<PAGE> 1
PROSPECTUS
FOR
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
VARIABLE LIFE INSURANCE
ISSUED BY
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
<PAGE> 2
PROSPECTUS
FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
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 flexible premium adjustable survivorship
variable life insurance policy (the "Policy") offered by Provident Mutual Life
Insurance Company. The Policy has an insurance component and an investment
component. The primary purpose of the Policy is to provide insurance coverage
until the younger Insured's attained age 100. The Policy gives the policyowner
(the "Owner") the right to vary the frequency and amount of premium payments, to
choose among investment alternatives with different investment objectives and to
decrease the death benefit payable under the Policy.
After certain deductions are made, Net Premiums are allocated to one or
more of the Separate Accounts, or the Guaranteed Account, or both. The six
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
Aggressive Growth Separate Account, Provident Mutual Variable International
Separate Account, and Provident Mutual Variable Separate Account. Provident
Mutual Variable Separate Account has twenty subaccounts (the "Subaccounts"). The
Growth, Money Market, Bond, Aggressive Growth and International Separate
Accounts as well as each subaccount, invest in 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>
- --------------------------------------------------------------------------------------
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 for all amounts allocated to the
Separate Accounts; there is no guaranteed minimum value for the Separate
Accounts.
The accompanying prospectuses for the funds describe the investment
objectives and the attendant risks of the Portfolios. The Policy Account Value
will reflect monthly deductions and certain other fees and charges. Also, a
surrender charge may be imposed if, during the first 15 policy years, the Policy
lapses or if the Owner decreases the Face Amount. Generally, during the first
five policy years, the Policy will remain in force as long as the Minimum
Guarantee Premium is paid or there is sufficient value in the Policy to pay
certain monthly charges imposed under the Policy. After the fifth Policy Year,
the Policy will only remain in force if there is sufficient value to pay the
monthly deductions and other charges under the Policy.
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 PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
November 12, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF THE POLICY
The Policy.................................................. 3
Purpose of the Policy..................................... 3
Availability of the Policy................................ 4
The Death Benefit......................................... 4
Flexibility to Adjust Amount of Death Benefit............. 4
Policy Account Value...................................... 4
Allocation of Net Premiums................................ 5
Transfers................................................. 5
Free-Look................................................. 5
Loan Privilege............................................ 5
Partial Withdrawal of Net Cash Surrender Value............ 6
Surrender of the Policy................................... 6
Tax Treatment............................................. 6
Illustrations............................................. 6
Charges Assessed Under the Policy......................... 7
Table of Fund Fees and Expenses........................... 9
The Company, Separate Accounts and Funds.................... 11
Provident Mutual Life Insurance Company................... 11
The Separate Accounts..................................... 11
The Funds................................................. 11
Market Street Fund, Inc................................... 12
The Alger American Fund................................... 14
Variable Insurance Products Fund and Variable Insurance
Products Fund II....................................... 14
Neuberger Berman Advisers Management Trust................ 17
Van Eck Worldwide Insurance Trust......................... 17
Additional Information About the Funds and Portfolios..... 18
Detailed Description of Policy Provisions................... 20
Death Benefit............................................. 20
Ability to Decrease Face Amount........................... 22
Insurance Protection...................................... 22
Payment and Allocation of Premiums........................ 23
Special Policy Account Value Credit....................... 25
Policy Account Value...................................... 25
Policy Duration........................................... 26
Transfers of Policy Account Value......................... 26
Free-Look Privileges...................................... 28
Loan Privileges........................................... 28
Surrender Privilege....................................... 29
Partial Withdrawal Privilege.............................. 29
Charges and Deductions...................................... 32
Premium Expense Charge.................................... 32
Surrender Charges......................................... 32
Monthly Deductions........................................ 33
Partial Withdrawal Charge................................. 34
Transfer Charge........................................... 34
Mortality and Expense Risk Charge......................... 35
Other Charges............................................. 35
The Guaranteed Account...................................... 36
Minimum Guaranteed and Current Interest Rates............. 36
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Transfers from Guaranteed Account........................... 37
Other Policy Provisions..................................... 38
Benefit Payable on Final Policy Date...................... 38
Payment of Policy Benefits................................ 38
The Policy................................................ 38
Ownership................................................. 39
Beneficiary............................................... 39
Change of Owner or Beneficiary............................ 39
Split Dollar Arrangements................................. 39
Assignments............................................... 39
Misstatement of Age and Sex............................... 40
Suicide................................................... 40
Contestability............................................ 40
Settlement Options........................................ 40
Supplementary Benefits...................................... 41
Federal Income Tax Considerations........................... 43
Introduction.............................................. 43
Tax Status of the Policy.................................. 43
Tax Treatment of Policy Benefits.......................... 43
Business Uses of the Policy............................... 45
Possible Tax Law Changes.................................. 45
PMLIC's Taxes............................................. 45
Voting Rights............................................... 45
Changes to the Separate Accounts of Funds................... 47
Changes to Separate Account Operations.................... 47
Changes to Available Portfolios........................... 47
Termination of Participation Agreements................... 47
Officers and Directors of PMLIC............................. 50
Distribution of Policies.................................... 52
Policy Reports.............................................. 52
Preparing for Year 2000..................................... 53
State Regulation............................................ 53
Legal Proceedings........................................... 53
Experts..................................................... 53
Legal Matters............................................... 53
Definitions................................................. 54
Financial Statements........................................ F-1
Appendix A -- Illustration of Death Benefits, Policy Account
Values and Net Cash Surrender Values.......... A-1
Appendix B -- Long Term Market Trends....................... B-1
</TABLE>
<PAGE> 5
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 Insureds are both alive, the Policy is in force and
there is no outstanding loan.
The Policy is not a deposit or obligation of any bank, and no bank endorses
or guarantees the Policy or Policy values. Neither the Federal Deposit Insurance
Corporation nor any federal agency insures or guarantees Policy values or your
investment in the Policy.
THE POLICY
The Flexible Premium Adjustable Survivorship 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 persons insured. Also, like many fixed-benefit life insurance
policies, the Policy provides for accumulation of Net Premiums and a Net Cash
Surrender Value which is payable if the Policy is surrendered during either
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 Policy Account Value will, increase
or decrease to reflect the investment performance of any Separate Accounts or
Subaccounts to which Policy Account Value is allocated. Also, unless the entire
Policy Account Value is allocated to the Guaranteed Account, there is no
guaranteed minimum Net Cash Surrender Value. If Net Cash Surrender Value is
insufficient to pay charges due, then, after a grace period, the Policy will
Lapse without value. (See "Policy Duration".) However, PMLIC guarantees that the
Policy will remain in force during the first five Policy Years as long as
certain requirements related to the Minimum Guarantee Premium have been met.
(See "Policy Lapse.") 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 "flexible premium" because there is no fixed schedule
for premium payments, even though the Owner may establish a schedule of Planned
Periodic Premiums. The Policy is described as "adjustable" because the Owner
may, within limits, decrease the Face Amount and may change the Death Benefit
Option. The Policy is called a "survivorship" policy because it is issued on the
lives of two people and the Death Benefit proceeds are paid upon the death of
the last surviving Insured.
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 insurance benefits until the Policy
matures for the two Insureds and long-term investment of Policy Account Value. A
prospective Owner should evaluate the Policy along 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. The Death Benefit is not payable, in whole or in
part, at the time of the first Insured's death; it is only payable at the time
of death of the last surviving Insured. There are no changes made to the Policy
as a result of the death of the first Insured to die. 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.
3
<PAGE> 6
AVAILABILITY OF THE POLICY
This Policy can be issued for two Insureds each between the ages of 21 and
85 and with a Joint Equal Age between 25 and 85. Minimum Face Amount is
$100,000. Before issuing a Policy, PMLIC requires that the proposed Insureds
both meet certain underwriting standards satisfactory to PMLIC.
THE DEATH BENEFIT
As long as the Policy remains in force, PMLIC will pay the Insurance
Proceeds to the Beneficiary upon receipt of due proof of the death of both
Insureds. The Insurance Proceeds will consist of the Policy's Death Benefit,
plus any additional benefits provided by a supplementary benefit rider, less any
outstanding Policy loan and accrued interest, less any unpaid Monthly
Deductions.
There are two Death Benefit Options available. Death Benefit Option A
provides Death Benefit equal to the greater of (a) the Face Amount and (b) the
specified percentage of the Policy Account Value. Death Benefit Option B
provides a Death Benefit equal to the greater of (a) the Face Amount plus the
Policy Account Value and (b) the specified percentage of the Policy Account
Value. (See "Death Benefit".)
FLEXIBILITY TO ADJUST AMOUNT OF DEATH BENEFIT
After the first Policy Year, the Owner has significant flexibility to
adjust the Death Benefit by changing the Death Benefit Option or by decreasing
the Face Amount of the Policy. (See "Death Benefit" and "Ability to Decrease
Face Amount".) The minimum amount of a requested decrease in Face Amount is
$25,000 (or such lesser amount required in a particular state) and cannot result
in a Face Amount less than the Minimum Face Amount available. PMLIC reserves the
right to establish different Minimum Face Amounts for Policies issued in the
future.
Any change in Death Benefit Options or in the Face Amount may affect the
charges under the Policy. For any decrease in Face Amount, that part of the
surrender charges attributable to the decrease will reduce the Policy Account
Value, and the remaining surrender charges will be reduced by this amount. A
decrease in Face Amount may also affect cost of insurance charges. (See "Monthly
Deductions".)
To the extent that a requested decrease in Face Amount would result in
cumulative premiums exceeding the maximum premium limitations applicable under
the Internal Revenue Code of 1986 (the "Code") for life insurance, PMLIC will
not effect the decrease.
POLICY ACCOUNT VALUE
The Policy Account Value in the Separate Accounts or Subaccounts reflects
the investment performance of the chosen Separate Accounts or Subaccounts, any
Net Premiums allocated to those Separate Accounts or Subaccounts, any transfers
to or from those Separate Accounts or Subaccounts, any partial withdrawals from
those Separate Accounts 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 for amounts allocated to the
Separate Accounts or Subaccounts.
The Guaranteed Account earns interest at rates PMLIC declares in advance
for specific periods. The rates are guaranteed to equal or exceed 4%. The
principal, after deductions, is also guaranteed. The value of the Guaranteed
Account will reflect any amounts allocated or transferred to it plus interest
credited to it, less amounts deducted, transferred or withdrawn from it. (See
"The Guaranteed Account".)
The Loan Account will reflect any amounts transferred from the Separate
Accounts, Subaccounts, and/or Guaranteed Account as collateral for Policy loans
plus interest of at least 4% credited to such amount. (See "Loan Privileges".)
4
<PAGE> 7
ALLOCATION OF NET PREMIUMS
After deduction of the Premium Expense Charge, Net Premiums are allocated
to one or more of the Separate Accounts, Subaccounts and/or the Guaranteed
Account as selected by the Owner in the application or by subsequent written
notice. The Owner bears the entire risk of Policy Account Value in the Separate
Accounts and Subaccounts.
Each Separate Account (other than Provident Mutual Variable Separate
Account) uses its assets to purchase shares of a corresponding Portfolio of
Market Street Fund, Inc. Provident Mutual Variable Separate Account consists of
twenty Subaccounts, the assets of which are used to purchase shares of a
designated corresponding mutual fund portfolio (each, a "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.
Where state law requires a return of premiums paid when a Policy is
returned under the Free-Look provision, any portion of any Net Premiums received
before the expiration of a 15-day period beginning on the later of the Policy
Issue Date or the date PMLIC receives the Minimum Initial Premium, which are to
be allocated to the Separate Accounts are allocated to the Money Market Separate
Account. At the end of the 15-day period, Policy Account Value in the Money
Market Separate Account is allocated to each of the chosen Separate Accounts
(and/or Subaccounts) as indicated in the application. (See "Payment and
Allocation of Premiums".)
TRANSFERS
The Owner may make transfers of the amounts in the Separate Accounts,
Subaccounts and Guaranteed Account. Transfers between and among the Separate
Accounts (and/or Subaccounts) or into the Guaranteed Account are made as of the
date PMLIC receives the request. PMLIC requires a minimum amount for each such
transfer, usually $1,000. Transfers out of the Guaranteed Account may only be
made within 30 days of a Policy Anniversary and are limited in amount. (See
"Transfers of Policy Account Value".)
FREE-LOOK
The Policy provides for an initial Free-Look period. The Owner may cancel
the Policy before 10 days after the Owner receives the Policy. Upon returning
the Policy to PMLIC or to an agent of PMLIC within such time with a written
request for cancellation, the Owner will receive a refund equal to the sum of:
(i) the Policy Account Value as of the date PMLIC receives the returned Policy;
(ii) the amount deducted for premium taxes; (iii) any Monthly Deductions charged
against the Policy Account Value; and (iv) an amount reflecting other charges
directly or indirectly deducted under the Policy. Where state law requires, the
refund will instead equal the premiums paid. (See "Free-Look Privileges".)
LOAN PRIVILEGE
The Owner may obtain Policy loans in a minimum amount of $500 (or such
lesser minimum as may be required in a particular state) but not exceeding, in
the aggregate, the Net Cash Surrender Value. Policy loans will bear interest at
a fixed rate of 6% per year, payable at the end of each Policy Year. If interest
is not paid when due, it will be added to the outstanding loan balance. Policy
loans may be repaid at any time and in any amount prior to the Final Policy
Date. PMLIC transfers a portion of the Policy Account Value to the Loan Account
where it becomes collateral for the loan. The transfer is made pro-rata from
each Separate Account, Subaccount and the Guaranteed Account or Subaccount as
specified by the Owner when applying for the loan. This collateral in the Loan
Account earns interest at an effective annual rate of at least 4%. (See "Loan
Privileges" below.)
5
<PAGE> 8
Depending upon the investment performance of the Separate Accounts,
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".)
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After the first Policy Year, the Owner may, subject to certain
restrictions, withdraw part of Net Cash Surrender Value. The minimum amount for
such withdrawal is $1,500. An expense charge of $25 will be deducted from the
Policy Account Value for each withdrawal. The withdrawal amount and expense
charge is allocated to the Separate Account, Subaccounts and the Guaranteed
Account based on the proportion that the value in each account bears to the
total unloaned Policy Account Value or allocated to such Separate Accounts and
Subaccounts as specified by the Owner. If Death Benefit Option A is in effect,
PMLIC will reduce the Face Amount by the amount of the withdrawal. (See "Partial
Withdrawal Privilege".)
SURRENDER OF THE POLICY
The Owner may at any time surrender the Policy and receive the entire Net
Cash Surrender Value. (See "Surrender Privilege".)
TAX TREATMENT
PMLIC believes that a Policy issued on a standard premium class basis
generally should meet the definition of a life insurance contract in the Code.
There is insufficient guidance to determine whether or not a Policy issued on 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 on 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 Policy Account Value under a Policy until there is a distribution
from the Policy. Moreover, death benefits payable under a Policy should be
completely excludable from the gross income of the Beneficiary. As a result, the
Beneficiary generally should not be taxed on these proceeds. (See "Tax Status of
the Policy".)
Under certain circumstances, a Policy may be treated as a "Modified
Endowment Contract." If the Policy is a Modified Endowment Contract, then all
pre-death distributions, including Policy loans, will be treated first as a
distribution of taxable income and then as a return of basis or investment in
the 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".)
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, Policy Account 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.
6
<PAGE> 9
CHARGES ASSESSED UNDER THE POLICY
Premium Expense Charge. A Premium Expense Charge will be deducted from
each premium payment. This charge consists of:
1. Premium Tax Charge for state and local premium taxes based on the
rate for the Insureds' residence at the time the premium is paid. PMLIC
reserves the right to change the amount of the charge deducted from future
premiums if the Insureds' residence changes or the applicable law is
changed;
2. Percent of Premium Charge equal 6% of each premium payment in the
first 15 Policy Years and 1.5% of each premium payment thereafter. PMLIC
may increase this charge to a maximum of 6% of each premium payment. (See
"Premium Expense Charge" below.)
Monthly Deductions. On the Policy Date and on each Policy Processing Date
thereafter, the Policy Account Value is reduced by a Monthly Deduction equal to
the sum of the monthly Cost of Insurance Charge, Monthly Administrative Charge
and a charge for additional benefits added by rider and, on the first 12 Policy
Processing Days, the Initial Administrative Charge. The monthly Cost of
Insurance Charge is determined by multiplying the Net Amount at Risk by the
applicable cost of insurance rate(s) in the Policy. The Monthly Administrative
Charge is currently $7.50 plus $.01 per $1,000 of Face Amount; the maximum
permissible Monthly Administrative Charge is $12 plus $.03 per $1,000 of Face
Amount. (See "Monthly Administrative Charge".) The Initial Administrative Charge
is $17.50 plus an amount per $1,000 of Face Amount (shown below), deducted on
the first 12 Policy Processing Days. (See "Initial Administrative Charge".)
INITIAL ADMINISTRATIVE CHARGE
$0.11 per $1,000 on the first million of face amount
$0.09 per $1,000 on the next million of face amount
$0.07 per $1,000 on the next million of face amount
$0.05 per $1,000 on the next million of face amount
$0.03 per $1,000 on the next million of face amount
0 on the excess face amount over $5 million
Surrender Charge. A Surrender Charge is imposed if the Policy is
surrendered or lapses at any time before the end of the 15th Policy Year. The
Surrender Charge consists of a Deferred Administrative Charge and a Deferred
Sales Charge. A portion of this Surrender Charge will be deducted if the Owner
decreases the Initial Face Amount before the end of the 15th Policy Year. (See
"Surrender Charges".)
The Deferred Administrative Charge is equal to an amount per $1,000 of Face
Amount (shown below).
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR(S) OF FACE AMOUNT
- -------------- -----------------
<S> <C>
1-11......................................... $5.00
12........................................... $4.00
13........................................... $3.00
14........................................... $2.00
15........................................... $1.00
16+.......................................... $ 0
</TABLE>
The Deferred Sales Charge is equal to 30% of all premiums paid to the date
of surrender, lapse or decrease. The Deferred Sales Charge, however, will not
exceed the Maximum Deferred Sales Charge. During Policy Years one through 11,
this maximum equals a percentage of the Target Premium for the
7
<PAGE> 10
Initial Face Amount (shown below). The maximum declines to 80% of the maximum
during year 12, 60% during year 13, 40% during year 14, 20% during year 15 and
0% during years sixteen and later.
<TABLE>
<CAPTION>
JOINT MAXIMUM DEFERRED SALES CHARGE
EQUAL AGE (% OF TARGET PREMIUM)
--------- -----------------------------
<S> <C>
25-71..................................... 60%
72-73.................................... 50
74-75.................................... 40
76-78.................................... 30
79-83.................................... 20
84-85.................................... 10
</TABLE>
Transfer Charge. For each transfer of Policy Account Value between or
among the Separate Accounts (and/or Subaccounts) and the Guaranteed Account
after the twelfth transfer in a Policy Year, PMLIC deducts $25 from the amount
transferred to compensate it for administrative costs in handling such
transfers. (See "Transfer Charge" below.)
Partial Withdrawal Charge. PMLIC deducts a $25 charge from Policy Account
Value with each partial withdrawal to compensate it for administrative costs.
(See "Partial Withdrawal Charge" below.)
Daily Charges Against the Separate Accounts. 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 0.75% of the average daily net
assets of the Separate Accounts. This charge may be increased in the future but
it will not exceed an annual rate of 0.90%. (See "Mortality and Expense Risk
Charges".)
Investment Advisory Fees and Other Expenses of the Funds. Shares of the
Portfolios are purchased by the Separate Accounts and Subaccounts at net asset
value. This net asset value reflects the deduction of management fees and
expenses associated with management and administration of the Portfolios. (See
"Table of Fund Fees and Expenses" below).
8
<PAGE> 11
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%
<CAPTION>
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
- ---------------------------------------- -------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
THE ALGER AMERICAN FUND ANNUAL SMALL
EXPENSES(2) CAPITALIZATION
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
- --------------------------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees)................... 0.85%
Other Expenses..................... 0.04%
----
Total Fund Annual Expenses......... 0.89%
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND HIGH EQUITY-
("VIP FUND") ANNUAL EXPENSES(2) INCOME INCOME GROWTH OVERSEAS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- -------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
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
- --------------------------------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
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%
<CAPTION>
LIMITED
NEUBERGER BERMAN ADVISERS MATURITY
MANAGEMENT TRUST ANNUAL EXPENSES(2) BOND PARTNERS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO
- --------------------------------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees)................... 0.65% 0.78%
Other Expenses..................... 0.11% 0.06%
---- ----
Total Fund Annual Expenses......... 0.76% 0.84%
</TABLE>
9
<PAGE> 12
<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>
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>
- ---------------
(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 II 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 was provided by those
Funds. The Neuberger Berman Advisers Management Trust, the Alger American
Fund, the VIP Fund, the VIP II Fund, and the Van Eck WIT Fund are not
affiliated with PMLIC.
10
<PAGE> 13
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 is authorized to
transact life insurance and annuity business in Pennsylvania and in 50 other
jurisdictions. On December 31, 1998, PMLIC and its subsidiaries had consolidated
GAAP assets of approximately $8.7 billion and consolidated GAAP liabilities of
approximately $7.8 million.
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 and 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 Policy
Account 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 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 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
11
<PAGE> 14
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.
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.
