STREET. PHILADELPHIA,
PENNSYLVANIA 19103, OR TO ONE OF OUR OFFICES OR TO THE REPRESENTATIVE WHO SOLD
IT TO YOU. IF YOU DO THIS, WE WILL REFUND AN AMOUNT EQUAL TO: (a) THE DIFFERENCE
BETWEEN THE PREMIUMS YOU PAID (INCLUDING ANY FEES AND CHARGES) AND THE SUM OF
THE AMOUNTS ALLOCATED TO THE GUARANTEED ACCOUNT AND THE SEPARATE ACCOUNTS; PLUS
(b) THE VALUE OF THE AMOUNTS ALLOCATED TO THE GUARANTEED ACCOUNT INCLUDING ANY
INTEREST ACCUMULATED TO THE DATE YOU RETURN THE POLICY TO US; PLUS (c) THE VALUE
OF THE AMOUNTS ALLOCATED TO THE SEPARATE ACCOUNTS INCLUDING THE NET INVESTMENT
EXPERIENCE OF SUCH SEPARATE ACCOUNTS TO THE DEFT YOU RETURN THE POLICY TO US;
PLUS (d) ANY FEES OR CHARGES IMPOSED ON THE AMOUNTS ALLOCATED TO THE GUARANTEED
ACCOUNT OR THE SEPARATE ACCOUNTS.
Attest /s/ Robert W. Kloss
-------------------------------------
President and Chief Executive Officer
Registrar
[LOGO] [LOGO]
VARIABLE LIFE
Flexible Premium Adjustable Survivorship Variable Life Insurance Policy.
Insurance Proceeds payable upon death of the last surviving Insured before Final
Policy bate. Policy Account Value payable on Final Policy Date. Values provided
by this Policy are based on declared interest rates of the Guaranteed and Loan
Accounts and on the investment experience of the Separate Accounts
Participating.
<PAGE> 2
POLICY DESCRIPTION
This is a flexible premium adjustable survivorship variable life insurance
policy.
Net premiums are allocated at your direction to one or more of the Separate
Accounts arid/or the Guaranteed Account.
The Separate Accounts invest in securities and other investments whose value is
subject to market fluctuation and investment risk. There is no guarantee of
principal or investment return.
The Guaranteed Account earns interest at rates We declare in advance. The rates
are guaranteed to equal or exceed 4%, The principal, after deductions, is also
guaranteed.
The duration of life insurance coverage depends on the Net Cash Surrender Value
except that during the first two Policy Years, your Policy will remain in force
if the sum of the premiums paid less loans and partial withdrawals equals or
exceeds the Minimum Guarantee Premium,
If Death Benefit Option A has been selected, the death benefit is the Face
Amount of this Policy and the amount of the death benefit is fixed, except where
it is a percentage of the Policy Account Value. If Death Benefit Option B has
been selected, the death benefit is the Face Amount of this Policy plus the
Policy Account Value. The amount of the death benefit under Option B is
variable. Under either Option, the death benefit will not be less than a
percentage of the Policy Account Value.
To compute the Insurance Proceeds payable upon the death of the last surviving
Insured, we start with the death benefit and adjust this amount if there is a
loan.
We make monthly deductions from the Policy Account Value to cover the cost of
benefits provided under this Policy, including the cost of any benefits provided
by rider. We will allocate such deductions to the Separate Accounts and the
Guaranteed Account in accordance with your instructions.
If you surrender this Policy for its Net Cash Surrender Value or reduce the Face
Amount of insurance during the first 15 Policy Years, we will deduct any
applicable surrender charges from the Policy Account Value.
We will pay the proceeds under this Policy in one sum unless a Payment Option is
in force. if you elect a Payment Option, it will apply to payment of the Net
Cash Surrender Value if you surrender this Policy or to the Insurance Proceeds
paid to the Beneficiary when the last surviving Insured dies. If a Payment
Option is not in force when the last surviving Insured dies, the Beneficiary
will be able to elect a Payment Option for Insurance Proceeds,
If this Policy lapses, coverage will end. If such occurs, you may be able to
reinstate this Policy within three full years with full benefits.
As Policy Owner, you have these rights in this Policy, among others, subject to
the terms, conditions and limits in this Policy:
- You may make premium payments at any time and of any amount.
- You may change the allocation of premiums and deductions among
your investment options,
- You may decrease the Face Amount of insurance.
- You may change the Death Benefit Option.
- You may transfer amounts among your investment options.
- You may borrow on this Policy.
- You may make a partial withdrawal of the Net Cash Surrender
Value.
- You may surrender this policy for its Net Cash Surrender
Value.
- You may change the Beneficiary of the Insurance Proceeds of
this Policy.
- You may assign this Policy and change the Owner.
This is only a summary of what the policy provides. You should read the entire
policy carefully as its terms govern your rights and our obligations.
Page 2
<PAGE> 3
POLICY SCHEDULE
<TABLE>
<S> <C> <C> <C>
INSURED 1 JOHN DOE 35, MALE ISSUE AGE/SEX
INSURED 2 JANE DOE 35, FEMALE ISSUE AGE/SEX
POLICY NUMBER 9,000,000 01-01-1996 POLICY ISSUE DATE
FACE AMOUNT $200,000 01-01-1996 POLICY DATE
DEATH BENEFIT OPTION A 01-01-2061 FINAL POLICY DATE
</TABLE>
PREMIUM CLASS
INSURED 1 STANDARD SMOKER
INSURED 2 STANDARD SMOKER
BENEFITS
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE -
INITIAL FACE AMOUNT $200,000
RIDER - GUARANTEED MINIMUM DEATH BENEFIT
RIDER - $1 00,000 CONVERTIBLE TERM LIFE INSURANCE - INSURED 1
RIDER CLASS - STANDARD SMOKER
RIDER - 4 YEAR SURVIVORSHIP TERM LIFE INSURANCE
THIS POLICY PROVIDES LIFE INSURANCE COVERAGE ON THE INSUREDS UNTIL THE FINAL
POLICY DATE, PROVIDED THE NET CASH SURRENDER VALUE IS SUFFICIENT TO COVER THE
DEDUCTIONS FOR THE COST TO THAT DATE OF THE BENEFITS OF THIS POLICY AND OF ANY
RIDERS. YOU MAY HAVE TO PAY MORE THAN THE PREMIUMS SHOWN BELOW TO KEEP THIS
POLICY AND COVERAGE IN FORCE TO THAT DATE, AND TO KEEP ANY ADDITIONAL RIDERS IN
FORCE.
MINIMUM INITIAL PREMIUM - $1,019.50
PLANNED PERIODIC PREMIUM - $2,000.00 PAYABLE YEARLY
MINIMUM ANNUAL PREMIUM - $1,019.50
MINIMUM PAYMENT - $25.00
MINIMUM FACE AMOUNT - $200,000
PARTIAL WITHDRAWAL - MINIMUM AMOUNT $1,500
TRANSFERS - MINIMUM AMOUNT $1,000
POLICY LOAN - FIXED 6% POLICY LOAN INTEREST RATE
MINIMUM LOAN AMOUNT $500
PAGE 3
<PAGE> 4
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 9000000
EXPENSE CHARGES
PREMIUM EXPENSE CHARGE
CONSISTS OF THE FOLLOWING:
1. A PREMIUM TAX CHARGE OF 2.00% WILL BE DEDUCTED FROM EACH PREMIUM
PAYMENT FOR STATE AND LOCAL PREMIUM TAXES. WE RESERVE THE RIGHT TO CHANGE THIS
PERCENTAGE IF THE APPLICABLE LAW CHANGES OR THE INSUREDS' RESIDENCE CHANGES.
2. A PERCENT OF PREMIUM CHARGE NOT EXCEEDING 5% WILL BE DEDUCTED FROM
EACH PREMIUM PAYMENT.
3. A FEDERAL INCOME TAX CHARGE OF 1.25% WILL BE DEDUCTED FROM EACH
PAYMENT FOR APPLICABLE FEDERAL TAXES. WE RESERVE THE RIGHT TO CHANGE THIS
PERCENTAGE IF THE APPLICABLE LAW CHANGES OUR TAX BURDEN,
INITIAL ADMINISTRATIVE CHARGE
$39.50 DEDUCTED FROM THE POLICY ACCOUNT VALUE ON THE FIRST 12 POLICY
PROCESSING DAYS,
MONTHLY ADMINISTRATIVE CHARGE
$9.50 DEDUCTED MONTHLY FROM THE POLICY ACCOUNT VALUE. WE RESERVE THE
RIGHT TO INCREASE THIS CHARGE, BUT IT WILL NOT BE GREATER THAN $18 A
MONTH.
FOR PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
$25 DEDUCTED FROM THE POLICY ACCOUNT VALUE WHENEVER YOU MAKE A PARTIAL
WITHDRAWAL,
FOR TRANSFERS
AFTER THE FIRST FOUR TRANSFERS OF AMOUNTS AMONG YOUR INVESTMENT OPTIONS
DURING A POLICY YEAR, WE WILL CHARGE $25 FOR EACH ADDITIONAL TRANSFER
DURING THAT POLICY YEAR.
PAGE 4
<PAGE> 5
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 9000000
SURRENDER CHARGES
IF THIS POLICY IS SURRENDERED OR LAPSES DURING THE FIRST 15 POLICY YEARS, WE
WILL DEDUCT A SURRENDER CHARGE FROM THE POLICY ACCOUNT VALUE IN DETERMINING ITS
NET CASH SURRENDER VALUE. THE SURRENDER CHARGE CONSISTS OF THE DEFERRED
ADMINISTRATIVE CHARGE AND THE DEFERRED SALES CHARGE.
THE DEFERRED ADMINISTRATIVE CHARGE AT ANY TIME DURING THE POLICY YEAR IS $300
MULTIPLIED BY THE FACTOR IN THE TABLE BELOW FOR THAT YEAR, LESS THE AMOUNT OF
ANY PRO RATA DEFERRED ADMINISTRATIVE CHARGE PREVIOUSLY PAID UNDER THIS POLICY.
THE DEFERRED SALES CHARGE AT ANY TIME DURING THE POLICY YEAR IS EQUAL TO (A)
MINUS (B) WHERE: (A) IS THE LESSER OF: (1) THE MAXIMUM CHARGE SHOWN IN THE TABLE
BELOW FOR THAT YEAR; OR (2) AN AMOUNT EQUAL TO 25% OF THE FIRST $1,050.00 IN
PREMIUM PAYMENTS RECEIVED DURING THE FIRST POLICY YEAR PLUS 4% OF ALL OTHER
PREMIUM PAYMENTS PAID TO SUCH TIME; AND (B) IS THE AMOUNT OF ANY PRO RATA
DEFERRED SALES CHARGE PREVIOUSLY PAID UNDER THIS POLICY.
<TABLE>
<CAPTION>
POLICY MAXIMUM
YEAR FACTOR CHARGE
<S> <C> <C>
1 1.0 $ 525.00
2 1.0 $ 525.00
3 1.0 $ 525.00
4 1.0 $ 525.00
5 1.0 $ 525.00
6 1.0 $ 525.00
7 1.0 $ 525.00
8 1.0 $ 525.00
9 1.0 $ 525.00
10 1.0 $ 525.00
11 1.0 $ 525.00
12 0.8 $ 420.00
13 0.6 $ 315.00
14 0.4 $ 210.00
15 0.2 $ 105.00
</TABLE>
IF THE FACE AMOUNT OF THIS POLICY IS DECREASED AT ANY TIME DURING THE FIRST 15
POLICY YEARS, A PRO RATA SHARE OF THE SURRENDER CHARGE WILL BE DEDUCTED.
PAGE 4A
<PAGE> 6
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 9000000
GUARANTEED MONTHLY COST OF INSURANCE RATES
PER $1,000 OF NET AMOUNT AT RISK
<TABLE>
<CAPTION>
POLICY
YEAR RATE
<S> <C>
1 0.000425
2 0.001400
3 0.002617
4 0.004133
5 0.006050
6 0.008450
7 0.011533
8 0.015217
9 0.019717
10 0.025042
11 0.031442
12 0.038858
13 0.047592
14 0.057683
15 0.069583
16 0.083575
17 0.099933
18 0.119308
19 0.142667
20 0.169908
21 0.201242
22 0.236908
23 0.276350
24 0.319875
25 0.368033
26 0.422867
27 0.487850
28 0.564575
29 0.658858
30 0.768567
31 0.895558
32 1.034625
33 1.188475
34 1.349633
35 1.529792
36 1.729708
37 1.966742
38 2.248992
39 2.584325
40 2.972941
41 3.415241
42 3.899642
43 4.417859
44 4.964283
45 5.549692
46 6.192758
47 6.909441
48 7.717308
49 8.624249
50 9.654408
51 10.702042
52 11.843484
53 12.963417
54 14.202384
55 15.392966
56 16.712233
57 18.101366
58 19.602367
59 21.327917
60 23.446426
61 26.541808
62 31.375642
63 39.612883
64 54.663725
65 83.333333
</TABLE>
PAGE 5
<PAGE> 7
POLICY SCHEDULE
(CONTINUED)
INSURED JOHN DOE POLICY NUMBER 9000000
CONVERTIBLE TERM LIFE INSURANCE RIDER
GUARANTEED MONTHLY RIDER COST PER $1,000 OF INSURANCE AMOUNT
<TABLE>
<CAPTION>
ATTAINED
AGE RATE
<S> <C>
35 0.21917
36 0.23417
37 0.25333
38 0.27500
39 0.30000
40 0.32833
41 0.36167
42 0.39583
43 0.43500
44 0.47583
45 0.52250
46 0.56917
47 0.62000
48 0.67333
49 0.73333
50 0.79167
51 0.87000
52 0.95167
53 1.04500
54 1.15000
55 1.26167
56 1.38250
57 1.50750
58 1.64083
59 1.77917
60 1.93250
61 2.10500
62 2.29917
63 2.51917
64 2.76167
65 3.02417
66 3.29750
67 3.58417
68 3.87917
69 4.19333
70 4.54000
71 .92417
72 5.36083
73 5.85250
74 6.38833
75 6.98083
76 7.59167
77 8.21000
78 8.82583
79 9.45750
80 10.13250
81 10.86750
82 11.68333
83 12.58583
84 13.54083
85 14.51667
86 15.48167
87 16.42167
88 17.44750
89 18.46000
90 19.47417
91 20.51000
92 21.61083
93 23.02500
94 24.84583
95 27.49667
96 32.04583
97 40.01667
98 54.83167
99 83.33333
</TABLE>
PAGE 5B
<PAGE> 8
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 9000000
4 YEAR SURVIVORSHIP TERM LIFE INSURANCE RIDER
GUARANTEED MONTHLY RIDER COST PER $1,000 OF FACE AMOUNT
<TABLE>
<CAPTION>
POLICY
YEAR RATE
<S> <C>
1 0.030000
2 0.030000
3 0.030000
4 0.030000
</TABLE>
PAGE 5C
<PAGE> 9
POLICY SCHEDULE
(Continued)
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST:
Neuberger & Berman Limited Maturity Bond Subaccount
Neuberger & Berman Partners Subaccount
VAN ECK WORLDWIDE INSURANCE TRUST:
Van Eck Worldwide Bond Subaccount
Van Eck Worldwide Emerging Markets Subaccount
Van Eck Worldwide Hard Assets Subaccount
Van Eck Worldwide Real Estate
SCHEDULE A-3
PROVIDENT MUTUAL VARIABLE ZERO COUPON BOND SEPARATE ACCOUNT:
Maturity Date of Series: February 15, 2006
Page 6A
<PAGE> 10
POLICY SCHEDULE
(CONTINUED)
ALLOCATION OPTIONS
SCHEDULE A-1
THE MARKET STREET FUND, INC.:
Provident Mutual Variable Large Cap Growth Subaccount
Provident Mutual Variable Large Cap Value Subaccount
Provident Mutual Variable Small Cap Growth Subaccount
Provident Mutual Variable Small Cap Value Subaccount
Provident Mutual Variable Growth Separate Account
Provident Mutual Variable Aggressive Growth Separate Account
Provident Mutual Variable Bond Separate Account
Provident Mutual Variable Managed Separate Account
Provident Mutual Variable Money Market Separate Account
Provident Mutual Variable International Separate Account
SCHEDULE A-2
THE ALGER AMERICAN FUND:
Alger American Small Capitalization Subaccount
VARIABLE INSURANCE PRODUCTS FUND (VIP) OR THE
VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
Fidelity Asset Manager Subaccount (VIP II)
Fidelity Contrafund Subaccount (VIP II)
Fidelity Equity-Income Subaccount (VIP)
Fidelity Growth Subaccount (VIP)
Fidelity High Income Subaccount (VIP)
Fidelity Index 500 Subaccount (VIP II)
Fidelity Investment Grade Bond Subaccount (VIP II)
Fidelity Overseas Subaccount (VIP)
Page 6
<PAGE> 11
DEFINITIONS
ATTAINED AGE. For each Insured, the Issue Age of such Insured plus the number of
full Policy Years since the Policy Date.
CASH SURRENDER VALUE. The Policy Account Value minus any applicable surrender
charges.
INSURANCE PROCEEDS. The net amount to be paid to the Beneficiary when the last
surviving Insured dies. (See Amount of Insurance Proceeds provision.)
INSURED. The persons named as the Insureds on the first page. They need not be
the Owner.
LOAN ACCOUNT. The account to which we transfer the amount of any policy loan
from the Separate Accounts and Guaranteed Account.
MINIMUM GUARANTEE PREMIUM. The Minimum Annual Premium multiplied by the number
of months since the Policy Date, including the current month, divided by 12.
NET CASH SURRENDER VALUE. The Policy Account Value minus any applicable
surrender charges, minus any outstanding policy loans and accrued interest.
NET PREMIUM. The remainder of a premium after deduction of the Premium Expense
Charge.
POLICY ACCOUNT VALUE. The sum of this 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 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.
WE, OUR, US AND COMPANY. Provident Mutual Life Insurance Company of
Philadelphia, a Pennsylvania Corporation.
YOU AND YOUR. The Owner of this Policy.
GENERAL PROVISIONS
THE CONTRACT. This Policy is issued in consideration of payment of the Minimum
Initial Premium shown in the Policy Schedule. This Policy and the initial
Applications, copies of which are attached, all subsequent Applications to
change the policy, all additional Policy Schedule pages and any endorsements or
riders added to this Policy, form the whole contract. We assume that all
statements in the Applications were made to the best of the knowledge and belief
of the persons who made them; in the absence of fraud they are assumed to be
representations and not warranties. We relied on those statements when we issued
or changed this Policy. We will not use any statement, unless made in the
Applications, to void this Policy or to deny a claim.
POLICY MODIFICATIONS. Only the President or a Vice President of the Company may
agree to modify this Policy, and then only in writing. No agent may bind the
Company by making any promise not contained in the Policy.
SUICIDE EXCLUSION. If both Insureds, whether sane or insane, die by suicide
within two years from the Policy Issue Date, or if the last surviving Insured,
whether sane or insane, dies by suicide within such two year period, or if the
surviving Insured lives more than 90 days beyond the date that the first death
occurred by suicide and a policy "change is not made, our payment will be
limited to the sum of premiums paid, minus any loan and loan interest and any
partial withdrawals of Net Cash Surrender Value. At the end of the second Policy
Year, we will notify you and request notification of the death of any Insured.
Failure to provide timely notice will not avoid the Suicide Exclusion.
Page 7
<PAGE> 12
SUICIDE SURVIVOR BENEFIT. If, within two years from the Policy Issue Date, one
of the Insureds commits suicide and the surviving Insured dies (not by suicide)
within 90 days of the first death, the amount we will pay the beneficiary upon
the death of such surviving Insured will equal the Proceeds at Death. We will
make payment subject to the provisions of this policy, including receipt of due
proof that the surviving Insured died within such 90-day period.
If the first death occurs by suicide within two years from the Policy
Issue Date, you may exchange this policy for a new policy on the life of the
surviving Insured. You must make the exchange within 90 days after the first
death. We must receive the completed application for the exchange and first
modal premium during this 90-day period. The exchange will be made without
evidence of insurability.
The new policy will have the same Face Amount as this policy on the
date of the first death or such lower amount allowed by our rules in effect at
the time of such "change. The issue date for the new policy will be the 91st day
after the first death. The premium for the new policy will be based on the rates
in effect on that date for the surviving Insured's age on the issue date of the
new policy and for the same premium class as this policy. The new policy must be
on a permanent whole life plan under the rules of the Company then in effect as
to plan, amount, age and premium class. The new policy cannot be a variable life
insurance policy, unless we approve such a request. The new policy cannot
involve any other life.
The new policy may contain additional benefit riders subject to our
consent and evidence of the surviving Insured's insurability satisfactory to us.
Evidence of insurability will not be required for a Disability Waiver Rider if:
(a) such rider is in effect for this policy as to the surviving Insured
immediately before the first death-, and (b) the surviving Insured was not then
totally disabled as defined in such rider,
A copy of the application on the surviving Insured for this policy will
be made a part of the new policy. The Suicide Exclusion and Incontestability
Periods for the new policy will begin on the Policy Issue Date for this Policy.
MISSTATEMENT OF AGE OR SEX. If the stated age or Sex of either Insured is not
correct, the death benefit and any benefits provided by riders to this Policy
shall be those which would be purchased by the most recent deduction for the
cost of insurance and the cost of any benefits provided by such riders, at the
correct age and Sex for each Insured. There is no adjustment to the Policy
Account Value.
INCONTESTABILITY. We have the right to contest the validity of this Policy based
on material misstatements made in the initial Applications for this Policy. We
also have a right to contest the validity of any policy change based on material
misstatements made in any Application for that change. However, we will not
contest this Policy after it has been in force during the lifetime of each
Insured for two years from the Policy Issue Date, except for nonpayment of the
Minimum Initial Premium.
At the end of the second Policy Year, the Company will notify you and
request notification of the death of any Insured. Failure to provide timely
notice of death will not avoid a contest and could result in a contest even if
premiums continue to be paid.
We will not contest any policy change that requires evidence of
insurability, or any reinstatement of this policy, after such change or
reinstatement has been in effect for two years during each Insured's lifetime.
See any supplementary benefit riders for modifications that apply to them.
PERIODIC REPORT. At least once a year we will send you a report for this Policy.
It will show: (1) the current Death Benefit; (2) the current Policy Account
Value; (3) the Guaranteed Account Value; (4) the Loan Account Value; (5) the
value in each Separate Account; (6) premiums paid since the last report; (7)
charges deducted since the last report; (8) any partial withdrawals of Net Cash
Surrender Value since the last report; (9) any policy loans and accrued
interest; (10) the current Net Cash Surrender Value; (11) any other information
that may be required when and where this Policy is delivered.
