<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 2000
REGISTRATION FILE NOS. 33-42133/811-4460
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-6
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 13
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PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MONEY MARKET SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE ZERO COUPON BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE AGGRESSIVE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE INTERNATIONAL SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE SEPARATE ACCOUNT
(EXACT NAME OF TRUST)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1000 CHESTERBROOK BOULEVARD
BERWYN, PA 19312
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 452-4000
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<TABLE>
<S> <C>
COPIES TO:
JAMES G. POTTER, JR., ESQ. STEPHEN E. ROTH, ESQ.
PROVIDENT MUTUAL LIFE INSURANCE COMPANY SUTHERLAND ASBILL & BRENNAN LLP
1000 CHESTERBROOK BOULEVARD 1275 PENNSYLVANIA AVENUE, N.W.
BERWYN, PA 19312 WASHINGTON, D.C. 20004
(NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[X] on May 1, 2000 pursuant to paragraph (a) of Rule 485
Title of Securities Being Registered:
Interests in Flexible Premium Adjustable Variable Life Insurance Policies
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<PAGE> 2
(ART)
PROSPECTUS
FOR
FLEXIBLE PREMIUM
ADJUSTABLE VARIABLE
LIFE INSURANCE
ISSUED BY
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
OPTIONSPLUS
FORM 15939 5.99
<PAGE> 3
PROSPECTUS
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
SERVICE CENTER: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19713
CORPORATE HEADQUARTERS: 1000 CHESTERBROOK BOULEVARD, BERWYN, PENNSYLVANIA 19312
TELEPHONE: (800) 688-5177
This Prospectus describes a flexible premium adjustable variable life
insurance policy (the "Policy") offered by Provident Mutual Life Insurance
Company ("PMLIC"). The Policy has an insurance component and an investment
component. The primary purpose of the Policy is to provide insurance coverage
for the lifetime of the insured. The Policy gives the policyowner (the "Owner")
the right to vary the frequency and amount of premium payments, to choose among
investment alternatives with different investment objectives and to increase or
decrease the death benefit payable under the Policy.
After certain deductions are made, Net Premiums are allocated to the
Provident Mutual Variable Separate Account (the "Separate Account") or the
Guaranteed Account, or both. The Separate Account has twenty-six subaccounts
(the "Subaccounts"). The Zero Coupon Bond Subaccount uses its assets to purchase
units of the Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual
Series A (the "Zero Trust"). The assets of the other twenty-five subaccounts are
used to purchase shares of a designated corresponding investment Portfolio that
is part of one of the following mutual fund companies:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
VARIABLE INSURANCE
THE MARKET STREET FUND, INC. PRODUCTS FUND
- --------------------------------------------------------------------------------------
<S> <C>
- Aggressive Growth Portfolio - Equity-Income Portfolio
- All-Pro Large Cap Growth Portfolio - Growth Portfolio
- All-Pro Large Cap Value Portfolio - High Income Portfolio
- All-Pro Small Cap Growth Portfolio - Overseas Portfolio
- All-Pro Small Cap Value Portfolio
- Bond Portfolio
- Equity 500 Index Portfolio
- Growth Portfolio
- International Portfolio
- Managed Portfolio
- Money Market Portfolio
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</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
VARIABLE INSURANCE
THE ALGER AMERICAN FUND PRODUCTS FUND II
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<S> <C>
- Small Capitalization Portfolio - Asset Manager Portfolio
- Contrafund Portfolio
- Investment Grade Bond Portfolio
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</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 Account; there is no guaranteed minimum value for the Separate Account.
The accompanying prospectuses for the funds and for the Zero Trust describe
the investment objectives and the attendant risks of the Portfolios and the
Trust. 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 10 policy years or within 10 years after a Face Amount increase, 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, 2000
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF THE POLICY
The Policy................................................ 3
Purpose of the Policy..................................... 3
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
Accelerated Death Benefit................................. 6
Tax Treatment............................................. 6
Illustrations............................................. 7
Charges Assessed Under the Policy......................... 7
Table of Fund Fees and Expenses........................... 9
The Company, Separate Account and Funds..................... 11
Provident Mutual Life Insurance Company................... 11
The Separate Account...................................... 11
The Funds................................................. 12
Market Street Fund, Inc................................... 12
The Stripped ("Zero") U.S. Treasury Securities Fund,
Provident Mutual Series A.............................. 14
The Alger American Fund................................... 15
Variable Insurance Products Fund and Variable Insurance
Products Fund II....................................... 16
Neuberger Berman Advisers Management Trust................ 18
Van Eck Worldwide Insurance Trust......................... 19
Additional Information About the Funds and Portfolios..... 20
Detailed Description of Policy Provisions................... 21
Death Benefit............................................. 21
Ability to Adjust Face Amount............................. 23
Insurance Protection...................................... 24
Payment and Allocation of Premiums........................ 24
Policy Account Value...................................... 26
Policy Duration........................................... 27
Transfers of Policy Account Value......................... 27
Free-Look Privileges...................................... 29
Loan Privileges........................................... 29
Surrender Privilege....................................... 31
Partial Withdrawal Privilege.............................. 31
Accelerated Death Benefit................................. 32
Charges and Deductions...................................... 35
Premium Expense Charge.................................... 35
Surrender Charges......................................... 35
Monthly Deductions........................................ 37
Face Amount Increase Charge............................... 38
Partial Withdrawal Charge................................. 38
Transfer Charge........................................... 38
Mortality and Expense Risk Charge......................... 38
Other Charges............................................. 39
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Guaranteed Account...................................... 40
Minimum Guaranteed and Current Interest Rates............. 40
Transfers from Guaranteed Account......................... 41
Other Policy Provisions..................................... 42
Benefit Payable on Final Policy Date...................... 42
Payment of Policy Benefits................................ 42
The Policy................................................ 42
Ownership................................................. 42
Beneficiary............................................... 43
Change of Owner and Beneficiary........................... 43
Split Dollar Arrangements................................. 43
Assignments............................................... 43
Misstatement of Age and Sex............................... 43
Suicide................................................... 44
Contestability............................................ 44
Dividends................................................. 44
Settlement Options........................................ 44
Supplementary Benefits...................................... 44
Federal Income Tax Considerations........................... 46
Introduction.............................................. 46
Tax Status of the Policy.................................. 46
Tax Treatment of Policy Benefits.......................... 46
Special Rules for Pension and Profit-Sharing Plans........ 48
Special Rules for Section 403(b) Arrangements............. 48
Business Uses of the Policy............................... 48
Possible Tax Law Changes.................................. 48
PMLIC's Taxes............................................. 48
Policies Issued in Conjunction with Employee Benefit
Plans..................................................... 49
Legal Developments Regarding Unisex Actuarial Tables........ 49
Voting Rights............................................... 49
Standard & Poor's........................................... 50
Changes to the Separate Account or Funds.................... 51
Changes to Separate Account Operations.................... 51
Changes to Available Portfolios........................... 51
Termination of Participation Agreements................... 51
Officers and Directors of PMLIC............................. 53
Distribution of Policies.................................... 55
Policy Reports.............................................. 55
State Regulation............................................ 56
Legal Proceedings........................................... 56
Experts..................................................... 56
Legal Matters............................................... 56
Definitions................................................. 57
Financial Statements........................................ F-1
Appendix A -- Illustration of Death Benefits, Policy Account
Values and Net Cash Surrender Values.......... A-1
Appendix B -- Long Term Market Trends....................... B-1
</TABLE>
<PAGE> 6
SUMMARY OF THE POLICY
The following summary of the Policy provisions should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policy in this
prospectus assumes that the Insured is alive, the Policy is in force and there
is no outstanding loan.