Sentinel Advisors Company (SAC), an affiliate, which is registered with the
SEC as an investment adviser under the Investment Advisers Act of 1940 advises
MS Fund with respect to the Growth, Money
12
<PAGE> 15
Market, Bond, Managed and Aggressive Growth Portfolios. 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"), a subsidiary of PMLIC,
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 a monthly fee equal to .70% of the
average daily net assets of the All Pro Large Cap Growth and All Pro Large Cap
Value Portfolios, and .90% of the average 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, a monthly fee equal to .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. From its
investment advisory fees, PIMC pays CKM and Geewax a monthly fee equal to the
following percentages of the average 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. From its investment advisory fees,
PIMC pays SAW and Husic a monthly fee equal to the following percentages of the
average 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. From its investment advisory fees, PIMC pays these
Sub-advisers a monthly fee equal to the following percentages of the average
daily net assets of the Portfolio: Equinox -- .25% of the first $50 million of
assets and .23% of the remaining assets; Harris -- .65% of the first $50
13
<PAGE> 16
million of assets, .60% of the next $50 million of assets and .55% of the
remaining assets; and 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. From its investment advisory fees,
PIMC pays these Sub-advisers a monthly fee equal to the following percentages of
the average daily net assets of the Portfolio: 1838 -- .55%; and 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 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 Advisers
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.
14
<PAGE> 17
VIP High Income Portfolio. This Portfolio seeks to obtain a high level of
current income by investing primarily in high-yielding, lower-rated,
fixed-income securities, while also considering growth of capital.
VIP Overseas Portfolio. This Portfolio seeks long term growth of capital
primarily through investments in foreign securities. The VIP Overseas Portfolio
provides a means for diversification by participating in companies and economies
outside of the United States.
VIP II Fund
VIP II Asset Manager Portfolio. This Portfolio seeks to obtain high total
return with reduced risk over the long-term by allocating its assets among
stocks, bonds and short-term money market instruments.
VIP II Contrafund Portfolio. This Portfolio seeks capital appreciation by
investing in securities of companies where value is not fully recognized by the
public.
VIP II Index 500 Portfolio. This Portfolio seeks to provide investment
results that correspond to the total return (i.e., the combination of capital
changes and income) of a broad range of common stocks publicly traded in the
United States. In seeking this objective, the VIP II Index 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, and
VIP II Index 500 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 total fund expense 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 Portfolio 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 Portfolio fee rate of 0.45% for the VIP High Income
Portfolio and 0.30% for the VIP II Investment Grade Bond Portfolio.
15
<PAGE> 18
One twelfth of the combined annual fee rate is applied to the Portfolio's
net assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
On behalf of the VIP II Asset Manager Portfolio and the VIP II Contrafund
Portfolio, FMR has entered into sub-advisory agreements with Fidelity Management
& Research (U.K.) Inc. ("FMR (U.K.)") and Fidelity Management & Research (Far
East) Inc. ("FMR Far East"), pursuant to which these entities provide research
and investment recommendations with respect to companies based outside the
United States. FMR (U.K.) primarily focuses on companies based in Europe while
FMR Far East focuses primarily on companies based in Asia and the Pacific Basin.
Under the sub-advisory agreements, FMR and not the Portfolios pay FMR (U.K.) and
FMR Far East fees equal to 110% and 105%, respectively, of each sub-advisor's
costs incurred in connection with its sub-advisory agreement.
On behalf of the VIP Overseas Portfolio, FMR has entered into sub-advisory
agreements with FMR (U.K.), FMR Far East, and Fidelity International Investment
Advisors ("FIIA"). 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.
16
<PAGE> 19
FMR may, from time to time, agree to reimburse a Portfolio for management
fees and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without notice,
will increase a Portfolio's yield. If FMR discontinues a reimbursement
arrangement, each Portfolio's expenses will go up and its yield will be reduced.
FMR retains the right to be repaid by a Portfolio for expense reimbursements if
expenses fall below the limit prior to the end of a fiscal year. Repayment by a
Portfolio will lower its yield. FMR has voluntarily agreed to reimburse the
management fees and all other expenses (excluding taxes, interest and
extraordinary expenses) in excess of 1.50% of the average net assets of the VIP
Equity-Income and VIP Growth Portfolios, 1.25% of the average net assets of the
VIP II Asset Manager Portfolio and 0.28% of the average net assets of the VIP II
Index 500 Portfolio.
A more 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 Subaccounts will invest. The
investment objectives of the Portfolios of AMT in which the Subaccounts 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.
17
<PAGE> 20
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 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 Policy
Account 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 Subaccounts. 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
18
<PAGE> 21
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 Policy Account 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, 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.
19
<PAGE> 22
DETAILED DESCRIPTION OF POLICY PROVISIONS
DEATH BENEFIT
General. As long as the Policy remains in force, the Insurance Proceeds of
the Policy will, upon due proof of both Insured's deaths (and fulfillment of
certain other requirements), be paid to the Beneficiary in accordance with the
designated Death Benefit Option. The Insurance Proceeds will be determined as of
the date of the last surviving 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 Insurance 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:
Option A and Option B. The Owner designates the Death Benefit Option in the
application and may change it as described in "Change in Death Benefit Option."
Under either Option, the duration of the Death Benefit coverage depends upon the
Policy's Net Cash Surrender Value. (See "Policy Duration.")
Option A. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy and (b) the Policy Account Value on the Valuation Date on
or next following the last surviving Insured's date of death multiplied by the
specified percentage based on the attained age of the younger Insured shown in
the table below:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ---------- ------------- ----------
<S> <C> <C> <C>
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 through 99 100%
</TABLE>
For Attained Ages not shown, the percentages will decrease by a ratable portion
for each full year.
Illustration of Option A -- For purposes of this illustration, assume that
the younger Insured is under Attained Age 40 and there is no Policy loan
outstanding.
Under Option A, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000. The specified percentage for an Insured under
Attained Age 40 on the Policy Anniversary prior to the date of death is 250%.
Because the Death Benefit must be equal to or be greater than 2.50 times the
Policy Account Value, any time the Policy Account Value exceeds $80,000 the
Death Benefit will exceed the Face Amount. Each additional dollar added to the
Policy Account Value will increase the Death Benefit by $2.50. Thus, a 35 year
old younger Insured with a Policy Account Value of $150,000 will have a Death
Benefit of $375,000 (2.50 x $150,000); a Policy Account Value of $300,000 will
yield a Death Benefit of $750,000 (2.50 x $300,000); a Policy Account Value of
$400,000 will yield a Death Benefit of $1,000,000 (2.50 x $400,000).
Similarly, any time the Policy Account Value exceeds $80,000, each dollar
taken out of the Policy Account Value will reduce the Death Benefit by $2.50. If
at any time, however, the Policy Account Value multiplied by the specified
percentage is less than the Face Amount, the Death Benefit will be the Face
Amount of the Policy.
Option B. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy plus the Policy Account Value and (b) the Policy Account
Value multiplied by the specified percentage shown in
20
<PAGE> 23
the table above. (The Policy Account Value in each case is determined on the
Valuation Day on or next following the last surviving Insured's date of death.)
Illustration of Option B -- For purposes of this illustration, assume that
the younger Insured is under Attained Age 40 and there is no outstanding Policy
loan.
Under Option B, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000 plus the Policy Account Value. Thus, for example, a
Policy with a $50,000 Policy Account Value will have a Death Benefit of $250,000
($200,000 plus $50,000); and a Policy Account Value of $100,000 will yield a
Death Benefit of $300,000. Since the specified percentage is 250%, the Death
Benefit will be at least 2.50 times the Policy Account Value. As a result, if
the Policy Account Value exceeds $133,333, the Death Benefit will be greater
than the Face Amount plus the Policy Account Value. Each additional dollar added
to the Policy Account Value above $133,333 will increase the Death Benefit by
$2.50. An Insured with a Policy Account Value of $150,000 will therefore have a
Death Benefit of $375,000 (2.50 x $150,000); a Policy Account Value of $300,000
will yield a Death Benefit of $750,000 (2.50 x $300,000); and a Policy Account
Value of $500,000 will yield a Death Benefit of $1,250,000 (2.50 x $500,000).
Similarly, any time the Policy Account Value exceeds $133,333, each dollar taken
out of the Policy Account Value will reduce the Death Benefit by $2.50. If at
any time, however, the Policy Account Value multiplied by the applicable
percentage is less than the Face Amount plus the Policy Account Value, the Death
Benefit will be the Face Amount plus the Policy Account Value.
Which Death Benefit Option to Choose. If an Owner prefers to have premium
payments and favorable investment performance reflected partly in the form of an
increasing Death Benefit, the Owner should choose Option B. If an Owner is
satisfied with the amount of the Insureds' existing insurance coverage and
prefers to have premium payments and favorable investment performance reflected
to the maximum extent in the Policy Account Value, the Owner should choose
Option A.
Change in Death Benefit Option. After the first Policy Year, at any time
while the Policy is in force, the Owner may change the Death Benefit Option in
effect by sending PMLIC a completed application for change. No charges will be
imposed to make a change in the Death Benefit Option. The effective date of any
such change will be the Policy Processing Day on or next following the date
PMLIC receives the completed application for change.
If the Death Benefit Option is changed from Option A to Option B, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be decreased by the Policy Account Value on that date. However, this
change may not be made if it would reduce the Face Amount to less than the
Minimum Face Amount.
If the Death Benefit Option is changed from Option B to Option A, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be increased by the Policy Account Value on that date.
A change in the Death Benefit Option may affect the Net Amount at Risk over
time which, in turn, would affect the monthly Cost of Insurance Charge. Changing
from Option A to Option B will generally result in a Net Amount at Risk that
remains level. Such a change will result in a relative increase in the cost of
insurance charges over time because the Net Amount at Risk will, unless the
Death Benefit is based on the applicable percentage of Policy Account Value,
remain level rather than decreasing as the Policy Account Value increases.
Unless the Death Benefit is based on the applicable percentage of Policy Account
Value, changing from Option B to Option A will, if the Policy Account Value
increases, decrease the Net Amount at Risk over time, thereby reducing the cost
of insurance charge.
The effects of these Death Benefit Option changes on the Face Amount, Death
Benefit and Net Amount at Risk can be illustrated as follows. Assume that a
Policy under Option A has a Face Amount of $500,000 and a Policy Account Value
of $100,000 and, therefore, a Death Benefit of $500,000 and a Net Amount at Risk
of $400,000 ($500,000 - $100,000). If the Death Benefit Option is changed from
Option A to Option B, the Face Amount will decrease from $500,000 to $400,000
and the Death Benefit and Net Amount at Risk would remain the same. Assume that
a Policy under Option B has a Face
21
<PAGE> 24
Amount of $500,000 and a Policy Account Value of $50,000 and, therefore, the
Death Benefit is $550,000 ($500,000 - $50,000) and a Net Amount at Risk of
$500,000 ($550,000 - $50,000). If the Death Benefit Option is changed from
Option B to Option A, the Face Amount will increase to $550,000, and the Death
Benefit and Net Amount at Risk would remain the same.
If a change in the Death Benefit Option would result in cumulative premiums
exceeding the maximum premium limitations under the Internal Revenue Code for
life insurance, PMLIC will not effect the change.
A change in the Death Benefit Option may have federal income tax
consequences. (See "Tax Treatment of Policy Benefits.")
How the Death Benefit May Vary. The amount of the Death Benefit may vary
with the Policy Account Value. The Death Benefit under Option A will vary with
the Policy Account Value whenever the specified percentage of Policy Account
Value exceeds the Face Amount of the Policy. The Death Benefit under Option B
will always vary with the Policy Account Value because the Death Benefit equals
the greater of (a) the Face Amount plus the Policy Account Value and (b) the
Policy Account Value multiplied by the specified percentage.
ABILITY TO DECREASE FACE AMOUNT
Subject to certain limitations, an Owner may generally, at any time after
the first Policy Year, decrease the Policy's Face Amount by submitting a written
application to PMLIC. (Decreases are not permitted for Policies issued in
Virginia.) The effective date of the decrease will be the Policy Processing Day
on or next following PMLIC's approval of the request. A decrease in Face Amount
may have tax consequences. (See "Tax Treatment of Policy Benefits.") The effect
of a decrease in Face Amount on Policy charges, as well as other considerations,
are described below.
The amount of a Face Amount decrease must be for at least $25,000 (or such
lesser amount required in a particular state). The Face Amount after any
decrease may not be less than the Minimum Face Amount for policies being issued
at the time of the decrease. A decrease in Face Amount will not be permitted if
the Face Amount was decreased during the prior 12-month period. To the extent a
decrease in the Face Amount could result in cumulative premiums exceeding the
maximum premium limitations applicable for life insurance under the Code, PMLIC
will not effect the decrease.
A decrease in the Face Amount generally will decrease the total Net Amount
at Risk which will decrease an Owner's monthly cost of insurance charges. A
decrease in the Face Amount may result in the imposition of a surrender charge
as of the Policy Processing Day on which the decrease becomes effective. (See
"Surrender Charges.")
Any surrender charge applicable to a decrease will be deducted from the
Policy Account Value and the remaining surrender charge will be reduced by the
amount deducted. The surrender charge will be deducted from the Separate
Accounts and Subaccounts and the Guaranteed Account based on the proportion that
the value in each such account bears to the total unloaned Policy Account Value.
INSURANCE PROTECTION
An Owner may decrease the insurance protection provided by the Policy
(i.e., the Net Amount at Risk) in one of several ways, as insurance needs
change. These ways include decreasing the Face Amount, changing the level of
premium payments, and by making a partial withdrawal of Net Cash Surrender
Value. The consequences of each are summarized below.
A decrease in Face Amount will decrease the insurance protection. It will
not reduce the Policy Account Value, except for the deduction of any surrender
charge applicable to the decrease. The Monthly Deductions will generally be
correspondingly lower following the decrease.
Under Death Benefit Option A, until the specified percentage of Policy
Account Value exceeds the Face Amount, then (a) if the Owner increases the
premium payments from the current level, the amount
22
<PAGE> 25
of insurance protection will generally be reduced, and (b) if the Owner reduced
the premium payments from the current level, the amount of insurance protection
will generally be increased.
Under Death Benefit Option B, until the specified percentage of Policy
Account Value exceeds the Face Amount plus the Policy Account Value, the level
of premium payments will not affect the amount of insurance protection.
(However, both the Policy Account Value and Death Benefit will be increased if
premium payments are increased and reduced if premium payments are reduced.)
Under either Death Benefit Option, if the Death Benefit is the specified
percentage of Policy Account Value, then (a) if the Owner increases premium
payments from the current level, the amount of insurance protection will
increase and (b) if the Owner reduces the premium payments from the current
level, the amount of insurance protection will decrease.
A partial withdrawal of Net Cash Surrender Value will reduce the Death
Benefit. If Death Benefit Option A is in effect, the withdrawal will decrease
the Policy's Face Amount by the amount withdrawn plus the partial withdrawal
expense charge. If Death Benefit Option B is in effect, it will not reduce the
amount of insurance protection unless the Death Benefit is based on the
specified percentage of Policy Account Value. In this event, however, the
decrease in the Death Benefit will be greater than the amount of a withdrawal.
PAYMENT AND ALLOCATION OF PREMIUMS
Issuance of a Policy. In order to purchase a Policy, an individual must
make application to PMLIC through a licensed PMLIC agent who is also a
registered representative of 1717 Capital Management Company ("1717") or a
broker/dealer having a Selling Agreement with 1717 or a broker/dealer having a
Selling Agreement with such a broker/dealer. If PMLIC accepts the application, a
Policy will be issued in consideration of payment of the Minimum Initial Premium
set forth in the Policy. The Minimum Face Amount of a Policy under PMLIC's rules
is $100,000.
PMLIC reserves the right to revise its rules from time to time to specify a
different Minimum Face Amount for subsequently issued policies. A Policy will be
issued only with respect to Insureds who individually have an Issue Age of 21 to
85 and a Joint Equal Age of 25 to 85 and who provide PMLIC with satisfactory
evidence of insurability. Acceptance is subject to PMLIC's underwriting rules.
PMLIC reserves the right to reject an application for any reason permitted by
law. (See "Distribution of Policies.")
At the time the application for a Policy is signed, an applicant can,
subject to PMLIC's underwriting rules, obtain temporary insurance protection,
pending issuance of the Policy, by answering "no" to the Health Questions of the
Temporary Agreement and submitting payment of the Minimum Initial Premium with
the Application. The Minimum Initial Premium will equal the Minimum Annual
Premium multiplied by the following factor:
<TABLE>
<CAPTION>
PREMIUM BILLING MODE
SELECTED AT ISSUE FACTOR
- -------------------- ------
<S> <C>
Annual............................................. 1.000
Semi-annual........................................ 0.500
Quarterly.......................................... 0.250
Monthly............................................ 0.167
</TABLE>
The amount of coverage under the temporary agreement is the lesser of the
Face Amount applied for or $500,000. Coverage under the agreement will end on
the earliest of: (a) the 90th day from the date of the agreement; (b) the date
that insurance takes effect under the Policy; (c) the date a policy, other than
as applied for, is offered to the Applicant; or (d) five days from the date
PMLIC mails a notice of termination of coverage.
23
<PAGE> 26
Amount and Timing of Premiums. The Minimum Initial Premium is due on or
before the date the Policy is delivered. No insurance will take effect until the
Minimum Initial Premium is paid while the health and other conditions of the
Insureds stay the same as described in the application. Prior to the Final
Policy Date and while the Policy is in force, an Owner may make additional
premium payments at any time and in any amount, subject to the limitation set
forth below. Each premium payment must be for at least $20. PMLIC may increase
this minimum amount upon 90 days written notice to Owners of such increase, but
the minimum amount will never exceed $500. Subject to certain limitations
described below, an Owner has considerable flexibility in determining the amount
and frequency of premium payments.
At the time of application, each Owner will select a Planned Periodic
Premium schedule, based on a periodic billing mode of annual, semi-annual, or
quarterly payment. The Owner is entitled to receive a premium reminder notice
from PMLIC at the specified interval. The Owner may change the Planned Periodic
Premium frequency and amount. Also, under the Automatic Payment Plan, the Owner
can select a monthly payment schedule pursuant to which premium payments will be
automatically deducted from a bank account or other source, rather than being
"billed".
Unless prohibited by a particular state, any payments made while there is
an outstanding Policy loan are considered loan repayments, unless PMLIC is
notified in writing that the amount is to be applied as a premium payment. The
Owner is not required to pay the Planned Periodic Premiums in accordance with
the specified schedule. The Owner has the flexibility to alter the amount and
frequency of premium payments. However, payment of the Planned Periodic Premiums
does not guarantee that the Policy will remain in force. Instead, the duration
of the Policy depends upon the Policy's Net Cash Surrender Value. Thus, even if
Planned Periodic Premiums are paid, the Policy may lapse whenever the Net Cash
Surrender Value is insufficient to pay the Monthly Deductions and any other
charges and if a Grace Period expires without an adequate payment by the Owner.
Premium Limitations. The Code provides for exclusion of the Death Benefit
from a Beneficiary's gross income if total premium payments do not exceed
certain stated limits. In no event can the total of all premiums paid under a
Policy exceed such limits. PMLIC has established procedures to monitor whether
aggregate premiums paid under a Policy exceed those limits. If a premium is paid
which would result in total premiums exceeding such limits, PMLIC will only
accept that portion of the premium which would make total premiums equal the
maximum amount which may be paid under the Policy. The excess will be refunded.
If total premiums do exceed the maximum premium limitations established by the
Code, however, the excess of a Policy's Death Benefit over the Policy's Cash
Surrender Value should still be excludable from gross income.
The maximum premium limitations set forth in the Code depend in part upon
the amount of the Death Benefit at any time. As a result, any Policy changes
which affect the amount of the Death Benefit may affect whether cumulative
premiums paid under the Policy exceed the maximum premium limitations. To the
extent that any such change would result in cumulative premiums exceeding the
maximum premium limitations, PMLIC will not effect such change. (See "Federal
Income Tax Considerations.") PMLIC reserves the right to require satisfactory
evidence of insurability before accepting a premium payment that would increase
the Net Amount At Risk.
Allocation of Net Premiums. The Owner indicates in the application how Net
Premiums should be allocated among the Separate Accounts, the Subaccounts and/or
the Guaranteed Account. The percentages of each Net Premium that may be
allocated to any account must be in whole numbers and the sum of the allocation
percentages must be 100%. PMLIC allocates the Net Premiums as of the date it
receives such premium at its Service Center.
Where state law requires a refund of premiums paid when a policy is
returned under the Free-Look provisions, any premiums received by PMLIC before
the expiration of a 15-day period beginning on the later of the Policy Issue
Date or the date PMLIC receives the Minimum Initial Premium, which are to be
allocated to the Separate Accounts or Subaccounts are allocated to the Money
Market Separate Account. At the end of the 15-day period, Policy Account Value
in the Money Market Separate Account is allocated among the Separate Accounts
and Subaccounts based on the proportion that the allocation
24
<PAGE> 27
percentage for such Separate Account or Subaccount bears to the sum of the
Separate Account or Subaccounts premium allocation percentages. All other Net
Premiums are allocated based on the allocation percentages then in effect. The
allocation schedules may be changed at any time by providing PMLIC with written
notice.
The values of the Separate Accounts and Subaccounts will vary with their
investment experience and the Owner bears the entire investment risk. Owners
should periodically review their allocation schedule in light of market
conditions and the Owners' overall financial objectives.
SPECIAL POLICY ACCOUNT VALUE CREDIT
On each Policy Processing Day after the Policy has been in force for at
least 15 years or when the Policy Account Value less the value in the Loan
Account equals or exceeds $500,000, an additional credit is added to the Policy
Account Value in the Separate Accounts and Subaccounts. The credit is a result
of a reduction in the mortality and expense risk charge and is equal to 0.03%
multiplied by the Policy Account Value in the Separate Accounts and Subaccounts.
POLICY ACCOUNT VALUE
The Policy Account Value is the total amount of value held under the Policy
at any time. It is equal to the sum of the Policy's values in the Separate
Accounts, the Subaccounts, the Guaranteed Account and the Loan Account. The
Policy Account Value minus any applicable Surrender Charge is the Cash Surrender
Value.
The Policy Account Value and Cash Surrender Value will reflect the
investment performance of the chosen Separate Accounts and Subaccounts, the
crediting of interest for the Guaranteed Account and the Loan Account, any Net
Premiums paid, the Special Policy Account Value Credit, any transfers, any
partial withdrawals, any loans, any loan repayments, any loan interest paid, and
any charges assessed in connection with the Policy.