You may ask for a similar report at some other time. We have the right
to make a reasonable charge for the reports that you ask for, and to limit the
scope and frequency of such reports.
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<PAGE> 13
PAYMENTS, We will usually pay any amounts payable as a result of surrender,
partial withdrawal or policy loan within 7 days after we receive your written
request at our Home Office in a form satisfactory to us. We will usually pay the
Insurance Proceeds within 7 days after we receive proof of the death of both
Insureds at our Home Office and all other requirements deemed necessary are met.
However, payment may be postponed if we are not able to sell securities or
determine the value of the assets of the Separate Accounts because:
1. the New York Stock Exchange is closed;
2. the Securities and Exchange Commission (SEC) requires trading
to be restricted or declares an, emergency, or
3. the SEC by order permits us to defer payments for the
protection of Policy Owners.
As to amounts allocated to the Guaranteed Account, we may defer payment
of any withdrawal or surrender of Net Cash Surrender Value and the making of a
loan for up to six months after we receive your written request at our Home
Office.
We will allow interest, at a rate of 3% a year, on any payment we defer
for 30 days or more under this provision.
POLICY CHANGES - TAX CONSIDERATIONS. In order to receive the tax treatment
accorded to life insurance under federal tax laws, this Policy must qualify and
continue to qualify as life insurance under the Internal Revenue Code. We
reserve the right to decline to accept a premium payment, to decline to change
the Death Benefit Option, or to decline a partial withdrawal which would cause
this Policy to fail to qualify as life insurance under the applicable tax law,
as interpreted by us. We also reserve the right to make changes in this Policy
or to riders or to make distributions from this Policy to the extent we deem
such to be necessary for this Policy to continue to qualify as life insurance.
Such changes will apply uniformly to all affected policies. You will receive
advance written notification of such changes.
CHANGES IN POLICY COST FACTORS. Changes in credited interest rates, cost of
insurance charges, Percent of Premium Charge, mortality and expense risk
charges, and Monthly Administrative Charges will be by class and will be based
upon changes in future expectations for such factors as:
a. investment earnings;
b. mortality;
c. persistency,
d. expenses; and
e. taxes.
Any change will be determined in accordance with the procedures and
standards on file, if required, with the insurance supervisory official of the
state in which this policy is delivered.
POLICY ILLUSTRATIONS. Upon request, we will provide an illustration of the
future benefits under this Policy. We reserve the right to charge a reasonable
fee for this service if you request more than one policy illustration during a
Policy Year.
POLICY OWNER AND BENEFICIARY PROVISIONS
OWNERSHIP. Unless otherwise stated in the Applications or later changed, the
Owner of this Policy is the Insureds. After the death of the first Insured, the
surviving Insured will be the Owner, unless a different Owner is named in the
applications. While both or one of the Insureds are living, the Owner is
entitled to exercise any right and privilege granted by this Policy or by us.
These rights end at the death of the last surviving Insured. If both or one of
the Insureds is living on the Final Policy Date shown in the Policy Schedule and
while this Policy is in force, we will pay you, the Owner, the Policy Account
Value on that date, less any outstanding policy loan and accrued loan interest.
This Policy will then end, If you are not the Insured and you die while both or
one of the Insureds is still living, all rights will vest in your estate, unless
otherwise provided.
BENEFICIARY. The Beneficiary is entitled to the Insurance Proceeds under this
Policy. The Beneficiary is as named in the Applications, unless later changed.
When a Beneficiary is designated, any relationship shown is to the Insureds,
unless otherwise stated. If two or more persons are named, those surviving both
Insureds will share the Insurance Proceeds equally, unless otherwise stated, The
interest of any beneficiary who dies before the last surviving Insured will vest
in you, unless otherwise provided. If none of the persons named as Beneficiary
survive both Insureds, we will pay the Insurance Proceeds in one sum to the
estate of the last surviving Insured to die.
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CHANGES. While either Insured is living, you may change the Owner or Beneficiary
by written notice in a form satisfactory to us. The change will take effect as
of the date you sign the notice, even if an Insured or an Owner dies before we
receive it, except that it will not apply to any payment or other action we take
before we receive the notice at our Home Office. If you change the Beneficiary,
any previous arrangement you made under the Payment Options provision is
cancelled.
ASSIGNMENT. You may assign this Policy but we will not be bound by any
assignment unless it is in writing and we have received it at our Home Office.
Your rights and those of any other person referred to in this Policy will be
subject to the assignment. All assignments are subject to any indebtedness on
the Policy, We assume no responsibility for the validity of any assignments.
DEATH BENEFIT PROVISIONS
If both Insureds die while this Policy is in force, we will pay the
Insurance Proceeds to the Beneficiary when we receive: (1) proof that both
Insureds died before the Final Policy Date; and (2) all other requirements
deemed necessary to make payment.
DEATH BENEFIT. The Death Benefit will be determined under either Option A or
Option B below, whichever you have chosen and is in effect as of the date of the
death of the last surviving Insured. Under either Option, the duration of
insurance coverage depends upon your Net Cash Surrender Value.
OPTION A. Under Option A, the death benefit is the greater of the Face Amount of
insurance, or a percentage of the Policy Account Value on the date of death of
the last surviving Insured (see Table of Percentages, below), Under this Option,
the amount of the death benefit is fixed, unless it is determined by such a
percentage.
OPTION B. Under Option B, the death benefit is the greater of the Face Amount of
insurance plus the Policy Account Value on the date of death of the last
surviving Insured, or a percentage of the Policy Account Value on the date of
death of the last surviving Insured (see Table of Percentages, below). Under
this Option, the amount of the death benefit is variable.
TABLE OF PERCENTAGES. The following table is used in determining the Death
Benefit under Option A and Option B above. For Attained Ages not shown, the
applicable percentages shall decrease by a ratable portion for each full year.
<TABLE>
<CAPTION>
Attained Age of
Younger Insured Percentage
--------------- ----------
<S> <C>
0 through 40 250%
45 215%
50 185%
55 150%
60 130%
65 120%
70 115%
75 through 90 105%
95 through 99 100%
</TABLE>
AMOUNT OF INSURANCE PROCEEDS. The Insurance Proceeds will be determined as of
the date of death of the last surviving Insured and will be equal to:
1. the Death Benefit described above;
2. plus any dividend payable at death;
3. plus any additional benefits due under a supplementary benefit
rider attached to this Policy;
4. less any loan and accrued loan interest on this Policy;
5. less any overdue deductions if the death of the last surviving
Insured occurs during the Grace Period.
PAYMENT OF INSURANCE PROCEEDS. At the death of the last surviving Insured we
will pay the Insurance Proceeds to the Beneficiary in a lump sum, unless a
Payment Option has been selected. if the proceeds are payable in a lump sum, we
will add interest to the amount of such proceeds for the period from the date of
death of the last surviving Insured to the date of payment. The amount of
interest will be computed at the yearly rate of 3% or any higher rate declared
by us or required by law.
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CHANGING THE DEATH BENEFIT OPTION OR DECREASING THE FACE AMOUNT. During the
first two Policy Years, the Death Benefit Option and the Face Amount of
insurance will be as selected at the time of application, as shown in the Policy
Schedule.
After the second Policy Year while this policy is in force you may
change the Death Benefit Option or decrease the Face Amount. Any change will be
effective as of the Policy Processing Day that coincides with or next follows
the date we approve your written request. You may request a change by completing
an application for change. A copy of such application will be attached to new
Policy Schedule pages which will be issued when the change is approved. The
application for change and new Policy Schedule pages will become a part of this
Policy. We may require you to return this Policy to make a change.
CHANGE FROM DEATH BENEFIT OPTION A TO OPTION B. If you request a change from
Option A to Option B, we will decrease the Face Amount by the Policy Account
Value as of the date of change. We reserve the right to decline to make such a
change if it would reduce the Face Amount below the minimum amount for which we
would then issue this Policy under out rules.
CHANGE FROM DEATH BENEFIT OPTION B TO OPTION A. If you request a change from
Option B to Option A, we will increase the Face Amount by the Policy Account
Value on the date of change.
The decreases and increases in Face Amount described above in
connection with changes in the Death Benefit Option are made so the Death
Benefit remains the same on the date of change. We do not require evidence of
insurability, nor do we deduct a surrender charge for such changes.
FACE AMOUNT DECREASE. You may request a Face Amount decrease provided:
a. the Face Amount of the policy after the decrease is not less
than the minimum amount for which we would then issue this
Policy under our rules;
b. the amount of the decrease is for at least $25,000;
c. if the decrease is made during the first 15 Policy Years, we
will deduct a pro rata share of any applicable surrender
charges from the Policy Account Value.
TAX CONSIDERATIONS. We reserve the right to refuse to make a policy change if
such would cause this Policy to fail to qualify as life insurance under
applicable laws, as interpreted by us.
PREMIUM PAYMENT PROVISIONS
The Minimum Initial Premium shown in the Policy Schedule is due on or before the
date the policy is delivered. No insurance will take effect until the Minimum
Initial Premium is paid, while the health and other conditions of the Insureds
stay the same as described in the applications for this Policy. Prior to the
Final Policy Date and while this Policy is in force you may make additional
premium payments at any time and in any amount (subject to certain limits
described below). We intend to send premium reminder notices to you for the
Planned Periodic Premium shown in the Policy Schedule, unless at the time of
application or later you request in writing that such notices not be sent. You
do not need to pay the Planned Periodic Premiums and may change their frequency
and amount subject to the limits described below. (However, see Grace Period.)
LIMITS FOR PREMIUM PAYMENTS. Each premium payment after the initial one must be
for at least the Minimum Payment amount shown in the Policy Schedule. We may
increase this minimum amount upon 90 days written notice to you of such
increase. This minimum amount will not exceed $500.
We reserve the right not to accept premium payments during a Policy
Year if we determine that such would cause this Policy to fail to qualify as
life insurance under applicable tax laws, as interpreted by us.
We reserve the right to limit the amount of any premium payment if it
increases the Death Benefit more than it increases the Policy Account Value
unless you provide evidence of both Insureds' insurability satisfactory to us.
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GRACE PERIOD. During the first two Policy Years, the duration of the insurance
coverage under this Policy depends, in part, upon whether the Net Cash Surrender
Value is sufficient to cover the monthly deductions. If the Net Cash Surrender
Value is not sufficient, we will determine if the Minimum Guarantee Premium has
been paid. If the Net Cash Surrender Value is not sufficient and the sum of the
premiums paid less any loans and partial withdrawals does not equal or exceed
the Minimum Guarantee Premium, the Grace Period described below will begin.
After the first two Policy Years, the duration of the insurance coverage under
this Policy depends solely upon whether the Net Cash Surrender Value is
sufficient to cover the monthly deductions.
If the Net Cash Surrender Value at the beginning of any policy month is
less than the deductions for that month (and during the first two Policy Years,
the Minimum Guarantee Premium has not been paid), we will send written notice to
you and any assignee of record stating that a Grace Period of 61 days has begun,
starting on the date we mail such notice. The notice will indicate an amount
equal to three monthly deductions. If we do not receive payment of such amount
before the end of the Grace Period, we will withdraw the Policy Account Value
including any applicable surrender charge and send you and any assignee of
record written notice that the Policy has lapsed without value.
If the last surviving Insured dies during the Grace Period, we will pay
the Insurance Proceeds.
REINSTATEMENT. If this Policy has lapsed without value, you may reinstate it
while either Insured is alive if you:
1. apply for reinstatement within three years after the end of
the Grace Period;
2. provide evidence of the insurability satisfactory to us for
both Insureds; or evidence for the last surviving Insured and
due proof that the first death occurred before the date of
lapse; and
3. make a premium payment of an amount sufficient to keep the
Policy in force for at least three months after the date of
reinstatement.
The Effective Date of the reinstated Policy will be the Policy
Processing Day which coincides with or next follows the date we approve the
reinstatement application.
PREMIUM EXPENSE CHARGE
The Premium Expense Charge consists of the following:
1. Premium Tax Charge;
2. Percent of Premium Charge; and
3. Federal Tax Charge.
The Premium Expense Charge will be deducted from any premiums paid and
the amount remaining will be the Net Premium. The amounts of -these charges are
shown in the Policy Schedule.
THE SEPARATE ACCOUNTS
Separate Accounts will be used to support the operation of this Policy
and to support other variable life insurance policies, We will not allocate
assets to the Separate Accounts to support the operation of any contracts or
policies that are not variable life insurance.
The term "Separate Account" as used in this Policy includes any
Sub-Account of a Separate Account.
We own the assets in the Separate Accounts. However, these assets are
not part of our General Account. Income, gains and losses, whether or not
realized, from assets allocated to a Separate Account will be credited to or
charged against the account without regard to our other income, gains or losses.
The Separate Amounts are described in the Policy Schedule. The Separate
Accounts will invest in shares or units of their respective portfolios or
series. The Separate Accounts are collectively treated as a unit investment
trust under federal securities laws. They are registered with the Securities and
Exchange Commission (SEC) according to the Investment Company Act of 1940 (1940
Act).
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<PAGE> 17
The Separate Accounts are subject to the laws of the Commonwealth of
Pennsylvania which regulate the operations of insurance companies incorporated
in Pennsylvania. The investment policies of the Separate Accounts will not be
changed without the approval of the Pennsylvania Commissioner of Insurance. The
approval Process has been filed with the insurance supervisory official of the
state in which this Policy is delivered.
We have the right, subject to compliance with applicable laws, to make
additions to, deletions from, or substitutions for, the shares or units of an
investment company that are held by the Separate Accounts or that the Separate
Accounts may purchase. We reserve the right to eliminate the shares or units of
an eligible portfolio or series, and to substitute shares or units of another
portfolio or series, or another fund, if the shares or units of the portfolio or
series are no longer available for investments, or if in our judgment further
investment in the portfolio or series should become inappropriate in view of the
purposes of the Separate Account. In the event of any substitution or change, we
may, subject to your written approval and by appropriate endorsement, make such
changes in this and other policies as may be necessary or appropriate to reflect
the substitution or change.
We also reserve the right to transfer assets of a Separate Account,
which we determine to be associated with the class of policies to which this
Policy belongs, to another Separate Account. If this type of transfer is made,
the Separate Account specified in this Policy shall then refer to the Separate
Account to which the assets were transferred.
The Policy Owner will share only in the income, gains and losses of the
particular Separate Accounts to which Your Net Premium payments have been
allocated or to which portions of the Policy Account Value have been
transferred.
That portion of the assets of each Separate Account which equals the
reserves or other policy liabilities of the policies which are supported by that
Separate Account will not be charged with liabilities arising from any other
business we conduct. We have the right to transfer to our General Account any
assets of each Separate Account which are in excess of such reserves and other
policy liabilities.
When permitted by law, we also reserve the right:
1. to create additional Separate Accounts: to create Sub-Accounts
from, or combine or remove Sub-Accounts from, Separate
Accounts; or to combine any two or more Separate Accounts;
2. to operate any one or more of the Separate Accounts as a
management investment company under the 1940 Act or in any
other form permitted by law;
3. to deregister the unit investment trusts under the 1940 Act;
4. to modify the provisions of this Policy to comply with
applicable laws;
5. to restrict or eliminate any voting rights of policyholders or
other persons who have voting rights as to the Separate
Accounts.
We will value the assets of the Separate Accounts on each business day.
If you object to a material change in the investment policy of a
Separate Account in which you have at such time a portion of the Policy Account
Value, you may transfer such portion of the Policy Account Value, upon written
request, from that Separate Account, without charge, to another Separate Account
or to the Guaranteed Account. You may then change your premium and deduction
allocation percentages.
POLICY ACCOUNT VALUE:
ALLOCATIONS AND TRANSFERS
The Policy Account Value for this Policy is based on the policy values
in the Separate Accounts, Guaranteed Account and the Loan Account to which you
have: allocated Net Premiums; transferred account values; and allocated monthly
deductions. Each allocation percentage must be a whole number.
ALLOCATION OF NET PREMIUMS. Net Premiums will be allocated to the Separate
Accounts and the Guaranteed Account on the date we receive such premium payment
or the Policy Issue Date, if later. The allocation will be based on the premium
allocation percentages then in effect. The percentage chosen by you at the time
of application will apply until you notify us in writing of a new allocation
schedule for premium payments.
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<PAGE> 18
ALLOCATION FOR MONTHLY DEDUCTIONS.
Monthly Deductions will be allocated to the Separate Accounts and
Guaranteed Account based on the allocation percentages chosen by you at the time
of application or as later changed by written request to us. If we cannot make a
monthly deduction on the basis of the allocation schedule then in effect, we
will make such deduction and future deductions based on the proportion that your
Guaranteed Account Value and the value in your Separate Accounts bear to the
total unloaned Policy Account Value.
TRANSFERS. We will allow you to make four transfers in a Policy Year without
charge. We will make a charge for additional transfers in such Policy Year. The
maximum charge is shown in the Policy Schedule. The transfer charge will be
deducted from the amount being transferred.
TRANSFERS FROM SEPARATE ACCOUNTS. You may ask us to transfer a or part of the
amount in one of the Separate Accounts to another Separate Account or to the
Guaranteed Account. The minimum amount for such transfer is the lesser of the
amount shown in the Policy Schedule or the entire value of the Separate Account.
The transfer will be made as of the date we receive your written request at our
Home Office.
TRANSFERS FROM GUARANTEED ACCOUNT. Within 30 days prior to or following any
Policy Anniversary you may ask us to make one transfer for up to 25% of your
Guaranteed Account Value to any of the Separate Accounts. The minimum amount for
such transfer is the lesser of the amount shown in the Policy Schedule or your
Guaranteed Account Value on such Policy Anniversary. The date of transfer will
be as of the Policy Anniversary if your written request is received prior to the
Policy Anniversary ; if your written request is received after the Policy
Anniversary, the transfer will be made as of the date we receive your request at
our Home Office.
SPECIAL TRANSFER RIGHT. During the first two years following the Policy Issue
Date, you may request one transfer of the entire Policy Account Value in the
Separate Accounts to the Guaranteed Account. This request will not count towards
the four free transfers in a Policy Year and is not subject to a transfer
charge. Following the exercise of this Special Transfer Right, all future Net
Premiums must be allocated to the Guaranteed Account.
CALCULATION OF VALUES
BASIS OF CALCULATION. Minimum cash surrender values and maximum cost of
insurance rates are based on the Commissioners 1980 Standard Ordinary Smoker and
Nonsmoker Mortality Table for the sex of each Insured. Cash surrender values are
at least equal to those required by law. Reserves are computed by the
Commissioners Reserve Valuation Method. A detailed statement of how we calculate
the values for this Policy has been filed with the insurance supervisory
official of the state in which this Policy is delivered.
CALCULATION OF VALUE OF SEPARATE ACCOUNTS. The Policy Account Value in a
Separate Account at any time is equal to the number of units this Policy then
has in that Separate Account multiplied by the Separate Account's unit value at
that time.
Amounts allocated, transferred or added to a Separate Account are used
to purchase units of that Separate Account; units are redeemed when amounts are
deducted, transferred or withdrawn. The number of units in a Separate Account at
any time is equal to the number of units purchased minus the number of units
redeemed up to such time.
The unit value of a Separate Account on any Valuation Day is equal to
the unit value for that Separate Account on the immediately preceding Valuation
Day multiplied by the Net Investment Factor for that Separate Account on that
Valuation Day.
VALUATION DAY AND PERIOD. Assets are valued at the close of a Valuation Day. A
Valuation Day is each day that the New York Stock Exchange is open for business
and any other day in which there is a sufficient degree of trading of the
Separate Account's portfolio of securities to materially affect the value of a
Separate Account.
A Valuation Period is 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.
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NET INVESTMENT FACTOR. Each Separate Account has its own Net investment Factor.
The Net Investment Factor of the Separate Account for a Valuation Period is (a)
divided by (b), minus (c) and minus (d), where:
(a) is:
1. the value of the assets in the Separate Account for
the preceding Valuation Period; plus
2. the investment income and capital gains, realized or
unrealized, credited to those assets during the
Valuation Period for which the Net Investment Factor
is being determined; minus
3. the capital losses, realized or unrealized, charged
against those assets during the Valuation Period,
minus
4. any amount charged against the Separate Account for
taxes, or any amount we set aside during the
Valuation Period as a reserve for taxes attributable
to the operation or maintenance of the Separate
Account, and
(b) is the value of the assets in the preceding Valuation Period;
and
(c) is a charge no greater than .90% per year (.002465753% for
each day in the Valuation Period) for mortality and expense
risks; and
(d) is a charge, for the Zero Coupon Bond Separate Account only,
no greater than .50% per year (.001369863% for each clay in
the Valuation Period) for transaction charges associated with
the purchase of units.
We will value the assets in the Separate Account at their fair market
value in accordance with accepted accounting practices and applicable laws and
regulations.
CALCULATION OF GUARANTEED ACCOUNT VALUE. The Guaranteed Account Value at any
time is equal to the amounts allocated and transferred to the Guaranteed Account
plus interest credited to it, minus amounts deducted, transferred and withdrawn
from it- Amounts deducted, transferred or withdrawn will be on a last in, first
out basis.
We will credit the Guaranteed Account Value with interest at effective
annual rates we determine. These rates will not be less than 4%. For the amount
in the Guaranteed Account at the beginning of a calendar year, we will determine
such interest rates in advance of each calendar year. Such rates will apply to
the calendar year which follows the date of determination. For amounts allocated
or transferred to the Guaranteed Account during a calendar year, we will
determine such interest rates in advance of the date such amount is received or
transferred. Such rates will apply to the end of the calendar year in which the
payment is received or the transfer is made.
Interest will be credited on each Policy Processing Day as follows:
for amounts in the Guaranteed Account for the entire prior
policy month, from the beginning to the end of such policy month;
for amounts allocated to the Guaranteed Account during the
prior policy month, from the date we allocate a Net Premium to the Guaranteed
Account or receive a loan repayment to the end of the policy month;
for amounts transferred to the Guaranteed Account during the
prior policy month, from the date of transfer to the end of the policy month;
for amounts deducted or withdrawn from the Guaranteed Account
during the prior policy month, from the beginning of the prior policy month to
the date of deduction or withdrawal.
MONTHLY DEDUCTIONS. On each Policy Processing Day, beginning on the Policy Date,
we will deduct the following charges from the Policy Account Value:
1. The Monthly Administrative Charge shown in the Policy
Schedule;
2. On the first 12 Policy Processing Days, the Initial
Administrative Charge shown in the Policy Schedule;
3. The monthly cost of any benefits provided by rider to this
Policy, in accordance with such rider;
4. The monthly cost of insurance charge, as described below.
The monthly cost of insurance charge is-. (a) multiplied by the result
of (b) minus (c):
(a) is the current monthly cost of insurance rate per
$1000 divided by 1000;
and the result of (b) minus (c) is the net amount at risk where:
(b) is your current Death Benefit; and
(c)is your Policy Account Value (after other deductions but
before cost of insurance).