The Policy is not a deposit or obligation of any bank, and no bank endorses
or guarantees the Policy or Policy values. Neither the Federal Deposit Insurance
Corporation nor any federal agency insures or guarantees Policy values or your
investment in the Policy.
THE POLICY
The Flexible Premium Adjustable Variable Life Insurance Policy (the
"Policy") offered by this Prospectus is issued by Provident Mutual Life
Insurance Company ("PMLIC"). The Policy is similar in many ways to a
fixed-benefit life insurance policy. As with a fixed-benefit life insurance
policy, the Owner of a Policy makes premium payments in return for insurance
coverage on the person insured. Also, like many fixed-benefit life insurance
policies, the Policy provides for accumulation of Net Premiums and a Net Cash
Surrender Value which is payable if the Policy is surrendered during the
Insured's lifetime. As with many fixed-benefit life insurance policies, the Net
Cash Surrender Value during the early Policy Years is likely to be substantially
lower than the aggregate premium payments made.
However, the Policy differs from a fixed-benefit life insurance policy in
several important respects. Unlike a fixed-benefit life insurance policy, under
the Policy, the Death Benefit may, and the Policy Account Value will, increase
or decrease to reflect the investment performance of any Separate Accounts or
Subaccounts to which Policy Account Value is allocated. Also, unless the entire
Policy Account Value is allocated to the Guaranteed Account, there is no
guaranteed minimum Net Cash Surrender Value. If Net Cash Surrender Value is
insufficient to pay charges due, then, after a grace period, the Policy will
Lapse without value. (See "Policy Duration".) However, PMLIC guarantees that the
Policy will remain in force during the first 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 lifetime insurance benefits and long-term
investment of Policy Account Value. A prospective Owner should evaluate the
Policy along with other insurance coverage that he or she may have, as well as
their need for insurance and the Policy's long-term investment potential. It may
not be advantageous to replace existing insurance coverage with the Policy. In
particular, replacement should be carefully considered if the decision to
replace existing coverage is based solely on a comparison of Policy
illustrations.
This Policy is issued for Insureds from Issue Ages 1 to 80. The Minimum
Face Amount is $50,000 ($100,000 for preferred). (For a Policy issued in New
York State the maximum Face Amount at issue is $2,500,000.)
3
<PAGE> 7
THE DEATH BENEFIT
As long as the Policy remains in force, PMLIC will pay the Insurance
Proceeds to the Beneficiary upon receipt of due proof of the death of the
Insured. The Insurance Proceeds will consist of the Policy's Death Benefit, plus
any additional benefits provided by a supplementary benefit rider, less any
outstanding Policy loan and accrued interest, less any unpaid Monthly
Deductions.
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 increasing
or decreasing the Face Amount of the Policy. (See "Death Benefit" and "Ability
to Adjust Face Amount".) The minimum amount of a requested increase in Face
Amount is $25,000 (or such lesser amount required in a particular state) and any
requested increase may require evidence of insurability. Any decrease in Face
Amount must be for at least $25,000 (or such lesser amount required in a
particular state) and cannot result in a Face Amount less than the Minimum Face
Amount available. PMLIC reserves the right to establish different Minimum Face
Amounts for Policies issued in the future.
Any change in Death Benefit Options or in the Face Amount may affect the
charges under the Policy. Any increase in the Face Amount will result in an
increase in the Monthly Deductions and any increase in Face Amount will also
increase the surrender charges which are imposed upon lapse or surrender of the
Policy or the pro-rata surrender charges imposed upon a decrease in Face Amount
within the relevant ten-year period. For any decrease in Face Amount, that part
of the surrender charges attributable to the decrease will reduce the Policy
Account Value, and the surrender charges will be reduced by this amount. A
decrease in Face Amount may also affect cost of insurance charges. (See "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 Account reflects the investment
performance of the Separate Account, any Net Premiums allocated to the Separate
Account, any transfers to or from the Separate Account, any partial withdrawals
from the Separate Account, 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
Account.
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
Account 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 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 Account.
The Separate Account consists of twenty-six Subaccounts. The assets of
twenty-five Subaccounts are used to purchase shares of a designated
corresponding investment 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 Subaccount invests in units of
The Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A.
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 Account will be allocated to the Money Market
Subaccount. At the end of the 15-day period, Policy Account Value in the Money
Market Subaccount is allocated to the Subaccounts as indicated in the
application. (See "Payment and Allocation of Premiums".)
