<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
REGISTRATION FILE NOS. 33-42133/811-4460
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-6
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 11
---------------------
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 Variable Life Insurance Policies
================================================================================
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2
ITEM CAPTION IN PROSPECTUS
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<S> <C>
1 Cover Page
2 Cover Page
3 Not Applicable
4 Distribution of Policies
5 The Separate Accounts
6(a) The Separate Accounts
6(b) Not Applicable
9 Legal Proceedings
10(a) and (b) Not Applicable
10(c) and (d) Death Benefit; Transfer; Loan Privileges; Surrender; Partial
Withdrawal of Net Cash Surrender Value; Free-Look
Privileges; Special Transfer and Conversion Rights;
Accelerated Death Benefit
10(e) Payment and Allocation of Premiums; Accelerated Death
Benefit
10(f), (g), and (h) Voting Rights, Changes in Applicable Law, Funding and
Otherwise
10(i) Other Policy Provisions
11 Provident Mutual Life Insurance Company; The Separate
Accounts; The Funds; The Stripped ("Zero") U.S. Treasury
Securities Fund, Provident Mutual Series A
12 The Separate Accounts; The Funds; The Stripped ("Zero") U.S.
Treasury Securities Fund, Provident Mutual Series A;
Distribution of Policies
13(a), (b), and (c) Payment and Allocation of Premiums; Charges and Deductions;
Accelerated Death Benefit
13(d), (e), (f) and Not Applicable
(g)
13(h) Charges Against the Separate Accounts
14 Payment and Allocation of Premiums; Distribution of
Policies; Accelerated Death Benefit
15 Payment and Allocation of Premiums
16 The Separate Accounts; 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; Accelerated Death Benefit
21(c) 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>
<CAPTION>
N-8B-2
ITEM CAPTION IN PROSPECTUS
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<S> <C>
28 Officers and Directors of PMLIC
29 Provident Mutual Life Insurance Company
30 Not Applicable
31 Not Applicable
32 Not Applicable
33(a) Not Applicable
33(b) Distribution of Policies
34 Not Applicable
35 Provident Mutual Life Insurance Company; State Regulation;
Accelerated Death Benefit
36 Not Applicable
37 Not Applicable
38 Distribution of Policies
39 Distribution of Policies
40(a) Distribution of Policies
40(b) The Funds; Distribution of Policies; July Supplement
41 Distribution of Policies
42 Not Applicable
43 Not Applicable
44(a) Death Benefit; Policy Account Value; Accelerated Death Benefit
44(b) and (c) Not Applicable
45 Not Applicable
46(a) Death Benefit; Policy Account Value; Accelerated Death Benefit
46(b) Not Applicable
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 The Separate Accounts; July Supplement
51 Not Applicable
52(a), (b), and(c) Voting Rights, Changes in Applicable Law, Funding and Otherwise
52(d) Not Applicable
53(a) Federal Income Tax Considerations
53(b) Not Applicable
54 Not Applicable
55 Not Applicable
</TABLE>
<PAGE> 4
(ART)
PROSPECTUS
FOR
FLEXIBLE PREMIUM
ADJUSTABLE VARIABLE
LIFE INSURANCE
ISSUED BY
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
OPTIONSPLUS
FORM 15939 5.98
<PAGE> 5
[PROVIDENT MUTUAL LOGO]
PROSPECTUS
- --------------------------------------------------------------------------------
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
1050 WESTLAKES DRIVE, BERWYN, PENNSYLVANIA 19312
TELEPHONE: (610) 407-1717
- --------------------------------------------------------------------------------
This Prospectus describes a flexible premium adjustable variable life
insurance policy (the "Policy") offered by Provident Mutual Life Insurance
Company ("PMLIC"). The Policy has an insurance component and an investment
component. The primary intended purpose of the Policy is to provide insurance
coverage until the Insured's Attained Age 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 ("Owner") the
right to vary the frequency and amount of premium payments (after the initial
premium), to allocate Net Premiums among investment alternatives with different
investment objectives and to increase or decrease the Death Benefit payable
under the Policy.
After certain deductions are made, Net Premiums are allocated to one or more
of the Separate Accounts, or the Guaranteed Account (which is part of PMLIC's
General Account and pays interest at declared rates guaranteed to equal or
exceed 4%) or both. The eight Separate Accounts presently available are: the
Provident Mutual Variable Growth Separate Account, the Provident Mutual Variable
Money Market Separate Account; the Provident Mutual Variable Bond Separate
Account, the Provident Mutual Variable Managed Separate Account; the Provident
Mutual Variable Zero Coupon Bond Separate Account, the Provident Mutual Variable
Aggressive Growth Separate Account, the Provident Mutual Variable International
Separate Account and the Provident Mutual Variable Separate Account
(collectively, "Separate Accounts"). The Growth, Money Market, Bond, Managed,
Aggressive Growth and International Separate Accounts invest in shares of a
designated corresponding mutual fund portfolio. Each portfolio is a part of The
Market Street Fund, Inc. ("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; American Century Variable Portfolios, Inc.; Variable Insurance
Products Fund; Variable Insurance Products Fund II; Van Eck Worldwide Insurance
Trust and the MS Fund (the "Funds").
The portion of the Policy Account Value in the Separate Accounts will vary
with the investment experience of the corresponding portfolios or series of the
Trust. The Owner bears the entire investment risk for all amounts allocated to
the Separate Accounts; there is no guaranteed minimum account value for the
Separate Accounts.
The accompanying Prospectuses for the Funds and for the Zero Coupon Trust
describe the investment objectives and the attendant risks of the Portfolios and
of the Trust.
The Policy Account Value will reflect the Monthly Deductions and certain
other fees and charges such as the Mortality and Expense Risk Charge and, for
the Zero Coupon Bond Separate Account, the transaction charge. Also, a surrender
charge may be imposed if, during the first 10 Policy Years or within 10 years
after a Face Amount increase, the Policy lapses or if the Owner effects a
decrease in Face Amount. Generally, 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 or as a means to obtain additional protection if the
purchaser already owns an adjustable variable life insurance policy.
------------------------
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES FOR THE
FUNDS LISTED ABOVE.
------------------------
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Prospectus dated May 1, 1998
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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PAGE
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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 and Additional Surrender
Charge............................................ 7
Face Amount Increase Charge....................... 8
Transfer Charge................................... 8
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......................................... 11
Partial Withdrawal of Net Cash Surrender Value......... 11
Surrender of the Policy................................ 11
Accelerated Death Benefit.............................. 11
Tax Treatment.......................................... 11
Unisex Policies........................................ 12
Illustrations of Death Benefits, Policy Account Value
and Net Cash Surrender Value.......................... 12
Provident Mutual Life Insurance Company, The Separate
Accounts, The Funds and The Stripped
("Zero") U.S. Treasury Securities Fund, Provident Mutual
Series A.................................................. 12
Provident Mutual Life Insurance Company................ 12
The Separate Accounts.................................. 13
The Market Street Fund, Inc............................ 13
The Stripped ("Zero") U.S. Treasury Securities Fund,
Provident Mutual Series A............................. 16
The Alger American Fund................................ 17
Variable Insurance Products Fund and Variable Insurance
Products Fund II...................................... 17
VIP Fund.......................................... 18
VIP Fund II....................................... 18
Neuberger & Berman Advisers Management Trust........... 20
Van Eck Worldwide Insurance Trust...................... 21
Termination of Participation Agreements................ 22
Resolving Material Conflicts........................... 23
The Guaranteed Account................................. 23
Detailed Description of Policy Provisions................... 23
Death Benefit.......................................... 23
General........................................... 23
Death Benefit Options............................. 24
Option A..................................... 24
Option B..................................... 24
Which Death Benefit Option to Choose.............. 25
Change in Death Benefit Option.................... 25
How the Death Benefit May Vary.................... 25
Ability to Adjust Face Amount.......................... 26
Increase.......................................... 26
Decrease.......................................... 26
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Changes Affecting the Death Benefit.................... 27
How the Duration of the Policy May Vary................ 27
Policy Account Value................................... 27
Calculation of Policy Account Value............... 28
Determination of Number of Units for the Separate
Accounts.......................................... 28
Determination of Unit Value....................... 28
Net Investment Factor............................. 28
Payment and Allocation of Premiums..................... 28
Issuance of a Policy.............................. 28
Amount and Timing of Premiums..................... 29
Premium Limitations............................... 29
Allocation of Net Premiums........................ 30
Transfers......................................... 30
Policy Lapse...................................... 30
Reinstatement..................................... 31
Charges and Deductions...................................... 31
Premium Expense Charge................................. 31
Premium Tax Charge................................ 31
Percent of Premium Sales Charge................... 31
Surrender Charges...................................... 31
Deferred Administrative Charge.................... 32
Deferred Sales Charge............................. 32
Additional Surrender Charge....................... 32
Surrender Charge Upon Decrease in Face Amount..... 33
Allocation of Surrender Charges................... 33
Monthly Deductions..................................... 33
Cost of Insurance................................. 33
Cost of Insurance Rate....................... 33
Premium Class................................ 34
Administrative Charges............................ 34
Initial Administrative Charge................ 34
Monthly Administrative Charge................ 34
Additional Benefit Charges........................ 34
Face Amount Increase Charge............................ 34
Partial Withdrawal Charge.............................. 34
Transfer Charge........................................ 35
Charges Against the Separate Accounts.................. 35
Mortality and Expense Risk Charge................. 35
Asset Charge Against Zero Coupon Bond Separate
Account........................................... 35
Other Charges.......................................... 35
Contract Rights............................................. 35
Loan Privileges........................................ 35
General........................................... 35
Interest Rate Charged............................. 36
Allocation of Loans and Collateral................ 36
Interest Credited to Loan Account................. 36
Effect of Policy Loan............................. 36
Loan Repayments................................... 36
Lapse With Loans Outstanding...................... 36
Tax Considerations................................ 36
Surrender Privilege.................................... 37
Partial Withdrawal of Net Cash Surrender Value......... 37
Accelerated Death Benefit.............................. 38
Tax Consequences of the ADBR...................... 39
Amount of the Accelerated Death Benefit........... 39
Conditions for Receipt of the Accelerated Death
Benefit........................................... 39
</TABLE>
ii
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Operation of the ADBR............................. 39
Effect on Existing Policy......................... 40
Free-Look Privileges................................... 40
Free-Look for Policy.............................. 40
Free-Look for Increase in Face Amount............. 40
Special Transfer and Conversion Rights................. 40
Transfer Right for Policy......................... 40
Conversion Privilege for Increase in Face
Amount............................................ 40
Transfer Right for Change in Investment Policy of
Separate Account or Subaccount.................... 41
Telephone Transfers............................... 41
Automatic Asset Rebalancing....................... 41
The Guaranteed Account...................................... 41
Minimum Guaranteed and Current Interest Rates.......... 41
Calculation of Guaranteed Account Value........... 42
Transfers from Guaranteed Account...................... 42
Other Policy Provisions..................................... 42
Amount Payable on Final Policy Date.................... 42
Payment of Policy Benefits............................. 42
The Contract........................................... 43
Ownership.............................................. 43
Beneficiary............................................ 43
Change of Owner and Beneficiary........................ 43
Split Dollar Arrangements.............................. 43
Assignments............................................ 44
Misstatement of Age and Sex............................ 44
Suicide................................................ 44
Incontestability....................................... 44
Dividends.............................................. 44
Settlement Options..................................... 44
Supplementary Benefits...................................... 45
Disability Waiver Benefit......................... 45
Disability Waiver of Premium Benefit.............. 45
Change of Insured................................. 45
Children's Term Rider............................. 45
Convertible Term Life Insurance................... 45
Final Policy Date Extension....................... 46
Dollar Cost Averaging............................. 46
Federal Income Tax Considerations........................... 47
Introduction........................................... 47
Tax Status of the Policy............................... 47
Tax Treatment of Policy Benefits....................... 48
In General........................................ 48
Modified Endowment Contracts...................... 48
Distributions from Policies Classified as Modified
Endowment Contracts............................... 48
Distributions from Policies Not Classified as
Modified Endowment Contracts...................... 49
Policy Loan Interest.............................. 49
Investment in the Policy.......................... 49
Multiple Policies................................. 50
Other Tax Consequences............................ 50
Special Rules for Pension and Profit-Sharing Plans..... 50
Possible Charge for PMLIC's Taxes...................... 50
Policies Issued in Conjunction with Employee Benefit
Plans..................................................... 51
Legal Developments Regarding Unisex Actuarial Tables........ 51
Voting Rights............................................... 51
Changes in Applicable Law, Funding and Otherwise............ 52
Officers and Directors of PMLIC............................. 53
</TABLE>
iii
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Distribution of Policies.................................... 54
Policy Reports.............................................. 55
Preparing for Year 2000..................................... 55
State Regulation............................................ 56
Legal Proceedings...........................................
Experts..................................................... 56
Legal Matters............................................... 56
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
ADDITIONAL SURRENDER
CHARGE..................... The separately determined deferred sales charge
deducted from the Policy Account Value upon
surrender or lapse of the Policy within 10 years
of the effective date of an increase in Face
Amount. A pro-rata Additional Surrender Charge
will be deducted for a reduction in Face Amount
within 10 years of the effective date of a Face
Amount increase. The Maximum Additional Surrender
Charge will be shown in the Policy Schedule Pages
reflecting the Face Amount increase.
ATTAINED AGE............... The Issue Age of the Insured plus the number of
full Policy Years since the Policy Date.
BENEFICIARY................ The person(s) or entity(ies) designated to receive
all or some of the Insurance Proceeds when the
Insured dies. The Beneficiary is
designated in the application or if subsequently
changed, as shown in the latest change filed with
PMLIC. If no Beneficiary survives and unless
otherwise provided, the Insured's estate will be
the Beneficiary.
CASH SURRENDER VALUE....... The Policy Account Value minus any applicable
Surrender Charge or Additional Surrender Charge.
DEATH BENEFIT.............. Under Option A, the greater of the Face Amount or
a percentage of the Policy Account Value on the
date of death; under Option B, the greater of the
Face Amount plus the Policy Account Value on the
date of death, or a percentage of the Policy
Account Value on the date of death. The Death
Benefit Option is selected at time of application
but may be later changed.
DURATION................... The number of full years the insurance has been in
force -- for the Initial Face Amount, measured
from the Policy Date; for any increase in Face
Amount, measured from the effective date of such
increase.
FACE AMOUNT................ The Initial Face Amount plus any increases in Face
Amount and minus any decreases in Face Amount.
FINAL POLICY DATE.......... The Policy Anniversary nearest Insured's Attained
Age 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 the Insured
is living. The Policy will end on the Final Policy
Date.
GRACE PERIOD............... The 61-day period allowed for payment of a premium
following the date PMLIC mails notice of the
amount required to keep the Policy in force.
HOME OFFICE................ PMLIC's Home Office at 1050 Westlakes Drive,
Berwyn, PA 19312.
INITIAL FACE AMOUNT........ The Face Amount of the Policy on the Issue Date.
The Face Amount may be increased or decreased
after issue.
INSURANCE PROCEEDS......... The net amount to be paid to the Beneficiary when
the Insured dies.
INSURED.................... The person upon whose life the Policy is issued.
ISSUE AGE.................. The age of the Insured at his or her birthday
nearest the Policy Date. The Issue Age is stated
in the Policy.
LOAN ACCOUNT............... The account to which the collateral for the amount
of any Policy loan is transferred from the
Separate Accounts and/or the Guaranteed Account.
1
<PAGE> 11
MINIMUM ANNUAL PREMIUM..... The annual amount which is used to determine the
Minimum Guarantee Premium. This amount is stated
in each Policy.
MINIMUM FACE AMOUNT........ The Minimum Face Amount under current rules is
$100,000. The Minimum Face Amount is $50,000 for
certain list bill cases.
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
mode at issue: annual -- 1.0; semi-annual -- 0.5;
quarterly -- 0.25; and 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 Insured.
POLICY ISSUE DATE.......... The date on which the Policy is issued. It is used
to measure suicide and contestable periods.
POLICY PROCESSING DAY...... The day in each calendar month which is the same
day of the month as the Policy Date. The first
Policy Processing Day is the Policy Date.
POLICY YEAR................ A year that starts on the Policy Date or on a
Policy Anniversary.
PREMIUM CLASS.............. The classification of the Insured for cost of
insurance purposes. The classes are: standard;
nonsmoker; with extra rating; and nonsmoker with
extra rating.
2
<PAGE> 12
PREMIUM EXPENSE CHARGE..... The amount deducted from a premium payment which
consists of the Premium Tax Charge and a Percent
of Premium Sales Charge.
SURRENDER CHARGE........... The amount deducted from the Policy Account Value
upon lapse or surrender of the Policy during the
first 10 Policy Years. A pro-rata Surrender Charge
will be deducted upon a decrease in the Initial
Face Amount during the first 10 Policy Years. The
Maximum Surrender Charge is shown in the Policy.
The Surrender Charge is determined separately from
the Additional Surrender Charge.
VALUATION DAY.............. Each day that the New York Stock Exchange is open
for business and any other day on which there is a
sufficient degree of trading with respect to a
Separate Account's portfolio of securities to
materially affect the value of that Separate
Account.
VALUATION PERIOD........... The time between two successive Valuation Days.
Each Valuation Period includes a Valuation Day and
any non-Valuation Day or consecutive non-Valuation
Days immediately preceding it.
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 Adjustable Variable Life Insurance Policy (the
"Policy") offered by this Prospectus is issued by Provident Mutual Life
Insurance Company ("PMLIC"). The Policy allows the Owner, subject to certain
limitations, to make premium payments in any amount and at any frequency. As
long as the Policy remains in force, it will provide for:
(1) Life insurance coverage on the named Insured up to the Insured's
Attained Age 100;
(2) A Cash Surrender Value;
(3) Surrender and withdrawal rights and Policy loan privileges; and
(4) A variety of additional insurance benefits.
The Policy described in this Prospectus is designed to provide insurance
coverage to help lessen the economic loss resulting from the death of the
Insured. It is not primarily offered as an investment. Life insurance is not a
short-term investment. Prospective Owners should consider their need for
insurance coverage and the Policy's long-term investment potential.
The Policy is called "flexible premium" because there is no fixed schedule
for premium payments, even though the Owner may establish a schedule of Planned
Periodic Premiums. The Policy is described as "adjustable" because the Owner
may, within limits, increase or decrease the Face Amount and may change the
Death Benefit Option. The Policy is called "variable" because, unlike a fixed
benefit whole life insurance policy, the Death Benefit under the Policy may, and
its Account Value will, vary to reflect the investment performance of the chosen
Separate Accounts, and the crediting of interest to the Guaranteed Account, as
well as other factors.
The failure to pay Planned Periodic Premiums will not itself cause the
Policy to lapse. Conversely, the payment of premiums in any amount or frequency
will not necessarily guarantee that the Policy will remain in force. In general,
the Policy will lapse if the Net Cash Surrender Value is insufficient to pay the
Monthly Deduction for cost of insurance and administrative charges. 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; Variable Insurance
Products Funds; Variable Insurance Products Fund II; Van Eck Worldwide Insurance
Trust; and the MS Fund (together, the "Funds", each, a "Fund"). The Sub-Accounts
of the Zero Coupon Bond Separate Account invest in units of a corresponding
series of The Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual
Series A (Zero Coupon Trust or Trust). There is no assurance that the investment
objectives of a particular Portfolio or series of the Trust will be met. The
Owner bears the entire investment risk of amounts allocated to the Separate
Accounts.
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 Insureds from Issue Ages 1 to 80. The Minimum
Face Amount is $100,000. The Minimum Face Amount is $50,000 for certain
"list-bill" cases. (For a Policy issued in New York State the maximum Face
Amount at issue is $2,500,000.) Before issuing a Policy, PMLIC will require that
the proposed Insured meet certain underwriting standards satisfactory to PMLIC.
The premium classes available are Standard, Nonsmoker, Preferred, with Extra
Rating and Nonsmoker with Extra Rating. (See "Issuance of a Policy," Page 28.)
THE DEATH BENEFIT
As long as the Policy remains in force, PMLIC will pay the Insurance
Proceeds to the Beneficiary upon receipt of due proof of the death of the
Insured. The Insurance Proceeds will consist of the Policy's Death Benefit, plus
any dividends payable, plus any relevant additional benefits provided by a
supplementary benefit rider, less any outstanding Policy loan and accrued
interest, less any unpaid Monthly Deductions.
There are two Death Benefit Options available. Death Benefit Option A
provides for the greater of (a) the Face Amount and (b) the applicable
percentage of the Policy Account Value. Death Benefit Option B provides for the
greater of (a) the Face Amount plus the Policy Account Value and (b) the
applicable percentage of the Policy Account Value. (See "Death Benefit Options,"
Page 24.)
FLEXIBILITY TO ADJUST AMOUNT OF DEATH BENEFIT
After the second Policy Year, the Owner has significant flexibility to
adjust the Death Benefit by changing the Death Benefit Option or by increasing
or decreasing the Face Amount of the Policy. (See "Change in Death Benefit
Option," Page 25, and "Ability to Adjust Face Amount," Page 26.) The minimum
amount of a requested increase in Face Amount is $25,000 (or such lesser amount
required in a particular state) and any requested increase may require evidence
of insurability. Any decrease in Face Amount must be for at least $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. PMLIC reserves the right to
establish different Minimum Face Amounts for Policies issued in the future.
Any change in Death Benefit Options or in the Face Amount may affect the
charges under the Policy. Any increase in the Face Amount will result in an
increase in the Monthly Deductions and any increase in Face Amount will also
increase the surrender charges which are imposed upon lapse or surrender of the
Policy or the pro-rata surrender charges imposed upon a decrease in Face Amount
within the relevant ten-year period. For any decrease in Face Amount, that part
of the surrender charges attributable to the decrease will reduce the Policy
Account Value, and the surrender charges will be reduced by this amount. A
decrease in Face Amount may also affect cost of insurance charges. (See "Cost of
Insurance," Page 33.)
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 28.)
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
5
<PAGE> 15
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.
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 41.)
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 35.)
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 40) 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 30.)
TRANSFERS
The Owner may make transfers of the amounts in the Separate Accounts and
Guaranteed Account between and among such accounts and between and among
Subaccounts of a Separate Account. Transfers between and among the Separate
Accounts (and/or Subaccounts) or into the Guaranteed Account will be made on the
date we receive the request. PMLIC requires a minimum amount for each such
transfer, usually $1,000. Transfers out of the Guaranteed Account may only be
made within 30 days of a Policy Anniversary and are limited in amount. If the
Owner makes more than four transfers in a Policy Year, a Transfer Charge of $25
will be deducted from the amount being transferred. (See "Transfers," Page 30.)
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 premiums paid on the Policy and will not reflect the investment
experience of the Separate Accounts. (See "Free-Look Privileges," Page 40.)
6
<PAGE> 16
A Free-Look privilege also applies after a requested increase in Face
Amount. (See "Free-Look For Increase in Face Amount," Page 40.)
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 Insured's residence at the time the premium is paid. PMLIC reserves the
right to change the amount of the charge deducted from future premiums if the
Insured's residence changes or the applicable law is changed;
(ii) Percent of Premium Sales Charge which is currently equal to 1.5% of
the amount of the premium payment; the maximum charge is 3.0% of the premium
payment amount. (See "Premium Expense Charge," Page 31.)
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 Attained Age, Sex, Premium Class
of the 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 Insured's Attained Age,
Sex, Premium Class, and the "1980 Commissioners Standard Ordinary Smoker and
Nonsmoker Mortality Table." (See "Cost of Insurance," Page 33.) The Monthly
Administrative Charge is currently $7.50; the maximum permissible Monthly
Administrative Charge is $12. (See "Monthly Administrative Charge," Page 34.)
The Initial Administrative Charge is $17.50, payable on the first 12 Policy
Processing Days. (See "Initial Administrative Charge," Page 34.)
Surrender Charge and Additional Surrender Charge. A Surrender Charge is
imposed if the Policy is surrendered or lapses at any time before the tenth
Policy Year. 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 Initial Face Amount before the end of the tenth
Policy Year. (See "Surrender Charges," Page 32.) An Additional Surrender Charge
which is a Deferred Sales Charge, will be imposed if the Policy is surrendered
or lapses at any time within ten years after the effective date of an increase
in Face Amount. (See "Additional Surrender Charge," Page 32.) A portion of an
Additional Surrender Charge will be deducted if the related increment of Face
Amount is decreased within ten years after such increase took effect. (See
"Surrender Charge Upon Decrease in Face Amount," Page 33.)
The Deferred Administrative Charge is equal to an amount per $1,000 of Face
Amount (shown below) in Policy Years 1 to 6 declining by 20% each year in Policy
Years 7 to 10 until it is zero in Policy Year 11.
<TABLE>
<CAPTION>
CHARGE PER $1,000
ISSUE AGE OF FACE AMOUNT
- ---------- -----------------
<S> <C>
1-5 0
15 $ 1
25 2
35-80 3
</TABLE>
For Issue Ages not shown the charge will increase by a ratable portion for
each full year.
The Deferred Sales Charge is equal to 27% of the premiums received during
the first Policy Year (or, for the Additional Surrender Charge, the first twelve
policy months after an increase) up to one target premium (which is an amount,
based on the age, Sex and Premium Class of the Insured, used solely for the
purpose of calculating the Surrender Charge) plus 6% of all other premiums
received to the date of surrender, lapse or decrease. The Deferred Sales Charge
and any Deferred Additional Sales Charges, however, will not exceed
7
<PAGE> 17
the Maximum Deferred Sales Charge and Maximum Deferred Additional Sales Charges,
respectively. During Policy Years one through six (or for six years following
the effective date of an increase in Face Amount), this maximum equals 50% of
the target premium for the Initial Face Amount (or 50% of the target premium for
the increase, as the case may be). The maximum declines to 40% of the relevant
target premiums during the seventh year, 30% during the eighth year, 20% during
the ninth year and 10% during the tenth year.
Face Amount Increase Charge. A charge, currently $50 plus $1.00 per $1,000
Face Amount increase, will be deducted from the Policy Account Value on the
effective date of an increase in Face Amount to compensate PMLIC for
administrative expenses in connection with the increase. This charge may be
increased in the future but in no event will it exceed $50 plus $3.00 per $1,000
Face Amount increase. (See "Face Amount Increase Charge," Page 34.)
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 35.)
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 34.)
Daily Charges Against the Separate Accounts. A daily charge for PMLIC's
assumption of certain mortality and expense risks incurred in connection with
the Policy will be imposed at an annual rate which is currently 0.75% 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 35.)
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 35.)
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>
8
<PAGE> 18
<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>
<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 II 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>
9
<PAGE> 19
<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 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 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 30.)
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
10
<PAGE> 20
may be required in a particular state) after the expiration of the Grace Period
and before the Final Policy Date. (See "Reinstatement," Page 31.)
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 35.)
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 48.)
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 37.)
SURRENDER OF THE POLICY
The Owner may at any time fully surrender the Policy and receive the Net
Cash Surrender Value, if any. The Net Cash Surrender Value will equal the Policy
Account Value less any Policy loan and any applicable surrender charges. (See
"Surrender Privilege," Page 37.)
ACCELERATED DEATH BENEFIT
Under the Accelerated Death Benefit Rider, an Owner may receive, at his or
her request and upon approval by PMLIC, accelerated payment of part of the
Policy's Death Benefit if the Insured develops a Terminal Illness or is
permanently confined to a Nursing Care Facility (see "Accelerated Death
Benefit," Page 38.)
TAX TREATMENT
PMLIC believes (based upon Notice 88-128 and the proposed Regulations under
Section 7702, issued on July 5, 1991) that a Policy issued on a Standard rate
class basis generally should meet the Section 7702 definition of a life
insurance contract. With respect to a Policy issued on a with Extra Rating or
Nonsmoker with Extra Rating (i.e., substandard) basis, there is insufficient
guidance to determine if such a Policy would satisfy the Section 7702 definition
of a life insurance contract, particularly if the Owner pays the full amount of
premiums permitted under such a Policy. An Owner of a Policy issued on a with
Extra Rating or Nonsmoker with Extra Rating basis may, however, adopt certain
self-imposed limitations on the amount of premiums paid for such a Policy which
should cause the Policy to meet the Section 7702 definition of a life
11
<PAGE> 21
insurance contract. Any Owner contemplating the adoption of such limitations
should do so only after consulting a tax adviser.
Assuming that a Policy qualifies as a life insurance contract for Federal
income tax purposes, a Policyowner should not be deemed to be in constructive
receipt of Policy Account Value under a Policy until there is a distribution
from the Policy. Moreover, death benefits payable under a Policy should be
completely excludable from the gross income of the Beneficiary. As a result, the
Beneficiary generally should not be taxed on these proceeds. (See "Tax Status of
the Policy," Page 47.)
Under certain circumstances, a Policy may be treated as a "Modified
Endowment Contract." If the Policy is a Modified Endowment Contract, then all
pre-death distributions, including Policy loans, will be treated first as a
distribution of taxable income and then as a return of basis or investment in
the contract. In addition, prior to age 59 1/2 any such distributions generally
will be subject to a 10% penalty tax. (For further discussion on the
circumstances under which a Policy will be treated as a Modified Endowment
Contract, See "Tax Treatment of Policy Benefits," Page 48.)
If the Policy is not a Modified Endowment Contract, distributions generally
will be treated first as a return of basis or investment in the contract and
then as disbursing taxable income. Moreover, loans will not be treated as
distributions. Finally, neither distributions nor loans from a Policy that is
not a Modified Endowment Contract are subject to the 10% penalty tax. (See
"Distributions from Policies Not Classified as Modified Endowment Contracts,"
Page 49.)
UNISEX POLICIES
Policies issued in states which require "unisex" policies (currently
Montana) provide for policy values which do not vary by the sex of the Insured.
(See "Cost of Insurance," Page 33.) In addition, Policies issued in conjunction
with employee benefit plans provide for policy values which do not vary by the
sex of the Insured. (See "Policies Issued in Conjunction with Employee Benefit
Plans," Page 51.) Thus, references in this Prospectus to sex-distinct and any
values that vary by the sex of the Insured are not applicable to Policies issued
in states which require "unisex" policies or to Policies issued in conjunction
with employee benefit plans. Illustrations of the effect of these unisex rates
on premiums, cash surrender values, and Death Benefits are available from PMLIC
on request.
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
12
<PAGE> 22
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-28.)
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.
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 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 intends to 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.
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The investment objectives of the MS Fund's portfolios are set forth below.
The investment experience of each of the Separate Accounts depends on the
investment performance of the corresponding portfolio. There is no assurance
that any portfolio will achieve its stated objective.
The Growth Portfolio. This portfolio seeks intermediate and long-term
growth of capital by investing in common stocks of companies believed to offer
above-average growth potential over both the intermediate and the long-term.
Current income is a secondary consideration.
The Money Market Portfolio. The Money Market Portfolio seeks to provide
maximum current income consistent with capital preservation and liquidity by
investing in high-quality money market instruments.
The Bond Portfolio. The Bond Portfolio seeks to generate a high level of
current income consistent with prudent investment risk by investing in a
diversified portfolio of marketable debt securities.
The Managed Portfolio. The Managed Portfolio seeks to realize as high a
level of long-term total rate of return as is consistent with prudent investment
risk by investing in stocks, bonds, money market instruments or a combination
thereof.
The Aggressive Growth Portfolio. The Aggressive Growth Portfolio seeks to
achieve a high level of long-term capital appreciation by investing in
securities of a diverse group of smaller emerging companies.
The International Portfolio. The International Portfolio seeks long-term
growth of capital principally through investments in a diversified portfolio of
marketable equity securities of established non-United States companies.
