PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT
485BPOS, 1999-04-21
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<PAGE>   1
 
   
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1999
    
 
                                        REGISTRATION FILE NOS. 33-55470/811-4460
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------
   
                                    FORM S-6
    
   
                          REGISTRATION STATEMENT UNDER
    
   
                           THE SECURITIES ACT OF 1933
    
   
                         POST-EFFECTIVE AMENDMENT NO. 9
    
                             ---------------------
 
               PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT
            PROVIDENT MUTUAL VARIABLE MONEY MARKET SEPARATE ACCOUNT
                PROVIDENT MUTUAL VARIABLE BOND SEPARATE ACCOUNT
               PROVIDENT MUTUAL VARIABLE MANAGED SEPARATE ACCOUNT
          PROVIDENT MUTUAL VARIABLE ZERO COUPON BOND SEPARATE ACCOUNT
          PROVIDENT MUTUAL VARIABLE AGGRESSIVE GROWTH SEPARATE ACCOUNT
            PROVIDENT MUTUAL VARIABLE INTERNATIONAL SEPARATE ACCOUNT
                   PROVIDENT MUTUAL VARIABLE SEPARATE ACCOUNT
                             (EXACT NAME OF TRUST)
 
                    PROVIDENT MUTUAL LIFE INSURANCE COMPANY
                              (NAME OF DEPOSITOR)
 
   
                              1050 WESTLAKES DRIVE
    
   
                                BERWYN, PA 19312
    
   
              (ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
    
   
       DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 452-4000
    
                             ---------------------
 
   
<TABLE>
<S>                                            <C>
          JAMES G. POTTER, JR., ESQ.                             COPIES TO:
   PROVIDENT MUTUAL LIFE INSURANCE COMPANY                 STEPHEN E. ROTH, ESQ.
             1050 WESTLAKES DRIVE                     SUTHERLAND ASBILL & BRENNAN LLP
               BERWYN, PA 19312                        1275 PENNSYLVANIA AVENUE, N.W.
   (NAME AND COMPLETE ADDRESS OF AGENT FOR                  WASHINGTON, DC 20004
                   SERVICE)
</TABLE>
    
 
     It is proposed that this filing will become effective (check appropriate
box)
 
   
           [ ] immediately upon filing pursuant to paragraph (b) of Rule 485
    
 
   
           [X] on May 1, 1999 pursuant to paragraph (b) of Rule 485
    
 
   
           [ ] 60 days after filing pursuant to paragraph (a) of Rule 485
    
 
   
           [ ] on (date) pursuant to paragraph (a) of Rule 485
    
 
                     Title of Securities Being Registered:
 Interests in Flexible Premium Adjustable Survivorship Variable Life Insurance
                                    Policies
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   2
 
                       PROSPECTUS
                       FOR
                       FLEXIBLE PREMIUM
                       ADJUSTABLE SURVIVORSHIP VARIABLE
                       LIFE INSURANCE
                       ISSUED BY
                       PROVIDENT MUTUAL
                       LIFE INSURANCE COMPANY
 
                       SURVIVOR OPTIONSPLUS
 
   
                       15988 5.99
    
   
    
<PAGE>   3
 
PROSPECTUS
 
   
               FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP VARIABLE
    
                             LIFE INSURANCE POLICY
                                   ISSUED BY
 
                    PROVIDENT MUTUAL LIFE INSURANCE COMPANY
         SERVICE CENTER: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19173
    CORPORATE HEADQUARTERS: 1050 WESTLAKES DRIVE, BERWYN, PENNSYLVANIA 19312
                           TELEPHONE: (302) 452-4000
 
   
     This Prospectus describes a flexible premium adjustable survivorship
variable life insurance policy (the "Policy") offered by Provident Mutual Life
Insurance Company ("PMLIC"). The Policy has an insurance component and an
investment component. The primary purpose of the Policy is to provide insurance
coverage until the younger Insured's Attained Age 100. The Policy gives the
policyowner (the "Owner") the right to vary the frequency and amount of premium
payments, to choose among investment alternatives with different investment
objectives and to decrease the death benefit payable under the Policy.
    
 
   
     After certain deductions are made, Net Premiums are allocated to one or
more of the Separate Accounts, or the Guaranteed Account, or both. The seven
Separate Accounts presently available are: Provident Mutual Variable Growth
Separate Account, Provident Mutual Variable Money Market Separate Account,
Provident Mutual Variable Bond Separate Account, Provident Mutual Zero Coupon
Bond Separate Account, Provident Mutual Variable Aggressive Growth Separate
Account, Provident Mutual Variable International Separate Account, and Provident
Mutual Variable Separate Account. The Growth, Money Market, Bond, Aggressive
Growth and International Separate Accounts invest in shares of a designated
corresponding investment portfolio ("Portfolio") that is part of one of the
following mutual fund companies. The Zero Coupon Bond Separate Account invests
in units of The Stripped ("Zero") U.S. Treasury Securities Fund, Provident
Mutual Series A ("Zero Trust"). Provident Mutual Variable Separate Account has
twenty subaccounts (the "Subaccounts"), the assets of which are used to purchase
shares of a designated corresponding investment Portfolio that is part of one of
the following mutual fund companies (the "Funds"):
    
 
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
                                                        VARIABLE INSURANCE
       THE MARKET STREET FUND, INC.                       PRODUCTS FUND
- --------------------------------------------------------------------------------------
<S>                                         <C>
  - Aggressive Growth Portfolio             - Equity-Income Portfolio
  - All-Pro Large Cap Growth Portfolio      - Growth Portfolio
  - All-Pro Large Cap Value Portfolio       - High Income Portfolio
  - All-Pro Small Cap Growth Portfolio      - Overseas Portfolio
  - All-Pro Small Cap Value Portfolio
  - Bond Portfolio
  - Growth Portfolio
  - International Portfolio
  - Managed Portfolio
  - Money Market Portfolio
- --------------------------------------------------------------------------------------
</TABLE>
 
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
                                                        VARIABLE INSURANCE
         THE ALGER AMERICAN FUND                         PRODUCTS FUND II
- --------------------------------------------------------------------------------------
<S>                                         <C>
  - Small Capitalization Portfolio          - Asset Manager Portfolio
                                            - Contrafund Portfolio
                                            - Index 500 Portfolio
                                            - Investment Grade Bond Portfolio
- --------------------------------------------------------------------------------------
</TABLE>
 
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
             NEUBERGER BERMAN
        ADVISERS MANAGEMENT TRUST               VAN ECK WORLDWIDE INSURANCE TRUST
- --------------------------------------------------------------------------------------
<S>                                         <C>
  - Limited Maturity Bond Portfolio         - Worldwide Bond Portfolio
  - Partners Portfolio                      - Worldwide Emerging Markets Portfolio
                                            - Worldwide Hard Assets Portfolio
                                            - Worldwide Real Estate Portfolio
- --------------------------------------------------------------------------------------
</TABLE>
 
     The Owner bears the entire investment risk for all amounts allocated to the
Separate Accounts; there is no guaranteed minimum value for the Separate
Accounts.
 
   
     The accompanying prospectuses for the funds and the Zero Trust describe the
investment objectives and the attendant risks of the Portfolios. The Policy
Account Value will reflect monthly deductions and certain other fees and
charges. Also, a surrender charge may be imposed if, during the first 15 policy
years, the Policy lapses or if the Owner decreases the Face Amount. Generally,
during the first two 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 second 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.
 
   
                                  May 1, 1999
    
<PAGE>   4
 
                               TABLE OF CONTENTS
 
   
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
SUMMARY OF THE POLICY
  The Policy................................................     3
  Purpose of the Policy.....................................     3
  Availability of Policy....................................     4
  The Death Benefit.........................................     4
  Flexibility to Adjust Amount of Death Benefit.............     4
  Policy Account Value......................................     4
  Allocation of Net Premiums................................     5
  Transfers.................................................     5
  Free-Look.................................................     5
  Loan Privilege............................................     5
  Partial Withdrawal of Net Cash Surrender Value............     6
  Surrender of the Policy...................................     6
  Tax Treatment.............................................     6
  Illustrations.............................................     7
  Charges Assessed Under the Policy.........................     7
  Table of Fund Fees and Expenses...........................     9
The Company, Separate Accounts and Funds....................    11
  Provident Mutual Life Insurance Company...................    11
  The Separate Accounts.....................................    11
  The Funds.................................................    11
  Market Street Fund, Inc...................................    12
  The Alger American Fund...................................    15
  Variable Insurance Products Fund and Variable Insurance
     Products Fund II.......................................    15
  Neuberger Berman Advisers Management Trust................    18
  Van Eck Worldwide Insurance Trust.........................    18
  Additional Information About the Funds and Portfolios.....    19
Detailed Description of Policy Provisions...................    21
  Death Benefit.............................................    21
  Ability to Decrease Face Amount...........................    23
  Insurance Protection......................................    23
  Payment and Allocation of Premiums........................    24
  Policy Account Value......................................    26
  Policy Duration...........................................    26
  Transfers of Policy Account Value.........................    27
  Free-Look Privileges......................................    28
  Loan Privileges...........................................    29
  Surrender Privilege.......................................    30
  Partial Withdrawal Privilege..............................    30
Charges and Deductions......................................    32
  Premium Expense Charge....................................    32
  Surrender Charges.........................................    32
  Monthly Deductions........................................    33
  Partial Withdrawal Charge.................................    34
  Transfer Charge...........................................    34
  Mortality and Expense Risk Charge.........................    35
  Other Charges.............................................    35
The Guaranteed Account......................................    36
  Minimum Guaranteed and Current Interest Rates.............    36
  Transfers from Guaranteed Account.........................    37
</TABLE>
    
<PAGE>   5
 
   
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Other Policy Provisions.....................................    38
  Benefit Payable on Final Policy Date......................    38
  Payment of Policy Benefits................................    38
  The Policy................................................    38
  Ownership.................................................    39
  Beneficiary...............................................    39
  Change of Owner and Beneficiary...........................    39
  Split Dollar Arrangements.................................    39
  Assignments...............................................    39
  Misstatement of Age and Sex...............................    40
  Suicide...................................................    40
  Contestability............................................    40
  Settlement Options........................................    40
Supplementary Benefits......................................    41
Federal Income Tax Considerations...........................    43
  Introduction..............................................    43
  Tax Status of the Policy..................................    43
  Tax Treatment of Policy Benefits..........................    43
  Business Uses of the Policy...............................    45
  Possible Tax Law Changes..................................    45
  PMLIC's Taxes.............................................    45
Policies Issued in Conjunction with Employee Benefit
  Plans.....................................................    45
Legal Developments Regarding Unisex Actuarial Tables........    45
Voting Rights...............................................    46
Changes to the Separate Accounts of Funds...................    47
  Changes to Separate Account Operations....................    47
  Changes to Available Portfolios...........................    47
  Termination of Participation Agreements...................    47
Officers and Directors of PMLIC.............................    49
Distribution of Policies....................................    51
Policy Reports..............................................    51
Preparing for Year 2000.....................................    51
State Regulation............................................    52
Legal Proceedings...........................................    52
Experts.....................................................    52
Legal Matters...............................................    52
Definitions.................................................    53
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 Insureds are alive, the Policy is in force and there
is no outstanding loan.
    
 
     The Policy is not a deposit or obligation of any bank, and no bank endorses
or guarantees the Policy or Policy values. Neither the Federal Deposit Insurance
Corporation nor any federal agency insures or guarantees Policy values or your
investment in the Policy.
 
THE POLICY
 
   
     The Flexible Premium Adjustable Survivorship Variable Life Insurance Policy
(the "Policy") offered by this Prospectus is issued by Provident Mutual Life
Insurance Company ("PMLIC"). The Policy is similar in many ways to a
fixed-benefit life insurance policy. As with a fixed-benefit life insurance
policy, the Owner of a Policy makes premium payments in return for insurance
coverage on the persons insured. Also, like many fixed-benefit life insurance
policies, the Policy provides for accumulation of Net Premiums and a Net Cash
Surrender Value which is payable if the Policy is surrendered during either
Insured's lifetime. As with many fixed-benefit life insurance policies, the Net
Cash Surrender Value during the early Policy Years is likely to be substantially
lower than the aggregate premium payments made.
    
 
   
     However, the Policy differs from a fixed-benefit life insurance policy in
several important respects. Unlike a fixed-benefit life insurance policy, under
the Policy, the Death Benefit may, and the Policy Account Value will, increase
or decrease to reflect the investment performance of any Separate Accounts or
Subaccounts to which Policy Account Value is allocated. Also, unless the entire
Policy Account Value is allocated to the Guaranteed Account, there is no
guaranteed minimum Net Cash Surrender Value. If Net Cash Surrender Value is
insufficient to pay charges due, then, after a grace period, the Policy will
Lapse without value. (See "Policy Duration".) However, PMLIC guarantees that the
Policy will remain in force during the first two 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 insurance coverage to help lessen the
economic loss resulting from the deaths of the Insureds. A prospective Owner
should evaluate the Policy along with other insurance coverage that he or she
may have, as well as their need for insurance and the Policy's long-term
investment potential. The Death Benefit is not payable, in whole or in part, at
the time of death of the first of the Insureds to die; it is only payable at the
time of death of the last surviving Insured. There are no changes made to the
Policy as a result of the death of the first Insured to die. It may not be
advantageous to replace existing insurance coverage with the Policy. In
particular, replacement should be carefully considered if the decision to
replace existing coverage is based solely on a comparison of Policy
illustrations.
    
 
                                        3
<PAGE>   7
 
   
AVAILABILITY OF POLICY
    
 
   
     This Policy can be issued for two Insureds each between ages 21 and 85 and
with a Joint Equal Age between 25 and 80. The Minimum Face Amount is $200,000.
(For a Policy issued in New York State the minimum Face Amount at issue is
$225,000.) Before Issuing a Policy, PMLIC will require that the proposed
Insureds meet certain underwriting standards satisfactory to PMLIC. The premium
classes available for each Insured are Standard, Nonsmoker, Preferred, with
Extra Rating and Nonsmoker with Extra Rating.
    
 
THE DEATH BENEFIT
 
   
     As long as the Policy remains in force, PMLIC will pay the Insurance
Proceeds to the Beneficiary upon receipt of due proof of the death of both
Insureds. The Insurance Proceeds will consist of the Policy's Death Benefit,
plus any additional benefits provided by a supplementary benefit rider, less any
outstanding Policy loan and accrued interest, less any unpaid Monthly
Deductions.
    
 
     There are two Death Benefit Options available. Death Benefit Option A
provides Death Benefit equal to the greater of (a) the Face Amount and (b) the
specified percentage of the Policy Account Value. Death Benefit Option B
provides a Death Benefit equal to the greater of (a) the Face Amount plus the
Policy Account Value and (b) the specified percentage of the Policy Account
Value. (See "Death Benefit".)
 
FLEXIBILITY TO ADJUST AMOUNT OF DEATH BENEFIT
 
   
     After the second Policy Year, the Owner has significant flexibility to
adjust the Death Benefit by changing the Death Benefit Option or by decreasing
the Face Amount of the Policy. (See "Death Benefit" and "Ability to Decrease
Face Amount".) 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.
(Decreases are not permitted for policies issued in Virginia.)
    
 
   
     Any change in Death Benefit Options or in the Face Amount may affect the
charges under the Policy. For any decrease in Face Amount, that part of the
surrender charges attributable to the decrease will reduce the Policy Account
Value, and the surrender charges will be reduced by this amount. A decrease in
Face Amount may also affect cost of insurance charges. (See "Monthly
Deductions".)
    
 
     To the extent that a requested decrease in Face Amount would result in
cumulative premiums exceeding the maximum premium limitations applicable under
the Internal Revenue Code of 1986 (the "Code") for life insurance, PMLIC will
not effect the decrease.
 
POLICY ACCOUNT VALUE
 
     The Policy Account Value in the Separate Accounts or Subaccounts reflects
the investment performance of the chosen Separate Accounts or Subaccounts, any
Net Premiums allocated to those Separate Accounts or Subaccounts, any transfers
to or from those Separate Accounts or Subaccounts, any partial withdrawals from
those Separate Accounts or Subaccounts, any loans, any loan repayments, any loan
interest paid or credited and any charges assessed in connection with the
Policy. The Owner bears the entire investment risk for amounts allocated to the
Separate Accounts or Subaccounts.
 
     The Guaranteed Account earns interest at rates PMLIC declares in advance
for specific periods. The rates are guaranteed to equal or exceed 4%. The
principal, after deductions, is also guaranteed. The value of the Guaranteed
Account will reflect any amounts allocated or transferred to it plus interest
credited to it, less amounts deducted, transferred or withdrawn from it. (See
"The Guaranteed Account".)
 
     The Loan Account will reflect any amounts transferred from the Separate
Accounts, Subaccounts, and/or Guaranteed Account as collateral for Policy loans
plus interest of at least 4% credited to such amount. (See "Loan Privileges".)
 
                                        4
<PAGE>   8
 
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 and Zero Coupon
Bond Separate Accounts) uses its assets to purchase shares of a corresponding
Portfolio of Market Street Fund, Inc. Provident Mutual Variable Separate Account
consists of twenty Subaccounts, the assets of which are used to purchase shares
of a designated corresponding mutual fund portfolio (each, a "Portfolio") that
is part of one of the following funds: The Market Street Fund, Inc.; The Alger
American Fund; Neuberger Berman Advisers Management Trust; Van Eck Worldwide
Insurance Trust; Variable Insurance Products Fund; and Variable Insurance
Products Fund II (the "Funds", each, a "Fund"). The Zero Coupon Bond Separate
Account has one Sub-Account, the assets of which are used to purchase units of a
corresponding series of the Zero Trust. 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. If the
Owner makes more than twelve transfers in a Policy Year, a Transfer Charge of
$25 will be deducted from the amount being transferred. (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, (b) 10 days after the Owner receives the Policy and (c) 10
days after PMLIC mails or personally delivers a Notice of Withdrawal Right to
the Owner. Upon returning the Policy to PMLIC or to an agent of PMLIC within
such time with a written request for cancellation, the Owner will receive a
refund equal to the sum of: (i) the Policy Account Value as of the date PMLIC
receives the returned Policy; (ii) the amount deducted for premium taxes; (iii)
any Monthly Deductions charged against the Policy Account Value; and (iv) an
amount reflecting other charges directly or indirectly deducted under the
Policy. Where state law requires, the refund will instead equal the premiums
paid. (See "Free-Look Privileges".)
    
 
   
LOAN PRIVILEGE
    
 
   
     The Owner may obtain Policy loans in a minimum amount of $500 (or such
lesser minimum as may be required in a particular state) but not exceeding, in
the aggregate, the Net Cash Surrender Value. Policy loans will bear interest at
a fixed rate of 6% per year, payable at the end of each Policy Year. If interest
is not paid when due, it will be added to the outstanding loan balance. Policy
loans may be repaid
    
 
                                        5
<PAGE>   9
 
   
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. 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. If Death Benefit Option A is in effect,
PMLIC will reduce the Face Amount by the amount of the withdrawal. (See "Partial
Withdrawal Privilege".)
    
 
   
SURRENDER OF THE POLICY
    
 
   
     The Owner may at any time surrender the Policy and receive the entire Net
Cash Surrender Value. (See "Surrender Privilege".)
    
 
   
TAX TREATMENT
    
 
   
     PMLIC believes that a Policy issued on a standard premium class basis
generally should meet the definition of a life insurance contract in the Code.
There is insufficient guidance to determine whether or not a Policy issued on an
extra rating (i.e., substandard) basis would satisfy the Code definition of a
life insurance contract, particularly if the Owner pays the full amount of
premiums permitted under such a Policy. An Owner of a Policy issued on an extra
rating basis may, however, adopt certain self-imposed limitations on the amount
of premiums paid for such a Policy which should cause the Policy to meet the
definition of a life insurance contract. Any Owner contemplating the adoption of
such limitations should consult a tax adviser.
    
 
   
     Assuming that a Policy qualifies as a life insurance contract for federal
income tax purposes, a Policyowner should not be deemed to be in constructive
receipt of Policy Account Value under a Policy until there is a distribution
from the Policy. Moreover, death benefits payable under a Policy should be
completely excludable from the gross income of the Beneficiary. As a result, the
Beneficiary generally should not be taxed on these proceeds. (See "Tax Status of
the Policy".)
    
 
   
     Under certain circumstances, a Policy may be treated as a "Modified
Endowment Contract." If the Policy is a Modified Endowment Contract, then all
pre-death distributions, including Policy loans, will be treated first as a
distribution of taxable income and then as a return of basis or investment in
the Policy. In addition, prior to age 59 1/2 any such distributions generally
will be subject to a 10% penalty tax. (For further discussion of Modified
Endowment Contracts, See "Tax Treatment of Policy Benefits".)
    
 
   
     If the Policy is not a Modified Endowment Contract, distributions generally
will be treated first as a return of basis or investment in the contract and
then as disbursing taxable income. Moreover, loans will not be treated as
distributions. Finally, neither distributions nor loans from a Policy that is
not a Modified Endowment Contract are subject to the 10% penalty tax. (See
"Distributions from Policies Not Classified as Modified Endowment Contracts".)
    
 
   
ILLUSTRATIONS
    
 
   
     Illustrations of Death Benefits, Policy Account Value and Net Cash
Surrender Value in this prospectus or used in connection with the purchase of a
Policy are based on hypothetical rates of return.
    
 
                                        6
<PAGE>   10
 
   
These rates are not guaranteed. They are illustrative only and should not be
considered a representation of past or future performance. Actual rates of
return may be higher or lower than those reflected in Policy illustrations, and
therefore, actual Policy values will be different from those illustrated.
    
 
CHARGES ASSESSED UNDER THE POLICY
 
   
     Premium Expense Charge.  A Premium Expense Charge will be deducted from
each premium payment. This charge consists of:
    
 
   
          1.  Premium Tax Charge for state and local premium taxes based on the
     rate for the Insureds' residence at the time the premium is paid. PMLIC
     reserves the right to change the amount of the charge deducted from future
     premiums if the Insureds' residence changes or the applicable law is
     changed;
    
 
   
          2.  Percent of Premium Sales Charge equal to 5% of the amount of the
     premium payment in Policy Years 1 through 10. At the present time PMLIC
     does not intend to apply this charge after Policy Year 10, but reserves the
     right to do so.
    
 
   
          3.  Federal Tax Charge equal to 1.25% of the amount of the premium
     payment. PMLIC reserves the right to change the amount of this charge if
     the applicable Federal tax law changes PMLIC's tax burden. (See "Premium
     Expense Charge" below).
    
 
   
     Monthly Deductions.  On the Policy Date and on each Policy Processing Date
thereafter, the Policy Account Value is reduced by a Monthly Deduction equal to
the sum of the monthly Cost of Insurance Charge, Monthly Administrative Charge
and a charge for additional benefits added by rider and, on the first 12 Policy
Processing Days, the Initial Administrative Charge. The monthly Cost of
Insurance Charge is determined by multiplying the Net Amount at Risk by the
applicable cost of insurance rate(s) in the Policy. The Monthly Administrative
Charge is currently $7.50 plus $.01 per $1,000 of Face Amount; the maximum
permissible Monthly Administrative Charge is $12 plus $.03 per $1,000 of Face
Amount. (See "Monthly Administrative Charge".) The Initial Administrative Charge
is $17.50 plus $.11 per $1,000 of Initial Face Amount, deducted on the first 12
Policy Processing Days. (See "Initial Administrative Charge".)
    
 
   
     Surrender Charge.  A Surrender Charge is imposed if the Policy is
surrendered or lapses at any time before the end of the 15th Policy Year (12th
Policy Year for New York Policies). The Surrender Charge consists of a Deferred
Administrative Charge and a Deferred Sales Charge. A portion of this Surrender
Charge will be deducted if the Owner decreases the Initial Face Amount before
the end of the 15th Policy Year. (See "Surrender Charges".)
    
 
                                        7
<PAGE>   11
 
   
     The Deferred Administrative Charge is equal to $1.50 per $1,000 of Initial
Face Amount in Policy Years 1 to 11 declining by 20% of the original amount each
year in Policy Years 12 to 15 until it is zero in Policy Year 16. (For policies
sold to residents of New York State, this charge is $1.50 per $1,000 of Initial
Face Amount in Policy Years 1 to 8 declining by 20% of the original amount each
year in Policy Years 9 to 12 until it is zero in year 13.
    
 
   
     The Deferred Sales Charge is equal to 25% of all premiums received during
the first Policy Year up to one Target Premium plus 4% of all other premiums
received to the date of surrender, lapse or decrease. The Deferred Sales Charge,
however, will not exceed the Maximum Deferred Sales Charge. For Joint Equal Ages
25 to 71, the Maximum Deferred Sales Charge equals 50% of the Target Premium,
40% of the relevant Target Premium for Joint Equal Ages 72 to 75, and 30% for
Joint Equal Ages 76 to 80. The amount of the Maximum Deferred Sales Charge
remains level for Policy Years 1 through 11 (Policy Years 1 through 8 for New
York Policies) and declines by 20% of the original amount each year in Policy
Years 12 through 15 (Policy Years 9 through 12 for New York Policies.)
    
 
   
     Transfer Charge.  For each transfer of Policy Account Value between or
among the Separate Accounts (and/or Subaccounts) and the Guaranteed Account
after the twelfth transfer in a Policy Year, PMLIC deducts $25 from the amount
transferred to compensate it for administrative costs in handling such
transfers. (See "Transfer Charge" below.)
    
 
     Partial Withdrawal Charge.  PMLIC deducts a $25 charge from Policy Account
Value with each partial withdrawal to compensate it for administrative costs.
(See "Partial Withdrawal Charge" below.)
 
   
     Daily Charges Against the Separate Accounts.  PMLIC imposes a daily charge
for its assumption of certain mortality and expense risks in connection with the
Policy at an annual rate which is currently 0.60% 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".)
    
 
   
     With regard to the Zero Coupon Bond Separate Account, PMLIC imposes a daily
charge for transaction charges associated with the purchase of units of the Zero
Trust at an annual rate which is currently 0.25% of the average daily net assets
of each Sub-Account. This charge may be increased in the future but it will not
exceed an annual rate of 0.50%. (See "Asset Charge Against Zero Coupon Bond
Separate Account").
    
 
   
     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).
    
 
                                        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%
 
                                              ZERO
   MERRILL LYNCH ZERO UST SECURITIES         COUPON
        FUND ANNUAL EXPENSES(2)               2006
(AS A PERCENTAGE OF AVERAGE NET ASSETS)    PORTFOLIO
    -------------------------------           ----
Management Fees (Investment Advisory
  Fees)............................           0.00%
Other Expenses.....................           0.25%
                                              ----
Total Fund Annual Expenses.........           0.25%
</TABLE>
    
 
- ---------------
   
(1) For certain Portfolios, certain expenses were reimbursed or fees waived
    during 1998. It is anticipated that expense reimbursement and fee waiver
    arrangements will continue past the current year. Absent the expense
    reimbursement, the 1998 Total Annual Expenses would have been 1.36%, for the
    Market Street Fund All-Pro Small Cap Value Portfolio, 0.58%, for the VIP
    Fund Equity-Income Portfolio, 0.68%, for the VIP Fund Growth Portfolio,
    0.91%, for the VIP Fund Overseas Portfolio, 0.64%, for the VIP II Fund Asset
    Manager Portfolio, 0.35%, for the VIP II Fund Index 500 Portfolio, 0.70%,
    for the VIP II Fund Contrafund Portfolio, 1.20%, for the Van Eck Worldwide
    Hard Assets Portfolio, 1.61%, for the Van Eck Worldwide Emerging Markets
    Portfolio and 5.32%, for the Van Eck Worldwide Real Estate Portfolio.
    Similar expense reimbursement and fee waiver arrangements were also in place
    for the other Portfolios and it is anticipated that such arrangements will
    continue past the current year. However, no expenses were reimbursed or fees
    waived during 1998 for these Portfolios because the level of actual expenses
    and fees never exceeded the thresholds at which the reimbursement and waiver
    arrangements would have become operative.
    
 
   
(2) The fee and expense information regarding the Funds and the Zero Trust was
    provided by those Funds and the Trust. The Neuberger Berman Advisers
    Management Trust, the Alger American Fund, the VIP Fund, the VIP II Fund and
    the Van Eck WIT are not affiliated with PMLIC.
    
 
                                       10
<PAGE>   14
 
                    THE COMPANY, SEPARATE ACCOUNTS AND FUNDS
 
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
 
     PMLIC is a mutual life insurance company that was organized as a mutual
life insurance company under Pennsylvania law in 1865. PMLIC expects to change
its name to Provfirst America Life Insurance Company in connection with its
conversion into a stock life insurance company that is indirectly controlled by
a newly-created mutual holding company called Provident Mutual Holding Company.
More information about the pending conversion and the new holding company
structure is provided in Appendix 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, Bond and Zero Coupon Bond Separate Accounts were
established by PMLIC as separate investment accounts on October 21, 1985 under
the provisions of the Pennsylvania Insurance Law; the Aggressive Growth Separate
Account was established on February 21, 1989, the International Separate Account
on July 15, 1991 and the Variable Separate Account on June 3, 1993. Each is a
separate investment account to which assets are allocated to support the
benefits payable under the Policies as well as other variable life insurance
policies PMLIC may issue.
    
 
     The assets of each Separate Account are owned by PMLIC. However, these
assets are held separate from other assets and are not part of PMLIC's General
Account. The portion of a Separate Account's assets equal to the reserves and
other liabilities under the Policies (and other policies) supported by Separate
Account are not chargeable with liabilities arising out of any other business
that PMLIC may conduct. PMLIC may transfer to its General Account any assets of
a Separate Account that exceed the reserves and Policy liabilities of that
Separate Account (which will always be at least equal to the aggregate 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 Zero Coupon Bond Separate Account
invests in units of the Stripped ("Zero") U.S. Treasury Securities Fund,
Provident Mutual Series A ("Zero Trust").
    
 
THE FUNDS
 
     The Portfolios are each part of one of six series-type mutual fund
companies (each, a "Fund"): Market Street Fund, Inc.; Neuberger Berman Advisers
Management Trust; The Alger American Fund; Van Eck Worldwide Insurance Trust;
Variable Insurance Products Fund; and Variable Insurance Products Fund II. Each
of the Funds are registered with the SEC under the 1940 Act as an open-end
management
 
                                       11
<PAGE>   15
 
   
investment company. The SEC does not, however, supervise the management or the
investment practices and policies of the Funds or their Portfolios. The assets
of each Portfolio are separate from the assets of other portfolios of that Fund
and each Portfolio has separate investment objectives and policies. Some of the
Funds may, in the future, create additional Portfolios. The investment
experience of each Separate Account or Subaccount depends on the investment
performance of its corresponding Portfolio or the Zero Trust.
    
 
     Certain Separate Accounts and Subaccounts invest in portfolios that have
similar investment objectives and/or policies; therefore before choosing
Separate Accounts or Subaccounts, carefully read the individual prospectuses for
the Funds along with this prospectus.
 
MARKET STREET FUND, INC.
 
     The Growth, Money Market, Bond, Aggressive Growth and International
Separate Accounts and five Subaccounts of the Variable Separate Account invest
exclusively in shares of the Market Street Fund, Inc. ("MS Fund"). the 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.
 
                                       12
<PAGE>   16
 
     With respect to the Growth, Money Market, Bond, Managed and Aggressive
Growth Portfolios, the Fund is advised by Sentinel Advisors Company (SAC), which
is registered with the SEC as an investment adviser under the Investment
Advisers Act of 1940. As compensation for its services, SAC receives monthly
compensation as follows:
 
          Growth Portfolio -- 0.50% of the first $20 million of the average
     daily net assets of the Growth Portfolio, 0.40% of the next $20 million of
     the average daily net assets of the portfolio, and 0.30% of the average
     daily net assets in excess of $40 million.
 
          Money Market Portfolio -- 0.25% of the average daily net assets of the
     portfolio.
 
          Bond Portfolio -- 0.35% of the first $100 million of the average daily
     net assets of the portfolio and 0.30% of the average daily net assets in
     excess of $100 million.
 
   
          Managed Portfolio -- 0.40% of the first $100 million of the average
     daily net assets of the portfolio and 0.35% of the average daily net assets
     in excess of $100 million.
    
 
          Aggressive Growth Portfolio -- 0.50% of the first $20 million of the
     average daily net assets of the portfolio, 0.40% of the next $20 million of
     the average daily net assets of the portfolio and 0.30% of the average
     daily net assets in excess of $40 million.
 
     With respect to the International Portfolio, MS Fund is advised by
Providentmutual Investment Management Company ("PIMC") which receives monthly
compensation at an effective annual rate of 0.75% of the first $500 million of
the average daily net assets of the portfolio and 0.60% of the average daily net
assets in excess of $500 million. PIMC has employed The Boston Company Asset
Management, Inc. ("Boston Company") to provide investment subadvisory services
in connection with the Portfolio. As compensation for the investment advisory
services rendered, PIMC pays The Boston Company a monthly fee at an effective
rate of 0.375% of the first $500 million of the average daily net assets of the
portfolio and 0.30% of the average daily net assets in excess of $500 million.
 
     PIMC serves as investment adviser for the All Pro Portfolios. As
compensation for its services, PIMC receives .70% of the daily net assets of the
All Pro Large Cap Growth and All Pro Large Cap Value Portfolios, and .90% of the
daily net assets of the All Pro Small Cap Growth and All Pro Small Cap Value
Portfolios. PIMC uses a "manager of managers" approach for the All Pro
Portfolios under which PIMC allocates each Portfolio's assets among one or more
"specialist" investment sub-advisers. Additionally, PIMC has retained Wilshire
Associates Incorporated ("Wilshire") to assist it in identifying potential
sub-advisers and performing the quantitative analysis necessary to assess such
sub-advisers' styles and performance. As compensation for these services, PIMC
pays Wilshire from its investment advisory fees, .05% of the average daily net
assets of the All Pro Portfolios.
 
     All Pro Large Cap Growth.  As of the date of this prospectus, the assets of
the All Pro Large Cap Growth Portfolio are managed in part by Cohen,
Klingenstein & Marks, Inc. ("CKM") and in part by Geewax, Terker & Co.
("Geewax"); pursuant to separate investment sub-advisory agreements. As
compensation for their services PIMC pays from its investment advisory fees the
following percentages of the daily net assets of the Portfolio: CKM -- .35%.;
Geewax -- .30%.
 
     All Pro Small Cap Growth.  As of the date of this prospectus, the assets of
the All Pro Small Cap Growth Portfolio are managed in part by Standish, Ayer &
Wood ("SAW"), and in part by Husic Capital Management ("Husic"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: SAW -- .50%; Husic -- .50%.
 
     All Pro Large Cap Value.  As of the date of this prospectus, the assets of
the All Pro Large Cap Value Portfolio are managed in part by Equinox Capital
Management, Inc. ("Equinox"); in part by Harris Associates, Inc. ("Harris"); and
in part by Mellon Equity Associates ("Mellon"), pursuant to separate investment
sub-advisory agreements. As compensation for their services PIMC pays from its
investment advisory fees the following percentages of the daily net assets of
the Portfolio: Equinox -- .25% of the first
 
                                       13
<PAGE>   17
 
$50 million of assets and .23% of the remaining assets; Harris -- .65% of the
first $50 million of assets, .60% of the next $50 million of assets and .55% of
the remaining assets; Mellon -- .20%.
 
     All Pro Small Cap Value.  As of the date of this prospectus, the assets of
the All Pro Small Cap Value Portfolio are managed in part by 1838 Investment
Advisors ("1838") and in part by Denver Investment Advisors ("DIA"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: 1838 -- .55%; DIA -- .75% of the first $25
million of assets and .65% on the remaining assets.
 
     In addition to the fee for the investment advisory services, MS Fund pays
its own expenses generally, including brokerage costs, administrative costs,
custodial costs, and legal, accounting and printing costs. However, PMLIC has
entered into an agreement with the Fund whereby it will reimburse the Fund for
all ordinary operating expenses, excluding advisory fees in excess of an annual
rate of 0.40% of the average daily net assets of each portfolio except the
International Portfolio, and 0.75% for the International Portfolio. It is
anticipated that this agreement will continue; if it is terminated, Fund
expenses may increase.
 
     A more complete description of MS Fund, including the investment
objectives, policies and risks of each Portfolio, is contained in the prospectus
for the MS Fund, which accompanies this Prospectus.
 
   
THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND, PROVIDENT MUTUAL SERIES A
    
 
   
     The Zero Coupon Bond Separate Account invests in units of The Stripped
("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A, a unit
investment trust registered with the SEC as such under the 1940 Act. The Zero
Coupon Trust consists of one series with a maturity date of February 15, 2006.
The objective of the Trust is to provide safety of capital and a high yield to
maturity through investment in the fixed series consisting primarily of debt
obligations issued by the United States of America that have been stripped of
their unmatured interest coupons, coupons stripped from debt obligations of the
United States, and receipts and certificates for such stripped debt obligations
and coupons. A brief summary of the securities purchased by the Trust is set
forth below. More detailed information may be found in the current Prospectus
for the Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series
A which accompanies this Prospectus.
    