TRANSFERS
The Owner may make transfers of the amounts in the Subaccounts and
Guaranteed Account. Transfers between and among the 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 12 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".)
A Free-Look privilege also applies after a requested increase in Face
Amount. (See "Free-Look For Increase in Face Amount".)
LOAN PRIVILEGE
The Owner may obtain Policy loans in a minimum amount of $500 (or such
lesser minimum as may be required in a particular state) but not exceeding, in
the aggregate, the Net Cash Surrender Value. Policy loans will bear interest at
a fixed rate of 6% per year, payable at the end of each Policy Year. If interest
is not paid when due, it will be added to the outstanding loan balance. Policy
loans may be repaid at any time and in any amount prior to the Final Policy
Date. PMLIC transfers Policy Account Value in an amount equal to the loan to the
Loan Account where it becomes collateral for the loan. The transfer is made
pro-rata from each 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.)
5
<PAGE> 9
Depending upon the investment performance of the 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 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".)
ACCELERATED DEATH BENEFIT
Under the Accelerated Death Benefit Rider, an Owner may receive, at his or
her request and upon approval by PMLIC, accelerated payment of part of the
Policy's Death Benefit if the Insured develops a Terminal Illness or is
permanently confined to a Nursing Care Facility (See "Accelerated Death Benefit"
below.)
TAX TREATMENT
PMLIC believes that a Policy issued on a standard premium class basis
generally should meet the definition of a life insurance contract in the Code.
There is insufficient guidance to determine whether or not a Policy issued on an
extra rating (i.e., substandard) basis would satisfy the Code definition of a
life insurance contract, particularly if the Owner pays the full amount of
premiums permitted under such a 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
6
<PAGE> 10
not be treated as distributions. Finally, neither distributions nor loans from a
Policy that is not a Modified Endowment Contract are subject to the 10% penalty
tax. (See "Distributions from Policies Not Classified as Modified Endowment
Contracts".)
ILLUSTRATIONS
Illustrations of Death Benefits, Policy Account Value and Net Cash
Surrender Value in this prospectus or used in connection with the purchase of a
Policy are based on hypothetical rates of return. These rates are not
guaranteed. They are illustrative only and should not be considered a
representation of past or future performance. Actual rates of return may be
higher or lower than those reflected in Policy illustrations, and therefore,
actual Policy values will be different from those illustrated.
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 Insured's residence at the time the premium is paid. PMLIC
reserves the right to change the amount of the charge deducted from future
premiums if the Insured's residence changes or the applicable law is
changed;
2. Percent of Premium Sales Charge equal to 1.5% of each premium
payment. PMLIC may increase this charge to a maximum of 3% of each premium
payment. (See "Premium Expense Charge" below.)
Monthly Deductions. On the Policy Date and on each Policy Processing Date
thereafter, the Policy Account Value is reduced by a Monthly Deduction equal to
the sum of the monthly Cost of Insurance Charge, Monthly Administrative Charge
and a charge for additional benefits added by rider and, on the first 12 Policy
Processing Days, the Initial Administrative Charge. The monthly Cost of
Insurance Charge is determined by multiplying the Net Amount at Risk by the
applicable cost of insurance rate(s) in the Policy. The Monthly Administrative
Charge is currently $7.50; the maximum permissible Monthly Administrative Charge
is $12. (See "Monthly Administrative Charge".) The Initial Administrative Charge
is $17.50, deducted on the first 12 Policy Processing Days. (See "Initial
Administrative Charge".)
Surrender Charge and Additional Surrender Charge. A Surrender Charge is
imposed if the Policy is surrendered or lapses at any time before the end of the
10th Policy Year. The Surrender Charge consists of a Deferred Administrative
Charge and a Deferred Sales Charge. A portion of this Surrender Charge is
deducted if the Owner decreases the Initial Face Amount before the end of the
10th Policy Year. (See "Surrender Charges".) An Additional Surrender Charge
which is a Deferred Sales Charge is imposed if the Policy is surrendered or
lapses at any time within 10 years after the effective date of an increase in
Face Amount. (See "Surrender Charges".) A portion of an Additional Surrender
Charge is deducted if the related increment of Face Amount is decreased within
10 years after such increase took effect. (See "Surrender Charges".)
The Deferred Administrative Charge is equal to an amount per $1,000 of Face
Amount (shown below) in Policy Years 1 to 6, declining by 20% each year in
Policy Years 7 to 10 until it is zero in Policy Year 11.
<TABLE>
<CAPTION>
CHARGE PER $1,000
ISSUE AGE OF FACE AMOUNT
--------- -----------------
<S> <C>
1-5.......................................... $0
15........................................... 1
25........................................... 2
35-80........................................ 3
</TABLE>
For Issue Ages not shown the charge will increase by a ratable portion for
each full year.
7
<PAGE> 11
The Deferred Sales Charge is equal to 27% of the premiums received during
the first Policy Year (or, for the Additional Surrender Charge, the first twelve
Policy months after an increase) up to one target Premium plus 6% of all other
premiums received to the date of surrender, lapse or decrease. The Deferred
Sales Charge and any Deferred Additional Sales Charges, however, will not exceed
the Maximum Deferred Sales Charge and Maximum Deferred Additional Sales Charges,
respectively. During Policy Years one through six (or for six years following
the effective date of an increase in Face Amount), this maximum equals 50% of
the Target Premium for the Initial Face Amount (or 50% of the Target Premium for
the increase, as the case may be). The maximum declines to 40% of the relevant
Target Premiums during the seventh year, 30% during the eighth year, 20% during
the ninth year and 10% during the tenth year.
Face Amount Increase Charge. A charge, currently $50 plus $1.00 per $1,000
Face Amount increase, will be deducted from the Policy Account Value on the
effective date of an increase in Face Amount to compensate PMLIC for
administrative expenses in connection with the increase. This charge may be
increased in the future but in no event will it exceed $50 plus $3.00 per $1,000
Face Amount increase. (See "Face Amount Increase Charge" below.)
