<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 1999
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REGISTRATION FILE NO. 333-71763
811-4460
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
PRE-EFFECTIVE AMENDMENT NUMBER 1
------------------------
PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MONEY MARKET SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MANAGED SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE ZERO COUPON BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE AGGRESSIVE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE INTERNATIONAL SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE SEPARATE ACCOUNT
(EXACT NAME OF TRUST)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1050 WESTLAKES DRIVE
BERWYN, PENNSYLVANIA 19312
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
JAMES G. POTTER, JR., ESQ.
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
1050 WESTLAKES DRIVE
BERWYN, PENNSYLVANIA 19312
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID S. GOLDSTEIN, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004-2404
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement
TITLE OF SECURITIES BEING OFFERED: Flexible Premium Adjustable Variable
Life Insurance Policies.
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
PROSPECTUS
FOR
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE
LIFE INSURANCE
ISSUED BY
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
<PAGE> 3
PROSPECTUS
FLEXIBLE PREMIUM ADJUSTABLE 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 variable life
insurance policy (the "Policy") offered by Provident Mutual Life Insurance
Company ("PMLIC"). The Policy has an insurance component and an investment
component. The primary purpose of the Policy is to provide insurance coverage
for the lifetime of the insured. 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 increase or
decrease the death benefit payable under the Policy.
After certain deductions are made, Net Premiums are allocated to one or
more of the Separate Accounts, or the Guaranteed Account, 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
assets of which are used to purchase shares of a designated corresponding
investment Portfolio that is part of one of the following mutual fund companies:
<TABLE>
<CAPTION>
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VARIABLE INSURANCE
THE MARKET STREET FUND, INC. PRODUCTS FUND
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<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
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</TABLE>
<TABLE>
<CAPTION>
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VARIABLE INSURANCE
THE ALGER AMERICAN FUND PRODUCTS FUND II
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<S> <C>
- Small Capitalization Portfolio - Asset Manager Portfolio
- Contrafund Portfolio
- Index 500 Portfolio
- Investment Grade Bond Portfolio
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</TABLE>
<TABLE>
<CAPTION>
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NEUBERGER BERMAN
ADVISERS MANAGEMENT TRUST VAN ECK WORLDWIDE INSURANCE TRUST
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<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 12 policy years or within
12 years after a Face Amount increase, 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 THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
March , 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY OF THE POLICY
The Policy................................................ 3
Purpose of the Policy..................................... 3
The Death Benefit......................................... 3
Flexibility to Adjust Amount of Death Benefit............. 4
Policy Account Value...................................... 4
Allocation of Net Premiums................................ 4
Transfers................................................. 5
Free-Look................................................. 5
Charges Assessed Under the Policy......................... 5
Loan Privilege............................................ 7
Partial Withdrawal of Net Cash Surrender Value............ 7
Surrender of the Policy................................... 7
Accelerated Death Benefit................................. 7
Tax Treatment............................................. 7
Illustrations............................................. 8
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 Adjust Face Amount............................. 22
Insurance Protection...................................... 23
Payment and Allocation of Premiums........................ 23
Special Policy Account Value Credit....................... 25
Policy Account Value...................................... 25
Policy Duration........................................... 26
Transfers of Policy Account Value......................... 27
Free-Look Privileges...................................... 28
Loan Privileges........................................... 29
Surrender Privilege....................................... 30
Partial Withdrawal Privilege.............................. 30
Accelerated Death Benefit................................. 32
Charges and Deductions...................................... 34
Premium Expense Charge.................................... 34
Surrender Charges......................................... 34
Monthly Deductions........................................ 36
Face Amount Increase Charge............................... 37
Partial Withdrawal Charge................................. 37
Transfer Charge........................................... 37
Mortality and Expense Risk Charge......................... 38
Other Charges............................................. 38
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
The Guaranteed Account...................................... 39
Minimum Guaranteed and Current Interest Rates............. 39
Transfers from Guaranteed Account......................... 40
Other Policy Provisions..................................... 41
Benefit Payable on Final Policy Date...................... 41
Payment of Policy Benefits................................ 41
The Policy................................................ 41
Ownership................................................. 41
Beneficiary............................................... 42
Change of Owner and Beneficiary........................... 42
Split Dollar Arrangements................................. 42
Assignments............................................... 42
Misstatement of Age and Sex............................... 43
Suicide................................................... 43
Contestability............................................ 43
Settlement Options........................................ 43
Supplementary Benefits...................................... 43
Federal Income Tax Considerations........................... 45
Introduction.............................................. 45
Tax Status of the Policy.................................. 45
Tax Treatment of Policy Benefits.......................... 45
Special Rules for Pension and Profit-Sharing Plans........ 47
Special Rules for Section 403(b) Arrangements............. 47
Business Uses of the Policy............................... 47
Possible Tax Law Changes.................................. 47
PMLIC's Taxes............................................. 47
Policies Issued in Conjunction with Employee Benefit
Plans..................................................... 48
Legal Developments Regarding Unisex Actuarial Tables........ 48
Voting Rights............................................... 48
Changes to the Separate Accounts of Funds................... 50
Changes to Separate Account Operations.................... 50
Changes to Available Portfolios........................... 50
Termination of Participation Agreements................... 50
Officers and Directors of PMLIC............................. 52
Distribution of Policies.................................... 53
Policy Reports.............................................. 54
Preparing for Year 2000..................................... 54
State Regulation............................................ 55
Legal Proceedings........................................... 55
Experts..................................................... 55
Legal Matters............................................... 55
Definitions................................................. 56
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
Appendix C -- Plan of Conversion............................ C-1
</TABLE>
<PAGE> 6
SUMMARY OF THE POLICY
The following summary of the Policy provisions should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policy in this
prospectus assumes that the Insured is alive, the Policy is in force and there
is no outstanding loan.
The Policy 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 Variable Life Insurance Policy (the
"Policy") offered by this Prospectus is issued by Provident Mutual Life
Insurance Company ("PMLIC"). The Policy is similar in many ways to a
fixed-benefit life insurance policy. As with a fixed-benefit life insurance
policy, the Owner of a Policy makes premium payments in return for insurance
coverage on the person insured. Also, like many fixed-benefit life insurance
policies, the Policy provides for accumulation of Net Premiums and a Net Cash
Surrender Value which is payable if the Policy is surrendered during the
Insured's lifetime. As with many fixed-benefit life insurance policies, the Net
Cash Surrender Value during the early Policy Years is likely to be substantially
lower than the aggregate premium payments made.
However, the Policy differs from a fixed-benefit life insurance policy in
several important respects. Unlike a fixed-benefit life insurance policy, under
the Policy, the Death Benefit may, and the 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, increase or decrease the Face Amount and may change the
Death Benefit Option.
The most important features of the Policy, such as charges and deductions,
Death Benefits, and calculation of Policy values, are summarized on the
following pages.
PURPOSE OF THE POLICY
The Policy is designed to provide lifetime insurance benefits and long-term
investment of 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. It may
not be advantageous to replace existing insurance coverage with the Policy. In
particular, replacement should be carefully considered if the decision to
replace existing coverage is based solely on a comparison of Policy
illustrations.
THE DEATH BENEFIT
As long as the Policy remains in force, PMLIC will pay the Insurance
Proceeds to the Beneficiary upon receipt of due proof of the death of the
Insured. The Insurance Proceeds will consist of the Policy's Death Benefit, plus
any additional benefits provided by a supplementary benefit rider, less any
outstanding Policy loan and accrued interest, less any unpaid Monthly
Deductions.
3
<PAGE> 7
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 increasing
or decreasing the Face Amount of the Policy. (See "Death Benefit" and "Ability
to Adjust Face Amount".) The minimum amount of a requested increase in Face
Amount is $25,000 (or such lesser amount required in a particular state) and any
requested increase may require evidence of insurability. Any decrease in Face
Amount must be for at least $25,000 (or such lesser amount required in a
particular state) and cannot result in a Face Amount less than the Minimum Face
Amount available. PMLIC reserves the right to establish different Minimum Face
Amounts for Policies issued in the future.
Any change in Death Benefit Options or in the Face Amount may affect the
charges under the Policy. Any increase in the Face Amount will result in an
increase in the Monthly Deductions and any increase in Face Amount will also
increase the surrender charges which are imposed upon lapse or surrender of the
Policy or the pro-rata surrender charges imposed upon a decrease in Face Amount
within the relevant twelve-year period. For any decrease in Face Amount, that
part of the surrender charges attributable to the decrease will reduce the
Policy Account Value, and the surrender charges will be reduced by this amount.
A decrease in Face Amount may also affect cost of insurance charges. (See
"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".)
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
4
<PAGE> 8
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 will be 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 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 the later of: (a) 45 days after Part I of the Application for
the Policy is signed, and (b) 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".)
A Free-Look privilege also applies after a requested increase in Face
Amount. (See "Free-Look For Increase in Face Amount".)
CHARGES ASSESSED UNDER THE POLICY
Premium Expense Charge. A Premium 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 Insured's residence at the time the premium is paid. PMLIC
reserves the right to change the amount of the charge deducted from future
premiums if the Insured's residence changes or the applicable law is
changed;
2. Percent of Premium Charge equal to 1.5% of each premium payment.
PMLIC may increase this charge to a maximum of 3% 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
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<PAGE> 9
Policy. The Monthly Administrative Charge is currently $7.50; the maximum
permissible Monthly Administrative Charge is $12. (See "Monthly Administrative
Charge".) The Initial Administrative Charge is $5, deducted on the first 12
Policy Processing Days. (See "Initial Administrative Charge".)
Surrender Charge and Additional Surrender Charge. A Surrender Charge is
imposed if the Policy is surrendered or lapses at any time before the end of the
12th 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
12th Policy Year. (See "Surrender Charges".) An Additional Surrender Charge
which consists of an Additional Deferred Sales Charge and an Additional Deferred
Administrative Charge, will be imposed if the Policy is surrendered or lapses at
any time within 12 years after the effective date of an increase in Face Amount.
(See "Surrender Charges".) A portion of an Additional Surrender Charge will be
deducted if the related increment of Face Amount is decreased within 12 years
after such increase took effect. (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
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<S> <C>
1-6.......................................... $4.90
7............................................ $4.20
8............................................ $3.50
9............................................ $2.80
10........................................... $2.10
11........................................... $1.40
12........................................... $0.70
13+.......................................... $ 0
</TABLE>
The Deferred Sales Charge is equal to 35% of all premiums paid to the date
of surrender, lapse or decrease. The Deferred Sales Charge and any Deferred
Additional Sales Charges, however, will not exceed the Maximum Deferred Sales
Charge and Maximum Deferred Additional Sales Charges, respectively. During
Policy Years one through six (or for six years following the effective date of
an increase in Face Amount), this maximum equals 70% of the Target Premium for
the Initial Face Amount (or 70% of the Target Premium for the increase, as the
case may be). The maximum declines to 60% of the relevant premium during the
seventh year, 50% during the eighth year, 40% during the ninth year, 30% during
the tenth year, 20% during the eleventh year, 10% during the twelfth year and 0%
during years thirteen and later. An Additional Deferred Administrative Charge is
associated with each increase in Face Amount. The Charge is the same as that for
the initial Face Amount except that the Charge grades down based on 12-month
periods (rather than Policy Years) beginning with the effective date of each
increase. The Additional Deferred Administrative Charge paid is the Charge as
described less amount of any such Charge previously paid at the time of a
decrease in Face Amount.
Face Amount Increase Charge. A charge, currently $60 plus $0.50 per $1,000
Face Amount increase but not greater than $750, will be deducted from the Policy
Account Value on the effective date of an increase in Face Amount to compensate
PMLIC for administrative expenses in connection with the increase. This charge
may be increased in the future but in no event will it exceed $60 plus $3.00 per
$1,000 Face Amount increase. (See "Face Amount Increase Charge" below.)
Transfer Charge. For each transfer of Policy Account Value between or
among the Separate Accounts (and/or Separate Accounts) 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.)
6
<PAGE> 10
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 value
which reflects management fees and expenses deducted from the assets of the
Portfolios. (See "Table of Fund Fees and Expenses" below).
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 Policy Account Value in an amount equal to the loan 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 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.)
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".)
ACCELERATED DEATH BENEFIT
Under the Accelerated Death Benefit Rider, an Owner may receive, at his or
her request and upon approval by PMLIC, accelerated payment of part of the
Policy's Death Benefit if the Insured develops a Terminal Illness or is
permanently confined to a Nursing Care Facility (See "Accelerated Death Benefit"
below.)
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
7
<PAGE> 11
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.
8
<PAGE> 12
TABLE OF FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
MARKET STREET FUND, INC. ANNUAL EXPENSES GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- -------------- --------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ 0.32% 0.25% 0.35% 0.40% 0.41% 0.75%
Other Expenses..................... 0.15% 0.17% 0.20% 0.18% 0.21% 0.25%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses......... 0.47% 0.42% 0.55% 0.58% 0.62% 1.00%
ALL-PRO ALL-PRO ALL-PRO ALL-PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MARKET STREET FUND, INC. ANNUAL EXPENSES GROWTH VALUE GROWTH VALUE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.70% 0.70% 0.90% 0.90%
Other Expenses (after reimbursement)... 0.22% 0.27% 0.35% 0.39%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 0.92% 0.97% 1.25% 1.29%
THE ALGER AMERICAN FUND ANNUAL SMALL
EXPENSES(2) CAPITALIZATION
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
------------------------------- ----
Management Fees (Investment Advisory
Fees)............................ 0.85%
Other Expenses..................... 0.04%
----
Total Fund Annual Expenses......... 0.89%
VARIABLE INSURANCE PRODUCTS FUND ("VIP HIGH EQUITY-
FUND") ANNUAL EXPENSES(2) INCOME INCOME GROWTH OVERSEAS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.58% 0.49% 0.59% 0.74%
Other Expenses (after reimbursement)... 0.12% 0.08% 0.07% 0.15%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 0.70% 0.57% 0.66% 0.89%
INVESTMENT
VARIABLE INSURANCE PRODUCTS FUND II ASSET GRADE
("VIP II FUND") ANNUAL EXPENSES(2) MANAGER CONTRAFUND INDEX 500 BOND
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.54% 0.59% 0.24% 0.43%
Other Expenses (after reimbursement)... 0.09% 0.07% 0.04% 0.14%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 0.63% 0.66% 0.28% 0.57%
LIMITED
NEUBERGER BERMAN ADVISERS MATURITY
MANAGEMENT TRUST ANNUAL EXPENSES(2) BOND PARTNERS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO
------------------------------- ---- ----
Management Fees (Investment Advisory
Fees)............................ 0.65% 0.78%
Other Expenses..................... 0.11% 0.06%
---- ----
Total Fund Annual Expenses......... 0.76% 0.84%
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
VAN ECK WORLDWIDE INSURANCE WORLDWIDE HARD EMERGING REAL
TRUST ANNUAL EXPENSES(2) BOND ASSETS MARKET ESTATE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- -------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ 1.00% 1.00% 1.00% 1.00%
Other Expenses (after reimbursement)... 0.15% 0.16% 0.50% 0.50%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ 1.15% 1.16% 1.50% 1.50%
</TABLE>
- ---------------
(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> 14
THE COMPANY, SEPARATE ACCOUNTS AND FUNDS
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
PMLIC is a stock life insurance company that was originally organized as a
mutual life insurance company under Pennsylvania law in 1865. PMLIC expects to
change its name to Provfirst America Life Insurance Company in connection with
its conversion into a stock life insurance company that is indirectly controlled
by a newly-created mutual holding company called Provident Mutual Holding
Company. More information about the pending conversion and the new holding
company structure is provided in Appendix C. PMLIC is authorized to transact
life insurance and annuity business in Pennsylvania and in 50 other
jurisdictions. On December 31, 1998, PMLIC had total assets of approximately
$8.7 billion.
PMLIC is a member of the Insurance Marketplace Standards Association
("IMSA"), and as such may include the IMSA logo and information about IMSA
membership in its advertisements. Companies that belong to IMSA subscribe to a
set of ethical standards covering the various aspects of sales and service for
individually sold life insurance and annuities.
THE SEPARATE ACCOUNTS
The Growth, Money Market 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 nine 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
11
<PAGE> 15
and policies of the Funds or their Portfolios. The assets of each Portfolio are
separate from the assets of other portfolios of that Fund and each Portfolio has
separate investment objectives and policies. Some of the Funds may, in the
future, create additional Portfolios. The investment experience of each Separate
Account or Subaccount depends on the investment performance of its corresponding
Portfolio.
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 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.
With respect to the Growth, Money Market, Bond, Managed and Aggressive
Growth Portfolios, the Fund is advised by Sentinel Advisors Company (SAC), which
is registered with the SEC as an
12
<PAGE> 16
investment adviser under the Investment Advisers Act of 1940. As compensation
for its services, SAC receives monthly compensation as follows:
Growth Portfolio -- 0.50% of the first $20 million of the average
daily net assets of the Growth Portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio, and 0.30% of the average
daily net assets in excess of $40 million.
Money Market Portfolio -- 0.25% of the average daily net assets of the
portfolio.
Bond Portfolio -- 0.35% of the first $100 million of the average daily
net assets of the portfolio and 0.30% of the average daily net assets in
excess of $100 million.
Managed Portfolio -- 0.40% of the first $100 million of the average
daily net assets of the portfolio and 0.30% of the average daily net assets
in excess of $100 million.
Aggressive Growth Portfolio -- 0.50% of the first $20 million of the
average daily net assets of the portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio and 0.30% of the average
daily net assets in excess of $40 million.
With respect to the International Portfolio, MS Fund is advised by
Providentmutual Investment Management Company ("PIMC") which receives monthly
compensation at an effective annual rate of 0.75% of the first $500 million of
the average daily net assets of the portfolio and 0.60% of the average daily net
assets in excess of $500 million. PIMC has employed The Boston Company Asset
Management, Inc. ("Boston Company") to provide investment subadvisory services
in connection with the Portfolio. As compensation for the investment advisory
services rendered, PIMC pays The Boston Company a monthly fee at an effective
rate of 0.375% of the first $500 million of the average daily net assets of the
portfolio and 0.30% of the average daily net assets in excess of $500 million.
PIMC serves as investment adviser for the All Pro Portfolios. As
compensation for its services, PIMC receives .70% of the daily net assets of the
All Pro Large Cap Growth and All Pro Large Cap Value Portfolios, and .90% of the
daily net assets of the All Pro Small Cap Growth and All Pro Small Cap Value
Portfolios. PIMC uses a "manager of managers" approach for the All Pro
Portfolios under which PIMC allocates each Portfolio's assets among one or more
"specialist" investment sub-advisers. Additionally, PIMC has retained Wilshire
Associates Incorporated ("Wilshire") to assist it in identifying potential
sub-advisers and performing the quantitative analysis necessary to assess such
sub-advisers' styles and performance. As compensation for these services, PIMC
pays Wilshire from its investment advisory fees, .05% of the average daily net
assets of the All Pro Portfolios.
All Pro Large Cap Growth. As of the date of this prospectus, the assets of
the All Pro Large Cap Growth Portfolio are managed in part by Cohen,
Klingenstein & Marks, Inc. ("CKM") and in part by Geewax, Terker & Co.
("Geewax"); pursuant to separate investment sub-advisory agreements. As
compensation for their services PIMC pays from its investment advisory fees the
following percentages of the daily net assets of the Portfolio: CKM -- .35%.;
Geewax -- .30%.
All Pro Small Cap Growth. As of the date of this prospectus, the assets of
the All Pro Small Cap Growth Portfolio are managed in part by Standish, Ayer &
Wood ("SAW"), and in part by Husic Capital Management ("Husic"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: SAW -- .50%; Husic -- .50%.
All Pro Large Cap Value. As of the date of this prospectus, the assets of
the All Pro Large Cap Value Portfolio are managed in part by Equinox Capital
Management, Inc. ("Equinox"); in part by Harris Associates, Inc. ("Harris"); and
in part by Mellon Equity Associates ("Mellon"), pursuant to separate investment
sub-advisory agreements. As compensation for their services PIMC pays from its
investment advisory fees the following percentages of the daily net assets of
the Portfolio: Equinox -- .25% of the first $50 million of assets and .23% of
the remaining assets; Harris -- .65% of the first $50 million of assets, .60% of
the next $50 million of assets and .55% of the remaining assets; Mellon -- .20%.
13
<PAGE> 17
All Pro Small Cap Value. As of the date of this prospectus, the assets of
the All Pro Small Cap Value Portfolio are managed in part by 1838 Investment
Advisors ("1838") and in part by Denver Investment Advisors ("DIA"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: 1838 -- .55%; DIA -- .75% of the first $25
million of assets and .65% on the remaining assets.
In addition to the fee for the investment advisory services, MS Fund pays
its own expenses generally, including brokerage costs, administrative costs,
custodial costs, and legal, accounting and printing costs. However, PMLIC has
entered into an agreement with the Fund whereby it will reimburse the Fund for
all ordinary operating expenses, excluding advisory fees in excess of an annual
rate of 0.40% of the average daily net assets of each portfolio except the
International Portfolio, and 0.75% for the International Portfolio. It is
anticipated that this agreement will continue; if it is terminated, Fund
expenses may increase.
A more complete description of MS Fund, including the investment
objectives, policies and risks of each Portfolio, is contained in the prospectus
for the MS Fund, which accompanies this Prospectus.
THE ALGER AMERICAN FUND
The Alger American Small Capitalization Subaccount invests exclusively in
shares of the corresponding Portfolio of The Alger American Fund ("Alger
American").
Alger American Small Capitalization Portfolio. This Portfolio seeks
long-term capital appreciation by focusing on small, fast-growing companies that
offer innovative products, services or technologies to a rapidly expanding
marketplace.
The investment adviser for the Alger American Small Capitalization
Portfolio is Fred Alger Management, Inc. ("Alger Management"), which is
registered with the SEC as an Investment Adviser under the Investment Advisors
Act of 1940. As compensation for its services, Alger Management receives a fee
at the end of each month at an annual rate of .85% of the average net assets of
the Alger American Small Capitalization Portfolio.
A more complete description of Alger American and the Alger American Small
Capitalization Portfolio, including the Portfolio's investment objectives,
policies and risks, is contained in the prospectus for Alger American which
accompanies this Prospectus.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
Eight Subaccounts invest exclusively in shares of Portfolios of the
Variable Insurance Products Fund (the "VIP Fund") or of the Variable Insurance
Products Fund II (the "VIP II Fund"). The investment objectives of the
Portfolios of the VIP Fund and the VIP II Fund in which these Subaccounts invest
are set forth below.
VIP Fund
VIP Equity-Income Portfolio. This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the VIP Equity-Income Portfolio considers the potential for capital
appreciation. The Portfolio's goal is to achieve a yield which exceeds the
composite yield of the securities comprising the Standard and Poor's 500
Composite Stock Price Index.
VIP Growth Portfolio. This Portfolio seeks to achieve capital
appreciation. The VIP Growth Portfolio normally purchases common stocks,
although its investments are not restricted to any one type of security. Capital
appreciation may also be found in other types of securities, including bonds and
preferred stocks.
14
<PAGE> 18
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 monthly management fee at the
annual rate of 0.28% of the Portfolio's average net assets. One-twelfth of this
annual fee rate is applied to the net assets averaged over the most recent
month, giving a dollar amount which is the fee for that month.
For the VIP High Income Portfolio, 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%.
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.
15
<PAGE> 19
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 100% and 105%, respectively, of each sub-advisor's
costs incurred in connection with its sub-advisory agreement.
On behalf of the VIP Overseas Portfolio, FMR has entered into sub-advisory
agreements with FMR (U.K.), FMR Far East, and Fidelity International Investment
Advisors ("FIIA"). FIIA, in turn, has entered into a sub-advisory agreement with
its wholly owned subsidiary Fidelity International Investment Advisors (U.K.)
Limited (FIIAL U.K.). Under the sub-advisory agreements, FMR may receive
investment advice and research services with respect to companies based outside
the U.S. and may grant them investment management authority as well as the
authority to buy and sell securities if FMR believes it would be beneficial to
the Portfolio.
Currently, FMR (U.K.), FMR Far East, FIIA and FIIAL U.K. each focus on
investment opportunities in countries other than the U.S., including countries
in Europe, Asia and the Pacific Basin.
Under the sub-advisory agreements FMR pays the fees of FMR (U.K.), FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors are
compensated as follows:
- FMR pays FMR (U.K.) and FMR Far East fees equal to 110% and 105%,
respectively, of FMR (U.K.)'s and FMR Far East's costs incurred in
connection with providing investment advice and research services.
- FMR pays FIIA 30% of its monthly management fee with respect to the
average market value of investments held by the Portfolio for which FIIA
has provided FMR with investment advice.
- FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred
in connection with providing investment advice and research services.
For providing investment management services, the sub-advisors are
compensated according to the following formulas:
- FMR pays FMR (U.K.), FMR Far East, and FIIA 50% of its monthly management
fee with respect to the Portfolio's average net assets managed by the
sub-advisor on a discretionary basis.
- FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection
with providing investment management.