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<PAGE> 20
The cost of insurance rates are based on each insured's Issue Age, Sex
and Premium Class and the Policy's duration. Current cost of insurance rates
Will be determined by the Company based on our expectations as to future
mortality costs and expenses. However, these rates will never exceed those shown
in the Table of Guaranteed Maximum Cost of Insurance Rates Per $1000 of Net
Amount At Risk shown in the Policy Schedule.
OTHER DEDUCTIONS. We also make the following other deductions from the Policy
Account Value as they occur:
1. Charge for partial withdrawal of Net Cash Surrender Value;
2. Surrender charges if during the first 15 Policy Years you
surrender this policy for its Net Cash Surrender Value, reduce
the Face Amount of insurance, or this policy lapses at the end
of a Grace Period;
3. Charge for certain transfers of the Policy Account Value.
SURRENDERS AND WITHDRAWALS
SURRENDER FOR NET CASH SURRENDER VALUE.
You may surrender this Policy for its Net Cash Surrender Value at any
time while either Insured is living. The Net Cash Surrender Value of this Policy
at any time is equal to the Policy Account Value on such date less any Surrender
Charge, and less any outstanding policy loan and accrued interest. We will
determine the Net Cash Surrender Value on the date we receive your signed
written surrender request at our Home Office. Coverage under this Policy will
end on the date you send the surrender request to us.
SURRENDER CHARGE. if you surrender this Policy for its Net Cash Surrender Value
during the first 15 Policy Years, or if this Policy lapses during the first 15
Policy Years, we will deduct a Surrender Charge from the Policy Account Value.
This Surrender Charge has two parts: the Deferred Administrative Charge and the
Deferred Sales Charge. The amounts of such charges are shown in the Policy
Schedule.
If you request a reduction in the Face Amount during any of the first
15 Policy Years, we will deduct a pro rata Surrender Charge from the Policy
Account Value as of the effective date of such reduction. The amount of such pro
rata Surrender Charge will be the Surrender Charge multiplied by the amount of
the reduction in the Face Amount divided by the Face Amount immediately prior to
such reduction.
We will allocate the pro rata Surrender Charge based on the proportion
that your Guaranteed Account Value and the value in your Separate Accounts bear
to the total unloaned Policy Account Value.
PARTIAL WITHDRAWAL Of NET CASH SURRENDER VALUE. After the first Policy Year, you
may make a written request for a partial withdrawal of the Net Cash Surrender
Value, subject to restrictions below and the minimum amount shown in the Policy
Schedule. As of the date we receive your request at our Home Office, we will
reduce the Policy Account Value by the amount withdrawn plus the expense charge
for a partial withdrawal shown in the Policy Schedule. If Death Benefit Option A
is in effect, we will reduce the Face Amount by such amount.
We will allocate the withdrawal and expense charge based on the
proportion that your Guaranteed Account Value and the value in your Separate
Accounts bear to the total unloaned Policy Account Value.
We reserve the right to decline your withdrawal request if: the Face
Amount would be reduced below the minimum amount for which we would then issue
this Policy under our rules; or we determine that the withdrawal would cause
this Policy to fail to qualify as life insurance under applicable tax laws, as
interpreted by us.
If we approve your request, we will issue revised Policy Schedule pages
reflecting the changes, if any. The revised pages will become a part of this
Policy. We may require you to return the policy to make the change.
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<PAGE> 21
POLICY LOAN PROVISIONS
You may borrow from this Policy while it has a loan value. This Policy will be
the only security for the loan. Any policy loan must be for at least the minimum
amount shown in the Policy Schedule. The maximum amount which may be borrowed is
the Net Cash Surrender Value. We will allocate the loan based on the proportion
that your Guaranteed Account Value and the value of your Separate Accounts bear
to the total unloaned Policy Account Value.
The collateral for the 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. The collateral for the loan will be
deducted from each account and transferred to the Loan Account. The collateral
for any existing loan will be recalculated: (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 LOANS. A policy loan will have a permanent effect on your benefits
under this Policy, even if it is repaid. The loan amount which is transferred to
the Loan Account will be maintained separately.
INTEREST RATE CHARGED ON LOANS. We will charge interest on loans at the fixed
yearly rate of 6%. Loan interest is due at the end of each Policy Year. If you
do not pay the interest when it is due, we will add it to the outstanding loan.
The unpaid interest will then be treated as part of the loaned amount and bear
interest at the policy loan interest rate. We will allocate the unpaid interest
based on the proportion that your Guaranteed Account Value and the value of your
Separate Accounts bear to the total unloaned Policy Account Value.
LOAN INTEREST CREDITED. We will credit the Loan Account with interest at an
effective annual rate we determine. This rate will not be less than 4%. We will
determine such rate in advance of each calendar year. This rate will apply to
the calendar year which follows the date of determination. Loan interest
credited will be transferred to each of your 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.
LOAN REPAYMENTS. You may repay all or part of a policy loan at any time while
either Insured is alive and this Policy is in force. We will assume that any
payments made while there is an outstanding loan on this Policy is a loan
repayment, unless you tell us, in writing, that such is a premium payment.
Repayments will first be allocated to the accounts based on the
allocation of the outstanding loan from each account as of the date of
repayment. Any repayment in excess of the amount of the outstanding loan will be
allocated based on the amount of accrued interest for the outstanding loan.
Failure to repay a loan or pay loan interest will not cause this policy
to lapse unless the Net Cash Surrender Value on the Policy Processing Day is
less than the monthly deduction due. In that event, the Grace Period provision
will apply.
DIVIDEND PROVISIONS
While this Policy is in force, we will determine its share in our
divisible surplus once a year. It is not anticipated that dividends will be paid
on this Policy. Any dividends paid will be credited on the Policy Anniversary.
You may select one of the Dividend Options listed below. If you do not select
any Option, we will pay any dividends under Option 2:
1. CASH. We will pay any dividend to you in cash.
2. PREMIUM PAYMENT. We will consider the dividend to be a Net
Premium. We will allocate it in accordance with the premium
allocation schedule then in effect.
Page 17
<PAGE> 22
PAYMENT OPTIONS
Payments under these Options will not be affected by the investment
experience of any Separate Account after proceeds are applied under such
Options.
Instead of being paid in one sum, the proceeds of this Policy may be
paid under one of the Options below.
OPTION 1 - PROCEEDS AT INTEREST. We will pay interest on the proceeds at 12, 6,
3 or 1 month intervals, as elected. The interest per interval for each $1,000 of
proceeds is shown in the table below:
<TABLE>
<CAPTION>
INTERVAL IN MONTHS AMOUNT OF INTEREST
<S> <C>
12 $ 30.00
6 14.89
3 7.42
1 2.47
</TABLE>
OPTION 2 - INSTALMENTS OF A SPECIFIED AMOUNT. We will pay the proceeds in equal
instalments of the amount elected with our consent at 12, 6, 3 or I month
intervals. We will add interest on the balance of proceeds to such balance each
year. We will pay instalments until the proceeds and interest are exhausted. The
last instalment will be for the balance only of the proceeds and interest.
OPTION 3 - INSTALMENTS FOR A SPECIFIED PERIOD. We will pay the proceeds in the
number of equal monthly instalments certain set forth in the election. We will
base the amount of each instalment on the Option 3 table. If so elected, the
instalments may be paid at 12, 6 or 3 month intervals. The amount of each
instalment in such case will be the product of the monthly instalment and the
factor shown in the table below:
<TABLE>
<CAPTION>
FACTOR APPLIED TO
INTERVAL IN MONTHS MONTHLY INSTALMENT
<S> <C>
12 11.839
6 5.963
3 2.993
</TABLE>
OPTION 4 - LIFE INCOME. We will use the proceeds to provide equal monthly
instalments during the payee's life. We will pay the instalments, as elected,
either without instalments certain or with instalments certain for 120 months,
for 240 months, or until the proceeds are refunded.
"Until the proceeds are refunded" means until the sum of the
instalments paid by us equals the amount of proceeds settled under this Option.
We will base the amount of each instalment on the Option 4 table.
OPTION 5 - JOINT AND SURVIVOR LIFE INCOME. We will use the proceeds to provide
equal monthly instalments, with a number of instalments certain, during the
joint lives of the payee and one other person and during the life of the
survivor.
We will pay the instalments certain for either 120 or 240 months, as
elected. We will base the amount of each instalment on the Option 5 table.
DATE OF FIRST PAYMENT. We will make the first payment under Option 1 at the end
of the first payment interval. We will make the first payment under Option 2, 3,
4 or 5 on the date on which the Option takes effect.
INTEREST. The interest rate underlying - all of the above Options is 3% per
year. Additional interest may be declared each year by us. Such additional
interest will:
1. increase the interest payment under Option 1,
2. be added to the proceeds under Option 2, or
3. increase the instalments certain under Option 3, 4 or 5.
WITHDRAWAL OR COMMUTATION. If expressly provided in the election of the Option
but not otherwise, the payee will have the right to:
1. withdraw all or part of the balance of the proceeds under
Option I or 2; or
2. take in one sum the commuted value of any balance of the
instalments certain under Option 3, 4, or 5.
Partial withdrawals will be subject to our published minimum amount
limits in effect at the time the Option is elected. Such commuted value will be
based on compound interest at a yearly rate of 3%. Under Option 4 or 5, no
instalments other than instalments certain may be commuted.
We may defer payment of the amount withdrawn or commuted for a period
not exceeding 6 months.
SETTLEMENT AT DEATH OF PAYEE. After the death of the payee (the survivor in the
case of Option 5), we will make payment as directed in the election of the
Option- Such direction is subject to our approval.
The amount subject to such payment will be:
1. any balance of proceeds, with accrued interest, under Option I
or 2; or
2. the value of any remaining instalments certain under Option 3,
4 or 5.
Page 18
<PAGE> 23
OPTION 3-INSTALMENTS FOR A SPECIFIED PERIOD
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under
Option 3
<TABLE>
<CAPTION>
Monthly Installments Certain
----------------------------
No. Amount
--- ------
<S> <C>
12 $ 84.47
24 42.86
36 28.99
48 22.06
60 17.91
72 15.14
84 13.16
96 11.68
108 10.53
120 9.61
132 8.86
144 8.24
156 7.71
168 7.26
180 6.87
192 6.53
204 6.23
216 5.96
228 5.73
240 5.51
252 5.32
264 5.15
276 4.99
288 4.84
300 4.71
312 4.59
324 4.47
336 4.37
348 4.27
360 4.18
</TABLE>
OPTION 4-LIFE INCOME
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under
Option 4 Where the incomes are the same the longer certain period will apply.
<TABLE>
<CAPTION>
Number of Monthly Instalments
Certain
---------------------------------------------------------
Age of
Payee* Until
Proceeds
None 120 240 Are
M Refunded
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5** $ 2.81 $ 2.81 $ 2.81 $ 2.80
6 2.83 2.82 2.82 2.81
7 2.84 2.84 2.83 2.83
8 2.85 2.85 2.84 2.84
9 2.86 2.86 2.86 2.85
10 2.87 2.87 2.87 2.86
11 2.89 2.89 2.88 2.88
12 2.90 2.90 2.90 2.89
13 2.92 2.91 2.91 2.90
14 2.93 2.93 2.92 2.92
15 2.95 2.95 2.94 2.93
16 2.96 2.96 2.96 2.95
17 2.98 2.98 2.97 2.96
18 3.00 3.00 2.99 2.98
19 3.02 3.01 3.01 3.00
20 3.04 3.03 3.03 3.02
21 3.06 3.05 3.05 3.04
22 3.08 3.07 3.07 3.06
23 3.10 3.09 3.09 3.08
24 3.12 3.12 3.11 3.10
25 3.14 3.14 3.13 3.12
26 3.17 3.16 3.15 3.14
27 3.19 3.19 3.18 3.16
28 3.22 3.22 3.20 3.19
29 3.25 3.24 3.23 3.21
30 3.28 3.27 3.26 3.24
31 3.31 3.30 3.29 3.27
32 3.34 3.33 3.32 3.30
33 3.37 3.37 3.35 3.33
34 3.41 3.40 3.38 3.36
35 3.44 3.44 3.41 3.39
36 3.48 3.48 3.45 3.42
37 3.52 3.51 3.48 3.46
38 3.57 3.56 3.52 3.50
39 3.61 3.60 3.56 3.53
40 3.66 3.64 3.60 3.57
41 3.71 3.69 3.64 3.61
42 3.76 3.74 3.68 3.66
43 3.81 3.79 3.73 3.70
44 3.87 3.85 3.77 3.75
45 3.93 3.90 3.82 3.80
46 3.99 3.96 3.87 3.85
47 4.05 4.02 3.92 3.90
48 4.12 4.09 3.97 3.96
49 4.19 4.15 4.03 4.01
50 4.27 4.22 4.08 4.08
51 4.34 4.29 4.14 4.14
52 4.43 4.37 4.20 4.20
53 4.51 4.45 4.26 4.27
54 4.60 4.54 4.32 4.35
55 4.70 4.62 4.39 4.42
56 4.80 4.72 4.45 4.50
57 4.91 4.82 4.51 4.58
58 5.03 4.92 4.58 4.67
59 5.15 5.03 4.64 4.76
60 5.28 5.14 4.71 4.86
61 5.42 5.26 4.78 4.96
62 5.57 5.39 4.84 5.07
63 5.74 5.52 4.90 5.19
64 5.91 5.66 4.96 5.30
65 6.10 5.81 5.02 5.43
66 6.29 5.96 5.08 5.56
67 6.50 6.11 5.13 5.70
68 6.73 6.28 5.18 5.85
69 6.97 6.44 5.23 6.00
70 7.23 6.61 5.27 6.16
71 7.51 6.78 5.31 6.33
72 7.80 6.96 5.34 6.51
73 8.12 7.14 5.37 6.70
74 8.45 7.32 5.40 6.90
75 8.82 7.49 5.42 7.11
76 9.21 7.67 5.44 7.33
77 9.62 7.84 5.45 7.56
78 10.07 8.01 5.47 7.80
79 10.55 8.17 5.48 8.05
80 11.06 8.33 5.49 8.32
81 11.61 8.48 5.49 8.60
82 12.19 8.61 5.50 8.89
83 12.81 8.74 5.50 9.20
84 13.46 8.86 5.51 9.52
85+ 14.16 8.97 5.51 9.85
</TABLE>
<TABLE>
<CAPTION>
Number of Monthly Instalments
Certain
---------------------------------------------------------
Age of
Payee* Until
Proceeds
None 120 240 Are
F Refunded
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5** $ 2.75 $ 2.75 $ 2.75 $ 2.74
6 2.76 2.76 2.76 2.75
7 2.77 2.77 2.77 2.76
8 2.78 2.78 2.78 2.77
9 2.79 2.79 2.79 2.78
10 2.80 2.80 2.80 2.79
11 2.81 2.81 2.81 2.80
12 2.82 2.82 2.82 2.82
13 2.83 2.83 2.83 2.83
14 2.85 2.85 2.84 2.84
15 2.86 2.86 2.86 2.85
16 2.87 2.87 2.17 2.86
17 2.89 2.89 2.88 2.88
18 2.90 2.90 2.90 2.89
19 2.92 2.92 2.91 2.91
20 2.93 2.93 2.93 2.92
21 2.95 2.95 2.94 2.94
22 2.96 2.96 2.96 2.95
23 2.98 2.98 2.98 2.97
24 3.00 3.00 2.99 2.99
25 3.02 3.02 3.01 3.01
26 3.04 3.04 3.03 3.02
27 3.06 3.06 3.05 3.04
28 3.08 3.08 3.07 3.06
29 3.10 3.10 3.09 3.09
30 3.13 3.12 3.12 3.11
31 3.15 3.15 3.14 3.13
32 3.18 3.17 3.16 3.15
33 3.20 3.20 3.19 3.18
34 3.23 3.23 3.22 3.20
35 3.26 3.26 3.24 3.23
36 3.29 3.29 3.27 3.26
37 3.32 3.32 3.30 3.29
38 3.35 3.35 3.33 3.32
39 3.39 3.38 3.37 3.35
40 3.42 3.42 3.40 3.38
41 3.46 3.46 3.43 3.42
42 3.50 3.50 3.47 3.45
43 3.54 3.54 3.51 3.49
44 3.59 3.58 3.55 3.53
45 3.63 3.63 3.59 3.57
46 3.68 3.67 3.63 3.61
47 3.73 3.72 3.68 3.66
48 3.79 3.77 3.72 3.70
49 3.84 3.83 3.77 3.75
50 3.90 3.89 3.82 3.80
51 3.97 3.95 3.88 3.86
52 4.03 4.01 3.93 3.91
53 4.10 4.08 3.99 3.97
54 4.18 4.15 4.04 4.03
55 4.25 4.22 4.11 4.10
56 4.34 4.30 4.17 4.17
57 4.42 4.38 4.23 4.24
58 4.52 4.47 4.30 4.31
59 4.61 4.56 4.37 4.39
60 4.72 4.66 4.44 4.48
61 4.83 4.76 4.51 4.56
62 4.95 4.86 4.58 4.66
63 5.07 4.98 4.65 4.75
64 5.21 5.10 4.72 4.86
65 5.35 5.22 4.79 4.97
66 5.51 5.36 4.86 5.08
67 5.67 5.50 4.93 5.20
68 5.85 5.65 5.00 5.33
69 6.04 5.80 5.06 5.47
70 6.25 5.96 5.12 5.61
71 6.47 6.14 5.18 5.76
72 6.71 6.31 5.23 5.93
73 6.97 6.50 5.28 6.10
74 7.26 6.69 5.32 6.28
75 7.56 6.89 5.35 6.48
76 7.90 7.09 5.39 6.68
77 8.26 7.29 5.41 6.90
78 8.65 7.49 5.43 7.13
79 9.07 7.69 5.45 7.38
80 9.53 7.89 5.47 7.64
81 10.03 8.08 5.48 7.91
82 10.57 8.26 5.49 8.21
83 11.16 8.43 5.49 8.51
84 11.79 8.59 5.50 8.83
85+ 12.48 8.74 5.50 9.18
</TABLE>
*On birthday nearest to due date of first instalment.
**Ages 5 and under.
+Ages 85 and over.
Page 19
<PAGE> 24
OPTION 5-JOINT AND SURVIVOR LIFE INCOME
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under
Option 5
<TABLE>
<CAPTION>
WITH 120 MONTHLY INSTALMENTS CERTAIN
- -----------------------------------------------------------------------------------------------------------------------------
Age of Age of Payee*
Payee* FEMALE
---------------------------------------------------------------------------------------------------------------------
MALE 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.60 $3.63 $3.66 $3.69 $3.72 $3.75 $3.77 $3.80 $3.83 $3.85 $3.88 $3.90 $3.92 $3.95 $3.97
51 3.62 3.65 3.68 3.71 3.74 3.77 3.80 3.83 3.86 3.89 3.91 3.94 3.97 3.99 4.01
52 3.64 3.67 3.70 3.74 3.77 3.80 3.83 3.86 3.89 3.92 3.95 3.98 4.01 4.03 4.06
53 3.66 3.69 3.72 3.76 3.79 3.82 3.86 3.89 3.92 3.96 3.99 4.02 4.05 4.08 4.11
54 3.67 3.71 3.74 3.78 3.81 3.85 3.89 3.92 3.96 3.99 4.02 4.06 4.09 4.12 4.15
55 3.69 3.72 3.76 3.80 3.84 3.87 3.91 3.95 3.99 4.02 4.06 4.10 4.13 4.17 4.20
56 3.70 3.74 3.78 3.82 3.86 3.90 3.94 3.98 4.02 4.06 4.10 4.13 4.17 4.21 4.25
57 3.72 3.76 3.80 3.84 3.88 3.92 3.96 4.00 4.05 4.09 4.13 4.17 4.21 4.25 4.29
58 3.73 3.77 3.81 3.86 3.90 3.94 3.99 4.03 4.08 4.12 4.17 4.21 4.25 4.30 4.34
59 3.74 3.79 3.83 3.87 3.92 3.96 4.01 4.06 4.10 4.15 4.20 4.25 4.29 4.34 4.38
60 3.75 3.80 3.84 3.89 3.94 3.98 4.03 4.08 4.13 4.18 4.23 4.28 4.33 4.38 4.43
61 3.77 3.81 3.86 3.91 3.95 4.00 4.05 4.11 4.16 4.21 4.26 4.32 4.37 4.42 4.48
62 3.78 3.82 3.87 3.92 3.97 4.02 4.07 4.13 4.18 4.24 4.29 4.35 4.41 4.46 4.52
63 3.79 3.83 3.88 3.93 3.99 4.04 4.09 4.15 4.21 4.26 4.32 4.38 4.44 4.50 4.56
64 3.80 3.84 3.90 3.95 4.00 4.06 4.11 4.17 4.23 4.29 4.35 4.41 4.48 4.54 4.60
65 3.80 3.85 3.91 3.96 4.01 4.07 4.13 4.19 4.25 4.31 4.38 4.44 4.51 4.58 4.64
70 3.84 3.89 3.95 4.01 4.07 4.13 4.20 4.27 4.34 4.41 4.49 4.57 4.65 4.73 4.82
75 3.86 3.92 3.98 4.04 4.11 4.17 4.25 4.32 4.40 4.48 4.57 4.66 4.75 4.84 4.94
80 3.87 3.93 4.00 4.06 4.13 4.20 4.27 4.35 4.44 4.52 4.61 4.71 4.81 4.91 5.02
</TABLE>
<TABLE>
<CAPTION>
WITH 120 MONTHLY INSTALMENTS CERTAIN
- ----------------------------------------
Age of Age of Payee*
Payee* FEMALE
-----------------------------
MALE 65 70 75 80
- ----------------------------------------
<S> <C> <C> <C> <C>
50 $3.99 $4.08 $4.14 $4.18
51 4.04 4.13 4.20 4.25
52 4.08 4.19 4.27 4.32
53 4.13 4.25 4.34 4.40
54 4.18 4.31 4.41 4.48
55 4.23 4.37 4.48 4.56
56 4.28 4.44 4.56 4.64
57 4.33 4.50 4.64 4.73
58 4.38 4.57 4.72 4.82
59 4.43 4.64 4.80 4.92
60 4.48 4.71 4.89 5.02
61 4.53 4.77 4.98 5.12
62 4.58 4.84 5.07 5.23
63 4.62 4.91 5.16 5.34
64 4.67 4.98 5.25 5.45
65 4.71 5.05 5.35 5.57
70 4.91 5.36 5.81 6.18
75 5.05 5.62 6.23 6.78
80 5.14 5.79 6.54 7.27
</TABLE>
* On birthday nearest to due date of first instalment. The amount of the
monthly instalment for any combination of egos not shown in this table will
be furnished on request.
