<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1999
REGISTRATION NO. 33-2625/811-4460
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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POST-EFFECTIVE AMENDMENT NO. 19
PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MONEY MARKET SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MANAGED SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE ZERO COUPON BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE AGGRESSIVE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE INTERNATIONAL SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE SEPARATE ACCOUNT
(EXACT NAME OF TRUST)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1050 WESTLAKES DRIVE
BERWYN, PA 19312
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 452-4000
---------------------
JAMES G. POTTER, JR., ESQ.
PROVIDENT MUTUAL LIFE INSURANCE
COMPANY OF PHILADELPHIA
1050 WESTLAKES DRIVE
BERWYN, PA 19312
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
STEPHEN E. ROTH, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP
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) of Rule 485
[X] on May 1, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) of Rule 485
Title of Securities Being Registered:
Interests in Modified Premium Variable Life Insurance Policies
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<PAGE> 2
(ART)
PROSPECTUS
FOR
MODIFIED PREMIUM
VARIABLE LIFE
INSURANCE
ISSUED BY
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
OPTIONS
FORM 15732 5.99
<PAGE> 3
PROSPECTUS
MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
SERVICE CENTER: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19173
CORPORATE HEADQUARTERS: 1050 WESTLAKES DRIVE, BERWYN, PENNSYLVANIA 19312
TELEPHONE: (302) 452-4000
This Prospectus describes a modified premium 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
purposes of the Policy are to provide insurance coverage for the lifetime of the
Insured and to lessen the economic loss resulting from the Insured's death. The
Policy provides the policyowner (the "Owner") with flexibility as to premium
payments subject to certain required premiums and the ability to choose among
investment alternatives with different investment objectives.
After certain deductions are made, Net Premiums are allocated to one or
more of the Separate Accounts. The seven Separate Accounts presently available
are: Provident Mutual Variable Growth Separate Account, Provident Mutual
Variable Money Market Separate Account, Provident Mutual Variable Bond 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.
The Growth, Money Market, Bond, Aggressive Growth and International Separate
Accounts invest in shares of a designated corresponding investment portfolio
("Portfolio") that is part of one of the following mutual fund companies. The
Zero Coupon Bond Separate Account invests in units of The Stripped ("Zero") U.S.
Treasury Securities Fund, Provident Mutual Series A ("Zero Trust"). Provident
Mutual Variable Separate Account has twenty subaccounts (the "Subaccounts"), the
assets of which are used to purchase shares of a designated corresponding
investment Portfolio that is part of one of the following mutual fund companies:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
VARIABLE INSURANCE
THE MARKET STREET FUND, INC. PRODUCTS FUND
- --------------------------------------------------------------------------------------
<S> <C>
- Aggressive Growth Portfolio - Equity-Income Portfolio
- All-Pro Large Cap Growth Portfolio - Growth Portfolio
- All-Pro Large Cap Value Portfolio - High Income Portfolio
- All-Pro Small Cap Growth Portfolio - Overseas Portfolio
- All-Pro Small Cap Value Portfolio
- Bond Portfolio
- Growth Portfolio
- International Portfolio
- Managed Portfolio
- Money Market Portfolio
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
VARIABLE INSURANCE
THE ALGER AMERICAN FUND PRODUCTS FUND II
- --------------------------------------------------------------------------------------
<S> <C>
- Small Capitalization Portfolio - Asset Manager Portfolio
- Contrafund Portfolio
- Index 500 Portfolio
- Investment Grade Bond Portfolio
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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NEUBERGER BERMAN
ADVISERS MANAGEMENT TRUST VAN ECK WORLDWIDE INSURANCE TRUST
- --------------------------------------------------------------------------------------
<S> <C>
- Limited Maturity Bond Portfolio - Worldwide Bond Portfolio
- Partners Portfolio - Worldwide Emerging Markets Portfolio
- Worldwide Hard Assets Portfolio
- Worldwide Real Estate Portfolio
- --------------------------------------------------------------------------------------
</TABLE>
The Owner bears the entire investment risk; there is no guaranteed minimum
value.
The accompanying prospectuses for the Funds and the Zero Trust describe the
investment objectives and the attendant risks of the Portfolios. The Cash Value
will reflect monthly deductions and certain other fees and charges. Also, a
surrender charge may be imposed if, during the first 9 policy years the Policy
lapses. Generally, the Policy will remain in force as long as the scheduled
premium payments are made. If the "Special Premium Payment Provision" is in
effect, the Owner will not have to pay the scheduled premiums to keep the Policy
in force.
This Prospectus must be accompanied or preceded by current prospectuses for
the funds. Please read this Prospectus carefully and retain it for future
reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
May 1, 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF THE POLICY
The Policy................................................ 1
Purpose of the Policy..................................... 1
The Death Benefit......................................... 1
Cash Value................................................ 2
Allocation of Net Premiums................................ 2
Transfers................................................. 2
Loan Privilege............................................ 2
Withdrawal of Excess Cash Value........................... 3
Surrender of the Policy................................... 3
Accelerated Death Benefit................................. 3
Tax Treatment............................................. 3
Illustrations............................................. 4
Charges Assessed Under the Policy......................... 4
Table of Fund Fees and Expenses........................... 5
The Company, Separate Accounts and Funds.................... 7
Provident Mutual Life Insurance Company................... 7
The Separate Accounts..................................... 7
The Funds................................................. 7
Market Street Fund, Inc................................... 8
The Stripped ("Zero") U.S. Treasury Securities Fund,
Provident Mutual Series A.............................. 10
The Alger American Fund................................... 11
Variable Insurance Products Fund and Variable Insurance
Products Fund II....................................... 11
Neuberger Berman Advisers Management Trust................ 14
Van Eck Worldwide Insurance Trust......................... 14
Additional Information About the Funds and Portfolios..... 15
Detailed Description of Policy Provisions................... 16
Death Benefit............................................. 16
Cash Value................................................ 17
Payment and Allocation of Premiums........................ 17
Transfers of Cash Value................................... 23
Policy Duration........................................... 24
Options on Lapse.......................................... 24
Exchange Privileges....................................... 24
Loan Privilege............................................ 25
Withdrawal of Excess Cash Value........................... 26
Surrender Privilege....................................... 27
Accelerated Death Benefit................................. 28
Charges and Deductions...................................... 29
Premium Expense Charge.................................... 29
Surrender Charges......................................... 30
Monthly Deductions........................................ 31
Mortality and Expense Risk Charge......................... 32
Asset Charge Against Zero Coupon Bond Separate Account.... 33
Charges for Income Taxes.................................. 33
Guarantee of Certain Charges.............................. 33
Other Charges............................................. 33
Other Policy Provisions..................................... 34
Payment of Policy Benefits................................ 34
The Policy................................................ 34
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Ownership................................................. 34
Beneficiary............................................... 35
Change of Owner and Beneficiary........................... 35
Split Dollar Arrangements................................. 35
Assignments............................................... 35
Misstatement of Age and Sex............................... 35
Dividends................................................. 35
Settlement Options........................................ 36
Supplementary Benefits...................................... 36
Federal Income Tax Considerations........................... 37
Introduction.............................................. 37
Tax Status of the Policy.................................. 37
Tax Treatment of Policy Benefits.......................... 37
Special Rules for Pension and Profit-Sharing Plans........ 39
Special Rules for Section 403(b) Arrangements............. 39
Business Uses of the Policy............................... 39
Possible Tax Law Changes.................................. 39
PMLIC's Taxes............................................. 39
Policies Issued in Conjunction with Employee Benefit
Plans..................................................... 40
Legal Developments Regarding Unisex Actuarial Tables........ 40
Voting Rights............................................... 40
Changes to the Separate Accounts of Funds................... 42
Changes to Separate Account Operations.................... 42
Changes to Available Portfolios........................... 42
Termination of Participation Agreements................... 42
Officers and Directors of PMLIC............................. 44
Distribution of Policies.................................... 46
Policy Reports.............................................. 46
Preparing for Year 2000..................................... 46
State Regulation............................................ 47
Legal Proceedings........................................... 47
Experts..................................................... 47
Legal Matters............................................... 47
Definitions................................................. 48
Financial Statements........................................ F-1
Appendix A -- Illustration of Death Benefits, Cash Surrender
Values and Accumulated Premiums............... A-1
Appendix B -- Calculation of Net Investment Factor and Cash
Value of the Policy....................................... B-1
Appendix C -- Long Term Market Trends....................... C-1
Appendix D -- Plan of Conversion............................ D-1
</TABLE>
ii
<PAGE> 6
SUMMARY OF THE POLICY
The following summary of the Policy provisions should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policy in this
prospectus assumes that the Insured is alive, the Policy is in force and there
is no outstanding loan.
THE POLICY
The Modified Premium Variable Life Insurance Policy (the "Policy") offered
by this Prospectus is issued by Provident Mutual Life Insurance Company
("PMLIC"). The Policy is similar in many ways to a fixed-benefit life insurance
policy. As with a fixed-benefit life insurance policy, the Owner of a Policy
makes premium payments in return for insurance coverage on the person insured.
Also, like many fixed-benefit life insurance policies, the Policy will not lapse
if scheduled premiums are paid and the Policy provides for accumulation of Net
Premiums and a Net Cash Surrender Value which is payable if the Policy is
surrendered during the Insured's lifetime. As with many fixed-benefit life
insurance policies, the Net Cash Surrender Value during the early Policy Years
is likely to be substantially lower than the aggregate premium payments made.
However, the Policy differs from a fixed-benefit life insurance policy in
several important respects. Unlike a fixed-benefit life insurance policy, under
the Policy, the Death Benefit may and the Cash Value will increase or decrease
to reflect the investment performance of the Separate Accounts or Subaccounts to
which Cash Value is allocated. There is no guaranteed minimum Net Cash Surrender
Value. If scheduled premium payments are not made, then, after a grace period,
the Policy will Lapse without value. (See "Policy Duration"). However, if the
"Special Premium Payment Provision" is in effect, the Owner will not be required
to pay scheduled premiums to keep the Policy in full force. Generally, this
provision will take effect when the Cash Value exceeds a particular amount. (See
"Special Premium Payment Provision"). If a Policy Lapses while loans are
outstanding, certain amounts may become subject to income tax and a 10% penalty
tax. (See "Federal Income Tax Considerations").
The Policy is called "modified premium" because while there is a fixed
schedule for premium payments, the Owner may, subject to certain restrictions,
make additional unscheduled payments.
The most important features of the Policy, such as charges and deductions,
Death Benefits, and calculation of Policy values, are summarized on the
following pages.
PURPOSE OF THE POLICY
The Policy is designed to provide lifetime insurance benefits and long-term
investment of Cash Value. A prospective Owner should evaluate the Policy in
conjunction with other insurance coverage that he or she may have, as well as
their need for insurance and the Policy's long-term investment potential. It may
not be advantageous to replace existing insurance coverage with the Policy. In
particular, replacement should be carefully considered if the decision to
replace existing coverage is based solely on a comparison of Policy
illustrations.
The Policy is issued for Insureds with Issue Ages 0 to 80. The minimum Face
Amount is $50,000.
THE DEATH BENEFIT
As long as the Policy remains in force, PMLIC will pay the Proceeds to the
Beneficiary upon receipt of due proof of the death of the Insured. The Proceeds
will consist of the Policy's Death Benefit, plus any additional benefits
provided by a supplementary benefit rider, less any outstanding Policy loan and
accrued interest, less any unpaid Monthly Deductions. So long as the required
scheduled premiums are paid, the Death Benefit will not be less than the
applicable Guaranteed Minimum Death Benefit.
1
<PAGE> 7
The Death Benefit is the greatest of:
(1) the applicable Guaranteed Minimum Death Benefit for the Policy;
(2) the Face Amount of the Policy plus the amount by which the Cash Value
on the date of death exceeds the appropriate Special Premium Payment
Single Premium; or
(3) the Cash Value on the date of death times the Death Benefit Factor for
the Insured's sex (if applicable), Attained Age, and Premium Class.
There are two Death Benefit Options under the Policy -- the Basic Death
Benefit Option and the Increasing Death Benefit Option. (The Increasing Death
Benefit Option is subject to certain availability restrictions.) The applicable
Guaranteed Minimum Death Benefit depends upon which Death Benefit you choose.
Under each of the Death Benefit Options, the Guaranteed Minimum Death Benefit is
as follows:
<TABLE>
<S> <C>
Basic Death Benefit Option: the Face Amount of the Policy;
Increasing Death Benefit Option: the Face Amount of the Policy plus the sum of all
unscheduled premiums received by PMLIC as of the date of
death.
</TABLE>
CASH VALUE
The Cash Value in the Separate Accounts and Subaccounts reflects the
investment performance of the chosen Separate Accounts and/or Subaccounts, any
Net Premiums allocated to those Separate Accounts and/or Subaccounts, any
transfers to or from those Separate Accounts and/or Subaccounts, any partial
withdrawals from those Separate Accounts and/or Subaccounts, any loans, any loan
repayments, any loan interest paid or credited and any charges assessed in
connection with the Policy. The Owner bears the entire investment risk.
ALLOCATION OF NET PREMIUMS
After deduction of the Premium Expense Charge, Net Premiums are allocated
to one or more of the Separate Accounts and/or Subaccounts as selected by the
Owner in the application or by subsequent written notice.
Each Separate Account (other than Provident Mutual Variable Zero Coupon
Separate Account) and Subaccount uses its assets to purchase shares of a
corresponding mutual fund Portfolio that is part of one of the following funds:
The Market Street Fund, Inc.; The Alger American Fund; Neuberger Berman Advisers
Management Trust; Van Eck Worldwide Insurance Trust; Variable Insurance Products
Fund; and Variable Insurance Products Fund II (the "Funds", each, a "Fund").
There is no assurance that the investment objectives of a particular Portfolio
will be met.
TRANSFERS
The Owner may transfer Cash Value between and among the Separate Accounts
and Subaccounts. Transfers between and among the Separate Accounts and
Subaccounts are made as of the date PMLIC receives the request. PMLIC requires a
minimum amount of $100 for each such transfer. (See "Transfers of Cash Value").
LOAN PRIVILEGE
The Owner may obtain Policy loans in a minimum amount of $300 (or such
lesser minimum as may be required in a particular state) but not exceeding: (1)
for Policy Years 1 through 3, 75% of the Net Cash Surrender Value; and (2) for
Policy Years 4 and thereafter, 90% of the Net Cash Surrender Value. For policies
issued to Virginia residents, the policy loan available in all years will be 90%
of the Net Cash Surrender Value.
2
<PAGE> 8
At the time of the application for the Policy, the Owner must elect one of
two Policy loan interest rate options -- either a fixed 8% rate per year or
variable rate which will not exceed the greater of 5 1/2% per year or the
Corporate Monthly Bond Yield Average as published by Moody's Investors Service,
Inc.
If interest is not paid when due, it will be added to the outstanding loan
balance. PMLIC transfers Cash Value in an amount equal to the loan to PMLIC's
General Account where it becomes collateral for the loan. The transfer is made
pro-rata from each Separate Account and/or Subaccount. This collateral earns
interest at an effective annual rate of 1.5% less than the annual rate then
being charged for loans. (See "Loan Privilege").
Depending upon the investment performance of the Separate Accounts or
Subaccounts, and the amounts borrowed, loans may cause a Policy to lapse. Lapse
of the Policy with outstanding loans may result in adverse tax consequences
including a 10% penalty tax. (See "Tax Treatment of Policy Benefits").
WITHDRAWAL OF EXCESS NET CASH VALUE
If the cash surrender value of the Policy exceeds an amount called the
Withdrawal Single Premium (which is the Attained Age net single premium for the
Face Amount of the Policy) the Owner may be able to withdraw such excess Cash
Value of the Policy, subject to certain conditions. A withdrawal will reduce the
Death Benefit, but not below the Guaranteed Minimum Death Benefit. (See
"Withdrawal of Excess Cash Value," below.)
SURRENDER OF THE POLICY
The Owner may at any time surrender the Policy and receive the entire Net
Cash Surrender Value. (See "Surrender Privilege").
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").
TAX TREATMENT
PMLIC believes that a Policy generally should meet the definition of a life
insurance contract in the Code. However, there is insufficient guidance to
determine whether or not a Policy issued after October 20, 1988 with an extra
rating (i.e., substandard) basis would satisfy the Code 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 after October 20,
1988 with an 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 definition of a life insurance contract. Any Owner
contemplating the adoption of such limitations should consult 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 Cash 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 "Federal
Income Tax Considerations").
Under certain circumstances, a Policy issued or materially changed after
June 20, 1988 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 Policy. In addition, prior to age
59 1/2 any such distributions generally will be subject to a 10% penalty tax.
(For further discussion of Modified Endowment Contracts, See "Tax Treatment of
Policy Benefits").
3
<PAGE> 9
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").
ILLUSTRATIONS
Illustrations of Death Benefits, Cash Value and Net Cash Surrender Value in
this prospectus or used in connection with the purchase of a Policy are based on
hypothetical rates of return. These rates are not guaranteed. They are
illustrative only and should not be considered a representation of past or
future performance. Actual rates of return may be higher or lower than those
reflected in Policy illustrations, and therefore, actual Policy values will be
different from those illustrated.
CHARGES ASSESSED UNDER THE POLICY
Premium Expense Charge. A Premium Expense Charge will be deducted from
each premium payment. This charge consists of a Premium Tax Charge of 2 1/2% for
state and local premium taxes, a Percent of Premium Sales Charge of 5%, and a
Premium Processing Charge of $1.00. (See "Premium Expense Charge," below.)
Monthly Deductions. On the Policy Date and on each Policy Processing Date
thereafter, the Cash Value is reduced by a Monthly Deduction equal to the sum of
the monthly Cost of Insurance Charge, Monthly Administrative Charge, Minimum
Death Benefit Guarantee Charge, a charge for additional benefits added by rider
and during the first Policy Year, a Policy Charge. The monthly Cost of Insurance
Charge is determined by multiplying the Net Amount at Risk by the applicable
cost of insurance rate(s). The Cost of Insurance Charge will not exceed the
guaranteed maximum Cost of Insurance rates set forth in the Policy based on the
insured's Attained Age, Sex and Premium Class. The Monthly Administrative Charge
is $3.25 plus $0.015 per $1,000 of Face Amount. (See "Monthly Administrative
Charge"). The Minimum Death Benefit Guarantee Charge is $0.01 per $1,000. The
Policy Charge is $5.
Surrender Charge. A Surrender Charge is imposed if the Policy is
surrendered or lapses at any time before the end of the 9th Policy Year. The
total Surrender Charge is the sum of a Contingent Deferred Administrative Sales
Charge which is no greater than $5.00 per $1,000 of Face Amount and a Contingent
Deferred Sales Charge which is no greater than 25% of the scheduled Base Premium
for Policy Year 1 plus 5% of the scheduled Base Premiums in Policy Years 2
through 5. (See "Surrender Charge").
Daily Charges Against the Separate Accounts and Subaccounts. PMLIC imposes
a daily charge for its assumption of certain mortality and expense risks in
connection with the Policy at an annual rate which is currently 0.60% of the
average daily net assets of each Separate Account and Subaccount. (See
"Mortality and Expense Risk Charges"). With regard to the Zero Coupon Bond
Separate Account, PMLIC imposes a daily charge for transaction charges
associated with the purchase of units of the Zero Trust at an annual rate which
is currently 0.25% of the average daily net assets of the Separate Account. This
charge may be increased in the future but it will not exceed an annual rate of
0.50%. (See "Asset Charge Against Zero Coupon Bond Separate Account").
4
<PAGE> 10
TABLE OF FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
MARKET STREET FUND, INC. ANNUAL EXPENSES GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- -------------- --------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ 0.32% 0.25% 0.35% 0.40% 0.41% 0.75%
Other Expenses..................... 0.15% 0.17% 0.20% 0.18% 0.21% 0.25%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses......... 0.47% 0.42% 0.55% 0.58% 0.62% 1.00%
ALL-PRO ALL-PRO ALL-PRO ALL-PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MARKET STREET FUND, INC. ANNUAL EXPENSES GROWTH VALUE GROWTH VALUE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.70% 0.70% 0.90% 0.90%
Other Expenses (after reimbursement)... 0.22% 0.27% 0.35% 0.39%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 0.92% 0.97% 1.25% 1.29%
THE ALGER AMERICAN FUND ANNUAL SMALL
EXPENSES(2) CAPITALIZATION
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
------------------------------- ----
Management Fees (Investment Advisory
Fees)............................ 0.85%
Other Expenses..................... 0.04%
----
Total Fund Annual Expenses......... 0.89%
VARIABLE INSURANCE PRODUCTS FUND ("VIP HIGH EQUITY-
FUND") ANNUAL EXPENSES(2) INCOME INCOME GROWTH OVERSEAS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.58% 0.49% 0.59% 0.74%
Other Expenses (after reimbursement)... 0.12% 0.08% 0.07% 0.15%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 0.70% 0.57% 0.66% 0.89%
INVESTMENT
VARIABLE INSURANCE PRODUCTS FUND II ASSET GRADE
("VIP II FUND") ANNUAL EXPENSES(2) MANAGER CONTRAFUND INDEX 500 BOND
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.54% 0.59% 0.24% 0.43%
Other Expenses (after reimbursement)... 0.09% 0.07% 0.04% 0.14%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 0.63% 0.66% 0.28% 0.57%
LIMITED
NEUBERGER BERMAN ADVISERS MATURITY
MANAGEMENT TRUST ANNUAL EXPENSES(2) BOND
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
------------------------------- ----
Management Fees (Investment Advisory
Fees)............................ 0.65%
Other Expenses..................... 0.11%
----
Total Fund Annual Expenses......... 0.76%
</TABLE>
5
<PAGE> 11
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
VAN ECK WORLDWIDE INSURANCE WORLDWIDE HARD EMERGING REAL
TRUST ANNUAL EXPENSES(2) BOND ASSETS MARKET ESTATE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- -------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ 1.00% 1.00% 1.00% 1.00%
Other Expenses (after reimbursement)... 0.15% 0.16% 0.50% 0.50%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 1.15% 1.16% 1.50% 1.50%
</TABLE>
<TABLE>
<CAPTION>
ZERO
MERRILL LYNCH ZERO UST SECURITIES COUPON
FUND ANNUAL EXPENSES(2) 2006
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
- --------------------------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
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 or fees waived
during 1998. It is anticipated that expense reimbursement and fee waiver
arrangements will continue past the current year. Absent the expense
reimbursement, the 1998 Total Annual Expenses would have been 1.36%, for the
Market Street Fund All-Pro Small Cap Value Portfolio, 0.58%, for the VIP
Fund Equity-Income Portfolio, 0.68%, for the VIP Fund Growth Portfolio,
0.91%, for the VIP Fund Overseas Portfolio, 0.64%, for the VIP II Fund Asset
Manager Portfolio, 0.35%, for the VIP II Fund Index 500 Portfolio, 0.70%,
for the VIP II Fund Contrafund Portfolio, 1.20%, for the Van Eck Worldwide
Hard Assets Portfolio, 1.61%, for the Van Eck Worldwide Emerging Markets
Portfolio and 5.32%, for the Van Eck Worldwide Real Estate 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 1998 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 and the Zero Trust was
provided by those Funds or the Trust. The Neuberger Berman Advisers
Management Trust, the Alger American Fund, the VIP Fund, the VIP II Fund and
the Van Eck WIT are not affiliated with PMLIC.
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THE COMPANY, SEPARATE ACCOUNTS AND FUNDS
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
PMLIC is a mutual life insurance company that was organized as a mutual
life insurance company under Pennsylvania law in 1865. PMLIC expects to change
its name to Provfirst America Life Insurance Company in connection with its
conversion into a stock life insurance company that is indirectly controlled by
a newly-created mutual holding company called Provident Mutual Holding Company.
More information about the pending conversion and the new holding company
structure is provided in Appendix D. PMLIC is authorized to transact life
insurance and annuity business in Pennsylvania and in 50 other jurisdictions. On
December 31, 1998, PMLIC had total assets of approximately $8.7 billion.
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 and Zero Coupon Bond Separate Accounts were
established by PMLIC as separate investment accounts 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.
The assets of each Separate Account are owned by PMLIC. However, these
assets are held separate from other assets and are not part of PMLIC's General
Account. The portion of a Separate Account's assets equal to the reserves and
other liabilities under the Policies (and other policies) supported by Separate
Account are not chargeable with liabilities arising out of any other business
that PMLIC may conduct. PMLIC may transfer to its General Account any assets of
a Separate Account that exceed the reserves and Policy liabilities of that
Separate Account (which will always be at least equal to the aggregate Cash
Value allocated to the Separate Account under the Policies). The income, gains
and losses, realized or unrealized, from the assets allocated to a Separate
Account are credited to or charged against that Separate Account without regard
to other income, gains or losses of PMLIC. PMLIC may accumulate in a Separate
Account the accrued charges for mortality and expense risks and investment
results attributable to assets representing such charges.
The Separate Accounts are collectively registered with the Securities and
Exchange Commission ("SEC") under the Investment Company Act of 1940 (the "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 Growth, Money Market, Bond, Aggressive Growth and International
Separate Accounts each invest exclusively in a corresponding Portfolio of Market
Street Fund, Inc. while the Variable Separate Account has twenty Subaccounts
that each invest exclusively in other Portfolios of Market Street Fund, Inc. or
in Portfolios of one of the other Funds. The Zero Coupon Bond Separate Account
invests in units of the Stripped ("Zero") U.S. Treasury Securities Fund,
Provident Mutual Series A ("Zero Trust").
THE FUNDS
The Portfolios are each part of one of six series-type mutual fund
companies (each, a "Fund"): Market Street Fund, Inc.; Neuberger Berman Advisers
Management Trust; The Alger American Fund; Van Eck Worldwide Insurance Trust;
Variable Insurance Products Fund; and Variable Insurance Products Fund II. Each
of the Funds are registered with the SEC under the 1940 Act as an open-end
management investment
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<PAGE> 13
company. The SEC does not, however, supervise the management or the investment
practices and policies of the Funds or their Portfolios. The assets of each
Portfolio are separate from the assets of other portfolios of that Fund and each
Portfolio has separate investment objectives and policies. Some of the Funds
may, in the future, create additional Portfolios. The investment experience of
each Separate Account or Subaccount depends on the investment performance of its
corresponding Portfolio or the Zero Trust.
Certain Separate Accounts and Subaccounts invest in Portfolios that have
similar investment objectives and/or policies; therefore before choosing
Separate Accounts or Subaccounts, carefully read the individual prospectuses for
the Funds along with this prospectus.
MARKET STREET FUND, INC.
The Growth, Money Market, Bond, Aggressive Growth and International
Separate Accounts and five Subaccounts of the Variable Separate Account invest
exclusively in shares of the Market Street Fund, Inc. ("MS Fund"). The
investment objectives of MS Fund's Portfolios are set forth below.
The Growth Portfolio. The Growth 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 a 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 foreign issuer 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 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 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 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 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.
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<PAGE> 14
With respect to the Growth, Money Market, Bond, Managed and Aggressive
Growth Portfolios, the Fund is advised by Sentinel Advisors Company (SAC), which
is registered with the SEC as an investment adviser under the Investment
Advisers Act of 1940. As compensation for its services, SAC receives monthly
compensation as follows:
Growth Portfolio -- 0.50% of the first $20 million of the average
daily net assets of the Growth Portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio, and 0.30% of the average
daily net assets in excess of $40 million.
Money Market Portfolio -- 0.25% of the average daily net assets of the
portfolio.
Bond Portfolio -- 0.35% of the first $100 million of the average daily
net assets of the portfolio and 0.30% of the average daily net assets in
excess of $100 million.
Managed Portfolio -- 0.40% of the first $100 million of the average
daily net assets of the portfolio and 0.35% of the average daily net assets
in excess of $100 million.
Aggressive Growth Portfolio -- 0.50% of the first $20 million of the
average daily net assets of the portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio and 0.30% of the average
daily net assets in excess of $40 million.
With respect to the International Portfolio, 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. ("Boston Company") to provide investment subadvisory services
in connection with the Portfolio. As compensation for the investment advisory
services rendered, PIMC pays The Boston Company a monthly fee at an effective
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.
PIMC serves as investment adviser for the All Pro Portfolios. 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") and in part by Geewax, Terker & Co.
("Geewax"); 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%.
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 -- .25% of the first
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<PAGE> 15
$50 million of assets and .23% 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 -- .20%.
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, MS Fund pays
its own expenses generally, including brokerage costs, administrative costs,
custodial costs, and legal, accounting and printing costs. However, PMLIC has
entered into an agreement with the Fund whereby it will reimburse the Fund for
all ordinary operating expenses, excluding advisory fees in excess of an annual
rate of 0.40% of the average daily net assets of each portfolio except the
International Portfolio, and 0.75% for the International Portfolio. It is
anticipated that this agreement will continue; if it is terminated, Fund
expenses may increase.
A more complete description of MS Fund, including the investment
objectives, policies and risks of each Portfolio, 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
Trust consists of one series with a maturity date of February 15, 2006. The
objective of the Zero Trust is to provide safety of capital and a high yield to
maturity through investment in the fixed series consisting primarily of debt
obligations issued by the United States of America that have been stripped of
their unmatured interest coupons, coupons stripped from debt obligations of the
United States, and receipts and certificates for such stripped debt obligations
and coupons. A brief summary of the securities purchased by the Zero Trust is
set forth below. More detailed information may be found in the current
Prospectus for the Zero Trust which accompanies this Prospectus.
Since the U.S. Treasury securities have been stripped of their unmatured
interests coupons, they are purchased at a deep discount. If held to maturity,
the amounts invested by the Zero 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 rate of return
experienced by Policy Owners however is lower due to the deduction of certain
charges described under "Charges Against the Separate Accounts," especially the
charge for mortality and expense risks and the transaction charge against the
Zero Coupon Bond Separate Account. Because the value of the Zero Trust's units
vary on a daily basis to reflect market values, no net rate of return can be
calculated prospectively for units not held until maturity.
Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPFS) serves as
Sponsor for the Zero Trust. Because the series invests in a fixed portfolio,
there is no investment manager. As Sponsor, MLPFS sells units of the Zero 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").
Units of the Zero 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
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<PAGE> 16
MLPFS at the Sponsor's repurchase price. Otherwise, units will be redeemed at
the Trust's redemption price, which is typically a lower amount.
Thirty days prior to the maturity date of the securities contained in a
series of the Zero Trust, an Owner who has allocated Net Premiums to the Zero
Coupon Bond Separate Account investing in that series will be notified and given
the opportunity to select the account or Subaccount 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
Zero Coupon Bond Separate Account will be transferred to the Money Market
Separate Account.
THE ALGER AMERICAN FUND
The Alger American Small Capitalization Subaccount invests exclusively in
shares of the corresponding Portfolio of The Alger American Fund ("Alger
American").
Alger American Small Capitalization Portfolio. This 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 complete description of Alger American and the Alger American Small
Capitalization Portfolio, including the Portfolio's investment objectives,
policies and risks, is contained in the prospectus for Alger American which
accompanies this Prospectus.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
Eight Subaccounts 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"). The investment objectives of the
Portfolios of the VIP Fund and the VIP II Fund in which these Subaccounts invest
are set forth below.
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.
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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 500 Portfolio
attempts to duplicate the composition and total return of the Standard and
Poor's 500 Composite Stock Price Index while keeping transaction costs and other
expenses low. The Portfolio is designed as a long-term investment option.
Investment Grade Bond Portfolio. This Portfolio seeks high current income
by investing in investment grade debt securities.
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.
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,
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<PAGE> 18
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"). 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.). 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.
Currently, FMR (U.K.), FMR Far East, FIIA and FIIAL U.K. each focus on
investment opportunities in countries other than the U.S., including countries
in Europe, Asia and the Pacific Basin.
Under the sub-advisory agreements FMR pays the fees of FMR (U.K.), FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors are
compensated as follows:
- FMR pays FMR (U.K.) and FMR Far East fees equal to 110% and 105%,
respectively, of FMR (U.K.)'s and FMR Far East's costs incurred in
connection with providing investment advice and research services.
- FMR pays FIIA 30% of its monthly management fee with respect to the
average market value of investments held by the Portfolio for which FIIA
has provided FMR with investment advice.
- FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred
in connection with providing investment advice and research services.
For providing investment management services, the sub-advisors are
compensated according to the following formulas:
- FMR pays FMR (U.K.), FMR Far East, and FIIA 50% of its monthly management
fee with respect to the Portfolio's average net assets managed by the
sub-advisor on a discretionary basis.
- FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection
with providing investment management.
Each Portfolio utilizes Fidelity Investments Institutional Operations
Company ("FIIOC"), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each Portfolio pays fees based on the type, size, and number of accounts
in each Portfolio and the number of transactions made by shareholders of each
Portfolio.
Each Portfolio also has an agreement with Fidelity Service Co. ("Service"),
an affiliate of FMR under which each Portfolio pays Service to calculate its
daily share prices and to maintain the portfolio and general accounting records
of each Portfolio and to administer each Portfolio's securities lending program.
The fees for pricing and bookkeeping services are based on each Portfolio's
average net assets but must fall within a range of $45,000 to $750,000. The fees
for securities lending services are based on the number and duration of
individual securities loans.
FMR may, from time to time, agree to reimburse a Portfolio for management
fees and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without notice,
will increase a Portfolio's yield. If FMR discontinues a reimbursement
arrangement, 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
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<PAGE> 19
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 complete description of the VIP Fund and the VIP II Fund, including
the investment of objectives, policies and risks of its Portfolios, is contained
in the prospectuses for the VIP Fund and VIP II Fund which accompany this
Prospectus.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
The Neuberger Berman Limited Maturity Bond and Partners Subaccounts invest
exclusively in shares of corresponding Portfolios of the Neuberger Berman
Advisers Management Trust ("AMT").
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 Separate Accounts will
invest. The investment objectives of the Portfolios of AMT in which the Separate
Accounts will invest are set forth below. The investment experience of each
Subaccount depends upon the investment performance of its corresponding
Portfolio and Series. 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 ("NB Management"). As compensation for its services, NB
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 complete description of AMT, including the investment objectives,
policies and risks of the available Portfolios, is contained in the prospectuses
for the Limited Maturity Bond and Partners Portfolios of AMT, which accompany
this Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
Four Subaccounts invest exclusively in shares of corresponding Portfolios
of Van Eck Worldwide Insurance ("Van Eck Trust"). The investment objectives of
the Portfolios of Van Eck Trust are set forth below.
Van Eck Worldwide Hard Assets Portfolio. This 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
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<PAGE> 20
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. This Portfolio seeks high total return
through a flexible policy of investing globally, primarily in debt securities.
Van Eck Worldwide Emerging Markets Portfolio. This Portfolio seeks
long-term capital appreciation by investing primarily in equity securities in
emerging markets around the world.
Van Eck Worldwide Real Estate Portfolio. This Portfolio seeks to maximize
total return by investing primarily in equity securities of domestic and foreign
companies which are principally engaged in the real estate industry or which own
significant real estate assets.
The investment adviser for the Van Eck Worldwide Hard Assets, Van Eck
Worldwide Bond and Van Eck Worldwide Real Estate Portfolios is Van Eck
Associates Corporation ("Van Eck Associates"). The investment adviser for the
Van Eck Worldwide Emerging Markets Portfolio is Van Eck Global Asset Management
(Asia) Limited, a wholly-owned investment adviser subsidiary of Van Eck
Associates. As compensation for its services to the Worldwide Hard Assets and
Worldwide Bond Portfolios, Van Eck Associates receives a monthly fee at an
annual rate of 1.0% of the first $500 million of the average daily net assets of
the Portfolios, 0.90% of the next $250 million of the daily net assets of the
Portfolios, and 0.70% of the average daily net assets of the Portfolios in
excess of $750 million. As compensation for its services to the Worldwide
Emerging Markets and Van Eck Worldwide Real Estate Portfolios, Van Eck
Associates or its affiliate receives a monthly fee at an annual rate of 1.00% of
the Portfolio's average daily net assets.
A more complete description of Van Eck Trust, including the investment
objectives, policies and risks of the available Portfolios, is contained in the
Prospectus for the Trust which accompanies this Prospectus.
ADDITIONAL INFORMATION ABOUT THE FUNDS AND PORTFOLIOS
NO ONE CAN ASSURE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVES AND
POLICIES.
More detailed information concerning the investment objectives, policies
and restrictions of the Portfolios, the expenses of the Portfolios, the risks
attendant to investing in the Portfolios and other aspects of the Funds'
operations can be found in the current prospectus for each Fund that accompanies
this prospectus and the current Statement of Additional Information for the
Funds. The Funds' prospectuses should be read carefully before any decision is
made concerning the allocation of Net Premium Payments or transfers of Cash
Value among the Separate Accounts or Subaccounts.
Not all of the Portfolios described in the prospectuses for the Funds are
available with the Policy. Moreover, PMLIC cannot guarantee that each Portfolio
will always be available for the Policies, but in the unlikely event that a
Portfolio is not available, PMLIC will take reasonable steps to secure the
availability of a comparable portfolio. Shares of each Fund are purchased and
redeemed at net asset value, without a sales charge.
PMLIC has entered into agreements with the investment advisers of several
of the Funds pursuant to which each such investment adviser will pay PMLIC a
servicing fee based upon an annual percentage of the average aggregate net
assets invested by PMLIC on behalf of the Separate Accounts. These agreements
reflect administrative services provided to the Funds by PMLIC. Payments of such
amounts by an adviser will not increase the fees paid by the Portfolios or their
shareholders.
Shares of the Funds are sold to separate accounts of insurance companies
that are not affiliated with PMLIC or each other, a practice known as "shared
funding." They are also sold to separate accounts to serve as the underlying
investment for both variable annuity contracts and variable life insurance
policies, a practice known as "mixed funding." As a result, there is a
possibility that a material conflict may arise between the interests of Owners,
whose Cash Values are allocated to the Separate Accounts or Subaccounts, and of
owners of other contracts or policies whose values are allocated to one or more
other separate accounts investing in any one of the Portfolios. Shares of some
of the Funds may also be sold directly to certain pension and retirement plans
qualifying under Section 401 of the Code. As a result,
15
<PAGE> 21
there is a possibility that a material conflict may arise between the interests
of Owners or owners of other policies or contracts (including policies issued by
other companies), and such retirement plans or participants in such retirement
plans. In the event of any such material conflicts, PMLIC will consider what
action may be appropriate, including removing the Portfolio as in investment
option under the Policies or replacing the Portfolio with another Portfolio.
There are certain risks associated with mixed and shared funding and with the
sale of shares to qualified pension and retirement plans, as disclosed in each
Fund's prospectus.
DETAILED DESCRIPTION OF POLICY PROVISIONS
DEATH BENEFIT
General. As long as the Policy remains in force, the Proceeds of the
Policy will, upon due proof of the Insured's death (and fulfillment of certain
other requirements), be paid to the Beneficiary in accordance with the
designated Death Benefit Option. The Proceeds will be determined as of the date
of the Insured's death and will be equal to:
1. the Death Benefit;
2. plus any additional benefits due under a supplementary benefit rider
attached to the Policy;
3. less any loan and accrued loan interest on the Policy;
4. less any overdue deductions if the death of the Insured occurs during
the Grace Period.
The Proceeds may be paid in cash or under one of the Settlement Options set
forth in the Policy.
Death Benefit Options. The Policy provides two Death Benefit Options.
Under the Basic Death Benefit Option, the Death Benefit is equal to the
greatest of: (1) the Face Amount of the Policy; (2) the Face Amount of the
Policy plus the amount by which the Cash Value of the Policy on the date of
death exceeds the appropriate 7 1/2% Special Premium Payment Single Premium; or
(3) the Cash Value of the Policy on the date of death times the Death Benefit
Factor shown in the Policy for the Insured's sex (if applicable), Attained Age
and premium class. Under the Increasing Death Benefit Option, the Death Benefit
is equal to the greatest of: (1) the Face Amount of the Policy plus the sum of
all unscheduled premiums received by PMLIC as of the date of death; (2) the Face
Amount of the Policy plus the amount by which the Cash Value of the Policy on
the date of death exceeds the appropriate 7 1/2% Special Premium Payment Single
Premium; or (3) the Cash Value of the Policy on the date of death times the
Death Benefit Factor shown in the Policy for the Insured's sex (if applicable),
Attained Age and premium class.
The Death Benefit is increased by the portion of any scheduled premium
payment which applies to a period of time beyond the date of death. The amount
payable is reduced by any policy loans and accrued interest and, if the Insured
dies during the Grace Period, by that part of any required but unpaid scheduled
premium which applies to a period prior to the date of death. The amount
remaining after these adjustments is the Proceeds at death paid to the
beneficiary at the Insured's death.
Availability of Death Benefit Options. The Death Benefit Option is chosen
at the time of application for the Policy. If the Policy is issued with the
Basic Death Benefit, the Owner may change to the Increasing Death Benefit only
during the first Policy Year. Once the Increasing Death Benefit has been chosen,
the Owner may not subsequently change to the Basic Death Benefit.
The Guaranteed Minimum. As long as required scheduled premiums are paid,
the Death Benefit is guaranteed never to be less than the applicable Guaranteed
Minimum Death Benefit for the Policy. For a Policy with the Basic Death Benefit,
the Guaranteed Minimum Death Benefit is equal to the Face Amount of the Policy.
For a Policy with the Increasing Death Benefit, the Guaranteed Minimum Death
Benefit is equal to the Face Amount of the Policy plus the sum of all
unscheduled premiums received by PMLIC as of the date of death.
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<PAGE> 22
How the Death Benefit May Vary. For purposes of determining the Cost of
Insurance Charge, the Death Benefit is determined on each Policy Processing Day
based on the Cash Value of the Policy (see "How the Cash Value May Vary,"
below). The Death Benefit will be adjusted to the date of death. The Death
Benefit and the Proceeds payable at the Insured's death, therefore, depend on
the Cash Value of the Policy when the Insured dies. Favorable investment
experience and premium payments in excess of scheduled premiums may result in an
increase in the Death Benefit. Unfavorable investment experience may result in
decreases in the Death Benefit, but never less than the Face Amount of the
Policy. The Death Benefit will also vary depending upon whether the Basic Death
Benefit or the Increasing Death Benefit applies.
CASH VALUE
The Cash Value is not guaranteed. Unless there is an outstanding policy
loan, the total Cash Value of the Policy at any time is the sum of the Cash
Values of the Separate Accounts and Subaccounts. If there is an outstanding
loan, the total Cash Value equals the Cash Value in the General Account
attributable to the loan plus the Cash Values of the Separate Accounts.
As described below, the Cash Value of each Separate Account or Subaccount
may increase or decrease daily depending on the investment experience of the
chosen Separate Accounts or Subaccounts and the deduction of charges from the
Cash Value. Although the Policy offers the possibility of Cash Value
appreciation, there is no assurance that such will occur. It is also possible,
due to poor investment experience, for the Cash Value to decline to zero.
Therefore, the Owner bears all the investment risk on the Cash Value.
How the Cash Value May Vary. The Cash Value of each Separate Account or
Subaccount on the Policy Date is the portion of the Net Premium allocated to
that Separate Account or Subaccount reduced by the portion of the monthly
deduction on the first Policy Processing Day allocated to that Separate Account
or Subaccount. Thereafter, the Cash Value of each Separate Account or Subaccount
changes on each Valuation Day.
The Cash Value of each Separate Account or Subaccount reflects a number of
factors, including the investment performance of the Portfolio or the Zero
Trust, the receipt of scheduled and unscheduled premium payments, transfers from
and to other Separate Accounts or Subaccounts, transfers to and from the General
Account for a policy loan and repayment, any withdrawal of excess Cash Value,
the monthly deductions from Cash Value, and the daily charges against the
Separate Accounts or Subaccounts. For a Policy having the Increasing Death
Benefit where unscheduled premiums are paid, the Cash Value may be slightly
lower than that of the same Policy having the Basic Death Benefit.
Net Investment Factor. Each Separate Account or Subaccount has its own Net
Investment Factor. The Net Investment Factor measures the daily investment
performance of a Separate Account or Subaccount. The factor increases to reflect
investment income and capital gains, realized and unrealized, for the securities
of the underlying Portfolio or the Zero Trust. The Factor decreases to reflect
any capital losses, realized and unrealized, for the securities of the
underlying Portfolio or the Zero Trust.
The asset charge for mortality and expense risks and the transaction charge
for the Zero Coupon Bond Separate Account is deducted in determining the
applicable Net Investment Factor.
A description of how the Net Investment Factor is determined and how it is
reflected in the Cash Value of the Policy is set forth in Appendix B on Page
B-1.
PAYMENT AND ALLOCATION OF PREMIUMS
Scheduled Premiums. Scheduled premiums are payable during the Insured's
lifetime on an annual basis or, if elected, more frequently. The scheduled
premium is a level amount that does not change until the Premium Change Date
(see "Premium Change Date"). If all required scheduled premiums are paid when
due, the Policy will not lapse, even if adverse investment experience results in
no Cash Value. If the Special Premium Payment Provision is in effect, scheduled
premiums do not have to be paid for the policy
17
<PAGE> 23
to stay in full force. (See "Special Premium Payment Provision".) If that
provision is not in effect, scheduled premiums must be paid to keep the Policy
in full force. (See "Grace Period for Payment of Scheduled Premiums".)
Amount of Scheduled Premiums. The amount of scheduled premiums depends on
the Face Amount of the Policy, the age of the Insured, the Insured's sex and
premium class and the frequency of premium payments. The amount of scheduled
premiums payable on Policies issued in states which require "unisex" policies
(currently Montana) or in conjunction with employee benefit plans depends on all
of the preceding factors except for the sex of the Insured.
For purposes of calculating premium rates, there are three groupings or
"bands" of Face Amount. Each band has a different set of premium rates per
$1,000 of Face Amount. The bands are: $50,000 -- 99,999; $100,000 -- 249,999;
$250,000 and over. Generally, the premium rates per $1,000 of Face Amount will
be lower for Policies in a higher Face Amount band. Premiums generally are
higher for Policies issued for older Insureds. Premiums also are generally
higher for male Insureds than comparable female Insureds. The premium classes
available are Standard, Non-Smoker, Non-Smoker with Extra-Premium and Extra-
Premium. Lower premiums are charged to non-smokers who are at least 22 years of
age (21 years of age for policies issued to residents of Texas). Since there is
no Non-Smoker class for Insureds under the age of 22, shortly before an Insured
attains age 22 (21 in Texas), PMLIC will notify the Insured about possible
classification as a Non-Smoker and send the Insured an Application for Change in
Premium Class. If the Insured does not qualify for the Non-Smoker class or does
not return the application form, the Insured's premium class will remain
Standard and the monthly deduction for cost of insurance will be based on Smoker
Mortality Tables (see "Cost of Insurance"). If the Insured returns the
application and qualifies as a Non-Smoker, the scheduled premium for the Policy
will be reduced and the monthly deduction for cost of insurance will be based on
Non-Smoker Mortality Tables. Additional premiums are charged for a Policy with
an extra-premium class and for any supplementary insurance benefits. In certain
situations, such as term conversions, where less than normal underwriting
expenses are incurred, PMLIC may allow a credit toward the first scheduled
premium.
Representative annual Base Premium amounts payable from the Policy Date
until the Premium Change Date for Non-Smoker and Standard premium classes are
shown in the following table:
<TABLE>
<CAPTION>
$50,000 FACE AMOUNT $100,000 FACE AMOUNT
--------------------- ---------------------
NON-SMOKER STANDARD NON-SMOKER STANDARD
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Male, Issue Age 25.................................. 395.50 503.50 765.00 982.00
Female, Issue Age 35................................ 508.50 594.00 991.00 1,163.00
Male, Issue Age 45.................................. 905.00 1,216.00 1,783.00 2,405.00
Female, Issue Age 55................................ 1,236.50 1,442.00 2,445.00 2,856.00
</TABLE>
Premiums are payable on an annual, semi-annual or quarterly basis. Premiums
are payable monthly under the Automatic Payment Plan where the Owner authorizes
PMLIC to withdraw premiums from the Owner's checking account each month. If
premiums are payable under the Automatic Payment Plan and such plan is
terminated, the premium payment frequency will be changed to quarterly. The
Owner may make deposits into a Premium Deposit Fund Account (PDF Account). If
the Owner has a PDF Account, PMLIC will automatically apply the amount in such
account toward payment of the scheduled premium due on the premium due date. Any
amounts held in a PDF Account earn interest at a fixed rate which will be
declared by the Company from time to time.
If scheduled premiums are paid more often than annually, the aggregate
yearly premium will be higher. Although it is not guaranteed that Owners who pay
premiums annually and those who pay more frequently than annually will achieve
the same Cash Values, the higher premium for those who pay premiums more
frequently is intended to decrease the likelihood that the Cash Values for such
Owners will be significantly different than those of annual payors.
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<PAGE> 24
Since PMLIC deducts a premium processing charge of $1.00 from each premium
payment, Policies for which premiums are paid more frequently than annually will
incur higher aggregate premium processing charges than Policies with premiums
paid annually (see "Premium Processing Charge").
The following table compares annual and monthly premiums for Insureds who
are in the Non-Smoker premium class. Note that in these examples the sum of 12
monthly premiums for a particular Policy is approximately 106% of the annual
premium for the Policy.
<TABLE>
<CAPTION>
$50,000 FACE AMOUNT $100,000 FACE AMOUNT
------------------- ---------------------
MONTHLY ANNUAL MONTHLY ANNUAL
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Male, Issue Age 25.................................. 34.80 395.50 67.32 765.00
Female, Issue Age 35................................ 44.75 508.50 87.21 991.00
Male, Issue Age 45.................................. 79.64 905.00 156.90 1,783.00
Female, Issue Age 55................................ 108.81 1,236.50 215.16 2,445.00
</TABLE>
Unscheduled Premiums. The Owner may make unscheduled premium payments at
any time, subject to certain minimum and maximum limitations. The minimum
unscheduled premium payment is $25. The maximum unscheduled premium which PMLIC
will accept in any Policy Year, without prior approval, is a multiple of the
scheduled annual Base Premium, based on the Attained Age of the Insured, as
shown in the following table.
<TABLE>
<CAPTION>
MULTIPLE OF SCHEDULED
ATTAINED AGE BASE PREMIUM
- ------------ ---------------------
<S> <C>
0-59 10
60-65 8
66-70 6
71-75 5
76-80 4
81-85 3
86+ 2
</TABLE>
The Owner may plan to pay on a regular basis a premium amount in excess of the
scheduled premium. PMLIC will show this additional amount as payable on the
premium notice. However, only the required scheduled premium shown on such
notice must be paid to keep the Policy in full force.
The Cash Value of the Policy will immediately increase as of the date an
unscheduled premium payment is received. This will increase the likelihood that
the Special Premium Provision will go into effect earlier than it otherwise
would. If unscheduled premium payments are made, the Special Premium Payment
Option may go into effect slightly later for a Policy with the Increasing Death
Benefit than it would for the same Policy with the Basic Death Benefit. Of
course, the Cash Value may subsequently increase or decrease depending upon the
investment experience of the Separate Accounts to which the net unscheduled
premium is allocated. Depending upon the circumstances, the Death Benefit may or
may not increase when an unscheduled premium payment is received. If the Special
Premium Payment Provision has been in effect and scheduled premiums have been
skipped, then payment of unscheduled premiums increases the total premiums paid
and therefore can increase the amount of the Surrender Charge.
Premium Change Date. Each Policy sets forth a scheduled premium amount
payable on the Policy Date and on each subsequent premium due date until the
Premium Change Date. Each Policy also sets forth a higher premium amount payable
on and after the Premium Change Date. The Premium Change Date is the Policy
Anniversary nearest the Insured's Attained Age 70 or the 15th Policy Year, if
later. Because of the premium change feature, the scheduled premiums payable
before the Premium Change Date are lower than would otherwise be available and
PMLIC is able to provide a Guaranteed Minimum Death Benefit, as long as
scheduled premiums are paid when due.
19
<PAGE> 25
The higher premium amount specified in the Policy which is payable
beginning on the Premium Change Date is based on the following assumptions:
(1) no unscheduled premium payments are made;
(2) maximum cost of insurance charges are deducted in all Policy Years;
and
(3) the net rate of return for the chosen Separate Accounts is 4 1/2%.
Two months prior to the Premium Change Date, PMLIC will recompute the
scheduled premium amount payable on and after such date, assuming all scheduled
premiums due before the Premium Change Date are paid. If the Owner has made
unscheduled premium payments, if the Cost of Insurance Charges deducted are less
than the maximum charges, if the chosen Separate Accounts have a net rate of
return greater than 4 1/2%, or if any appropriate combination of these factors
occurs, the amount of scheduled premiums payable on and after the Premium Change
Date will usually be less than the premium amount payable on and after such date
as shown in the Policy; in no event will the premium be greater than that shown
in the Policy. If unscheduled premium payments are made, for a Policy with the
Increasing Death Benefit, the premium payable on and after the Premium Change
Date may be slightly higher than it would be for the same Policy with the Basic
Death Benefit.
Special Premium Payment Provision. If the "Special Premium Payment
Provision" is in effect, the Owner will not be required to pay scheduled
premiums to keep the Policy in full force. Generally, this provision will take
effect when the Cash Value exceeds a particular amount as described in more
detail below.
The Special Premium Payment Provision operates on an annual basis. PMLIC
will notify the Owner if this provision goes into effect and each year that it
stays in effect. To determine whether this provision will take effect for a
Policy Year, PMLIC will calculate whether the Cash Value on the Policy
Processing Day 2 months before each Policy Anniversary, plus any scheduled but
unpaid premiums due before the Policy Anniversary, exceeds an amount called the
Special Premium Payment Single Premium. This is an amount which if paid as one
sum, and given certain assumptions, which are described in the following
paragraph, would be sufficient to purchase a single premium life insurance
policy at the Insured's Attained Age with a face amount equal to the Policy's
Face Amount. If the Cash Value exceeds this amount and if the required scheduled
premiums due before the Policy Anniversary are paid, then the Special Premium
Payment Provision goes into effect on that Policy Anniversary and remains in
effect for one year. The Policy will remain in force for that year, regardless
of whether the Owner makes premium payments or the Cash Value remains greater
than the Special Premium Payment Single Premium (the "SPPSP"). If any premium
payments are paid while the Special Premium Payment Provision is in effect, they
will be considered unscheduled premium payments. Therefore, any premiums for
supplemental benefits and extra-premium class will not be deducted from such
premium payments. Instead, while the Special Premium Payment Provision is in
effect, a portion of the premiums for supplemental benefits and extra-premium
class will be deducted from the Cash Value at the premium frequency in effect
(see "Supplementary Benefit Charge").
The assumptions on which the SPPSP is based are:
(1) Current cost of insurance rates;
(2) Expense charges described herein;
(3) A Death Benefit equal to the applicable Guaranteed Minimum Death
Benefit for the Policy;
(4) An amount sufficient to cover the cost of any supplementary
benefits and extra-premium class; and
(5) An assumed interest rate.
The assumed interest rate is 7.5% if the Special Premium Payment Provision
was not in effect for the prior Policy Year, and is 9% if the provision was in
effect for the prior Policy Year. Since the 7.5%
20
<PAGE> 26
assumed interest rate results in a higher Special Premium Payment Single Premium
than when the 9% assumed interest rate is used, it is possible for the provision
to stay in effect when the factors affecting Cash Value are less favorable than
necessary initially to trigger the provision.
Since the effectiveness of the Special Premium Payment Provision depends on
the amount of Cash Value, it depends upon all the factors that affect Cash
Value, such as the investment experience, the amount and frequency of
unscheduled premium payments, and the level of actual cost of insurance and
other charges. Greater investment performance, payment of unscheduled premiums,
and lower cost of insurance and other charges will each tend to increase the
likelihood that the provision will go into effect. The provision also depends on
the relationship between the Cash Value and the SPPSP, and the SPPSP increases
with the Insured's Attained Age. Therefore, for older Insureds the Cash Value
must be correspondingly higher to trigger this provision.
The time that the Special Premium Payment Provision goes into effect may
also depend upon whether the Policy has the Basic or Increasing Death Benefit
Option. Assuming that unscheduled premium payments have been made, for a Policy
with the Increasing Death Benefit, the Cash Value may be slightly lower and the
SPPSP higher than for the same Policy with the Basic Death Benefit. Therefore,
where unscheduled premium payments have been made, the Special Premium Payment
Provision may go into effect later for a Policy with the Increasing Death
Benefit than it would for the same Policy with the Basic Death Benefit.
For Policies issued to residents of New York State, the determination of
whether the Special Premium Payment Provision will take effect is based on
whether the Cash Value exceeds the greater of the SPPSP and the Special Premium
Payment Tabular Value (the SPPTV).
For a Policy with the Basic Death Benefit, the SPPTV is calculated like the
Cash Value of the Policy except that it is based on the following assumptions:
(1) Guaranteed (maximum) cost of insurance rates;
(2) Expense charges described herein;
(3) A net investment return of 4 1/2%;
(4) Payment of all scheduled premiums when due; and
(5) No unscheduled premium payments or policy loans.
Because these assumptions are more conservative than the assumptions used to
calculate the SPPSP, for New York Policies it is somewhat less likely, under
certain circumstances, that the Special Premium Payment Provision will go into
effect as early as it will for other Policies and New York Policies may require
a higher net rate of return in order for the Special Premium Payment Provision
to remain in effect for a subsequent year.
The examples shown below illustrate when the Special Premium Payment
Provision would first go into effect in certain representative situations. The
examples are for a Policy with a $100,000 Face Amount with a Non-Smoker premium
class, under which premiums are paid annually, with no policy loans taken or
cash withdrawals made, and current cost of insurance rates and expense charges
stated in the Policy. When the Special Premium Payment Provision goes into
effect it remains in effect for one year, until the following Policy
Anniversary. For each Policy Year thereafter, a recalculation is made to
determine if the Special Premium Payment Provision remains in effect for that
year. Since no unscheduled premiums are paid in these examples, they apply to a
Policy with either the Basic Death Benefit or the Increasing Death Benefit.
Example A: A male Insured, age 25 at issue, where only the annual
scheduled premium payments of $765.00 are made (this Policy is illustrated more
completely in Appendix A, at page A-3). With a 6% investment return the earliest
the Special Premium Payment Provision would go into effect is Policy Year 20;
with a 12% investment return, the earliest the provision would go into effect is
Policy Year 12.
21
<PAGE> 27
Example B: A female Insured, age 55 at issue, where only the annual
scheduled premiums of $2,445.00 are paid (this Policy is illustrated more
completely in Appendix A, page A-6). With a 6% investment return the earliest
the Special Premium Payment Provision would go into effect is Policy Year 22;
with a 12% investment return, the earliest it goes into effect is Policy Year
12.
Since the Special Premium Payment Provision depends largely on the Cash
Value, and since making unscheduled premium payments increases the Cash Value,
making one or more unscheduled premium payments would bring the Special Premium
Payment Provision into effect sooner than shown in the above examples. Under
Example A (male Insured, age 25), if a single unscheduled premium of $3,000 is
paid when the Policy with the Basic Death Benefit is purchased, and thereafter
only the annual scheduled premiums are paid, then with a 6% investment return
the Special Premium Payment Provision would first go into effect for Policy Year
8 (instead of Policy Year 20); with a 12% investment return, the Provision would
first go into effect for Policy Year 6 (instead of Policy Year 12). Similarly,
under Example B (female Insured, age 55), if a single unscheduled premium of
$8,600 is paid when the Policy with the Basic Death Benefit is purchased and
thereafter only the annual scheduled premiums are paid, then with a 6% return
the Special Premium Payment Provision would first go into effect for Policy Year
10 (instead of 22); with a 12% return the provision would first go into effect
for Policy Year 7 (instead of 12).
Assuming unscheduled premium payments are made, if the Policy has the
Increasing Death Benefit, then the Special Premium Payment Provision may go into
effect slightly later than it would for the same Policy with the Basic Death
Benefit. Using Example A, for a Policy with the Increasing Death Benefit, where
a single unscheduled premium of $3,000 is paid when the Policy is purchased with
annual scheduled premiums only paid thereafter, with a 6% investment return the
Special Premium Payment Provision would first go into effect for Policy Year 9
(instead of Policy Year 8); with a 12% return, the provision would first go into
effect for Policy Year 6 (the same Policy Year). Using Example B, for a Policy
with the Increasing Death Benefit, where a single unscheduled premium of $8,600
is paid when the Policy is purchased with annual scheduled premiums only paid
thereafter, with a 6% return the Special Premium Payment Provision would first
go into effect for Policy Year 12 (instead of 10); with a 12% return, the
provision would first go into effect for Policy Year 7 (the same Policy Year).
Under either Death Benefit Option, if several unscheduled premiums are
paid, (as opposed to one larger unscheduled premium as illustrated in the prior
examples) then the Special Premium Payment Provision may also go into effect
sooner than with the payment of scheduled premiums only (given the assumptions
stated above). Under Example A (male Insured, age 25), if, in addition to the
scheduled premiums, unscheduled premium payments of $700 each are made at the
beginning of each of the first 5 Policy Years, then for a Policy with the Basic
Death Benefit, with a 6% return the provision would first go into effect for
Policy Year 8; with a 12% return, the provision would first go into effect for
Policy Year 6. Under Example B (female Insured, age 55), if, in addition to the
scheduled premiums, unscheduled premium payments of $2,550 each are made at the
beginning of each of the first 5 Policy Years, then for a Policy with Basic
Death Benefit, with a 6% return the provision would first go into effect for
Policy Year 7; with a 12% return the provision would first go into effect for
Policy Year 6.
These examples are based on current cost of insurance rates. If guaranteed
(maximum) rates are used, the Special Premium Payment Provision may go into
effect under either Death Benefit Option in a later Policy Year than with
current rates. Under Example A (male Insured, age 25), with the Basic Death
Benefit Option, using guaranteed cost of insurance rates, the provision would
first go into effect for Policy Year 22 (instead of 20 using current rates) if
there is a 6% return and for Policy Year 12 (same as with current rates) if
there is a 12% return; for Example B (female Insured, age 55), with the Basic
Death Benefit Option, using guaranteed cost of insurance rates, the provision
would first go into effect for Policy Year 34 (instead of 22) if there is a 6%
return and for Policy Year 14 (instead of 12) if there is a 12% return (Appendix
A includes an illustration of each of these examples using both current and
guaranteed (maximum) cost of insurance rates, see pages A-3 and A-7 and A-6 and
A-10, respectively).
Automatic Premium Loan. The Owner may elect the Automatic Premium Loan
(APL) provision in the Application for the Policy or by written request after
the Policy is issued. The APL provision will be
22
<PAGE> 28
operative only when premiums are payable other than monthly. If the APL
provision is operative, any scheduled premium which has not been paid by the end
of the Grace Period will be paid by a policy loan within 7 days after the end of
such Grace Period, provided the Policy has sufficient loan value and the Special
Premium Payment Provision is not in effect.
Allocation of Net Premiums. In the Application for the Policy, the
Applicant elects to have net scheduled premiums (scheduled Base Premiums less
7 1/2% for sales charge and state premium tax charge, see "Premium Expense
Charge,") allocated to the Growth Account, the Money Market Account, the Bond
Account, the Managed Account, the Aggressive Growth Account, the International
Account, the Zero Coupon Bond Sub Account, Subaccounts of the Variable Accounts
or any combination of them. No less than 5% of a Net Premium may be allocated to
any chosen Account or Sub Account. The allocation percentages for the chosen
Accounts must be in whole numbers. This initial allocation will remain in effect
until changed by written notification to PMLIC.
The allocation percentages in effect for net scheduled premiums will also
apply to net unscheduled premium payments (unscheduled premium payment less
Premium Expense Charges, see "Premium Expense Charge,") unless PMLIC is notified
that a different allocation is to be used for that particular unscheduled
premium. PMLIC must be notified with each unscheduled premium payment of the
allocation or the percentages for scheduled premiums will be used.
PMLIC will allocate the first Net Premium to the Separate Accounts on the
later of the Issue Date of the Policy or the date PMLIC receives the payment at
its Service Center. PMLIC will allocate subsequent Net Premiums to the Separate
Accounts as of the date it receives the payment at its Service Center. For
premiums paid under the Automatic Payment Plan (pre-authorized check or
Electronic Funds Transfer), such will be allocated to the Separate Accounts on
the date PMLIC receives credit for the funds.
TRANSFERS OF CASH VALUE
Transfers. The Owner may transfer the Cash Value between and among the
Separate Accounts and Subaccounts by making a written transfer request to PMLIC
up to 4 times in each Policy Year. The amount transferred must be at least $100,
unless the total value in an account is less than $100, in which case the entire
amount may be transferred. The redistribution will be without charge and will be
effective as of the date of receipt of the transfer request at PMLIC's Service
Center.