Each Portfolio utilizes Fidelity Investments Institutional Operations
Company ("FIIOC"), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each Portfolio pays fees based on the type, size, and number of accounts
in each Portfolio and the number of transactions made by shareholders of each
Portfolio.
Each Portfolio also has an agreement with Fidelity Service Co. ("Service"),
an affiliate of FMR under which each Portfolio pays Service to calculate its
daily share prices and to maintain the portfolio and general accounting records
of each Portfolio and to administer each Portfolio's securities lending program.
The fees for pricing and bookkeeping services are based on each Portfolio's
average net assets but must fall within a range of $45,000 to $750,000. The fees
for securities lending services are based on the number and duration of
individual securities loans.
FMR may, from time to time, agree to reimburse a Portfolio for management
fees and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without notice,
will increase a Portfolio's yield. If FMR discontinues a
16
<PAGE> 20
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 Separate Accounts will
invest. The investment objectives of the Portfolios of AMT in which the Separate
Accounts will invest are set forth below. The investment experience of each
Subaccount depends upon the investment performance of its corresponding
Portfolio and Series. There is no assurance that any Portfolio (or the
corresponding series) will achieve its stated objective.
Limited Maturity Bond Portfolio. The Series corresponding to this
Portfolio seeks the highest current income consistent with low risk to principal
and liquidity and secondarily, total return, through investment in short to
intermediate term debt securities, primarily investment grade.
Partners Portfolio. The Series corresponding to this Portfolio seeks
capital growth through investment in common stocks and other equity securities
of medium to large capitalization established companies.
The Investment Adviser for the Series of Managers Trust corresponding to
the Limited Maturity Bond and Partners Portfolios of AMT is Neuberger Berman
Management Incorporated ("NB Management"). As compensation for its services, NB
Management receives a monthly fee from AMT at the following percentages of daily
net assets of the corresponding Portfolio: Limited Maturity Bond
Portfolio -- 0.25% of first $500 million, 0.225% of next $500 million, 0.20% of
next $500 million, 0.175% of next $500 million and 0.15% of over $2 billion;
Partners Portfolio -- 0.55% of first $250 million, 0.525% of next $250 million,
0.50% of next $250 million, 0.475 of next $250 million, 0.45% of next $500
million, and 0.425% of over $1.5 billion.
A more complete description of AMT, including the investment objectives,
policies and risks of the available Portfolios, is contained in the prospectuses
for the Limited Maturity Bond and Partners Portfolios of AMT, which accompany
this Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
Four Subaccounts invest exclusively in shares of corresponding Portfolios
of Van Eck Worldwide Insurance ("Van Eck Trust"). The investment objectives of
the Portfolios of Van Eck Trust are set forth below.
Van Eck Worldwide Hard Assets Portfolio. This Portfolio seeks long-term
capital appreciation by investing globally, primarily in "Hard Assets
Securities". Hard Assets Securities include equity securities
17
<PAGE> 21
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 Separate Accounts. These agreements
reflect administrative services provided to the Funds by PMLIC. Payments of such
amounts by an adviser will not increase the fees paid by the Portfolios or their
shareholders.
Shares of the Funds are sold to separate accounts of insurance companies
that are not affiliated with PMLIC or each other, a practice known as "shared
funding." They are also sold to separate accounts to serve as the underlying
investment for both variable annuity contracts and variable life insurance
policies, a practice known as "mixed funding." As a result, there is a
possibility that a material conflict may arise
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<PAGE> 22
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.
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<PAGE> 23
DETAILED DESCRIPTION OF POLICY PROVISIONS
DEATH BENEFIT
General. As long as the Policy remains in force, the Insurance Proceeds of
the Policy will, upon due proof of the Insured's death (and fulfillment of
certain other requirements), be paid to the Beneficiary in accordance with the
designated Death Benefit Option. The Insurance Proceeds will be determined as of
the date of the Insured's death and will be equal to:
1. the Death Benefit;
2. plus any additional benefits due under a supplementary benefit
rider attached to the Policy;
3. less any loan and accrued loan interest on the Policy;
4. less any overdue deductions if the death of the Insured occurs
during the Grace Period.
The 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 Insured's date of death multiplied by the specified
percentage shown in the table below:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ---------- ------------- ----------
<S> <C> <C> <C>
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 through 99 100%
</TABLE>
For Attained Ages not shown, the percentages will decrease by a ratable portion
for each full year.
Illustration of Option A -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no Policy loan outstanding.
Under Option A, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000. The specified percentage for an Insured under
Attained Age 40 on the Policy Anniversary prior to the date of death is 250%.
Because the Death Benefit must be equal to or be greater than 2.50 times the
Policy Account Value, any time the Policy Account Value exceeds $80,000 the
Death Benefit will exceed the Face Amount. Each additional dollar added to the
Policy Account Value will increase the Death Benefit by $2.50. Thus, a 35 year
old Insured with a Policy Account Value of $150,000 will have a Death Benefit of
$375,000 (2.50 x $150,000); a Policy Account Value of $300,000 will yield a
Death Benefit of $750,000 (2.50 x $300,000); a Policy Account Value of $400,000
will yield a Death Benefit of $1,000,000 (2.50 x $400,000).
Similarly, any time the Policy Account Value exceeds $80,000, each dollar
taken out of the Policy Account Value will reduce the Death Benefit by $2.50. If
at any time, however, the Policy Account Value multiplied by the specified
percentage is less than the Face Amount, the Death Benefit will be the Face
Amount of the Policy.
Option B. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy plus the Policy Account Value and (b) the Policy Account
Value multiplied by the specified percentage shown in
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<PAGE> 24
the table above. (The Policy Account Value in each case is determined on the
Valuation Day on or next following the Insured's date of death.)
Illustration of Option B -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no outstanding Policy loan.
Under Option B, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000 plus the Policy Account Value. Thus, for example, a
Policy with a $50,000 Policy Account Value will have a Death Benefit of $250,000
($200,000 plus $50,000); and a Policy Account Value of $100,000 will yield a
Death Benefit of $300,000. Since the specified percentage is 250%, the Death
Benefit will be at least 2.50 times the Policy Account Value. As a result, if
the Policy Account Value exceeds $133,333, the Death Benefit will be greater
than the Face Amount plus the Policy Account Value. Each additional dollar added
to the Policy Account Value above $133,333 will increase the Death Benefit by
$2.50. An Insured with a Policy Account Value of $150,000 will therefore have a
Death Benefit of $375,000 (2.50 x $150,000); a Policy Account Value of $300,000
will yield a Death Benefit of $750,000 (2.50 x $300,000); and a Policy Account
Value of $500,000 will yield a Death Benefit of $1,250,000 (2.50 x $500,000).
Similarly, any time the Policy Account Value exceeds $133,333, each dollar taken
out of the Policy Account Value will reduce the Death Benefit by $2.50. If at
any time, however, the Policy Account Value multiplied by the applicable
percentage is less than the Face Amount plus the Policy Account Value, the Death
Benefit will be the Face Amount plus the Policy Account Value.
Which Death Benefit Option to Choose. If an Owner prefers to have premium
payments and favorable investment performance reflected partly in the form of an
increasing Death Benefit, the Owner should choose Option B. If an Owner is
satisfied with the amount of the Insured's existing insurance coverage and
prefers to have premium payments and favorable investment performance reflected
to the maximum extent in the Policy Account Value, the Owner should choose
Option A.
Change in Death Benefit Option. After the first Policy Year or 12 months
after a Face Amount increase, 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 and any applicable rider coverage amounts, respectively, 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 or applicable rider coverage amount
to less than the Minimum Face Amount or minimum amount in which the applicable
rider could be issued.
If the Death Benefit Option is changed from Option B to Option A, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be increased by the Policy Account Value on that date.
A change in the Death Benefit Option may affect the Net Amount at Risk over
time which, in turn, would affect the monthly Cost of Insurance Charge. Changing
from Option A to Option B will generally result in a Net Amount at Risk that
remains level. Such a change will result in a relative increase in the cost of
insurance charges over time because the Net Amount at Risk will, unless the
Death Benefit is based on the applicable percentage of Policy Account Value,
remain level rather than decreasing as the Policy Account Value increases.
Unless the Death Benefit is based on the applicable percentage of Policy Account
Value, changing from Option B to Option A will, if the Policy Account Value
increases, decrease the Net Amount at Risk over time, thereby reducing the cost
of insurance charge.
The effects of these Death Benefit Option changes on the Face Amount, Death
Benefit and Net Amount at Risk can be illustrated as follows. Assume that a
contract under Option A has a Face Amount of $500,000 and a Policy Account Value
of $100,000 and, therefore, a Death Benefit of $500,000 and a Net Amount at Risk
of $400,000 ($500,000 - $100,000). If the Death Benefit Option is changed from
Option A to Option B, the Face Amount will decrease from $500,000 to $400,000
and the Death Benefit
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<PAGE> 25
and Net Amount at Risk would remain the same. Assume that a contract under
Option B has a Face Amount of $500,000 and a Policy Account Value of $50,000
and, therefore, the Death Benefit is $550,000 ($500,000 - $50,000) and a Net
Amount at Risk of $500,00 ($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 ADJUST FACE AMOUNT
Subject to certain limitations, an Owner may generally, at any time after
the first Policy Year, increase or decrease the Policy's Face Amount by
submitting a written application to PMLIC. The effective date of the increase or
decrease will be the Policy Processing Day on or next following PMLIC's approval
of the request. An increase or decrease in Face Amount may have tax
consequences. (See "Tax Treatment of Policy Benefits.") The effect of changes in
Face Amount on Policy charges, as well as other considerations, are described
below.
Increase. A request for an increase in Face Amount may not be for less
than $25,000 (or such lesser amount required in a particular state). The Owner
may not increase the Face Amount after the Insured's Attained Age 75 or if the
Face Amount was increased during the prior 12-month period. To obtain the
increase, the Owner must submit an application for the increase and provide
evidence satisfactory to PMLIC of the Insured's insurability.
On the effective date of an increase, and taking the increase into account,
the Net Cash Surrender Value must be equal to the Monthly Deductions then due
and the expense charge for the increase in Face Amount. If the Net Cash
Surrender Value is not sufficient, the increase will not take effect until the
Owner makes a sufficient additional premium payment to increase the Net Cash
Surrender Value.
An increase in the Face Amount will generally affect the total Net Amount
at Risk which will increase the monthly Cost of Insurance Charges. An increase
in Face Amount will increase the amount of any Additional Surrender Charge. A
Face Amount increase expense charge will also be deducted. (See "Face Amount
Increase Charge.") In addition, different cost of insurance rates may apply to
the increase in insurance coverage. (See "Monthly Deductions.")
After increasing the Face Amount, the Owner will have the right: (a) during
the Free-Look Period following the effective date of the increase, to have the
increase canceled and receive a credit or refund equal to the cost of insurance
charge and the increase charge deducted for the increase; and (b) during the
first 24 months following the increase, to exchange the increase in Face Amount
for a fixed benefit permanent life insurance policy issued by PMLIC. (See
"Transfers of Policy Account Value.")
Decrease. The amount of a Face Amount decrease must be for at least
$25,000 (or such lesser amount required in a particular state). The Face Amount
after any decrease may not be less than the Minimum Face Amount. A decrease in
Face Amount will not be permitted if the Face Amount was increased during the
prior 12-month period. To the extent a decrease in the Face Amount could result
in
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<PAGE> 26
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 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 such account bears to the total unloaned Policy Account Value.
For purposes of determining the cost of insurance charge and surrender
charges, any decrease in the Face Amount will reduce the Face Amount in the
following order: (a) the Face Amount provided by the most recent increase; (b)
the next most recent increases, successively; and (c) the Initial Face Amount.
INSURANCE PROTECTION
An Owner may increase or 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 increasing or 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.
An increase in Face Amount will generally increase the amount of insurance
protection, depending on the Policy Account Value and specified percentage. If
the insurance protection is increased, Monthly Deductions will increase as well.
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 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
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<PAGE> 27
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 $50,000 for all Premium Classes except preferred. For the preferred Premium
Class, the Minimum Face Amount 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 have an Issue Age of 85 or less and who
provide PMLIC with satisfactory evidence of insurability. Acceptance is subject
to PMLIC's underwriting rules. PMLIC reserves the right to reject an application
for any reason permitted by law. (See "Distribution of Policies.")
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 agreement is the lesser of the Face Amount
applied for or $500,000. Coverage under the agreement will end on the earliest
of: (a) the 90th day from the date of the agreement; (b) the date that insurance
takes effect under the Policy; (c) the date a policy, other than as applied for,
is offered to the Applicant; or (d) five days from the date PMLIC mails a notice
of termination of coverage.
Amount and Timing of Premiums. 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
Insured 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".
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.
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<PAGE> 28
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 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 Owner's 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 $100,000, 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 or Additional
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
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<PAGE> 29
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 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 the Insured's insurability satisfactory to PMLIC and payment of an
amount sufficient to keep the Policy in force for at least three months
following the 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.
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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, 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.
Conversion Privilege for Increase in Face Amount. During the first two
years following an increase in Face Amount, the Owner may, on one occasion,
without evidence of insurability, exchange the amount of the increase in Face
Amount for a fixed-benefit permanent life insurance policy. Such an exchange
may, however, have federal income tax consequences. (See "Tax Treatment of
Policy Benefits.") Premiums under this new policy will be based on the Sex,
Attained Age and Premium Class of the Insured on the effective date of the
increase in the Face Amount of the Policy. The new policy will have the same
Face Amount and Issue Date as the amount and effective date of the increase.
PMLIC will refund the monthly deductions for the increase made on each Policy
Processing Day between the effective date of the increase to the date of
conversion and the expense charge for such increase.
Transfer Right for Change in Investment Policy of 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
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.
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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 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.
FREE-LOOK PRIVILEGES
Free-Look for Policy. The Policy provides for an initial Free-Look Period.
The Owner may cancel the Policy until the latest of: (a) 45 days after Part I of
the application for the Policy is signed, and (b) 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
Policy's delivered in states that require such a refund.
Free-Look for Increase in Face Amount. Any requested increase in Face
Amount is also subject to a Free-Look privilege. The Owner may cancel a
requested increase in Face Amount until the latest of: (a) 45 days after the
application for the increase is signed, and (b) 10 days after the Owner receives
the
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new Policy Schedule pages reflecting the increase. Upon requesting cancellation
of the increase, an amount equal to all cost of insurance charges attributable
to the increase plus the Face Amount Increase Charge will be credited to the
accounts in the same proportion as they were deducted, unless the Owner requests
a refund of such amount.
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 the 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 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% interest
annually to the amount in the Loan Account until the policy's 10th anniversary
or until Attained Age 60, whichever is later, and 5.75% annually thereafter. The
tax consequences of a Policy loan after the later of a Policy's 10th anniversary
or Attained Age 60 are less clear. Owners should consult a tax adviser with
respect to such consequences.
Effect of Policy Loan. Policy loans, whether or not repaid, will have a
permanent effect on the Policy Account Value, the Cash Surrender Value, and Net
Cash Surrender Value and may permanently affect the Death Benefit under the
Policy. The effect on the Policy Account Value and Death Benefit could be
favorable or unfavorable, depending on whether the investment performance of the
Separate Accounts or Subaccounts and the interest credited to the Guaranteed
Account is less than or greater than the interest being credited on the assets
in the Loan Account while the loan is outstanding. Compared to a Policy under
which no loan is made, values under a Policy will be lower when the credited
interest rate is less than the investment experience of assets held in the
Separate Accounts 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.
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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 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 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.
For the purposes of this illustration (and the following illustrations
of partial withdrawals), assume that the Attained Age of the Insured is
under 40 and there is no indebtedness. The applicable percentage is 250%
for an Insured with an Attained Age under 40.
Under Option A, a contract with a Face Amount of $300,000 and a Policy
Account Value of $30,000 will have a Death Benefit of $300,000. Assume that
the policyowner takes a partial
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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 policyowner takes a partial withdrawal of $49,975. The partial
withdrawal will reduce the Policy Account Value to $250,000
($300,000 - $49,975 - $25) and the Face Amount to $250,025
($300,000 - $49,975). The Death Benefit is the greater of (a) the Face
Amount of $250,025 and (b) the applicable percentage of the Policy Account
Value $625,000 ($250,000 x 2.5). Therefore, the Death Benefit will be
$625,000.
Any decrease in Face Amount due to a partial withdrawal will first
reduce the most recent increase in Face Amount, then the most recent
increases, successively, and lastly, the Initial Face Amount.
Option B. The Face Amount will never be decreased by a partial withdrawal.
A partial withdrawal will, however, always decrease the Death Benefit.
If the Death Benefit equals the Face Amount plus the Policy Account
Value, a partial withdrawal will reduce the Policy Account Value by the
amount of the partial withdrawal and expense charge and thus the Death
Benefit will also be reduced by the amount of the partial withdrawal and
the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $90,000 will have a Death Benefit of $390,000 ($300,000 +
$90,000). Assume the policyowner takes a partial withdrawal of $20,000. The
partial withdrawal will reduce the Policy Account Value to $69,975
($90,000 - $20,000 - $25) and the Death Benefit to $369,975 ($300,000 +
$69,975). The Face Amount is unchanged.
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, The Death
Benefit will be reduced to equal the greater of (a) the Face Amount plus
the Policy Account Value after deducting the partial withdrawal and expense
charge and (b) the applicable percentage of Policy Account Value after
deducting the amount of the partial withdrawal and the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000 ($300,000 x
2.5). Assume the policyowner takes a partial withdrawal of $149,975. The
partial withdrawal will reduce the Policy Account Value to $150,000
($300,000 - $149,975 - $25) and the Death Benefit to the greater of (a) the
Face Amount plus the Policy Account Value $450,000 ($300,000 + $150,000)
and (b) the Death Benefit based on the applicable percentage of the Policy
Account Value $375,000 ($150,000 x 2.5). Therefore, the Death Benefit will
be $450,000. The Face Amount is unchanged.
Because a partial withdrawal can affect the Face Amount and the Death
Benefit as described above, a partial withdrawal may also affect the Net Amount
at Risk which is used to calculate the cost of insurance charge under the
Policy. (See "Cost of Insurance.") 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 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.")
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ACCELERATED DEATH BENEFIT
Applicants residing in states that have approved the Accelerated Death
Benefit rider (the "ADB rider") may elect to add it to their Policy at issue,
subject to PMLIC receiving satisfactory additional evidence of insurability. The
ADB rider is not yet available in all states and the terms under which it is
available may vary from state-to-state. There is no assurance that the ADB rider
will be approved in all states or that it will be approved under the terms
described herein.
The ADB rider permits the Owner to receive, at his or her request and upon
approval by PMLIC, an accelerated payment of part of the Policy's Death Benefit
when one of the following two events occurs:
1. Terminal Illness. The Insured develops a non-correctable medical
condition which is expected to result in his or her death within 12 months;
or
2. Permanent Confinement to a Nursing Care Facility. The Insured has
been confined to a Nursing Care Facility for 180 days and is expected to
remain in such a facility for the remainder of his or her life.
There is no charge for adding the ADB rider to a Policy. However, an
administrative charge, currently $100 and not to exceed $250, will be deducted
from the accelerated death benefit at the time it is paid.
Tax Consequences of the ADB Rider. The federal income tax consequences
associated with adding the ADB rider or receiving the accelerated death benefit
are uncertain. Accordingly, Owners should consult a tax adviser before adding
the ADB rider to a Policy or requesting an accelerated death benefit.
Amount of the Accelerated Death Benefit. The ADB rider provides for a
minimum accelerated death benefit payment of $10,000 and a maximum benefit
payment equal to 75% of the Eligible Death Benefit less 25% of any outstanding
policy loans and accrued interest. The ADB rider also restricts the total of the
accelerated death benefits paid from all life insurance policies issued to an
Owner by PMLIC and its subsidiaries to $250,000. This $250,000 maximum may be
increased, as provided in the ADB rider, to reflect inflation. The term Eligible
Death Benefit under the ADB rider means:
The Insurance Proceeds payable under a Policy if the Insured died at the
time a claim for an accelerated death benefit is approved by PMLIC, minus:
1. any Premium Refund payable at death if the Insured died at such
time; and
2. any insurance payable under the terms of any other rider attached
to a Policy.
An Owner may request only one accelerated death benefit payment (except to
pay premiums and policy loan interest) and there are no restrictions on the
Owner's use of the benefit. An Owner may elect to receive the accelerated death
benefit payment in a lump sum or in 12 or 24 equal monthly installments. If
installments are elected and the Insured dies before all of the payments have
been made, the present value (at the time of the Insured's death) of the
remaining payments and the remaining Insurance Proceeds at Death under the
Policy will be paid to the Beneficiary in a lump sum.
Conditions for Receipt of the Accelerated Death Benefit. In order to
receive an accelerated death benefit payment, a Policy must be in force other
than as Extended Term Insurance and an Owner must submit due proof of
eligibility and a completed claim form to PMLIC at its Home Office. Due proof of
eligibility means a written certification (described more fully in the ADB
rider) in a form acceptable to PMLIC, from a treating physician stating that the
Insured has a Terminal Illness or is expected to be permanently confined in a
Nursing Care Facility.
PMLIC may request additional medical information from an Owner's physician
and/or may require an independent physical examination (at its expense) before
approving the claim for payment of the accelerated death benefit. PMLIC will not
approve a claim for an accelerated death benefit payment if a Policy is assigned
in whole or in part, if the Terminal Illness or Permanent Confinement is the
result of intentionally self-inflicted injury or if the Owner is required to
elect it in order to meet the claims of creditors or to obtain a government
benefit.
Operation of the ADB Rider. The ADB rider provides that the accelerated
death benefit be made in the form of a policy loan up to the amount of the
maximum loan available under a Policy at the time the
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claim is approved. Therefore, a request for an accelerated death benefit payment
in an amount less than or equal to the maximum loan available at that time will
result in a policy loan being made in the amount of the requested benefit. This
policy loan operates as would any loan under the Policy.
To the extent that the amount of a requested accelerated death benefit
payment exceeds the maximum available loan amount, the benefit will be advanced
to the Owner and a lien will be placed on the Death Benefit payable under the
Policy (the "death benefit lien") in the amount of this advance. Under the ADB
rider, interest will accrue daily, at a rate determined as described in the ADB
rider, on the amount of this advance and upon the death of the Insured the
amount of the advance and accrued interest thereon will be subtracted from the
amount of Insurance Proceeds at Death.
Effect on Existing Policy. The Insurance Proceeds at Death otherwise
payable under a Policy at the time of an Insured's death will be reduced by the
amount of any death benefit lien and accrued interest thereon. If the Owner
makes a request for a surrender, a policy loan or a withdrawal, the Policy's Net
Cash Surrender Value and Loan Value will be reduced by the amount of any
outstanding death benefit lien plus accrued interest. Therefore, depending upon
the size of the death benefit lien, this may result in the Net Cash Surrender
Value and the Loan Value being reduced to zero.
Premiums and policy loan interest must be paid when due. However, if
requested with the accelerated death benefit claim, future premiums and policy
loan interest may be paid through additional accelerated death benefits. If
future premiums and policy loan interest are to be paid through additional
accelerated death benefits, Periodic Planned Premiums and policy loan interest
will be paid in this manner automatically.
In addition to lapse under the applicable provisions of the Policy, a
Policy will also terminate on any Policy Anniversary when the death benefit lien
exceeds the Insurance Proceeds at Death.
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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 Insured's 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 3% is
deducted from each premium payment to partially compensate PMLIC for federal
taxes and the cost of selling the Policy. Currently, PMLIC deducts 1.5% percent
from each premium payment.
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 12th Policy Year. A portion of this Surrender
Charge will be deducted if the Owner decreases the Initial Face Amount before
the end of the 12th Policy Year. An Additional Surrender Charge, which is an
Additional Deferred Administrative Charge and an Additional Deferred Sales
Charge, is imposed if the Policy is surrendered or lapses at any time within 12
years after the effective date of an increase in Face Amount. A portion of an
Additional Surrender Charge also is deducted if the related increment of Face
Amount is decreased within 12 years after such increase took effect.
These surrender charges are designed partially to compensate PMLIC for the
cost of administering, issuing and selling the Policy, including agent sales
commissions, the cost of printing the prospectuses and sales literature, any
advertising costs, medical exams, review of applications for insurance,
processing of the applications, establishing policy records and Policy issue.
PMLIC does not expect the surrender charges to cover all of these costs. To the
extent that they do not, PMLIC will cover the short-fall from its general
account assets, which may include profits from the mortality and expense risk
charge.
Deferred Administrative Charge. The Deferred Administrative Charge is as
follows:
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR FACE AMOUNT
- ----------- -----------------
<S> <C>
1-6.................................. $4.90
7.................................... 4.20
8.................................... 3.50
9.................................... 2.80
10................................... 2.10
11................................... 1.40
12................................... 0.70
13................................... 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.
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<PAGE> 38
Deferred Sales Charge. The Deferred Sales Charge will not exceed the
Maximum Deferred Sales Charge specified in the Policy. During Policy Years 1
through 6, this maximum equals 70% of the Target Premium for the Initial Face
Amount. It equals 60% of that premium during Policy Year 7, 50% during Policy
Year 8, 40% during Policy Year 9, 30% during Policy Year 10, 20% during Policy
Year 11, 10% during Policy year 12, and 0% during Policy Years 13 and later. The
Deferred Sales Charge actually imposed will equal the lesser of this maximum and
an amount equal to 35% 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.