<TABLE>
<CAPTION>
WITH 240 MONTHLY INSTALMENTS CERTAIN
- -----------------------------------------------------------------------------------------------------------------------------
Age of Age of Payee*
Payee* FEMALE
---------------------------------------------------------------------------------------------------------------------
MALE 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.60 $3.63 $3.65 $3.68 $3.71 $3.73 $3.76 $3.79 $3.81 $3.84 $3.86 $3.88 $3.90 $3.92 $3.94
51 3.61 3.64 3.67 3.70 3.73 3.76 3.79 3.82 3.84 3.87 3.89 3.92 3.94 3.96 3.98
52 3.63 3.66 3.69 3.72 3.76 3.79 3.82 3.85 3.87 3.90 3.93 3.95 3.98 4.00 4.02
53 3.65 3.68 3.71 3.76 3.78 3.81 3.84 3.87 3.90 3.93 3.96 3.99 4.02 4.04 4.07
54 3.66 3.70 3.73 3.77 3.80 3.83 3.87 3.90 3.93 3.97 4.00 4.03 4.06 4.08 4.11
55 3.68 3.71 3.75 3.79 3.82 3.86 3.89 3.93 3.96 4.00 4.03 4.06 4.09 4.12 4.15
56 3.69 3.73 3.77 3.80 3.84 3.88 3.92 3.95 3.99 4.03 4.06 4.10 4.13 4.16 4.19
57 3.70 3.74 3.78 3.82 3.86 3.90 3.94 3.98 4.02 4.06 4.09 4.13 4.17 4.20 4.24
58 3.72 3.76 3.80 3.84 3.88 3.92 3.96 4.00 4.04 4.09 4.13 4.16 4.20 4.24 4.28
59 3.73 3.77 3.81 3.85 3.90 3.94 3.98 4.03 4.07 4.11 4.15 4.20 4.24 4.28 4.31
60 3.74 3.78 3.82 3.87 3.91 3.96 4.00 4.05 4.09 4.14 4.18 4.23 4.27 4.31 4.35
61 3.75 3.79 3.84 3.88 3.93 3.97 4.02 4.07 4.12 4.16 4.21 4.26 4.30 4.35 4.39
62 3.76 3.80 3.85 3.89 3.94 3.99 4.04 4.09 4.14 4.19 4.23 4.28 4.33 4.38 4.42
63 3.77 3.81 1.86 3.91 3.95 4.00 4.05 4.10 4.16 4.21 4.26 4.11 4.36 4.41 4.46
64 3.77 3.82 3.87 3.92 3.97 4.02 4.07 4.12 4.17 4.23 4.28 4.33 4.39 4.44 4.49
65 3.78 3.83 1.88 3.93 3.98 4.03 4.08 4.14 4.19 4.25 4.30 4.36 4.41 4.46 4.52
70 3.81 3.86 3.91 3.96 4.02 4.07 4.13 4.19 4.25 4.31 4.38 4.44 4.50 4.57 4.63
75 3.82 3.87 3.92 3.98 4.03 4.09 4.16 4.22 4.28 4.35 4.42 4.48 4.55 4.62 4.69
80 3.82 3.87 3.93 3.98 4.04 4.10 4.16 4.23 4.29 4.36 4.43 4.50 4.57 4.64 4.71
</TABLE>
<TABLE>
<CAPTION>
WITH 240 MONTHLY INSTALMENTS CERTAIN
- ----------------------------------------
Age of Age of Payee*
Payee* FEMALE
-----------------------------
MALE 65 70 75 80
- ----------------------------------------
<S> <C> <C> <C> <C>
50 $3.96 $4.03 $4.06 $4.08
51 4.00 4.08 4.12 4.14
52 4.05 4.13 4.17 4.19
53 4.09 4.18 4.23 4.25
54 4.13 4.23 4.29 4.31
55 4.18 4.29 4.35 4.38
56 4.22 4.34 4.41 4.44
57 4.27 4.40 4.47 4.50
58 4.31 4.45 4.53 4.57
59 4.35 4.50 4.59 4.63
60 4.39 4.55 4.65 4.69
61 4.43 4.61 4.71 4.76
62 4.47 4.66 4.77 4.82
63 4.50 4.70 4.83 4.88
64 4.54 4.75 4.88 4.94
65 4.57 4.79 4.93 5.00
70 4.69 4.97 5.15 5.24
75 4.76 5.07 5.28 5.38
80 4.78 5.11 5.33 5.44
</TABLE>
* On birthday nearest to due date of first instalment. The amount of the
monthly instalment for any combination of ages not shown in this table will
be furnished on request.
Page 20
<PAGE> 25
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
GUARANTEED MINIMUM DEATH BENEFIT
POLICY NUMBER 9,000,000 RIDER ISSUE DATE 01-01-1996
This Rider is attached to and made part of this Policy.
If during the term of this Rider, the Net Cash Surrender Value of the
Policy to which it is attached is not sufficient to cover the monthly
deductions, we will determine if the Minimum Guarantee Premium has been paid. If
the Minimum Guarantee Premium has been paid while this Rider is in effect, the
Policy will not go into the Grace Period as described in the Policy. If the
Minimum Guarantee Premium has not been paid while this Rider is in effect, the
Grace Period will begin.
To determine whether the Minimum Guarantee Premium has been paid. the
sum of the premiums paid into the Policy less any partial withdrawals and
outstanding loans must equal or exceed the Minimum Guarantee Premium
DEATH BENEFIT GUARANTEE PERIOD. This Rider is in effect until the Policy
Anniversary nearest the Older Insured's Attained Age 70 or 10 years after the
Policy Date as shown on page 3 of the Policy Schedule, whichever is later,
COST. The cost of this Rider is $0.01 per $1,000 of Face Amount of the Policy to
which this Rider is attached. This amount will be included in the monthly
deductions for this Policy. The monthly deduction for this Rider will cease upon
the termination of this Rider.
TERMINATION. This rider will terminate:
1. upon written request;
2. upon surrender or other termination of the Policy to which it
is attached;
3. at the Policy Anniversary nearest the Older Insured's Attained
Age 70 or 10 years after the Policy Date as shown on page 3 of
the Policy Schedule, whichever is later; or
4. if the Death Benefit Option of the Policy is changed to Option
B.
Attached by PROVIDENT MUTUAL LIFE INSURANCE COMPANY on the issue date of this
Rider.
/s/ Robert W. Kloss
-------------------------------------
President and Chief Operating Officer
<PAGE> 26
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
CONVERTIBLE TERM LIFE INSURANCE
INSURED JOHN DOE POLICY NUMBER 9,000,000
RIDER ISSUE DATE 01-01-1996
This Rider is attached to and made part of this Policy.
The Company will pay the Beneficiary the amount of term insurance shown
in the Policy Schedule for the Insured above, upon receipt of due proof of the
Insured's death on or before the Expiry Date of this Rider. subject to the terms
and conditions set forth below. Unless otherwise provided, the Owner and
Beneficiary of this Rider are the same as the Owner and Beneficiary of the
Policy to which this Rider is attached.
AMOUNT OF INSURANCE. The amount of term insurance is shown on Policy Schedule
page 3, and will remain level until the Expiry Date, or until increased or
decreased at the request of the Owner.
EXPIRY DATE. The Expiry Date of this Rider is the Policy Anniversary nearest age
100 of the Insured or the maturity date of the Policy to which it is attached,
whichever occurs first.
COST. The cost of insurance for this Rider is included in the monthly deductions
for the Policy to which this Rider is attached. It is determined by multiplying
the monthly cost of insurance rate by the Insured's Insurance Amount divided by
1,000. The monthly deduction for this Rider will cease upon the termination of
this Rider. The monthly cost of insurance rate is based on the Sex, Issue Age
and Rider Class of the Insured and the Rider's duration. Monthly cost of
insurance rates will be determined by us, based on our expectations as to future
mortality costs and expenses. Any change in cost of insurance rates will be in
accordance with the Changes In Policy Cost Factors Provision of the Policy. The
cost of insurance rates will never be greater than the Guaranteed Monthly Rider
Cost Per $1,000 of Insurance Amount shown in the Policy Schedule. Guaranteed
maximum rates are based on the 1980 Commissioners' Standard Ordinary Nonsmoker
or Smoker Mortality Table, Age Nearest Birthday plus any special risk factors
for any extra rating.
COST OF DISABILITY WAIVER BENEFIT. If the Policy to which this Rider is attached
has a Disability Waiver of Benefit rider, there will be an additional cost on
each Policy Processing Day. The additional cost will be determined by
multiplying the Rate Factor for the Insured's Attained Age by the Insurance
Amount of this Rider divided by 1,000.
CONVERSION PRIVILEGE. At any time at or prior to attained age 60 and while this
Rider is in full force, it may be converted to a new policy, subject to the
conditions, set forth below, The new policy must:
1. have a Face Amount equal to the amount of term
insurance provided under this Rider;
2. be on a life plan that is customarily issued by the
Company on the issue date of the new policy in the
same insurance amount as this Rider and in a Premium
Class as defined below.
Conversion will be made:
1. without evidence of insurability; and
2. upon written request and surrender of this Rider.
NEW POLICY. The Policy Date of the new policy will be the date of
conversion and will be on the form then in use by the Company. The premium for
the new policy will be based on the age of the Insured at his or her birthday
nearest the date of conversion and on the premium rates used by the Company on
that date.
PREMIUM CLASS. The Premium Class for the new policy will be the same
class as this Rider.
(Continued on reverse side)
<PAGE> 27
EXTRA PREMIUM CLASS. If the class of this Rider is With Extra Rating,
the extra rating for the new policy will be that in use by the Company on the
issue date of the new policy.
Such rating will correspond to the rating for the Policy to which this
Rider is attached but will be adjusted for:
1. the plan of insurance under the new policy, and
2. the age of the Insured.
CONVERSION OF DISABILITY WAIVER RIDER. At the Owner's request, the new
policy may contain the Disability Waiver Benefit or Disability Waiver of Premium
rider if:
1. the Policy to which. this Rider is attached contains a
disability waiver rider for the Insured above; and
2. conversion is made before the Insured's Attained Age 55.
If the new policy is a flexible premium variable life insurance policy,
only the Disability Waiver Benefit rider is available.
The rider will be on the form in use by the Company on the issue date
of the new policy, The cost of the rider will be based on:
1. the age of the Insured at his or her birthday nearest the
Policy Date of the new policy; and
2. the rates then in use by the Company.
CHANGE IN INSURANCE AMOUNT. After the first Policy Year, the amount of this
Rider may be increased or decreased upon request of the Owner and approval of
the Company, while this Rider is in force. Any change will be effective as of
the next Policy Processing Day following the date we approve your written
request, provided we have received any premium required for the change.
You may request a change by completing an application for change, A
copy of such application will be attached to new Policy Schedule pages which
will be issued when the change is approved. The application for change and new
Policy Schedule pages will become part of the Policy to which this Rider is
attached. We may require you to return the Policy to make the change.
INSURANCE AMOUNT INCREASE. You may request an Insurance Amount increase
subject to the following:
1. you must provide evidence satisfactory to the Company of the
Insured's insurability in the same or better Rider Class in
which this Rider was issued;
2. the Insured's Attained Age must be 75 years or less;
3. you may not have increased the Insurance Amount of this Rider
in the prior 12-month period;
4. the amount of the increase must be at least $25.000.
5. we reserve the right to charge a reasonable fee for this
transaction.
Insurance Amount Decrease. You may request an Insurance Amount decrease
subject to the following:
1. the Insurance Amount after the decrease is not less than the
minimum amount for which we would then issue this Rider under
our rules; and
2. the amount of the decrease must be at least $25,000
TERMINATION. This Rider will terminate:
1. upon written request;
2. on its Expiry Date or the prior surrender or other termination
of the Policy to which it is attached; or
3. upon exercise of the Policy Split Option Rider, if included
with the Policy to which this Rider is attached.
Attached by PROVIDENT MUTUAL LIFE INSURANCE COMPANY on the issue date of this
Rider.
/s/ Robert W. Kloss
-------------------------------------
President and Chief Operating Officer
<PAGE> 28
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
4 YEAR SURVIVORSHIP TERM LIFE INSURANCE
POLICY NUMBER 9,000,000 RIDER ISSUE DATE 01-01-1996
This Rider is attached to and made part of this Policy.
The Company will pay the Beneficiary the Rider Death Benefit upon
receipt of due proof of both Insureds' death on or before the Expiry Date of
this Rider, subject to the terms and conditions set forth below, Unless
otherwise provided, the Owner and Beneficiary of this Rider are the same as the
Owner and Beneficiary of the Policy to which this Rider is attached.
RIDER DEATH BENEFIT. The death benefit of this Rider is an amount equal to 1.25
multiplied by the Face Amount of the Policy, as shown in the Policy Schedule.
EXPIRY DATE. The Expiry Date of this Rider is the end of the fourth Policy Year.
COST. The cost of insurance for this Rider is included in the monthly deductions
for the Policy to which this Rider is attached. It is determined by multiplying
the monthly cost of insurance rate divided by 1,000 by the Rider Death Benefit.
The monthly deduction for this Rider will cease upon the termination of this
Rider.
The monthly cost of insurance rate is based on each Insured's Sex,
Issue Age and Premium Class and the Rider's duration. Monthly cost of insurance
rates will be determined by us, based on our expectations as to future mortality
costs and expenses. Any change in cost of insurance rates will be in accordance
with the Changes In Policy Cost Factors Provision of the Policy. The cost of
insurance rates will never be greater than the Guaranteed Monthly Rider Cost Per
$1,000 of Insurance Amount shown in the Policy Schedule.
CHANGE IN RIDER DEATH BENEFIT. After the first Policy Year, the amount of this
Rider may decrease if the Face Amount of the Policy is decreased. The death
benefit, of the Rider will always equal 1.25 multiplied by the Face Amount shown
in the Policy Schedule.
TERMINATION. This rider will terminate:
1. upon written request;
2. on its Expiry Date or the prior surrender or other termination
of the Policy to which it is attached; or
3. upon exercise of the Policy Split Option Rider, if included
with the Policy to which this Rider is attached.
Attached by PROVIDENT MUTUAL LIFE INSURANCE COMPANY on the issue date of this
Rider.
/s/ Robert W. Kloss
-------------------------------------
President and Chief Operating Officer
<PAGE> 29
A GUIDE TO THE PROVISIONS OF THIS POLICY
<TABLE>
<CAPTION>
Page
----
<S> <C>
Calculation of Values .............................................. 14-15
Death Benefit Provisions ........................................... 10-11
Definitions ........................................................ 7
Description of Separate Accounts ................................... 6
Dividend Provisions ................................................ 17
Endorsements ....................................................... 21
General Provisions ................................................. 7-8
Payment Options .................................................... 18
Policy Account Value: Allocations
and Transfers .................................................... 13-14
Policy Description ................................................. 2
Policy Loan Provisions ............................................. 17
Policy Owner and Beneficiary
Provisions ....................................................... 9-10
Policy Specifications .............................................. 3-5
Premium Expense Charge ............................................. 12
Premium Payment Provisions ......................................... 11-12
Separate Accounts .................................................. 12-13
Surrenders and Withdrawals ......................................... 16
</TABLE>
Page 21
<PAGE> 30
Flexible Premium Adjustable Survivorship Variable Life Insurance Policy.
Insurance Proceeds payable upon death of the last surviving Insured before Final
Policy Date. Policy Account Value payable on Final Policy Date. Values provided
by this Policy are based on declared interest rates of the Guaranteed and Loan
Accounts and on the investment experience of the Separate Accounts
Participating.
[LOGO]
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
1600 Market Street, Philadelphia, Pennsylvania 19103
<PAGE> 31
PROVIDENT MUTUAL LIFE
INSURANCE COMPANY OF
PHILADELPHIA
PHILADELPHIA, PENNSYLVANIA
<TABLE>
<S> <C> <C> <C>
INSURED 1 JOHN DOE 35, MALE ISSUE AGE/SEX
INSURED 2 JANE DOE 35, FEMALE ISSUE AGE/SEX
POLICY NUMBER 9,000,000 01-01-1996 POLICY ISSUE DATE
FACE AMOUNT $200,000 01-01-1996 POLICY DATE
DEATH BENEFIT OPTION A
</TABLE>
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA agrees:
- To pay the Beneficiary of this Policy the Insurance Proceeds upon
receipt of due proof of the death of both Insureds;
- To provide you (the Policy Owner) with the other rights and benefits
under this Policy.
These agreements are subject to the provisions of this Policy. The Policy does
not pay a benefit upon the death of the first of the Insureds to die, but only
upon the death of the last surviving Insured.
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE INSURANCE COVERAGE, OR
BOTH, MAY BE VARIABLE OR FIXED, AS DESCRIBED ON PAGE 10.
THE PORTION OF THE POLICY ACCOUNT VALUE THAT IS IN A SEPARATE ACCOUNT MAY
INCREASE OR DECREASE, DEPENDING UPON THE UNIT VALUE OF SUCH SEPARATE ACCOUNT,
WHICH IN TURN DEPENDS UPON THE INVESTMENT EXPERIENCE OF THE CORRESPONDING
PORTFOLIO OF A DESIGNATED INVESTMENT COMPANY. THE INVESTMENT OPTIONS FOR THIS
POLICY ARE DESCRIBED ON PAGE 6. THERE IS NO GUARANTEED MINIMUM FOR THE PORTION
OF YOUR POLICY ACCOUNT VALUE IN THE SEPARATE ACCOUNTS.
The portion of the Policy Account Value that is in the Guaranteed Account and
the Loan Account will accumulate, after deductions, at rates of interest we
determine. Such rates will not be less than 4% a year.
Please read this Policy with care. A guide to its provisions is on the last
page. A description is on page 2. Any additional benefit riders and copies of
the Applications are included in this Policy after page 20.
This is a legal contract between the Owner and
Provident Mutual Life Insurance Company of Philadelphia.
READ THIS POLICY CAREFULLY
RIGHT TO EXAMINE POLICY. YOU MAY EXAMINE THIS POLICY AND IF FOR ANY REASON YOU
ARE NOT SATISFIED WITH IT, YOU MAY CANCEL IT BY RETURNING THE POLICY TO US WITH
A WRITTEN REQUEST NO LATER THAN: (a) 10 DAYS AFTER YOU RECEIVE IT; (b)OR 45 DAYS
AFTER PART I OF THE APPLICATION WAS SIGNED. ALL YOU HAVE TO DO IS TAKE THIS
POLICY OR MAIL IT TO OUR HOME OFF ICE AT 1600 MARKET STREET, PHILADELPHIA,
PENNSYLVANIA 19103, OR TO ONE OF OUR OFFICES OR TO THE REPRESENTATIVE WHO SOLD
IT TO YOU. IF YOU DO THIS, WE WILL REFUND AN AMOUNT EQUAL TO THE PREMIUMS YOU
PAID UNDER THIS POLICY.
Attest
/s/ Robert W. Kloss
-------------------------------------
President and Chief Executive Officer
Registrar
VARIABLE LIFE
[LOGO] [LOGO]
Flexible Premium Adjustable Survivorship Variable Life Insurance Policy,
Insurance Proceeds payable upon death of the last surviving Insured before Final
Policy Date. Policy Account Value payable on Final Policy Date. Values provided
by this Policy are based on declared interest rates of the Guaranteed and Loan
Accounts and on the investment experience of the Separate Accounts.
Participating.
<PAGE> 32
POLICY DESCRIPTION
This is a flexible premium adjustable survivorship variable life insurance
policy.
Net premiums are allocated at your direction to one or more of the Separate
Accounts and/or the Guaranteed Account.
The Separate Accounts invest in securities and other investments whose value is
subject to market fluctuation and investment risk. There is no guarantee of
principal or investment return.
The Guaranteed Account earns interest at rates we declare in advance. The rates
are guaranteed to equal or exceed 4%. The principal, after deductions, is also
guaranteed.
The duration of life insurance coverage depends on the Net Cash Surrender Value
except that during the first two Policy Years, your Policy will remain in force
if the sum of the premiums paid less loans and partial withdrawals equals or
exceeds the Minimum Guarantee Premium.
If Death Benefit Option A has been selected, the death benefit is the Face
Amount of this Policy and the amount of the death benefit is fixed, except where
it is a percentage of the Policy Account Value. If Death Benefit Option B has
been selected, the death benefit is the Face Amount of this Policy plus the
Policy Account Value. The amount of the death benefit under Option B is
variable. Under either Option, the death benefit will not be less than a
percentage of the Policy Account Value.
To compute the Insurance Proceeds payable upon the death of the last surviving
Insured, we start with the death benefit and adjust this amount if there is a
loan.
We make monthly deductions from the Policy Account Value to cover the cost of
benefits provided under this Policy, including the cost of any benefits provided
by rider. We will allocate such deductions to the Separate Accounts and the
Guaranteed Account in accordance with your instructions.
If you surrender this Policy for its Net Cash Surrender Value or reduce the Fact
Amount of insurance during the first 15 Policy Years, we will deduct any
applicable surrender charges from the Policy Account Value.
We will pay the proceeds under this Policy in one sum unless a Payment Option is
in force. If you elect a Payment Option, it will apply to payment of the Net
Cash Surrender Value if you surrender this Policy or to the Insurance Proceeds
aid to the Beneficiary when the last surviving Insured dies. If a Payment Option
is not in force when the last surviving Insured dies, the Beneficiary will be
able to elect a Payment Option for Insurance Proceeds,
If this Policy lapses, coverage will end. If such occurs, you may be able to
reinstate this Policy within three full years with full benefits.
As Policy Owner, you have these rights in this Policy, among others, subject to
the terms, conditions and limits in this Policy:
- You may make premium payments at any time and of any amount.
- You may change the allocation of premiums and deductions among your
investment options.
- You may decrease the Face Amount of insurance.
- You may change the Death Benefit Option.
- You may transfer amounts among your investment options.
- You may borrow on this Policy.
- You may make a partial withdrawal of the Net Cash Surrender Value.
- You may surrender this policy for its Net Cash Surrender Value.
- You may change the Beneficiary of the Insurance Proceeds of this
Policy.
- You may assign this Policy and change the Owner.
This is only a summary of what the policy provides. You should read the entire
policy carefully as its terms govern your rights and our obligations.