Transfer Charge. For each transfer of Policy Account Value between
accounts 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 Subaccounts. PMLIC imposes a daily charge for
its assumption of certain mortality and expense risks in connection with the
Policy at an annual rate which is currently 0.75% of the average daily net
assets of the Subaccounts. 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 Subaccount, a deduction currently
equivalent to an annual rate of 0.25% of the average daily net assets of that
Subaccount will be made for transaction charges associated with the purchase of
units of the Zero Trust. 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
Subaccount".)
Investment Advisory Fees and Other Expenses of the Funds. Shares of the
Portfolios are purchased by the Subaccounts at net asset 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>
ALL-PRO ALL-PRO ALL-PRO ALL-PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MARKET STREET FUND, INC. ANNUAL EXPENSES GROWTH VALUE GROWTH VALUE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ------------ -------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)................................ % % % %
Other Expenses (after reimbursement)... % % % %
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1).................... % % % %
</TABLE>
<TABLE>
<CAPTION>
EQUITY 500 MONEY AGGRESSIVE
MARKET STREET FUND, INC. ANNUAL EXPENSES INDEX GROWTH MARKET BOND MANAGED GROWTH
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO(2) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- ------------ -------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)................................ 0.24% % % % % %
Other Expenses......................... 0.04%(2) % % % % %
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses............. 0.28% % % % % %
<CAPTION>
MARKET STREET FUND, INC. ANNUAL EXPENSES INTERNATIONAL
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
- ---------------------------------------- -------------
<S> <C>
Management Fees (Investment Advisory
Fees)................................ %
Other Expenses......................... %
----
Total Fund Annual Expenses............. %
</TABLE>
<TABLE>
<CAPTION>
SMALL
THE ALGER AMERICAN FUND ANNUAL EXPENSES(3) CAPITALIZATION
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
- ------------------------------------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)................................. %
Other Expenses.......................... %
----
Total Fund Annual Expenses.............. %
</TABLE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND ("VIP FUND") HIGH EQUITY-
ANNUAL EXPENSES(3) INCOME INCOME GROWTH OVERSEAS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------- ------------ -------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory Fees)... % % % %
Other Expenses (after reimbursement)......... % % % %
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1).......................... % % % %
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT
VARIABLE INSURANCE PRODUCTS FUND II ASSET GRADE
("VIP II FUND") ANNUAL EXPENSES(3) MANAGER CONTRAFUND BOND
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)................................ % % %
Other Expenses (after reimbursement)... % % %
---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1).................... % % %
</TABLE>
<TABLE>
<CAPTION>
LIMITED
NEUBERGER BERMAN ADVISERS MATURITY
MANAGEMENT TRUST ANNUAL EXPENSES(3) BOND PARTNERS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO
- --------------------------------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................... % %
Other Expenses........................ % %
---- ----
Total Fund Annual Expenses............ % %
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
VAN ECK WORLDWIDE WORLDWIDE HARD EMERGING REAL
INSURANCE TRUST ANNUAL EXPENSES(3) BOND ASSETS MARKET ESTATE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- ------------ -------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)................................ % % % %
Other Expenses (after reimbursement)... % % % %
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1).................... % % % %
</TABLE>
<TABLE>
<CAPTION>
ZERO
MERRILL LYNCH ZERO UST COUPON
SECURITIES FUND ANNUAL EXPENSES(3) 2006
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
- --------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................... %
Other Expenses........................ %
----
Total Fund Annual Expenses............ %
</TABLE>
- ---------------
(1) For certain Portfolios, certain expenses were reimbursed or fees waived
during 1999. It is anticipated that expense reimbursement and fee waiver
arrangements will continue past the current year. Absent the expense
reimbursement, the 1999 Total Annual Expenses would have been , for the
Market Street Fund All-Pro Small Cap Value Portfolio, , for the VIP
Fund Equity-Income Portfolio, , for the VIP Fund Growth Portfolio,
, for the VIP Fund Overseas Portfolio, , for the VIP II Fund Asset
Manager Portfolio, , for the VIP II Fund Index 500 Portfolio, ,
for the VIP II Fund Contrafund Portfolio, , for the Van Eck Worldwide
Hard Assets Portfolio, , for the Van Eck Worldwide Emerging Markets
Portfolio and , 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 1999 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) Because the Equity 500 Index Portfolio was not in existence during 1999,
"Other Expenses" is based on estimated amounts for 2000. This estimate
anticipates an expense reimbursement or fee waiver arrangement for 2000.
Absent this arrangement, Total Fund Annual Expenses would be estimated to be
0.39%.
(3) 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 ACCOUNT AND FUNDS
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
PMLIC is a mutual life insurance company that was organized as a mutual
life insurance company under Pennsylvania law in 1865. PMLIC is authorized to
transact life insurance and annuity business in Pennsylvania and in 50 other
jurisdictions. On December 31, 1999, PMLIC had total assets of approximately $
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 ACCOUNT
The Separate Account 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 the 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 the Separate
Account's assets equal to the reserves and other liabilities under the Policies
(and other policies) supported by the 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 the Separate Account that exceed
the reserves and Policy liabilities of the 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 the Separate Account are credited to or
charged against the Separate Account without regard to other income, gains or
losses of PMLIC. PMLIC may accumulate in the Separate Account the accrued
charges for mortality and expense risks and investment results attributable to
assets representing such charges.
The Separate Account is 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 Account by the SEC. The Separate Account meets the definition of a
"Separate Account" under Federal securities laws.
The Separate Account has twenty-six Subaccounts, twenty-five of which each
invest exclusively in Portfolios of Market Street Fund, Inc. or in Portfolios of
one of the other Funds. The Zero Coupon Bond Subaccount invests exclusively in
units of the Zero Trust.
The Growth, Money Market, Bond, Zero Coupon Bond, Managed, Aggressive
Growth and International Subaccounts were originally established as separate
accounts under the provisions of Pennsylvania Insurance Law. On ,
1999, the assets of the Provident Mutual Managed Separate Account were
transferred to a newly established subaccount (the "Managed Subaccount") of the
Separate Account, and the Provident Mutual Managed Separate Account ceased to
exist. On , 2000, the assets of the Provident Mutual Variable Growth
Separate Account, Provident Mutual Variable Money Market Separate Account,
Provident Mutual Variable Bond Separate Account, Provident Mutual Variable Zero
Coupon Bond Separate Account, Provident Mutual Variable Aggressive Growth
Separate Account, and Provident Mutual Variable International Separate Account
were transferred to corresponding new subaccounts of the Separate Account, as
shown in the table below. These separate accounts then ceased to exist.