Additional Deferred Administrative Charge. An Additional Deferred
Administrative Charge is associated with each increase in Face Amount. The
Charge is the same as that for the Initial Face Amount except that the Charge
grades down based on 12-month periods beginning with the effective date of each
increase. The Additional Deferred Administrative Charge paid is the Charge as
described less the amount of any such Charge previously paid at the time of a
decrease in Face Amount.
Additional Deferred Sales Charge. An Additional Deferred Sales Charge is
associated with each increase in Face Amount. Each Additional Deferred Sales
Charge is calculated in a manner similar to the Deferred Sales Charge associated
with the Initial Face Amount. The Maximum Additional Deferred Sales Charge for
an increase in Face Amount is 70% of the Target Premium for that increase. This
maximum remains level for six years following the effective date of an increase.
It equals 60% of that premium during the seventh year, and declines in the same
manner as the Deferred Sales Charge such that it is 10% during Policy Year 12
and to 0% by the beginning of the 13th year after the effective date of the
increase. The Additional Deferred Sales Charge actually deducted is the lesser
of this maximum and 35% of premiums received for that increase, less any
Additional Deferred Sales Charge for such increase previously paid at the time
of a decrease in Face Amount.
Allocation of Policy Account Value and Subsequent Premium Payments. A
special method is used to allocate a portion of the existing Policy Account
Value to an increase in Face Amount and to allocate subsequent premium payments
between the Initial Face Amount and the increase. The Policy Account Value is
allocated according to the ratio between the Guideline Annual Premium for the
Initial Face Amount and the Guideline Annual Premium for the total Face Amount
on the effective date of the increase before any deductions are made. For
example, if the Guideline Annual Premium is equal to $4,500 before an increase
and is equal to $6,000 after an increase, the Policy Account Value on the
effective date of the increase would be allocated 75% ($4,500/$6,000) to the
Initial Face Amount and 25% to the increase. Premium payments made on or after
the effective date of the increase are allocated between the Initial Face Amount
and the increase using the same ratio as is used to allocate the Policy Account
Value. In the event there is more than one increase in Face Amount, Guideline
Annual Premiums for each increment of Face Amount are used to allocate Policy
Account Values and premium payments among the various increments of Face
Amounts.
Surrender Charge Upon Decrease in Face Amount. A surrender charge may be
deducted on a decrease in Face Amount. In the event of a decrease, the surrender
charge deducted is a fraction of the charge that would apply to a full surrender
of the Policy. If there have been no increases in Face Amount, the fraction will
be determined by dividing the amount of the decrease by the current Face Amount
and multiplying the result by the Surrender Charge. If more than one Surrender
Charge is in effect (i.e., pursuant to one or more increases in Face Amount),
the surrender charge will be applied in the following order: (1) the most recent
increase followed by (2) the next most recent increases, successively, and (3)
the Initial Face Amount. Where a decrease causes a partial reduction in an
increase or in the Initial Face Amount, a proportionate share of the Surrender
Charge for that increase or for the Initial Face Amount will be deducted.
Allocation of Surrender Charges. The Surrender Charge and any Additional
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
35
<PAGE> 39
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. The Net Amount at Risk is
determined separately for the Initial Face Amount and any increases in Face
Amount. In determining the Net Amount at Risk for each increment of Face Amount,
the Policy Account Value is first considered part of the Initial Face Amount. If
the Policy Account Value exceeds the Initial Face Amount, it is considered as
part of any increases in Face Amount in the order such increases took effect.
A cost of insurance is also determined separately for the Initial Face
Amount and any increases in Face Amount. In calculating the cost of insurance
charge, the rate for the Premium Class on the Policy Date is applied to the Net
Amount at Risk for the Initial Face Amount. For each increase in Face Amount,
the rate for the Premium Class applicable to the increase is used. If, however,
the Death Benefit is calculated as the Policy Account Value times the specified
percentage, the rate for the Premium Class for the Initial Face Amount will be
used for the amount of the Death Benefit in excess of the total Face Amount.
Any change in the Net Amount at Risk will affect the total cost of
insurance charges paid by the Owner.
Cost of Insurance Rate. The cost of insurance rate is based on the
Attained Age, Sex, Premium Class of the 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 the Insured's Attained Age, Sex, Premium
Class, and the 1980 Commissioners Standard Ordinary Smoker and Nonsmoker
Mortality Table. For Policies issued in states which require "unisex" policies
(currently Montana) or in conjunction with employee benefit plans, the maximum
cost of insurance charge depends only on the Insured's Age, Premium Class and
the 1980 Commissioners Standard Ordinary Mortality Table NB and SB. Any change
in the cost of insurance rates will apply to all persons of the same Attained,
Age, Sex, and Premium Class and Duration.
Premium Class. The Premium Class of the Insured will affect the cost of
insurance rates. PMLIC currently places Insureds into standard classes and
classes with extra ratings, which reflect higher mortality risks. In an
otherwise identical Policy, an Insured in the standard class will have a lower
cost of insurance than an Insured in a class with extra ratings. The standard
Premium Class is divided into three categories: smoker, nonsmoker and preferred.
The preferred Premium Class is only available if the Face Amount
36
<PAGE> 40
equals or exceeds $100,000. Nonsmoking insureds will generally incur lower cost
of insurance rates than Insureds who are classified as smokers in the same
Premium Class. Preferred Insureds will generally incur lower cost of insurance
rates than Insureds who are classified as nonsmokers.
Since the nonsmoker designation is not available for Insureds under
Attained Age 21, shortly before an Insured attains age 21, PMLIC will notify the
Insured about possible classification as a nonsmoker and will send the Insured
an Application for Change in Premium Class. If the Insured does not qualify as a
nonsmoker or does not return the application, cost of insurance rates will
remain as shown in the Policy. However, if the insured returns the application
and qualifies as a nonsmoker, the cost of insurance rates will be changed to
reflect the nonsmoker classification.
Initial Administrative Charge. An Initial Administrative Charge of $5 is
deducted from Policy Account Value on the Policy Date and on each of the next
eleven Policy Processing Days.
Monthly Administrative Charges. A Monthly Administrative Charge (presently
$7.50) 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 per month. This charge is
intended to reimburse PMLIC for ordinary administrative expenses expected to be
incurred, including record keeping, processing claims and certain Policy
changes, preparing and mailing reports, and overhead costs.
Additional Benefit Charges. The Monthly Deduction will include charges for
any additional benefits added to the Policy. The monthly charges will be
specified in the applicable rider.
FACE AMOUNT INCREASE CHARGE
If the Face Amount is increased, an increase charge will be deducted from
the Policy Account Value on the effective date of such increase. This charge,
equal to $60 plus $0.50 per $1,000 of Face Amount increase, but not greater than
$750.00, will be deducted from the accounts based on the allocation schedule for
Monthly Deductions in effect at such time. This charge may be increased, but in
no event will it be greater than $60 plus $3.00 per $1,000 Face Amount increase.
This charge is intended to reimburse PMLIC for administrative expenses in
connection with the Face Amount increase, including medical exams, review of the
application for the increase, underwriting decisions and processing of the
application, and changing Policy records and the Policy.
PARTIAL WITHDRAWAL CHARGE
A charge of $25 will be deducted from the Policy Account Value for each
partial withdrawal of Net Cash Surrender Value. This charge is intended to
compensate PMLIC for the administrative costs in effecting the requested payment
and in making all calculations which may be required by reason of the partial
withdrawal.
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 and 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.
37
<PAGE> 41
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 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.
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<PAGE> 42
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 will credit the Guaranteed Account
Value with current rates in excess of the minimum guarantee but is not obligated
to do so. These current interest rates are influenced by, but do not necessarily
correspond to, prevailing general market interest rates. Since PMLIC, in its
sole discretion, anticipates changing the current interest rate from time to
time, different allocations to and from the Guaranteed Account 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
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<PAGE> 43
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.
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<PAGE> 44
OTHER POLICY PROVISIONS
BENEFIT PAYABLE ON FINAL POLICY DATE
If the Insured is living on the Final Policy Date (at Insured's Attained
Age 100), PMLIC will pay the Owner the Policy Account Value less any outstanding
Policy loan and accrued interest and any unpaid Monthly Deductions. Insurance
coverage under the Policy will then end. Payment will generally be made within
seven days of the Final Policy Date.
PAYMENT OF POLICY BENEFITS
Insurance Proceeds under a Policy will ordinarily be paid to the
Beneficiary within seven days after PMLIC receives proof of the Insured's death
at its 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 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. During the
Insured's lifetime, the Owner may arrange for the Insurance Proceeds to be paid
in a lump sum or under a Settlement Option. These choices are also available
upon surrender of the Policy for its Net Cash Surrender Value and for payment of
the Policy Account Value on the Final Policy Date. If no election is made,
payment will be made in a lump sum. The Beneficiary may also arrange for payment
of the Insurance Proceeds in a lump sum or under a Settlement Option. 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.
OWNERSHIP
The Owner is the Insured unless a different Owner is named in the
application or thereafter changed. While the Insured is living, the Owner is
entitled to exercise any of the rights stated in the Policy or
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<PAGE> 45
otherwise granted by PMLIC. If the Insured and Owner are not the same, and the
Owner dies before the Insured, these rights will vest in the estate of the
Owner, unless otherwise provided.
BENEFICIARY
The Beneficiary is designated in the application for the Policy, unless
thereafter changed by the Owner during the Insured's lifetime by written notice
to PMLIC. Any Insurance Proceeds for which there is not a designated Beneficiary
surviving at the Insured's death are payable in a single sum to the Insured's
executors or administrators.
CHANGE OF OWNER 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 the Insured is living when the request is
received by PMLIC. PMLIC will not be responsible for any payment made or action
taken before it receives the written request. A change in the Policy's ownership
may have federal income tax consequences. (see "Tax Treatment of Policy
Benefits.")
SPLIT DOLLAR ARRANGEMENTS
The Owner or Owners may enter into a Split Dollar Arrangement between each
other or another person or persons whereby the payment of premiums and the right
to receive the benefits under the Policy (i.e., Net Cash Surrender Value or
Policy Proceeds) are split between the parties. There are different ways of
allocating such rights.
For example, an employer and employee might agree that under a Policy on
the life of the employee, the employer will pay the premiums and will have the
right to receive the Net Cash Surrender Value. The employee may designate the
Beneficiary to receive any Death Proceeds in excess of the Net Cash Surrender
Value. If the employee dies while such an arrangement is in effect, the employer
would receive from the Death Proceeds the amount which he would have been
entitled to receive upon surrender of the policy and the employee's Beneficiary
would receive the balance of the proceeds.
No transfer of Policy rights pursuant to a Split Dollar Arrangement will be
binding on PMLIC unless in writing and received by PMLIC.
The parties who elect to enter into a Split Dollar Arrangement should
consult their own tax advisers regarding the tax consequences of such an
arrangement.
PROTECTION OF PROCEEDS
Beneficiaries generally may not pledge or otherwise encumber or alienate
payments under this Policy before they are due.
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.
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<PAGE> 46
MISSTATEMENT OF AGE AND SEX
If the Insured's age or sex has been misstated in the application, the
Death Benefit and any benefits provided by riders will be such as the most
recent Monthly Deductions would have provided at the correct age and sex. No
adjustment will be made to the Policy Account Value.
SUICIDE
In the event of the Insured's suicide within two years from the Issue Date
of the Policy (except where state law requires a shorter period) PMLIC's
liability is limited to the payment to the Beneficiary of a sum equal to the
premiums paid less any Policy loan and accrued interest and any partial
withdrawals.
If the Insured commits suicide within two years (or shorter period required
by state law) from the effective date of any Policy change which increases the
Death Benefit, the amount which PMLIC will pay with respect to the increase will
be the Monthly Deductions for the cost of insurance 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 the 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 instalments 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 instalments set forth in the election. Payments may be increased by
additional interest which would increase the instalments certain. The guaranteed
interest rate is 3% per year.
Life Income Option. Payable in equal monthly instalments during the
payee's life. Payments will be made either with or without a guaranteed minimum
number. If there is to be a minimum number of payments, they will be for either
120 or 240 months or until the proceeds applied under the Option are exhausted,
as elected.
Joint and Survivor Life Income. Payable in equal monthly instalments, 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
In addition to the ADB rider, the following riders offer other
supplementary benefits. Most are subject to various age and underwriting
requirements and, unless otherwise indicated, must be purchased when the Policy
is issued. The cost of each rider is included in the monthly deduction.
Disability Waiver 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.
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<PAGE> 47
Disability Waiver of Premium Benefit. A Policy may include the Disability
Waiver of Premium Benefit rider that provides that, in the event of the
Insured's total disability before Attained Age 60 and continuing for at least
180 days, PMLIC will apply a premium payment to the Policy on each Policy
Processing Day prior to Insured's Attained Age 65 and while the Insured remains
totally disabled.
At the time of application, a monthly benefit amount is selected by the
Owner. This amount is generally intended to reflect the amount of the premiums
expected to be paid monthly. In the event of Insured's total disability the
amount of the premium payment applied on each Policy Processing Day will be the
lesser of: (a) the monthly benefit amount; or (b) the monthly average of the
premium payments less partial withdrawals for the Policy since its Policy Date.
An Owner cannot elect this rider and another disability waiver benefit rider
with the same Policy.
Change of Insured. A Change of Insured rider permits the Owner to change
the Insured, subject to certain conditions and evidence of insurability. The
Monthly Deduction for the cost of insurance is adjusted to that for the New
Insured as of the effective date of the change.
Children's Term Rider. A Children's Term Insurance rider provides level
term insurance on each insured child until the earlier of age 25 of the child or
the Policy Anniversary nearest the Insured's 65th birthday. When the term
insurance expires on the life of an insured child, it may be converted without
evidence of insurability to a whole life policy providing a level face amount of
insurance and a level premium. The new policy may be up to five times the amount
of the term insurance.
The rider is issued to provide between $5,000 and $15,000 of term insurance
on each insured child. Each insured child under a rider will have the same
amount of insurance. This rider must be selected at the time of application for
the Policy or an increase in Face Amount.
Other Insured Convertible Term Life Insurance. An Other Insured
Convertible Term Life Insurance rider provides additional term insurance on an
insured other than the Insured, on whom the Insured has an insurable interest.
This rider will terminate at the earlier of attained age 100 (80 in New York) of
the Other Insured or at the termination or maturity of the Policy. If the Policy
is extended by the Final Policy Date Extension rider, 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 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.
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<PAGE> 48
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, we may
take appropriate steps to bring the Policy into compliance with such
requirements and we reserve the right to restrict Policy transactions in order
to do so.
In certain circumstances, owners of variable life insurance contracts have
been considered for federal income tax purposes to be the owners of the assets
of the separate account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the separate account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of an Owner to allocate
premium payments and the 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."
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<PAGE> 49
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. However, the tax consequences
associated with Policy loans after the later of the Policy's 10th anniversary or
Attained Age 60 is less clear and a tax adviser should be consulted about such
loans.
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.
Accelerated Death Benefit Rider. The Federal income tax consequences
associated with the Accelerated Death Benefit rider are uncertain. Owners should
consult a qualified tax adviser about the consequences of requesting payment
under this rider. (See p. 32 for more information regarding the Rider.)
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<PAGE> 50
SPECIAL RULES FOR PENSION AND PROFIT-SHARING PLANS
If a Policy is purchased by a pension or profit-sharing plan, or similar
deferred compensation arrangement, the Federal, state and estate tax
consequences could differ. A competent tax adviser should be consulted in
connection with such a purchase.
The amounts of life insurance that may be purchased on behalf of a
participant in a pension or profit-sharing plan are limited. The current cost of
insurance for the net amount at risk is treated as a "current fringe benefit"
and must be included annually in the plan participant's gross income. PMLIC
reports this cost (generally referred to as the "P.S. 58" cost) to the
participant annually. If the plan participant dies while covered by the plan and
the Policy proceeds are paid to the participant's beneficiary, then the excess
of the death benefit over the Policy Account Value is not taxable. However, the
cash value will generally be taxable to the extent it exceeds the participant's
cost basis in the Policy. Policies owned under these types of plans may be
subject to restrictions under the Employee Retirement Income Security Act of
1974 ("ERISA"). You should consult a qualified adviser regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as nontaxable. Plan loan requirements and provisions
may differ from Policy loan provisions. Failure of plan loans to comply with the
requirements and provisions of the DOL regulations and of tax law may result in
adverse tax consequences and/or adverse consequences under ERISA. Plan
fiduciaries and participants should consult a qualified adviser before
requesting a loan under a Policy held in connection with a retirement plan.
SPECIAL RULES FOR 403(b) ARRANGEMENTS
If a Policy is purchased in connection with a Section 403(b) tax-sheltered
annuity program, the "Special Rules for Pension and Profit-Sharing Plans"
discussed above may be applicable. In addition, premiums, distributions and
other transactions with respect to the Policy must be administered, in
coordination with Section 403(b) annuity, to comply with the requirements of
Section 403(b) of the Code. A competent tax adviser should be consulted.
BUSINESS USES OF THE POLICY
Businesses can use the Policy in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances. If an Owner
is purchasing the Policy for any arrangement the value of which depends in part
on its tax consequences, he or she should consult a qualified tax adviser. In
recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
Policy or a change in an existing Policy should consult a tax adviser.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Policy could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Policy.
PMLIC'S TAXES
Under current Federal income tax law, PMLIC is not taxed on the Separate
Accounts' operations. Thus, currently PMLIC does not deduct charges from the
Separate Accounts for its Federal income taxes. PMLIC reserves the right to
charge the Separate Accounts for any future Federal income taxes that it may
incur.
Under current laws in several states, PMLIC may incur state and local taxes
(in addition to premium taxes). These taxes are not now significant and we are
not currently charging for them. If they increase, PMLIC may deduct charges for
such taxes.
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<PAGE> 51
POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS
Policies may be acquired in conjunction with employee benefit plans ("EBS
Policies"), including the funding of qualified pension plans meeting the
requirements of Section 401 of the Code. For EBS Policies, the maximum mortality
rates used to determine the monthly Cost of Insurance Charge are based on the
Commissioners' 1980 Standard Ordinary Mortality Tables NB and SB. Under these
Tables, mortality rates are the same for male and female Insureds of a
particular Attained Age and Premium Class. (See "Monthly Deductions.")
Illustrations reflecting the premiums and charges for EBS Policies will be
provided upon request to purchasers of such Policies. There is no provision for
misstatement of sex in the EBS Policies. Also, the rates used to determine the
amount payable under a particular Settlement Option will be the same for male
and female Insureds. (See "Settlement Options.")
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under an employee's
deferred compensation plan could not, under Title VII of the Civil Rights Act of
1964, vary between men and women on the basis of sex. In that case, the Court
applied its decision only to benefits derived from contributions made on or
after August 1, 1983. Subsequent decisions of lower federal courts indicate that
in other factual circumstances the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory, or
decisional authority of some states may prohibit use of sex-distinct mortality
tables under certain circumstances. The Policies offered by this Prospectus
(other than Policies issued in states which require "unisex" policies (currently
Montana) and EBS Policies are based upon actuarial tables which distinguish
between men and women and, thus, the Policy provides different benefits to men
and women of the same age. Accordingly, employers and employee organizations
should consider, in consultation with legal counsel, the impact of these
authorities on any employment-related insurance or benefits program before
purchasing the Policy and in determining whether an EBS Policy is appropriate.
VOTING RIGHTS
All of the assets held in the Growth, Money Market, Bond, Aggressive
Growth, and International Separate Accounts and the Subaccounts of the Variable
Account will be invested in shares of corresponding portfolios of the Funds. The
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 more of the Portfolios. In addition, PMLIC may disregard
voting instructions in favor of changes initiated
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<PAGE> 52
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.
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<PAGE> 53
CHANGES TO THE SEPARATE ACCOUNTS OR FUNDS
CHANGES TO SEPARATE ACCOUNT OPERATIONS
The voting rights described in this Prospectus are created under applicable
Federal securities laws and regulations. If these laws or regulations change to
eliminate the necessity to solicit voting instructions from Owners or restrict
such voting rights, PMLIC reserves the right to proceed in accordance with any
such changed laws or regulations.
PMLIC also reserves the right, subject to compliance with applicable law,
including approval of Owners, if so required: (1) to transfer assets supporting
the Policies from one Subaccount to another or from the Variable Account to
another Separate Account, (2) to create additional separate accounts, (3) to
create additional Subaccounts, or combine or remove Subaccounts from the
Variable Account or to create other separate accounts, or to combine any two or
more Separate Accounts or Subaccounts, (4) to operate one or more of the
Separate Accounts or Subaccounts as a management investment company under the
1940 Act, or in any other form permitted by law; (5) to deregister the unit
investment trust under the 1940 Act; and (6) to modify the provisions of the
Policies to comply with applicable laws.
CHANGES TO AVAILABLE PORTFOLIOS
It is possible that PMLIC may determine that one or more of the Portfolios
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:
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.
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<PAGE> 54
Variable Insurance Products Fund and Variable Insurance Products Fund
II. The Agreements provide for termination 1) upon six months' advance
notice by either party, 2) at PMLIC's option if shares of the Fund are not
reasonably available to meet requirements of the policies, 3) at PMLIC's
option if shares of the Fund are not registered, issued, or sold in
accordance with applicable laws, if the Fund ceases to qualify as a
regulated investment company under the Code or for a Portfolio of the Fund
in the event such Portfolio fails to meet diversification requirements
under the Code, 4) at the option of the Fund or its principal underwriter
if it determines that PMLIC has suffered material adverse changes in its
business or financial condition or is subject to material adverse
publicity, 5) at the option of PMLIC if the Fund has suffered material
adverse changes in its business or financial condition or is a subject of
material adverse publicity, or 6) at the option of the Fund or its
principal underwriter if PMLIC decides to make another mutual fund
available as a funding vehicle for its policies.
Neuberger Berman Advisers Management Trust. This Agreement may be
terminated by either party on six months' written notice to the other.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Trust
provides for termination 1) by PMLIC, Van Eck Trust or Van Eck Trust's
Distributor upon six months prior written notice or in the event that
formal proceedings are initiated against the other party by the SEC or
another regulator, 2) by PMLIC or Van Eck Trust in the event that shares of
Van Eck Trust subject to the agreement are not registered, offered or sold
in conformity with applicable law or such law precludes the use of Trust
shares, 3) by PMLIC upon reasonable notice if shares of one of the then
available Portfolios of Van Eck Trust are not longer available or upon
sixty days notice if PMLIC should substitute shares of another fund or Fund
for those of Van Eck Trust, 4) by PMLIC if a Portfolio fails to meet the
diversification and other requirements of the Internal Revenue Code, or
PMLIC reasonably believes it may fail to do so, 5) upon assignment of the
agreement unless both parties agree to the assignment in writing.
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<PAGE> 55
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 to 1996 -- President and Chief Operating
Officer of PMLIC; 1986 to 1994 -- President and Chief
Executive Officer of Covenant Life Insurance Company.
Edward R. Book
Director............................. 1996 to present -- President of USA National Tourism
16 Meredith Road Organization, Inc.; 1995-1996 -- Past-President and
Wynnewood, PA 19096 Consultant of Travel Industry Association of America.
Dorothy M. Brown
Director............................. 1992 to present -- Acting President of the Pennsylvania
16 Meredith Road Academy of the Fine Arts.
Wynnewood, PA 19096
Robert J. Casale
Director............................. 1988 to present -- Group President/Brokerage Information
2 Journal Square Services Group of Automatic Data Processing Inc.
Jersey City, NJ 07306
Nicholas DeBenedictus
Director............................. 1993 to present -- Chairman, President and Chief Executive
Philadelphia Suburban Corp. Officer of Philadelphia Suburban Corporation.
762 Lancaster Avenue
Bryn Mawr, PA 19010
Philip C. Herr, II
Director............................. 1961 to present -- Partner of Herr, Potts & Herr.
Herr, Potts & Herr
100 Matsonford Road
Suite 446
Radnor, PA 19087
J. Richard Jones
Director............................. 1981 to present -- President and Chief Executive Officer
100 North 20th Street 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............................. 1964 to present--Senior Partner of Morgan, Lewis and
200 One Logan Square Bockius.
Philadelphia, PA 19103
John J. F. Sherrerd
Director............................. 1969 to present -- Partner of Miller, Anderson & Sherrerd.
One Tower Bridge
West Conshohocken, PA 19428
</TABLE>
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<PAGE> 56
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
Harold A. Sorgenti
Director............................. 1995 to present -- Partner at Sorgenti, Investment
Mellon Center, Suite 3905 Partners; 1991 to 1995 -- Partner of The Freedom Group
1735 Market Street Partnership.
Philadelphia, PA 19103
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 Provident Mutual Life Insurance
Company; 1989 to 1997 -- Chief Legal Officer of Prudential
Banks.
Joan C. Tucker
Executive Vice President,
Insurance Operations................. 1996 to present -- Executive Vice President, Insurance
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 Controller
Officer.............................. 1996 to present -- Executive Vice President and Chief
Financial Officer of PMLIC; 1986 to 1996 -- Vice President
and Controller of PMLIC.