 
   
     Since the U.S. Treasury securities have been stripped of their unmatured
interests coupons, they are purchased at a deep discount. If held to maturity,
the amounts invested by the Zero Trust would grow to the face value of the U.S.
Treasury securities and therefore, a compound rate of growth to maturity could
be determined for the Trust units at the time of purchase. The rate of return
experienced by Policy Owners however is lower due to the deduction of certain
charges described under "Charges Against the Separate Accounts," especially the
charge for mortality and expense risks and the transaction charge against the
Zero Coupon Bond Separate Account. Because the value of the Zero Trust's units
vary on a daily basis to reflect market values, no net rate of return can be
calculated prospectively for units not held until maturity.
    
 
   
     Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPFS) serves as
Sponsor for the Zero Coupon Trust. Because the series invests in a fixed
portfolio, there is no investment manager. As Sponsor, MLPFS sells units of the
Zero Trust to the Zero Coupon Bond Separate Account. The price of these units
includes a transaction charge which is not paid by the Zero Coupon Bond Separate
Account upon acquisition. Rather, the transaction charge is paid directly by
PMLIC to MLPFS out of PMLIC's General Account assets. The amount of the
transaction charge paid is limited by agreement between PMLIC and MLPFS and will
not be greater than that ordinarily paid by a dealer for similar securities.
PMLIC is reimbursed for the transaction charge paid through a daily asset charge
which is made against the assets of the Sub-Accounts. (See "Asset Charge Against
Zero Coupon Bond Separate Account").
    
 
   
     Units of the Zero Coupon Trust are disposed of to the extent necessary for
PMLIC to provide benefits and make reallocations under the Policies. MLPFS
intends, but is not contractually obligated, to
    
 
                                       14
<PAGE>   18
 
   
maintain a secondary market in Trust units. As long as a secondary market
exists, PMLIC will sell such units to MLPFS at the Sponsor's repurchase price.
Otherwise, units will be redeemed at the Trust's redemption price, which is
typically a lower amount.
    
 
   
     Thirty days prior to the maturity date of the securities contained in a
series of the Zero Trust, an Owner who has allocated Net Premiums to the Zero
Coupon Bond Separate Account investing in that series will be notified and given
the opportunity to select the account or Subaccount into which the Policy
Account Value attributable thereto should be reallocated. If no instructions are
received from the Owner by PMLIC within the 30-day period, the amount in the
Zero Coupon Bond Separate Account will be transferred to the Money Market
Separate Account.
    
 
THE ALGER AMERICAN FUND
 
     The Alger American Small Capitalization Subaccount invests exclusively in
shares of the corresponding Portfolio of The Alger American Fund ("Alger
American").
 
     Alger American Small Capitalization Portfolio.  This Portfolio seeks
long-term capital appreciation by focusing on small, fast-growing companies that
offer innovative products, services or technologies to a rapidly expanding
marketplace.
 
     The investment adviser for the Alger American Small Capitalization
Portfolio is Fred Alger Management, Inc. ("Alger Management"), which is
registered with the SEC as an Investment Adviser under the Investment Advisors
Act of 1940. As compensation for its services, Alger Management receives a fee
at the end of each month at an annual rate of .85% of the average net assets of
the Alger American Small Capitalization Portfolio.
 
     A more complete description of Alger American and the Alger American Small
Capitalization Portfolio, including the Portfolio's investment objectives,
policies and risks, is contained in the prospectus for Alger American which
accompanies this Prospectus.
 
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
 
     Eight Subaccounts invest exclusively in shares of Portfolios of the
Variable Insurance Products Fund (the "VIP Fund") or of the Variable Insurance
Products Fund II (the "VIP II Fund"). The investment objectives of the
Portfolios of the VIP Fund and the VIP II Fund in which these Subaccounts invest
are set forth below.
 
  VIP Fund
 
     VIP Equity-Income Portfolio.  This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the VIP Equity-Income Portfolio considers the potential for capital
appreciation. The Portfolio's goal is to achieve a yield which exceeds the
composite yield of the securities comprising the Standard and Poor's 500
Composite Stock Price Index.
 
     VIP Growth Portfolio.  This Portfolio seeks to achieve capital
appreciation. The VIP Growth Portfolio normally purchases common stocks,
although its investments are not restricted to any one type of security. Capital
appreciation may also be found in other types of securities, including bonds and
preferred stocks.
 
     VIP High Income Portfolio.  This Portfolio seeks to obtain a high level of
current income by investing primarily in high-yielding, lower-rated,
fixed-income securities, while also considering growth of capital.
 
     VIP Overseas Portfolio.  This Portfolio seeks long term growth of capital
primarily through investments in foreign securities. The VIP Overseas Portfolio
provides a means for diversification by participating in companies and economies
outside of the United States.
 
                                       15
<PAGE>   19
 
  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.
 
   
     VIP II Investment Grade Bond Portfolio.  This Portfolio seeks high current
income by investing in investment grade debt securities.
    
 
   
     The VIP Equity-Income, VIP Growth, VIP High Income, and VIP Overseas
Portfolios of the VIP Fund and the VIP II Asset Manager, VIP II Contrafund, VIP
II Index 500 and VIP II Investment Grade Bond Portfolios of the VIP II Fund are
managed by Fidelity Management & Research Company ("FMR"). For managing its
investments and business affairs, each Portfolio pays FMR a monthly fee.
    
 
   
     For the VIP Equity-Income, VIP Growth, VIP Overseas, VIP II Contrafund and
VIP II Asset Manager Portfolios, the annual fee rate is the sum of two
components:
    
 
          1.  A group fee rate based on the monthly average net assets of all
     the mutual funds advised by FMR. This rate cannot rise above 0.52% and it
     drops (to as low as a marginal rate of 0.30% when average group assets
     exceed $174 billion) as total assets in all these funds rise.
 
          2.  An individual fund fee rate of 0.20% for the VIP Equity-Income
     Portfolio, 0.30% for the VIP Contrafund, VIP Growth and VIP II Asset
     Manager Portfolios and 0.45% for the VIP Overseas Portfolio.
 
     One-twelfth of the combined annual fee rate is applied to each Portfolio's
net assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
 
     The VIP II Index 500 Portfolio pays FMR a monthly management fee at the
annual rate of 0.28% of the Portfolio's average net assets. One-twelfth of this
annual fee rate is applied to the net assets averaged over the most recent
month, giving a dollar amount which is the fee for that month.
 
   
     For the VIP High Income and VIP II Investment Grade Bond Portfolios the
annual fee rate is the sum of two components:
    
 
          1.  A group fee rate based on the monthly average net assets of all
     the mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
     drops (to as low as a marginal rate of 0.14%) as total assets in all these
     funds rise.
 
   
          2.  An individual fund fee rate of 0.45% for the VIP High Income
     Portfolio and 0.30% for the VIP II Investment Grade Bond Portfolio.
    
 
     One twelfth of the combined annual fee rate is applied to the Portfolio's
net assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
 
     On behalf of the VIP II Asset Manager Portfolio and the VIP II Contrafund
Portfolio, FMR has entered into sub-advisory agreements with Fidelity Management
& Research (U.K.) Inc. ("FMR (U.K.)") and Fidelity Management & Research (Far
East) Inc. ("FMR Far East"), pursuant to which these entities provide research
and investment recommendations with respect to companies based outside the
United States. FMR (U.K.) primarily focuses on companies based in Europe while
FMR Far East focuses primarily on companies based in Asia and the Pacific Basin.
Under the sub-advisory agreements,
 
                                       16
<PAGE>   20
 
   
FMR and not the Portfolios pay FMR (U.K.) and FMR Far East fees equal to 110%
and 105%, respectively, of each sub-advisor's costs incurred in connection with
its sub-advisory agreement.
    
 
     On behalf of the VIP Overseas Portfolio, FMR has entered into sub-advisory
agreements with FMR (U.K.), FMR Far East, and Fidelity International Investment
Advisors ("FIIA"). FIIA, in turn, has entered into a sub-advisory agreement with
its wholly owned subsidiary Fidelity International Investment Advisors (U.K.)
Limited (FIIAL U.K.). Under the sub-advisory agreements, FMR may receive
investment advice and research services with respect to companies based outside
the U.S. and may grant them investment management authority as well as the
authority to buy and sell securities if FMR believes it would be beneficial to
the Portfolio.
 
     Currently, FMR (U.K.), FMR Far East, FIIA and FIIAL U.K. each focus on
investment opportunities in countries other than the U.S., including countries
in Europe, Asia and the Pacific Basin.
 
     Under the sub-advisory agreements FMR pays the fees of FMR (U.K.), FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
 
     For providing investment advice and research services the sub-advisors are
compensated as follows:
 
     - FMR pays FMR (U.K.) and FMR Far East fees equal to 110% and 105%,
       respectively, of FMR (U.K.)'s and FMR Far East's costs incurred in
       connection with providing investment advice and research services.
 
     - FMR pays FIIA 30% of its monthly management fee with respect to the
       average market value of investments held by the Portfolio for which FIIA
       has provided FMR with investment advice.
 
     - FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred
       in connection with providing investment advice and research services.
 
     For providing investment management services, the sub-advisors are
compensated according to the following formulas:
 
     - FMR pays FMR (U.K.), FMR Far East, and FIIA 50% of its monthly management
       fee with respect to the Portfolio's average net assets managed by the
       sub-advisor on a discretionary basis.
 
     - FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection
       with providing investment management.
 
     Each Portfolio utilizes Fidelity Investments Institutional Operations
Company ("FIIOC"), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each Portfolio pays fees based on the type, size, and number of accounts
in each Portfolio and the number of transactions made by shareholders of each
Portfolio.
 
     Each Portfolio also has an agreement with Fidelity Service Co. ("Service"),
an affiliate of FMR under which each Portfolio pays Service to calculate its
daily share prices and to maintain the portfolio and general accounting records
of each Portfolio and to administer each Portfolio's securities lending program.
The fees for pricing and bookkeeping services are based on each Portfolio's
average net assets but must fall within a range of $45,000 to $750,000. The fees
for securities lending services are based on the number and duration of
individual securities loans.
 
     FMR may, from time to time, agree to reimburse a Portfolio for management
fees and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without notice,
will increase a Portfolio's yield. If FMR discontinues a reimbursement
arrangement, each Portfolio's expenses will go up and its yield will be reduced.
FMR retains the right to be repaid by a Portfolio for expense reimbursements if
expenses fall below the limit prior to the end of a fiscal year. Repayment by a
Portfolio will lower its yield. FMR has voluntarily agreed to reimburse the
management fees and all other expenses (excluding taxes, interest and
extraordinary expenses) in excess of 1.50% of the average net assets of the VIP
Equity-Income and VIP Growth
 
                                       17
<PAGE>   21
 
Portfolios, 1.25% of the average net assets of the VIP II Asset Manager
Portfolio and 0.28% of the average net assets of the VIP II Index 500 Portfolio.
 
     A more complete description of the VIP Fund and the VIP II Fund, including
the investment of objectives, policies and risks of its Portfolios, is contained
in the prospectuses for the VIP Fund and VIP II Fund which accompany this
Prospectus.
 
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
 
     The Neuberger Berman Limited Maturity Bond and Partners Subaccounts invest
exclusively in shares of corresponding Portfolios of the Neuberger & Berman
Advisers Management Trust ("AMT").
 
     Each Portfolio of AMT invests all of its net investable assets in its
corresponding Series (each, a "Series") of Advisers Managers Trust ("Managers
Trust"), an open-end management investment company. Each Series invests in
securities in accordance with an investment objective, policies and limitations
identical to those of its corresponding Portfolio. This "master/feeder fund"
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities. For more
information regarding this structure, see the prospectus for AMT.
 
     In that the investment objective of each Portfolio matches that of its
corresponding Series, the following describes the investment objective of each
Series underlying the Portfolio of AMT in which the Separate Accounts will
invest. The investment objectives of the Portfolios of AMT in which the Separate
Accounts will invest are set forth below. The investment experience of each
Subaccount depends upon the investment performance of its corresponding
Portfolio and Series. There is no assurance that any Portfolio (or the
corresponding series) will achieve its stated objective.
 
     Limited Maturity Bond Portfolio.  The Series corresponding to this
Portfolio seeks the highest current income consistent with low risk to principal
and liquidity and secondarily, total return, through investment in short to
intermediate term debt securities, primarily investment grade.
 
     Partners Portfolio.  The Series corresponding to this Portfolio seeks
capital growth through investment in common stocks and other equity securities
of medium to large capitalization established companies.
 
     The Investment Adviser for the Series of Managers Trust corresponding to
the Limited Maturity Bond and Partners Portfolios of AMT is Neuberger Berman
Management Incorporated ("NB Management"). As compensation for its services, NB
Management receives a monthly fee from AMT at the following percentages of daily
net assets of the corresponding Portfolio: Limited Maturity Bond
Portfolio -- 0.25% of first $500 million, 0.225% of next $500 million, 0.20% of
next $500 million, 0.175% of next $500 million and 0.15% of over $2 billion;
Partners Portfolio -- 0.55% of first $250 million, 0.525% of next $250 million,
0.50% of next $250 million, 0.475 of next $250 million, 0.45% of next $500
million, and 0.425% of over $1.5 billion.
 
     A more complete description of AMT, including the investment objectives,
policies and risks of the available Portfolios, is contained in the prospectuses
for the Limited Maturity Bond and Partners Portfolios of AMT, which accompany
this Prospectus.
 
VAN ECK WORLDWIDE INSURANCE TRUST
 
     Four Subaccounts invest exclusively in shares of corresponding Portfolios
of Van Eck Worldwide Insurance ("Van Eck Trust"). The investment objectives of
the Portfolios of Van Eck Trust are set forth below.
 
     Van Eck Worldwide Hard Assets Portfolio.  This Portfolio seeks long-term
capital appreciation by investing globally, primarily in "Hard Assets
Securities". Hard Assets Securities include equity securities of Hard Asset
Companies and securities, including structured notes, whose value is linked to
the price of a Hard Asset commodity or a commodity index. Hard Asset Companies
include companies that are directly or indirectly engaged to a significant
extent in the exploration, development, production or distribution of one or
more of the following (together, Hard Assets); (i) precious metals, (ii) ferrous
and non-ferrous
 
                                       18
<PAGE>   22
 
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 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,
 
                                       19
<PAGE>   23
 
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.
 
                                       20
<PAGE>   24
 
                   DETAILED DESCRIPTION OF POLICY PROVISIONS
 
DEATH BENEFIT
 
   
     General.  As long as the Policy remains in force, the Insurance Proceeds of
the Policy will, upon due proof of both the Insured's deaths (and fulfillment of
certain other requirements), be paid to the Beneficiary in accordance with the
designated Death Benefit Option. The Insurance Proceeds will be determined as of
the date of the last surviving Insured's death and will be equal to:
    
 
          1.  the Death Benefit;
 
          2.  plus any additional benefits due under a supplementary benefit
     rider attached to the Policy;
 
          3.  less any loan and accrued loan interest on the Policy;
 
          4.  less any overdue deductions if the death of the Insured occurs
     during the Grace Period.
 
     The Insurance Proceeds may be paid in cash or under one of the Settlement
Options set forth in the Policy.
 
     Death Benefit Options.  The Policy provides two Death Benefit Options:
Option A and Option B. The Owner designates the Death Benefit Option in the
application and may change it as described in "Change in Death Benefit Option."
Under either Option, the duration of the Death Benefit coverage depends upon the
Policy's Net Cash Surrender Value. (See "Policy Duration.")
 
   
     Option A.  The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy and (b) the Policy Account Value on the Valuation Date on
or next following the last surviving Insured's date of death multiplied by the
specified percentage based on the age of the younger Insured shown in the table
below:
    
 
<TABLE>
<CAPTION>
  ATTAINED AGE  PERCENTAGE  ATTAINED AGE   PERCENTAGE
  ------------  ----------  -------------  ----------
  <S>           <C>         <C>            <C>
  40 and under     250%          60           130%
       45          215%          65           120%
       50          185%          70           115%
       55          150%     75 through 90     105%
                            95 through 99     100%
</TABLE>
 
For Attained Ages not shown, the percentages will decrease by a ratable portion
for each full year.
 
     Illustration of Option A -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no Policy loan outstanding.
 
   
     Under Option A, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000. The specified percentage for a younger Insured
under Attained Age 40 on the Policy Anniversary prior to the date of death is
250%. Because the Death Benefit must be equal to or be greater than 2.50 times
the Policy Account Value, any time the Policy Account Value exceeds $80,000 the
Death Benefit will exceed the Face Amount. Each additional dollar added to the
Policy Account Value will increase the Death Benefit by $2.50. Thus, a 35 year
old younger Insured with a Policy Account Value of $150,000 will have a Death
Benefit of $375,000 (2.50 x $150,000); a Policy Account Value of $300,000 will
yield a Death Benefit of $750,000 (2.50 x $300,000); a Policy Account Value of
$400,000 will yield a Death Benefit of $1,000,000 (2.50 x $400,000).
    
 
     Similarly, any time the Policy Account Value exceeds $80,000, each dollar
taken out of the Policy Account Value will reduce the Death Benefit by $2.50. If
at any time, however, the Policy Account Value multiplied by the specified
percentage is less than the Face Amount, the Death Benefit will be the Face
Amount of the Policy.
 
     Option B.  The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy plus the Policy Account Value and (b) the Policy Account
Value multiplied by the specified percentage shown in
 
                                       21
<PAGE>   25
 
   
the table above. (The Policy Account Value in each case is determined on the
Valuation Day on or next following the last surviving Insured's date of death.)
    
 
   
     Illustration of Option B -- For purposes of this illustration, assume that
the younger Insured is under Attained Age 40 and there is no outstanding Policy
loan.
    
 
     Under Option B, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000 plus the Policy Account Value. Thus, for example, a
Policy with a $50,000 Policy Account Value will have a Death Benefit of $250,000
($200,000 plus $50,000); and a Policy Account Value of $100,000 will yield a
Death Benefit of $300,000. Since the specified percentage is 250%, the Death
Benefit will be at least 2.50 times the Policy Account Value. As a result, if
the Policy Account Value exceeds $133,333, the Death Benefit will be greater
than the Face Amount plus the Policy Account Value. Each additional dollar added
to the Policy Account Value above $133,333 will increase the Death Benefit by
$2.50. An Insured with a Policy Account Value of $150,000 will therefore have a
Death Benefit of $375,000 (2.50 x $150,000); a Policy Account Value of $300,000
will yield a Death Benefit of $750,000 (2.50 x $300,000); and a Policy Account
Value of $500,000 will yield a Death Benefit of $1,250,000 (2.50 x $500,000).
Similarly, any time the Policy Account Value exceeds $133,333, each dollar taken
out of the Policy Account Value will reduce the Death Benefit by $2.50. If at
any time, however, the Policy Account Value multiplied by the applicable
percentage is less than the Face Amount plus the Policy Account Value, the Death
Benefit will be the Face Amount plus the Policy Account Value.
 
   
     Which Death Benefit Option to Choose.  If an Owner prefers to have premium
payments and favorable investment performance reflected partly in the form of an
increasing Death Benefit, the Owner should choose Option B. If an Owner is
satisfied with the amount of the Insureds' existing insurance coverage and
prefers to have premium payments and favorable investment performance reflected
to the maximum extent in the Policy Account Value, the Owner should choose
Option A.
    
 
   
     Change in Death Benefit Option.  After the second Policy Year, at any time
while the Policy is in force, the Owner may change the Death Benefit Option in
effect by sending PMLIC a completed application for change. No charges will be
imposed to make a change in the Death Benefit Option. The effective date of any
such change will be the Policy Processing Day on or next following the date
PMLIC receives the completed application for change.
    
 
   
     If the Death Benefit Option is changed from Option A to Option B, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be decreased by the Policy Account Value on that date. However, this
change may not be made if it would reduce the Face Amount to less than the
Minimum Face Amount.
    
 
     If the Death Benefit Option is changed from Option B to Option A, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be increased by the Policy Account Value on that date.
 
     A change in the Death Benefit Option may affect the Net Amount at Risk over
time which, in turn, would affect the monthly Cost of Insurance Charge. Changing
from Option A to Option B will generally result in a Net Amount at Risk that
remains level. Such a change will result in a relative increase in the cost of
insurance charges over time because the Net Amount at Risk will, unless the
Death Benefit is based on the applicable percentage of Policy Account Value,
remain level rather than decreasing as the Policy Account Value increases.
Unless the Death Benefit is based on the applicable percentage of Policy Account
Value, changing from Option B to Option A will, if the Policy Account Value
increases, decrease the Net Amount at Risk over time, thereby reducing the cost
of insurance charge.
 
     The effects of these Death Benefit Option changes on the Face Amount, Death
Benefit and Net Amount at Risk can be illustrated as follows. Assume that a
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 and Net Amount at Risk would remain the same. Assume that
a contract under Option B has a Face
 
                                       22
<PAGE>   26
 
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 DECREASE FACE AMOUNT
    
 
   
     Subject to certain limitations, an Owner may generally, at any time after
the second Policy Year, decrease the Policy's Face Amount by submitting a
written application to PMLIC. (Decreases are not permitted for policies issued
in Virginia.) The effective date of the decrease will be the Policy Processing
Day on or next following PMLIC's approval of the request. A decrease in Face
Amount may have tax consequences. (See "Tax Treatment of Policy Benefits.") The
effect of a decrease in Face Amount on Policy charges, as well as other
considerations, are described below.
    
 
   
     The amount of a Face Amount decrease must be for at least $25,000 (or such
lesser amount required in a particular state). The Face Amount after any
decrease may not be less than the Minimum Face Amount for policies being issued
at the time of the decrease. A decrease in Face Amount will not be permitted if
the Face Amount was decreased during the prior 12-month period. To the extent a
decrease in the Face Amount could result in cumulative premiums exceeding the
maximum premium limitations applicable for life insurance under the Code, PMLIC
will not effect the decrease.
    
 
   
     A decrease in the Face Amount generally will decrease the total Net Amount
at Risk which will decrease an Owner's monthly Cost of Insurance Charges. A
decrease in the Face Amount may result in the imposition of a Surrender Charge
as of the Policy Processing Day on which the decrease becomes effective. (See
"Surrender Charges.")
    
 
   
     Any Surrender Charge applicable to a decrease will be deducted from the
Policy Account Value and the remaining Surrender Charge will be reduced by the
amount deducted. The Surrender Charge will be deducted from the Separate
Accounts and Subaccounts and the Guaranteed Account based on the proportion that
the value in such account bears to the total unloaned Policy Account Value.
    
 
INSURANCE PROTECTION
 
   
     An Owner may decrease the insurance protection provided by the Policy
(i.e., the Net Amount at Risk) in one of several ways, as insurance needs
change. These ways include decreasing the Face Amount, changing the level of
premium payments, and by making a partial withdrawal of Net Cash Surrender
Value. The consequences of each are summarized below.
    
 
   
     A decrease in Face Amount will decrease the insurance protection. It will
not reduce the Policy Account Value, except for the deduction of any surrender
charge applicable to the decrease. The Monthly Deductions will generally be
correspondingly lower following the decrease.
    
 
     Under Death Benefit Option A, until the specified percentage of Policy
Account Value exceeds the Face Amount, then (a) if the Owner increases the
premium payments from the current level, the amount
                                       23
<PAGE>   27
 
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.
    
 
PAYMENT AND ALLOCATION OF PREMIUMS
 
   
     Issuance of a Policy.  In order to purchase a Policy, an individual must
make application to PMLIC through a licensed PMLIC agent who is also a
registered representative of 1717 Capital Management Company ("1717") or a
broker/dealer having a Selling Agreement with 1717 or a broker/dealer having a
Selling Agreement with such a broker/dealer. If PMLIC accepts the application, a
Policy will be issued in consideration of payment of the Minimum Initial Premium
set forth in the Policy. The Minimum Face Amount of a Policy under PMLIC's rules
is currently $200,000 ($225,000 in New York State).
    
 
   
     PMLIC reserves the right to revise its rules from time to time to specify a
different Minimum Face Amount for subsequently issued policies. A Policy will be
issued only with respect to Insureds who individually have an Issue Age of 21 to
85 and a Joint Equal Age of 25 to 80 and who provide PMLIC with satisfactory
evidence of insurability. Acceptance is subject to PMLIC's underwriting rules.
PMLIC reserves the right to reject an application for any reason permitted by
law. (See "Distribution of Policies.")
    
 
     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 application; (b) the date that
insurance takes effect under the Policy; (c) the date a policy, other than as
applied for, is offered to the Applicant; or (d) five days from the date PMLIC
mails a notice of termination of coverage.
    
 
   
     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 $25. Subject to certain
limitations described below, an Owner has considerable flexibility in
determining the amount and frequency of premium payments.
    
 
                                       24
<PAGE>   28
 
     At the time of application, each Owner will select a Planned Periodic
Premium schedule, based on a periodic billing mode of annual, semi-annual, or
quarterly payment. The Owner is entitled to receive a premium reminder notice
from PMLIC at the specified interval. The Owner may change the Planned Periodic
Premium frequency and amount. Also, under the Automatic Payment Plan, the Owner
can select a monthly payment schedule pursuant to which premium payments will be
automatically deducted from a bank account or other source, rather than being
"billed".
 
   
     Unless prohibited by a particular state (i.e., New York) any payments made
while there is an outstanding Policy loan are considered loan repayments, unless
PMLIC is notified in writing that the amount is to be applied as a premium
payment. (Payments made under New York Policies will be treated as premium
payments and will only be applied as loan repayments if the Owner specifically
requests). The Owner is not required to pay the Planned Periodic Premiums in
accordance with the specified schedule. The Owner has the flexibility to alter
the amount and frequency of premium payments. However, payment of the Planned
Periodic Premiums does not guarantee that the Policy will remain in force.
Instead, the duration of the Policy depends upon the Policy's Net Cash Surrender
Value. Thus, even if Planned Periodic Premiums are paid, the Policy may lapse
whenever the Net Cash Surrender Value is insufficient to pay the Monthly
Deductions and any other charges and if a Grace Period expires without an
adequate payment by the Owner.
    
 
     Premium Limitations.  The Code provides for exclusion of the Death Benefit
from a Beneficiary's gross income if total premium payments do not exceed
certain stated limits. In no event can the total of all premiums paid under a
Policy exceed such limits. PMLIC has established procedures to monitor whether
aggregate premiums paid under a Policy exceed those limits. If a premium is paid
which would result in total premiums exceeding such limits, PMLIC will only
accept that portion of the premium which would make total premiums equal the
maximum amount which may be paid under the Policy. The excess will be refunded.
If total premiums do exceed the maximum premium limitations established by the
Code, however, the excess of a Policy's Death Benefit over the Policy's Cash
Surrender Value should still be excludable from gross income.
 
     The maximum premium limitations set forth in the Code depend in part upon
the amount of the Death Benefit at any time. As a result, any Policy changes
which affect the amount of the Death Benefit may affect whether cumulative
premiums paid under the Policy exceed the maximum premium limitations. To the
extent that any such change would result in cumulative premiums exceeding the
maximum premium limitations, PMLIC will not effect such change. (See "Federal
Income Tax Considerations.") PMLIC reserves the right to require satisfactory
evidence of insurability before accepting a premium payment that would increase
the Net Amount At Risk.
 
     Allocation of Net Premiums.  The Owner indicates in the application how Net
Premiums should be allocated among the Separate Accounts, the Subaccounts and/or
the Guaranteed Account. The percentages of each Net Premium that may be
allocated to any account must be in whole numbers and the sum of the allocation
percentages must be 100%. PMLIC allocates the Net Premiums as of the date it
receives such premium at its Service Center.
 
     Where state law requires a refund of premiums paid when a policy is
returned under the Free-Look provisions, any premiums received by PMLIC before
the expiration of a 15-day period beginning on the later of the Policy Issue
Date or the date PMLIC receives the Minimum Initial Premium, which are to be
allocated to the Separate Accounts or Subaccounts are allocated to the Money
Market Separate Account. At the end of the 15-day period, Policy Account Value
in the Money Market Separate Account is allocated among the Separate Accounts
and Subaccounts based on the proportion that the allocation 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.
 
                                       25
<PAGE>   29
 
     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.
 
   
POLICY ACCOUNT VALUE
    
 
   
     The Policy Account Value is the total amount of value held under the Policy
at any time. It is equal to the sum of the Policy's values in the Separate
Accounts, the Subaccounts, the Guaranteed Account and the Loan Account. The
Policy Account Value minus any applicable Surrender Charge is the Cash Surrender
Value.
    
 
   
     The Policy Account Value and Cash Surrender Value will reflect the
investment performance of the chosen Separate Accounts and Subaccounts, the
crediting of interest for the Guaranteed Account and the Loan Account, any Net
Premiums paid, 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, 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.
 
   
     The asset charge for mortality and expense risks and the transaction charge
for the Zero Coupon Bond Separate Account will be deducted in determining the
applicable Net Investment Factor.
    
 
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 two Policy Years the Policy will
not lapse if the Minimum Guarantee Premium
    
 
                                       26
<PAGE>   30
 
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 insurability satisfactory to PMLIC for both Insureds or evidence for
the last surviving Insured and due proof that the first death occurred before
the date of lapse. Payment of an amount sufficient to keep the Policy in force
for at least three months following the date that the reinstatement application
is approved. Upon reinstatement, the Policy Account Value is based upon the
premium paid to reinstate the Policy. A reinstated Policy has the same Policy
Date as it had prior to the lapse.
    
 
TRANSFERS OF POLICY ACCOUNT VALUE
 
     Transfers.  The Owner may transfer the Policy Account Value between and
among the Separate Accounts or Subaccounts and the Guaranteed Account by making
a written transfer request to PMLIC. The amount transferred must be at least
$1,000, unless the total value in an account is less than $1,000, in which case
the entire amount may be transferred.
 
   
     After twelve transfers have been made in any Policy Year, a $25 transfer
charge will be deducted from each transfer during the remainder of such Policy
Year. All transfers included in a single written request are treated as one
transfer. Transfers are made as of the date PMLIC receives a written request at
its Service Center. Transfers resulting from Policy loans, Automatic Asset
Rebalancing, Dollar-Cost Averaging, the exercise of exchange privileges and the
reallocation from the Money Market Separate Account following the 15-day period
after the Issue Date, are not subject to a transfer charge and do not count as
one of the twelve "free" transfers in any Policy Year. Under present law,
transfers are not taxable transactions.
    
 
   
     Special Transfer Right.  During the first two years following the Issue
Date, the Owner may, on one occasion, transfer the entire Policy Account Value
in the Separate Accounts or Subaccounts to the Guaranteed Account without a
transfer charge and without such transfer counting toward the twelve transfers
permitted without charge during a Policy Year.
    
 
   
     Transfer Right for Change in Investment Policy of a Separate Account or
Subaccount.  If the investment policy of a Separate Account or Subaccount is
materially changed, the Owner may transfer the portion of the Policy Account
Value in such Separate Account or Subaccount to another Separate Account or
Subaccount or to the Guaranteed Account without a transfer charge and without
having such transfer count toward the twelve transfers permitted without charge
during a Policy Year.
    
 
     Telephone Transfers.  Transfers will be made upon instructions given by
telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to PMLIC. PMLIC reserves the
right to suspend telephone transfer privileges at any time for any class of
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.
 
                                       27
<PAGE>   31
 
     Automatic Asset Rebalancing.  Automatic Asset Rebalancing is a feature
which, if elected, authorizes periodic transfers of Policy Account Values among
the Separate Accounts or Subaccounts in order to maintain the allocation of such
values in percentages that match the then current premium allocation
percentages. Election of this feature may be made in the application or at any
time after the policy is issued by properly completing the election form and
returning it to PMLIC. The election may be revoked at any time. Rebalancing may
be done quarterly or annually. Rebalancing terminates when the total value in
the Separate Accounts is less than $1,000. PMLIC reserves the right to suspend
Automatic Asset Rebalancing at any time, for any class of Policies, for any
reason.
 
   
     Dollar-Cost Averaging.  Dollar-Cost Averaging is a program which, if
elected, enables the Owner to systematically and automatically transfer, on a
monthly basis, specified dollar amounts from any selected Separate Account or
Subaccount to any other Separate Account or Subaccounts or the Guaranteed
Account. Transfers may not come from the Guaranteed Account. By allocating on a
regularly scheduled basis as opposed to allocating the total amount at one
particular time, an Owner may be less susceptible to the impact of short term
market fluctuations. PMLIC, however, makes no guarantee that Dollar-Cost
Averaging will result in a profit or protect against loss.
    
 
   
     Dollar-Cost Averaging may be elected for a period of 6, 12, 18, 24, 30 or
36 months. To qualify for Dollar-Cost Averaging, the following minimum amount of
Policy Account Value must be allocated to a Separate Account or Subaccount: 6
months -- $3,000; 12 months -- $6,000; 18 months -- $9,000; 24
months -- $12,000; 30 months -- $15,000; 36 months -- $18,000. At least $500
must be transferred from the Separate Account or Subaccount each month. The
amount required to be allocated to the Separate Account or Subaccount can be
made from an initial or subsequent investment or by transferring amounts into
the Separate Account or Subaccount from the other Separate Accounts or
Subaccounts or from the Guaranteed Account (See "Transfers from Guaranteed
Account."). Each monthly transfer is split among the Separate Accounts or
Subaccounts or the Guaranteed Account based upon the percentages elected.
Dollar-Cost Averaging may not be elected if Automatic Asset Rebalancing has been
elected or if a policy loan is outstanding.
    
 
   
     Dollar-Cost Averaging may be elected in the application or by completing an
election form and returning it to PMLIC by the beginning of the month. When an
election form is received, Dollar-Cost Averaging will commence on the first
Policy Processing Day after the later of (a) the Policy Date; (b) the 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, (b) 10 days after the Owner receives
the Policy and (c) 10 days after PMLIC mails or personally delivers a Notice of
Withdrawal Right to the Owner. Upon 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
    
                                       28
<PAGE>   32
 
   
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; (iv) any mortality and
expense risk charges deducted from the value of the net assets of the Separate
Accounts; and (v) any advisory fees and any other fees and expenses of the Fund.
A refund of all premiums paid is made for Policy's delivered in states that
require such a refund.
    
 
   
     When state law requires a refund equal to gross premiums paid, the refund
will instead equal the gross premiums paid on the Policy and will not reflect
the investment experience of the Separate Accounts or interest earnings for the
Guaranteed Account.
    
 
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.
    
 
   
     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.
    
 
     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.
    
 
     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.
 
   
     Loan Repayments.  An Owner may repay all or part of a Policy loan at any
time while either Insured is alive and the Policy is in force. Unless prohibited
by a particular state, PMLIC will assume that any
    
 
                                       29
<PAGE>   33
 
payments made while there is an outstanding loan is a loan repayment, unless it
receives written instructions that the payment is a premium payment. Repayments
up to the amount of the outstanding loan is allocated to the accounts based on
the amount of the outstanding loan allocated to each account as of the date of
repayment; any repayment in excess of the amount of the outstanding loan will be
allocated to the accounts based on the amount of interest due on the portion of
the outstanding loan allocated to each account. For this purpose, the amount of
the interest due is determined as of the next Policy Anniversary. Failure to
repay a loan or to pay loan interest will not cause the Policy to lapse unless
the Net Cash Surrender Value on the Policy Processing Day is less than the
monthly deduction due. (See "Policy Duration.")
 
     Tax Considerations.  Any loans taken from a Modified Endowment Contract
will be treated as a taxable distribution. In addition, with certain exceptions,
a 10% additional income tax penalty will be imposed on the portion of any loan
that is included in income. (See "Distributions from Policies Classified as
Modified Endowment Contracts.") Depending upon the investment performance of the
Separate Accounts and the amounts borrowed, loans may cause the Policy to lapse.
If the Policy is not a Modified Endowment Contract, lapse of the Policy with
outstanding loans may result in adverse tax consequences. (See "Distributions
from Policies Not Classified as Modified Endowment Contracts.")
 
SURRENDER PRIVILEGE
 
   
     At any time before the earlier of the death of the last surviving Insured
and the Final Policy Date, the Owner may surrender the Policy for its Net Cash
Surrender Value. The Net Cash Surrender Value is determined by PMLIC as of the
date it receives, at its Service Center, a surrender request signed by the
Owner. Coverage under the Policy will end on the day the Owner mails or
otherwise sends the written surrender request to PMLIC at its Service Center. A
surrender may have adverse federal income tax consequences. (See "Tax Treatment
of Policy Benefits.")
    