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.
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<PAGE> 24
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 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 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
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<PAGE> 25
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.
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 33, 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 33) or the Premium Tax Charge (see "Premium Tax
Charge," Page 31) or any Surrender Charges (see "Surrender Charges," Page 32),
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 35.)
Units of the Zero Coupon Trust are disposed of to the extent necessary for
PMLIC to provide benefits and make reallocations under the Policies. MLPFS
intends, but is not contractually obligated, to maintain a secondary market in
Trust units. As long as a secondary market exists, PMLIC will sell such units to
MLPFS at the Sponsor's repurchase price. Otherwise, units will be redeemed at
the Trust's redemption price, which is typically a lower amount.
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<PAGE> 26
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
The 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.
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 Portfolio, VIP II Index 500 Portfolio and 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.
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<PAGE> 27
The investment objectives of the Portfolios of the VIP Fund and the VIP II
Fund 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.
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 recognized 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 VIP II 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, VIP II 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.
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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.
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.
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<PAGE> 29
- FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection
with providing investment management.
Each Portfolio utilizes Fidelity Investments Institutional Operations
Company ("FIIOC"), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each Portfolio pays fees based on the type, size, and number of accounts
in each Portfolio and the number of transactions made by shareholders of each
Portfolio.
Each Portfolio also has an agreement with Fidelity Service Co. ("Service"),
an affiliate of FMR under which each Portfolio pays Service to calculate its
daily share prices and to maintain the portfolio and general accounting records
of each Portfolio and to administer each Portfolio's securities lending program.
The fees for pricing and bookkeeping services are based on each Portfolio's
average net assets but must fall within a range of $45,000 to $750,000. The fees
for securities lending services are based on the number and duration of
individual securities loans.
FMR may, from time to time, agree to reimburse a Portfolio for management
fees and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without notice,
will increase a Portfolio's yield. If FMR discontinues a reimbursement
arrangement, each Portfolio's expenses will go up and its yield will be reduced.
FMR retains the right to be repaid by a Portfolio for expense reimbursements if
expenses fall below the limit prior to the end of a fiscal year. Repayment by a
Portfolio will lower its yield. FMR has voluntarily agreed to reimburse the
management fees and all other expenses (excluding taxes, interest and
extraordinary expenses) in excess of 1.50% of the average net assets of the 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 and VIP II Funds 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 experience of each Subaccount depends upon the investment performance
of its
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corresponding Portfolio. There is no assurance that any Portfolio (or the
corresponding Series) 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 Management"). 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.
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 attached 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 Bond, 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 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, petrochemicals or other hydrocarbons,
(iv) forest products, (v) real estate and (vi) other basic non-agricultural
commodities. Income is a secondary consideration.
Van Eck Worldwide Bond Portfolio seeks high total return through a flexible
policy of investing globally, primarily in debt securities.
Van Eck Worldwide Emerging Markets Portfolio seeks long-term capital
appreciation by investing primarily in equity securities in emerging markets
around the world.
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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 Portfolio and Van Eck Worldwide Real Estate Portfolio, Van Eck
Associates or its affiliate receives a monthly fee at an annual rate of 1.00% of
the Portfolios' 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 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 maybe
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,
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<PAGE> 32
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
that invest in that Fund will not be able to purchase additional shares of such
Fund. In that event, Owners will no longer be able to allocate cash values or
net premiums to Subaccounts investing in Portfolios of such Fund.
Additionally, in certain circumstances, it is possible that a Fund or a
portfolio of a Fund may refuse to sell its shares to a Subaccount despite the
fact that the participation agreement between the Fund and PMLIC has not been
terminated. Should a Fund or portfolio of such Fund decide not to sell its
shares to PMLIC, PMLIC may not be able to honor requests by Owners to allocate
cash values or net premiums to Subaccounts investing in shares of that Fund or
portfolio.
The Company has entered into agreements with the investment advisers of
several of the Funds pursuant to which each such investment adviser will pay the
Company a servicing fee based upon an annual percentage of the average aggregate
net assets invested by the Company on behalf of the Variable Account. These
agreements reflect administrative services provided to the Funds by the Company.
Payments of such amounts by an adviser will not increase the fees paid by the
Funds or their shareholders.
RESOLVING MATERIAL CONFLICTS
The 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 41.
DETAILED DESCRIPTION OF POLICY PROVISIONS
DEATH BENEFIT
General. As long as the Policy remains in force, the Insurance Proceeds of
the Policy will, upon due proof of the Insured's death (and fulfillment of
certain other requirements), be paid to the named Beneficiary
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<PAGE> 33
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 25.
Option A. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy and (b) the Policy Account Value on the Valuation Date on
or next following the Insured's date of death multiplied by the specified
percentage shown in the table below:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
- ------------ ---------- ------------ ----------
<S> <C> <C> <C>
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.
Illustration of Option A -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no Policy loan outstanding.
Under Option A, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000. The specified percentage for an Insured under
Attained Age 40 on the Policy Anniversary prior to the date of death is 250%.
Because the Death Benefit must be equal to or be greater than 2.50 times the
Policy Account Value, any time the Policy Account Value exceeds $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 35 year
old Insured with 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 Insured's date of death.)
Illustration of Option B -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no outstanding Policy loan.
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. An Insured 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
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<PAGE> 34
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 Insured's existing insurance coverage and
prefers to have premium payments and favorable investment performance reflected
to the maximum extent in the Policy Account Value, the Owner should choose
Option A.
Change in Death Benefit Option. After the 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 that date. However, this
change may not be made if it would reduce the Face Amount to less than the
Minimum Face Amount.
If the Death Benefit Option is changed from Option B to Option A, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be increased by the Policy Account Value on that date.
A change in the Death Benefit Option may affect the Net Amount at Risk over
time which, in turn, would affect the monthly Cost of Insurance Charge. Changing
from Option A to Option B will generally result in a Net Amount at Risk that
remains level. Such a change will result in a relative increase in the cost of
insurance charges over time because the Net Amount at Risk will, unless the
Death Benefit is based on the applicable percentage of Policy Account Value,
remain level rather than decreasing as the Policy Account Value increases.
Unless the Death Benefit is based on the applicable percentage of Policy Account
Value, changing from Option B to Option A will, if the Policy Account Value
increases, decrease the Net Amount at Risk over time, thereby reducing the cost
of insurance charge.
The effects of these Death Benefit Option changes on the Face Amount, Death
Benefit and Net Amount at Risk can be illustrated as follows. Assume that a
contract under Option A has a Face Amount of $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 48).
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
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<PAGE> 35
(a) the Face Amount plus the Policy Account Value and (b) the Policy Account
Value multiplied by the specified percentage.
ABILITY TO ADJUST FACE AMOUNT
Subject to certain limitations, an Owner may generally, at any time after
the second Policy Year, increase or decrease the Policy's Face Amount by
submitting a written application to PMLIC. The effective date of the increase or
decrease will be the Policy Processing Day on or next following PMLIC's approval
of the request. An increase or decrease in Face Amount may have tax
consequences. (See "Tax Treatment Of Policy Benefits," Page 48). The effect of
changes in Face Amount on Policy charges, as well as other considerations, are
described below. Increases and decreases in Face Amount may not be made within
12 months of a previous increase or decrease, as the case may be.
Increase. A request for an increase in Face Amount may not be for less
than $25,000 (or such lesser amount required in a particular state). The Owner
may not increase the Face Amount after the Insured's Attained Age 75. To obtain
the increase, the Owner must submit an application for the increase and provide
evidence satisfactory to PMLIC of the Insured's insurability.
On the effective date of an increase, and taking the increase into account,
the Net Cash Surrender Value must be equal to the Monthly Deductions then due
and the expense charge for the increase in Face Amount. If the Net Cash
Surrender Value is not sufficient, the increase will not take effect until the
Owner makes a sufficient additional premium payment to increase the Net Cash
Surrender Value.
An increase in the Face Amount will generally affect the total Net Amount
at Risk which will increase the monthly Cost of Insurance Charges. An increase
in Face Amount will increase the amount of any Additional Surrender Charge. A
Face Amount increase expense charge will also be deducted. (See "Face Amount
Increase Charge," Page 34). In addition, different cost of insurance rates may
apply to the increase in insurance coverage. (See "Cost of Insurance," Page 33).
After increasing the Face Amount, the Owner will have the right: (i) during
the Free-Look Period following the effective date of the increase, to have the
increase cancelled and receive a credit or refund; and (ii) during the first 24
months following the increase, to exchange the increase in Face Amount for a
fixed benefit permanent life insurance policy issued by PMLIC. (See "Conversion
Privilege for Increase in Face Amount," Page 40).
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 as determined by
your Issue Age. To the extent a decrease in the Face Amount could result in
cumulative premiums exceeding the maximum premium limitations applicable for
life insurance under the Internal Revenue Code, PMLIC will not effect the
decrease.
A decrease in the Face Amount generally will decrease the total Net Amount
at Risk which will decrease an Owner's monthly insurance charges. A decrease in
the Face Amount may result in the imposition of a surrender charge as of the
Policy Processing Day on which the decrease becomes effective. (See "Surrender
Charge Upon Decrease in Face Amount," Page 33).
Any surrender charge applicable to a decrease will be deducted from the
Policy Account Value and the remaining surrender charge will be reduced by the
amount deducted. The surrender charge will be deducted from the Separate
Accounts and the Guaranteed Account based on the proportion that the value in
such account bears to the total unloaned Policy Account Value.
For purposes of determining the cost of insurance charge and surrender
charges, any decrease in the Face Amount will reduce the Face Amount in the
following order: (a) the Face Amount provided by the most recent increase; (b)
the next most recent increases, successively; and (c) the Initial Face Amount.
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<PAGE> 36
CHANGES AFFECTING THE DEATH BENEFIT
The Owner may increase or decrease the Face Amount. In addition, changing
the level of premium payments, and, to a lesser extent, making a partial
withdrawal of Net Cash Surrender Value may have consequences for the Death
Benefit or charges associated therewith. The consequences of each are summarized
below.
A decrease in Face Amount will, subject to applicable percentage
limitations, decrease the insurance protection. It will not reduce the Policy
Account Value, except for the deduction of any surrender charge applicable to
the decrease. The Monthly Deductions will generally be correspondingly lower
following the decrease.
An increase in Face Amount will generally increase the amount of insurance
protection, depending on the Policy Account Value and applicable percentage. If
the insurance protection is increased, Monthly Deductions will increase as well.
Under Death Benefit Option A, until the applicable percentage of Policy
Account Value exceeds the Face Amount, then (i) if the Owner increases the
premium payments from the current level, the amount of insurance protection will
generally be reduced, and (ii) if the Owner reduces the premium payments from
the current level, the amount of insurance protection will generally be
increased.
Under Death Benefit Option B, until the applicable percentage of Policy
Account Value exceeds the Face Amount plus the Policy Account Value, the level
of premium payments will not affect the amount of insurance protection.
(However, both the Policy Account Value and Death Benefit will be increased if
premium payments are increased and reduced if premium payments are reduced.)
Under either Death Benefit Option, if the Death Benefit is the applicable
percentage of Policy Account Value, then (i) if the Owner increases premium
payments from the current level, the amount of insurance protection will
increase and (ii) if the Owner reduces the premium payments from the current
level, the amount of insurance protection will be lower.
A partial withdrawal of Net Cash Surrender Value will reduce the Death
Benefit. It will not reduce the amount of insurance protection unless the Death
Benefit is based on the applicable percentage of Policy Account Value. This is
because if the Death Benefit is based on the applicable percentage, the decrease
in the Death Benefit will be greater than the amount of a withdrawal. Since the
primary use of a partial withdrawal is to withdraw cash which reduces the Policy
Account Value, the Net Cash Surrender Value is reduced, thereby increasing the
likelihood that the Policy will lapse. (See "Policy Lapse," Page 30).
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 31).
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 or Additional Surrender Charge is equal to
the Cash Surrender Value. There is no guaranteed minimum for the portion of the
Policy Account Value in any of the Separate Accounts and, because the Policy
Account Value on any future date depends upon a number of variables, it cannot
be predetermined.
The Policy Account Value and Cash Surrender Value will reflect the
investment performance of the chosen Separate Accounts, the crediting of
interest in excess of 4% (the guaranteed minimum) for the
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<PAGE> 37
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 41); plus
(3) The value attributable to the Policy in the Loan Account. (See
"Loan Privileges," Page 36).
Determination of Number of Units for the Separate Accounts. Amounts
allocated, transferred or added to a Separate Account under a Policy are used to
purchase units of that Separate Account; units are redeemed when amounts are
deducted, transferred or withdrawn. The number of units a Policy has in a
Separate Account equals the number of units purchased minus the number of units
redeemed up to such time. For each Separate Account, the number of units
purchased or redeemed in connection with a particular transaction is determined
by dividing the dollar amount by the unit value.
Determination of Unit Value. The unit value of a Separate Account is equal
to the unit value on the immediately preceding Valuation Day multiplied by the
Net Investment Factor for that Separate Account on that Valuation Day.
Net Investment Factor. Each Separate Account or Sub-Account of a Separate
Account has its own Net Investment Factor. The Net Investment Factor measures
the daily investment performance of a Separate Account or Sub-Account. The
factor will increase to reflect investment income and capital gains, realized
and unrealized, for the securities of the underlying portfolio or series. The
factor will decrease to reflect any capital losses, realized or unrealized, for
the securities of the underlying portfolio or series.
The asset charge for mortality and expense risks and the transaction charge
for the Zero Coupon Bond Separate Account will be deducted in determining the
applicable Net Investment Factor.
PAYMENT AND ALLOCATION OF PREMIUMS
Issuance of a Policy. In order to purchase a Policy, an individual must
make application to PMLIC through a licensed PMLIC agent who is also a
registered representative of 1717 Capital Management Company ("1717") or a
broker/dealer having a Selling Agreement with 1717 or a broker/dealer having a
Selling Agreement with such a broker/dealer. The Minimum Face Amount of a Policy
is $100,000.
In order to purchase a policy with a Minimum Face Amount from $50,000, the
applicant must be associated with an entity for which Provident Mutual has
issued at least 10 policies which have a common billing address. No premiums
will be accepted in connection with an application until the tenth such policy
has been approved for issue. Prior to solicitation of any member of the group,
information regarding the name, address, size, type and purpose of the group,
the purpose of the insurance, the identity of the premium payor and a
description of the solicitation process must be submitted to and approved by
PMLIC. PMLIC will not issue any policies for less than the otherwise applicable
Minimum Face Amount until the tenth application has been approved. If PMLIC does
not issue ten policies for an approved group within 30 days of its approval of
solicitation of such group, any applications received from individuals
associated with such group will be returned.
PMLIC reserves the right to revise its rules from time to time to specify a
different Minimum Face Amount for subsequently issued policies. The maximum Face
Amount for a Policy issued in New York State is $2,500,000. A Policy will be
issued only to Insureds who have an Issue Age of 80 or less and who provide
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<PAGE> 38
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 54.)
At the time the application for a Policy is signed, an applicant can,
subject to PMLIC's underwriting rules, obtain temporary insurance protection,
pending issuance of the Policy, by answering "no" to the Health Questions of the
Temporary Agreement and submitting payment of the Minimum Initial Premium with
the Application. The Minimum Initial Premium will equal one sixth of the Minimum
Annual Premium. Where Minimum Initial Premium is not submitted with the
application, it must be submitted when the Policy is delivered.
The amount of coverage under the Temporary Agreement is the lesser of the
Face Amount applied for or $500,000. Coverage under the agreement will end on
the earliest of: (a) the 90th day from the date of the agreement; (b) the date
that insurance takes effect under the Policy; (c) the date a policy, other than
as applied for, is offered to the Applicant; or (d) five days from the date
PMLIC mails a notice of termination of coverage.
Amount and Timing of Premiums. Each premium payment must be for at least
$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, each Owner will select a Planned Periodic
Premium schedule, based on a periodic billing mode of annual, semi-annual, or
quarterly payment. The Owner is entitled to receive a premium reminder notice
from PMLIC at the specified interval. The Owner may change the Planned Periodic
Premium frequency and amount. Also, under the Automatic Payment Plan, the Owner
can select a monthly payment schedule pursuant to which premium payments will be
automatically deducted from a bank account or other source, rather than being
"billed".
Unless prohibited by a particular state (i.e., New York) any payments made
while there is an outstanding Policy loan will be applied as loan repayments,
unless PMLIC is notified in writing that the amount is to be applied as a
premium payment. (Payments made under New York Policies will be treated as
premium payments and will only be applied as loan repayments if the Owner
specifically requests). The Owner is not required to pay the Planned Periodic
Premiums in accordance with the specified schedule. The Owner has the
flexibility to alter the amount, frequency and time period over which premiums
are paid. Payment of the Planned Periodic Premiums will not, however, guarantee
that the Policy will remain in force. Instead, the duration of the Policy
depends upon the Policy's Net Cash Surrender Value. Thus, even if Planned
Periodic Premiums are paid, the Policy will lapse whenever the Net Cash
Surrender Value is insufficient to pay the Monthly Deductions and any other
charges under the Policy and if a Grace Period expires without an adequate
payment by the Owner.
Premium Limitations. With regard to a Policy's inside build-up, the
Internal Revenue Code of 1986 (the "Code") provides for exclusion of the Death
Benefit from gross income if total premium payments do not exceed certain stated
limits. In no event can the total of all premiums paid under a Policy exceed
such limits. If at any time a premium is paid which would result in total
premiums exceeding such limits, PMLIC will only accept that portion of the
premium which would make total premiums equal the maximum amount which may be
paid under the Policy. The excess will be refunded. Even if total premiums were
to exceed the maximum premium limitations established by the Code, the excess of
a Policy's Death Benefit over the Policy's Cash Surrender Value would still be
excludable from gross income under the Code.
The maximum premium limitations set forth in the Code depend in part upon
the amount of the Death Benefit at any time. As a result, any Policy changes
which affect the amount of the Death Benefit may affect whether cumulative
premiums paid under the Policy exceed the maximum premium limitations. To the
extent that any such change would result in cumulative premiums exceeding the
maximum premium limitations, PMLIC will not effect such change. (See "Federal
Income Tax Considerations," Page 47).
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Unless the Insured provides 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 40) any
portion of the Initial Premium and any subsequent premiums received by PMLIC
before the expiration of a 15-day period beginning on the later of the Policy
Issue Date or the date PMLIC receives the Minimum Initial Premium, which are to
be allocated to the Separate Accounts will be allocated to the Money Market
Separate Account. At the end of the 15-day period, PMLIC will allocate the
amount in the Money Market Separate Account to each of the chosen Separate
Accounts based on the proportion that the allocation percentage for such
Separate Account bears to the sum of the Separate Account premium allocation
percentages.
For example, assume a Policy was issued with Net Premiums allocated 25% to
the Growth Separate Account, 25% to the Bond Separate Account and 50% to the
Guaranteed Account. During the 15-day period stated above, 50% (25% + 25%) of
the premiums will be allocated to the Money Market Separate Account. At the end
of the 15-day period, 50% (25% / 50%) of the amount in the Money Market Separate
Account will be transferred to the Growth Separate Account and 50% to the Bond
Separate Account.
For premium payments received after the 15-day period, Net Premiums will be
allocated based on the allocation percentages then in effect. The allocation
schedules may be changed at any time by providing PMLIC with written notice.
The values of the Separate Accounts will vary with their investment
experience and the Owner bears the entire investment risk. Owners should
periodically review their allocation schedule in light of market conditions and
the Owner's overall financial objectives.
Transfers. The Owner may transfer the Policy Account Value between and
among the Separate Accounts, the Subaccounts of the Variable Account and the
Guaranteed Account by making a written transfer request to PMLIC. The amount
transferred each time must be at least $1,000, unless the total value in an
account is less than $1,000, in which case the entire amount will be
transferred. Transfers between and among the Separate Accounts (and/or
Subaccounts) are made as of the Valuation Day that the request for transfer is
received at the Home Office.
The Owner may, at any time, transfer all or part of the amount in one of
the Separate Accounts (or Subaccount) to another Separate Account (or
Subaccount) and/or to the Guaranteed Account. (For transfers from the Guaranteed
Account to the Separate Accounts, see "Transfers from Guaranteed Account," Page
42).
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> 40
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 the Insured's insurability satisfactory to PMLIC and
payment of an amount sufficient to keep the Policy in force for at least three
months following the effective date of reinstatement, which is the date the
reinstatement application is approved. Upon reinstatement, the Policy Account
Value will be based upon the premium paid to reinstate the Policy and the Policy
will be reinstated with the same Policy Date as it had prior to the lapse.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate PMLIC
for (a) providing the insurance benefits set forth in the Policy; (b)
administering the Policy; (c) assuming certain risks in connection with the
Policy; and (d) incurring expenses in distributing the Policy. 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 and a Percent of Premium
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 Insured's residence.
Percent of Premium Sales Charge. A percent of premium will be deducted
from each premium payment to partially compensate PMLIC for the cost of selling
the Policy. This charge is currently 1.5% but may be increased to an amount that
will not exceed 3.0%. Such an increase will only apply to Policies issued after
the date of such increase, unless regulatory approval is obtained permitting
application of the increase to outstanding Policies.
SURRENDER CHARGES
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 tenth Policy Year. A portion of this Surrender
Charge will be deducted if the Owner decreases the Initial Face Amount before
the end of the tenth Policy Year. An Additional Surrender Charge, which is a
Deferred Additional Sales Charge, will be imposed if the Policy is surrendered
or lapses at any time within ten years after the effective date of an increase
in Face Amount. A portion of an Additional Surrender Charge also will be
deducted if the related increment of Face Amount is decreased within ten years
after such increase took effect.
These surrender charges are designed partially to compensate PMLIC for the
cost of administering and selling the Policy, including agent sales commissions,
the cost of printing the prospectuses and sales literature, and any advertising
and underwriting costs. PMLIC does not expect the surrender charges to cover all
of these costs. To the extent that they do not, PMLIC will cover the short-fall
from its general account assets, which may include profits from the mortality
and expense risk charge.
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Deferred Administrative Charge. The Deferred Administrative Charge is as
follows:
<TABLE>
<CAPTION>
CHARGE PER $1,000 FACE AMOUNT
-------------------------------
POLICY YEAR ISSUE AGES
- ------------ -------------------------------
1-5 15 25 35-80
---- ------ ------ ------
<S> <C> <C> <C> <C>
1-6 0 $1.00 $2.00 $3.00
7 0 0.80 1.60 2.40
8 0 0.60 1.20 1.80
9 0 0.40 0.80 1.20
10 0 0.20 0.40 0.60
11 0 0 0 0
</TABLE>
For Issue Ages not shown, the charge will increase by a ratable portion for
each full year. 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 6, this maximum equals 50% of the Surrender Charge target premium (which
is an amount, based on the Initial Face Amount, Issue Age, Sex and Premium Class
of the Insured, used solely for the purpose of calculating the Deferred Sales
Charge) for the Face Amount. It equals 40% of that target premium during Policy
Year 7, 30% during Policy Year 8, 20% during Policy Year 9, 10% during Policy
Year 10, and 0% during Policy Years 11 and later. The Deferred Sales Charge
actually imposed will equal the lesser of this maximum and an amount equal to
27% of the premiums actually received during the first Policy Year up to one
Surrender Charge target premium plus 6% 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.
Additional Surrender Charge. A Deferred Additional Sales Charge is
associated with each increase in Face Amount. Each Additional Surrender Charge
is calculated in a manner similar to the Deferred Sales Charge associated with
the Initial Face Amount. The Maximum Additional Surrender Charge for an increase
in Face Amount is 50% of the target premium for that increase (which is an
amount based upon the amount of the increase, Attained Age, Sex and Premium
Class of the Insured at the time of such increase). This maximum remains level
for six years following the effective date of an increase. It equals 40% of that
target premium during the seventh year, and declines by 10% per year to 0% by
the beginning of the eleventh year after the effective date of the increase. The
Deferred Additional Sales Charge actually deducted will equal the lesser of this
maximum and 27% of premiums received, up to the first target premium for that
increase, during the first twelve policy months after an increase and 6% of all
premiums thereafter, less any Deferred Additional Sales Charge for such increase
previously paid at the time of a decrease in Face Amount. As explained below,
only a portion of premiums received after the effective date of an increase will
be counted for this purpose. However, as described in the following paragraph, a
portion of the Policy Account Value on the effective date of an increase also
will be considered a "premium" for purposes of calculating the amount of each
Deferred Additional Sales Charge.
Additional premium payments may not be required to fund a requested
increase in Face Amount. Instead, a special method, based on a guideline annual
premium calculated according to SEC rules, is used to allocate a portion of the
existing Policy Account Value to the increase and to allocate subsequent premium
payments between the Initial Face Amount and the increase. The Policy Account
Value is allocated according to the ratio between the SEC guideline annual
premium for the Initial Face Amount and the SEC guideline annual premium for the
total Face Amount on the effective date of the increase before any deductions
are made. For example, if the guideline annual premium is equal to $4,500 before
an increase and is equal to $6,000 after an increase, the Policy Account Value
on the effective date of the increase would be allocated 75% ($4,500/$6,000) to
the Initial Face Amount and 25% to the increase. Premium payments made on or
after the effective date of the increase are allocated between the Initial Face
Amount and the increase using the same ratio as is used to allocate the Policy
Account Value. In the event there is more than one increase in
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<PAGE> 42
Face Amount, SEC guideline annual premiums for each increment of Face Amount are
used to allocate Policy Account Values and premium payments among the various
increments of Face Amounts.
Surrender Charge Upon Decrease in Face Amount. A surrender charge may be
deducted on a decrease in Face Amount. In the event of a decrease, the surrender
charge deducted is a fraction of the charge that would apply to a full surrender
of the Policy. If there have been no increases in Face Amount, the fraction will
be determined by dividing the amount of the decrease by the current Face Amount
and multiplying the result by the Surrender Charge. If more than one Surrender
Charge is in effect (i.e., pursuant to one or more increases in Face Amount),
the surrender charge will be applied in the following order: (1) the most recent
increase followed by (2) the next most recent increases, successively, and (3)
the Initial Face Amount. Where a decrease causes a partial reduction in an
increase or in the Initial Face Amount, a proportionate share of the Surrender
Charge for that increase or for the Initial Face Amount will be deducted.
Allocation of Surrender Charges. The Surrender Charges will be deducted
from the Policy Account Value. For surrender charges resulting from Face Amount
decreases, that part of any such surrender charge will reduce the Policy Account
Value and will be allocated among the accounts based on the proportion that the
value in each of the Separate Accounts and the Guaranteed Account Value bear to
the total unloaned Policy Account Value.
MONTHLY DEDUCTIONS
Charges will be deducted from the Policy Account Value on the Policy Date
and on each Policy Processing Day to compensate PMLIC for administrative
expenses and for the insurance coverage provided by the Policy. The Monthly
Deduction consists of four components -- (a) the cost of insurance, (b)
insurance underwriting and expenses in connection with issuing the Policy, (c)
administrative expenses, and (d) the cost of any additional benefits provided by
rider. Because portions of the Monthly Deduction, such as the cost of insurance,
can vary from month to month, the Monthly Deduction may vary in amount from
month to month. The Monthly Deduction will be deducted from the Separate
Accounts and the Guaranteed Account in accordance with the allocation
percentages for Monthly Deductions chosen by the Owner at the time of
application, or as later changed by PMLIC pursuant to the Owner's written
request. If a monthly deduction cannot be made on the basis of the allocation
schedule then in effect, the deduction will be made based on the allocation of
Policy Account Value among the Owner's Guaranteed Account Value and the value in
any Separate Account and/or Subaccount.
Cost of Insurance. Because the cost of insurance depends upon several
variables, the cost for each Policy Month can vary. PMLIC will determine the
monthly Cost of Insurance Charge by multiplying the applicable cost of insurance
rate or rates by the Net Amount at Risk for each Policy Month.
The Net Amount at Risk on any Policy Processing Day is the amount by which
the Death Benefit exceeds the Policy Account Value. The Net Amount at Risk is
determined separately for the Initial Face Amount and any increases in Face
Amount. In determining the Net Amount at Risk for each increment of Face Amount,
the Policy Account Value is first considered part of the Initial Face Amount. If
the Policy Account Value exceeds the Initial Face Amount, it is considered as
part of any increases in Face Amount in the order such increases took effect.
A cost of insurance rate is also determined separately for the Initial Face
Amount and any increases in Face Amount. In calculating the cost of insurance
charge, the rate for the Premium Class on the Policy Date is applied to the Net
Amount at Risk for the Initial Face Amount. For each increase in Face Amount,
the rate for the Premium Class applicable to the increase is used. If, however,
the Death Benefit is calculated as the Policy Account Value times the specified
percentage, the rate for the Premium Class for the Initial Face Amount will be
used for the amount of the Death Benefit in excess of the total Face Amount.
Any change in the Net Amount at Risk will affect the total cost of
insurance charges paid by the Owner.
Cost of Insurance Rate. The cost of insurance rate will be based on the
Attained Age, Sex, Premium Class of the 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
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<PAGE> 43
guaranteed maximum cost of insurance rates set forth in the Policy. These
guaranteed maximum rates are based on the Insured's Attained Age, Sex, Premium
Class, and the 1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality
Table. For Policies issued in states which require "unisex" policies (currently
Montana) or in conjunction with employee benefit plans, the maximum cost of
insurance charge depends only on the Insured's Age, Premium Class and the 1980
Commissioners Standard Ordinary Mortality Tables NB and SB. Any change in the
cost of insurance rates will apply to all persons of the same Attained Age, Sex,
and Premium Class and Duration.
Premium Class. The Premium Class of the Insured will affect the cost of
insurance rates. PMLIC currently places Insureds into standard classes and
classes with extra ratings, which reflect higher mortality risks. In an
otherwise identical Policy, an Insured in the standard class will have a lower
cost of insurance than an Insured in a 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.
Since the nonsmoker designation is not available for Insureds under
Attained Age 21, shortly before an Insured attains age 21, PMLIC will notify the
Insured about possible classification as a nonsmoker and will send the Insured
an Application for Change in Premium Class. If the Insured does not qualify as a
nonsmoker or does not return the application, cost of insurance rates will
remain as shown in the Policy. However, if the Insured returns the application
and qualifies as a nonsmoker, the cost of insurance rates will be changed to
reflect the nonsmoker classification.
Administrative Charges. PMLIC administers the Policy and the Separate
Accounts and, therefore, will incur certain ordinary administrative expenses and
certain issuance expenses. There are two administrative charges, the Initial
Administrative Charge and the Monthly Administrative Charge.
Initial Administrative Charge. An Initial Administrative Charge of $17.50
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) 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 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.
FACE AMOUNT INCREASE CHARGE
If the Face Amount is increased, an increase charge will be deducted from
the Policy Account Value on the effective date of such increase. This charge,
equal to $50 plus $1.00 per $1,000 Face Amount increase, will be deducted from
the accounts based on the allocation schedule for Monthly Deductions in effect
at such time. This charge may be increased, but in no event will it be greater
than $50 plus $3.00 per $1,000 Face Amount increase. This charge is intended to
reimburse PMLIC for administrative expenses in connection with the Face Amount
increase, including medical exams, review of the application for the increase,
underwriting decisions and processing of the application, and changing Policy
records and the Policy.
PARTIAL WITHDRAWAL CHARGE
A charge of $25 will be deducted from the Policy Account Value for each
partial withdrawal of Net Cash Surrender Value. This charge is intended to
compensate PMLIC for the administrative costs in effecting the requested payment
and in making all calculations which may be required by reason of the partial
withdrawal.