J. Kevin McCarthy
Executive Vice President
and Chief Marketing Officer.......... 1996 to present -- Executive Vice President and Chief
Marketing Officer of PMLIC; 1995 -- Vice President,
Variable Products at CNA Insurance Companies;
1992-1994 -- Vice President, Sales of PMLIC.
Mehran Assadi
Executive Vice President............. 1998 to present -- Executive Vice President 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 to 1996 -- Assistant Vice President and Actuary of
PMLIC.
Rosanne Gatta
Vice President and Treasurer......... 1994 to present -- Vice President and Treasurer of PMLIC;
1985 to 1994 -- Assistant Vice President and Treasurer of
PMLIC.
</TABLE>
- ---------------
* Unless otherwise indicated, the address is 1050 Westlakes Drive, Berwyn,
Pennsylvania 19312.
A Fidelity Bond in the amount of $10 million covering PMLIC's officers and
employees has been issued by Aetna Casualty and Surety Company.
DISTRIBUTION OF POLICIES
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell PMLIC's variable life insurance policies,
and who are also registered representatives of 1717 Capital Management Company
("1717") or registered representatives of broker/dealers who have Selling
Agreements with 1717 or registered representatives of broker/dealers who have
Selling Agreements with
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<PAGE> 57
such broker/dealers. 1717, whose address is Christiana Executive Campus, P.O.
Box 15626, Wilmington, Delaware 19850, is a registered broker/dealer under the
Securities Exchange Act of 1934 (the "1934 Act") and a member of the National
Association of Securities Dealers, Inc. (the "NASD"). 1717 was organized under
the Laws of Pennsylvania on January 22, 1969, and is an indirect wholly-owned
subsidiary of PMLIC. 1717 acts as the principal underwriter of the Policies (as
well as other variable life policies) pursuant to an Underwriting Agreement to
which the Accounts, 1717 and PMLIC are parties. 1717 retains no compensation as
principal underwriter of the Policies. 1717 is also the principal underwriter of
variable annuity contracts issued by PMLIC and variable life and annuity
contracts issued by PMLIC.
The insurance underwriting and the determination of a proposed Insured's
Premium Class and whether to accept or reject an application for a Policy is
done by PMLIC. PMLIC will refund any premiums paid if a Policy ultimately is not
issued or will refund the applicable amount if the Policy is returned under the
Free-Look provision.
Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. During the first Policy
Year, agent commissions will not be more than 50% of the premiums paid up to a
target amount (used only to determine commission payments) and 2% of the
premiums paid in excess of that amount. Agent commissions will not be more than
5% of premiums paid for Policy Years 2 through 10 and for years 11 and later, 2%
of the premiums paid. However, for each premium received within 10 years
following an increase in Face Amount, agent commissions on the premium paid up
to the target amount for the increase in each year will be calculated using the
commission rates for the corresponding Policy Year. Agents may also receive
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.
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
54
<PAGE> 58
have any negative impact on PMLIC. However, as of the date of this prospectus,
it is not anticipated that Owners will experience negative effects on their
investment, or on the services provided in connection therewith, as a result of
Year 2000 transition implementation. PMLIC currently anticipates that their
systems will be Year 2000 compliant on or about July 1, 1999 but there can be no
assurance that PMLIC will be successful, or that interaction with other service
providers will not impair PMLIC's services at that time.
STATE REGULATION
PMLIC is subject to regulation and supervision by the Insurance Department
of the State of Pennsylvania which periodically examines its affairs. It is also
subject to the insurance laws and regulations of all jurisdictions where it is
authorized to do business. A copy of the Policy form has been filed with, and
where required approved by, insurance officials in each jurisdiction where the
Policies are sold. PMLIC is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
LEGAL PROCEEDINGS
PMLIC and its subsidiaries, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PMLIC believes that as of the
date of this Prospectus there are no pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Separate Account or
PMLIC.
EXPERTS
The Financial Statements listed on Page F-1, have been included in this
Prospectus, in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
Actuarial matters included in the Prospectus have been examined by Scott V.
Carney, FSA, MAAA, Vice President and Actuary of PMLIC, as stated in his opinion
filed as an exhibit to the Registration Statement.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington, D.C. has provided advice
relating to certain aspects of federal securities law applicable to the issue
and sale of the Policies. James G. Potter, Jr., Esq., General Counsel of
Provident Mutual Life Insurance Company, has provided advice on certain matters
relating to the laws of Pennsylvania regarding the Policies and PMLIC's issuance
of the Policies.
55
<PAGE> 59
DEFINITIONS
ADDITIONAL SURRENDER CHARGE... The separately determined deferred
administrative charge and deferred sales charge
deducted from the Policy Account Value upon
surrender or lapse of the Policy within 12
years of the effective date of an increase in
Face Amount. A pro-rata Additional Surrender
Charge will be deducted for a reduction in Face
Amount within 12 years of the effective date of
a Face Amount increase. The Maximum Additional
Surrender Charge will be shown in the Policy
Schedule Pages reflecting the Face Amount
increase.
ATTAINED AGE.................. The Issue Age of the Insured plus the number of
full Policy Years since the Policy Date.
BENEFICIARY................... The person(s) or entity(ies) designated to
receive all or some of the Insurance Proceeds
when the Insured dies. The Beneficiary is
designated in the application or if
subsequently changed, as shown in the latest
change filed with PMLIC. If no Beneficiary
survives and unless otherwise provided, the
Insured's estate will be the Beneficiary.
CASH SURRENDER VALUE.......... The Policy Account Value minus any applicable
Surrender Charge or Additional Surrender
Charge.
DEATH BENEFIT................. Under Option A, the greater of the Face Amount
or a percentage of the Policy Account Value on
the date of death; under Option B, the greater
of the Face Amount plus the Policy Account
Value on the date of death, or a percentage of
the Policy Account Value on the date of death.
DURATION...................... The number of full years the insurance has been
in force -- for the Initial Face Amount,
measured from the Policy Date; for any increase
in Face Amount, measured from the effective
date of such increase.
FACE AMOUNT................... The Initial Face Amount plus any increases in
Face Amount and minus any decreases in Face
Amount.
FINAL POLICY DATE............. The Policy Anniversary nearest Insured's
Attained Age 100 at which time the Policy
Account Value, if any, (less any outstanding
Policy loan and accrued interest) will be paid
to the Owner if the Insured is living. The
Policy will end on the Final Policy Date.
GRACE PERIOD.................. The 61-day period allowed for payment of a
premium following the date PMLIC mails notice
of the amount required to keep the Policy in
force.
GUIDELINE ANNUAL PREMIUM...... The "guideline annual premium" as defined in
applicable regulations under the 1940 Act. It
is approximately equal to the amount of premium
that would be required on an annual basis to
keep the Policy in force if the Policy had a
mandatory fixed premium schedule assuming
(among other things) a 5% net investment
return.
INITIAL FACE AMOUNT........... The Face Amount of the Policy on the Issue
Date. The Face Amount may be increased or
decreased after issue.
56
<PAGE> 60
INSURANCE PROCEEDS............ The net amount to be paid to the Beneficiary
when the Insured dies.
INSURED....................... The person upon whose life the Policy is
issued.
ISSUE AGE..................... The age of the Insured at his or her birthday
nearest the Policy Date. The Issue Age is
stated in the Policy.
LOAN ACCOUNT.................. The account to which the collateral for the
amount of any Policy loan is transferred from
the Separate Accounts, 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 $50,000 for all
Premium Classes except preferred. For the
preferred Premium Class, the Minimum Face
Amount is $100,000.
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.
57
<PAGE> 61
POLICY ISSUE DATE............. The date on which the Policy is issued. It is
used to measure suicide and contestable
periods.
POLICY PROCESSING DAY......... The day in each calendar month which is the
same day of the month as the Policy Date. The
first Policy Processing Day is the Policy Date.
POLICY YEAR................... A year that starts on the Policy Date or on a
Policy Anniversary.
PREMIUM CLASS................. The classification of the Insured for cost of
insurance purposes. The classes are: standard;
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.
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
$100,000.
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 12 Policy Years. A pro-rata
Surrender Charge will be deducted upon a
decrease in the Initial Face Amount during the
first 12 Policy Years. The Maximum Surrender
Charge is shown in the Policy. The Surrender
Charge is determined separately from the
Additional Surrender Charge.
TARGET PREMIUM................ An amount of premium payments, computed
separately for each increment of Face Amount,
used to compute Surrender Charges and
Additional 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.
58
<PAGE> 62
FINANCIAL STATEMENTS
The financial statements of PMLIC included herein should be distinguished
from the financial statements of the Separate Accounts and should be considered
only as bearing upon the ability of PMLIC to meet its obligations under the
Policies.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Provident Mutual Variable Growth Separate Account, Provident
Mutual Variable Money Market Separate Account, Provident
Mutual Variable Bond Separate Account, Provident Mutual
Variable Managed Separate Account, Provident Mutual
Variable Zero Coupon Bond Separate Account, Provident
Mutual Variable Aggressive Growth Separate Account,
Provident Mutual Variable International Separate Account
and Provident Mutual Variable Separate Account.
Report of Independent Accountants...................... F-2
Statements of Assets and Liabilities, December 31,
1998.................................................. F-3
Statements of Operations for the Years Ended December
31, 1998, 1997 and 1996............................... F-9
Statements of Changes in Net Assets for the Years Ended
December 31, 1998, 1997, and 1996..................... F-25
Notes to Financial Statements.......................... F-41
Provident Mutual Life Insurance Company and Subsidiaries
Report of Independent Accountants...................... F-62
Consolidated Statements of Financial Condition,
December 31, 1998 and 1997............................ F-63
Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996................ F-64
Consolidated Statements of Equity for the Years Ended
December 31, 1998, 1997 and 1996...................... F-65
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996................ F-66
Notes to Consolidated Financial Statements............. F-67
</TABLE>
F-1
<PAGE> 63
- --------------------------------------------------------------------------------
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> 64
- --------------------------------------------------------------------------------
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> 65
- --------------------------------------------------------------------------------
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> 66
- --------------------------------------------------------------------------------
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> 67
- --------------------------------------------------------------------------------
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> 68
- --------------------------------------------------------------------------------
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> 69
- --------------------------------------------------------------------------------
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> 70
- --------------------------------------------------------------------------------
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> 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
- ---------------------------------------------------------------------------------------------------------------
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> 72
- --------------------------------------------------------------------------------
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> 73
- --------------------------------------------------------------------------------
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> 74
- --------------------------------------------------------------------------------
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> 75
- --------------------------------------------------------------------------------
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> 76
- --------------------------------------------------------------------------------
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> 77
- --------------------------------------------------------------------------------
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> 78
- --------------------------------------------------------------------------------
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> 79
- --------------------------------------------------------------------------------
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> 80
- --------------------------------------------------------------------------------
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> 81
- --------------------------------------------------------------------------------
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> 82
- --------------------------------------------------------------------------------
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> 83
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
FIDELITY 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> 84
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
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> 85
- --------------------------------------------------------------------------------
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> 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>
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> 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
- ---------------------------------------------------------------------------------------------------------------
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> 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>
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> 89
- --------------------------------------------------------------------------------
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> 90
- --------------------------------------------------------------------------------
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> 91
- --------------------------------------------------------------------------------
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> 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>
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> 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>
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> 94
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 95
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 96
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
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> 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>
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> 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>
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> 99
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 100
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 101
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
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> 102
- --------------------------------------------------------------------------------
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> 103
- --------------------------------------------------------------------------------
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> 104
- --------------------------------------------------------------------------------
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> 105
- --------------------------------------------------------------------------------
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> 106
- --------------------------------------------------------------------------------
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> 107
- --------------------------------------------------------------------------------
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> 108
- --------------------------------------------------------------------------------
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> 109
- --------------------------------------------------------------------------------
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> 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
- -----------------------------------------------------------------------------------------------------------------------------
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> 111
- --------------------------------------------------------------------------------
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> 112
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND 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> 113
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- -----------------------------------------------------------------------------------------------------------------------------
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> 114
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
- -----------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
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> 115
- --------------------------------------------------------------------------------
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> 116
- --------------------------------------------------------------------------------
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> 117
- --------------------------------------------------------------------------------
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> 118
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 119
- --------------------------------------------------------------------------------
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> 120
- --------------------------------------------------------------------------------
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> 121
- --------------------------------------------------------------------------------
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> 122
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
AND SUBSIDIARIES
REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996
<PAGE> 123
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of
Provident Mutual Life Insurance Company:
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations, equity, and
cash flows present fairly, in all material respects, the financial position of
Provident Mutual Life Insurance Company and Subsidiaries, at December 31, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 5, 1999
F-62
<PAGE> 124
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost:
1998 -- $2,924,713; 1997 -- $2,647,954)............... $3,030,942 $2,758,069
Held to maturity, at amortized cost (market:
1998 -- $405,108; 1997 -- $455,776)................... 379,184 436,181
Equity securities, at market (cost: 1998 -- $30,317;
1997 -- $22,706)....................................... 29,420 23,818
Mortgage loans............................................ 641,568 663,285
Real estate............................................... 39,468 52,543
Policy loans and premium notes............................ 362,381 358,670
Other invested assets..................................... 9,428 14,546
Short-term investments.................................... 96,141 18,519
---------- ----------
Total investments................................. 4,588,532 4,325,631
Cash........................................................ 14,424.... 17,985
Premiums due................................................ 11,754 12,960
Investment income due and accrued........................... 75,729 73,997
Deferred policy acquisition costs........................... 705,183 629,635
Reinsurance recoverable..................................... 152,831 499,488
Separate account assets..................................... 3,115,352 2,284,118
Other assets................................................ 73,716 77,059
---------- ----------
Total Assets...................................... $8,737,521 $7,920,873
========== ==========
LIABILITIES
Policy liabilities:
Future policyholder benefits.............................. $4,243,117 $4,344,591
Policyholder funds........................................ 146,948 146,871
Policyholder dividends payable............................ 33,428 33,258
Other policy obligations.................................. 18,321 16,638
---------- ----------
Total policy liabilities.......................... 4,441,814 4,541,358
Expenses payable............................................ 29,670 23,775
Taxes payable............................................... 6,308 5,856
Federal income taxes payable:
Current................................................... 30,721 39,114
Deferred.................................................. 57,790 64,216
Separate account liabilities................................ 3,088,933 2,279,124
Other liabilities........................................... 147,162 123,148
---------- ----------
Total liabilities................................. 7,802,398 7,076,591
---------- ----------
COMMITMENTS AND CONTINGENCIES NOTE 9
EQUITY
Retained earnings........................................... 901,158 813,618
Accumulated other comprehensive income:
Net unrealized appreciation on securities................. 33,965 30,664
---------- ----------
Total equity...................................... 935,123 844,282
---------- ----------
Total Liabilities and Equity...................... $8,737,521 $7,920,873
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-63
<PAGE> 125
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums................................................... $206,376 $220,952 $235,615
Policy and contract charges................................ 126,282 106,449 73,873
Net investment income...................................... 352,690 331,524 333,938
Other income............................................... 55,596 47,520 43,839
Net realized gains on investments.......................... 6,780 2,360 7,873
-------- -------- --------
Total revenues................................... 747,724 708,805 695,138
-------- -------- --------
BENEFITS AND EXPENSES
Policy and contract benefits............................... 226,802 234,117 241,042
Change in future policyholder benefits..................... 138,001 122,463 130,147
Operating expenses......................................... 82,290 82,310 94,786
Amortization of deferred policy acquisition costs.......... 72,926 73,582 56,092
Policyholder dividends..................................... 65,648 65,736 65,184
Noninsurance commissions and expenses...................... 35,649 24,962 20,520
-------- -------- --------
Total benefits and expenses...................... 621,316 603,170 607,771
-------- -------- --------
Income before income taxes....................... 126,408 105,635 87,367
-------- -------- --------
Income tax expense (benefit):
Current.................................................. 46,953 35,971 (6,613)
Deferred................................................. (8,085) 2,613 12,441
-------- -------- --------
Total income tax expense......................... 38,868 38,584 5,828
-------- -------- --------
Net Income....................................... $ 87,540 $ 67,051 $ 81,539
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-64
<PAGE> 126
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
RETAINED APPRECIATION TOTAL
EARNINGS ON SECURITIES EQUITY
-------- ------------- --------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1996................................ $665,028 $30,301 $695,329
--------
Comprehensive income
Net income.............................................. 81,539 -- 81,539
Other comprehensive income, net of tax:
Change in unrealized appreciation.................... -- (19,591) (19,591)
--------
Total comprehensive income................................ 61,948
-------- ------- --------
BALANCE AT DECEMBER 31, 1996.............................. 746,567 10,710 757,277
--------
Comprehensive income
Net income.............................................. 67,051 -- 67,051
Other comprehensive income, net of tax:
Change in unrealized appreciation.................... -- 19,954 19,954
--------
Total comprehensive income................................ 87,005
-------- ------- --------
BALANCE AT DECEMBER 31, 1997.............................. 813,618 30,664 844,282
--------
Comprehensive income
Net income.............................................. 87,540 -- 87,540
Other comprehensive income, net of tax:
Change in unrealized appreciation.................... -- 3,301 3,301
--------
Total comprehensive income................................ 90,841
-------- ------- --------
BALANCE AT DECEMBER 31, 1998.............................. $901,158 $33,965 $935,123
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-65
<PAGE> 127
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 87,540 $ 67,051 $ 81,539
Adjustments to reconcile net income to net cash provided by
operating activities:
Interest credited to variable universal life and
investment products..................................... 124,693 108,773 117,038
Amortization of deferred policy acquisition costs......... 72,926 73,582 56,092
Capitalization of deferred policy acquisition costs....... (140,052) (127,593) (119,031)
Deferred Federal income taxes............................. (8,085) 2,613 12,441
Depreciation, amortization and accretion.................. (701) 4,309 5,292
Net realized gains on investments......................... (6,780) (2,360) (7,873)
Change in investment income due and accrued............... (1,732) 215 991
Change in premiums due.................................... 1,206 146 2,757
Change in reinsurance recoverable......................... 346,657 30,838 14,173
Change in policy liabilities and other policyholder
funds................................................... (342,412) (44,638) (18,335)
Change in other liabilities............................... 24,014 5,093 8,899
Change in current Federal income taxes payable............ (8,393) 3,786 (43,161)
Other, net................................................ 4,262 (7,770) (13,785)
----------- --------- ---------
Net cash provided by operating activities............... 153,143 114,045 97,037
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities............................. 290,037 370,224 285,514
Held to maturity securities............................... 4,806 -- --
Equity securities......................................... 27,543 8,288 8,147
Real estate............................................... 27,740 17,347 21,902
Other invested assets..................................... 25,080 7,424 6,078
Proceeds from maturities of investments:
Available for sale securities............................. 348,101 207,455 165,980
Held to maturity securities............................... 76,483 96,045 109,582
Mortgage loans............................................ 121,076 99,673 124,190
Purchases of investments:
Available for sale securities............................. (922,201) (705,348) (533,650)
Held to maturity securities............................... (23,624) (21,721) (76,730)
Equity securities......................................... (32,339) (7,052) (2,966)
Mortgage loans............................................ (107,728) (54,659) (94,254)
Real estate............................................... (856) (1,823) (11,449)
Other invested assets..................................... (11,342) (1,807) (127)
Contributions of separate account seed money................ (20,826) -- (601)
Withdrawals of separate account seed money.................. 1,954 29 6,586
Policy loans and premium notes, net......................... (3,711) (148) 7,580
Net (purchases) sales of short-term investments............. (77,622) 41,888 35,983
----------- --------- ---------
Net cash (used in) provided by investing activities..... (277,429) 55,815 51,765
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits..... 1,228,552 836,694 668,437
Variable universal life and investment product
withdrawals............................................... (1,107,827) (994,120) (814,559)
----------- --------- ---------
Net cash provided by (used in) financing activities..... 120,725 (157,426) (146,122)
----------- --------- ---------
Net change in cash...................................... (3,561) 12,434 2,680
Cash, beginning of year..................................... 17,985 5,551 2,871
----------- --------- ---------
Cash, end of year........................................... $ 14,424 $ 17,985 $ 5,551
=========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes................ $ 54,863 $ 31,805 $ 36,329
=========== ========= =========
Foreclosure of mortgage loans............................. $ 8,848 $ 1,744 $ 7,665
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-66
<PAGE> 128
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-67
<PAGE> 129
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-68
<PAGE> 130
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-69
<PAGE> 131
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-70
<PAGE> 132
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-71
<PAGE> 133
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-72
<PAGE> 134
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-73
<PAGE> 135
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-74
<PAGE> 136
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-75
<PAGE> 137
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-76
<PAGE> 138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the amounts recognized in the consolidated
statements of financial condition as of December 31, 1998 and 1997 (in
millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------- ----------------
1998 1997 1998 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
Prepaid benefit cost............................. $ 24.0 $17.9 $ -- $ --
Accrued benefit liability........................ (11.3) (9.2) (38.8) (38.8)
Additional minimum liability..................... (1.8) (3.9) -- --
Intangible asset................................. 1.8 3.9 -- --
------ ----- ------ ------
Net amount recognized............................ $ 12.7 $ 8.7 $(38.8) $(38.8)
====== ===== ====== ======
</TABLE>
The components of net periodic benefit (income) cost for the years ended
December 31, 1998, 1997 and 1996 are as follows (in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------------- --------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost....................... $ 4.5 $ 4.3 $ 4.6 $ .5 $ .5 $ .5
Interest cost...................... 7.8 8.3 8.1 1.9 2.0 2.4
Expected return on assets.......... (14.6) (13.0) (12.4) -- -- (.6)
Amortization of:
Transition asset................. (1.9) (1.9) (1.9) -- -- --
Prior service cost............... .3 .3 .7 .4 .4 --
Actuarial (gain) loss............ (.9) (.1) .1 (.9) (.8) (.4)
------ ------ ------ ---- ---- ----
Net periodic benefit (income)
cost............................. $ (4.8) $ (2.1) $ (.8) $1.9 $2.1 $1.9
====== ====== ====== ==== ==== ====
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $15.9 million, $13.1 million, and $0, respectively,
at December 31, 1998, and $20.6 million, $13.2 million, and $0, respectively, at
December 31, 1997.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the medical plan. A 1% change in assumed health care cost
trend rates would have the following effects (in millions):
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest cost components of
net periodic postretirement benefit cost.................. $ .1 $ (.1)
Effect on the health care component of the accumulated
postretirement benefit obligation......................... $1.3 $(1.2)
</TABLE>
The following weighted-average assumptions were used in the measurement of
the Company's benefit obligations as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
PENSION
BENEFITS OTHER BENEFITS
------------ --------------
1998 1997 1998 1997
---- ---- ----- -----
<S> <C> <C> <C> <C>
Discount rate........................................... 6.75% 7.0% 6.75% 7.0%
Expected return on plan assets.......................... 9.0% 9.0% N/A N/A
Rate of compensation increase........................... 4.75% 5.0% 4.75% 5.0%
</TABLE>
A 5.5% annual rate of increase in the cost of covered health care benefits
was assumed for 1998, decreasing to an ultimate trend of 5.1% in 2001.
F-77
<PAGE> 139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1991, the Company established a retiree health account under the
provisions of Section 401(h) of the Internal Revenue Code. In December 1998, the
Company transferred $1.7 million of excess assets from the defined benefit
pension plan to pay for 1998 qualified retiree health benefits. A transfer of
excess assets in the amount of $1.6 million was made in December 1997 to pay for
1997 qualified retiree health benefits. In December 1996, excess assets totaling
$1.6 million were transferred to pay for 1996 qualified retiree health benefits.
The Company also provides a funded noncontributory defined contribution
plan that covers substantially all of its agents and a contributory defined
contribution plan qualified under section 401(k) of the Internal Revenue Code.
The pension cost of the defined contribution plans was $3.4 million, $3.4
million, and $2.6 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
7. FEDERAL INCOME TAXES
The Company files a consolidated Federal income tax return with its life
insurance and non-insurance subsidiaries. Each tax provision is accrued on a
separate company basis. The life company tax provisions include an equity tax.
The provision for Federal income taxes from operations differs from the
normal relationship of Federal income tax to pretax income as follows (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Federal income tax at
statutory rate..... $44.2 $37.0 $ 30.6
Current year equity
tax............. 6.3 8.8 8.5
True down of prior
years' equity
tax............. (7.0) (8.0) (5.1)
Tax settlement..... (4.7) -- (28.3)
Other.............. .1 .8 .1
----- ----- ------
Provision for Federal
income tax from
operations......... $38.9 $38.6 $ 5.8
===== ===== ======
</TABLE>
In 1996, the Company settled various tax issues with the IRS, including an
issue relating to the tax treatment of certain traditional life insurance policy
updates. As a result of the settlements, the 1996 Federal income tax expense in
the consolidated statement of operations was decreased by approximately $28.3
million which includes $15.9 million of interest, net of taxes. In 1998, the
Company settled open tax years which resulted in the reduction of income tax
expense by $4.7 million.