 
PARTIAL WITHDRAWAL PRIVILEGE
 
   
     After the first Policy Year, at any time before the earlier of the death of
the last surviving Insured and the Final Policy Date, the Owner may withdraw a
portion of the Policy's Net Cash Surrender Value. The minimum amount which may
be withdrawn is $1,500. A withdrawal charge will be deducted from the Policy
Account Value. A partial withdrawal will not result in the imposition of
surrender charges.
    
 
   
     The withdrawn amount and withdrawal charge will be allocated based on the
proportion that the Policy Account Value in the Separate Accounts or any
Subaccount and the Guaranteed Account Value bear to the total unloaned Policy
Account Value.
    
 
     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 younger
     Insured is under 40 and there is no indebtedness. The applicable percentage
     is 250% for a younger Insured with an Attained Age under 40.
    
 
          Under Option A, a contract with a Face Amount of $300,000 and a Policy
     Account Value of $30,000 will have a Death Benefit of $300,000. Assume that
     the policyowner takes a partial withdrawal of $10,000. The partial
     withdrawal will reduce the Policy Account Value to $19,975
     ($30,000 - $10,000 - $25) and the Death Benefit and Face Amount to $290,000
     ($300,000 - $10,000).
 
          If the Death Benefit immediately prior to the partial withdrawal is
     based on the applicable percentage of Policy Account Value, the Face Amount
     will be reduced by an amount equal to the amount of the partial withdrawal.
     The Death Benefit will be reduced to equal the greater of (a) the
                                       30
<PAGE>   34
 
     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.
    
 
     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.")
 
                                       31
<PAGE>   35
 
                             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 4.0%. A deduction of a percentage of the premium
will be made from each premium payment. The applicable percentage will be based
on the rate for the Insureds' residence. No Premium tax charge is deducted in
jurisdictions that impose no premium tax.
    
 
   
     Percent of Premium Sales Charge.  In Policy Years 1 to 10, 5% will be
deducted from each premium payment to partially compensate PMLIC for the cost of
selling the Policy. At the present time PMLIC does not intend to apply this
charge after Policy Year 10, but reserves the right to do so.
    
 
   
     Federal Tax Charge.  PMLIC will deduct 1.25% from each premium payment to
cover the cost of federal taxes resulting from its receipt of such premium
payment under the Policy. Section 848 of the Code ties PMLIC's corporate tax
burden, in part, to the receipt of such premium payments. PMLIC represents that
this charge is reasonable in relation to its increased tax burden under Section
848 of the Code. In addition, PMLIC reserves the right to change the amount of
this charge if the applicable federal tax law changes PMLIC's tax burden.
    
 
SURRENDER CHARGES
 
   
     A Surrender Charge, which consists of a Deferred Administrative Charge and
a Deferred Sales Charge, is imposed if the Policy is surrendered or lapses at
any time before the end of the 15th Policy Year. For Policies sold to residents
of New York State, the Surrender Charge applies during the first 12 Policy
Years. A portion of this Surrender Charge will be deducted if the Owner
decreases the Initial Face Amount before the end of the fifteenth Policy Year
(12th Policy Year for New York Policies).
    
 
     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>
                                                                     FOR NEW YORK POLICIES
                                                        ------------------------------------------------
                            CHARGE PER $1,000                                       CHARGE PER $1,000
POLICY YEAR               OF INITIAL FACE AMOUNT        POLICY YEAR               OF INITIAL FACE AMOUNT
- -----------               ----------------------        -----------               ----------------------
<S>                       <C>                           <C>                       <C>
1-11....................          $1.50                 1-8.....................          $1.50
12......................           1.20                 9.......................           1.20
13......................           0.90                 10......................           0.90
14......................           0.60                 11......................           0.60
15......................           0.30                 12......................           0.30
16 and after............              0                 13 and after............              0
</TABLE>
    
 
                                       32
<PAGE>   36
 
   
     The actual Deferred Administrative Charge is the charge described above
less the amount of any Deferred Administrative Charge previously paid at the
time of a decrease in Face Amount.
    
 
   
     Deferred Sales Charge.  The Deferred Sales Charge will not exceed the
Maximum Deferred Sales Charges specified in the Policy. During Policy Years 1
through 11 (Policy Years 1 through 8 for New York), this maximum equals: for
Joint Equal Ages 25 through 71, 50% of the Target Premium for the Face Amount;
for Joint Equal Ages 72 through 75, 40% of the Target Premium; and for Joint
Equal 76 through 80, 30% of the Target Premium. The Maximum Deferred Sales
Charge decreases by 20% of the original amount each year in Policy Years 12
through 15 (Policy Years 9 through 12 for New York.
    
 
   
<TABLE>
<CAPTION>
                                                                                  FOR NEW YORK POLICIES
                                         POLICY YEAR                                   POLICY YEAR
                          ------------------------------------------    -----------------------------------------
JOINT                                                         16 AND                                       13 AND
EQUAL AGES                1-11    12     13     14     15     AFTER     1-8     9     10     11     12     AFTER
- ----------                ----    ---    ---    ---    ---    ------    ---    ---    ---    ---    ---    ------
<S>                       <C>     <C>    <C>    <C>    <C>    <C>       <C>    <C>    <C>    <C>    <C>    <C>
25-71...................   50%     40%    30%    20%    10%     0       50%     40%    30%    20%    10%     0
72-75...................   40      32     24     16      8      0       40      32     24     16      8      0
76-80...................   30      24     18     12      6      0       30      24     18     12      6      0
</TABLE>
    
 
   
The Deferred Sales Charge actually imposed will equal the lesser of this maximum
and an amount equal to 25% of the premiums actually received during the first
Policy Year up to one Target Premium plus 4% of all other premiums paid to the
date of surrender or lapse, less any Deferred Sales Charge previously paid at
the time of a decrease in Face Amount.
    
 
   
     Surrender Charge Upon Decrease in Face Amount.  A surrender charge may be
deducted on a decrease in Face Amount. In the event of a decrease, the surrender
charge deducted is a fraction of the charge that would apply to a full surrender
of the Policy. The fraction will be determined by dividing the amount of the
decrease by the current Face Amount and multiplying the result by the Surrender
Charge.
    
 
   
     Allocation of Surrender Charges.  The Surrender Charge will be deducted
from the Policy Account Value. For surrender charges resulting from Face Amount
decreases, that part of any such surrender charge will reduce the Policy Account
Value and will be allocated among the accounts based on the proportion that the
value in each of the Separate Accounts, Subaccounts, and the Guaranteed Account
Value bear to the total unloaned Policy Account Value.
    
 
MONTHLY DEDUCTIONS
 
   
     Charges will be deducted from the Policy Account Value on the Policy Date
and on each Policy Processing Day to compensate PMLIC for administrative
expenses and for the insurance coverage provided by the Policy. The Monthly
Deduction consists of four components -- (a) the cost of insurance, (b)
insurance underwriting and expenses in connection with issuing the Policy, (c)
administrative expenses, and (d) the cost of any additional benefits provided by
rider. Because portions of the Monthly Deduction, such as the cost of insurance,
can vary from month to month, the Monthly Deduction may vary in amount from
month to month. The Monthly Deduction is deducted from the Separate Accounts,
Subaccounts and the Guaranteed Account in accordance with the allocation
percentages for Monthly Deductions chosen by the Owner at the time of
application, or as later changed by PMLIC pursuant to the Owner's written
request. If PMLIC cannot make a monthly deduction on the basis of the allocation
schedule then in effect, PMLIC makes the deduction based on the proportion that
the Owner's Guaranteed Account Value and the value in the Owner's Separate
Accounts and Subaccounts bear to the total unloaned Policy Account Value.
    
 
     Cost of Insurance.  Because the cost of insurance depends upon several
variables, the cost for each Policy Month can vary. PMLIC will determine the
monthly Cost of Insurance Charge by multiplying the applicable cost of insurance
rate or rates by the Net Amount at Risk for each Policy Month.
 
   
     The Net Amount at Risk on any Policy Processing Day is the amount by which
the Death Benefit exceeds the Policy Account Value. In calculating the Cost of
Insurance Charge, the rate is applied to the
    
 
                                       33
<PAGE>   37
 
   
Net Amount at Risk. Any change in the Net Amount at Risk will affect the total
Cost of Insurance Charges paid by the Owner.
    
 
   
     Cost of Insurance Rate.  The cost of insurance rate is based on the
Attained Age, Sex, Premium Class of each Insured and Duration. The actual
monthly cost on insurance rates will be based on PMLIC's expectations as to
future mortality and expense experience. They will not, however, be greater than
the guaranteed maximum cost of insurance rates set forth in the Policy. These
guaranteed maximum rates are based on each Insured's Attained Age, Sex, Premium
Class, and the 1980 Commissioners 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 pairs of Insureds of the same
Attained, Age, Sex, and Premium Class and Duration.
    
 
   
     Premium Class.  The Premium Class of the Insureds will affect the cost of
insurance rates. PMLIC currently places Insureds into standard classes and
classes with extra ratings, which reflect higher mortality risks. In an
otherwise identical Policy, Insureds in the standard class will have a lower
cost of insurance than Insureds in a class with extra ratings. The standard
Premium Class is divided into three categories: smoker, nonsmoker and preferred.
Nonsmoking 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.
    
 
   
     Initial Administrative Charge.  An Initial Administrative Charge of $17.50
plus $0.11 per $1,000 of Initial Face Amount 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 plus $0.01 per $1,000 of Face Amount) is deducted from the Policy Account
Value on the Policy Date and each Policy Processing Day as part of the Monthly
Deduction. This charge may be increased, but in no event will it be greater than
$12 plus $0.03 per $1,000 of Face Amount per month. This charge is intended to
reimburse PMLIC for ordinary administrative expenses expected to be incurred,
including record keeping, processing claims and certain Policy changes,
preparing and mailing reports, and overhead costs.
    
 
     Additional Benefit Charges.  The Monthly Deduction will include charges for
any additional benefits added to the Policy. The monthly charges will be
specified in the applicable rider.
 
   
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 twelve transfers have been made in any Policy Year, a transfer charge
of $25 will be deducted for each transfer during the remainder of such Policy
Year to compensate PMLIC for the costs of processing such transfers.
    
 
   
     The transfer charge will be deducted from the amount being transferred. The
transfer charge will not apply to transfers resulting from Policy loans,
Automatic Asset Rebalancing, Dollar-Cost Averaging, the exercise of special
transfer rights and the initial reallocation of account values from the Money
Market Separate Account to other Separate Accounts or Subaccounts. These
transfers will not count against the twelve free transfers in any Policy Year.
    
 
                                       34
<PAGE>   38
 
MORTALITY AND EXPENSE RISK CHARGE
 
   
     A daily charge will be deducted from the value of the net assets of the
Separate Accounts and Subaccounts to compensate PMLIC for mortality and expense
risks assumed in connection with the Policy. This charge will be deducted at an
annual rate of 0.60% (or a daily rate of .001644%) 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.
    
 
     If the mortality and expense risk charge proves insufficient, PMLIC will
provide for all death benefits and expenses and any loss will be borne by PMLIC.
Conversely, PMLIC will realize a gain from this charge to the extent all money
collected from this charge is not needed to provide for benefits and expenses
under the Policies.
 
   
ASSET CHARGE AGAINST ZERO COUPON BOND SEPARATE ACCOUNT
    
 
   
     PMLIC makes a daily asset charge against the assets of the Zero Coupon Bond
Separate Account. This charge is to reimburse PMLIC for transaction charges paid
directly by PMLIC to Merrill Lynch, Pierce, Fenner & Smith on the sale of Zero
Coupon Trust units to the Zero Coupon Bond Separate Account. PMLIC pays these
amounts from General Account assets. The amount of the asset charge currently is
equivalent to an effective annual rate of 0.25% (.000685% per day) of the
average daily net assets of each Subaccount. This amount may be increased in the
future, but in no event will it exceed an effective annual rate of 0.50%
(.001370% per day).
    
 
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
and Zero Trust Prospectuses which are attached to or accompany this Prospectus.
    
 
                                       35
<PAGE>   39
 
                             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
 
                                       36
<PAGE>   40
 
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 written request for such transfer is
received prior to the Policy Anniversary, the transfer will be made as of the
Policy Anniversary; if the written request is received after the Policy
Anniversary, the transfer will be made as of the date PMLIC receives the written
request at its Service Center.
    
 
                                       37
<PAGE>   41
 
                            OTHER POLICY PROVISIONS
 
BENEFIT PAYABLE ON FINAL POLICY DATE
 
   
     If one of the Insureds is living on the Final Policy Date (at the younger
Insured's Attained Age 100), PMLIC will pay the Owner the Policy Account Value
less any outstanding Policy loan and accrued interest and any unpaid Monthly
Deductions. Insurance coverage under the Policy will then end. Payment will
generally be made within seven days of the Final Policy Date.
    
 
PAYMENT OF POLICY BENEFITS
 
   
     Insurance Proceeds under a Policy will ordinarily be paid to the
Beneficiary within seven days after PMLIC receives proof of both Insureds'
deaths at its Service Center and all other requirements are satisfied. Insurance
proceeds will be paid in a single sum unless an alternative settlement option
has been selected.
    
 
     If Insurance Proceeds are payable in a single sum, interest at the annual
rate of 3% or any higher rate declared by PMLIC or required by law is paid on
the Insurance Proceeds from the date of death until payment is made.
 
   
     Any amounts payable as a result of the free-look right, surrender, partial
withdrawal, or Policy loan will ordinarily be paid within seven days of receipt
of written request at PMLIC's 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. Before the
death of the last surviving Insured, the Owner may arrange for the Insurance
Proceeds to be paid in a lump sum or under a Settlement Option. These choices
are also available upon surrender of the Policy for its Net Cash Surrender Value
and for payment of the Policy Account Value on the Final Policy Date. If no
election is made, payment will be made in a lump sum. The Beneficiary may also
arrange for payment of the Insurance Proceeds in a lump sum or under a
Settlement Option. If the Beneficiary is changed, any prior arrangements with
respect to the Payment Option will be canceled.
    
 
THE POLICY
 
     The Policy and the application(s) attached thereto are the entire contract.
Only statements made in the applications can be used to void the Policy or deny
a claim. PMLIC assumes that all statements in an application are made to the
best of the knowledge and belief of the person(s) who made them, and, in the
absence of fraud, those statements are considered representations and not
warranties. PMLIC relies on those statements when it issues or changes a Policy.
Only the President or a Vice President of PMLIC can agree to change or waive any
provisions of the Policy and only in writing. As a result of differences in
applicable state laws, certain provisions of the Policy may vary from state to
state.
 
                                       38
<PAGE>   42
 
   
\OWNERSHIP
    
 
   
     The Owner is the Insureds, jointly unless a different Owner is named in the
application or thereafter changed. After the death of the first Insured, the
surviving Insured will be the Owner unless otherwise provided. While both or one
of the Insureds is living, the Owner is entitled to exercise any of the rights
stated in the Policy or otherwise granted by PMLIC. If the Insureds and Owner
are not the same, and the Owner dies while an Insured is living, these rights
will vest in the estate of the Owner, unless otherwise provided.
    
 
BENEFICIARY
 
   
     The Beneficiary is designated in the application for the Policy, unless
thereafter changed by the Owner before the death of the last surviving Insured
by written notice to PMLIC. Any Insurance Proceeds for which there is not a
designated Beneficiary surviving at the death of the last surviving Insured are
payable in a single sum to the executors or administrators of the last surviving
Insured.
    
 
CHANGE OF OWNER 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. The change will take effect as
of the date it is signed, whether or not one of the Insured is living when the
request is received by PMLIC. PMLIC will not be responsible for any payment made
or action taken before it receives the written request. A change in the Policy's
ownership may have federal income tax consequences. (see "Tax Treatment of
Policy Benefits.")
    
 
SPLIT DOLLAR ARRANGEMENTS
 
     The Owner or Owners may enter into a Split Dollar Arrangement between each
other or another person or persons whereby the payment of premiums and the right
to receive the benefits under the Policy (i.e., Net Cash Surrender Value or
Policy Proceeds) are split between the parties. There are different ways of
allocating such rights.
 
   
     For example, an employer and employee might agree that under a Policy on
the life of the employee, the employer will pay the premiums and will have the
right to receive the Net Cash Surrender Value. The employee may designate the
Beneficiary to receive any Death Proceeds in excess of the Net Cash Surrender
Value. If the employee dies while such an arrangement is in effect, the employer
would receive from the Death Proceeds the amount which he would have been
entitled to receive upon surrender of the policy and the employee's Beneficiary
would receive the balance of the proceeds.
    
 
   
     No transfer of Policy rights pursuant to a Split Dollar Arrangement will be
binding on PMLIC unless in writing and received by PMLIC.
    
 
     The parties who elect to enter into a Split Dollar Arrangement should
consult their own tax advisers regarding the tax consequences of such an
arrangement.
 
   
ASSIGNMENTS
    
 
   
     The Owner may assign any and all rights under the Policy. No assignment
binds PMLIC unless in writing and received by PMLIC at its Service Center. PMLIC
assumes no responsibility for determining whether an assignment is valid and the
extent of the assignee's interest. All assignments will be subject to any Policy
loan. The interest of any Beneficiary or other person will be subordinate to any
assignment. A Beneficiary may not commute, encumber, or alienate Policy
benefits, and to the extent permitted by applicable law, such benefits are not
subject to any legal process for the payment of any claim against the payee.
    
 
                                       39
<PAGE>   43
 
MISSTATEMENT OF AGE AND SEX
 
   
     If the age or sex of either Insured has been misstated in the application,
the Death Benefit and any benefits provided by riders will be such as the most
recent Monthly Deductions would have provided at the correct age and sex. No
adjustment will be made to the Policy Account Value.
    
 
SUICIDE
 
   
     PMLIC's liability is limited to payment of a sum equal to the premiums paid
less any Policy loan and accrues interest on such loan and any partial
withdrawals if:
    
 
   
     (a) both Insureds commit suicide within two years of the Policy Issue Date
         (except where state law requires a shorter period) and within 90 days
         of each other; or
    
 
   
     (b) the last surviving Insured dies by suicide within such two year period
         and within 90 days of the death of the first of the Insureds to die; or
    
 
   
     (c) the last surviving Insured lives for more than 90 days beyond the date
         that the first Insured's death occurred by suicide and does not
         exchange the Policy as described below.
    
 
   
     During the 90 day period following the date that the first Insured dies by
suicide, the surviving Insured may exchange the survivorship policy, without
evidence of insurability, for a fixed-benefit policy issued by PMLIC on the life
of such surviving Insured. The Policy Issue Date for the new policy will be the
91st day after the date of the first Insured's death. In the event one of the
Insureds commits suicide within two years of the Policy Issue Date and the
surviving Insured does not exercise this exchange right, coverage under the
Policy will end on the 91st day following such death.
    
 
   
     If one of the Insureds commits suicide within two years of the Policy Issue
Date (or shorter period required by state law) and the surviving Insured dies,
other than by suicide, within 90 days of the date of the first death, PMLIC will
pay the Insurance Proceeds to the Beneficiary.
    
 
CONTESTABILITY
 
   
     PMLIC has the right to contest the validity of a Policy based on material
misstatements made in the application for the Policy or a change. However, PMLIC
will not contest the Policy (or any change) after it (or the change) has been in
force during each Insured's lifetime for two years from the Issue Date.
    
 
   
DIVIDENDS
    
 
   
     The Policy is participating; however, no dividends are expected to be paid
on the Policy. If dividends are ever declared, they will be paid under one of
the following options:
    
 
   
     (a) Paid in cash; or
    
 
   
     (b) Applied as a Net Premium.
    
 
   
     The Owner must choose an option at the time the application for the Policy
is signed. If no option is chosen, any dividend will be applied as a Net Premium
payment. The Owner may change the option by giving written notice to PMLIC.
    
 
SETTLEMENT OPTIONS
 
     In lieu of a single sum payment on death or surrender, an election may be
made to apply the proceeds under any one of the fixed-benefit Settlement Options
provided in the Policy. A guaranteed interest rate of 3% per year applies to all
Options. Additional interest may be declared each year by PMLIC in its sole
discretion. The options are briefly described below. Please refer to the Policy
for more details.
 
   
     Proceeds at Interest Option.  Left on deposit to accumulate with PMLIC with
interest payable at a rate of at least 3% per year.
    
 
                                       40
<PAGE>   44
 
   
     Installments of a Specified Amount Option.  Payable in equal installments
until proceeds applied under the Option and interest on the unpaid balance at 3%
per year and any additional interest are exhausted.
    
 
   
     Installments for a Specified Period Option.  Payable in the number of equal
monthly installments set forth in the election. Payments may be increased by
additional interest which would increase the instalments certain. The guaranteed
interest rate is 3% per year.
    
 
     Life Income Option.  Payable in equal monthly instalments during the
payee's life. Payments will be made either with or without a guaranteed minimum
number. If there is to be a minimum number of payments, they will be for either
120 or 240 months or until the proceeds applied under the Option are exhausted,
as elected.
 
   
     Joint and Survivor Life Income.  Payable in equal monthly instalments
during the joint lives of the payee and one other person and during the life of
the survivor. The minimum number of payments will be for either 120 or 240
months, as elected.
    
 
                             SUPPLEMENTARY BENEFITS
 
   
     The following riders offer supplementary benefits. Most are subject to
various age and underwriting requirements and, unless otherwise indicated, must
be purchased when the Policy is issued. The cost of each rider is included in
the monthly deduction.
    
 
   
     Disability Waiver Benefit.  The policy may include a Disability Waiver
Benefit rider for either or both Insureds. This rider provides that in the event
of such Insured's total disability before Attained Age 60 and continuing for at
least six months, PMLIC will apply a premium payment to the Policy on each
Policy Processing Day during the first two Policy Years (the amount of the
payment will be based on the Minimum Annual Premium). PMLIC will also waive all
monthly deductions after the commencement of and during the continuance of such
total disability after the first two Policy Years.
    
 
   
     Policy Split Option.  Under certain circumstances, the Policy can be split
on a 50/50 basis into two fixed-benefit life insurance policies, one on the life
of each Insured, with evidence of insurability. A policy split can be made if a
final divorce decree is issued with respect to the marriage of the two Insureds
or if the Federal Estate Tax law is changed resulting in removal of the
unlimited marital deduction or a reduction of at least 50% in the estate taxes
payable on death. The Face Amount and Policy Account Value less Policy loans and
accrued interest will be divided evenly between the two new policies. For a
discussion of the tax consequences of a policy split, see "Taxation of Policy
Split."
    
 
   
     Change of Insured.  A Change of Insured rider permits the Owner to change
one of the Insureds under a Policy to a New 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 and the Remaining Insured as
of the effective date of the change.
    
 
   
     Four year Survivorship Term Life Insurance.  The Policy may include a Four
Year Survivorship Term rider which provides additional term insurance during the
first four Policy Years upon due proof of the death of both Insureds. The amount
of this term insurance is 1.25 multiplied by the Face Amount of the Policy.
    
 
   
     Other Insured Convertible Term Life Insurance.  An Other Insured
Convertible Term Life Insurance rider provides additional term insurance on one
of the Insureds. Two riders may be included to cover each Insured. The amount of
term insurance on either or both Insureds is shown in the Policy Schedule.
    
 
   
     Guaranteed Minimum Death Benefit.  A Guaranteed Minimum Death Benefit rider
provides a guarantee that the Policy will not lapse if the sum of premiums paid
less any partial withdrawals less any policy loans equals or exceeds the Minimum
Guarantee Premium. This rider expires at the later of the policy anniversary
nearest age 70 of the older Insured or the end of the tenth Policy year. This
rider is not available if Death Benefit Option B is elected at issue and will
terminate if the Policy is changed to Death Benefit Option B. If this rider is
added, the Monthly Deduction will be increased to include the cost of this
rider.
    
 
                                       41
<PAGE>   45
 
   
     If the Guaranteed Minimum Death Benefit is lost due to insufficient premium
payments, it may be possible to regain the guarantee in future years. Federal
tax law may preclude payment of sufficient premiums to maintain the guarantee
following a decrease in Face Amount, a partial withdrawal that reduces the Face
Amount, reduction or deletion of a rider benefit or an improvement in the
Policy's Premium Class.
    
 
     Final Policy Date Extension.  A Final Policy Date Extension rider extends
the Final Policy Date of a Policy 20 years from the original Final Policy Date.
It may only be added on or after the anniversary nearest the younger insured's
90th birthday. There is no charge for adding this rider. The death benefit after
the original Final Policy Date will be the Policy Account Value. All other
riders attached and in effect on the original Final Policy Date will terminate
on the original Final Policy Date.
 
   
     The tax consequences of (1) adding a Final Policy Date Extension rider to
the Policy, and (2) the Policy continuing in force after the younger Insured's
100th birthday are uncertain. Prospective Owners and Owners considering the
addition of a Final Policy Date Extension to a Policy should consult their own
legal or other advisors as to such consequences.
    
 
                                       42
<PAGE>   46
 
                       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."
 
                                       43
<PAGE>   47
 
     Modified Endowment Contracts.  Under the Internal Revenue Code, certain
life insurance contracts are classified as "Modified Endowment Contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
circumstances of each Policy will determine whether it is classified as a
Modified Endowment Contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
Policy years or seven years following a material change to the Policy. Certain
changes in a Policy after it is issued could also cause it to be classified as a
Modified Endowment Contract. A current or prospective Owner should consult with
a competent adviser to determine whether a Policy transaction will cause the
Policy to be classified as a Modified Endowment Contract.
 
     Distributions Other Than Death Benefits from Modified Endowment
Contracts.  Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
 
     - All distributions other than death benefits from a Modified Endowment
       Contract, including distributions upon surrender and withdrawals, are
       treated first as distributions of gain taxable as ordinary income and as
       tax-free recovery of the Owner's investment in the Policy only after all
       gain has been distributed.
 
     - Loans taken from or secured by a Policy classified as a Modified
       Endowment Contract are treated as distributions and taxed in same manner
       as surrenders and withdrawals.
 
     - A 10 percent additional income tax is imposed on the amount subject to
       tax except where the distribution or loan is made when the Owner has
       attained age 59 1/2 or is disabled, or where the distribution is part of
       a series of substantially equal periodic payments for the life (or life
       expectancy) of the Owner or the joint lives (or joint life expectancies)
       of the Owner and the Owner's beneficiary or designated beneficiary.
 
     Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a Policy that
is not classified as a Modified Endowment Contract are generally treated first
as a recovery of the Owner's investment in the Policy and only after the
recovery of all investment in the Policy as taxable income. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for Federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole or
in part as ordinary income subject to tax.
 
   
     Loans from or secured by a Policy that is not a Modified Endowment Contract
are generally not treated as distributions.
    
 
     Finally, neither distributions from nor loans from or secured by a Policy
that is not a Modified Endowment Contract are subject to the 10 percent
additional income tax.
 
     Investment in the Policy.  The Owner's investment in the Policy is
generally the aggregate premium payments. When a distribution is taken from the
Policy, the Owner's investment in the Policy is reduced by the amount of the
distribution that is tax-free.
 
     Policy Loans.  In general, interest on a Policy loan will not be
deductible. Before taking out a Policy loan, an Owner should consult a tax
adviser as to the tax consequences.
 
     Multiple Policies.  All Modified Endowment Contracts that are issued by
PMLIC (or its affiliates) to the same Owner during any calendar year are treated
as one Modified Endowment Contract for purposes of determining the amount
includible in the Owner's income when a taxable distribution occurs.
 
   
     Taxation of Policy Split.  The Policy Split Option Rider permits a Policy
to be split into two other fixed-benefit life policies upon the occurrence of a
divorce of the joint insureds or certain changes in federal estate tax law. A
policy split could have adverse tax consequences; for example, it is not clear
whether a policy split will be treated as a nontaxable exchange under Section
1031 through 1043 of the
    
 
                                       44
<PAGE>   48
 
   
Code. If a policy split is not treated as a nontaxable exchange, a split could
result in the recognition of taxable income in an amount up to any gain in the
Policy at the time of the split. In addition, it is not clear whether, in all
circumstances, the individual contracts that result from a policy split would be
treated as life insurance contracts for federal income tax purposes and, if so
treated, whether the individual contracts would be classified as modified
endowment contracts. Before you exercise rights provided by the policy split
option, it is important that you consult with a competent tax adviser regarding
the possible consequences of a policy split.
    
 
   
BUSINESS USES OF THE POLICY
    
 
     Businesses can use the Policy in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances. If an Owner
is purchasing the Policy for any arrangement the value of which depends in part
on its tax consequences, he or she should consult a qualified tax adviser. In
recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
Policy or a change in an existing Policy should consult a tax adviser.
 
POSSIBLE TAX LAW CHANGES
 
     Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Policy could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Policy.
 
PMLIC'S TAXES
 
     Under current Federal income tax law, PMLIC is not taxed on the Separate
Accounts' operations. Thus, currently PMLIC does not deduct charges from the
Separate Accounts for its Federal income taxes. PMLIC reserves the right to
charge the Separate Accounts for any future Federal income taxes that it may
incur.
 
     Under current laws in several states, PMLIC may incur state and local taxes
(in addition to premium taxes). These taxes are not now significant and we are
not currently charging for them. If they increase, PMLIC may deduct charges for
such taxes.
 
           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
 
                                       45
<PAGE>   49
 
"unisex" policies (currently Montana) and EBS Policies are based upon actuarial
tables which distinguish between men and women and, thus, the Policy provides
different benefits to men and women of the same age. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of these authorities on any employment-related insurance or benefits
program before purchasing the Policy and in determining whether an EBS Policy is
appropriate.
 
                                 VOTING RIGHTS
 
   
     All of the assets held in the Growth, Money Market, Bond, Aggressive
Growth, and International Separate Accounts and the Subaccounts of the Variable
Account will be invested in shares of corresponding portfolios of the Funds.
(The organizational documents of the Trust do not contemplate meetings of
holders of Trust units nor any action taken by vote of such holders). The Funds
do not hold routine annual shareholders' meetings. Shareholders' meetings will
be called whenever each Fund believes that it is necessary to vote to elect the
Board of Directors of the Fund and to vote upon certain other matters that are
required by the 1940 Act to be approved or ratified by the shareholders of a
mutual fund. PMLIC is the legal owner of Fund shares and as such has the right
to vote upon any matter that may be voted upon at a shareholders' meeting.
However, in accordance with its view of present applicable law, PMLIC will vote
the shares of the Funds at meetings of the shareholders of the appropriate Fund
or Portfolio in accordance with instructions received from Owners. Fund shares
held in each Separate Account or Subaccount for which no timely instructions
from policyowners are received will be voted by PMLIC in the same proportion as
those shares in that Separate Account or Subaccount for which instructions are
received.
    
 
     Each Owner having a voting interest will be sent proxy material and a form
for giving voting instructions. Owners may vote, by proxy or in person, only as
to the Portfolios that correspond to the Separate Accounts or Subaccounts in
which their Policy values are allocated. The number of shares held in each
Separate Account or Subaccount attributable to a Policy for which the Owner may
provide voting instructions will be determined by dividing the Policy's value in
that account by the net asset value of one share of the corresponding Portfolio
as of the record date for the shareholder meeting. Fractional shares will be
counted. For each share of a Portfolio for which Owners have no interest, PMLIC
will cast votes, for or against any matter, in the same proportion as Owners
vote.
 
     If required by state insurance officials, PMLIC may disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the investment objectives or policies of one or more of the
Portfolios, or to approve or disapprove an investment policy or investment
adviser of one or more of the Portfolios. In addition, PMLIC may disregard
voting instructions in favor of changes initiated by an Owner or the Fund's
Board of Directors provided that PMLIC's disapproval of the change is reasonable
and is based on a good faith determination that the change would be contrary to
state law or otherwise inappropriate, considering the portfolio's objectives and
purposes, and the effect the change would have on PMLIC. If PMLIC does disregard
voting instructions, it will advise Owners of that action and its reasons for
such action in the next semi-annual report to Owners.
 
                                       46
<PAGE>   50
 
                   CHANGES TO THE SEPARATE ACCOUNTS OR FUNDS
 
CHANGES TO SEPARATE ACCOUNT OPERATIONS
 
     The voting rights described in this Prospectus are created under applicable
Federal securities laws and regulations. If these laws or regulations change to
eliminate the necessity to solicit voting instructions from Owners or restrict
such voting rights, PMLIC reserves the right to proceed in accordance with any
such changed laws or regulations.
 
     PMLIC also reserves the right, subject to compliance with applicable law,
including approval of Owners, if so required: (1) to transfer assets supporting
the Policies from one Subaccount to another or from the Variable Account to
another Separate Account, (2) to create additional separate accounts, (3) to
create additional Subaccounts, or combine or remove Subaccounts from the
Variable Account or to create other separate accounts, or to combine any two or
more Separate Accounts or Subaccounts, (4) to operate one or more of the
Separate Accounts or Subaccounts as a management investment company under the
1940 Act, or in any other form permitted by law; (5) to deregister the unit
investment trust under the 1940 Act; and (6) to modify the provisions of the
Policies to comply with applicable laws.
 
CHANGES TO AVAILABLE PORTFOLIOS
 
   
     It is possible that PMLIC may determine that one or more of the Portfolios
or the Zero Trust may become unsuitable for investment by the corresponding
Separate Account or Subaccount because of a change in investment policy, or a
change in the tax laws, or because the shares or units are no longer available
for investment or for any other reasonable cause. In that event, PMLIC may seek
to substitute the shares of another Portfolio or of a Portfolio of a Fund not
currently available under the Policies. If required by law, the approval of the
SEC and possibly one or more state insurance departments would be obtained.
    
 
     Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between it and PMLIC. The
termination provisions of those agreements vary. Should an agreement between
PMLIC and a Fund terminate, the Variable Account will not be able to purchase
additional shares of that Fund. In that event, Owners would no longer be able to
allocate 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
 
                                       47
<PAGE>   51
 
     Alger's principal underwriter if it determines that PMLIC has suffered a
     material adverse change in its business, operation, financial condition or
     prospects.
 
          Variable Insurance Products Fund and Variable Insurance Products Fund
     II.  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.
 
                                       48
<PAGE>   52
 
                        OFFICERS AND DIRECTORS OF PMLIC
 
   
<TABLE>
<CAPTION>
                                                            PRINCIPAL OCCUPATION
          NAME AND POSITION*                             DURING THE PAST FIVE YEARS
          ------------------                             --------------------------
<S>                                      <C>
Robert W. Kloss
  President, Chief Executive
  Officer and Director.................  1996 to present -- President and Chief Executive Officer
                                         of PMLIC; 1994-1996 -- President and Chief Operating
                                         Officer of PMLIC; 1986-1994 -- President and Chief
                                         Executive Officer of Covenant Life Insurance Company.
 
Edward R. Book
  Director.............................  1995 to present -- Past-President and Consultant of Travel
  342 Lake Meade Drive                   Industry Association of America; 1996-1997 -- President of
  Berlin, PA 17316                       USA National Tourism Organization, Inc.;
                                         1989-1994 -- President of Travel Industry Association of
                                         America.
 
Dorothy M. Brown
  Director.............................  1999 to present -- Educational Consultant of The Kaludis
  16 Meredith Road                       Consulting Group; 1998-1999 -- Interim President of
  Wynnewood, PA 19096                    Allegheny University; 1994-1998 -- Educational Consultant
                                         of Kaludis Consulting Group; 1992-1994 -- Interim
                                         President of the Pennsylvania Academy of the Fine Arts.
 
Robert J. Casale
  Director.............................  1997 to present -- Executive Consultant of Automatic Data
  2 Journal Square                       Processing, Inc.; 1988-1997 -- Group President/Brokerage
  Jersey City, NJ 07306                  Information Services Group of Automatic Data Processing
                                         Inc.
 
Nicholas DeBenedictis
  Director.............................  1993 to present -- Chairman of Philadelphia Suburban
  Philadelphia Suburban Corp.            Corporation.
  762 Lancaster Avenue
  Bryn Mawr, PA 19010
 
Philip C. Herr, II
  Director.............................  1961 to present -- Partner of Herr, Potts & Herr.
  Herr, Potts & Herr
  Strafford Office Building,
  Building #4
  175 Strafford Avenue, Suite 314
  Wayne, PA 19087
 
J. Richard Jones
  Director.............................  1998 to present -- Executive Managing Director
  1800 JFK Boulevard                     Insignia/ESG Jackson-Cross; 1981-1998 -- President and
  10th Floor                             Chief Executive Officer of Jackson-Cross Company.
  Philadelphia, PA 19103
 
John P. Neafsey
  Director.............................  1993 to present -- President of JN Associates.
  13 Valley Road
  So. Norwalk, CT 06854
 
Charles L. Orr
  Director.............................  1993 to present -- President and Chief Executive Officer
  Shaklee Corporation                    of Shaklee Corporation.
  Shaklee Terraces
  444 Market Street
  San Francisco, CA 94111
 
Donald A. Scott
  Director.............................  1998 to present -- Counsel, Morgan, Lewis and Bockius,
  714 West Mt. Airy Avenue               LLP; 1964-1998 -- Partner of Morgan, Lewis and Bockius,
  Philadelphia, PA 19119                 LLP.
</TABLE>
    
 
                                       49
<PAGE>   53
 
   
<TABLE>
<CAPTION>
                                                            PRINCIPAL OCCUPATION
          NAME AND POSITION*                             DURING THE PAST FIVE YEARS
          ------------------                             --------------------------
<S>                                      <C>
John J. F. Sherrerd
  Director.............................  1996 to present -- Corporate Director and Private
  One Tower Bridge                       Investor, Sherrerd & Company; 1969-1995 -- Partner of
  West Conshohocken, PA 19428            Miller, Anderson & Sherrerd.
 