Calculation of Policy Account Value. The Policy Account Value is
determined first on the Policy Date and thereafter at the close of each
Valuation Day. On the Policy Date, the Policy Account Value equals the Net
Premiums received less any Monthly Deductions on the Policy Date. On each
Valuation Day after the Policy Date, the Policy Account Value is:
1. Policy Account Value in each Separate Account or Subaccount,
determined by multiplying the number of units of the Separate Account or
Subaccount by the Separate Account or Subaccount's Unit Value on that date;
2. Policy Account Value in the Guaranteed Account; plus
3. Policy Account Value in the Loan Account.
Determination of Number of Units. Allocated Net Premiums, the Special
Policy Account Value Credit or Policy Account Value transferred to a Separate
Account or Subaccount are used to purchase units of that Separate Account or
Subaccount; units are redeemed when amounts are deducted, transferred or
withdrawn. The number of units of a Separate Account or Subaccount at any time
equals the number of units purchased minus the number of units redeemed up to
such time. For each Separate Account or Subaccount, the number of units
purchased or redeemed in connection with a particular transaction is determined
by dividing the dollar amount by the unit value.
Determination of Unit Value. The unit value of a Separate Account or
Subaccount on any Valuation Day is equal to the unit value on the immediately
preceding Valuation Day multiplied by the Net Investment Factor for that
Separate Account or Subaccount on that Valuation Day.
Net Investment Factor. The Net Investment Factor for each Separate Account
or Subaccount measures the investment performance of that Separate Account or
Subaccount. The factor increases to reflect investment income and capital gains,
realized and unrealized, for the shares of the underlying
25
<PAGE> 28
Portfolio. The factor decreases to reflect any capital losses, realized or
unrealized, for the shares of the underlying Portfolio as well as the asset
charge for mortality and expense risks.
POLICY DURATION
Policy Lapse. The Policy will remain in force as long as the Net Cash
Surrender Value of the Policy is sufficient to pay the Monthly Deductions and
other charges under the Policy. When the Net Cash Surrender Value is
insufficient to pay the charges and the Grace Period expires without an adequate
premium payment by the Owner, the Policy will lapse and terminate without value.
Notwithstanding the foregoing, during the first five Policy Years the Policy
will not lapse if the Minimum Guarantee Premium has been paid. A Guaranteed
Minimum Death Benefit rider may be purchased with the Policy that guarantees the
Policy will not lapse if certain conditions are met. (See "Supplementary
Benefits.")
The Policy provides for a 61-day Grace Period that is measured from the
date on which notice is sent by PMLIC indicating that the Grace Period has
begun. Thus, the Policy does not lapse, and the insurance coverage continues,
until the expiration of this Grace Period. To prevent lapse, the Owner must,
during the Grace Period, make a premium payment equal to three Monthly
Deductions. The notice sent by PMLIC will specify the payment required to keep
the Policy in force.
Reinstatement. A Policy that lapses may be reinstated at any time within
three years (or longer period required in a particular state) after the
expiration of the Grace Period and before the Final Policy Date by submitting
evidence of each Insured's insurability satisfactory to PMLIC and payment of an
amount sufficient to keep the Policy in force for at least three months
following the date that the reinstatement application is approved. Upon
reinstatement, the Policy Account Value is based upon the premium paid to
reinstate the Policy. A reinstated Policy has the same Policy Date as it had
prior to the lapse.
TRANSFERS OF POLICY ACCOUNT VALUE
Transfers. The Owner may transfer the Policy Account Value between and
among the Separate Accounts or Subaccounts and the Guaranteed Account by making
a written transfer request to PMLIC. The amount transferred must be at least
$1,000, unless the total value in an account is less than $1,000, in which case
the entire amount may be transferred.
After 12 transfers have been made in any Policy Year, a $25 transfer charge
will be deducted from each transfer during the remainder of such Policy Year.
All transfers included in a single written request are treated as one transfer.
Transfers are made as of the date PMLIC receives a written request at its
Service Center. Transfers resulting from Policy loans, Automatic Asset
Rebalancing, Dollar Cost Averaging, the exercise of exchange privileges, and the
reallocation from the Money Market Separate Account following the 15-day period
after the Issue Date, are not subject to a transfer charge and do not count as
one of the 12 "free" transfers in any Policy Year. Under present law, transfers
are not taxable transactions.
Special Transfer Right. During the first two years following the Issue
Date, the Owner may, on one occasion, transfer the entire Policy Account Value
in the Separate Accounts or Subaccounts to the Guaranteed Account without a
transfer charge and without such transfer counting toward the twelve transfers
permitted without charge during a Policy Year.
Transfer Right for Change in Investment Policy of a Separate Account or
Subaccount. If the investment policy of a Separate Account or Subaccount is
materially changed, the Owner may transfer the portion of the Policy Account
Value in such Separate Account or Subaccount to another Separate Account or
Subaccount or to the Guaranteed Account without a transfer charge and without
having such transfer count toward the twelve transfers permitted without charge
during a Policy Year.
Telephone Transfers. Transfers will be made 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
26
<PAGE> 29
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 authorized 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 Account 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 be made in the application or at any
time after the policy is issued by properly completing the election form and
returning it to PMLIC. The election may be revoked at any time. Rebalancing may
be done quarterly or annually. Rebalancing terminates when the total value in
the Separate Accounts 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.
Dollar Cost Averaging. Dollar Cost Averaging is a program which, if
elected, enables the Owner to systematically and automatically transfer, on a
monthly basis, specified dollar amounts from any selected Separate Account or
Subaccount to any other Separate Account or Subaccounts or the Guaranteed
Account. Transfers may not come from the Guaranteed Account. By allocating on a
regularly scheduled basis as opposed to allocating the total amount at one
particular time, an Owner may be less susceptible to the impact of short term
market fluctuations. PMLIC, however, makes no guarantee that Dollar Cost
Averaging will result in a profit or protect against loss.
Dollar Cost Averaging may be elected for a period of 6, 12, 18, 24, 30 or
36 months. To qualify for Dollar Cost Averaging, the following minimum amount of
Policy Account Value must be allocated to a Separate Account or Subaccount: 6
months -- $3,000; 12 months -- $6,000; 18 months -- $9,000; 24
months -- $12,000; 30 months -- $15,000; 36 months -- $18,000. At least $500
must be transferred from the Separate Account or Subaccount each month. The
amount required to be allocated to the Separate Account or Subaccount can be
made from an initial or subsequent investment or by transferring amounts into
the Separate Account or Subaccount from the other Separate Accounts or
Subaccounts or from the Guaranteed Account (See "Transfers from Guaranteed
Account."). Each monthly transfer is split among the Separate Accounts or
Subaccounts or the Guaranteed Account based upon the percentages elected. Dollar
Cost Averaging may not be elected if Automatic Asset Rebalancing has been
elected or if a policy loan is outstanding.
Dollar Cost Averaging may be elected in the application or by completing an
election form and returning it to PMLIC by the beginning of the month. When an
election form is received, Dollar Cost Averaging will commence on the first
Policy Processing Day after the later of (a) the Policy Date; (b) the end of the
15-day period when premiums are allocated to the Money Market Separate Account
in certain states; and (c) when the Separate Account or Subaccount value equals
or exceeds the greater of the minimum amount stated above and the amount of the
first monthly transfer.
Once Dollar Cost Averaging transfers have commenced, they occur monthly on
the Policy Processing Day until the specified number of transfers has been
completed, or (a) a policy loan is requested, (b) the policy goes into the grace
period, or (c) there is insufficient value in the Separate Account or Subaccount
to make the transfer. The Owner may instruct PMLIC in writing to cancel
Dollar-Cost Averaging transfers at any time.
Transfers made under the Dollar Cost Averaging program do not count toward
the twelve transfers permitted each Policy Year without imposing the Transfer
Charge. PMLIC reserves the right to discontinue offering automatic transfers
upon 30 days' written notice to the Owner. Written notice will be sent to the
Owner confirming each transfer and when the Dollar Cost Averaging program is
terminated. The Owner and agent are responsible for reviewing the confirmation
to verify that the transfers are being made as requested.
27
<PAGE> 30
FREE-LOOK PRIVILEGES
Free-Look for Policy. The Policy provides for an initial Free-Look Period.
The Owner may cancel the Policy until 10 days after the Owner receives the
Policy. Upon giving written notice of cancellation and returning the Policy to
PMLIC's Service Center, to one of PMLIC's other offices, or to the PMLIC
representative from whom it was purchased, the Owner will receive a refund equal
to the sum of: (i) the Policy Account Value as of the date the returned Policy
is received by PMLIC at its Service Center or the PMLIC representative through
whom the Policy was purchased; (ii) any Premium Expense Charges deducted from
premiums paid; (iii) any Monthly Deductions charged against the accounts; and
(iv) any mortality and expense risk charges deducted from the value of the net
assets of the Separate Accounts. A refund of all premiums paid is made for any
Policy delivered in a state that requires such a refund.
LOAN PRIVILEGES
General. The Owner may at any time after the Issue Date borrow money from
PMLIC using the Policy Account Value as the security for the loan. The Owner may
obtain Policy loans in a minimum amount of $500 (or such lesser minimum required
in a particular state) but not exceeding the Policy's Net Cash Surrender Value
on the date of the loan. While at least one Insured is living, the Owner may
repay all or a portion of a loan and accrued interest.
Interest Rate Charged. Interest is charged on Policy loans at an effective
annual rate of 6%. Interest is due at the end of each Policy Year. If interest
is not paid when due, it is added to the loan balance and bear interest at the
same rate. Unpaid interest is allocated based on the Owner's written
instructions. If there are no written instructions or the Policy Account Value
in the specified Separate Accounts or Subaccounts is insufficient to allow the
collateral for the unpaid interest to be transferred, the interest is allocated
based on the proportion that the Guaranteed Account Value and the Value of the
Separate Accounts or Subaccounts under a Policy bear to the total unloaned
Policy Account Value.
Allocation of Loans and Collateral. PMLIC will allocate the amount of a
Policy loan among the Separate Accounts or Subaccounts and/or the Guaranteed
Account based upon the proportion that the value of the Separate Accounts or
Subaccounts and/or the Guaranteed Account Value bear to the total unloaned
Policy Account Value at the time the loan is made or to the Separate Accounts or
Subaccounts based on the percentages you specify at the time the loan is made.
The amount of collateral for a Policy loan is the loan amount plus accrued
interest to the next Policy Anniversary, less interest at an effective annual
rate of 4% which is earned to such Policy Anniversary. PMLIC will deduct the
collateral for the loan from each account based on the allocation described in
the preceding paragraph and transfer this amount to the Loan Account. The
collateral is recalculated: (a) when loan interest is repaid or added to loaned
amount; (b) when a new loan is made; and (c) when a loan repayment is made. A
transfer to or from the Loan Account will be made to reflect any recalculation
of collateral. At any time, the amount of the outstanding loan under a Policy
equals the sum of all loans (including due and unpaid interest added to the loan
balance) minus any loan repayments.
Interest Credited to Loan Account. As long as the Policy is in force,
PMLIC credits the amount in the Loan Account with interest at effective annual
rates it determines, but not less than 4% or such higher minimum rate required
under state law. The rate will apply to the calendar year which follows the date
of determination. Loan interest credited is transferred to the accounts: (a)
when loan interest is paid added to the loaned amount; (b) when a loan repayment
is made; and (c) when a new loan is made. PMLIC currently credits 4.50% interest
annually to the amount in the Loan Account until the Policy's 15th anniversary,
and 5.50% annually thereafter.
Effect of Policy Loan. Policy loans, whether or not repaid, will have a
permanent effect on the Policy Account Value, the Cash Surrender Value, and Net
Cash Surrender Value and may permanently affect the Death Benefit under the
Policy. The effect on the Policy Account Value and Death Benefit could be
favorable or unfavorable, depending on whether the investment performance of the
Separate Accounts or Subaccounts and the interest credited to the Guaranteed
Account is less than or greater than
28
<PAGE> 31
the interest being credited on the assets in the Loan Account while the loan is
outstanding. Compared to a Policy under which no loan is made, values under a
Policy will be lower when the credited interest rate is less than the investment
experience of assets held in the Separate Accounts or Subaccounts and interest
credited to the Guaranteed Account. The longer a loan is outstanding, the
greater the effect of a Policy loan is likely to be. The Death Proceeds will be
reduced by the amount of any outstanding Policy loan.
Loan Repayments. An Owner may repay all or part of a Policy loan at any
time while the Insured is alive and the Policy is in force. Unless prohibited by
a particular state, PMLIC will assume that any payments made while there is an
outstanding loan is a loan repayment, unless it receives written instructions
that the payment is a premium payment. Repayments up to the amount of the
outstanding loan is allocated to the accounts based on the amount of the
outstanding loan allocated to each account as of the date of repayment; any
repayment in excess of the amount of the outstanding loan will be allocated to
the accounts based on the amount of interest due on the portion of the
outstanding loan allocated to each account. For this purpose, the amount of the
interest due is determined as of the next Policy Anniversary. Failure to repay a
loan or to pay loan interest will not cause the Policy to lapse unless the Net
Cash Surrender Value on the Policy Processing Day is less than the monthly
deduction due. (See "Policy Duration.")
Tax Considerations. Any loans taken from a Modified Endowment Contract
will be treated as a taxable distribution. In addition, with certain exceptions,
a 10% additional income tax penalty will be imposed on the portion of any loan
that is included in income. (See "Distributions from Policies Classified as
Modified Endowment Contracts.") Depending upon the investment performance of the
Separate Accounts and the amounts borrowed, loans may cause the Policy to lapse.
If the Policy is not a Modified Endowment Contract, lapse of the Policy with
outstanding loans may result in adverse tax consequences. (See "Distributions
from Policies Not Classified as Modified Endowment Contracts.")
SURRENDER PRIVILEGE
At any time before the earlier of the death of the last surviving Insured
and the Final Policy Date, the Owner may surrender the Policy for its Net Cash
Surrender Value. The Net Cash Surrender Value is determined by PMLIC as of the
date it receives, at its Service Center, a surrender request signed by the
Owner. Coverage under the Policy will end on the day the Owner mails or
otherwise sends the written surrender request to PMLIC at its Service Center. A
surrender may have adverse federal income tax consequences. (See "Tax Treatment
of Policy Benefits.")
PARTIAL WITHDRAWAL PRIVILEGE
After the first Policy Year, at any time before the earlier of the death of
the last surviving Insured and the Final Policy Date, the Owner may withdraw a
portion of the Policy's Net Cash Surrender Value. The minimum amount which may
be withdrawn is $1,500. A withdrawal charge will be deducted from the Policy
Account Value. A partial withdrawal will not result in the imposition of
surrender charges.
The withdrawn amount and withdrawal charge will be allocated based on the
proportion that the Policy Account Value in the Separate Accounts or any
Subaccount and the Guaranteed Account Value bear to the total unloaned Policy
Account Value, or are allocated to such Separate Accounts or Subaccounts as the
Owner specifies at the time of the withdrawal.
The effect of a partial withdrawal on the Death Benefit and Face Amount
will vary depending upon the Death Benefit Option in effect and whether the
Death Benefit is based on the applicable percentage of Policy Account Value.
(See "Death Benefit Options.")
Option A. The effect of a partial withdrawal on the Face Amount and Death
Benefit under Option A can be described as follows:
If the Death Benefit equals the Face Amount, a partial withdrawal will
reduce the Face Amount and the Death Benefit by the amount of the partial
withdrawal.
29
<PAGE> 32
For the purposes of this illustration (and the following illustrations
of partial withdrawals), assume that the Attained Age of the younger
Insured is under 40 and there is no indebtedness. The applicable percentage
is 250% for the younger Insured with an Attained Age under 40.
Under Option A, a contract with a Face Amount of $300,000 and a Policy
Account Value of $30,000 will have a Death Benefit of $300,000. Assume that
the Owner takes a partial withdrawal of $10,000. The partial withdrawal
will reduce the Policy Account Value to $19,975 ($30,000 - $10,000 - $25)
and the Death Benefit and Face Amount to $290,000 ($300,000 - $10,000).
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, the Face Amount
will be reduced by an amount equal to the amount of the partial withdrawal.
The Death Benefit will be reduced to equal the greater of (a) the Face
Amount after the partial withdrawal, and (b) the applicable percentage of
the Policy Account Value after deducting the amount of the partial
withdrawal and expense charge.
Under Option A, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000. Assume
that the Owner takes a partial withdrawal of $49,975. The partial
withdrawal will reduce the Policy Account Value to $250,000 ($300,000 -
$49,975 - $25) and the Face Amount to $250,025 ($300,000 - $49,975). The
Death Benefit is the greater of (a) the Face Amount of $250,025 and (b) the
applicable percentage of the Policy Account Value $625,000 ($250,000 x
2.5). Therefore, the Death Benefit will be $625,000.
Option B. The Face Amount will never be decreased by a partial withdrawal.
A partial withdrawal will, however, always decrease the Death Benefit.
If the Death Benefit equals the Face Amount plus the Policy Account
Value, a partial withdrawal will reduce the Policy Account Value by the
amount of the partial withdrawal and expense charge and thus the Death
Benefit will also be reduced by the amount of the partial withdrawal and
the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $90,000 will have a Death Benefit of $390,000 ($300,000 +
$90,000). Assume the Owner takes a partial withdrawal of $20,000. The
partial withdrawal will reduce the Policy Account Value to $69,975
($90,000 - $20,000 - $25) and the Death Benefit to $369,975 ($300,000 +
$69,975). The Face Amount is unchanged.
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, The Death
Benefit will be reduced to equal the greater of (a) the Face Amount plus
the Policy Account Value after deducting the partial withdrawal and expense
charge and (b) the applicable percentage of Policy Account Value after
deducting the amount of the partial withdrawal and the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000 ($300,000 x
2.5). Assume the Owner takes a partial withdrawal of $149,975. The partial
withdrawal will reduce the Policy Account Value to $150,000
($300,000 - $149,975 - $25) and the Death Benefit to the greater of (a) the
Face Amount plus the Policy Account Value $450,000 ($300,000 + $150,000)
and (b) the Death Benefit based on the applicable percentage of the Policy
Account Value $375,000 ($150,000 x 2.5). Therefore, the Death Benefit will
be $450,000. The Face Amount is unchanged.
Because a partial withdrawal can affect the Face Amount and the Death
Benefit as described above, a partial withdrawal may also affect the Net Amount
at Risk which is used to calculate the cost of insurance charge under the
Policy. (See "Cost of Insurance.") A request for partial withdrawal may not be
allowed if, or to the extent that such withdrawal would reduce the Face Amount
below the Minimum Face
30
<PAGE> 33
Amount for the Policy. Also, if a partial withdrawal would result in cumulative
premiums exceeding the maximum premium limitations applicable under the Code for
life insurance, PMLIC will not allow such partial withdrawal.
A partial withdrawal of Net Cash Surrender Value may have federal income
tax consequences. (See "Tax Treatment of Policy Benefits.")
31
<PAGE> 34
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate PMLIC
for (a) providing the insurance benefits set forth in the Policy; (b)
administering the Policy; (c) assuming certain risks in connection with the
Policy; and (d) incurring expenses in distributing the Policy. In the event that
there are any profits from fees and charges deducted under the Policy, including
but not limited to mortality and expense risk charges, such profits could be
used to finance the distribution of the contracts.
PREMIUM EXPENSE CHARGE
Prior to allocation of Net Premiums, premiums paid are reduced by a Premium
Expense Charge which consists of:
Premium Tax Charge. Various states and some of their subdivisions impose a
tax on premiums received by insurance companies. Premium taxes vary from state
to state but range from 0% to 4%. A deduction of a percentage of the premium
will be made from each premium payment. The applicable percentage will be based
on the rate for the Insureds' residence. No Premium tax charge is deducted in
jurisdictions that impose no premium tax.
Percent of Premium Charge. A percent of premium charge not to exceed 6% is
deducted from each premium payment to partially compensate PMLIC for federal
taxes and the cost of selling the Policy. Currently, PMLIC deducts 6% of each
premium payment in the first 15 Policy years and 1.5% percent from each premium
payment thereafter.
SURRENDER CHARGES
A Surrender Charge, which consists of a Deferred Administrative Charge and
a Deferred Sales Charge, is imposed if the Policy is surrendered or lapses at
any time before the end of the 15th Policy Year. A portion of this Surrender
Charge will be deducted if the Owner decreases the Initial Face Amount before
the end of the 15th Policy Year.
This surrender charge is 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.
Deferred Administrative Charge. The Deferred Administrative Charge is as
follows:
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR FACE AMOUNT
- ----------- -----------------
<S> <C>
1-11................................. $5.00
12................................... 4.00
13................................... 3.00
14................................... 2.00
15................................... 1.00
16+.................................. 0
</TABLE>
The actual Deferred Administrative Charge is the charge described above
less the amount of any Deferred Administrative Charge previously paid at the
time of a decrease in Face Amount.
Deferred Sales Charge. The Deferred Sales Charge will not exceed the
Maximum Deferred Sales Charge specified in the Policy. During Policy Years 1
through 11, this maximum equals a percentage of the Target Premium for the
Initial Face Amount (shown below). It equals 80% of this maximum during Policy
Year 12, 60% during Policy Year 13, 40% during Policy Year 14, 20% during Policy
Year 15, and 0% during Policy Years 16 and later. The Deferred Sales Charge
actually imposed will equal the lesser of
32
<PAGE> 35
this maximum and an amount equal to 30% of all premiums actually paid to the
date of surrender or lapse, less any Deferred Sales Charge previously paid at
the time of a prior decrease in Face Amount.