Transfer Right for Change in Investment Policy of a Separate Account or a
Subaccount. If the investment policy of a Separate Account or a Subaccount is
materially changed, the Owner may transfer the portion of the Cash Value in such
Separate Account or Subaccount to another Separate Account or Subaccount without
a transfer charge and without having such transfer count toward the four
transfers permitted without charge during a Policy Year.
Telephone Transfers. Transfers will be made based upon instructions given
by telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to PMLIC. PMLIC reserves the
right to suspend telephone transfer privileges at any time, for any class of
policies, for any reason.
PMLIC will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and if it follows such procedures it will
not be liable for any losses due to unauthorized or fraudulent instructions.
PMLIC, however, may be liable for such losses if it does not follow those
reasonable procedures. The procedures PMLIC will follow for telephone transfers
include requiring some form of personal identification prior to acting on
instructions received by telephone, providing written confirmation of the
transaction and making a tape-recording of the instructions given by telephone.
Automatic Asset Rebalancing. Automatic Asset Rebalancing is a feature
which, if elected, authorizes periodic transfers of policy values among the
Separate Accounts or Subaccounts in order to maintain the allocation of such
values in percentages that match the then current premium allocation
percentages. Election of this feature may occur at the time of application or at
any time after the Policy is issued by
23
<PAGE> 29
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.
POLICY DURATION
Grace Period for Payment of Scheduled Premiums. A Grace Period of 61 days
from the due date is allowed for payment of scheduled premiums after the first
scheduled premium. If scheduled premiums are paid on or before their due dates
or within the Grace Period, the Policy will remain in full force even if the
investment experience of the Separate Accounts or Subaccounts designated by the
Owner has been so unfavorable that there is no Cash Value. When the Special
Premium Payment Provision is not in effect and the Automatic Premium Loan
provision is not operative, the failure to pay a scheduled premium by the
expiration of the Grace Period will cause the Policy to lapse as of the date the
unpaid premium was due. If the Policy lapses, the Owner can surrender the Policy
for its Net Cash Surrender Value, apply for reinstatement or continue the
insurance as Extended Term Insurance or Reduced Paid Up Insurance.
Reinstatement. The Policy may be reinstated within three years from the
date the unpaid premium was due if it was not surrendered and the Owner provides
evidence of insurability. Payment of a premium will be required equal to the
greater of:
(a) all unpaid scheduled premiums with interest at 6% per year
compounded annually, plus any policy loan and accrued interest as of the
end of the Grace Period; or
(b) 110% of the increase in the cash surrender value resulting from
reinstatement plus all overdue premiums for supplementary insurance
benefits with interest at 6% compounded annually.
Upon reinstatement the Policy will have the same Cash Value and Death Benefit as
if it had not lapsed. The date of reinstatement will be the date PMLIC approves
the application for reinstatement.
OPTIONS ON LAPSE
Extended Term Insurance (ETI). The Net Cash Surrender Value as of the date
this Option is applied, plus monthly deductions made on any Policy Processing
Day on or after the date of lapse, will be used as a single premium to buy
fixed-benefit Extended Term Insurance for the Insured. The amount of insurance
will equal the Death Benefit on the date of lapse minus any loan and accrued
interest as of that date. The term period will be that which the single premium
will provide for the Insured's Attained Age and sex. ETI has a Cash Value but no
loan value. ETI will not be available if the premium class is Non-Smoker with
Extra-Premium or Extra-Premium or the amount of paid up insurance would be
greater than the amount of the ETI.
Reduced Paid Up Insurance (RPU). The Net Cash Surrender Value as of the
date the Option is applied, plus monthly deductions made on any Policy
Processing Day on or after the date of lapse, will be used as a single premium
to buy that amount of fixed-benefit insurance which will continue for the
Insured's lifetime based on the Insured's Attained Age and sex. Reduced Paid Up
Insurance has a loan privilege the same as that available for premium paying
policies.
PMLIC will apply ETI automatically unless it is not available or the Owner
selects another Option. If ETI is not available, RPU will be automatic. A
selected Option will be applied on the date PMLIC receives written request at
its Home Office; PMLIC will apply an automatic Option three months after the
date of lapse. The Option will be effective as of the date of lapse.
EXCHANGE PRIVILEGE
Within 6 months after the effective date of a material change in the
investment policy of any chosen Separate Account or Subaccount, the Owner may
exchange the Policy for a fixed-benefit whole life insurance policy offered by
PMLIC on the life of the Insured.
24
<PAGE> 30
No evidence of insurability is required to exercise this privilege. The new
policy will have a face amount equal to the Face Amount of the Policy and the
same issue age, issue date and premium class for the Insured as the Policy.
Premiums for the new policy will be based on the rates which were in effect for
the new policy on the Policy Date for the Policy.
The exchange will be subject to an equitable adjustment to reflect
variances, if any, in the Cash Values and dividends of the Policy and the new
policy. The method of calculating the adjustment is filed by PMLIC with the
appropriate state insurance regulatory authorities. Any policy loan and loan
interest must be repaid on or before the effective date of the exchange.
LOAN PRIVILEGE
The Owner may borrow from PMLIC using the Policy as sole security for the
loan. The Owner may borrow up to the difference between the Policy's current
Loan Value and any outstanding Policy loan and accrued interest. The minimum
amount of any policy loan is $300 ($200 for Policies issued to residents of
Connecticut), unless used to pay a scheduled premium. During Policy Years 1
through 3, the loan value of the Policy will be 75% of the cash surrender value;
during Policy Year 4 and thereafter it will be 90% of the cash surrender value.
(90% in all years for Policies issued to residents of Virginia).
If on a Policy Anniversary the outstanding Policy loan and accrued interest
exceeds the cash surrender value, the Policy will terminate 31 days after PMLIC
mails notice to the Owner and any assignee of record at their last known
addresses, unless a payment of the amount of such excess is made within that
period. In no event will the required payment exceed the amount of the accrued
loan interest plus all due and unpaid scheduled premiums.
While the Insured is living, the Owner may repay all or a portion of a loan
and accrued interest. The amount of any outstanding policy loan and accrued
interest will be deducted in determining the Net Cash Surrender Value or
Proceeds at death.
Interest Rate. The interest rate charged on Policy loans will be either a
fixed annual rate of 8%, or a variable loan interest rate. The Owner must select
one of these rates in the Application for the Policy. If the fixed rate is
selected, the Owner may later change to the variable rate. Such change will be
effective as of the Policy Anniversary following receipt of written notice by
PMLIC at its Service Center. The Owner is not permitted to change from the
variable rate to the fixed rate.
Interest is due at the end of each Policy Year, on the Policy Anniversary.
If not paid when due, the interest will be added to the loan and bear interest
at the applicable Policy loan interest rate.
Variable Loan Interest Rate. The variable loan interest rate will be
determined by PMLIC to be effective as of the first day of each January, April,
July and October, unless the state in which this Policy is delivered requires
the determination to be made less frequently, such as yearly. The maximum
interest rate will be the greater of 5 1/2% or the Moody's Corporate Bond Yield
Average-Monthly Average Corporates as published by Moody's Investors Service,
Inc., (if this Average is no longer published, a maximum rate set by state law
or by the insurance supervisory official of the state in which the Policy is
delivered will apply), for the calendar month ending two months prior to the
date of change. If the maximum interest rate for the new period is at least
1/2% lower than the loan interest rate currently being charged, the rate for
the new period will be decreased such that it is equal to or less than the
maximum interest rate allowed for such period. If the maximum interest rate for
the new period is at least 1/2% higher than the loan interest rate currently
being charged, PMLIC may, at its discretion, increase the rate for the new
period to a rate that is no higher than the maximum interest rate allowed for
such period. Any decrease in the variable loan rate is required; any increase in
the rate is optional. PMLIC will not necessarily charge the maximum variable
loan interest rate.
Allocation of Loans and Repayments. When a loan is made, a portion of the
Cash Value equal to the amount of the loan is transferred from the Separate
Accounts and Subaccounts to PMLIC's General Account. Repayment of a loan will
result in a transfer back to the Separate Accounts and Subaccounts. A loan and
any repayment will be allocated among the Separate Accounts and Subaccounts
based upon the
25
<PAGE> 31
net Cash Value of each Separate Account and Subaccounts as of the date the loan
or the repayment is made.
Effect of Loan. A loan taken from, or secured by, a Policy may, in certain
circumstances, have adverse federal income tax consequences (see "Federal Income
Tax Considerations").
The amount maintained in the General Account will not reflect the
investment experience of the Separate Accounts or Subaccounts during the period
the loan is outstanding. Instead, interest will be credited on each Policy
Processing Day on the loaned amount at an annual rate 1.50% below the 8% or
variable interest rate charged on the Policy loan.
A loan, whether or not repaid, will have a permanent effect on the Cash
Value of the Policy and any Death Benefit in excess of the guaranteed minimum.
The effect could be favorable or unfavorable. This is because the investment
experience of the Separate Accounts or Subaccounts will only apply to the amount
remaining in the Separate Accounts or Subaccounts and not to the amount
transferred to the General Account. If the investment experience of the Separate
Accounts or Subaccounts is better than the amount being credited on loaned
amounts, the Cash Value and hence Death Benefit in excess of the guaranteed
minimum, will not increase as rapidly as they would have if no loan had been
made. However, if the investment experience of the Separate Accounts or
Subaccounts is not as good as the rate being credited on loaned amounts, the
Cash Value and excess Death Benefit will be higher than they would have been if
no loan had been made. The longer a loan is outstanding, the greater the effect
is likely to be.
For a male Insured, age 45 (illustrated in Appendix A at Page A-5),
assuming current Cost of Insurance Charges, consider the following example. A
loan of $2,000 with interest payable at the fixed 8% loan interest rate is made
at the end of Policy Year 10 and repaid at the end of Policy Year 12. Loan
interest is paid when due. Upon repayment the Cash Value will be $27,968. This
amount will be less than the amount shown in the illustration for the end of
Policy Year 12 ($28,163) because the loan amount is credited with a 6 1/2% rate
of return (8% loan interest rate minus 1 1/2%) rather than the 12% gross
investment return illustrated.
Lapse With Loans Outstanding. The amount of an outstanding loan under a
Policy plus any accrued interest on outstanding loans is not part of Net Cash
Surrender Value. Therefore, the larger the amount of an outstanding loan, the
more likely it is that the Policy could lapse. In addition, if the Policy is not
a Modified Endowment Policy, lapse of the Policy with outstanding loans may
result in adverse tax consequences. (See "Tax Treatment of Policy Benefits")
WITHDRAWAL OF EXCESS CASH VALUE
The Owner may withdraw excess Cash Value from the Policy if two conditions
are met. First, a cash withdrawal may be made only to the extent that the cash
surrender value (the Cash Value minus any applicable surrender charge) is at
least $300 more than an amount called the "Withdrawal Single Premium", which
depends on the Insured's Attained Age. Second, a cash withdrawal may be made
only if the amount withdrawn does not reduce the Policy's Net Loan Value (loan
value less existing policy loan and accrued interest) to zero. (See "Loan
Privilege".) Upon request, PMLIC will tell the Owner how much may be withdrawn.
No more than four withdrawals may be made in a Policy Year. A withdrawal
cannot be made for less than $300. Withdrawals cannot be repaid except as
premium payments, subject to Premium Expense Charges (see "Premium Expense
Charge"), and any applicable limits on premium payments (see "Payment and
Allocation of Premiums"). If the Owner does not specify an allocation for the
withdrawal, it will be allocated among the Separate Accounts (or any Subaccount)
based upon the net Cash Value of each Separate Account on the date of the
withdrawal.
Calculation of Withdrawal Single Premium. The Withdrawal Single Premium is
based on:
(1) Current cost of insurance rates;
(2) Expense charges described herein;
26
<PAGE> 32
(3) A Death Benefit equal to the applicable Guaranteed Minimum Death
Benefit for the Policy;
(4) An interest rate of 7 1/2%; and
(5) An amount sufficient to cover the cost of additional premiums for
supplementary benefits and extra-premium class.
The Withdrawal Single Premium is the same as the Special Premium Payment
Single Premium ("SPPSP") using the 7.5% assumed rate (examples of the 7.5% SPPSP
are listed in Examples A and B), which is used to calculate whether the Special
Premium Payment Provision goes into effect. Generally a withdrawal of excess
cash cannot be made unless the Special Premium Payment Provision is in effect.
There may be limited situations, however, where a cash withdrawal can be made
although the Special Premium Payment Provision is not in effect, because the
cash surrender value may have increased since the SPPSP was last calculated. In
addition, the Special Premium Payment Provision may be in effect during periods
when cash withdrawals may not be made, for several reasons including: (1) the
withdrawal provision depends on whether the cash surrender value exceeds the
Withdrawal Single Premium, whereas the Special Premium Payment Provision depends
on whether a larger amount, the Cash Value, exceeds the SPPSP; (2) the
withdrawal provision is based on the 7.5% SPPSP, whereas a smaller amount, the
9% SPPSP, is used to determine if the Special Premium Payment Provision will
remain in effect for another year once it is in effect; and (3) since the
minimum cash withdrawal is $300, cash withdrawals are permitted only if the cash
surrender value is at least $300 greater than the Withdrawal Single Premium.
For Policies issued to residents of New York State, the amount that may be
withdrawn is based on whether the cash surrender value is at least $300 more
than the greater of the Withdrawal Single Premium and the Withdrawal Tabular
Value.
For a Policy with the Basic Death Benefit, the Withdrawal Tabular Value is
calculated like the Cash Value of the Policy except that it is based on the
following assumptions:
(1) Guaranteed (maximum) cost of insurance rates;
(2) Expense charges described herein;
(3) A net investment return of 4 1/2%;
(4) Payment of all scheduled premiums when due; and
(5) No unscheduled premium payments or policy loans.
Because these assumptions are more conservative than the calculations used to
calculate the Withdrawal Single Premium, for New York Policies, it is somewhat
less likely under certain circumstances that there can be a Withdrawal of Excess
Cash Value.
Effect of Withdrawal. Whenever a withdrawal is made, the Death Benefit
will immediately be recalculated to take into account the reduction in Cash
Value. This will not change the Guaranteed Minimum Death Benefit or the amount
of scheduled premiums payable before the Premium Change Date. The amount of
scheduled premiums after the Premium Change Date may be affected by withdrawals
but in no event will they be greater than the amount set forth in the Policy. A
withdrawal may, under certain circumstances, have adverse federal income tax
consequences. (See "Federal Income Tax Considerations".) Surrendering the Policy
under certain circumstances may have adverse federal income tax consequences.
(See "Federal Income Tax Considerations".)
SURRENDER PRIVILEGE
The Policy may be surrendered at any time while the Insured is living for
its Net Cash Surrender Value. The Net Cash Surrender Value is the net Cash Value
(Cash Value minus any policy loan and accrued interest) less any Surrender
Charge. (See "Surrender Charge"). PMLIC will determine the Net Cash Surrender
Value on the date it receives at its Service Center a surrender request signed
by the
27
<PAGE> 33
Owner. Coverage under the Policy will end on the day the Owner mails or
otherwise sends the surrender request to PMLIC. Surrendering the policy may,
under certain circumstances, have adverse federal income tax consequences. (See
"Federal Income Tax Considerations.")
ACCELERATED DEATH BENEFIT
Applicants residing in states that have approved the Accelerated Death
Benefit Rider (the "ADBR") may elect to add it to their Policy at issue, subject
to PMLIC receiving satisfactory additional evidence of insurability. The ADBR is
not yet available in all states and the terms under which it is available may
vary from state-to-state. There is no assurance that the ADBR will be approved
in all states or that it will be approved under the terms described herein.
The ADBR permits the Owner to receive, at his or her request and upon
approval by PMLIC, an accelerated payment of part of the Policy's Death Benefit
when one of the following two events occurs:
1. Terminal Illness. The Insured develops a non-correctable medical
condition which is expected to result in his or her death within 12
months; or
2. Permanent Confinement to a Nursing Care Facility. The Insured has been
confined to a Nursing Care Facility for 180 days and is expected to
remain in such a facility for the remainder of his or her life.
There is no charge for adding the ADBR to a Policy. However, an
administrative charge, currently $100 and not to exceed $250, will be deducted
from the accelerated death benefit at the time it is paid.
Tax Consequences of The Rider. The Federal income tax consequences
associated with adding the ADBR or receiving the accelerated death benefit are
uncertain. Accordingly, we urge you to consult a tax adviser before adding the
ADBR to your Policy or requesting an accelerated death benefit.
Amount of the Accelerated Death Benefit. The ADBR provides for a minimum
accelerated death benefit payment of $10,000 and a maximum benefit payment equal
to 75% of the Eligible Death Benefit less 25% of any outstanding Policy loans
and accrued interest. The ADBR also restricts the total of the accelerated death
benefits paid from all life insurance Policies issued to an Owner by PMLIC and
its subsidiaries to $250,000. This $250,000 maximum may be increased, as
provided in the ADBR, to reflect inflation. The term Eligible Death Benefit
under the ADBR means:
The 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 Proceeds 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 Service Center. 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.
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<PAGE> 34
PMLIC may request additional medical information from an Owner's physician
and/or may require an independent physical examination (at its expense) before
approving the claim for payment of the accelerated death benefit. PMLIC will not
approve a claim for an accelerated death benefit payment if a Policy is assigned
in whole or in part, if the Terminal Illness or Permanent Confinement is the
result of intentionally self-inflicted injury or if the Owner is required to
elect it in order to meet the claims of creditors or to obtain a government
benefit.
Operation of the Rider. The ADBR provides that the accelerated death
benefit be made in the form of a Policy loan up to the amount of the maximum
loan available under a Policy at the time the claim is approved. Therefore, a
request for an accelerated death benefit payment in an amount less than or equal
to the maximum loan available at that time will result in a Policy loan being
made in the amount of the requested benefit. This Policy loan operates as would
any loan under the Policy.
To the extent that the amount of a requested accelerated death benefit
payment exceeds the maximum available loan amount, the benefit will be advanced
to the Owner and a lien will be placed on the Death Benefit payable under the
Policy (the "death benefit lien") in the amount of this advance. Under the ADBR,
interest will accrue daily, at a rate determined as described in the ADBR, on
the amount of this advance and upon the death of the Insured the amount of the
advance and accrued interest thereon is subtracted from the amount of Insurance
Proceeds at Death.
Effect on Existing Policy. The Insurance Proceeds at Death otherwise
payable under a Policy at the time of an Insured's death will be reduced by the
amount of any death benefit lien and accrued interest thereon. If the Owner
makes a request for a surrender, a Policy loan or a withdrawal, the Policy's Net
Cash Surrender Value and Loan Value will be reduced by the amount of any
outstanding death benefit lien plus accrued interest. Therefore, depending upon
the size of the death benefit lien, this may result in the Net Cash Surrender
Value and the Loan Value being reduced to zero.
Premiums and Policy loan interest must be paid when due. However, if
requested with the accelerated death benefit claim, future premiums and policy
loan interest may be paid through additional accelerated death benefits.
In addition to lapse under the applicable provisions of the Policy, a
Policy will also terminate on any Policy Anniversary when the death benefit lien
exceeds the Proceeds.
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 contracts.
PREMIUM EXPENSE CHARGE
Prior to allocation of Net Premiums, premiums paid are reduced by a Premium
Expense Charge which consists of:
Premium Tax Charge. Various states and some of their subdivisions impose a
tax on premiums received by insurance companies. A charge is deducted from each
premium payment to compensate PMLIC for paying state premium taxes. This charge
is equal to 2 1/2% of each scheduled Base Premium or unscheduled premium
remaining after the premium processing charge has been deducted. Premium taxes
vary from state to state and the 2 1/2% is the average rate expected to be paid
on premiums received in most states. This charge may be increased in certain
localities when substantial additional premium taxes are assessed.
Sales Charge. A charge of 5% of each scheduled Base Premium or unscheduled
premium remaining after the premium processing charge has been deducted. This
charge is deducted from each premium
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<PAGE> 35
payment to partially compensate PMLIC for the cost of selling the Policy (There
also is a Contingent Deferred Sales Charge which is deducted only if the Policy
is surrendered or lapses in the first 9 Policy Years. See "Contingent Deferred
Sales Charge").
Premium Processing Charge. PMLIC will deduct a charge of $1.00 from each
premium payment to cover the cost of collecting and processing premium payments.
Policies for which premiums are paid annually will therefore incur lower
aggregate premium processing charges than Policies with premiums paid more
frequently.
SURRENDER CHARGES
A Surrender Charge, which consists of a Contingent Deferred Administrative
Charge and a Contingent Deferred Sales Charge, is imposed if the Policy is
surrendered or lapses at any time before the end of the 9th Policy Year.
These Surrender Charges are designed partially to compensate PMLIC for the
cost of administering, issuing and selling the Policy, including agent sales
commissions, the cost of printing the prospectuses and sales literature, any
advertising costs, medical exams, review of applications for insurance,
processing of the applications, establishing policy records and Policy issue.
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.
Contingent Deferred Administrative Charge. The Contingent Deferred
Administrative Charge is as follows:
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR FACE AMOUNT
- ----------- -----------------
<S> <C>
1-5 $5.00
6 4.00
7 3.00
8 2.00
9 1.00
10 0
</TABLE>
Contingent Deferred Sales Charge. The Contingent Deferred Sales Charge is
to partially compensate PMLIC for the cost of selling the Policy.
If the Special Premium Payment Provision has never been in effect as of the
date of surrender or lapse, then the Contingent Deferred Sales Charge is a
percentage of the lesser of:
(i) the total premiums paid, less premium processing charges, to the date
of surrender or lapse; and
(ii) the schedule Base Premiums payable up to such date (scheduled Base
Premiums are total scheduled premiums less premium processing charges
and premiums for supplementary benefits and for extra-premium class);
If the Special Premium Payment Provision has been in effect prior to the
date of surrender or lapse, then the Contingent Deferred Sales Charge is a
percentage of the lesser of:
(i) the total premiums paid, less premium processing charges, to the date
of surrender or lapse; and
(ii) the scheduled Base Premium that would have been payable up to such
date if the Special Premium Payment Provision had never been in
effect.
The maximum Contingent Deferred Sales Charge is an amount equal to 25% of
the first year's scheduled Base Premium, plus 5% of the scheduled Base Premiums
for Policy Year 2, 3, 4 and 5. Expressed differently, this equals 9% of the
total scheduled Base Premiums for Policy Years 1 through 5. The maximum
Contingent Deferred Sales Charge will be applied to Policies that lapse or are
surrendered during Policy Year 5. Thereafter, the Contingent Deferred Sales
Charge will be reduced each year until it becomes zero in Policy Year 10 and
thereafter.
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<PAGE> 36
The following table shows the rates that will apply when Policies with
premiums payable annually (and for Insureds with an Issue Age of 65 or less) are
surrendered or lapse.
<TABLE>
<CAPTION>
FOR POLICIES THE CONTINGENT DEFERRED SALES CHARGE WHICH IS EQUAL TO THE
WHICH ARE RATES WILL BE THE FOLLOWING PERCENTAGE OF
SURRENDERED FOLLOWING PERCENTAGE OF THE SCHEDULED PREMIUMS
OR LAPSE DURING ONE SCHEDULED ANNUAL UP TO THE DATE OF
POLICY YEAR PREMIUM SURRENDER OR LAPSE
- --------------- ------------------------------------ -----------------------
<S> <C> <C>
1 25% 25.00%
2 30% 15.00%
3 35% 11.66%
4 40% 10.00%
5 45% 9.00%
6 40% 6.66%
7 30% 4.28%
8 20% 2.50%
9 10% 1.11%
10 and later Zero Zero
</TABLE>
For Insureds whose Issue Age is above 65, the rates that will apply when
Policies with premiums payable annually are surrendered or lapse will be less
than or equal to those shown in the table above.
For Policies with premiums payable more frequently than annually, the
maximum Contingent Deferred Sales Charge is also 25% of the first year's
scheduled Base Premiums due on or before the date of surrender or lapse plus 5%
of the scheduled Base Premiums for Policy Years 2, 3, 4 and 5 which are payable
on or before the date of surrender or lapse (or the same percentages of total
premiums paid, if less). The charge declines uniformly in Policy Years 6 through
9 until it becomes zero for Policy Years 10 and thereafter. Although the rate of
the Contingent Deferred Sales Charges is the same for annual premium Policies
and Policies with premiums paid more frequently than annually, for Policies
surrendered at the end of a Policy Year, the dollar amount of this charge will
be higher for Policies with premiums paid more frequently than for annual
premium Policies because the total amount of the scheduled premiums is higher.
MONTHLY DEDUCTIONS
Charges will be deducted from the Policy's Cash 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 five components -- (a) the Cost of Insurance, (b)
Administration Charge, (c) Minimum Death Benefit Guarantee Charge, (d) First
Year Policy Charge, and (e) Supplementary Benefit Charge. 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 is deducted from the Separate Accounts and/or Subaccounts based on the
proportion that the Owner's Separate Accounts or Subaccount bear to the total
unloaned Cash Value of the Policy.
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. If any
unscheduled premium payments are made, this charge may be slightly higher for a
Policy with the Increasing Death Benefit than for the same Policy with the Basic
Death Benefit.
The Net Amount at Risk on any Policy Processing Day is the amount by which
the Death Benefit exceeds the Policy's Cash Value. In calculating the cost of
insurance charge, the rate for the Premium Class on the Policy Processing Day is
applied to the Net Amount at Risk.
Any change in the Net Amount at Risk will affect the total cost of
insurance charges paid by the Owner.
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Cost of Insurance Rate. The cost of insurance rate is based on the
Attained Age, Sex, Premium Class of the Insured. The actual Monthly Cost of
Insurance rates will be based on PMLIC's expectations as to future mortality and
expense experience. They will not, however, be greater than the guaranteed
maximum cost of insurance rates set forth in the Policy. The guaranteed maximum
rates are based on the Insured's Attained Age, Sex, Premium Class, and the 1980
Commissioners Standard Ordinary Smoker and 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 Table 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.
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 rating. The standard
Premium Class is divided into two categories: smoker and nonsmoker. Nonsmoking
Insureds will generally incur lower cost of insurance rates than Insureds who
are classified as smokers in the same Premium Class.
Since the nonsmoker designation is not available for Insured under Attained
Age 22 (21 in Texas), shortly before an Insured attains age 22, 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 be based on the Premium Class 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.
Administration Charge. A Monthly Administration Charge of $3.25 and $0.015
per $1,000 of Face Amount is deducted from the Cash Value on the Policy Date and
each Policy Processing Day as part of the Monthly Deduction. 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.
Minimum Death Benefit Guarantee Charge. This charge compensates PMLIC for
the risk it assumes by guaranteeing that, no matter how unfavorable investment
experience may be, as long as required scheduled premiums are paid when due the
Death Benefit will never be less than the Face Amount of the Policy if the Basic
Death Benefit applies and the Face Amount of the Policy plus the sum of
unscheduled premiums received by PMLIC as of the date of death if the Increasing
Death Benefit applies. This charge is equal to $0.01 per $1,000 of the
applicable Guaranteed Minimum Death Benefit. For a Policy with a Guaranteed
Minimum Death Benefit of $50,000, the deduction will be $0.50 per month or $6.00
per year.
First Year Policy Charge. A charge of $5.00 will be deducted on each of
the first 12 Policy Processing Days. This charge in conjunction with the
Contingent Deferred Administrative Charge compensates PMLIC for expenses, other
than sales expenses, incurred in conjunction with issuance of the Policy.
Supplementary Benefit Charge. If the Special Premium Payment Provision is
in effect, charges for any supplementary benefits or for extra-premium class
will be deducted on each Policy Processing Day a scheduled premium otherwise
would be due. These charges will be 92.5% of the premiums otherwise payable for
these benefits.
MORTALITY AND EXPENSE RISK CHARGE
A daily charge will be deducted from the value of the net assets of the
Separate Accounts and Subaccounts to compensate PMLIC for mortality and expense
risks assumed in connection with the Policy. This charge will be deducted at an
annual rate of 0.60% (or a daily rate of 0.001644) of the average daily net
assets of each Separate Account or Subaccount. The mortality risk assumed by
PMLIC is that Insureds may live for a shorter time than projected and,
therefore, greater death benefits than
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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 expense
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
Trust units to the Zero Coupon Bond Separate Account. PMLIC pays these amounts
from General Account assets. The amount of the asset charge currently is
equivalent to an effective annual rate of 0.25% (.000685% per day) of the
average daily net assets of each Subaccount. This amount may be increased in the
future, but in no event will it exceed an effective annual rate of 0.50%
(.001370% per day).
CHARGE FOR INCOME TAXES
PMLIC currently does not charge any Separate Account for its corporate
federal income taxes. However, PMLIC may make such a charge in the future if
there are any taxes that are attributable to that account. Charges for other
applicable taxes attributable to the account also may be made.
GUARANTEE OF CERTAIN CHARGES
PMLIC guarantees that it will not increase the charges deducted from
premiums, and the charge to the Separate Accounts for mortality and expense
risks.
OTHER CHARGES
The Separate Accounts and Subaccounts purchase shares of the Funds and the
Zero Trust at net asset value. The net asset value of those shares reflect
management fees and expenses already deducted from the assets of the Fund's and
Zero Trust's Portfolios. The fees and expenses for the Funds, the Zero Trust and
their Portfolios are described briefly in connection with a general description
of each Fund and the Zero Trust. More detailed information is contained in the
Prospectuses of the Funds and the Zero Trust which are attached to or accompany
this Prospectus.
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OTHER POLICY PROVISIONS
PAYMENT OF POLICY BENEFITS
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 Service
Center and all other requirements are satisfied. Proceeds will be paid in a
single sum unless an alternative settlement option has been selected.
If Proceeds are payable in a single sum, interest at the annual rate of 3%
or any higher rate declared by PMLIC or required by law is paid on the Proceeds
from the date of death until payment is made.
Any amounts payable as a result of surrender, withdrawal of excess cash
value or Policy loan will ordinarily be paid within seven days of receipt of
written request at PMLIC's Service Center in a form satisfactory to PMLIC.
For Policies sold in New York State, if the amount payable as a result of
surrender, withdrawal of excess Cash Value or a Policy loan is not mailed or
delivered to the Owner within 10 working days of receipt by PMLIC of the
request, interest will be added to such amount at the rate required by New York
law.
Generally, the amount of a payment from the Separate Accounts or
Subaccounts 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 or
Subaccount'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 will allow interest, at a rate of 3% a year, on any
payment PMLIC defers for 30 days or more as described above.
The Owner may decide the form in which Proceeds will be paid. During the
Insured's lifetime, the Owner may arrange for the 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
Cash Value upon maturity of the Policy. If no election is made, payment will be
made in a lump sum. The Beneficiary may also arrange for payment of the Proceeds
in a lump sum or under a Settlement Option. If the Beneficiary is changed, any
prior arrangements with respect to the Payment Option will be cancelled.
THE POLICY
The Policy and the application(s) attached thereto are the entire contract.
Only statements made in the applications can be used to void the Policy or deny
a claim. PMLIC assumes that all statements in an application are made to the
best of the knowledge and belief of the person(s) who made them, and, in the
absence of fraud, those statements are considered representations and not
warranties. PMLIC relies on those statements when it issues or changes a Policy.
Only the President or a Vice President of PMLIC can agree to change or waive any
provisions of the Policy and only in writing. As a result of differences in
applicable state laws, certain provisions of the Policy may vary from state to
state.
OWNERSHIP
The Owner is the Insured unless a different Owner is named in the
application or thereafter changed. While the Insured is living, the Owner is
entitled to exercise any of the rights stated in the Policy or otherwise granted
by PMLIC. If the Insured and Owner are not the same, and the Owner dies before
the Insured, these rights will vest in the estate of the Owner, unless otherwise
provided.
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BENEFICIARY
The Beneficiary is designated in the application for the Policy, unless
thereafter changed by the Owner during the Insured's lifetime by written notice
to PMLIC. Any 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 OR 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. If two or more persons are
named as Beneficiaries, those surviving the Insured will share the Proceeds
equally, unless otherwise stated. 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.")
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
Policy Proceeds) are split between the parties. There are different ways of
allocating such rights.