Harold A. Sorgenti
  Director.............................  1997 to present -- General Partner at Sorgenti, Investment
  Mellon Center, Suite 1313              Partners; 1998 to present -- Chairman & CEO, SpecChem
  1735 Market Street                     International Holdings, LLC 1991-1997 -- Partner of The
  Philadelphia, PA 19103                 Freedom Group Partnership.
 
Alan F. Hinkle
  Executive Vice President
  and Chief Actuary....................  1996 to present -- Executive Vice President and Chief
                                         Actuary of PMLIC; 1974-1996 -- Vice President and
                                         Individual Actuary.
 
James G. Potter, Jr.
  Executive Vice President,
  General Counsel and Secretary........  1997 to present -- Executive Vice President, General
                                         Counsel & Secretary of PMLIC; 1989-1997 -- Chief Legal
                                         Officer of Prudential Banks.
 
Joan C. Tucker
  Executive Vice President,
  Corporate Operations.................  1996 to present -- Executive Vice President, Corporate
                                         Operations at PMLIC; 1996-Senior Vice President, Insurance
                                         Operations of PMLIC; 1993-1996 -- Vice President
                                         Individual Insurance Operations at PMLIC.
 
Mary Lynn Finelli
  Executive Vice President
  and Chief Financial Officer..........  1996 to present -- Executive Vice President and Chief
                                         Financial Officer of PMLIC; 1986-1996 -- Vice President
                                         and Controller of PMLIC.
 
J. Kevin McCarthy
  Executive Vice President
  and Chief Marketing Officer..........  1996 to present -- Executive Vice President and Chief
                                         Marketing Officer of PMLIC; 1995-Vice President, Variable
                                         Products at CNA Insurance Companies; 1992-1994 -- Vice
                                         President, Sales of PMLIC.
 
Mehran Assadi
  Executive Vice President
  and Chief Information Officer........  1998 to present -- Executive Vice President and Chief
                                         Information Officer of PMLIC; 1982-1998 -- Vice President,
                                         Technology and Business Development at St. Paul Company.
 
Linda M. Springer
  Vice President and Controller........  1996 to present -- Vice President and controller of PMLIC;
                                         1995-1996 -- Assistant Vice President and Actuary of
                                         PMLIC; 1992-1995 -- Actuary of PMLIC.
 
Rosanne Gatta
  Vice President and Treasurer.........  1994 to present -- Vice President and Treasurer of PMLIC;
                                         1985-1994 -- Assistant Vice President and Treasurer of
                                         PMLIC.
</TABLE>
    
 
- ---------------
* Unless otherwise indicated, the address is 1050 Westlakes Drive, Berwyn,
  Pennsylvania 19312.
 
     A Fidelity Bond in the amount of $10 million covering PMLIC's officers and
employees has been issued by Aetna Casualty and Surety Company.
 
                                       50
<PAGE>   54
 
   
                            DISTRIBUTION OF POLICIES
    
 
     Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell PMLIC's variable life insurance policies,
and who are also registered representatives of 1717 Capital Management Company
("1717") or registered representatives of broker/dealers who have Selling
Agreements with 1717 or registered representatives of broker/dealers who have
Selling Agreements with such broker/dealers. 1717, whose address is 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 the proposed Insureds'
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 45% of the premiums paid up to a
target amount (used only to determine commission payments) and 2% of the
premiums paid in excess of that amount. Agent commissions will not be more than
5 1/2% of premiums paid for Policy Year 2; for Policy Years 3 through 10,
6 1/2%; for Policy Years 11 through 15, 4 5/6%; and for years 16 and later, 2%
of the premiums paid. Agents may also receive annual renewal compensation based
on the unloaned Policy Account Value, depending upon the circumstances. The
agent may be required to return the first year commission less the deferred
sales charge imposed if a Policy is not continued through the second Policy
Year.
    
 
                                 POLICY REPORTS
 
     At least once each Policy Year a statement will be sent to the Owner
describing the status of the Policy, including setting forth the Face Amount,
the current Death Benefit, any Policy loans and accrued interest, the current
Policy Account Value, the Guaranteed Account Value, the Loan Account Value, the
value in each Separate Account, premiums paid since the last report, charges
deducted since the last report, any partial withdrawals since the last report,
and the current Net Cash Surrender Value. At the present time, PMLIC plans to
send these Policy Statements on a quarterly basis. In addition, a statement will
be sent to an Owner showing the status of the Policy following the transfer of
amounts from one Separate Account or 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
                                       51
<PAGE>   55
 
with precision whether the amount of resources ultimately devoted, or the
outcome of these efforts, will have any negative impact on PMLIC. However, as of
the date of this prospectus, it is not anticipated that Owners will experience
negative effects on their investment, or on the services provided in connection
therewith, as a result of Year 2000 transition implementation. PMLIC currently
anticipates that their systems will be Year 2000 compliant on or about July 1,
1999 but there can be no assurance that PMLIC will be successful, or that
interaction with other service providers will not impair PMLIC's services at
that time.
 
                                STATE REGULATION
 
     PMLIC is subject to regulation and supervision by the Insurance Department
of the State of Pennsylvania which periodically examines its affairs. It is also
subject to the insurance laws and regulations of all jurisdictions where it is
authorized to do business. A copy of the Policy form has been filed with, and
where required approved by, insurance officials in each jurisdiction where the
Policies are sold. PMLIC is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations. There is
litigation regarding the proposed conversion. (See Appendix C.)
 
                               LEGAL PROCEEDINGS
 
     PMLIC and its subsidiaries, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PMLIC believes that as of the
date of this Prospectus there are no pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Separate Account or
PMLIC.
 
                                    EXPERTS
 
     The 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.
 
                                       52
<PAGE>   56
 
                                  DEFINITIONS
 
   
ATTAINED AGE..................   For each Insured, such Insured's Issue Age plus
                                 the number of full Policy Years since the
                                 Policy Date.
    
 
   
BENEFICIARY...................   The person(s) or entity(ies) designated to
                                 receive all or some of the Insurance Proceeds
                                 when the last surviving Insured dies. The
                                 Beneficiary is designated in the application or
                                 if subsequently changed, as shown in the latest
                                 change filed with PMLIC. If no Beneficiary
                                 survives and unless otherwise provided, the
                                 last surviving Insured's estate will be the
                                 Beneficiary.
    
 
   
CASH SURRENDER VALUE..........   The Policy Account Value minus any applicable
                                 Surrender Charge.
    
 
DEATH BENEFIT.................   Under Option A, the greater of the Face Amount
                                 or a percentage of the Policy Account Value on
                                 the date of death; under Option B, the greater
                                 of the Face Amount plus the Policy Account
                                 Value on the date of death, or a percentage of
                                 the Policy Account Value on the date of death.
 
   
DURATION......................   The number of full years the insurance has been
                                 in force -- measured from the Policy Date.
    
 
   
FACE AMOUNT...................   The Initial Face Amount minus any subsequent
                                 decreases in Face Amount (including any
                                 decreases due to changes from Death Benefit
                                 Option B to Option A).
    
 
   
FINAL POLICY DATE.............   The Policy Anniversary nearest the younger
                                 Insured's Attained Age 100 at which time the
                                 Policy Account Value, if any, (less any
                                 outstanding Policy loan and accrued interest)
                                 will be paid to the Owner if either Insured is
                                 living. The Policy will end on the Final Policy
                                 Date.
    
 
GRACE PERIOD..................   The 61-day period allowed for payment of a
                                 premium following the date PMLIC mails notice
                                 of the amount required to keep the Policy in
                                 force.
 
   
INITIAL FACE AMOUNT...........   The Face Amount of the Policy on the Issue
                                 Date. The Face Amount may be decreased after
                                 issue.
    
 
   
INSURANCE PROCEEDS............   The net amount to be paid to the Beneficiary
                                 when the last surviving Insured dies.
    
 
   
INSUREDS......................   The persons upon whose lives the Policy is
                                 issued.
    
 
   
ISSUE AGES....................   The age of each Insured at his or her birthday
                                 nearest the Policy Date. The Issue Ages are
                                 stated in the Policy.
    
 
   
JOINT EQUAL AGE...............   An age aligned to the two Insureds which is
                                 actuarially determined by PMLIC based solely on
                                 the Issue Age of each Insured.
    
 
LOAN ACCOUNT..................   The account to which the collateral for the
                                 amount of any Policy loan is transferred from
                                 the Separate Accounts, 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.
 
                                       53
<PAGE>   57
 
   
MINIMUM FACE AMOUNT...........   The Minimum Face Amount is $200,000 ($225,000
                                 in New York State).
    
 
MINIMUM GUARANTEE PREMIUM.....   The Minimum Annual Premium multiplied by the
                                 number of months since the Policy Date
                                 (including the current month) divided by 12.
 
MINIMUM INITIAL PREMIUM.......   Equal to the Minimum Annual Premium multiplied
                                 by the following factor for the specified
                                 premium mode at issue: Annual -- 1.0;
                                 Semi-annual -- 0.5; Quarterly -- 0.25;
                                 Monthly -- 0.167.
 
MONTHLY DEDUCTIONS............   The amount deducted from the Policy Account
                                 Value on each Policy Processing Day. It
                                 includes the Monthly Administrative Charge, the
                                 Initial Administrative Charge, the Monthly Cost
                                 of Insurance Charge, and the monthly cost of
                                 any benefits provided by riders.
 
NET AMOUNT AT RISK............   The amount by which the Death Benefit exceeds
                                 the Policy Account Value.
 
NET CASH SURRENDER VALUE......   The Cash Surrender Value minus any outstanding
                                 Policy loans and accrued interest.
 
NET PREMIUMS..................   The remainder of a premium after the deduction
                                 of the Premium Expense Charge.
 
OWNER.........................   The person(s) or entity(ies) entitled to
                                 exercise the rights granted in the Policy.
 
PLANNED PERIODIC PREMIUM......   The premium amount which the Owner plans to pay
                                 at the frequency selected. The Owner is
                                 entitled to receive a reminder notice and
                                 change the amount of the Planned Periodic
                                 Premium. The Owner is not required to pay the
                                 Planned Periodic Premium.
 
POLICY ACCOUNT VALUE..........   The sum of the Policy's values in the Separate
                                 Accounts, the Guaranteed Account, and the Loan
                                 Account.
 
POLICY ANNIVERSARY............   The same day and month as the Policy Date in
                                 each later year.
 
POLICY DATE...................   The date set forth in the Policy that is used
                                 to determine Policy Years and Policy Processing
                                 Days. The Policy Date is generally the same as
                                 the Issue Date but may be another date mutually
                                 agreed upon by PMLIC and the proposed Insured.
 
POLICY ISSUE DATE.............   The date on which the Policy is issued. It is
                                 used to measure suicide and contestable
                                 periods.
 
POLICY PROCESSING DAY.........   The day in each calendar month which is the
                                 same day of the month as the Policy Date. The
                                 first Policy Processing Day is the Policy Date.
 
POLICY YEAR...................   A year that starts on the Policy Date or on a
                                 Policy Anniversary.
 
   
PREMIUM CLASS.................   The classification of the Insureds for cost of
                                 insurance purposes. The classes are: standard;
                                 standard with extra rating, non-smoker;
                                 nonsmoker with extra rating, and preferred.
    
 
                                       54
<PAGE>   58
 
   
PREMIUM EXPENSE CHARGE........   The amount deducted from a premium payment
                                 which consists of the Premium Tax Charge, the
                                 Percent of Premium Sales Charge and the Federal
                                 Tax Charge.
    
 
   
SUBACCOUNT....................   A division of the Provident Mutual Variable
                                 Separate Account. The assets of each Subaccount
                                 are invested exclusively in a corresponding
                                 Portfolio that is part of one of the Funds.
    
 
   
SURRENDER CHARGE..............   The amount deducted from the Policy Account
                                 Value upon lapse or surrender of the Policy
                                 during the first 15 Policy Years. (For New York
                                 Policies, the first 12 Policy Years). A
                                 pro-rata Surrender Charge will be deducted upon
                                 a decrease in the Initial Face Amount during
                                 the first 15 Policy Years. The Maximum
                                 Surrender Charge is shown in the Policy.
    
 
   
TARGET PREMIUM................   An amount based on the Initial Face Amount and
                                 Joint Equal Age of the Insureds used to compute
                                 Surrender Charges.
    
 
VALUATION DAY.................   Each day that the New York Stock Exchange is
                                 open for business and any other day on which
                                 there is a sufficient degree of trading with
                                 respect to a Separate Account's portfolio of
                                 securities to materially affect the value of
                                 that Separate Account.
 
VALUATION PERIOD..............   The time between two successive Valuation Days.
                                 Each Valuation Period includes a Valuation Day
                                 and any non-Valuation Day or consecutive
                                 non-Valuation Days immediately preceding it.
 
                                       55
<PAGE>   59
 
                              FINANCIAL STATEMENTS
 
     The financial statements of PMLIC included herein should be distinguished
from the financial statements of the Separate Accounts and should be considered
only as bearing upon the ability of PMLIC to meet its obligations under the
Policies.
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                           <C>
Provident Mutual Variable Growth Separate Account, Provident
  Mutual Variable Money Market Separate Account, Provident
  Mutual Variable Bond Separate Account, Provident Mutual
  Variable Managed Separate Account, Provident Mutual
  Variable Zero Coupon Bond Separate Account, Provident
  Mutual Variable Aggressive Growth Separate Account,
  Provident Mutual Variable International Separate Account
  and Provident Mutual Variable Separate Account.
     Report of Independent Accountants......................   F-2
     Statements of Assets and Liabilities, December 31,
      1998..................................................   F-3
     Statements of Operations for the Years Ended December
      31, 1998, 1997 and 1996...............................   F-9
     Statements of Changes in Net Assets for the Years Ended
      December 31, 1998, 1997, and 1996.....................  F-25
     Notes to Financial Statements..........................  F-41
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>   60
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Report of Independent Accountants
 
- --------------------------------------------------------------------------------
 
To the Policyholders and
  Board of Directors of
Provident Mutual Life Insurance
  Company
 
In our opinion, the accompanying statements of assets and liabilities of the
Provident Mutual Variable Separate Accounts (Growth, Money Market, Bond,
Managed, Aggressive Growth, International, Zero Coupon Bond and Variable,
comprising twenty-nine subaccounts, hereafter collectively referred to as the
"Separate Accounts") and the related statements of operations and changes in net
assets present fairly, in all material respects, the financial position of the
Separate Accounts at December 31, 1998, and the results of their operations and
changes in their net assets for each of the three years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the management of the Separate
Accounts; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities owned at
December 31, 1998 by correspondence with the transfer agents, provide a
reasonable basis for the opinion expressed above.
 
PRICEWATERHOUSECOOPERS LLP
 
Philadelphia, Pennsylvania
February 26, 1999
 
                                       F-2
<PAGE>   61
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                            MONEY                                  AGGRESSIVE
                                             GROWTH        MARKET         BOND         MANAGED       GROWTH      INTERNATIONAL
                                            SEPARATE      SEPARATE      SEPARATE      SEPARATE      SEPARATE       SEPARATE
                                            ACCOUNT        ACCOUNT       ACCOUNT       ACCOUNT       ACCOUNT        ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>           <C>           <C>           <C>           <C>
ASSETS
Investment in the Market Street Fund,
  Inc., at market value:
  Growth Portfolio......................  $231,851,679
  Money Market Portfolio................                 $30,943,288
  Bond Portfolio........................                               $15,358,404
  Managed Portfolio.....................                                             $41,054,533
  Aggressive Growth Portfolio...........                                                           $38,952,929
  International Portfolio...............                                                                          $43,955,061
Dividends receivable....................                     125,259
Receivable from Provident Mutual Life
  Insurance Company.....................                   1,853,985
                                          ------------   -----------   -----------   -----------   -----------    -----------
Total Assets............................   231,851,679    32,922,532    15,358,404    41,054,533    38,952,929     43,955,061
                                          ------------   -----------   -----------   -----------   -----------    -----------
LIABILITIES
Payable to Provident Mutual Life
  Insurance Company.....................       119,196                      16,436        21,560
                                          ------------   -----------   -----------   -----------   -----------    -----------
NET ASSETS..............................  $231,732,483   $32,922,532   $15,341,968   $41,032,973   $38,952,929    $43,955,061
                                          ============   ===========   ===========   ===========   ===========    ===========
Held for the benefit of policyholders...  $231,616,771   $32,846,709   $15,306,118   $40,957,846   $38,867,670    $43,882,724
Attributable to Provident Mutual Life
  Insurance Company.....................       115,712        75,823        35,850        75,127        85,259         72,337
                                          ------------   -----------   -----------   -----------   -----------    -----------
                                          $231,732,483   $32,922,532   $15,341,968   $41,032,973   $38,952,929    $43,955,061
                                          ============   ===========   ===========   ===========   ===========    ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                       F-3
<PAGE>   62
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                          VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------
                                                               ALL PRO      ALL PRO      ALL PRO      ALL PRO
                                                              LARGE CAP    LARGE CAP    SMALL CAP    SMALL CAP
                                                                GROWTH       VALUE        GROWTH       VALUE
                                                              SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>          <C>          <C>
ASSETS
Investment in the Market Street Fund, Inc., at market value:
  All Pro Large Cap Growth Portfolio........................  $4,269,333
  All Pro Large Cap Value Portfolio.........................               $3,495,676
  All Pro Small Cap Growth Portfolio........................                            $4,537,359
  All Pro Small Cap Value Portfolio.........................                                         $3,153,886
Receivable from Provident Mutual Life Insurance Company.....                               30,000
                                                              ----------   ----------   ----------   ----------
NET ASSETS..................................................  $4,269,333   $3,495,676   $4,567,359   $3,153,886
                                                              ==========   ==========   ==========   ==========
Held for the benefit of policyholders.......................  $4,204,339   $3,466,078   $4,538,305   $3,123,304
Attributable to Provident Mutual Life Insurance Company.....     64,994       29,598       29,054        30,582
                                                              ----------   ----------   ----------   ----------
                                                              $4,269,333   $3,495,676   $4,567,359   $3,153,886
                                                              ==========   ==========   ==========   ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                       F-4
<PAGE>   63
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                              ZERO COUPON BOND
                                                              SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
                                                                2006 SERIES
                                                                 SUBACCOUNT
- ------------------------------------------------------------------------------
<S>                                                           <C>
ASSETS
Investment in the Stripped ("Zero") U.S. Treasury Securities
  Fund, Provident Mutual Series A, at market value:
  2006 Series...............................................    $12,448,796
Receivable from Provident Mutual Life Insurance Company.....        140,496
                                                                -----------
NET ASSETS..................................................    $12,589,292
                                                                ===========
Held for the benefit of policyholders.......................    $12,532,506
Attributable to Provident Mutual Life Insurance Company.....         56,786
                                                                -----------
                                                                $12,589,292
                                                                ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                       F-5
<PAGE>   64
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                       VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
                                              FIDELITY                   FIDELITY                  FIDELITY
                                              EQUITY-       FIDELITY       HIGH       FIDELITY       ASSET       FIDELITY
                                               INCOME        GROWTH       INCOME      OVERSEAS      MANAGER     INDEX 500
                                             SUBACCOUNT    SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT    SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>          <C>          <C>          <C>
ASSETS
Investment in the Variable Insurance
  Products Fund, at market value:
  Equity-Income Portfolio.................  $121,049,822
  Growth Portfolio........................                $168,739,937
  High Income Portfolio...................                              $18,909,708
  Overseas Portfolio......................                                           $34,695,793
Investment in the Variable Insurance
  Products Fund II, at market value:
  Asset Manager Portfolio.................                                                        $50,171,333
  Index 500 Portfolio.....................                                                                     $130,785,727
                                            ------------  ------------  -----------  -----------  -----------  ------------
NET ASSETS................................  $121,049,822  $168,739,937  $18,909,708  $34,695,793  $50,171,333  $130,785,727
                                            ============  ============  ===========  ===========  ===========  ============
Held for the benefit of policyholders.....  $121,007,599  $168,638,344  $18,873,226  $34,624,408  $50,101,608  $130,732,808
Attributable to Provident Mutual Life
  Insurance Company.......................        42,223       101,593       36,482       71,385       69,725        52,919
                                            ------------  ------------  -----------  -----------  -----------  ------------
                                            $121,049,822  $168,739,937  $18,909,708  $34,695,793  $50,171,333  $130,785,727
                                            ============  ============  ===========  ===========  ===========  ============
</TABLE>
 
See accompanying notes to financial statements
 
                                       F-6
<PAGE>   65
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                        VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
                                                                                                     NEUBERGER
                                             FIDELITY                   NEUBERGER     NEUBERGER      & BERMAN      NEUBERGER
                                            INVESTMENT     FIDELITY      & BERMAN     & BERMAN        LIMITED       & BERMAN
                                            GRADE BOND    CONTRAFUND     BALANCED      GROWTH      MATURITY BOND    PARTNERS
                                            SUBACCOUNT    SUBACCOUNT    SUBACCOUNT   SUBACCOUNT     SUBACCOUNT     SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>          <C>           <C>             <C>
ASSETS
Investment in the Variable Insurance
  Products Fund II, at market value:
  Investment Grade Bond Portfolio.........  $13,990,631
  Contrafund Portfolio....................                $46,177,083
Investment in the Neuberger & Berman
  Advisers Management Trust, at market
  value:
  Balanced Portfolio......................                              $7,496,735
  Growth Portfolio........................                                           $30,177,810
  Limited Maturity Bond Portfolio.........                                                          $6,584,164
  Partners Portfolio......................                                                                         $1,721,436
                                            -----------   -----------   ----------   -----------    ----------     ----------
NET ASSETS................................  $13,990,631   $46,177,083   $7,496,735   $30,177,810    $6,584,164     $1,721,436
                                            ===========   ===========   ==========   ===========    ==========     ==========
Held for the benefit of policyholders.....  $13,976,219   $46,145,432   $7,453,681   $30,129,705    $6,551,606     $1,697,998
Attributable to Provident Mutual Life
  Insurance Company.......................      14,412         31,651      43,054         48,105        32,558         23,438
                                            -----------   -----------   ----------   -----------    ----------     ----------
                                            $13,990,631   $46,177,083   $7,496,735   $30,177,810    $6,584,164     $1,721,436
                                            ===========   ===========   ==========   ===========    ==========     ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                       F-7
<PAGE>   66
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                        VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
                                              AMERICAN                                 VAN ECK      VAN ECK         ALGER
                                             CENTURY VP     VAN ECK       VAN ECK     WORLDWIDE    WORLDWIDE       AMERICAN
                                              CAPITAL      WORLDWIDE     WORLDWIDE     EMERGING       REAL          SMALL
                                            APPRECIATION      BOND      HARD ASSETS    MARKETS       ESTATE     CAPITALIZATION
                                             SUBACCOUNT    SUBACCOUNT   SUBACCOUNT    SUBACCOUNT   SUBACCOUNT     SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>          <C>           <C>          <C>          <C>
ASSETS
Investment in American Century Variable
  Portfolios, Inc., at market value:
  American Century VP Capital Appreciation
    Portfolio.............................   $7,579,347
Investment in the Van Eck Worldwide
  Insurance Trust, at market value:
  Van Eck Worldwide Bond Portfolio........                 $5,706,713
  Van Eck Worldwide Hard Assets
    Portfolio.............................                              $2,068,288
  Van Eck Worldwide Emerging Markets
    Portfolio.............................                                            $6,233,056
  Van Eck Worldwide Real Estate
    Portfolio.............................                                                          $441,930
Investment in the Alger American Fund, at
  market value:
  Alger American Small Capitalization
    Portfolio.............................                                                                       $28,994,535
                                             ----------    ----------   ----------    ----------    --------     -----------
NET ASSETS................................   $7,579,347    $5,706,713   $2,068,288    $6,233,056    $441,930     $28,994,535
                                             ==========    ==========   ==========    ==========    ========     ===========
Held for the benefit of policyholders.....   $7,547,518    $5,680,732   $2,039,915    $6,174,839    $417,733     $28,938,135
Attributable to Provident Mutual Life
  Insurance Company.......................       31,829       25,981        28,373       58,217       24,197          56,400
                                             ----------    ----------   ----------    ----------    --------     -----------
                                             $7,579,347    $5,706,713   $2,068,288    $6,233,056    $441,930     $28,994,535
                                             ==========    ==========   ==========    ==========    ========     ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                       F-8
<PAGE>   67
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                              MONEY                                AGGRESSIVE
                                                GROWTH        MARKET        BOND       MANAGED       GROWTH      INTERNATIONAL
                                               SEPARATE      SEPARATE     SEPARATE     SEPARATE     SEPARATE       SEPARATE
                                                ACCOUNT      ACCOUNT      ACCOUNT      ACCOUNT       ACCOUNT        ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>          <C>          <C>          <C>           <C>
INVESTMENT INCOME
Dividends...................................  $ 3,379,864   $1,332,049   $  820,143   $1,224,452   $   281,744    $  296,331
EXPENSES
Mortality and expense risks.................    1,369,021      176,853       95,234      243,226       251,275       296,668
Operating expense reimbursement.............       (4,864)                   (1,300)
                                              -----------   ----------   ----------   ----------   -----------    ----------
Total expenses..............................    1,364,157      176,853       93,934      243,226       251,275       296,668
                                              -----------   ----------   ----------   ----------   -----------    ----------
Net investment income.......................    2,015,707    1,155,196      726,209      981,226        30,469          (337)
                                              -----------   ----------   ----------   ----------   -----------    ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
  INVESTMENTS
Realized gain distributions reinvested......   27,569,753                     2,080    1,742,752     2,689,649     2,692,126
Net realized gain (loss) from redemption of
  investment shares.........................    3,562,099                   (13,248)     807,777     1,378,531       557,059
                                              -----------   ----------   ----------   ----------   -----------    ----------
Net realized gain (loss) on investments.....   31,131,852                   (11,168)   2,550,529     4,068,180     3,249,185
                                              -----------   ----------   ----------   ----------   -----------    ----------
Net unrealized appreciation of investments:
  Beginning of year.........................   49,936,122                   545,131    8,084,445     9,124,521     3,573,814
  End of year...............................   43,642,825                   888,223    8,871,564     7,593,499     3,974,294
                                              -----------   ----------   ----------   ----------   -----------    ----------
Net unrealized appreciation (depreciation)
  of investments during the year............   (6,293,297)                  343,092      787,119    (1,531,022)      400,480
                                              -----------   ----------   ----------   ----------   -----------    ----------
Net realized and unrealized gain on
  investments...............................   24,838,555                   331,924    3,337,648     2,537,158     3,649,665
                                              -----------   ----------   ----------   ----------   -----------    ----------
Net increase in net assets resulting from
  operations................................  $26,854,262   $1,155,196   $1,058,133   $4,318,874   $ 2,567,627    $3,649,328
                                              ===========   ==========   ==========   ==========   ===========    ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                       F-9
<PAGE>   68
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                          VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------
                                                               ALL PRO      ALL PRO      ALL PRO      ALL PRO
                                                              LARGE CAP    LARGE CAP    SMALL CAP    SMALL CAP
                                                                GROWTH       VALUE        GROWTH       VALUE
                                                              SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>          <C>          <C>
INVESTMENT INCOME
Dividends...................................................
EXPENSES
Mortality and expense risks.................................   $ 10,444     $  7,828     $  8,535     $  6,110
                                                               --------     --------     --------     --------
Total expenses..............................................     10,444        7,828        8,535        6,110
                                                               --------     --------     --------     --------
Net investment loss.........................................    (10,444)      (7,828)      (8,535)      (6,110)
                                                               --------     --------     --------     --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain distributions reinvested......................
Net realized gain (loss) from redemption of investment
  shares....................................................    114,538        1,976      (75,896)     (65,921)
                                                               --------     --------     --------     --------
Net realized gain (loss) on investments.....................    114,538        1,976      (75,896)     (65,921)
                                                               --------     --------     --------     --------
Net unrealized appreciation of investments:
  Beginning of year.........................................
  End of year...............................................    511,417      139,747      403,798       13,283
                                                               --------     --------     --------     --------
Net unrealized appreciation of investments during the
  year......................................................    511,417      139,747      403,798       13,283
                                                               --------     --------     --------     --------
Net realized and unrealized gain (loss) on investments......    625,955      141,723      327,902      (52,638)
                                                               --------     --------     --------     --------
Net increase (decrease) in net assets resulting from
  operations................................................   $615,511     $133,895     $319,367     $(58,748)
                                                               ========     ========     ========     ========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-10
<PAGE>   69
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                              ZERO COUPON BOND
                                                              SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
                                                                2006 SERIES
                                                                 SUBACCOUNT
- ------------------------------------------------------------------------------
<S>                                                           <C>
EXPENSES
Mortality and expense risks.................................     $   73,516
Asset charge................................................         26,330
                                                                 ----------
Net investment loss.........................................        (99,846)
                                                                 ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from redemption of investment shares......        570,514
                                                                 ----------
Net realized gain on investments............................        570,514
                                                                 ----------
Net unrealized appreciation of investments:
  Beginning of year.........................................      1,354,882
  End of year...............................................      2,163,181
                                                                 ----------
Net unrealized appreciation of investments during the
  year......................................................        808,299
                                                                 ----------
Net realized and unrealized gain on investments.............      1,378,813
                                                                 ----------
Net increase in net assets resulting from operations........     $1,278,967
                                                                 ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-11
<PAGE>   70
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                        VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
                                              FIDELITY                    FIDELITY                   FIDELITY
                                               EQUITY-      FIDELITY        HIGH        FIDELITY      ASSET       FIDELITY
                                               INCOME        GROWTH        INCOME       OVERSEAS     MANAGER      INDEX 500
                                             SUBACCOUNT    SUBACCOUNT    SUBACCOUNT    SUBACCOUNT   SUBACCOUNT   SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>           <C>           <C>          <C>          <C>
INVESTMENT INCOME
Dividends..................................  $ 1,342,651   $   570,939   $ 1,128,406   $ 501,316    $1,342,461   $   902,884
EXPENSES
Mortality and expense risks................      750,572       927,027       129,187     208,755      318,489        693,688
                                             -----------   -----------   -----------   ----------   ----------   -----------
Net investment income (loss)...............      592,079      (356,088)      999,219     292,561    1,023,972        209,196
                                             -----------   -----------   -----------   ----------   ----------   -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
  INVESTMENTS
Realized gain distributions reinvested.....    4,778,257    14,934,573       717,008   1,477,561    4,027,382      2,091,239
Net realized gain from redemption of
  investment shares........................    2,849,171     5,521,995       132,632   1,720,249      834,620      1,946,503
                                             -----------   -----------   -----------   ----------   ----------   -----------
Net realized gain on investments...........    7,627,428    20,456,568       849,640   3,197,810    4,862,002      4,037,742
                                             -----------   -----------   -----------   ----------   ----------   -----------
Net unrealized appreciation (depreciation)
  of investments:
  Beginning of year........................   20,932,815    27,530,683     1,485,682   2,054,866    7,028,980     15,712,282
  End of year..............................   23,637,997    52,781,625    (1,380,446)  1,662,167    7,302,249     35,771,600
                                             -----------   -----------   -----------   ----------   ----------   -----------
Net unrealized appreciation (depreciation)
  of investments during the year...........    2,705,182    25,250,942    (2,866,128)   (392,699)     273,269     20,059,318
                                             -----------   -----------   -----------   ----------   ----------   -----------
Net realized and unrealized gain (loss) on
  investments..............................   10,332,610    45,707,510    (2,016,488)  2,805,111    5,135,271     24,097,060
                                             -----------   -----------   -----------   ----------   ----------   -----------
Net increase (decrease) in net assets
  resulting from operations................  $10,924,689   $45,351,422   $(1,017,269)  $3,097,672   $6,159,243   $24,306,256
                                             ===========   ===========   ===========   ==========   ==========   ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-12
<PAGE>   71
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                     VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
                                          FIDELITY                 NEUBERGER &   NEUBERGER &    NEUBERGER &     NEUBERGER &
                                         INVESTMENT    FIDELITY      BERMAN        BERMAN      BERMAN LIMITED     BERMAN
                                         GRADE BOND   CONTRAFUND    BALANCED       GROWTH      MATURITY BOND     PARTNERS
                                         SUBACCOUNT   SUBACCOUNT   SUBACCOUNT    SUBACCOUNT      SUBACCOUNT     SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>          <C>          <C>           <C>           <C>              <C>
INVESTMENT INCOME
Dividends..............................   $399,467    $ 185,502    $  156,692                     $277,191
EXPENSES
Mortality and expense risks............     73,292      238,056        48,283    $  192,792         36,204        $ 3,466
                                          --------    ----------   ----------    -----------      --------        -------
Net investment income (loss)...........    326,175      (52,554)      108,409      (192,792)       240,987         (3,466)
                                          --------    ----------   ----------    -----------      --------        -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
  ON INVESTMENTS
Realized gain distributions
  reinvested...........................     47,394    1,364,768     1,100,579     7,126,749
Net realized gain (loss) from
  redemption of investment shares......    133,347    2,635,800      (109,169)      268,551        (32,935)        (5,901)
                                          --------    ----------   ----------    -----------      --------        -------
Net realized gain (loss) on
  investments..........................    180,741    4,000,568       991,410     7,395,300        (32,935)        (5,901)
                                          --------    ----------   ----------    -----------      --------        -------
Net unrealized appreciation of
  investments:
  Beginning of year....................    401,371    3,332,605       595,317     4,238,015         86,785
  End of year..........................    688,242    8,740,185       277,919       829,761         56,889         62,679
                                          --------    ----------   ----------    -----------      --------        -------
Net unrealized appreciation
  (depreciation) of investments during
  the year.............................    286,871    5,407,580      (317,398)   (3,408,254)       (29,896)        62,679
                                          --------    ----------   ----------    -----------      --------        -------
Net realized and unrealized gain (loss)
  on investments.......................    467,612    9,408,148       674,012     3,987,046        (62,831)        56,778
                                          --------    ----------   ----------    -----------      --------        -------
Net increase in net assets resulting
  from operations......................   $793,787    $9,355,594   $  782,421    $3,794,254       $178,156        $53,312
                                          ========    ==========   ==========    ===========      ========        =======
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-13
<PAGE>   72
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                          VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
                                               AMERICAN                                  VAN ECK
                                              CENTURY VP     VAN ECK       VAN ECK      WORLDWIDE      VAN ECK     ALGER AMERICAN
                                               CAPITAL      WORLDWIDE     WORLDWIDE     EMERGING      WORLDWIDE        SMALL
                                             APPRECIATION      BOND      HARD ASSETS     MARKETS     REAL ESTATE   CAPITALIZATION
                                              SUBACCOUNT    SUBACCOUNT   SUBACCOUNT    SUBACCOUNT    SUBACCOUNT      SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>          <C>           <C>           <C>           <C>
INVESTMENT INCOME
Dividends..................................                  $ 40,647    $   16,113    $    54,397
EXPENSES
Mortality and expense risks................  $    53,235       34,811        16,990         43,590    $  1,150       $  159,984
                                             -----------     --------    -----------   -----------    --------       ----------
Net investment income (loss)...............      (53,235)       5,836          (877)        10,807      (1,150)        (159,984)
                                             -----------     --------    -----------   -----------    --------       ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
  INVESTMENTS
Realized gain distributions reinvested.....      422,956                    395,670         48,353                    2,950,817
Net realized gain (loss) from redemption of
  investment shares........................     (698,102)      38,421      (213,306)      (421,210)     (8,482)         199,222
                                             -----------     --------    -----------   -----------    --------       ----------
Net realized gain (loss) on investments....     (275,146)      38,421       182,364       (372,857)     (8,482)       3,150,039
                                             -----------     --------    -----------   -----------    --------       ----------
Net unrealized appreciation (depreciation)
  of investments:
  Beginning of year........................   (1,024,766)      61,527       (31,204)    (1,437,453)                   1,324,974
  End of year..............................     (901,802)     590,559    (1,136,100)    (3,646,142)    (12,423)       1,898,815
                                             -----------     --------    -----------   -----------    --------       ----------
Net unrealized appreciation (depreciation)
  of investments during the year...........      122,964      529,032    (1,104,896)    (2,208,689)    (12,423)         573,841
                                             -----------     --------    -----------   -----------    --------       ----------
Net realized and unrealized gain (loss) on
  investments..............................     (152,182)     567,453      (922,532)    (2,581,546)    (20,905)       3,723,880
                                             -----------     --------    -----------   -----------    --------       ----------
Net increase (decrease) in net assets
  resulting from operations................  $  (205,417)    $573,289    $ (923,409)   $(2,570,739)   $(22,055)      $3,563,896
                                             ===========     ========    ===========   ===========    ========       ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-14
<PAGE>   73
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                               MONEY                                AGGRESSIVE
                                                 GROWTH        MARKET        BOND       MANAGED       GROWTH     INTERNATIONAL
                                                SEPARATE      SEPARATE     SEPARATE     SEPARATE     SEPARATE      SEPARATE
                                                 ACCOUNT      ACCOUNT      ACCOUNT      ACCOUNT      ACCOUNT        ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>          <C>          <C>          <C>          <C>
INVESTMENT INCOME
Dividends....................................  $ 3,927,765   $1,265,663   $  727,891   $1,112,725   $  248,042    $  268,402
EXPENSES
Mortality and expense risks..................    1,171,607      170,118       78,010      208,655      202,951       251,580
Operating expense reimbursement..............       (3,041)         (40)      (1,390)
                                               -----------   ----------   ----------   ----------   ----------    ----------
Total expenses...............................    1,168,566      170,078       76,620      208,655      202,951       251,580
                                               -----------   ----------   ----------   ----------   ----------    ----------
Net investment income........................    2,759,199    1,095,585      651,271      904,070       45,091        16,822
                                               -----------   ----------   ----------   ----------   ----------    ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
  INVESTMENTS
Realized gain distributions reinvested.......   19,579,907                                242,281       49,195     2,101,304
Net realized gain (loss) from redemption of
  investment shares..........................    4,127,983                    (7,292)     956,474      577,435       504,035
                                               -----------   ----------   ----------   ----------   ----------    ----------
Net realized gain (loss) on investments......   23,707,890                    (7,292)   1,198,755      626,630     2,605,339
                                               -----------   ----------   ----------   ----------   ----------    ----------
Net unrealized appreciation of investments:
  Beginning of year..........................   36,782,658                   143,144    4,034,365    4,227,761     3,295,188
  End of year................................   49,936,122                   545,131    8,084,445    9,124,521     3,573,814
                                               -----------   ----------   ----------   ----------   ----------    ----------
Net unrealized appreciation of investments
  during the year............................   13,153,464                   401,987    4,050,080    4,896,760       278,626
                                               -----------   ----------   ----------   ----------   ----------    ----------
Net realized and unrealized gain on
  investments................................   36,861,354                   394,695    5,248,835    5,523,390     2,883,965
                                               -----------   ----------   ----------   ----------   ----------    ----------
Net increase in net assets resulting from
  operations.................................  $39,620,553   $1,095,585   $1,045,966   $6,152,905   $5,568,481    $2,900,787
                                               ===========   ==========   ==========   ==========   ==========    ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-15
<PAGE>   74
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                              ZERO COUPON BOND
                                                              SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
                                                                2006 SERIES
                                                                 SUBACCOUNT
- ------------------------------------------------------------------------------
<S>                                                           <C>
EXPENSES
Mortality and expense risks.................................     $   47,810
Asset charge................................................         17,446
                                                                 ----------
Net investment loss.........................................        (65,256)
                                                                 ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from redemption of investment shares......        240,323
                                                                 ----------
Net realized gain on investments............................        240,323
                                                                 ----------
Net unrealized appreciation of investments:
  Beginning of year.........................................        744,136
  End of year...............................................      1,354,882
                                                                 ----------
Net unrealized appreciation of investments during the
  year......................................................        610,746
                                                                 ----------
Net realized and unrealized gain on investments.............        851,069
                                                                 ----------
Net increase in net assets resulting from operations........     $  785,813
                                                                 ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-16
<PAGE>   75
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                             VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
                                                    FIDELITY                    FIDELITY                  FIDELITY
                                                     EQUITY-      FIDELITY        HIGH       FIDELITY      ASSET       FIDELITY
                                                     INCOME        GROWTH        INCOME      OVERSEAS     MANAGER      INDEX 500
                                                   SUBACCOUNT    SUBACCOUNT    SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>           <C>          <C>          <C>          <C>
INVESTMENT INCOME
Dividends........................................  $ 1,044,885   $   527,324   $ 626,782    $ 290,204    $1,122,466   $   358,610
EXPENSES
Mortality and expense risks......................      533,228       649,048      80,380      144,312      255,690        355,997
                                                   -----------   -----------   ----------   ----------   ----------   -----------
Net investment income (loss).....................      511,657      (121,724)    546,402      145,892      866,776          2,613
                                                   -----------   -----------   ----------   ----------   ----------   -----------
NET REALIZED AND UNREALIZED
  GAIN ON INVESTMENTS
Realized gain distributions reinvested...........    5,253,449     2,887,725      77,467    1,152,021    2,815,676        727,665
Net realized gain from redemption of investment
  shares.........................................      965,614     1,224,507     123,771      156,064      391,666        814,167
                                                   -----------   -----------   ----------   ----------   ----------   -----------
Net realized gain on investments.................    6,219,063     4,112,232     201,238    1,308,085    3,207,342      1,541,832
                                                   -----------   -----------   ----------   ----------   ----------   -----------
Net unrealized appreciation of investments:
  Beginning of year..............................    9,654,194    12,974,029     471,856    1,745,917    4,535,884      4,431,677
  End of year....................................   20,932,815    27,530,683   1,485,682    2,054,866    7,028,980     15,712,282
                                                   -----------   -----------   ----------   ----------   ----------   -----------
Net unrealized appreciation of investments during
  the year.......................................   11,278,621    14,556,654   1,013,826      308,949    2,493,096     11,280,605
                                                   -----------   -----------   ----------   ----------   ----------   -----------
Net realized and unrealized gain on
  investments....................................   17,497,684    18,668,886   1,215,064    1,617,034    5,700,438     12,822,437
                                                   -----------   -----------   ----------   ----------   ----------   -----------
Net increase in net assets resulting from
  operations.....................................  $18,009,341   $18,547,162   $1,761,466   $1,762,926   $6,567,214   $12,825,050
                                                   ===========   ===========   ==========   ==========   ==========   ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-17
<PAGE>   76
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                          VARIABLE SEPARATE ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
                                                      FIDELITY                 NEUBERGER    NEUBERGER       NEUBERGER
                                                     INVESTMENT    FIDELITY     & BERMAN     & BERMAN    & BERMAN LIMITED
                                                     GRADE BOND   CONTRAFUND    BALANCED      GROWTH      MATURITY BOND
                                                     SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT      SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>          <C>          <C>          <C>
INVESTMENT INCOME
Dividends..........................................   $307,980    $  64,609     $ 77,242                     $153,994
EXPENSES
Mortality and expense risks........................     43,496      116,135       36,171    $ 146,708          23,036
                                                      --------    ----------    --------    ----------       --------
Net investment income (loss).......................    264,484      (51,526)      41,071     (146,708)        130,958
                                                      --------    ----------    --------    ----------       --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
  INVESTMENTS
Realized gain distributions reinvested.............                 170,752      198,255    1,531,297
Net realized gain (loss) from redemption of
  investment shares................................      2,841      199,925      106,220      611,229          (6,752)
                                                      --------    ----------    --------    ----------       --------
Net realized gain (loss) on investments............      2,841      370,677      304,475    2,142,526          (6,752)
                                                      --------    ----------    --------    ----------       --------
Net unrealized appreciation of investments:
  Beginning of year................................    155,266      477,324       71,201    1,243,267          19,157
  End of year......................................    401,371    3,332,605      595,317    4,238,015          86,785
                                                      --------    ----------    --------    ----------       --------
Net unrealized appreciation of investments during
  the year.........................................    246,105    2,855,281      524,116    2,994,748          67,628
                                                      --------    ----------    --------    ----------       --------
Net realized and unrealized gain on investments....    248,946    3,225,958      828,591    5,137,274          60,876
                                                      --------    ----------    --------    ----------       --------
Net increase in net assets resulting from
  operations.......................................   $513,430    $3,174,432    $869,662    $4,990,566       $191,834
                                                      ========    ==========    ========    ==========       ========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-18
<PAGE>   77
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                               VARIABLE SEPARATE ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
                                                           AMERICAN                                  VAN ECK
                                                          CENTURY VP     VAN ECK       VAN ECK      WORLDWIDE    ALGER AMERICAN
                                                           CAPITAL      WORLDWIDE     WORLDWIDE     EMERGING         SMALL
                                                         APPRECIATION      BOND      HARD ASSETS     MARKETS     CAPITALIZATION
                                                          SUBACCOUNT    SUBACCOUNT   SUBACCOUNT    SUBACCOUNT      SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>          <C>           <C>           <C>
INVESTMENT INCOME
Dividends..............................................                  $105,223     $  45,568    $     9,541
EXPENSES
Mortality and expense risks............................  $    56,416       25,359        12,555         31,122     $   90,562
                                                         -----------     --------     ---------    -----------     ----------
Net investment income (loss)...........................      (56,416)      79,864        33,013        (21,581)       (90,562)
                                                         -----------     --------     ---------    -----------     ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain distributions reinvested.................      171,163                     33,634                       449,342
Net realized gain (loss) from redemption of investment
  shares...............................................      (90,120)      12,516        61,163         82,065         11,202
                                                         -----------     --------     ---------    -----------     ----------
Net realized gain on investments.......................       81,043       12,516        94,797         82,065        460,544
                                                         -----------     --------     ---------    -----------     ----------
Net unrealized appreciation (depreciation) of
  investments:
  Beginning of year....................................     (633,726)      70,532       187,278         90,708        173,011
  End of year..........................................   (1,024,766)      61,527       (31,204)    (1,437,453)     1,324,974
                                                         -----------     --------     ---------    -----------     ----------
Net unrealized appreciation (depreciation) of
  investments during the year..........................     (391,040)      (9,005)     (218,482)    (1,528,161)     1,151,963
                                                         -----------     --------     ---------    -----------     ----------
Net realized and unrealized gain (loss) on
  investments..........................................     (309,997)       3,511      (123,685)    (1,446,096)     1,612,507
                                                         -----------     --------     ---------    -----------     ----------
Net increase (decrease) in net assets resulting from
  operations...........................................  $  (366,413)    $ 83,375     $ (90,672)   $(1,467,677)    $1,521,945
                                                         ===========     ========     =========    ===========     ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-19
<PAGE>   78
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                MONEY                               AGGRESSIVE
                                                  GROWTH        MARKET       BOND       MANAGED       GROWTH     INTERNATIONAL
                                                 SEPARATE      SEPARATE    SEPARATE     SEPARATE     SEPARATE      SEPARATE
                                                  ACCOUNT      ACCOUNT      ACCOUNT     ACCOUNT      ACCOUNT        ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>          <C>         <C>          <C>          <C>
INVESTMENT INCOME
Dividends.....................................  $ 4,325,341   $1,024,420   $ 606,893   $1,018,010   $  206,506    $  289,229
EXPENSES
Mortality and expense risks...................      954,536      141,194      66,990      179,326      151,081       191,387
Operating expense reimbursement...............       (3,491)        (146)     (1,087)
                                                -----------   ----------   ---------   ----------   ----------    ----------
Total expenses................................      951,045      141,048      65,903      179,326      151,081       191,387
                                                -----------   ----------   ---------   ----------   ----------    ----------
Net investment income.........................    3,374,296      883,372     540,990      838,684       55,425        97,842
                                                -----------   ----------   ---------   ----------   ----------    ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
  INVESTMENTS
Realized gain distributions reinvested........    6,799,388                             1,102,736    2,080,731     1,172,472
Net realized gain (loss) from redemption of
  investment shares...........................    3,053,590                   (2,425)     628,270      460,172       273,023
                                                -----------   ----------   ---------   ----------   ----------    ----------
Net realized gain (loss) on investments.......    9,852,978                   (2,425)   1,731,006    2,540,903     1,445,495
                                                -----------   ----------   ---------   ----------   ----------    ----------
Net unrealized appreciation (depreciation) of
  investments:
  Beginning of year...........................   23,244,683                  443,614    3,562,768    2,711,686     2,138,159
  End of year.................................   36,782,658                  143,144    4,034,365    4,227,761     3,295,188
                                                -----------   ----------   ---------   ----------   ----------    ----------
Net unrealized appreciation (depreciation) of
  investments during the year.................   13,537,975                 (300,470)     471,597    1,516,075     1,157,029
                                                -----------   ----------   ---------   ----------   ----------    ----------
Net realized and unrealized gain (loss) on
  investments.................................   23,390,953                 (302,895)   2,202,603    4,056,978     2,602,524
                                                -----------   ----------   ---------   ----------   ----------    ----------
Net increase in net assets resulting from
  operations..................................  $26,765,249   $  883,372   $ 238,095   $3,041,287   $4,112,403    $2,700,366
                                                ===========   ==========   =========   ==========   ==========    ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-20
<PAGE>   79
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                   ZERO COUPON BOND
                                                                   SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------
                                                              1996 SERIES     2006 SERIES
                                                              SUBACCOUNT**    SUBACCOUNT
- -----------------------------------------------------------------------------------------
<S>                                                           <C>             <C>
EXPENSES
Mortality and expense risks.................................   $   4,977       $  33,364
Asset charge................................................       1,982          12,204
                                                               ---------       ---------
Net investment loss.........................................      (6,959)        (45,568)
                                                               ---------       ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from redemption of investment shares......     230,886         132,042
                                                               ---------       ---------
Net realized gain on investments............................     230,886         132,042
                                                               ---------       ---------
Net unrealized appreciation (depreciation) of investments:
  Beginning of year.........................................     195,315         910,239
  End of year...............................................                     744,136
                                                               ---------       ---------
Net unrealized depreciation of investments during the
  year......................................................    (195,315)       (166,103)
                                                               ---------       ---------
Net realized and unrealized gain (loss) on investments......      35,571         (34,061)
                                                               ---------       ---------
Net increase (decrease) in net assets resulting from
  operations................................................   $  28,612       $ (79,629)
                                                               =========       =========
</TABLE>
 