Page 2
<PAGE> 33
POLICY SCHEDULE
<TABLE>
<S> <C> <C> <C>
INSURED 1 JOHN DOE 35, MALE ISSUE AGE/SEX
INSURED 2 JANE DOE 35, FEMALE ISSUE AGE/SEX
POLICY NUMBER 9,000,000 01-01-1996 POLICY ISSUE DATE
FACE AMOUNT $200,000 01-01-1996 POLICY DATE
DEATH BENEFIT OPTION A 01-01-2061 FINAL POLICY DATE
</TABLE>
PREMIUM CLASS
INSURED 1 STANDARD SMOKER
INSURED 2 STANDARD SMOKER
BENEFITS
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE -
INITIAL FACE AMOUNT $200,000
RIDER - GUARANTEED MINIMUM DEATH BENEFIT
RIDER - $100,000 CONVERTIBLE TERM LIFE INSURANCE - INSURED I
RIDER CLASS - STANDARD SMOKER
RIDER - 4 YEAR SURVIVORSHIP TERM LIFE INSURANCE
THIS POLICY PROVIDES LIFE INSURANCE COVERAGE ON THE INSUREDS UNTIL THE FINAL
POLICY DATE, PROVIDED THE NET CASH SURRENDER VALUE IS SUFFICIENT TO COVER THE
DEDUCTIONS FOR THE COST TO THAT DATE OF THE BENEFITS OF THIS POLICY AND OF ANY
RIDERS. YOU MAY HAVE TO PAY MORE THAN THE PREMIUMS SHOWN BELOW TO KEEP THIS
POLICY AND COVERAGE IN FORCE TO THAT DATE, AND TO KEEP ANY ADDITIONAL RIDER$ IN
FORCE.
MINIMUM INITIAL PREMIUM - $1,019.50
PLANNED PERIODIC PREMIUM - $2,000.00 PAYABLE YEARLY
MINIMUM ANNUAL PREMIUM - $1,019-50
MINIMUM PAYMENT - $25.00
MINIMUM FACE AMOUNT - $200,000
PARTIAL WITHDRAWAL - MINIMUM AMOUNT $1,500
TRANSFERS - MINIMUM AMOUNT $1,000
POLICY LOAN - FIXED 6% POLICY LOAN INTEREST RATE
MINIMUM LOAN AMOUNT $500
PAGE 3
<PAGE> 34
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 9000000
EXPENSE CHARGES
PREMIUM EXPENSE CHARGE
CONSISTS OF THE FOLLOWING:
1. A PREMIUM TAX CHARGE OF 2.00% WILL BE DEDUCTED FROM EACH PREMIUM PAYMENT
FOR STATE AND LOCAL PREMIUM TAXES. WE RESERVE THE RIGHT TO CHANGE THIS
PERCENTAGE IF THE APPLICABLE LAW CHANGES OR THE INSUREDS' RESIDENCE CHANGES.
2. A PERCENT OF PREMIUM CHARGE NOT EXCEEDING 5% WILL BE DEDUCTED FROM EACH
PREMIUM PAYMENT.
3. A FEDERAL INCOME TAX CHARGE OF 1.25% WILL BE DEDUCTED FROM EACH PAYMENT
FOR APPLICABLE FEDERAL TAXES. WE RESERVE THE RIGHT TO CHANGE THIS PERCENTAGE IF
THE APPLICABLE LAW CHANGES OUR TAX BURDEN.
INITIAL ADMINISTRATIVE CHARGE
$39.50 DEDUCTED FROM THE POLICY ACCOUNT VALUE ON THE FIRST 12 POLICY
PROCESSING DAYS,
MONTHLY ADMINISTRATIVE CHARGE
$9.50 DEDUCTED MONTHLY FROM THE POLICY ACCOUNT VALUE. WE RESERVE THE RIGHT
TO INCREASE THIS CHARGE, BUT IT WILL NOT BE GREATER THAN $18 A MONTH.
FOR PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
$25 DEDUCTED FROM THE POLICY ACCOUNT VALUE WHENEVER YOU MAKE A PARTIAL
WITHDRAWAL.
FOR TRANSFERS
AFTER THE FIRST FOUR TRANSFERS OF AMOUNTS AMONG YOUR INVESTMENT OPTIONS
DURING A POLICY YEAR, WE WILL CHARGE $25 FOR EACH ADDITIONAL TRANSFER
DURING THAT POLICY YEAR.
PAGE 4
<PAGE> 35
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 9000000
SURRENDER CHARGES
IF THIS POLICY IS SURRENDERED OR LAPSES DURING THE FIRST 15 POLICY YEARS, WE
WILL DEDUCT A SURRENDER CHARGE FROM THE POLICY ACCOUNT VALUE IN DETERMINING ITS
NET CASH SURRENDER VALUE. THE SURRENDER CHARGE CONSISTS OF THE DEFERRED
ADMINISTRATIVE CHARGE AND THE DEFERRED SALES CHARGE.
THE DEFERRED ADMINISTRATIVE CHARGE AT ANY TIME DURING THE POLICY YEAR IS $300
MULTIPLIED BY THE FACTOR IN THE TABLE BELOW FOR THAT YEAR, LESS THE AMOUNT OF
ANY PRO RATA DEFERRED ADMINISTRATIVE CHARGE PREVIOUSLY PAID UNDER THIS POLICY.
THE DEFERRED SALES CHARGE AT ANY TIME DURING THE POLICY YEAR IS EQUAL TO (A)
MINUS (B) WHERE: (A) IS THE LESSER OF: (1) THE MAXIMUM CHARGE SHOWN IN THE TABLE
BELOW FOR THAT YEAR; OR (2) AN AMOUNT EQUAL TO 25% OF THE FIRST $1,050.00 IN
PREMIUM PAYMENTS RECEIVED DURING THE FIRST POLICY YEAR PLUS 4% OF ALL OTHER
PREMIUM PAYMENTS PAID TO SUCH TIME; AND (B) IS THE AMOUNT OF ANY PRO RATA
DEFERRED SALES CHARGE PREVIOUSLY PAID UNDER THIS POLICY.
<TABLE>
<CAPTION>
POLICY MAXIMUM
YEAR FACTOR CHARGE
<S> <C> <C>
1 1.0 $525.00
2 1.0 $525.00
3 1.0 $525.00
4 1.0 $525.00
5 1.0 $525.00
6 1.0 $525.00
7 1.0 $525.00
8 1.0 $525.00
9 1.0 $525.00
10 1.0 $525.00
11 1.0 $525.00
12 0.8 $420.00
13 0.6 $315-00
14 0.4 $210.00
15 0.2 $105.00
</TABLE>
IF THE FACE AMOUNT OF THIS POLICY IS DECREASED AT ANY TIME DURING THE FIRST 15
POLICY YEARS, A PRO RATA SHARE OF THE SURRENDER CHARGE WILL BE DEDUCTED.
PAGE 4A
<PAGE> 36
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 9000000
GUARANTEED MONTHLY COST OF INSURANCE RATES
PER $1,000 OF NET AMOUNT AT RISK
<TABLE>
<CAPTION>
POLICY
YEAR RATE
<S> <C>
1 0.000425
2 0.001400
3 0.002617
4 0.004133
5 0.006050
6 0.008450
7 0.011533
8 0.015217
9 0.019717
10 0.025042
11 0.031442
12 0.038858
13 0.047592
14 0.057683
15 0.069583
16 0.083575
17 0.099933
18 0.119308
19 0.142667
20 0.169908
21 0.201242
22 0.236908
23 0.276350
24 0.319875
25 0.368033
26 0.422867
27 0.487850
28 0.564575
29 0.658858
30 0.768567
31 0.895558
32 1.034625
33 1.188475
34 1.349633
35 1.529792
36 1.729708
37 1.966742
38 2.248992
39 2.584325
40 2.972941
41 3,415241
42 3.899642
43 4.417859
44 4.964283
45 5.549692
46 6.192758
47 6.909441
48 7.717308
49 8.624249
50 9.654408
51 10.702042
52 11.843484
53 12.963417
54 14.202384
55 15.392966
56 16.712233
57 18.101366
58 19.602367
59 21.327917
60 23.446426
61 26.541808
62 31.375642
63 39.612883
64 54.663725
65 83.333333
</TABLE>
PAGE 5
<PAGE> 37
POLICY SCHEDULE
(CONTINUED)
INSURED JOHN DOE POLICY NUMBER 9000000
CONVERTIBLE TERM LIFE INSURANCE RIDER
GUARANTEED MONTHLY RIDER COST PER $1,000 OF INSURANCE AMOUNT
<TABLE>
<CAPTION>
ATTAINED
AGE RATE
<S> <C>
35 0.21917
36 0.23417
37 0.25333
38 0.27500
39 0.30000
40 0.32833
41 0,36167
42 0.39583
43 0.43500
44 0.47583
45 0.52250
46 0.56917
47 0.62000
48 0.67333
49 0.73333
50 0.79167
51 0.87000
52 0.95167
53 1.04500
54 1.16000
55 1.26167
56 1.38250
57 1.50760
58 1.64083
59 1.77917
60 1.93250
61 2.10500
62 2.29917
63 2.51917
64 2.76167
65 3.02417
66 3.29750
67 3.58417
68 3.87917
69 4.19333
70 4,54000
71 .92417
72 5.36083
73 5.85250
74 6.38833
76 6,98083
76 7.59167
77 8.21000
78 8.82583
79 9.45750
80 10.13250
81 10.86750
82 11.68333
83 12.58583
84 13.54083
85 14.51667
86 15.48167
87 16.42167
88 1744750
89 18.46000
90 19.47417
91 20.51000
92 21.61083
93 23.02500
94 24.84583
95 27.49667
96 32.04583
97 40.01667
98 54.83167
99 83.33333
</TABLE>
PAGE 5B
<PAGE> 38
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 90000O0
4 YEAR SURVIVORSHIP TERM LIFE INSURANCE RIDER
GUARANTEED MONTHLY RIDER COST PER $1,000 OF FACE AMOUNT
<TABLE>
<CAPTION>
POLICY
YEAR RATE
<S> <C>
1 0.030000
2 0.030000
3 0.030000
4 0.030000
</TABLE>
PAGE 5C
<PAGE> 39
POLICY SCHEDULE
(CONTINUED)
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST:
Neuberger & Berman Limited Maturity Bond Subaccount
Neuberger & Berman Partners Subaccount
VAN ECK WORLDWIDE INSURANCE TRUST:
Van Eck Worldwide Bond Subaccount
Van Eck Worldwide Emerging Markets Subaccount
Van Eck Worldwide Hard Assets Subaccount
Van Eck Worldwide Real Estate
SCHEDULE A-3
PROVIDENT MUTUAL VARIABLE ZERO COUPON BOND SEPARATE ACCOUNT:
Maturity Date of Series: February 15, 2006
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POLICY SCHEDULE
(CONTINUED)
ALLOCATION OPTIONS
SCHEDULE A-1
THE MARKET STREET FUND, INC.:
Provident Mutual Variable Large Cap Growth Subaccount
Provident Mutual Variable Large Cap Value Subaccount
Provident Mutual Variable Small Cap Growth Subaccount
Provident Mutual Variable Small Cap Value Subaccount
Provident Mutual Variable Growth Separate Account
Provident Mutual Variable Aggressive Growth Separate Account
Provident Mutual Variable Bond Separate Account
Provident Mutual Variable Managed Separate Account
Provident Mutual Variable Money Market Separate Account
Provident Mutual Variable International Separate Account
SCHEDULE A-2
THE ALGER AMERICAN FUND:
Alger American Small Capitalization Subaccount
VARIABLE INSURANCE PRODUCTS FUND (VIP) OR THE
VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
Fidelity Asset Manager Subaccount (VIP II)
Fidelity Contrafund Subaccount (VIP II)
Fidelity Equity-Income Subaccount (VIP)
Fidelity Growth Subaccount (VIP)
Fidelity High Income Subaccount (VIP)
Fidelity Index 500 Subaccount (VIP II)
Fidelity Investment Grade Bond Subaccount (VIP II)
Fidelity Overseas Subaccount (VIP)
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DEFINITIONS
ATTAINED AGE. For each Insured, the Issue Age of such Insured plus the number of
full Policy Years since the Policy Date.
CASH SURRENDER VALUE. The Policy Account Value minus any applicable surrender
charges.
INSURANCE PROCEEDS. The net amount to be paid to the Beneficiary when the last
surviving Insured dies. (See Amount of Insurance Proceeds provision.)
INSURED. The persons named as the Insureds on the first page. They need not be
the Owner.
LOAN ACCOUNT. The account to which we transfer the amount of any policy loan
from the Separate Accounts and Guaranteed Account.
MINIMUM GUARANTEE PREMIUM. The Minimum Annual Premium multiplied by the number
of months since the Policy Date, including the current month, divided by 12,
NET CASH SURRENDER VALUE. The Policy Account Value minus any applicable
surrender charges, minus outstanding policy loans and accrued interest,
NET PREMIUM. The remainder of a premium after deduction of the Premium Expense
Charge.
POLICY ACCOUNT VALUE. The sum of this 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 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.
WE, OUR, US AND COMPANY. Provident Mutual Life Insurance Company of
Philadelphia, a Pennsylvania Corporation.
YOU AND YOUR. The Owner of this Policy.
GENERAL PROVISIONS
THE CONTRACT. This Policy is issued in consideration of payment of the Minimum
Initial Premium shown in the Policy Schedule. This Policy and the initial
Applications, copies of which are attached, all subsequent Applications to
change the policy, all additional Policy Schedule pages and any endorsements or
riders added to this Policy, form the whole contract. We assume that all
statements in the Applications were made to the best of the knowledge and belief
of the persons who made them; in the absence of fraud they are assumed to be
representations and not warranties. We relied on those statements when we issued
or changed this Policy. We will not use any statement, unless made in the
Applications, to void this Policy or to deny a claim.
POLICY MODIFICATIONS. Only the President or a Vice President of the Company may
agree to modify any this Policy, and then only in writing. No agent may bind the
Company by making any promise not contained in the Policy.
SUICIDE EXCLUSION. If both Insureds, whether sane or insane, die by suicide
within two years from the Policy Issue Date, or if the last surviving Insured,
whether sane or insane, dies by suicide within such two year period, or if the
surviving Insured lives more than 90 days beyond the date that the first death
occurred by suicide and a policy exchange is not made, our payment will be
limited to the sum of premiums paid, minus any loan and loan interest and any
partial withdrawals of Net Cash Surrender Value. At the end of the second Policy
Year, we will notify you and request notification of the death of any Insured.
Failure to provide timely notice will not avoid the Suicide Exclusion.
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SUICIDE SURVIVOR BENEFIT. If, within two years from the Policy Issue Date, one
of the Insureds commits suicide and the surviving Insured dies (not by suicide)
within 90 days of the first death, the amount we will pay the beneficiary upon
the death of such surviving Insured will equal the Proceeds at Death. We will
make payment subject to the provisions of this policy, including receipt of due
proof that the surviving Insured died within such 90-day period.
If the first death occurs by suicide within two years from the Policy
Issue Date, you may exchange this policy for a new policy on the life of the
surviving Insured. You must make the exchange within 90 days after the first
death. We must receive the completed application for the exchange and first
modal premium during this 90-day period. The exchange will be made without
evidence of insurability.
The new policy will have the same Face Amount as this policy on the
date of the first death or such lower amount allowed by our rules in effect at
the time of such exchange. The issue date for the new policy will be the 91st
day after the first death. The premium for the new policy will be based on the
rates in effect on that date for the surviving Insured's age on the issue date
of the new policy and for the same premium class as this policy. The new policy
must be on a permanent whole life plan under the rules of the Company then in
effect as to plan, amount, age and premium class. The new policy cannot be a
variable life insurance policy, unless we approve such a request. The new policy
cannot involve any other life.
The new policy may contain additional benefit riders subject to our
consent and evidence of the surviving Insured's insurability satisfactory to us.
Evidence of insurability will not be required for a Disability Waiver Rider if:
(a) such rider is in effect for this policy as to the surviving Insured
immediately before the first death; and (b) the surviving Insured was not then
totally disabled as defined in such rider.
A copy of the application on the surviving Insured for this policy will
be made a part of the new policy. The Suicide Exclusion and Incontestability
Periods for the new policy will begin on the Policy Issue Date for this Policy.
MISSTATEMENT OF AGE OR SEX. If the stated age or Sex of either Insured is not
correct, the death benefit and any benefits provided by riders to this Policy
shall be those which would be purchased by the most recent deduction for the
cost of insurance and the cost of any benefits provided by such riders, at the
correct age and Sex for each Insured. There is no adjustment to the Policy
Account Value.
INCONTESTABILITY. We have the right to contest the validity of this Policy based
on material misstatements made in the initial Applications for this Policy. We
also have a right to contest the validity of any policy change based on material
misstatements made in any Application for that change. However, we will not
contest this Policy after it has been in force during the lifetime of each
Insured for two years from the Policy Issue Date, except for nonpayment of the
Minimum Initial Premium.
At the end of the second Policy Year, the Company will notify you and
request notification of the death of any Insured. Failure to provide timely
notice of death will not avoid a contest and could result in a contest even if
premiums continue to be paid.
We will not contest any policy change that requires evidence of
insurability, or any reinstatement of this policy, after such change or
reinstatement has been in effect for two years during each Insured's lifetime.
See any supplementary benefit riders for modifications that apply to them.
PERIODIC REPORT. At least once a year we will send you a report for this Policy.
It will show: (1) the current Death Benefit; (2) the current Policy Account
Value; (3) the Guaranteed Account Value; (4) the Loan Account Value; (5) the
value in each Separate Account; (6) premiums paid since the last report; (7)
charges deducted since the last report; (8) any partial withdrawals of Net Cash
Surrender Value since the last report; (9) any policy loans and accrued
interest; (10) the current Net Cash Surrender Value; (11) any other information
that may be required when and where this Policy is delivered.
You may ask for a similar report at some other time. We have the right
to make a reasonable charge for the reports that you ask for, and to limit the
scope and frequency of such reports.
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PAYMENTS. We will usually pay any amounts payable as a result of surrender,
partial withdrawal or policy loan within 7 days after we receive your written
request at our Home Office in a form satisfactory to us. We will usually pay the
Insurance Proceeds within 7 days after we receive proof of the death of both
Insureds at our Home Office and all other requirements deemed necessary are met.
However, payment may be postponed if we are not able to sell securities
or determine the value of the assets of the Separate Accounts because:
1. the New York Stock Exchange is closed;
2. the Securities and Exchange Commission (SEC) requires trading
to be restricted or declines an emergency; or
3. the SEC by order permits us to defer payments for the
protection of Policy Owners.
As to amounts allocated to the Guaranteed Account, we may defer payment
of any withdrawal or surrender of Net. Cash Surrender Value and the making of a
loan for up to six months after we receive your written request at our Home
Office.
We will allow interest, at a rate of 3% a year, on any payment we defer
for 30 days or more under this provision.
POLICY CHANGES - TAX CONSIDERATIONS. In order to receive the tax treatment
accorded to life insurance under federal tax laws, this Policy must qualify and
continue to qualify as life insurance under the Internal Revenue Code. We
reserve the right to decline to accept a premium payment, to decline to change
the Death Benefit Option, or to decline a partial withdrawal which would cause
this Policy to fail to qualify as life insurance under the applicable tax law,
as interpreted by us. We also reserve the right to make changes in this Policy
or to riders or to make distributions from this Policy to the extent we deem
such to be necessary for this Policy to continue to qualify as life insurance.
Such changes will apply uniformly to all affected policies. You will receive
advance written notification of such changes.
CHANGES IN POLICY COST FACTORS. Changes in credited interest rates, cost of
insurance charges, Percent of Premium Charge, mortality and expense risk
charges, and Monthly Administrative Charges will be by class and will be based
upon changes in future expectations for such factors as:
a. investment earnings;
b. mortality;
c. persistency;
d. expenses; and
e. taxes.
Any change will be determined in accordance with the procedures and
standards on file, if required, with the insurance supervisory official of the
state in which this policy is delivered.
POLICY ILLUSTRATIONS. Upon request, we will provide an illustration of the
future benefits under this Policy. We reserve the right to charge a reasonable
fee for this service if you request more than one policy illustration during a
Policy Year.
POLICY OWNER AND BENEFICIARY PROVISIONS
OWNERSHIP. Unless otherwise stated in the Applications or later changed, the
Owner of this Policy is the Insureds. After the death of the first Insured, the
surviving Insured will be the Owner, unless a different Owner is named in the
applications. While both or one of the Insureds are living, the Owner is
entitled to exercise any right and privilege granted by this Policy or by us.
These rights end at the death of the last surviving Insured. if both or one of
the Insureds is living on the Final Policy Date shown in the Policy Schedule and
while this Policy is in force, we will pay you, the Owner, the Policy Account
Value on that date, less any outstanding policy loan and accrued loan interest.
This Policy will then end. If you are not the Insured and you die while both or
one of the Insureds is still living, all rights will vest in your estate, unless
otherwise provided.
BENEFICIARY. The Beneficiary is entitled to the Insurance Proceeds under this
Policy. The Beneficiary is as named in the Applications, unless later changed.
When a Beneficiary is designated, any relationship shown is to the Insureds,
unless otherwise stated. If two or more persons are named, those surviving both
Insureds will share the Insurance Proceeds equally, unless otherwise stated. The
interest of any beneficiary who dies before the last surviving Insured will vest
in you, unless otherwise provided. If none of the persons named as Beneficiary
survive both Insureds, we will pay the Insurance Proceeds in one sum to the
estate of the last surviving Insured to die.
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CHANGES. While either Insured is living, you may change the Owner or Beneficiary
by written notice in a form satisfactory to us, The change will take effect as
of the date you sip the notice, even if an Insured or an Owner dies before we
receive it, except that it will not apply to any payment or other action we take
before we receive the notice at our Home Office. If you change the Beneficiary,
any previous arrangement you made under the Payment Options provision is
cancelled.
ASSIGNMENT. You may assign this Policy but we will not be bound by any
assignment unless it is in writing and we have received it at our Home Office.
Your rights and those of any other person referred to in this Policy will be
subject to the assignment. All assignments are subject to any indebtedness on
the Policy. We assume no responsibility for the validity of any assignments.
DEATH BENEFIT PROVISIONS
If both Insureds die while this Policy is in force, we will pay the
Insurance Proceeds to the Beneficiary when we receive: (1) proof that both
Insureds died before the Final Policy Date; and (2) all other requirements
deemed necessary to make payment.
DEATH BENEFIT. The Death Benefit will be determined under either Option A or
Option B below, whichever you have chosen and is in effect as of the date of the
death of the last surviving Insured. Under either Option, the duration of
insurance coverage depends upon your Net Cash Surrender Value.