For example, an employer and employee might agree that under a Policy on
the life of the employee, the employer will pay the premiums and will have the
right to receive the Net Cash Surrender Value. The employee may designate the
Beneficiary to receive any Death Proceeds in excess of the Net Cash Surrender
Value. If the employee dies while such an arrangement is in effect, the employer
would receive from the Death Proceeds the amount which he would have been
entitled to receive upon surrender of the policy and the employee's Beneficiary
would receive the balance of the proceeds.
No transfer of Policy rights pursuant to a Split Dollar Arrangement will be
binding on PMLIC unless in writing and received by PMLIC.
The parties who elect to enter into a Split Dollar Arrangement should
consult their own tax advisers regarding the tax consequences of such an
arrangement.
ASSIGNMENTS
The Owner may assign any and all rights under the Policy. No assignment
binds PMLIC unless in writing and received by PMLIC at its Service Center. 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 Beneficiary may not commute, encumber, or alienate 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.
Assignment of the Policy may have adverse tax consequences. (See "Tax Treatment
of Policy Benefits.")
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. No
adjustment will be made to the Cash Value.
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 scheduled or unscheduled Net Premium.
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The Owner must choose an option at the time the application for the Policy
is signed. If no option is chosen, any dividend will be applied as a Net Premium
payment. The Owner may change the option by giving written notice to PMLIC.
For Policies sold in New York State, if dividends are ever declared they
will be paid under one of the options above, or left to accumulate at interest
or used to buy paid-up additions, as chosen by the Owner.
SETTLEMENT OPTIONS
In lieu of a single sum payment 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. A guaranteed interest rate of 3% per year applies to all
Options. Additional interest may be declared each year by PMLIC in its sole
discretion. The options are briefly described below. Please refer to the Policy
for more details.
Proceeds at Interest Option. Left on deposit to accumulate with PMLIC with
interest payable at a rate of at least 3% per year.
Installments of a Specified Amount Option. Payable in equal installments
until proceeds applied under the Option and interest on the unpaid balance at 3%
per year and any additional interest are exhausted.
Installments for a Specified Period Option. Payable in the number of equal
monthly installments set forth in the election. Payments may be increased by
additional interest which would increase the installments certain. The
guaranteed interest rate is 3% per year.
Life Income Option. Payable in equal monthly installments during the
payee's life. Payments will be made either with or without a guaranteed minimum
number. If there is to be a minimum number of payments, they will be for either
120 or 240 months or until the proceeds applied under the Option are exhausted,
as elected.
Joint and Survivor Life Income. Payable in equal monthly installments,
during the joint lives of the payee and one other person and during the life of
the survivor. The minimum number of payments will be for either 120 or 240
months, as elected.
Alternate Life Income Option. Proceeds may be taken as a life income with
the amount of the payments depending on the non-participating single premium
immediate annuity rates at the time payments begin.
SUPPLEMENTARY BENEFITS
In addition to the ADB rider, the following riders offer other
supplementary benefits. Most are subject to various age and underwriting
requirements and, unless otherwise indicated, must be purchased when the Policy
is issued. The cost of each rider is included in the monthly deduction.
Disability Waiver of Premium. Providing that in the event of the Insured's
total disability before the Policy Anniversary nearest the Insured's 60th
birthday and continuing for at least 90 days (where permitted), PMLIC will waive
all scheduled premiums after the commencement and during the continuance of such
disability. PMLIC may offer a 180 day extended waiting period for certain
Insured who do not qualify for the normal 90 day period.
Accidental Death Benefit. Providing for an additional fixed amount of
Death Benefit in the event the Insured dies from accidental bodily injury before
the Policy Anniversary nearest the Insured's 70th birthday.
Guaranteed Purchase Option. Providing that the Owner may purchase
additional insurance on the Insured's life at specified times without evidence
of insurability and under certain other circumstances.
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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 tax 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. No representation is made as to the likelihood
of continuation of the present federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements should be applied is limited. Nevertheless, PMLIC believes that
Policies issued on a standard premium class basis should satisfy the applicable
requirements. There is less guidance, however, with respect to Policies issued
on a substandard basis, and it is not clear whether such Policies, if issued
after October 20, 1988, will in all cases satisfy the applicable requirements.
If it is subsequently determined that a Policy does not satisfy the applicable
requirements, we may take appropriate steps to bring the Policy into compliance
with such requirements and we reserve the right to restrict Policy transactions
in order to do so.
In certain circumstances, owners of variable life insurance contracts have
been considered for federal income tax purposes to be the owners of the assets
of the separate account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the separate account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of an Owner to allocate
premium payments and the Cash Value and the narrow investment objective of
certain Portfolios, have not been explicitly addressed in published rulings.
While PMLIC believes that the Policies do not give Owners investment control
over Separate Account assets, PMLIC reserves the right to modify the Policies as
necessary to prevent an Owner from being treated as the owner of the Separate
Account assets supporting the Policy.
In addition, the Code requires that the investments of the Separate
Accounts be "adequately diversified" in order for the Policies to be treated as
life insurance contracts for federal income tax purposes. It is intended that
the Separate Accounts, through the Portfolios, will satisfy these
diversification requirements.
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 death benefit under a Policy should be
excludible from the gross income of the beneficiary.
Federal, state and local transfer, estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner or beneficiary. A tax adviser should be consulted on
these consequences.
Generally, the Owner will not be deemed to be in constructive receipt of
the Cash Value until there is a distribution. When distributions from a Policy
occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "Modified Endowment
Contract."
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Modified Endowment Contracts. Under the Internal Revenue Code, certain
life insurance contracts are classified as "Modified Endowment Contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
circumstances of each Policy will determine whether it is classified as a
Modified Endowment Contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
Policy years or seven years following a material change to the Policy. Certain
changes in a Policy after it is issued could also cause it to be classified as a
Modified Endowment Contract. A current or prospective Owner should consult with
a competent adviser to determine whether a Policy transaction will cause the
Policy to be classified as a Modified Endowment Contract.
Distributions Other Than Death Benefits from Modified Endowment
Contracts. Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
- All distributions other than death benefits from a Modified Endowment
Contract, including distributions upon surrender and withdrawals, are
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the Owner's investment in the Policy only after all
gain has been distributed.
- Loans taken from or secured by a Policy classified as a Modified
Endowment Contract are treated as distributions and taxed in same manner
as surrenders and withdrawals.
- A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Owner has
attained age 59 1/2 or is disabled, or where the distribution 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 or designated beneficiary.
Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a Policy that
is not classified as a Modified Endowment Contract are generally treated first
as a recovery of the Owner's investment in the Policy and only after the
recovery of all investment in the Policy as taxable income. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for Federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole or
in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a Modified Endowment Contract
are generally not treated as distributions.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a Modified Endowment Contract are subject to the 10 percent
additional income tax.
Investment in the Policy. The Owner's investment in the Policy is
generally the aggregate premium payments. When a distribution is taken from the
Policy, the Owner's investment in the Policy is reduced by the amount of the
distribution that is tax-free.
Policy Loans. If a Policy loan is outstanding when a Policy is surrendered
or lapses, or when benefits are paid at a Policy's maturity date, the amount of
the outstanding indebtedness will be added to the amount distributed and will be
taxed accordingly. In general, interest on a Policy loan will not be deductible.
Before taking out a Policy loan, an Owner should consult a tax adviser as to the
tax consequences.
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 Owner's income when a taxable distribution occurs.
Accelerated Death Benefit Rider. The Federal income tax consequences
associated with the Accelerated Death Benefit rider are uncertain. Owners should
consult a qualified tax adviser about the consequences of requesting payment
under this rider.
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SPECIAL RULES FOR PENSION AND PROFIT-SHARING PLANS
If a Policy is purchased by a pension or profit-sharing plan, or similar
deferred compensation arrangement, the Federal, state and estate tax
consequences could differ. A competent tax adviser should be consulted in
connection with such a purchase.
The amounts of life insurance that may be purchased on behalf of a
participant in a pension or profit-sharing plan are limited. The current cost of
insurance for the net amount at risk is treated as a "current fringe benefit"
and must be included annually in the plan participant's gross income. PMLIC
reports this cost (generally referred to as the "P.S. 58" cost) to the
participant annually. If the plan participant dies while covered by the plan and
the Policy proceeds are paid to the participant's beneficiary, then the excess
of the death benefit over the Policy Account Value is not taxable. However, the
cash value will generally be taxable to the extent it exceeds the participant's
cost basis in the Policy. Policies owned under these types of plans may be
subject to restrictions under the Employee Retirement Income Security Act of
1974 ("ERISA"). You should consult a qualified adviser regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as nontaxable. Plan loan requirements and provisions
may differ from Policy loan provisions. Failure of plan loans to comply with the
requirements and provisions of the DOL regulations and of tax law may result in
adverse tax consequences and/or adverse consequences under ERISA. Plan
fiduciaries and participants should consult a qualified adviser before
requesting a loan under a Policy held in connection with a retirement plan.
SPECIAL RULES FOR 403(b) ARRANGEMENTS
If a Policy is purchased in connection with a Section 403(b) tax-sheltered
annuity program, the "Special Rules for Pension and Profit-Sharing Plans"
discussed above may be applicable. In addition, premiums, distributions and
other transactions with respect to the Policy must be administered, in
coordination with Section 403(b) annuity, to comply with the requirements of
Section 403(b) of the Code. A competent tax adviser should be consulted.
BUSINESS USES OF THE POLICY
Businesses can use the Policy in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances. If an Owner
is purchasing the Policy for any arrangement the value of which depends in part
on its tax consequences, he or she should consult a qualified tax adviser. In
recent years, moreover, 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. Consult a tax adviser with respect to legislative
developments and their effect on the Policy.
PMLIC'S TAXES
Under current Federal income tax law, PMLIC is not taxed on the Separate
Accounts' operations. Thus, currently PMLIC does not deduct charges from the
Separate Accounts for its Federal income taxes. PMLIC reserves the right to
charge the Separate Accounts for any future Federal income taxes that it may
incur.
Under current laws in several states, PMLIC may incur state and local taxes
(in addition to premium taxes). These taxes are not now significant and we are
not currently charging for them. If they increase, PMLIC may deduct charges for
such taxes.
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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 "Monthly Deductions.")
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. 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.")
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 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, 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 of the Trust do not contemplate meetings of
holders of Trust units nor any action taken by vote of such holders). The Funds
do not hold routine annual shareholders' meetings. Shareholders' meetings will
be called whenever each Fund believes that it is necessary to vote to elect the
Board of Directors of the Fund and to vote upon certain other matters that are
required by the 1940 Act to be approved or ratified by the shareholders of a
mutual fund. PMLIC is the legal owner of Fund shares and as such has the right
to vote upon any matter that may be voted upon at a shareholders' meeting.
However, in accordance with its view of present applicable law, PMLIC will vote
the shares of the Funds at meetings of the shareholders of the appropriate Fund
or Portfolio in accordance with instructions received from Owners. Fund shares
held in each Separate Account or Subaccount for which no timely instructions
from 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 Owner having a voting interest will be sent proxy material and a form
for giving voting instructions. Owners may vote, by proxy or in person, only as
to the Portfolios that correspond to the Separate Accounts or Subaccounts in
which their Policy values are allocated. The number of shares held in each
Separate Account or Subaccount attributable to a Policy for which the Owner may
provide voting instructions will be determined by dividing the 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 Owners have no interest, PMLIC
will cast votes, for or against any matter, in the same proportion as Owners
vote.
If required by state insurance officials, PMLIC may disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the investment objectives or policies of one or
40
<PAGE> 46
more of the Portfolios, or to approve or disapprove an investment policy or
investment adviser of one or more of the Portfolios. In addition, PMLIC may
disregard voting instructions in favor of changes initiated by an Owner or the
Fund's Board of Directors provided that PMLIC's disapproval of the change is
reasonable and is based on a good faith determination that the change would be
contrary to state law or otherwise inappropriate, considering the portfolio's
objectives and purposes, and the effect the change would have on PMLIC. If PMLIC
does disregard voting instructions, it will advise Owners of that action and its
reasons for such action in the next semi-annual report to Owners.
41
<PAGE> 47
CHANGES TO THE SEPARATE ACCOUNTS OR FUNDS
CHANGES TO SEPARATE ACCOUNT OPERATIONS
The voting rights described in this Prospectus are created under applicable
Federal securities laws and regulations. If these laws or regulations change to
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 changed 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 supporting
the Policies from one Subaccount to another or from the Variable Account to
another Separate Account, (2) to create additional separate accounts, (3) to
create additional Subaccounts, or combine or remove Subaccounts from the
Variable Account or to create other separate accounts, or to combine any two or
more Separate Accounts or Subaccounts, (4) 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; (5) to deregister the unit
investment trust under the 1940 Act; and (6) to modify the provisions of the
Policies to comply with applicable laws.
CHANGES TO AVAILABLE PORTFOLIOS
It is possible that PMLIC may determine that one or more of the Portfolios
or a 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 of a
Portfolio of a Fund not currently available under the Policies. If required by
law, the approval of the SEC and possibly one or more state insurance
departments would be obtained.
Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between it and PMLIC. The
termination provisions of those agreements vary. Should an agreement between
PMLIC and a Fund terminate, the Variable Account will not be able to purchase
additional shares of that Fund. In that event, Owners would no longer be able to
allocate Cash Value or Net Premium Payments to Subaccounts investing in
Portfolios of that Fund. Additionally, in certain circumstances, it is possible
that a Fund may refuse to sell its shares to the Variable Account despite the
fact that the participation agreement between the Fund and PMLIC has not been
terminated. In such an event, PMLIC will not be able to honor requests of Owners
to allocate their Cash Value or Net Premium Payments to Subaccounts investing in
shares of Portfolios of that Fund.
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.
42
<PAGE> 48
Variable Insurance Products Fund and Variable Insurance Products Fund
II. The Agreements provide for termination 1) upon six months' advance
notice by either party, 2) at PMLIC's option if shares of the Fund are not
reasonably available to meet requirements of the policies, 3) at PMLIC's
option if shares of the Fund are not registered, issued, or sold in
accordance with applicable laws, if the Fund ceases to qualify as a
regulated investment company under the Code or for a Portfolio of the Fund
in the event such Portfolio fails to meet diversification requirements
under the Code, 4) at the option of the Fund or its principal underwriter
if it determines that PMLIC has suffered material adverse changes in its
business or financial condition or is subject to material adverse
publicity, 5) at the option of PMLIC if the Fund has suffered material
adverse changes in its business or financial condition or is a subject of
material adverse publicity, or 6) at the option of the Fund or its
principal underwriter if PMLIC decides to make another mutual fund
available as a funding vehicle for its policies.
Neuberger Berman Advisers Management Trust. This Agreement may be
terminated by either party on six months' written notice to the other.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Trust
provides for termination 1) by PMLIC, Van Eck Trust or Van Eck Trust's
Distributor upon six months prior written notice or in the event that
formal proceedings are initiated against the other party by the SEC or
another regulator, 2) by PMLIC or Van Eck Trust in the event that shares of
Van Eck Trust subject to the agreement are not registered, offered or sold
in conformity with applicable law or such law precludes the use of Trust
shares, 3) by PMLIC upon reasonable notice if shares of one of the then
available Portfolios of Van Eck Trust are not 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.
43
<PAGE> 49
OFFICERS AND DIRECTORS OF PMLIC
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
Robert W. Kloss
President, Chief Executive
Officer and Director................. 1996 to present -- President and Chief Executive Officer
of PMLIC; 1994-1996 -- President and Chief Operating
Officer of PMLIC; 1986-1994 -- President and Chief
Executive Officer of Covenant Life Insurance Company.
Edward R. Book
Director............................. 1995 to present -- Past-President and Consultant of Travel
342 Lake Meade Drive Industry Association of America; 1996-1997 -- President of
Berlin, PA 17316 USA National Tourism Organization, Inc.;
1989-1994 -- President of Travel Industry Association of
America.
Dorothy M. Brown
Director............................. 1999 to present -- Educational Consultant of The Kaludis
16 Meredith Road Consulting Group; 1998-1999 -- Interim President of
Wynnewood, PA 19096 Allegheny University; 1994-1998 -- Educational Consultant
of the Kaludis Consulting Group; 1992-1994 -- Interim
President of the Pennsylvania Academy of the Fine Arts.
Robert J. Casale
Director............................. 1997 to present -- Executive Consultant of Automatic Data
2 Journal Square Processing, Inc.; 1988-1997 -- Group President/Brokerage
Jersey City, NJ 07306 Information Services Group of Automatic Data Processing
Inc.
Nicholas DeBenedictis
Director............................. 1993 to present -- Chairman of Philadelphia Suburban
Philadelphia Suburban Corp. Corporation.
762 Lancaster Avenue
Bryn Mawr, PA 19010
Philip C. Herr, II
Director............................. 1961 to present -- Partner of Herr, Potts & Herr.
Herr, Potts & Herr
Strafford Office Building,
Building #4
175 Strafford Avenue, Suite 314
Wayne, PA 19087
J. Richard Jones
Director............................. 1998 to present -- Executive Managing Director
1800 JFK Boulevard Insignia/ESG Jackson-Cross; 1981-1998 -- President and
10th Floor Chief Executive Officer of Jackson-Cross Company.
Philadelphia, PA 19103
John P. Neafsey
Director............................. 1993 to present -- President of JN Associates.
13 Valley Road
So. Norwalk, CT 06854
Charles L. Orr
Director............................. 1993 to present -- President and Chief Executive Officer
Shaklee Corporation of Shaklee Corporation.
Shaklee Terraces
444 Market Street
San Francisco, CA 94111
Donald A. Scott
Director............................. 1998 to present -- Counsel, Morgan, Lewis and Bockius,
714 West Mt. Airy Avenue LLP; 1964-1998 -- Partner of Morgan, Lewis and Bockius,
Philadelphia, PA 19119 LLP.
</TABLE>
44
<PAGE> 50
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
John J. F. Sherrerd
Director............................. 1996 to present -- Corporate Director and Private
One Tower Bridge Investor, Sherrerd & Company; 1969-1995 -- Partner of
West Conshohocken, PA 19428 Miller, Anderson & Sherrerd.
Harold A. Sorgenti
Director............................. 1997 to present -- General Partner at Sorgenti, Investment
Mellon Center, Suite 1313 Partners; 1998 to present -- Chairman & CEO, SpecChem
1735 Market Street International Holdings, LLC 1991-1997 -- Partner of The
Philadelphia, PA 19103 Freedom Group Partnership.
Alan F. Hinkle
Executive Vice President
and Chief Actuary.................... 1996 to present -- Executive Vice President and Chief
Actuary of PMLIC; 1974-1996 -- Vice President and
Individual Actuary.
James G. Potter, Jr.
Executive Vice President,
General Counsel and Secretary........ 1997 to present -- Executive Vice President, General
Counsel & Secretary of PMLIC; 1989-1997 -- Chief Legal
Officer of Prudential Banks.
Joan C. Tucker
Executive Vice President,
Corporate Operations................. 1996 to present -- Executive Vice President, Corporate
Operations at PMLIC; 1996-Senior Vice President, Insurance
Operations of PMLIC; 1993-1996 -- Vice President
Individual Insurance Operations at PMLIC.
Mary Lynn Finelli
Executive Vice President
and Chief Financial Officer.......... 1996 to present -- Executive Vice President and Chief
Financial Officer of PMLIC; 1986-1996 -- Vice President
and Controller of PMLIC.
J. Kevin McCarthy
Executive Vice President
and Chief Marketing Officer.......... 1996 to present -- Executive Vice President and Chief
Marketing Officer of PMLIC; 1995-Vice President, Variable
Products at CNA Insurance Companies; 1992-1994 -- Vice
President, Sales of PMLIC.
Mehran Assadi
Executive Vice President
and Chief Information Officer........ 1998 to present -- Executive Vice President and Chief
Information Officer of PMLIC; 1982-1998 -- Vice President,
Technology and Business Development at St. Paul Company.
Linda M. Springer
Vice President and Controller........ 1996 to present -- Vice President and controller of PMLIC;
1995-1996 -- Assistant Vice President and Actuary of
PMLIC; 1992-1995 -- Actuary of PMLIC.
Rosanne Gatta
Vice President and Treasurer......... 1994 to present -- Vice President and Treasurer of PMLIC;
1985-1994 -- Assistant Vice President and Treasurer of
PMLIC.
</TABLE>
- ---------------
* Unless otherwise indicated, the address is 1050 Westlakes Drive, Berwyn,
Pennsylvania 19312.
A Fidelity Bond in the amount of $10 million covering PMLIC's officers and
employees has been issued by Aetna Casualty and Surety Company.
45
<PAGE> 51
DISTRIBUTION OF POLICIES
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell PMLIC's variable life insurance policies,
and who are also registered representatives of 1717 Capital Management Company
("1717") or registered representatives of broker/dealers who have Selling
Agreements with 1717 or registered representatives of broker/dealers who have
Selling Agreements with such broker/dealers. 1717, whose address is Christiana
Executive Campus, P.O. Box 15626, Wilmington, Delaware 19850, is a registered
broker/dealer under the Securities Exchange Act of 1934 (the "1934 Act") and a
member of the National Association of Securities Dealers, Inc. (the "NASD").
1717 was organized under the Laws of Pennsylvania on January 22, 1969, and is an
indirect wholly-owned subsidiary of PMLIC. 1717 acts as the principal
underwriter of the Policies (as well as other variable life policies) pursuant
to an Underwriting Agreement to which the Accounts, 1717 and PMLIC are parties.
1717 is also the principal underwriter of variable annuity contracts issued by
PMLIC and variable life insurance policies and variable annuity contracts issued
by Provident Mutual 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. Agent
commissions will not be more than 7% of premiums paid for Policy Year 2 and 5%
for years 3 through 10. If the Special Premium Payment Provision is in effect,
the maximum percent of an unscheduled premium payment which is payable to the
agent is 7% for such premiums received during Policy Year 2 and 5% for those
received during Policy Years 3 through 10; for unscheduled premium payments
greater than an amount equal to two years' scheduled premiums, the maximum
percent of such excess amount which is payable to the agent is 2%. If the
Special Premium Payment Provision is not in effect, the maximum percent of an
unscheduled premium payment which is payable to the agent is 2%. Agents may also
receive expense allowances.
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
Cash 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. 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 Subaccount of a Separate
Account to another (excluding automatic rebalancing of Cash Value), the taking 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 may request that a similar report be prepared at other
times. PMLIC may charge a reasonable fee for such requested reports and may
limit the scope and frequency of such requested reports.
An Owner will be sent a semi-annual report containing the financial
statements of each Portfolio in which he or she is invested.
PREPARING FOR YEAR 2000
Like all financial services providers, PMLIC and its affiliates 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. PMLIC and its affiliates have developed, and
are in
46
<PAGE> 52
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 PMLIC. However, as of the date
of this prospectus, it is not anticipated that Owners will experience negative
effects on their investment, or on the services provided in connection
therewith, as a result of Year 2000 transition implementation. PMLIC currently
anticipates that their systems will be Year 2000 compliant on or about July 1,
1999 but there can be no assurance that PMLIC will be successful, or that
interaction with other service providers will not impair PMLIC's services at
that time.
STATE REGULATION
PMLIC is subject to regulation and supervision by the Insurance Department
of the State 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. There is
litigation regarding the proposed conversion. (See Appendix D.)
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 as of the
date of this Prospectus there are no 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 PricewaterhouseCoopers LLP,
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 LLP, of Washington, D.C. has provided advice
relating to certain aspects of federal securities law applicable to the issue
and sale of the Policies. James G. Potter, Jr., Esq., General Counsel of
Provident Mutual Life Insurance Company, has provided advice on certain matters
relating to the laws of Pennsylvania regarding the Policies and PMLIC's issuance
of the Policies.
47
<PAGE> 53
DEFINITIONS
ATTAINED AGE.................. The Issue Age of the Insured plus the number of
full Policy Years since the Policy Date.
BASE PREMIUM.................. Total scheduled premium minus the premium
processing charge and any premium for
supplementary benefits and extra-premium class.
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 VALUE.................... The total amount invested under the Policy. It
is the sum of the Cash Values in the Separate
Accounts and the Subaccounts. If there is an
outstanding policy loan, the Cash Value in the
General Account will be added to the Cash Value
of the Separate Accounts and the Subaccounts to
determine the Cash Value of the Policy.
DEATH BENEFIT................. The greatest of: (1) the applicable Guaranteed
Minimum Death Benefit for the policy; (2) the
Face Amount plus the amount by which the Cash
Value on the date of death exceeds the
appropriate Special Premium Payment Single
Premium; or (3) the Cash Value on the date of
death times the appropriate Death Benefit
Factor. This amount is adjusted to determine
the Proceeds at death which is paid to the
beneficiary.
FACE AMOUNT................... The Face Amount is specified in the Policy. If
scheduled premiums are paid when due and there
are no outstanding policy loans, this will be
the minimum Death Benefit.
GRACE PERIOD.................. The 61-day period allowed for payment of a
premium following the date PMLIC mails notice
of the amount required to keep the Policy in
force.
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 VALUE.................... The maximum amount that may be borrowed under
the Policy.
MINIMUM FACE AMOUNT........... The Minimum Face Amount is $50,000.
MONTHLY DEDUCTIONS............ The amount deducted from the Cash Value on each
Policy Processing Day. It includes the Cost of
Insurance Charge, Administration Charge,
Minimum Death Benefit Guarantee Charge, First
Year Policy Charge, and the Supplementary
Benefit Charge.
NET AMOUNT AT RISK............ The amount by which the Death Benefit exceeds
the Policy Account Value.
NET CASH SURRENDER VALUE...... The Cash Surrender Value minus any outstanding
Policy loans and accrued interest.
48
<PAGE> 54
NET PREMIUMS.................. The remainder of a Base Premium after Deduction
of the 7 1/2% charge for sales load and state
premium tax or the remainder of an unscheduled
premium after deduction of the Premium Expense
Charge.
OWNER......................... The person(s) or entity(ies) entitled to
exercise the rights granted in the Policy.
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,
with extra rating, non-smoker, nonsmoker with
extra rating.
PREMIUM EXPENSE CHARGE........ The amount deducted from a premium payment
which consists of the Premium Processing
Charge, the Sales Charge, and the State and
Local Premium Tax Charge.
PROCEEDS...................... The net amount to be paid to the Beneficiary
when the Insured dies or when the Policy is
surrendered.
SPECIAL PREMIUM PAYMENT SINGLE
PREMIUM..................... An amount used to determine whether the Owner
is required to pay scheduled premiums to keep
the Policy in full force.
SUBACCOUNT.................... A division of the Provident Mutual Variable
Separate Account. The assets of each Subaccount
are invested exclusively in a corresponding
Portfolio that is part of one of the Funds.
SURRENDER CHARGE.............. The amount deducted from the Policy Account
Value upon lapse or surrender of the Policy
during the first 9 Policy Years.
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.
49
<PAGE> 55
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,
1998.................................................. F-3
Statements of Operations for the Years Ended December
31, 1998, 1997 and 1996............................... F-9
Statements of Changes in Net Assets for the Years Ended
December 31, 1998, 1997, and 1996..................... F-25
Notes to Financial Statements.......................... F-41
Provident Mutual Life Insurance Company and Subsidiaries
Report of Independent Accountants...................... F-62
Consolidated Statements of Financial Condition,
December 31, 1998 and 1997............................ F-63
Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996................ F-64
Consolidated Statements of Equity for the Years Ended
December 31, 1998, 1997 and 1996...................... F-65
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996................ F-66
Notes to Consolidated Financial Statements............. F-67
</TABLE>
F-1
<PAGE> 56
- --------------------------------------------------------------------------------
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
In our opinion, 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,
comprising twenty-nine subaccounts, hereafter collectively referred to as the
"Separate Accounts") and the related statements of operations and changes in net
assets present fairly, in all material respects, the financial position of the
Separate Accounts at December 31, 1998, and the results of their operations and
changes in their net assets for each of the three years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the management of the Separate
Accounts; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities owned at
December 31, 1998 by correspondence with the transfer agents, provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 26, 1999
F-2
<PAGE> 57
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<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...................... $231,851,679
Money Market Portfolio................ $30,943,288
Bond Portfolio........................ $15,358,404
Managed Portfolio..................... $41,054,533
Aggressive Growth Portfolio........... $38,952,929
International Portfolio............... $43,955,061
Dividends receivable.................... 125,259
Receivable from Provident Mutual Life
Insurance Company..................... 1,853,985
------------ ----------- ----------- ----------- ----------- -----------
Total Assets............................ 231,851,679 32,922,532 15,358,404 41,054,533 38,952,929 43,955,061
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable to Provident Mutual Life
Insurance Company..................... 119,196 16,436 21,560
------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS.............................. $231,732,483 $32,922,532 $15,341,968 $41,032,973 $38,952,929 $43,955,061
============ =========== =========== =========== =========== ===========
Held for the benefit of policyholders... $231,616,771 $32,846,709 $15,306,118 $40,957,846 $38,867,670 $43,882,724
Attributable to Provident Mutual Life
Insurance Company..................... 115,712 75,823 35,850 75,127 85,259 72,337
------------ ----------- ----------- ----------- ----------- -----------
$231,732,483 $32,922,532 $15,341,968 $41,032,973 $38,952,929 $43,955,061
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 58
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc., at market value:
All Pro Large Cap Growth Portfolio........................ $4,269,333
All Pro Large Cap Value Portfolio......................... $3,495,676
All Pro Small Cap Growth Portfolio........................ $4,537,359
All Pro Small Cap Value Portfolio......................... $3,153,886
Receivable from Provident Mutual Life Insurance Company..... 30,000
---------- ---------- ---------- ----------
NET ASSETS.................................................. $4,269,333 $3,495,676 $4,567,359 $3,153,886
========== ========== ========== ==========
Held for the benefit of policyholders....................... $4,204,339 $3,466,078 $4,538,305 $3,123,304
Attributable to Provident Mutual Life Insurance Company..... 64,994 29,598 29,054 30,582
---------- ---------- ---------- ----------
$4,269,333 $3,495,676 $4,567,359 $3,153,886
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 59
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<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............................................... $12,448,796
Receivable from Provident Mutual Life Insurance Company..... 140,496
-----------
NET ASSETS.................................................. $12,589,292
===========
Held for the benefit of policyholders....................... $12,532,506
Attributable to Provident Mutual Life Insurance Company..... 56,786
-----------
$12,589,292
===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 60
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<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................. $121,049,822
Growth Portfolio........................ $168,739,937
High Income Portfolio................... $18,909,708
Overseas Portfolio...................... $34,695,793
Investment in the Variable Insurance
Products Fund II, at market value:
Asset Manager Portfolio................. $50,171,333
Index 500 Portfolio..................... $130,785,727
------------ ------------ ----------- ----------- ----------- ------------
NET ASSETS................................ $121,049,822 $168,739,937 $18,909,708 $34,695,793 $50,171,333 $130,785,727
============ ============ =========== =========== =========== ============
Held for the benefit of policyholders..... $121,007,599 $168,638,344 $18,873,226 $34,624,408 $50,101,608 $130,732,808
Attributable to Provident Mutual Life
Insurance Company....................... 42,223 101,593 36,482 71,385 69,725 52,919
------------ ------------ ----------- ----------- ----------- ------------
$121,049,822 $168,739,937 $18,909,708 $34,695,793 $50,171,333 $130,785,727
============ ============ =========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 61
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
NEUBERGER
FIDELITY NEUBERGER NEUBERGER & BERMAN NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN LIMITED & BERMAN
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance
Products Fund II, at market value:
Investment Grade Bond Portfolio......... $13,990,631
Contrafund Portfolio.................... $46,177,083
Investment in the Neuberger & Berman
Advisers Management Trust, at market
value:
Balanced Portfolio...................... $7,496,735
Growth Portfolio........................ $30,177,810
Limited Maturity Bond Portfolio......... $6,584,164
Partners Portfolio...................... $1,721,436
----------- ----------- ---------- ----------- ---------- ----------
NET ASSETS................................ $13,990,631 $46,177,083 $7,496,735 $30,177,810 $6,584,164 $1,721,436
=========== =========== ========== =========== ========== ==========
Held for the benefit of policyholders..... $13,976,219 $46,145,432 $7,453,681 $30,129,705 $6,551,606 $1,697,998
Attributable to Provident Mutual Life
Insurance Company....................... 14,412 31,651 43,054 48,105 32,558 23,438
----------- ----------- ---------- ----------- ---------- ----------
$13,990,631 $46,177,083 $7,496,735 $30,177,810 $6,584,164 $1,721,436
=========== =========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 62
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
AMERICAN VAN ECK VAN ECK ALGER
CENTURY VP VAN ECK VAN ECK WORLDWIDE WORLDWIDE AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING REAL SMALL
APPRECIATION BOND HARD ASSETS MARKETS ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in American Century Variable
Portfolios, Inc., at market value:
American Century VP Capital Appreciation
Portfolio............................. $7,579,347
Investment in the Van Eck Worldwide
Insurance Trust, at market value:
Van Eck Worldwide Bond Portfolio........ $5,706,713
Van Eck Worldwide Hard Assets
Portfolio............................. $2,068,288
Van Eck Worldwide Emerging Markets
Portfolio............................. $6,233,056
Van Eck Worldwide Real Estate
Portfolio............................. $441,930
Investment in the Alger American Fund, at
market value:
Alger American Small Capitalization
Portfolio............................. $28,994,535
---------- ---------- ---------- ---------- -------- -----------
NET ASSETS................................ $7,579,347 $5,706,713 $2,068,288 $6,233,056 $441,930 $28,994,535
========== ========== ========== ========== ======== ===========
Held for the benefit of policyholders..... $7,547,518 $5,680,732 $2,039,915 $6,174,839 $417,733 $28,938,135
Attributable to Provident Mutual Life
Insurance Company....................... 31,829 25,981 28,373 58,217 24,197 56,400
---------- ---------- ---------- ---------- -------- -----------
$7,579,347 $5,706,713 $2,068,288 $6,233,056 $441,930 $28,994,535
========== ========== ========== ========== ======== ===========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 63
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<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................................... $ 3,379,864 $1,332,049 $ 820,143 $1,224,452 $ 281,744 $ 296,331
EXPENSES
Mortality and expense risks................. 1,369,021 176,853 95,234 243,226 251,275 296,668
Operating expense reimbursement............. (4,864) (1,300)
----------- ---------- ---------- ---------- ----------- ----------
Total expenses.............................. 1,364,157 176,853 93,934 243,226 251,275 296,668
----------- ---------- ---------- ---------- ----------- ----------
Net investment income....................... 2,015,707 1,155,196 726,209 981,226 30,469 (337)
----------- ---------- ---------- ---------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested...... 27,569,753 2,080 1,742,752 2,689,649 2,692,126
Net realized gain (loss) from redemption of
investment shares......................... 3,562,099 (13,248) 807,777 1,378,531 557,059
----------- ---------- ---------- ---------- ----------- ----------
Net realized gain (loss) on investments..... 31,131,852 (11,168) 2,550,529 4,068,180 3,249,185
----------- ---------- ---------- ---------- ----------- ----------
Net unrealized appreciation of investments:
Beginning of year......................... 49,936,122 545,131 8,084,445 9,124,521 3,573,814
End of year............................... 43,642,825 888,223 8,871,564 7,593,499 3,974,294
----------- ---------- ---------- ---------- ----------- ----------
Net unrealized appreciation (depreciation)
of investments during the year............ (6,293,297) 343,092 787,119 (1,531,022) 400,480
----------- ---------- ---------- ---------- ----------- ----------
Net realized and unrealized gain on
investments............................... 24,838,555 331,924 3,337,648 2,537,158 3,649,665
----------- ---------- ---------- ---------- ----------- ----------
Net increase in net assets resulting from
operations................................ $26,854,262 $1,155,196 $1,058,133 $4,318,874 $ 2,567,627 $3,649,328
=========== ========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 64
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends...................................................