** For the period January 1, 1996 to May 15, 1996 (date of maturity).
 
See accompanying notes to financial statements
 
                                      F-21
<PAGE>   80
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                            VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
                                                    FIDELITY                  FIDELITY                  FIDELITY
                                                    EQUITY-      FIDELITY       HIGH       FIDELITY      ASSET       FIDELITY
                                                     INCOME       GROWTH       INCOME      OVERSEAS     MANAGER     INDEX 500
                                                   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>          <C>          <C>          <C>          <C>
INVESTMENT INCOME
Dividends........................................  $  55,034    $ 133,186     $289,256    $ 105,244    $ 989,396    $  114,956
EXPENSES
Mortality and expense risks......................    324,906      435,364       40,586       83,411      196,306       106,980
                                                   ----------   ----------    --------    ----------   ----------   ----------
Net investment income (loss).....................   (269,872)    (302,178)     248,670       21,833      793,090         7,976
                                                   ----------   ----------    --------    ----------   ----------   ----------
NET REALIZED AND UNREALIZED
  GAIN ON INVESTMENTS
Realized gain distributions reinvested...........  1,577,632    3,362,939       56,594      115,769      815,818       295,601
Net realized gain from redemption of investment
  shares.........................................    292,479      461,027      136,266       72,206       42,369       108,595
                                                   ----------   ----------    --------    ----------   ----------   ----------
Net realized gain on investments.................  1,870,111    3,823,966      192,860      187,975      858,187       404,196
                                                   ----------   ----------    --------    ----------   ----------   ----------
Net unrealized appreciation of investments:
  Beginning of year..............................  5,231,207    8,695,334      207,596      502,338    2,425,055     1,377,575
  End of year....................................  9,654,194    12,974,029     471,856    1,745,917    4,535,884     4,431,677
                                                   ----------   ----------    --------    ----------   ----------   ----------
Net unrealized appreciation of investments during
  the year.......................................  4,422,987    4,278,695      264,260    1,243,579    2,110,829     3,054,102
                                                   ----------   ----------    --------    ----------   ----------   ----------
Net realized and unrealized gain on
  investments....................................  6,293,098    8,102,661      457,120    1,431,554    2,969,016     3,458,298
                                                   ----------   ----------    --------    ----------   ----------   ----------
Net increase in net assets resulting from
  operations.....................................  $6,023,226   $7,800,483    $705,790    $1,453,387   $3,762,106   $3,466,274
                                                   ==========   ==========    ========    ==========   ==========   ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-22
<PAGE>   81
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                        VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
                                                    FIDELITY                 NEUBERGER    NEUBERGER       NEUBERGER
                                                   INVESTMENT    FIDELITY     & BERMAN     & BERMAN    & BERMAN LIMITED
                                                   GRADE BOND   CONTRAFUND    BALANCED      GROWTH      MATURITY BOND
                                                   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT      SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>          <C>          <C>          <C>
INVESTMENT INCOME
Dividends........................................   $122,049                  $ 79,943    $   4,468        $111,448
EXPENSES
Mortality and expense risks......................     40,295     $  9,544       27,615       98,600          11,344
                                                    --------     --------     --------    ----------       --------
Net investment income (loss).....................     81,754       (9,544)      52,328      (94,132)        100,104
                                                    --------     --------     --------    ----------       --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
  INVESTMENTS
Realized gain distributions reinvested...........                              444,565    1,045,605
Net realized gain (loss) from redemption of
  investment shares..............................     34,895        3,778       14,849       96,798          (8,673)
                                                    --------     --------     --------    ----------       --------
Net realized gain (loss) on investments..........     34,895        3,778      459,414    1,142,403          (8,673)
                                                    --------     --------     --------    ----------       --------
Net unrealized appreciation (depreciation) of
  investments:
  Beginning of year..............................    173,631                   337,802    1,140,571          44,695
  End of year....................................    155,266      477,324       71,201    1,243,267          19,157
                                                    --------     --------     --------    ----------       --------
Net unrealized appreciation (depreciation) of
  investments during the year....................    (18,365)     477,324     (266,601)     102,696         (25,538)
                                                    --------     --------     --------    ----------       --------
Net realized and unrealized gain (loss) on
  investments....................................     16,530      481,102      192,813    1,245,099         (34,211)
                                                    --------     --------     --------    ----------       --------
Net increase in net assets resulting from
  operations.....................................   $ 98,284     $471,558     $245,141    $1,150,967       $ 65,893
                                                    ========     ========     ========    ==========       ========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-23
<PAGE>   82
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                         VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
                                                                  VAN ECK     VAN ECK GOLD    VAN ECK     ALGER AMERICAN
                                                       TCI       WORLDWIDE    AND NATURAL     EMERGING        SMALL
                                                     GROWTH         BOND       RESOURCES      MARKETS     CAPITALIZATION
                                                   SUBACCOUNT    SUBACCOUNT    SUBACCOUNT    SUBACCOUNT     SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>          <C>            <C>          <C>
INVESTMENT INCOME
Dividends........................................                 $65,988       $ 12,742      $   219        $    95
EXPENSES
Mortality and expense risks......................  $    49,667     15,456         10,810        4,045         17,365
                                                   -----------    -------       --------      -------        -------
Net investment income (loss).....................      (49,667)    50,532          1,932       (3,826)       (17,270)
                                                   -----------    -------       --------      -------        -------
NET REALIZED AND UNREALIZED GAIN
  (LOSS) ON INVESTMENTS
Realized gain distributions reinvested...........      728,835                    12,496
Net realized gain (loss) from redemption of
  investment shares..............................      127,215     20,012         40,140          470        (59,161)
                                                   -----------    -------       --------      -------        -------
Net realized gain (loss) on investments..........      856,050     20,012         52,636          470        (59,161)
                                                   -----------    -------       --------      -------        -------
Net unrealized appreciation (depreciation) of
  investments:
  Beginning of year..............................      584,114     70,122         65,442
  End of year....................................     (633,726)    70,532        187,278       90,708        173,011
                                                   -----------    -------       --------      -------        -------
Net unrealized appreciation (depreciation) of
  investments during the year....................   (1,217,840)       410        121,836       90,708        173,011
                                                   -----------    -------       --------      -------        -------
Net realized and unrealized gain (loss) on
  investments....................................     (361,790)    20,422        174,472       91,178        113,850
                                                   -----------    -------       --------      -------        -------
Net increase (decrease) in net assets resulting
  from operations................................  $  (411,457)   $70,954       $176,404      $87,352        $96,580
                                                   ===========    =======       ========      =======        =======
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-24
<PAGE>   83
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                              MONEY                                   AGGRESSIVE
                                               GROWTH         MARKET         BOND         MANAGED       GROWTH      INTERNATIONAL
                                              SEPARATE       SEPARATE      SEPARATE      SEPARATE      SEPARATE       SEPARATE
                                              ACCOUNT        ACCOUNT        ACCOUNT       ACCOUNT       ACCOUNT        ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>           <C>           <C>           <C>
FROM OPERATIONS
Net investment income (loss)..............  $  2,015,707   $  1,155,196   $   726,209   $   981,226   $    30,469    $      (337)
Net realized gain (loss) on investments...    31,131,852                      (11,168)    2,550,529     4,068,180      3,249,185
Net unrealized appreciation (depreciation)
  of investments during the year..........    (6,293,297)                     343,092       787,119    (1,531,022)       400,480
                                            ------------   ------------   -----------   -----------   -----------    -----------
Net increase in net assets from
  operations..............................    26,854,262      1,155,196     1,058,133     4,318,874     2,567,627      3,649,328
                                            ------------   ------------   -----------   -----------   -----------    -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums...............    28,487,988     42,570,677     3,219,583     5,309,169     8,253,971      9,038,100
Cost of insurance and administrative
  charges.................................   (11,790,141)    (4,378,001)   (1,242,032)   (2,278,565)   (2,885,869)    (3,272,446)
Surrenders and forfeitures................   (10,126,139)    (1,249,337)     (749,106)   (1,714,811)   (1,487,419)    (1,684,922)
Transfers between investment portfolios...    (4,250,025)   (27,362,632)     (267,299)       85,860    (1,510,108)    (1,968,516)
Net withdrawals due to policy loans.......    (3,633,955)      (704,376)      (54,451)     (593,757)     (764,231)      (536,465)
Withdrawals due to death benefits.........      (366,282)       (11,907)      (13,393)     (116,767)       (3,286)       (32,142)
                                            ------------   ------------   -----------   -----------   -----------    -----------
Net increase (decrease) in net assets
  derived from policy transactions........    (1,678,554)     8,864,424       893,302       691,129     1,603,058      1,543,609
                                            ------------   ------------   -----------   -----------   -----------    -----------
Return of capital to Provident Mutual Life
  Insurance Company.......................      (225,000)       (90,000)      (90,000)     (150,000)     (145,000)
                                            ------------   ------------   -----------   -----------   -----------    -----------
Total increase in net assets..............    24,950,708      9,929,620     1,861,435     4,860,003     4,025,685      5,192,937
NET ASSETS
  Beginning of year.......................   206,781,775     22,992,912    13,480,533    36,172,970    34,927,244     38,762,124
                                            ------------   ------------   -----------   -----------   -----------    -----------
  End of year.............................  $231,732,483   $ 32,922,532   $15,341,968   $41,032,973   $38,952,929    $43,955,061
                                            ============   ============   ===========   ===========   ===========    ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-25
<PAGE>   84
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                          VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------
                                                               ALL PRO      ALL PRO      ALL PRO      ALL PRO
                                                              LARGE CAP    LARGE CAP    SMALL CAP    SMALL CAP
                                                                GROWTH       VALUE        GROWTH       VALUE
                                                              SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>          <C>          <C>
FROM OPERATIONS
Net investment loss.........................................  $ (10,444)   $  (7,828)   $  (8,535)   $   (6,110)
Net realized gain (loss) on investments.....................    114,538        1,976      (75,896)      (65,921)
Net unrealized appreciation of investments during the
  year......................................................    511,417      139,747      403,798        13,283
                                                              ----------   ----------   ----------   ----------
Net increase (decrease) in net assets from operations.......    615,511      133,895      319,367       (58,748)
                                                              ----------   ----------   ----------   ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................................    725,893      525,241      411,183       435,729
Cost of insurance and administrative charges................   (130,570)    (104,161)    (102,177)      (82,507)
Surrenders and forfeitures..................................    (25,602)     (12,569)     (16,057)      (10,719)
Transfers between investment portfolios.....................  3,077,201    2,946,905    3,944,529     2,851,353
Net withdrawals due to policy loans.........................    (18,029)     (13,665)     (11,262)       (6,094)
Withdrawals due to death benefits...........................        (71)      (4,970)      (3,224)         (128)
                                                              ----------   ----------   ----------   ----------
Net increase in net assets derived from policy
  transactions..............................................  3,628,822    3,336,781    4,222,992     3,187,634
                                                              ----------   ----------   ----------   ----------
Capital contribution from Provident Mutual Life Insurance
  Company...................................................     25,000       25,000       25,000        25,000
                                                              ----------   ----------   ----------   ----------
 
Total increase in net assets................................  4,269,333    3,495,676    4,567,359     3,153,886
NET ASSETS
  Beginning of year.........................................         --           --           --            --
                                                              ----------   ----------   ----------   ----------
  End of year...............................................  $4,269,333   $3,495,676   $4,567,359   $3,153,886
                                                              ==========   ==========   ==========   ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-26
<PAGE>   85
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                              ZERO COUPON BOND
                                                              SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
                                                                2006 SERIES
                                                                 SUBACCOUNT
- ------------------------------------------------------------------------------
<S>                                                           <C>
FROM OPERATIONS
Net investment loss.........................................    $   (99,846)
Net realized gain on investments............................        570,514
Net unrealized appreciation of investments during the
  year......................................................        808,299
                                                                -----------
Net increase in net assets from operations..................      1,278,967
                                                                -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................................      2,832,198
Cost of insurance and administrative charges................       (969,558)
Surrenders and forfeitures..................................       (429,018)
Transfers between investment portfolios.....................      1,324,943
Net repayments due to policy loans..........................         34,044
Withdrawals due to death benefits...........................        (19,270)
                                                                -----------
Net increase in net assets derived from policy
  transactions..............................................      2,773,339
                                                                -----------
Return of capital to Provident Mutual Life Insurance
  Company...................................................       (105,000)
                                                                -----------
Total increase in net assets................................      3,947,306
NET ASSETS
  Beginning of year.........................................      8,641,986
                                                                -----------
  End of year...............................................    $12,589,292
                                                                ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-27
<PAGE>   86
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                          VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
                                               FIDELITY                     FIDELITY                    FIDELITY
                                               EQUITY-        FIDELITY        HIGH        FIDELITY        ASSET        FIDELITY
                                                INCOME         GROWTH        INCOME       OVERSEAS       MANAGER      INDEX 500
                                              SUBACCOUNT     SUBACCOUNT    SUBACCOUNT    SUBACCOUNT    SUBACCOUNT     SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>           <C>           <C>           <C>
FROM OPERATIONS
Net investment income (loss)...............  $    592,079   $   (356,088)  $   999,219   $   292,561   $ 1,023,972   $    209,196
Net realized gain on investments...........     7,627,428     20,456,568       849,640     3,197,810     4,862,002      4,037,742
Net unrealized appreciation (depreciation)
  of investments during the year...........     2,705,182     25,250,942    (2,866,128)     (392,699)      273,269     20,059,318
                                             ------------   ------------   -----------   -----------   -----------   ------------
Net increase (decrease) in net assets from
  operations...............................    10,924,689     45,351,422    (1,017,269)    3,097,672     6,159,243     24,306,256
                                             ------------   ------------   -----------   -----------   -----------   ------------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................    27,977,450     31,856,978     5,041,566     8,709,088     8,574,753     36,145,166
Cost of insurance and administrative
  charges..................................    (9,325,323)   (10,947,922)   (1,559,923)   (2,449,969)   (3,512,324)    (9,903,927)
Surrenders and forfeitures.................    (3,383,688)    (3,590,928)     (374,107)     (760,286)   (1,937,981)    (2,610,441)
Transfers between investment portfolios....     2,645,244     (1,393,335)    1,625,735     2,091,205       293,923     11,705,877
Net withdrawals due to policy loans........    (1,328,279)    (2,014,498)     (101,389)     (371,567)   (1,412,127)      (876,423)
Withdrawals due to death benefits..........      (260,037)       (10,155)       (7,237)      (20,317)      (69,814)       (10,632)
                                             ------------   ------------   -----------   -----------   -----------   ------------
Net increase in net assets derived from
  policy transactions......................    16,325,367     13,900,140     4,624,645     7,198,154     1,936,430     34,449,620
                                             ------------   ------------   -----------   -----------   -----------   ------------
Return of capital to Provident Mutual Life
  Insurance Company........................                     (165,000)                                  (85,000)       (35,000)
                                             ------------   ------------   -----------   -----------   -----------   ------------
Total increase in net assets...............    27,250,056     59,086,562     3,607,376    10,295,826     8,010,673     58,720,876
NET ASSETS
  Beginning of year........................    93,799,766    109,653,375    15,302,332    24,399,967    42,160,660     72,064,851
                                             ------------   ------------   -----------   -----------   -----------   ------------
  End of year..............................  $121,049,822   $168,739,937   $18,909,708   $34,695,793   $50,171,333   $130,785,727
                                             ============   ============   ===========   ===========   ===========   ============
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-28
<PAGE>   87
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                      VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
                                          FIDELITY                   NEUBERGER     NEUBERGER       NEUBERGER       NEUBERGER
                                         INVESTMENT     FIDELITY      & BERMAN     & BERMAN     & BERMAN LIMITED    & BERMAN
                                         GRADE BOND    CONTRAFUND     BALANCED      GROWTH       MATURITY BOND      PARTNERS
                                         SUBACCOUNT    SUBACCOUNT    SUBACCOUNT   SUBACCOUNT       SUBACCOUNT      SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>           <C>          <C>           <C>                <C>
FROM OPERATIONS
Net investment income (loss)...........  $  326,175    $   (52,554)  $ 108,409    $  (192,792)     $  240,987      $   (3,466)
Net realized gain (loss) on
  investments..........................     180,741      4,000,568     991,410      7,395,300         (32,935)         (5,901)
Net unrealized appreciation
  (depreciation) of investments during
  the year.............................     286,871      5,407,580    (317,398)    (3,408,254)        (29,896)         62,679
                                         -----------   -----------   ----------   -----------      ----------      ----------
Net increase in net assets from
  operations...........................     793,787      9,355,594     782,421      3,794,254         178,156          53,312
                                         -----------   -----------   ----------   -----------      ----------      ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............   3,706,491     13,012,021   1,808,394      7,614,497       1,892,852         512,666
Cost of insurance and administrative
  charges..............................    (970,841)    (3,458,508)   (816,326)    (2,663,861)       (385,317)        (75,140)
Surrenders and forfeitures.............    (204,537)      (761,006)   (300,676)      (903,644)       (118,480)        (15,003)
Transfers between investment
  portfolios...........................   2,902,448      2,904,831    (196,593)    (2,357,815)        821,901       1,220,644
Net withdrawals due to policy loans....    (130,121)      (302,099)   (108,962)      (393,122)        (27,411)
Withdrawals due to death benefits......      (4,526)        (5,234)    (17,898)       (28,362)           (520)            (43)
                                         -----------   -----------   ----------   -----------      ----------      ----------
Net increase in net assets derived from
  policy transactions..................   5,298,914     11,390,005     367,939      1,267,693       2,183,025       1,643,124
                                         -----------   -----------   ----------   -----------      ----------      ----------
(Return of capital from) capital
  contribution to Provident Mutual Life
  Insurance Company....................                                (35,000)       (25,000)                         25,000
                                         -----------   -----------   ----------   -----------      ----------      ----------
Total increase in net assets...........   6,092,701     20,745,599   1,115,360      5,036,947       2,361,181       1,721,436
NET ASSETS
  Beginning of year....................   7,897,930     25,431,484   6,381,375     25,140,863       4,222,983
                                         -----------   -----------   ----------   -----------      ----------      ----------
  End of year..........................  $13,990,631   $46,177,083   $7,496,735   $30,177,810      $6,584,164      $1,721,436
                                         ===========   ===========   ==========   ===========      ==========      ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-29
<PAGE>   88
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                     VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
                                          AMERICAN                                  VAN ECK      VAN ECK
                                         CENTURY VP     VAN ECK       VAN ECK      WORLDWIDE    WORLDWIDE    ALGER AMERICAN
                                          CAPITAL      WORLDWIDE     WORLDWIDE     EMERGING        REAL          SMALL
                                        APPRECIATION      BOND      HARD ASSETS     MARKETS       ESTATE     CAPITALIZATION
                                         SUBACCOUNT    SUBACCOUNT   SUBACCOUNT    SUBACCOUNT    SUBACCOUNT     SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>          <C>           <C>           <C>          <C>
FROM OPERATIONS
Net investment income (loss)..........  $   (53,235)   $   5,836    $     (877)   $    10,807    $ (1,150)    $  (159,984)
Net realized gain (loss) on
  investments.........................     (275,146)      38,421       182,364       (372,857)     (8,482)      3,150,039
Net unrealized appreciation
  (depreciation) of investments during
  the year............................      122,964      529,032    (1,104,896)    (2,208,689)    (12,423)        573,841
                                        -----------    ----------   -----------   -----------    --------     -----------
Net increase (decrease) in net assets
  from operations.....................     (205,417)     573,289      (923,409)    (2,570,739)    (22,055)      3,563,896
                                        -----------    ----------   -----------   -----------    --------     -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums...........    2,677,232    1,463,635       869,978      3,517,907      66,543       8,859,577
Cost of insurance and administrative
  charges.............................     (949,325)    (466,749)     (243,816)      (930,984)    (14,501)     (2,479,481)
Surrenders and forfeitures............     (250,766)    (222,795)      (75,816)      (104,943)     (2,855)       (543,395)
Transfers between investment
  portfolios..........................   (2,037,281)      54,538      (330,819)        10,460     379,923       1,167,869
Net withdrawals due to policy loans...      (97,850)     (68,651)      (18,815)       (86,630)        (82)       (292,596)
Withdrawals due to death benefits.....       (1,650)      (3,689)         (183)          (924)        (43)        (14,148)
                                        -----------    ----------   -----------   -----------    --------     -----------
Net increase (decrease) in net assets
  derived from policy transactions....     (659,640)     756,289       200,529      2,404,886     428,985       6,697,826
                                        -----------    ----------   -----------   -----------    --------     -----------
Capital contribution from Provident
  Mutual Life Insurance Company.......       10,000                     10,000         35,000      35,000
                                        -----------    ----------   -----------   -----------    --------     -----------
 