OPTION A. Under Option A, the death benefit is the greater of the Face Amount of
insurance, or a percentage of the Policy Account Value on the date of death of
the last surviving Insured (see Table of Percentages, below), Under this Option,
the amount of the death benefit is fixed, unless it is determined by such a
percentage.
OPTION B. Under Option B, the death benefit is the greater of the Face Amount of
insurance the Policy Account Value on the date of deal the last surviving
Insured, or a percentage of the Policy Account Value on the date of death of the
last surviving Insured (see Table of Percentages, below). Under this Option, the
amount of the death benefit is variable.
TABLE OF PERCENTAGES. The following table is used in determining the Death
Benefit under Option A and Option B above. For Attained Ages not shown, the
applicable percentages shall decrease by a ratable portion for each full year.
<TABLE>
<CAPTION>
ATTAINED AGE OF
YOUNGER INSURED PERCENTAGE
--------------- ----------
<S> <C>
0 through 40 250%
45 215%
50 185%
55 150%
60 130%
65 120%
70 115%
75 through 90 105%
95 through 99 100%
</TABLE>
AMOUNT OF INSURANCE PROCEEDS. The Insurance Proceeds will be determined as of
the date of death of the last surviving Insured and will be equal to:
1. the Death Benefit described above;
2. plus any, dividend payable at death
3. plus any additional benefits due under a supplementary benefit
rider attached to this Policy;
4. less any loan and accrued loan interest on this Policy;
5. less any overdue deductions if the death of the last'
surviving Insured occurs during the Grace Period.
PAYMENT OF INSURANCE PROCEEDS. At the death of the last surviving Insured we
will pay the Insurance Proceeds to the Beneficiary in a lump sum, unless a
Payment Option has been selected. If the proceeds are payable in a lump sum, we
will add interest to the amount of such proceeds for the period from the date of
death of the last surviving Insured to the date of payment. The amount of
interest will be computed at the yearly rate of 3% or any higher rate declared
by us or required by law.
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CHANGING THE DEATH BENEFIT OPTION OR DECREASING THE FACE AMOUNT. During the
first two Policy Years, the Death Benefit Option and the Face Amount of
insurance will be as selected at the time of application, as shown in the Policy
Schedule.
After the second Policy Year while this policy is in force you may
change the Death Benefit Option or decrease the Face Amount. Any change will be
effective as of the Policy Processing Day that coincides with or next follows
the date we approve your written request. You may request a change by completing
am application for change. A copy of such application will be attached to new
Policy Schedule pages which will be issued when the change is approved. The
application for change and new Policy Schedule pages will become a part of this
Policy. We may require you to return this Policy to make a change,
CHANGE FROM DEATH BENEFIT OPTION A TO OPTION B. If you request a change from
Option A to Option B, we will decrease the Face Amount by the Policy Account
Value as of the date of change. We reserve the right to decline to make such a
change if it would reduce the Face Amount below the minimum amount for which we
would then issue this Policy under our rules.
CHANGE FROM DEATH BENEFIT OPTION B TO OPTION A. If you request a change from
Option B to Option A, we will increase the Face Amount by the Policy Account
Value on the date of change,
The decreases and increases in Face Amount described above in
connection with changes in the Death Benefit Option are made so the Death
Benefit remains the same on the date of change. We do not require evidence of
insurability, nor do we deduct a surrender charge for such changes.
FACE AMOUNT DECREASES. You may request a Face Amount decrease provided:
a. the Face Amount of the policy after the decrease is not less
than the minimum amount for which we would then issue this
Policy under our rules;
b. the amount of the decrease is for at least $25,000;
c. if the decrease is made during the first 15 Policy Years, we
will deduct a pro rata share of any applicable surrender
charges from the Policy Account Value.
TAX CONSIDERATIONS. We reserve the right to refuse to make a policy change if
such would cause this Policy to fail to qualify as life insurance under
applicable laws, as interpreted by us.
PREMIUM PAYMENT PROVISIONS
The Minimum Initial Premium shown in the Policy Schedule is due on or before the
date the policy is delivered. No insurance will take effect until the Minimum
Initial Premium is paid, while the health and other conditions of the Insureds
stay the same as described in the applications for this Policy. Prior to the
Final Policy Date and while this Policy is in force you may make additional
premium payments at any time and in any amount (subject to certain limits
described below). We intend to send premium reminder notices to you for the
Planned Periodic Premium shown in the Policy Schedule, unless at the time of
application or later you request in writing that such notices not be sent. You
do not need to pay the Planned Periodic Premiums and may change their frequency
and amount subject to the limits described below. (However, see Grace Period.)
LIMITS FOR PREMIUM PAYMENTS. Each premium payment after the initial one must be
for at least the Minimum Payment amount shown in the Policy Schedule. We may
increase this minimum amount upon 90 days written notice to you of such
increase. This minimum amount will not exceed $500.
We reserve the right not to accept premium payments during a Policy
Year if we determine that such would cause this Policy to fail to qualify as
life insurance under applicable tax laws, as interpreted by us.
We reserve the right to limit the amount of any premium payment if it
increases the Death Benefit more than it increases the Policy Account Value
unless you provide evidence of both Insureds' insurability satisfactory to us.
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<PAGE> 46
GRACE PERIOD. During the first two Policy Years, the duration of the insurance
coverage under this Policy depends, in part, upon whether the Net Cash Surrender
Value is sufficient to cover the monthly deductions. If the Net Cash Surrender
Value is not sufficient, we will determine if the Minimum Guarantee Premium has
been paid. If the Net Cash Surrender Value is not sufficient and the sum of the
premiums paid less any loans and partial withdrawals does not equal or exceed
the Minimum Guarantee Premium, the Grace Period described below will begin.
After the first two Policy Years, the duration of the insurance coverage under
this Policy depends solely upon whether the Net Cash Surrender Value is
sufficient to cover the monthly deductions. If the Net Cash Surrender Value at
the be of any policy month is less than the deductions for that month (and
during the first two Policy Years, the Minimum Guarantee Premium has not been
paid), we will send written notice to you and any assignee of record stating
that a Grace Period of 61 days has begun, starting on the date we mail such
notice. The notice will indicate an amount equal to three monthly deductions. If
we do not receive payment of such amount before the end of the Grace Period, we
will withdraw the Policy Account Value including any applicable surrender charge
and send YOU and any assignee of record written notice that the Policy has
lapsed without value.
If the last surviving Insured dies during the Grace Period, we will pay
the Insurance Proceeds.
REINSTATEMENT. If this Policy has lapsed without value, you may reinstate it
while either Insured is alive if you:
1. apply for reinstatement within three years after the end of
the Grace Period;
2. provide evidence of the insurability satisfactory to us for
both Insureds; or evidence for the last surviving Insured and
due proof that the first death occurred before the date of
lapse; and
3. make a premium payment of an amount sufficient to keep the
Policy in force for at least three months after the date of
reinstatement.
The Effective Date of the reinstated Policy will be the Policy
Processing Day which coincides with or next follows the date we approve the
reinstatement application.
PREMIUM EXPENSE CHARGE
The Premium Expense Charge consists of the following:
1. Premium Tax Charge;
2. Percent of Premium Charge; and
3. Federal Tax Charge.
The Premium Expense Charge will be deducted from any premiums paid and
the amount remaining will be the Net Premium. The amounts of these charges are
shown in the Policy Schedule.
THE SEPARATE ACCOUNTS
Separate Accounts will be used to support the operation of this Policy
and to support other variable life insurance policies. We will not allocate
assets to the Separate Accounts to support the operation of any contracts or
policies that are not variable life insurance.
The term "Separate Account" as used in this Policy includes any
Sub-Account of a Separate Account.
We own the assets in the Separate Accounts. However, these assets are
not part of our General Account. Income, gains and losses, whether or not
realized, from assets allocated to a Separate Account will be credited to or
charged against the account without regard to our other income, gains or losses.
The Separate Accounts are described in the Policy Schedule. The Separate
Accounts will invest in shares or units of their respective portfolios or
series.
The Separate Accounts are collectively treated as a unit investment
trust under federal securities laws. They are registered with the Securities and
Exchange Commission (SEC) according to the Investment Company Act of 1940 (1940
Act).
The Separate Accounts are subject to the laws of the Commonwealth of
Pennsylvania which regulate the operations of insurance companies incorporated
in Pennsylvania. The investment policies of the Separate Accounts will not be
changed without the approval of the Pennsylvania Commissioner of Insurance. 'Me
approval process has been filed with the insurance supervisory official of the
state in which this Policy is delivered.
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We have the right, subject to compliance with applicable laws, to make
additions to, deletions from, or substitutions for, the shares or units of an
investment company that are held by the Separate Accounts or that the Separate
Accounts may purchase. We reserve the right to eliminate the shares or units of
an eligible portfolio or series, and to substitute shares or units of another
portfolio or series, or another fund, if the shares or units of the portfolio or
series are no longer available for investments, or if in our judgment further
investment in the portfolio or series should become inappropriate in view of the
purposes of 'the Separate Account. In the event of any substitution or change,
we may, subject to your written approval and by appropriate endorsement, make
such changes in this and other policies as may be necessary or appropriate to
reflect the substitution or change.
We also reserve the right to transfer assets of a Separate Account,
which we determine to be associated with the class of policies to which this
Policy belongs, to another Separate Account. If this type of transfer is made,
the Separate Account specified in this Policy shall then refer to the Separate
Account to which the assets were transferred.
The Policy Owner will share only in the income, gains and losses of the
particular Separate Accounts to which your Net Premium payments have been
allocated or to which portions of the Policy Account Value have been
transferred.
That portion of the assets of each Separate Account which equals the
reserves or other policy liabilities of the policies which are supported by that
Separate Account will not be charged with liabilities arising from any other
business we conduct. We have the right to transfer to our General Account any
assets of each Separate Account which are in excess of such reserves and other
policy liabilities.
When permitted by Law, we also reserve the right:
1. to create additional Separate Accounts; to create
Sub-Accounts from, or combine or remove Sub-Accounts
from, Separate Accounts; or to combine any two or
more Separate Accounts;
2. to operate any one or more of the Separate Accounts
as a management investment company under the 1940 Act
or in any other form permitted by law;
3. to deregister the unit investment trusts under the
1940 Act;
4. to modify the provisions of this Policy to comply
with applicable laws;
5. to restrict or eliminate any voting rights of
policyholders or other persons who have voting rights
as to the Separate Accounts.
We will value the assets of the Separate Accounts on each business day.
If you object to a material change in the investment policy of a
Separate Account in which you have at such time a portion of the Policy Account
Value, you may transfer such portion of the Policy Account Value, upon written
request, from that Separate Account, without charge, to another Separate Account
or to the Guaranteed Account. You may then change your premium and deduction
allocation percentages.
POLICY ACCOUNT VALUE:
ALLOCATIONS AND TRANSFERS
The Policy Account Value for this Policy is based on the policy values
in the Separate Accounts, Guaranteed Account and the Loan Account to which you
have: allocated Net Premiums; transferred account values; and allocated monthly
deductions. Each allocation percentage must be a whole number.
ALLOCATION OF NET PREMIUMS. When we receive your initial and subsequent
premiums, we will deduct the Premium Expense Charge. The portion of the amount
remaining (the Net Premium) which is to be allocated to the Separate Accounts
will be allocated to the Money Market Separate Account from the later of the
Policy Issue Date or the date we receive the Minimum Initial Premium until the
15th day from such date. The remaining portion of the Net Premium will be
allocated to the Guaranteed Account on the later of the Policy Issue Date or the
date we receive the Minimum initial Premium. At the end of the 15-day period,
the amount in the Money Market Separate Account will be allocated to each
Separate Account based on the proportion that the premium allocation percentage
for such Separate Account, chosen by you at the time of application, bears to
the sum of the Separate Account premium allocation percentages.
For premium payments after the 15-day period, the Net Premium will be
allocated to the Separate Accounts and the Guaranteed Account on the date we
receive such premium payment. The allocation will be based on the premium
allocation percentages then in effect. The percentage chosen by you at the time
of application will apply until you notify us in writing of a new allocation
schedule for premium payments,
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<PAGE> 48
ALLOCATION FOR MONTHLY DEDUCTIONS.
Monthly Deductions will be allocated to the Separate Accounts and
Guaranteed Account based on the allocation percentages chosen by you at the time
of application or as Later changed by written request to us. If we cannot make a
monthly deduction on the basis of the allocation schedule then in effect, we
will make such deduction and future deductions based an the proportion that your
Guaranteed Account Value and the value in your Separate Accounts bear to the
total unloaned Policy Account Value.
TRANSFERS. We will allow you to make four transfers in a Policy Year without
charge. We will make a charge for additional transfers in such Policy Year. The
maximum charge is shown in the Policy Schedule. The transfer charge will be
deducted from the amount being transferred.
TRANSFERS FROM SEPARATE ACCOUNTS. You may ask us to transfer all or part of the
amount in one of the Separate Accounts to another Separate Account or to the
Guaranteed Account. The minimum amount for such transfer is the lesser of the
amount shown in the Policy Schedule or the entire value of the Separate Account.
The transfer will be made as of the date we receive your written request at our
Home Office.
TRANSFERS FROM GUARANTEED ACCOUNT. Within 30 days prior to or following any
Policy Anniversary you may ask us to make one transfer for up to 25% of your
Guaranteed Account Value to any of the Separate Accounts. The minimum amount for
such transfer is the lesser of the amount shown in the Policy Schedule or your
Guaranteed Account Value on such Policy Anniversary. The date of transfer will
be as of the Policy Anniversary if your written request is received prior to the
Policy Anniversary-, if your written request is received after the Policy
Anniversary, the transfer will be made as of the date we receive your request at
our Home Office.
SPECIAL TRANSFER RIGHT. During the first two years following the Policy Issue
Date, you may request one transfer of the entire Policy Account Value in the
Separate Accounts to the Guaranteed Account. This request will not count towards
the four free transfers in a Policy Year and is not subject to a transfer
charge. Following the exercise of this Special Transfer Right, all future Net
Premiums must be allocated to the Guaranteed Account.
CALCULATION OF VALUES
BASIS OF CALCULATION. Minimum cash surrender values and maximum cost of
insurance rates are based on the Commissioners 1980 Standard Ordinary Smoker and
Nonsmoker Mortality Table for the sex of each Insured. Cash surrender values are
at least equal to those required by law. Reserves are computed by the
Commissioners Reserve Valuation Method. A detailed statement of how we calculate
the values for this Policy has been filed with the insurance supervisory
official of the state in which this Policy is delivered.
CALCULATION OF VALUE OF SEPARATE ACCOUNTS. The Policy Account Value in a
Separate Account at any time is equal to the number of units this Policy then
has in that Separate Account multiplied by the Separate Account's unit value at
that time.
Amounts allocated, transferred or added to a Separate Account are used
to purchase units of that Separate Account; units are redeemed when amounts are
deducted, transferred or withdrawn. The number of units in a Separate Account at
any time is equal to the number of units purchased minus the number of units
redeemed up to such time.
The unit value of a Separate Account on any Valuation Day is equal to
the unit value for that Separate Account on the immediately preceding Valuation
Day multiplied by the Net Investment Factor for that Separate Account on that
Valuation Day.
VALUATION DAY AND PERIOD. Assets are valued at the close of a Valuation Day. A
Valuation Day is each day that the New York Stock Exchange is open for business
and any other day in which there is a sufficient degree of trading of the
Separate Account's portfolio of securities to materially affect the value of a
Separate Account.
A Valuation Period is 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.
Page 14
<PAGE> 49
NET INVESTMENT FACTOR. Each Separate Account has its own Net investment Factor.
The Net investment Factor of the Separate Account for a Valuation Period is (a)
divided by (b), minus (c) and minus (d), where:
(a) is:
1. the value of the assets in the Separate Account for
the preceding Valuation Period; plus
2. the investment income and capital gains, realized or
unrealized, credited to those assets during the
Valuation Period for which the Net Investment Factor
is being determined; minus
3. the capital losses, realized or unrealized, charged
against those assets during the Valuation Period;
minus
4. any amount charged against the Separate Account
Account for taxes, or any amount we set aside during
the Valuation Period as a reserve for taxes
attributable to the operation or maintenance of the
Separate Account; and
(b) is the value of the assets in the preceding Valuation Period;
and
(c) is a charge no greater than .90% per year (.002465753% for
each day in the Valuation Period) for mortality and expense
risks; and
(d) is a charge, for the Zero Coupon Bond Separate Account only,
no greater than .50% per year (.001369863% for each day in the
Valuation Period) for transaction charges associated with the
purchase of units.
We will value the assets in the Separate Account at their fair market
value in accordance with accepted accounting practices and applicable laws and
regulations.
CALCULATION OF GUARANTEED ACCOUNT VALUE. The Guaranteed Account Value at any
time is equal to the amounts allocated and transferred to the Guaranteed Account
plus interest credited to it, minus amounts deducted, transferred and withdrawn
from it. Amounts deducted, transferred or withdrawn will be on a last in, first
out basis.
We will credit the Guaranteed Account Value with risk where: interest
at effective annual rates we determine. These Death Benefit; and rates will not
be less than 4%. For the amount in the Guaranteed Account at the beginning of a
calendar year, we will determine such interest rates in advance of each calendar
year. Such rates will apply to the calendar year which follows the date of
determination. For amounts allocated or transferred to the Guaranteed Account
during a calendar year, we will determine such interest rates in advance of the
date such amount is received or transferred. Such rates will apply to the end of
the calendar year in which the payment is received or the transfer is made.
Interest will be credited on each Policy Processing Day as follows:
for amounts in the Guaranteed Account for the entire prior
policy month, from the beginning to the end of such policy month;
for amounts allocated to the Guaranteed Account during the
prior policy month, from date we allocate a Net Premium to the Guaranteed
Account or receive a loan repayment to the end of the policy month;
for amounts transferred to the Guaranteed Account during the
prior policy month, from the date of transfer to the end of the policy month;
for amounts deducted or withdrawn Guaranteed Account during
the prior policy month, from the beginning of the prior policy month to the date
of deduction or withdrawal.
MONTHLY DEDUCTIONS. On each Policy Processing Day, beginning on the Policy Date,
we will deduct the following charges from the Policy Account Value:
1. The Monthly Administrative Charge shown in the Policy
Schedule,
2. On the first 12 Policy Processing Days, the Initial
Administrative Charge shown in the Policy Schedule;
3. The monthly cost of any benefits provided by rider to this
Policy, in accordance with such rider;
4. The monthly cost of insurance charge, as described below.
The monthly cost of insurance charge is: (a) multiplied by the result
of (b) minus (c):
(a) is the current monthly cost of insurance rate per
$1000 divided by 1000;
and the result of (b) minus (c) is the net amount at risk where:
(b) is your current Death Benefit; and
(c) is your Policy Account Value (after other deductions
but before cost of insurance).
Page 15
<PAGE> 50
The cost of insurance rates are based on each Insured's Issue Age, Sex
and Premium Class and the Policy's duration. Current cost of insurance rates
will be determined by the Company based on our expectations as to future
mortality costs and expenses. However, these rates will never exceed those shown
in the Table of Guaranteed Maximum Cost of Insurance Rates Per $1000 of Net
Amount At Risk shown in the Policy Schedule.
OTHER DEDUCTIONS. We also make the following other deductions from the Policy
Account Value as they occur:
1. Charge for partial withdrawal of Net Cash Surrender Value;
2. Surrender charges if during the first 15 Policy Years you
surrender this policy for its Net Cash Surrender Value, reduce
the Face of insurance, or this policy lapses at the end of a
Grace Period;
3. Charge for certain transfers of the Policy Account Value.
SURRENDERS AND WITHDRAWALS
SURRENDER FOR MET CASH SURRENDER VALUE.
You may surrender this Policy for its Net Cash Surrender Value at any
time where either Insured is living. The Net Cash Surrender 'Value of this
Policy at any time is equal to the Policy Account Value on such date less any
Surrender Charge, and less any outstanding policy loan and accrued interest We
will determine the Net Cash Surrender Value on the date we receive your signed
written surrender request at our Home Office. Coverage under this Policy will
end on the date you send the surrender request to us.
SURRENDER CHARGE. If you surrender this Policy for its Net Cash Surrender Value
during the first 15 Policy Years, or if this Policy lapses during the first 15
Policy Years, we will deduct a Surrender Charge from the Policy Account Value.
This Surrender Charge has two parts: the Deferred Administrative Charge and the
Deferred Sales Charge. The amounts of such charges are shown in the Policy
Schedule.
If you request a reduction in the Face Amount during any of the first
15 Policy Years, we will deduct a pro rata Surrender Charge from the Policy
Account Value as of the effective date of such reduction. The amount of such pro
rata Surrender Charge will be the Surrender Charge multiplied by the amount of
the reduction in the Face Amount divided by the Face Amount immediately prior to
such reduction.
We will allocate the pro rata Surrender Charge based on the proportion
that your Guaranteed Account Value and the value in your Separate Accounts bear
to the total unloaned Policy Account Value.
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE. After the first Policy Year, you
may make a written request for a partial withdrawal of the Net Cash Surrender
Value, subject to restrictions below and the minimum amount shown in the Policy
Schedule. As of the date we receive your request at our Home Office, we will
reduce the Policy Account Value by the amount withdrawn plus the expense charge
for a partial withdrawal shown in the Policy Schedule. If Death Benefit Option A
is in effect, we will reduce the Face Amount by such amount.
We will allocate the withdrawal and expense charge based on the
proportion that your Guaranteed Account Value and the value in your Separate
Accounts bear to the total unloaned Policy Account Value.
We reserve the right to decline your withdrawal request if: the Face
Amount would be reduced below the minimum amount for which we would then issue
this Policy under our rules; or we determine that the withdrawal would cause
this Policy to fail to qualify as life insurance under applicable tax laws, as
interpreted by us.
If we approve your request, we will issue revised Policy Schedule pages
reflecting the changes, if any. The revised pages will become a part of this
Policy. We may require you to return the policy to make the change.
Page 16
<PAGE> 51
POLICY LOAN PROVISIONS
You may borrow from this Policy while it has a loan value. This Policy will be
the only security for the loan. Any policy loan must be for at least the
minimum amount shown in the Policy Schedule. The maximum amount which may be
borrowed is the Net Cash Surrender Value. We will allocate the loan based on the
proportion that your Guaranteed Account Value and the value of your Separate
Accounts bear to the total unloaned Policy Account Value.
The collateral for the 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. The collateral for the loan will be
deducted from each account and transferred to the Loan Account. The collateral
for any existing loan will be recalculated: (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 LOANS. A policy loan will have a permanent effect on your benefits
under this Policy, even if it is repaid. The loan amount which is transferred to
the Loan Account will be maintained separately.