<TABLE>
<CAPTION>
JOINT MAXIMUM DEFERRED SALES CHARGE
EQUAL AGE (% OF TARGET PREMIUM)
--------- -----------------------------
<S> <C>
25-71................................. 60%
72-73................................ 50
74-75................................ 40
76-78................................ 30
79-83................................ 20
84-85................................ 10
</TABLE>
Surrender Charge Upon Decrease in Face Amount. A surrender charge may be
deducted on a decrease in Face Amount. In the event of a decrease, the surrender
charge deducted is a fraction of the charge that would apply to a full surrender
of the Policy. The fraction is determined by dividing the amount of the decrease
by the current Face Amount and multiplying the result by the Surrender Charge.
Where a decrease causes a partial reduction in the Face Amount, a proportionate
share of the Surrender Charge will be deducted.
Allocation of Surrender Charges. The Surrender Charge will be deducted
from the Policy Account Value. For surrender charges resulting from Face Amount
decreases, that part of any such surrender charge will reduce the Policy Account
Value and will be allocated among the accounts based on the proportion that the
value in each of the Separate Accounts, Subaccounts, and the Guaranteed Account
Value bear to the total unloaned Policy Account Value.
MONTHLY DEDUCTIONS
Charges will be deducted from the Policy Account Value on the Policy Date
and on each Policy Processing Day to compensate PMLIC for administrative
expenses and for the insurance coverage provided by the Policy. The Monthly
Deduction consists of four components -- (a) the cost of insurance, (b) monthly
administrative charges, (c) initial administrative charges, and (d) the cost of
any additional benefits provided by rider. Because portions of the Monthly
Deduction, such as the cost of insurance, can vary from month to month, the
Monthly Deduction may vary in amount from month to month. The Monthly Deduction
is deducted from the Separate Accounts, Subaccounts and the Guaranteed Account
in accordance with the allocation percentages for Monthly Deductions chosen by
the Owner at the time of application, or as later changed by PMLIC pursuant to
the Owner's written request. If PMLIC cannot make a monthly deduction on the
basis of the allocation schedule then in effect, PMLIC makes the deduction based
on the proportion that the Owner's Guaranteed Account Value and the value in the
Owner's Separate Accounts and Subaccounts bear to the total unloaned Policy
Account Value.
Cost of Insurance. Because the cost of insurance depends upon several
variables, the cost for each Policy Month can vary. PMLIC will determine the
monthly Cost of Insurance Charge by multiplying the applicable cost of insurance
rate or rates by the Net Amount at Risk for each Policy Month. The Net Amount at
Risk on any Policy Processing Day is the amount by which the Death Benefit
exceeds the Policy Account Value.
In calculating the cost of insurance charge, the rate based on each
Insured's Premium Class on the Policy Date is applied to the Net Amount at Risk
for the Face Amount. Any change in the Net Amount at Risk will affect the total
cost of insurance charges paid by the Owner.
Cost of Insurance Rate. The cost of insurance rate is based on the
Attained Age, Sex, Premium Class of each Insured and Duration. The actual
monthly cost on insurance rates will be based on PMLIC's expectations as to
future mortality and expense experience. They will not, however, be greater than
the guaranteed maximum cost of insurance rates set forth in the Policy. These
guaranteed maximum rates are based on each Insured's Attained Age, Sex, Premium
Class, and the 1980 Commissioners
33
<PAGE> 36
Standard Ordinary Smoker and Nonsmoker Mortality Table. Any change in the cost
of insurance rates will apply to all pairs of Insureds of the same Attained,
Age, Sex, Premium Class and Duration.
Premium Class. The Premium Class of the Insureds will affect the cost of
insurance rates. PMLIC currently places Insureds into standard classes and
classes with extra ratings, which reflect higher mortality risks. In an
otherwise identical Policy, Insureds in the standard class will have a lower
cost of insurance than Insureds in a class with extra ratings. The standard
Premium Class is divided into three categories: smoker, nonsmoker and preferred.
Nonsmoking pairs of Insureds will generally incur lower cost of insurance rates
than Insureds who are classified as smokers in the same Premium Class. Preferred
Insureds will generally incur lower cost of insurance rates than Insureds who
are classified as standard nonsmokers.
Initial Administrative Charge. An Initial Administrative Charge of $17.50
plus an amount per $1,000 of Face Amount (shown below) is deducted from Policy
Account Value on the Policy Date and on each of the next eleven Policy
Processing Days.
INITIAL ADMINISTRATIVE CHARGE
$0.11 per $1,000 on the first million of face amount
$0.09 per $1,000 on the next million of face amount
$0.07 per $1,000 on the next million of face amount
$0.05 per $1,000 on the next million of face amount
$0.03 per $1,000 on the next million of face amount
0 on the excess face amount over $5 million
Monthly Administrative Charges. A Monthly Administrative Charge (presently
$7.50 plus $.01 per $1,000 of Face Amount) is deducted from the Policy Account
Value on the Policy Date and each Policy Processing Day as part of the Monthly
Deduction. This charge may be increased, but in no event will it be greater than
$12 plus $.03 per $1,000 of Face Amount per month. This charge is intended to
reimburse PMLIC for ordinary administrative expenses expected to be incurred,
including record keeping, processing claims and certain Policy changes,
preparing and mailing reports, and overhead costs.
Additional Benefit Charges. The Monthly Deduction will include charges for
any additional benefits added to the Policy. The monthly charges will be
specified in the applicable rider.
PARTIAL WITHDRAWAL CHARGE
A charge of $25 will be deducted from the Policy Account Value for each
partial withdrawal of Net Cash Surrender Value. This charge is intended to
compensate PMLIC for the administrative costs in effecting the requested payment
and in making all calculations which may be required by reason of the partial
withdrawal.
TRANSFER CHARGE
After 12 transfers have been made in any Policy Year, a transfer charge of
$25 will be deducted for each transfer during the remainder of such Policy Year
to compensate PMLIC for the costs of processing such transfers.
The transfer charge will be deducted from the amount being transferred. The
transfer charge will not apply to transfers resulting from Policy loans,
Automatic Asset Rebalancing, Dollar Cost Averaging, the exercise of special
transfer rights and the initial reallocation of account values from the Money
Market Separate Account to other Separate Accounts or Subaccounts. These
transfers will not count against the 12 free transfers in any Policy Year.
34
<PAGE> 37
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 0.75% (or a daily rate of .002055%) of the average daily net
assets of each Separate Account or Subaccount. This charge may be increased, but
in no event will it be greater than an annual rate of 0.90% of the average daily
net assets of each Separate Account 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 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. (See "Special Policy Account Value Credit")
If the mortality and expense risk charge proves insufficient, PMLIC will
provide for all death benefits and expenses and any loss will be borne by PMLIC.
Conversely, PMLIC will realize a gain from this charge to the extent all money
collected from this charge is not needed to provide for benefits and expenses
under the Policies.
OTHER CHARGES
The Separate Accounts and Subaccounts purchase shares of the Funds at net
asset value. The net asset value of those shares reflect management fees and
expenses already deducted from the assets of the Fund's Portfolios. The fees and
expenses for the Funds and their Portfolios are described briefly in connection
with a general description of each Fund. More detailed information is contained
in the Funds Prospectuses which are attached to or accompany this Prospectus.
35
<PAGE> 38
THE GUARANTEED ACCOUNT
An Owner may allocate some or all of the Net Premiums and transfer some or
all of the Policy Account Value to the Guaranteed Account, which is part of
PMLIC's General Account and pays interest at declared rates guaranteed for each
calendar year (subject to a minimum guaranteed interest rate of 4%). The
principal, after deductions, is also guaranteed. PMLIC's General Account
supports its insurance and annuity obligations. The Guaranteed Account has not,
and is not required to be, registered with the SEC under the Securities Act of
1933, and neither the Guaranteed Account nor PMLIC's General Account has been
registered as an investment company under the Investment Company Act of 1940.
Therefore, neither PMLIC's General Account, the Guaranteed Account, nor any
interest therein are generally subject to regulation under the 1933 Act or the
1940 Act. The disclosures relating to these accounts which are included in this
Prospectus are for prospective Owners' information and have not been reviewed by
the SEC. However, such disclosures may be subject to certain general applicable
provisions of the Federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
The portion of the Policy Account Value allocated to the Guaranteed Account
will be credited with rates of interest, as described below. Since the
Guaranteed Account is part of PMLIC's General Account, PMLIC assumes the risk of
investment gain or loss on this amount. All assets in the General Account are
subject to PMLIC's general liabilities from business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Guaranteed Account Value is guaranteed to accumulate at a minimum
effective annual interest rate of 4%. PMLIC intends to credit the Guaranteed
Account Value with current rates in excess of the minimum guarantee but is not
obligated to do so. These current interest rates are influenced by, but do not
necessarily correspond to, prevailing general market interest rates. Since
PMLIC, in its sole discretion, anticipates changing the current interest rate
from time to time, different allocations to and from the Guaranteed Account will
be credited with different current interest rates. The interest rate to be
credited to each amount allocated or transferred to the Guaranteed Account will
apply to the end of the calendar year in which such amount is received or
transferred. At the end of the calendar year, PMLIC reserves the right to
declare a new current interest rate on such amount and accrued interest thereon
(which may be a different current interest rate than the current interest rate
on new allocations to the Guaranteed Account on that date). The rate declared on
such amount and accrued interest thereon at the end of each calendar year will
be guaranteed for the following calendar year. Any interest credited on the
amounts in the Guaranteed Account in excess of the minimum guaranteed rate of 4%
per year will be determined in the sole discretion of PMLIC. The Owner assumes
the risk that interest credited may not exceed the guaranteed minimum rate.
Amounts deducted from the Guaranteed Account for partial withdrawals,
Policy loans, transfers to the Separate Accounts or Subaccounts, Monthly
Deductions or other changes are currently, for the purpose of crediting
interest, accounted for on a last in, first out ("LIFO") method.
PMLIC reserves the right to change the method of crediting interest from
time to time, provided that such changes do not have the effect of reducing the
guaranteed rate of interest below 4% per annum or shorten the period for which
the interest rate applies to less than a calendar year (except for the year in
which such amount is received or transferred).
Calculation of Guaranteed Account Value. The Guaranteed Account Value at
any time is equal to amounts allocated and transferred to it plus interest
credited to it, minus amounts deducted, transferred or withdrawn from it.
Interest will be credited to the Guaranteed Account on each Policy
Processing Day as follows: for amounts in the account for the entire Policy
Month, from the beginning to the end of the month; for amounts allocated to the
account during the prior Policy Month, from the date the Net Premium or loan
repayment is allocated to the end of the month; for amounts transferred to the
account during the Policy Month, from the date of transfer to the end of the
month; and for amounts deducted or withdrawn from
36
<PAGE> 39
the account during the prior Policy Month, from the beginning of the month to
the date of deduction or withdrawal.
Surrenders and partial withdrawals from the Guaranteed Account may be
delayed for up to six months. (See "Payment of Policy Benefits.")
TRANSFERS FROM GUARANTEED ACCOUNT
Within 30 days prior to or following any Policy Anniversary, one transfer
is allowed from the Guaranteed Account to any or all of the Separate Accounts or
Subaccounts. The amount transferred from the Guaranteed Account may not exceed
25% of the value of such account if the value of such account exceeds $1,000 or,
if less, then the entire Guaranteed Account Value may be transferred on the
applicable Policy Anniversary. If the written request for such transfer is
received prior to the Policy Anniversary, the transfer will be made as of the
Policy Anniversary; if the written request is received after the Policy
Anniversary, the transfer will be made as of the date PMLIC receives the written
request at its Service Center.
37
<PAGE> 40
OTHER POLICY PROVISIONS
BENEFIT PAYABLE ON FINAL POLICY DATE
If one of the Insureds is living on the Final Policy Date (at the younger
Insured's Attained Age 100), PMLIC will pay the Owner the Policy Account Value
less any outstanding Policy loan and accrued interest and any unpaid Monthly
Deductions. Insurance coverage under the Policy will then end. Payment will
generally be made within seven days of the Final Policy Date.
PAYMENT OF POLICY BENEFITS
Insurance Proceeds under a Policy will ordinarily be paid to the
Beneficiary within seven days after PMLIC receives proof of both Insureds'
deaths at its Service Center and all other requirements are satisfied. Insurance
proceeds will be paid in a single sum unless an alternative settlement option
has been selected.
If Insurance 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 Insurance Proceeds from the date of death until payment is made.
Any amounts payable as a result of surrender, partial withdrawal, 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.
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. As to amounts allocated to the Guaranteed Account, PMLIC
may defer payment of any withdrawal or surrender of Net Cash Surrender Value and
the making of a loan for up to six months after PMLIC receives a written request
at its Service Center. 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. Before the
death of the last surviving Insured, the Owner may arrange for the Insurance
Proceeds to be paid in a lump sum or under a Settlement Option. These choices
are also available upon surrender of the Policy for its Net Cash Surrender Value
and for payment of the Policy Account Value on the Final Policy Date. If no
election is made, payment will be made in a lump sum. The Beneficiary may also
arrange for payment of the Insurance Proceeds in a lump sum or under a
Settlement Option. If the Beneficiary is changed, any prior arrangements with
respect to the Payment Option will be canceled.
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.
38
<PAGE> 41
OWNERSHIP
The Insureds jointly are the Owner unless a different Owner is named in the
application or thereafter changed. After the death of the first Insured, the
last surviving Insured is the Owner unless otherwise provided. While both or one
of the Insureds is living, the Owner is entitled to exercise any of the rights
stated in the Policy or otherwise granted by PMLIC. If the Insureds and Owner
are not the same, and the Owner dies while an Insured is still living, these
rights will vest in the estate of the Owner, unless otherwise provided.
BENEFICIARY
The Beneficiary is designated in the application for the Policy, unless
thereafter changed by the Owner before the death of the last surviving Insured
by written notice to PMLIC. Any Insurance Proceeds for which there is not a
designated Beneficiary surviving at the last surviving Insured's death are
payable in a single sum to the estate of the last surviving Insured.
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 Insurance
Proceeds equally, unless otherwise stated. The change will take effect as of the
date it is signed, whether or not one of the Insureds is living when the request
is received by PMLIC. PMLIC will not be responsible for any payment made or
action taken before it receives the written request. A change in the Policy's
ownership may have 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
Insurance 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 Insurance 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 Insurance 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. To
the extent permitted by applicable laws, no right or benefit under the Policy
will be subject to claims of creditors, except as may be provided by assignment.
39
<PAGE> 42
MISSTATEMENT OF AGE AND SEX
If the age or sex of either Insured 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 Policy Account Value.
SUICIDE
PMLIC's liability is limited to payment of a sum equal to the premiums paid
less any Policy loan, and accrued interest on such loan, and any partial
withdrawals, if:
(a) both Insureds commit suicide within 2 years of the Policy Issue Date
(except where state law requires a shorter period) and within 90 days
of each other; or
(b) the last surviving Insured dies by suicide within such 2 year period
and within 90 days of the death of the first of the Insured's to die;
or
(c) the last surviving Insured lives for more than 90 days beyond the date
that the first Insured's death occurred by suicide and does not
exchange the Policy as described below.
During the 90 day period following the date that the first Insured dies by
suicide, the surviving Insured may exchange the Policy, without evidence of
insurability, for a permanent life policy issued by PMLIC on the life of the
surviving Insured. The Policy Issue Date for the new policy will be the 91st day
after the date of the first Insured's death. In the event that one of the
Insured's commits suicide within 2 years of the Policy Issue Date and the
surviving Insured does not exercise this exchange right, coverage under the
Policy will end on the 91st day following such death.
If one of the Insureds commits suicide within 2 years of the Policy Issue
Date (or shorter period required by state law) and the surviving Insured dies,
other than by suicide, within 90 days of the date of the first death, PMLIC will
pay the Insurance Proceeds to the Beneficiary.
If the Insured commits suicide within two years (or shorter period required
by state law) from the effective date of any Policy change which increases the
Death Benefit, the amount which PMLIC will pay with respect to the increase will
be the Monthly Deductions for the cost of insurance attributable to such
increase and the expense charge for the increase.
CONTESTABILITY
PMLIC has the right to contest the validity of a Policy based on material
misstatements made in the application for the Policy or a change. However, PMLIC
will not contest the Policy (or any change) after it (or the change) has been in
force during each Insured's lifetime for two years.
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 12, 6, 3, or 1 month intervals, as elected at a rate of at
least 3% per year.
Installments of a Specified Amount Option. Payable in equal installments
of the amount elected with PMLIC's consent at 12, 6, 3, or 1 month intervals, as
elected 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
40
<PAGE> 43
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,
with a number of instalments certain, during the joint lives of the payee and
one other person and during the life of the survivor. The minimum number of
payments will be for either 120 or 240 months, as elected.
SUPPLEMENTARY BENEFITS
The following riders offer 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 Benefit. A Disability Waiver Benefit rider provides that
in the event of the Insured's total disability before Attained Age 60 and
continuing for at least six months, PMLIC will apply a premium payment to the
Policy on each Policy Processing Day during the first five Policy Years (the
amount of the payment will be based on the Minimum Annual Premium). PMLIC will
also waive all monthly deductions after the commencement of and during the
continuance of such total disability after the first five Policy Years.
Policy Split Option. Under this rider, the Owner(s) may exchange the
Policy for two individual permanent life insurance policies, one on the life of
each of the Insureds, by making a Written Request to us within 180 days of one
of the following events:
1. a court of competent jurisdiction issues a final divorce decree with
respect to the marriage of the Insureds; or
2. federal law with regard to estate taxes is changed so as to remove the
unlimited marital deduction or reduce by 50% or more, the estate taxes
payable on death.
If the Policy is owned jointly by two Owners, both must agree to exercise
the rider. PMLIC requires satisfactory evidence of insurability as to both
Insureds before issuing the individual policies. In the event that one of the
Insureds cannot provide satisfactory evidence of insurability, an individual
policy may be issued on the other Insured and one-half of the Net Cash Surrender
Value of the Policy may be distributed to the Owner(s) in lieu of a second
individual policy. Similarly, if two joint Owners are the Insureds and one of
them does not agree to exercise the exchange provided by this rider, then he or
she may take one-half (or other appropriate portion based on relative ownership)
of the Net Cash Surrender Value of the Policy in lieu of a second individual
policy.
If the rider is exercised, the Policy will terminate and the individual
policies will become effective as of the Policy Processing Day following the
later of the date that (1) Written Request is made for the exchange, or (2)
PMLIC approves the exchange. This date shall also be the Policy Date for the
individual policies. Any Policy Debt under the Policy is extinguished as of the
date of the exchange.
The two individual policies shall each have a cash value equal to 50% of
the Policy's final Policy Account Value less 50% of any policy loan (including
accrued interest). The face amount of each individual policy will be at least
50% of the Policy's final Face Amount and never less than the stated minimum
face amount as of the date of the exchange.
After the exchange, the Owner(s) may return an individual policy for a
refund under the cancellation period provision in such policy. The refund shall
not exceed 50% of the Net Cash Surrender Value of the Policy plus premiums paid
in connection with the individual policy.
The rider terminates upon the earliest of: (1) the Policy Processing Date
on or following the day that we receive a Written Request to exchange under this
rider, (2) the date of death of the first Insured to die under the Policy, (3)
the date as of which we receive a Written Request to cancel this rider, (4) the
Policy Anniversary when the older Insured reaches Attained Age 81, or (5) the
date as of which the Policy is surrendered.
41
<PAGE> 44
Change of Insured. A Change of Insured rider permits the Owner to change
one of the Insureds, subject to certain conditions and evidence of insurability.
The Monthly Deduction for the cost of insurance is adjusted to that for the New
Insured and remaining Insured as of the effective date of the change.
Four Year Survivorship Term Life Insurance. The Policy may include a Four
Year Survivorship Term rider which provides additional term insurance during the
first four Policy Years upon due proof of the death of both Insureds. The amount
of this term insurance is 1.25 multiplied by the Face Amount of the Policy.
Convertible Term Life Insurance. A Convertible Term Life Insurance
rider(s) provides additional term insurance on either or both insureds. This
rider will terminate at the earlier of attained age 100 (80 in New York) of the
covered Insured or at the termination or maturity of the Policy. If the Policy
is extended by the Final Policy Date Extension rider, the Convertible Term Life
Insurance rider will terminate on the original maturity date.
Guaranteed Minimum Death Benefit. A Guaranteed Minimum Death Benefit rider
provides a guarantee that if the cumulative premiums paid less partial
withdrawals and outstanding loans exceed the cumulative minimum premiums to
date, the Policy will not lapse prior to the end of the Death Benefit Guarantee
Period shown on page 3 of the Policy Schedule. If the rider is added, the
Monthly Deduction will be increased by $0.01 per every $1,000 of Face Amount in
force under the Policy. The rider and the additional Monthly Deduction will
terminate: (1) upon written request; (2) upon surrender or other termination of
the Policy; or (3) at the expiration of the Death Benefit Guarantee Period. The
Guaranteed Minimum Death Benefit rider and the Convertible Term Life Insurance
rider may not be issued on the same Policy.
Final Policy Date Extension. A Final Policy Date Extension rider extends
the Final Policy Date of a Policy 20 years from the original Final Policy Date.
It may only be added on or after the anniversary nearest the younger insured's
90th birthday. There is no charge for adding this rider. The death benefit after
the original Final Policy Date will be the Policy Account Value. All other
riders attached and in effect on the original Final Policy Date will terminate
on the original Final Policy Date.
The tax consequences of (1) adding a Final Policy Date Extension rider to
the Policy, and (2) the Policy continuing in force after the younger Insured's
100th birthday are uncertain. Prospective Owners and Owners considering the
addition of a Final Policy Date Extension to a Policy should consult their own
legal or other advisors as to such consequences.
42
<PAGE> 45
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 will in all
cases satisfy the applicable requirements, particularly if the Owner pays the
full amount of premiums permitted under the Policy. If it is subsequently
determined that a Policy does not satisfy the applicable requirements, PMLIC 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 Policy Account 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 Policy Account 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."