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<PAGE> 44
TRANSFER CHARGE
After four transfers have been made in any Policy Year, a transfer charge
of $25 will be deducted for each transfer during the remainder of such Policy
Year to compensate PMLIC for the costs of processing such transfers.
The transfer charge will be deducted from the amount being transferred. The
transfer charge will not apply to transfers resulting from Policy loans, the
exercise of special transfer rights and the initial reallocation of account
values from the Money Market Separate Account to other Separate Accounts. These
transfers will not count against the four free transfers in any Policy Year.
CHARGES AGAINST THE SEPARATE ACCOUNTS
Mortality and Expense Risk Charge. A daily charge will be deducted from
the value of the net assets of the Separate Accounts to compensate PMLIC for
mortality and expense risks assumed in connection with the Policy. This charge
will be deducted at an annual rate of 0.75% (or a daily rate of .002055%) of the
average daily net assets of each Separate Account. 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%. The charge will be cost-based (taking into
account a loss of interest) with no anticipated element of profit for PMLIC.
OTHER CHARGES
The Separate Accounts purchase shares of the Funds at net asset value. The
net asset value of those shares reflect management fees and expenses already
deducted from the assets of the Funds' Portfolios. The fees and expenses for the
Funds and their Portfolios are described briefly in connection with a general
description of each Fund.
More detailed information is contained in the Funds and the Zero Coupon
Trust Prospectuses which are attached to or accompany this Prospectus.
CONTRACT RIGHTS
LOAN PRIVILEGES
General. The Owner may at any time after the Issue Date borrow money from
PMLIC using the Policy as the only security for the loan. The Owner may obtain
Policy loans in a minimum amount of $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 the Insured is living, the Owner may repay all or a
portion of a loan and accrued interest.
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<PAGE> 45
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.
PMLIC currently credits 4.5% interest annually to the amount in the Loan
Account until the policy's 10th anniversary or until Attained Age 65, whichever
is later, and 5.5% annually thereafter.
Effect of Policy Loan. Policy loans, whether or not repaid, will have a
permanent effect on the Policy Account Value, the Cash Surrender Value, and Net
Cash Surrender Value and may permanently affect the Death Benefit under the
Policy. The effect on the Policy Account Value and Death Benefit could be
favorable or unfavorable, depending on whether the investment performance of the
Separate Accounts (or Subaccounts) and the interest credited to the Guaranteed
Account is less than or greater than the interest being credited on the assets
in the Loan Account while the loan is outstanding. Compared to a Policy under
which no loan is made, values under a Policy will be lower when the credited
interest rate is less than the investment experience of assets held in the
Separate Accounts and interest credited to the Guaranteed 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 27 and "Policy Lapse," Page 31.) In addition, if the
Policy is not a Modified Endowment Policy, lapse of the Policy with outstanding
loans may result in adverse tax consequences. (See "Tax Treatment of Policy
Benefits," Page 48.)
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 48).
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SURRENDER PRIVILEGE
At any time before the earlier of the death of the Insured and the Final
Policy Date, the Owner may surrender the Policy for its Net Cash Surrender
Value. The Net Cash Surrender Value is the Policy Account Value minus any Policy
loan and accrued interest and less any surrender charges. The Net Cash Surrender
Value will be determined by PMLIC on the date it receives, at its Home Office, a
surrender request signed by the Owner. Coverage under the Policy will end on the
day the Owner mails or otherwise sends the written surrender request to PMLIC.
A surrender may have Federal income tax consequences. (See "Tax Treatment
of Policy Benefits," Page 48).
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After first Policy Year, any time before the earlier of the death of the
Insured and the Final Policy Date, the Owner may withdraw a portion of the
Policy's Net Cash Surrender Value. The minimum amount which may be withdrawn is
$1,500. A withdrawal charge will be deducted from the Policy Account Value. A
partial withdrawal will not result in the imposition of pro-rata surrender
charges.
The withdrawn amount and expense charge will be allocated based on the
proportion that the value in the Separate Accounts (or any Subaccount) and the
Guaranteed Account Value bear to the total unloaned Policy Account Value.
The effect of a partial withdrawal on the Death Benefit and Face Amount
will vary depending upon the Death Benefit Option in effect and whether the
Death Benefit is based on the applicable percentage of Policy Account Value.
(See "Death Benefit Options," Page 24.)
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 Insured is
under 40 and there is no indebtedness. The applicable percentage is 250%
for an Insured with an Attained Age under 40.
Under Option A, a contract with a Face Amount of $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 $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.
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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.
Any decrease in Face Amount due to a partial withdrawal will first reduce
the most recent increase in Face Amount, then the most recent increases,
successively, and lastly, the Initial Face Amount.
Because a partial withdrawal can affect the Face Amount and the Death
Benefit as described above, a partial withdrawal may also affect the Net Amount
at Risk which is used to calculate the cost of insurance charge under the
Policy. (See "Cost of Insurance," Page 33). 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 48).
ACCELERATED DEATH BENEFIT
Applicants residing in states that have approved the Accelerated Death
Benefit Rider (the "ADBR") may elect to add it to their Policy at issue, subject
to PMLIC receiving satisfactory additional evidence of insurability. The ADBR is
not yet available in all states and the terms under which it is available may
vary from state-to-state. There is no assurance that the ADBR will be approved
in all states or that it will be approved under the terms described herein.
The ADBR permits the Owner to receive, at his or her request and upon
approval by PMLIC, an accelerated payment of part of the Policy's Death Benefit
when one of the following two events occurs:
1. Terminal Illness. The Insured develops a non-correctable medical
condition which is expected to result in his or her death within 12
months; or
2. Permanent Confinement to a Nursing Care Facility. The Insured has been
confined to a Nursing Care Facility for 180 days and is expected to
remain in such a facility for the remainder of his or her life.
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There is no charge for adding the ADBR to a Policy. However, an
administrative charge, currently $100 and not to exceed $250, will be deducted
from the accelerated death benefit at the time it is paid.
Tax Consequences of the ADBR. The Federal Income tax consequences
associated with adding the ADBR or receiving the accelerated death benefit are
uncertain. Accordingly, we urge you to consult a tax adviser before adding the
ADBR to your Policy or requesting an accelerated death benefit.
Amount of the Accelerated Death Benefit. The ADBR provides for a minimum
accelerated death benefit payment of $10,000 and a maximum benefit payment equal
to 75% of the Eligible Death Benefit less 25% of any outstanding policy loans
and accrued interest. The ADBR also restricts the total of the accelerated death
benefits paid from all life insurance policies issued to an Owner by PMLIC and
its subsidiaries to $250,000. This $250,000 maximum may be increased, as
provided in the ADBR, to reflect inflation. The term Eligible Death Benefit
under the ADBR means:
The Insurance Proceeds payable under a Policy if the Insured died at the
time a claim for an accelerated death benefit is approved by PMLIC, minus:
1. any dividend accumulations;
2. any dividends due and not paid;
3. any dividend payable at death if the Insured died at such time;
4. any Premium Refund payable at death if the Insured died at such
time; and
5. any insurance payable under the terms of any other rider attached
to a Policy.
An Owner may request only one accelerated death benefit payment (except to
pay premiums and policy loan interest) and there are no restrictions on the
Owner's use of the benefit. An Owner may elect to receive the accelerated death
benefit payment in a lump sum or in 12 or 24 equal monthly installments. If
installments are elected and the Insured dies before all of the payments have
been made, the present value (at the time of the Insured's death) of the
remaining payments and the remaining Insurance Proceeds at Death under the
Policy will be paid to the Beneficiary in a lump sum.
Conditions for Receipt of the Accelerated Death Benefit. In order to
receive an accelerated death benefit payment, a Policy must be in force other
than as Extended Term Insurance and an Owner must submit Due Proof of
Eligibility and a completed claim form to PMLIC at its Home Office. Due Proof of
Eligibility means a written certification (described more fully in the ADBR) in
a form acceptable to PMLIC, from a treating physician stating that the Insured
has a Terminal Illness or is expected to be permanently confined in a Nursing
Care Facility.
PMLIC may request additional medical information from an Owner's physician
and/or may require an independent physical examination (at its expense) before
approving the claim for payment of the accelerated death benefit. PMLIC will not
approve a claim for an accelerated death benefit payment if a Policy is assigned
in whole or in part, if the Terminal Illness or Permanent Confinement is the
result of intentionally self-inflicted injury or if the Owner is required to
elect it in order to meet the claims of creditors or to obtain a government
benefit.
Operation of the ADBR. The ADBR provides that the accelerated death
benefit be made in the form of a policy loan up to the amount of the maximum
loan available under a Policy at the time the claim is approved. Therefore, a
request for an accelerated death benefit payment in an amount less than or equal
to the maximum loan available at that time will result in a policy loan being
made in the amount of the requested benefit. This policy loan operates as would
any loan under the Policy.
To the extent that the amount of a requested accelerated death benefit
payment exceeds the maximum available loan amount, the benefit will be advanced
to the Owner and a lien will be placed on the Death Benefit payable under the
Policy (the "death benefit lien") in the amount of this advance. Under the ADBR,
interest will accrue daily, at a rate determined as described in the ADBR, on
the amount of this advance and upon the death of the Insured the amount of the
advance and accrued interest thereon will be subtracted from the amount of
Insurance Proceeds at Death.
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Effect on Existing Policy. The Insurance Proceeds at Death otherwise
payable under a Policy at the time of an Insured's death will be reduced by the
amount of any death benefit lien and accrued interest thereon. If the Owner
makes a request for a surrender, a policy loan or a withdrawal, the Policy's Net
Cash Surrender Value and Loan Value will be reduced by the amount of any
outstanding death benefit lien plus accrued interest. Therefore, depending upon
the size of the death benefit lien, this may result in the Net Cash Surrender
Value and the Loan Value being reduced to zero.
Premiums and policy loan interest must be paid when due. However, if
requested with the accelerated death benefit claim, future premiums and policy
loan interest may be paid through additional accelerated death benefits. If
future premiums and policy loan interest are to be paid through additional
accelerated death benefits, Periodic Planned Premiums and policy loan interest
will be paid in this manner automatically.
In addition to lapse under the applicable provisions of the Policy, a
Policy will also terminate on any Policy Anniversary when the death benefit lien
exceeds the Insurance Proceeds at Death.
FREE-LOOK PRIVILEGES
Free-Look for Policy. The Policy provides for an initial Free-Look Period.
The Owner may cancel the Policy until the latest of: (a) 45 days after Part I of
the application for the Policy is signed; (b) 10 days after the Owner receives
the Policy; and (c) 10 days after PMLIC mails the Notice of Withdrawal Right to
the Owner. Upon giving notice of cancellation and returning the Policy, the
Owner will receive a refund equal to the sum of: (i) the Policy Account Value as
of the date the returned Policy is received by PMLIC at its Home Office or the
PMLIC representative through whom the Policy was purchased; plus (ii) any
Premium 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.
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.
Free-Look for Increase in Face Amount. Any requested increase in Face
Amount is also subject to a Free-Look privilege. The Owner may cancel a
requested increase in Face Amount until the latest of: (a) 45 days after the
application for the increase is signed; (b) 10 days after the Owner receives the
new Policy Schedule pages reflecting the increase; and (c) 10 days after PMLIC
mails a Notice of Withdrawal Right to the Owner.
Upon requesting cancellation of the increase, all cost of insurance charges
attributable to the increase plus the increase expense charge will be
reallocated to the accounts in the same proportion as they were deducted, unless
the Owner requests a refund of such amount.
SPECIAL TRANSFER AND CONVERSION RIGHTS
Transfer Right for Policy. During the first two years following Policy
issue, the Owner may, on one occasion, transfer the entire Policy Account Value
in the Separate Accounts (or a Subaccount) to the Guaranteed Account without
such transfer counting toward the four transfers permitted without charge during
a Policy Year. If such transfer is made after four transfers have been made
during a Policy Year, no transfer charge will be deducted.
Conversion Privilege for Increase in Face Amount. During the first two
years following an increase in Face Amount, the Owner may, on one occasion,
without evidence of insurability, exchange the amount of the increase in Face
Amount for a fixed-benefit permanent life insurance policy. (Such an exchange
may, however, have Federal income tax consequences. See "Tax Treatment of Policy
Benefits," Page 48). Premiums under this new policy will be based on the Sex,
Attained Age and Premium Class of the Insured on the effective date of the
increase in the Face Amount of the Policy. The new policy will have the same
Face Amount and Issue Date as the amount and effective date of the increase.
PMLIC will refund the monthly
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deductions for the increase made on each Policy Processing Day between the
effective date of the increase to the date of conversion and the expense charge
for such increase.
Transfer Right for Change in Investment Policy of Separate Account or
Subaccount. If the investment policy of a Separate Account or Subaccount is
materially changed, the Owner may transfer the portion of the Policy Account
Value in such Separate Account (or Subaccount) to another Separate Account (or
Subaccount) or to the Guaranteed Account without having such transfer count
toward the four transfers permitted without charge during a Policy Year. If such
transfer is made after four transfers have been made during a Policy Year, no
transfer charge will be deducted.
Telephone Transfers. Transfers will be made based upon instructions given
by telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to PMLIC. PMLIC reserves the
right to suspend telephone transfer privileges at any time, for any class of
policies or contracts, 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,
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.
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
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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.
OTHER POLICY PROVISIONS
Amount Payable on Final Policy Date. If the Insured is living on the Final
Policy Date (at 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 Insured's death at its Home Office and all other requirements are
satisfied.
Interest at the annual rate of 3% or any higher rate declared by PMLIC or
required by law is paid on the Insurance Proceeds from the date of death until
payment is made.
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Any amounts payable as a result of the exercise of the free look right,
surrender, partial withdrawal, or Policy loan will ordinarily be paid within
seven days of receipt of written request at PMLIC's Home Office in a form
satisfactory to PMLIC.
Generally, the amount of a payment will be determined as of the date of
receipt by PMLIC of all required documents. However, PMLIC may defer the
determination or payment of such amounts if the date for determining such
amounts falls within any period during which: (1) the disposal or valuation of a
Separate Account's assets is not reasonably practicable because the New York
Stock Exchange is closed or conditions are such that, under the SEC's rules and
regulations, trading is restricted or an emergency is deemed to exist; or (2)
the SEC by order permits postponement of such actions for the protection of
PMLIC policyholders. PMLIC also may defer the determination or payment of
amounts from the Guaranteed Account for up to six months.
The Owner may decide the form in which proceeds will be paid. During the
Insured's lifetime, the Owner may arrange for the Insurance Proceeds to be paid
in a lump sum or under a Settlement Option. These choices are also available
upon surrender of the Policy for its Net Cash Surrender Value and for payment of
the Policy Account Value on the Final Policy Date. If no election is made,
payment will be made in a lump sum. The Beneficiary may also arrange for payment
of the Insurance Proceeds in a lump sum or under a Settlement Option.
The Contract. The Policy and a copy of the applications attached thereto
are the entire contract. Only statements made in the applications can be used to
void the Policy or deny a claim. The statements are considered representations
and not warranties. Only the President or a Vice President of PMLIC can agree to
change or waive any provisions of the Policy and only in writing. As a result of
differences in applicable state laws, certain provisions of the Policy may vary
from state to state.
Ownership. The Owner is the Insured unless a different Owner is named in
the application or thereafter changed. While the Insured is living, the Owner is
entitled to exercise any of the rights stated in the Policy or otherwise granted
by PMLIC. If the Insured and Owner are not the same, and the Owner dies before
the Insured, these rights will vest in the estate of the Owner, unless otherwise
provided.
Beneficiary. The Beneficiary is designated in the application for the
Policy, unless thereafter changed by the Owner during the Insured's lifetime by
written notice to PMLIC. Any Insurance Proceeds for which there is not a
designated Beneficiary surviving at the Insured's death are payable in a single
sum to the Insured's executors or administrators.
Change of Owner and Beneficiary. As long as the Policy is in force, the
Owner or Beneficiary may be changed by written request in a form acceptable to
PMLIC. The change will take effect as of the date it is signed, whether or not
the Insured is living when the request is received by PMLIC. PMLIC will not be
responsible for any payment made or action taken before it receives the written
request. A change in the Policy's ownership may have Federal income tax
consequences. (See "Tax Treatment of Policy Benefits," page 48).
Split Dollar Arrangements. The Owner or Owners may enter into a Split
Dollar Arrangement between each other or another person or persons whereby the
payment of premiums and the right to receive the benefits under the Policy
(i.e., Net Cash Surrender Value or Death Proceeds) are split between the
parties. There are different ways of allocating such rights.
For example, an employer and employee might agree that under a Policy on
the life of the employee, the employer will pay the premiums and will have the
right to receive the Net Cash Surrender Value. The employee may designate the
Beneficiary to receive any Death Proceeds in excess of the Net Cash Surrender
Value. If the employee dies while such an arrangement is in effect, the employer
would receive from the Death Proceeds the amount which he would have been
entitled to receive upon surrender of the policy and the employee's Beneficiary
would receive the balance of the proceeds.
No transfer of Policy rights pursuant to a Split Dollar Arrangement will be
binding on PMLIC unless in writing and received by PMLIC.
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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 Insured's age or sex has been
misstated in the application, the Death Benefit and any benefits provided by
riders will be such as the most recent Monthly Deductions would have provided at
the correct age and sex.
Suicide. In the event of the Insured's suicide within two years from the
Issue Date of the Policy (except where state law requires a shorter period)
PMLIC's liability is limited to the payment to the Beneficiary of a sum equal to
the premiums paid less any Policy loan and accrued interest and any partial
withdrawals.
If the Insured commits suicide within two years (or shorter period required
by state law) from the effective date of any Policy change which increases the
Death Benefit, the amount which PMLIC will pay with respect to the increase will
be the Monthly Deductions for the cost of insurance previously made for such
increase and the expense charge for the increase.
Incontestability. The Policy will be incontestable after it has been in
force during the Insured's lifetime for two years from the Issue Date (or such
other date as required by state law). Similar incontestability will apply to an
increase in Face Amount or reinstatement after it has been in force during the
Insured's lifetime for two years from its effective date.
Before such times, however, PMLIC may contest the validity of the Policy
(or changes) based on material misstatements in the initial or any subsequent
application.
Dividends. The Policy is participating; however, no dividends are expected
to be paid on the Policy.
If dividends are ever declared, they will be paid under one of the
following options:
(a) Paid in cash; or
(b) Applied as a Net Premium.
The Owner must choose an option at the time the application for the Policy
is signed. If no option is chosen, any dividend will be applied as a Net Premium
payment. The Owner may change the option by giving written notice to PMLIC.
Settlement Options. In lieu of a single sum payment on death or surrender,
an election may be made to apply the proceeds under any one of the fixed-benefit
Settlement Options provided in the Policy. The options are described below.
Proceeds at Interest Option. Left on deposit to accumulate with PMLIC with
interest payable at a rate of at least 3% per year.
Instalments of a Specified Amount Option. Payable in equal instalments
until proceeds applied under the Option and interest on the unpaid balance at 3%
per year and any additional interest are exhausted.
Instalments for a Specified Period Option. Payable in the number of equal
monthly instalments set forth in the election. Payments may be increased by
additional interest which would increase the instalments certain. The guaranteed
interest rate is 3% per year.
Life Income Option. Payable in equal monthly instalments during the
payee's life. Payments will be made either with or without a guaranteed minimum
number. If there is to be a minimum number of payments, they will be for either
120 or 240 months or until the proceeds applied under the Option are exhausted,
as elected.
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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 providing
that in the event of the 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.
Disability Waiver of Premium Benefit. Subject to certain age and
underwriting restrictions, a Policy may include the Disability Waiver of Premium
Benefit providing that, in the event of the Insured's total disability before
Attained Age 60 and continuing for at least 180 days, PMLIC will apply a premium
payment to the Policy on each Policy Processing Day prior to Insured's Attained
Age 65 and while the Insured remains totally disabled.
At the time of application, a Monthly Benefit Amount is selected by the
applicant. This amount is generally intended to reflect the amount of the
premiums expected to be paid monthly. In the event of Insured's total disability
the amount of the premium payment applied on each Policy Processing Day will be
the lesser of: (a) the Monthly Benefit Amount; or (b) the monthly average of the
premium payments less partial withdrawals for the Policy since its Policy Date.
If the Policy is issued with the Disability Waiver of Premium Benefit
Rider, each Monthly Deduction will be increased to include the cost of the rider
which is a specified percentage of the Monthly Benefit Amount.
This supplementary benefit must be selected at the time of application and
cannot be added after issue. However, for Policies issued prior to the date the
Disability Waiver of Premium Benefit Rider is approved in a particular state,
the Rider can be added as a supplementary benefit to the Policy within 6 months
after state approval. PMLIC reserves the right to require evidence of
insurability to add this rider to an existing Policy.
An Owner cannot elect to have both this rider and another disability waiver
benefit rider attached as supplementary benefits with the same Policy.
Change of Insured. Upon request, the Policy may include a Change of
Insured Rider by which the Insured under a Policy may be changed to a New
Insured, subject to certain conditions and evidence of insurability. The Monthly
Deduction for cost of insurance will be changed to that for the New Insured as
of the effective date of the change. A change of insured is a taxable event.
Children's Term Rider. Subject to certain age and underwriting
restrictions, the Policy may include a Children's Term Insurance Rider providing
level term insurance on each insured child until the earlier of age 25 of the
child or the Policy Anniversary nearest the insured's 65th birthday. When the
term insurance expires on the life of an insured child, it may be converted
without evidence of insurability to a whole life policy providing a level face
amount of insurance and a level premium. The new policy may be up to five times
the amount of the term insurance.
The rider is issued to provide between $5,000 and $15,000 of term insurance
on each insured child. Each insured child under a rider will have the same
amount of insurance. If this rider is added, the Monthly Deduction will be
increased to include the cost of this rider. This supplementary benefit must be
selected at the time of application for the Policy or an increase in Face
Amount.
Convertible Term Life Insurance. The Policy may include a Convertible Term
Life Insurance rider that provides additional term insurance on the Other
Insured, who must be an individual on whom the Insured has
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an insurable interest. The amount of term insurance on the Other Insured is
shown in the Policy Schedule. If this rider is added, the Monthly Deduction will
be increased to include the cost of this rider. This rider will terminate at the
earlier of attained age 100 (80 in New York) of the Other Insured or at the
termination or maturity of the Policy. If the Policy is extended by the Final
Policy Date Extension Rider, this rider will terminate on the original maturity
date.
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 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 Insured's 100th
birthday are uncertain. Prospective purchasers of a Policy and Owners
considering the addition of a Final Policy Date Extension to a Policy should
consult their own legal or other advisors as to such consequences.
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.
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
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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
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code")
sets forth a definition of a life insurance contract for Federal tax purposes.
Although the Secretary of the Treasury (the "Treasury") is authorized to
prescribe regulations implementing Section 7702, while proposed regulations and
other interim guidance has been issued, final regulations have not been adopted.
Guidance as to how Section 7702 is to be applied is limited. If a Policy were
determined not to be a life insurance contract for purposes of Section 7702,
such Policy would not provide the tax advantages normally provided by a life
insurance policy.
With respect to a Policy issued on the basis of a standard rate class,
PMLIC believes (largely in reliance on IRS Notice 88-128 and the proposed
regulations under Section 7702, issued on July 5, 1991) that such a Policy
should meet the Section 7702 definition of a life insurance contract, as long as
the Owner does not pay the full amount of premiums permitted under the Policy.
With respect to a Policy that is issued on a substandard basis (i.e., a
premium class involving higher than standard mortality risk), there is less
guidance, in particular as to how the mortality and other expense requirements
of Section 7702 are to be applied in determining whether such a Policy meets the
Section 7702 definition of a life insurance contract. Thus, it is not clear
whether or not such a Policy would satisfy Section 7702, particularly if the
Owner pays the full amount of premiums permitted under the Policy. An Owner of a
Policy issued on a substandard basis may, however, adopt certain self-imposed
limitations on the amount of premiums paid for such a Policy which should cause
the Policy to meet the Section 7702 definition of a life insurance contract. An
Owner contemplating the adoption of such limitations should do so only after
consulting a tax adviser.
If it is subsequently determined that a Policy does not satisfy Section
7702, PMLIC may take whatever steps are appropriate and necessary to attempt to
cause such a Policy to comply with Section 7702. For these reasons, PMLIC
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
Section 817(h) of the Code requires that the investments of each of the
Separate Accounts must be "adequately diversified" in accordance with Treasury
regulations in order for the Policy to qualify as a life insurance contract
under Section 7702 of the Code (discussed above). The Separate Accounts, through
the Fund and the Zero Coupon Trust, intend to comply with the diversification
requirements prescribed in Treas. Reg. sec.1.817-5, which affect how the Fund's
and Trust's assets are to be invested. PMLIC believes that the Separate Accounts
will, thus, meet the diversification requirement, and PMLIC will monitor
continued compliance with this requirement.
In certain circumstances, owners of variable life insurance contracts may
be considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be
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considered the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The Treasury Department has also announced,
in connection with the issuance of regulations concerning diversification, that
those regulations "do not provide guidance concerning the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (i.e., the Policyowner), rather than the insurance company, to be
treated as the owner of the assets in the account." This announcement also
stated that guidance would be issued by way of regulations or rulings on the
"extent to which policyholders may direct their investments to particular
subaccounts without being treated as owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the Owner has additional flexibility in allocating premium payments and
Policy Values and the investment objective of certain Portfolios (i.e., the
VanEck Worldwide Hard Assets Portfolio) may be narrower. These differences could
result in an Owner being treated as the owner of a pro rata portion of the
assets of the Separate Accounts. In addition, PMLIC does not know what standards
will be set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. PMLIC therefore reserves the right to
modify the Policy as necessary to attempt to prevent an Owner from being
considered the owner of a pro rata share of the assets of the Separate Accounts.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
In General. PMLIC believes that the proceeds and cash value increases of a
Policy should be treated in a manner consistent with a fixed-benefit life
insurance policy for Federal income tax purposes. Thus, the Death Benefit under
the Policy should be excludable from the gross income of the Beneficiary under
Section 101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit Option (i.e., a change from Death Benefit Option A to
Death Benefit Option B or vice versa), a change in the Policy's Face Amount, a
Policy loan, a partial withdrawal, a surrender, the addition of an Accelerated
Death Benefit Rider, the receipt of an Accelerated Death Benefit, the addition
of a Final Policy Date Extension Rider, the continuation of the Policy beyond
the Insured's 100th birthday, a change in ownership, or an assignment of the
Policy may have Federal income tax consequences. In addition, Federal, state and
local transfer, and other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each Owner or Beneficiary.
Generally, the Owner will not be deemed to be in constructive receipt of
the Policy Account Value, including increments thereof, until there is a
distribution. The tax consequences of distributions from, and loans taken from
or secured by, a Policy depend on whether the Policy is classified as a
"Modified Endowment Contract." Whether a Policy is or is not a Modified
Endowment Contract, upon a complete surrender or lapse of a Policy or when
benefits are paid at a Policy's maturity date, if the amount received plus the
amount of indebtedness exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to tax.
Modified Endowment Contracts. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts," which applies
to Policies entered into or materially changed after June 20, 1988.
Due to the Policy's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Policy. In general,
a Policy will be a Modified Endowment Contract if the accumulated premiums paid
at any time during the first seven Policy Years exceeds the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. The determination of whether a Policy will be a Modified Endowment
Contract after a material change generally depends upon the relationship of the
Death
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Benefit and Policy Account Value at the time of such change and the additional
premiums paid in the seven years following the material change. At the time a
premium is credited which would cause the Policy to become a Modified Endowment
Contract, PMLIC will notify the Owner that unless a refund of the excess premium
is requested by the Owner, the Policy will become a Modified Endowment Contract.
The Owner will have 30 days after receiving such notification to request the
refund. The excess premium paid (with either the 4% required interest or
positive Separate Account earnings, if any) will be returned to the Owner upon
receipt by PMLIC of the refund request. The amount to be refunded will be
deducted from the Policy Account Value in the Separate Accounts and in the
Guaranteed Account in the same proportion as the premium payment was allocated
to such accounts. In the event that earnings on such excess premium is not at
least 4%, the premium plus an amount equal to interest at an annual rate of 4%
will be returned.
The rules relating to whether a Policy will be treated as a Modified
Endowment Contract are complex and cannot be fully described in the limited
confines of this summary. Therefore, a current or prospective Owner should
consult with a competent advisor to determine whether a policy transaction will
cause the Policy to be treated as a Modified Endowment Contract.
Distributions from Policies Classified as Modified Endowment
Contracts. Policies classified as Modified Endowment Contract will be subject
to the following tax rules: First, all distributions, including distributions
upon surrender and partial withdrawals from such a Policy are treated as
ordinary income subject to tax up to the amount equal to the excess (if any) of
the Policy Account Value immediately before the distribution over the investment
in the Policy (described below) at such time. Second, loans taken from or
secured by, such a Policy are treated as distributions from such a Policy and
taxed accordingly. Past due loan interest that is added to the loan amount will
be treated as a loan. Third, a 10 percent additional income tax is imposed on
the portion of any distribution from, or loan taken from or secured by, such a
Policy that is included in income except where the distribution or loan is made
on or after the Owner attains age 59 1/2, is attributable to the Owner's
becoming disabled, or is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Owner or the joint lives (or
joint life expectancies) of the Owner and the Owner's Beneficiary.
If a Policy becomes a modified endowment contract after it is issued,
distributions made during the policy year in which it becomes a modified
endowment contract, distributions in any subsequent policy year and
distributions within two years before the Policy becomes a modified endowment
contract will be subject to the tax treatment described above. This means that a
distribution from a Policy that is not a modified endowment contract could later
become taxable as a distribution from a modified endowment contract.
Distributions From Policies Not Classified as Modified Endowment
Contracts. Distributions from a Policy that is not a Modified Endowment
Contract, are generally treated as first recovering the investment in the Policy
(described below) and then, only after the return of all such investment in the
Policy, as distributing taxable income. An exception to this general rule occurs
in the case of a decrease in the Policy's Death Benefit or any other change that
reduces benefits under the Policy in the first 15-years after the Policy is
issued and that results in a cash distribution to the Owner in order for the
Policy to continue complying with the Section 7702 definitional limits. Such a
cash distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
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. A tax advisor should be consulted before deducting any policy
loan interest.
Investment in the Policy. Investment in the Policy means: (i) the
aggregate amount of any premiums or other consideration paid for a Policy, minus
(ii) the aggregate amount received under the Policy which is excluded from gross
income of the Owner (except that the amount of any loan from, or secured by, a
Policy that is a Modified Endowment Contract, to the extent such amount is
excluded from gross income, will be
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disregarded), plus (iii) the amount of any loan from, or secured by, a Policy
that is a Modified Endowment Contract to the extent that such amount is included
in the gross income of the Owner.
Multiple Policies. All Modified Endowment Contracts that are issued by
PMLIC (or its affiliates) to the same Owner during any calendar year are treated
as one Modified Endowment Contract for purposes of determining the amount
includible in the gross income under Section 72(e) of the Code.
Other Tax Consequences. The policy may be used in various arrangements,
including nonqualified deferred compensation or salary continuance plans, split
dollar insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Policy in any arrangement the value of which depends
in part on its tax consequences, you should be sure to consult a qualified tax
advisor regarding the tax attributes of the particular arrangement.
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.
SPECIAL RULES FOR PENSION AND PROFIT-SHARING PLANS
If Policies are purchased by a trust forming part of a pension or
profit-sharing plan meeting the qualification requirements of Section 401(a) of
The Code, various special tax rules will apply. Because these rules are
extensive and complicated, it is not possible to describe all of them here.