EXPENSES
Mortality and expense risks................................. $ 10,444 $ 7,828 $ 8,535 $ 6,110
-------- -------- -------- --------
Total expenses.............................................. 10,444 7,828 8,535 6,110
-------- -------- -------- --------
Net investment loss......................................... (10,444) (7,828) (8,535) (6,110)
-------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain distributions reinvested......................
Net realized gain (loss) from redemption of investment
shares.................................................... 114,538 1,976 (75,896) (65,921)
-------- -------- -------- --------
Net realized gain (loss) on investments..................... 114,538 1,976 (75,896) (65,921)
-------- -------- -------- --------
Net unrealized appreciation of investments:
Beginning of year.........................................
End of year............................................... 511,417 139,747 403,798 13,283
-------- -------- -------- --------
Net unrealized appreciation of investments during the
year...................................................... 511,417 139,747 403,798 13,283
-------- -------- -------- --------
Net realized and unrealized gain (loss) on investments...... 625,955 141,723 327,902 (52,638)
-------- -------- -------- --------
Net increase (decrease) in net assets resulting from
operations................................................ $615,511 $133,895 $319,367 $(58,748)
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 65
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
EXPENSES
Mortality and expense risks................................. $ 73,516
Asset charge................................................ 26,330
----------
Net investment loss......................................... (99,846)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from redemption of investment shares...... 570,514
----------
Net realized gain on investments............................ 570,514
----------
Net unrealized appreciation of investments:
Beginning of year......................................... 1,354,882
End of year............................................... 2,163,181
----------
Net unrealized appreciation of investments during the
year...................................................... 808,299
----------
Net realized and unrealized gain on investments............. 1,378,813
----------
Net increase in net assets resulting from operations........ $1,278,967
==========
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 66
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<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.................................. $ 1,342,651 $ 570,939 $ 1,128,406 $ 501,316 $1,342,461 $ 902,884
EXPENSES
Mortality and expense risks................ 750,572 927,027 129,187 208,755 318,489 693,688
----------- ----------- ----------- ---------- ---------- -----------
Net investment income (loss)............... 592,079 (356,088) 999,219 292,561 1,023,972 209,196
----------- ----------- ----------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested..... 4,778,257 14,934,573 717,008 1,477,561 4,027,382 2,091,239
Net realized gain from redemption of
investment shares........................ 2,849,171 5,521,995 132,632 1,720,249 834,620 1,946,503
----------- ----------- ----------- ---------- ---------- -----------
Net realized gain on investments........... 7,627,428 20,456,568 849,640 3,197,810 4,862,002 4,037,742
----------- ----------- ----------- ---------- ---------- -----------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year........................ 20,932,815 27,530,683 1,485,682 2,054,866 7,028,980 15,712,282
End of year.............................. 23,637,997 52,781,625 (1,380,446) 1,662,167 7,302,249 35,771,600
----------- ----------- ----------- ---------- ---------- -----------
Net unrealized appreciation (depreciation)
of investments during the year........... 2,705,182 25,250,942 (2,866,128) (392,699) 273,269 20,059,318
----------- ----------- ----------- ---------- ---------- -----------
Net realized and unrealized gain (loss) on
investments.............................. 10,332,610 45,707,510 (2,016,488) 2,805,111 5,135,271 24,097,060
----------- ----------- ----------- ---------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations................ $10,924,689 $45,351,422 $(1,017,269) $3,097,672 $6,159,243 $24,306,256
=========== =========== =========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 67
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
FIDELITY NEUBERGER & NEUBERGER & NEUBERGER & NEUBERGER &
INVESTMENT FIDELITY BERMAN BERMAN BERMAN LIMITED BERMAN
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................. $399,467 $ 185,502 $ 156,692 $277,191
EXPENSES
Mortality and expense risks............ 73,292 238,056 48,283 $ 192,792 36,204 $ 3,466
-------- ---------- ---------- ----------- -------- -------
Net investment income (loss)........... 326,175 (52,554) 108,409 (192,792) 240,987 (3,466)
-------- ---------- ---------- ----------- -------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions
reinvested........................... 47,394 1,364,768 1,100,579 7,126,749
Net realized gain (loss) from
redemption of investment shares...... 133,347 2,635,800 (109,169) 268,551 (32,935) (5,901)
-------- ---------- ---------- ----------- -------- -------
Net realized gain (loss) on
investments.......................... 180,741 4,000,568 991,410 7,395,300 (32,935) (5,901)
-------- ---------- ---------- ----------- -------- -------
Net unrealized appreciation of
investments:
Beginning of year.................... 401,371 3,332,605 595,317 4,238,015 86,785
End of year.......................... 688,242 8,740,185 277,919 829,761 56,889 62,679
-------- ---------- ---------- ----------- -------- -------
Net unrealized appreciation
(depreciation) of investments during
the year............................. 286,871 5,407,580 (317,398) (3,408,254) (29,896) 62,679
-------- ---------- ---------- ----------- -------- -------
Net realized and unrealized gain (loss)
on investments....................... 467,612 9,408,148 674,012 3,987,046 (62,831) 56,778
-------- ---------- ---------- ----------- -------- -------
Net increase in net assets resulting
from operations...................... $793,787 $9,355,594 $ 782,421 $3,794,254 $178,156 $53,312
======== ========== ========== =========== ======== =======
</TABLE>
See accompanying notes to financial statements
F-13
<PAGE> 68
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................. $ 40,647 $ 16,113 $ 54,397
EXPENSES
Mortality and expense risks................ $ 53,235 34,811 16,990 43,590 $ 1,150 $ 159,984
----------- -------- ----------- ----------- -------- ----------
Net investment income (loss)............... (53,235) 5,836 (877) 10,807 (1,150) (159,984)
----------- -------- ----------- ----------- -------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested..... 422,956 395,670 48,353 2,950,817
Net realized gain (loss) from redemption of
investment shares........................ (698,102) 38,421 (213,306) (421,210) (8,482) 199,222
----------- -------- ----------- ----------- -------- ----------
Net realized gain (loss) on investments.... (275,146) 38,421 182,364 (372,857) (8,482) 3,150,039
----------- -------- ----------- ----------- -------- ----------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year........................ (1,024,766) 61,527 (31,204) (1,437,453) 1,324,974
End of year.............................. (901,802) 590,559 (1,136,100) (3,646,142) (12,423) 1,898,815
----------- -------- ----------- ----------- -------- ----------
Net unrealized appreciation (depreciation)
of investments during the year........... 122,964 529,032 (1,104,896) (2,208,689) (12,423) 573,841
----------- -------- ----------- ----------- -------- ----------
Net realized and unrealized gain (loss) on
investments.............................. (152,182) 567,453 (922,532) (2,581,546) (20,905) 3,723,880
----------- -------- ----------- ----------- -------- ----------
Net increase (decrease) in net assets
resulting from operations................ $ (205,417) $573,289 $ (923,409) $(2,570,739) $(22,055) $3,563,896
=========== ======== =========== =========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-14
<PAGE> 69
- --------------------------------------------------------------------------------
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-15
<PAGE> 70
- --------------------------------------------------------------------------------
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-16
<PAGE> 71
- --------------------------------------------------------------------------------
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-17
<PAGE> 72
- --------------------------------------------------------------------------------
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-18
<PAGE> 73
- --------------------------------------------------------------------------------
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-19
<PAGE> 74
- --------------------------------------------------------------------------------
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-20
<PAGE> 75
- --------------------------------------------------------------------------------
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-21
<PAGE> 76
- --------------------------------------------------------------------------------
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-22
<PAGE> 77
- --------------------------------------------------------------------------------
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-23
<PAGE> 78
- --------------------------------------------------------------------------------
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
TCI WORLDWIDE AND NATURAL EMERGING SMALL
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-24
<PAGE> 79
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<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).............. $ 2,015,707 $ 1,155,196 $ 726,209 $ 981,226 $ 30,469 $ (337)
Net realized gain (loss) on investments... 31,131,852 (11,168) 2,550,529 4,068,180 3,249,185
Net unrealized appreciation (depreciation)
of investments during the year.......... (6,293,297) 343,092 787,119 (1,531,022) 400,480
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets from
operations.............................. 26,854,262 1,155,196 1,058,133 4,318,874 2,567,627 3,649,328
------------ ------------ ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............... 28,487,988 42,570,677 3,219,583 5,309,169 8,253,971 9,038,100
Cost of insurance and administrative
charges................................. (11,790,141) (4,378,001) (1,242,032) (2,278,565) (2,885,869) (3,272,446)
Surrenders and forfeitures................ (10,126,139) (1,249,337) (749,106) (1,714,811) (1,487,419) (1,684,922)
Transfers between investment portfolios... (4,250,025) (27,362,632) (267,299) 85,860 (1,510,108) (1,968,516)
Net withdrawals due to policy loans....... (3,633,955) (704,376) (54,451) (593,757) (764,231) (536,465)
Withdrawals due to death benefits......... (366,282) (11,907) (13,393) (116,767) (3,286) (32,142)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
derived from policy transactions........ (1,678,554) 8,864,424 893,302 691,129 1,603,058 1,543,609
------------ ------------ ----------- ----------- ----------- -----------
Return of capital to Provident Mutual Life
Insurance Company....................... (225,000) (90,000) (90,000) (150,000) (145,000)
------------ ------------ ----------- ----------- ----------- -----------
Total increase in net assets.............. 24,950,708 9,929,620 1,861,435 4,860,003 4,025,685 5,192,937
NET ASSETS
Beginning of year....................... 206,781,775 22,992,912 13,480,533 36,172,970 34,927,244 38,762,124
------------ ------------ ----------- ----------- ----------- -----------
End of year............................. $231,732,483 $ 32,922,532 $15,341,968 $41,032,973 $38,952,929 $43,955,061
============ ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-25
<PAGE> 80
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment loss......................................... $ (10,444) $ (7,828) $ (8,535) $ (6,110)
Net realized gain (loss) on investments..................... 114,538 1,976 (75,896) (65,921)
Net unrealized appreciation of investments during the
year...................................................... 511,417 139,747 403,798 13,283
---------- ---------- ---------- ----------
Net increase (decrease) in net assets from operations....... 615,511 133,895 319,367 (58,748)
---------- ---------- ---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................................. 725,893 525,241 411,183 435,729
Cost of insurance and administrative charges................ (130,570) (104,161) (102,177) (82,507)
Surrenders and forfeitures.................................. (25,602) (12,569) (16,057) (10,719)
Transfers between investment portfolios..................... 3,077,201 2,946,905 3,944,529 2,851,353
Net withdrawals due to policy loans......................... (18,029) (13,665) (11,262) (6,094)
Withdrawals due to death benefits........................... (71) (4,970) (3,224) (128)
---------- ---------- ---------- ----------
Net increase in net assets derived from policy
transactions.............................................. 3,628,822 3,336,781 4,222,992 3,187,634
---------- ---------- ---------- ----------
Capital contribution from Provident Mutual Life Insurance
Company................................................... 25,000 25,000 25,000 25,000
---------- ---------- ---------- ----------
Total increase in net assets................................ 4,269,333 3,495,676 4,567,359 3,153,886
NET ASSETS
Beginning of year......................................... -- -- -- --
---------- ---------- ---------- ----------
End of year............................................... $4,269,333 $3,495,676 $4,567,359 $3,153,886
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-26
<PAGE> 81
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
FROM OPERATIONS
Net investment loss......................................... $ (99,846)
Net realized gain on investments............................ 570,514
Net unrealized appreciation of investments during the
year...................................................... 808,299
-----------
Net increase in net assets from operations.................. 1,278,967
-----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................................. 2,832,198
Cost of insurance and administrative charges................ (969,558)
Surrenders and forfeitures.................................. (429,018)
Transfers between investment portfolios..................... 1,324,943
Net repayments due to policy loans.......................... 34,044
Withdrawals due to death benefits........................... (19,270)
-----------
Net increase in net assets derived from policy
transactions.............................................. 2,773,339
-----------
Return of capital to Provident Mutual Life Insurance
Company................................................... (105,000)
-----------
Total increase in net assets................................ 3,947,306
NET ASSETS
Beginning of year......................................... 8,641,986
-----------
End of year............................................... $12,589,292
===========
</TABLE>
See accompanying notes to financial statements
F-27
<PAGE> 82
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<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)............... $ 592,079 $ (356,088) $ 999,219 $ 292,561 $ 1,023,972 $ 209,196
Net realized gain on investments........... 7,627,428 20,456,568 849,640 3,197,810 4,862,002 4,037,742
Net unrealized appreciation (depreciation)
of investments during the year........... 2,705,182 25,250,942 (2,866,128) (392,699) 273,269 20,059,318
------------ ------------ ----------- ----------- ----------- ------------
Net increase (decrease) in net assets from
operations............................... 10,924,689 45,351,422 (1,017,269) 3,097,672 6,159,243 24,306,256
------------ ------------ ----------- ----------- ----------- ------------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................ 27,977,450 31,856,978 5,041,566 8,709,088 8,574,753 36,145,166
Cost of insurance and administrative
charges.................................. (9,325,323) (10,947,922) (1,559,923) (2,449,969) (3,512,324) (9,903,927)
Surrenders and forfeitures................. (3,383,688) (3,590,928) (374,107) (760,286) (1,937,981) (2,610,441)
Transfers between investment portfolios.... 2,645,244 (1,393,335) 1,625,735 2,091,205 293,923 11,705,877
Net withdrawals due to policy loans........ (1,328,279) (2,014,498) (101,389) (371,567) (1,412,127) (876,423)
Withdrawals due to death benefits.......... (260,037) (10,155) (7,237) (20,317) (69,814) (10,632)
------------ ------------ ----------- ----------- ----------- ------------
Net increase in net assets derived from
policy transactions...................... 16,325,367 13,900,140 4,624,645 7,198,154 1,936,430 34,449,620
------------ ------------ ----------- ----------- ----------- ------------
Return of capital to Provident Mutual Life
Insurance Company........................ (165,000) (85,000) (35,000)
------------ ------------ ----------- ----------- ----------- ------------
Total increase in net assets............... 27,250,056 59,086,562 3,607,376 10,295,826 8,010,673 58,720,876
NET ASSETS
Beginning of year........................ 93,799,766 109,653,375 15,302,332 24,399,967 42,160,660 72,064,851
------------ ------------ ----------- ----------- ----------- ------------
End of year.............................. $121,049,822 $168,739,937 $18,909,708 $34,695,793 $50,171,333 $130,785,727
============ ============ =========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements
F-28
<PAGE> 83
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY NEUBERGER NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED & BERMAN
GRADE BOND CONTRAFUND BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........... $ 326,175 $ (52,554) $ 108,409 $ (192,792) $ 240,987 $ (3,466)
Net realized gain (loss) on
investments.......................... 180,741 4,000,568 991,410 7,395,300 (32,935) (5,901)
Net unrealized appreciation
(depreciation) of investments during
the year............................. 286,871 5,407,580 (317,398) (3,408,254) (29,896) 62,679
----------- ----------- ---------- ----------- ---------- ----------
Net increase in net assets from
operations........................... 793,787 9,355,594 782,421 3,794,254 178,156 53,312
----------- ----------- ---------- ----------- ---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............ 3,706,491 13,012,021 1,808,394 7,614,497 1,892,852 512,666
Cost of insurance and administrative
charges.............................. (970,841) (3,458,508) (816,326) (2,663,861) (385,317) (75,140)
Surrenders and forfeitures............. (204,537) (761,006) (300,676) (903,644) (118,480) (15,003)
Transfers between investment
portfolios........................... 2,902,448 2,904,831 (196,593) (2,357,815) 821,901 1,220,644
Net withdrawals due to policy loans.... (130,121) (302,099) (108,962) (393,122) (27,411)
Withdrawals due to death benefits...... (4,526) (5,234) (17,898) (28,362) (520) (43)
----------- ----------- ---------- ----------- ---------- ----------
Net increase in net assets derived from
policy transactions.................. 5,298,914 11,390,005 367,939 1,267,693 2,183,025 1,643,124
----------- ----------- ---------- ----------- ---------- ----------
(Return of capital from) capital
contribution to Provident Mutual Life
Insurance Company.................... (35,000) (25,000) 25,000
----------- ----------- ---------- ----------- ---------- ----------
Total increase in net assets........... 6,092,701 20,745,599 1,115,360 5,036,947 2,361,181 1,721,436
NET ASSETS
Beginning of year.................... 7,897,930 25,431,484 6,381,375 25,140,863 4,222,983
----------- ----------- ---------- ----------- ---------- ----------
End of year.......................... $13,990,631 $46,177,083 $7,496,735 $30,177,810 $6,584,164 $1,721,436
=========== =========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-29
<PAGE> 84
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
AMERICAN VAN ECK VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING REAL SMALL
APPRECIATION BOND HARD ASSETS MARKETS ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).......... $ (53,235) $ 5,836 $ (877) $ 10,807 $ (1,150) $ (159,984)
Net realized gain (loss) on
investments......................... (275,146) 38,421 182,364 (372,857) (8,482) 3,150,039
Net unrealized appreciation
(depreciation) of investments during
the year............................ 122,964 529,032 (1,104,896) (2,208,689) (12,423) 573,841
----------- ---------- ----------- ----------- -------- -----------
Net increase (decrease) in net assets
from operations..................... (205,417) 573,289 (923,409) (2,570,739) (22,055) 3,563,896
----------- ---------- ----------- ----------- -------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums........... 2,677,232 1,463,635 869,978 3,517,907 66,543 8,859,577
Cost of insurance and administrative
charges............................. (949,325) (466,749) (243,816) (930,984) (14,501) (2,479,481)
Surrenders and forfeitures............ (250,766) (222,795) (75,816) (104,943) (2,855) (543,395)
Transfers between investment
portfolios.......................... (2,037,281) 54,538 (330,819) 10,460 379,923 1,167,869
Net withdrawals due to policy loans... (97,850) (68,651) (18,815) (86,630) (82) (292,596)
Withdrawals due to death benefits..... (1,650) (3,689) (183) (924) (43) (14,148)
----------- ---------- ----------- ----------- -------- -----------
Net increase (decrease) in net assets
derived from policy transactions.... (659,640) 756,289 200,529 2,404,886 428,985 6,697,826
----------- ---------- ----------- ----------- -------- -----------
Capital contribution from Provident
Mutual Life Insurance Company....... 10,000 10,000 35,000 35,000
----------- ---------- ----------- ----------- -------- -----------
Total increase (decrease) in net
assets.............................. (855,057) 1,329,578 (712,880) (130,853) 441,930 10,261,722
NET ASSETS
Beginning of year................... 8,434,404 4,377,135 2,781,168 6,363,909 18,732,813
----------- ---------- ----------- ----------- -------- -----------
End of year......................... $ 7,579,347 $5,706,713 $2,068,288 $ 6,233,056 $441,930 $28,994,535
=========== ========== =========== =========== ======== ===========
</TABLE>
See accompanying notes to financial statements
F-30
<PAGE> 85
- --------------------------------------------------------------------------------
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-31
<PAGE> 86
- --------------------------------------------------------------------------------
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-32
<PAGE> 87
- --------------------------------------------------------------------------------
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-33
<PAGE> 88
- --------------------------------------------------------------------------------
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-34
<PAGE> 89
- --------------------------------------------------------------------------------
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-35
<PAGE> 90
- --------------------------------------------------------------------------------
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-36
<PAGE> 91
- --------------------------------------------------------------------------------
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-37
<PAGE> 92
- --------------------------------------------------------------------------------
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-38
<PAGE> 93
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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-39
<PAGE> 94
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
VAN ECK VAN ECK GOLD VAN ECK ALGER AMERICAN
TCI WORLDWIDE AND NATURAL EMERGING SMALL
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-40
<PAGE> 95
- --------------------------------------------------------------------------------
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 twenty-two Subaccounts: the
All Pro Large Cap Growth, All Pro Large Cap Value, All Pro Small Cap Growth and
the All Pro Small Cap Value Subaccounts invest in the corresponding portfolios
of the Market Street Fund, Inc.; 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, Neuberger & Berman Limited Maturity Bond and Neuberger & Berman Partners
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), Van Eck Worldwide Emerging Markets (formerly Van Eck
Emerging Markets) and Van Eck Worldwide Real Estate 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.
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.
F-41
<PAGE> 96
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
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-42
<PAGE> 97
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1998, 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.......................................... 12,319,430 $188,208,854 $231,851,679
Money Market Portfolio.................................... 30,943,288 $30,943,288 $30,943,288
Bond Portfolio............................................ 1,368,842 $14,470,181 $15,358,404
Managed Portfolio......................................... 2,322,089 $32,182,969 $41,054,533
Aggressive Growth Portfolio............................... 1,777,861 $31,359,430 $38,952,929
International Portfolio................................... 3,173,651 $39,980,767 $43,955,061
All Pro Large Cap Growth Portfolio........................ 362,730 $3,757,916 $4,269,333
All Pro Large Cap Value Portfolio......................... 353,098 $3,355,929 $3,495,676
All Pro Small Cap Growth Portfolio........................ 462,996 $4,133,561 $4,537,359
All Pro Small Cap Value Portfolio......................... 382,289 $3,140,603 $3,153,886
The Stripped ("Zero") U.S. Treasury Securities Fund,
Provident Mutual Series A:
2006 Series............................................... 17,204,688 $10,285,615 $12,448,796
Variable Insurance Products Fund:
Equity-Income Portfolio................................... 4,761,991 $97,411,825 $121,049,822
Growth Portfolio.......................................... 3,760,641 $115,958,312 $168,739,937
High Income Portfolio..................................... 1,640,044 $20,290,154 $18,909,708
Overseas Portfolio........................................ 1,730,463 $33,033,626 $34,695,793
Variable Insurance Products Fund II:
Asset Manager Portfolio................................... 2,762,739 $42,869,084 $50,171,333
Index 500 Portfolio....................................... 925,917 $95,014,127 $130,785,727
Investment Grade Bond Portfolio........................... 1,079,524 $13,302,389 $13,990,631
Contrafund Portfolio...................................... 1,889,406 $37,436,898 $46,177,083
Neuberger & Berman Advisers Management Trust:
Balanced Portfolio........................................ 458,797 $7,218,816 $7,496,735
Growth Portfolio.......................................... 1,147,882 $29,348,049 $30,177,810
Limited Maturity Bond Portfolio........................... 476,423 $6,527,275 $6,584,164
Partners Portfolio........................................ 90,937 $1,658,757 $1,721,436
American Century Variable Portfolios, Inc.:
American Century VP Capital Appreciation Portfolio........ 840,282 $8,481,149 $7,579,347
Van Eck Worldwide Insurance Trust:
Van Eck Worldwide Bond Portfolio.......................... 464,716 $5,116,154 $5,706,713
Van Eck Worldwide Hard Assets Portfolio................... 224,814 $3,204,388 $2,068,288
Van Eck Worldwide Emerging Markets Portfolio.............. 875,429 $9,879,198 $6,233,056
Van Eck Worldwide Real Estate Portfolio................... 46,324 $454,353 $441,930
Alger American Fund:
Alger American Small Capitalization Portfolio............. 659,416 $27,095,720 $28,994,535
</TABLE>
F-43
<PAGE> 98
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the years ended December 31, 1998, 1997 and 1996, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased....................... 768,646 803,570 831,901 44,184,953 23,511,707 19,129,435
Shares received from reinvestment of:
Dividends............................ 151,409 228,102 265,374 1,311,070 1,161,384 1,024,419
Capital gain distributions........... 1,670,894 1,229,894 436,699
----------- ----------- ----------- ------------ ------------ ------------
Total shares acquired.................. 2,590,949 2,261,566 1,533,974 45,496,023 24,673,091 20,153,854
Total shares redeemed.................. (903,255) (960,812) (904,010) (37,178,305) (25,932,218) (12,978,261)
----------- ----------- ----------- ------------ ------------ ------------
Net increase (decrease) in shares
owned................................ 1,687,694 1,300,754 629,964 8,317,718 (1,259,127) 7,175,593
Shares owned, beginning of year........ 10,631,736 9,330,982 8,701,018 22,625,570 23,884,697 16,709,104
----------- ----------- ----------- ------------ ------------ ------------
Shares owned, end of year.............. 12,319,430 10,631,736 9,330,982 30,943,288 22,625,570 23,884,697
=========== =========== =========== ============ ============ ============
Cost of shares acquired................ $43,749,139 $37,696,907 $24,791,248 $ 45,496,023 $ 24,673,091 $ 20,153,854
=========== =========== =========== ============ ============ ============
Cost of shares redeemed................ $12,497,747 $12,847,552 $11,787,104 $ 37,178,305 $ 25,932,218 $ 12,978,261
=========== =========== =========== ============ ============ ============
</TABLE>
F-44
<PAGE> 99
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 268,032 199,386 168,569 196,652 179,042 221,107
Shares received from reinvestment of:
Dividends..................................... 74,249 69,359 57,612 73,921 72,155 73,728
Capital gain distributions.................... 190 108,786 16,767 81,745
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 342,471 268,745 226,181 379,359 267,964 376,580
Total shares redeemed........................... (202,735) (87,869) (127,216) (178,725) (226,374) (198,824)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 139,736 180,876 98,965 200,634 41,590 177,756
Shares owned, beginning of year................. 1,229,106 1,048,230 949,265 2,121,455 2,079,865 1,902,109
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 1,368,842 1,229,106 1,048,230 2,322,089 2,121,455 2,079,865
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $3,781,286 $2,847,336 $2,391,808 $6,279,404 $4,189,158 $5,201,624
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $2,261,555 $ 938,352 $1,348,647 $2,204,017 $2,579,637 $2,131,719
========== ========== ========== ========== ========== ==========
</TABLE>
F-45
<PAGE> 100
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 255,330 257,235 263,500 420,358 542,095 520,713
Shares received from reinvestment of:
Dividends..................................... 13,983 13,532 13,575 22,086 21,751 23,400
Capital gain distributions.................... 133,481 2,684 136,800 212,313 170,284 94,861
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 402,794 273,451 413,875 654,757 734,130 638,974
Total shares redeemed........................... (198,941) (97,819) (125,277) (329,168) (271,615) (117,063)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 203,853 175,632 288,598 325,589 462,515 521,911
Shares owned, beginning of year................. 1,574,008 1,398,376 1,109,778 2,848,062 2,385,547 1,863,636
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 1,777,861 1,574,008 1,398,376 3,173,651 2,848,062 2,385,547
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $8,305,625 $5,541,378 $6,735,426 $8,702,058 $9,578,029 $8,077,706
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $2,748,918 $1,408,820 $1,641,455 $3,909,601 $3,084,716 $1,210,942
========== ========== ========== ========== ========== ==========
</TABLE>
F-46
<PAGE> 101
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ---------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE LARGE SMALL SMALL
CAP CAP CAP CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
1998 1998 1998 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 469,970 403,231 524,912 461,634
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................
---------- ---------- ---------- ----------
Total shares acquired....................................... 469,970 403,231 524,912 461,634
Total shares redeemed....................................... (107,240) (50,133) (61,916) (79,345)
---------- ---------- ---------- ----------
Net increase in shares owned................................ 362,730 353,098 462,996 382,289
Shares owned, beginning of year.............................
---------- ---------- ---------- ----------
Shares owned, end of year................................... 362,730 353,098 462,996 382,289
========== ========== ========== ==========
Cost of shares acquired..................................... $4,811,412 $3,850,929 $4,739,070 $3,913,949
========== ========== ========== ==========
Cost of shares redeemed..................................... $1,053,496 $ 495,000 $ 605,509 $ 773,346
========== ========== ========== ==========
</TABLE>
F-47
<PAGE> 102
- --------------------------------------------------------------------------------
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 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 118,128 5,778,688 4,580,927 4,208,650
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................