11
<PAGE> 15
<TABLE>
<CAPTION>
NEW SUBACCOUNT FORMER SEPARATE ACCOUNT
-------------- -------------------------------------------------
<S> <C>
Growth Subaccount.................................. Provident Mutual Variable Growth Separate Account
Money Market Subaccount............................ Provident Mutual Variable Money Market Separate
Account
Bond Subaccount.................................... Provident Mutual Variable Bond Separate Account
Zero Coupon Bond Subaccount........................ Provident Mutual Variable Zero Coupon Bond
Separate Account
Aggressive Growth Subaccount....................... Provident Mutual Variable Aggressive Growth
Separate Account
International Subaccount........................... Provident Mutual Variable International Separate
Account
</TABLE>
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 is registered with the SEC under the 1940 Act as an open-end
management investment company. The SEC does not, however, supervise the
management or the investment practices and policies of the Funds or their
Portfolios. The assets of each Portfolio are separate from the assets of other
portfolios of that Fund and each Portfolio has separate investment objectives
and policies. Some of the Funds may, in the future, create additional
Portfolios. The investment experience of each Subaccount depends on the
investment performance of its corresponding Portfolio or the Zero Trust.
Certain Subaccounts invest in portfolios that have similar investment
objectives and/or policies; therefore before choosing Subaccounts, carefully
read the individual prospectuses for the Funds along with this prospectus.
MARKET STREET FUND, INC.
Eleven of the Subaccounts of the Separate Account invest exclusively in
shares of the Market Street Fund, Inc. ("MS Fund"). The investment objectives of
MS Fund's Portfolios are set forth below.
The Equity 500 Index Portfolio. The Equity 500 Index Portfolio seeks to
provide long-term capital appreciation by investing primarily in common stocks
included in the S&P 500(R) Composite Stock Price Index.*
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.
- ---------------
*Standard & Poor's(R), S&P(R), S&P 500(R), Standard & Poor's 500 and 500 are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
PMLIC and the Market Street Fund, Inc. Neither the Policy nor the Equity 500
Index Portfolio is sponsored, endorsed, sold, or promoted by Standard & Poor's,
and Standard & Poor's makes no representation regarding the advisability of
investing in the Policy and the Equity 500 Index Portfolio. (For more
information regarding the S&P 500 Index, see "Standard & Poor's," below.)
12
<PAGE> 16
The Managed Portfolio. The Managed Portfolio seeks to realize as a high a
level of long-term total rate of return as is consistent with prudent investment
risk by investing in stocks, bonds, money market instruments or a combination
thereof.
The Aggressive Growth Portfolio. The Aggressive Growth Portfolio seeks to
achieve a high level of long-term capital appreciation by investing in
securities of a diverse group of smaller emerging companies.
The International Portfolio. The International Portfolio seeks long-term
growth of capital principally through investments in a diversified portfolio of
marketable equity securities of established foreign issuer companies.
All Pro Large Cap Growth Portfolio. The All Pro Large Cap Growth Portfolio
seeks to achieve long-term capital appreciation. The Portfolio pursues its
objective by investing primarily in equity securities of companies among the 750
largest by market capitalization at the time of purchase, which the Advisers
believe show potential for growth in future earnings.
All Pro Small Cap Growth Portfolio. The All Pro Small Cap Growth Portfolio
seeks to achieve long-term capital appreciation. The Portfolio pursues its
objective by investing primarily in equity securities of companies that rank
between 751 and 1,750 in size measured by market capitalization at the time of
purchase, which the Advisers believe show potential for growth in future
earnings.
All Pro Large Cap Value Portfolio. The All Pro Large Cap Value Portfolio
seeks to provide long-term capital appreciation. The Portfolio attempts to
achieve this objective by investing primarily in undervalued equity securities
of companies among the 750 largest by market capitalizations at the time of
purchase that the Advisers believe offer above-average potential for growth in
future earnings.
All Pro Small Cap Value Portfolio. The All Pro Small Cap Value Portfolio
seeks to provide long-term capital appreciation. The Portfolio pursues this
objective by investing primarily in undervalued equity securities of companies
that rank between 751 and 1,750 in size measured by market capitalization at the
time of purchase, which the Advisers believe offer above-average potential for
growth in future earnings.
With respect to the Growth, Money Market, Bond, Managed and Aggressive
Growth Portfolios, the Fund is advised by Sentinel Advisors Company (SAC), which
is registered with the SEC as an 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
13
<PAGE> 17
fee at an effective rate of 0.375% of the first $500 million of the average
daily net assets of the portfolio and 0.30% of the average daily net assets in
excess of $500 million.
PIMC serves as investment adviser for the All Pro Portfolios. As
compensation for its services, PIMC receives .70% of the daily net assets of the
All Pro Large Cap Growth and All Pro Large Cap Value Portfolios, and .90% of the
daily net assets of the All Pro Small Cap Growth and All Pro Small Cap Value
Portfolios. PIMC uses a "manager of managers" approach for the All Pro
Portfolios under which PIMC allocates each Portfolio's assets among one or more
"specialist" investment sub-advisers. Additionally, PIMC has retained Wilshire
Associates Incorporated ("Wilshire") to assist it in identifying potential
sub-advisers and performing the quantitative analysis necessary to assess such
sub-advisers' styles and performance. As compensation for these services, PIMC
pays Wilshire from its investment advisory fees, .05% of the average daily net
assets of the All Pro Portfolios.
All Pro Large Cap Growth. As of the date of this prospectus, the assets of
the All Pro Large Cap Growth Portfolio are managed in part by Cohen,
Klingenstein & Marks, Inc. ("CKM") and in part by Geewax, Terker & Co.