Accordingly, counsel or other competent tax advisors familiar with qualified
plan matters should be consulted in connection with any such purchase.
Generally, a plan participant on whose behalf a Policy is purchased will be
treated as having annual imputed income based on a cost of insurance factor
multiplied by the Net Amount at Risk under the Policy. This imputed income is to
be reported by the employer to the employee and the Service annually and
included in the employee's gross income. In the event of the death of a plan
participant while covered by the plan, Insurance Proceeds paid to the
participant's Beneficiary generally will not be completely excludable from the
Beneficiary's gross income under Section 101(a) of the Code. Any Death Benefit
in excess of the Policy Account Value will be excludable. The portion of the
Death Benefit equal to the Policy Account Value, however, generally will be
subject to Federal income tax to the extent it exceeds the participant's
"investment in the contract" as defined in the Code, which will include the
imputed income noted above. Special rules may apply in certain circumstances
(e.g., to Owner-employees or participants who have borrowed from the plan).
The Service has interpreted the plan qualification provisions of the Code
to require that non-retirement benefits, including death benefits, payable under
a qualified plan be "incidental to" retirement benefits provided by the plan.
These interpretations, which are primarily set forth in a series of Revenue
Rulings issued by the Service, should be considered in connection with any
purchase of life insurance policies to provide benefits under a qualified plan.
POSSIBLE CHARGE FOR PMLIC'S TAXES
At the present time, PMLIC makes no charge for any Federal, state or local
taxes (other than state premium taxes) that the Company incurs that may be
attributable to the Separate Accounts or to the Policies. PMLIC, however,
reserves the right in the future to make a charge for any such tax or other
economic burden resulting from the application of the tax laws that it
determines to be properly attributable to the Accounts or
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to the Policies. If any tax charges are made in the future, they will be
accumulated daily and transferred from the applicable Separate Account to
PMLIC's General Account. Any investment earnings on tax charges accumulated in a
Separate Account will be retained by PMLIC.
POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS
Policies may be acquired in conjunction with employee benefit plans ("EBS
Policies"), including the funding of qualified pension plans meeting the
requirements of Section 401 of the Code.
For EBS Policies, the maximum mortality rates used to determine the monthly
Cost of Insurance Charge are based on the Commissioners' 1980 Standard Ordinary
Mortality Tables NB and SB. Under these Tables, mortality rates are the same for
male and female Insureds of a particular Attained Age and Premium Class. (See
"Cost of Insurance," Page 33.)
Illustrations reflecting the premiums and charges for EBS Policies will be
provided upon request to purchasers of such Policies.
There is no provision for misstatement of sex in the EBS Policies. (See
"Misstatement of Age and Sex," Page 44.) Also, the rates used to determine the
amount payable under a particular Settlement Option will be the same for male
and female Insureds. (See "Settlement Options," Page 44.)
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under an employee's
deferred compensation plan could not, under Title VII of the Civil Rights Act of
1964, vary between men and women on the basis of sex. In that case, the Court
applied its decision only to benefits derived from contributions made on or
after August 1, 1983. Subsequent decisions of lower federal courts indicate that
in other factual circumstances the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory, or
decisional authority of some states may prohibit use of sex-distinct mortality
tables under certain circumstances. The Policies offered by this Prospectus
(other than Policies issued in states which require "unisex" policies (currently
Montana) and EBS Policies (see "Policies Issued in Conjunction with Employee
Benefit Plans," Page 51)) are based upon actuarial tables which distinguish
between men and women and, thus, the Policy provides different benefits to men
and women of the same age. Accordingly, employers and employee organizations
should consider, in consultation with legal counsel, the impact of these
authorities on any employment-related insurance or benefits program before
purchasing the Policy and in determining whether an EBS Policy is appropriate.
VOTING RIGHTS
All of the assets held in the Growth, Money Market, Bond, Managed,
Aggressive Growth and International Separate Accounts and the Subaccounts of the
Variable Account will be invested in shares of corresponding portfolios of the
Funds. (The organizational documents governing the Trust do not contemplate
meetings of holders of Trust units nor any action taken by vote of such
holders.) The Funds do not hold routine annual shareholders' meetings.
Shareholders' meetings will be called whenever each Fund believes that it is
necessary to vote to elect the Board of Directors of the Fund and to vote upon
certain other matters that are required by the 1940 Act to be approved or
ratified by the shareholders of a mutual fund. PMLIC is the legal owner of Fund
shares and as such has the right to vote upon any matter that may be voted upon
at a shareholders' meeting. However, in accordance with its view of present
applicable law, PMLIC will vote the shares of the Funds at meetings of the
shareholders of the appropriate Fund or Portfolio in accordance with
instructions received from 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
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Separate Accounts or Subaccounts in which their Policy values are allocated. The
number of shares held in each Separate Account or Subaccount attributable to a
Policy for which the policyowner may provide voting instructions will be
determined by dividing the Policy's value in that account by the net asset value
of one share of the corresponding Portfolio as of the record date for the
shareholder meeting. Fractional shares will be counted. For each share of a
Portfolio for which policyowners have no interest, PMLIC will cast votes, for or
against any matter, in the same proportion as policyowners vote.
If required by state insurance officials, PMLIC may disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the investment objectives or policies of one or more of the
Portfolios, or to approve or disapprove an investment policy or investment
adviser of one or more of the Portfolios. In addition, PMLIC may disregard
voting instructions in favor of changes initiated by a policyowner or the Fund's
Board of Directors provided that PMLIC's disapproval of the change is reasonable
and is based on a good faith determination that the change would be contrary to
state law or otherwise inappropriate, considering the portfolio's objectives and
purposes, and the effect the change would have on PMLIC. If PMLIC does disregard
voting instructions, it will advise policyowners of that action and its reasons
for such action in the next semi-annual report to policyowners.
At some later time, MS Fund shares may be held by separate accounts of
insurance companies not affiliated with PMLIC. PMLIC expects that those shares
will be voted in accordance with instructions of the owners of insurance
policies and contracts issued by those other insurance companies. This will
dilute the effect of voting instructions of policyowners.
Shares of the Funds other than the MS Fund are currently being offered to
variable life insurance and variable annuity separate accounts of life insurance
companies other than PMLIC that are not affiliated with PMLIC. PMLIC understands
that shares of these Funds also will be voted by such other life insurance
companies in accordance with instructions from their policyowners invested in
such separate accounts. This will dilute the effect of voting instructions of
policyowners of the Policies.
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.
52
<PAGE> 62
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., and Consultant of Travel Industry Association of
Suite 450 America; 9/89 to 12/94 -- President of Travel
Washington, DC 20005 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
Robert J. Casale............................. 1988 to present -- Group President/Brokerage
Director Information Services Group of Automatic Data
2 Journal Square Processing Inc.
Jersey City, NJ 07306
Nicholas DeBenedictus........................ 1993 to present -- Chairman, President and Chief
Philadelphia Suburban Corp. Executive Officer of Philadelphia Suburban
762 Lancaster Avenue Corporation; 1989 to 1992 -- Senior Vice President
Bryn Mawr, PA 19010 of Philadelphia Electric Company.
Philip C. Herr, II........................... 1961 to present -- Partner -- Herr, Potts & Herr.
Director
Herr, Potts & Herr
100 Matsonford Road
Suite 446
Radnor, PA 19087
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; 1990 to
Director 1993 -- President of Greenwich Capital Markets, Inc.
13 Valley Road
So. Norwalk, CT 06854
Charles L. Orr............................... 1993 to present -- President and Chief Executive
Director Officer of Shaklee Corporation; 1990 to
Shaklee Corporation 1993 -- President of Shaklee U.S., Inc.
Shaklee Terraces
444 Market Street
San Francisco, CA 94111
Donald A. Scott.............................. 1964 to present -- Senior Partner -- Morgan, Lewis and
Director Bockius.
2000 One Logan Square
Philadelphia, PA 19103
</TABLE>
53
<PAGE> 63
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
John J. F. Sherrerd.......................... 1969 to present -- Partner -- Miller, Anderson &
Director Sherrerd.
One Tower Bridge
West Conshohocken, PA 19428
Harold A. Sorgenti........................... 1995 to present -- Partner -- Sorgenti, Investment
Director Partners; 1991 to 1995 -- 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 Actuary of PMLIC; 1974-1996 -- Vice President and
and Chief Actuary Individual Actuary.
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 -- Executive Vice President and Chief
Executive Vice President and Financial Officer of PMLIC; 1986 to 1996 -- Vice
Chief Financial Controller Officer President and 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.
</TABLE>
- ---------------
* Unless otherwise indicated, the address is 1050 Westlakes Drive, Berwyn,
Pennsylvania 19312.
A Fidelity Bond in the amount of $10 million covering PMLIC's officers and
employees has been issued by Aetna Casualty and Surety Company.
DISTRIBUTION OF POLICIES
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell PMLIC's variable life insurance policies,
and who are also registered representatives of 1717 Capital Management Company
("1717") or registered representatives of broker/dealers who have Selling
Agreements with 1717 or registered representatives of broker/dealers who have
Selling Agreements with such broker/dealers. 1717, whose address is Christiana
Executive Campus, P.O. Box 15626, Wilmington, Delaware
54
<PAGE> 64
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 and annuity contracts issued by Providentmutual Life and
Annuity Company of America, a wholly-owned subsidiary of PMLIC. 1717 receives no
compensation as principal underwriter of the Policies. The Policies are offered
and sold only in those states where their sale is lawful.
The insurance underwriting and the determination of a proposed Insured's
Premium Class and whether to accept or reject an application for a Policy is
done by PMLIC. 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 50% 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. However, for each premium received within 10 years
following an increase in Face Amount, agent commissions on the premium paid up
to the target amount for the increase in each year will be calculated using the
commission rates for the corresponding Policy Year. 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
55
<PAGE> 65
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
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 or 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 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.
56
<PAGE> 66
APPENDIX A
ILLUSTRATION OF DEATH BENEFITS, POLICY ACCOUNT VALUES
AND NET CASH SURRENDER VALUES
The following tables illustrate how the Death Benefits, Policy Account
Values and Net Cash Surrender Values of a Policy may change with the investment
experience of the Separate Accounts. The tables show how the Death Benefits,
Policy Account Values and Net Cash Surrender Values of a Policy issued to an
Insured of a given age and sex 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 40 in the Preferred Premium Class with a Face Amount of $250,000
and a Planned Periodic Premium of $3,000 paid at the beginning of each Policy
Year. The Death Benefits, Policy Account Values and Net Cash Surrender Values
would be lower if the Insured was 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 5%,
maximum monthly administrative fee of $12 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 3.5%, current monthly administrative fee of $7.50 and
a daily charge for mortality and expense risks equivalent to an annual rate of
0.75%.
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 1.55% 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> 67
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 an increase or decrease in the Face Amount, that no partial
withdrawals have been made and no transfers have been made in any Policy Year.
Upon request, PMLIC will provide a comparable illustration based upon the
proposed Insured's Age and Premium Class, the Death Benefit Option, Face Amount,
Planned Periodic Premiums and riders requested. PMLIC reserves the right to
charge a reasonable fee for this service to persons who request more than one
policy illustration during a Policy year.
A-2
<PAGE> 68
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $3,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,150 1,889 329 250,000 2,067 507 250,000
2 6,458 3,914 2,174 250,000 4,270 2,530 250,000
3 9,930 5,866 3,946 250,000 6,400 4,480 250,000
4 13,577 7,739 5,639 250,000 8,450 6,350 250,000
5 17,406 9,536 7,256 250,000 10,421 8,141 250,000
6 21,426 11,248 8,936 250,000 12,305 9,993 250,000
7 25,647 12,873 11,023 250,000 14,120 12,270 250,000
8 30,080 14,409 13,021 250,000 15,860 14,473 250,000
9 34,734 15,852 14,927 250,000 17,527 16,602 250,000
10 39,620 17,196 16,734 250,000 19,115 18,652 250,000
11 44,751 18,438 18,438 250,000 20,842 20,842 250,000
12 50,139 19,565 19,565 250,000 22,493 22,493 250,000
13 55,796 20,563 20,563 250,000 24,060 24,060 250,000
14 61,736 21,421 21,421 250,000 25,540 25,540 250,000
15 67,972 22,120 22,120 250,000 26,923 26,923 250,000
16 74,521 22,649 22,649 250,000 28,204 28,204 250,000
17 81,397 22,991 22,991 250,000 29,397 29,397 250,000
18 88,617 23,137 23,137 250,000 30,505 30,505 250,000
19 96,198 23,073 23,073 250,000 31,527 31,527 250,000
20 104,158 22,775 22,775 250,000 32,458 32,458 250,000
25 150,340 16,601 16,601 250,000 35,590 35,590 250,000
30 209,282 0 0 0 34,930 34,930 250,000
</TABLE>
* These values reflect investment results using guaranteed cost of insurance
rates and administrative charges and the maximum transaction charge for the
zero coupon bond account.
** These values reflect investment results using current cost of insurance rates
and administrative charges and the current transaction charge for the zero
coupon bond account.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-3
<PAGE> 69
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $3,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,028 468 250,000 2,213 653 250,000
2 6,458 4,315 2,575 250,000 4,696 2,956 250,000
3 9,930 6,659 4,739 250,000 7,249 5,329 250,000
4 13,577 9,056 6,956 250,000 9,865 7,765 250,000
5 17,406 11,509 9,229 250,000 12,549 10,269 250,000
6 21,426 14,013 11,700 250,000 15,294 12,982 250,000
7 25,647 16,565 14,715 250,000 18,121 16,271 250,000
8 30,080 19,166 17,778 250,000 21,029 19,641 250,000
9 34,734 21,813 20,888 250,000 24,020 23,095 250,000
10 39,620 24,502 24,040 250,000 27,094 26,632 250,000
11 44,751 27,232 27,232 250,000 30,472 30,472 250,000
12 50,139 29,991 29,991 250,000 33,954 33,954 250,000
13 55,796 32,768 32,768 250,000 37,538 37,538 250,000
14 61,736 35,552 35,552 250,000 41,226 41,226 250,000
15 67,972 38,328 38,328 250,000 45,015 45,015 250,000
16 74,521 41,085 41,085 250,000 48,904 48,904 250,000
17 81,397 43,809 43,809 250,000 52,913 52,913 250,000
18 88,617 46,491 46,491 250,000 57,052 57,052 250,000
19 96,198 49,121 49,121 250,000 61,329 61,329 250,000
20 104,158 51,676 51,676 250,000 65,747 65,747 250,000
25 150,340 62,337 62,337 250,000 90,166 90,166 250,000
30 209,282 65,488 65,488 250,000 118,730 118,730 250,000
</TABLE>
* These values reflect investment results using guaranteed cost of insurance
rates and administrative charges and the maximum transaction charge for the
zero coupon bond account.
** These values reflect investment results using current cost of insurance rates
and administrative charges and the current transaction charge for the zero
coupon bond account.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-4
<PAGE> 70
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $3,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,167 607 250,000 2,359 799 250,000
2 6,458 4,733 2,993 250,000 5,141 3,401 250,000
3 9,930 7,519 5,599 250,000 8,168 6,249 250,000
4 13,577 10,541 8,441 250,000 11,459 9,359 250,000
5 17,406 13,825 11,545 250,000 15,043 12,763 250,000
6 21,426 17,390 15,077 250,000 18,941 16,629 250,000
7 25,647 21,261 19,411 250,000 23,205 21,355 250,000
8 30,080 25,470 24,083 250,000 27,870 26,482 250,000
9 34,734 30,049 29,124 250,000 32,978 32,053 250,000
10 39,620 35,031 34,568 250,000 38,573 38,110 250,000
11 44,751 40,457 40,457 250,000 44,919 44,919 250,000
12 50,139 46,365 46,365 250,000 51,886 51,886 250,000
13 55,796 52,797 52,797 250,000 59,539 59,539 250,000
14 61,736 59,802 59,802 250,000 69,947 67,947 250,000
15 67,972 67,435 67,435 250,000 77,190 77,190 250,000
16 74,521 75,760 75,760 250,000 87,357 87,357 250,000
17 81,397 84,852 84,852 250,000 98,565 98,566 250,000
18 88,617 94,803 94,803 250,000 110,939 110,939 250,000
19 96,198 105,715 105,715 250,000 124,609 124,609 250,000
20 104,158 117,701 117,701 250,000 139,725 139,725 250,000
25 150,340 199,264 199,264 250,000 243,311 243,311 296,840
30 209,282 332,699 332,699 385,931 411,568 411,568 477,419
</TABLE>
* These values reflect investment results using guaranteed cost of insurance
rates and administrative charges and the maximum transaction charge for the
zero coupon bond account.
** These values reflect investment results using current cost of insurance rates
and administrative charges and the current transaction charge for the zero
coupon bond account.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-5
<PAGE> 71
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $3,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,150 1,883 323 251,883 2,062 502 252,062
2 6,458 3,898 2,158 253,898 4,255 2,515 254,255
3 9,930 5,834 3,914 255,834 6,370 4,450 256,370
4 13,577 7,684 5,584 257,684 8,398 6,298 258,398
5 17,406 9,451 7,171 259,451 10,339 8,059 260,339
6 21,426 11,126 8,813 261,126 12,186 9,874 262,186
7 25,647 12,705 10,855 262,705 13,955 12,105 263,955
8 30,080 14,185 12,798 264,185 15,642 14,254 265,642
9 34,734 15,583 14,638 265,563 17,246 16,321 267,246
10 39,620 16,831 16,369 266,831 18,760 18,298 268,760
11 44,751 17,986 17,986 267,986 20,424 20,424 270,424
12 50,139 19,012 19,012 269,012 22,000 22,000 272,000
13 55,796 19,894 19,894 269,894 23,482 23,482 273,482
14 61,736 20,620 20,620 270,620 24,864 24,864 274,864
15 67,972 21,170 21,170 271,170 26,136 26,136 276,136
16 74,521 21,530 21,530 271,530 27,289 27,289 277,289
17 81,397 21,683 21,683 271,683 28,340 28,340 276,340
18 88,617 21,620 21,620 271,620 29,292 29,292 279,292
19 96,198 21,328 21,328 271,328 30,143 30,143 280,143
20 104,158 20,781 20,781 270,781 30,889 30,889 280,889
25 150,340 13,144 13,144 263,144 32,829 32,829 282,829
30 209,282 0 0 0 30,389 30,389 280,389
</TABLE>
* These values reflect investment results using guaranteed cost of insurance
rates and administrative charges and the maximum transaction charge for the
zero coupon bond account.
** These values reflect investment results using current cost of insurance rates
and administrative charges and the current transaction charge for the zero
coupon bond account.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-6
<PAGE> 72
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $3,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,022 462 252,022 2,207 648 252,207
2 6,458 4,297 2,557 254,297 4,680 2,940 254,680
3 9,930 6,622 4,702 256,622 7,214 5,294 257,214
4 13,577 8,990 6,890 258,990 9,803 7,703 259,803
5 17,406 11,404 9,124 261,404 12,447 10,167 262,447
6 21,426 13,855 11,542 263,855 15,141 12,828 265,141
7 25,647 16,339 14,489 266,339 17,901 16,051 267,901
8 30,080 18,854 17,466 268,854 20,724 19,337 270,724
9 34,734 21,394 20,469 271,394 23,612 22,687 273,612
10 39,620 23,952 23,489 273,952 26,559 26,097 276,559
11 44,751 26,552 26,522 276,522 29,813 29,813 279,813
12 50,139 29,087 29,087 279,087 33,146 33,146 283,146
13 55,796 31,629 31,629 281,629 36,551 36,551 286,551
14 61,736 34,131 34,131 284,131 40,025 40,025 290,025
15 67,972 36,570 36,570 286,570 43,558 43,558 293,558
16 74,521 38,925 38,925 288,925 47,144 47,144 297,144
17 81,397 41,171 41,171 291,171 50,799 50,799 300,799
18 88,617 43,291 43,291 293,291 54,527 54,527 304,527
19 96,198 45,262 45,262 295,262 58,330 58,330 308,330
20 104,158 47,047 47,047 297,047 62,202 62,202 312,202
25 150,340 51,564 51,564 301,564 82,448 82,448 332,448
30 209,282 42,728 42,728 292,728 102,671 102,671 352,671
</TABLE>
* These values reflect investment results using guaranteed cost of insurance
rates and administrative charges and the maximum transaction charge for the
zero coupon bond account.
** These values reflect investment results using current cost of insurance rates
and administrative charges and the current transaction charge for the zero
coupon bond account.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-7
<PAGE> 73
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $3,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,161 601 252,161 2,354 794 252,354
2 6,458 4,714 2,974 254,714 5,123 3,383 255,123
3 9,930 7,477 5,557 257,477 8,129 6,209 258,129
4 13,577 10,463 8,363 260,463 11,385 9,285 261,385
5 17,406 13,695 11,415 263,695 14,918 12,638 264,918
6 21,426 17,187 14,875 267,187 18,745 16,432 268,745
7 25,647 20,960 19,110 270,960 22,912 21,062 272,912
8 30,080 25,038 23,650 275,038 27,448 26,061 277,448
9 34,734 29,444 28,519 279,444 32,390 31,465 282,390
10 39,620 34,203 33,741 284,203 37,770 37,307 287,770
11 44,751 39,345 39,345 289,345 43,886 43,886 293,886
12 50,139 44,889 44,889 294,889 50,564 50,564 300,564
13 55,796 50,858 50,858 300,858 57,854 57,854 307,854
14 61,736 57,278 57,278 307,278 65,810 65,810 315,810
15 67,972 64,172 64,172 314,172 74,487 74,487 324,487
16 74,521 71,569 71,569 321,569 83,951 83,951 333,951
17 81,397 79,499 79,499 329,499 94,296 94,296 344,296
18 88,617 88,002 88,002 338,002 105,614 105,614 355,614
19 96,198 97,117 97,117 347,117 118,003 118,003 368,003
20 104,158 106,875 106,875 356,875 131,566 131,566 381,566
25 150,340 166,360 166,360 416,360 221,344 221,344 471,344
30 209,282 246,028 246,028 496,028 362,159 362,159 612,159
</TABLE>
* These values reflect investment results using guaranteed cost of insurance
rates and administrative charges and the maximum transaction charge for the
zero coupon bond account.
** These values reflect investment results using current cost of insurance rates
and administrative charges and the current transaction charge for the zero
coupon bond account.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD ALSO BE
DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE
SEPARATE ACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE SEPARATE ACCOUNTS IF
THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%
OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SEPARATE ACCOUNTS.
NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-8
<PAGE> 74
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 1.50
1967 14.63 2.01 2.38
1972 11.67 2.95 3.39
1977 8.12 3.99 4.44
1982 8.30 4.47 6.51
1987 9.27 7.88 7.44
1992 11.33 9.54 7.70
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> 75
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> 76
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> 77
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> 78
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> 79
- --------------------------------------------------------------------------------
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> 80
- --------------------------------------------------------------------------------
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> 81
- --------------------------------------------------------------------------------
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> 82
- --------------------------------------------------------------------------------
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> 83
- --------------------------------------------------------------------------------
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> 84
- --------------------------------------------------------------------------------
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> 85
- --------------------------------------------------------------------------------
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> 86
- --------------------------------------------------------------------------------
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> 87
- --------------------------------------------------------------------------------
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> 88
- --------------------------------------------------------------------------------
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> 89
- --------------------------------------------------------------------------------
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> 90
- --------------------------------------------------------------------------------
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> 91
- --------------------------------------------------------------------------------
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> 92
- --------------------------------------------------------------------------------
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> 93
- --------------------------------------------------------------------------------
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> 94
- --------------------------------------------------------------------------------
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> 95
- --------------------------------------------------------------------------------
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> 96
- --------------------------------------------------------------------------------
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> 97
- --------------------------------------------------------------------------------
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> 98
- --------------------------------------------------------------------------------
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> 99
- --------------------------------------------------------------------------------
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> 100
- --------------------------------------------------------------------------------
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> 101
- --------------------------------------------------------------------------------
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> 102
- --------------------------------------------------------------------------------
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> 103
- --------------------------------------------------------------------------------
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> 104
- --------------------------------------------------------------------------------
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> 105
- --------------------------------------------------------------------------------
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> 106
- --------------------------------------------------------------------------------
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> 107
- --------------------------------------------------------------------------------
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> 108
- --------------------------------------------------------------------------------
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> 109
- --------------------------------------------------------------------------------
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> 110
- --------------------------------------------------------------------------------
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> 111
- --------------------------------------------------------------------------------
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> 112
- --------------------------------------------------------------------------------
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> 113
- --------------------------------------------------------------------------------
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> 114
- --------------------------------------------------------------------------------
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> 115
- --------------------------------------------------------------------------------
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> 116
- --------------------------------------------------------------------------------
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> 117
- --------------------------------------------------------------------------------
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> 118
- --------------------------------------------------------------------------------
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> 119
- --------------------------------------------------------------------------------
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> 120
- --------------------------------------------------------------------------------
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> 121
- --------------------------------------------------------------------------------
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> 122
- --------------------------------------------------------------------------------
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> 123
- --------------------------------------------------------------------------------
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> 124
- --------------------------------------------------------------------------------
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> 125
- --------------------------------------------------------------------------------
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> 126
- --------------------------------------------------------------------------------
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> 127
- --------------------------------------------------------------------------------
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> 128
- --------------------------------------------------------------------------------
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> 129
- --------------------------------------------------------------------------------
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> 130
- --------------------------------------------------------------------------------
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> 131
- --------------------------------------------------------------------------------
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> 132
- --------------------------------------------------------------------------------
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> 133
- --------------------------------------------------------------------------------
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> 134
- --------------------------------------------------------------------------------
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> 135
- --------------------------------------------------------------------------------
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> 136
- --------------------------------------------------------------------------------
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> 137
- --------------------------------------------------------------------------------
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> 138
- --------------------------------------------------------------------------------
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> 139
- --------------------------------------------------------------------------------
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> 140
- --------------------------------------------------------------------------------
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> 141
- --------------------------------------------------------------------------------
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> 142
- --------------------------------------------------------------------------------
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> 143
- --------------------------------------------------------------------------------
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> 144
- --------------------------------------------------------------------------------
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> 145
- --------------------------------------------------------------------------------
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> 146
- --------------------------------------------------------------------------------
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> 147
- --------------------------------------------------------------------------------
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> 148
- --------------------------------------------------------------------------------
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> 149
- --------------------------------------------------------------------------------
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> 150
- --------------------------------------------------------------------------------
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> 151
- --------------------------------------------------------------------------------
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> 152
- --------------------------------------------------------------------------------
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> 153
- --------------------------------------------------------------------------------
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> 154
- --------------------------------------------------------------------------------
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> 155
- --------------------------------------------------------------------------------
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> 156
- --------------------------------------------------------------------------------
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> 157
- --------------------------------------------------------------------------------
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> 158
- --------------------------------------------------------------------------------
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> 159
- --------------------------------------------------------------------------------
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> 160
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article VIII of PMLIC's By-Laws provides, in part:
To the fullest extent permitted by law, the Company shall indemnify
any present, former or future Director, officer, or employee of the Company
or any person who may serve or has served at its request as officer or
Director of another corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including attorney's fees,
necessarily incurred in connection with the defense of any action, suit or
other proceeding to which any of them is made a party because of service as
Director, officer or employee of the Company or such other corporation, or
in connection with any appeal therein, and against any amounts paid by such
Director, officer or employee in settlement of, or in satisfaction of a
judgement or fine in, any such action or proceeding, except expenses
incurred in defense of or amounts paid in connection with any action, suit
or other proceeding in which such director, officer or employee shall be
adjudged to be liable for negligence or misconduct in the performance of
his duty.
Insofar as indemnification or liability arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REPRESENTATION OF REASONABLENESS
Provident Mutual Life Insurance Company hereby represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by Provident Mutual Life Insurance Company.
II-1
<PAGE> 161
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
A reconciliation and tie-on of the information shown in the Prospectus
with items of Form N-8B-2.
The Prospectus consisting of 55 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)
1.A.3.a.iii. Amendment to Underwriting Agreement(1)
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)
1.A.3.b.iii. PGA's Agreement and Supplements(1)
1.A.3.b.iv. Special Agent's Career Agreement and Supplement(1)
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)
1.A.3.c.iii. PGA Commission Schedules(1)
</TABLE>
II-2
<PAGE> 162
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<S> <C> <C>
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 Variable Life
Insurance Policy Forms (C126, C126A, C127, C127A & C128)
1.A.5.a. Children's Term Rider (C306)
1.A.5.b. Convertible Term Life Rider (C308)
1.A.5.c. Extension of Final Policy Date Rider (C822)
1.A.5.d. Qualify as part of Section 403(b) Rider (C827)
1.A.5.e. Change of Insured Rider (C901)
1.A.5.f. Disability Waiver Benefit Rider (C902)
1.A.5.g. Disability Waiver of Premium Rider (C903)
1.A.5.h. Accelerated Death Benefit Rider (C/D904)(1)
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)
9. None
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)
10.e. Participation Agreement among The Alger American Fund,
Provident Mutual Life Insurance Company, and Fred Alger and
Company Incorporated(1)
</TABLE>
II-3
<PAGE> 163
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<S> <C> <C>
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> 164
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
</TABLE>
II-5
<PAGE> 165
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director May 1, 1998
- ------------------------------------------------
PHILIP C. HERR, II
* 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
</TABLE>
*By: WILLIAM P. LOESCHE
------------------------------
WILLIAM P. LOESCHE
Attorney-in-fact
pursuant to Power of Attorney
II-6
<PAGE> 166
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> 167
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<S> <C> <C>
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy Forms (C126, C126A, C127, C127A & C128)
1.A.5.a. Children's Term Rider (C306)
1.A.5.b. Convertible Term Life Rider (C308)
1.A.5.c. Extension of Final Policy Date Rider (C822)
1.A.5.d. Qualify as part of Section 403(b) Rider (C827)
1.A.5.e. Change of Insured Rider (C901)
1.A.5.f. Disability Waiver Benefit Rider (C902)
1.A.5.g. Disability Waiver of Premium Rider (C903)
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
Exhibit 1.A.5
PROVIDENT MUTUAL LIFE
INSURANCE COMPANY OF
PHILADELPHIA
PHILADELPHIA, PENNSYLVANIA
-------------------------------------
INSURED JOHN DOE
05/28/1995 POLICY ISSUE DATE
POLICY NUMBER 9,000,000
35, MALE ISSUE AGE AND SEX
FACE AMOUNT $200,000.00 05/28/1995 POLICY DATE
DEATH BENEFIT OPTION A
-------------------------------------
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA agrees:
- To pay the Beneficiary of this Policy the Insurance Proceeds upon
receiving due proof of the Insured's death;
- To provide you (the Policy Owner) with the other rights and benefits of
this Policy.
These agreements are subject to the provisions of this Policy.
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE INSURANCE COVERAGE, OR
BOTH, MAY BE VARIABLE OR FIXED, AS DESCRIBED ON PAGE 9.
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 a copy of
the Application are included in this Policy after page 19.
This is a legal contract between the Owner and
Provident Mutual Life Insurance Company of Philadelphia.
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 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 date 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
Registrar President and Chief Executive Officer
Flexible Premium Adjustable Variable Life Insurance Policy.
Insurance Proceeds payable upon death before Final Policy Date.
Policy Account Value payable on Final Policy Date.
Adjustable Death Benefit.