Total increase (decrease) in net
  assets..............................     (855,057)   1,329,578      (712,880)      (130,853)    441,930      10,261,722
NET ASSETS
  Beginning of year...................    8,434,404    4,377,135     2,781,168      6,363,909                  18,732,813
                                        -----------    ----------   -----------   -----------    --------     -----------
  End of year.........................  $ 7,579,347    $5,706,713   $2,068,288    $ 6,233,056    $441,930     $28,994,535
                                        ===========    ==========   ===========   ===========    ========     ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-30
<PAGE>   89
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                              MONEY                                   AGGRESSIVE
                                               GROWTH         MARKET         BOND         MANAGED       GROWTH      INTERNATIONAL
                                              SEPARATE       SEPARATE      SEPARATE      SEPARATE      SEPARATE       SEPARATE
                                              ACCOUNT        ACCOUNT        ACCOUNT       ACCOUNT       ACCOUNT        ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>           <C>           <C>           <C>
FROM OPERATIONS
Net investment income.....................  $  2,759,199   $  1,095,585   $   651,271   $   904,070   $    45,091    $    16,822
Net realized gain (loss) on investments...    23,707,890                       (7,292)    1,198,755       626,630      2,605,339
Net unrealized appreciation of investments
  during the year.........................    13,153,464                      401,987     4,050,080     4,896,760        278,626
                                            ------------   ------------   -----------   -----------   -----------    -----------
Net increase in net assets from
  operations..............................    39,620,553      1,095,585     1,045,966     6,152,905     5,568,481      2,900,787
                                            ------------   ------------   -----------   -----------   -----------    -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums...............    28,779,076     41,392,009     2,883,256     5,061,216     7,652,795      9,275,052
Cost of insurance and administrative
  charges.................................   (11,378,551)    (4,214,952)   (1,049,368)   (2,164,675)   (2,627,095)    (3,135,940)
Surrenders and forfeitures................   (10,450,206)      (893,804)     (421,877)   (1,834,332)   (1,314,144)    (1,656,263)
Transfers between investment portfolios...    (4,245,851)   (38,647,233)       25,947    (1,015,633)      327,609        (19,790)
Net withdrawals due to policy loans.......    (3,880,476)      (348,424)     (150,015)     (428,805)     (565,546)      (566,895)
Withdrawals due to death benefits.........      (453,320)       (10,985)      (23,685)     (113,392)      (12,782)       (25,012)
                                            ------------   ------------   -----------   -----------   -----------    -----------
Net increase (decrease) in net assets
  derived from policy transactions........    (1,629,328)    (2,723,389)    1,264,258      (495,621)    3,460,837      3,871,152
                                            ------------   ------------   -----------   -----------   -----------    -----------
Total increase (decrease) in net assets...    37,991,225     (1,627,804)    2,310,224     5,657,284     9,029,318      6,771,939
NET ASSETS
  Beginning of year.......................   168,790,550     24,620,716    11,170,309    30,515,686    25,897,926     31,990,185
                                            ------------   ------------   -----------   -----------   -----------    -----------
  End of year.............................  $206,781,775   $ 22,992,912   $13,480,533   $36,172,970   $34,927,244    $38,762,124
                                            ============   ============   ===========   ===========   ===========    ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-31
<PAGE>   90
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                              ZERO COUPON BOND
                                                              SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
                                                                2006 SERIES
                                                                 SUBACCOUNT
- ------------------------------------------------------------------------------
<S>                                                           <C>
FROM OPERATIONS
Net investment loss.........................................     $  (65,256)
Net realized gain on investments............................        240,323
Net unrealized appreciation of investments during the
  year......................................................        610,746
                                                                 ----------
Net increase in net assets from operations..................        785,813
                                                                 ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................................      2,330,310
Cost of insurance and administrative charges................       (788,189)
Surrenders and forfeitures..................................       (153,867)
Transfers between investment portfolios.....................        143,804
Net withdrawals due to policy loans.........................        (88,482)
                                                                 ----------
Net increase in net assets derived from policy
  transactions..............................................      1,443,576
                                                                 ----------
Total increase in net assets................................      2,229,389
NET ASSETS
  Beginning of year.........................................      6,412,597
                                                                 ----------
  End of year...............................................     $8,641,986
                                                                 ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-32
<PAGE>   91
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                           VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
                                                FIDELITY                     FIDELITY                    FIDELITY
                                                 EQUITY-       FIDELITY        HIGH        FIDELITY        ASSET       FIDELITY
                                                 INCOME         GROWTH        INCOME       OVERSEAS       MANAGER      INDEX 500
                                               SUBACCOUNT     SUBACCOUNT    SUBACCOUNT    SUBACCOUNT    SUBACCOUNT    SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>            <C>           <C>           <C>           <C>
FROM OPERATIONS
Net investment income (loss).................  $   511,657   $   (121,724)  $   546,402   $   145,892   $   866,776   $     2,613
Net realized gain on investments.............    6,219,063      4,112,232       201,238     1,308,085     3,207,342     1,541,832
Net unrealized appreciation of investments
  during the year............................   11,278,621     14,556,654     1,013,826       308,949     2,493,096    11,280,605
                                               -----------   ------------   -----------   -----------   -----------   -----------
Net increase in net assets from operations...   18,009,341     18,547,162     1,761,466     1,762,926     6,567,214    12,825,050
                                               -----------   ------------   -----------   -----------   -----------   -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums..................   23,646,606     29,144,250     3,594,929     6,932,947     8,034,994    23,023,710
Cost of insurance and administrative
  charges....................................   (7,387,112)    (9,463,481)   (1,076,133)   (1,901,779)   (3,249,362)   (5,704,702)
Surrenders and forfeitures...................   (2,364,387)    (3,547,931)     (171,214)     (612,736)   (1,661,468)     (997,451)
Transfers between investment portfolios......    4,047,525       (416,903)    2,763,974     2,738,393     1,079,135    15,621,648
Net withdrawals due to policy loans..........   (1,015,473)    (1,502,812)      (45,505)     (320,179)     (309,555)   (1,042,356)
Withdrawals due to death benefits............      (74,532)       (11,969)       (5,636)       (7,293)      (14,147)      (95,105)
                                               -----------   ------------   -----------   -----------   -----------   -----------
Net increase in net assets derived from
  policy transactions........................   16,852,627     14,201,154     5,060,415     6,829,353     3,879,597    30,805,744
                                               -----------   ------------   -----------   -----------   -----------   -----------
Total increase in net assets.................   34,861,968     32,748,316     6,821,881     8,592,279    10,446,811    43,630,794
NET ASSETS
  Beginning of year..........................   58,937,798     76,905,059     8,480,451    15,807,688    31,713,849    28,434,057
                                               -----------   ------------   -----------   -----------   -----------   -----------
  End of year................................  $93,799,766   $109,653,375   $15,302,332   $24,399,967   $42,160,660   $72,064,851
                                               ===========   ============   ===========   ===========   ===========   ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-33
<PAGE>   92
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                           VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
                                                      FIDELITY                  NEUBERGER     NEUBERGER       NEUBERGER
                                                     INVESTMENT    FIDELITY      & BERMAN     & BERMAN     & BERMAN LIMITED
                                                     GRADE BOND   CONTRAFUND     BALANCED      GROWTH       MATURITY BOND
                                                     SUBACCOUNT   SUBACCOUNT    SUBACCOUNT   SUBACCOUNT       SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>           <C>          <C>           <C>
FROM OPERATIONS
Net investment income (loss).......................  $ 264,484    $   (51,526)  $  41,071    $  (146,708)     $  130,958
Net realized gain (loss) on investments............      2,841        370,677     304,475      2,142,526          (6,752)
Net unrealized appreciation of investments during
  the year.........................................    246,105      2,855,281     524,116      2,994,748          67,628
                                                     ----------   -----------   ----------   -----------      ----------
Net increase in net assets from operations.........    513,430      3,174,432     869,662      4,990,566         191,834
                                                     ----------   -----------   ----------   -----------      ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums........................  2,548,565      8,274,186   1,807,306      7,165,598       1,348,185
Cost of insurance and administrative charges.......   (747,877)    (1,798,797)   (639,602)    (2,369,791)       (271,833)
Surrenders and forfeitures.........................   (206,163)      (425,566)   (137,713)      (676,292)        (29,867)
Transfers between investment portfolios............    816,573     10,232,231     (79,543)      (721,651)        482,396
Net withdrawals due to policy loans................    (22,522)      (201,694)    (66,441)      (286,901)        (15,620)
Withdrawals due to death benefits..................     (1,057)        (6,670)                   (13,455)
                                                     ----------   -----------   ----------   -----------      ----------
Net increase in net assets derived from policy
  transactions.....................................  2,387,519     16,073,690     884,007      3,097,508       1,513,261
                                                     ----------   -----------   ----------   -----------      ----------
Total increase in net assets.......................  2,900,949     19,248,122   1,753,669      8,088,074       1,705,095
NET ASSETS
  Beginning of year................................  4,996,981      6,183,362   4,627,706     17,052,789       2,517,888
                                                     ----------   -----------   ----------   -----------      ----------
  End of year......................................  $7,897,930   $25,431,484   $6,381,375   $25,140,863      $4,222,983
                                                     ==========   ===========   ==========   ===========      ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-34
<PAGE>   93
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                          VARIABLE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
                                                      AMERICAN                                  VAN ECK
                                                     CENTURY VP     VAN ECK       VAN ECK      WORLDWIDE    ALGER AMERICAN
                                                      CAPITAL      WORLDWIDE     WORLDWIDE     EMERGING         SMALL
                                                    APPRECIATION      BOND      HARD ASSETS     MARKETS     CAPITALIZATION
                                                     SUBACCOUNT    SUBACCOUNT   SUBACCOUNT    SUBACCOUNT      SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>          <C>           <C>           <C>
FROM OPERATIONS
Net investment income (loss)......................  $   (56,416)   $  79,864    $   33,013    $   (21,581)   $   (90,562)
Net realized gain on investments..................       81,043       12,516        94,797         82,065        460,544
Net unrealized appreciation (depreciation) of
  investments during the year.....................     (391,040)      (9,005)     (218,482)    (1,528,161)     1,151,963
                                                    -----------    ----------   ----------    -----------    -----------
Net increase (decrease) in net assets from
  operations......................................     (366,413)      83,375       (90,672)    (1,467,677)     1,521,945
                                                    -----------    ----------   ----------    -----------    -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.......................    3,692,178    1,320,768       883,387      3,474,642      6,837,744
Cost of insurance and administrative charges......   (1,145,513)    (371,619)     (246,420)      (677,362)    (1,662,591)
Surrenders and forfeitures........................     (268,757)    (100,365)      (28,046)       (58,433)      (334,781)
Transfers between investment portfolios...........   (1,462,705)     321,170       539,670      2,962,129      4,643,633
Net withdrawals due to policy loans...............     (101,019)     (20,808)      (32,784)       (81,551)      (221,848)
Withdrawals due to death benefits.................       (5,826)      (2,563)          (19)        (4,220)       (15,361)
                                                    -----------    ----------   ----------    -----------    -----------
Net increase in net assets derived from policy
  transactions....................................      708,358    1,146,583     1,115,788      5,615,205      9,246,796
                                                    -----------    ----------   ----------    -----------    -----------
Total increase in net assets......................      341,945    1,229,958     1,025,116      4,147,528     10,768,741
NET ASSETS
  Beginning of year...............................    8,092,459    3,147,177     1,756,052      2,216,381      7,964,072
                                                    -----------    ----------   ----------    -----------    -----------
  End of year.....................................  $ 8,434,404    $4,377,135   $2,781,168    $ 6,363,909    $18,732,813
                                                    ===========    ==========   ==========    ===========    ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-35
<PAGE>   94
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                           MONEY                                   AGGRESSIVE
                                            GROWTH         MARKET         BOND         MANAGED       GROWTH      INTERNATIONAL
                                           SEPARATE       SEPARATE      SEPARATE      SEPARATE      SEPARATE       SEPARATE
                                           ACCOUNT        ACCOUNT        ACCOUNT       ACCOUNT       ACCOUNT        ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>           <C>           <C>           <C>
FROM OPERATIONS
Net investment income..................  $  3,374,296   $    883,372   $   540,990   $   838,684   $    55,425    $    97,842
Net realized gain (loss) on
  investments..........................     9,852,978                       (2,425)    1,731,006     2,540,903      1,445,495
Net unrealized appreciation
  (depreciation) of investments during
  the year.............................    13,537,975                     (300,470)      471,597     1,516,075      1,157,029
                                         ------------   ------------   -----------   -----------   -----------    -----------
Net increase in net assets from
  operations...........................    26,765,249        883,372       238,095     3,041,287     4,112,403      2,700,366
                                         ------------   ------------   -----------   -----------   -----------    -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............    30,021,490     38,804,263     2,684,818     5,312,990     7,299,202      8,944,269
Cost of insurance and administrative
  charges..............................   (10,923,039)    (3,577,047)     (907,984)   (2,141,363)   (2,409,140)    (2,851,005)
Surrenders and forfeitures.............    (8,868,122)      (807,207)     (593,919)   (1,485,140)   (1,084,540)      (949,465)
Transfers between investment
  portfolios...........................    (6,972,133)   (27,374,079)     (359,010)     (488,185)     (814,283)       567,594
Net withdrawals due to policy loans....    (2,932,321)      (111,880)     (106,211)     (604,659)     (468,999)      (321,175)
Withdrawals due to death benefits......      (361,511)        (9,285)      (12,934)      (95,250)      (24,597)       (66,791)
                                         ------------   ------------   -----------   -----------   -----------    -----------
Net increase (decrease) in net assets
  derived from policy transactions.....       (35,636)     6,924,765       704,760       498,393     2,497,643      5,323,427
                                         ------------   ------------   -----------   -----------   -----------    -----------
Return of capital to Provident Mutual
  Life Insurance Company...............      (200,000)      (200,000)     (200,000)
                                         ------------   ------------   -----------   -----------   -----------    -----------
Total increase in net assets...........    26,529,613      7,608,137       742,855     3,539,680     6,610,046      8,023,793
NET ASSETS
  Beginning of year....................   142,260,937     17,012,579    10,427,454    26,976,006    19,287,880     23,966,392
                                         ------------   ------------   -----------   -----------   -----------    -----------
  End of year..........................  $168,790,550   $ 24,620,716   $11,170,309   $30,515,686   $25,897,926    $31,990,185
                                         ============   ============   ===========   ===========   ===========    ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-36
<PAGE>   95
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                   ZERO COUPON BOND
                                                                   SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------
                                                              1996 SERIES     2006 SERIES
                                                              SUBACCOUNT**    SUBACCOUNT
- -----------------------------------------------------------------------------------------
<S>                                                           <C>             <C>
FROM OPERATIONS
Net investment loss.........................................  $    (6,959)    $  (45,568)
Net realized gain on investments............................      230,886        132,042
Net unrealized depreciation of investments during the
  year......................................................     (195,315)      (166,103)
                                                              -----------     ----------
Net increase (decrease) in net assets from operations.......       28,612        (79,629)
                                                              -----------     ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................................      134,184      1,694,055
Cost of insurance and administrative charges................      (53,122)      (662,460)
Surrenders and forfeitures..................................      (64,059)      (111,668)
Transfers between investment portfolios.....................   (1,958,937)       932,017
Net withdrawals due to policy loans.........................       (2,908)       (90,247)
Withdrawals due to death benefits...........................                      (9,233)
                                                              -----------     ----------
Net increase (decrease) in net assets derived from policy
  transactions..............................................   (1,944,842)     1,752,464
                                                              -----------     ----------
Return of capital to Provident Mutual Life Insurance
  Company...................................................     (110,372)       (50,000)
                                                              -----------     ----------
Total increase (decrease) in net assets.....................   (2,026,602)     1,622,835
NET ASSETS
  Beginning of year.........................................    2,026,602      4,789,762
                                                              -----------     ----------
  End of year...............................................      --          $6,412,597
                                                              ===========     ==========
</TABLE>
 
** For the period January 1, 1996 to May 15, 1996 (date of maturity).
 
See accompanying notes to financial statements
 
                                      F-37
<PAGE>   96
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                            VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
                                                  FIDELITY                    FIDELITY                   FIDELITY
                                                   EQUITY-      FIDELITY        HIGH       FIDELITY        ASSET       FIDELITY
                                                   INCOME        GROWTH        INCOME      OVERSEAS       MANAGER      INDEX 500
                                                 SUBACCOUNT    SUBACCOUNT    SUBACCOUNT   SUBACCOUNT    SUBACCOUNT    SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>           <C>          <C>           <C>           <C>
FROM OPERATIONS
Net investment income (loss)...................  $  (269,872)  $  (302,178)  $ 248,670    $    21,833   $   793,090   $     7,976
Net realized gain on investments...............    1,870,111     3,823,966     192,860        187,975       858,187       404,196
Net unrealized appreciation of investments
  during the year..............................    4,422,987     4,278,695     264,260      1,243,579     2,110,829     3,054,102
                                                 -----------   -----------   ----------   -----------   -----------   -----------
Net increase in net assets from operations.....    6,023,226     7,800,483     705,790      1,453,387     3,762,106     3,466,274
                                                 -----------   -----------   ----------   -----------   -----------   -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums....................   20,410,261    27,775,181   3,074,003      5,377,187     8,617,164    11,388,269
Cost of insurance and administrative charges...   (5,694,885)   (7,871,429)   (690,043)    (1,404,523)   (3,144,049)   (2,553,289)
Surrenders and forfeitures.....................   (1,264,322)   (1,872,916)    (55,762)      (332,401)   (1,388,200)     (317,366)
Transfers between investment portfolios........    6,265,641     5,416,680   2,218,407      2,222,639    (2,961,158)    7,671,836
Net withdrawals due to policy loans............     (479,134)     (618,794)    (72,022)       (55,225)     (258,013)     (159,156)
Withdrawals due to death benefits..............      (53,476)      (60,875)       (260)        (5,086)      (28,551)       (5,498)
                                                 -----------   -----------   ----------   -----------   -----------   -----------
Net increase in net assets derived from policy
  transactions.................................   19,184,085    22,767,847   4,474,323      5,802,591       837,193    16,024,796
                                                 -----------   -----------   ----------   -----------   -----------   -----------
Capital contribution from Provident Mutual Life
  Insurance Company............................                                                                            10,000
                                                 -----------   -----------   ----------   -----------   -----------   -----------
Total increase in net assets...................   25,207,311    30,568,330   5,180,113      7,255,978     4,599,299    19,501,070
NET ASSETS
  Beginning of year............................   33,730,487    46,336,729   3,300,338      8,551,710    27,114,550     8,932,987
                                                 -----------   -----------   ----------   -----------   -----------   -----------
  End of year..................................  $58,937,798   $76,905,059   $8,480,451   $15,807,688   $31,713,849   $28,434,057
                                                 ===========   ===========   ==========   ===========   ===========   ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-38
<PAGE>   97
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                             VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
                                                        FIDELITY                 NEUBERGER     NEUBERGER       NEUBERGER
                                                       INVESTMENT    FIDELITY     & BERMAN     & BERMAN     & BERMAN LIMITED
                                                       GRADE BOND   CONTRAFUND    BALANCED      GROWTH       MATURITY BOND
                                                       SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT       SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>          <C>          <C>          <C>           <C>
FROM OPERATIONS
Net investment income (loss).........................  $  81,754    $  (9,544)   $  52,328    $   (94,132)     $  100,104
Net realized gain (loss) on investments..............     34,895        3,778      459,414      1,142,403          (8,673)
Net unrealized appreciation (depreciation) of
  investments during the year........................    (18,365)     477,324     (266,601)       102,696         (25,538)
                                                       ----------   ----------   ----------   -----------      ----------
Net increase in net assets from operations...........     98,284      471,558      245,141      1,150,967          65,893
                                                       ----------   ----------   ----------   -----------      ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums..........................  2,130,821    1,896,133    1,626,992      6,888,258         785,194
Cost of insurance and administrative charges.........   (507,709)    (242,291)    (624,216)    (2,046,331)       (171,297)
Surrenders and forfeitures...........................   (104,535)     (16,144)    (154,980)      (371,468)        (24,959)
Transfers between investment portfolios..............  1,064,874    4,057,384      346,579      1,059,064         758,312
Net withdrawals due to policy loans..................    (28,781)      (8,278)     (35,100)      (226,752)         (3,617)
Withdrawals due to death benefits....................     (2,694)                      (14)        (6,854)
                                                       ----------   ----------   ----------   -----------      ----------
Net increase in net assets derived from policy
  transactions.......................................  2,551,976    5,686,804    1,159,261      5,295,917       1,343,633
                                                       ----------   ----------   ----------   -----------      ----------
Capital contribution from Provident Mutual Life
  Insurance Company..................................                  25,000
                                                       ----------   ----------   ----------   -----------      ----------
Total increase in net assets.........................  2,650,260    6,183,362    1,404,402      6,446,884       1,409,526
NET ASSETS
  Beginning of year..................................  2,346,721           --    3,223,304     10,605,905       1,108,362
                                                       ----------   ----------   ----------   -----------      ----------
  End of year........................................  $4,996,981   $6,183,362   $4,627,706   $17,052,789      $2,517,888
                                                       ==========   ==========   ==========   ===========      ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-39
<PAGE>   98
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                         VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
                                                                  VAN ECK     VAN ECK GOLD    VAN ECK     ALGER AMERICAN
                                                       TCI       WORLDWIDE    AND NATURAL     EMERGING        SMALL
                                                     GROWTH         BOND       RESOURCES      MARKETS     CAPITALIZATION
                                                   SUBACCOUNT    SUBACCOUNT    SUBACCOUNT    SUBACCOUNT     SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>          <C>            <C>          <C>
FROM OPERATIONS
Net investment income (loss).....................  $   (49,667)  $  50,532     $    1,932    $  (3,826)     $  (17,270)
Net realized gain (loss) on investments..........      856,050      20,012         52,636          470         (59,161)
Net unrealized appreciation (depreciation) of
  investments during the year....................   (1,217,840)        410        121,836       90,708         173,011
                                                   -----------   ----------    ----------    ----------     ----------
Net increase (decrease) in net assets from
  operations.....................................     (411,457)     70,954        176,404       87,352          96,580
                                                   -----------   ----------    ----------    ----------     ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums......................    4,409,737   1,208,131        620,876      591,991       2,284,400
Cost of insurance and administrative charges.....   (1,147,704)   (293,018)      (188,073)     (84,624)       (343,153)
Surrenders and forfeitures.......................     (213,245)    (71,799)       (66,529)      (9,852)        (29,701)
Transfers between investment portfolios..........      472,972     425,637        330,253    1,616,051       5,942,776
Net withdrawals due to policy loans..............      (49,208)     (3,329)       (17,924)      (9,537)        (11,830)
Withdrawals due to death benefits................         (412)     (1,767)          (235)
                                                   -----------   ----------    ----------    ----------     ----------
Net increase in net assets derived from policy
  transactions...................................    3,472,140   1,263,855        678,368    2,104,029       7,842,492
                                                   -----------   ----------    ----------    ----------     ----------
Capital contribution from Provident Mutual Life
  Insurance Company..............................                                               25,000          25,000
                                                   -----------   ----------    ----------    ----------     ----------
Total increase in net assets.....................    3,060,683   1,334,809        854,772    2,216,381       7,964,072
NET ASSETS
  Beginning of year..............................    5,031,776   1,812,368        901,280           --              --
                                                   -----------   ----------    ----------    ----------     ----------
  End of year....................................  $ 8,092,459   $3,147,177    $1,756,052    $2,216,381     $7,964,072
                                                   ===========   ==========    ==========    ==========     ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-40
<PAGE>   99
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements
 
- --------------------------------------------------------------------------------
 
1. ORGANIZATION
 
     The Growth, Money Market, Bond, Managed, Aggressive Growth, International,
Zero Coupon Bond and Variable Separate Accounts (Separate Accounts) were
established by Provident Mutual Life Insurance Company (Provident Mutual) under
the provisions of the Pennsylvania Insurance Law. Each Separate Account is a
separate investment account to which assets are allocated to support the
benefits payable under single premium, modified premium, scheduled premium and
flexible premium adjustable variable life insurance policies (the Policies). The
Aggressive Growth, International, and Variable Separate Accounts are not
available with single premium and scheduled premium policies. The Zero Coupon
Bond Separate Account is not available with scheduled premium policies.
 
     The Policies are distributed principally through career agents and brokers.
 
     Provident Mutual has structured the Separate Accounts as unit investment
trusts registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended.
 
     The Growth, Money Market, Bond, Managed, Aggressive Growth and
International Separate Accounts invest in the corresponding portfolios of the
Market Street Fund, Inc.
 
     The Zero Coupon Bond Separate Account is comprised of the 2006 Series
Subaccount. Funds are transferred to Merrill Lynch, Pierce, Fenner & Smith
(MLPFS), who serves as sponsor of The Stripped ("Zero") U.S. Treasury Securities
Fund, Provident Mutual Series A (Zero Coupon Trust). The 2006 Series Subaccount
invests in the 2006 Series Portfolio of the Zero Coupon Trust. On May 15, 1996,
a second Subaccount was terminated due to the maturity of the underlying series
of the Zero Coupon Trust.
 
     The Variable Separate Account is comprised of twenty-two Subaccounts: the
All Pro Large Cap Growth, All Pro Large Cap Value, All Pro Small Cap Growth and
the All Pro Small Cap Value Subaccounts invest in the corresponding portfolios
of the Market Street Fund, Inc.; the Fidelity Equity-Income, Fidelity Growth,
Fidelity High Income and Fidelity Overseas Subaccounts invest in the
corresponding portfolios of the Variable Insurance Products Fund; the Fidelity
Asset Manager, Fidelity Index 500, Fidelity Investment Grade Bond and Fidelity
Contrafund Subaccounts invest in the corresponding portfolios of the Variable
Insurance Products Fund II; the Neuberger & Berman Balanced, Neuberger & Berman
Growth, Neuberger & Berman Limited Maturity Bond and Neuberger & Berman Partners
Subaccounts invest in the corresponding portfolios of the Neuberger & Berman
Advisers Management Trust; the American Century VP Capital Appreciation
(formerly TCI Growth) Subaccount invests in the corresponding portfolio of the
American Century Variable Portfolios, Inc. (formerly TCI Portfolios, Inc.); the
Van Eck Worldwide Bond, Van Eck Worldwide Hard Assets (formerly Van Eck Gold and
Natural Resources), Van Eck Worldwide Emerging Markets (formerly Van Eck
Emerging Markets) and Van Eck Worldwide Real Estate Subaccounts invest in the
corresponding portfolios of the Van Eck Worldwide Insurance Trust; and the Alger
American Small Capitalization Subaccount invests in the corresponding portfolio
of the Alger American Fund.
 
     Net premiums from in-force Policies are allocated to the Separate Accounts
in accordance with policyholder instructions and are recorded as variable life
policy transactions in the statements of changes in net assets. Such amounts are
used to provide money to pay benefits under the Policies (Note 4). Each Separate
Account's assets are the property of Provident Mutual.
 
     Transfers between investment portfolios include transfers between the
Separate Accounts and the Guaranteed Account (not shown), which is part of
Provident Mutual's General Account.
 
                                      F-41
<PAGE>   100
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     The following is a summary of the significant accounting policies followed
by the Separate Accounts included in the financial statements.
 
 Investment Valuation:
 
     Investment shares are valued at the net asset values of the respective
Portfolios. Transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date.
 
 Realized Gains and Losses:
 
     Realized gains and losses on sales of investment shares are determined
using the specific identification basis for financial reporting and income tax
purposes.
 
 Federal Income Taxes:
 
     The operations of the Separate Accounts are included in the Federal income
tax return of Provident Mutual. Under the provisions of the Policies, Provident
Mutual has the right to charge the Separate Accounts for Federal income tax
attributable to the Separate Accounts. No charge is currently being made against
the Separate Accounts for such tax.
 
 Estimates:
 
     The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities and the reported amounts from operations and policy
transactions during the period. Actual results could differ from those
estimates.
 
                                      F-42
<PAGE>   101
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS
 
     At December 31, 1998, the investments of the respective Separate
Accounts/Subaccounts are as follows:
 
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
                                                                SHARES         COST       MARKET VALUE
- ------------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>            <C>
Market Street Fund, Inc.:
  Growth Portfolio..........................................  12,319,430   $188,208,854   $231,851,679
  Money Market Portfolio....................................  30,943,288    $30,943,288    $30,943,288
  Bond Portfolio............................................   1,368,842    $14,470,181    $15,358,404
  Managed Portfolio.........................................   2,322,089    $32,182,969    $41,054,533
  Aggressive Growth Portfolio...............................   1,777,861    $31,359,430    $38,952,929
  International Portfolio...................................   3,173,651    $39,980,767    $43,955,061
  All Pro Large Cap Growth Portfolio........................     362,730     $3,757,916     $4,269,333
  All Pro Large Cap Value Portfolio.........................     353,098     $3,355,929     $3,495,676
  All Pro Small Cap Growth Portfolio........................     462,996     $4,133,561     $4,537,359
  All Pro Small Cap Value Portfolio.........................     382,289     $3,140,603     $3,153,886
The Stripped ("Zero") U.S. Treasury Securities Fund,
  Provident Mutual Series A:
  2006 Series...............................................  17,204,688    $10,285,615    $12,448,796
Variable Insurance Products Fund:
  Equity-Income Portfolio...................................   4,761,991    $97,411,825   $121,049,822
  Growth Portfolio..........................................   3,760,641   $115,958,312   $168,739,937
  High Income Portfolio.....................................   1,640,044    $20,290,154    $18,909,708
  Overseas Portfolio........................................   1,730,463    $33,033,626    $34,695,793
Variable Insurance Products Fund II:
  Asset Manager Portfolio...................................   2,762,739    $42,869,084    $50,171,333
  Index 500 Portfolio.......................................     925,917    $95,014,127   $130,785,727
  Investment Grade Bond Portfolio...........................   1,079,524    $13,302,389    $13,990,631
  Contrafund Portfolio......................................   1,889,406    $37,436,898    $46,177,083
Neuberger & Berman Advisers Management Trust:
  Balanced Portfolio........................................     458,797     $7,218,816     $7,496,735
  Growth Portfolio..........................................   1,147,882    $29,348,049    $30,177,810
  Limited Maturity Bond Portfolio...........................     476,423     $6,527,275     $6,584,164
  Partners Portfolio........................................      90,937     $1,658,757     $1,721,436
American Century Variable Portfolios, Inc.:
  American Century VP Capital Appreciation Portfolio........     840,282     $8,481,149     $7,579,347
Van Eck Worldwide InsuranceTrust:
  Van Eck Worldwide Bond Portfolio..........................     464,716     $5,116,154     $5,706,713
  Van Eck Worldwide Hard Assets Portfolio...................     224,814     $3,204,388     $2,068,288
  Van Eck Worldwide Emerging Markets Portfolio..............     875,429     $9,879,198     $6,233,056
  Van Eck Worldwide Real Estate Portfolio...................      46,324       $454,353       $441,930
Alger American Fund:
  Alger American Small Capitalization Portfolio.............     659,416    $27,095,720    $28,994,535
</TABLE>
 
                                      F-43
<PAGE>   102
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
     During the years ended December 31, 1998, 1997 and 1996, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                       MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
                                                    GROWTH PORTFOLIO                         MONEY MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
                                            1998          1997          1996           1998           1997           1996
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>           <C>           <C>           <C>            <C>            <C>
Shares purchased.......................      768,646       803,570       831,901     44,184,953     23,511,707     19,129,435
Shares received from reinvestment of:
  Dividends............................      151,409       228,102       265,374      1,311,070      1,161,384      1,024,419
  Capital gain distributions...........    1,670,894     1,229,894       436,699
                                         -----------   -----------   -----------   ------------   ------------   ------------
Total shares acquired..................    2,590,949     2,261,566     1,533,974     45,496,023     24,673,091     20,153,854
Total shares redeemed..................     (903,255)     (960,812)     (904,010)   (37,178,305)   (25,932,218)   (12,978,261)
                                         -----------   -----------   -----------   ------------   ------------   ------------
Net increase (decrease) in shares
  owned................................    1,687,694     1,300,754       629,964      8,317,718     (1,259,127)     7,175,593
Shares owned, beginning of year........   10,631,736     9,330,982     8,701,018     22,625,570     23,884,697     16,709,104
                                         -----------   -----------   -----------   ------------   ------------   ------------
Shares owned, end of year..............   12,319,430    10,631,736     9,330,982     30,943,288     22,625,570     23,884,697
                                         ===========   ===========   ===========   ============   ============   ============
Cost of shares acquired................  $43,749,139   $37,696,907   $24,791,248   $ 45,496,023   $ 24,673,091   $ 20,153,854
                                         ===========   ===========   ===========   ============   ============   ============
Cost of shares redeemed................  $12,497,747   $12,847,552   $11,787,104   $ 37,178,305   $ 25,932,218   $ 12,978,261
                                         ===========   ===========   ===========   ============   ============   ============
</TABLE>
 
                                      F-44
<PAGE>   103
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                           MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
                                                             BOND PORTFOLIO                       MANAGED PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
                                                     1998         1997         1996         1998         1997         1996
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>          <C>          <C>          <C>          <C>
Shares purchased................................     268,032      199,386      168,569      196,652      179,042      221,107
Shares received from reinvestment of:
  Dividends.....................................      74,249       69,359       57,612       73,921       72,155       73,728
  Capital gain distributions....................         190                                108,786       16,767       81,745
                                                  ----------   ----------   ----------   ----------   ----------   ----------
Total shares acquired...........................     342,471      268,745      226,181      379,359      267,964      376,580
Total shares redeemed...........................    (202,735)     (87,869)    (127,216)    (178,725)    (226,374)    (198,824)
                                                  ----------   ----------   ----------   ----------   ----------   ----------
Net increase in shares owned....................     139,736      180,876       98,965      200,634       41,590      177,756
Shares owned, beginning of year.................   1,229,106    1,048,230      949,265    2,121,455    2,079,865    1,902,109
                                                  ----------   ----------   ----------   ----------   ----------   ----------
Shares owned, end of year.......................   1,368,842    1,229,106    1,048,230    2,322,089    2,121,455    2,079,865
                                                  ==========   ==========   ==========   ==========   ==========   ==========
Cost of shares acquired.........................  $3,781,286   $2,847,336   $2,391,808   $6,279,404   $4,189,158   $5,201,624
                                                  ==========   ==========   ==========   ==========   ==========   ==========
Cost of shares redeemed.........................  $2,261,555   $  938,352   $1,348,647   $2,204,017   $2,579,637   $2,131,719
                                                  ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>
 
                                      F-45
<PAGE>   104
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                           MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
                                                      AGGRESSIVE GROWTH PORTFOLIO              INTERNATIONAL PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
                                                     1998         1997         1996         1998         1997         1996
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>          <C>          <C>          <C>          <C>
Shares purchased................................     255,330      257,235      263,500      420,358      542,095      520,713
Shares received from reinvestment of:
  Dividends.....................................      13,983       13,532       13,575       22,086       21,751       23,400
  Capital gain distributions....................     133,481        2,684      136,800      212,313      170,284       94,861
                                                  ----------   ----------   ----------   ----------   ----------   ----------
Total shares acquired...........................     402,794      273,451      413,875      654,757      734,130      638,974
Total shares redeemed...........................    (198,941)     (97,819)    (125,277)    (329,168)    (271,615)    (117,063)
                                                  ----------   ----------   ----------   ----------   ----------   ----------
Net increase in shares owned....................     203,853      175,632      288,598      325,589      462,515      521,911
Shares owned, beginning of year.................   1,574,008    1,398,376    1,109,778    2,848,062    2,385,547    1,863,636
                                                  ----------   ----------   ----------   ----------   ----------   ----------
Shares owned, end of year.......................   1,777,861    1,574,008    1,398,376    3,173,651    2,848,062    2,385,547
                                                  ==========   ==========   ==========   ==========   ==========   ==========
Cost of shares acquired.........................  $8,305,625   $5,541,378   $6,735,426   $8,702,058   $9,578,029   $8,077,706
                                                  ==========   ==========   ==========   ==========   ==========   ==========
Cost of shares redeemed.........................  $2,748,918   $1,408,820   $1,641,455   $3,909,601   $3,084,716   $1,210,942
                                                  ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>
 
                                      F-46
<PAGE>   105
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                          MARKET STREET FUND, INC.
- ---------------------------------------------------------------------------------------------------------------
                                                               ALL PRO      ALL PRO      ALL PRO      ALL PRO
                                                                LARGE        LARGE        SMALL        SMALL
                                                                 CAP          CAP          CAP          CAP
                                                                GROWTH       VALUE        GROWTH       VALUE
                                                              PORTFOLIO    PORTFOLIO    PORTFOLIO    PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
                                                                 1998         1998         1998         1998
- ---------------------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>          <C>          <C>
Shares purchased............................................     469,970      403,231      524,912      461,634
Shares received from reinvestment of:
  Dividends.................................................
  Capital gain distributions................................
                                                              ----------   ----------   ----------   ----------
Total shares acquired.......................................     469,970      403,231      524,912      461,634
Total shares redeemed.......................................    (107,240)     (50,133)     (61,916)     (79,345)
                                                              ----------   ----------   ----------   ----------
Net increase in shares owned................................     362,730      353,098      462,996      382,289
Shares owned, beginning of year.............................
                                                              ----------   ----------   ----------   ----------
Shares owned, end of year...................................     362,730      353,098      462,996      382,289
                                                              ==========   ==========   ==========   ==========
Cost of shares acquired.....................................  $4,811,412   $3,850,929   $4,739,070   $3,913,949
                                                              ==========   ==========   ==========   ==========
Cost of shares redeemed.....................................  $1,053,496   $  495,000   $  605,509   $  773,346
                                                              ==========   ==========   ==========   ==========
</TABLE>
 
                                      F-47
<PAGE>   106
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                               THE STRIPPED ("ZERO") U.S. TREASURY SECURITIES FUND
                                                                            PROVIDENT MUTUAL SERIES A
- -------------------------------------------------------------------------------------------------------------------
                                                              1996 SERIES                 2006 SERIES
- -------------------------------------------------------------------------------------------------------------------
                                                                 1996          1998          1997          1996
- -------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>           <C>           <C>
Shares purchased............................................      118,128     5,778,688     4,580,927     4,208,650
Shares received from reinvestment of:
  Dividends.................................................
  Capital gain distributions................................
                                                              -----------   -----------   -----------   -----------
Total shares acquired.......................................      118,128     5,778,688     4,580,927     4,208,650
Total shares redeemed.......................................   (2,181,298)   (2,207,327)   (2,294,572)   (1,223,768)
                                                              -----------   -----------   -----------   -----------
Net increase (decrease) in shares owned.....................   (2,063,170)    3,571,361     2,286,355     2,984,882
Shares owned, beginning of year.............................    2,063,170    13,633,327    11,346,972     8,362,090
                                                              -----------   -----------   -----------   -----------
Shares owned, end of year...................................                 17,204,688    13,633,327    11,346,972
                                                              ===========   ===========   ===========   ===========
Cost of shares acquired.....................................  $   117,132   $ 3,919,504   $ 2,702,211   $ 2,317,522
                                                              ===========   ===========   ===========   ===========
Cost of shares redeemed.....................................  $ 1,949,315   $   936,170   $ 1,068,989   $   528,531
                                                              ===========   ===========   ===========   ===========
</TABLE>
 