Deferred income tax assets and liabilities reflect the income tax effects
of cumulative temporary differences between the reported values of assets and
liabilities for financial statement purposes and income tax return purposes.
Components of the Company's net deferred income tax liability are as follows at
December 31, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
DEFERRED TAX LIABILITY
Deferred policy acquisition
costs...................... $214.2 $196.5
Prepaid pension asset........ 8.4 6.3
Net unrealized gain on
available for sale
securities................. 18.3 16.5
------ ------
Total deferred tax
liability............. 240.9 219.3
------ ------
DEFERRED TAX ASSET
Reserves..................... 145.8 123.8
Employee benefit accruals.... 18.2 17.5
Invested assets.............. 6.4 8.3
Policyholder dividends....... 8.2 8.1
Deferred rent................ -- 1.4
Other........................ 4.5 (4.0)
------ ------
Total deferred tax
asset................. 183.1 155.1
------ ------
Net deferred tax liability... $ 57.8 $ 64.2
====== ======
</TABLE>
The Company's Federal income tax returns have been audited through 1994.
All years through 1985 are closed. Years 1986 through 1994 have been audited and
are closed with the exception of several issues for which claims for refund have
been filed. Years 1995 through the present remain open. In the opinion of
management, adequate provision has been made for the possible effect of
potential assessments related to prior years' taxes.
Recently, the Internal Revenue Service issued Revenue Ruling 99-3 which
provided, in general, that a mutual life insurance company that converts to a
stock life insurance company in a
F-78
<PAGE> 140
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-79
<PAGE> 141
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-80
<PAGE> 142
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-81
<PAGE> 143
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 40 in the Preferred Premium Class with a Face Amount of $100,000
and a Planned Periodic Premium of $1,000 paid at the beginning of each Policy
Year. The Death Benefits, Policy Account Values and Net Cash Surrender Values
would be lower if the Insured was in a nonsmoker or smoker class or a class with
extra ratings since the cost of insurance charges would increase. Also, the
values would be different from those shown if the gross annual investment
returns averaged 0%, 6% and 12% over a period of years, but fluctuated above and
below those averages for individual Policy Years.
The second column of the tables show the amount to which the premiums would
accumulate if an amount equal to those premiums were invested to earn interest,
after taxes, at 5% compounded annually. The columns shown under the heading
"Guaranteed" assume that throughout the life of the policy, the monthly charge
for cost of insurance is based on the maximum level permitted under the Policy
(based on the 1980 CSO Smoker/Nonsmoker Table), a Premium Expense Charge of 5%,
Maximum Monthly Administrative Fee of $12 an Initial Administrative Charge of $5
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 $100,000; 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 3.5%, current monthly administrative fee of $7.50 and a daily
charge for mortality and expense risks equivalent to an annual rate of 0.75%
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 $100,000.
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> 144
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 Insured's Age and Premium
Class, the Death Benefit Option, Face Amount, Planned Periodic Premiums and
riders requested. PMLIC reserves the right to charge a reasonable fee for this
service to persons who request more than one policy illustration during a Policy
year.
A-2
<PAGE> 145
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0% (NET RATE OF -1.73%)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 358 0 100,000 621 0 100,000
2 2,153 900 0 100,000 1,275 85 100,000
3 3,310 1,417 52 100,000 1,903 538 100,000
4 4,526 1,907 542 100,000 2,501 1,136 100,000
5 5,802 2,368 1,003 100,000 3,070 1,705 100,000
6 7,142 2,800 1,435 100,000 3,606 2,241 100,000
7 8,549 3,199 2,029 100,000 4,117 2,947 100,000
8 10,027 3,565 2,590 100,000 4,600 3,625 100,000
9 11,578 3,897 3,117 100,000 5,056 4,276 100,000
10 13,207 4,191 3,606 100,000 5,481 4,896 100,000
11 14,917 4,446 4,056 100,000 5,878 5,488 100,000
12 16,713 4,657 4,462 100,000 6,239 6,044 100,000
13 18,599 4,817 4,817 100,000 6,564 6,564 100,000
14 20,579 4,922 4,922 100,000 6,848 6,848 100,000
15 22,657 4,964 4,964 100,000 7,086 7,086 100,000
16 24,840 4,956 4,956 100,000 7,419 7,419 100,000
17 27,132 4,871 4,871 100,000 7,718 7,718 100,000
18 29,539 4,706 4,706 100,000 7,984 7,984 100,000
19 32,066 4,454 4,454 100,000 8,217 8,217 100,000
20 34,719 4,103 4,103 100,000 8,414 8,414 100,000
25 50,113 344 344 100,000 8,787 8,787 100,000
30 69,761 0 0 0 7,568 7,568 100,000
</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> 146
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0% (NET RATE OF -1.73%)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 356 0 100,356 620 0 100,620
2 2,153 896 0 100,896 1,271 81 101,271
3 3,310 1,409 44 101,409 1,894 529 101,894
4 4,526 1,892 527 101,892 2,486 1,121 102,486
5 5,802 2,346 981 102,346 3,047 1,682 103,047
6 7,142 2,768 1,403 102,768 3,572 2,207 103,572
7 8,549 3,155 1,985 103,155 4,070 2,900 104,070
8 10,027 3,507 2,532 103,507 4,538 3,563 104,538
9 11,578 3,822 3,042 103,822 4,976 4,196 104,976
10 13,207 4,097 3,512 104,097 5,381 4,796 105,381
11 14,917 4,331 3,941 104,331 5,754 5,364 105,754
12 16,713 4,517 4,322 104,517 6,090 5,895 106,090
13 18,599 4,649 4,649 104,649 6,384 6,384 106,384
14 20,579 4,723 4,723 104,723 6,634 6,634 106,634
15 22,657 4,730 4,730 104,730 6,835 6,835 106,835
16 24,840 4,683 4,683 104,683 7,133 7,133 107,133
17 27,132 4,556 4,556 104,556 7,394 7,394 107,394
18 29,539 4,345 4,345 104,345 7,618 7,618 107,618
19 32,066 4,045 4,045 104,045 7,805 7,805 107,805
20 34,719 3,645 3,645 103,645 7,953 7,953 107,953
25 50,113 0 0 0 8,015 8,015 108,015
30 69,761 0 0 0 6,366 6,366 106,366
</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> 147
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6% (NET RATE OF 4.33%)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 395 0 100,000 668 0 100,000
2 2,153 1,004 0 100,000 1,408 218 100,000
3 3,310 1,622 257 100,000 2,165 800 100,000
4 4,526 2,247 882 100,000 2,934 1,569 100,000
5 5,802 2,879 1,514 100,000 3,717 2,352 100,000
6 7,142 3,514 2,149 100,000 4,510 3,145 100,000
7 8,549 4,151 2,981 100,000 5,321 4,151 100,000
8 10,027 4,790 3,815 100,000 6,148 5,173 100,000
9 11,578 5,427 4,647 100,000 6,992 6,212 100,000
10 13,207 6,060 5,475 100,000 7,851 7,266 100,000
11 14,917 6,688 6,298 100,000 8,726 8,336 100,000
12 16,713 7,302 7,107 100,000 9,613 9,418 100,000
13 18,599 7,898 7,898 100,000 10,509 10,509 100,000
14 20,579 8,469 8,469 100,000 11,413 11,413 100,000
15 22,657 9,006 9,006 100,000 12,319 12,319 100,000
16 24,840 9,538 9,538 100,000 13,385 13,385 100,000
17 27,132 10,023 10,023 100,000 14,476 14,476 100,000
18 29,539 10,456 10,456 100,000 15,596 15,596 100,000
19 32,066 10,828 10,828 100,000 16,745 16,745 100,000
20 34,719 11,125 11,125 100,000 17,924 17,924 100,000
25 50,113 10,859 10,859 100,000 24,267 24,267 100,000
30 69,761 5,008 5,008 100,000 31,133 31,133 100,000
</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> 148
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6% (NET RATE OF 4.33%)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 394 0 100,394 666 0 100,666
2 2,153 1,000 0 101,000 1,404 214 101,404
3 3,310 1,613 248 101,613 2,155 790 102,155
4 4,526 2,230 865 102,230 2,916 1,551 102,916
5 5,802 2,851 1,486 102,851 3,688 2,323 103,688
6 7,142 3,473 2,108 103,473 4,466 3,101 104,466
7 8,549 4,093 2,923 104,093 5,258 4,088 105,258
8 10,027 4,709 3,734 104,709 6,061 5,086 106,061
9 11,578 5,319 4,539 105,319 6,876 6,096 106,876
10 13,207 5,919 5,334 105,919 7,699 7,114 107,699
11 14,917 6,506 6,116 106,506 8,531 8,141 108,531
12 16,713 7,072 6,877 107,072 9,367 9,172 109,367
13 18,599 7,610 7,610 107,610 10,201 10,201 110,201
14 20,579 8,112 8,112 108,112 11,031 11,031 111,031
15 22,657 8,568 8,568 108,568 11,850 11,850 111,850
16 24,840 9,001 9,001 109,001 12,828 12,828 112,828
17 27,132 9,371 9,371 109,371 13,817 13,817 113,817
18 29,539 9,670 9,670 109,670 14,817 14,817 114,817
19 32,066 9,888 9,888 109,888 15,830 15,830 115,830
20 34,719 10,007 10,007 110,007 16,852 16,852 116,852
25 50,113 8,440 8,440 108,440 22,004 22,004 122,004
30 69,761 681 681 100,681 26,536 26,536 126,536
</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> 149
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12% (NET RATE OF 10.23%)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 433 0 100,000 714 0 100,000
2 2,153 1,113 0 100,000 1,547 357 100,000
3 3,310 1,845 481 100,000 2,449 1,084 100,000
4 4,526 2,632 1,267 100,000 3,423 2,058 100,000
5 5,802 3,478 2,113 100,000 4,477 3,112 100,000
6 7,142 4,388 3,023 100,000 5,616 4,251 100,000
7 8,549 5,365 4,195 100,000 6,855 5,685 100,000
8 10,027 6,416 5,441 100,000 8,204 7,229 100,000
9 11,578 7,547 6,767 100,000 9,674 8,894 100,000
10 13,207 8,763 8,178 100,000 11,276 10,691 100,000
11 14,917 10,072 9,682 100,000 13,024 12,634 100,000
12 16,713 11,479 11,284 100,000 14,930 14,735 100,000
13 18,599 12,989 12,989 100,000 17,008 17,008 100,000
14 20,579 14,608 14,608 100,000 19,275 19,275 100,000
15 22,657 16,344 16,344 100,000 21,748 21,748 100,000
16 24,840 18,271 18,271 100,000 24,640 24,640 100,000
17 27,132 20,347 20,347 100,000 27,827 27,827 100,000
18 29,539 22,588 22,588 100,000 31,347 31,347 100,000
19 32,066 25,013 25,013 100,000 35,238 35,238 100,000
20 34,719 27,638 27,638 100,000 39,543 39,543 100,000
25 50,113 44,584 44,584 100,000 69,224 69,224 100,000
30 69,761 71,720 71,720 100,000 119,317 119,317 138,408
</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> 150
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12% (NET RATE OF 10.23%)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 431 0 100,431 713 0 100,713
2 2,153 1,108 0 101,108 1,542 352 101,542
3 3,310 1,834 469 101,834 2,438 1,073 102,438
4 4,526 2,612 1,247 102,612 3,402 2,037 103,402
5 5,802 3,445 2,080 103,445 4,441 3,076 104,441
6 7,142 4,335 2,970 104,335 5,560 4,195 105,560
7 8,549 5,287 4,117 105,287 6,772 5,602 106,772
8 10,027 6,304 5,329 106,304 8,084 7,109 108,084
9 11,578 7,391 6,611 107,391 9,507 8,727 109,507
10 13,207 8,550 7,965 108,550 11,047 10,462 111,047
11 14,917 9,787 9,397 109,787 12,718 12,328 112,718
12 16,713 11,102 10,907 111,102 14,526 14,331 114,526
13 18,599 12,495 12,495 112,495 16,481 16,481 116,481
14 20,579 13,969 13,969 113,969 18,594 18,594 118,594
15 22,657 15,521 15,521 115,521 20,874 20,874 120,874
16 24,840 17,216 17,216 117,216 23,552 23,552 123,552
17 27,132 19,002 19,002 119,002 26,478 26,478 126,478
18 29,539 20,885 20,885 120,885 29,680 29,680 129,680
19 32,066 22,865 22,865 122,865 33,185 33,185 133,185
20 34,719 24,943 24,943 124,943 37,024 37,024 137,024
25 50,113 36,579 36,579 136,579 62,466 62,466 162,466
30 69,761 49,052 49,052 149,052 102,393 102,393 202,393
</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> 151
APPENDIX B
LONG TERM MARKET TRENDS
The information below is a record of the compound annual returns of common
stocks, high-grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The compound annual returns assume the reinvestment of
dividends, capital gains and interest. This is an historical record and is not
intended as a projection of future performance. Charges associated with a
variable life policy are not reflected.
The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high-grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods of
time. To the extent that cash value is allocated to separate accounts which
invest in common stocks, these trends indicate the potential advantages of
holding a variable life insurance policy for a long period of time.
The following chart illustrates the compound annual returns of the S&P 500
Composite Stock Price Index for each of the 20-year periods shown. These returns
are compared to the compound annual returns of high-grade corporate bonds and
U.S. Treasury bills for the same periods. (The 20-year periods selected for the
chart begin in 1938 and have ending periods at five year intervals.)
[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),
B-1
<PAGE> 152
1982, updated in Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM),
Ibbotson Associates, Inc., Chicago. All rights reserved.
Over the 53 20-year time periods beginning in 1926 and ending in 1997 (i.e.
1926-1945, 1927-1946, and so on through 1978-1997):
-- The compound annual return of common stocks was superior to that of
high-grade, long-term corporate bonds in 50 of the 53 periods.
-- The compound annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 53 periods.
-- Common stock compound annual returns exceeded the average annual rate of
inflation in each of the 53 periods.
Over the 43 30-year time periods beginning in 1926 and ending in 1997, the
compound annual return of common stocks was superior to that of high-grade,
long-term corporate bonds, U.S. Treasury bills and inflation in all 43 periods.
From 1926 through 1997 the compound annual return for common stocks was
11.0%, compared to 5.7% for high-grade, long-term corporate bonds, 5.2% for
Long-Term Government Bonds, 3.8% for U.S. Treasury bills and 3.1% for the
Consumer Price Index.
------------------------
SUMMARY TABLE: HISTORIC S&P 500 COMPOSITE STOCK INDEX RESULTS FOR
SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Composite Stock Index, with dividends reinvested, over one-year,
five-year, ten-year and twenty-year periods beginning in 1926 and ending in
1997.
The chart shows that historically, the longer that a portfolio matching the
S&P 500 Composite Stock Index was held, the less likely was the chance of a
loss. Conversely, the shorter the holding period of such a portfolio, the more
likely was the chance of a loss. The chart also shows that shorter term results
tend to be more extreme than longer term results.
THE CHART IS NOT A PROJECTION OR REPRESENTATION OF FUTURE STOCK MARKET
RESULTS. IT CANNOT BE TAKEN AS REPRESENTATIVE OF THE PERFORMANCE OF ANY ONE
SEPARATE ACCOUNT. Rather it shows the historic performance of a broad index of
stocks over arbitrarily selected time periods.
PERCENT OF HOLDING PERIODS WITH THE FOLLOWING RETURNS:
<TABLE>
<CAPTION>
GREATER
THAN
HOLDING NEGATIVE 0.5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
------ -------- ------- ----------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
1 year 27.8% 4.2% 11.1% 6.9% 11.1% 38.9%
5 years 10.3% 14.7% 14.7% 32.4% 17.6% 10.3%
10 years 3.2% 11.1% 34.9% 22.2% 27.0% 1.6%
20 years 0.0% 5.8% 32.1% 54.7% 7.5% 0.0%
</TABLE>
- ---------------
Source: All basic data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield,
Stocks, Bonds, Bills and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills
and Inflation 1998 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
B-2
<PAGE> 153
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 1998 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
---------------------------
THE "DOLLAR COST AVERAGING" INVESTMENT METHOD
As the Compound Annual Returns graph indicates, the investment performance
of many common stocks has generally been positive over certain relatively long
periods. Common stocks have, however, also been subject to market declines,
often dramatic ones, and general volatility of prices over shorter time periods.
The price fluctuations of common stocks has historically been greater than that
of high-grade debt securities.
The relative volatility of common stock prices as compared with prices of
high-grade debt instruments offers both advantages and disadvantages to
investors. Unfortunately, many investors who otherwise might be interested in
common stocks see only the disadvantages and not the advantages of stock price
fluctuation. The primary disadvantage, of course, is that price declines can be
prolonged and substantial, and when this occurs, investors cannot liquidate
their investments without realizing losses. Price declines, however, also offer
investors important opportunities.
B-3
<PAGE> 154
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
<PAGE> 155
APPENDIX C
PLAN OF CONVERSION
It is anticipated that, at some point in the future, a Plan of Conversion
("Plan") will become effective pursuant to which Provident Mutual Life Insurance
Company, a Pennsylvania mutual life insurance corporation ("Provident Mutual"),
will be reorganized and continue its corporate existence ("Conversion") as
Provfirst America Life Insurance Company, a Pennsylvania stock life insurance
corporation ("Provfirst Life"). The Plan was adopted by Provident Mutual's board
of directors on October 13, 1998. The Plan was approved by the Pennsylvania
Deputy Insurance Commissioner by a Decision and Order dated November 6, 1998
("Order"). The Provident Mutual policyholders entitled to vote on the Plan duly
adopted the Plan at a special meeting held on February 9, 1999. On February 11,
1999, the Court of Common Pleas of Philadelphia County issued an order granting
a preliminary injunction, which has postponed completion of the Conversion until
the court conducts a hearing. The Company believes the Plan and related
disclosure documents meet all applicable legal requirements.
The current and future rights and interest of owners of Provident Mutual
insurance and annuity contracts, including the Policies will not change as a
result of the Conversion, and the Conversion will not increase premiums or
reduce Policy benefits, values, guarantees or other Policy obligations to
Owners. If the Conversion occurs, all Provident Mutual insurance policies and
annuity contracts in force on the date of the Conversion, including the
Policies, will continue, after the Conversion, as policies of Provfirst Life.
The Conversion will not change the operations of the Variable Account and will
not result in any material disruption of the services provided to Owners.
Before the Conversion, Provident Mutual will continue to conduct business
in all jurisdictions under the name "Provident Mutual Life Insurance Company."
After the Conversion, it is anticipated that Provident Mutual will conduct
business in all jurisdictions under the name "Provfirst America Life Insurance
Company," except in those jurisdictions in which regulators have not yet
approved use of this name. In those jurisdictions, Provfirst Life will continue
to do business using the name "Provident Mutual Life Insurance Company" until it
receives approval to use the new name.
Likewise, each Variable Account of Provident Mutual will continue, after
the Conversion, as a Variable Account of Provfirst Life. If the Conversion
occurs, it will not change the operations of any Variable Account supporting a
policy or contract. However, after the Conversion, the names of the Variable
Accounts will be changed by replacing the words "Provident Mutual" with
"Provfirst America" in each name. Use of the new Variable Account names in each
jurisdiction will generally begin concurrently with the use of Provfirst Life's
new name. Nevertheless, some jurisdictions require separate approval of the new
Variable Account names, and in those jurisdictions, Provfirst Life will not use
such new name until it receives such approval.
Pursuant to the Plan, Provident Mutual will also form Provident Mutual
Holding Company, a Pennsylvania nonstock corporation, and Provfirst America
Corporation, a Pennsylvania business corporation. If the Conversion occurs, all
the shares of voting stock of Provfirst Life will be issued to the Provfirst
America Corporation, and all the shares of voting stock of Provfirst America
Corporation will be issued to Provident Mutual Holding Company, except for
approximately 1% of the then-issued shares of voting stock of Provfirst America
Corporation, which will be issued to an employee stock ownership plan to be
formed by Provfirst Life. Pursuant to the Order and as set forth in the Plan,
Provident Mutual Holding Company will at all times, directly or indirectly,
control Provfirst Life through the ownership of at least a majority of the
voting authority of Provfirst America Corporation, which will hold, directly or
indirectly, all the outstanding voting stock of Provfirst Life. If the
Conversion occurs, the directors and executive officers of Provfirst Life
serving immediately prior to the Effective Date will remain as the directors and
executive officers of each of Provident Mutual Holding Company, Provfirst
America Corporation and Provfirst Life after the Effective Date.
Before the Conversion, Provident Mutual policyholders have (1) contract
rights under their insurance policies and annuity contracts, and (2) certain
membership rights in Provident Mutual. The principal
C-1
<PAGE> 156
contract right of policyholders is the right to receive the type and amount of
benefits specified in their policies or contracts in accordance with their terms
and conditions, including the right to receive policy dividends, when, if, and
as declared by the board of directors of Provident Mutual in accordance with the
terms and conditions of such policies. The membership rights of policyholders
include the right to vote at annual or special meetings of Provident Mutual, and
certain rights as provided by law in any remaining surplus of Provident Mutual
in the event of the insolvency, winding-up or liquidation of Provident Mutual,
after the discharge of all other liabilities.
If the Conversion occurs, the contract rights and the membership rights of
policyholders of Provident Mutual policies will be separated. The contract
rights will remain with Provfirst Life and the membership rights in Provident
Mutual will be extinguished. Each policyholder will then receive, by operations
law, membership rights in Provident Mutual Holding Company. Each future
policyholder of Provfirst Life will become a member of Provident Mutual Holding
Company, and each member will remain a member of Provident Mutual Holding
Company as long as the policy or policies conferring such membership remain in
force.
C-2
<PAGE> 157
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article VIII of PMLIC's By-Laws provides, in part:
To the fullest extent permitted by law, the Company shall indemnify
any present, former or future Director, officer, or employee of the Company
or any person who may serve or has served at its request as officer or
Director of another corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including attorney's fees,
necessarily incurred in connection with the defense of any action, suit or
other proceeding to which any of them is made a party because of service as
Director, officer or employee of the Company or such other corporation, or
in connection with any appeal therein, and against any amounts paid by such
Director, officer or employee in settlement of, or in satisfaction of a
judgement or fine in, any such action or proceeding, except expenses
incurred in defense of or amounts paid in connection with any action, suit
or other proceeding in which such Director, officer or employee shall be
adjudged to be liable for negligence or misconduct in the performance of
his duty.
Insofar as indemnification or liability arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REASONABLENESS REPRESENTATION
Provident Mutual Life Insurance Company hereby represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by Provident Mutual Life Insurance Company.
II-1
<PAGE> 158
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of pages.
The undertaking to file report.
Rule 484 undertaking.
Reasonableness Representation.
The following exhibits:
<TABLE>
<S> <C>
1.A.1.a. Resolution adopted by the Board of Directors of Provident
Mutual Life Insurance Company authorizing establishment of
the Provident Mutual Variable Growth Separate Account,
Provident Mutual Variable Money Market Separate Account,
Provident Mutual Variable Bond Separate Account, Provident
Mutual Variable Managed Separate Account, and Provident
Mutual Variable Zero Coupon Bond Separate Account(1)
1.A.1.b. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable Aggressive Growth Separate Account(1)
1.A.1.c. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable International Separate Account(1)
1.A.1.d. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable Separate Account(1)
1.A.1.e. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company Approving Creation of additional
Subaccounts of Provident Mutual Variable Separate Account(1)
1.A.1.f. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company Approving Creation of additional
Subaccounts of Provident Mutual Variable Separate Account(1)
1.A.2. None
1.A.3.a.i. Form of Underwriting Agreement among Provident Mutual Life
Insurance Company, PML Securities, Inc. and Provident Mutual
Variable Separate Account(1)
1.A.3.b.i. Personal Producing General Agent's Agreement and
Supplement(2)
1.A.3.b.ii. Personal Producing Agent's Agreement and Supplement(2)
1.A.3.b.iii. Producing General Agent's Agreement and Supplement(2)
1.A.3.c.iv. Form of Selling Agreement between PML Securities, Inc. and
Broker/Dealers
1.A.4. Inapplicable(2)
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy (Form VL101)
1.A.5.b. Convertible Term Life Rider (Form C308)(2)
1.A.5.i. Not Applicable
1.A.5.j. Guaranteed Minimum Death Benefit Rider (Form C320)(4)
1.A.5.a. Children's Term Rider (Form C306)
1.A.5.c. Extension of Final Policy Date Rider (Form C822)(2)
1.A.5.d. Qualify as Section 403(b) Rider (C827)(2)
1.A.5.h. Accelerated Death Benefit Rider (C/D904)(1)
1.A.5.e. Change of Insured Rider (Form C901)(2)
1.A.5.f. Disability Waiver Benefit Rider (Form R1901)
1.A.5.g. Disability Waiver of Premium Benefit Rider (Form C903)
</TABLE>
II-2
<PAGE> 159
<TABLE>
<S> <C>
1.A.6.a. Charter of Provident Mutual Life Insurance Company(1)
1.A.6.b. By-Laws of Provident Mutual Life Insurance Company(1)
1.A.7. Inapplicable
1.A.8. Inapplicable
1.A.9. Inapplicable
1.A.10. Form of Application (1)
1.A.10.a. Supplemental Application for Flexible Premium(2)
1.A.10.b. Initial Allocation Selection (1)
2. See Exhibits 1.A.
3. Opinion and consent of James G. Potter, Jr., Esquire
4. Inapplicable
5. Inapplicable
6. Opinion and Consent of Scott V. Carney, FSA, MAAA
7.A. Consent of Sutherland Asbill & Brennan LLP
7.B. Consent of PricewaterhouseCoopers LLP
8. Description of Provident Mutual Life Insurance Company's
Issuance, Transfer and Redemption Procedures for Policies(1)
9. Powers of Attorney(1)
10.A. Participation Agreement among Market Street Fund, Inc.,
Provident Mutual Life Insurance Company and PML Securities,
Inc.(1)
10.B. Participation Agreement among Variable Insurance Products
Fund, Fidelity Corporation and Provident Mutual Life
Insurance Company(1)
10.C. Participation Agreement among Variable Insurance Products
Fund II, Fidelity Corporation and Provident Mutual Life
Insurance Company(1)
10.D. Participation Agreement among Neuberger & Berman Advisers
Managers Trust and Provident Mutual Life Insurance
Company(1)
10.E. Participation Agreement between Van Eck Investment Trust and
Provident Mutual Life Insurance Company(3)
10.F. Participation Agreement among The Alger American Fund,
Provident Mutual Life Insurance Company and Fred Alger and
Company Incorporated(1)
27. Inapplicable
</TABLE>
- ---------------
(1) Incorporated herein by reference to corresponding exhibits to post-effective
amendment number 18 to the Form S-6 registration statement (File No.