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 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 Insured's death, 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 10 Policy Years or within 10 years after
the effective date of an increase in the Face Amount, 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 Insured dies. If a Payment Option is not in force
when the Insured dies, the Beneficiary will be able to elect a Payment Option
for the 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 increase or 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
INSURED JOHN DOE
POLICY NUMBER 9,000,000 05/28/1995 POLICY ISSUE DATE
FACE AMOUNT $200,000.00 35, MALE ISSUE AGE AND SEX
DEATH BENEFIT OPTION A 05/28/1995 POLICY DATE
PREMIUM CLASS STANDARD 05/28/2060 FINAL POLICY DATE
BENEFITS
--------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
INITIAL FACE AMOUNT $200,000.00
RIDER - CHILDRENS TERM INSURANCE $10,000
RIDER - ACCELERATED DEATH BENEFIT
This Policy provides life insurance coverage on the Insured 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 - $224.73
PLANNED PERIODIC PREMIUM - $87.54 PAYABLE MONTHLY
MINIMUM ANNUAL PREMIUM - $1,348.40
MINIMUM FACE AMOUNT - $200,000.00 AFTER 10TH POLICY YEAR
MINIMUM PAYMENT - $25.00
PARTIAL WITHDRAWAL - MINIMUM AMOUNT $1,500.00
TRANSFERS - MINIMUM AMOUNT $1,000.00
POLICY LOAN - FIXED 6.00% POLICY LOAN INTEREST RATE
MINIMUM LOAN AMOUNT - $500.00
Page 3
<PAGE> 4
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
EXPENSE CHARGES
PREMIUM EXPENSE CHARGE
CONSISTS OF THE FOLLOWING:
1. A Premium Tax Charge of 2.35% 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 insured's
residence changes.
2. A percent of premium charge not exceeding 3% will be deducted from each
premium payment.
INITIAL ADMINISTRATIVE CHARGE
$ 17.50 deducted monthly from the Policy Account Value on the
first 12 policy processing days.
MONTHLY ADMINISTRATIVE CHARGE
$7.50 deducted monthly from the Policy Account Value. We
reserve the right to increase this charge, but it will not be greater than
$12.00 a month.
FOR PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
$25.00 deducted from the Policy Account Value whenever you
make a partial withdrawal.
FOR AN INCREASE IN FACE AMOUNT
$50.00 plus $1.00 per $1,000 of increase in face amount deducted from the
Policy Account Value. We reserve the right to increase this charge, but it
will not be greater than $50.00 plus $3.00 per $1,000.
FOR TRANSFERS
After the first four transfers of amounts among your investment options
during a Policy Year, we will charge $25.00 for each additional transfer
during that Policy Year.
Page 4
<PAGE> 5
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
SURRENDER CHARGES
If this Policy is surrendered or lapses during the first 10 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 Deferred
Administrative Charge and the Deferred Sales Charge.
The Deferred Administrative Charge at any time during the policy year is $600.00
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 27.00% of the first $2,634.00
in premium payments received during the first Policy Year plus 6.00% 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 Policy Maximum
Year Factor Charge Year Factor Charge
<S> <C> <C> <C> <C> <C> <C>
1 1.00 $1,317.00 6 1.00 $1,317.00
2 1.00 $1,317.00 7 .80 $1,053.60
3 1.00 $1,317.00 8 .60 $ 790.20
4 1.00 $1,317.00 9 .40 $ 526.80
5 1.00 $1,317.00 10 .20 $ 263.40
</TABLE>
If the Face Amount of this Policy is decreased at any time during the first 10
Policy Years, a pro rata share of the Surrender Charge will be deducted.
If the Face Amount of this Policy is increased at any time, and within 10 years
of the effective date of such increase you decrease the Face Amount or surrender
this Policy, a Deferred Additional Sales Charge will be deducted.
Page 4A
<PAGE> 6
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
GUARANTEED MONTHLY COST OF INSURANCE RATES PER 1 ,000 OF NET
AMOUNT AT RISK
<TABLE>
<CAPTION>
Attained Attained Attained
Age Rate Age Rate Age Rate
<S> <C> <C> <C> <C> <C> <C>
35 .21917 57 1.50750 79 9.45750
36 .23417 58 1.64083 80 10.13250
37 .25333 59 1.77917 81 10.86750
38 .27500 60 1.93250 82 11.68333
39 .30000 61 2.10500 83 12.58583
40 .32833 62 2.29917 84 13.54083
41 .36167 63 2.51917 85 14.51667
42 .39583 64 2.76167 86 15.48167
43 .43500 65 3.02417 87 16.42167
44 .47583 66 3.29750 88 17.44750
45 .52250 67 3.58417 89 18.46000
46 .56917 68 3.87917 90 19.47417
47 .62000 69 4.19333 91 20.51000
48 .67333 70 4.54000 92 21.61083
49 .73333 71 4.92417 93 23.02500
50 .79167 72 5.36083 94 24.84583
51 .87000 73 5.85250 95 27.49667
52 .95167 74 6.38833 96 32.04583
53 1.04500 75 6.98083 97 40.01667
54 1.15000 76 7.59167 98 54.83167
55 1.26167 77 8.21000 99 83.33333
56 1.38250 78 8.82583
</TABLE>
Page 5
<PAGE> 7
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> 8
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> 9
DEFINITIONS
ATTAINED AGE. The Issue Age of the Insured plus the number of full 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
Insured dies. (See Amount of Insurance Proceeds provision.)
INSURED. The person named as the Insured on the first page. He or she 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
Application, a copy of which is attached, and all subsequent Applications to
change the policy and all additional Policy Schedule pages 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 person(s) 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.
SUICIDE EXCLUSION. If the Insured, whether sane or insane, dies by suicide
within two years from the Policy Issue Date, 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. If the Insured, whether sane or insane,
dies by suicide within two years of the Effective Date of a policy change which
increases the Death Benefit, our payment with respect to such increase will be
limited to the sum of the monthly deductions for the cost of insurance
attributable to such increase and the expense charge for the increase in Face
Amount deducted from the Policy Account Value.
MISSTATEMENT OF AGE OR SEX. If the Insured's stated age or Sex 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. There is no adjustment to the Policy Account Value at that time.
INCONTESTABILITY. We have the right to contest the validity of this Policy based
on material misstatements made in the initial Application 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 Insured's lifetime for
two years from the Policy Issue Date, except for nonpayment of the Minimum
Initial Premium. 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 the 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.
Page 7
<PAGE> 10
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 Insured's death
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.
POLICYOWNER AND BENEFICIARY PROVISIONS
OWNERSHIP. Unless otherwise stated in the Application or later changed, the
Owner of this Policy is the Insured. While the Insured is living, the Owner
alone is entitled to exercise any right and privilege granted by this Policy or
by us. If the Insured 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 the Insured 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 stated in the Application, unless later changed.
When a Beneficiary is designated, any relationship shown is to the Insured,
unless otherwise stated. If two or more persons are named, those surviving the
Insured will share the Insurance Proceeds equally, unless otherwise stated. If
none of the persons named survives the Insured, we will pay the Insurance
Proceeds in one sum to the Insured's estate.
CHANGES. While the Insured is living, you may change the Owner or Beneficiary by
written notice in a form satisfactory to us. The change will take effect on the
date you sign the notice, 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. We assume no responsibility for the validity of any
assignments.
Page 8
<PAGE> 11
DEATH BENEFIT PROVISIONS
If the Insured dies while this Policy is in force, we will pay the Insurance
Proceeds to the Beneficiary when we receive: (1) proof that the Insured 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 at such time.
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 (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, or a percentage of
the Policy Account Value on the date of death (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 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 the Insured's death 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 Insured occurs during
the Grace Period.
PAYMENT OF INSURANCE PROCEEDS. 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 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.
CHANGING THE FACE AMOUNT OF INSURANCE OR DEATH BENEFIT OPTION. 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 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, provided we have received the 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 a part of this Policy. We may require you to return
this Policy to make a change.
Page 9
<PAGE> 12
FACE AMOUNT INCREASE. You may request a Face Amount increase subject to the
following:
a. you must provide evidence satisfactory to us of the Insured's
insurability;
b. the Insured's Attained Age must be 75 years or less;
c. you may not have increased the Face Amount in the prior 12-month
period;
d. the Face Amount increase must be for at least $25,000.
We will deduct the expense charge for an increase in Face Amount shown
in the Policy Schedule from the Policy Account Value as of the effective date of
the increase. The deduction will be made in accordance with the allocation
schedule for monthly deductions in effect at such time.
You may cancel an increase in Face Amount and receive a refund by giving us
written notice no later than: (a) 10 days after you receive the new Policy
Schedule pages reflecting the increase; or (b) 45 days after you signed the
application for the increase. The amount of the refund will be equal to the
monthly deductions for such increase plus the expense charge for the increase in
Face Amount shown in the Policy Schedule. If you cancel the increase but do not
request a refund, we will add the refund to the Policy Account Value. This
amount will be allocated in the same proportion as it was deducted.
CONVERSION PRIVILEGE FOR INCREASE. You have the right once during the first two
years following the Effective Date of an increase in Face Amount to convert the
increase in Face Amount and receive a life insurance policy that provides for
fixed benefits. No evidence of insurability will be required. The new Policy
will have the same Face Amount and Issue Date as the amount and Effective Date
of the increase. Premiums for the new Policy will be based on our rates in
effect for the same Attained Age, Sex and Premium Class of the Insured as of the
Effective Date of the increase. A refund will be made equal to the monthly
deductions for such increase plus the expense charge for the increase shown in
the Policy Schedule.
FACE AMOUNT DECREASE. You may request a Face Amount decrease provided:
a. during the first 10 Policy Years, 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; after the 10th Policy Year the
minimum amount after the decrease is shown in the Policy Schedule;
b. the amount of the decrease is for at least $25,000;
c. you may not have increased the Face Amount in the prior 12-month
period;
d. if the decrease is made during the first 10 Policy Years, or within 10
years following the effective date of a Face Amount increase, we will
deduct a pro rata share of any applicable surrender charges from the
Policy Account Value.
e. A decrease in the Face Amount will reduce this Policy's Face Amount in
the following order:
1. the Face Amount attributable to the most recent Face Amount
increase;
2. the Face Amount attributable to the next most recent Face Amount
increases, successively;
3. the Initial Face Amount.
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 or the expense charge to increase the Face Amount
for such changes.
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.
Page 10
<PAGE> 13
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 Insured
stay the same as described in the application 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 the Insured's insurability satisfactory to us.
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
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 the Insured is alive if you:
1. apply for reinstatement within three years after the end of the Grace
Period;
2. provide evidence of the Insured's insurability satisfactory to us; 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; and
2. Percent of Premium 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.
Page 11
<PAGE> 14
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. 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 the Separate Accounts which equals the reserves
or other policy liabilities of the policies which are supported by the Separate
Accounts 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 the
Separate Accounts 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.
Page 12
<PAGE> 15
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.
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.
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 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.
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 the 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.
Page 13
<PAGE> 16
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.
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 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 it 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).
Page 14
<PAGE> 17
The cost of insurance rates are based on the Insured's Attained Age, Sex,
Premium Class and duration. For the Initial Face Amount, we will use the Premium
Class as of the Policy Issue Date. For each Face Amount increase, we will use
the Premium Class and duration applicable to the increase. 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. If Death Benefit Option A is
in effect and there have been Face Amount increases, the Policy Account Value
will first be considered as part of the Initial Face Amount. If the Policy
Account Value exceeds the Initial Face Amount, it will be considered as a part
of the increases in Face Amount in the order of such increases.
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 10 Policy Years or within 10
years of the effective date of an increase in Face Amount, 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 to increase the Face Amount of insurance;
4. 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 the 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 any Additional Surrender Charge, 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 10 Policy Years, or if this Policy lapses during the first 10
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 Initial Face Amount during any of the first
10 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 Initial Face Amount divided by the Initial Face Amount
as of the effective date of such reduction. We will allocate the pro rat
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.
ADDITIONAL SURRENDER CHARGE. If you surrender this Policy for its Net Cash
Surrender Value within 10 years of the effective date of an increase in Face
Amount or if this policy lapses within 10 years of the effective date of an
increase in Face Amount, we will deduct an Additional Surrender Charge from the
Policy Account Value. The Additional Surrender Charge is a Deferred Additional
Sales Charge. The amount of such charge or charges will be shown in the Policy
Schedule pages issued when you increase the Face Amount.
If you request a reduction in Face Amount within 10 years of the effective
date of a Face Amount increase, we will deduct a pro rata Additional Surrender
Charge from the Policy Account Value as of the effective date of such
reduction. The amount of such pro rata Additional Surrender Charge will be the
Additional Surrender Charge applicable to the Face Amount increase multiplied
by the amount of reduction in the Face Amount increase divided by the amount of
the Face Amount increase as of the effective date of such reduction.
We will allocate the pro rata Additional 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.
Page 15
<PAGE> 18
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.
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
the 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 16
<PAGE> 19
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 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 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 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 17
<PAGE> 20
<TABLE>
<CAPTION>
OPTION 3-INSTALMENTS FOR A SPECIFIED PERIOD
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under Option 3
======================================================================================================================
Monthly Instalments Certain
- ----------------------------------------------------------------------------------------------------------------------
No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12 $84.47 72 $15.14 132 $8.86 192 $6.53 252 $5.32 312 $4.59
24 42.86 84 13.16 144 8.24 204 6.23 264 5.15 324 4.47
36 28.99 96 11.68 156 7.71 216 5.96 276 4.99 336 4.37
48 22.06 108 10.53 168 7.26 228 5.73 288 4.84 348 4.27
60 17.91 120 9.61 180 6.87 240 5.51 300 4.71 360 4.18
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
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.
====================================================================================================================================
Number of Monthly Number of Monthly Number of Monthly Number of Monthly
Age of Instalments Certain Age of Instalments Certain Age of Instalments Certain Age of Instalments Certain
Payee* ------------------------ Payee* -------------------------- Payee* ------------------------ Payee* ---------------------------
Until Until Until Until
None 120 240 Proceeds None 120 240 Proceeds None 120 240 Proceeds None 120 240 Proceeds
Are Are Are Are
M Refunded M Refunded M Refunded M Refunded
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5** $2.81 $2.81 $2.81 $2.80 25 $3.14 $3.14 $3.13 $3.12 45 $3.93 $3.90 $3.82 $3.80 65 $6.10 $5.81 $5.02 $5.43
6 2.83 2.82 2.82 2.81 26 3.17 3.16 3.15 3.14 46 3.99 3.96 3.87 3.85 66 6.29 5.96 5.08 5.56
7 2.84 2.84 2.83 2.83 27 3.19 3.19 3.18 3.16 47 4.05 4.02 3.92 3.90 67 6.50 6.11 5.13 5.70
8 2.85 2.85 2.84 2.84 28 3.22 3.22 3.20 3.19 48 4.12 4.09 3.97 3.96 68 6.73 6.28 5.18 5.85
9 2.86 2.86 2.86 2.85 29 3.25 3.24 3.23 3.21 49 4.19 4.15 4.03 4.01 69 6.97 6.44 5.23 6.00
10 2.87 2.87 2.87 2.86 30 3.28 3.27 3.26 3.24 50 4.27 4.22 4.08 4.08 70 7.23 6.61 5.27 6.16
11 2.89 2.89 2.88 2.88 31 3.31 3.30 3.29 3.27 51 4.34 4.29 4.14 4.14 71 7.51 6.78 5.31 6.33
12 2.90 2.90 2.90 2.89 32 3.34 3.33 3.32 3.30 52 4.43 4.37 4.20 4.20 72 7.80 6.96 5.34 6.51
13 2.92 2.91 2.91 2.90 33 3.37 3.37 3.35 3.33 53 4.51 4.45 4.26 4.27 73 8.12 7.14 5.37 6.70
14 2.93 2.93 2.92 2.92 34 3.41 3.40 3.38 3.36 54 4.60 4.54 4.32 4.35 74 8.45 7.32 5.40 6.90
15 2.95 2.95 2.94 2.93 35 3.44 3.44 3.41 3.39 55 4.70 4.62 4.39 4.42 75 8.82 7.49 5.42 7.11
16 2.96 2.96 2.96 2.95 36 3.48 3.48 3.45 3.42 56 4.80 4.72 4.45 4.50 76 9.21 7.67 5.44 7.33
17 2.98 2.98 2.97 2.96 37 3.52 3.51 3.48 3.46 57 4.91 4.82 4.51 4.58 77 9.62 7.84 5.45 7.56
18 3.00 3.00 2.99 2.98 38 3.57 3.56 3.52 3.50 58 5.03 4.92 4.58 4.67 78 10.07 8.01 5.47 7.80
19 3.02 3.01 3.01 3.00 39 3.61 3.60 3.56 3.53 59 5.15 5.03 4.64 4.76 79 10.55 8.17 5.48 8.05
20 3.04 3.03 3.03 3.02 40 3.66 3.64 3.60 3.57 60 5.28 5.14 4.71 4.86 80 11.06 8.33 5.49 8.32
21 3.06 3.05 3.05 3.04 41 3.71 3.69 3.64 3.61 61 5.42 5.26 4.78 4.96 81 11.61 8.48 5.49 8.60
22 3.08 3.07 3.07 3.06 42 3.76 3.74 3.68 3.66 62 5.57 5.39 4.84 5.07 82 12.19 8.61 5.50 8.89
23 3.10 3.09 3.09 3.08 43 3.81 3.79 3.73 3.70 63 5.74 5.52 4.90 5.19 83 12.81 8.74 5.50 9.20
24 3.12 3.12 3.11 3.10 44 3.87 3.85 3.77 3.75 64 5.91 5.66 4.96 5.30 84 13.46 8.86 5.51 9.52
85+ 14.16 8.97 5.51 9.85
====================================================================================================================================
<CAPTION>
Number of Monthly Number of Monthly Number of Monthly Number of Monthly
Age of Instalments Certain Age of Instalments Certain Age of Instalments Certain Age of Instalments Certain
Payee* ------------------------ Payee* -------------------------- Payee* ------------------------ Payee* ---------------------------
Until Until Until Until
None 120 240 Proceeds None 120 240 Proceeds None 120 240 Proceeds None 120 240 Proceeds
Are Are Are Are
F Refunded F Refunded F Refunded F Refunded
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5** $2.75 $2.75 $2.75 $2.74 25 $3.02 $3.02 $3.01 $3.01 45 $3.63 $3.63 $3.59 $3.57 65 $5.35 $5.22 $4.79 $4.97
6 2.76 2.76 2.76 2.75 26 3.04 3.04 3.03 3.02 46 3.68 3.67 3.63 3.61 66 5.51 5.36 4.86 5.08
7 2.77 2.77 2.77 2.76 27 3.06 3.06 3.05 3.04 47 3.73 3.72 3.68 3.66 67 5.67 5.50 4.93 5.20
8 2.78 2.78 2.78 2.77 28 3.08 3.08 3.07 3.06 48 3.79 3.77 3.72 3.70 68 5.85 5.65 5.00 5.33
9 2.79 2.79 2.79 2.78 29 3.10 3.10 3.09 3.09 49 3.84 3.83 3.77 3.75 69 6.04 5.80 5.06 5.47
10 2.80 2.80 2.80 2.79 30 3.13 3.12 3.12 3.11 50 3.90 3.89 3.82 3.80 70 6.25 5.96 5.12 5.61
11 2.81 2.81 2.81 2.80 31 3.15 3.15 3.14 3.13 51 3.97 3.95 3.88 3.86 71 6.47 6.14 5.18 5.76
12 2.82 2.82 2.82 2.82 32 3.18 3.17 3.16 3.15 52 4.03 4.01 3.93 3.91 72 6.71 6.31 5.23 5.93
13 2.83 2.83 2.83 2.83 33 3.20 3.20 3.19 3.18 53 4.10 4.08 3.99 3.97 73 6.97 6.50 5.28 6.10
2.85 2.85 2.84 2.84 34 3.23 3.23 3.22 3.20 54 4.18 4.15 4.04 4.03 74 7.26 6.69 5.32 6.28
14
15 2.86 2.86 2.86 2.85 35 3.26 3.26 3.24 3.23 55 4.25 4.22 4.11 4.10 75 7.56 6.89 5.35 6.48
16 2.87 2.87 2.87 2.86 36 3.29 3.29 3.27 3.26 56 4.34 4.30 4.17 4.17 76 7.90 7.09 5.39 6.68
17 2.89 2.89 2.80 2.88 37 3.32 3.32 3.30 3.29 57 4.42 4.38 4.23 4.24 77 8.26 7.29 5.41 6.90
18 2.90 2.90 2.90 2.89 38 3.35 3.35 3.33 3.32 58 4.52 4.47 4.30 4.31 78 8.65 7.49 5.43 7.13
19 2.92 2.92 2.91 2.91 39 3.39 3.38 3.37 3.35 59 4.61 4.56 4.37 4.39 79 9.07 7.69 5.45 7.38
20 2.93 2.93 2.93 2.93 40 3.42 3.42 3.40 3.38 60 4.72 4.66 4.44 4.48 80 9.53 7.89 5.47 7.64
21 2.95 2.95 2.94 2.94 41 3.46 3.46 3.43 3.42 61 4.83 4.76 4.51 4.56 81 10.03 8.08 5.48 7.91
22 2.96 2.96 2.96 2.95 42 3.50 3.50 3.47 3.45 62 4.95 4.86 4.58 4.66 82 10.57 8.26 5.49 8.21
23 2.98 2.98 2.98 2.97 43 3.54 3.54 3.51 3.49 63 5.07 4.98 4.65 4.75 83 11.16 8.43 5.49 8.51
24 3.00 3.00 2.99 2.99 44 3.59 3.58 3.55 3.53 64 5.21 5.10 4.72 4.86 84 11.79 8.59 5.50 8.83
85+ 12.48 8.74 5.50 9.18
====================================================================================================================================
*On birthday nearest to due date of first instalment. **Ages 5 and under. +Ages 85 and over.
</TABLE>
Page 18
<PAGE> 21
<TABLE>
<CAPTION>
OPTION 5 - JOINT AND SURVIVOR LIFE INCOME
Montly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under Option 5
- -------------------------------------------------------------------------------------------------------------------------
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 65 70 75 80
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <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 $3.99 $4.08 $4.14 $4.18
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 4.04 4.13 4.20 4.25
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 4.08 4.19 4.27 4.32
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 4.13 4.25 4.34 4.40
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 4.18 4.31 4.41 4.48
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 4.23 4.37 4.48 4.56
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 4.28 4.44 4.56 4.64
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 4.33 4.50 4.64 4.73
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 4.38 4.57 4.72 4.82
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 4.43 4.64 4.80 4.92
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 4.48 4.71 4.89 5.02
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 4.53 4.77 4.98 5.12
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 4.58 4.84 5.07 5.23
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 4.62 4.91 5.16 5.34
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 4.67 4.98 5.25 5.45
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 4.71 5.05 5.35 5.57
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 4.91 5.36 5.81 6.18
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 5.05 5.62 6.23 6.78
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 5.14 5.79 6.54 7.27
- -------------------------------------------------------------------------------------------------------------------------
<FN>
* 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.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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 65 70 75 80
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <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 $3.96 $4.03 $4.06 $4.08
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 4.00 4.08 4.12 4.14
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 4.05 4.13 4.17 4.19
53 3.65 3.68 3.71 3.75 3.78 3.81 3.84 3.87 3.90 3.93 3.96 3.99 4.02 4.04 4.07 4.09 4.18 4.23 4.25
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 4.13 4.23 4.29 4.31
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 4.18 4.29 4.35 4.38
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 4.22 4.34 4.41 4.44
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 4.27 4.40 4.47 4.50
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 4.31 4.45 4.53 4.57
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 4.35 4.50 4.59 4.63
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 4.39 4.55 4.65 4.69
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 4.43 4.61 4.71 4.76
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 4.47 4.66 4.77 4.82
63 3.77 3.81 3.86 3.91 3.95 4.00 4.05 4.10 4.16 4.21 4.26 4.31 4.36 4.41 4.46 4.50 4.70 4.83 4.88
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 4.54 4.75 4.88 4.94
65 3.78 3.83 3.88 3.93 3.98 4.03 4.08 4.14 4.19 4.25 4.30 4.36 4.41 4.46 4.52 4.57 4.79 4.93 5.00
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 4.69 4.97 5.15 5.24
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 4.76 5.07 5.28 5.38
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 4.78 5.11 5.33 5.44
- -------------------------------------------------------------------------------------------------------------------------
<FN>
* 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.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 19
<PAGE> 22
A GUIDE TO THE PROVISIONS OF THIS POLICY
Page
----
Calculation of Values ....................................... 13-15
Death Benefit Provisions .................................... 9-10
Definitions ................................................. 7
Description of Separate Accounts ............................ 6
Dividend Provisions ......................................... 16
Endorsements ................................................ 21
General Provisions .......................................... 7-8
Payment Options ............................................. 17-19
Policy Account Value: Allocations
and Transfers .............................................. 13
Policy Description .......................................... 2
Policy Loan Provisions ...................................... 16
Policy Owner and Beneficiary
Provisions ................................................. 8
Policy Specifications ....................................... 3-5
Premium Expense Charge ...................................... 11
Premium Payment Provisions .................................. 10-11
Separate Accounts ........................................... 12
Surrenders and Withdrawals .................................. 15-16
Page 21
<PAGE> 23
Flexible Premium Adjustable Variable Life Insurance Policy.
Insurance Proceeds payable upon death before Final Policy Date.
Policy Account Value payable on Final Policy Date.
Adjustable Death Benefit.
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.
[PROVIDENT MUTUAL LIFE INSURANCE COMPANY LOGO]
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
1600 Market Street, Philadelphia, Pennsylvania 19103
<PAGE> 24
PROVIDENT MUTUAL LIFE
INSURANCE COMPANY OF
PHILADELPHIA
Philadelphia, Pennsylvania
---------------------------------
INSURED JOHN DOE
05/28/1995 POLICY ISSUE DATE
POLICY NUMBER 9,000,000
35, MALE ISSUE AGE AND SEX
FACE AMOUNT $200,000.00 05/28/1995 POLICY DATE
DEATH BENEFIT OPTION A
---------------------------------
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA agrees:
- To pay the Beneficiary of this Policy the Insurance Proceeds upon
receiving due proof of the Insured's death;
- To provide you (the Policy Owner) with the other rights and benefits of
this Policy.
These agreements are subject to the provisions of this Policy.
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE INSURANCE COVERAGE, OR
BOTH, MAY BE VARIABLE OR FIXED, AS DESCRIBED ON PAGE 9.
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 a copy of
the Application are included in this Policy after page 19.
This is a legal contract between the Owner and
Provident Mutual Life Insurance Company of Philadelphia.
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 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 the premiums you
paid under this policy.
Attest /s/ Robert W. Kloss
President and Chief Executive Officer
Registrar
Flexible Premium Adjustable Variable Life Insurance Policy.
Insurance Proceeds payable upon death before Final Policy Date.
Policy Account Value payable on Final Policy Date.
Adjustable Death Benefit.
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> 25
POLICY DESCRIPTION
This is a flexible premium adjustable 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 Insured's death, 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 10 Policy Years or within 10 years after
the effective date of an increase in the Face Amount, 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 Insured dies. If a Payment Option is not in force
when the Insured dies, the Beneficiary will be able to elect a Payment Option
for the 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 increase or 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> 26
POLICY SCHEDULE
INSURED JOHN DOE
POLICY NUMBER 9,000,000 05/28/1995 POLICY ISSUE DATE
FACE AMOUNT $200,000.00 35, MALE ISSUE AGE AND SEX
DEATH BENEFIT OPTION A 05/28/1995 POLICY DATE
PREMIUM CLASS STANDARD 05/28/2060 FINAL POLICY DATE
BENEFITS
--------
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
INITIAL FACE AMOUNT $200,000.00
RIDER - CHILDRENS TERM INSURANCE $10,000
RIDER - ACCELERATED DEATH BENEFIT
This Policy provides life insurance coverage on the Insured 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 - $224.73
PLANNED PERIODIC PREMIUM - $87.54 PAYABLE MONTHLY
MINIMUM ANNUAL PREMIUM - $1,348.40
MINIMUM FACE AMOUNT - $200,000.00 AFTER 10TH POLICY YEAR
MINIMUM PAYMENT - $25.00
PARTIAL WITHDRAWAL - MINIMUM AMOUNT $1,500.00
TRANSFERS - MINIMUM AMOUNT $1,000.00
POLICY LOAN - FIXED 6.00% POLICY LOAN INTEREST RATE
MINIMUM LOAN AMOUNT - $500.00
Page 3
<PAGE> 27
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
EXPENSE CHARGES
PREMIUM EXPENSE CHARGE
CONSISTS OF THE FOLLOWING:
1. A Premium Tax Charge of 2.35% 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 insured's
residence changes.
2. A percent of premium charge not exceeding 3% will be deducted from each
premium payment
INITIAL ADMINISTRATIVE CHARGE
$17.50 deducted monthly from the Policy Account Value on
the first 12 policy processing days.
MONTHLY ADMINISTRATIVE CHARGE
$7.50 deducted monthly from the Policy Account Value. We
reserve the right to increase this charge, but it will not be greater than
$12.00 a month.
FOR PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
$25.00 deducted from the Policy Account Value whenever you
make a partial withdrawal.
FOR AN INCREASE IN FACE AMOUNT
$50.00 plus $1.00 per $1,000 of increase in face amount deducted from the
Policy Account Value. We reserve the right to increase this charge, but it
will not be greater than $50.00 plus $3.00 per $1,000.
FOR TRANSFERS
After the first four transfers of amounts among your investment options
during a Policy Year, we will charge $25.00 for each additional transfer
during that Policy Year.
Page 4
<PAGE> 28
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
SURRENDER CHARGES
If this Policy is surrendered or lapses during the first 10 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 Deferred
Administrative Charge and the Deferred Sales Charge.
The Deferred Administrative Charge at any time during the policy year is $600.00
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 27.00% of the first $2,634.00 in
premium payments received during the first Policy Year plus 6.00% 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 Policy Maximum
Year Factor Charge Year Factor Charge
<S> <C> <C> <C> <C> <C>
1 1.00 $1,317.00 6 1.00 $1,317.00
2 1.00 $1,317.00 7 .80 $1,053.60
3 1.00 $1,317.00 8 .60 $ 790.20
4 1.00 $1,317.00 9 .40 $ 526.80
5 1.00 $1,317.00 10 .20 $ 263.40
</TABLE>
If the Face Amount of this Policy is decreased at any time during the first 10
Policy Years, a pro rata share of the Surrender Charge will be deducted.
If the Face Amount of this Policy is increased at any time, and within 10 years
of the effective date of such increase you decrease the Face Amount or surrender
this Policy, a Deferred Additional Sales Charge will be deducted.
Page 4A
<PAGE> 29
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
GUARANTEED MONTHLY COST OF INSURANCE RATES PER 1,000 OF NET
AMOUNT AT RISK
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE RATE AGE RATE AGE RATE
<S> <C> <C> <C> <C> <C>
35 .21917 57 1.50750 79 9.45750
36 .23417 58 1.64083 80 10.13250
37 .25333 59 1.77917 81 10.86750
38 .27500 60 1.93250 82 11.68333
39 .30000 61 2.10500 83 12.58583
40 .32833 62 2.29917 84 13.54083
41 .36167 63 2.51917 85 14.51667
42 .39583 64 2.76167 86 15.48167
43 .43500 65 3.02417 87 16.42167
44 .47583 66 3.29750 88 17.44750
45 .52250 67 3.58417 89 18.46000
46 .56917 68 3.87917 90 19.47417
47 .62000 69 4.19333 91 20.51000
48 .67333 70 4.54000 92 21.61083
49 .73333 71 4.92417 93 23.02500
50 .79167 72 5.36083 94 24.84583
51 .87000 73 5.85250 95 27.49667
52 .95167 74 6.38833 96 32.04583
53 1.04500 75 6.98083 97 40.01667
54 1.15000 76 7.59167 98 54.83167
55 1.26167 77 8.21000 99 83.33333
56 1.38250 78 8.82583
</TABLE>
Page 5
<PAGE> 30
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> 31
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> 32
DEFINITIONS
ATTAINED AGE. The Issue Age of the Insured plus the number of full 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
Insured dies. (See Amount of Insurance Proceeds provision.)