43
<PAGE> 46
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. 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.
Taxation of Policy Split. The Policy Split Option Rider permits a Policy
to be split into two other permanent life policies upon the occurrence of a
divorce of the joint insureds or certain changes in federal estate tax law. A
policy split could have adverse tax consequences; for example, it is not clear
whether a policy split will be treated as a nontaxable exchange under Section
1031 through 1043 of the Code. If a policy split is not treated as a nontaxable
exchange, a split could result in the recognition of taxable income in an amount
up to any gain in the Policy at the time of the split. In addition, it is not
clear whether, in all circumstances, the individual contracts that result from a
policy split would be treated as life insurance contracts for federal income tax
purposes and, if so treated, whether the individual
44
<PAGE> 47
contracts would be classified as modified endowment contracts. Before you
exercise rights provided by the policy split option, it is important that you
consult with a competent tax adviser regarding the possible consequences of a
policy split.
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 PMLIC is
not currently charging for them. If they increase, PMLIC may deduct charges for
such taxes.
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
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 more of the
Portfolios, or to approve or disapprove an investment policy or investment
adviser of one or
45
<PAGE> 48
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.
46
<PAGE> 49
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 or vice versa, (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
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 Policy Account 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 Policy Account 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:
Market Street Fund, Inc. This agreement provides for termination: (1)
on one year's advance notice by any party; (2) at PMLIC's option if shares
of the Fund are not reasonably available to meet the requirements of the
Contracts; (3) at the option of the Fund or PMLIC if certain enforcement
proceedings are instituted against the other; (4) upon receipt of
regulatory approvals and/or the vote of the Owners of Contracts to
substitute shares of another mutual fund; (5) at PMLIC's option if the Fund
ceases to qualify as a regulated investment company under the Code or fails
to meet the diversification requirements thereunder; (6) at the option of
PMLIC or the Fund upon a determination that an irreconcilable material
conflict exists between Owners of variable insurance products of all the
separate accounts or the interests of participating insurance companies
investing in the Fund; (7) at the option of PMLIC if it has withdrawn the
Variable Account's investment in the Fund; (8) at the option of PMLIC if
PMLIC has withdrawn the Account or Accounts investment in
47
<PAGE> 50
the Fund because a particular state insurance regulator's decision
applicable to the PMLIC conflicts with the majority of other state
insurance regulators; (9) at the option of the PMLIC if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code of 1986, or under any successor or similar provision,
or if the PMLIC reasonably believes that the Fund may fail to so qualify;
(10) at the option of the PMLIC if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or (11) at the
option of any party upon another party's material breach of any provision
of the agreement.
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.
Variable Insurance Products Fund and Variable Insurance Products Fund
II. These agreements provide for termination (1) on six months' advance
notice by any party; (2) at PMLIC's option if shares of the Fund are not
reasonably available to meet requirements of the contracts; (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 fails to meet the
diversification requirements thereunder; (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 the 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 the 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 contracts; (7) by PMLIC by
written notice to the Fund and its principal underwriter with respect to
any portfolio in the event that such portfolio ceases to qualify as a
regulated investment company under Subchapter M of the Code of under any
successor or similar provision, or if the PMLIC reasonably believes that
the PMLIC may fail to so qualify; (8) termination by PMLIC by written
notice to the Fund and its principal underwriter with respect to any
portfolio in the event that such portfolio fails to meet specified
diversification requirements.
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
Worldwide Insurance Trust ("Van Eck Trust") provides for termination (1) by
PMLIC, Van Eck Trust or Van Eck Trust's Distributor upon six months prior
written notice; (2) at the option of PMLIC, if Fund shares are not
available for any reason to meet the requirements of Contracts as
determined by PMLIC, reasonable advance notice of election to terminate
shall be furnished by PMLIC; (3) at the option of PMLIC, the Fund or its
principal underwriter, upon institution of formal proceedings against the
broker-dealer marketing the Contracts, the Variable Accounts, PMLIC or the
Fund by any regulatory body; (4) upon a decision by PMLIC, in accordance
with regulations of the SEC, to substitute Fund shares with the shares of
Contracts for which the shares have been selected to serve as the
underlying investment medium PMLIC on 60 days' written notice replace Fund
shares; (5) upon assignment of the agreement unless made with the written
consent of each other party; (6) in the event Fund shares are not
registered, issued or sold in conformance with Federal law or such law
precludes the use of Fund shares as an underlying investment medium of
Contracts issued or to be issued by PMLIC;
48
<PAGE> 51
(7) at the option of PMLIC by written notice to the Fund and its principal
underwriter with respect to any portfolio in the event that such portfolio
fails to meet specified diversification requirements or if reasonably
believes that the portfolio may fail to meet either of those requirements;
(8) at the option of PMLIC by written notice to the Fund and its principal
underwriter, if PMLIC shall determine, in its sole judgement exercised in
good faith, that the Fund or its principal underwriter has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material
adverse publicity; or (9) at the option of the Fund or its principal
underwriter by written notice to PMLIC, if the Fund or its principal
underwriter shall determine, in its sole judgement exercised in good faith,
that the Fund or underwriter has suffered a material adverse change in its
business operations, financial conditions or prospects since the date of
this Agreement or is the subject of material adverse publicity; 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, or 5) upon assignment of
the agreement unless both parties agree to the assignment in writing.
49
<PAGE> 52
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 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>
50
<PAGE> 53
<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.
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 $20 million covering PMLIC's officers and
employees has been issued by Reliance Insurance Company.
51
<PAGE> 54
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 300
Continental Drive, Suite 3 South, Newark, Delaware 19713, 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 Separate Accounts, 1717 and PMLIC are
parties. 1717 retains no compensation as principal underwriter of the Policies.
1717 is also the principal underwriter of variable annuity contracts issued by
Providentmutual Life and Annuity Company of America.
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 (including cases where temporary insurance coverage is provided) or will
refund the applicable amount if the Policy is returned under the Free-Look
provision.
Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. During the first Policy
Year, agent commissions will not be more than 50% of the premiums paid up to a
target amount (used only to determine commission payments) and 2% of the
premiums paid in excess of that amount. Agent commissions will not be more than
5% of premiums paid for Policy Years 2 through 10. Agents may also receive
annual renewal compensation of up to 0.25% of the unloaned Policy Account Value,
depending upon the circumstances. The annual renewal compensation will be
computed on the Policy Anniversary beginning at the end of the second Policy
Year. Agents may also receive expense allowances or bonuses. The agent may be
required to return the first year commission less the deferred sales charge
imposed if a Policy is not continued through the first Policy Year.
POLICY REPORTS
At least once each Policy Year a statement will be sent to the Owner
describing the status of the Policy, including setting forth the Face Amount,
the current Death Benefit, any Policy loans and accrued interest, the current
Policy Account Value, the Guaranteed Account Value, the Loan Account Value, the
value in each Separate Account, premiums paid since the last report, charges
deducted since the last report, any partial withdrawals since the last report,
and the current Net Cash Surrender Value. At the present time, PMLIC plans to
send these Policy Statements on a quarterly basis. In addition, a statement will
be sent to an Owner showing the status of the Policy following the transfer of
amounts from one Separate Account or Subaccount of a Separate Account to another
(excluding automatic rebalancing of Policy Account 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.
52
<PAGE> 55
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 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 and its
affiliates. 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 and its affiliates currently anticipate that their systems
will be Year 2000 compliant on or about December 31, 1999 but there can be no
assurance that PMLIC will be successful, or that interaction with other service
providers will not impair PMLIC's or its affiliates' services at that time.
STATE REGULATION
PMLIC is subject to regulation and supervision by the Insurance Department
of the Commonwealth of Pennsylvania which periodically examines its affairs. It
is also subject to the insurance laws and regulations of all jurisdictions where
it is authorized to do business. A copy of the Policy form has been filed with,
and where required approved by, insurance officials in each jurisdiction where
the Policies are sold. PMLIC is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations. There is
litigation regarding the proposed conversion. (See Appendix C.)
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 audited 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.
53
<PAGE> 56
DEFINITIONS
ATTAINED AGE.................. The Issue Age for each Insured plus the number
of full Policy Years since the Policy Date.
BENEFICIARY................... The person(s) or entity(ies) designated to
receive all or some of the Insurance Proceeds
when the last surviving Insured dies. The
Beneficiary is designated in the application or
if subsequently changed, as shown in the latest
change filed with PMLIC. If no Beneficiary
survives and unless otherwise provided, the
last surviving Insured's estate will be the
Beneficiary.
CASH SURRENDER VALUE.......... The Policy Account Value minus any applicable
Surrender Charge.
DEATH BENEFIT................. Under Option A, the greater of the Face Amount
or a percentage of the Policy Account Value on
the date of death; under Option B, the greater
of the Face Amount plus the Policy Account
Value on the date of death, or a percentage of
the Policy Account Value on the date of death.
DURATION...................... The number of full years the insurance has been
in force measured from the Policy Date.
FACE AMOUNT................... The Initial Face Amount minus any decreases in
Face Amount.
FINAL POLICY DATE............. The Policy Anniversary nearest the younger
Insured's Attained Age 100 at which time the
Policy Account Value, if any, (less any
outstanding Policy loan and accrued interest)
will be paid to the Owner if either Insured is
living. The Policy will end on the Final Policy
Date.
GRACE PERIOD.................. The 61-day period allowed for payment of a
premium following the date PMLIC mails notice
of the amount required to keep the Policy in
force.
INITIAL FACE AMOUNT........... The Face Amount of the Policy on the Issue
Date. The Face Amount may be decreased after
issue.
INSURANCE PROCEEDS............ The net amount to be paid to the Beneficiary
when the last surviving Insured dies.
INSUREDS...................... The persons upon whose lives the Policy is
issued.
ISSUE AGE..................... The age of each Insured at his or her birthday
nearest the Policy Date. The Issue Ages are
stated in the Policy.
JOINT EQUAL AGE............... An age aligned to the two Insureds which PMLIC
actuarially determines based on the Issue Age
of each Insured.
LOAN ACCOUNT.................. The account to which the collateral for the
amount of any Policy loan is transferred from
the Separate Accounts, Subaccounts and/or the
Guaranteed Account.
MINIMUM ANNUAL PREMIUM........ The annual amount which is used to determine
the Minimum Guarantee Premium. This amount is
stated in each Policy.
MINIMUM FACE AMOUNT........... The Minimum Face Amount is $100,000.
54
<PAGE> 57
MINIMUM GUARANTEE PREMIUM..... The Minimum Annual Premium multiplied by the
number of months since the Policy Date
(including the current month) divided by 12.
MINIMUM INITIAL PREMIUM....... Equal to the Minimum Annual Premium multiplied
by the following factor for the specified
premium mode at issue: Annual -- 1.0;
Semi-annual -- 0.5; Quarterly -- 0.25;
Monthly -- 0.167.
MONTHLY DEDUCTIONS............ The amount deducted from the Policy Account
Value on each Policy Processing Day. It
includes the Monthly Administrative Charge, the
Initial Administrative Charge, the Monthly Cost
of Insurance Charge, and the monthly cost of
any benefits provided by riders.
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.
NET PREMIUMS.................. The remainder of a premium after the deduction
of the Premium Expense Charge.
OWNER......................... The person(s) or entity(ies) entitled to
exercise the rights granted in the Policy.
PLANNED PERIODIC PREMIUM...... The premium amount which the Owner plans to pay
at the frequency selected. The Owner is
entitled to receive a reminder notice and
change the amount of the Planned Periodic
Premium. The Owner is not required to pay the
Planned Periodic Premium.
POLICY ACCOUNT VALUE.......... The sum of the Policy's values in the Separate
Accounts, the Guaranteed Account, and the Loan
Account.
POLICY ANNIVERSARY............ The same day and month as the Policy Date in
each later year.
POLICY DATE................... The date set forth in the Policy that is used
to determine Policy Years and Policy Processing
Days. The Policy Date is generally the same as
the Issue Date but may be another date mutually
agreed upon by PMLIC and the proposed Insured.
POLICY ISSUE DATE............. The date on which the Policy is issued. It is
used to measure suicide and contestable
periods.
POLICY PROCESSING DAY......... The day in each calendar month which is the
same day of the month as the Policy Date. The
first Policy Processing Day is the Policy Date.
POLICY YEAR................... A year that starts on the Policy Date or on a
Policy Anniversary.
PREMIUM CLASS................. The classification of the Insureds for cost of
insurance purposes. The classes are: standard;
standard with extra rating, non-smoker;
nonsmoker with extra rating, and preferred.
PREMIUM EXPENSE CHARGE........ The amount deducted from a premium payment
which consists of the Premium Tax Charge and
the Percent of Premium Charge.
55
<PAGE> 58
SPECIAL POLICY ACCOUNT VALUE
CREDIT........................ An amount that is added to the Policy Value in
the Separate Accounts or Subaccounts on any
Policy processing day after the Policy has been
in force for at least 15 years or when the
Policy Account Value equals or exceeds
$500,000.
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 15 Policy Years. A pro-rata
Surrender Charge will be deducted upon a
decrease in the Initial Face Amount during the
first 15 Policy Years. The Maximum Surrender
Charge is shown in the Policy.
TARGET PREMIUM................ An amount of premium payments, based on the
Initial Face Amount and Joint Equal Age of the
Insureds, used to compute Surrender Charges.
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.
56
<PAGE> 59
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
Statements of Assets and Liabilities, June 30, 1999
(unaudited)........................................... F-61
Statements of Operations for the Six Months Ended June
30, 1999 (unaudited).................................. F-67
Statements of Changes in Net Assets for the Six Months
Ended June 30, 1999
(unaudited).......................................... F-73
Notes to Interim Unaudited Condensed Financial
Statements............................................ F-79
Provident Mutual Life Insurance Company and Subsidiaries
Report of Independent Accountants...................... F-91
Consolidated Statements of Financial Condition,
December 31, 1998 and 1997............................ F-92
Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996................ F-93
Consolidated Statements of Equity for the Years Ended
December 31, 1998, 1997 and 1996...................... F-94
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996................ F-95
Notes to Consolidated Financial Statements............. F-96
Condensed Consolidated Statement of Financial
Condition, June 30, 1999 (unaudited).................. F-111
Condensed Consolidated Statement of Operations for the
Six Months Ended June 30, 1999 (unaudited)............ F-112
Condensed Consolidated Statement of Equity for the Six
Months Ended June 30, 1999 (unaudited)................ F-113
Condensed Consolidated Statement of Cash Flows for the
Six Months Ended June 30, 1999 (unaudited)............ F-114
Notes to Interim Unaudited Condensed Consolidated
Financial Statements.................................. F-115
</TABLE>
F-1
<PAGE> 60
- --------------------------------------------------------------------------------
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> 61
- --------------------------------------------------------------------------------
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> 62
- --------------------------------------------------------------------------------
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> 63
- --------------------------------------------------------------------------------
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> 64
- --------------------------------------------------------------------------------
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> 65
- --------------------------------------------------------------------------------
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> 66
- --------------------------------------------------------------------------------
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> 67
- --------------------------------------------------------------------------------
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> 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
- ---------------------------------------------------------------------------------------------------------------
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> 69
- --------------------------------------------------------------------------------
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> 70
- --------------------------------------------------------------------------------
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> 71
- --------------------------------------------------------------------------------
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> 72
- --------------------------------------------------------------------------------
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> 73
- --------------------------------------------------------------------------------
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> 74
- --------------------------------------------------------------------------------
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> 75
- --------------------------------------------------------------------------------
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> 76
- --------------------------------------------------------------------------------
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> 77
- --------------------------------------------------------------------------------
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> 78
- --------------------------------------------------------------------------------
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> 79
- --------------------------------------------------------------------------------
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> 80
- --------------------------------------------------------------------------------
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> 81
- --------------------------------------------------------------------------------
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> 82
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
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> 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>
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> 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
- ---------------------------------------------------------------------------------------------------------------
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> 85
- --------------------------------------------------------------------------------
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> 86
- --------------------------------------------------------------------------------
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> 87
- --------------------------------------------------------------------------------
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> 88
- --------------------------------------------------------------------------------
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> 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>
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> 90
- --------------------------------------------------------------------------------
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> 91
- --------------------------------------------------------------------------------
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> 92
- --------------------------------------------------------------------------------
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> 93
- --------------------------------------------------------------------------------
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> 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>
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> 95
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 96
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
FIDELITY 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> 97
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
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> 98
- --------------------------------------------------------------------------------
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> 99
- --------------------------------------------------------------------------------
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> 100
- --------------------------------------------------------------------------------
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> 101
- --------------------------------------------------------------------------------
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 InsuranceTrust:
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> 102
- --------------------------------------------------------------------------------
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> 103
- --------------------------------------------------------------------------------
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> 104
- --------------------------------------------------------------------------------
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> 105
- --------------------------------------------------------------------------------
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> 106
- --------------------------------------------------------------------------------
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> 107
- --------------------------------------------------------------------------------
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> 108
- --------------------------------------------------------------------------------
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> 109
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND 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> 110
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND 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> 111
- --------------------------------------------------------------------------------
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> 112
- --------------------------------------------------------------------------------
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> 113
- --------------------------------------------------------------------------------
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> 114
- --------------------------------------------------------------------------------
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> 115
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK WORLDWIDE INSURANCE TRUST
- ---------------------------------------------------------------------------------------------------------------
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> 116
- --------------------------------------------------------------------------------
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> 117
- --------------------------------------------------------------------------------
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 invest,
except for (1) all brokers' commissions, (2) transfer taxes, investment advisory
fees and other fees and
F-59
<PAGE> 118
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS, CONTINUED
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> 119
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc.,
at market value:
Growth Portfolio.......................... $239,508,207
Money Market Portfolio.................... $36,149,269
Bond Portfolio............................ $14,380,195
Aggressive Growth Portfolio............... $39,851,694
International Portfolio................... $45,301,582
Dividends receivable........................ 132,019
------------ ----------- ----------- ----------- -----------
Total Assets................................ 239,508,207 36,281,288 14,380,195 39,851,694 45,301,582
------------ ----------- ----------- ----------- -----------
LIABILITIES
Payable to Provident Mutual Life Insurance
Company................................... 138,917 195,175 13,211
------------ ----------- ----------- ----------- -----------
NET ASSETS.................................. $239,369,290 $36,086,113 $14,366,984 $39,851,694 $45,301,582
============ =========== =========== =========== ===========
Held for the benefit of policyholders....... $239,240,578 $36,012,976 $14,331,664 $39,754,324 $45,212,499
Attributable to Provident Mutual Life
Insurance Company......................... 128,712 73,137 35,320 97,370 89,083
------------ ----------- ----------- ----------- -----------
$239,369,290 $36,086,113 $14,366,984 $39,851,694 $45,301,582
============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-61
<PAGE> 120
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MANAGED GROWTH VALUE GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc., at
market value:
Managed Portfolio............................ $47,971,337
All Pro Large Cap Growth Portfolio........... $17,614,798
All Pro Large Cap Value Portfolio............ $8,476,732
All Pro Small Cap Growth Portfolio........... $10,667,806
All Pro Small Cap Value Portfolio............ $4,797,697
Receivable from Provident Mutual Life Insurance
Company...................................... 30,000
----------- ----------- ---------- ----------- ----------
Total Assets................................... 47,971,337 17,614,798 8,476,732 10,697,806 4,797,697
=========== =========== ========== =========== ==========
LIABILITIES