                                      F-48
<PAGE>   107
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                    VARIABLE INSURANCE PRODUCTS FUND
- -----------------------------------------------------------------------------------------------------------------------------
                                                    EQUITY-INCOME PORTFOLIO                      GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
                                               1998          1997          1996          1998          1997          1996
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>           <C>           <C>           <C>
Shares purchased..........................      941,021       879,873     1,036,625       671,544       555,971       826,059
Shares received from reinvestment of:
  Dividends...............................       57,354        52,772         2,918        16,967        16,709         4,794
  Capital gain distributions..............      204,112       265,326        83,648       443,821        74,791       121,056
                                            -----------   -----------   -----------   -----------   -----------   -----------
Total shares acquired.....................    1,202,487     1,197,971     1,123,191     1,132,332       647,471       951,909
Total shares redeemed.....................     (303,748)     (137,286)      (71,820)     (327,308)     (161,509)      (69,623)
                                            -----------   -----------   -----------   -----------   -----------   -----------
Net increase in shares owned..............      898,739     1,060,685     1,051,371       805,024       485,962       882,286
Shares owned, beginning of year...........    3,863,252     2,802,567     1,751,196     2,955,617     2,469,655     1,587,369
                                            -----------   -----------   -----------   -----------   -----------   -----------
Shares owned, end of year.................    4,761,991     3,863,252     2,802,567     3,760,641     2,955,617     2,469,655
                                            ===========   ===========   ===========   ===========   ===========   ===========
Cost of shares acquired...................  $29,069,658   $25,703,423   $21,875,240   $40,900,308   $21,882,557   $27,880,379
                                            ===========   ===========   ===========   ===========   ===========   ===========
Cost of shares redeemed...................  $ 4,524,784   $ 2,120,256   $ 1,105,790   $ 7,064,688   $ 3,690,895   $ 1,605,197
                                            ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>
 
                                      F-49
<PAGE>   108
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                     VARIABLE INSURANCE PRODUCTS FUND
- -----------------------------------------------------------------------------------------------------------------------------
                                                      HIGH INCOME PORTFOLIO                      OVERSEAS PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
                                                1998          1997          1996          1998          1997          1996
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>           <C>           <C>           <C>           <C>
Shares purchased...........................      761,346       529,057       479,606       948,639       406,870      372,206
Shares received from reinvestment of:
  Dividends................................       91,147        53,162        25,643        26,637        16,746        6,165
  Capital gain distributions...............       57,917         6,571         5,016        78,510        66,476        6,782
                                             -----------   -----------   -----------   -----------   -----------   ----------
Total shares acquired......................      910,410       588,790       510,265     1,053,786       490,092      385,153
Total shares redeemed......................     (397,195)     (139,313)     (108,022)     (594,155)      (58,309)     (47,671)
                                             -----------   -----------   -----------   -----------   -----------   ----------
Net increase in shares owned...............      513,215       449,477       402,243       459,631       431,783      337,482
Shares owned, beginning of year............    1,126,829       677,352       275,109     1,270,832       839,049      501,567
                                             -----------   -----------   -----------   -----------   -----------   ----------
Shares owned, end of year..................    1,640,044     1,126,829       677,352     1,730,463     1,270,832      839,049
                                             ===========   ===========   ===========   ===========   ===========   ==========
Cost of shares acquired....................  $11,127,019   $ 7,427,218   $ 6,055,847   $20,460,713   $ 9,229,879   $6,786,632
                                             ===========   ===========   ===========   ===========   ===========   ==========
Cost of shares redeemed....................  $ 4,653,515   $ 1,619,163   $ 1,154,715   $ 9,772,188   $   946,549   $  774,233
                                             ===========   ===========   ===========   ===========   ===========   ==========
</TABLE>
 
                                      F-50
<PAGE>   109
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                   VARIABLE INSURANCE PRODUCTS FUND II
- -----------------------------------------------------------------------------------------------------------------------------
                                                    ASSET MANAGER PORTFOLIO                     INDEX 500 PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
                                               1998          1997          1996          1998          1997          1996
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>           <C>           <C>           <C>
Shares purchased..........................      373,976       380,899       313,935       299,337       318,609       200,784
Shares received from reinvestment of:
  Dividends...............................       83,022        72,745        65,522         7,854         3,902         1,531
  Capital gain distributions..............      249,065       182,481        54,028        18,191         7,916         3,938
                                            -----------   -----------   -----------   -----------   -----------   -----------
Total shares acquired.....................      706,063       636,125       433,485       325,382       330,427       206,253
Total shares redeemed.....................     (284,282)     (168,401)     (277,449)      (29,458)      (19,452)       (5,225)
                                            -----------   -----------   -----------   -----------   -----------   -----------
Net increase in shares owned..............      421,781       467,724       156,036       295,924       310,975       201,028
Shares owned, beginning of year...........    2,340,958     1,873,234     1,717,198       629,993       319,018       117,990
                                            -----------   -----------   -----------   -----------   -----------   -----------
Shares owned, end of year.................    2,762,739     2,340,958     1,873,234       925,917       629,993       319,018
                                            ===========   ===========   ===========   ===========   ===========   ===========
Cost of shares acquired...................  $11,719,512   $10,391,586   $ 6,753,590   $40,378,866   $33,442,553   $16,732,487
                                            ===========   ===========   ===========   ===========   ===========   ===========
Cost of shares redeemed...................  $ 3,982,108   $ 2,437,871   $ 4,265,120   $ 1,717,308   $ 1,092,364   $   285,519
                                            ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>
 
                                      F-51
<PAGE>   110
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                   VARIABLE INSURANCE PRODUCTS FUND II
- -----------------------------------------------------------------------------------------------------------------------------
                                                 INVESTMENT GRADE BOND PORTFOLIO                CONTRAFUND PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
                                                1998          1997          1996          1998          1997          1996
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>           <C>           <C>           <C>           <C>
Shares purchased...........................      606,534       322,755       260,720       989,278       947,917      378,323
Shares received from reinvestment of:
  Dividends................................       33,206        26,504        10,256         9,587         3,925
  Capital gain distributions...............        3,939                                    70,531        10,374
                                             -----------   -----------   -----------   -----------   -----------   ----------
Total shares acquired......................      643,679       349,259       270,976     1,069,396       962,216      378,323
Total shares redeemed......................     (192,971)     (128,693)      (50,765)     (455,390)      (60,207)      (4,932)
                                             -----------   -----------   -----------   -----------   -----------   ----------
Net increase in shares owned...............      450,708       220,566       220,211       614,006       902,009      373,391
Shares owned, beginning of year............      628,816       408,250       188,039     1,275,400       373,391
                                             -----------   -----------   -----------   -----------   -----------   ----------
Shares owned, end of year..................    1,079,524       628,816       408,250     1,889,406     1,275,400      373,391
                                             ===========   ===========   ===========   ===========   ===========   ==========
Cost of shares acquired....................  $ 8,081,053   $ 4,160,380   $ 3,229,467   $22,565,565   $17,279,465   $5,779,392
                                             ===========   ===========   ===========   ===========   ===========   ==========
Cost of shares redeemed....................  $ 2,275,223   $ 1,505,536   $   560,842   $ 7,227,546   $   886,624   $   73,354
                                             ===========   ===========   ===========   ===========   ===========   ==========
</TABLE>
 
                                      F-52
<PAGE>   111
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                 NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
- -----------------------------------------------------------------------------------------------------------------------------
                                                          BALANCED PORTFOLIO                      GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
                                                    1998         1997         1996         1998          1997         1996
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>          <C>          <C>          <C>           <C>          <C>
Shares purchased...............................     106,914      110,201      108,736       183,659      184,992      263,886
Shares received from reinvestment of:
  Dividends....................................      10,322        4,936        5,238                                     180
  Capital gain distributions...................      72,502       12,668       29,133       294,737       60,028       42,178
                                                 ----------   ----------   ----------   -----------   ----------   ----------
Total shares acquired..........................     189,738      127,805      143,107       478,396      245,020      306,244
Total shares redeemed..........................     (89,445)     (59,986)     (36,401)     (153,725)     (83,282)     (55,459)
                                                 ----------   ----------   ----------   -----------   ----------   ----------
Net increase in shares owned...................     100,293       67,819      106,706       324,671      161,738      250,785
Shares owned, beginning of year................     358,504      290,685      183,979       823,211      661,473      410,688
                                                 ----------   ----------   ----------   -----------   ----------   ----------
Shares owned, end of year......................     458,797      358,504      290,685     1,147,882      823,211      661,473
                                                 ==========   ==========   ==========   ===========   ==========   ==========
Cost of shares acquired........................  $2,887,584   $2,121,797   $2,241,958   $11,825,496   $6,796,267   $7,625,308
                                                 ==========   ==========   ==========   ===========   ==========   ==========
Cost of shares redeemed........................  $1,454,826   $  892,244   $  570,955   $ 3,380,295   $1,702,941   $1,295,598
                                                 ==========   ==========   ==========   ===========   ==========   ==========
</TABLE>
 
                                      F-53
<PAGE>   112
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                         NEUBERGER & BERMAN ADVISERS
                                                                              MANAGEMENT TRUST
- ---------------------------------------------------------------------------------------------------------------
                                                                                                      PARTNERS
                                                                LIMITED MATURITY BOND PORTFOLIO      PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
                                                                 1998         1997         1996         1998
- ---------------------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>          <C>          <C>
Shares purchased............................................     196,637      132,180      116,412       93,527
Shares received from reinvestment of:
  Dividends.................................................      20,732       11,526        8,274
  Capital gain distributions................................
                                                              ----------   ----------   ----------   ----------
Total shares acquired.......................................     217,369      143,706      124,686       93,527
Total shares redeemed.......................................     (40,024)     (23,837)     (20,824)      (2,590)
                                                              ----------   ----------   ----------   ----------
Net increase in shares owned................................     177,345      119,869      103,862       90,937
Shares owned, beginning of year.............................     299,078      179,209       75,347
                                                              ----------   ----------   ----------   ----------
Shares owned, end of year...................................     476,423      299,078      179,209       90,937
                                                              ==========   ==========   ==========   ==========
Cost of shares acquired.....................................  $2,970,710   $1,969,915   $1,724,884   $1,710,978
                                                              ==========   ==========   ==========   ==========
Cost of shares redeemed.....................................  $  579,633   $  332,448   $  289,820   $   52,221
                                                              ==========   ==========   ==========   ==========
</TABLE>
 
                                      F-54
<PAGE>   113
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                        AMERICAN CENTURY
                                                                   VARIABLE PORTFOLIOS, INC.
- --------------------------------------------------------------------------------------------------
                                                                      AMERICAN CENTURY VP
                                                                 CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------------------------
                                                                 1998         1997         1996
- --------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>          <C>
Shares purchased............................................     160,212      251,935      384,291
Shares received from reinvestment of:
  Dividends.................................................
  Capital gain distributions................................      43,966       19,341       68,178
                                                              ----------   ----------   ----------
Total shares acquired.......................................     204,178      271,276      452,469
Total shares redeemed.......................................    (235,219)    (190,232)     (80,668)
                                                              ----------   ----------   ----------
Net increase (decrease) in shares owned.....................     (31,041)      81,044      371,801
Shares owned, beginning of year.............................     871,323      790,279      418,478
                                                              ----------   ----------   ----------
Shares owned, end of year...................................     840,282      871,323      790,279
                                                              ==========   ==========   ==========
Cost of shares acquired.....................................  $1,849,729   $2,680,991   $4,986,969
                                                              ==========   ==========   ==========
Cost of shares redeemed.....................................  $2,827,750   $1,948,006   $  723,514
                                                              ==========   ==========   ==========
</TABLE>
 
                                      F-55
<PAGE>   114
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                       VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------
                                                         VAN ECK WORLDWIDE BOND                   VAN ECK WORLDWIDE
                                                               PORTFOLIO                        HARD ASSETS PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
                                                     1998         1997         1996         1998         1997         1996
- -----------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>          <C>          <C>          <C>          <C>
Shares purchased................................     114,810      127,829      140,460       72,525       87,194       54,502
Shares received from reinvestment of:
  Dividends.....................................       3,695        9,965        6,267        1,263        2,862          749
  Capital gain distributions....................                                             31,009        2,113          735
                                                  ----------   ----------   ----------   ----------   ----------   ----------
Total shares acquired...........................     118,505      137,794      146,727      104,797       92,169       55,986
Total shares redeemed...........................     (52,072)     (23,040)     (25,888)     (56,902)     (20,277)     (13,461)
                                                  ----------   ----------   ----------   ----------   ----------   ----------
Net increase in shares owned....................      66,433      114,754      120,839       47,895       71,892       42,525
Shares owned, beginning of year.................     398,283      283,529      162,690      176,919      105,027       62,502
                                                  ----------   ----------   ----------   ----------   ----------   ----------
Shares owned, end of year.......................     464,716      398,283      283,529      224,814      176,919      105,027
                                                  ==========   ==========   ==========   ==========   ==========   ==========
Cost of shares acquired.........................  $1,366,886   $1,474,137   $1,593,168   $1,248,274   $1,503,036   $  909,495
                                                  ==========   ==========   ==========   ==========   ==========   ==========
Cost of shares redeemed.........................  $  566,340   $  235,174   $  258,769   $  856,258   $  259,438   $  176,559
                                                  ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>
 
                                      F-56
<PAGE>   115
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                                      VAN ECK WORLDWIDE INSURANCE TRUST
- ---------------------------------------------------------------------------------------------------------------
                                                                                                      VAN ECK
                                                                                                     WORLDWIDE
                                                                                                        REAL
                                                                       VAN ECK WORLDWIDE               ESTATE
                                                                   EMERGING MARKETS PORTFOLIO        PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
                                                                 1998         1997         1996         1998
- ---------------------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>          <C>          <C>
Shares purchased............................................     398,543      465,094      177,883       51,119
Shares received from reinvestment of:
  Dividends.................................................       5,568          702           19
  Capital gain distributions................................       4,949
                                                              ----------   ----------   ----------   ----------
Total shares acquired.......................................     409,060      465,796      177,902       51,119
Total shares redeemed.......................................    (112,168)     (64,711)        (450)      (4,795)
                                                              ----------   ----------   ----------   ----------
Net increase in shares owned................................     296,892      401,085      177,452       46,324
Shares owned, beginning of year.............................     578,537      177,452
                                                              ----------   ----------   ----------   ----------
Shares owned, end of year...................................     875,429      578,537      177,452       46,324
                                                              ==========   ==========   ==========   ==========
Cost of shares acquired.....................................  $3,443,133   $6,428,901   $2,130,602   $  507,425
                                                              ==========   ==========   ==========   ==========
Cost of shares redeemed.....................................  $1,365,297   $  753,212   $    4,929   $   53,072
                                                              ==========   ==========   ==========   ==========
</TABLE>
    
 
                                      F-57
<PAGE>   116
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                       ALGER AMERICAN FUND
- ----------------------------------------------------------------------------------------------------
                                                                       ALGER AMERICAN SMALL
                                                                     CAPITALIZATION PORTFOLIO
- ----------------------------------------------------------------------------------------------------
                                                                 1998          1997          1996
- ----------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>           <C>
Shares purchased............................................      259,859       241,101      207,020
Shares received from reinvestment of:
  Dividends.................................................                                       2
  Capital gain distributions................................       72,842        12,008
                                                              -----------   -----------   ----------
Total shares acquired.......................................      332,701       253,109      207,022
Total shares redeemed.......................................     (101,464)      (19,603)     (12,349)
                                                              -----------   -----------   ----------
Net increase in shares owned................................      231,237       233,506      194,673
Shares owned, beginning of year.............................      428,179       194,673
                                                              -----------   -----------   ----------
Shares owned, end of year...................................      659,416       428,179      194,673
                                                              ===========   ===========   ==========
Cost of shares acquired.....................................  $13,629,293   $10,432,636   $8,338,053
                                                              ===========   ===========   ==========
Cost of shares redeemed.....................................  $ 3,941,412   $   815,858   $  546,992
                                                              ===========   ===========   ==========
</TABLE>
 
                                      F-58
<PAGE>   117
 
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
4. RELATED PARTY TRANSACTIONS
     Provident Mutual makes certain deductions from premiums before amounts are
allocated to each Separate Account selected by the policyholder. The deductions
may include (1) administrative charges, (2) state premium taxes, (3) premium
processing charges, (4) premiums for supplementary benefits, (5) premiums for
extra mortality risks, (6) sales charges, (7) premiums for optional benefits,
(8) a risk charge for the guaranteed minimum death benefit, and (9) Federal tax
charges. Premiums adjusted for these deductions are recorded as net premiums in
the statement of changes in net assets. See original policy documents for
specific charges assessed.
 
     In addition to the aforementioned charges, each Separate Account is charged
for mortality and expense risks assumed by Provident Mutual. The annual rates
charged to cover these risks are:
 
     For scheduled premium and single premium policies -- currently 0.35% of the
     net assets held for the benefit of policyholders.
 
     For modified premium policies -- currently 0.60% of the net assets held for
     the benefit of policyholders.
 
     For flexible premium adjustable policies ("OptionsPlus") -- currently 0.75%
     of the net assets held for the benefit of policyholders, guaranteed not to
     exceed 0.90%.
 
     For flexible premium adjustable survivorship policies ("Survivor
     OptionsPlus") -- currently 0.60% of the net assets held for the benefit of
     policyholders, guaranteed not to exceed 0.90%.
 
     For flexible premium adjustable policies (other than
     "OptionsPlus") -- currently 0.75% of the net assets held for the benefit of
     policyholders.
 
     Each Separate Account is also charged by Provident Mutual for the cost of
insurance protection. For single premium policies, the charge is accrued daily
and deducted annually from the amount invested. For scheduled premium, modified
premium and flexible premium adjustable policies, the charge is deducted
monthly. The amount of the charge is computed based upon the amount of insurance
provided during the year and the insured's attained age. Depending upon the type
of policy, additional monthly deductions may be made for (1) administrative
charges, (2) minimum death benefit charges, (3) first year policy charges and
(4) supplementary charges. See original policy documents for additional monthly
charges. These charges are included in the statements of changes in net assets.
 
     The Policies provide for an initial free-look period. If a policy is
cancelled within certain time constraints, the policyholder will receive a
refund equal to the policy account value plus certain deductions made under the
policy. Where state law requires a minimum refund equal to gross premiums paid,
the refund will instead equal the gross premiums paid on the policy and will not
reflect investment experience.
 
     If a single premium or modified premium policy is surrendered within the
first nine policy years, a contingent deferred sales load charge and/or
contingent deferred administrative charge are assessed. These same charges are
assessed if a flexible premium adjustable policy is surrendered within the first
ten policy years. These charges are assessed if a flexible premium adjustable
survivorship policy is surrendered before the fifteenth policy year (twelfth
policy year for New York policies). These charges are recorded as administrative
charges in the statements of changes in net assets.
 
     For scheduled premium and single premium policies, Provident Mutual has
agreed to make a daily adjustment to the net rate of return of the Growth, Money
Market and Bond Separate Accounts to offset completely all Market Street Fund,
Inc. expenses charged to the portfolios in which the Separate Accounts
 
                                      F-59
<PAGE>   118
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
4. RELATED PARTY TRANSACTIONS, CONTINUED
invest, except for (1) all brokers' commissions, (2) transfer taxes, investment
advisory fees and other fees and expenses for services relating to purchases and
sales of portfolio investments, and (3) income tax liabilities. The total
amounts reimbursed for the Growth, Money Market and Bond Separate Accounts for
the years ended December 31, 1998, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                                             MONEY
                                                                 GROWTH      MARKET       BOND
                                                                SEPARATE    SEPARATE    SEPARATE
                                                                ACCOUNT     ACCOUNT     ACCOUNT
                                                                --------    --------    --------
<S>                                                             <C>         <C>         <C>
Year ending December 31,
     1998...................................................     $4,864         --       $1,300
     1997...................................................     $3,041        $40       $1,390
     1996...................................................     $3,491       $146       $1,087
</TABLE>
 
     These amounts are shown as an operating expense reimbursement reducing
total expenses in the statements of operations.
 
     Provident Mutual makes a daily asset charge against the assets of the Zero
Coupon Bond Separate Account. The charge is to reimburse Provident Mutual for
the transaction charge paid directly by Provident Mutual to MLPFS on the sale of
the Zero Coupon Trust units to the Zero Coupon Bond Separate Account. Provident
Mutual pays these amounts from General Account assets. The amount of the asset
charge currently is equivalent to an effective annual rate of .25% of the
average daily net assets of each Subaccount. This amount may be increased in the
future, but in no event will it exceed an effective annual rate of .50%. The
charge will be cost based (taking into account the loss of interest) with no
anticipated element of profit for Provident Mutual.
 
                                      F-60
<PAGE>   119
 
                                PROVIDENT MUTUAL
                             LIFE INSURANCE COMPANY
                                AND SUBSIDIARIES
 
              REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, 1996
<PAGE>   120
 
                        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>   121
 
            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>   122
            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>   123
            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>   124
            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>   125
 
                   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>   126
           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>   127
           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>   128
           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>   129
           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>   130
           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>   131
           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>   132
           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>   133
           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>   134
           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>   135
           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>   136
           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>   137
           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>   138
           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>   139
           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>   140
 
                                   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 two Insureds of given ages and sexes would vary over time if the
investment return on the assets held in each Portfolio were a uniform, gross,
annual rate of 0%, 6% and 12%.
    
 
   
     The tables on pages A-3 to A-8 illustrate a Policy issued to a male
Insured, Age 55 and a female Insured, Age 55 both in the Preferred Premium Class
with a Face Amount of $1,000,000 and a Planned Periodic Premium of $10,000 paid
at the beginning of each Policy Year. The Death Benefits, Policy Account Values
and Net Cash Surrender Values would be lower if either Insured was in a
nonsmoker or smoker class or a class with extra ratings since the cost of
insurance charges would increase. Also, the values would be different from those
shown if the gross annual investment returns averaged 0%, 6% and 12% over a
period of years, but fluctuated above and below those averages for individual
Policy Years.
    
 
   
     The second column of the tables show the amount to which the premiums would
accumulate if an amount equal to those premiums were invested to earn interest,
after taxes, at 5% compounded annually. The columns shown under the heading
"Guaranteed" assume that throughout the life of the policy, the monthly charge
for cost of insurance is based on the maximum level permitted under the Policy
(based on the 1980 CSO Smoker/Nonsmoker Table), a Premium Expense Charge of
8.25%, a maximum Monthly Administrative Fee of $42, an Initial Administrative
Charge of $127.50 and a daily charge for mortality and expense risks equivalent
to an annual rate of 0.90%; the columns under the heading "Current" assume that
throughout the life of the policy, the monthly charge for cost of insurance is
based on the current cost of insurance rate, a Premium Expense Charge of 8.25%
in Policy Years 1 through 10 and 3.25% thereafter, current Monthly
Administrative Fee of $17.50, an Initial Administrative Charge of $127.50 and a
daily charge for mortality and expense risks equivalent to an annual rate of
0.60%.
    
 
   
     The amounts shown in all tables reflect an averaging of certain other asset
charges described below that may be assessed under the Policy, depending upon
how premiums are allocated. The total of the asset charges reflected in the
Current and Guaranteed illustrations, including the Mortality and Expense Risk
Charge listed above, is 1.41% and 1.72%, 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 0.62% which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of 0.19% which is based on an average of the
actual expenses incurred by the Portfolios during the most recent fiscal year.
For certain Portfolios, certain expenses were reimbursed or fees waived during
1998. It is anticipated that expense reimbursement and fee waiver arrangements
will continue past the current year. Absent the expense reimbursement, the 1998
Total Annual Expenses would have been 1.36%, for the Market Street Fund All-Pro
Small Cap Value Portfolio, 0.58%, for the VIP Fund Equity-Income Portfolio,
0.68%, for the VIP Fund Growth Portfolio, 0.91%, for the VIP Fund Overseas
Portfolio, 0.64%, for the VIP II Fund Asset Manager Portfolio, 0.35%, for the
VIP II Fund Index 500 Portfolio, 0.70%, for the VIP II Fund Contrafund
Portfolio, 1.20%, for the Van Eck Worldwide Hard Assets Portfolio, 1.61%, for
the Van Eck Worldwide Emerging Markets Portfolio and 5.32%, for the Van Eck
Worldwide Real Estate Portfolio. Similar expense reimbursement and fee waiver
arrangements were also in place for the other Portfolios and it is anticipated
that such arrangements will continue past the current year. However, no expenses
were reimbursed or fees waived during 1998 for these Portfolios because the
level of actual expenses and fees never exceeded the thresholds at which the
reimbursement and waiver arrangements would have become operative. In the event
that reimbursements or fee waivers do not continue for any Portfolio in future
years, the Portfolio's actual expenses would increase and this would likely
increase the average expense
    
 
                                       A-1
<PAGE>   141
 
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 a decrease in the Face Amount, that no partial withdrawals have
been made and no transfers have been made in any Policy Year.
    
 
   
     Upon request, PMLIC will provide a comparable illustration of future
benefits under the Policy based upon the proposed Insureds' Ages and Premium
Classes, the Death Benefit Option, Face Amount, Planned Periodic Premiums and
riders requested. PMLIC reserves the right to charge a reasonable fee for this
service to persons who request more than one policy illustration during a Policy
year.
    
 
                                       A-2
<PAGE>   142
 
   
          PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
    
   
                            VARIABLE LIFE INSURANCE
    
 
   
<TABLE>
<S>                     <C>
$1,000,000 FACE AMOUNT   MALE INSURED ISSUE AGE 55 PREFERRED
DEATH BENEFIT OPTION A  FEMALE INSURED ISSUE AGE 55 PREFERRED
                            ANNUAL PREMIUM       $10,000
</TABLE>
    
 
   
  ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN OF 0% (NET RATE OF -1.72%)
    
 
   
<TABLE>
<CAPTION>
                                 GUARANTEED*                        CURRENT**
          PREMIUMS     -------------------------------   -------------------------------
END OF   ACCUMULATED   POLICY    NET CASH                POLICY    NET CASH
POLICY   AT 5% INT.    ACCOUNT   SURRENDER     DEATH     ACCOUNT   SURRENDER     DEATH
 YEAR     PER YEAR      VALUE      VALUE      BENEFIT     VALUE      VALUE      BENEFIT
- ------   -----------   -------   ---------   ---------   -------   ---------   ---------
<S>      <C>           <C>       <C>         <C>         <C>       <C>         <C>
1...        10,500      6,955      2,955     1,000,000     7,280      3,280    1,000,000
2...        21,525     15,198     10,798     1,000,000    15,868     11,468    1,000,000
3...        33,101     23,166     18,366     1,000,000    24,201     19,401    1,000,000
4...        45,256     30,842     25,642     1,000,000    32,255     27,055    1,000,000
5...        58,019     38,198     32,598     1,000,000    40,009     34,409    1,000,000
6...        71,420     45,205     39,205     1,000,000    47,432     41,432    1,000,000
7...        85,491     51,821     45,421     1,000,000    54,486     48,086    1,000,000
8...       100,266     57,991     51,191     1,000,000    61,103     54,303    1,000,000
9...       115,779     63,640     56,440     1,000,000    67,573     60,373    1,000,000
10..       132,068     68,677     61,077     1,000,000    73,962     66,362    1,000,000
11..       149,171     73,004     65,004     1,000,000    80,756     72,756    1,000,000
12..       167,130     76,514     69,074     1,000,000    87,465     80,025    1,000,000
13..       185,986     79,094     73,514     1,000,000    94,108     88,528    1,000,000
14..       205,786     80,627     76,907     1,000,000   100,677     96,957    1,000,000
15..       226,575     80,963     79,103     1,000,000   106,996    105,136    1,000,000
16..       248,404     79,891     79,891     1,000,000   112,753    112,753    1,000,000
17..       271,324     77,050     77,050     1,000,000   118,006    118,006    1,000,000
18..       295,390     72,211     72,211     1,000,000   122,582    122,582    1,000,000
19..       320,660     64,803     64,803     1,000,000   126,314    126,314    1,000,000
20..       347,193     54,240     54,240     1,000,000   129,027    129,027    1,000,000
25..       501,135          0          0             0   120,388    120,388    1,000,000
</TABLE>
    
 
- ---------------
   
 * These values reflect investment results using guaranteed cost of insurance
   rates, mortality and expense risk charges, premium expense charges,
   administrative charges, and the maximum transaction charge for the zero
   coupon bond account.
    
 
   
** These values reflect investment results using current cost of insurance
   rates, mortality and expense risk charges, premium expense charges,
   administrative charges, and the current transaction charge for the zero
   coupon bond account.
    
 
   
     The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
    
 
   
     It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the separate accounts 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 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-3
<PAGE>   143
 
   
          PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
    
   
                            VARIABLE LIFE INSURANCE
    
 
   
<TABLE>
<S>                     <C>
$1,000,000 FACE AMOUNT   MALE INSURED ISSUE AGE 55 PREFERRED
DEATH BENEFIT OPTION A  FEMALE INSURED ISSUE AGE 55 PREFERRED
                             ANNUAL PREMIUM       $10,000
</TABLE>
    
 
   
  ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN OF 6% (NET RATE OF 4.18%)
    
 
   
<TABLE>
<CAPTION>
                                 GUARANTEED*                        CURRENT**
          PREMIUMS     -------------------------------   -------------------------------
END OF   ACCUMULATED   POLICY    NET CASH                POLICY    NET CASH
POLICY   AT 5% INT.    ACCOUNT   SURRENDER     DEATH     ACCOUNT   SURRENDER     DEATH
 YEAR     PER YEAR      VALUE      VALUE      BENEFIT     VALUE      VALUE      BENEFIT
- ------   -----------   -------   ---------   ---------   -------   ---------   ---------
<S>      <C>           <C>       <C>         <C>         <C>       <C>         <C>
   1        10,500       7,430      3,430    1,000,000     7,766      3,766    1,000,000
   2        21,525      16,622     12,222    1,000,000    17,338     12,938    1,000,000
   3        33,101      26,063     21,263    1,000,000    27,203     22,403    1,000,000
   4        45,256      35,738     30,538    1,000,000    37,348     32,148    1,000,000
   5        58,019      45,627     40,027    1,000,000    47,760     42,160    1,000,000
   6        71,420      55,702     49,702    1,000,000    58,416     52,416    1,000,000
   7        85,491      65,926     59,526    1,000,000    69,286     62,886    1,000,000
   8       100,266      76,245     69,445    1,000,000    80,310     73,510    1,000,000
   9       115,779      86,583     79,383    1,000,000    91,783     84,583    1,000,000
  10       132,068      96,846     89,246    1,000,000   103,792     96,192    1,000,000
  11       149,171     106,932     98,932    1,000,000   116,878    108,878    1,000,000
  12       167,130     116,723    109,283    1,000,000   130,575    123,135    1,000,000
  13       185,986     126,096    120,516    1,000,000   144,931    139,351    1,000,000
  14       205,786     134,920    131,200    1,000,000   159,966    156,246    1,000,000
  15       226,575     143,029    141,169    1,000,000   175,543    173,683    1,000,000
  16       248,404     150,195    150,195    1,000,000   191,393    191,393    1,000,000
  17       271,324     156,041    156,041    1,000,000   207,589    207,589    1,000,000
  18       295,390     160,307    160,307    1,000,000   223,994    223,994    1,000,000
  19       320,660     162,403    162,403    1,000,000   240,479    240,479    1,000,000
  20       347,193     161,714    161,714    1,000,000   256,911    256,911    1,000,000
  25       501,135      88,199     88,199    1,000,000   333,379    333,379    1,000,000
</TABLE>
    
 
- ---------------
   
 * These values reflect investment results using guaranteed cost of insurance
   rates, mortality and expense risk charges, premium expense charges,
   administrative charges, and the maximum transaction charge for the zero
   coupon bond account.
    
 
   
** These values reflect investment results using current cost of insurance
   rates, mortality and expense risk charges, premium expense charges,
   administrative charges, and the current transaction charge for the zero
   coupon bond account.
    
 
   
     The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
    
 
   
     It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the separate accounts 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 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-4
<PAGE>   144
 
   
          PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
    
   
                            VARIABLE LIFE INSURANCE
    
 
   
<TABLE>
<S>                     <C>
$1,000,000 FACE AMOUNT   MALE INSURED ISSUE AGE 55 PREFERRED
DEATH BENEFIT OPTION A  FEMALE INSURED ISSUE AGE 55 PREFERRED
                            ANNUAL PREMIUM       $10,000
</TABLE>
    
 
   
 ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN OF 12% (NET RATE OF 10.07%)
    
 
   
<TABLE>
<CAPTION>
                                 GUARANTEED*                        CURRENT**
          PREMIUMS     -------------------------------   -------------------------------
END OF   ACCUMULATED   POLICY    NET CASH                POLICY    NET CASH
POLICY   AT 5% INT.    ACCOUNT   SURRENDER     DEATH     ACCOUNT   SURRENDER     DEATH
 YEAR     PER YEAR      VALUE      VALUE      BENEFIT     VALUE      VALUE      BENEFIT
- ------   -----------   -------   ---------   ---------   -------   ---------   ---------
<S>      <C>           <C>       <C>         <C>         <C>       <C>         <C>
   1        10,500       7,906      3,906    1,000,000     8,253      4,253    1,000,000
   2        21,525      18,105     13,705    1,000,000    18,866     14,466    1,000,000
   3        33,101      29,192     24,392    1,000,000    30,445     25,645    1,000,000
   4        45,256      41,233     36,033    1,000,000    43,061     37,861    1,000,000
   5        58,019      54,293     48,693    1,000,000    56,799     51,199    1,000,000
   6        71,420      68,440     62,440    1,000,000    71,742     65,742    1,000,000
   7        85,491      83,741     77,341    1,000,000    87,977     81,577    1,000,000
   8       100,266     100,255     93,455    1,000,000   105,574     98,774    1,000,000
   9       115,779     118,034    110,834    1,000,000   124,970    117,770    1,000,000
  10       132,068     137,119    129,519    1,000,000   146,421    138,821    1,000,000
  11       149,171     157,561    149,561    1,000,000   170,691    162,691    1,000,000
  12       167,130     179,412    171,972    1,000,000   197,535    190,095    1,000,000
  13       185,986     202,739    197,159    1,000,000   227,240    221,660    1,000,000
  14       205,786     227,624    223,904    1,000,000   260,103    256,383    1,000,000
  15       226,575     254,149    252,289    1,000,000   296,304    294,444    1,000,000
  16       248,404     282,376    282,376    1,000,000   335,954    335,954    1,000,000
  17       271,324     312,285    312,285    1,000,000   379,500    379,500    1,000,000
  18       295,390     344,013    344,013    1,000,000   427,277    427,277    1,000,000
  19       320,660     377,509    377,509    1,000,000   479,690    479,690    1,000,000
  20       347,193     412,807    412,807    1,000,000   537,235    537,235    1,000,000
  25       501,135     624,722    624,722    1,000,000   928,510    928,510    1,000,000
</TABLE>
    
 
- ---------------
   
 * These values reflect investment results using guaranteed cost of insurance
   rates, mortality and expense risk charges, premium expense charges,
   administrative charges, and the maximum transaction charge for the zero
   coupon bond account.
    
 
   
** These values reflect investment results using current cost of insurance
   rates, mortality and expense risk charges, premium expense charges,
   administrative charges, and the current transaction charge for the zero
   coupon bond account.
    