INSURED. The person named as the Insured on the first page. He or she 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
Application, a copy of which is attached, and all subsequent Applications to
change the policy and all additional Policy Schedule pages 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 person(s) 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.
SUICIDE EXCLUSION. If the Insured, whether sane or insane, dies by suicide
within two years from the Policy Issue Date, 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. If the Insured, whether sane or insane,
dies by suicide within two years of the Effective Date of a policy change which
increases the Death Benefit, our payment with respect to such increase will be
limited to the sum of the monthly deductions for the cost of insurance
attributable to such increase and the expense charge for the increase in Face
Amount deducted from the Policy Account Value.
MISSTATEMENT OF AGE OR SEX. If the Insured's stated age or Sex 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. There is no adjustment to the Policy Account Value at that time.
INCONTESTABILITY. We have the right to contest the validity of this Policy based
on material misstatements made in the initial Application 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 Insured's lifetime for
two years from the Policy Issue Date, except for nonpayment of the Minimum
Initial Premium. 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 the 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> 33
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 Insured's death
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.
POLICYOWNER AND BENEFICIARY PROVISIONS
OWNERSHIP. Unless otherwise stated in the Application or later changed, the
Owner of this Policy is the Insured. While the Insured is living, the Owner
alone is entitled to exercise any right and privilege granted by this Policy or
by us. If the Insured 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 the Insured 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 stated in the Application, unless later changed.
When a Beneficiary is designated, any relationship shown is to the Insured,
unless otherwise stated. If two or more persons are named, those surviving the
Insured will share the Insurance Proceeds equally, unless otherwise stated. If
none of the persons named survives the Insured, we will pay the Insurance
Proceeds in one sum to the Insured's estate.
CHANGES. While the Insured is living, you may change the Owner or Beneficiary by
written notice in a form satisfactory to us. The change will take effect on the
date you sign the notice, 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. We assume no responsibility for the validity of any
assignments.
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<PAGE> 34
DEATH BENEFIT PROVISIONS
If the Insured dies while this Policy is in force, we will pay the Insurance
Proceeds to the Beneficiary when we receive: (1) proof that the Insured 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 at such time.
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 (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, or a percentage of
the Policy Account Value on the date of death (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 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 the Insured's death 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 supple- mentary 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 Insured occurs during
the Grace Period.
PAYMENT OF INSURANCE PROCEEDS. 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 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.
CHANGING THE FACE AMOUNT OF INSURANCE OR DEATH BENEFIT OPTION. 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 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, provided we have received the 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 a part of this Policy. We may require you to return
this Policy to make a change.
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<PAGE> 35
FACE AMOUNT INCREASE. You may request a Face Amount increase subject to the
following:
a. you must provide evidence satisfactory to us of the Insured's
insurability;
b. the Insured's Attained Age must be 75 years or less;
c. you may not have increased the Face Amount in the prior 12-month
period;
d. the Face Amount increase must be for at least $25,000.
We will deduct the expense charge for an increase in Face Amount shown
in the Policy Schedule from the Policy Account Value as of the effective date of
the increase. The deduction will be made in accordance with the allocation
schedule for monthly deductions in effect at such time.
You may cancel an increase in Face Amount and receive a refund by giving us
written notice no later than: (a) 10 days after you receive the new Policy
Schedule pages reflecting the increase; or (b) 45 days after you signed the
application for the increase. The amount of the refund will be equal to the
monthly deductions for such increase plus the expense charge for the increase in
Face Amount shown in the Policy Schedule. If you cancel the increase but do not
request a refund, we will add the refund to the Policy Account Value. This
amount will be allocated in the same proportion as it was deducted.
CONVERSION PRIVILEGE FOR INCREASE. You have the right once during the first two
years following the Effective Date of an increase in Face Amount to convert the
increase in Face Amount and receive a life insurance policy that provides for
fixed benefits. No evidence of insurability will be required. The new Policy
will have the same Face Amount and Issue Date as the amount and Effective Date
of the increase. Premiums for the new Policy will be based on our rates in
effect for the same Attained Age, Sex and Premium Class of the Insured as of the
Effective Date of the increase. A refund will be made equal to the monthly
deductions for such increase plus the expense charge for the increase shown in
the Policy Schedule.
FACE AMOUNT DECREASE. You may request a Face Amount decrease provided:
a. during the first 10 Policy Years, 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; after the 10th Policy Year the
minimum amount after the decrease is shown in the Policy Schedule;
b. the amount of the decrease is for at least $25,000;
c. you may not have increased the Face Amount in the prior 12-month
period;
d. if the decrease is made during the first 10 Policy Years, or within 10
years following the effective date of a Face Amount increase, we will
deduct a pro rata share of any applicable surrender charges from the
Policy Account Value.
e. A decrease in the Face Amount will reduce this Policy's Face Amount in
the following order:
1. the Face Amount attributable to the most recent Face Amount
increase;
2. the Face Amount attributable to the next most recent Face Amount
increases, successively;
3. the Initial Face Amount.
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 or the expense charge to increase the Face Amount
for such changes.
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.
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<PAGE> 36
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 Insured
stay the same as described in the application 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 the Insured's insurability satisfactory to us.
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 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 the Insured is alive if you:
1. apply for reinstatement within three years after the end of the Grace
Period;
2. provide evidence of the Insured's insurability satisfactory to us; 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; and
2. Percent of Premium 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.
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<PAGE> 37
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. 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 the Separate Accounts which equals the reserves or
other policy liabilities of the policies which are supported by the Separate
Accounts 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 the
Separate Accounts 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.
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<PAGE> 38
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 applications,
bears to the sum of the Separate Account premium allocation percentages.
For premium payments after the 15-day period, the Net Premiums 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.
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 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.
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 the 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.
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<PAGE> 39
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.
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 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 it 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> 40
The cost of insurance rates are based on the Insured's Attained Age, Sex,
Premium Class and duration. For the Initial Face Amount, we will use the Premium
Class as of the Policy Issue Date. For each Face Amount increase, we will use
the Premium Class and duration applicable to the increase. 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. If Death Benefit Option A is
in effect and there have been Face Amount increases, the Policy Account Value
will first be considered as part of the Initial Face Amount. If the Policy
Account Value exceeds the Initial Face Amount, it will be considered as a part
of the increases in Face Amount in the order of such increases.
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 10 Policy Years or within 10
years of the effective date of an increase in Face Amount, 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 to increase the Face Amount of insurance;
4. 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 the 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 any Additional Surrender Charge, 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 10 Policy Years, or if this Policy lapses during the first 10
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 Initial Face Amount during any of the
first 10 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 Initial Face Amount divided by the Initial Face
Amount as of the effective date of 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.
ADDITIONAL SURRENDER CHARGE. If you surrender this Policy for its Net Cash
Surrender Value within 10 years of the effective date of an increase in Face
Amount or if this policy lapses within 10 years of the effective date of an
increase in Face Amount, we will deduct an Additional Surrender Charge from the
Policy Account Value. The Additional Surrender Charge is a Deferred Additional
Sales Charge. The amount of such charge or charges will be shown in the Policy
Schedule pages issued when you increase the Face Amount.
If you request a reduction in Face Amount within 10 years of the effective date
of a Face Amount increase, we will deduct a pro rata Additional Surrender Charge
from the Policy Account Value as of the effective date of such reduction. The
amount of such pro rata Additional Surrender Charge will be the Additional
Surrender Charge applicable to the Face Amount increase multiplied by the amount
of reduction in the Face Amount increase divided by the amount of the Face
Amount increase as of the effective date of such reduction.
We will allocate the pro rata Additional 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.
Page 15
<PAGE> 41
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 fall 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.
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
the 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 16
<PAGE> 42
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 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 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 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 17
<PAGE> 43
<TABLE>
<CAPTION>
OPTION 3-INSTALMENTS FOR A SPECIFIED PERIOD
Monthly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under Option 3
======================================================================================================================
Monthly Instalments Certain
- ----------------------------------------------------------------------------------------------------------------------
No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12 $84.47 72 $15.14 132 $8.86 192 $6.53 252 $5.32 312 $4.59
24 42.86 84 13.16 144 8.24 204 6.23 264 5.15 324 4.47
36 28.99 96 11.68 156 7.71 216 5.96 276 4.99 336 4.37
48 22.06 108 10.53 168 7.26 228 5.73 288 4.84 348 4.27
60 17.91 120 9.61 180 6.87 240 5.51 300 4.71 360 4.18
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
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.
====================================================================================================================================
Number of Monthly Number of Monthly Number of Monthly Number of Monthly
Age of Instalments Certain Age of Instalments Certain Age of Instalments Certain Age of Instalments Certain
Payee* ------------------------ Payee* -------------------------- Payee* ------------------------ Payee* ---------------------------
Until Until Until Until
None 120 240 Proceeds None 120 240 Proceeds None 120 240 Proceeds None 120 240 Proceeds
Are Are Are Are
M Refunded M Refunded M Refunded M Refunded
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5** $2.81 $2.81 $2.81 $2.80 25 $3.14 $3.14 $3.13 $3.12 45 $3.93 $3.90 $3.82 $3.80 65 $6.10 $5.81 $5.02 $5.43
6 2.83 2.82 2.82 2.81 26 3.17 3.16 3.15 3.14 46 3.99 3.96 3.87 3.85 66 6.29 5.96 5.08 5.56
7 2.84 2.84 2.83 2.83 27 3.19 3.19 3.18 3.16 47 4.05 4.02 3.92 3.90 67 6.50 6.11 5.13 5.70
8 2.85 2.85 2.84 2.84 28 3.22 3.22 3.20 3.19 48 4.12 4.09 3.97 3.96 68 6.73 6.28 5.18 5.85
9 2.86 2.86 2.86 2.85 29 3.25 3.24 3.23 3.21 49 4.19 4.15 4.03 4.01 69 6.97 6.44 5.23 6.00
10 2.87 2.87 2.87 2.86 30 3.28 3.27 3.26 3.24 50 4.27 4.22 4.08 4.08 70 7.23 6.61 5.27 6.16
11 2.89 2.89 2.88 2.88 31 3.31 3.30 3.29 3.27 51 4.34 4.29 4.14 4.14 71 7.51 6.78 5.31 6.33
12 2.90 2.90 2.90 2.89 32 3.34 3.33 3.32 3.30 52 4.43 4.37 4.20 4.20 72 7.80 6.96 5.34 6.51
13 2.92 2.91 2.91 2.90 33 3.37 3.37 3.35 3.33 53 4.51 4.45 4.26 4.27 73 8.12 7.14 5.37 6.70
14 2.93 2.93 2.92 2.92 34 3.41 3.40 3.38 3.36 54 4.60 4.54 4.32 4.35 74 8.45 7.32 5.40 6.90
15 2.95 2.95 2.94 2.93 35 3.44 3.44 3.41 3.39 55 4.70 4.62 4.39 4.42 75 8.82 7.49 5.42 7.11
16 2.96 2.96 2.96 2.95 36 3.48 3.48 3.45 3.42 56 4.80 4.72 4.45 4.50 76 9.21 7.67 5.44 7.33
17 2.98 2.98 2.97 2.96 37 3.52 3.51 3.48 3.46 57 4.91 4.82 4.51 4.58 77 9.62 7.84 5.45 7.56
18 3.00 3.00 2.99 2.98 38 3.57 3.56 3.52 3.50 58 5.03 4.92 4.58 4.67 78 10.07 8.01 5.47 7.80
19 3.02 3.01 3.01 3.00 39 3.61 3.60 3.56 3.53 59 5.15 5.03 4.64 4.76 79 10.55 8.17 5.48 8.05
20 3.04 3.03 3.03 3.02 40 3.66 3.64 3.60 3.57 60 5.28 5.14 4.71 4.86 80 11.06 8.33 5.49 8.32
21 3.06 3.05 3.05 3.04 41 3.71 3.69 3.64 3.61 61 5.42 5.26 4.78 4.96 81 11.61 8.48 5.49 8.60
22 3.08 3.07 3.07 3.06 42 3.76 3.74 3.68 3.66 62 5.57 5.39 4.84 5.07 82 12.19 8.61 5.50 8.89
23 3.10 3.09 3.09 3.08 43 3.81 3.79 3.73 3.70 63 5.74 5.52 4.90 5.19 83 12.81 8.74 5.50 9.20
24 3.12 3.12 3.11 3.10 44 3.87 3.85 3.77 3.75 64 5.91 5.66 4.96 5.30 84 13.46 8.86 5.51 9.52
85+ 14.16 8.97 5.51 9.85
====================================================================================================================================
<CAPTION>
Number of Monthly Number of Monthly Number of Monthly Number of Monthly
Age of Instalments Certain Age of Instalments Certain Age of Instalments Certain Age of Instalments Certain
Payee* ------------------------ Payee* -------------------------- Payee* ------------------------ Payee* ---------------------------
Until Until Until Until
None 120 240 Proceeds None 120 240 Proceeds None 120 240 Proceeds None 120 240 Proceeds
Are Are Are Are
F Refunded F Refunded F Refunded F Refunded
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5** $2.75 $2.75 $2.75 $2.74 25 $3.02 $3.02 $3.01 $3.01 45 $3.63 $3.63 $3.59 $3.57 65 $5.35 $5.22 $4.79 $4.97
6 2.76 2.76 2.76 2.75 26 3.04 3.04 3.03 3.02 46 3.68 3.67 3.63 3.61 66 5.51 5.36 4.86 5.08
7 2.77 2.77 2.77 2.76 27 3.06 3.06 3.05 3.04 47 3.73 3.72 3.68 3.66 67 5.67 5.50 4.93 5.20
8 2.78 2.78 2.78 2.77 28 3.08 3.08 3.07 3.06 48 3.79 3.77 3.72 3.70 68 5.85 5.65 5.00 5.33
9 2.79 2.79 2.79 2.78 29 3.10 3.10 3.09 3.09 49 3.84 3.83 3.77 3.75 69 6.04 5.80 5.06 5.47
10 2.80 2.80 2.80 2.79 30 3.13 3.12 3.12 3.11 50 3.90 3.89 3.82 3.80 70 6.25 5.96 5.12 5.61
11 2.81 2.81 2.81 2.80 31 3.15 3.15 3.14 3.13 51 3.97 3.95 3.88 3.86 71 6.47 6.14 5.18 5.76
12 2.82 2.82 2.82 2.82 32 3.18 3.17 3.16 3.15 52 4.03 4.01 3.93 3.91 72 6.71 6.31 5.23 5.93
13 2.83 2.83 2.83 2.83 33 3.20 3.20 3.19 3.18 53 4.10 4.08 3.99 3.97 73 6.97 6.50 5.28 6.10
14 2.85 2.85 2.84 2.84 34 3.23 3.23 3.22 3.20 54 4.18 4.15 4.04 4.03 74 7.26 6.69 5.32 6.28
15 2.86 2.86 2.86 2.85 35 3.26 3.26 3.24 3.23 55 4.25 4.22 4.11 4.10 75 7.56 6.89 5.35 6.48
16 2.87 2.87 2.87 2.86 36 3.29 3.29 3.27 3.26 56 4.34 4.30 4.17 4.17 76 7.90 7.09 5.39 6.68
17 2.89 2.89 2.80 2.88 37 3.32 3.32 3.30 3.29 57 4.42 4.38 4.23 4.24 77 8.26 7.29 5.41 6.90
18 2.90 2.90 2.90 2.89 38 3.35 3.35 3.33 3.32 58 4.52 4.47 4.30 4.31 78 8.65 7.49 5.43 7.13
19 2.92 2.92 2.91 2.91 39 3.39 3.38 3.37 3.35 59 4.61 4.56 4.37 4.39 79 9.07 7.69 5.45 7.38
20 2.93 2.93 2.93 2.93 40 3.42 3.42 3.40 3.38 60 4.72 4.66 4.44 4.48 80 9.53 7.89 5.47 7.64
21 2.95 2.95 2.94 2.94 41 3.46 3.46 3.43 3.42 61 4.83 4.76 4.51 4.56 81 10.03 8.08 5.48 7.91
22 2.96 2.96 2.96 2.95 42 3.50 3.50 3.47 3.45 62 4.95 4.86 4.58 4.66 82 10.57 8.26 5.49 8.21
23 2.98 2.98 2.98 2.97 43 3.54 3.54 3.51 3.49 63 5.07 4.98 4.65 4.75 83 11.16 8.43 5.49 8.51
24 3.00 3.00 2.99 2.99 44 3.59 3.58 3.55 3.53 64 5.21 5.10 4.72 4.86 84 11.79 8.59 5.50 8.83
85+ 12.48 8.74 5.50 9.18
====================================================================================================================================
*On birthday nearest to due date of first instalment. **Ages 5 and under.
</TABLE>
Page 18
<PAGE> 44
<TABLE>
<CAPTION>
OPTION 5 - JOINT AND SURVIVOR LIFE INCOME
Montly Instalments for Each $1,000 of the Proceeds of This Policy Settled Under Option 5
- -------------------------------------------------------------------------------------------------------------------------
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 65 70 75 80
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <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 $3.99 $4.08 $4.14 $4.18
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 4.04 4.13 4.20 4.25
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 4.08 4.19 4.27 4.32
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 4.13 4.25 4.34 4.40
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 4.18 4.31 4.41 4.48
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 4.23 4.37 4.48 4.56
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 4.28 4.44 4.56 4.64
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 4.33 4.50 4.64 4.73
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 4.38 4.57 4.72 4.82
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 4.43 4.64 4.80 4.92
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 4.48 4.71 4.89 5.02
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 4.53 4.77 4.98 5.12
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 4.58 4.84 5.07 5.23
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 4.62 4.91 5.16 5.34
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 4.67 4.98 5.25 5.45
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 4.71 5.05 5.36 5.57
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 4.91 5.36 5.81 6.18
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 5.05 5.62 6.23 6.78
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 5.14 5.79 6.54 7.27
- -------------------------------------------------------------------------------------------------------------------------
<FN>
* 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.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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 65 70 75 80
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <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 $3.96 $4.03 $4.06 $4.08
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 4.00 4.08 4.12 4.14
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 4.05 4.13 4.17 4.19
53 3.65 3.68 3.71 3.75 3.78 3.81 3.84 3.87 3.90 3.93 3.96 3.99 4.02 4.04 4.07 4.09 4.18 4.23 4.25
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 4.13 4.23 4.29 4.31
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 4.18 4.29 4.35 4.38
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 4.22 4.34 4.41 4.44
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 4.27 4.40 4.47 4.50
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 4.31 4.45 4.53 4.57
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 4.35 4.50 4.59 4.63
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 4.39 4.55 4.65 4.69
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 4.43 4.61 4.71 4.76
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 4.47 4.66 4.77 4.82
63 3.77 3.81 3.86 3.91 3.95 4.00 4.05 4.10 4.16 4.21 4.26 4.31 4.36 4.41 4.46 4.50 4.70 4.83 4.88
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 4.54 4.75 4.88 4.94
65 3.78 3.83 3.88 3.93 3.98 4.03 4.08 4.14 4.19 4.25 4.30 4.36 4.41 4.46 4.52 4.57 4.79 4.93 5.00
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 4.69 4.97 5.15 5.24
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 4.76 5.07 5.28 5.38
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 4.78 5.11 5.33 5.44
- -------------------------------------------------------------------------------------------------------------------------
<FN>
* 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.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 19
<PAGE> 45
A GUIDE TO THE PROVISIONS OF THIS POLICY
<TABLE>
<CAPTION>
Page
----
<S> <C>
Calculation of Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-15
Death Benefit Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Description of Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Dividend Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Endorsements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-8
Payment Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-19
Policy Account Value: Allocations
and Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Policy Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Policy Loan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Policy Owner and Beneficiary
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Policy Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5
Premium Expense Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Premium Payment Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-11
Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Surrenders and Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-16
</TABLE>
Form C126 Page 21
<PAGE> 46
Flexible Premium Adjustable Variable Life Insurance Policy.
Insurance Proceeds payable upon death before Final Policy Date.
Policy Account Value payable on Final Policy Date.
Adjustable Death Benefit
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
Form C126A
<PAGE> 47
PROVIDENT MUTUAL LIFE
INSURANCE COMPANY OF
PHILADELPHIA
Philadelphia, Pennsylvania
<TABLE>
<S> <C> <C> <C>
--------------------------------------------------------------------------------
INSURED JOHN DOE
01-01-1991 POLICY ISSUE DATE
POLICY NUMBER 7,000,000
FACE AMOUNT $200,000 35 ISSUE AGE
DEATH BENEFIT OPTION A 01-01-1991 POLICY DATE
--------------------------------------------------------------------------------
</TABLE>
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA agrees:
o To pay the Beneficiary of this Policy the Insurance
Proceeds upon receiving due proof of the Insured's
death;
o To provide you (the Policy Owner) with the other rights
and benefits of this Policy. These agreements are
subject to the provisions of this Policy.
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE INSURANCE COVERAGE, OR
BOTH, MAY BE VARIABLE OR FIXED, AS DESCRIBED ON PAGE 9.
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 a copy of
the Application are included in this Policy after page 19.
This is a legal contract between the Owner and
Provident Mutual Life Insurance Company of Philadelphia.
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 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 date 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.
<TABLE>
<S> <C>
Attest /s/ ROBERT W. KLOSS
President and Chief Executive Officer
Registrar
</TABLE>
Flexible Premium Adjustable Variable Life Insurance Policy.
Insurance Proceeds payable upon death before Final Policy Date.
Policy Account Value payable on Final Policy Date.
Adjustable Death Benefit.
[LOGO] Values provided by this Policy are based on declared [LOGO]
interest rates of the Guaranteed and Loan Accounts and
on the investment experience of the Separate Accounts.
Participating.
Employee Benefit Series.
Form C127 12.93
<PAGE> 48
POLICY DESCRIPTION
This is a flexible premium adjustable 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 Insured's death, 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 10 Policy Years or within 10 years
after the effective date of an increase in the Face Amount, 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 Insured dies. If a Payment Option is not in
force when the Insured dies, the Beneficiary will be able to elect a Payment
Option for the 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:
o You may make premium payments at any time and of any amount.
o You may change the allocation of premiums and deductions among
your investment options.
o You may increase or decrease the Face Amount of insurance.
o You may change the Death Benefit Option.
o You may transfer amounts among your investment options.
o You may borrow on this Policy.
o You may make a partial withdrawal of the Net Cash Surrender
Value.
o You may surrender this policy for its Net Cash Surrender Value.
o You may change the Beneficiary of the Insurance Proceeds of this
Policy.
o 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.
Form C127 Page 2
<PAGE> 49
POLICY SCHEDULE
<TABLE>
<S> <C> <C> <C>
INSURED JOHN DOE
POLICY NUMBER 7,000,000 01-01-91 POLICY ISSUE DATE
FACE AMOUNT $200,000 35 ISSUE AGE
DEATH BENEFIT OPTION A 01-01-91 POLICY DATE
PREMIUM CLASS STANDARD 01-01-56 FINAL POLICY DATE
</TABLE>
BENEFITS
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE - INITIAL FACE AMOUNT $200,000
RIDER - DISABILITY WAIVER BENEFIT
THIS POLICY PROVIDES LIFE INSURANCE COVERAGE ON THE INSURED 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 - $213.00
PLANNED PERIODIC PREMIUM - $2,000.00 PAYABLE YEARLY
MINIMUM ANNUAL PREMIUM - $1,278.00
MINIMUM FACE AMOUNT - $200,000 AFTER 10TH POLICY YEAR
MINIMUM PAYMENT - $25
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> 50
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 7,000,000
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 INSURED'S RESIDENCE
CHANGES.
2. A PERCENT OF PREMIUM CHARGE NOT EXCEEDING 3% WILL BE
DEDUCTED FROM EACH PREMIUM PAYMENT.
INITIAL ADMINISTRATIVE CHARGE
$17.50 DEDUCTED MONTHLY FROM THE POLICY ACCOUNT VALUE ON THE FIRST
12 POLICY PROCESSING DAYS.
MONTHLY ADMINISTRATIVE CHARGE
$7.50 DEDUCTED MONTHLY PROM THE POLICY ACCOUNT VALUE. WE RESERVE
THE RIGHT TO INCREASE THIS CHARGE, BUT IT WILL NOT BE GREATER THAN
$12 A MONTH.
FOR PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
$25 DEDUCTED FROM THE POLICY ACCOUNT VALUE WHENEVER YOU MAKE A
PARTIAL WITHDRAWAL.
FOR AN INCREASE IN FACE AMOUNT
$50 PLUS $1.00 PER $1,000 OF INCREASE IN FACE AMOUNT DEDUCTED FROM
THE POLICY ACCOUNT VALUE. WE RESERVE THE RIGHT TO INCREASE THIS
CHARGE, BUT IT WILL NOT BE GREATER THAN $50 PLUS $3.00 PER $1,000.
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> 51
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 7,000,000
SURRENDER CHARGES
IF THIS POLICY IS SURRENDERED OR LAPSES DURING THE FIRST 10 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 $600
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 27% OF THE FIRST $2,580.00
IN PREMIUM PAYMENTS RECEIVED DURING THE FIRST POLICY YEAR PLUS 6% 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 POLICY MAXIMUM
YEAR FACTOR CHARGE YEAR FACTOR CHARGE
<S> <C> <C> <C> <C> <C>
1 1.0 $1,290.00 6 1.0 $1,290.00
2 1.0 1,290.00 7 0.8 1,032.00
3 1.0 1,290.00 8 0.6 774.00
4 1.0 1,290.00 9 0.4 516.00
5 1.0 1,290.00 10 0.2 258.00
</TABLE>
IF THE FACE AMOUNT OF THIS POLICY IS DECREASED AT ANY TIME DURING THE FIRST 10
POLICY YEARS, A PRO RATA SHARE OF THE SURRENDER CHARGE WILL BE DEDUCTED.
IF THE FACE AMOUNT OF THIS POLICY IS INCREASED AT ANY TIME, AND WITHIN 10 YEARS
OF THE EFFECTIVE DATE OF SUCH INCREASE YOU DECREASE THE FACE AMOUNT OR
SURRENDER THIS POLICY, A DEFERRED ADDITIONAL SALES CHARGE WILL BE DEDUCTED.
PAGE 4A
<PAGE> 52
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 7,000,000
GUARANTEED MONTHLY COST OF INSURANCE RATES PER $1,000 OF NET AMOUNT AT RISK
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE RATE AGE RATE AGE RATE
<S> <C> <C> <C> <C> <C>
35 0.20833 57 1.37917 79 8.32583
36 0.22250 58 1.49417 80 8.92833
37 0.24083 59 1.61333 81 9.59250
38 0.26167 60 1.74417 82 10.33583
39 0.28583 61 1.89333 83 11.16750
40 0.31250 62 2.06250 84 12.08083
41 0.34500 63 2.25750 85 13.00667
42 0.37750 64 2.47167 86 13.97917
43 0.41417 65 2.70417 87 14.91917
44 0.45167 66 2.94417 88 15.97833
45 0.48500 67 3.19417 89 17.00333
46 0.53750 68 3.44500 90 18.11833
47 0.58417 69 3.71333 91 19.29833
48 0.63333 70 4.00500 92 20.57333
49 0.68750 71 4.33500 93 22.12083
50 0.74583 72 4.71333 94 24.11333
51 0.81167 73 5.14333 95 27.07417
52 0.88583 74 5.61583 96 31.74750
53 0.97000 75 6.13667 97 39.80750
54 0.06417 76 6.67583 98 54.78167
55 1.16333 77 7.22000 99 83.33333
56 1.27000 78 7.76417
</TABLE>
Page 5
<PAGE> 53
POLICY SCHEDULE
(CONTINUED)
ALLOCATION OPTIONS
SCHEDULE A-1
THIS 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)
Form LSA1 (Rev. 1998) Page 6
<PAGE> 54
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
FORM LSA1 (Rev. 1998) Page 6A
<PAGE> 55
DEFINITIONS
ATTAINED AGE. The Issue Age of the Insured plus the number of full 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
Insured dies. (See Amount of Insurance Proceeds provision.)
INSURED. The person named as the Insured on the first page. He or she 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 date 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
Application, a copy of which is attached, and all subsequent Applications to
change the policy and all additional Policy Schedule pages 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 person(s)
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.
SUICIDE EXCLUSION. If the Insured, whether sane or insane, dies by suicide
within two years from the Policy Issue Date, 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. If the Insured, whether sane or insane,
dies by suicide within two years of the Effective Date of a policy change which
increases the Death Benefit, our payment with respect to such increase will be
limited to the sum of the monthly deductions for the cost of insurance
attributable to such increase and the expense charge to the increase in Face
Amount deducted from the Policy Account Value.
MISSTATEMENT OF AGE. If the Insured's stated age 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. There is
no adjustment to the Policy Account Value at that time.
INCONTESTABILITY. We have the right to contest the validity of this Policy based
on material misstatements made in the initial Application 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 Insured's
lifetime for two years from the Policy Issue Date, except for nonpayment of the
Minimum Initial Premium. 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 the 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.
Form C127 Page 7
<PAGE> 56
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 Insured's
death 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.
POLICYOWNER AND BENEFICIARY PROVISIONS
OWNERSHIP. Unless otherwise stated in the Application or later changed, the
Owner of this Policy is the Insured. While the Insured is living, the Owner
alone is entitled to exercise any right and privilege granted by this Policy or
by us. If the Insured 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 the Insured 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 stated in the Application, unless later changed.
When a Beneficiary is designated, any relationship shown is to the Insured,
unless otherwise stated. If two or more persons are named, those surviving the
Insured will share the Insurance Proceeds equally, unless otherwise stated. If
none of the persons named survives the Insured, we will pay the Insurance
Proceeds in one sum to the Insured's estate.
CHANGES. While the Insured is living, you may change the Owner or Beneficiary
by written notice in a form satisfactory to us. The change will take effect on
the date you sign the notice, 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. We assume no responsibility for the validity of any
assignments.
Form C127 Page 8
<PAGE> 57
DEATH BENEFIT PROVISIONS
If the Insured dies while this Policy is in force, we will pay the Insurance
Proceeds to the Beneficiary when we receive: (1) proof that the Insured 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 at such time.
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
(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, or a
percentage of the Policy Account Value on the date of death (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 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 the Insured's death 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 Insured occurs
during the Grace Period.
PAYMENT OF INSURANCE PROCEEDS. 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 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.
CHANGING THE FACE AMOUNT OF INSURANCE OR DEATH BENEFIT OPTION. 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 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, provided we have received the 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 a part of this Policy. We may
require you to return this Policy to make a change.
Form C127 Page 9
<PAGE> 58
FACE AMOUNT INCREASE. You may request a Face Amount increase subject to the
following:
a. you must provide evidence satisfactory to us of the Insured's
insurability;
b. the Insured's Attained Age must be 75 years or less;
c. you may not have increased the Face Amount in the prior 12-month period;
d. the Face Amount increase must be for at least $25,000.
We will deduct the expense charge for an increase in Face Amount shown in the
Policy Schedule from the Policy Account Value as of the effective date of the
increase. The deduction will be made in accordance with the allocation schedule
for monthly deductions in effect at such time.