Payable to Provident Mutual Life Insurance
Company...................................... 179,470 79,105
----------- ----------- ---------- ----------- ----------
NET ASSETS..................................... $47,791,867 $17,535,693 $8,476,732 $10,697,806 $4,797,697
=========== =========== ========== =========== ==========
Held for the benefit of policyholders.......... $47,710,806 $17,427,222 $8,440,865 $10,671,414 $4,749,959
Attributable to Provident Mutual Life Insurance
Company...................................... 81,061 108,471 35,867 26,392 47,738
----------- ----------- ---------- ----------- ----------
$47,791,867 $17,535,693 $8,476,732 $10,697,806 $4,797,697
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-62
<PAGE> 121
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<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............................................... $12,359,472
Receivable from Provident Mutual Life Insurance Company..... 35,392
-----------
NET ASSETS.................................................. $12,394,864
===========
Held for the benefit of policyholders....................... $12,361,207
Attributable to Provident Mutual Life Insurance Company..... 33,657
-----------
$12,394,864
===========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-63
<PAGE> 122
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<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................. $137,993,644
Growth Portfolio........................ $207,563,628
High Income Portfolio................... $18,821,159
Overseas Portfolio...................... $40,242,785
Investment in the Variable Insurance
Products Fund II, at market value:
Asset Manager Portfolio................. $53,931,565
Index 500 Portfolio..................... $172,156,622
------------ ------------ ----------- ----------- ----------- ------------
NET ASSETS................................ $137,993,644 $207,563,628 $18,821,159 $40,242,785 $53,931,565 $172,156,622
============ ============ =========== =========== =========== ============
Held for the benefit of policyholders..... $137,934,559 $207,469,174 $18,778,752 $40,178,721 $53,854,171 $172,092,724
Attributable to Provident Mutual Life
Insurance Company....................... 59,085 94,454 42,407 64,064 77,394 63,898
------------ ------------ ----------- ----------- ----------- ------------
$137,993,644 $207,563,628 $18,821,159 $40,242,785 $53,931,565 $172,156,622
============ ============ =========== =========== =========== ============
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-64
<PAGE> 123
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
NEUBERGER
FIDELITY & BERMAN NEUBERGER
INVESTMENT FIDELITY LIMITED & BERMAN
GRADE BOND CONTRAFUND MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance Products Fund II, at
market value:
Investment Grade Bond Portfolio........................... $17,025,783
Contrafund Portfolio...................................... $65,250,904
Investment in the Neuberger & Berman Advisers Management
Trust, at market value:
Limited Maturity Bond Portfolio........................... $7,645,321
Partners Portfolio........................................ $31,612,793
----------- ----------- ---------- -----------
NET ASSETS.................................................. $17,025,783 $65,250,904 $7,645,321 $31,612,793
=========== =========== ========== ===========
Held for the benefit of policyholders....................... $17,012,197 $65,218,219 $7,612,356 $31,385,445
Attributable to Provident Mutual Life Insurance Company..... 13,586 32,685 32,965 227,348
----------- ----------- ---------- -----------
$17,025,783 $65,250,904 $7,645,321 $31,612,793
=========== =========== ========== ===========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-65
<PAGE> 124
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
VAN ECK
VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Van Eck Worldwide Insurance Trust,
at market value:
Van Eck Worldwide Bond Portfolio................... $5,699,067
Van Eck Worldwide Hard Assets Portfolio............ $2,714,243
Van Eck Worldwide Emerging Markets Portfolio....... $10,576,569
Van Eck Worldwide Real Estate Portfolio............ $526,088
Investment in the Alger American Fund, at market
value:
Alger American Small Capitalization Portfolio...... $30,883,660
---------- ---------- ----------- -------- -----------
NET ASSETS........................................... $5,699,067 $2,714,243 $10,576,569 $526,088 $30,883,660
========== ========== =========== ======== ===========
Held for the benefit of policyholders................ $5,675,319 $2,680,497 $10,508,819 $490,937 $30,817,908
Attributable to Provident Mutual Life Insurance
Company............................................ 23,748 33,746 67,750 35,151 65,752
---------- ---------- ----------- -------- -----------
$5,699,067 $2,714,243 $10,576,569 $526,088 $30,883,660
========== ========== =========== ======== ===========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-66
<PAGE> 125
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........................................ $ 5,327,488 $786,426 $ 377,262 $ 5,225,614 $ 3,071,912
EXPENSES
Mortality and expense risks...................... 727,022 122,580 48,498 124,503 147,550
Operating expense reimbursement.................. (3,313) (492)
----------- -------- --------- ----------- -----------
Total expenses................................... 723,709 122,580 48,006 124,503 147,550
----------- -------- --------- ----------- -----------
Net investment income............................ 4,603,779 663,846 329,256 5,101,111 2,924,362
----------- -------- --------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested........... 4,548,806 165,995 5,023,061 2,570,840
Net realized gain (loss) from redemption of
investment shares.............................. 119,107 (127,035) (4,257,866) (2,126,572)
----------- -------- --------- ----------- -----------
Net realized gain on investments................. 4,667,913 38,960 765,195 444,268
----------- -------- --------- ----------- -----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of period............................ 43,642,825 888,223 7,593,499 3,974,294
End of period.................................. 51,446,498 (79,019) 4,718,032 4,569,687
----------- -------- --------- ----------- -----------
Net unrealized appreciation (depreciation) of
investments during the period.................. 7,803,673 (967,242) (2,875,467) 595,393
----------- -------- --------- ----------- -----------
Net realized and unrealized gain (loss) on
investments.................................... 12,471,586 (928,282) (2,110,272) 1,039,661
----------- -------- --------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations................................ $17,075,365 $663,846 $(599,026) $ 2,990,839 $ 3,964,023
=========== ======== ========= =========== ===========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-67
<PAGE> 126
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MANAGED GROWTH VALUE GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends...................................... $ 2,365,585 $ 926 $ 23,532 $ 6,660
EXPENSES
Mortality and expense risks.................... 136,610 37,731 17,648 $ 22,589 11,571
Asset charge................................... 606
----------- -------- -------- ---------- ---------
Total expenses................................. 136,610 37,731 17,648 23,195 11,571
----------- -------- -------- ---------- ---------
Net investment income (loss)................... 2,228,975 (36,805) 5,884 (23,195) (4,911)
----------- -------- -------- ---------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested......... 2,063,055
Net realized gain (loss) from redemption of
investment shares............................ (1,414,622) 809,761 17,703 156,207 (160,154)
----------- -------- -------- ---------- ---------
Net realized gain (loss) on investments........ 648,433 809,761 17,703 156,207 (160,154)
----------- -------- -------- ---------- ---------
Net unrealized appreciation of investments:
Beginning of period.......................... 8,871,564 511,417 139,747 403,798 13,283
End of period................................ 7,378,062 698,473 552,737 1,853,974 247,938
----------- -------- -------- ---------- ---------
Net unrealized appreciation of investments
during the period............................ (1,493,502) 187,056 412,990 1,450,176 234,655
----------- -------- -------- ---------- ---------
Net realized and unrealized gain on
investments.................................. (845,069) 996,817 430,693 1,606,383 74,501
----------- -------- -------- ---------- ---------
Net increase in net assets resulting from
operations................................... $ 1,383,906 $960,012 $436,577 $1,583,188 $ 69,590
=========== ======== ======== ========== =========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-68
<PAGE> 127
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
EXPENSES
Mortality and expense risks................................. $ 43,067
Asset charge................................................ 15,364
----------
Net investment loss......................................... (58,431)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from redemption of investment shares...... 229,544
----------
Net realized gain on investments............................ 229,544
----------
Net unrealized appreciation of investments:
Beginning of period....................................... 2,163,181
End of period............................................. 1,270,410
----------
Net unrealized depreciation of investments during the
period.................................................... (892,771)
----------
Net realized and unrealized loss on investments............. (663,227)
----------
Net decrease in net assets resulting from operations........ $ (721,658)
==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-69
<PAGE> 128
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<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................................. $ 5,826,505 $ 19,532,009 $ 1,794,968 $1,446,290 $ 3,802,188 $ 2,265,534
EXPENSES
Mortality and expense risks............... 439,137 646,167 66,249 127,853 178,320 522,140
----------- ------------ ----------- ---------- ----------- -----------
Net investment income..................... 5,387,368 18,885,842 1,728,719 1,318,437 3,623,868 1,743,394
----------- ------------ ----------- ---------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested.... 4,011,692 19,226,224 64,683 892,772 2,124,752 915,854
Net realized loss from redemption of
investment shares....................... (711,820) (15,644,691) (389,591) (121,724) (1,674,668) (374,783)
----------- ------------ ----------- ---------- ----------- -----------
Net realized gain (loss) on investments... 3,299,872 3,581,533 (324,908) 771,048 450,084 541,071
----------- ------------ ----------- ---------- ----------- -----------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period..................... 23,637,997 52,781,625 (1,380,446) 1,662,167 7,302,249 35,771,600
End of period........................... 29,959,114 54,743,687 (1,326,507) 2,332,012 5,736,605 50,233,380
----------- ------------ ----------- ---------- ----------- -----------
Net unrealized appreciation (depreciation)
of investments during the period........ 6,321,117 1,962,062 53,939 669,845 (1,565,644) 14,461,780
----------- ------------ ----------- ---------- ----------- -----------
Net realized and unrealized gain (loss) on
investments............................. 9,620,989 5,543,595 (270,969) 1,440,893 (1,115,560) 15,002,851
----------- ------------ ----------- ---------- ----------- -----------
Net increase in net assets resulting from
operations.............................. $15,008,357 $ 24,429,437 $ 1,457,750 $2,759,330 $ 2,508,308 $16,746,245
=========== ============ =========== ========== =========== ===========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-70
<PAGE> 129
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<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>
INVESTMENT INCOME
Dividends.................................. $ 694,694 $ 1,975,679 $ 302,940 $ 1,572,930 $ 391,039 $ 63,107
EXPENSES
Mortality and expense risks................ 52,694 192,526 16,908 66,970 24,807 40,322
----------- ----------- --------- ----------- --------- ----------
Net investment income...................... 642,000 1,783,153 286,032 1,505,960 366,232 22,785
----------- ----------- --------- ----------- --------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested..... 165,897 1,738,597 180,860 1,572,930 40,068
Net realized (loss) gain from redemption of
investment shares........................ (44,947) (1,213,127) (270,777) (2,873,044) (15,167) 37,614
----------- ----------- --------- ----------- --------- ----------
Net realized gain (loss) on investments.... 120,950 525,470 (89,917) (1,300,114) (15,167) 77,682
----------- ----------- --------- ----------- --------- ----------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period...................... 688,242 8,740,185 277,919 829,761 56,889 62,679
End of period............................ (388,361) 12,122,730 (296,567) 1,350,074
----------- ----------- --------- ----------- --------- ----------
Net unrealized (depreciation) appreciation
of investments during the period......... (1,076,603) 3,382,545 (277,919) (829,761) (353,456) 1,287,395
----------- ----------- --------- ----------- --------- ----------
Net realized and unrealized (loss) gain on
investments.............................. (955,653) 3,908,015 (367,836) (2,129,875) (368,623) 1,365,077
----------- ----------- --------- ----------- --------- ----------
Net (decrease) increase in net assets
resulting from operations................ $ (313,653) $ 5,691,168 $ (81,804) $ (623,915) $ (2,391) $1,387,862
=========== =========== ========= =========== ========= ==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-71
<PAGE> 130
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Six Months Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<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.................................. $ 320,558 $ 32,546 $ 8,422
EXPENSES
Mortality and expense risks................ $ 17,307 19,615 8,087 $ 26,789 1,457 $ 97,888
--------- --------- ----------- ----------- -------- ----------
Net investment (loss) income............... (17,307) 300,943 24,459 (26,789) 6,965 (97,888)
--------- --------- ----------- ----------- -------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested..... 98,995 3,576,725
Net realized (loss) gain from redemption of
investment shares........................ (302,617) (95,358) (69,487) (761,729) (18,143) 312,302
--------- --------- ----------- ----------- -------- ----------
Net realized (loss) gain on investments.... (302,617) 3,637 (69,487) (761,729) (18,143) 3,889,027
--------- --------- ----------- ----------- -------- ----------
Net unrealized (depreciation) appreciation
of investments:
Beginning of period...................... (901,802) 590,559 (1,136,100) (3,646,142) (12,423) 1,898,815
End of period............................ (149,073) (692,885) 316,549 51,710 1,648,395
--------- --------- ----------- ----------- -------- ----------
Net unrealized appreciation (depreciation)
of investments during the period......... 901,802 (739,632) 443,215 3,962,691 64,133 (250,420)
--------- --------- ----------- ----------- -------- ----------
Net realized and unrealized gain (loss) on
investments.............................. 599,185 (735,995) 373,728 3,200,962 45,990 3,638,607
--------- --------- ----------- ----------- -------- ----------
Net increase (decrease) in net assets
resulting from operations................ $ 581,878 $(435,052) $ 398,187 $ 3,174,173 $ 52,955 $3,540,719
========= ========= =========== =========== ======== ==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-72
<PAGE> 131
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Six Months Ended June 30, 1999
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income................................. $ 4,603,779 $ 663,846 $ 329,256 $ 5,101,111 $ 2,924,362
Net realized gain on investments...................... 4,667,913 38,960 765,195 444,268
Net unrealized appreciation (depreciation) of
investments during the period....................... 7,803,673 (967,242) (2,875,467) 595,393
------------ ------------ ----------- ----------- -----------
Net increase (decrease) in net assets from
operations.......................................... 17,075,365 663,846 (599,026) 2,990,839 3,964,023
------------ ------------ ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums........................... 13,234,893 23,566,801 1,624,065 3,513,009 4,089,759
Cost of insurance and administrative charges.......... (5,874,925) (2,497,896) (645,877) (1,401,006) (1,514,728)
Surrenders and forfeitures............................ (5,859,719) (1,179,092) (819,584) (1,098,374) (758,759)
Transfers between investment portfolios............... (9,529,168) (17,187,703) (802,750) (2,913,991) (4,075,536)
Net (withdrawals) repayments due to policy loans...... (1,268,554) (128,812) 291,792 (172,932) (335,705)
Withdrawals due to death benefits..................... (141,085) (73,563) (23,604) (18,780) (22,533)
------------ ------------ ----------- ----------- -----------
Net (decrease) increase in net assets derived from
policy transactions................................. (9,438,558) 2,499,735 (375,958) (2,092,074) (2,617,502)
------------ ------------ ----------- ----------- -----------
Total increase (decrease) in net assets............... 7,636,807 3,163,581 (974,984) 898,765 1,346,521
NET ASSETS
Beginning of period................................. 231,732,483 32,922,532 15,341,968 38,952,929 43,955,061
------------ ------------ ----------- ----------- -----------
End of period....................................... $239,369,290 $ 36,086,113 $14,366,984 $39,851,694 $45,301,582
============ ============ =========== =========== ===========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-73
<PAGE> 132
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Six Months Ended June 30, 1999
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MANAGED GROWTH VALUE GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss) income............................. $ 2,228,975 $ (36,805) $ 5,884 $ (23,195) $ (4,911)
Net realized gain (loss) on investments.................. 648,433 809,761 17,703 156,207 (160,154)
Net unrealized appreciation (depreciation) of investments
during the period...................................... (1,493,502) 187,056 412,990 1,450,176 234,655
----------- ----------- ---------- ----------- ----------
Net increase in net assets from operations............... 1,383,906 960,012 436,577 1,583,188 69,590
----------- ----------- ---------- ----------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.............................. 2,663,613 1,408,421 630,593 748,168 503,143
Cost of insurance and administrative charges............. (1,280,005) (445,169) (217,682) (233,781) (153,916)
Surrenders and forfeitures............................... (977,589) (214,260) (52,645) (117,302) (34,424)
Transfers between investment portfolios.................. 5,153,649 11,590,798 4,212,441 4,177,328 1,269,923
Net withdrawals due to policy loans...................... (100,906) (31,679) (28,228) (52,154) (10,505)
Withdrawals due to death benefits........................ (83,774) (1,763)
----------- ----------- ---------- ----------- ----------
Net increase in net assets derived from policy
transactions........................................... 5,374,988 12,306,348 4,544,479 4,522,259 1,574,221
----------- ----------- ---------- ----------- ----------
Capital contribution from Provident Mutual Life Insurance
Company................................................ 25,000
----------- ----------- ---------- ----------- ----------
Total increase in net assets............................. 6,758,894 13,266,360 4,981,056 6,130,447 1,643,811
NET ASSETS
Beginning of period.................................... 41,032,973 4,269,333 3,495,676 4,567,359 3,153,886
----------- ----------- ---------- ----------- ----------
End of period.......................................... $47,791,867 $17,535,693 $8,476,732 $10,697,806 $4,797,697
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-74
<PAGE> 133
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Six Months Ended June 30, 1999
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
FROM OPERATIONS
Net investment loss......................................... $ (58,431)
Net realized gain on investments............................ 229,544
Net unrealized depreciation of investments during the
period.................................................... (892,771)
-----------
Net decrease in net assets from operations.................. (721,658)
-----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................................. 1,041,399
Cost of insurance and administrative charges................ (539,627)
Surrenders and forfeitures.................................. (129,255)
Transfers between investment portfolios..................... 153,789
Net repayments due to policy loans.......................... (42,348)
Withdrawals due to death benefits........................... (16,728)
-----------
Net increase in net assets derived from policy
transactions.............................................. 467,230
-----------
Capital contribution from Provident Mutual Life Insurance
Company................................................... 60,000
-----------
Total decrease in net assets................................ (194,428)
NET ASSETS
Beginning of period....................................... 12,589,292
-----------
End of period............................................. $12,394,864
===========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-75
<PAGE> 134
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Six Months Ended June 30, 1999
(unaudited)
- --------------------------------------------------------------------------------
<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...................... $ 5,387,368 $ 18,885,842 $ 1,728,719 $ 1,318,437 $ 3,623,868 $ 1,743,394
Net realized gain (loss) on investments.... 3,299,872 3,581,533 (324,908) 771,048 450,084 541,071
Net unrealized appreciation (depreciation)
of investments during the period......... 6,321,117 1,962,062 53,939 669,845 (1,565,644) 14,461,780
------------ ------------ ----------- ----------- ----------- ------------
Net increase in net assets from
operations............................... 15,008,357 24,429,437 1,457,750 2,759,330 2,508,308 16,746,245
------------ ------------ ----------- ----------- ----------- ------------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................ 13,194,626 17,686,489 2,122,705 4,157,882 4,525,012 20,606,565
Cost of insurance and administrative
charges.................................. (5,030,508) (6,408,303) (822,079) (1,410,906) (1,853,992) (6,562,995)
Surrenders and forfeitures................. (1,972,452) (3,628,377) (264,066) (535,938) (1,381,028) (2,006,177)
Transfers between investment portfolios.... (3,418,195) 8,100,564 (2,513,855) 802,783 179,679 13,574,070
Net withdrawals due to policy loans........ (718,492) (1,302,693) (62,815) (181,162) (175,496) (958,098)
Withdrawals due to death benefits.......... (119,514) (53,426) (6,189) (44,997) (42,251) (28,715)
------------ ------------ ----------- ----------- ----------- ------------
Net increase (decrease) in net assets
derived from policy transactions......... 1,935,465 14,394,254 (1,546,299) 2,787,662 1,251,924 24,624,650
------------ ------------ ----------- ----------- ----------- ------------
Total increase (decrease) in net assets.... 16,943,822 38,823,691 (88,549) 5,546,992 3,760,232 41,370,895
NET ASSETS
Beginning of period...................... 121,049,822 168,739,937 18,909,708 34,695,793 50,171,333 130,785,727
------------ ------------ ----------- ----------- ----------- ------------
End of period............................ $137,993,644 $207,563,628 $18,821,159 $40,242,785 $53,931,565 $172,156,622
============ ============ =========== =========== =========== ============
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-76
<PAGE> 135
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Six Months Ended June 30, 1999
(unaudited)
- --------------------------------------------------------------------------------
<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>
FROM OPERATIONS
Net investment income.................... $ 642,000 $ 1,783,153 $ 286,032 $ 1,505,960 $ 366,232 $ 22,785
Net realized gain (loss) on
investments............................ 120,950 525,470 (89,917) (1,300,114) (15,167) 77,682
Net unrealized (depreciation)
appreciation of investments during the
period................................. (1,076,603) 3,382,545 (277,919) (829,761) (353,456) 1,287,395
----------- ----------- ----------- ------------ ---------- -----------
Net (decrease) increase in net assets
from operations........................ (313,653) 5,691,168 (81,804) (623,915) (2,391) 1,387,862
----------- ----------- ----------- ------------ ---------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.............. 1,709,058 7,976,155 565,939 1,960,321 936,303 1,396,555
Cost of insurance and administrative
charges................................ (650,979) (2,395,525) (247,036) (783,058) (265,404) (495,197)
Surrenders and forfeitures............... (154,534) (704,803) (99,384) (382,062) (35,877) (101,386)
Transfers between investment
portfolios............................. 2,502,402 8,809,485 (7,607,943) (30,210,653) 413,699 27,767,767
Net (withdrawals) repayments due to
policy loans........................... (57,077) (293,071) (26,232) (119,608) 14,827 (57,282)
Withdrawals due to death benefits........ (65) (9,588) (275) (18,835) (6,962)
----------- ----------- ----------- ------------ ---------- -----------
Net increase (decrease) in net assets
derived from policy transactions....... 3,348,805 13,382,653 (7,414,931) (29,553,895) 1,063,548 28,503,495
----------- ----------- ----------- ------------ ---------- -----------
Total increase (decrease) in net
assets................................. 3,035,152 19,073,821 (7,496,735) (30,177,810) 1,061,157 29,891,357
NET ASSETS
Beginning of period.................... 13,990,631 46,177,083 7,496,735 30,177,810 6,584,164 1,721,436
----------- ----------- ----------- ------------ ---------- -----------
End of period.......................... $17,025,783 $65,250,904 -- -- $7,645,321 $31,612,793
=========== =========== =========== ============ ========== ===========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-77
<PAGE> 136
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Six Months Ended June 30, 1999
(unaudited)
- --------------------------------------------------------------------------------
<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>
FROM OPERATIONS
Net investment (loss) income.......... $ (17,307) $ 300,943 $ 24,459 $ (26,789) $ 6,965 $ (97,888)
Net realized (loss) gain on
investments......................... (302,617) 3,637 (69,487) (761,729) (18,143) 3,889,027
Net unrealized appreciation
(depreciation) of investments during
the period.......................... 901,802 (739,632) 443,215 3,962,691 64,133 (250,420)
----------- ---------- ---------- ----------- -------- -----------
Net increase (decrease) in net assets
from operations..................... 581,878 (435,052) 398,187 3,174,173 52,955 3,540,719
----------- ---------- ---------- ----------- -------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums........... 726,948 695,137 345,184 1,323,405 111,796 3,832,968
Cost of insurance and administrative
charges............................. (276,152) (244,269) (122,343) (437,085) (24,099) (1,276,378)
Surrenders and forfeitures............ (114,281) (116,521) (47,562) (132,672) (639) (394,445)
Transfers between investment
portfolios.......................... (8,445,347) 113,531 71,459 434,849 (37,914) (3,730,048)
Net (withdrawals) repayments due to
policy loans........................ (33,028) (20,408) 1,095 (15,698) (17,941) (77,222)
Withdrawals due to death benefits..... (19,365) (64) (65) (3,459) (6,469)
----------- ---------- ---------- ----------- -------- -----------
Net (decrease) increase in net assets
derived from policy transactions.... (8,161,225) 427,406 247,768 1,169,340 31,203 (1,651,594)
----------- ---------- ---------- ----------- -------- -----------
Total (decrease) increase in net
assets.............................. (7,579,347) (7,646) 645,955 4,343,513 84,158 1,889,125
NET ASSETS
Beginning of period................. 7,579,347 5,706,713 2,068,288 6,233,056 441,930 28,994,535
----------- ---------- ---------- ----------- -------- -----------
End of period....................... -- $5,699,067 $2,714,243 $10,576,569 $526,088 $30,883,660
=========== ========== ========== =========== ======== ===========
</TABLE>
See accompanying notes to interim unaudited condensed financial statements.