33-2625) for Provident Mutual Variable Growth Separate Account, et al.,
filed on May 1, 1998.
(2) Incorporated herein by reference to corresponding exhibits to post-effective
amendment number 11 to the Form S-6 registration statement (File No.
33-42133) for Provident Mutual Variable Growth Separate Account, et al.
filed on May 1, 1998.
II-3
<PAGE> 160
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Provident Mutual Growth Variable 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 have duly caused this Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, and their seal to be
hereunto affixed and attested, all in Chester County, State of Pennsylvania on
this 16th day of March, 1999.
PROVIDENT MUTUAL VARIABLE
GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE
MONEY MARKET SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE BOND
SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE
MANAGED SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE ZERO
COUPON BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE
AGGRESSIVE GROWTH SEPARATE
ACCOUNT
PROVIDENT MUTUAL VARIABLE
INTERNATIONAL SEPARATE
ACCOUNT
PROVIDENT MUTUAL VARIABLE
SEPARATE ACCOUNT (Registrant)
By: PROVIDENT MUTUAL LIFE
INSURANCE COMPANY (Depositor)
<TABLE>
<S> <C>
Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
- --------------------------------------------------- ----------------------------------------------
Robert W. Kloss
President and Chief Executive Officer
PROVIDENT MUTUAL LIFE INSURANCE COMPANY (Depositor)
Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
- --------------------------------------------------- ----------------------------------------------
Robert W. Kloss
President and Chief Executive Officer
</TABLE>
As required by the securities act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ ROBERT W. KLOSS President, Chief Executive Officer and Director
- --------------------------------------------------- (Principal Executive Officer)
Robert W. Kloss
/s/ EDWARD R. BOOK Director
- ---------------------------------------------------
Edward R. Book
</TABLE>
<PAGE> 161
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ DOROTHY M. BROWN Director
- ---------------------------------------------------
Dorothy M. Brown
/s/ ROBERT J. CASALE Director
- ---------------------------------------------------
Robert J. Casale
/s/ NICHOLAS DEBENEDICTUS Director
- ---------------------------------------------------
Nicholas DeBenedictus
/s/ PHILIP C. HERR, II Director
- ---------------------------------------------------
Philip C. Herr, II
/s/ J. RICHARD JONES Director
- ---------------------------------------------------
J. Richard Jones
/s/ JOHN P. NEAFSEY Director
- ---------------------------------------------------
John P. Neafsey
/s/ CHARLES L. ORR Director
- ---------------------------------------------------
Charles L. Orr
/s/ DONALD A. SCOTT Director
- ---------------------------------------------------
Donald A. Scott
/s/ JOHN J. F. SHERRERD Director
- ---------------------------------------------------
John J. F. Sherrerd
/s/ HAROLD A. SORGENTI Director
- ---------------------------------------------------
Harold A. Sorgenti
/s/ LINDA M. SPRINGER Financial Reporting Officer (Principal
- --------------------------------------------------- Financial and Accounting Officer)
Linda M. Springer
*By: /s/ JAMES G. POTTER, JR.
---------------------------------------------
James G. Potter, Jr.
Attorney-In-Fact
Pursuant To Power Of Attorney
</TABLE>
<PAGE> 162
EXHIBIT INDEX
<TABLE>
<S> <C>
1.A.5. Flexible Premium Adjustable Variable Life Insurance Policy
(Form VL101)
1.A.5.d. Children's Term Rider (Form C306)
1.A.5.f. Disability Waiver Benefit Rider (Form R1901)
1.A.5.g. Disability Waiver of Premium Rider (Form C903)
3. Opinion and consent of James G. Potter, Jr., Esquire
6. Consent of Scott V. Carney, FSA, MAAA
7.A. Consent of Sutherland Asbill & Brennan LLP
7.B. Consent of PricewaterhouseCoopers LLP
</TABLE>
<PAGE> 1
Exhibit 1.A.5
Registrar President
* Flexible Premium Adjustable Variable Life Insurance Policy * Insurance
Proceeds payable upon death before Final Policy Date * Policy Account Value
payable on Final Policy Date * Adjustable Death Benefit * Values provided by
this Policy are based on declared interest rates of the Guaranteed and Loan
Accounts and on the investment experience of the Separate Accounts *
Non-participating *
For Inquiries, Information and Resolution of Complaints, Call: 1-800-688-5177
POLICY DESCRIPTION
This is a flexible premium adjustable variable life insurance policy.
Net premiums are allocated at your direction to one or more of the Separate
Accounts and/or the Guaranteed Account.
The Separate Accounts invest in securities and other investments whose value is
subject to market fluctuation and investment risk. There is no guarantee of
principal or investment return.
The Guaranteed Account earns interest at rates we declare in advance. The rates
are guaranteed to equal or exceed 4%. The principal, after deductions, is also
guaranteed.
The duration of life insurance coverage depends on the Net Cash Surrender Value
except that during the first five Policy Years, your Policy will remain in force
if the sum of the premiums paid less loans and partial withdrawals equals or
exceeds the Minimum Guarantee Premium.
If Death Benefit Option A has been selected, the Death Benefit is the Face
Amount of this Policy and the amount of the Death Benefit is fixed, except where
it is a percentage of the Policy Account Value. If Death Benefit Option B has
been selected, the Death Benefit is the Face Amount of this Policy plus the
Policy Account Value. The amount of the Death Benefit under Option B is
variable. Under either Option, the Death Benefit will not be less than a
percentage of the Policy Account Value.
To compute the Insurance Proceeds payable upon the Insured's death, we start
with the Death Benefit and adjust this amount if there is a loan.
We make monthly deductions from the Policy Account Value to cover the cost of
benefits provided under this Policy, including the cost of any benefits provided
by rider. We will allocate such deductions to the Separate Accounts and the
Guaranteed Account in accordance with your instructions.
<PAGE> 2
If you surrender this Policy for its Net Cash Surrender Value or reduce the Face
Amount of insurance during the first 12 Policy Years or within 12 years after
the effective date of an increase in the Face Amount, we will deduct any
applicable Surrender Charges from the Policy Account Value.
We will pay the proceeds under this Policy in one sum unless a Payment Option is
in force. If you elect a Payment Option it will apply to payment of the Net Cash
Surrender Value if you surrender this Policy or to the Insurance Proceeds paid
to the Beneficiary when the Insured dies. If a Payment Option is not in force
when the Insured dies, the Beneficiary will be able to elect a Payment Option
for the Insurance Proceeds.
If this Policy lapses, coverage will end. If such occurs, you may be able to
reinstate this Policy within three full years with full benefits.
As Policy Owner, you have these rights in this Policy, among others, subject to
the terms, conditions, and limits in this Policy:
* You may make premium payments at any time and of any amount.
* You may change the allocation of premiums and deductions among your investment
options.
* You may increase or decrease the Face Amount of insurance.
* You may change the Death Benefit Option.
* You may transfer amounts among your investment options.
* You may borrow on this Policy.
* You may make a partial withdrawal of the Net Cash Surrender Value.
* You may surrender this Policy for its Net Cash Surrender Value.
* You may change the Beneficiary of the Insurance Proceeds of this Policy.
* You may assign this Policy and change the Owner.
This is only a summary of what the Policy provides. You should read the entire
Policy carefully as its terms govern your rights and our obligations.
POLICY SCHEDULE
<TABLE>
<S> <C>
INSURED JOHN DOE
POLICY NUMBER 9,000,000
ISSUE DATE 01/01/1999
FACE AMOUNT $50,000
ISSUE AGE AND SEX 35, MALE
DEATH BENEFIT OPTION A
POLICY DATE 01/01/1999
POLICY ISSUED DATE
PREMIUM CLASS NON-SMOKER
FINAL POLICY DATE 01/01/1999
</TABLE>
BENEFITS
Flexible premium variable life insurance
Initial Face Amount $50,000
This Policy provides life insurance coverage on the Insured until the final
policy date, provided the Net Cash Surrender Value is sufficient to cover the
deductions for the cost to that date of the benefits of this Policy and of any
<PAGE> 3
riders. You may have to pay more than the premiums shown below to keep this
Policy and coverage in force to that date, and to keep any additional riders in
force.
MINIMUM INITIAL PREMIUM -
PLANNED PERIODIC PREMIUM -
MINIMUM ANNUAL PREMIUM -
MINIMUM FACE AMOUNT - $50,000
MINIMUM PAYMENT - $20.00
PARTIAL WITHDRAWAL - MINIMUM AMOUNT $1,500.00
TRANSFERS - MINIMUM AMOUNT $1,000.00
POLICY LOAN - FIXED 5% POLICY LOAN INTEREST RATE
MINIMUM LOAN AMOUNT $500.00
POLICY SCHEDULE
(Continued)
POLICY NUMBER: 9,000,000
EXPENSE CHARGES
PREMIUM EXPENSE CHARGE
CONSISTS OF THE FOLLOWING:
A Premium Tax Charge of 2% will be deducted from each premium payment for
state and local premium taxes. We reserve the right to change this percentage if
the applicable law changes or the insured's residence changes.
A percent of premium charge not exceeding 3% will be deducted from each premium
payment.
INITIAL ADMINISTRATIVE CHARGE:
$5.00 deducted monthly from the Policy Account Value on the first 12 policy
processing days.
MONTHLY ADMINISTRATIVE CHARGE:
$7.50 deducted monthly from the Policy Account Value. We reserve the right to
increase this charge, but it will not be greater than $12.00 a month.
FOR PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE:
$25.00 deducted from the Policy Account Value whenever you make a partial
withdrawal.
FOR AN INCREASE IN FACE AMOUNT
$100.00 plus $.50 per $1,000 of increase in face amount, but not greater than
$750.00, deducted from the Policy Account Value. We reserve the right to
increase this charge, but it will not be greater than $100.00 plus $3.00 per
$1,000.
<PAGE> 4
FOR TRANSFERS
After the first four transfers of amounts among your investment options during a
Policy Year, we will charge $25.00 for each additional transfer during that
Policy Year.
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
SURRENDER CHARGES
If this Policy is surrendered or lapses during the first 12 Policy Years, we
will deduct a Surrender Charge from the Policy Account Value in determining its
Net Cash Surrender Value. The Surrender Charge consists of Deferred
Administrative Charge and the Deferred Sales Charge.
The Deferred Administrative Charge at any time during the policy year is the
amount shown in the table below for that year, less the amount of any pro rata
Deferred Administrative Charge previously paid under this Policy.
The Deferred Sales Charge at any time during the Policy Year is equal to (A)
minus (B) where: (A) is the lesser of: (1) the maximum charge shown in the table
below for that year; or (2) an amount equal to 35% of all premium payments paid
to such time; and (B) is the amount of any pro rata Deferred Sales Charge
previously paid under this Policy.
If the Face Amount of this Policy is decreased at any time during the first 12
Policy Years, a pro rata share of the Surrender Charge will be deducted.
If the Face Amount of this Policy is increased at any time, and within 12 years
of the effective date of such increase you decrease the Face Amount or surrender
this Policy, a Deferred Administrative Charge and Deferred Additional Sales
Charge will be deducted.
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
Guaranteed monthly cost of insurance rates per 1,000 of net amount at risk.
DEFINITIONS
Attained Age. The Issue Age of the Insured plus the number of full years since
the Policy Date.
Cash Surrender Value. The Policy Account Value minus any applicable Surrender
Charges.
Insurance Proceeds. The net amount to be paid to the Beneficiary when the
Insured dies. (See Amount of Insurance Proceeds provision.)
<PAGE> 5
Insured. The person named as the Insured on the first page. He or she need not
be the Owner.
Loan Account. The account to which we transfer the amount of any policy loan
from the Separate Accounts and Guaranteed Account.
Minimum Guarantee Premium. The Minimum Annual Premium multiplied by the number
of months since the Policy Date, including the current month, divided by 12.
Net Cash Surrender Value. The Policy Account Value minus any applicable
Surrender Charges, minus any outstanding policy loans and accrued interest.
Net Premium. The remainder of a premium after deduction of the Premium Expense
Charge.
Policy Account Value. The sum of this Policy's values in the Separate Accounts,
the Guaranteed Account and the Loan Account.
Policy Anniversary. The same day and month as the Policy Date in each later
year.
Policy Processing Day. The day in each calendar month which is the same day of
the month as the Policy Date. The first Policy Processing Day is the Policy
Date.
Policy Year. A year that starts on the Policy Date or on a Policy Anniversary.
We, Our, Us and Company. Provident Mutual Life Insurance Company, a Pennsylvania
Corporation.
You and Your. The Owner of this Policy.
GENERAL PROVISIONS
THE CONTRACT. This Policy is issued in consideration of payment of the Minimum
Initial Premium shown in the Policy Schedule. This Policy and the initial
Application, a copy of which is attached, and all subsequent Applications to
change the Policy and all additional Policy Schedule pages added to this Policy,
form the whole contract. We assume that all statements in the applications were
made to the best of the knowledge and belief of the person(s) who made them; in
the absence of fraud, they are assumed to be representations and not warranties.
We relied on those statements when we issued or changed this Policy. We will not
use any statement, unless made in the Applications, to void this Policy or to
deny a claim.
POLICY MODIFICATIONS. Only the President or a Vice President of the Company may
agree to modify this Policy, and then only in writing.
SUICIDE EXCLUSION. If the Insured, whether sane or insane, dies by suicide
within two years from the Policy Issue Date, our payment will be limited to the
sum of premiums paid, minus any loan and loan interest and any partial
withdrawals of Net Cash Surrender Value. If the Insured, whether sane or insane,
dies by suicide within two years of the Effective Date of a policy change which
increases the Death Benefit, our payment with respect to such increase will be
limited to the sum of the monthly deductions for the cost of insurance
attributable to such increase and the expense charge for the increase in Face
Amount deducted from the Policy Account Value.
<PAGE> 6
MISSTATEMENT OF AGE OR SEX. If the Insured's stated age or sex is not correct,
the Death Benefit and any benefits provided by riders to this Policy shall be
those which would be purchased by the most recent deduction for the cost of
insurance and the cost of any benefits provided by such riders, at the correct
age and sex. There is no adjustment to the Policy Account Value at that time.
INCONTESTABILITY. We have the right to contest the validity of this Policy based
on material misstatements made in the initial Application for this Policy. We
also have a right to contest the validity of any policy change based on material
misstatements made in any Application for that change. However, we will not
contest this Policy after it has been in force during the Insured's lifetime for
two years from the Policy Issue Date, except for nonpayment of the Minimum
Initial Premium. We will not contest any policy change that requires evidence of
insurability, or any reinstatement of this Policy, after such change or
reinstatement has been in effect for two years during the Insured's lifetime.
See any supplementary benefit riders for modifications that apply to them.
PERIODIC REPORT. At least once a year we will send you a report for this Policy.
It will show: (1) the current Death Benefit; (2) the current Policy Account
Value; (3) the Guaranteed Account Value; (4) the Loan Account Value; (5) the
value in each Separate Account; (6) premiums paid since the last report; (7)
charges deducted since the last report; (8) any partial withdrawals of Net Cash
Surrender Value since the last report; (9) any policy loans and accrued
interest; (10) the current Net Cash Surrender Value; (11) any other information
that may be required when and where this Policy is delivered.
You may ask for a similar report at some other time. We have the right to make a
reasonable charge for the reports that you ask for, and to limit the scope and
frequency of such reports.
PAYMENTS. We will usually pay any amounts payable as a result of surrender,
partial withdrawal or policy loan within 7 days after we receive your written
request at our Service Center in a form satisfactory to us. We will usually pay
the Insurance Proceeds within 7 days after we receive proof of the Insured's
death at our Service Center and all other requirements deemed necessary are met.
However, payment may be postponed if we are not able to sell securities or
determine the value of the assets of the Separate Accounts because:
* the New York Stock Exchange is closed;
* the Securities and Exchange Commission (SEC) requires trading to be restricted
or declares an emergency; or
* the SEC by order permits us to defer payments for the protection of Policy
Owners.
As to amounts allocated to the Guaranteed Account, we may defer payment of any
withdrawal or surrender of Net Cash Surrender Value and the making of a loan for
up to six months after we receive your written request at our Service Center.
We will allow interest, at a rate of 3% a year, on any payment we defer for 30
days or more under this provision.
POLICY CHANGES - TAX CONSIDERATIONS. In order to receive the tax treatment
accorded to life insurance under federal tax laws, this Policy must qualify and
continue to qualify as life insurance under the Internal Revenue Code. We
reserve the right to decline to accept a premium payment, to decline to change
<PAGE> 7
the Death Benefit Option, or to decline a partial withdrawal which would cause
this Policy to fail to qualify as life insurance under the applicable tax law,
as interpreted by us. We also reserve the right to make changes in this Policy
or to riders or to make distributions from this Policy to the extent we deem
such to be necessary for this Policy to continue to qualify as life insurance.
Such changes will apply uniformly to all affected policies. You will receive
advance written notification of such changes.
CHANGES IN POLICY COST FACTORS. Changes in credited interest rates, cost of
insurance charges, Percent of Premium Charge, mortality and expense risk
charges, and Monthly Administrative Charges will be by class and will be based
upon changes in future expectations for such factors as:
* investment earnings;
* mortality;
* persistency;
* expenses; and
* taxes.
Any change will be determined in accordance with the procedures and standards on
file, if required, with the insurance supervisory official of the state in which
this Policy is delivered.
POLICY ILLUSTRATIONS. Upon request, we will provide an illustration of the
future benefits under this Policy. We reserve the right to charge a reasonable
fee for this service if you request more than one policy illustration during a
Policy Year.
POLICY OWNER AND BENEFICIARY PROVISIONS
OWNERSHIP. Unless otherwise stated in the Application or later changed, the
Owner of this Policy is the Insured. While the Insured is living, the Owner
alone is entitled to exercise any right and privilege granted by this Policy or
by us. If the Insured is living on the Final Policy Date shown in the Policy
Schedule and while this Policy is in force, we will pay you, the Owner, the
Policy Account Value on that date, less any outstanding policy loan and accrued
loan interest. This Policy will then end. If you are not the Insured and you die
while the Insured is still living, all rights will vest in your estate, unless
otherwise provided.
BENEFICIARY. The Beneficiary is entitled to the Insurance Proceeds under this
Policy. The Beneficiary is as stated in the Application, unless later changed.
when a Beneficiary is designated, any relationship shown is to the Insured,
unless otherwise stated. If two or more persons are named, those surviving the
Insured will share the Insurance Proceeds equally, unless otherwise stated. If
none of the persons named survives the Insured, we will pay the Insurance
Proceeds in one sum to the Insured's estate.
PROTECTION OF PROCEEDS. No Beneficiary may commute, encumber or alienate any
payments under this Policy before they are due. No payments shall be subject to
the debts, contract or engagements of any Beneficiary nor to any judicial
process to levy upon or attach the same for payment of such debts.
CHANGES. While the Insured is living, you may change the Owner or Beneficiary by
written notice in a form satisfactory to us. The change will take effect on the
date you sign the notice, except that it will not apply to any payment or other
action we take before we receive the notice at our Service Center. If you
<PAGE> 8
change the Beneficiary, any previous arrangement you made under the Payment
Options provision is cancelled.
ASSIGNMENT. You may assign this Policy but we will not be bound by any
assignment unless it is in writing and we have received it at our Service enter.
Your rights and those of any other person referred to in this Policy will be
subject to the assignment. We assume no responsibility for the validity of any
assignments.
CREDITOR CLAIMS. To the extent permitted by applicable laws, no right or benefit
under this Policy shall be subject to claims of creditors, except as may be
provided by an Assignment.
DEATH BENEFIT PROVISIONS
If the Insured dies while this Policy is in force, we will pay the Insurance
Proceeds to the Beneficiary when we receive: (1) proof that the Insured died
before the Final Policy Date; and (2) all other requirements deemed necessary to
make payment.
DEATH BENEFIT. The Death Benefit will be determined under either Option A or
Option B below, whichever you have chosen and is in effect at such time.
Under either Option, the duration of insurance coverage depends upon your Net
Cash Surrender Value.
Option A. Under Option A, the Death Benefit is the greater of the Face Amount
of insurance, or a percentage of the Policy Account Value on the date of death
(see Table of Percentages, below). Under this Option, the amount of the Death
Benefit is fixed, unless it is determined by such a percentage.
Option B. Under Option B, the Death Benefit is the greater of the Face Amount of
insurance plus the Policy Account Value on the date of death, or a percentage of
the Policy Account Value on the date of death (see Table of Percentages, below).
Under this Option, the amount of the Death Benefit is variable.
Table of Percentages. The following table is used in determining the Death
Benefit under Option A and Option B above. For Attained Ages not shown, the
applicable percentages shall decrease by a ratable portion for each full year.
<TABLE>
<CAPTION>
Attained Age Percentage
<S> <C>
0 through 40 250%
45 215%
50 185%
55 150%
60 130%
65 120%
70 115%
75 through 90 105%
95 through 99 100%
</TABLE>
AMOUNT OF INSURANCE PROCEEDS. The Insurance Proceeds will be determined as of
the date of the Insured's death and will be equal to:
* the Death Benefit described above;
* plus any additional benefits due under a supplementary benefit rider attached
to this Policy;
<PAGE> 9
* less any loan and accrued loan interest on this Policy;
* less any overdue deductions if the death of the Insured occurs during the
Grace Period.
PAYMENT OF INSURANCE PROCEEDS. We will pay the Insurance Proceeds to the
Beneficiary in a lump sum, unless a Payment Option has been selected. If the
proceeds are payable in a lump sum, we will add interest to the amount of such
proceeds for the period from the date of death to the date of payment. The
amount of interest will be computed at the yearly rate of 3% or any higher rate
declared by us or required by law.
CHANGING THE FACE AMOUNT OF INSURANCE OR DEATH BENEFIT OPTION. During the first
Policy Year, the Death Benefit Option and the Face Amount of insurance will be
as selected at the time of application, as shown in the Policy Schedule.
After the first Policy Year while this Policy is in force, you may change the
Death Benefit Option or the Face Amount, except in the 12-month period following
a Face Amount increase. Any change will be effective as of the Policy processing
Day that coincides with or next follows the date we approve your written
request, provided we have received the premium required for the change. You may
request a change by completing an application for change. A copy of such
application will be attached to new Policy Schedule pages which will be issued
when the change is approved. The application for change and new Policy Schedule
pages will become a part of this Policy. We may require you to return this
Policy to make a change.
Face Amount Increase. You may request a Face Amount increase subject to the
following:
* you must provide evidence satisfactory to us of the Insured's insurability;
* the Insured's Attained Age must be 75 years or less;
* you may not have increased the Face Amount in the prior 12-month period;
* the Face Amount increase must be for at least $25,000.
We will deduct the expense charge for an increase in Face Amount shown in the
Policy Schedule from the Policy Account Value as of the effective date of the
increase. The deduction will be made in accordance with the allocation schedule
for monthly deductions in effect at such time.
You may cancel an increase in Face Amount and receive a refund by giving us
written notice no later than: (a) 10 days after you receive the new Policy
Schedule pages reflecting the increase; or (b) 45 days after you signed the
application for the increase. The amount of the refund will be equal to the
monthly deductions for such increase plus the expense charge for the increase in
Face Amount shown in the Policy Schedule. If you cancel the increase but do not
request a refund, we will add the refund to the Policy Account Value. This
amount will be allocated in the same proportion as it was deducted. Any premium
payment made after the increase will not be refunded.