You may cancel an increase in Face Amount and receive a refund by giving us
written notice no later than: (a) 10 days after you receive the new Policy
Schedule pages reflecting the increase; or (b) 45 days after you signed the
application for the increase. The amount of the refund will be equal to the
monthly deductions for such increase plus the expense charge for the increase
in Face Amount shown in the Policy Schedule. If you cancel the increase but do
not request a refund, we will add the refund to the Policy Account Value. This
amount will be allocated in the same proportion as it was deducted.
CONVERSION PRIVILEGE FOR INCREASE. You have the right once during the first two
years following the Effective Date of an increase in Face Amount to convert the
increase in Face Amount and receive a life insurance policy that provides for
fixed benefits. No evidence of insurability will be required. The new Policy
will have the same Face Amount and Issue Date as the amount and Effective Date
of the increase. Premiums for the new Policy will be based on our rates in
effect for the same Attained Age and Premium Class of the Insured as of the
Effective Date of the increase. A refund will be made equal to the monthly
deductions for such increase plus the expense charge for the increase shown in
the Policy Schedule.
FACE AMOUNT DECREASE. You may request a Face Amount decrease provided:
a. during the first 10 Policy Years, 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; after the 10th Policy Year the
minimum amount after the decrease is shown in the Policy Schedule;
b. the amount of the decrease is for at least $25,000; you may not have
increased the Face Amount in the prior 12-month period;
d. if the decrease is made during the first 10 Policy Years, or within 10
years following the effective date of a Face Amount increase, we will
deduct a pro rata share of any applicable surrender charges from the
Policy Account Value.
e. A decrease in the Face Amount will reduce this Policy's Face Amount in
the following order:
1. the Face Amount attributable to the most recent Face Amount
increase;
2. the Face Amount attributable to the next most recent Face Amount
increases, successively;
3. the Initial Face Amount.
CHANGE FROM DEATH BENEFIT OPTION A TO OPTION B. If you request a change from 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 or the expense charge to increase the Face Amount
for such changes.
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.
Form C127 Page 10
<PAGE> 59
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
Insured stay the same as described in the application 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 the Insured's insurability satisfactory to us.
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 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 the Insured is alive if you:
1. apply for reinstatement within three years after the end of the Grace
Period;
2. provide evidence of the Insured's insurability satisfactory to us; 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; and
2. Percent of Premium 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.
Form C127 Page 11
<PAGE> 60
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. 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 the Separate Accounts which equals the reserves
or other policy liabilities of the policies which are supported by the Separate
Accounts 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
the Separate Accounts 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.
Form C127 Page 12
<PAGE> 61
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. 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.
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 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.
CALCULATION OF VALUES
BASIS OF CALCULATION. Minimum cash surrender values and maximum cost of
insurance rates are based on the Commissioners 1980 Standard Ordinary Mortality
Table B with Smoker/Nonsmoker modifications. 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.
Form C127 Page 13
<PAGE> 62
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.
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 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 it 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 (e) 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).
Form C12 Page 14
<PAGE> 63
The cost of insurance rates are based on the Insured's Attained Age, Premium
Class and duration. For the Initial Face Amount, we will use the Premium Class
as of the Policy Issue Date. For each Face Amount increase, we will use the
Premium Class and duration applicable to the increase. 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. If Death Benefit
Option A is in effect and there have been Face Amount increases, the Policy
Account Value will first be considered as part of the Initial Face Amount. If
the Policy Account Value exceeds the Initial Face Amount, it will be considered
as a part of the increases in Face Amount in the order of such increases.
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 10 Policy Years or within 10 years
of the effective date of an increase in Face Amount, 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 to increase the Face Amount of insurance;
4. 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 the 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 any Additional Surrender Charge,
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 10 Policy Years, or if this Policy lapses during the first 10
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 Initial Face Amount during any of the first
10 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 Initial Face Amount divided by the Initial Face Amount
as of the effective date of 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.
ADDITIONAL SURRENDER CHARGE. If you surrender this Policy for its Net Cash
Surrender Value within 10 years of the effective date of an increase in Face
Amount or if this policy lapses within 10 years of the effective date of an
increase in Face Amount, we will deduct an Additional Surrender Charge from the
Policy Account Value. The Additional Surrender Charge is a Deferred Additional
Sales Charge. The amount of such charge or charges will be shown in the Policy
Schedule pages issued when you increase the Face Amount.
If you request a reduction in Face Amount within 10 years of the effective
date of a Face Amount increase, we will deduct a pro rata Additional Surrender
Charge from the Policy Account Value as of the effective date of such
reduction. The amount of such pro rata Additional Surrender Charge will be the
Additional Surrender Charge applicable to the Face Amount increase multiplied
by the amount of reduction in the Face Amount increase divided by the amount of
the Face Amount increase as of the effective date of such reduction.
We will allocate the pro rata Additional 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.
Form C127 Page 15
<PAGE> 64
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.
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
the 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.
Form C127 Page 16
<PAGE> 65
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 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 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 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.
Form C127 Page 17
<PAGE> 66
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 Instalments Certain
- -------------------------------------------------------------------------------------------------------------
No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12 $84.47 72 $15.14 132 $8.86 192 $6.53 252 $5.32 312 $4.59
24 42.86 84 13.16 144 8.24 204 6.23 264 5.15 324 4.47
36 28.99 96 11.68 156 7.71 216 5.96 276 4.99 336 4.37
48 22.06 108 10.53 168 7.26 228 5.73 288 4.84 348 4.27
60 17.91 120 9.61 180 6.87 240 5.51 300 4.71 360 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 Number of Monthly Instalments
Certain Certain
------------------------------------- -------------------------------------
Age of Until Age of Until
Payee* Proceeds Payee* Proceeds
None 120 240 Are None 120 240 Are
Refunded Refunded
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5** $2.75 $2.75 $2.75 $2.74 25 $3.02 $3.02 $3.01 $3.01
6 2.76 2.76 2.76 2.75 26 3.04 3.04 3.03 3.02
7 2.77 2.77 2.77 2.76 27 3.06 3.06 3.05 3.04
8 2.78 2.78 2.78 2.77 28 3.08 3.08 3.07 3.06
9 2.79 2.79 2.79 2.78 29 3.10 3.10 3.09 3.09
10 2.80 2.80 2.80 2.79 30 3.13 3.12 3.12 3.11
11 2.81 2.81 2.81 2.80 31 3.15 3.15 3.14 3.13
12 2.82 2.82 2.82 2.82 32 3.18 3.17 3.16 3.15
13 2.83 2.83 2.83 2.83 33 3.20 3.20 3.19 3.18
14 2.85 2.85 2.84 2.84 34 3.23 3.23 3.22 3.20
15 2.86 2.86 2.86 2.85 35 3.26 3.26 3.24 3.23
16 2.87 2.87 2.87 2.86 36 3.29 3.29 3.27 3.26
17 2.89 2.89 2.88 2.88 37 3.32 3.32 3.30 3.29
18 2.90 2.90 2.90 2.89 38 3.35 3.35 3.33 3.32
19 2.92 2.92 2.91 2.91 39 3.39 3.38 3.37 3.35
20 2.93 2.93 2.93 2.92 40 3.42 3.42 3.40 3.38
21 2.95 2.95 2.94 2.94 41 3.46 3.46 3.43 3.42
22 2.96 2.96 2.96 2.95 42 3.50 3.50 3.47 3.45
23 2.98 2.98 2.98 2.97 43 3.54 3.54 3.51 3.49
24 3.00 3.00 2.99 2.99 44 3.59 3.58 3.55 3.53
- ------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------
Number of Monthly Instalments Number of Monthly Instalments
Certain Certain
------------------------------------- -------------------------------------
Age of Until Age of Until
Payee* Proceeds Payee* Proceeds
None 120 240 Are None 120 240 Are
Refunded Refunded
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
45 $3.63 $3.63 $3.59 $3.57 65 $5.35 $5.22 $4.79 $4.97
46 3.68 3.67 3.63 3.61 66 5.51 5.36 4.86 5.08
47 3.73 3.72 3.68 3.66 67 5.67 5.50 4.93 5.20
48 3.79 3.77 3.72 3.70 68 5.85 5.65 5.00 5.33
49 3.84 3.83 3.77 3.75 69 6.04 5.80 5.06 5.47
50 3.90 3.89 3.82 3.80 70 6.25 5.96 5.12 5.61
51 3.97 3.95 3.88 3.86 71 6.47 6.14 5.18 5.76
52 4.03 4.01 3.93 3.91 72 6.71 6.31 5.23 5.93
53 4.10 4.08 3.99 3.97 73 6.97 6.50 5.28 6.10
54 4.18 4.15 4.04 4.03 74 7.26 6.69 5.32 6.28
55 4.25 4.22 4.11 4.10 75 7.56 6.89 5.35 6.48
56 4.34 4.30 4.17 4.17 76 7.90 7.09 5.39 6.68
57 4.42 4.38 4.23 4.24 77 8.26 7.29 5.41 6.90
58 4.52 4.47 4.30 4.31 78 8.65 7.49 5.43 7.13
59 4.61 4.56 4.37 4.39 79 9.07 7.69 5.45 7.38
60 4.72 4.66 4.44 4.48 80 9.53 7.89 5.47 7.64
61 4.83 4.76 4.51 4.56 81 10.03 8.08 5.48 7.91
62 4.95 4.86 4.58 4.66 82 10.57 8.26 5.49 8.21
63 5.07 4.98 4.65 4.75 83 11.16 8.43 5.49 8.51
64 5.21 5.10 4.72 4.86 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.
Form SO - 1980 - U Page 18
<PAGE> 67
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 Other Payee*
Insured* -----------------------------------------------------------------------------------------------------
50 51 52 53 54 55 56 57 58 59 60 61 62
- ----------------------------------------------------------------------------------------------------------------
<S> <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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------
WITH 120 MONTHLY INSTALMENTS CERTAIN
- --------------------------------------------------------
Age of Age of Other Payee*
Insured* ---------------------------------------------
63 64 65 70 75 80
- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $3.95 $3.97 $3.99 $4.08 $4.14 $4.18
51 3.99 4.01 4.04 4.13 4.20 4.25
52 4.03 4.06 4.08 4.19 4.27 4.32
53 4.08 4.11 4.13 4.25 4.34 4.40
54 4.12 4.15 4.18 4.31 4.41 4.48
55 4.17 4.20 4.23 4.37 4.48 4.56
56 4.21 4.25 4.28 4.44 4.56 4.64
57 4.25 4.29 4.33 4.50 4.64 4.73
58 4.30 4.34 4.38 4.57 4.72 4.82
59 4.34 4.38 4.43 4.64 4.80 4.92
60 4.38 4.43 4.48 4.71 4.89 5.02
61 4.42 4.48 4.53 4.77 4.98 5.12
62 4.46 4.52 4.58 4.84 5.07 5.23
63 4.50 4.56 4.62 4.91 5.16 5.34
64 4.54 4.60 4.67 4.98 5.25 5.45
65 4.58 4.64 4.71 5.05 5.35 5.57
70 4.73 4.82 4.91 5.36 5.81 6.18
75 4.84 4.94 5.05 5.62 6.23 6.78
80 4.91 5.02 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 ages not shown in this table will
be furnished on request.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
WITH 240 MONTHLY INSTALMENTS CERTAIN
- ----------------------------------------------------------------------------------------------------------------
Age of Age of Other Payee*
Insured* -----------------------------------------------------------------------------------------------------
50 51 52 53 54 55 56 57 58 59 60 61 62
- ----------------------------------------------------------------------------------------------------------------
<S> <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
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
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
53 3.65 3.68 3.71 3.75 3.78 3.81 3.84 3.87 3.90 3.93 3.96 3.99 4.02
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
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
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
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
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
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
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
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
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
63 3.77 3.81 3.86 3.91 3.95 4.00 4.05 4.10 4.16 4.21 4.26 4.31 4.36
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
65 3.78 3.83 3.88 3.93 3.98 4.03 4.08 4.14 4.19 4.25 4.30 4.36 4.41
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
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
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
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------
WITH 240 MONTHLY INSTALMENTS CERTAIN
- --------------------------------------------------------
Age of Age of Other Payee*
Insured* ---------------------------------------------
63 64 65 70 75 80
- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $3.92 $3.94 $3.96 $4.03 $4.06 $4.08
51 3.96 3.98 4.00 4.08 4.12 4.14
52 4.00 4.02 4.05 4.13 4.17 4.19
53 4.04 4.07 4.09 4.18 4.23 4.25
54 4.08 4.11 4.13 4.23 4.29 4.31
55 4.12 4.15 4.18 4.29 4.35 4.38
56 4.16 4.19 4.22 4.34 4.41 4.44
57 4.20 4.24 4.27 4.40 4.47 4.50
58 4.24 4.28 4.31 4.45 4.53 4.57
59 4.28 4.31 4.35 4.50 4.59 4.63
60 4.31 4.35 4.39 4.55 4.65 4.69
61 4.35 4.39 4.43 4.61 4.71 4.76
62 4.38 4.42 4.47 4.66 4.77 4.82
63 4.41 4.46 4.50 4.70 4.83 4.88
64 4.44 4.49 4.54 4.75 4.88 4.94
65 4.46 4.52 4.57 4.79 4.93 5.00
70 4.57 4.63 4.69 4.97 5.15 5.24
75 4.62 4.69 4.76 5.07 5.28 5.38
80 4.64 4.71 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.
Form SO-1980-U Page 19
<PAGE> 68
A GUIDE TO THE PROVISIONS OF THIS POLICY
<TABLE>
<CAPTION>
Page
----
<S> <C>
Calculation of Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-15
Death Benefit Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Description of Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Dividend Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Endorsements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-8
Payment Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-19
Policy Account Value: Allocations
and Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Policy Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Policy Loan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Policy Owner and Beneficiary
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Policy Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5
Premium Expense Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Premium Payment Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-11
Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Surrenders and Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-16
</TABLE>
Form C127 Page 21
<PAGE> 69
Flexible Premium Adjustable Variable Life Insurance Policy.
Insurance Proceeds payable upon death before Final Policy Date.
Policy Account Value payable on Final Policy Date.
Adjustable Death Benefit.
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.
Employee Benefit Series.
[LOGO]
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
1600 Market Street, Philadelphia, Pennsylvania 19103
Form C127
<PAGE> 70
PROVIDENT MUTUAL LIFE
INSURANCE COMPANY OF
PHILADELPHIA
PHILADELPHIA, PENNSYLVANIA
<TABLE>
<S> <C> <C> <C>
--------------------------------------------------------------------------------
INSURED JOHN DOE
01-01-1991 POLICY ISSUE DATE
POLICY NUMBER 7,000,000
FACE AMOUNT $200,000 35 ISSUE AGE
DEATH BENEFIT OPTION A 01-01-1991 POLICY DATE
--------------------------------------------------------------------------------
</TABLE>
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA agrees:
o To pay the Beneficiary of this Policy the Insurance
Proceeds upon receiving due proof of the Insured's
death;
o To provide you (the Policy Owner) with the other rights
and benefits of this Policy.
These agreements are subject to the provisions of this Policy.
THE AMOUNT OF THE DEATH BENEFIT OR THE DURATION OF THE INSURANCE COVERAGE, OR
BOTH, MAY BE VARIABLE OR FIXED, AS DESCRIBED ON PAGE 9.
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 a copy of
the Application are included in this Policy after page 19.
This is a legal contract between the Owner and
Provident Mutual Life Insurance Company of Philadelphia.
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 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 the premiums you
paid under this policy.
Attest /s/ ROBERT W. KLOSS
President and Chief Executive Officer
Registrar
Flexible Premium Adjustable Variable Life Insurance Policy.
Insurance Proceeds payable upon death before Final Policy Date.
Policy Account Value payable on Final Policy Date.
Adjustable Death Benefit.
[LOGO] Values provided by this Policy are based on declared [LOGO]
interest rates of the Guaranteed and Loan Accounts and
on the investment experience of the Separate Accounts.
Participating.
Employee Benefit Series.
Form C127A 12.93
<PAGE> 71
POLICY DESCRIPTION
This is a flexible premium adjustable 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 Insured's death, 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 10 Policy Years or within 10 years
after the effective date of an increase in the Face Amount, 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 Insured dies. If a Payment Option is not in
force when the Insured dies, the Beneficiary will be able to elect a Payment
Option for the 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:
o You may make premium payments at any time and of any amount.
o You may change the allocation of premiums and deductions among
your investment options.
o You may increase or decrease the Face Amount of insurance.
o You may change the Death Benefit Option.
o You may transfer amounts among your investment options.
o You may borrow on this Policy.
o You may make a partial withdrawal of the Net Cash Surrender
Value.
o You may surrender this policy for its Net Cash Surrender Value.
o You may change the Beneficiary of the Insurance Proceeds of this
Policy.
o 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.
Form C127 Page 2
<PAGE> 72
POLICY SCHEDULE
<TABLE>
<S> <C> <C> <C>
INSURED JOHN DOE
POLICY NUMBER 7,000,000 01-01-91 POLICY ISSUE DATE
FACE AMOUNT $200,000 35 ISSUE AGE
DEATH BENEFIT OPTION A 01-01-91 POLICY DATE
PREMIUM CLASS STANDARD 01-01-56 FINAL POLICY DATE
</TABLE>
BENEFITS
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE - INITIAL FACE AMOUNT $200,000
RIDER - DISABILITY WAIVER BENEFIT
THIS POLICY PROVIDES LIFE INSURANCE COVERAGE ON THE INSURED 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 - $213.00
PLANNED PERIODIC PREMIUM - $2,000.00 PAYABLE YEARLY
MINIMUM ANNUAL PREMIUM - $1,278.00
MINIMUM FACE AMOUNT - $200,000 AFTER 10TH POLICY YEAR
MINIMUM PAYMENT - $25
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> 73
SPECIMEN
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 7,000,000
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 INSURED'S RESIDENCE
CHANGES.
2. A PERCENT OF PREMIUM CHARGE NOT EXCEEDING 3% WILL BE
DEDUCTED FROM EACH PREMIUM PAYMENT.
INITIAL ADMINISTRATIVE CHARGE
$17.50 DEDUCTED MONTHLY FROM THE POLICY ACCOUNT VALUE ON THE FIRST
12 POLICY PROCESSING DAYS.
MONTHLY ADMINISTRATIVE CHARGE
$7.50 DEDUCTED MONTHLY FROM THE POLICY ACCOUNT VALUE. WE RESERVE
THE RIGHT TO INCREASE THIS CHARGE, BUT IT WILL NOT BE GREATER THAN
$12 A MONTH.
FOR PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
$25 DEDUCTED FROM THE POLICY ACCOUNT VALUE WHENEVER YOU MAKE A
PARTIAL WITHDRAWAL.
FOR AN INCREASE IN FACE AMOUNT
$50 PLUS $1.00 PER $1,000 OF INCREASE IN FACE AMOUNT DEDUCTED FROM
THE POLICY ACCOUNT VALUE. WE RESERVE THE RIGHT TO INCREASE THIS
CHARGE, BUT IT WILL NOT BE GREATER THAN $50 PLUS $3.00 PER $1,000.
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> 74
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 7,000,000
SURRENDER CHARGES
IF THIS POLICY IS SURRENDERED OR LAPSES DURING THE FIRST 10 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 $600
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 27% OF THE FIRST $2,580.00
IN PREMIUM PAYMENTS RECEIVED DURING THE FIRST POLICY YEAR PLUS 6% 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 POLICY MAXIMUM
YEAR FACTOR CHARGE YEAR FACTOR CHARGE
<S> <C> <C> <C> <C> <C>
1 1.0 $1,290.00 6 1.0 $1,290.00
2 1.0 1,290.00 7 0.8 1,032.00
3 1.0 1,290.00 8 0.6 774.00
4 1.0 1,290.00 9 0.4 516.00
5 1.0 1,290.00 10 0.2 258.00
</TABLE>
IF THE FACE AMOUNT OF THIS POLICY IS DECREASED AT ANY TIME DURING THE FIRST 10
POLICY YEARS, A PRO RATA SHARE OF THE SURRENDER CHARGE WILL BE DEDUCTED.
IF THE FACE AMOUNT OF THIS POLICY IS INCREASED AT ANY TIME, AND WITHIN 10 YEARS
OF THE EFFECTIVE DATE OF SUCH INCREASE YOU DECREASE THE FACE AMOUNT OR
SURRENDER THIS POLICY, A DEFERRED ADDITIONAL SALES CHARGE WILL BE DEDUCTED.
PAGE 4A
<PAGE> 75
POLICY SCHEDULE
(CONTINUED)
POLICY NUMBER 7,000,000
GUARANTEED MONTHLY COST OF INSURANCE RATES PER $1,000 OF NET AMOUNT AT RISK
<TABLE>
<CAPTION>
ATTAINED ATTAINED ATTAINED
AGE RATE AGE RATE AGE RATE
<S> <C> <C> <C> <C> <C>
35 0.20833 57 1.37917 79 8.32583
36 0.22250 58 1.49417 80 8.92833
37 0.24083 59 1.61333 81 9.59250
38 0.26167 60 1.74417 82 10.33583
39 0.28583 61 1.89333 83 11.16750
40 0.31250 62 2.06250 84 12.08083
41 0.34500 63 2.25750 85 13.00667
42 0.37750 64 2.47167 86 13.97917
43 0.41417 65 2.70417 87 14.91917
44 0.45167 66 2.94417 88 15.97833
45 0.48500 67 3.19417 89 17.00333
46 0.53750 68 3.44500 90 18.11833
47 0.58417 69 3.71333 91 19.29833
48 0.63333 70 4.00500 92 20.57333
49 0.68750 71 4.33500 93 22.12083
50 0.74583 72 4.71333 94 24.11333
51 0.81167 73 5.14333 95 27.07417
52 0.88583 74 5.61583 96 31.74750
53 0.97000 75 6.13667 97 39.80750
54 0.06417 76 6.67583 98 54.78167
55 1.16333 77 7.22000 99 83.33333
56 1.27000 78 7.76417
</TABLE>
Page 5
<PAGE> 76
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)
Form LSA1 (Rev. 1998) Page 6
<PAGE> 77
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
FORM LSA1 (Rev. 1998) Page 6A
<PAGE> 78
DEFINITIONS
ATTAINED AGE. The Issue Age of the Insured plus the number of full 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
Insured dies. (See Amount of Insurance Proceeds provision.)
INSURED. The person named as the Insured on the first page. He or she 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 the 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
Application, a copy of which is attached, and all subsequent Applications to
change the policy and all additional Policy Schedule pages 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 person(s)
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.
SUICIDE EXCLUSION. If the Insured, whether sane or insane, dies by suicide
within two years from the Policy Issue Date, 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. If the Insured, whether sane or insane,
dies by suicide within two years of the Effective Date of a policy change which
increases the Death Benefit, our payment with respect to such increase will be
limited to the sum of the monthly deductions for the cost of insurance
attributable to such increase and the expense charge for the increase in Face
Amount deducted from the Policy Account Value.
MISSTATEMENT OF AGE. If the Insured's stated age 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. There is
no adjustment to the Policy Account Value at that time.
INCONTESTABILITY. We have the right to contest the validity of this Policy based
on material misstatements made in the initial Application 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 Insured's
lifetime for two years from the Policy Issue Date, except for nonpayment of the
Minimum Initial Premium. 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 the 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.
Form C127 Page 7
<PAGE> 79
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 Insured's
death 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.
POLICYOWNER AND BENEFICIARY PROVISIONS
OWNERSHIP. Unless otherwise stated in the Application or later changed, the
Owner of this Policy is the Insured. While the Insured is living, the Owner
alone is entitled to exercise any right and privilege granted by this Policy or
by us. If the Insured 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 the Insured 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 stated in the Application, unless later changed.
When a Beneficiary is designated, any relationship shown is to the Insured,
unless otherwise stated. If two or more persons are named, those surviving the
Insured will share the Insurance Proceeds equally, unless otherwise stated. If
none of the persons named survives the Insured, we will pay the Insurance
Proceeds in one sum to the Insured's estate.
CHANGES. While the Insured is living, you may change the Owner or Beneficiary
by written notice in a form satisfactory to us. The change win take effect on
the date you sign the notice, 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. We assume no responsibility for the validity of any
assignments.
Form C127 Page 8
<PAGE> 80
DEATH BENEFIT PROVISIONS
If the Insured dies while this Policy is in force, we will pay the Insurance
Proceeds to the Beneficiary when we receive: (1) proof that the Insured 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 at such time.
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
(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, or a
percentage of the Policy Account Value on the date of death (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 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 the Insured's death 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 Insured occurs
during the Grace Period.
PAYMENT OF INSURANCE PROCEEDS. 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 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.
CHANGING THE FACE AMOUNT OF INSURANCE OR DEATH BENEFIT OPTION. 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 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, provided we have received the 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 a part of this Policy. We may
require you to return this Policy to make a change.
Form C127 Page 9
<PAGE> 81
FACE AMOUNT INCREASE. You may request a Face Amount increase subject to the
following:
a. you must provide evidence satisfactory to us of the Insured's
insurability;
b. the Insured's Attained Age must be 75 years or less;
c. you may not have increased the Face Amount in the prior 12-month period;
d. the Face Amount increase must be for at least $25,000.
We will deduct the expense charge for an increase in Face Amount shown in the
Policy Schedule from the Policy Account Value as of the effective date of the
increase. The deduction will be made in accordance with the allocation schedule
for monthly deductions in effect at such time.
You may cancel an increase in Face Amount and receive a refund by giving us
written notice no later than: (a) 10 days after you receive the new Policy
Schedule pages reflecting the increase; or (b) 45 days after you signed the
application for the increase. The amount of the refund will be equal to the
monthly deductions for such increase plus the expense charge for the Increase
in Face Amount shown in the Policy Schedule. If you cancel the increase but do
not request a refund, we will add the refund to the Policy Account Value. This
amount will be allocated in the same proportion as it was deducted.
CONVERSION PRIVILEGE FOR INCREASE. You have the right once during the first two
years following the Effective Date of an increase in Face Amount to convert the
increase in Face Amount and receive a life insurance policy that provides for
fixed benefits. No evidence of insurability will be required. The new Policy
will have the same Face Amount and Issue Date as the amount and Effective Date
of the increase. Premiums for the new Policy will be based on our rates in
effect for the same Attained Age and Premium Class of the Insured as of the
Effective Date of the increase. A refund will be made equal to the monthly
deductions for such increase plus the expense charge for the increase shown in
the Policy Schedule.
FACE AMOUNT DECREASE. You may request a Face Amount decrease provided:
a. during the first 10 Policy Years, 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; after the 10th Policy Year the
minimum amount after the decrease is shown in the Policy Schedule;
b. the amount of the decrease is for at least $25,000;
c. you may not have increased the Face Amount in the prior 12-month period;
d. if the decrease is made during the first 10 Policy Years, or within 10
years following the effective date of a Face Amount increase, we will
deduct a pro rata share of any applicable surrender charges from the
Policy Account Value.
e. A decrease in the Face Amount will reduce this Policy's Face Amount in
the following order:
1. the Face Amount attributable to the most recent Face Amount
increase;
2. the Face Amount attributable to the next most recent Face Amount
increases, successively;
3. the Initial Face Amount.
CHANGE FROM DEATH BENEFIT OPTION A TO OPTION B. If you request a change from 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 or the expense charge to increase the Face Amount
for such changes.
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.
Form C127 Page 10
<PAGE> 82
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
Insured stay the same as described in the application 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 the Insured's insurability satisfactory to us.
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 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 the Insured is alive if you:
1. apply for reinstatement within three years after the end of the Grace
Period;
2. provide evidence of the Insured's insurability satisfactory to us; 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; and
2. Percent of Premium 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.
Form C127 Page 11
<PAGE> 83
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. 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 the Separate Accounts which equals the reserves
or other policy liabilities of the policies which are supported by the Separate
Accounts 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
the Separate Accounts 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.
Form C127 Page 12
<PAGE> 84
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 of 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.
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 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.
CALCULATION OF VALUES
BASIS OF CALCULATION. Minimum cash surrender values and maximum cost of
insurance rates are based on the Commissioners 1980 Standard Ordinary Mortality
Table B with Smoker/Nonsmoker modifications. 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.
Form C127 Page 13
<PAGE> 85
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.
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 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 it 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 (e) 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).
Form C127 Page 14
<PAGE> 86
The cost of insurance rates are based on the Insured's Attained Age, Premium
Class and duration. For the Initial Face Amount, we will use the Premium Class
as of the Policy Issue Date. For each Face Amount increase, we will use the
Premium Class and duration applicable to the increase. 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. If Death Benefit
Option A is in effect and there have been Face Amount increases, the Policy
Account Value will first be considered as part of the Initial Face Amount. If
the Policy Account Value exceeds the Initial Face Amount, it will be considered
as a part of the increases in Face Amount in the order of such increases.
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 10 Policy Years or within 10 years
of the effective date of an increase in Face Amount, 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 to increase the Face Amount of insurance;
4. 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 the 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 any Additional Surrender Charge,
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 10 Policy Years, or if this Policy lapses during the first 10
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 Initial Face Amount during any of the first
10 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 Initial Face Amount divided by the Initial Face Amount
as of the effective date of 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.
ADDITIONAL SURRENDER CHARGE. If you surrender this Policy for its Net Cash
Surrender Value within 10 years of the effective date of an increase in Face
Amount or if this policy lapses within 10 years of the effective date of an
increase in Face Amount, we will deduct an Additional Surrender Charge from the
Policy Account Value. The Additional Surrender Charge is a Deferred Additional
Sales Charge. The amount of such charge or charges will be shown in the Policy
Schedule pages issued when you increase the Face Amount.
If you request a reduction in Face Amount within 10 years of the effective
date of a Face Amount increase, we will deduct a pro rata Additional Surrender
Charge from the Policy Account Value as of the effective date of such
reduction. The amount of such pro rata Additional Surrender Charge will be the
Additional Surrender Charge applicable to the Face Amount increase multiplied
by the amount of reduction in the Face Amount increase divided by the amount of
the Face Amount increase as of the effective date of such reduction.
We will allocate the pro rata Additional 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.
Form C127 Page 15
<PAGE> 87
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.
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
the 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.
Form C127 Page 16
<PAGE> 88
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 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 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 months 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 he 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 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 limited
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.