F-78
<PAGE> 137
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Interim Unaudited Condensed Financial Statements
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Growth, Money Market, Bond, 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, 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 Subaccounts as of June
30, 1999: the Managed (was the Managed Separate Account prior to April 30,
1999), 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 Limited Maturity Bond and
Neuberger & Berman Partners Subaccounts invest in the corresponding portfolios
of the Neuberger & Berman Advisers Management Trust; 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.
At the close of business on April 30, 1999, the Neuberger & Berman Growth
Subaccount, Neuberger & Berman Balanced Subaccount and American Century VP
Capital Appreciation Subaccount were terminated and the investments were
transferred to the Neuberger & Berman Partners Subaccount, the Managed
Subaccount and the All Pro Large Cap Growth Subaccount, respectively.
Net premiums from in-force Policies are allocated to the Separate Accounts
in accordance with policyholder instructions and are recorded as variable life
policy transactions in the statements of changes in net assets. Such amounts are
used to provide money to pay benefits under the Policies (Note 4). Each Separate
Account's assets are the property of Provident Mutual.
F-79
<PAGE> 138
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
1. ORGANIZATION, CONTINUED
Transfers between investment portfolios include transfers between the
Separate Accounts and the Guaranteed Account (not shown), which is part of
Provident Mutual's General Account.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Separate Accounts included in the financial statements.
Investment Valuation:
Investment shares are valued at the net asset values of the respective
Portfolios. Transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date.
Realized Gains and Losses:
Realized gains and losses on sales of investment shares are determined
using the specific identification basis for financial reporting and income tax
purposes.
Federal Income Taxes:
The operations of the Separate Accounts are included in the Federal income
tax return of Provident Mutual. Under the provisions of the Policies, Provident
Mutual has the right to charge the Separate Accounts for Federal income tax
attributable to the Separate Accounts. No charge is currently being made against
the Separate Accounts for such tax.
Estimates:
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities and the reported amounts from operations and policy
transactions during the period. Actual results could differ from those
estimates.
F-80
<PAGE> 139
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At June 30, 1999, 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.......................................... 12,071,986 $188,061,709 $239,508,207
Money Market Portfolio.................................... 36,149,269 $36,149,269 $36,149,269
Bond Portfolio............................................ 1,364,345 $14,459,214 $14,380,195
Aggressive Growth Portfolio............................... 1,937,370 $35,133,662 $39,851,694
International Portfolio................................... 3,199,264 $40,731,895 $45,301,582
Managed Portfolio......................................... 2,772,910 $40,593,275 $47,971,337
All Pro Large Cap Growth Portfolio........................ 1,328,416 $16,916,325 $17,614,798
All Pro Large Cap Value Portfolio......................... 790,740 $7,923,995 $8,476,732
All Pro Small Cap Growth Portfolio........................ 859,614 $8,813,832 $10,667,806
All Pro Small Cap Value Portfolio......................... 589,398 $4,549,759 $4,797,697
The Stripped ("Zero") U.S. Treasury Securities Fund,
Provident Mutual Series A:
2006 Series............................................... 18,033,021 $11,089,062 $12,359,472
Variable Insurance Products Fund:
Equity-Income Portfolio................................... 5,063,987 $108,034,530 $137,993,644
Growth Portfolio.......................................... 4,538,894 $152,819,941 $207,563,628
High Income Portfolio..................................... 1,667,065 $20,147,666 $18,821,159
Overseas Portfolio........................................ 1,934,749 $37,910,773 $40,242,785
Variable Insurance Products Fund II:
Asset Manager Portfolio................................... 3,048,704 $48,194,960 $53,931,565
Index 500 Portfolio....................................... 1,106,050 $121,923,242 $172,156,622
Investment Grade Bond Portfolio........................... 1,409,419 $17,414,144 $17,025,783
Contrafund Portfolio...................................... 2,500,035 $53,128,174 $65,250,904
Neuberger & Berman Advisers Management Trust:
Limited Maturity Bond Portfolio........................... 584,058 $7,941,888 $7,645,321
Partners Portfolio........................................ 1,525,714 $30,262,719 $31,612,793
Van Eck Worldwide Insurance Trust:
Van Eck Worldwide Bond Portfolio.......................... 528,670 $5,848,140 $5,699,067
Van Eck Worldwide Hard Assets Portfolio................... 253,431 $3,407,128 $2,714,243
Van Eck Worldwide Emerging Markets Portfolio.............. 1,017,957 $10,260,020 $10,576,569
Van Eck Worldwide Real Estate Portfolio................... 50,879 $474,378 $526,088
Alger American Fund:
Alger American Small Capitalization Portfolio............. 708,666 $29,235,265 $30,883,660
</TABLE>
F-81
<PAGE> 140
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the six months ended June 30, 1999, transactions in investment
shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ---------------------------------------------------------------------------------------------------------------------------
GROWTH MONEY MARKET BOND AGGRESSIVE INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO GROWTH PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased............................... 298,582 36,677,246 111,051 89,322 106,407
Shares received from reinvestment of:
Dividends.................................... 42,000 779,666 19,418 10,780 38,250
Capital gain distributions................... 245,351 15,257 267,326 196,247
----------- ------------ ---------- ---------- ----------
Total shares acquired.......................... 585,933 37,456,912 145,726 367,428 340,904
Total shares redeemed.......................... (833,377) (32,250,931) (150,223) (207,919) (315,291)
----------- ------------ ---------- ---------- ----------
Net (decrease) increase in shares owned........ (247,444) 5,205,981 (4,497) 159,509 25,613
Shares owned, beginning of period.............. 12,319,430 30,943,288 1,368,842 1,777,861 3,173,651
----------- ------------ ---------- ---------- ----------
Shares owned, end of period.................... 12,071,986 36,149,269 1,364,345 1,937,370 3,199,264
=========== ============ ========== ========== ==========
Cost of shares acquired........................ $11,043,817 $37,456,912 $1,570,289 $6,860,649 $4,481,628
=========== ============ ========== ========== ==========
Cost of shares redeemed........................ $11,190,962 $32,250,931 $1,581,256 $3,086,417 $3,730,500
=========== ============ ========== ========== ==========
</TABLE>
F-82
<PAGE> 141
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ---------------------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MANAGED GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased......................................... 467,263 1,270,689 550,335 514,078 429,241
Shares received from reinvestment of:
Dividends.............................................. 18,094 77 2,375 815
Capital gain distributions............................. 123,389
----------- ----------- ---------- ---------- ----------
Total shares acquired.................................... 608,746 1,270,766 552,710 514,078 430,056
Total shares redeemed.................................... (157,925) (305,080) (115,068) (117,460) (222,947)
----------- ----------- ---------- ---------- ----------
Net increase in shares owned............................. 450,821 965,686 437,642 396,618 207,109
Shares owned, beginning of period........................ 2,322,089 362,730 353,098 462,996 382,289
----------- ----------- ---------- ---------- ----------
Shares owned, end of period.............................. 2,772,910 1,328,416 790,740 859,614 589,398
=========== =========== ========== ========== ==========
Cost of shares acquired.................................. $10,434,511 $16,285,683 $5,698,317 $5,831,528 $3,288,230
=========== =========== ========== ========== ==========
Cost of shares redeemed.................................. $ 2,024,205 $ 3,127,274 $1,130,251 $1,151,257 $1,879,074
=========== =========== ========== ========== ==========
</TABLE>
F-83
<PAGE> 142
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE STRIPPED ("ZERO")
U.S. TREASURY
SECURITIES FUND
PROVIDENT MUTUAL
SERIES A VARIABLE INSURANCE PRODUCTS FUND
- ----------------------------------------------------------------------------------------------------------------------------
EQUITY-INCOME GROWTH HIGH INCOME OVERSEAS
2006 SERIES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased......................... 1,811,761 399,293 455,783 276,094 786,103
Shares received from reinvestment of:
Dividends.............................. 76,317 7,340 159,916 28,799
Capital gain distributions............. 168,700 461,503 5,978 46,450
----------- ----------- ----------- ---------- -----------
Total shares acquired.................... 1,811,761 644,310 924,626 441,988 861,352
Total shares redeemed.................... (983,428) (342,314) (146,373) (414,967) (657,066)
----------- ----------- ----------- ---------- -----------
Net increase in shares owned............. 828,333 301,996 778,253 27,021 204,286
Shares owned, beginning of period........ 17,204,688 4,761,991 3,760,641 1,640,044 1,730,463
----------- ----------- ----------- ---------- -----------
Shares owned, end of period.............. 18,033,021 5,063,987 4,538,894 1,667,065 1,934,749
=========== =========== =========== ========== ===========
Cost of shares acquired.................. $ 1,264,999 $15,919,127 $39,798,279 $4,872,281 $17,076,825
=========== =========== =========== ========== ===========
Cost of shares redeemed.................. $ 461,552 $ 5,296,422 $ 2,936,650 $5,014,769 $12,199,678
=========== =========== =========== ========== ===========
</TABLE>
F-84
<PAGE> 143
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- --------------------------------------------------------------------------------------------------------------------
INVESTMENT
ASSET MANAGER INDEX 500 GRADE BOND CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 194,786 170,463 432,709 591,295
Shares received from reinvestment of:
Dividends................................................. 99,374 9,640 43,097 9,903
Capital gain distributions................................ 125,874 6,542 13,520 72,623
---------- ----------- ---------- -----------
Total shares acquired....................................... 420,034 186,645 489,326 673,821
Total shares redeemed....................................... (134,069) (6,512) (159,431) (63,192)
---------- ----------- ---------- -----------
Net increase in shares owned................................ 285,965 180,133 329,895 610,629
Shares owned, beginning of period........................... 2,762,739 925,917 1,079,524 1,889,406
---------- ----------- ---------- -----------
Shares owned, end of period................................. 3,048,704 1,106,050 1,409,419 2,500,035
========== =========== ========== ===========
Cost of shares acquired..................................... $7,200,016 $27,325,318 $6,030,106 $16,738,970
========== =========== ========== ===========
Cost of shares redeemed..................................... $1,874,140 $ 416,203 $1,918,351 $ 1,047,694
========== =========== ========== ===========
</TABLE>
F-85
<PAGE> 144
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN CENTURY
VARIABLE
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST PORTFOLIOS, INC.
- --------------------------------------------------------------------------------------------------------------------------
AMERICAN
CENTURY
LIMITED VP CAPITAL
BALANCED GROWTH MATURITY BOND PARTNERS APPRECIATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased............................... 17,829 26,947 102,762 1,479,539 31,966
Shares received from reinvestment of:
Dividends.................................... 8,150 30,080 1,276
Capital gain distributions................... 12,073 67,916 2,219
---------- ----------- ---------- ----------- ----------
Total shares acquired.......................... 38,052 94,863 132,842 1,483,034 31,966
Total shares redeemed.......................... (496,849) (1,242,745) (25,207) (48,257) (872,248)
---------- ----------- ---------- ----------- ----------
Net (decrease) increase in shares owned........ (458,797) (1,147,882) 107,635 1,434,777 (840,282)
Shares owned, beginning of period.............. 458,797 1,147,882 476,423 90,937 840,282
---------- ----------- ---------- ----------- ----------
Shares owned, end of period.................... -- -- 584,058 1,525,714 --
========== =========== ========== =========== ==========
Cost of shares acquired........................ $ 583,945 $ 2,239,648 $1,761,050 $29,502,498 $ 292,072
========== =========== ========== =========== ==========
Cost of shares redeemed........................ $7,802,761 $31,587,697 $ 346,437 $ 898,536 $8,773,221
========== =========== ========== =========== ==========
</TABLE>
F-86
<PAGE> 145
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER AMERICAN
VAN ECK WORLDWIDE INSURANCE TRUST FUND
- -------------------------------------------------------------------------------------------------------------------------
VAN ECK
VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased.................................... 60,254 37,200 303,133 30,855 94,141
Shares received from reinvestment of:
Dividends......................................... 19,183 3,644 911
Capital gain distributions........................ 8,571 90,321
-------- -------- ---------- -------- ----------
Total shares acquired............................... 88,008 40,844 303,133 31,766 184,462
Total shares redeemed............................... (24,054) (12,227) (160,605) (27,211) (135,212)
-------- -------- ---------- -------- ----------
Net increase in shares owned........................ 63,954 28,617 142,528 4,555 49,250
Shares owned, beginning of period................... 464,716 224,814 875,429 46,324 659,416
-------- -------- ---------- -------- ----------
Shares owned, end of period......................... 528,670 253,431 1,017,957 50,879 708,666
======== ======== ========== ======== ==========
Cost of shares acquired............................. $997,726 $393,854 $2,581,719 $302,075 $7,645,888
======== ======== ========== ======== ==========
Cost of shares redeemed............................. $265,740 $191,114 $2,200,897 $282,050 $5,506,343
======== ======== ========== ======== ==========
</TABLE>
F-87
<PAGE> 146
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Interim Unaudited Condensed 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" and "Options
Premier") -- 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" and
"Options Premier") -- 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 invest,
except for (1) all brokers' commissions, (2) transfer taxes, investment advisory
fees and other fees and
F-88
<PAGE> 147
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Interim Unaudited Condensed Financial Statements -- continued
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS, CONTINUED
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 six months ended June 30, 1999
were $3,313, $0 and $492.
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-89
<PAGE> 148
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
AND SUBSIDIARIES
REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996
<PAGE> 149
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-91
<PAGE> 150
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-92
<PAGE> 151
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-93
<PAGE> 152
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-94
<PAGE> 153
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-95
<PAGE> 154
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 benefits, the elimination of the statutory asset
valuation reserve
F-96
<PAGE> 155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-97
<PAGE> 156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Benefit claims (including an estimated provision for claims incurred but
not reported), benefit
F-98
<PAGE> 157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
separate account is included in the general account assets and liabilities for
GAAP purposes.
F-99
<PAGE> 158
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
LIABILITIES FOR INVESTMENT-TYPE INSURANCE
CONTRACTS
Guaranteed interest contracts............. $ 178.6 $ 172.3 $ 240.7 $ 234.3
</TABLE>
F-100
<PAGE> 159
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>
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 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
F-101
<PAGE> 160
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies............. $ 53.4 $ 2.0 $ .1 $ 55.3
Obligations of states and political
subdivisions................................... 66.7 3.3 .2 69.8
Debt securities issued by foreign governments.... 1.0 .1 -- 1.1
Corporate securities............................. 2,257.1 104.2 10.8 2,350.5
Mortgage-backed securities....................... 269.8 11.7 .1 281.4
-------- ------ ----- --------
Subtotal -- fixed maturities..................... 2,648.0 121.3 11.2 2,758.1
Equity securities................................ 22.7 4.8 3.7 23.8
-------- ------ ----- --------
Total....................................... $2,670.7 $126.1 $14.9 $2,781.9
======== ====== ===== ========
</TABLE>
F-102
<PAGE> 161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- ---------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies............. $ 17.3 $ 1.1 $ -- $ 18.4
Obligations of states and political
subdivisions................................... 9.1 .6 .1 9.6
Debt securities issued by foreign governments.... 6.5 .8 -- 7.3
Corporate securities............................. 393.9 19.1 2.5 410.5
Mortgage-backed securities....................... 9.4 .6 -- 10.0
------ ----- ---- ------
Total....................................... $436.2 $22.2 $2.6 $455.8
====== ===== ==== ======
</TABLE>
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. 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>
F-103
<PAGE> 162
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-104
<PAGE> 163
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-105
<PAGE> 164
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-106
<PAGE> 165
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-107
<PAGE> 166
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 remaining
F-108
<PAGE> 167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 non-income producing for the year ended December 31, 1998.
F-109
<PAGE> 168
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-110
<PAGE> 169
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1999
----------
<S> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: $2,918,524)....... $2,879,470
Held to maturity, at amortized cost (market:
$355,456)............................................. 347,900
Equity securities, at market (cost: $19,087).............. 19,823
Mortgage loans............................................ 616,061
Real estate............................................... 37,770
Policy loans and premium notes............................ 364,521
Other invested assets..................................... 17,196
Short-term investments.................................... 40,191
----------
Total investments................................. 4,322,932
----------
Cash........................................................ 10,023
Premiums due and deferred................................... 10,076
Investment income due and accrued........................... 75,176
Deferred policy acquisition costs........................... 789,621
Reinsurance recoverable..................................... 153,871
Separate account assets..................................... 3,560,189
Other assets................................................ 73,468
----------
Total assets...................................... $8,995,356
==========
LIABILITIES
Policy liabilities:
Future policyholder benefits.............................. $4,116,753
Policyholders' funds...................................... 149,085
Policyholder dividends payable............................ 32,799
Other policy obligations.................................. 17,240
----------
Total policy liabilities.......................... 4,315,877
----------
Expenses payable............................................ 22,482
Taxes payable............................................... 5,648
Federal income taxes payable:
Current................................................... 17,766
Deferred.................................................. 33,519
Separate account liabilities................................ 3,530,439
Other liabilities........................................... 124,059
----------
Total liabilities................................. 8,049,790
----------
COMMITMENTS AND CONTINGENCIES -- NOTE 5
EQUITY
Retained earnings........................................... 956,180
Accumulated other comprehensive income:
Net unrealized depreciation on securities................. (10,614)
----------
Total equity...................................... 945,566
----------
Total liabilities and equity...................... $8,995,356
==========
</TABLE>
See accompanying notes to interim unaudited condensed consolidated financial
statements.
F-111
<PAGE> 170
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
-------------
<S> <C>
REVENUES
Premiums.................................................... $ 96,206
Policy and contract charges................................. 71,673
Net investment income....................................... 167,651
Other income................................................ 30,051
Net realized losses on investments.......................... (460)
--------
Total revenues.................................... 365,121
--------
BENEFITS AND EXPENSES
Policy and contract benefits................................ 110,757
Change in future policyholder benefits...................... 50,148
Operating expenses.......................................... 39,069
Amortization of deferred policy acquisition costs........... 39,490
Policyholder dividends...................................... 31,560
Noninsurance commissions and expenses....................... 19,639
--------
Total benefits and expenses....................... 290,663
--------
Income before income taxes........................ 74,458
Income tax expense (benefit):
Current................................................... 19,703
Deferred.................................................. (267)
--------
Total income tax expense.......................... 19,436
--------
Net income........................................ $ 55,022
========
</TABLE>
See accompanying notes to interim unaudited condensed consolidated financial
statements.
F-112
<PAGE> 171
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION
RETAINED (DEPRECIATION) TOTAL
EARNINGS ON SECURITIES EQUITY
-------- -------------- --------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1999.............................. $901,158 $ 33,965 $935,123
-------- -------- --------
Comprehensive income
Net income............................................ 55,022 -- 55,022
Other comprehensive income, net of tax:
Change in unrealized appreciation (depreciation)... -- (44,579) (44,579)
--------
Total comprehensive income.............................. 10,443
-------- -------- --------
BALANCE AT JUNE 30, 1999................................ $956,180 $(10,614) $945,566
======== ======== ========
</TABLE>
See accompanying notes to interim unaudited condensed consolidated financial
statements.
F-113
<PAGE> 172
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 55,022
Adjustments to reconcile net income to net cash provided by
operating activities:
Interest credited to variable universal life and
investment products..................................... 52,068
Amortization of deferred policy acquisition costs......... 39,490
Capitalization of deferred policy acquisition costs....... (61,224)
Deferred Federal income taxes............................. (267)
Depreciation, amortization and accretion.................. (1,573)
Net realized losses on investments........................ 460
Change in investment income due and accrued............... 553
Change in premiums due and deferred....................... 1,678
Change in reinsurance recoverable......................... (1,040)
Change in policy liabilities and other policyholders'
funds of traditional life products...................... (6,239)
Change in other liabilities............................... (23,103)
Change in current Federal income taxes payable............ (12,955)
Other, net................................................ (5,907)
---------
Net cash provided by operating activities............... 36,963
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities............................. 130,396
Equity securities......................................... 12,763
Real estate............................................... 1,129
Other invested assets..................................... 1,236
Proceeds from maturities of investments:
Available for sale securities............................. 158,677
Held to maturity securities............................... 33,108
Mortgage loans............................................ 51,830
Purchases of investments:
Available for sale securities............................. (287,368)
Held to maturity securities............................... (3)
Equity securities......................................... (74)
Mortgage loans............................................ (26,326)
Real estate............................................... (92)
Other invested assets..................................... (8,957)
Contributions of separate account seed money................ (2,089)
Policy loans and premium notes, net......................... (2,141)
Net sales of short-term investments......................... 55,950
---------
Net cash provided by investing activities............... 118,039
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits..... 397,073
Variable universal life and investment product
withdrawals............................................... (556,476)
---------
Net cash used in financing activities................... (159,403)
---------
Net change in cash...................................... (4,401)
Cash, beginning of period................................... 14,424
---------
Cash, end of period......................................... $ 10,023
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for income taxes.............. $ 31,013
=========
</TABLE>
See accompanying notes to interim unaudited condensed consolidated financial
statements.
F-114
<PAGE> 173
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying interim unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and footnotes for the years ended December 31, 1998, 1997 and 1996.
Management believes that all adjustments, consisting of normal recurring
accruals, required for a fair presentation of the consolidated financial
position as of June 30, 1999 and the consolidated results of operations,
comprehensive income and cash flows for the six months ended June 30, 1999 have
been made.
The preparation of the accompanying interim unaudited condensed
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.
2. ORGANIZATION
On October 13, 1998, the Board of Directors of Provident Mutual unanimously
approved and adopted a Plan of Conversion (the Plan) to reorganize Provident
Mutual Life Insurance Company, utilizing a mutual holding company structure.
On November 6, 1998, the Insurance Department of the Commonwealth of
Pennsylvania reviewed the Plan and rendered its Decision and Order approving the
Plan, subject to certain conditions.
A Special Meeting of policyholders was held February 9, 1999 to consider
and vote upon the Plan. Approximately 90% of the voting policyholders approved
the Plan.