("Geewax"); pursuant to separate investment sub-advisory agreements. As
compensation for their services PIMC pays from its investment advisory fees the
following percentages of the daily net assets of the Portfolio: CKM -- .35%.;
Geewax -- .30%.
All Pro Small Cap Growth. As of the date of this prospectus, the assets of
the All Pro Small Cap Growth Portfolio are managed in part by Standish, Ayer &
Wood ("SAW"), and in part by Husic Capital Management ("Husic"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: SAW -- .50%; Husic -- .50%.
All Pro Large Cap Value. As of the date of this prospectus, the assets of
the All Pro Large Cap Value Portfolio are managed in part by Equinox Capital
Management, Inc. ("Equinox"); in part by Harris Associates, Inc. ("Harris"); and
in part by Mellon Equity Associates ("Mellon"), pursuant to separate investment
sub-advisory agreements. As compensation for their services PIMC pays from its
investment advisory fees the following percentages of the daily net assets of
the Portfolio: Equinox -- .25% of the first $50 million of assets and .23% of
the remaining assets; Harris -- .65% of the first $50 million of assets, .60% of
the next $50 million of assets and .55% of the remaining assets; Mellon -- .20%.
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 Reams Asset
Management Company, LLC ("Reams") and in part by Sterling Capital Management
Company ("Sterling"), pursuant to separate investment sub-advisory agreements.
As compensation for their services, PIMC pays from its investment advisory fees
a monthly fee equal to the following annual percentages of the average daily net
assets of the Portfolio: Reams -- 0.50%; Sterling -- .70%.
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 Subaccount invests in units of The Stripped ("Zero")
U.S. Treasury Securities Fund, Provident Mutual Series A (the "Zero Trust"), a
unit investment trust registered with the SEC as such under the 1940 Act. The
Zero Trust consists of one series with a maturity date of February 15, 2006. The
objective of the Zero Trust is to provide safety of capital and a high yield to
14
<PAGE> 18
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. The securities purchased by the Zero Trust are listed below.
Since the U.S. Treasury securities have been stripped of their unmatured
interest coupons, they are purchased at a deep discount. If held to maturity,
the amounts invested by the Zero Trust would grow to the face value of the U.S.
Treasury securities and therefore, a compound rate of growth to maturity could
be determined for the Trust units at the time of purchase. The units, however,
are held in the Zero Coupon Bond Subaccount and certain charges described under
"Charges and Deductions", specifically the charge for mortality and expense
risks and the transaction charge against the Zero Coupon Bond Subaccount, must
be reflected in the determination of a net return. The net rate of return to
maturity thus depends on the compound rate of growth in the units and these
underlying charges, and on the units being held to maturity. It does not,
however, reflect the applicable Monthly Deductions from Policy Account Value
(see "Monthly Deductions") or the Premium Tax Charge (see "Expense Charge") or
any Surrender Charges (see "Surrender Charges"), which would affect the actual
yield to an Owner. Since the value of the Zero Trust's units will vary daily to
reflect the market value of the underlying securities, the compound rate of
growth to maturity and, hence, the net rate of return to maturity will
correspondingly vary on a daily basis. The rate of return to maturity may differ
for each Net Premium allocated to the Zero Coupon Bond Subaccount, depending
upon the rate in effect when the premium is received.
The fluctuation in the value of units of the Zero Trust prior to maturity
is more volatile than that of units of a unit investment trust containing
unstripped U.S. Treasury securities of comparable maturities, and because the
value of units of the Zero Trust will affect the Death Benefit and Policy
Account Value, the Policy Account Value and Death Benefit will fluctuate
accordingly.
Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPFS) serves as
Sponsor for the Zero 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 Subaccount. The price of these units includes a
transaction charge which is not paid by the Zero Coupon Bond Subaccount 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 Zero Coupon Bond Subaccount. (See "Asset Charge Against Zero
Coupon Bond Subaccount")
Units of the Zero Coupon Trust are disposed of to the extent necessary for
PMLIC to provide benefits and make reallocations under the Policies. MLPFS
intends, but is not contractually obligated, to maintain a secondary market in
Trust units. As long as a secondary market exists, PMLIC will sell such units to
MLPFS at the Sponsor's repurchase price. Otherwise, units will be redeemed at
the Trust's redemption price, which is typically a lower amount.
Thirty days prior to the maturity date of the securities contained in a
series of the Trust, an Owner who has allocated Net Premiums to the Zero Coupon
Bond Subaccount investing in that series will be notified and given the
opportunity to select the 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
Subaccount will be transferred to the Money Market Subaccount.
More detailed information may be found in the current Prospectus for The
Stripped ("Zero") U.S. Treasury Securities Fund, Provident Mutual Series A which
accompanies this Prospectus.
THE ALGER AMERICAN FUND
The Alger American Small Capitalization Subaccount invests exclusively in
shares of the corresponding Portfolio of The Alger American Fund ("Alger
American").
15
<PAGE> 19
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
Seven 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.
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 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.
16
<PAGE> 20
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.
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 Portfolio fee rate of 0.45% for the VIP High Income
Portfolio and 0.30% for the VIP II Investment Grade Bond Portfolio.
One twelfth of the combined annual fee rate is applied to the Portfolio's
net assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
On behalf of the VIP II Asset Manager Portfolio and the VIP II Contrafund
Portfolio, FMR has entered into sub-advisory agreements with Fidelity Management
& Research (U.K.) Inc. ("FMR (U.K.)") and Fidelity Management & Research (Far
East) Inc. ("FMR Far East"), pursuant to which these entities provide research
and investment recommendations with respect to companies based outside the
United States. FMR (U.K.) primarily focuses on companies based in Europe while
FMR Far East focuses primarily on companies based in Asia and the Pacific Basin.
Under the sub-advisory agreements, FMR and not the Portfolios pay FMR (U.K.) and
FMR Far East fees equal to 110% and 105%, respectively, of each sub-advisor's
costs incurred in connection with its sub-advisory agreement.