Conversion Privilege for Increase. You have the right once during the first two
years following the Effective Date of an increase in Face Amount to convert the
increase in Face Amount and receive a life insurance policy that provides for
fixed benefits. No evidence of insurability will be required. The new policy
will have the same Face Amount and Issue Date as the amount and Effective Date
of the increase. Premiums for the new policy will be based on our rates in
effect for the same Attained Age, Sex, and Premium Class of the Insured as of
the Effective Date of the increase. A refund will be made equal to the monthly
<PAGE> 10
deductions for such increase plus the expense charge for the increase shown in
the Policy Schedule.
Face Amount Decrease. You may request a Face Amount decrease provided:
* the Face Amount of the Policy after the decrease is not less than the minimum
amount shown in the Policy Schedule;
* the amount of the decrease is for at least $25,000;
* you may not have increased the Face Amount in the prior 12-month period;
* if the decrease is made during the first 12 Policy Years, or within 12 years
following the effective date of a Face Amount increase, we will deduct a pro
rata share of any applicable Surrender Charges from the Policy Account Value.
a decrease in the Face Amount will reduce this Policy's Face Amount in the
following order:
* the Face Amount attributable to the most recent Face Amount increase;
* the Face Amount attributable to the next most recent Face Amount increases,
successively;
* the Initial Face Amount.
Change From Death Benefit Option A to Option B. If you request a change from
Option A to Option B, we will decrease the Face Amount by the Policy Account
Value as of the date of change. We reserve the right to decline to make such a
change if it would reduce the Face Amount below the minimum amount for which we
would then issue this Policy under our rules.
Change From Death Benefit Option B to Option A. If you request a change from
Option B to Option A, we will increase the Face Amount by the Policy Account
Value on the date of change.
The decreases and increases in Face Amount described above in connection with
changes in the Death Benefit Option are made so the Death Benefit remains the
same on the date of change. We do not require evidence of insurability, nor do
we deduct a Surrender Charge or the Expense Charge to increase the Face Amount
for such changes.
Tax considerations. We reserve the right to refuse to make a policy change if
such would cause this Policy to fail to qualify as life insurance under
applicable laws, as interpreted by us.
PREMIUM PAYMENT PROVISIONS
The Minimum Initial Premium shown in the Policy Schedule is due on or before the
date the Policy is delivered. No insurance will take effect until the Minimum
Initial Premium is paid, while the health and other conditions of the Insured
stay the same as described in the Application for this Policy. Prior to the
Final Policy Date and while this Policy is in force you may make additional
premium payments at any time and in any amount (subject to certain limits
described below). We intend to send premium reminder notices to you for the
Planned Periodic Premium shown in the Policy Schedule, unless at the time of
application or later you request in writing that such notices not be sent. You
do not need to pay the Planned Periodic Premiums and may change their frequency
and amount subject to the limits described below. (However, see Grace Period.)
LIMITS FOR PREMIUM PAYMENTS. Each premium payment after the initial one must be
for at least the Minimum Payment amount shown in the Policy Schedule. We may
increase this minimum amount upon 90 days written notice to you of such
increase. This minimum amount will not exceed $500.
<PAGE> 11
We reserve the right not to accept any portion of premium payments during a
Policy Year if we determine that such portion would cause this Policy to fail to
qualify as life insurance under applicable tax laws, as interpreted by us.
We reserve the right to limit the amount of any premium payment if it increases
the Death Benefit more than it increases the Policy Account Value unless you
provide evidence of the Insured's insurability satisfactory to us.
GRACE PERIOD. During the first five Policy Years, the duration of the insurance
coverage under this Policy depends, in part, upon whether the Net Cash Surrender
Value is sufficient to cover the monthly deductions. If the Net Cash Surrender
Value is not sufficient, we will determine if the Minimum Guarantee Premium has
been paid. If the Net Cash Surrender Value is not sufficient and the sum of the
premiums paid less any loans and partial withdrawals does not equal or exceed
the Minimum Guarantee Premium, the Grace Period described below will begin.
After the first five Policy Years, the duration of the insurance coverage under
this Policy depends solely upon whether the Net Cash Surrender Value is
sufficient to cover the monthly deductions.
If the Net Cash Surrender Value at the beginning of any policy month is less
than the deductions for that month (and during the first five Policy Years, the
Minimum Guarantee Premium has not been paid), we will send written notice to you
and any assignee of record stating that a Grace Period of 61 days has begun,
starting on the date we mail such notice. The notice will indicate an amount
equal to three monthly deductions. If we do not receive payment of such amount
before the end of the Grace Period, we will withdraw the Policy Account Value
including any applicable Surrender Charge and send you and any assignee of
record written notice that the Policy has lapsed without value.
If the Insured dies during the Grace Period, we will pay the Insurance Proceeds.
REINSTATEMENT. If this Policy has lapsed without value, you may reinstate it
while the Insured is alive if you:
* apply for reinstatement within three years after the end of the Grace Period;
* provide evidence of the Insured's insurability satisfactory to us; and
* make a premium payment of an amount sufficient to keep the Policy in force for
at least three months after the date of reinstatement.
The Effective Date of the reinstated Policy will be the Policy Processing Day,
which coincides with or next follows the date we approve the reinstatement
application.
PREMIUM EXPENSE CHARGE
The Premium Expense Charge consists of the following:
* Premium Tax Charge; and
* Percent of Premium Charge.
The Premium Expense Charge will be deducted from any premiums paid and the
amount remaining will be the Net Premium. The amounts of these charges are shown
in the Policy Schedule.
THE SEPARATE ACCOUNTS
<PAGE> 12
Separate Accounts will be used to support the operation of this Policy and to
support other variable life insurance policies. We will not allocate assets to
the Separate Accounts to support the operation of any contracts or policies that
are not variable life insurance.
The term "Separate Account" as used in this Policy includes any subaccount of a
Separate Account.
We own the assets in the Separate Accounts. However, these assets are not part
of our General Account. Income, gains and losses, whether or not realized, from
assets allocated to a Separate Account will be credited to or charged against
the account without regard to our other income, gains or losses.
The Separate Accounts will invest in shares or units of their respective
portfolios or series. The Separate Accounts are collectively treated as a unit
investment trust under federal securities laws. They are registered with the
Securities and Exchange Commission (SEC) according to the Investment Company Act
of 1940 (1940 Act).
The Separate Accounts are subject to the laws of the Commonwealth of
Pennsylvania which regulate the operations of insurance companies incorporated
in Pennsylvania. The investment policies of the Separate Accounts will not be
changed without the approval of the Pennsylvania Commissioner of Insurance. The
approval process has been filed with the insurance supervisory official of the
state in which this Policy is delivered.
We have the right, subject to compliance with applicable laws, to make additions
to, deletions from, or substitutions for, the shares or units of an investment
company that are held by the Separate Account or that the Separate Accounts may
purchase. We reserve the right to eliminate the shares or units of an eligible
portfolio or series, and to substitute shares or units of another portfolio or
series, or another fund, if the shares or units of the portfolio or series are
no longer available for investments, or if in our judgement further investment
in the portfolio or series should become inappropriate in view of the purposes
of the Separate Account. In the event of any substitution or change, we may,
subject to your written approval and by appropriate endorsement, make such
changes in this and other policies as may be necessary or appropriate to reflect
the substitution or change.
We also reserve the right to transfer assets of a Separate Account, which we
determine to be associated with the class of policies to which this Policy
belongs, to another Separate Account. If this type of transfer is made, the
Separate Account specified in this Policy shall then refer to the Separate
Account to which the assets were transferred.
The Policy Owner will share only in the income, gains, and losses of the
particular Separate Accounts to which your Net Premium payments have been
allocated or to which portions of the Policy Account Value have been
transferred.
That portion of the assets of the Separate Accounts which equals the reserves or
other policy liabilities of the policies which are supported by the Separate
Accounts will not be charged with liabilities arising from any other business we
conduct. We have the right to transfer to our General Account any assets of the
Separate Accounts which are in excess of such reserves and other policy
liabilities.
<PAGE> 13
When permitted by law, we also reserve the right:
* to create additional Separate Accounts; to create subaccounts from, or combine
or remove subaccounts from, Separate Accounts; or to combine any two or more
Separate Accounts;
* to operate any one or more of the Separate Accounts as a management investment
company under the 1940 Act or in any other form permitted by law;
* to deregister the unit investment trusts under the 1940 Act;
* to modify the provisions of this Policy to comply with applicable laws;
* to restrict or eliminate any voting rights of policyholders or other persons
who have voting rights as to the Separate Accounts.
We will value the assets of the Separate Accounts on each business day.
If you object to a material change in the investment policy of a Separate
Account in which you have at such time a portion of the Policy Account Value,
you may transfer such portion of the Policy Account Value, upon written request,
from that Separate Account, without charge, to another Separate Account or to
the Guaranteed Account. You may then change your premium and deduction
allocation percentages.
POLICY ACCOUNT VALUE: ALLOCATIONS AND TRANSFERS
The Policy Account Value for this Policy is based on the policy values in the
Separate Accounts, Guaranteed Account, and the Loan Account to which you have:
allocated Net Premiums; transferred account values; and allocated monthly
deductions. Each allocation percentage must be a whole number.
ALLOCATION OF NET PREMIUMS. Net Premiums will be allocated to the Separate
Accounts and the Guaranteed Account on the date we receive such premium payment.
The allocation will be based on the premium allocation percentages then in
effect. The percentage chosen by you at the time of application will apply until
you notify us in writing of a new allocation schedule for premium payments.
ALLOCATION FOR MONTHLY DEDUCTIONS. Monthly Deductions will be allocated to the
Separate Accounts and Guaranteed Account based on the allocation percentages
chosen by you at the time of application or as later changed by written request
to us. If we cannot make a monthly deduction on the basis of the allocation
schedule then in effect, we will make such deduction and future deductions based
on the proportion that your Guaranteed Account Value and the value in your
Separate Accounts bear to the total unloaned Policy Account Value.
TRANSFERS. We will allow you to make twelve transfers in a Policy Year without
charge. We will make a charge for additional transfers in such Policy Year. The
maximum charge is shown in the Policy Schedule. The transfer charge will be
deducted from the amount being transferred.
Transfers From Separate Accounts. You may ask us to transfer all or part of the
amount in one of the Separate Accounts to another Separate Account or to the
Guaranteed Account. The minimum amount for such transfer is the lesser of the
amount shown in the Policy Schedule or the entire value of the Separate Account.
The transfer will be made as of the date we receive your written request at our
Service Center.
Transfers From Guaranteed Account. Within 30 days prior to or following any
Policy Anniversary you may ask us to make one transfer for up to 25% of your
Guaranteed Account Value to any of the Separate Accounts. The minimum amount
<PAGE> 14
for such transfer is the lesser of the amount shown in the Policy Schedule or
your Guaranteed Account Value on such Policy Anniversary. The date of transfer
will be as of the Policy Anniversary if your written request is received prior
to the Policy Anniversary; if your written request is received after the Policy
Anniversary, the transfer will be made as of the date we receive your request at
our Service Center.
Special Transfer Right. During the first two years following the Policy Issue
Date, you may request one transfer of the entire Policy Account Value in the
Separate Accounts to the Guaranteed Account. This request will not count towards
the twelve free transfers in a Policy Year and is not subject to a transfer
charge.
CALCULATION OF VALUES
BASIS OF CALCULATION. Minimum cash surrender values and maximum cost of
insurance rates are based on the Commissioners 1980 Standard Ordinary Smoker and
Nonsmoker Mortality Table for the sex and premium class of the Insured. Cash
surrender values are at least equal to those required by law. Reserves are
computed by the Commissioners Reserve Valuation Method. A detailed statement of
how we calculate the values for this Policy has been filed with the insurance
supervisory official of the state in which this Policy is delivered.
CALCULATION OF VALUE OF SEPARATE ACCOUNTS. The Policy Account Value in a
Separate Account at any time is equal to the number of units this Policy then
has in that Separate Account multiplied by the Separate Account's unit value at
that time.
Amounts allocated, transferred, or added to a Separate Account are used to
purchase units of that Separate Account; units are redeemed when amounts are
deducted, transferred or withdrawn. The number of units in a Separate Account at
any time is equal to the number of units purchased minus the number of units
redeemed up to such time.
The unit value of a Separate Account on any Valuation Day is equal to the unit
value for that Separate Account on the immediately preceding Valuation Day
multiplied by the Net Investment Factor for that Separate Account on that
Valuation Day.
VALUATION DAY AND PERIOD. Assets are valued at the close of a Valuation Day. A
Valuation Day is each day that the New York Stock Exchange is open for business
and any other day in which there is a sufficient degree of trading of the
Separate Account's portfolio of securities to materially affect the value of a
Separate Account.
A Valuation Period is the time between two successive Valuation Days. Each
Valuation Period includes a Valuation Day and any non-Valuation Day or
consecutive non-Valuation Days immediately preceding it.
NET INVESTMENT FACTOR. Each Separate Account has its own Net Investment Factor.
The Net Investment Factor of the Separate Account for a Valuation Period is (a)
divided by (b) minus (c), where:
(a) is:
(1) the value of the assets in the Separate Account for the preceding Valuation
Period; plus
<PAGE> 15
(2) the investment income and capital gains, realized or unrealized, credited to
those assets during the Valuation Period for which the Net Investment Factor is
being determined; minus
(3) the capital losses, realized or unrealized, charged against those assets
during the Valuation Period; minus
(4) any amount charged against the Separate Account for taxes, or any amount we
set aside during the Valuation Period as a reserve for taxes attributable to the
operation or maintenance of the Separate Account; and
(b) is the value of the assets in the preceding Valuation Period; and
(c) is a charge no greater than 0.90% per year (0.002465753% for each day in the
Valuation Period) for mortality and expense risks.
We will value the assets in the Separate Accounts at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
ADDITIONAL SEPARATE ACCOUNTS CREDIT. On each Policy Processing Day, an
additional credit may be added to each Separate Account after the Policy has
been in force for at least 15 years or when the values in the Separate Account
and Guaranteed Account equals or exceeds $100,000. The credit will be equal to
0.03% multiplied by the value in each Separate Account. The additional credit is
a result of a reduction in the mortality and expense risk charge.
CALCULATION OF GUARANTEED ACCOUNT VALUE. The Guaranteed Account Value at any
time is equal to the amounts allocated and transferred to it plus interest
credited to it, minus amounts deducted, transferred and withdrawn from it.
Amounts deducted, transferred, or withdrawn will be on a last in, first out
basis.
We will credit the Guaranteed Account Value with interest at effective annual
rates we determine. These rates will not be less than 4%. For the amount in the
Guaranteed Account at the beginning of a calendar year, we will determine such
interest rates in advance of each calendar year. Such rates will apply to the
calendar year which follows the date of determination. For amounts allocated or
transferred to the Guaranteed Account during a calendar year, we will determine
such interest rates in advance of the date such amount is received or
transferred. Such rates will apply to the end of the calendar year in which the
payment is received or the transfer is made.
Interest will be credited on each Policy Processing Day as follows:
For amounts in the Guaranteed Account for the entire prior policy month, from
the beginning to the end of such policy month;
For amounts allocated to the Guaranteed Account during the prior policy month,
from the date we allocate a Net Premium to the Guaranteed Account or receive a
loan repayment to the end of the policy month;
For amounts transferred to the Guaranteed Account during the prior policy month,
from the date of transfer to the end of the policy month;
For amounts deducted or withdrawn from the Guaranteed Account during the prior
policy month, from the beginning of the prior policy month to the date of
deduction or withdrawal.
MONTHLY DEDUCTIONS. On each Policy Processing Day, beginning on the Policy Date,
we will deduct the following charges from the Policy Account Value:
<PAGE> 16
1. The Monthly Administrative Charge shown in the Policy Schedule;
2. On the first 12 Policy Processing Days, the Initial Administrative Charge
shown in the Policy Schedule;
3. The monthly cost of any benefits provided by rider to this Policy, in
accordance with such rider;
4. The monthly cost of insurance charge, as described below, and in accordance
with provisions in any rider attached to this Policy.
The monthly cost of insurance charge is: (a) multiplied by the result of (b)
minus (c):
a. is the current monthly cost of insurance rate per $1000 divided by 1000;
b. and the result of (b) minus (c) is the net amount at risk where:
c. is your current Death Benefit; and
d. is your Policy Account Value (after other deductions but before cost of
insurance).
The cost of insurance rates are based on the Insured's Attained Age, Sex,
Premium Class and duration. For the Initial Face Amount, we will use the Premium
Class as of the Policy Issue Date. For each Face Amount increase, we will use
the Premium Class and duration applicable to the increase. Current cost of
insurance rates will be determined by the Company based on our expectations as
to future mortality costs and expenses. However, these rates will never exceed
those shown in the Table of Guaranteed Maximum Cost of Insurance Rates Per $1000
of Net Amount At Risk shown in the Policy Schedule. If Death Benefit Option A is
in effect and there have been Face Amount increases, the Policy Account Value
will first be considered as part of the Initial Face Amount. If the Policy
Account Value exceeds the Initial Face Amount, it will be considered as a part
of the increases in Face Amount in the order of such increases.
OTHER DEDUCTIONS. We also make the following other deductions from the Policy
Account Value as they occur:
1. Charge for partial withdrawal of Net Cash Surrender Value;
2. Surrender charges if during the first 12 Policy Years or within 12 years of
the effective date of an increase in Face Amount, you surrender this policy for
its Net Cash Surrender Value, reduce the Face Amount of insurance, or this
policy lapses at the end of a Grace Period;
3. Charge to increase the Face Amount of insurance;
4. Charge for certain transfers of the Policy Account Value.
SURRENDERS AND WITHDRAWALS
SURRENDER FOR NET CASH SURRENDER VALUE. You may surrender this Policy for its
Net Cash Surrender Value at any time while the Insured is living. The Net Cash
Surrender Value of this Policy at any time is equal to the Policy Account Value
on such date less any Surrender Charge and any Additional Surrender Charge, less
any outstanding policy loan and accrued interest. We will determine the Net Cash
Surrender Value on the date we receive your signed written surrender request at
our Service Center. Coverage under this Policy will end on the date you send the
surrender request to us.
SURRENDER CHARGE. If you surrender this Policy for its Net Cash Surrender Value
during the first 12 Policy Years, or if this Policy lapses during the first 12
Policy Years, we will deduct a Surrender Charge from the Policy Account Value.
This Surrender Charge has two parts: the Deferred Administrative Charge and the
<PAGE> 17
Deferred Sales Charge. The amounts of such charges are shown in the Policy
Schedule.
If you request a reduction in the Initial Face Amount during any of the first 12
Policy Years, we will deduct a pro rata Surrender Charge from the Policy Account
Value as of the effective date of such reduction. The amount of such pro rata
Surrender Charge will be the Surrender Charge multiplied by the amount of the
reduction in the Initial Face Amount divided by the Initial Face Amount as of
the effective date of such reduction.
We will allocate the pro rata Surrender Charge based on the proportion that your
Guaranteed Account Value and the value in your Separate Accounts bear to the
total unloaned Policy Account Value.
ADDITIONAL SURRENDER CHARGE. If you surrender this Policy for its Net Cash
Surrender Value within 12 years of the effective date of an increase in Face
Amount or if this policy lapses within 12 years of the effective date of an
increase in Face Amount, we will deduct an Additional Surrender Charge from the
Policy Account Value. The Additional Surrender Charge has two parts: the
Deferred Additional Administrative Charge and the Deferred Additional Sales
Charge. The amount of such charge or charges will be shown in the Policy
Schedule pages issued when you increase the Face Amount.
If you request a reduction in Face Amount within 12 years of the effective date
of a Face Amount increase, we will deduct a pro rata Additional Surrender Charge
from the Policy Account Value as of the effective date of such reduction. The
amount of such pro rata Additional Surrender Charge will be the Additional
Surrender Charge applicable to the Face Amount increase multiplied by the amount
of reduction in the Face Amount increase divided by the amount of the Face
Amount increase as of the effective date of such reduction.
We will allocate the pro rata Additional Surrender Charge based on the
proportion that your Guaranteed Account Value and the value in your Separate
Accounts bear to the total unloaned Policy Account Value.
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE. After the first Policy Year, you
may make a written request for a partial withdrawal of the Net Cash Surrender
Value, subject to the restrictions below and the minimum amount shown in the
Policy Schedule. As of the date we receive your request at our Service Center,
we will reduce the Policy Account Value by the amount withdrawn plus the expense
charge for a partial withdrawal shown in the Policy Schedule. If Death Benefit
Option A is in effect, we will reduce the Face Amount by such amount.
We will allocate the withdrawal and expense charge based on the proportion that
your Guaranteed Account Value and the value in your Separate Accounts bear to
the total unloaned Policy Account Value or to the specified Separate Accounts
based on the percentages you specify at the time of your withdrawal.
We reserve the right to decline your withdrawal request if: the Face Amount
would be reduced below the minimum amount for which we would then issue this
Policy under our rules; or we determine that the withdrawal would cause this
Policy to fail to qualify as life insurance under applicable tax laws, as
interpreted by us.
If we approve your request, we will issue revised Policy Schedule pages
reflecting the changes, if any. The revised pages will become a part of this
Policy. We may require you to return the Policy to make the change.
<PAGE> 18
POLICY LOAN PROVISIONS
You may borrow from this Policy while it has a loan value. This Policy will be
the only security for the loan. Any policy loan must be for at least the minimum
amount shown in the Policy Schedule. The maximum amount which may be borrowed is
the Net Cash Surrender Value. We will allocate the loan based on the proportion
that your Guaranteed Account Value and the value of your Separate Accounts bear
to the total unloaned Policy Account Value or to the specified Separate Accounts
based on the percentages you specify at the time of your loan.
The collateral for the loan will be the loan amount plus accrued interest to the
next Policy Anniversary less interest at 4% per annum which will be earned to
such Policy Anniversary. The collateral for the loan will be deducted from each
account and transferred to the Loan Account. The collateral for any existing
loan will be recalculated: (1) when loan interest is paid or treated as part of
the loaned amount; (2) when a loan repayment is made; and (3) when a new loan is
made.
EFFECT OF LOANS. A policy loan will have a permanent effect on your benefits
under this Policy, even if it is repaid. The loan amount which is transferred to
the Loan Account will be maintained separately.
INTEREST RATE CHARGED ON LOANS. We will charge interest on loans at the fixed
yearly rate of 6%. Loan interest is due at the end of each Policy Year. If you
do not pay the interest when it is due, we will add it to the outstanding loan.
The unpaid interest will then be treated as part of the loaned amount and bear
interest at the policy loan interest rate. We will allocate the unpaid interest
based on the percentages you specified for your last loan. If the value in the
specified Separate Accounts is insufficient to allow the collateral for the
unpaid interest to be deducted or no percentages were specified by you, then we
will allocate the unpaid interest based on the proportion that your Guaranteed
Account Value and the value of your Separate Accounts bear to the total unloaned
Policy Account Value.
LOAN INTEREST CREDITED. We will credit the Loan Account with interest at an
effective annual rate we determine. This rate will not be less than 4%. We will
determine such rate in advance of each calendar year. This rate will apply to
the calendar year which follows the date of determination. Loan interest
credited will be transferred to each of your accounts: (1) when loan interest is
paid or treated as part of the loaned amount; (2) when a loan repayment is made;
and (3) when a new loan is made.
LOAN REPAYMENTS. You may repay all or part of a policy loan at any time while
the Insured is alive and this Policy is in force. We will assume that any
payments made while there is an outstanding loan on this Policy is a loan
repayment, unless you tell us, in writing, that such is a premium payment.
Repayments will first be allocated to the accounts based on the allocation of
the outstanding loan from each account as of the date of repayment. Any
repayment in excess of the amount of the outstanding loan will be allocated
based on the amount of accrued interest for the outstanding loan.
Failure to repay a loan or pay loan interest will not cause this Policy to lapse
unless the Net Cash Surrender Value on the Policy Processing Day is less than
the monthly deduction due. In that event, the Grace Period provision will apply.
<PAGE> 19
PAYMENT OPTIONS
Payments under these Options will not be affected by the investment experience
of any Separate Account after proceeds are applied under such Options.
Instead of being paid in one sum, the proceeds of this Policy may be paid under
one of the Options below.
OPTION 1 - PROCEEDS AT INTEREST. We will pay interest on the proceeds at 12, 6,
3 or 1 month intervals, as elected. The interest per interval for each $1,000 of
proceeds is shown in the table below:
<TABLE>
<CAPTION>
Interval in Months Amount of Interest
<S> <C>
12 $30.00
6 14.89
3 7.42
1 2.47
</TABLE>
OPTION 2 - INSTALLMENTS OF A SPECIFIED AMOUNT. We will pay the proceeds in equal
installments of the amount elected with our consent at 12, 6, 3, or 1 month
intervals. We will add interest on the balance of proceeds to such balance each
year. We will pay installments until the proceeds and interest are exhausted.
The last installment will be for the balance only of the proceeds and interest.
OPTION 3 - INSTALLMENTS FOR A SPECIFIED PERIOD. We will pay the proceeds in the
number of equal monthly installments certain set forth in the election. We will
base the amount of each installment on the Option 3 table. If so elected, the
installments may be paid at 12, 6 or 3 month intervals. The amount of each
installment in such case will be the product of the monthly installment and the
factor shown in the table below:
<TABLE>
<CAPTION>
Factor Applied to
Intervals in Months Monthly Installments
<S> <C>
12 11.839
6 5.963
3 2.993
</TABLE>
OPTION 4 - LIFE INCOME. We will use the proceeds to provide equal monthly
installments during the payee's life. We will pay the installments, as elected,
either without installments certain or with installments certain for 120 months,
for 240 months, or until the proceeds are refunded.