Subsequent to the Special Meeting, a group of dissident policyholders filed
a lawsuit to block the Plan. On February 11, 1999, a Philadelphia Common Pleas
Court judge issued an order granting a preliminary injunction blocking the Plan
until the Court conducted a hearing. The Company continued to provide
information to the Court at hearings held on March 16, 1999 and June 22, 1999.
On September 16, 1999, the judge issued a permanent injunction blocking the
Plan. The Company is in the process of responding to the substantive issues
raised in the permanent injunction and assessing its options.
3. COMPREHENSIVE INCOME
The components of other comprehensive income for the six months ended June
30, 1999 are as follows (in millions):
<TABLE>
<CAPTION>
TAX
BEFORE TAX (EXPENSE) NET OF TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
Unrealized appreciation (depreciation) on
securities....................................... $(69.1) $24.2 $(44.9)
Less: reclassification adjustment for losses
realized in net income............................. .5 (.2) .3
------ ----- ------
Net change in unrealized appreciation
(depreciation) on securities..................... $(68.6) $24.0 $(44.6)
====== ===== ======
</TABLE>
F-115
<PAGE> 174
NOTES TO INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
4. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted Statement of Positions No.
97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments" (SOP 97-3). SOP 97-3 provides guidance for determining measurement
and recognition of a liability or an asset for insurance-related assessments.
The adoption of SOP 97-3 did not have a material effect on the results of
operations or the financial position of the Company.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133" (SFAS 137). SFAS 137 defers for one year the effective date of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). The Company plans to adopt the provisions of
SFAS 133 effective January 1, 2001. The Company is currently reviewing SFAS 133
and has not yet determined its impact on the interim unaudited condensed
consolidated financial statements.
5. COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation, as both plaintiff and
defendant, which has arisen in the ordinary course of business and as a result
of sales practices, 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.
During June 1999, the Company settled litigation involving the 1994 merger
with Covenant Life Insurance Company. The net settlement of $5.8 million had no
impact on current period operating results as the Company had previously
established reserves for such litigation.
F-116
<PAGE> 175
APPENDIX A
ILLUSTRATION OF DEATH BENEFITS, POLICY ACCOUNT VALUES
AND NET CASH SURRENDER VALUES
The following tables illustrate how the Death Benefits, Policy Account
Values and Net Cash Surrender Values of a Policy may change with the investment
experience of the Separate Accounts and Subaccounts. The tables show how the
Death Benefits, Policy Account Values and Net Cash Surrender Values of a Policy
issued to an Insured of a given age and sex would vary over time if the
investment return on the assets held in each Portfolio were a uniform, gross,
annual rate of 0%, 6% and 12%.
The tables on pages A-3 to A-8 illustrate a Policy issued to a male
Insured, Age 55 and a female Insured, Age 50 in the Preferred Premium Class with
a Face Amount of $1,000,000 and a Planned Periodic Premium of $10,000 paid at
the beginning of each Policy Year. The Death Benefits, Policy Account Values and
Net Cash Surrender Values would be lower if the Insureds were in a nonsmoker or
smoker class or a class with extra ratings since the cost of insurance charges
would increase. Also, the values would be different from those shown if the
gross annual investment returns averaged 0%, 6% and 12% over a period of years,
but fluctuated above and below those averages for individual Policy Years.
The second column of the tables show the amount to which the premiums would
accumulate if an amount equal to those premiums were invested to earn interest,
after taxes, at 5% compounded annually. The columns shown under the heading
"Guaranteed" assume that throughout the life of the policy, the monthly charge
for cost of insurance is based on the maximum level permitted under the Policy
(based on the 1980 CSO Smoker/Nonsmoker Table), a Premium Expense Charge of 6%,
Maximum Monthly Administrative Fee of $42 an Initial Administrative Charge of
$127.50 and a daily charge for mortality and expense risks equivalent to an
annual rate of 0.90% with the additional Subaccount credit of 0.03% per month
after the Policy is in force for 15 years or the sum of the values in the
Subaccount and Guaranteed Account equal or exceed $500,000; the columns under
the heading "Current" assume that throughout the life of the policy, the monthly
charge for cost of insurance is based on the current cost of insurance rate, a
Premium Expense Charge of 6% for the first 15 Policy Years, 1.5% thereafter,
current monthly administrative fee of $17.50 and a daily charge for mortality
and expense risks equivalent to an annual rate of 0.75% with the additional
Subaccount credit of 0.03% per month after the Policy is in force for 15 years
or the sum of the values in the Subaccount and Guaranteed Account equal or
exceed $500,000.
The amounts shown in all tables reflect an averaging of certain other asset
charges described below that may be assessed under the Policy, depending upon
how premiums are allocated. The total of the asset charges reflected in the
Current and Guaranteed illustrations, including the Mortality and Expense Risk
Charge listed above, is 1.58% and 1.73%, respectively. This 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 0.64% 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 II 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
A-1
<PAGE> 176
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.
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 tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid and allocated as
indicated, no amounts are allocated to the Guaranteed Account, and no Policy
loans are made. The tables are also based on the assumption that the Owner has
not requested an increase or decrease in the Face Amount, that no partial
withdrawals have been made and no transfers have been made in any Policy Year.
Upon request, PMLIC will provide a comparable illustration of future
benefits under the Policy based upon the proposed Insureds' Ages and Premium
Classes, the Death Benefit Option, Face Amount, Planned Periodic Premiums and
riders requested. PMLIC reserves the right to charge a reasonable fee for this
service to persons who request more than one policy illustration during a Policy
year.
A-2
<PAGE> 177
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE
SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
FEMALE INSURED ISSUE AGE 50 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $10,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF -1.73%) CURRENT** (NET RATE OF -1.58%)
PREMIUMS ---------------------------------- -------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 6% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,600 6,994 0 1,000,000 7,300 0 1,000,000
2 21,836 15,308 4,308 1,000,000 15,934 4,934 1,000,000
3 33,746 23,387 10,503 1,000,000 24,335 11,451 1,000,000
4 46,371 31,214 18,330 1,000,000 32,490 19,606 1,000,000
5 59,753 38,770 25,886 1,000,000 40,386 27,502 1,000,000
6 73,938 46,031 33,147 1,000,000 47,991 35,107 1,000,000
7 88,975 52,972 40,088 1,000,000 55,284 42,400 1,000,000
8 104,913 59,561 46,677 1,000,000 62,226 49,342 1,000,000
9 121,808 65,765 52,881 1,000,000 68,955 56,071 1,000,000
10 139,716 71,542 58,658 1,000,000 75,514 62,630 1,000,000
11 158,699 76,837 63,953 1,000,000 81,867 68,983 1,000,000
12 178,821 81,590 71,283 1,000,000 88,003 77,696 1,000,000
13 200,151 85,718 77,987 1,000,000 93,917 86,187 1,000,000
14 222,760 89,115 83,961 1,000,000 99,543 94,389 1,000,000
15 246,725 91,657 89,080 1,000,000 104,753 102,176 1,000,000
16 272,129 93,556 93,556 1,000,000 110,510 110,510 1,000,000
17 299,057 94,251 94,251 1,000,000 116,098 116,098 1,000,000
18 327,600 93,670 93,670 1,000,000 121,484 121,484 1,000,000
19 357,856 91,568 91,568 1,000,000 126,516 126,516 1,000,000
20 389,927 87,705 87,705 1,000,000 131,193 131,193 1,000,000
25 581,564 28,853 28,853 1,000,000 143,080 143,080 1,000,000
30 838,017 0 0 0 114,827 114,827 1,000,000
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the separate accounts or subaccounts and the different rates of return of the
separate accounts or subaccounts if the actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12%, but varied above or below that
average for particular subaccounts. No representations can be made that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-3
<PAGE> 178
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE
SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
FEMALE INSURED ISSUE AGE 50 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $10,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF -1.73%) CURRENT** (NET RATE OF -1.58%)
PREMIUMS ---------------------------------- -------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 6% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,600 6,993 0 1,006,993 7,300 0 1,007,300
2 21,836 15,306 4,306 1,015,306 15,932 4,932 1,015,932
3 33,746 23,380 10,496 1,023,380 24,328 11,444 1,024,328
4 46,371 31,197 18,313 1,031,197 32,473 19,589 1,032,473
5 59,753 38,735 25,851 1,038,735 40,350 27,466 1,040,350
6 73,938 45,967 33,083 1,045,967 47,925 35,041 1,047,925
7 88,975 52,863 39,979 1,052,863 55,171 42,287 1,055,171
8 104,913 59,387 46,503 1,059,387 62,046 49,162 1,062,046
9 121,808 65,499 52,615 1,065,499 68,692 55,808 1,068,692
10 139,716 71,151 58,267 1,071,151 75,155 62,271 1,075,155
11 158,699 76,282 63,398 1,076,282 81,396 68,512 1,081,396
12 178,821 80,819 70,512 1,080,819 87,400 77,092 1,087,400
13 200,151 84,668 76,938 1,084,668 93,160 85,430 1,093,160
14 222,760 87,712 82,558 1,087,712 98,601 93,448 1,098,601
15 246,725 89,810 87,233 1,089,810 103,580 101,003 1,103,580
16 272,129 91,149 91,149 1,091,149 109,062 109,062 1,109,062
17 299,057 91,154 91,154 1,091,154 114,347 114,347 1,114,347
18 327,600 89,754 89,754 1,089,754 119,399 119,399 1,119,399
19 357,856 86,689 86,689 1,086,689 124,042 124,042 1,124,042
20 389,927 81,725 81,725 1,081,725 128,270 128,270 1,128,270
25 581,564 16,572 16,572 1,016,572 135,958 135,958 1,135,958
30 838,017 0 0 0 97,779 97,779 1,097,779
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the separate accounts or subaccounts and the different rates of return of the
separate accounts or subaccounts if the actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12%, but varied above or below that
average for particular subaccounts. No representations can be made that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-4
<PAGE> 179
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE
SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
FEMALE INSURED ISSUE AGE 50 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $10,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF 4.17%) CURRENT** (NET RATE OF 4.33%)
PREMIUMS ------------------------------- -------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 6% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,600 7,470 0 1,000,000 7,787 0 1,000,000
2 21,836 16,740 5,740 1,000,000 17,406 6,406 1,000,000
3 33,746 26,302 13,418 1,000,000 27,343 14,459 1,000,000
4 46,371 36,147 23,263 1,000,000 37,593 24,709 1,000,000
5 59,753 46,264 33,380 1,000,000 48,154 35,270 1,000,000
6 73,938 56,636 43,752 1,000,000 59,003 46,119 1,000,000
7 88,975 67,244 54,360 1,000,000 70,128 57,244 1,000,000
8 104,913 78,063 65,179 1,000,000 81,500 68,616 1,000,000
9 121,808 89,064 76,180 1,000,000 93,265 80,381 1,000,000
10 139,716 100,209 87,325 1,000,000 105,480 92,596 1,000,000
11 158,699 111,450 98,566 1,000,000 118,132 105,248 1,000,000
12 178,821 122,727 112,420 1,000,000 131,226 120,918 1,000,000
13 200,151 133,960 126,230 1,000,000 144,775 137,045 1,000,000
14 222,760 145,045 139,892 1,000,000 158,736 153,582 1,000,000
15 246,725 155,859 153,283 1,000,000 173,006 170,429 1,000,000
16 272,129 166,873 166,873 1,000,000 188,863 188,863 1,000,000
17 299,057 177,335 177,335 1,000,000 205,401 205,401 1,000,000
18 327,600 187,169 187,169 1,000,000 222,628 222,628 1,000,000
19 357,856 196,138 196,138 1,000,000 240,441 240,441 1,000,000
20 389,927 204,011 204,011 1,000,000 258,877 258,877 1,000,000
25 581,564 214,349 214,349 1,000,000 356,614 356,614 1,000,000
30 838,017 112,081 112,081 1,000,000 452,667 452,667 1,000,000
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the separate accounts or subaccounts and the different rates of return of the
subaccounts if the actual rates of investment return applicable to the Policy
averaged 0%, 6% or 12%, but varied above or below that average for particular
separate accounts or subaccounts. No representations can be made that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-5
<PAGE> 180
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE
SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
FEMALE INSURED ISSUE AGE 50 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $10,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF 4.17%) CURRENT** (NET RATE OF 4.33%)
PREMIUMS ------------------------------- -------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 6% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,600 7,470 0 1,007,470 7,787 0 1,007,787
2 21,836 16,738 5,738 1,016,738 17,404 6,404 1,017,404
3 33,746 26,294 13,410 1,026,294 27,335 14,451 1,027,335
4 46,371 36,127 23,243 1,036,127 37,573 24,689 1,037,573
5 59,753 46,221 33,337 1,046,221 48,111 35,227 1,048,111
6 73,938 56,555 43,671 1,056,555 58,920 46,036 1,058,920
7 88,975 67,101 54,217 1,067,101 69,981 57,097 1,069,981
8 104,913 77,826 64,942 1,077,826 81,255 68,371 1,081,255
9 121,808 88,690 75,806 1,088,690 92,894 80,010 1,092,894
10 139,716 99,640 86,756 1,099,640 104,955 92,071 1,104,955
11 158,699 110,609 97,725 1,110,609 117,414 104,530 1,117,414
12 178,821 121,514 111,207 1,121,514 130,269 119,962 1,130,269
13 200,151 132,245 124,515 1,132,245 143,526 135,796 1,143,526
14 222,760 142,660 137,506 1,142,660 157,122 151,968 1,157,122
15 246,725 152,586 150,010 1,152,586 170,916 168,339 1,170,916
16 272,129 162,424 162,424 1,162,424 186,182 186,182 1,186,182
17 299,057 171,351 171,351 1,171,351 202,032 202,032 1,202,032
18 327,600 179,233 179,233 1,179,233 218,453 218,453 1,218,453
19 357,856 185,734 185,734 1,185,734 235,287 235,287 1,235,287
20 389,927 190,527 190,527 1,190,527 252,543 252,543 1,252,543
25 581,564 172,126 172,127 1,172,126 337,779 337,779 1,337,779
30 838,017 14,396 14,396 1,014,396 393,292 393,292 1,393,292
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the separate accounts or subaccounts and the different rates of return of the
subaccounts if the actual rates of investment return applicable to the Policy
averaged 0%, 6% or 12%, but varied above or below that average for particular
separate accounts or subaccounts. No representations can be made that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-6
<PAGE> 181
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE
SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
FEMALE INSURED ISSUE AGE 50 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $10,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF 10.06%) CURRENT** (NET RATE OF 10.23%)
PREMIUMS --------------------------------- ---------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 6% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,600 7,948 0 1,000,000 8,275 275 1,000,000
2 21,836 18,230 7,230 1,000,000 18,938 7,938 1,000,000
3 33,746 29,449 16,565 1,000,000 30,590 17,706 1,000,000
4 46,371 41,680 28,796 1,000,000 43,316 30,432 1,000,000
5 59,753 55,002 42,118 1,000,000 57,208 44,324 1,000,000
6 73,938 69,496 56,612 1,000,000 72,352 59,468 1,000,000
7 88,975 85,252 72,368 1,000,000 88,853 75,969 1,000,000
8 104,913 102,367 89,483 1,000,000 106,812 93,928 1,000,000
9 121,808 120,944 108,060 1,000,000 126,518 113,634 1,000,000
10 139,716 141,092 128,208 1,000,000 148,195 135,311 1,000,000
11 158,699 162,926 150,042 1,000,000 172,014 159,130 1,000,000
12 178,821 185,569 176,262 1,000,000 198,189 187,881 1,000,000
13 200,151 212,145 204,414 1,000,000 226,962 219,231 1,000,000
14 222,760 239,780 234,627 1,000,000 258,550 253,397 1,000,000
15 246,725 269,615 267,038 1,000,000 293,149 290,572 1,000,000
16 272,129 302,901 302,901 1,000,000 332,877 332,877 1,000,000
17 299,057 338,942 338,942 1,000,000 376,851 376,851 1,000,000
18 327,600 378,088 378,088 1,000,000 425,522 425,522 1,000,000
19 357,856 420,633 420,633 1,000,000 479,319 479,319 1,000,000
20 389,927 466,972 466,972 1,000,000 538,838 538,838 1,000,000
25 581,564 776,914 776,914 1,000,000 947,238 947,238 1,013,545
30 838,017 1,312,234 1,312,234 1,377,846 1,627,710 1,627,710 1,709,095
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the separate accounts or subaccounts and the different rates of return of the
subaccounts if the actual rates of investment return applicable to the Policy
averaged 0%, 6% or 12%, but varied above or below that average for particular
separate accounts or subaccounts. No representations can be made that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-7
<PAGE> 182
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE
SURVIVORSHIP VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$1,000,000 FACE AMOUNT MALE INSURED ISSUE AGE 55 PREFERRED
FEMALE INSURED ISSUE AGE 50 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $10,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF 10.06% ) CURRENT** (NET RATE OF 10.23% )
PREMIUMS ---------------------------------- ---------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 6% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,600 7,948 0 1,007,948 8,275 275 1,008,275
2 21,836 18,227 7,227 1,018,227 18,935 7,935 1,018,935
3 33,746 29,440 16,556 1,029,440 30,581 17,697 1,030,581
4 46,371 41,657 28,773 1,041,657 43,292 30,408 1,043,292
5 59,753 54,950 42,066 1,054,950 57,156 44,272 1,057,156
6 73,938 69,394 56,510 1,069,394 72,248 59,364 1,072,248
7 88,975 85,066 72,182 1,085,066 88,662 75,778 1,088,662
8 104,913 102,047 89,163 1,102,047 106,482 93,598 1,106,482
9 121,808 120,420 107,536 1,120,420 125,998 113,114 1,125,998
10 139,716 140,263 127,379 1,140,263 147,427 134,543 1,147,427
11 158,699 161,652 148,768 1,161,652 170,921 158,037 1,170,921
12 178,821 184,658 174,350 1,184,658 196,670 186,363 1,196,670
13 200,151 209,330 201,599 1,209,330 224,896 217,166 1,224,896
14 222,760 235,697 230,544 1,235,697 255,768 250,614 1,255,768
15 246,725 263,769 261,192 1,263,769 289,396 286,819 1,289,396
16 272,129 294,597 294,597 1,294,597 327,860 327,860 1,327,860
17 299,057 327,250 327,250 1,327,250 370,273 370,273 1,370,273
18 327,600 361,822 361,822 1,361,822 417,013 417,013 1,417,013
19 357,856 398,218 398,218 1,398,218 468,349 468,349 1,468,349
20 389,927 436,353 436,353 1,436,353 524,759 524,759 1,524,759
25 581,564 645,086 645,086 1,645,086 895,072 895,072 1,895,072
30 838,017 834,201 834,201 1,834,201 1,449,723 1,449,723 2,449,723
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the separate accounts or subaccounts and the different rates of return of the
subaccounts if the actual rates of investment return applicable to the Policy
averaged 0%, 6% or 12%, but varied above or below that average for particular
separate accounts or subaccounts. No representations can be made that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-8
<PAGE> 183
APPENDIX B
LONG TERM MARKET TRENDS
The information below is a record of the compound annual returns of common
stocks, high-grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The compound annual returns assume the reinvestment of
dividends, capital gains and interest. This is an historical record and is not
intended as a projection of future performance. Charges associated with a
variable life policy are not reflected.
The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high-grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods of
time. To the extent that cash value is allocated to separate accounts which
invest in common stocks, these trends indicate the potential advantages of
holding a variable life insurance policy for a long period of time.
The following chart illustrates the compound annual returns of the S&P 500
Composite Stock Price Index for each of the 20-year periods shown. These returns
are compared to the compound annual returns of high-grade corporate bonds and
U.S. Treasury bills for the same periods. (The 20-year periods selected for the
chart begin in 1939 and have ending periods at five year intervals.)
[COMPOUND ANNUAL RETURNS GRAPH]
- ---------------
* Sources: Common stock returns-Standard & Poor's 500 Composite Stock Price
Index. Corporate bond returns -- Salomon Brothers Long Term High Grade
Corporate Bond Index, and U.S. Treasury Bill returns -- C.R.S.P. U.S.
Government Bond File through 1976 and The Wall Street Journal thereafter. All
data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills
and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1999
Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights reserved.
B-1
<PAGE> 184
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.
B-2
<PAGE> 185
TREASURY BILLS ADJUSTED FOR INFLATION
The data below show the annual rate of return over 20-year holding periods
of U.S. Treasury Bills after adjusting for inflation as measured by the Urban
Consumer Price Index. This annual rate, as adjusted, is also called the real
interest rate and is represented as the real interest rate in the chart below.
U.S. Treasury Bills are considered to be one of the safest kinds of investments,
as they are backed by the U.S. government. However, the highest
inflation-adjusted return of U.S. Treasury Bills over the historic 20-year
periods presented below has been modest.
[TREASURY BILLS ADJUSTED FOR INFLATION GRAPH]
Selected 20-year periods ending on year shown above.
- ---------------
Source: All basic data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield,
Stocks, Bonds, Bills and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills
and Inflation 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. 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.
B-3
<PAGE> 186
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
</TABLE>
<TABLE>
<S> <C>
Total Value of 87.5 shares @ 15/share $1,312.50
Less Investment made (900.00)
---------
Gain/Profit $ 412.50
</TABLE>
Though the market price has not returned to the initial high of $20 per
share, dollar cost averaging has permitted the investor to purchase more shares
at a savings and thus realize a significant gain. Obviously, the dollar cost
averaging method only works if the investor continues to invest relatively
constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss
in declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of marketing fluctuations.
How does the dollar cost averaging method relate to a variable life
insurance policy? A policyowner may invest his or her net premiums in a separate
account, and, although a Policy's value in the separate accounts is affected by
several factors other than investment experience (e.g., cash value charges and
charges against the separate account), the dollar cost averaging method can be
generally applied to the Policy to the extent that the policyowner pays premiums
on a regular basis and he or she allocates net premiums to separate accounts
which invest in common stocks in relatively constant amounts.
B-4