INTEREST RATE CHARGED ON LOANS. We will charge interest on loans at the fixed
yearly rate of 6%. Loan interest is due at the end of each Policy Year. If you
do not pay the interest when it is due, we will add it to the outstanding loan.
The unpaid interest will then be treated as part of the loaned amount and bear
interest at the policy loan interest rate. We will allocate the unpaid interest
based an the proportion that your Guaranteed Account Value and the value of your
Separate Accounts bear to the total unloaned Policy Account Value.
LOAN INTEREST CREDITED. We will credit the Loan Account with interest at an
effective annual rate we determine, This rate will not be less than 4%. We will
determine such rate in advance of each calendar yew. This rate will apply to the
calendar year which follows the date of determination. Loan interest credited
will be transferred to each of your 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.
LOAN REPAYMENTS. You may repay all or part of a policy loan at any time while
either Insured is alive and this Policy is in force. We will assume that any
payments made while there is an outstanding loan on this Policy is a loan
repayment, unless you tell us, in writing, that such is a premium payment.
Repayments will first be allocated to the accounts based on the
allocation of the outstanding loan from each account as of the date of
repayment. Any repayment in excess of the amount of the outstanding loan will be
allocated based on the amount of accrued interest for the outstanding loan.
Failure to repay a loan or pay loan interest will not cause this policy
to lapse unless the Net Cash Surrender Value on the Policy Processing Day is
less than the monthly deduction due. In that event, the Grace Period provision
will apply.
DIVIDEND PROVISIONS
While this Policy is in force, we will determine its share in our
divisible surplus once a year. It is not anticipated that dividends will be paid
on this Policy. Any dividends paid will be credited on the Policy Anniversary.
You may select one of the Dividend Options listed below. If you do not select
any Option, we will pay any dividends under Option 2:
1. CASH. We will pay any dividend to you in cash.
2. PREMIUM PAYMENT. We will consider the dividend to be a Net
Premium. We will allocate it in accordance with the premium
allocation schedule then in effect.
Page 17
<PAGE> 52
PAYMENT OPTIONS
Payments under these Options will not be affected by the investment
experience of any Separate Account after proceeds are applied under such
Options.
Instead of being paid in one sum, the proceeds of this Policy may be
paid under one of the Options below.
OPTION 1 - PROCEEDS AT INTEREST. We will pay interest on the proceeds at 12, 6,
3 or I month intervals, as elected. The interest per interval for each $1,000 of
proceeds is shown in the table below:
<TABLE>
<CAPTION>
INTERVAL IN MONTHS AMOUNT OF INTEREST
<S> <C>
12 $30.00
6 14.89
3 7.42
1 2.47
</TABLE>
OPTION 2 - INSTALMENTS OF A SPECIFIED AMOUNT. We will pay the proceeds in equal
instalments of the amount elected with our consent at 12, 6, 3 or 1 month
intervals. We will add interest on the balance of proceeds to such balance each
year. We will pay instalments until the proceeds and interest are exhausted. The
last instalment win be for the balance only of the proceeds and interest.
OPTION 3 - INSTALMENTS FOR A SPECIFIED PERIOD. We will pay the proceeds in the
number of equal monthly installments certain set forth in the election. We will
base the amount of each instalment on the Option 3 table. if so elected, the
instalment may be paid at 12, 6 or 3 month intervals. amount of each instalment
in such case will be the product of the monthly instalment and the factor shown
in the table below:
<TABLE>
<CAPTION>
FACTOR APPLIED TO
INTERVAL IN MONTHS MONTHLY INSTALMENT
<S> <C>
12 11.839
6 5.963
3 2.993
</TABLE>
OPTION 4 - LIFE INCOME. We will use the proceeds to provide equal monthly
instalments during the payee's life. We will pay the instalments, as elected,
either without instalments. certain or with instalments certain for 120 months,
for 240 months, or until the proceeds are refunded.
"Until the proceeds are refunded" means until the sum of the
instalments paid by us equals the amount of proceeds settled under this Option.
We will base the amount of each instalment on the Option 4 table.
OPTION 5 - JOINT AND SURVIVOR LIFE INCOME. We will use the proceeds to provide
equal monthly installments, with a number of instalments certain, during the
joint lives of the payee and one other person and during the life of the
survivor.
We will pay the instalments, certain for either 120 or 240 months, as
elected. We will base the amount of each instalment on the Option 5 table.
DATE OF FIRST PAYMENT. We will make the first payment under Option 1 at the end
of the first payment interval. We will make the first payment under Option 2, 3,
4 or 5 on the date on which the Option takes effect.
INTEREST. The interest rate underlying all of the above Options is 3% per year.
Additional interest may be declared each year by us. Such additional interest
will:
1. increase the interest payment under Option 1;
2. be added to the proceeds under Option 2; or
3. increase the instalments certain under Option 3, 4 or 5.
WITHDRAWAL OR COMMUTATION. If expressly provide a the election of the Option but
not otherwise, the payee will have the right to:
1. withdraw all or part of the balance of the proceeds under
Option 1 or 2; or
2. take in one sum the commuted value of any balance of the
instalments certain under Option 3, 4, or 5.
Partial withdrawals will be subject to our published minimum amount
limits in effect at the time the Option is elected. Such commuted value will be
based on compound interest at a yearly rate of 3%. Under Option 4 or 5, no
instalments other than instalments certain may be commuted.
We may defer payment of the amount withdrawn or commuted for a period
not exceeding 6 months.
SETTLEMENT AT DEATH OF PAYEE. After the death of the payee (the survivor in the
case of Option 5), we will make payment as directed in the election of the
Option. Such direction is subject to our approval.
The amount subject to such payment will be:
1. any balance of proceeds, with accrued interest, under Option 1
or 2; or
2. the value of any remaining instalments certain under Option 3,
4 or 5.
Page 18
<PAGE> 53
OPTION 3-INSTALMENTS FOR A SPECIFIED PERIOD
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under
Option 3
<TABLE>
<CAPTION>
Monthly Installments Certain
----------------------------
No. Amount
--- ------
<S> <C>
12 $ 84.47
24 42.86
36 28.99
48 22.06
60 17.91
72 15.14
84 13.16
96 11.68
108 10.53
120 9.61
132 8.86
144 8.24
156 7.71
168 7.26
180 6.87
192 6.53
204 6.23
216 5.96
228 5.73
240 5.51
252 5.32
264 5.15
276 4.99
288 4.84
300 4.71
312 4.59
324 4.47
336 4.37
348 4.27
360 4.18
</TABLE>
OPTION 4-LIFE INCOME
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under
Option 4 Where the incomes are the same the longer certain period will apply.
<TABLE>
<CAPTION>
Number of Monthly Instalments
Certain
---------------------------------------------------------
Age of
Payee* Until
Proceeds
None 120 240 Are
M Refunded
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5** $ 2.81 $ 2.81 $ 2.81 $ 2.80
6 2.83 2.82 2.82 2.81
7 2.84 2.84 2.83 2.83
8 2.85 2.85 2.84 2.84
9 2.86 2.86 2.86 2.85
10 2.87 2.87 2.87 2.86
11 2.89 2.89 2.88 2.88
12 2.90 2.90 2.90 2.89
13 2.92 2.91 2.91 2.90
14 2.93 2.93 2.92 2.92
15 2.95 2.95 2.94 2.93
16 2.96 2.96 2.96 2.95
17 2.98 2.98 2.97 2.96
18 3.00 3.00 2.99 2.98
19 3.02 3.01 3.01 3.00
20 3.04 3.03 3.03 3.02
21 3.06 3.05 3.05 3.04
22 3.08 3.07 3.07 3.06
23 3.10 3.09 3.09 3.08
24 3.12 3.12 3.11 3.10
25 3.14 3.14 3.13 3.12
26 3.17 3.16 3.15 3.14
27 3.19 3.19 3.18 3.16
28 3.22 3.22 3.20 3.19
29 3.25 3.24 3.23 3.21
30 3.28 3.27 3.26 3.24
31 3.31 3.30 3.29 3.27
32 3.34 3.33 3.32 3.30
33 3.37 3.37 3.35 3.33
34 3.41 3.40 3.38 3.36
35 3.44 3.44 3.41 3.39
36 3.48 3.48 3.45 3.42
37 3.52 3.51 3.48 3.46
38 3.57 3.56 3.52 3.50
39 3.61 3.60 3.56 3.53
40 3.66 3.64 3.60 3.57
41 3.71 3.69 3.64 3.61
42 3.76 3.74 3.68 3.66
43 3.81 3.79 3.73 3.70
44 3.87 3.85 3.77 3.75
45 3.93 3.90 3.82 3.80
46 3.99 3.96 3.87 3.85
47 4.05 4.02 3.92 3.90
48 4.12 4.09 3.97 3.96
49 4.19 4.15 4.03 4.01
50 4.27 4.22 4.08 4.08
51 4.34 4.29 4.14 4.14
52 4.43 4.37 4.20 4.20
53 4.51 4.45 4.26 4.27
54 4.60 4.54 4.32 4.35
55 4.70 4.62 4.39 4.42
56 4.80 4.72 4.45 4.50
57 4.91 4.82 4.51 4.58
58 5.03 4.92 4.58 4.67
59 5.15 5.03 4.64 4.76
60 5.28 5.14 4.71 4.86
61 5.42 5.26 4.78 4.96
62 5.57 5.39 4.84 5.07
63 5.74 5.52 4.90 5.19
64 5.91 5.66 4.96 5.30
65 6.10 5.81 5.02 5.43
66 6.29 5.96 5.08 5.56
67 6.50 6.11 5.13 5.70
68 6.73 6.28 5.18 5.85
69 6.97 6.44 5.23 6.00
70 7.23 6.61 5.27 6.16
71 7.51 6.78 5.31 6.33
72 7.80 6.96 5.34 6.51
73 8.12 7.14 5.37 6.70
74 8.45 7.32 5.40 6.90
75 8.82 7.49 5.42 7.11
76 9.21 7.67 5.44 7.33
77 9.62 7.84 5.45 7.56
78 10.07 8.01 5.47 7.80
79 10.55 8.17 5.48 8.05
80 11.06 8.33 5.49 8.32
81 11.61 8.48 5.49 8.60
82 12.19 8.61 5.50 8.89
83 12.81 8.74 5.50 9.20
84 13.46 8.86 5.51 9.52
85+ 14.16 8.97 5.51 9.85
</TABLE>
<TABLE>
<CAPTION>
Number of Monthly Instalments
Certain
---------------------------------------------------------
Age of
Payee* Until
Proceeds
None 120 240 Are
F Refunded
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5** $ 2.75 $ 2.75 $ 2.75 $ 2.74
6 2.76 2.76 2.76 2.75
7 2.77 2.77 2.77 2.76
8 2.78 2.78 2.78 2.77
9 2.79 2.79 2.79 2.78
10 2.80 2.80 2.80 2.79
11 2.81 2.81 2.81 2.80
12 2.82 2.82 2.82 2.82
13 2.83 2.83 2.83 2.83
14 2.85 2.85 2.84 2.84
15 2.86 2.86 2.86 2.85
16 2.87 2.87 2.17 2.86
17 2.89 2.89 2.88 2.88
18 2.90 2.90 2.90 2.89
19 2.92 2.92 2.91 2.91
20 2.93 2.93 2.93 2.92
21 2.95 2.95 2.94 2.94
22 2.96 2.96 2.96 2.95
23 2.98 2.98 2.98 2.97
24 3.00 3.00 2.99 2.99
25 3.02 3.02 3.01 3.01
26 3.04 3.04 3.03 3.02
27 3.06 3.06 3.05 3.04
28 3.08 3.08 3.07 3.06
29 3.10 3.10 3.09 3.09
30 3.13 3.12 3.12 3.11
31 3.15 3.15 3.14 3.13
32 3.18 3.17 3.16 3.15
33 3.20 3.20 3.19 3.18
34 3.23 3.23 3.22 3.20
35 3.26 3.26 3.24 3.23
36 3.29 3.29 3.27 3.26
37 3.32 3.32 3.30 3.29
38 3.35 3.35 3.33 3.32
39 3.39 3.38 3.37 3.35
40 3.42 3.42 3.40 3.38
41 3.46 3.46 3.43 3.42
42 3.50 3.50 3.47 3.45
43 3.54 3.54 3.51 3.49
44 3.59 3.58 3.55 3.53
45 3.63 3.63 3.59 3.57
46 3.68 3.67 3.63 3.61
47 3.73 3.72 3.68 3.66
48 3.79 3.77 3.72 3.70
49 3.84 3.83 3.77 3.75
50 3.90 3.89 3.82 3.80
51 3.97 3.95 3.88 3.86
52 4.03 4.01 3.93 3.91
53 4.10 4.08 3.99 3.97
54 4.18 4.15 4.04 4.03
55 4.25 4.22 4.11 4.10
56 4.34 4.30 4.17 4.17
57 4.42 4.38 4.23 4.24
58 4.52 4.47 4.30 4.31
59 4.61 4.56 4.37 4.39
60 4.72 4.66 4.44 4.48
61 4.83 4.76 4.51 4.56
62 4.95 4.86 4.58 4.66
63 5.07 4.98 4.65 4.75
64 5.21 5.10 4.72 4.86
65 5.35 5.22 4.79 4.97
66 5.51 5.36 4.86 5.08
67 5.67 5.50 4.93 5.20
68 5.85 5.65 5.00 5.33
69 6.04 5.80 5.06 5.47
70 6.25 5.96 5.12 5.61
71 6.47 6.14 5.18 5.76
72 6.71 6.31 5.23 5.93
73 6.97 6.50 5.28 6.10
74 7.26 6.69 5.32 6.28
75 7.56 6.89 5.35 6.48
76 7.90 7.09 5.39 6.68
77 8.26 7.29 5.41 6.90
78 8.65 7.49 5.43 7.13
79 9.07 7.69 5.45 7.38
80 9.53 7.89 5.47 7.64
81 10.03 8.08 5.48 7.91
82 10.57 8.26 5.49 8.21
83 11.16 8.43 5.49 8.51
84 11.79 8.59 5.50 8.83
85+ 12.48 8.74 5.50 9.18
</TABLE>
*On birthday nearest to due date of first instalment.
**Ages 5 and under.
+Ages 85 and over.
Page 19
<PAGE> 54
OPTION 5-JOINT AND SURVIVOR LIFE INCOME
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under
Option 5
<TABLE>
<CAPTION>
WITH 120 MONTHLY INSTALMENTS CERTAIN
- -----------------------------------------------------------------------------------------------------------------------------
Age of Age of Payee*
Payee* FEMALE
---------------------------------------------------------------------------------------------------------------------
MALE 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.60 $3.63 $3.66 $3.69 $3.72 $3.75 $3.77 $3.80 $3.83 $3.85 $3.88 $3.90 $3.92 $3.95 $3.97
51 3.62 3.65 3.68 3.71 3.74 3.77 3.80 3.83 3.86 3.89 3.91 3.94 3.97 3.99 4.01
52 3.64 3.67 3.70 3.74 3.77 3.80 3.83 3.86 3.89 3.92 3.95 3.98 4.01 4.03 4.06
53 3.66 3.69 3.72 3.76 3.79 3.82 3.86 3.89 3.92 3.96 3.99 4.02 4.05 4.08 4.11
54 3.67 3.71 3.74 3.78 3.81 3.85 3.89 3.92 3.96 3.99 4.02 4.06 4.09 4.12 4.15
55 3.69 3.72 3.76 3.80 3.84 3.87 3.91 3.95 3.99 4.02 4.06 4.10 4.13 4.17 4.20
56 3.70 3.74 3.78 3.82 3.86 3.90 3.94 3.98 4.02 4.06 4.10 4.13 4.17 4.21 4.25
57 3.72 3.76 3.80 3.84 3.88 3.92 3.96 4.00 4.05 4.09 4.13 4.17 4.21 4.25 4.29
58 3.73 3.77 3.81 3.86 3.90 3.94 3.99 4.03 4.08 4.12 4.17 4.21 4.25 4.30 4.34
59 3.74 3.79 3.83 3.87 3.92 3.96 4.01 4.06 4.10 4.15 4.20 4.25 4.29 4.34 4.38
60 3.75 3.80 3.84 3.89 3.94 3.98 4.03 4.08 4.13 4.18 4.23 4.28 4.33 4.38 4.43
61 3.77 3.81 3.86 3.91 3.95 4.00 4.05 4.11 4.16 4.21 4.26 4.32 4.37 4.42 4.48
62 3.78 3.82 3.87 3.92 3.97 4.02 4.07 4.13 4.18 4.24 4.29 4.35 4.41 4.46 4.52
63 3.79 3.83 3.88 3.93 3.99 4.04 4.09 4.15 4.21 4.26 4.32 4.38 4.44 4.50 4.56
64 3.80 3.84 3.90 3.95 4.00 4.06 4.11 4.17 4.23 4.29 4.35 4.41 4.48 4.54 4.60
65 3.80 3.85 3.91 3.96 4.01 4.07 4.13 4.19 4.25 4.31 4.38 4.44 4.51 4.58 4.64
70 3.84 3.89 3.95 4.01 4.07 4.13 4.20 4.27 4.34 4.41 4.49 4.57 4.65 4.73 4.82
75 3.86 3.92 3.98 4.04 4.11 4.17 4.25 4.32 4.40 4.48 4.57 4.66 4.75 4.84 4.94
80 3.87 3.93 4.00 4.06 4.13 4.20 4.27 4.35 4.44 4.52 4.61 4.71 4.81 4.91 5.02
</TABLE>
<TABLE>
<CAPTION>
WITH 120 MONTHLY INSTALMENTS CERTAIN
- ----------------------------------------
Age of Age of Payee*
Payee* FEMALE
-----------------------------
MALE 65 70 75 80
- ----------------------------------------
<S> <C> <C> <C> <C>
50 $3.99 $4.08 $4.14 $4.18
51 4.04 4.13 4.20 4.25
52 4.08 4.19 4.27 4.32
53 4.13 4.25 4.34 4.40
54 4.18 4.31 4.41 4.48
55 4.23 4.37 4.48 4.56
56 4.28 4.44 4.56 4.64
57 4.33 4.50 4.64 4.73
58 4.38 4.57 4.72 4.82
59 4.43 4.64 4.80 4.92
60 4.48 4.71 4.89 5.02
61 4.53 4.77 4.98 5.12
62 4.58 4.84 5.07 5.23
63 4.62 4.91 5.16 5.34
64 4.67 4.98 5.25 5.45
65 4.71 5.05 5.35 5.57
70 4.91 5.36 5.81 6.18
75 5.05 5.62 6.23 6.78
80 5.14 5.79 6.54 7.27
</TABLE>
* On birthday nearest to due date of first instalment. The amount of the
monthly instalment for any combination of egos not shown in this table will
be furnished on request.
<TABLE>
<CAPTION>
WITH 240 MONTHLY INSTALMENTS CERTAIN
- -----------------------------------------------------------------------------------------------------------------------------
Age of Age of Payee*
Payee* FEMALE
---------------------------------------------------------------------------------------------------------------------
MALE 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 $3.60 $3.63 $3.65 $3.68 $3.71 $3.73 $3.76 $3.79 $3.81 $3.84 $3.86 $3.88 $3.90 $3.92 $3.94
51 3.61 3.64 3.67 3.70 3.73 3.76 3.79 3.82 3.84 3.87 3.89 3.92 3.94 3.96 3.98
52 3.63 3.66 3.69 3.72 3.76 3.79 3.82 3.85 3.87 3.90 3.93 3.95 3.98 4.00 4.02
53 3.65 3.68 3.71 3.76 3.78 3.81 3.84 3.87 3.90 3.93 3.96 3.99 4.02 4.04 4.07
54 3.66 3.70 3.73 3.77 3.80 3.83 3.87 3.90 3.93 3.97 4.00 4.03 4.06 4.08 4.11
55 3.68 3.71 3.75 3.79 3.82 3.86 3.89 3.93 3.96 4.00 4.03 4.06 4.09 4.12 4.15
56 3.69 3.73 3.77 3.80 3.84 3.88 3.92 3.95 3.99 4.03 4.06 4.10 4.13 4.16 4.19
57 3.70 3.74 3.78 3.82 3.86 3.90 3.94 3.98 4.02 4.06 4.09 4.13 4.17 4.20 4.24
58 3.72 3.76 3.80 3.84 3.88 3.92 3.96 4.00 4.04 4.09 4.13 4.16 4.20 4.24 4.28
59 3.73 3.77 3.81 3.85 3.90 3.94 3.98 4.03 4.07 4.11 4.15 4.20 4.24 4.28 4.31
60 3.74 3.78 3.82 3.87 3.91 3.96 4.00 4.05 4.09 4.14 4.18 4.23 4.27 4.31 4.35
61 3.75 3.79 3.84 3.88 3.93 3.97 4.02 4.07 4.12 4.16 4.21 4.26 4.30 4.35 4.39
62 3.76 3.80 3.85 3.89 3.94 3.99 4.04 4.09 4.14 4.19 4.23 4.28 4.33 4.38 4.42
63 3.77 3.81 1.86 3.91 3.95 4.00 4.05 4.10 4.16 4.21 4.26 4.11 4.36 4.41 4.46
64 3.77 3.82 3.87 3.92 3.97 4.02 4.07 4.12 4.17 4.23 4.28 4.33 4.39 4.44 4.49
65 3.78 3.83 1.88 3.93 3.98 4.03 4.08 4.14 4.19 4.25 4.30 4.36 4.41 4.46 4.52
70 3.81 3.86 3.91 3.96 4.02 4.07 4.13 4.19 4.25 4.31 4.38 4.44 4.50 4.57 4.63
75 3.82 3.87 3.92 3.98 4.03 4.09 4.16 4.22 4.28 4.35 4.42 4.48 4.55 4.62 4.69
80 3.82 3.87 3.93 3.98 4.04 4.10 4.16 4.23 4.29 4.36 4.43 4.50 4.57 4.64 4.71
</TABLE>
<TABLE>
<CAPTION>
WITH 240 MONTHLY INSTALMENTS CERTAIN
- ----------------------------------------
Age of Age of Payee*
Payee* FEMALE
-----------------------------
MALE 65 70 75 80
- ----------------------------------------
<S> <C> <C> <C> <C>
50 $3.96 $4.03 $4.06 $4.08
51 4.00 4.08 4.12 4.14
52 4.05 4.13 4.17 4.19
53 4.09 4.18 4.23 4.25
54 4.13 4.23 4.29 4.31
55 4.18 4.29 4.35 4.38
56 4.22 4.34 4.41 4.44
57 4.27 4.40 4.47 4.50
58 4.31 4.45 4.53 4.57
59 4.35 4.50 4.59 4.63
60 4.39 4.55 4.65 4.69
61 4.43 4.61 4.71 4.76
62 4.47 4.66 4.77 4.82
63 4.50 4.70 4.83 4.88
64 4.54 4.75 4.88 4.94
65 4.57 4.79 4.93 5.00
70 4.69 4.97 5.15 5.24
75 4.76 5.07 5.28 5.38
80 4.78 5.11 5.33 5.44
</TABLE>
* On birthday nearest to due date of first instalment. The amount of the
monthly instalment for any combination of ages not shown in this table will
be furnished on request.