"Until the proceeds are refunded" means until the sum of the installments paid
by us equals the amount of proceeds settled under this Option. We will base the
amount of each installment on the Option 4 table.
OPTION 5 - JOINT AND SURVIVOR LIFE INCOME. We will use the proceeds to provide
equal monthly installments, with a number of installments certain, during the
joint lives of the payee and one other person and during the life of the
survivor.
We will pay the installments certain for either 120 or 240 months, as elected.
We will base the amount of each installment on the Option 5 table.
<PAGE> 20
DATE OF FIRST PAYMENT. We will make the first payment under Option 1 at the end
of the first payment interval. We will make the first payment under Option 2, 3,
4 or 5 on the date on which the Option takes effect.
INTEREST. The interest rate underlying all of the above Options is 3% per year.
Additional interest may be declared each year by us. Such additional interest
will:
1. increase the interest payment under Option 1;
2. be added to the proceeds under Option 2; or
3. increase the installments certain under Option 3, 4 or 5.
WITHDRAWAL OR COMMUTATION. If expressly provided in the election of the Option
but not otherwise, the payee will have the right to:
1. withdraw all or part of the balance of the proceeds under Option 1 or 2; or
2. take in one sum the commuted value of any balance of the installments certain
under Option 3, 4, or 5.
Partial withdrawals will be subject to our published minimum amount limits in
effect at the time the Option is elected. Such commuted value will be based on
compound interest at a yearly rate of 3%. Under Option 4 or 5, no installments
other than installments certain may be commuted.
We may defer payment of the amount withdrawn or commuted for a period not
exceeding 6 months.
SETTLEMENT AT DEATH OF PAYEE. After the death of the payee (the survivor in the
case of Option 5), we will make payment as directed in the election of the
Option. Such direction is subject to our approval.
The amount subject to such payment will be:
1. any balance of proceeds, with accrued interest, under Option 1 or 2; or
2. the value of any remaining installments certain under Option 3, 4 or 5.
Form SO-1980
SO-1980(Pg 18)
SO-1980(Pg 19)
ENDORSEMENTS
A GUIDE TO THE PROVISIONS OF THIS POLICY
Page
Allocations and Transfers
Policy Loan Provisions
Calculation of Values
<PAGE> 21
Policy Owner & Beneficiary Provisions
Death Benefit Provisions
Policy Schedule & Specifications
Definitions
Premium Expense Charge
General Provisions
Premium Payment Provisions
Payment Options
The Separate Account
Policy Description
Surrenders and Withdrawals
Flexible Premium Adjustable Variable Life Insurance Policy.
Insurance Proceeds payable upon death before Final Policy Date.
Policy Account Value payable on Final Policy Date.
Adjustable Death Benefit.
Values provided by this Policy are based on declared interest rates of the
Guaranteed and Loan Accounts and on the investment experience of the Separate
Accounts.
Non-participating
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
1050 Westlakes Drive, Berwyn, PA
<PAGE> 1
EXHIBIT 1.A.5.d.
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
CHILDREN'S TERM INSURANCE
POLICY NUMBER RIDER ISSUE DATE
The Company will pay the Death Benefit for an Insured Child to the beneficiary
specified below, upon receipt of due proof of the death of such Insured Child
while this Rider is in force, subject to the terms and conditions of this Rider.
DEATH BENEFIT. The Death Benefit on each Insured Child under this Rider is the
amount of insurance in force on that child's life on the date of death. Each
Insured Child will be covered for the same amount of insurance.
The amount of insurance on each Insured Child is shown on page 3 of the
Policy. Such insurance will cease to be in force on the Expiry Date or the
termination of this Rider, if earlier.
EXPIRY DATE. The Expiry Date of insurance under this Rider is the earlier of:
1. the Policy Anniversary nearest the Insured's 65th birthday; or
2. an Insured Child's attainment of age 25.
DEFINITIONS. "INSURED" means the person named as the Insured on page 3 of the
Policy, and does not mean an Insured Child.
"INSURED CHILD" means:
1. any child, stepchild or legally adopted child of the Insured, provided
such child is named in the application for this Rider and on the date of
such application has not reached his or her 18th birthday; and
2. any child who, after the date of such application, is:
a. born to the Insured; or
b. legally adopted by the Insured before such child's 18th birthday.
In no case, however, will any child born or adopted after the date of such
application be deemed to be an Insured Child before attaining the age of 15
days.
OWNER. The Owner of this Rider, unless otherwise provided, is:
1. the Insured, during his or her lifetime; and
2. after the death of the Insured, each surviving Insured Child, with respect
to any term insurance in force on his or her own life.
The Owner may exercise all rights granted by this Rider.
BENEFICIARY. Unless changed by the Owner, the beneficiary entitled to receive
any Death Benefit payable at the death of an Insured Child will be:
<PAGE> 2
1. the Insured, if then living; otherwise
2. the executor or administrator of such Insured Child.
The Owner of any insurance under this Rider may change the beneficiary of
such insurance by Written Request while the Owner and the Insured Child are
living. This change must be filed at our Home Office. The change will take
effect as of the date the request is signed, even if the Insured Child or the
Owner dies before the Company receives it. Each change will be subject to any
payment or other action taken by the Company before receiving the request.
Any reference in any beneficiary designation to a beneficiary living will
mean, unless otherwise provided, living at the death of the Insured Child.
PAID-UP TERM INSURANCE ON INSURED CHILD. If the Insured dies while this Rider is
in force, except as set forth in the "Suicide Exclusion" clause of this Rider,
any term insurance provided by this Rider on the life of an Insured Child will
become fully paid-up. Such insurance will continue in force without further
payment of premium until its Expiry Date.
CASH VALUE OF PAID-UP TERM INSURANCE. Any paid-up term insurance in force on the
life of the Insured Child may be surrendered upon Written Request at any time
for its cash value. The amount of cash value available will be provided on
request.
The cash value of any paid-up term insurance at the end of a Policy Year
will be the net single premium for such insurance at the Attained Age of the
Insured. The cash value will be computed on the basis of the Commissioners 1980
Standard Ordinary Mortality Table, curtate functions and interest at the yearly
rate of 4 1/2%. The cash value at any time during a Policy Year will be
determined by the Company with due allowance for the time elapsed in such year.
CONVERSION OF TERM INSURANCE AT EXPIRY. On its Expiry Date, any term insurance
in force on the life of an Insured Child may be converted, without evidence of
insurability, to a policy on the life of such Insured Child, subject to the
following:
1. Written Request must be made within the 90 day period ending on the Expiry
Date of the term insurance under this Rider.
2. The policy may be any life plan which has a level face amount and a level
premium. It must also be one which, on that date, is customarily issued by
the Company at the then Attained Age of the Insured Child and for the
amount applied.
3. The face amount of the policy on the life of an Insured Child may not be
for more than 5 times the amount of term insurance in force under this
Rider on its Expiry Date.
4. The Issue Date of the policy will be the Expiry Date of the term insurance
under this Rider. It will take effect only upon payment to the Company of
the first premium no later than such Issue Date and while the Insured
Child is still living.
5. The policy will be:
a. a life plan in use by the Company on its Issue Date;
b. at the premium rate then in use based on the age of the Insured
Child at his or her birthday nearest that date; and
c. in the standard premium classification.
6. A Rider for benefits in event of disability or accidental death may be
included in the policy only with the consent of and evidence of
insurability satisfactory to the Company.
SUICIDE EXCLUSION. If, within two years from the Rider Issue Date, an Insured
Child commits suicide, while sane or insane, the Death Benefit for such Insured
Child will not be payable. The Insured will have the option to continue coverage
under this Rider on other Insured Children, or request the return of all
premiums paid for this Rider. Any election must be made within 30 days after the
date of such Insured Child's death.
<PAGE> 3
If, within two years from the Rider Issue Date, the Insured commits
suicide, while sane or insane, the Company will refund the sum of all premiums
paid for this Rider. After such death of the Insured, this Rider and all
insurance under it will cease to be in force.
MISSTATEMENT OF AGE. If the Insured's age has been misstated, the correct age
will be used to determine the termination date of this Rider.
If the age of an Insured Child has been misstated, the correct age of such
child will be used to determine:
1. whether such child is an Insured Child; and
2. the Expiry Date of any term insurance on such child's life.
INCONTESTABILITY. The Company will not contest this Rider as to the insurance
provided on the life of any person insured under it after it has been in force
during the lifetime of such person for 2 years from the Rider Issue Date.
REINSTATEMENT. If the Policy is reinstated prior to the termination of this
Rider, this Rider may be included in the reinstated Policy:
1. upon evidence satisfactory to the Company of the insurability of each
person who would be insured under this Rider upon its reinstatement; and
2. if all past due premiums are paid with interest at the yearly rate of 6%.
Failure to furnish evidence satisfactory to the Company of the
insurability of any child will not prevent reinstatement of this Rider; however,
any child for whom such evidence is not furnished will not be covered under this
Rider upon reinstatement. Upon reinstatement there shall be no liability with
respect to the death of any Insured Child which may have occurred while the
Policy and this Rider were not in force.
COST OF RIDER. The monthly cost of this Rider is determined by the Death Benefit
divided by 1,000 multiplied by 0.52. The monthly cost will be deducted from the
Policy Account Value on each Policy Processing Day.
TERMINATION. This Rider will terminate:
1. on the first Policy Processing Day after we receive Written Request for
termination;
2. on the date of surrender or other termination of this Policy; or
3. on the Policy Anniversary nearest the Insured's 65th birthday.
No monthly deduction for the cost of this Rider will be made after
termination.
Attached by the Company on the Rider Issue Date.
President
<PAGE> 1
Exhibit 1.A.5.f.
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
DISABILITY WAIVER BENEFIT
INSURED
POLICY NUMBER RIDER ISSUE DATE
This Rider is attached to and is a part of this Policy.
WAIVER OF PREMIUM BENEFIT. Upon receipt of due proof that:
(a) the Insured is totally disabled, as defined below;
(b) such total disability begins while this rider is in effect; and
(c) such total disability has continued without pause for a period of six
months,
we will apply a premium payment to the Policy on each Policy Processing Day
during the first five Policy Years, while the Insured is totally disabled,
subject to provisions of this Policy. For each Policy Processing Day that occurs
while the Insured is totally disabled but before we approve a claim, we will
apply a premium payment to the Policy on the date we approve the claim. Each
premium payment will equal the Minimum Annual premium divided by 12.
WAIVER OF MONTHLY DEDUCTIONS BENEFIT. Upon receipt of due proof that:
(a) the Insured is totally disabled, as defined below;
(b) such total disability begins while this rider is in effect; and
(c) such total disability has continued without pause for a period of six
months,
we will waive monthly deductions falling due after the first five Policy Years
while the Insured is totally disabled, subject to the provisions of this Policy.
Except for monthly deductions made one year or more before we receive written
notice and proof of a claim, monthly deductions which are made after the first
five Policy Years while the Insured is totally disabled but before we approve a
claim, will be added back to the Policy Account Value. The amount will be
allocated to the Separate Accounts and Guaranteed Account in the same proportion
as it was deducted from such Accounts.
<PAGE> 2
DEFINITION OF TOTAL DISABILITY.
1. Total Disability. Total Disability is a disability which:
(a) is caused by sickness or bodily injury; and
(b) prevents the Insured from engaging in an occupation.
During the first 5 years of total disability, "occupation" means the
regular occupation of the Insured at the time the disability started. However,
the Insured will not be deemed totally disabled if, during this 5-year period,
he or she is engaged in any gainful occupation for which he or she is qualified.
After the first 5 years of total disability, "occupation" means any gainful
occupation for which the Insured is qualified.
As used in this Rider the word "qualified" means qualified by education,
training and experience. "Disability" means the inability of the Insured to
engage in his or her regular occupation or any gainful occupation for which he
or she is qualified.
1. Recurrent Total Disability. If, after a total disability has stopped, a total
disability due to the same or a related cause recurs, it will be deemed a
continuation of the prior period of total disability, except that: if the
Insured has engaged in the meantime, for at least 6 months without pause, in any
gainful occupation for which he or she is qualified, such recurrence will be
deemed a new period of total disability.
2. Presumptive Total Disability. Total disability also means the total and
irrecoverable loss of:
(a) the sight of both eyes;
(b) the use of both hands;
(c) the use of both feet; or
(d) the use of one hand and one foot.
NOTICE AND PROOF OF TOTAL DISABILITY. Written notice and due proof of total
disability must be given to us at our Service Center while the Insured is living
and totally disabled. Failure to give such notice and proof will not void the
claim if it is shown that they were given as soon as was reasonably possible.
We may ask for proof of continued total disability from time to time. Such proof
will not be required more than once a year after total disability has continued
for two full years. As part of any such proof, we may require medical
examinations of the Insured by physicians named by us.
EXCLUSIONS FROM COVERAGE. We will not waive monthly deductions if the total
disability was the result of:
1. intentional, self-inflicted injury while sane or insane;
2. bodily injury occurring or sickness first manifesting itself before this
Rider took effect unless such injury or sickness was shown in the application
for this Rider; or
3. service in the military, naval or air forces of any country engaged in war.
"War" means declared or undeclared war and any act incidental to war and
includes resistance to armed aggression.
COST OF RIDER. The cost of this Rider is determined on each Policy Processing
Day by multiplying the Rate Factor for the Insured's Attained Age by the net
amount at risk divided by 1,000.
If the Insured is in a Special Premium Class, the rate factor shown below will
be multiplied by the Risk Factor.
<TABLE>
<CAPTION>
ATTAINED AGE RATE FACTOR
------------ -----------
<S> <C>
15-45 .01
46-48 .02
49-50 .03
51 .04
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ATTAINED AGE RATE FACTOR
------------ -----------
<S> <C>
52 .05
53 .07
54 .09
55 .13
56 .18
57 .24
58 .32
</TABLE>
TERMINATION. This Rider will automatically terminate:
1. on the date of surrender or other termination of this Policy;
2. on the first Policy Processing Day after we receive your written request for
termination of this Rider; 3. at Insured's Attained Age 60, except for benefits
for a disability which began before that Policy Anniversary.
No monthly deduction for the cost of this Rider will be made after termination.
INCONTESTABILITY. The Company will not contest this rider after it has been in
force during the Insured's lifetime without the occurrence of total disability
for two years from the Rider Issue Date.
EFFECTIVE DATE. The Effective Date of this Rider is the Rider Issue Date shown
above.
Signed for the Company on the Rider Issue Date.
President
<PAGE> 1
Exhibit 1.A.5.g.
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
RIDER
DISABILITY WAIVER OF PREMIUM BENEFIT
INSURED POLICY NUMBER
RIDER ISSUE DATE
This Rider is attached to and is a part of this Policy.
WAIVER OF PREMIUM BENEFIT. Upon receipt of due proof that:
1. the Insured is totally disabled, as defined below;
2. such total disability begins while this rider is in effect;
3. such total disability has continued without pause for a period of 180 days;
and
4. such total disability started between Attained Age 5 and Attained Age 60;
we will apply a premium payment to the Policy on each Policy Processing Day
prior to the Policy Anniversary when the Insured reaches Attained Age 65, while
the Insured is totally disabled, subject to the provisions of this Policy. For
each Policy Processing Day that occurs while the Insured is totally disabled
but before we approve a claim, we will apply a premium payment to the Policy on
the date we approve the claim. However, no premium payment will be applied for
a Policy Processing Day that is more than one year prior to the date we receive
written notice and proof of claim. The amount of each premium payment will
equal the lesser of:
1. the Disability Premium Benefit Amount shown in the Policy Schedule; or
2. an amount equal to: the sum of all premiums paid for this Policy less any
Partial Withdrawals of Net Cash Surrender Value; divided by the number of
completed months since the Policy Date. This amount will be determined as of
the date that total disability began.
Any premium payment that would cause this Policy to fail to qualify as life
insurance under applicable tax laws, as interpreted by us, will be paid to the
Owner.
The amount of the premium payments applied may not always be sufficient to keep
this Policy in force during the period of the Insured's total disability.
REDUCTION OF DISABILITY PREMIUM BENEFIT AMOUNT. If there is a change in the
Policy Face Amount or the Death Benefit Option which reduces the guideline
annual premium, as defined in Section 7702 of the Internal Revenue Code, as
amended, we reserve the right to reduce the Disability Premium Benefit Amount
to one-twelfth of the "guideline annual premium" if it exceeds such amount.
Such reduction will only be made if the Insured is not then totally disabled.
The cost of this Rider will also be reduced at such time.
<PAGE> 2
DEFINITION OF TOTAL DISABILITY.
TOTAL DISABILITY. Total Disability is a disability which:
1. is caused by sickness or bodily injury; and
2. prevents the Insured from engaging in an occupation. During the first 5
years of total disability, "occupation" means the regular occupation of the
Insured at the time the disability started. However, the Insured will not
be deemed totally disabled if, during this 5-year period, he or she is
engaged in any gainful occupation for which he or she is qualified. After
the first 5 years of total disability, "occupation" means any gainful
occupation for which the Insured is qualified.
As used in this rider the word "qualified" means qualified by education,
training and experience. "Disability" means the inability of the Insured to
engage in his or her regular occupation or any gainful occupation for which he
or she is qualified.
RECURRENT TOTAL DISABILITY. If, after a total disability has stopped, a total
disability due to the same or a related cause recurs, it will be deemed a
continuation of the prior period of total disability, except that: if the
Insured has engaged in the meantime, for at least 6 months without pause, in
any gainful occupation for which he or she is qualified, such recurrence will
be deemed a new period of total disability.
PRESUMPTIVE TOTAL DISABILITY. Total disability also means the total and
irrecoverable loss of:
1. the sight of both eyes;
2. the use of both hands;
3. the use of both feet; or
4. the use of one hand and one foot.
NOTICE AND PROOF OF TOTAL DISABILITY. Written notice and due proof of total
disability must be given to us at our (LOCATE) while the Insured is living and
totally disabled. Failure to give such notice and proof will not void the claim
if it is shown that they were given as soon as was reasonably possible.
We may ask for proof of continued total disability from time to time. Such
proof will not be required more than once a year after total disability has
continued for two full years. As part of any such proof, we may require medical
examinations of the Insured by physicians named by us.
EXCLUSIONS FROM COVERAGE. We will not apply any premium payments if the total
disability was the result of:
1. intentional, self-inflicted injury while sane or insane;
2. bodily injury occurring or sickness first manifesting itself before this
rider took effect unless such injury or sickness was shown in the
application for this rider; or
3. service in the military, naval or air forces of any country engaged in war.
"War" means declared or undeclared war and any act incidental to war and
includes resistance to armed aggression.
COST OF RIDER. The monthly cost of this rider is shown in the Policy Schedule.
The monthly cost will be deducted from the Policy Account Value on each Policy
Processing Day.
TERMINATION. This Rider will automatically terminate:
1. on the date of surrender or other termination of this Policy;
2. on the first Policy Processing Day after we receive your written request
for termination of this Rider;
3. at Insured's Attained Age 60, except for benefits for a disability which
began before that Policy Anniversary.
No monthly deduction for the cost of this Rider will be made after termination.
<PAGE> 3
INCONTESTABILITY. The Company will not contest this Rider after it has been in
force during the Insured's lifetime without the occurrence of total disability
for two years from the Rider Issue Date.
EFFECTIVE DATE. The Effective Date of this rider is the Rider Issue Date shown
above.
Signed for the Company on the Rider Issue Date.
President
<PAGE> 1
Exhibit 3
[PROVIDENT MUTUAL LIFE INSURANCE COMPANY LETTERHEAD]
March 9, 1999
Board of Directors
Provident Mutual
Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
RE: PROVIDENT MUTUAL LIFE INSURANCE COMPANY
PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT, ET AL.
FILE NOS. 333-71763/811-4460
---------------------------------------------------------
Directors:
I have acted as legal officer to Provident Mutual Life Insurance
Company (the "Company") and Provident Mutual Variable Growth Separate Account et
al. (the "Accounts") in connection with the registration of an indefinite amount
of securities in the form of variable life insurance policies (the "Policies")
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended. I have examined such corporate records and other documents, including
pre-effective amendment number one to the Form S-6 registration statement for
the Policies (File No. 333-71763) and reviewed such questions of law as I
considered necessary and appropriate, and on the basis of such examination and
review, it is my opinion that:
1. The Company is a corporation duly organized and validly
existing as a mutual life insurance company under the laws of
the Commonwealth of Pennsylvania and is duly authorized by the
Commonwealth of Pennsylvania Insurance Department. Each
Account is to issue the Policies.
2. Each Account is a segregated asset account duly established
and maintained by the Company pursuant to the provisions of
Section 406.2 of the Insurance Company Law of 1921 (40 P.S.
Section 506.2 (1998)).
3. The assets of each Account are and will be owned by the
Company. To the extent so provided under the Policies, that
portion of the assets of the Accounts equal to the reserves
and other contract liabilities with respect to the Accounts
will not be chargeable with liabilities arising out of any
other business that the Company may conduct.
4. The Policies have been duly authorized by the Company and,
when issued as contemplated by the registration statement for
the Policies in jurisdictions authorizing such sales, will
constitute legal, validly issued and binding obligations of
the Company.
<PAGE> 2
I hereby consent to the filing of this opinion as an exhibit to the
Form S-6 registration statement for the Policies and the Accounts.
Sincerely,
/s/ James G. Potter, Jr.
James G. Potter, Jr.
Executive Vice President,
General Counsel and Secretary
<PAGE> 1
Exhibit 6
[PROVIDENT MUTUAL LIFE INSURANCE COMPANY LETTERHEAD]
March 9, 1999
Board of Directors
Provident Mutual
Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312
RE: PROVIDENT MUTUAL LIFE INSURANCE COMPANY
PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT, ET AL.
FILE NOS. 333-71763/811-4460
---------------------------------------------------------
Directors:
In my capacity as actuary to Provident Mutual Insurance Company (the
"Company"), I have provided actuarial advice concerning and participated in the
design of the Company's flexible premium variable life insurance policies (the
"Policies"). I have also provided actuarial advice concerning the preparation of
pre-effective amendment number one to the Form S-6 registration statement for
the Policies (File No. 333-71763) and Provident Mutual Variable Growth Separate
Account, et al. (the "Accounts") in connection with the registration of an
indefinite amount of securities in the form of such Policies with the Securities
and Exchange Commission under the Securities Act of 1933, as amended.
It is my professional opinion that:
1. The illustrations of death benefits, policy account values,
net cash surrender values and accumulated premiums in Appendix
A of the prospectus included in the registration statement for
the Policies (the "Prospectus"), based on the assumptions
stated in the illustrations, are consistent with the
provisions of the Policies. The rate structure of the Policies
has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustrations, appear
correspondingly more favorable to prospective purchasers of
Policies age 40 in the underwriting classes illustrated than
to prospective purchasers of Policies at other ages and
underwriting classes.
2. The Prospectus information contained in (a) the examples
illustrating the calculation of death benefits under different
death benefit options, (b) the examples illustrating the
effects of death benefit option changes on pages 20 and 21,
and (c) the examples of the effect of a partial withdrawal on
pages 30 and 31, are consistent with the provisions of the
Policies.
<PAGE> 2
I hereby consent to the filing of this opinion as an exhibit to the
Form S-6 registration statement for the Policies and the Account.
Sincerely,
/s/ Scott Carney
Scott Carney, FSA, MAAA
Actuary
<PAGE> 1
Exhibit 7.A
[SUTHERLAND ASBILL & BRENNAN LETTERHEAD]
March 8, 1999
Board of Directors
Provident Mutual Life Insurance
Company
1050 Westlakes Drive
Berwyn, Pennsylvania 19312
Directors:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus for certain flexible premium variable life insurance
policies filed as part of pre-effective amendment number 1 to the registration
statement on Form S-6 for Providentmutual Variable Life Separate Account (File
No. 333-71763). In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Very truly yours,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ David S. Goldstein
-----------------------------
David S. Goldstein
<PAGE> 1
EXHIBIT 7.B
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, in this Pre-Effective Amendment Number 1
to the Registration Statement under the Securities Act of 1933, as amended,
filed on Form S-6 (File No. 333-71763) for the Provident Mutual Variable
Separate Accounts (Growth, Money Market, Bond, Managed, Zero Coupon Bond,
Aggressive Growth, International and Variable), of the following reports:
1. Our report dated February 5, 1999 on our audits of the financial
statements of Provident Mutual Life Insurance Company and
Subsidiaries as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998.
2. Our report dated February 26, 1999 on our audits of the financial
statements of the Provident Mutual Variable Separate Accounts
(Growth, Money Market, Bond, Managed, Aggressive Growth,
International, Zero Coupon Bond and Variable) as of December 31,
1998 and for each of the three years in the period ended December
31, 1998.
We also consent to the reference to our Firm under the caption
"Experts".
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
March 9, 1999