----------- ----------- ----------- -----------
Total shares acquired....................................... 118,128 5,778,688 4,580,927 4,208,650
Total shares redeemed....................................... (2,181,298) (2,207,327) (2,294,572) (1,223,768)
----------- ----------- ----------- -----------
Net increase (decrease) in shares owned..................... (2,063,170) 3,571,361 2,286,355 2,984,882
Shares owned, beginning of year............................. 2,063,170 13,633,327 11,346,972 8,362,090
----------- ----------- ----------- -----------
Shares owned, end of year................................... 17,204,688 13,633,327 11,346,972
=========== =========== =========== ===========
Cost of shares acquired..................................... $ 117,132 $ 3,919,504 $ 2,702,211 $ 2,317,522
=========== =========== =========== ===========
Cost of shares redeemed..................................... $ 1,949,315 $ 936,170 $ 1,068,989 $ 528,531
=========== =========== =========== ===========
</TABLE>
F-48
<PAGE> 103
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 941,021 879,873 1,036,625 671,544 555,971 826,059
Shares received from reinvestment of:
Dividends............................... 57,354 52,772 2,918 16,967 16,709 4,794
Capital gain distributions.............. 204,112 265,326 83,648 443,821 74,791 121,056
----------- ----------- ----------- ----------- ----------- -----------
Total shares acquired..................... 1,202,487 1,197,971 1,123,191 1,132,332 647,471 951,909
Total shares redeemed..................... (303,748) (137,286) (71,820) (327,308) (161,509) (69,623)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in shares owned.............. 898,739 1,060,685 1,051,371 805,024 485,962 882,286
Shares owned, beginning of year........... 3,863,252 2,802,567 1,751,196 2,955,617 2,469,655 1,587,369
----------- ----------- ----------- ----------- ----------- -----------
Shares owned, end of year................. 4,761,991 3,863,252 2,802,567 3,760,641 2,955,617 2,469,655
=========== =========== =========== =========== =========== ===========
Cost of shares acquired................... $29,069,658 $25,703,423 $21,875,240 $40,900,308 $21,882,557 $27,880,379
=========== =========== =========== =========== =========== ===========
Cost of shares redeemed................... $ 4,524,784 $ 2,120,256 $ 1,105,790 $ 7,064,688 $ 3,690,895 $ 1,605,197
=========== =========== =========== =========== =========== ===========
</TABLE>
F-49
<PAGE> 104
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................... 761,346 529,057 479,606 948,639 406,870 372,206
Shares received from reinvestment of:
Dividends................................ 91,147 53,162 25,643 26,637 16,746 6,165
Capital gain distributions............... 57,917 6,571 5,016 78,510 66,476 6,782
----------- ----------- ----------- ----------- ----------- ----------
Total shares acquired...................... 910,410 588,790 510,265 1,053,786 490,092 385,153
Total shares redeemed...................... (397,195) (139,313) (108,022) (594,155) (58,309) (47,671)
----------- ----------- ----------- ----------- ----------- ----------
Net increase in shares owned............... 513,215 449,477 402,243 459,631 431,783 337,482
Shares owned, beginning of year............ 1,126,829 677,352 275,109 1,270,832 839,049 501,567
----------- ----------- ----------- ----------- ----------- ----------
Shares owned, end of year.................. 1,640,044 1,126,829 677,352 1,730,463 1,270,832 839,049
=========== =========== =========== =========== =========== ==========
Cost of shares acquired.................... $11,127,019 $ 7,427,218 $ 6,055,847 $20,460,713 $ 9,229,879 $6,786,632
=========== =========== =========== =========== =========== ==========
Cost of shares redeemed.................... $ 4,653,515 $ 1,619,163 $ 1,154,715 $ 9,772,188 $ 946,549 $ 774,233
=========== =========== =========== =========== =========== ==========
</TABLE>
F-50
<PAGE> 105
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 373,976 380,899 313,935 299,337 318,609 200,784
Shares received from reinvestment of:
Dividends............................... 83,022 72,745 65,522 7,854 3,902 1,531
Capital gain distributions.............. 249,065 182,481 54,028 18,191 7,916 3,938
----------- ----------- ----------- ----------- ----------- -----------
Total shares acquired..................... 706,063 636,125 433,485 325,382 330,427 206,253
Total shares redeemed..................... (284,282) (168,401) (277,449) (29,458) (19,452) (5,225)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in shares owned.............. 421,781 467,724 156,036 295,924 310,975 201,028
Shares owned, beginning of year........... 2,340,958 1,873,234 1,717,198 629,993 319,018 117,990
----------- ----------- ----------- ----------- ----------- -----------
Shares owned, end of year................. 2,762,739 2,340,958 1,873,234 925,917 629,993 319,018
=========== =========== =========== =========== =========== ===========
Cost of shares acquired................... $11,719,512 $10,391,586 $ 6,753,590 $40,378,866 $33,442,553 $16,732,487
=========== =========== =========== =========== =========== ===========
Cost of shares redeemed................... $ 3,982,108 $ 2,437,871 $ 4,265,120 $ 1,717,308 $ 1,092,364 $ 285,519
=========== =========== =========== =========== =========== ===========
</TABLE>
F-51
<PAGE> 106
- --------------------------------------------------------------------------------
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 BOND PORTFOLIO CONTRAFUND PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................... 606,534 322,755 260,720 989,278 947,917 378,323
Shares received from reinvestment of:
Dividends................................ 33,206 26,504 10,256 9,587 3,925
Capital gain distributions............... 3,939 70,531 10,374
----------- ----------- ----------- ----------- ----------- ----------
Total shares acquired...................... 643,679 349,259 270,976 1,069,396 962,216 378,323
Total shares redeemed...................... (192,971) (128,693) (50,765) (455,390) (60,207) (4,932)
----------- ----------- ----------- ----------- ----------- ----------
Net increase in shares owned............... 450,708 220,566 220,211 614,006 902,009 373,391
Shares owned, beginning of year............ 628,816 408,250 188,039 1,275,400 373,391
----------- ----------- ----------- ----------- ----------- ----------
Shares owned, end of year.................. 1,079,524 628,816 408,250 1,889,406 1,275,400 373,391
=========== =========== =========== =========== =========== ==========
Cost of shares acquired.................... $ 8,081,053 $ 4,160,380 $ 3,229,467 $22,565,565 $17,279,465 $5,779,392
=========== =========== =========== =========== =========== ==========
Cost of shares redeemed.................... $ 2,275,223 $ 1,505,536 $ 560,842 $ 7,227,546 $ 886,624 $ 73,354
=========== =========== =========== =========== =========== ==========
</TABLE>
F-52
<PAGE> 107
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................... 106,914 110,201 108,736 183,659 184,992 263,886
Shares received from reinvestment of:
Dividends.................................... 10,322 4,936 5,238 180
Capital gain distributions................... 72,502 12,668 29,133 294,737 60,028 42,178
---------- ---------- ---------- ----------- ---------- ----------
Total shares acquired.......................... 189,738 127,805 143,107 478,396 245,020 306,244
Total shares redeemed.......................... (89,445) (59,986) (36,401) (153,725) (83,282) (55,459)
---------- ---------- ---------- ----------- ---------- ----------
Net increase in shares owned................... 100,293 67,819 106,706 324,671 161,738 250,785
Shares owned, beginning of year................ 358,504 290,685 183,979 823,211 661,473 410,688
---------- ---------- ---------- ----------- ---------- ----------
Shares owned, end of year...................... 458,797 358,504 290,685 1,147,882 823,211 661,473
========== ========== ========== =========== ========== ==========
Cost of shares acquired........................ $2,887,584 $2,121,797 $2,241,958 $11,825,496 $6,796,267 $7,625,308
========== ========== ========== =========== ========== ==========
Cost of shares redeemed........................ $1,454,826 $ 892,244 $ 570,955 $ 3,380,295 $1,702,941 $1,295,598
========== ========== ========== =========== ========== ==========
</TABLE>
F-53
<PAGE> 108
- --------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------
PARTNERS
LIMITED MATURITY BOND PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 196,637 132,180 116,412 93,527
Shares received from reinvestment of:
Dividends................................................. 20,732 11,526 8,274
Capital gain distributions................................
---------- ---------- ---------- ----------
Total shares acquired....................................... 217,369 143,706 124,686 93,527
Total shares redeemed....................................... (40,024) (23,837) (20,824) (2,590)
---------- ---------- ---------- ----------
Net increase in shares owned................................ 177,345 119,869 103,862 90,937
Shares owned, beginning of year............................. 299,078 179,209 75,347
---------- ---------- ---------- ----------
Shares owned, end of year................................... 476,423 299,078 179,209 90,937
========== ========== ========== ==========
Cost of shares acquired..................................... $2,970,710 $1,969,915 $1,724,884 $1,710,978
========== ========== ========== ==========
Cost of shares redeemed..................................... $ 579,633 $ 332,448 $ 289,820 $ 52,221
========== ========== ========== ==========
</TABLE>
F-54
<PAGE> 109
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN CENTURY
VARIABLE PORTFOLIOS, INC.
- --------------------------------------------------------------------------------------------------
AMERICAN CENTURY VP
CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 160,212 251,935 384,291
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................ 43,966 19,341 68,178
---------- ---------- ----------
Total shares acquired....................................... 204,178 271,276 452,469
Total shares redeemed....................................... (235,219) (190,232) (80,668)
---------- ---------- ----------
Net increase (decrease) in shares owned..................... (31,041) 81,044 371,801
Shares owned, beginning of year............................. 871,323 790,279 418,478
---------- ---------- ----------
Shares owned, end of year................................... 840,282 871,323 790,279
========== ========== ==========
Cost of shares acquired..................................... $1,849,729 $2,680,991 $4,986,969
========== ========== ==========
Cost of shares redeemed..................................... $2,827,750 $1,948,006 $ 723,514
========== ========== ==========
</TABLE>
F-55
<PAGE> 110
- --------------------------------------------------------------------------------
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 BOND VAN ECK WORLDWIDE
PORTFOLIO HARD ASSETS PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 114,810 127,829 140,460 72,525 87,194 54,502
Shares received from reinvestment of:
Dividends..................................... 3,695 9,965 6,267 1,263 2,862 749
Capital gain distributions.................... 31,009 2,113 735
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 118,505 137,794 146,727 104,797 92,169 55,986
Total shares redeemed........................... (52,072) (23,040) (25,888) (56,902) (20,277) (13,461)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 66,433 114,754 120,839 47,895 71,892 42,525
Shares owned, beginning of year................. 398,283 283,529 162,690 176,919 105,027 62,502
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 464,716 398,283 283,529 224,814 176,919 105,027
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $1,366,886 $1,474,137 $1,593,168 $1,248,274 $1,503,036 $ 909,495
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $ 566,340 $ 235,174 $ 258,769 $ 856,258 $ 259,438 $ 176,559
========== ========== ========== ========== ========== ==========
</TABLE>
F-56
<PAGE> 111
- --------------------------------------------------------------------------------
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
REAL
VAN ECK WORLDWIDE ESTATE
EMERGING MARKETS PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 398,543 465,094 177,883 51,119
Shares received from reinvestment of:
Dividends................................................. 5,568 702 19
Capital gain distributions................................ 4,949
---------- ---------- ---------- ----------
Total shares acquired....................................... 409,060 465,796 177,902 51,119
Total shares redeemed....................................... (112,168) (64,711) (450) (4,795)
---------- ---------- ---------- ----------
Net increase in shares owned................................ 296,892 401,085 177,452 46,324
Shares owned, beginning of year............................. 578,537 177,452
---------- ---------- ---------- ----------
Shares owned, end of year................................... 875,429 578,537 177,452 46,324
========== ========== ========== ==========
Cost of shares acquired..................................... $3,443,133 $6,428,901 $2,130,602 $ 507,425
========== ========== ========== ==========
Cost of shares redeemed..................................... $1,365,297 $ 753,212 $ 4,929 $ 53,072
========== ========== ========== ==========
</TABLE>
F-57
<PAGE> 112
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER AMERICAN FUND
- ----------------------------------------------------------------------------------------------------
ALGER AMERICAN SMALL
CAPITALIZATION PORTFOLIO
- ----------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 259,859 241,101 207,020
Shares received from reinvestment of:
Dividends................................................. 2
Capital gain distributions................................ 72,842 12,008
----------- ----------- ----------
Total shares acquired....................................... 332,701 253,109 207,022
Total shares redeemed....................................... (101,464) (19,603) (12,349)
----------- ----------- ----------
Net increase in shares owned................................ 231,237 233,506 194,673
Shares owned, beginning of year............................. 428,179 194,673
----------- ----------- ----------
Shares owned, end of year................................... 659,416 428,179 194,673
=========== =========== ==========
Cost of shares acquired..................................... $13,629,293 $10,432,636 $8,338,053
=========== =========== ==========
Cost of shares redeemed..................................... $ 3,941,412 $ 815,858 $ 546,992
=========== =========== ==========
</TABLE>
F-58
<PAGE> 113
- --------------------------------------------------------------------------------
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,
(8) a risk charge for the guaranteed minimum death benefit, and (9) Federal tax
charges. 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 annually from the amount invested. 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.
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
F-59
<PAGE> 114
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS, CONTINUED
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, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
MONEY
GROWTH MARKET BOND
SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT
-------- -------- --------
<S> <C> <C> <C>
Year ending December 31,
1998................................................... $4,864 -- $1,300
1997................................................... $3,041 $40 $1,390
1996................................................... $3,491 $146 $1,087
</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-60
<PAGE> 115
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
AND SUBSIDIARIES
REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996
<PAGE> 116
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of
Provident Mutual Life Insurance Company:
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations, equity, and
cash flows present fairly, in all material respects, the financial position of
Provident Mutual Life Insurance Company and Subsidiaries, at December 31, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 5, 1999
F-62
<PAGE> 117
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost:
1998 -- $2,924,713; 1997 -- $2,647,954)............... $3,030,942 $2,758,069
Held to maturity, at amortized cost (market:
1998 -- $405,108; 1997 -- $455,776)................... 379,184 436,181
Equity securities, at market (cost: 1998 -- $30,317;
1997 -- $22,706)....................................... 29,420 23,818
Mortgage loans............................................ 641,568 663,285
Real estate............................................... 39,468 52,543
Policy loans and premium notes............................ 362,381 358,670
Other invested assets..................................... 9,428 14,546
Short-term investments.................................... 96,141 18,519
---------- ----------
Total investments................................. 4,588,532 4,325,631
Cash........................................................ 14,424 17,985
Premiums due................................................ 11,754 12,960
Investment income due and accrued........................... 75,729 73,997
Deferred policy acquisition costs........................... 705,183 629,635
Reinsurance recoverable..................................... 152,831 499,488
Separate account assets..................................... 3,115,352 2,284,118
Other assets................................................ 73,716 77,059
---------- ----------
Total Assets...................................... $8,737,521 $7,920,873
========== ==========
LIABILITIES
Policy liabilities:
Future policyholder benefits.............................. $4,243,117 $4,344,591
Policyholder funds........................................ 146,948 146,871
Policyholder dividends payable............................ 33,428 33,258
Other policy obligations.................................. 18,321 16,638
---------- ----------
Total policy liabilities.......................... 4,441,814 4,541,358
Expenses payable............................................ 29,670 23,775
Taxes payable............................................... 6,308 5,856
Federal income taxes payable:
Current................................................... 30,721 39,114
Deferred.................................................. 57,790 64,216
Separate account liabilities................................ 3,088,933 2,279,124
Other liabilities........................................... 147,162 123,148
---------- ----------
Total liabilities................................. 7,802,398 7,076,591
---------- ----------
COMMITMENTS AND CONTINGENCIES NOTE 9
EQUITY
Retained earnings........................................... 901,158 813,618
Accumulated other comprehensive income:
Net unrealized appreciation on securities................. 33,965 30,664
---------- ----------
Total equity...................................... 935,123 844,282
---------- ----------
Total Liabilities and Equity...................... $8,737,521 $7,920,873
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-63
<PAGE> 118
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums................................................... $206,376 $220,952 $235,615
Policy and contract charges................................ 126,282 106,449 73,873
Net investment income...................................... 352,690 331,524 333,938
Other income............................................... 55,596 47,520 43,839
Net realized gains on investments.......................... 6,780 2,360 7,873
-------- -------- --------
Total revenues................................... 747,724 708,805 695,138
-------- -------- --------
BENEFITS AND EXPENSES
Policy and contract benefits............................... 226,802 234,117 241,042
Change in future policyholder benefits..................... 138,001 122,463 130,147
Operating expenses......................................... 82,290 82,310 94,786
Amortization of deferred policy acquisition costs.......... 72,926 73,582 56,092
Policyholder dividends..................................... 65,648 65,736 65,184
Noninsurance commissions and expenses...................... 35,649 24,962 20,520
-------- -------- --------
Total benefits and expenses...................... 621,316 603,170 607,771
-------- -------- --------
Income before income taxes....................... 126,408 105,635 87,367
-------- -------- --------
Income tax expense (benefit):
Current.................................................. 46,953 35,971 (6,613)
Deferred................................................. (8,085) 2,613 12,441
-------- -------- --------
Total income tax expense......................... 38,868 38,584 5,828
-------- -------- --------
Net Income....................................... $ 87,540 $ 67,051 $ 81,539
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-64
<PAGE> 119
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
RETAINED APPRECIATION TOTAL
EARNINGS ON SECURITIES EQUITY
-------- ------------- --------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1996................................ $665,028 $30,301 $695,329
--------
Comprehensive income
Net income.............................................. 81,539 -- 81,539
Other comprehensive income, net of tax:
Change in unrealized appreciation.................... -- (19,591) (19,591)
--------
Total comprehensive income................................ 61,948
-------- ------- --------
BALANCE AT DECEMBER 31, 1996.............................. 746,567 10,710 757,277
--------
Comprehensive income
Net income.............................................. 67,051 -- 67,051
Other comprehensive income, net of tax:
Change in unrealized appreciation.................... -- 19,954 19,954
--------
Total comprehensive income................................ 87,005
-------- ------- --------
BALANCE AT DECEMBER 31, 1997.............................. 813,618 30,664 844,282
--------
Comprehensive income
Net income.............................................. 87,540 -- 87,540
Other comprehensive income, net of tax:
Change in unrealized appreciation.................... -- 3,301 3,301
--------
Total comprehensive income................................ 90,841
-------- ------- --------
BALANCE AT DECEMBER 31, 1998.............................. $901,158 $33,965 $935,123
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-65
<PAGE> 120
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 87,540 $ 67,051 $ 81,539
Adjustments to reconcile net income to net cash provided by
operating activities:
Interest credited to variable universal life and
investment products..................................... 124,693 108,773 117,038
Amortization of deferred policy acquisition costs......... 72,926 73,582 56,092
Capitalization of deferred policy acquisition costs....... (140,052) (127,593) (119,031)
Deferred Federal income taxes............................. (8,085) 2,613 12,441
Depreciation, amortization and accretion.................. (701) 4,309 5,292
Net realized gains on investments......................... (6,780) (2,360) (7,873)
Change in investment income due and accrued............... (1,732) 215 991
Change in premiums due.................................... 1,206 146 2,757
Change in reinsurance recoverable......................... 346,657 30,838 14,173
Change in policy liabilities and other policyholder
funds................................................... (342,412) (44,638) (18,335)
Change in other liabilities............................... 24,014 5,093 8,899
Change in current Federal income taxes payable............ (8,393) 3,786 (43,161)
Other, net................................................ 4,262 (7,770) (13,785)
----------- --------- ---------
Net cash provided by operating activities............... 153,143 114,045 97,037
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities............................. 290,037 370,224 285,514
Held to maturity securities............................... 4,806 -- --
Equity securities......................................... 27,543 8,288 8,147
Real estate............................................... 27,740 17,347 21,902
Other invested assets..................................... 25,080 7,424 6,078
Proceeds from maturities of investments:
Available for sale securities............................. 348,101 207,455 165,980
Held to maturity securities............................... 76,483 96,045 109,582
Mortgage loans............................................ 121,076 99,673 124,190
Purchases of investments:
Available for sale securities............................. (922,201) (705,348) (533,650)
Held to maturity securities............................... (23,624) (21,721) (76,730)
Equity securities......................................... (32,339) (7,052) (2,966)
Mortgage loans............................................ (107,728) (54,659) (94,254)
Real estate............................................... (856) (1,823) (11,449)
Other invested assets..................................... (11,342) (1,807) (127)
Contributions of separate account seed money................ (20,826) -- (601)
Withdrawals of separate account seed money.................. 1,954 29 6,586
Policy loans and premium notes, net......................... (3,711) (148) 7,580
Net (purchases) sales of short-term investments............. (77,622) 41,888 35,983
----------- --------- ---------
Net cash (used in) provided by investing activities..... (277,429) 55,815 51,765
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits..... 1,228,552 836,694 668,437
Variable universal life and investment product
withdrawals............................................... (1,107,827) (994,120) (814,559)
----------- --------- ---------
Net cash provided by (used in) financing activities..... 120,725 (157,426) (146,122)
----------- --------- ---------
Net change in cash...................................... (3,561) 12,434 2,680
Cash, beginning of year..................................... 17,985 5,551 2,871
----------- --------- ---------
Cash, end of year........................................... $ 14,424 $ 17,985 $ 5,551
=========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes................ $ 54,863 $ 31,805 $ 36,329
=========== ========= =========
Foreclosure of mortgage loans............................. $ 8,848 $ 1,744 $ 7,665
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-66
<PAGE> 121
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.
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."
On October 13, 1998, the Board of Directors of Provident Mutual unanimously
approved and adopted a Plan of Conversion (Plan) to reorganize Provident Mutual
Life Insurance Company, utilizing a mutual holding company structure. The Plan
amended and replaced the proposed plan of conversion adopted January 5, 1998.
The Plan would result in Provident Mutual converting to a stock life insurance
company and being renamed Provfirst America Life Insurance Company (Provfirst
America). Provfirst America will have a newly created parent company, Provfirst
America Corporation, a stock holding company. Additionally, Provfirst America
Corporation will have a newly created parent company, Provident Mutual Holding
Company, a mutual holding company. PLACA will be renamed Provfirst America Life
and Annuity Company. PMILIC will be renamed Provfirst America International Life
Insurance Company. PHC will be renamed Provfirst America Holding Company.
The Insurance Department of the Commonwealth of Pennsylvania reviewed the
Plan and rendered its Decision and Order approving the Plan, subject to certain
conditions, on November 6, 1998.
The Plan requires the approval of at least two-thirds of the votes cast by
voting policyholders. A Special Meeting of policyholders to consider and vote
upon the Plan has been scheduled for February 9, 1999.
The Company sells individual variable and traditional life insurance
products and a variety of individual and group annuity 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 12 states accounted for 79% of the Company's sales for the
year ended December 31, 1998. 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
regulated by statutes and regulations in each of these states.
PLACA specializes primarily in the development and sale of various annuity
products and sells certain variable and traditional 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. The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting principles (GAAP).
Certain prior year amounts have been reclassified to conform with the current
year presentation.
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 Pennsylvania and the State
of Delaware (SAP). Practices under SAP vary from GAAP primarily with respect to
the initial deferral of acquisition costs, the accounting for deferred taxes,
the accrual of postretirement
F-67
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
benefits, the elimination of the statutory asset valuation reserve and the
establishment of investment valuation allowances.
Statutory net income was $74.8 million, $62.7 million and $39.9 million for
the years ended December 31, 1998, 1997 and 1996, respectively. Statutory
surplus was $382.4 million and $374.4 million as of December 31, 1998 and 1997,
respectively. During 1998, the Company adopted the accounting requirements of
the National Association of Insurance Commissioners' codification of statutory
accounting principles. The effect of this reduced surplus by $46.8 million.
The preparation of the accompanying consolidated 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 equity,
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 and preferred stocks) are reported at market
value. Unrealized appreciation/depreciation on these securities is recorded
directly in equity, 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.
Upon impairment, a reserve is established for the difference between the unpaid
principal of the mortgage loan and its fair value. Fair value is based on either
the present value of expected future cash flows discounted at the mortgage
loan's effective interest rate or the fair value of the underlying collateral.
Changes in the reserve are charged to realized capital losses. Reserves totaled
$10.7 million and $13.1 million at December 31, 1998 and 1997, respectively.
Policy loans are reported at unpaid principal balances.
Real estate occupied by the Company is carried at cost less accumulated
depreciation. Foreclosed real estate is carried at the lower of cost or fair
market value, 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 fair market value. The Company receives preferred returns and interest
on loans/capital advances made to the real estate joint ventures.
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
F-68
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from a specific underlying index or commodity) for the purpose of reducing
exposure to interest rate fluctuations, but 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.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement requires that all
derivatives be recorded at fair value in the statement of financial condition as
either assets or liabilities. The accounting for changes in the fair value of a
derivative depends on its intended use and its resulting designation. This
Statement is effective for fiscal years beginning after June 15, 1999. The
Company is currently reviewing this Statement and has not yet determined its
impact on the consolidated financial statements.
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position No. 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." The adoption of this statement,
which is effective for fiscal years beginning after December 15, 1998, is not
expected to have a material effect on the Company's consolidated financial
statements.
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 guaranteeing benefits, they pay dividends, as
declared annually by the Company based on experience.
Reserves on traditional life insurance products are calculated by using the
net level premium method. For participating traditional life insurance policies,
reserve assumptions are based on mortality rates consistent with those
underlying the cash values and investment rates consistent with the Company's
dividend practices. For most policies, reserves are based on the 1958 or 1980
Commissioners' Standard Ordinary (CSO) mortality tables 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.
F-69
<PAGE> 124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Premiums received and the accumulated value
portion of benefits paid are excluded from the amounts reported in the
consolidated statements of operations. Expenses include interest credited to
policy account balances and benefit payments made in excess of policy account
balances. Many of these policies are variable life or variable annuity policies,
in which investment performance credited to the account balance is based on the
investment performance of separate accounts chosen by the policyholder. For
other account balances, credited interest rates ranged from 3.47% to 9.07% in
1998.
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 8.25% for 1998, 8.0% for 1997 and 8.15% for 1996.
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 1998, 1997 and 1996 were $140.1 million, $127.6
million, and $119.0 million, respectively. Amortization of deferred policy
acquisition costs was $72.9 million, $73.6 million and $56.1 million during
1998, 1997 and 1996, respectively.
CAPITAL GAINS AND LOSSES
Realized capital gains and losses on sales of investments are based upon
specific identification of the investments sold. 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
Annually, the Board of Directors declares the amount of dividends to be
paid in the following calendar year. Dividends are earned by the policyholders
ratably over the policy year. Dividends are included in the accompanying
consolidated financial statements as a liability and as a charge to operations.
REINSURANCE
Premiums, benefits and expenses are recorded net of experience refunds,
reserve adjustments and amounts assumed from or ceded to reinsurers, including
commission and expense allowances.
SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the benefit of variable life
insurance policyholders, variable annuity contractholders and several of the
Company's retirement plans.
The contractholders/policyholders bear the investment risk on separate
account assets except in instances where the Company guarantees a fixed return
and on the Company's seed money. The separate account assets 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
F-70
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 consolidated financial statements and those in the Company's income
tax returns.
COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for the reporting and presentation
of comprehensive income and its components.
Comprehensive income encompasses all changes in equity, excluding
transactions with owners, and includes net income and the change in unrealized
appreciation/depreciation on securities. This new standard requires additional
disclosures in the consolidated financial statements and does not affect results
of operations or financial condition.
The components of other comprehensive income are as follows (in millions):
<TABLE>
<CAPTION>
TAX
BEFORE TAX (EXPENSE) NET OF TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Unrealized appreciation (depreciation) on
securities.................................... $ 11.9 $ (4.2) $ 7.7
Less: reclassification adjustment for gains
realized in net income........................ (6.8) 2.4 (4.4)
------ ------ ------
Net change in unrealized appreciation on
securities.................................... $ 5.1 $ (1.8) $ 3.3
====== ====== ======
YEAR ENDED DECEMBER 31, 1997:
Unrealized appreciation (depreciation) on
securities.................................... $ 33.1 $(11.6) $ 21.5
Less: reclassification adjustment for gains
realized in net income........................ (2.4) .9 (1.5)
------ ------ ------
Net change in unrealized appreciation on
securities.................................... $ 30.7 $(10.7) $ 20.0
====== ====== ======
YEAR ENDED DECEMBER 31, 1996:
Unrealized appreciation (depreciation) on
securities.................................... $(24.7) $ 10.2 $(14.5)
Less: reclassification adjustment for gains
realized in net income........................ (7.9) 2.8 (5.1)
------ ------ ------
Net change in unrealized appreciation on
securities.................................... $(32.6) $ 13.0 $(19.6)
====== ====== ======
</TABLE>
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, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale...................... $3,030.9 $3,030.9 $2,758.1 $2,758.1
Held to maturity........................ $ 405.1 $ 379.2 $ 455.8 $ 436.2
Equity securities......................... $ 29.4 $ 29.4 $ 23.8 $ 23.8
Mortgage loans............................ $ 697.2 $ 641.6 $ 726.6 $ 663.3
</TABLE>
F-71
<PAGE> 126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
LIABILITIES FOR INVESTMENT-TYPE INSURANCE
CONTRACTS
Guaranteed interest contracts............. $ 178.6 $ 172.3 $ 240.7 $ 234.3
Group annuities........................... $1,596.4 $1,595.9 $1,345.8 $1,353.2
Supplementary contracts without life
contingencies........................... $ 30.4 $ 29.8 $ 30.8 $ 30.6
Individual annuities...................... $1,907.1 $1,961.8 $1,740.3 $1,799.6
</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 SFAS 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.
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 GIC 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 the guaranteed interest contract
liabilities were $172.5 million and $175.9 million, respectively, at December
31, 1998 and $237.1 million and $240.9 million, respectively, at December 31,
1997.
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
F-72
<PAGE> 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subject to market value adjustments at termination, book value represents fair
value.
INDIVIDUAL ANNUITIES AND SUPPLEMENTARY CONTRACTS
The fair value of individual annuities and supplementary contracts without
life contingencies is based primarily on surrender values. For those individual
annuities and supplementary contracts that are not surrenderable, discounted
future cash flows are used for calculating fair value.
POLICYHOLDER DIVIDENDS AND COUPON ACCUMULATIONS
The policyholders' dividend and coupon accumulation liabilities will
ultimately be settled in cash, applied toward 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 and losses and estimated fair
value of investments in fixed maturity securities and equity securities as of
December 31, 1998 and 1997 are as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------
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........... $ 41.7 $ 1.7 $ -- $ 43.4
Obligations of states and political
subdivisions................................... 57.8 2.9 -- 60.7
Debt securities issued by foreign governments.... 1.0 .1 -- 1.1
Corporate securities............................. 2,537.1 124.4 33.3 2,628.2
Mortgage-backed securities....................... 287.1 11.0 .6 297.5
-------- ------ ----- --------
Subtotal -- fixed maturities..................... 2,924.7 140.1 33.9 3,030.9
Equity securities................................ 30.3 1.8 2.7 29.4
-------- ------ ----- --------
Total....................................... $2,955.0 $141.9 $36.6 $3,060.3
======== ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------
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........... $ 16.7 $ 1.5 $ -- $ 18.2
Obligations of states and political
subdivisions................................... 7.9 .7 .1 8.5
Debt securities issued by foreign governments.... 6.2 1.0 -- 7.2
Corporate securities............................. 339.6 22.4 .2 361.8
Mortgage-backed securities....................... 8.8 .6 -- 9.4
------ ----- ----- ------
Total....................................... $379.2 $26.2 $ .3 $405.1
====== ===== ===== ======
</TABLE>
F-73
<PAGE> 128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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>
<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>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1998, 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... $ 145.1 $ 146.6
Due after one year through
five years.............. 768.8 791.8
Due after five years
through ten years....... 734.1 766.9
Due after ten years....... 1,276.7 1,325.6
-------- --------
Total................ $2,924.7 $3,030.9
======== ========
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE
- ---------------- --------- ----------
<S> <C> <C>
Due in one year or less... $ 10.2 $ 10.2
Due after one year through
five years.............. 109.1 113.6
Due after five years
through ten years....... 156.3 168.7
Due after ten years....... 103.6 112.6
------ ------
Total................ $379.2 $405.1
====== ======
</TABLE>
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are included based on their
contractual maturity.
Realized gains (losses) on investments for the years ended December 31,
1998, 1997 and 1996 are summarized as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Fixed maturities......... $(9.2) $ 7.9 $ 6.0
Equity securities........ 2.8 (3.8) .3
Mortgage loans........... .7 1.1 (1.4)
Real estate.............. 6.6 (2.2) 2.8
Policy loans and premium
notes.................. -- -- .9
Other invested assets.... 8.9 (.6) (.7)
Other assets............. (3.0) -- --
----- ----- -----
Total............... $ 6.8 $ 2.4 $ 7.9
===== ===== =====
</TABLE>
During 1998, the Company sold held to maturity securities with an amortized
cost of $5.6 million, resulting in a realized loss of $.8 million.
F-74
<PAGE> 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The securities were sold in response to significant deterioration in the
creditworthiness of the issuers.
Net unrealized appreciation on available for sale securities as of December
31, 1998 and 1997 is summarized as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Net unrealized appreciation
before adjustments for the
following:.................. $105.3 $111.2
Amortization of deferred
policy acquisition
costs.................... (53.0) (64.0)
Deferred Federal income
taxes.................... (18.3) (16.5)
------ ------
Net unrealized appreciation... $ 34.0 $ 30.7
====== ======
</TABLE>
Net investment income, by type of investment, is as follows for the years
ending December 31, 1998, 1997 and 1996 (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Gross investment
income:
Fixed maturities:
Available for
sale............. $225.2 $201.2 $193.5
Held to maturity.... 34.4 39.6 45.1
Equity securities..... .5 .8 1.2
Mortgage loans........ 59.1 62.9 69.0
Real estate........... 6.6 10.7 11.4
Policy loans and
premium notes....... 24.2 23.4 23.4
Other invested
assets.............. 15.3 8.0 5.5
Short-term
investments......... 3.3 2.5 3.8
Other, net............ -- (.2) .5
------ ------ ------
368.6 348.9 353.4
Less investment
expenses............ (15.9) (17.4) (19.5)
------ ------ ------
Net investment
income.............. $352.7 $331.5 $333.9
====== ====== ======
</TABLE>
On May 13, 1998, the Company purchased two structured notes at par value
totaling $55 million for settlement on June 2, 1998. The notes were acquired
from separate unaffiliated issuers and were categorized as available for sale.