Page 20
<PAGE> 55
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
GUARANTEED MINIMUM DEATH BENEFIT
POLICY NUMBER 9,000,000 RIDER ISSUE DATE 01-01-1996
This Rider is attached to and made part of this Policy.
If during the term of this Rider, the Net Cash Surrender Value of the
Policy to which it is attached is not sufficient to cover the monthly
deductions, we will determine if the Minimum Guarantee Premium has been paid. If
the Minimum Guarantee Premium has been paid while this Rider is in effect, the
Policy will not go into the Grace Period as described in the Policy. If the
Minimum Guarantee Premium has not been paid while this Rider is in effect, the
Grace Period will begin.
To determine whether the Minimum Guarantee Premium has been paid, the
sum of the premiums paid into the Policy less any partial withdrawals and
outstanding loans must equal or exceed the Minimum Guarantee Premium.
DEATH BENEFIT GUARANTEE PERIOD. This Rider is in effect until the Policy
Anniversary nearest the Older Insured's Attained Age 70 or 10 years after the
Policy Date as shown on page 3 of the Policy Schedule, whichever is later.
COST. The cost of this Rider is $0.01 per $1,000 of Face Amount of the Policy to
which this Rider is attached. This amount will be included in the monthly
deductions for this Policy. The monthly deduction for this Rider will cease upon
the termination of this Rider.
TERMINATION. This rider will terminate:
1. upon written request;
2. upon surrender or other termination of the Policy to which it
is attached;
3. at the Policy Anniversary nearest the Older Insured's Attained
Age 70 or 10 years after the Policy Date as shown on page 3 of
the Policy Schedule, whichever is later; or
4. if the Death Benefit Option of the Policy is changed to Option
B.
Attached by PROVIDENT MUTUAL LIFE INSURANCE COMPANY on the issue date of this
Rider.
/s/ Robert W. Kloss
-------------------------------------
President and Chief Operating Officer
<PAGE> 56
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
CONVERTIBLE TERM LIFE INSURANCE
INSURED JOHN DOE POLICY NUMBER 9,000,000
RIDER ISSUE DATE 01-01-1996
This Rider is attached to and made part of this Policy.
The Company will pay the Beneficiary the amount of term insurance shown
in the Policy Schedule for the Insured above, upon receipt of due proof of the
Insured's death on or before the Expiry Date of this Rider, subject to the terms
and conditions set forth below. Unless otherwise provided, the Owner and
Beneficiary of this Rider are the same as the Owner and Beneficiary of the
Policy to which this Rider is attached.
AMOUNT OF INSURANCE. The amount of term insurance is shown on Policy Schedule
page 3, and will remain level until the Expiry Date, or until increased or
decreased at the request of the Owner.
EXPIRY DATE. The Expiry Date of this Rider is the Policy Anniversary nearest age
100 of the Insured or the maturity date of the Policy to which it is attached,
whichever occurs first.
COST. The cost of insurance for this Rider is included in the monthly deductions
for the Policy to which this Rider is attached. It is determined by multiplying
the monthly cost of insurance rate by the Insured's Insurance Amount divided by
1,000. The monthly deduction for this Rider will cease upon the termination of
this Rider.
The monthly cost of insurance rate is based on the Sex, Issue Age and
Rider Class of the Insured and the Rider's duration. Monthly cost of insurance
rates will be determined by us, based on our expectations as to future mortality
costs and expenses. Any change in cost of insurance rates will be in accordance
with the Changes In Policy Cost Factors Provision of the Policy. The cost of
insurance rates will never be greater than the Guaranteed Monthly Rider Cost Per
$1,000 of Insurance Amount shown in the Policy Schedule. Guaranteed maximum
rates are based on the 1980 Commissioners' Standard Ordinary Nonsmoker or Smoker
Mortality Table, Age Nearest Birthday plus any special risk factors for any
extra rating.
COST OF DISABILITY WAIVER BENEFIT. If the Policy to which this Rider is attached
has a Disability Waiver of Benefit rider, there will be an additional cost on
each Policy Processing Day. The additional cost will be determined by
multiplying the Rate Factor for the Insured's Attained Age by the Insurance
Amount of this Rider divided by 1,000.
CONVERSION PRIVILEGE. At any time at or prior to attained age 60 and while this
Rider is in full force, it may be converted to a new policy, subject to the
conditions set forth below. The new policy must:
1. have a Face Amount equal to the amount of term
insurance provided under this Rider;
2. be on a life plan that is customarily issued by the
Company on the issue date of the new policy in the
same insurance amount as this Rider and in a Premium
Class as defined below.
Conversion will be made:
1. without evidence of insurability- and
2. upon written request and surrender of this Rider.
NEW POLICY. The Policy Date of the new policy will be the date of
conversion and will be on the form then in use by the Company. The premium for
the new policy will be based on the age of the Insured at his or her birthday
nearest the date of conversion and on the premium rates used by the Company on
that date.
PREMIUM CLASS. The Premium Class for the new policy will be the same
class as this Rider.
(Continued on reverse side)
<PAGE> 57
EXTRA PREMIUM CLASS. If the class of this Rider is With Extra Rating,
the extra rating for the new policy will be that in use by the Company on the
issue date of the new policy.
Such rating will correspond to the rating for the Policy to which this
Rider is attached but will be adjusted for:
1. the plan of insurance under the new policy; and
2. the age of the Insured.
CONVERSION OF DISABILITY WAIVER RIDER. At the Owner's request, the new
policy may contain the Disability Waiver Benefit Or Disability Waiver of Premium
rider if:
1. the Policy to which this Rider is attached contains a
disability waiver rider for the Insured above; and
2. conversion is made before the Insured's Attained Age 55.
If the new policy is a flexible premium variable life insurance policy,
only the Disability Waiver Benefit rider is available.
The rider will be on the form in use by the Company on the issue date
of the new policy. The cost of the rider will be based on:
1. the age of the Insured at his or her birthday nearest the
Policy Date of the new policy-, and
2. the rates then in use by the Company.
CHANGE IN INSURANCE AMOUNT. After the first Policy Year, the amount of this
Rider may be increased or decreased upon request of the Owner and approval of
the Company, while this Rider is in force. Any change will be effective as of
the next Policy Processing Day following the date we approve your written
request, provided we have received any premium required for the change.
You may request a change by completing an application for change. A
copy of such application will be attached to new Policy Schedule pages which
will be issued when the change is approved. The application for change and new
Policy Schedule pages will become part of the Policy to which this Rider is
attached. We may require you to return the Policy to make the change.
INSURANCE AMOUNT INCREASE. You may request an Insurance Amount increase
subject to the following:
1. you must provide evidence satisfactory to the Company of the
Insured's insurability in the same or better Rider Class in
which this Rider was issued;
2. the Insured's Attained Age must be 75 years or less;
3. you may not have increased the Insurance Amount of this Rider
in the prior 12-month period;
4. the amount of the increase must be at least $25,000.
5. we reserve the right to charge a reasonable fee for this
transaction.
INSURANCE AMOUNT DECREASE. You may request an Insurance Amount decrease
subject to the following:
1. the Insurance Amount after the decrease is not less than the
minimum amount for which we would then issue this Rider under
our rules; and
2. the amount of the decrease must be at least $25,000.
TERMINATION. This Rider will terminate:
1. upon 'written request;
2. on its Expiry Date or the prior surrender or other termination
of the Policy to which it is attached; or
3. upon exercise of the Policy Split Option Rider, if included
with the Policy to which this Rider is attached.
Attached by PROVIDENT MUTUAL LIFE INSURANCE COMPANY on the issue date of this
Rider.
/s/ Robert W. Kloss
-------------------------------------
President and Chief Operating Officer
<PAGE> 58
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
4 YEAR SURVIVORSHIP TERM LIFE INSURANCE
POLICY NUMBER 9,000,000 RIDER ISSUE DATE 01-01-1996
This Rider is attached to and made part of this Policy.
The Company will pay the Beneficiary the Rider Death Benefit upon
receipt of due proof of both Insureds' death on or before the Expiry Date of
this Rider, subject to the terms and conditions set forth below. Unless
otherwise provided, the Owner and Beneficiary of this Rider are the same as the
Owner and Beneficiary of the Policy to which this Rider is attached.
RIDER DEATH BENEFIT. The death benefit of this Rider is an amount equal to 1.25
multiplied by the Face Amount of the Policy, as shown in the Policy Schedule.
EXPIRY DATE. The Expiry Date of this Rider is the end of the fourth Policy Year.
COST. The cost of insurance for this Rider is included in the monthly deductions
for the Policy to which this Rider is attached. It is determined by multiplying
the monthly cost of insurance rate divided by 1,000 by the Rider Death Benefit.
The monthly deduction for this Rider will cease upon the termination of this
Rider.
The monthly cost of insurance rate is based on each Insured's Sex,
Issue Age and Premium Class and the Rider's duration. Monthly cost of insurance
rates will be determined by us, based on our expectations as to future mortality
costs and expenses. Any change in cost of insurance rates will be in accordance
with the Changes In Policy Cost Factors Provision of the Policy. The cost of
insurance rates will never be greater than the Guaranteed Monthly Rider Cost Per
$1,000 of Insurance Amount shown in the Policy Schedule.
CHANGE IN RIDER DEATH BENEFIT. After the first Policy Year, the amount of this
Rider may decrease if the Face Amount of the Policy is decreased. The death
benefit of the Rider will always equal 1.25 multiplied by the Face Amount shown
in the Policy Schedule.
TERMINATION.- This rider will terminate:
1. upon written request,
2. on its Expiry Date or the prior surrender or other termination
of the Policy to which it is attached; or
3. upon exercise of the Policy Split Option Rider, if included
with the Policy to which this Rider is attached.
Attached by PROVIDENT MUTUAL LIFE INSURANCE COMPANY on the issue date of this
Rider.
/s/ Robert W. Kloss
---------------------------------------
President and Chief Operating Officer
<PAGE> 59
A GUIDE TO THE PROVISIONS OF THIS POLICY
<TABLE>
<CAPTION>
Page
----
<S> <C>
Calculation of Values ................................................. 14-15
Death Benefit Provisions .............................................. 10-11
Definitions ........................................................... 7
Description of Separate Accounts ...................................... 6
Dividend Provisions ................................................... 17
Endorsements .......................................................... 21
General Provisions .................................................... 7-8
Payment Options ....................................................... 18
Policy Account Value: Allocations and Transfers ....................... 13-14
Policy Description .................................................... 2
Policy Loan Provisions ................................................ 17
Policy Owner and Beneficiary Provisions ............................... 9-10
Policy Specifications ................................................. 3-5
Premium Expense Charge ................................................ 12
Premium Payment Provisions ............................................ 11-12
Separate Accounts ..................................................... 12-13
Surrenders and Withdrawals ............................................ 16
</TABLE>
Page 21
<PAGE> 60
Flexible Premium Adjustable Survivorship Variable Life Insurance Policy.
Insurance Proceeds payable upon death of the last surviving Insured
before Final Policy Date. Policy Account Value payable on Final
Policy Data Values provided by this Policy are based on declared
interest rates of the Guaranteed and Loan Accounts and on the investment
experience of the Separate Accounts Participating.
[LOGO]
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
1600 Market Street Philadelphia, Pennsylvania 19103
<PAGE> 1
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
4 YEAR SURVIVORSHIP TERM LIFE INSURANCE
POLICY NUMBER RIDER ISSUE DATE
This Rider is attached to and made part of this Policy.
The Company will pay the Beneficiary the Rider Death Benefit upon receipt of due
proof of both Insureds' death on or before the Expire Date of this Rider,
subject to the terms and conditions set forth below. Unless otherwise provided,
the Owner and Beneficiary of this Rider are the same as the Owner and
Beneficiary of the Policy to which this Rider is attached.
RIDER DEATH BENEFIT. The death benefit of this Rider is an amount equal to 1.25
multiplied by the Face Amount of the Policy, as shown in the Policy Schedule.
EXPIRY DATE. The Expiry Date of this Rider is the end of the fourth Policy
Year.
COST. The cost of insurance for this Rider is included in the monthly deductions
for the Policy to which this Rider is attached. It is determined by multiplying
the monthly cost of insurance rate divided by 1,000 by the Rider Death Benefit.
The monthly deduction for this Rider will cease upon the termination of this
Rider.
The monthly cost of insurance rate is based on each Insured's Sex, Issue Age and
Premium Class and the Rider's duration. Monthly cost of insurance rates will - I
be determined by us, based on our expectations as to future mortality costs and
expenses. Any change in cost of insurance rates will be in accordance with the
Changes In Policy Cost Factors Provision of the Policy. The cost of insurance
rates will never be greater than the Guaranteed Monthly Rider Cost Per $1,000 of
Insurance Amount shown in the Policy Schedule.
CHANGE IN RIDER DEATH BENEFIT. After the first Policy Year, the amount of this
Rider may decrease if the Face Amount of the Policy is decreased. The death
benefit of the Rider will always equal 1.25 multiplied by the Face Amount shown
in the Policy Schedule.
TERMINATION. This rider will terminate:
1. upon written request;
2. on its Expire Date or the prior surrender or other termination of the
Policy to which it is attached; or
3. upon exercise of the Policy Split Option Rider, if included with the
Policy to which this Rider is attached.
Attached by PROVIDENT MUTUAL LIFE INSURANCE COMPANY on the issue date of this
Rider.
/s/ Robert W. Koss
-----------------------------
President and Chief Operating Officer
<PAGE> 1
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
GUARANTEED MINIMUM DEATH BENEFIT
POLICY NUMBER RIDER ISSUE DATE
This Rider is attached to and made part of this Policy.
If during the term of this Rider, the Net Cash Surrender Value of the Policy to
which it is attached is not sufficient to cover the monthly deductions, we will
determine if the Minimum Guarantee Premium has been paid. If the Minimum
Guarantee Premium has been paid while this Rider is in effect, the Policy will
not go into the Grace Period as described in the Policy. If the Minimum
Guarantee Premium has not been paid while this Rider is in effect, the Grace
Period will begin.
To determine whether the Minimum Guarantee Premium has been paid, the sum of the
premiums paid into the Policy less any partial withdrawals and outstanding loans
must equal or exceed the Minimum Guarantee Premium.
DEATH BENEFIT GUARANTEE PERIOD. This Rider is in effect until the Policy
Anniversary nearest the Older Insured's Attained Age 70 or 10 years after the
Policy Date as shown on page 3 of the Policy Schedule, whichever is later.
COST. The cost of this Rider is $0.01 per $1,000 of Face Amount of the Policy to
which this Rider is attached. This amount will be included in the monthly
deductions for this Policy. The monthly deduction for this Rider will cease upon
the termination of this Rider.
TERMINATION. This rider will terminate:
1. upon written request;
2. upon surrender or other termination of the Policy to which it IS
attached;
3. at the Policy Anniversary nearest the Older Insured's Attained Age 70
or 10 years after the Policy Date as shown on page 3 of the Policy
Schedule, whichever is later; or
4. if the Death Benefit Option of the Policy is changed to Option B.
Attached by PROVIDENT MUTUAL LIFE INSURANCE COMPANY on the issue date of this
Rider.
/s/ Robert W. Koss
-----------------------------
President and Chief Operating Officer
<PAGE> 1
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
RIDER
POLICY SPLIT OPTION
INSUREDS POLICY NUMBER
RIDER ISSUE DATE
DESCRIPTION
OF BENEFIT
While this Rider is in effect, this Policy may be split into two individual
whole life insurance it policies, one on each of the above Insureds, upon the
occurrence of one of the following:
1. if a final divorce decree with respect to the marriage of the Insureds
is issued by a court in the United States;
2. if the Federal Estate Tax law is changed resulting in removal of the
unlimited marital deduction or reduction of at least 50% in the estate
taxes payable on death.
Evidence of insurability will be required on both Insureds to exercise this
option. We must receive Written Request within 180 days of the date the
applicable event occurs. All OWNERS must agree to the split. The portion of this
Policy attributable to an Owner not choosing to exercise this option or where
satisfactory evidence of insurability is not provided with respect to one of the
Insureds, may be surrendered for one-half of the Net Cash Surrender Value.
EFFECTIVE The Effective Date of the split will be the Policy Processing Day
DATE following the later of the date Written Request is received at
our Home Office or the date we approve satisfactory evidence of
insurability for both Insureds.
NEW POLICIES Each of the new policies will be a permanent participating
fixed-benefit policy which is available on the Effective Date of
the split. The Policy Date of the new policies will be the
Effective Date of the split- The new policies will not provide
any insurance until this Policy terminates.
PERCENTAGE This Policy will be split on a 50/50 basis into two individual
OF THE SPLIT policies.
FACE AMOUNT OF The Face Amount of the new policy will be determined such that
NEW POLICIES the initial death benefit (excluding paid-up additions) is at
least one-half of the Face Amount of this Policy. The minimum
Face Amount of the new policies will be based on our minimum
limit for such policies on the Effective Date of the split.
FREE-LOOK If you return either of the new policies under the free-look
PROVISION provision, we will refund an amount equal to one-half of the
FOR Net Cash Surrender Value of this Policy plus all additional
NEW POLICIES premiums paid for the new policy.
<PAGE> 2
POLICY ACCOUNT One-half of the Policy Account Value less one-half of any
VALUE policy loan including accrued interest, determined as of the
Effective Date of the split, will be applied to pay the
initial premium of each new policy. Any excess amount will
be applied to purchase paid-up insurance under the
provisions of the new policy or rider attached to such
policy.
LOANS Any debt existing prior to the Effective Date of the split
will no longer exist. Any assignment of this Policy will
apply to each new policy.
RIDERS Riders attached to this Policy will terminate on the
Effective Date of the split. Riders may be added to the new
policies, subject to our normal requirements and
restrictions for such benefits.
NEW POLICY The premiums for each new policy will be based on each
PREMIUMS Insured's Age and Premium Class as of the Policy Date of the
new policy. Premiums will become payable as of the Effective
Date of the split.
PREMIUM There is no cost for this rider.
FOR RIDER
SUICIDE The Suicide Exclusion and Incontestability provisions of
EXCLUSION & this Policy apply to this Rider. In & applying these
INCONTESTABILITY provisions to this Rider, Date of Issue means the Rider
Issue Date.
TERMINATION This Rider terminates on the earliest of:
1. the Policy Processing Day on Or following the date
your Written Request to split the policy under Ns
Rider is received;
2. the date of death of the first Insured to die under
this Policy;
3. the date we receive Written Request to cancel this
Rider;
4. the Policy Anniversary when the older Insured reaches
Attained Age 81; or
5. the date this Policy is surrendered for cash.
Attached by PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA on the
Rider Issue Date.
/s/ Robert W. Koss
-----------------------------
President and Chief Operating Officer
<PAGE> 1
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
RIDER
CHANGE OF INSURED
INSUREDS POLICY NUMBER
RIDER ISSUE DATE
This Rider is attached to and is a part of this Policy.
While this Rider is in effect, you may change one of the Insureds under this
policy for a New Insured so that the Policy will provide coverage on the lives
of the New Insured and the Remaining Insured.
CONDITIONS FOR CHANGE. You may change one of the Insureds for a New Insured:
(a) upon written request; and
(b) by meeting any other terms and conditions set by us, including the
following:
1. on the Date of Change, the New Insured's age may not be more than 75;
2. the New Insured must have been at least age 21 on or before the
Policy Date of the Policy to which this Rider is attached;
3. the New Insured must provide evidence of insurability satisfactory to
us;
4. you must have an insurable interest in the life of the New Insured;
5. both the Owner and the New Insured must sign the written request.
DATE OF CHANGE. The Date of Change will be the Policy Processing Day following
the later of:
(a) the date set forth in your written request for the change; or
(b) the date we determine that the New Insured is insurable.
TERMS OF POLICY AFTER CHANGE. This Policy will cover the New Insured and the
Remaining Insured starting on the Date of Change. When coverage of the New and
the Remaining Insureds begins, coverage on the prior Insureds will end.
The Contestable and Suicide periods for the New Insured will start on the Date
of Change. With respect to the New Insured, in the event of a contest or suicide
within two years of the Date of Change, our payment will be limited to the Net
Cash Surrender Value of this Policy as of the date of death of the last
surviving Insured plus any deductions for the Premium Expense Charge and Monthly
Deductions since the Date of Change.
The Face Amount of insurance will be the same as that on the prior Insureds. The
monthly deduction of any for cost insurance and other benefits provided by rider
will be based on the Issue Ages, sexes, and Premium Classes of the New Insured
and the Remaining Insured. The Issue Age of the New Insured is his or her age as
of the Policy Date of this Policy. There is no adjustment to the Policy Account
Value on the Date of Change.
Any policy loans or assignment will remain in effect after the change. The
Policy Account Value and the Net Cash Surrender Value on the Date of Change are
not changed except for the change in the monthly deductions noted above,
Signed for the Company at Philadelphia, Pennsylvania on the Rider Issue Date.
/s/ Robert W. Koss
-----------------------------
President and Chief Operating Officer
<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
ADAM SCARAMELLA
COUNSEL
April 30, 1998
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. 8 to the Registration
Statement on Form S-6 (File No. 33-55470) 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/ ADAM SCARAMELLA
-------------------------------
Adam Scaramella
A HERITAGE OF STRENGTH FOR TOMORROW'S FINANCIAL NEEDS
<PAGE> 1
EXHIBIT 3(B)
[SUTHERLAND, ASBILL & BRENNAN, L.L.P. LETTERHEAD]
April 29, 1998
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. 33-55470)
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 8
to the Form S-6 registration statement (File No. 33-55470) 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) 407-1016, FAX (610) 407-1379
April 30, 1998
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. 8 to the Registration
Statement on Form S-6 (File No. 33-55470) 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 C. CARNEY
--------------------------
Scott C. 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.
8 to the Registration Statement under the Securities Act of 1933, as amended,
filed on Form S-6 (File No. 33-55470) 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 20, 1998 on our audits of the financial
statements of Provident Mutual Life Insurance Company and
Subsidiaries as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997.
2. Our report dated March 4, 1998 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, 1997 and for each
of the three years in the period ended December 31, 1997.
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 30, 1998