Form C127 Page 17
<PAGE> 89
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 Instalments Certain
- -------------------------------------------------------------------------------------------------------------
No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12 $84.47 72 $15.14 132 $8.86 192 $6.53 252 $5.32 312 $4.59
24 42.86 84 13.16 144 8.24 204 6.23 264 5.15 324 4.47
36 28.99 96 11.68 156 7.71 216 5.96 276 4.99 336 4.37
48 22.06 108 10.53 168 7.26 228 5.73 288 4.84 348 4.27
60 17.91 120 9.61 180 6.87 240 5.51 300 4.71 360 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 Number of Monthly Instalments
Certain Certain
------------------------------------- -------------------------------------
Age of Until Age of Until
Payee* Proceeds Payee* Proceeds
None 120 240 Are None 120 240 Are
Refunded Refunded
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5** $2.75 $2.75 $2.75 $2.74 25 $3.02 $3.02 $3.01 $3.01
6 2.76 2.76 2.76 2.75 26 3.04 3.04 3.03 3.02
7 2.77 2.77 2.77 2.76 27 3.06 3.06 3.05 3.04
8 2.78 2.78 2.78 2.77 28 3.08 3.08 3.07 3.06
9 2.79 2.79 2.79 2.78 29 3.10 3.10 3.09 3.09
10 2.80 2.80 2.80 2.79 30 3.13 3.12 3.12 3.11
11 2.81 2.81 2.81 2.80 31 3.15 3.15 3.14 3.13
12 2.82 2.82 2.82 2.82 32 3.18 3.17 3.16 3.15
13 2.83 2.83 2.83 2.83 33 3.20 3.20 3.19 3.18
14 2.85 2.85 2.84 2.84 34 3.23 3.23 3.22 3.20
15 2.86 2.86 2.86 2.85 35 3.26 3.26 3.24 3.23
16 2.87 2.87 2.87 2.86 36 3.29 3.29 3.27 3.26
17 2.89 2.89 2.88 2.88 37 3.32 3.32 3.30 3.29
18 2.90 2.90 2.90 2.89 38 3.35 3.35 3.33 3.32
19 2.92 2.92 2.91 2.91 39 3.39 3.38 3.37 3.35
20 2.93 2.93 2.93 2.92 40 3.42 3.42 3.40 3.38
21 2.95 2.95 2.94 2.94 41 3.46 3.46 3.43 3.42
22 2.96 2.96 2.96 2.95 42 3.50 3.50 3.47 3.45
23 2.98 2.98 2.98 2.97 43 3.54 3.54 3.51 3.49
24 3.00 3.00 2.99 2.99 44 3.59 3.58 3.55 3.53
- ------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------
Number of Monthly Instalments Number of Monthly Instalments
Certain Certain
------------------------------------- -------------------------------------
Age of Until Age of Until
Payee* Proceeds Payee* Proceeds
None 120 240 Are None 120 240 Are
Refunded Refunded
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
45 $3.63 $3.63 $3.59 $3.57 65 $5.35 $5.22 $4.79 $4.97
46 3.68 3.67 3.63 3.61 66 5.51 5.36 4.86 5.08
47 3.73 3.72 3.68 3.66 67 5.67 5.50 4.93 5.20
48 3.79 3.77 3.72 3.70 68 5.85 5.65 5.00 5.33
49 3.84 3.83 3.77 3.75 69 6.04 5.80 5.06 5.47
50 3.90 3.89 3.82 3.80 70 6.25 5.96 5.12 5.61
51 3.97 3.95 3.88 3.86 71 6.47 6.14 5.18 5.76
52 4.03 4.01 3.93 3.91 72 6.71 6.31 5.23 5.93
53 4.10 4.08 3.99 3.97 73 6.97 6.50 5.28 6.10
54 4.18 4.15 4.04 4.03 74 7.26 6.69 5.32 6.28
55 4.25 4.22 4.11 4.10 75 7.56 6.89 5.35 6.48
56 4.34 4.30 4.17 4.17 76 7.90 7.09 5.39 6.68
57 4.42 4.38 4.23 4.24 77 8.26 7.29 5.41 6.90
58 4.52 4.47 4.30 4.31 78 8.65 7.49 5.43 7.13
59 4.61 4.56 4.37 4.39 79 9.07 7.69 5.45 7.38
60 4.72 4.66 4.44 4.48 80 9.53 7.89 5.47 7.64
61 4.83 4.76 4.51 4.56 81 10.03 8.08 5.48 7.91
62 4.95 4.86 4.58 4.66 82 10.57 8.26 5.49 8.21
63 5.07 4.98 4.65 4.75 83 11.16 8.43 5.49 8.51
64 5.21 5.10 4.72 4.86 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.
Form SO-1980-U Page 18
<PAGE> 90
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 Other Payee*
Insured* -----------------------------------------------------------------------------------------------------
50 51 52 53 54 55 56 57 58 59 60 61 62
- ----------------------------------------------------------------------------------------------------------------
<S> <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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------
WITH 120 MONTHLY INSTALMENTS CERTAIN
- --------------------------------------------------------
Age of Age of Other Payee*
Insured* ---------------------------------------------
63 64 65 70 75 80
- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $3.95 $3.97 $3.99 $4.08 $4.14 $4.18
51 3.99 4.01 4.04 4.13 4.20 4.25
52 4.03 4.06 4.08 4.19 4.27 4.32
53 4.08 4.11 4.13 4.25 4.34 4.40
54 4.12 4.15 4.18 4.31 4.41 4.48
55 4.17 4.20 4.23 4.37 4.48 4.56
56 4.21 4.25 4.28 4.44 4.56 4.64
57 4.25 4.29 4.33 4.50 4.64 4.73
58 4.30 4.34 4.38 4.57 4.72 4.82
59 4.34 4.38 4.43 4.64 4.80 4.92
60 4.38 4.43 4.48 4.71 4.89 5.02
61 4.42 4.48 4.53 4.77 4.98 5.12
62 4.46 4.52 4.58 4.84 5.07 5.23
63 4.50 4.56 4.62 4.91 5.16 5.34
64 4.54 4.60 4.67 4.98 5.25 5.45
65 4.58 4.64 4.71 5.05 5.35 5.57
70 4.73 4.82 4.91 5.36 5.81 6.18
75 4.84 4.94 5.05 5.62 6.23 6.78
80 4.91 5.02 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 ages not shown in this table will
be furnished on request.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
WITH 240 MONTHLY INSTALMENTS CERTAIN
- ----------------------------------------------------------------------------------------------------------------
Age of Age of Other Payee*
Insured* -----------------------------------------------------------------------------------------------------
50 51 52 53 54 55 56 57 58 59 60 61 62
- ----------------------------------------------------------------------------------------------------------------
<S> <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
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
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
53 3.65 3.68 3.71 3.75 3.78 3.81 3.84 3.87 3.90 3.93 3.96 3.99 4.02
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
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
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
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
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
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
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
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
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
63 3.77 3.81 3.86 3.91 3.95 4.00 4.05 4.10 4.16 4.21 4.26 4.31 4.36
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
65 3.78 3.83 3.88 3.93 3.98 4.03 4.08 4.14 4.19 4.25 4.30 4.36 4.41
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
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
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
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------
WITH 240 MONTHLY INSTALMENTS CERTAIN
- --------------------------------------------------------
Age of Age of Other Payee*
Insured* ---------------------------------------------
63 64 65 70 75 80
- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
50 $3.92 $3.94 $3.96 $4.03 $4.06 $4.08
51 3.96 3.98 4.00 4.08 4.12 4.14
52 4.00 4.02 4.05 4.13 4.17 4.19
53 4.04 4.07 4.09 4.18 4.23 4.25
54 4.08 4.11 4.13 4.23 4.29 4.31
55 4.12 4.15 4.18 4.29 4.35 4.38
56 4.16 4.19 4.22 4.34 4.41 4.44
57 4.20 4.24 4.27 4.40 4.47 4.50
58 4.24 4.28 4.31 4.45 4.53 4.57
59 4.28 4.31 4.35 4.50 4.59 4.63
60 4.31 4.35 4.39 4.55 4.65 4.69
61 4.35 4.39 4.43 4.61 4.71 4.76
62 4.38 4.42 4.47 4.66 4.77 4.82
63 4.41 4.46 4.50 4.70 4.83 4.88
64 4.44 4.49 4.54 4.75 4.88 4.94
65 4.46 4.52 4.57 4.79 4.93 5.00
70 4.57 4.63 4.69 4.97 5.15 5.24
75 4.62 4.69 4.76 5.07 5.28 5.38
80 4.64 4.71 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.
Form SO-1980-U Page 19
<PAGE> 91
A GUIDE TO THE PROVISIONS OF THIS POLICY
<TABLE>
<CAPTION>
Page
----
<S> <C>
Calculation of Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-15
Death Benefit Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Description of Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Dividend Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Endorsements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-8
Payment Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-19
Policy Account Value: Allocations
and Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Policy Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Policy Loan Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Policy Owner and Beneficiary
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Policy Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5
Premium Expense Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Premium Payment Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-11
Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Surrenders and Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-16
</TABLE>
Form C127 Page 21
<PAGE> 92
Flexible Premium Adjustable Variable Life Insurance Policy.
Insurance Proceeds payable upon death before Final Policy Date.
Policy Account Value payable on Final Policy Date.
Adjustable Death Benefit
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.
Employee Benefit Series.
[LOGO]
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
1600 Market Street, Philadelphia, Pennsylvania 19103
Form C127A
<PAGE> 1
EXHIBITS 1.A.5.a
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
RIDER
CHILDREN'S TERM INSURANCE
POLICY NUMBER RIDER ISSUE DATE
The Company will pay the Death Benefit for an Insured Child to the beneficiary
specified below, upon receipt of due proof of the death of such Insured Child
while this Rider is in force, subject to the terms and conditions of this Rider.
DEATH BENEFIT. The Death Benefit on each Insured Child under this Rider is the
amount of insurance in force on that child's life on the date of death. Each
Insured Child will be covered for the same amount of insurance.
The amount of insurance on each Insured Child is shown on page 3 of the
Policy. Such insurance will cease to be in force on the Expiry Date or the
termination of this Rider, if earlier.
EXPIRY DATE. The Expiry Date of insurance under this Rider is the earlier of:
1. the Policy Anniversary nearest the Insured's 65th birthday; or
2. an Insured Child's attainment of age 25.
DEFINITIONS.
"INSURED" means the person named as the Insured on page 3 of the Policy,
and does not mean an Insured Child.
"INSURED CHILD" means:
1. any child, stepchild or legally adopted child of the Insured,
provided such child is named in the application for this Rider
and on the date of such application has not reached his or her
18th birthday; and
2. any child who, after the date of such application, is:
a. born to the Insured; or
b. legally adopted by the Insured before such child's 18th
birthday.
In no case, however, will any child born or adopted after the date of such
application be deemed to be an Insured Child before attaining the age of 15
days.
OWNER. The Owner of this Rider, unless otherwise provided, is:
1. the Insured, during his or her lifetime; and
2. after the death of the Insured, each surviving Insured Child, with
respect to any term insurance in force on his or her own life.
The Owner may exercise all rights granted by this Rider.
BENEFICIARY. Unless changed by the Owner, the beneficiary entitled to receive
any Death Benefit payable at the death of an Insured Child will be:
1. the Insured, if then living; otherwise
2. the executor or administrator of such Insured Child.
The Owner of any insurance under this Rider may change the beneficiary of
such insurance by Written Request while the Owner and the Insured Child are
living. This change must be filed at our Home Office. The change will take
effect as of the date the request is signed, even if the Insured Child or the
Owner dies before the Company receives it. Each change will be subject to any
payment or other action taken by the Company before receiving the request.
Any reference in any beneficiary designation to a beneficiary living will
mean, unless otherwise provided, living at the death of the Insured Child.
PAID-UP TERM INSURANCE ON INSURED CHILD. If the Insured dies while this Rider is
in force, except as set forth in the "Suicide Exclusion" clause of this Rider,
any term insurance provided by this Rider on the life of an Insured Child will
become fully paid-up. Such insurance will continue in force without further
payment of premium until its Expiry Date.
CASH VALUE OF PAID-UP TERM INSURANCE. Any paid-up term insurance in force on
the life of the Insured Child may be surrendered upon Written Request at any
time for its cash value. The amount of cash value available will be provided on
request.
The cash value of any paid-up term insurance at the end of a Policy Year
will be the net single premium for such insurance at the Attained Age of the
Insured. The cash value will be computed on the basis of the Commissioners 1980
Standard Ordinary Mortality Table, curtate functions and interest at the yearly
rate of 4 1/2%. The cash value at any time during a Policy Year will be
determined by the Company with due allowance for the time elapsed in such year.
C306 (Continued on reverse side)
<PAGE> 2
CONVERSION OF TERM INSURANCE AT EXPIRY. On its Expiry Date, any term insurance
in force on the life of an Insured Child may be converted, without evidence of
insurability, to a policy on the life of such Insured Child, subject to the
following:
1. Written Request must be made within the 90 day period ending on the
Expiry Date of the term insurance under this Rider.
2. The policy may be any life plan which has a level face amount and a
level premium. It must also be one which, on that date, is customarily
issued by the Company at the then Attained Age of the Insured Child
and for the amount applied.
3. The face amount of the policy of the life of an Insured Child may not
be for more than 5 times the amount of term insurance in force under
this Rider on its Expiry date.
4. The Issue Date of the policy will be the Expiry Date of the term
insurance under this Rider. It will take effect only upon payment to
the Company of the first premium no later than such Issue Date and
while the Insured Child is still living.
5. The policy will be:
a. a life plan in use by the Company on its Issue Date;
b. at the premium rate then in use based on the age of the Insured
Child at his or her birthday nearest that date; and
c. in the standard premium classification.
6. A Rider for benefits in event of disability or accidental death may
be included in the policy only with the consent of and evidence of
insurability satisfactory to the Company.
SUICIDE EXCLUSION. If, within two years from the Rider Issue Date, an Insured
Child commits suicide, while sane or insane, the Death Benefit for such Insured
Child will not be payable. The Insured will have the option to continue
coverage under this Rider on other Insured Children, or request the return of
all premiums paid for this Rider. Any election must be made within 30 days
after the date of such Insured Child's death.
If, within two years from the Rider Issue Date, the Insured commits
suicide, while sane or insane, the Company will refund the sum of all premiums
paid for this Rider. After such death of the Insured, this Rider and all
insurance under it will cease to be in force.
MISSTATEMENT OF AGE. If the Insured's age has been misstated, the correct age
will be used to determine the termination date of this Rider.
If the age of an Insured Child has been misstated, the correct age of such
child will be used to determine:
1. whether such child is an Insured Child; and
2. the Expiry Date of any term insurance on such child's life.
INCONTESTABILITY. The Company will not contest this Rider as to the insurance
provided on the life of any person insured under it after it has been in force
during the lifetime of such person for 2 years from the Rider Issue Date.
REINSTATEMENT. If the Policy is reinstated prior to the termination of this
Rider, this Rider may be included in the reinstated Policy:
1. upon evidence satisfactory to the Company of the insurability of each
person who would be insured under this Rider upon its reinstatement;
and
2. if all past due premiums are paid with interest at the yearly rate of
6%.
Failure to furnish evidence satisfactory to the Company of the insurability
of any child will not prevent reinstatement of this Rider; however, any child
for whom such evidence is not furnished will not be covered under this Rider
upon reinstatement. Upon reinstatement there shall be no liability with respect
to the death of any Insured Child which may have occurred while the Policy and
this Rider were not in force.
COST OF RIDER. The monthly cost of this Rider is determined by the Death
Benefit divided by 1,000 multiplied by 0.52. The monthly cost will be deducted
from the Policy Account Value on each Policy Processing Day.
TERMINATION. This Rider will terminate:
1. on the first Policy Processing Date after we receive Written Request
for termination;
2. on the date of surrender or other termination of this Policy; or
3. on the Policy Anniversary nearest the Insured's 65th birthday.
No monthly deduction for the cost of this Rider will be made after
termination.
Attached by Provident Mutual Life Insurance Company of Philadelphia on the Rider
Issue Date.
/s/ ROBERT W. KLOSS
President and Chief Executive Officer
C306
<PAGE> 1
EXHIBIT 1.A.5.b
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
CONVERTIBLE TERM LIFE INSURANCE
INSURED POLICY NUMBER
RIDER ISSUE DATE
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 customary 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> 2
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> 1
EXHIBIT 1.A.5.c
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
EXTENSION OF FINAL POLICY DATE
POLICY NUMBER
This policy is amended as set forth below:
FINAL POLICY DATE. This rider defers the Final Policy Date by a period of 20
years from the original Final Policy Date shown in the Policy Schedule.
DEATH BENEFIT. The Death Benefit after the original Final Policy Date will be
equal to the Policy Account Value on the date of death. However, the Death
Benefit will never be less than the amount necessary for this Policy to continue
to qualify as life insurance under the Internal Revenue Code.
PREMIUMS. Unless necessary to prevent a lapse of this Policy, no premiums may be
paid after the original Final Policy Date.
EFFECTIVE DATE
CALCULATION OF VALUES, The Policy Account after the original Final POlicY Date
will be calculated as described in this Policy. We will continue to deduct both
Monthly Deductions and Other Deductions described in this Policy. Any charges
for benefits provided by rider will no longer be deducted.
OTHER RIDERS. All other riders attached to this Policy, that are in effect on
the original Final Policy Date, will terminate on the original Final Policy
Date.
TERMINATION. This rider will terminate on the date of surrender or termination
of this Policy.
Signed for by Provident Mutual Life Insurance Company on the Effective Date.
/s/ Robert W. Kloss
President and Chief Executive Officer
VARIABLE LIFE
<PAGE> 1
Exhibit 1.A.5e
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
AMENDMENT TO QUALIFY LIFE INSURANCE POLICY
AS A PART OF A SECTION 403(b) TAX-SHELTERED ANNUITY
For purposes of qualifying the Policy applied for as part of a tax-sheltered
annuity under Section 403(b) of the Internal Revenue Code of 1986, as amended
("Code"), the Policy herein is amended as follows:
1. This Policy is issued as part of a tax-sheltered annuity contract
qualified under Code Section 403(b) pursuant to an agreement between the
Policyowner ("Owner") and the Owner's employer, an organization described in
Code Section 403(b)(1)(A). The Insured must be the Owner.
2. While this Rider is in effect, premiums must be paid by an employer
qualified under Code Section 403(b)(1)(A) (including salary reduction
contributions) or by transfer from an annuity contract qualified under Code
Section 403(b). Premiums must comply with applicable limits under the Code,
including Sections 402(b), 403(b) and 415. Aggregate premiums (including
premiums paid by dividends) must at all times be less than: (a) 50% of aggregate
employer contributions if this Policy provides ordinary life insurance
protection with nonincreasing premiums and nondecreasing death benefits; (b)
otherwise, 25% of aggregate employer contributions.
3. In accordance with Code Section 403(b)(131), distributions under this
Contract are permitted only when the Owner, as determined under the Code: (a)
attains age 59 1/2; (b) separates from service; (c) dies; (d) becomes disabled;
or (e) requires a distribution on account of hardship. Hardship distributions
are limited to the Owner's contributions (excluding income resulting from those
contributions). Distributions prior to age 59 1/2 due to hardship or separation
from service may be considered premature distributions under the Code subject to
penalty tax as well as regular income tax.
4. While this Rider is in effect, the Policy Loan provision of this
Policy is modified to permit loans only in compliance with Code Section 72(p).
5. Distributions of benefits under this Policy shall comply with Code
Section 403(b)(10) and the regulations thereunder, including incidental death
benefit rules. At the time the Owner retires, or by April 1 of the calendar year
following the year in which the Owner attains age 70 1/2, whichever is later:
(a) the entire value of this Policy must, at the Owner's election, be
surrendered or applied to a settlement option providing a periodic income; or
(b) the Policy will be continued in force, subject to the payment of any
required premium, this Rider will no longer be in effect, and the Owner will be
treated as receiving taxable income equal to the cash surrender value. However,
if the Owner has 5% or more ownership in the Owner's employer, distributions
must begin by April 1 of the calendar year following the year in which the Owner
attains age 70 1/2.
6. The Proceeds at Interest Settlement Option is deleted. It may not be
elected as a Settlement Option.
7. This Policy is non-transferable. This Policy may not be sold,
assigned, or pledged as collateral for a loan or as security for the performance
of an obligation, other than to the Company to the extent permitted under Code
Section 403(b).
8. The Owner is solely responsible for determining whether
contributions, loans, distributions and the exercise of all rights of ownership
under this Policy comply with applicable Code requirements. Elective deferrals
made under this Policy may not not exceed the annual limit as indicated under
Code Section 402(g).
9. No option or provision of this Policy will be available or may
be elected that would disqualify the Policy under Code Section 403(b). The
Company reserves the right to amend this Policy and Rider to satisfy Code
Section 403(b) and the regulations thereunder.
Attached by PROVIDENT MUTUAL LIFE INSURANCE COMPANY on the Issue Date of the
Policy.
/s/ Robert W. Kloss
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 1.A.5.e
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
RIDER
CHANGE OF INSURED
INSURED POLICY NUMBER
RIDER ISSUE DATE
This Rider is attached Lo and is a part of this Policy.
CONDITIONS FOR CHANGE. You may change the
Insured under this Policy for a New Insured:
(a) upon written request; and
(b) by meeting any other terms and conditions set by the Company, 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 born on or before the Policy Date of this
Policy;
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.
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 exchange; or
(b) the date we determine that the New Insured is insurable.
TERMS OF POLICY AFTER CHANGE. This Policy will cover the New Insured starting on
the Date of Change. When coverage of the New Insured begins, coverage on the
prior Insured will end.
The contestable and suicide periods for the New Insured will start on the
Date of Change.
The Face Amount of Insurance on the New Insured will be the same as that on
the prior Insured. The monthly deduction for cost of insurance and any other
benefits provided by rider will be based on the Attained Age and Premium Class
of the New Insured.
Any policy loans or assignment will remain in effect after the change.
Signed for the Company at Philadelphia, Pennsylvania on the Rider Issue Date.
/s/ Robert W. Kloss
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 1.A.5.f
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
RIDER
DISABILITY WAIVER BENEFIT
INSURED
This Rider is attached to and is a part of this Policy.
WAIVER OF PREMIUM BENEFIT. Upon receipt of due proof that:
a. the Insured is totally disabled, as defined below;
b. such total disability begins while this rider is in effect, and
c. such total disability has continued without pause for a period of six
months.
we will apply a premium payment to the Policy on each Policy Processing Day
during the first two Policy Years, while the Insured is totally disabled,
subject to provisions of this Policy. For each Policy Processing Day that occurs
while the Insured is totally disabled but before we approve a claim, we will
apply a premium payment to the Policy on the date we approve the claim. Each
premium payment will equal the Minimum Annual Premium divided by 12.
WAIVER OF MONTHLY DEDUCTIONS BENEFIT.
Upon receipt of due proof that:
a. the Insured is totally disabled, as defined below;
b. such total disability begins while this rider is in effect; and
c. such total disability has continued without pause for a period of six
months,
we will waive monthly deductions falling due after the first two Policy Years
while the Insured is totally disabled, subject to the provisions of this Policy.
Except for monthly deductions made one year or more before we receive written
notice and proof of a claim, monthly deductions which are made after the first
two Policy Years while the Insured is totally disabled but before we approve a
claim, will be added back to the Policy Account Value. The amount will be
allocated to the Separate Accounts and Guaranteed Account in the same proportion
as it was deducted from such Accounts.
POLICY NUMBER
RIDER ISSUE DATE
DEFINITION OF TOTAL DISABILITY.
1.. Total Disability. Total Disability is a disability which:
a. is caused by sickness or bodily injury; and
b. prevents the Insured from engaging in an occupation. During the
first 5 years of total disability, "occupation" means the regular
occupation of the Insured at the time the disability started.
However, the Insured will not be deemed totally disabled if, during
this 5-year period, he or she is engaged in any gainful occupation
for which he or she is qualified. After the first 5 years of total
disability, "occupation" means any gainful occupation for which the
Insured is qualified.
As used in this rider the word "qualified" means qualified by education,
training and experience. "Disability" means the inability of the Insured to
engage in his or her regular occupation or any gainful occupation for which he
or she is qualified.
2. Recurrent Total Disability. If, after a total disability, has stopped, a
total disability due to the same or a related cause recurs, it will be
deemed a continuation of the prior period of total disability, except
that: if the Insured has engaged in the meantime, for at least 6 months
without pause, in any gainful occupation for which he or she is qualified,
such recurrence will be deemed a new period of total disability.
3. Presumptive Total Disability. Total disability also means the total and
irrecoverable loss of:
a. the sight of both eyes;
b. the use of both hands;
c. the use of both feet; or
d. the use of one hand and one foot.
(continued on reverse side)
<PAGE> 2
NOTICE AND PROOF OF TOTAL DISABILITY. Written notice and due proof of total
disability must be given to us at our Home Office while the Insured is living
and totally disabled. Failure to give such notice and proof will not void the
claim if it is shown that. they were given as soon as was reasonably possible.
We may ask for proof of continued total disability from time to time. Such
proof will not be required more than once a year after total disability has
continued for two full years. As part of any such proof, we may require medical
examinations of the Insured by physicians named by us.
EXCLUSIONS FROM COVERAGE. We will not waive monthly deductions if the total
disability was the result of:
1. intentional, self-inflicted injury while sane or insane;
2. bodily injury occurring or sickness first manifesting itself before this
rider took effect unless such injury or sickness was shown in the
application for this rider; or
3. service in the military, naval or air forces of any country engaged in
wax. 'War" means declared or undeclared war and any act incidental to war
and includes resistance to armed aggression.
COST OF RIDER. The cost of this rider is determined on each Policy Processing
Day by multiplying the Rate Factor for the Insured's Attained Age by the net
amount at risk divided by 1,000.
If the Insured is in a Special Premium Class, the rate factor shown below
will be multiplied by the Risk Factor.
ATTAINED AGE RATE FACTOR
------------ -----------
15-45 .01
46-48 .02
49-50 .03
51 .04
52 .05
53 .07
54 .09
55 .13
56 38
57 .24
58 .32
59 .44
TERMINATION. This rider will automatically terminate:
1. on the date of surrender or other termination of this Policy;
2. on the first Policy Processing Day after we receive your written request
for termination of this rider;
3. at Insured's Attained Age 60, except for benefits for a disability which
began before that Policy Anniversary.
No monthly deduction for the cost of this rider will be made after
termination.
INCONTESTABILITY. The Company will not contest this rider after it has been in
force during the Insured's lifetime without the occurrence of total disability
for two years from the Rider Issue Date.
EFFECTIVE DATE. The Effective Date of this rider is the Rider Issue Date shown
above.
Signed for the Company at Philadelphia, Pennsylvania on the Rider Issue Date-
/s/ Robert W. Kloss
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 1.A.5.g
PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF PHILADELPHIA
RIDER
DISABILITY WAIVER OF PREMIUM BENEFIT
INSURED
This Rider is attached to and is a part of this Policy.
WAIVER OF PREMIUM BENEFIT. Upon receipt of due proof that:
a. the Insured is totally disabled, as defined below;
b. such total disability begins while this rider is in effect@
c. such total disability has continued without pause for a period of 180
days; and
d. such. total disability started between Attained Age 5 and Attained Age 60;
we will apply a premium payment to the Policy on each Policy Processing Day
prior to the Policy Anniversary when the Insured reaches Attained Age 65, while
the Insured is totally disabled, subject to the provisions of this Policy. For
each Policy Processing Day that occurs while the Insured is today disabled but
before we approve a claim, we will apply a premium payment to the Policy on the
date we approve the claim. However, no premium payment "I be applied for a
Policy Processing Day that is more than one year prior to the date we receive
written notice and proof of claim. The amount of each premium payment will equal
the lesser of :
a. the Disability Premium Benefit Amount shown in the Policy Schedule; or
b. an amount equal to, the sum of all premiums paid for this Policy less any
Partial Withdrawals of Net Cash Surrender Value; divided by the number of
completed months since the Policy Date. This amount will be determined as
of the date that total disability began.
Any premium payment that would cause this Policy to fail to qualify as life
insurance under applicable tax laws, as interpreted by us, will be paid to the
Owner,
The amount of the premium payments applied may not always be sufficient to
keep this Policy in force during the period of the Insured's total disability.
REDUCTION OF DISABILITY PREMIUM BENEFIT AMOUNT. If there is a change in the
Policy Face Amount or the Death Benefit Option which reduces
POLICY NUMBER
RIDER ISSUE DATE
the guideline annual premium, as defined in Section 7702 of the Internal Revenue
Code, as amended, we reserve the right to reduce the Disability Premium Benefit
Amount to one-twelfth of the "guideline annual premium" if it exceeds such
amount. Such reduction will only be made if the Insured is not then totally
disabled. The cost of this rider will also be reduced at such time.
DEFINITION OF TOTAL DISABILITY.
1. TOTAL DISABILITY. Total Disability is a disability which:
a. is caused by sickness or bodily injury; and
b. prevents the Insured from engaging in an occupation. During the first 5
years of total disability, "occupation" means the regular occupation of
the Insured at the time the disability started. However, the Insured
will not be deemed totally disabled if, during this 5-year period, he
or she is engaged in any gainful occupation for which be or she is
qualified. After the first 5 years of total disability, "occupation"
means any gainful occupation for which the Insured is qualified.
As used in this rider the word "qualified" means qualified by education,
training and experience. 'Disability" means the inability of the Insured to
engage in his or her regular occupation or any gainful occupation for which he
or she is qualified.
2. RECURRENT TOTAL DISABILITY. If, after a total disability has stopped, a
total disability due to the same or a related cause recurs, it will be
deemed a continuation of the prior period of total disability, except
that: if the Insured has engaged in the meantime, for at least 6 months
without pause, in any gainful occupation for which he or she is qualified,
such recurrence will be deemed a new period of total disability.
3. PRESUMPTIVE TOTAL DISABILITY. Total disability also means the total and
irrecoverable loss of:
a. the sight of both eyes;
b. the use of both hands-,
c. the use of both feet; or
d. the use of one hand and one foot.
(continued on reverse side)
<PAGE> 2
NOTICE AND PROOF OF TOTAL DISABILITY. Written notice and due proof of total
disability must be given to us at our Home Office while the Insured is living
and totally disabled. Failure to give such notice and proof will not void the
claim if it is shown that they were given as soon as was reasonably possible.
We may ask for proof of continued total dis2bility from time to time. Such
proof will not be required more than once a year after total disability has
continued for two full years. As part of any such proof, we may require medical
examinations of the Insured by physicians named by us.
EXCLUSIONS FROM COVERAGE. We will not apply any premium payments if the total
disability was the result of:
1. intentional, self-inflicted injury while sane or insane;
2. bodily injury occurring or sickness first manifesting itself before
this rider took effect unless such injury or sickness was shown in the
application for this rider; or
3. service in the military, naval or air forces of any country engaged in
war. "War' means declared or undeclared war and any act incidental to
war and includes resistance to armed aggression,
COST OF RIDER. The monthly cost of this rider is shown in the Policy Schedule.
The monthly cost will be deducted from the Policy Account Value on each Policy
Processing Day.
TERMINATION. This rider will automatically terminate:
1. on the date of surrender or other termination of this Policy;
2. on the first Policy Processing Day after we receive your written
request for termination of this rider;
3. at Insured's Attained Age 60, except for benefits for a disability
which began before that Policy Anniversary.
No month1v deduction for the cost of this rider will be made after termination.
INCONTESTABILITY. The Company will not contest this rider after it has been in
force during the Insured's lifetime without the occurrence of total disability
for two years from the Rider Issue Date.
EFFECTIVE DATE. The Effective Date of this rider is the Rider Issue Date shown
above.
Signed for the Company at Philadelphia, Pennsylvania on the Rider Issue Date.
/s/ Robert W. Kloss
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 3(A)
[PROVIDENT MUTUAL LETTERHEAD]
ADAM SCARAMELLA
COUNSEL
April 30, 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. 33-42133)
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. 11 to the Registration
Statement on Form S-6 (File No. 33-42133) 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
<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. 33-42133)
---------------------------------------------------------
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 11
to the Form S-6 registration statement (File No. 33-42133) 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
[PROVIDENT MUTUAL LETTERHEAD]
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 the Post-Effective Amendment No. 11 to the
Registration Statement on Form S-6 (File No. 33-42133) for the Provident Mutual
Variable Growth Separate Account, the Provident Mutual Variable Money Market
Separate Account, the Provident Mutual Variable Bond Separate Account, the
Provident Mutual Variable Managed Separate Account, the Provident Mutual
Variable Zero Coupon Bond Separate Account, the Provident Mutual Variable
Aggressive Growth Separate Account, the Provident Mutual Variable International
Separate Account and the Provident Mutual Variable Separate Account.
Very truly yours,
/s/ Scott V. Carney
------------------------------
Scott V. Carney, FSA, MAAA
Vice President & Actuary
SVC/ja
<PAGE> 1
EXHIBIT 7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Post-Effective Amendment
No. 11 to the Registration Statement under the Securities Act of 1933, as
amended, filed on Form S-6 (File No. 33-42133) 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 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 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 AND LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 30, 1998