The notes carried opposite interest rate characteristics and were reset on June
29, 1998 as a result of the 10-year USD swap rate being less than the trigger
rate of 6.14%. The notes were accounted for as separate notes in accordance with
the provisions of FASB Emerging Issues Task Force (EITF) Issue No. 96-12,
"Recognition of Interest Income and Balance Sheet Classification of Structured
Notes".
The note with a par value of $32 million and a stated coupon rate of 5.777%
was reset to a coupon rate of 11.554%. Interest earned on this note during 1998
was $.1 million for 27 days at 5.777% and $1.9 million for 185 days at 11.554%.
A note with a par value of $23 million and a stated coupon rate of 5.878%
was reset to a coupon rate of 0% and was sold on June 29, 1998 at a loss of
$10.6 million. Interest earned on this note during 1998 was $.1 million for 27
days at 5.878%.
The unrealized gain on the remaining note is $10.1 million at December 31,
1998.
In November 1998, the EITF released Issue No. 98-15, "Structured Notes
Acquired for a Specified Investment Strategy", which requires that structured
notes transactions entered into after September 24, 1998 be accounted for as a
unit. If the Company had accounted for the notes as a unit, the realized loss of
$10.6 million would have been reversed and applied as an adjustment to the cost
of the remaining note. Interest earned for 1998 on both notes would have totaled
$1.5 million. Interest earned over the lives of the notes would be $8.7 million
less had the notes been accounted for as a unit.
4. MORTGAGE LOANS
The carrying value of impaired loans was $33.9 million and $47.9 million,
which are net of reserves of $4.3 million and $6.4 million as of December 31,
1998 and 1997, respectively.
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1998 and 1997 is as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
BALANCE AT JANUARY 1......... $13.1 $14.4
Recoveries................... (.6) (1.3)
Releases due to
foreclosure................ (1.8) --
----- -----
BALANCE AT DECEMBER 31....... $10.7 $13.1
===== =====
</TABLE>
The average recorded investment in impaired loans was $46.3 million and
$59.9 million during 1998 and 1997, respectively. Interest income recognized on
impaired loans during 1998, 1997 and 1996 was $3.9 million, $4.9 million and
$6.9
F-75
<PAGE> 130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million, respectively. All interest income on impaired loans was recognized on
the cash basis.
5. REAL ESTATE
Real estate holdings are as follows at December 31, 1998 and 1997 (in
millions):
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Occupied by the Company...... $31.1 $32.0
Foreclosed................... 8.2 18.8
Investment................... .2 1.7
----- -----
Total................... $39.5 $52.5
===== =====
</TABLE>
Depreciation expense was $1.8 million, $3.0 million and $3.2 million for
the years ended December 31, 1998, 1997 and 1996, respectively. Accumulated
depreciation for real estate totaled $6.9 million and $12.6 million at December
31, 1998 and 1997, respectively. Permanent impairment writedowns were $.5
million, $6.1 million and $1.3 million for the years ended December 31, 1998,
1997 and 1996, respectively.
6. BENEFIT PLANS
The Company maintains a qualified defined benefit pension plan and several
nonqualified defined benefit, supplemental executive retirement, excess benefit
and deferred compensation plans. In addition, the Company maintains other
postretirement benefit plans which include medical benefits for retirees and
their spouses (and Medicare Part B reimbursement for certain retirees) and
retiree life insurance.
The following tables present a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ended December 31,
1998 and 1997, as well as, the funded status as of December 31, 1998 and 1997
(in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- ----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Net benefit obligation at beginning of year..... $116.6 $111.4 $ 29.8 $ 34.2
Service cost.................................... 4.5 4.3 .5 .5
Interest cost................................... 7.8 8.3 1.9 2.0
Plan participants' contributions................ -- -- .1 .2
Plan amendments................................. .4 -- -- --
Actuarial (gain) loss........................... (3.2) 6.6 (1.9) (4.7)
Gross benefits paid............................. (9.4) (14.0) (2.1) (2.4)
------ ------ ------ ------
Net benefit obligation at end of year........... 116.7 116.6 28.3 29.8
------ ------ ------ ------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year.......................................... 165.8 148.7 -- --
Actual return on plan assets.................... 26.8 31.7 -- --
Employer contributions.......................... -- -- 1.7 1.6
401(h) transfer................................. (1.7) (1.6) -- --
Gross benefits paid............................. (8.5) (13.0) (1.7) (1.6)
------ ------ ------ ------
Fair value of plan assets at end of year........ 182.4 165.8 -- --
------ ------ ------ ------
Funded status................................... 65.7 49.2 (28.3) (29.8)
Unrecognized actuarial gain..................... (41.2) (26.7) (17.0) (16.0)
Unrecognized prior service cost................. 3.9 3.7 6.5 7.0
Unrecognized net transition obligation.......... (15.7) (17.5) -- --
------ ------ ------ ------
Net amount recognized........................... $ 12.7 $ 8.7 $(38.8) $(38.8)
====== ====== ====== ======
</TABLE>
F-76
<PAGE> 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the amounts recognized in the consolidated
statements of financial condition as of December 31, 1998 and 1997 (in
millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------- ----------------
1998 1997 1998 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
Prepaid benefit cost............................. $ 24.0 $17.9 $ -- $ --
Accrued benefit liability........................ (11.3) (9.2) (38.8) (38.8)
Additional minimum liability..................... (1.8) (3.9) -- --
Intangible asset................................. 1.8 3.9 -- --
------ ----- ------ ------
Net amount recognized............................ $ 12.7 $ 8.7 $(38.8) $(38.8)
====== ===== ====== ======
</TABLE>
The components of net periodic benefit (income) cost for the years ended
December 31, 1998, 1997 and 1996 are as follows (in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------------- --------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost....................... $ 4.5 $ 4.3 $ 4.6 $ .5 $ .5 $ .5
Interest cost...................... 7.8 8.3 8.1 1.9 2.0 2.4
Expected return on assets.......... (14.6) (13.0) (12.4) -- -- (.6)
Amortization of:
Transition asset................. (1.9) (1.9) (1.9) -- -- --
Prior service cost............... .3 .3 .7 .4 .4 --
Actuarial (gain) loss............ (.9) (.1) .1 (.9) (.8) (.4)
------ ------ ------ ---- ---- ----
Net periodic benefit (income)
cost............................. $ (4.8) $ (2.1) $ (.8) $1.9 $2.1 $1.9
====== ====== ====== ==== ==== ====
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $15.9 million, $13.1 million, and $0, respectively,
at December 31, 1998, and $20.6 million, $13.2 million, and $0, respectively, at
December 31, 1997.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the medical plan. A 1% change in assumed health care cost
trend rates would have the following effects (in millions):
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest cost components of
net periodic postretirement benefit cost.................. $ .1 $ (.1)
Effect on the health care component of the accumulated
postretirement benefit obligation......................... $1.3 $(1.2)
</TABLE>
The following weighted-average assumptions were used in the measurement of
the Company's benefit obligations as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
PENSION
BENEFITS OTHER BENEFITS
------------ --------------
1998 1997 1998 1997
---- ---- ----- -----
<S> <C> <C> <C> <C>
Discount rate........................................... 6.75% 7.0% 6.75% 7.0%
Expected return on plan assets.......................... 9.0% 9.0% N/A N/A
Rate of compensation increase........................... 4.75% 5.0% 4.75% 5.0%
</TABLE>
A 5.5% annual rate of increase in the cost of covered health care benefits
was assumed for 1998, decreasing to an ultimate trend of 5.1% in 2001.
F-77
<PAGE> 132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1991, the Company established a retiree health account under the
provisions of Section 401(h) of the Internal Revenue Code. In December 1998, the
Company transferred $1.7 million of excess assets from the defined benefit
pension plan to pay for 1998 qualified retiree health benefits. A transfer of
excess assets in the amount of $1.6 million was made in December 1997 to pay for
1997 qualified retiree health benefits. In December 1996, excess assets totaling
$1.6 million were transferred to pay for 1996 qualified retiree health benefits.
The Company also provides a funded noncontributory defined contribution
plan that covers substantially all of its agents and a contributory defined
contribution plan qualified under section 401(k) of the Internal Revenue Code.
The pension cost of the defined contribution plans was $3.4 million, $3.4
million, and $2.6 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
7. FEDERAL INCOME TAXES
The Company files a consolidated Federal income tax return with 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,
-------------------------
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Federal income tax at
statutory rate..... $44.2 $37.0 $ 30.6
Current year equity
tax............. 6.3 8.8 8.5
True down of prior
years' equity
tax............. (7.0) (8.0) (5.1)
Tax settlement..... (4.7) -- (28.3)
Other.............. .1 .8 .1
----- ----- ------
Provision for Federal
income tax from
operations......... $38.9 $38.6 $ 5.8
===== ===== ======
</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 consolidated statement of operations was decreased by approximately $28.3
million which includes $15.9 million of interest, net of taxes. In 1998, the
Company settled open tax years which resulted in the reduction of income tax
expense by $4.7 million.
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 income tax return purposes.
Components of the Company's net deferred income tax liability are as follows at
December 31, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
DEFERRED TAX LIABILITY
Deferred policy acquisition
costs...................... $214.2 $196.5
Prepaid pension asset........ 8.4 6.3
Net unrealized gain on
available for sale
securities................. 18.3 16.5
------ ------
Total deferred tax
liability............. 240.9 219.3
------ ------
DEFERRED TAX ASSET
Reserves..................... 145.8 123.8
Employee benefit accruals.... 18.2 17.5
Invested assets.............. 6.4 8.3
Policyholder dividends....... 8.2 8.1
Deferred rent................ -- 1.4
Other........................ 4.5 (4.0)
------ ------
Total deferred tax
asset................. 183.1 155.1
------ ------
Net deferred tax liability... $ 57.8 $ 64.2
====== ======
</TABLE>
The Company's Federal income tax returns have been audited through 1994.
All years through 1985 are closed. Years 1986 through 1994 have been audited and
are closed with the exception of several issues for which claims for refund have
been filed. Years 1995 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.
Recently, the Internal Revenue Service issued Revenue Ruling 99-3 which
provided, in general, that a mutual life insurance company that converts to a
stock life insurance company in a
F-78
<PAGE> 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
mutual holding company structure will no longer be subject to the equity tax. As
a result, the Company believes that it will no longer be subject to the equity
tax upon completion of its conversion to a stock life insurance company pursuant
to the pending mutual holding company conversion.
8. REINSURANCE
In the normal course of business, the Company assumes risks from and cedes
certain parts of its risks to other insurance companies. The primary purpose 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.
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.
On January 1, 1998, the Company terminated its reinsurance agreement with
Metropolitan Life Insurance Company (Metropolitan). Prior to 1998, the Company
had ceded 65 percent of the premiums and reserves related to its single premium
deferred annuity (SPDA) product to Metropolitan. The Company recaptured $352.7
million in reserves and received cash totaling $343.7 million. The $9.0 million
cost of recapturing the contracts has been deferred and will be amortized in
relation to the incidence of expected gross profits over the expected life of
the contracts.
The tables below highlight the amounts shown in the accompanying
consolidated 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, 1998:
Life insurance in force............... $40,139.8 $8,550.4 $167.4 $31,756.8
========= ======== ====== =========
Premiums.............................. $ 217.1 $ 14.2 $ 3.5 $ 206.4
========= ======== ====== =========
Future policyholder benefits.......... $ 4,243.1 $ 152.8 $ 3.1 $ 4,093.4
========= ======== ====== =========
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.......... $ 4,344.6 $ 499.5 $ 3.9 $ 3,849.0
========= ======== ====== =========
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.......... $ 4,426.5 $ 530.3 $ 5.1 $ 3,901.3
========= ======== ====== =========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space, data processing equipment and certain
other equipment under operating leases expiring on various dates between 1999
and 2004. Most of the leases contain renewal and purchase options based on
prevailing fair market values.
Future minimum rental payments required and related sublease rentals
receivable under non-cancelable operating leases in effect at December 31, 1998,
and which have initial or
F-79
<PAGE> 134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
remaining terms of one year or more, are summarized as follows (in millions):
<TABLE>
<CAPTION>
SUBLEASE
RENTAL RENTALS
PAYMENTS RECEIVABLE
YEARS ENDING DECEMBER 31: -------- ----------
<S> <C> <C>
1999.................... $ 8.9 $ .8
2000.................... 6.7 .3
2001.................... 4.6 --
2002.................... 3.5 --
2003.................... 1.9 --
Thereafter.............. 1.0 --
----- ----
Total.............. $26.6 $1.1
===== ====
</TABLE>
Total related rent expense was $13.6 million, $12.7 million and $18.4
million in 1998, 1997 and 1996, respectively, which was net of sublease income
of $2.6 million, $1.9 million and $.5 million in 1998, 1997 and 1996,
respectively.
During 1998, the Company recorded a charge to income in the amount of $3.0
million for the termination of a lease obligation for furniture and equipment.
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 consolidated statements of financial condition.
At December 31, 1998, the Company had outstanding mortgage loan, real
estate and limited partnership commitments of approximately $42.0 million. The
mortgage loan commitments, which expire through August 1999, totaled $19.4
million and were issued during 1998 at interest rates consistent with rates
applicable on December 31, 1998. As a result, the fair value of these
commitments approximates the face amount.
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 939 treasury futures contracts with a dollar value of $108.8 million in 1998,
239 treasury futures contracts with a dollar value of $25.2 million in 1997, and
162 treasury futures contracts with a dollar value of $17.3 million in 1996. The
approximate net gains (losses) generated from the hedge positions were $.1
million for the year ended December 31, 1998, $(.1) million for the year ended
December 31, 1997 and $(.3) million for the year ended December 31, 1996. There
were no open hedge positions at December 31, 1998.
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, 1998.
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
totaling 105% of market value plus accrued interest is required. For equities,
cash collateral totaling 105% of market value is required. There were no
securities lending positions at December 31, 1998.
INVESTMENT PORTFOLIO CREDIT RISK
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1998 and 1997, approximately $210.4
million and $164.6 million, respectively, in debt security investments (6.4% and
5.3%, respectively, of the total debt security portfolio) were 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, 1998 of
$6.6 million were
F-80
<PAGE> 135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
non-income producing for the year ended December 31, 1998.
The Company had debt security investments in the financial services
industry at both December 31, 1998 and 1997 that exceeded 5% of total assets.
Mortgage Loans
The Company originates mortgage loans either directly or through mortgage
correspondents and brokers throughout the country. Loans are primarily related
to underlying real property investments in office and apartment buildings and
retail/commercial and industrial facilities. Mortgage loans are collateralized
by the related properties and such collateral generally approximates a minimum
133% of the original loan value at the time the loan is made.
There were two mortgage loans totaling $3.7 million and one mortgage loan
totaling $3.2 million in which payments on principal and/or interest were over
90 days past due as of December 31, 1998 and 1997, respectively.
The Company had loans outstanding in Pennsylvania where principal balances
in the aggregate exceeded 20% of the Company's equity.
Lines of Credit
The Company has approximately $50 million of available unused lines of
credit at December 31, 1998.
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, sales practices,
and as a result of the merger with Covenant Life Insurance Company in 1994,
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 consolidated
financial statements. Guaranty fund assessments totaled $2.2 million, $1.1
million and $1.6 million in 1998, 1997 and 1996, respectively. Of those amounts,
$1.6 million, $.8 million and $.9 million in 1998, 1997 and 1996, respectively,
are creditable against future years' premium taxes.
F-81
<PAGE> 136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS,
CASH SURRENDER VALUES AND ACCUMULATED PREMIUMS
Tables on Pages A-3 to A-12 illustrate the Death Benefit and Cash Surrender
Value of the Policy and are provided to assist in the comparison of the Policy
with other variable life policies issued by PMLIC or other companies. The
illustrations show how the Death Benefit and the cash surrender value
(reflecting the deduction of the Premium Expense Charge and the Surrender
Charge, if any), may vary over an extended period of time for different issue
ages and premium classes, assuming hypothetical rates of investment return of
the Separate Accounts and Subaccounts equivalent to constant gross annual rates
of 0%, 6% and 12%. The tables on Pages A-3 to A-12 are for males and females at
certain ages, for various Face Amounts and Non-Smoker premium class. These
illustrations assume the payment of scheduled premiums only and thus are
applicable for Policies with either the Basic Death Benefit or Increasing Death
Benefit.
The amounts shown are as of the end of each Policy Year. The tables on
Pages A-3 to A-6, A-11 and A-12 assume that the current monthly cost of
insurance rates and the current transaction charge for the Zero Coupon Bond
Separate Account will be charged for the entire period illustrated while the
tables on Pages A-7 to A-10 are based on guaranteed (maximum) cost of insurance
rates and the maximum transaction charge for the Zero Coupon Bond Separate
Account. The amounts shown in all tables reflect daily charges for mortality and
expense risks equivalent to an effective annual charge of 0.60%, and in
addition, reflect an averaging of certain other asset charges that may be
assessed under the Policy, depending upon how premiums are allocated. The total
of the asset charges reflected in the illustrations, including the 0.60%
mortality and expense risk charge listed above, is 1.41% for the illustrations
on Pages A-3 to A-6, A-11 and A-12 and 1.42% for the Illustrations on Pages A-7
to A-10. The total charge is based on an assumption that an Owner allocates the
Policy values equally among each available Separate Account and Subaccount.
These asset charges reflect an investment advisory fee of 0.62% which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of 0.19% which is based on an average of the
actual expenses incurred by the Portfolios during the most recent fiscal year.
For certain Portfolios, certain expenses were reimbursed or fees waived
during 1998. It is anticipated that expense reimbursement and fee waiver
arrangements will continue past the current year. Absent the expense
reimbursement, the 1998 Total Annual Expenses would have been 1.36%, for the
Market Street Fund All-Pro Small Cap Value Portfolio, 0.58%, for the VIP Fund
Equity-Income Portfolio, 0.68%, for the VIP Fund Growth Portfolio, 0.91%, for
the VIP Fund Overseas Portfolio, 0.64%, for the VIP II Fund Asset Manager
Portfolio, 0.35%, for the VIP II Fund Index 500 Portfolio, 0.70%, for the VIP II
Fund Contrafund Portfolio, 1.20%, for the Van Eck Worldwide Hard Assets
Portfolio, 1.61%, for the Van Eck Worldwide Emerging Markets Portfolio and
5.32%, for the Van Eck Worldwide Real Estate 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 1998
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. In the event that reimbursements or fee waivers do not
continue for any Portfolio in future years, the Portfolio's actual expenses
would increase and this would likely increase the average expense figure on
which the illustrations are based. See "Table of Fund Fees and Expenses", for
more information about such reimbursements.
A-1
<PAGE> 137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tables also reflect the fact that no charges for Federal or state
income taxes are currently made against the Separate Accounts and Subaccounts.
If such a charge is made in the future, it would take a higher gross annual rate
of return to produce the same Policy values.
The second column of each table shows the amount to which the premiums
would accumulate if an amount equal to those premiums were invested to earn
interest, after taxes, at 5% compounded annually.
The illustrations also provide information about the premiums payable on
and after the Premium Change Date. The tables illustrate the Policy values that
would result if scheduled premiums are paid when due and the year, if any, in
which the Special Premium Payment Provision initially goes into effect. That
year is shown by use of an asterisk (*). If the Special Premium Payment
Provision goes into effect for a Policy Year not shown in the illustration, the
asterisk is shown for the first Policy Year illustrated after it goes into
effect.
The Tables on Pages A-11 and A-12 illustrate the Death Benefit and cash
surrender value of the Policy with the Basic Death Benefit and the Increasing
Death Benefit, respectively. In addition to the assumptions regarding
hypothetical rates of investment return for the Separate Accounts and
Subaccounts and charges and expenses, these illustrations are for a male, age 35
having a Policy with a $100,000 Face Amount and an unscheduled premium of
$10,000 when the Policy is purchased. The year in which the Special Premium
Payment Provision goes into effect under each Death Benefit Option is also
shown.
Upon request, PMLIC will provide a comparable illustration of future
benefits under the Policy based upon the Insured's Age, sex, if applicable,
Premium Class, and frequency of premium payments requested.
For Policies issued in states requiring "unisex" policies (currently
Montana) or in conjunction with employee benefit plans, PMLIC will furnish upon
request illustrations based on unisex cost of insurance rates, and the Insured's
age. 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> 138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 25
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$765 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ -------------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 803 100,000 100,000 100,000 0 0 0
2 1,647 100,000 100,000 100,000 169 264 362
3 2,532 100,000 100,000 100,000 605 792 995
4 3,462 100,000 100,000 100,000 1,037 1,349 1,701
5 4,438 100,000 100,000 100,000 1,463 1,934 2,486
6 5,464 100,000 100,000 100,000 2,059 2,724 3,534
7 6,540 100,000 100,000 100,000 2,685 3,580 4,714
8 7,670 100,000 100,000 100,000 3,303 4,464 5,997
9 8,857 100,000 100,000 100,000 3,910 5,377 7,392
10 10,103 100,000 100,000 100,237 4,506 6,318 8,911
11 11,412 100,000 100,000 101,285 4,913 7,111 10,387
12 12,785 100,000 100,000 102,454 5,308 7,934 12,009*
13 14,228 100,000 100,000 103,756 5,687 8,785 13,791
14 15,743 100,000 100,000 105,207 6,051 9,665 15,749
15 17,333 100,000 100,000 106,821 6,397 10,574 17,898
16 19,003 100,000 100,000 108,619 6,725 11,513 20,259
17 20,756 100,000 100,246 110,618 7,034 12,479 22,851
18 22,597 100,000 100,619 112,843 7,322 13,475 25,699
19 24,530 100,000 100,988 115,315 7,587 14,499 28,826
20 26,560 100,000 101,355 118,064 7,831 15,553* 32,262
25 38,337 100,000 103,076 149,594 8,641 21,245 55,201
30 53,367 100,000 104,448 211,289 8,518 27,564 91,073
35 72,550 100,000 105,229 292,382 6,852 34,219 146,191
40 97,032 100,000 105,104 402,681 2,817 40,948 230,103
45 128,279 100,000 103,717 551,965 0 47,165 356,106
50 175,417 100,000 107,245 760,740 0 58,852 543,385
55 235,578 100,000 110,392 1,055,451 0 70,041 818,179
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$393.98 semiannually, $200.43 quarterly, or $67.32 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,105
assuming a 0 pct. rate of return; $2,016 assuming a 6 pct. rate of return;
and $765 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-3
<PAGE> 139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 35
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$991 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ -------------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,041 100,000 100,000 100,000 0 0 0
2 2,133 100,000 100,000 100,000 509 641 779
3 3,280 100,000 100,000 100,000 1,114 1,377 1,661
4 4,485 100,000 100,000 100,000 1,700 2,138 2,631
5 5,750 100,000 100,000 100,000 2,265 2,923 3,694
6 7,078 100,000 100,000 100,000 3,007 3,932 5,060
7 8,472 100,000 100,000 100,000 3,775 5,014 6,588
8 9,936 100,000 100,000 100,000 4,519 6,120 8,240
9 11,474 100,000 100,000 100,000 5,240 7,253 10,031
10 13,088 100,000 100,000 100,413 5,938 8,414 11,975
11 14,783 100,000 100,000 101,784 6,414 9,404 13,886
12 16,563 100,000 100,000 103,316 6,870 10,427 15,983*
13 18,431 100,000 100,000 105,024 7,305 11,484 18,285
14 20,393 100,000 100,000 106,926 7,719 12,577 20,814
15 22,454 100,000 100,000 109,045 8,113 13,707 23,592
16 24,617 100,000 100,000 111,401 8,484 14,874 26,644
17 26,888 100,000 100,105 114,023 8,831 16,079 29,997
18 29,273 100,000 100,576 116,937 9,152 17,321 33,682
19 31,777 100,000 101,043 120,174 9,445 18,599 37,730
20 34,407 100,000 101,508 123,773 9,709 19,915* 42,179
25 49,662 100,000 103,720 161,842 10,539 27,073 71,929
30 69,133 100,000 105,494 231,169 10,226 35,169 118,548
35 93,983 100,000 106,499 323,093 7,632 43,726 190,054
40 128,646 100,000 108,962 447,991 4,755 55,074 298,661
45 172,885 100,000 110,403 619,552 0 65,816 458,927
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$510.37 semiannually, $259.64 quarterly, or $87.21 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $1,767
assuming a 0 pct. rate of return; $1,499 assuming a 6 pct. rate of return;
and $991 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-4
<PAGE> 140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 45
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$1,783 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS(1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
---- ----------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,872 100,000 100,000 100,000 230 313 396
2 3,838 100,000 100,000 100,000 1,337 1,578 1,830
3 5,902 100,000 100,000 100,000 2,404 2,881 3,399
4 8,069 100,000 100,000 100,000 3,430 4,223 5,117
5 10,345 100,000 100,000 100,000 4,412 5,602 6,999
6 12,734 100,000 100,000 100,000 5,629 7,298 9,339
7 15,243 100,000 100,000 100,000 6,885 9,118 11,963
8 17,877 100,000 100,000 100,000 8,086 10,971 14,800
9 20,643 100,000 100,000 100,000 9,230 12,853 17,871
10 23,548 100,000 100,000 100,000 10,308 14,762 21,198
11 26,597 100,000 100,000 100,311 11,039 16,416 24,530
12 29,799 100,000 100,000 102,809 11,699 18,093 28,163
13 33,161 100,000 100,000 105,603 12,290 19,799 32,128*
14 36,692 100,000 100,000 108,720 12,808 21,534 36,456
15 40,398 100,000 100,000 112,191 13,247 23,294 41,181
16 44,290 100,000 100,000 116,056 13,599 25,077 46,341
17 48,377 100,000 100,000 120,358 13,857 26,880 51,977
18 52,668 100,000 100,000 125,140 14,011 28,699 58,133
19 57,174 100,000 100,000 130,452 14,045 30,528 64,856
20 61,904 100,000 100,000 136,353 13,947 32,360 72,197
25 89,352 100,000 100,000 186,511 11,030 41,512 120,329
30 129,686 100,000 103,763 269,392 7,651 55,370* 192,422
35 181,164 100,000 109,651 384,957 0 69,300 298,416
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$918.25 semiannually, $467.15 quarterly, or $156.90 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,947
assuming a 0 pct. rate of return; $2,697 assuming a 6 pct. rate of return;
and $1,783 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-5
<PAGE> 141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 55
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$2,445 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
---- ----------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,567 100,000 100,000 100,000 485 598 712
2 5,263 100,000 100,000 100,000 1,967 2,296 2,639
3 8,093 100,000 100,000 100,000 3,401 4,051 4,755
4 11,065 100,000 100,000 100,000 4,789 5,867 7,085
5 14,186 100,000 100,000 100,000 6,130 7,749 9,651
6 17,462 100,000 100,000 100,000 7,765 10,039 12,822
7 20,903 100,000 100,000 100,000 9,465 12,513 16,399
8 24,515 100,000 100,000 100,000 11,099 15,043 20,284
9 28,308 100,000 100,000 100,000 12,653 17,620 24,503
10 32,291 100,000 100,000 100,000 14,117 20,237 29,090
11 36,472 100,000 100,000 102,640 15,142 22,552 33,731
12 40,863 100,000 100,000 106,239 16,067 24,908 38,790*
13 45,474 100,000 100,000 110,256 16,892 27,311 44,313
14 50,315 100,000 100,000 114,740 17,619 29,771 50,352
15 55,398 100,000 100,000 119,736 18,242 32,289 56,962
16 60,997 100,000 100,000 125,291 19,300 35,110 64,194
17 66,877 100,000 100,000 131,461 20,221 37,997 72,102
18 73,050 100,000 100,000 138,307 20,975 40,939 80,738
19 79,533 100,000 100,000 145,900 21,528 43,924 90,160
20 86,339 100,000 100,820 154,322 21,844 46,932 100,434
25 125,829 100,000 106,574 224,877 18,833 61,987* 166,575
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$1,259.18 semiannually, $640.59 quarterly, or $215.16 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $3,039
assuming a 0 pct. rate of return; $2,695 assuming a 6 pct. rate of return;
and $2,445 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-6
<PAGE> 142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 25
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$765 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING GUARANTEED MAXIMUM COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
---- ----------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 803 100,000 100,000 100,000 0 0 0
2 1,647 100,000 100,000 100,000 168 262 360
3 2,532 100,000 100,000 100,000 603 789 992
4 3,462 100,000 100,000 100,000 1,034 1,345 1,697
5 4,438 100,000 100,000 100,000 1,459 1,929 2,480
6 5,464 100,000 100,000 100,000 2,054 2,718 3,527
7 6,540 100,000 100,000 100,000 2,679 3,572 4,704
8 7,670 100,000 100,000 100,000 3,296 4,455 5,985
9 8,857 100,000 100,000 100,000 3,902 5,366 7,377
10 10,103 100,000 100,000 100,000 4,497 6,305 8,893
11 11,412 100,000 100,000 100,881 4,902 7,096 10,365
12 12,785 100,000 100,000 102,019 5,296 7,917 11,984*
13 14,228 100,000 100,000 103,286 5,674 8,765 13,762
14 15,743 100,000 100,000 104,699 6,036 9,642 15,715
15 17,333 100,000 100,000 106,273 6,381 10,548 17,860
16 19,003 100,000 100,000 108,027 6,708 11,483 20,215
17 20,756 100,000 100,000 109,978 7,014 12,446 22,800
18 22,597 100,000 100,000 112,150 7,301 13,439 25,641
19 24,530 100,000 100,267 114,566 7,565 14,461 28,759
20 26,560 100,000 100,580 117,254 7,806 15,512 32,186
25 38,337 100,000 101,961 149,194 8,604 21,195* 55,053
30 53,367 100,000 102,845 210,600 8,466 27,519 90,776
35 72,550 100,000 102,896 290,977 6,697 34,166 145,488
40 97,032 100,000 101,696 398,745 2,123 40,697 227,854
45 128,279 100,000 100,000 541,085 0 46,261 349,087
50 175,933 100,000 100,543 733,173 0 57,092 523,695
55 236,754 100,000 101,612 991,993 0 66,713 768,986
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$393.98 semiannually, $200.43 quarterly, or $67.32 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,105
assuming a 0 pct. rate of return; $2,105 assuming a 6 pct. rate of return;
and $765 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-7
<PAGE> 143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 35
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$991 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING GUARANTEED MAXIMUM COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
---- ----------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,041 100,000 100,000 100,000 0 0 0
2 2,133 100,000 100,000 100,000 507 639 777
3 3,280 100,000 100,000 100,000 1,112 1,374 1,658
4 4,485 100,000 100,000 100,000 1,697 2,133 2,626
5 5,750 100,000 100,000 100,000 2,260 2,917 3,687
6 7,078 100,000 100,000 100,000 3,001 3,924 5,051
7 8,472 100,000 100,000 100,000 3,767 5,004 6,576
8 9,936 100,000 100,000 100,000 4,509 6,108 8,225
9 11,474 100,000 100,000 100,000 5,229 7,239 10,011
10 13,088 100,000 100,000 100,000 5,925 8,397 11,951
11 14,783 100,000 100,000 100,676 6,400 9,384 13,860
12 16,563 100,000 100,000 102,119 6,850 10,400 15,952
13 18,431 100,000 100,000 103,730 7,276 11,446 18,245*
14 20,393 100,000 100,000 105,527 7,674 12,520 20,757
15 22,454 100,000 100,000 107,531 8,046 13,625 23,512
16 24,617 100,000 100,000 109,763 8,388 14,759 26,531
17 26,888 100,000 100,000 112,248 8,699 15,923 29,842
18 29,273 100,000 100,000 115,013 8,975 17,114 33,472
19 31,777 100,000 100,000 118,086 9,212 18,331 37,449
20 34,407 100,000 100,000 121,505 9,409 19,574 41,810
25 49,662 100,000 100,542 159,302 9,769 26,237 70,801
30 69,133 100,000 101,071 225,649 8,730 33,585 115,717
35 93,983 100,000 100,439 312,041 4,846 40,997 183,554
40 130,200 100,000 102,194 427,261 0 52,172 284,840
45 176,424 100,000 102,659 581,133 0 62,458* 430,469