 
   
     The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
    
 
   
     It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the separate accounts 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 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>   145
 
   
          PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
    
   
                            VARIABLE LIFE INSURANCE
    
 
   
<TABLE>
<S>                                           <C>
           $1,000,000 FACE AMOUNT              MALE INSURED ISSUE AGE 55 PREFERRED
           DEATH BENEFIT OPTION B             FEMALE INSURED ISSUE AGE 55 PREFERRED
                                                  ANNUAL PREMIUM       $10,000
</TABLE>
    
 
   
  ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN OF 0% (NET RATE OF -1.72%)
    
 
   
<TABLE>
<CAPTION>
                                 GUARANTEED*                        CURRENT**
          PREMIUMS     -------------------------------   -------------------------------
END OF   ACCUMULATED   POLICY    NET CASH                POLICY    NET CASH
POLICY   AT 5% INT.    ACCOUNT   SURRENDER     DEATH     ACCOUNT   SURRENDER     DEATH
 YEAR     PER YEAR      VALUE      VALUE      BENEFIT     VALUE      VALUE      BENEFIT
- ------   -----------   -------   ---------   ---------   -------   ---------   ---------
<S>      <C>           <C>       <C>         <C>         <C>       <C>         <C>
   1        10,500      6,955      2,955     1,006,955     7,279      3,279    1,007,279
   2        21,525     15,195     10,795     1,015,195    15,865     11,465    1,015,865
   3        33,101     23,157     18,357     1,023,157    24,191     19,391    1,024,191
   4        45,256     30,817     25,617     1,030,817    32,230     27,030    1,032,230
   5        58,019     38,149     32,549     1,038,149    39,958     34,358    1,039,958
   6        71,420     45,115     39,115     1,045,115    47,339     41,339    1,047,339
   7        85,491     51,670     45,270     1,051,670    54,328     47,928    1,054,328
   8       100,266     57,750     50,950     1,057,750    60,851     54,051    1,060,851
   9       115,779     63,272     56,072     1,063,272    67,213     60,013    1,067,213
  10       132,068     68,133     60,533     1,068,133    73,485     65,885    1,073,485
  11       149,171     72,223     64,223     1,072,223    80,151     72,151    1,080,151
  12       167,130     75,422     67,982     1,075,422    86,724     79,284    1,086,724
  13       185,986     77,605     72,025     1,077,605    93,224     87,644    1,093,224
  14       205,786     78,643     74,923     1,078,643    99,642     95,922    1,099,642
  15       226,575     78,377     76,517     1,078,377   105,781    103,921    1,105,781
  16       248,404     76,584     76,584     1,076,584   111,287    111,288    1,111,287
  17       271,324     72,891     72,891     1,072,891   116,220    116,220    1,116,220
  18       295,390     67,080     67,080     1,067,080   120,379    120,379    1,120,379
  19       320,660     58,592     58,592     1,058,592   123,566    123,566    1,123,566
  20       347,193     46,890     46,890     1,046,890   125,577    125,577    1,125,577
  25       501,135          0          0             0   110,247    110,247    1,110,247
</TABLE>
    
 
- ---------------
   
 * These values reflect investment results using guaranteed cost of insurance
   rates, mortality and expense risk charges, premium expense charges,
   administrative charges, and the maximum transaction charge for the zero
   coupon bond account.
    
 
   
** These values reflect investment results using current cost of insurance
   rates, mortality and expense risk charges, premium expense charges,
   administrative charges, and the current transaction charge for the zero
   coupon bond account.
    
 
   
     The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
    
 
   
     It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the separate accounts 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 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>   146
 
   
          PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
    
   
                            VARIABLE LIFE INSURANCE
    
 
   
<TABLE>
<S>                                  <C>
      $1,000,000 FACE AMOUNT          MALE INSURED ISSUE AGE 55 PREFERRED
      DEATH BENEFIT OPTION B         FEMALE INSURED ISSUE AGE 55 PREFERRED
                                        ANNUAL PREMIUM          $10,000
</TABLE>
    
 
   
  ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN OF 6% (NET RATE OF 4.18%)
    
 
   
<TABLE>
<CAPTION>
                                 GUARANTEED*                        CURRENT**
          PREMIUMS     -------------------------------   -------------------------------
END OF   ACCUMULATED   POLICY    NET CASH                POLICY    NET CASH
POLICY   AT 5% INT.    ACCOUNT   SURRENDER     DEATH     ACCOUNT   SURRENDER     DEATH
 YEAR     PER YEAR      VALUE      VALUE      BENEFIT     VALUE      VALUE      BENEFIT
- ------   -----------   -------   ---------   ---------   -------   ---------   ---------
<S>      <C>           <C>       <C>         <C>         <C>       <C>         <C>
   1        10,500       7,430      3,430    1,007,430     7,765      3,765    1,007,765
   2        21,525      16,619     12,219    1,016,619    17,335     12,935    1,017,335
   3        33,101      26,052     21,252    1,026,052    27,192     22,392    1,027,192
   4        45,256      35,710     30,510    1,035,710    37,319     32,119    1,037,319
   5        58,019      45,567     39,967    1,045,567    47,698     42,098    1,047,698
   6        71,420      55,588     49,588    1,055,588    58,298     52,298    1,058,298
   7        85,491      65,728     59,328    1,065,728    69,079     62,679    1,069,079
   8       100,266      75,918     69,118    1,075,918    79,967     73,167    1,079,967
   9       115,779      86,064     78,864    1,086,064    91,274     84,074    1,091,274
  10       132,068      96,051     88,451    1,096,051   103,090     95,490    1,103,090
  11       149,171     105,745     97,745    1,105,745   115,950    107,950    1,115,950
  12       167,130     114,997    107,557    1,114,997   129,390    121,950    1,129,390
  13       185,986     123,644    118,064    1,123,644   143,457    137,877    1,143,457
  14       205,786     131,509    127,789    1,131,509   158,167    154,447    1,158,167
  15       226,575     138,374    136,514    1,138,374   173,345    171,485    1,173,345
  16       248,404     143,946    143,946    1,143,946   188,644    188,644    1,188,644
  17       271,324     147,757    147,757    1,147,757   204,119    204,119    1,204,119
  18       295,390     149,477    149,477    1,149,477   219,565    219,565    1,219,565
  19       320,660     148,401    148,401    1,148,401   234,765    234,765    1,234,765
  20       347,193     143,813    143,813    1,143,813   249,482    249,482    1,249,482
  25       501,135      40,534     40,534    1,040,534   306,041    306,041    1,306,041
</TABLE>
    
 
- ---------------
   
 * These values reflect investment results using guaranteed cost of insurance
   rates, mortality and expense risk charges, premium expense charges,
   administrative charges, and the maximum transaction charge for the zero
   coupon bond account.
    
 
   
** These values reflect investment results using current cost of insurance
   rates, mortality and expense risk charges, premium expense charges,
   administrative charges, and the current transaction charge for the zero
   coupon bond account.
    
 
   
     The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
    
 
   
     It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the separate accounts 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 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>   147
 
   
          PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE SURVIVORSHIP
    
   
                            VARIABLE LIFE INSURANCE
    
 
   
<TABLE>
<S>                                          <C>
          $1,000,000 FACE AMOUNT              MALE INSURED ISSUE AGE 55 PREFERRED
          DEATH BENEFIT OPTION B             FEMALE INSURED ISSUE AGE 55 PREFERRED
                                                 ANNUAL PREMIUM       $10,000
</TABLE>
    
 
   
 ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN OF 12% (NET RATE OF 10.07%)
    
 
   
<TABLE>
<CAPTION>
                                 GUARANTEED*                        CURRENT**
          PREMIUMS     -------------------------------   -------------------------------
END OF   ACCUMULATED   POLICY    NET CASH                POLICY    NET CASH
POLICY   AT 5% INT.    ACCOUNT   SURRENDER     DEATH     ACCOUNT   SURRENDER     DEATH
 YEAR     PER YEAR      VALUE      VALUE      BENEFIT     VALUE      VALUE      BENEFIT
- ------   -----------   -------   ---------   ---------   -------   ---------   ---------
<S>      <C>           <C>       <C>         <C>         <C>       <C>         <C>
   1        10,500       7,905      3,905    1,007,905     8,252      4,252    1,008,252
   2        21,525      18,102     13,702    1,018,102    18,863     14,463    1,018,863
   3        33,101      29,180     24,380    1,029,180    30,432     25,632    1,030,432
   4        45,256      41,199     35,999    1,041,199    43,027     37,827    1,043,027
   5        58,019      54,220     48,620    1,054,220    56,724     51,124    1,056,724
   6        71,420      68,297     62,297    1,068,297    71,594     65,594    1,071,594
   7        85,491      83,482     77,082    1,083,482    87,708     81,308    1,087,708
   8       100,266      99,813     93,013    1,099,813   105,111     98,311    1,105,111
   9       115,779     117,305    110,105    1,117,305   124,253    117,053    1,124,253
  10       132,068     135,958    128,358    1,135,958   145,390    137,790    1,145,390
  11       149,171     155,759    147,759    1,155,759   169,271    161,271    1,169,271
  12       167,130     176,681    169,241    1,176,681   195,641    188,201    1,195,641
  13       185,986     198,689    193,109    1,198,689   224,780    219,200    1,224,780
  14       205,786     221,736    218,016    1,221,736   256,966    253,246    1,256,966
  15       226,575     245,736    243,876    1,245,736   292,305    290,445    1,292,305
  16       248,404     270,525    270,525    1,270,525   330,747    330,747    1,330,747
  17       271,324     295,756    295,756    1,295,756   372,666    372,666    1,372,666
  18       295,390     321,211    321,211    1,321,211   418,205    418,205    1,418,205
  19       320,660     346,274    346,274    1,346,274   467,518    467,518    1,467,518
  20       347,193     370,288    370,288    1,370,288   520,766    520,766    1,520,766
  25       501,135     446,144    446,144    1,446,144   852,286    852,286    1,852,286
</TABLE>
    
 
- ---------------
   
 * These values reflect investment results using guaranteed cost of insurance
   rates, mortality and expense risk charges, premium expense charges,
   administrative charges, and the maximum transaction charge for the zero
   coupon bond account.
    
 
   
** These values reflect investment results using current cost of insurance
   rates, mortality and expense risk charges, premium expense charges,
   administrative charges, and the current transaction charge for the zero
   coupon bond account.
    
 
   
     The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
    
 
   
     It is emphasized that the hypothetical investment results are illustrative
only and should not be deemed a representation of past or future investment
results. Actual investment results may be more or less than those shown. The
Death Benefit, Policy Account Value and Net Cash Surrender Value for a Policy
would be different from those shown if actual rates of investment return
applicable to the Policy averaged 0%, 6% or 12% over a period of years, but also
fluctuated above or below that average for individual Policy years. The Death
Benefit, Policy Account Value and Net Cash Surrender Value for a Policy would
also be different from those shown, depending on the investment allocations made
to the separate accounts 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 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>   148
 
                                   APPENDIX B
 
                            LONG TERM MARKET TRENDS
 
     The information below is a record of the compound annual returns of common
stocks, high-grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The compound annual returns assume the reinvestment of
dividends, capital gains and interest. This is an historical record and is not
intended as a projection of future performance. Charges associated with a
variable life policy are not reflected.
 
     The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high-grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods of
time. To the extent that cash value is allocated to separate accounts which
invest in common stocks, these trends indicate the potential advantages of
holding a variable life insurance policy for a long period of time.
 
   
     The following chart illustrates the compound annual returns of the S&P 500
Composite Stock Price Index for each of the 20-year periods shown. These returns
are compared to the compound annual returns of high-grade corporate bonds and
U.S. Treasury bills for the same periods. (The 20-year periods selected for the
chart begin in 1939 and have ending periods at five year intervals.)
    
[COMPOUND ANNUAL RETURNS COLUMN GRAPH]
 
<TABLE>
<CAPTION>
                                                         STOCKS                       BONDS                U.S. TREASURY BILLS
                                                         ------                       -----                -------------------
<S>                                             <C>                         <C>                         <C>
'1958'                                                    13.48                        2.10                       0.99
'1963'                                                    15.11                        2.45                       1.63
'1968'                                                    14.92                        1.93                       2.60
'1973'                                                    10.85                        2.83                       3.64
'1978'                                                     6.53                        4.10                       4.72
'1983'                                                     8.28                        4.68                       6.80
'1988'                                                     9.54                        8.30                       7.50
'1993'                                                    12.76                       10.16                       7.49
'1998'                                                    17.75                       10.86                       7.17
</TABLE>
 
- ---------------
   
* Sources: Common stock returns-Standard & Poor's 500 Composite Stock Price
  Index. Corporate bond returns -- Salomon Brothers Long Term High Grade
  Corporate Bond Index, and U.S. Treasury Bill returns -- C.R.S.P. U.S.
  Government Bond File through 1976 and The Wall Street Journal thereafter. All
  data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills
  and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills and Inflation 1999
  Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights reserved.
    
 
                                       B-1
<PAGE>   149
 
   
     Over the 54 20-year time periods beginning in 1926 and ending in 1998 (i.e.
1926-1945, 1927-1946, and so on through 1979-1998):
    
 
   
     -- The compound annual return of common stocks was superior to that of
        high-grade, long-term corporate bonds in 51 of the 54 periods.
    
 
   
     -- The compound annual return of common stocks surpassed that of U.S.
        Treasury bills in each of the 54 periods.
    
 
   
     -- Common stock compound annual returns exceeded the average annual rate of
        inflation in each of the 54 periods.
    
 
   
     Over the 44 30-year time periods beginning in 1926 and ending in 1998, the
compound annual return of common stocks was superior to that of high-grade,
long-term corporate bonds, U.S. Treasury bills and inflation in all 44 periods.
    
 
   
     From 1926 through 1998 the compound annual return for common stocks was
11.2%, compared to 5.8% for high-grade, long-term corporate bonds, 5.3% for
Long-Term Government Bonds, 3.8% for U.S. Treasury bills and 3.1% for the
Consumer Price Index.
    
                            ------------------------
 
       SUMMARY TABLE: HISTORIC S&P 500 COMPOSITE STOCK INDEX RESULTS FOR
                            SPECIFIC HOLDING PERIODS
 
   
     The following chart categorizes the historical results of the Standard &
Poor's 500 Composite Stock Index, with dividends reinvested, over one-year,
five-year, ten-year and twenty-year periods beginning in 1926 and ending in
1998.
    
 
     The chart shows that historically, the longer that a portfolio matching the
S&P 500 Composite Stock Index was held, the less likely was the chance of a
loss. Conversely, the shorter the holding period of such a portfolio, the more
likely was the chance of a loss. The chart also shows that shorter term results
tend to be more extreme than longer term results.
 
     THE CHART IS NOT A PROJECTION OR REPRESENTATION OF FUTURE STOCK MARKET
RESULTS. IT CANNOT BE TAKEN AS REPRESENTATIVE OF THE PERFORMANCE OF ANY ONE
SEPARATE ACCOUNT. Rather it shows the historic performance of a broad index of
stocks over arbitrarily selected time periods.
 
               PERCENT OF HOLDING PERIODS WITH THE FOLLOWING RETURNS:
 
   
<TABLE>
<CAPTION>
                                                                                                      GREATER
                                                                                                       THAN
           HOLDING              NEGATIVE    0.5.00%    5.01-10.00%    10.01-15.00%    15.01-20.00%    20.00%
            PERIOD               RETURN     RETURN       RETURN          RETURN          RETURN       RETURN
            ------              --------    -------    -----------    ------------    ------------    ------
<S>                             <C>         <C>        <C>            <C>             <C>             <C>
 1 year                           27.4%       4.1%        11.0%            6.8%           12.3%        38.4%
 5 years                          10.1%      14.5%        14.5%           31.9%           17.4%        11.6%
10 years                           3.1%      10.9%        34.4%           21.9%           28.1%         1.6%
20 years                           0.0%       5.5%        31.5%           53.7%            9.3%         0.0%
</TABLE>
    
 
- ---------------
   
Source: All basic data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield,
Stocks, Bonds, Bills and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills
and Inflation 1999 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
    
 
                                       B-2
<PAGE>   150
 
                     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]
 
<TABLE>
<CAPTION>
                                                                 TREASURY BILLS ADJUSTED FOR INFLATION
                                                                 -------------------------------------
<S>                                                           <C>
'1958'                                                                            -2.6
'1963'                                                                           -1.23
'1968'                                                                            0.62
'1973'                                                                            0.76
'1978'                                                                            0.36
'1983'                                                                            0.64
'1988'                                                                            1.13
'1993'                                                                            1.49
'1998'                                                                            2.54
</TABLE>
 
Selected 20-year periods ending on year shown above.
- ---------------
   
Source: All basic data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield,
Stocks, Bonds, Bills and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills
and Inflation 1999 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
    
 
                          ---------------------------
 
                 THE "DOLLAR COST AVERAGING" INVESTMENT METHOD
 
   
     As the Compound Annual Returns graph indicates, the investment performance
of many common stocks has generally been positive over certain relatively long
periods. Common stocks have, however, also been subject to market declines,
often dramatic ones, and general volatility of prices over shorter time periods.
The price fluctuations of common stocks have historically been greater than that
of high-grade debt securities.
    
 
     The relative volatility of common stock prices as compared with prices of
high-grade debt instruments offers both advantages and disadvantages to
investors. Unfortunately, many investors who otherwise might be interested in
common stocks see only the disadvantages and not the advantages of stock price
fluctuation. 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>   151
 
     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>   152
 
                                   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, Butler, et al. v. Provident Mutual Life Insurance
Company, et al., Philadelphia County Court of Common Pleas, Civil Trial
Division, No. 9901-00780, which has postponed completion of the Conversion until
the court conducts a hearing and completes such other procedures as the court
may deem appropriate. The primary basis of the complaint is the Provident
Mutual's Plan of Conversion is unfair to current policyholders. In addition,
plaintiffs allege that the disclosures contained in Provident Mutual's
Policyholder Information Statement (the document sent to policyholders prior to
their vote on the Plan) were inadequate. The Company believes the Plan and
related disclosure documents meet all applicable legal requirements. Provident
Mutual petitioned the Pennsylvania Commonwealth Court to stay the lower court's
preliminary injunction. That petition was denied and proceedings are continuing
in the Court of Common Pleas.
 
     The current and future rights and interest of owners of Provident Mutual
insurance and annuity contracts, including the Policies will not change as a
result of the Conversion, and the Conversion will not increase premiums or
reduce Policy benefits, values, guarantees or other Policy obligations to
Owners. If the Conversion occurs, all Provident Mutual insurance policies and
annuity contracts in force on the date of the Conversion, including the
Policies, will continue, after the Conversion, as policies of Provfirst Life.
The Conversion will not change the operations of the Variable Account and will
not result in any material disruption of the services provided to Owners.
 
     Before the Conversion, Provident Mutual will continue to conduct business
in all jurisdictions under the name "Provident Mutual Life Insurance Company."
After the Conversion, it is anticipated that Provident Mutual will conduct
business in all jurisdictions under the name "Provfirst America Life Insurance
Company," except in those jurisdictions in which regulators have not yet
approved use of this name. In those jurisdictions, Provfirst Life will continue
to do business using the name "Provident Mutual Life Insurance Company" until it
receives approval to use the new name.
 
     Likewise, each Variable Account of Provident Mutual will continue, after
the Conversion, as a Variable Account of Provfirst Life. If the Conversion
occurs, it will not change the operations of any Variable Account supporting a
policy or contract. However, after the Conversion, the names of the Variable
Accounts will be changed by replacing the words "Provident Mutual" with
"Provfirst America" in each name. Use of the new Variable Account names in each
jurisdiction will generally begin concurrently with the use of Provfirst Life's
new name. Nevertheless, some jurisdictions require separate approval of the new
Variable Account names, and in those jurisdictions, Provfirst Life will not use
such new name until it receives such approval.
 
     Pursuant to the Plan, Provident Mutual will also form Provident Mutual
Holding Company, a Pennsylvania nonstock corporation, and Provfirst America
Corporation, a Pennsylvania business corporation. If the Conversion occurs, all
the shares of voting stock of Provfirst Life will be issued to the Provfirst
America Corporation, and all the shares of voting stock of Provfirst America
Corporation will be issued to Provident Mutual Holding Company, except for
approximately 1% of the then-issued shares of voting stock of Provfirst America
Corporation, which will be issued to an employee stock ownership plan to be
formed by Provfirst Life. Pursuant to the Order and as set forth in the Plan,
Provident Mutual Holding Company will at all times, directly or indirectly,
control Provfirst Life through the ownership of at least a majority of
                                       C-1
<PAGE>   153
 
the voting authority of Provfirst America Corporation, which will hold, directly
or indirectly, all the outstanding voting stock of Provfirst Life. If the
Conversion occurs, the directors and executive officers of Provfirst Life
serving immediately prior to the Effective Date will remain as the directors and
executive officers of each of Provident Mutual Holding Company, Provfirst
America Corporation and Provfirst Life after the Effective Date.
 
     Before the Conversion, Provident Mutual policyholders have (1) contract
rights under their insurance policies and annuity contracts, and (2) certain
membership rights in Provident Mutual. The principal contract right of
policyholders is the right to receive the type and amount of benefits specified
in their policies or contracts in accordance with their terms and conditions,
including the right to receive policy dividends, when, if, and as declared by
the board of directors of Provident Mutual in accordance with the terms and
conditions of such policies. The membership rights of policyholders include the
right to vote at annual or special meetings of Provident Mutual, and certain
rights as provided by law in any remaining surplus of Provident Mutual in the
event of the insolvency, winding-up or liquidation of Provident Mutual, after
the discharge of all other liabilities.
 
     If the Conversion occurs, the contract rights and the membership rights of
policyholders of Provident Mutual policies will be separated. The contract
rights will remain with Provfirst Life and the membership rights in Provident
Mutual will be extinguished. Each policyholder will then receive, by operations
law, membership rights in Provident Mutual Holding Company. Each future
policyholder of Provfirst Life will become a member of Provident Mutual Holding
Company, and each member will remain a member of Provident Mutual Holding
Company as long as the policy or policies conferring such membership remain in
force.
 
                                       C-2
<PAGE>   154
 
                                    PART II
 
                               OTHER INFORMATION
                          UNDERTAKING TO FILE REPORTS
 
     Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
 
                              RULE 484 UNDERTAKING
 
     Article VIII of PMLIC's By-Laws provides, in part:
 
          To the fullest extent permitted by law, the Company shall indemnify
     any present, former or future Director, officer, or employee of the Company
     or any person who may serve or has served at its request as officer or
     Director of another corporation of which the Company is a creditor or
     stockholder, against the reasonable expenses, including attorney's fees,
     necessarily incurred in connection with the defense of any action, suit or
     other proceeding to which any of them is made a party because of service as
     Director, officer or employee of the Company or such other corporation, or
     in connection with any appeal therein, and against any amounts paid by such
     Director, officer or employee in settlement of, or in satisfaction of a
     judgement or fine in, any such action or proceeding, except expenses
     incurred in defense of or amounts paid in connection with any action, suit
     or other proceeding in which such Director, officer or employee shall be
     adjudged to be liable for negligence or misconduct in the performance of
     his duty.
 
     Insofar as indemnification or liability arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
 
                        REPRESENTATION OF REASONABLENESS
 
     Provident Mutual Life Insurance Company hereby represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by Provident Mutual Life Insurance Company.
 
                       CONTENTS OF REGISTRATION STATEMENT
 
     This Registration Statement comprises the following papers and documents:
 
          The facing sheet.
 
   
          The Prospectus consisting of   pages.
    
 
          The undertaking to file reports.
 
          Rule 484 undertaking.
 
                                      II-1
<PAGE>   155
 
          Representations pursuant to Rule 6e-3(T).
 
          The signatures.
 
     The following exhibits:
 
                                 EXHIBIT INDEX
 
   
<TABLE>
<CAPTION>
  EXHIBITS                                                                    PAGE
  --------                                                                    ----
<S>             <C>                                                           <C>
 1.A.1.a.       Resolution adopted by the Board of Directors of Provident
                Mutual Life Insurance Company authorizing establishment of
                the Provident Mutual Variable Growth Separate Account,
                Provident Mutual Variable Money Market Separate Account,
                Provident Mutual Variable Bond Separate Account, Provident
                Mutual Variable Managed Separate Account, and Provident
                Mutual Variable Zero Coupon Bond Separate Account(1)
 1.A.1.b.       Resolution of the Board of Directors of Provident Mutual
                Life Insurance Company establishing the Provident Mutual
                Variable Aggressive Growth Separate Account(1)
 1.A.1.c.       Resolution of the Board of Directors of Provident Mutual
                Life Insurance Company establishing the Provident Mutual
                Variable International Separate Account(1)
 1.A.1.d.       Resolution of the Board of Directors of Provident Mutual
                Life Insurance Company establishing the Provident Mutual
                Variable Separate Account(1)
 1.A.1.e.       Resolution of the Board of Directors of Provident Mutual
                Life Insurance Company Approving Creation of additional
                Subaccounts of Provident Mutual Variable Separate Account(1)
 1.A.1.f.       Resolution of the Board of Directors of Provident Mutual
                Life Insurance Company Approving Creation of additional
                Subaccounts of Provident Mutual Variable Separate Account(1)
 1.A.2.         None
 1.A.3.a.i.     Underwriting Agreement(1)
 1.A.3.a.ii.    Amendment to Underwriting Agreement(1)
                Amendment to Underwriting Agreement(1)
1.A.3.a.iii.
 1.A.3.a.iv.    Amendment to Underwriting Agreement(1)
 1.A.3.a.vi.    Amendment to Underwriting Agreement(1)
 1.A.3.b.i.     PPGA's Agreement and Supplements(1)
 1.A.3.b.ii.    PPA's Agreement and Supplements(1)
                PGA's Agreement and Supplements(1)
1.A.3.b.iii.
 1.A.3.b.iv.    Special Agent's Career Agreement and Supplement(1)
 1.A.3.b.v.     Special Agent's Agreement(1)
 1.A.3.b.vi.    Corporate Agent's Agreement and Supplement(1)
 1.A.3.c.i.     PPGA Commission Schedules(1)
 1.A.3.c.ii.    PPA Commission Schedules(1)
                PGA Commission Schedules(1)
1.A.3.c.iii.
 1.A.3.c.iv.    Commission Schedules for Variable Life Insurance Products
                for Agents under Special Career Agent's Career Agreement(1)
 1.A.3.c.v.     Commission Schedules for Variable Life Insurance Products
                for Agents under Special Agent's Agreement(1)
 1.A.3.c.vi.    Commission Schedules for Variable Life Insurance Products
                for Corporate Agents with Special Agent's Career
                Agreement(1)
 1.A.3.d.       Form of Selling Agreement between 1717 Capital Management
                Company and Broker/Dealers(1)
 1.A.4.         None
 1.A.5.         Individual Flexible Premium Adjustable Survivorship Variable
                Life Insurance Policy Forms (C130 & C130A)(3)
 1.A.5.a.       Convertible Term Life Rider (C308)(2)
</TABLE>
    
 
                                      II-2
<PAGE>   156
 
   
<TABLE>
<CAPTION>
  EXHIBITS                                                                    PAGE
  --------                                                                    ----
<S>             <C>                                                           <C>
 1.A.5.b.       Extension of Final Policy Date Rider (C822)(2)
 1.A.5.c.       Disability Waiver Benefit Rider (C902)(2)
 1.A.5.d.       4 Year Survivorship Term Life Rider (C309)(3)
 1.A.5.e.       Guaranteed Minimum Death Benefit Rider (C320)(3)
 1.A.5.f.       Policy Split Option Rider (C615)(3)
 1.A.5.g.       Change of Insured Rider (C905)(3)
 1.A.6.a.       Charter of Provident Mutual Life Insurance Company(1)
 1.A.6.b.       By-Laws of Provident Mutual Life Insurance Company(1)
 1.A.7.         None
 1.A.8.         Sponsorship Agreement between Provident Mutual Life
                Insurance Company and MLPFS for Zero Coupon Trust(1)
 1.A.9.         None
 1.A.10.        Form of Application(1)
 1.A.10.a.      Application for Flexible Premium(2)
 1.A.10.b.      Initial Allocation Selection(1)
 2.             See Exhibit 1.A.5.
 3.A.           Consent of James G. Potter, Jr., Esquire
 3.B.           Consent of Sutherland Asbill & Brennan, LLP
 4.             None
 5.             Inapplicable
 6.             Consent of Scott V. Carney, FSA, MAAA
 7.             Consent of PricewaterhouseCoopers LLP, Independent
                Accountants
 8.             Description of Provident Mutual Life Insurance Company's
                Issuance, Transfer and Redemption Procedures for Policies(1)
10.a.           Participation Agreement by and among Market Street Fund,
                Inc., Provident Mutual Life Insurance Company and PML
                Securities, Inc.(1)
10.b.           Participation Agreement among Variable Insurance Products
                Fund, Fidelity Distributors Corporation and Provident Mutual
                Life Insurance Company(1)
10.c.           Participation Agreement among Variable Insurance Products
                Fund II, Fidelity Distributors Corporation and Provident
                Mutual Life Insurance Company(1)
10.d.           Sales Agreement between Neuberger & Berman Advisers
                Management Trust and Provident Mutual Life Insurance
                Company(1)
10.e.           Participation Agreement among The Alger American Fund,
                Provident Mutual Life Insurance Company, and Fred Alger and
                Company Incorporated(1)
27.             Inapplicable
</TABLE>
    
 
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 18, filed
    on May 1, 1998, File No. 33-2625.
 
(2) Incorporated herein by reference to Post-Effective Amendment No. 11, filed
    on May 1, 1998, File No. 33-42133.
 
   
(3) Incorporated herein by reference to Post-Effective Amendment No. 8, filed on
    May 1, 1998, File No. 33-55470.
    
 
                                      II-3
<PAGE>   157
 
                                   SIGNATURES
 
   
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, PROVIDENT
MUTUAL LIFE INSURANCE COMPANY CERTIFIES THAT IT MEETS ALL THE REQUIREMENTS FOR
EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT PURSUANT TO RULE 485(B) UNDER THE
SECURITIES ACT OF 1933 AND, HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BERWYN AND
COMMONWEALTH OF PENNSYLVANIA ON THE 19TH DAY OF APRIL, 1999.
    
 
                                          PROVIDENT MUTUAL LIFE INSURANCE
                                          COMPANY
 
                                          By:      /s/ ROBERT W. KLOSS
                                            ------------------------------------
                                                      ROBERT W. KLOSS
                                                  Chief Executive Officer
 
Attest:     /s/ JAMES POTTER
      --------------------------------
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
 
   
<TABLE>
<CAPTION>
                   SIGNATURES                                     TITLE                       DATE
                   ----------                                     -----                       ----
<C>                                                 <S>                                  <C>
 
              /s/ ROBERT W. KLOSS                   Chief Executive Officer              April 19, 1999
- ------------------------------------------------      (Principal Executive Officer)
                ROBERT W. KLOSS
 
             /s/ MARY LYNN FINELLI                  Executive Vice President and         April 19, 1999
- ------------------------------------------------      Chief Financial Officer
               MARY LYNN FINELLI                      (Principal Financial Officer)
 
             /s/ LINDA M. SPRINGER                  Vice President and Controller        April 19, 1999
- ------------------------------------------------      (Principal Accounting Officer)
               LINDA M. SPRINGER
 
                       *                            Director                             April 19, 1999
- ------------------------------------------------
                 EDWARD R. BOOK
 
                       *                            Director                             April 19, 1999
- ------------------------------------------------
                DOROTHY M. BROWN
 
                       *                            Director                             April 19, 1999
- ------------------------------------------------
                ROBERT J. CASALE
 
                       *                            Director                             April 19, 1999
- ------------------------------------------------
             NICHOLAS DEBENEDICTUS
 
                       *                            Director                             April 19, 1999
- ------------------------------------------------
               PHILIP C. HERR, II
</TABLE>
    
<PAGE>   158
 
   
<TABLE>
<CAPTION>
                   SIGNATURES                                     TITLE                       DATE
                   ----------                                     -----                       ----
<C>                                                 <S>                                  <C>
 
                       *                            Director                             April 19, 1999
- ------------------------------------------------
                J. RICHARD JONES
 
                       *                            Director                             April 19, 1999
- ------------------------------------------------
                JOHN P. NEAFSEY
 
                       *                            Director                             April 19, 1999
- ------------------------------------------------
                 CHARLES L. ORR
 
                       *                            Director                             April 19, 1999
- ------------------------------------------------
                DONALD A. SCOTT
 
                       *                            Director                             April 19, 1999
- ------------------------------------------------
              JOHN J. F. SHERRERD
 
                       *                            Director                             April 19, 1999
- ------------------------------------------------
               HAROLD A. SORGENTI
 
         *By: /s/ JAMES G. POTTER, JR.
- ------------------------------------------------
              James G. Potter, Jr.
                Attorney-in-fact
         Pursuant to Power of Attorney
</TABLE>
    
<PAGE>   159
 
                                   SIGNATURES
 
   
     Pursuant to the requirements of the Securities Act of 1933, Provident
Mutual Variable Growth Separate Account, Provident Mutual Variable Money Market
Separate Account, Provident Mutual Variable Bond Separate Account, Provident
Mutual Variable Managed Separate Account, Provident Mutual Variable Zero Coupon
Bond Separate Account, Provident Mutual Variable Aggressive Growth Separate
Account, Provident Mutual Variable International Separate Account and Provident
Mutual Variable Separate Account certify that they meet all the requirements for
effectiveness of this Post-Effective Amendment pursuant to Rule 485(b) under the
Securities Act of 1933 and, have duly caused this post-effective amendment to
the Registration Statement under the Securities Act of 1933 to be signed on
their behalf by the undersigned, thereunto duly authorized, in the City of
Berwyn and Commonwealth of Pennsylvania on the 19th day of April, 1999.
    
 
PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MONEY MARKET SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MANAGED SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE ZERO COUPON BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE AGGRESSIVE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE INTERNATIONAL SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE SEPARATE ACCOUNT
 
                                                    (Registrant)
 
                                    By: PROVIDENT MUTUAL LIFE INSURANCE COMPANY
                                                    (Depositor)
 
                                          By:       /s/  ROBERT W. KLOSS
                                            ------------------------------------
                                                      Robert W. Kloss
                                                  Chief Executive Officer
 
Attest:  /s/ JAMES POTTER
- --------------------------------------
<PAGE>   160
 
                                 EXHIBIT INDEX
 
   
<TABLE>
<CAPTION>
  EXHIBITS
  --------
<S>             <C>                                                           <C>
 3.A.           Consent of James G. Potter, Jr., Esquire
 3.B.           Consent of Sutherland Asbill & Brennan LLP
 6.             Consent of Scott V. Carney, FSA, MAAA
 7.             Consent of PricewaterhouseCoopers LLP, Independent
                Accountants
</TABLE>
    

<PAGE>   1
 
   
                                                                     EXHIBIT 3.A
    
 
   
                                                                  April 20, 1999
    
 
   
Provident Mutual Life Insurance Company
    
   
1050 Westlakes Drive
    
   
Berwyn, PA 19312
    
 
   
Directors:
    
 
   
I hereby consent to the reference to my name under the caption "Legal Matters"
in the Prospectus filed as part of the Post-Effective Amendment No. 9 of the
Registration Statement on Form S-6 (File No. 33-55470) for the Providentmutual
Variable Life Separate Account.
    
 
   
                                            Sincerely,
    
 
   
                                            James G. Potter, Jr.
    

<PAGE>   1
                                                                     Exhibit 3.B



                  [SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]




                                 April 14, 1999




Board of Directors
Provident Mutual Life Insurance Company
1050  Westlakes Drive
Berwyn, PA  19312

           RE:      PROVIDENT MUTUAL LIFE INSURANCE COMPANY
                    PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT, ET AL.
                    (FILE NO.  33-55470)                                       


Directors:

                  We hereby consent to the reference to our name under the
caption "Legal Matters" in the prospectus filed as part of post-effective
amendment number 9 to the Form S-6 registration statement (File No. 33-55470)
for the Provident Mutual Variable Growth Separate Account, et al. In giving this
consent, we do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.

                                       Sincerely,

                                       SUTHERLAND ASBILL & BRENNAN LLP




                                       By:      /s/ David S. Goldstein
                                                -------------------------------
                                                   David S. Goldstein

<PAGE>   1
                                                                       Exhibit 6


                                                                  April 20, 1999


Provident Mutual Life Insurance Company
1050 Westlakes Drive
Berwyn, PA 19312

Directors:

I hereby consent to the reference to my name under the caption "Experts" in the 
Prospectus filed as part of the Post-Effective Amendment No. 9 of the 
Registration Statement on Form S-6 (File No. 33-55470) for the Providentmutual 
Variable Life Separate Account.


                               Sincerely,



                               Scott V. Carney, FSA, MAAA
                               Actuary


<PAGE>   1
   
                                                                       Exhibit 7
    

                       CONSENT OF INDEPENDENT ACCOUNTANTS



         We consent to the inclusion, in this Post-Effective Amendment No. 9 to
the Registration Statement under the Securities Act of 1933, as amended, filed
on Form S-6 (File No. 33-55470) for the Provident Mutual Variable Separate
Accounts (Growth, Money Market, Bond, Managed, Zero Coupon Bond, Aggressive
Growth, International and Variable), of the following reports:

         1.    Our report dated February 5, 1999 on our audits of the financial
               statements of Provident Mutual Life Insurance Company and
               Subsidiaries as of December 31, 1998 and 1997 and for each of the
               three years in the period ended December 31, 1998.

         2.    Our report dated February 26, 1999 on our audits of the financial
               statements of the Provident Mutual Variable Separate Accounts
               (Growth, Money Market, Bond, Managed, Aggressive Growth,
               International, Zero Coupon Bond and Variable) as of December 31,
               1998 and for each of the three years in the period ended December
               31, 1998.

         We also consent to the reference to our Firm under the caption
"Experts".







PRICEWATERHOUSECOOPERS LLP

Philadelphia, Pennsylvania
April 14, 1999




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