On behalf of the VIP Overseas Portfolio, FMR has entered into sub-advisory
agreements with FMR (U.K.), FMR Far East, and Fidelity International Investment
Advisors ("FIIA"). 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.
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<PAGE> 21
- 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 Portfolios, and 1.25% of the average net assets of
the VIP II Asset Manager 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 a Subaccount will invest. The
investment objectives of the Portfolios of AMT in which the Subaccounts will
invest are set forth below. The investment experience of each Subaccount depends
upon the investment performance of its corresponding Portfolio and Series. There
is no assurance that any Portfolio (or the corresponding series) will achieve
its stated objective.
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<PAGE> 22
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 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.
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<PAGE> 23
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 Subaccounts.
Not all of the Portfolios described in the prospectuses for the Funds are
available with the Policy. Moreover, PMLIC cannot guarantee that each Portfolio
will always be available for the Policies, but in the unlikely event that a
Portfolio is not available, PMLIC will take reasonable steps to secure the
availability of a comparable portfolio. Shares of each Fund are purchased and
redeemed at net asset value, without a sales charge.
PMLIC has entered into agreements with the investment advisers of several
of the Funds pursuant to which each such investment adviser will pay PMLIC a
servicing fee based upon an annual percentage of the average aggregate net
assets invested by PMLIC on behalf of the Subaccounts. These agreements reflect
administrative services provided to the Funds by PMLIC. Payments of such amounts
by an adviser will not increase the fees paid by the Portfolios or their
shareholders.
Shares of the Funds are sold to separate accounts of insurance companies
that are not affiliated with PMLIC or each other, a practice known as "shared
funding." They are also sold to separate accounts to 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 Subaccounts, and of owners of
other contracts or policies whose values are allocated to one or more other
separate accounts investing in any one of the Portfolios. Shares of some of the
Funds may also be sold directly to certain pension and retirement plans
qualifying under Section 401 of the Code. As a result, there is a possibility
that a material conflict may arise between the interests of Owners or owners of
other policies or contracts (including policies issued by other companies), and
such retirement plans or participants in such retirement plans. In the event of
any such material conflicts, PMLIC will consider what action may be appropriate,
including removing the Portfolio as in investment option under the Policies or
replacing the Portfolio with another Portfolio. There are certain risks
associated with mixed and shared funding and with the sale of shares to
qualified pension and retirement plans, as disclosed in each Fund's prospectus.
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<PAGE> 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 the Insured's death (and fulfillment of
certain other requirements), be paid to the Beneficiary in accordance with the
designated Death Benefit Option. The Insurance Proceeds will be determined as of
the date of the Insured's death and will be equal to:
1. the Death Benefit;
2. plus any additional benefits due under a supplementary benefit
rider attached to the Policy;
3. less any loan and accrued loan interest on the Policy;
4. less any overdue deductions if the death of the Insured occurs
during the Grace Period.
The Insurance Proceeds may be paid in cash or under one of the Settlement
Options set forth in the Policy.
Death Benefit Options. The Policy provides two Death Benefit Options:
Option A and Option B. The Owner designates the Death Benefit Option in the
application and may change it as described in "Change in Death Benefit Option."
Under either Option, the duration of the Death Benefit coverage depends upon the
Policy's Net Cash Surrender Value. (See "Policy Duration.")
Option A. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy and (b) the Policy Account Value on the Valuation Date on
or next following the Insured's date of death multiplied by the specified
percentage shown in the table below:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ---------- ------------- ----------
<S> <C> <C> <C>
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 through 99 100%
</TABLE>
For Attained Ages not shown, the percentages will decrease by a ratable portion
for each full year.
Illustration of Option A -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no Policy loan outstanding.
Under Option A, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000. The specified percentage for an Insured under
Attained Age 40 on the Policy Anniversary prior to the date of death is 250%.
Because the Death Benefit must be equal to or be greater than 2.50 times the
Policy Account Value, any time the Policy Account Value exceeds $80,000 the
Death Benefit will exceed the Face Amount. Each additional dollar added to the
Policy Account Value will increase the Death Benefit by $2.50. Thus, a 35 year
old Insured with a Policy Account Value of $150,000 will have a Death Benefit of
$375,000 (2.50 x $150,000); a Policy Account Value of $300,000 will yield a
Death Benefit of $750,000 (2.50 x $300,000); a Policy Account Value of $400,000
will yield a Death Benefit of $1,000,000 (2.50 x $400,000).
Similarly, any time the Policy Account Value exceeds $80,000, each dollar
taken out of the Policy Account Value will reduce the Death Benefit by $2.50. If
at any time, however, the Policy Account Value multiplied by the specified
percentage is less than the Face Amount, the Death Benefit will be the Face
Amount of the Policy.
Option B. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy plus the Policy Account Value and (b) the Policy Account
Value multiplied by the specified percentage shown in
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<PAGE> 25
the table above. (The Policy Account Value in each case is determined on the
Valuation Day on or next following the Insured's date of death.)
Illustration of Option B -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no outstanding Policy loan.
Under Option B, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000 plus the Policy Account Value. Thus, for example, a
Policy with a $50,000 Policy Account Value will have a Death Benefit of $250,000
($200,000 plus $50,000); and a Policy Account Value of $100,000 will yield a
Death Benefit of $300,000. Since the specified percentage is 250%, the Death
Benefit will be at least 2.50 times the Policy Account Value. As a result, if
the Policy Account Value exceeds $133,333, the Death Benefit will be greater
than the Face Amount plus the Policy Account Value. Each additional dollar added
to the Policy Account Value above $133,333 will increase the Death Benefit by
$2.50. An Insured with a Policy Account Value of $150,000 will therefore have a
Death Benefit of $375,000 (2.50 x $150,000); a Policy Account Value of $300,000
will yield a Death Benefit of $750,000 (2.50 x $300,000); and a Policy Account
Value of $500,000 will yield a Death Benefit of $1,250,000 (2.50 x $500,000).
Similarly, any time the Policy Account Value exceeds $133,333, each dollar taken
out of the Policy Account Value will reduce the Death Benefit by $2.50. If at
any time, however, the Policy Account Value multiplied by the applicable
percentage is less than the Face Amount plus the Policy Account Value, the Death
Benefit will be the Face Amount plus the Policy Account Value.