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$510.37 semiannually, $259.64 quarterly, or $87.21 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $1,767
assuming a 0 pct. rate of return; $1,767 assuming a 6 pct. rate of return;
and $991 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-8
<PAGE> 144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 45
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$1783 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING GUARANTEED MAXIMUM COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ -------------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,872 100,000 100,000 100,000 228 311 394
2 3,838 100,000 100,000 100,000 1,333 1,574 1,826
3 5,902 100,000 100,000 100,000 2,398 2,875 3,392
4 8,069 100,000 100,000 100,000 3,421 4,213 5,107
5 10,345 100,000 100,000 100,000 4,401 5,589 6,984
6 12,734 100,000 100,000 100,000 5,615 7,281 9,319
7 15,243 100,000 100,000 100,000 6,868 9,097 11,937
8 17,877 100,000 100,000 100,000 8,066 10,945 14,768
9 20,643 100,000 100,000 100,000 9,206 12,822 17,830
10 23,548 100,000 100,000 100,000 10,280 14,724 21,147
11 26,597 100,000 100,000 100,000 11,007 16,371 24,468
12 29,799 100,000 100,000 100,924 11,658 18,037 28,098
13 33,161 100,000 100,000 103,566 12,231 19,722 32,057
14 36,692 100,000 100,000 106,517 12,721 21,425 36,374*
15 40,398 100,000 100,000 109,810 13,119 23,140 41,080
16 44,290 100,000 100,000 113,481 13,417 24,863 46,211
17 48,377 100,000 100,000 117,571 13,603 26,588 51,807
18 52,668 100,000 100,000 122,122 13,662 28,307 57,908
19 57,174 100,000 100,000 127,184 13,578 30,010 64,560
20 61,904 100,000 100,000 132,810 13,330 31,685 71,811
25 89,352 100,000 100,000 184,018 8,957 39,380 118,721
30 131,137 100,000 100,000 261,527 1,693 51,619 186,805
35 184,466 100,000 100,000 364,854 0 63,189 282,832
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$918.25 semiannually, $467.15 quarterly, or $156.90 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,947
assuming a 0 pct. rate of return; $2,947 assuming a 6 pct. rate of return;
and $1,783 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-9
<PAGE> 145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE ISSUE AGE 55
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$2,445 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
USING GUARANTEED MAXIMUM COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ -------------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 2,567 100,000 100,000 100,000 395 506 617
2 5,263 100,000 100,000 100,000 1,782 2,100 2,432
3 8,093 100,000 100,000 100,000 3,115 3,738 4,416
4 11,065 100,000 100,000 100,000 4,395 5,427 6,594
5 14,186 100,000 100,000 100,000 5,624 7,168 8,985
6 17,462 100,000 100,000 100,000 7,138 9,302 11,955
7 20,903 100,000 100,000 100,000 8,709 11,603 15,300
8 24,515 100,000 100,000 100,000 10,202 13,939 18,919
9 28,308 100,000 100,000 100,000 11,601 16,298 22,830
10 32,291 100,000 100,000 100,000 12,891 18,669 27,061
11 36,472 100,000 100,000 100,000 13,723 20,705 31,307
12 40,863 100,000 100,000 100,374 14,434 22,750 35,961
13 45,474 100,000 100,000 103,856 15,024 24,807 41,045
14 50,315 100,000 100,000 107,751 15,496 26,883 46,595*
15 55,398 100,000 100,000 112,099 15,840 28,979 52,658
16 61,356 100,000 100,000 116,942 16,591 31,669 59,280
17 67,613 100,000 100,000 122,327 17,172 34,396 66,508
18 74,182 100,000 100,000 128,308 17,543 37,141 74,386
19 81,080 100,000 100,000 134,945 17,657 39,883 82,962
20 88,323 100,000 100,000 142,315 17,463 42,609 92,293
25 130,346 100,000 100,000 204,706 10,101 55,912 151,633
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$1,259.18 semiannually, $640.59 quarterly, or $215.16 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $3,039
assuming a 0 pct. rate of return; $3,037 assuming a 6 pct. rate of return;
and $2,445 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-10
<PAGE> 146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 FACE AMOUNT (GUARANTEED DEATH BENEFIT)
$1,143 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
WITH $10,000 UNSCHEDULED PREMIUM PAID AT POLICY ISSUE
USING CURRENT COST OF INSURANCE CHARGES
WITH BASIC DEATH BENEFIT
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
- ------ -------------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 11,700 100,721 101,322 101,923 9,096 9,697 10,297
2 13,485 101,003 102,270 103,609 9,715* 10,983* 12,321*
3 15,360 101,180 103,184 105,417 10,316 12,320 14,553
4 17,328 101,312 104,125 107,427 10,898 13,710 17,013
5 19,394 101,396 105,091 109,659 11,460 15,154 19,723
6 21,564 101,431 106,084 112,139 12,215 16,868 22,923
7 23,843 101,413 107,103 114,891 13,004 18,694 26,482
8 26,235 101,344 108,150 117,947 13,772 20,578 30,375
9 28,747 101,219 109,224 121,337 14,516 22,521 34,634
10 31,384 101,038 110,327 125,100 15,236 24,525 39,298
11 34,154 100,796 111,457 136,084 15,717 26,377 44,183
12 37,062 100,493 112,615 147,602 16,171 28,292 49,531
13 40,115 100,127 113,801 160,056 16,597 30,271 55,382
14 43,321 100,000 115,017 172,997 16,995 32,317 61,784
15 46,687 100,000 116,260 186,410 17,361 34,430 68,786
16 50,221 100,000 117,533 200,282 17,694 36,612 76,443
17 53,932 100,000 118,831 215,414 17,989 38,861 84,809
18 57,829 100,000 120,155 231,096 18,239 41,176 93,941
19 61,921 100,000 121,507 248,326 18,443 43,556 103,902
20 66,217 100,000 122,883 266,233 18,592# 46,000 114,756
25 91,143 100,000 130,213 370,821 18,409 59,203 185,410
30 122,956 100,000 138,256 512,746 16,147 74,100 292,997
35 163,558 100,000 147,059 704,591 10,278 90,507 454,574
40 215,378 100,000 156,691 972,655 3,293 108,299 694,753
45 281,514 100,000 167,477 1,350,879 0 127,127 1,047,192
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$588.65 semiannually, $299.47 quarterly, or $100.58 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,239
assuming a 0 pct. rate of return; $1,143 assuming a 6 pct. rate of return;
and $1,143 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
# First year shown in which Special Premium Payment Provision ceases to be in
effect.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
A-11
<PAGE> 147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-12
<PAGE> 148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROVIDENT MUTUAL -- MODIFIED PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE 35
$100,000 FACE AMOUNT
$1,143 INITIAL SCHEDULED PREMIUM FOR NON-SMOKERS (1)
WITH $10,000 UNSCHEDULED PREMIUM PAID AT POLICY ISSUE
USING CURRENT COST OF INSURANCE CHARGES
WITH INCREASING DEATH BENEFIT
<TABLE>
<CAPTION>
DEATH BENEFIT CASH SURRENDER VALUE
PREMIUMS ------------------------------------------- -------------------------------------------
END OF ACCUMULATED ASSUMING HYPOTHETICAL GROSS(3) ASSUMING HYPOTHETICAL GROSS(3)
POLICY AT 5 PCT. INT. ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR(2) 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS 0 PCT. GROSS 6 PCT. GROSS 12 PCT. GROSS
---- ----------- ------------ ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 11,700 110,000 110,000 110,000 9,080 9,680 10,281
2 13,485 110,000 110,000 111,143 9,683 10,950 12,287*
3 15,360 110,000 111,143 112,286 10,267 12,269* 14,498
4 17,328 110,000 112,286 113,429 10,831 13,638 16,936
5 19,394 110,000 113,429 114,572 11,375 15,058 19,623
6 21,564 110,000 114,572 115,715 12,111 16,745 22,799
7 23,843 110,000 115,715 116,858 12,881 18,541 26,334
8 26,235 110,000 116,858 118,001 13,627 20,392 30,205
9 28,747 110,000 118,001 119,144 14,347 22,297 34,445
10 31,384 110,000 119,144 124,319 15,042 24,259 39,094
11 34,154 110,000 120,287 135,388 15,494 26,064 43,957
12 37,062 110,000 121,430 146,855 15,917 27,927 49,280
13 40,115 110,000 122,573 159,253 16,308 29,849 55,105
14 43,321 110,000 123,716 172,135 16,667 31,832 61,477
15 46,687 110,000 124,859 185,487 16,990 33,875 68,445
16 50,221 110,000 126,002 199,296 17,277 35,980 76,067
17 53,932 110,000 127,145 214,358 17,521 38,145 84,393
18 57,829 110,000 128,288 229,967 17,717 40,368 93,482
19 61,921 110,000 129,431 247,116 17,860 42,646 103,396
20 66,217 110,000 130,574 264,939 17,941 44,977 114,198
25 91,143 110,000 136,289 369,029 17,308 57,438 184,514
30 122,956 110,000 142,004 510,269 14,313 71,225 291,582
35 163,558 110,000 147,719 701,182 7,189 86,029 452,375
40 215,378 110,000 153,434 967,937 0 101,637 691,383
45 281,514 110,000 159,149 1,344,311 0 117,751 1,042,101
</TABLE>
(1) If premiums are paid more frequently than annually the payments would be
$588.65 semiannually, $299.47 quarterly, or $100.58 monthly. The death
benefits and cash surrender values shown would be affected by the more
frequent premium payments. The annual premium on the Premium Change Date
assuming current cost of insurance charges will be as follows: $2,239
assuming a 0 pct. rate of return; $1,143 assuming a 6 pct. rate of return;
and $1,143 assuming a 12 pct. rate of return.
(2) The premiums accumulated at 5% interest in Column 2 are those payable if the
gross investment return is 6%.
(3) Assumes no Policy loan has been made.
It is emphasized that the hypothetical investment rates of return shown
above and elsewhere in this prospectus are illustrative only and should not be
deemed a representation of past or future investment rates of return. Actual
rates of return may be more or less than those shown and will depend on a number
of factors, including the separate accounts chosen by an owner. The Death
Benefit, Cash Surrender Value and premium on the premium change date for a
Policy would be different from those shown if the actual rates of return average
0%, 6%, and 12% over a period of years, but also fluctuated above or below those
averages for individual Policy years. No representations can be made by PMLIC
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
A-13
<PAGE> 149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APPENDIX B
CALCULATION OF NET INVESTMENT FACTOR
AND CASH VALUE OF THE POLICY
Following is a description of how the Net Investment Factor is calculated
and how the Net Investment Factor is used to determine the Cash Value of the
Policy.
Net Investment Factor. Each Separate Account has its own Net Investment
Factor. The Net Investment Factor of the Separate Account for a Valuation Period
is a. divided by b., minus c. and minus d., where:
a. is:
1. the value of the assets in the Separate Account for the
preceding Valuation Period; plus
2. the investment income and capital gains, realized or unrealized,
credited to those assets during the Valuation Period for which the Net
Investment Factor is being determined; minus
3. the capital losses, realized or unrealized, charged against
those assets during the Valuation Period; minus
4. any amount charged against the Separate Account for taxes, or
any amount PMLIC sets aside during the Valuation Period as a reserve for
taxes attributable to the operation or maintenance of the Separate
Account; and
b. is the value of the assets for the preceding Valuation Period; and
c. is a charge no greater than 0.60% per year (.001644% for each day
in the Valuation Period) for mortality and expense risks; and
d. is a charge, for the Zero Coupon Bond Separate Account only, no
greater than 0.50% per year (.001370% for each day in the Valuation Period)
for transaction charges associated with the purchase of units.
The charges in c. and d. are expressed as a percentage of assets in the
Account at the beginning of each day during the Valuation Period.
Calculation of Cash Value. When the first net scheduled premium is
allocated to the Separate Accounts, the Cash Value of each Separate Account on
the Policy Date will equal the Net Premium allocated to that Separate Account
minus the first monthly deduction allocated to that Separate Account.
Thereafter, on each Valuation Day, the Cash Value of each Separate Account will
equal:
1. the Cash Value of the Separate Account on the previous Valuation
Day times the Net Investment Factor for the current Valuation Period;
2. plus any Net Premiums received during the current Valuation Period
which are allocated to that Separate Account;
3. plus any Cash Value which, during the current Valuation Period;
a. is transferred to the Separate Account from the General Account
when any loan amount is repaid, including interest credited to loaned
amounts; and
b. is transferred to the Separate Account from another Separate
Account when requested by the Owner;
4. minus any Cash Value which, during the current Valuation Period:
a. is transferred from the Separate Account to the General Account
when the Owner borrows on the Policy or fails to pay interest when due;
and
B-1
<PAGE> 150
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b. is transferred from the Separate Account to another Separate
Account when requested by the Owner;
5. plus any dividends credited to the Separate Account during the
current Valuation Period;
6. minus the monthly deductions allocated to the Separate Account
during the current Valuation Period;
7. minus any partial withdrawal during the current Valuation Period
which are allocated to the Separate Account.
The Cash Value of the Policy is equal to: (a) the sum of the Cash Value of
each Separate Account; plus (b) the Cash Value in the General Account
attributable to any outstanding policy loans.
B-2
<PAGE> 151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APPENDIX C
LONG TERM MARKET TRENDS
The information below is a record of the compound annual returns of common
stocks, high-grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The compound annual returns assume the reinvestment of
dividends, capital gains and interest. This is an historical record and is not
intended as a projection of future performance. Charges associated with a
variable life policy are not reflected.
The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high-grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods of
time. To the extent that cash value is allocated to separate accounts which
invest in common stocks, these trends indicate the potential advantages of
holding a variable life insurance policy for a long period of time.
The following chart illustrates the compound annual returns of the S&P 500
Composite Stock Price Index for each of the 20-year periods shown. These returns
are compared to the compound annual returns of high-grade corporate bonds and
U.S. Treasury bills for the same periods. (The 20-year periods selected for the
chart begin in 1939 and have ending periods at five year intervals.)
<TABLE>
<CAPTION>
STOCKS BONDS U.S. TREASURY BILLS
------ ----- -------------------
<S> <C> <C> <C>
'1958' 13.48 2.10 0.99
'1963' 15.11 2.45 1.63
'1968' 14.92 1.93 2.60
'1973' 10.85 2.83 3.64
'1978' 6.53 4.10 4.72
'1983' 8.28 4.68 6.80
'1988' 9.54 8.30 7.50
'1993' 12.76 10.16 7.49
'1998' 17.75 10.86 7.17
</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 1999 Yearbook(TM), Ibbotson
Associates, Inc., Chicago. All rights reserved.
C-1
<PAGE> 152
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Over the 54 20-year time periods beginning in 1926 and ending in 1998 (i.e.
1926-1945, 1927-1946, and so on through 1979-1998):
-- The compound annual return of common stocks was superior to that of
high-grade, long-term corporate bonds in 51 of the 54 periods.
-- The compound annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 54 periods.
-- Common stock compound annual returns exceeded the average annual rate of
inflation in each of the 54 periods.
Over the 44 30-year time periods beginning in 1926 and ending in 1998, 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 44 periods.
From 1926 through 1998 the compound annual return for common stocks was
11.2%, compared to 5.8% for high-grade, long-term corporate bonds, 5.3% 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
1998.
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 27.4% 4.1% 11.0% 6.8% 12.3% 38.4%
5 years 10.1% 14.5% 14.5% 31.9% 17.4% 11.6%
10 years 3.1% 10.9% 34.4% 21.9% 28.1% 1.6%
20 years 0.0% 5.5% 31.5% 53.7% 9.3% 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 1999 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
C-2
<PAGE> 153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
TREASURY BILLS ADJUSTED FOR INFLATION
-------------------------------------
<S> <C>
'1958' -2.6
'1963' -1.23
'1968' 0.62
'1973' 0.76
'1978' 0.36
'1983' 0.64
'1988' 1.13
'1993' 1.49
'1998' 2.54
</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 1999 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 have 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.
C-3
<PAGE> 154
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The primary disadvantage, of course, is that price declines can be
prolonged and substantial, and when this occurs, investors cannot liquidate
their investments without realizing losses. Price declines, however, also offer
investors important opportunities.
Opportunity arises from the fact that investors can purchase more common
stock for the same amount of money than they would before prices declined.
Investors may take advantage of this if they remain willing to continue
investing in both rising and falling markets. The dollar cost averaging method
of investing demonstrates this.
In this method of investing:
- Relatively constant dollar amounts are invested at regular intervals
(monthly, quarterly, or annually).
- Stock market fluctuations, especially the savings on purchases from price
declines, are exploited for the investor's benefit.
HOW DOLLAR COST AVERAGING WORKS
<TABLE>
<CAPTION>
INVESTMENTS AT COMMON STOCK SHARES
REGULAR INTERVALS MARKET PRICE PURCHASED
- ----------------- ------------ ---------
<S> <C> <C>
$150 $20 7.5
150 15 10.0
150 10 15.0
150 5 30.0
150 10 15.0
150 15 10.0
---- ---------
$900 87.5
Total Value of 87.5 shares @
$15/share $1,312.50
Less Investment made (900.00)
---------
Gain/Profit $ 412.50
</TABLE>
Though the market price has not returned to the initial high of $20 per
share, dollar cost averaging has permitted the investor to purchase more shares
at a savings and thus realize a significant gain. Obviously, the dollar cost
averaging method only works if the investor continues to invest relatively
constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss
in declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of marketing fluctuations.
How does the dollar cost averaging method relate to a variable life
insurance policy? A policyowner may invest his or her net premiums in a separate
account, and, although a Policy's value in the separate accounts is affected by
several factors other than investment experience (e.g., cash value charges and
charges against the separate account), the dollar cost averaging method can be
generally applied to the Policy to the extent that the policyowner pays premiums
on a regular basis and he or she allocates net premiums to separate accounts
which invest in common stocks in relatively constant amounts.
C-4
<PAGE> 155
APPENDIX D
PLAN OF CONVERSION
It is anticipated that, at some point in the future, a Plan of Conversion
("Plan") will become effective pursuant to which Provident Mutual Life Insurance
Company, a Pennsylvania mutual life insurance corporation ("Provident Mutual"),
will be reorganized and continue its corporate existence ("Conversion") as
Provfirst America Life Insurance Company, a Pennsylvania stock life insurance
corporation ("Provfirst Life"). The Plan was adopted by Provident Mutual's board
of directors on October 13, 1998. The Plan was approved by the Pennsylvania
Deputy Insurance Commissioner by a Decision and Order dated November 6, 1998
("Order"). The Provident Mutual policyholders entitled to vote on the Plan duly
adopted the Plan at a special meeting held on February 9, 1999. On February 11,
1999, the Court of Common Pleas of Philadelphia County issued an order granting
a preliminary injunction, Butler, et al. v. Provident Mutual Life Insurance
Company, et al., Philadelphia County Court of Common Pleas, Civil Trial
Division, No. 9901-00780, which has postponed completion of the Conversion until
the court conducts a hearing and completes such other procedures as the court
may deem appropriate. The primary basis of the complaint is the Provident
Mutual's Plan of Conversion is unfair to current policyholders. In addition,
plaintiffs allege that the disclosures contained in Provident Mutual's
Policyholder Information Statement (the document sent to policyholders prior to
their vote on the Plan) were inadequate. The Company believes the Plan and
related disclosure documents meet all applicable legal requirements. Provident
Mutual petitioned the Pennsylvania Commonwealth Court to stay the lower court's
preliminary injunction. That petition was denied and proceedings are continuing
in the Court of Common Pleas.
The current and future rights and interest of owners of Provident Mutual
insurance and annuity contracts, including the Policies will not change as a
result of the Conversion, and the Conversion will not increase premiums or
reduce Policy benefits, values, guarantees or other Policy obligations to
Owners. If the Conversion occurs, all Provident Mutual insurance policies and
annuity contracts in force on the date of the Conversion, including the
Policies, will continue, after the Conversion, as policies of Provfirst Life.
The Conversion will not change the operations of the Variable Account and will
not result in any material disruption of the services provided to Owners.
Before the Conversion, Provident Mutual will continue to conduct business
in all jurisdictions under the name "Provident Mutual Life Insurance Company."
After the Conversion, it is anticipated that Provident Mutual will conduct
business in all jurisdictions under the name "Provfirst America Life Insurance
Company," except in those jurisdictions in which regulators have not yet
approved use of this name. In those jurisdictions, Provfirst Life will continue
to do business using the name "Provident Mutual Life Insurance Company" until it
receives approval to use the new name.
Likewise, each Variable Account of Provident Mutual will continue, after
the Conversion, as a Variable Account of Provfirst Life. If the Conversion
occurs, it will not change the operations of any Variable Account supporting a
policy or contract. However, after the Conversion, the names of the Variable
Accounts will be changed by replacing the words "Provident Mutual" with
"Provfirst America" in each name. Use of the new Variable Account names in each
jurisdiction will generally begin concurrently with the use of Provfirst Life's
new name. Nevertheless, some jurisdictions require separate approval of the new
Variable Account names, and in those jurisdictions, Provfirst Life will not use
such new name until it receives such approval.
Pursuant to the Plan, Provident Mutual will also form Provident Mutual
Holding Company, a Pennsylvania nonstock corporation, and Provfirst America
Corporation, a Pennsylvania business corporation. If the Conversion occurs, all
the shares of voting stock of Provfirst Life will be issued to the Provfirst
America Corporation, and all the shares of voting stock of Provfirst America
Corporation will be issued to Provident Mutual Holding Company, except for
approximately 1% of the then-issued shares of voting stock of Provfirst America
Corporation, which will be issued to an employee stock ownership plan to be
formed by Provfirst Life. Pursuant to the Order and as set forth in the Plan,
Provident Mutual Holding Company will at all times, directly or indirectly,
control Provfirst Life through the ownership of at
D-1
<PAGE> 156
least a majority of the voting authority of Provfirst America Corporation, which
will hold, directly or indirectly, all the outstanding voting stock of Provfirst
Life. If the Conversion occurs, the directors and executive officers of
Provfirst Life serving immediately prior to the Effective Date will remain as
the directors and executive officers of each of Provident Mutual Holding
Company, Provfirst America Corporation and Provfirst Life after the Effective
Date.
Before the Conversion, Provident Mutual policyholders have (1) contract
rights under their insurance policies and annuity contracts, and (2) certain
membership rights in Provident Mutual. The principal contract right of
policyholders is the right to receive the type and amount of benefits specified
in their policies or contracts in accordance with their terms and conditions,
including the right to receive policy dividends, when, if, and as declared by
the board of directors of Provident Mutual in accordance with the terms and
conditions of such policies. The membership rights of policyholders include the
right to vote at annual or special meetings of Provident Mutual, and certain
rights as provided by law in any remaining surplus of Provident Mutual in the
event of the insolvency, winding-up or liquidation of Provident Mutual, after
the discharge of all other liabilities.
If the Conversion occurs, the contract rights and the membership rights of
policyholders of Provident Mutual policies will be separated. The contract
rights will remain with Provfirst Life and the membership rights in Provident
Mutual will be extinguished. Each policyholder will then receive, by operations
law, membership rights in Provident Mutual Holding Company. Each future
policyholder of Provfirst Life will become a member of Provident Mutual Holding
Company, and each member will remain a member of Provident Mutual Holding
Company as long as the policy or policies conferring such membership remain in
force.
D-2
<PAGE> 157
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.
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<PAGE> 158
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 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
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<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(2)
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(2)
1.A.1.c. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable International Separate Account(2)
1.A.1.d. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable Separate Account(2)
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(2)
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(2)
1.A.2. None
1.A.3.a.i. Underwriting Agreement(2)
1.A.3.a.ii. Amendment to Underwriting Agreement(2)
1.A.3.a.iii. Amendment to Underwriting Agreement(2)
1.A.3.a.iv. Amendment to Underwriting Agreement(2)
1.A.3.a.vi. Amendment to Underwriting Agreement(2)
1.A.3.b.i. PPGA's Agreement and Supplements(2)
1.A.3.b.ii. PPA's Agreement and Supplements(2)
1.A.3.b.iii. PGA's Agreement and Supplements(2)
1.A.3.b.iv. Special Agent's Career Agreement and Supplement(2)
1.A.3.b.v. Special Agent's Agreement(2)
1.A.3.b.vi. Corporate Agent's Agreement and Supplement(2)
1.A.3.c.i. PPGA Commission Schedules(2)
1.A.3.c.ii. PPA Commission Schedules(2)
1.A.3.c.iii. PGA Commission Schedules(2)
1.A.3.c.iv. Commission Schedules for Variable Life Insurance Products
for Agents under Special Career Agent's Career Agreement(2)
1.A.3.c.v. Commission Schedules for Variable Life Insurance Products
for Agents under Special Agent's Agreement(2)
</TABLE>
II-2
<PAGE> 159
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<S> <C> <C>
1.A.3.c.vi. Commission Schedules for Variable Life Insurance Products
for Corporate Agents with Special Agent's Career
Agreement(2)
1.A.3.d. Form of Selling Agreement between 1717 Capital Management
Company and Broker/Dealers
1.A.4. None
1.A.5. Modified Premium Variable Life Insurance Policy Forms (C111,
C111A, C112 & C112A)(2)
1.A.5.a. Disability Waiver of Premium Rider -- at issue (C545)(2)
1.A.5.b. Disability Waiver of Premium Rider -- after issue (C550)(2)
1.A.5.c. Guaranteed Purchase Option Rider (C645)(2)
1.A.5.d. Variable Loan Interest Rate Rider (C744VL)(2)
1.A.5.e. Qualify as part of Section 403(b) Rider (C827)(2)
1.A.5.f. Accelerated Death Benefit Rider (C/D904)(2)
1.A.5.g. Change from Fixed to Variable Loan Interest Rate Rider
(14918VL)(2)
1.A.5.h. Increasing Death Benefit Rider (C310)(2)
1.A.6.a. Charter of Provident Mutual Life Insurance Company(2)
1.A.6.b. By-Laws of Provident Mutual Life Insurance Company(2)
1.A.7. None
1.A.8. Sponsorship Agreement between Provident Mutual Life
Insurance Company and MLPFS for Zero Coupon Trust(2)
1.A.9. None
1.A.10. Form of Application(2)
1.A.10.a. Supplemental Application for Modified Premium(2)
a.A.10.b. Initial Allocation Selection(2)
2. See Exhibit 1.A.5.
3.A. Consent of James G. Potter, Jr., Esquire
3.B. Consent of Sutherland Asbill & Brennan LLP
4. None
5. Inapplicable
6. Consent of Scott V. Carney, FSA, MAAA
7. Consent of PricewaterhouseCoopers LLP, Independent
Accountants
8. Description of Provident Mutual Life Insurance Company's
Issuance, Transfer and Redemption Procedures for Policies(2)
9. Powers of Attorney(2)
10.a. Participation Agreement by and among Market Street Fund,
Inc., Provident Mutual Life Insurance Company and PML
Securities, Inc.(2)
10.b. Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Provident Mutual
Life Insurance Company(2)
10.c. Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and Provident
Mutual Life Insurance Company(2)
10.d. Sales Agreement between Neuberger & Berman Advisers
Management Trust and Provident Mutual Life Insurance
Company(2)
10.e. Participation Agreement among The Alger American Fund,
Provident Mutual Life Insurance Company, and Fred Alger and
Company Incorporated(2)
27. Inapplicable
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 5, filed on
May 1, 1998, File No. 33-65512.
(2) Incorporated herein by reference to Post-Effective Amendment No. 18, filed
on May 1, 1998, File No. 33-2625.
II-3
<PAGE> 160
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 23RD DAY OF APRIL, 1999.
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 DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ROBERT W. KLOSS Chief Executive Officer April 23,1999
- ------------------------------------------------ (Principal Executive Officer)
ROBERT W. KLOSS
/s/ MARY LYNN FINELLI Executive Vice President and April 23,1999
- ------------------------------------------------ Chief Financial Officer
MARY LYNN FINELLI (Principal Financial Officer)
/s/ LINDA M. SPRINGER Vice President and Controller April 23,1999
- ------------------------------------------------ (Principal Accounting Officer)
LINDA M. SPRINGER
* Director April 23,1999
- ------------------------------------------------
EDWARD R. BOOK
* Director April 23,1999
- ------------------------------------------------
DOROTHY M. BROWN
* Director April 23,1999
- ------------------------------------------------
ROBERT J. CASALE
* Director April 23,1999
- ------------------------------------------------
NICHOLAS DEBENEDICTIS
</TABLE>
II-4
<PAGE> 161
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director April 23,1999
- ------------------------------------------------
PHILIP C. HERR, II
* Director April 23,1999
- ------------------------------------------------
J. RICHARD JONES
* Director April 23,1999
- ------------------------------------------------
JOHN P. NEAFSEY
* Director April 23,1999
- ------------------------------------------------
CHARLES L. ORR
* Director April 23,1999
- ------------------------------------------------
DONALD A. SCOTT
* Director April 23,1999
- ------------------------------------------------
JOHN J. F. SHERRERD
* Director April 23,1999
- ------------------------------------------------
HAROLD A. SORGENTI
</TABLE>
*By: JAMES G. POTTER, JR.
----------------------
JAMES G. POTTER, JR.
Attorney-in-fact
Pursuant to Power of Attorney
II-5
<PAGE> 162
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Provident
Mutual Variable Growth Separate Account, Provident Mutual Variable Money Market
Separate Account, Provident Mutual Variable Bond Separate Account, Provident
Mutual Variable Managed Separate Account, Provident Mutual Variable Zero Coupon
Bond Separate Account, Provident Mutual Variable Aggressive Growth Separate
Account, Provident Mutual Variable International Separate Account and Provident
Mutual Variable Separate Account certify that they meet all the requirements for
effectiveness of this Post-Effective Amendment pursuant to Rule 485(b) under the
Securities Act of 1933 and, have duly caused this post-effective amendment to
the Registration Statement under the Securities Act of 1933 to be signed on
their behalf by the undersigned, thereunto duly authorized, in the City of
Berwyn and Commonwealth of Pennsylvania on the 29th day of April, 1999.
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-6
<PAGE> 163
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
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<S> <C> <C>
3.A. Consent of James G. Potter, Jr., Esquire
3.B. Consent of Sutherland Asbill & Brennan LLP
6. Consent of Scott V. Carney, FSA, MAAA
7. Consent of PricewaterhouseCoopers LLP, Independent
Accountants
</TABLE>
<PAGE> 1
Exhibit 3.A
April 20, 1999
Provident Mutual Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
Directors:
I hereby consent to the reference to my name under the caption "Legal Matters"
in the Prospectus filed as part of the Post-Effective Amendment No. 19 of the
Registration Statement on Form S-6 (File No. 33-2625) for the Provident Mutual
Variable Life Separate Account.
Sincerely,
James G. Potter, Jr.
<PAGE> 1
Exhibit 3.B
[SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]
April 14, 1999
Board of Directors
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. 33-2625)
Directors:
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 19 to the Form S-6 registration statement (File No. 33-2625)
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 LLP
By: /s/ David S. Goldstein
-----------------------------------
David S. Goldstein
<PAGE> 1
Exhibit 6
April 20, 1999
Provident Mutual Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
Directors:
I hereby consent to the reference to my name under the caption "Experts" in the
Prospectus filed as part of the Post-Effective Amendment No. 19 of the
Registration Statement on Form S-6 (File No. 33-2625) for the Provident Mutual
Variable Life Separate Account.
Sincerely,
Scott V. Carney, FSA, MAAA
<PAGE> 1
Exhibit 7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, in this Post-Effective Amendment No. 19 to
the Registration Statement under the Securities Act of 1933, as amended, filed
on Form S-6 (File No. 33-2625) for the Provident Mutual Variable Separate
Accounts (Growth, Money Market, Bond, Managed, Zero Coupon Bond, Aggressive
Growth, International and Variable), of the following reports:
1. Our report dated February 5, 1999 on our audits of the financial
statements of Provident Mutual Life Insurance Company and
Subsidiaries as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998.
2. Our report dated February 26, 1999 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,
1998 and for each of the three years in the period ended December
31, 1998.
We also consent to the reference to our Firm under the caption
"Experts".
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
April 14, 1999