Which Death Benefit Option to Choose. If an Owner prefers to have premium
payments and favorable investment performance reflected partly in the form of an
increasing Death Benefit, the Owner should choose Option B. If an Owner is
satisfied with the amount of the Insured's existing insurance coverage and
prefers to have premium payments and favorable investment performance reflected
to the maximum extent in the Policy Account Value, the Owner should choose
Option A.
Change in Death Benefit Option. After the second Policy Year at any time
when the Death Benefit would be the Face Amount (if Option A is in effect) or
the Face Amount plus the Policy Account Value (if Option B is in effect), the
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
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<PAGE> 26
and Net Amount at Risk would remain the same. Assume that a contract under
Option B has a Face Amount of $500,000 and a Policy Account Value of $50,000
and, therefore, the Death Benefit is $550,000 ($500,000 - $50,000) and a Net
Amount at Risk of $500,00 ($550,000 - $50,000). If the Death Benefit Option is
changed from Option B to Option A, the Face Amount will increase to $550,000,
and the Death Benefit and Net Amount at Risk would remain the same.
If a change in the Death Benefit Option would result in cumulative premiums
exceeding the maximum premium limitations under the Internal Revenue Code for
life insurance, PMLIC will not effect the change.
A change in the Death Benefit Option may have Federal income tax
consequences. (See "Tax Treatment of Policy Benefits.")
How the Death Benefit May Vary. The amount of the Death Benefit may vary
with the Policy Account Value. The Death Benefit under Option A will vary with
the Policy Account Value whenever the specified percentage of Policy Account
Value exceeds the Face Amount of the Policy. The Death Benefit under Option B
will always vary with the Policy Account Value because the Death Benefit equals
the greater of (a) the Face Amount plus the Policy Account Value and (b) the
Policy Account Value multiplied by the specified percentage.
ABILITY TO ADJUST FACE AMOUNT
Subject to certain limitations, an Owner may generally, at any time after
the second Policy Year, increase or decrease the Policy's Face Amount by
submitting a written application to PMLIC. The effective date of the increase or
decrease will be the Policy Processing Day on or next following PMLIC's approval
of the request. An increase or decrease in Face Amount may have tax
consequences. (See "Tax Treatment of Policy Benefits.") The effect of changes in
Face Amount on Policy charges, as well as other considerations, are described
below.
Increase. A request for an increase in Face Amount may not be for less
than $25,000 (or such lesser amount required in a particular state). The Owner
may not increase the Face Amount after the Insured's Attained Age 75 or if the
Face Amount was increased during the prior 12-month period. To obtain the
increase, the Owner must submit an application for the increase and provide
evidence satisfactory to PMLIC of the Insured's insurability.
On the effective date of an increase, and taking the increase into account,
the Net Cash Surrender Value must be equal to the Monthly Deductions then due
and the expense charge for the increase in Face Amount. If the Net Cash
Surrender Value is not sufficient, the increase will not take effect until the
Owner makes a sufficient additional premium payment to increase the Net Cash
Surrender Value.
An increase in the Face Amount will generally affect the total Net Amount
at Risk which will increase the monthly Cost of Insurance Charges. An increase
in Face Amount will increase the amount of any Additional Surrender Charge. A
Face Amount increase expense charge will also be deducted. (See "Face Amount
Increase Charge.") In addition, different cost of insurance rates may apply to
the increase in insurance coverage. (See "Monthly Deductions.")
After increasing the Face Amount, the Owner will have the right: (a) during
the Free-Look Period following the effective date of the increase, to have the
increase canceled and receive a credit or refund equal to the Cost of Insurance
Charge and the increase charge deducted for the increase; and (b) during the
first 24 months following the increase, to exchange the increase in Face Amount
for a fixed benefit permanent life insurance policy issued by PMLIC. (See
"Transfers of Policy Account Value.")
Decrease. The amount of a Face Amount decrease must be for at least
$25,000 (or such lesser amount required in a particular state). The Face Amount
after any decrease may not be less than the Minimum Face Amount. A decrease in
Face Amount will not be permitted if the Face Amount was increased during the
prior 12-month period. To the extent a decrease in the Face Amount could result
in
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<PAGE> 27
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 each Subaccount and
the Guaranteed Account based on the proportion that the value in such account
bears to the total unloaned Policy Account Value.
For purposes of determining the Cost of Insurance Charge and Surrender
Charges, any decrease in the Face Amount will reduce the Face Amount in the
following order: (a) the Face Amount provided by the most recent increase; (b)
the next most recent increases, successively; and (c) the Initial Face Amount.
INSURANCE PROTECTION
An Owner may increase or decrease the insurance protection provided by the
Policy (i.e., the Net Amount at Risk) in one of several ways, as insurance needs
change. These ways include increasing or decreasing the Face Amount, changing
the level of premium payments, and by making a partial withdrawal of Net Cash
Surrender Value. The consequences of each are summarized below.
A decrease in Face Amount will decrease the insurance protection. It will
not reduce the Policy Account Value, except for the deduction of any surrender
charge applicable to the decrease. The Monthly Deductions will generally be
correspondingly lower following the decrease.
An increase in Face Amount will generally increase the amount of insurance
protection, depending on the Policy Account Value and specified percentage. If
the insurance protection is increased, Monthly Deductions will increase as well.
Under Death Benefit Option A, until the specified percentage of Policy
Account Value exceeds the Face Amount, then (a) if the Owner increases the
premium payments from the current level, the amount of insurance protection will
generally be reduced, and (b) if the Owner reduced the premium payments from the
current level, the amount of insurance protection will generally be increased.
Under Death Benefit Option B, until the specified percentage of Policy
Account Value exceeds the Face Amount plus the Policy Account Value, the level
of premium payments will not affect the amount of insurance protection.
(However, both the Policy Account Value and Death Benefit will be increased if
premium payments are increased and reduced if premium payments are reduced.)
Under either Death Benefit Option, if the Death Benefit is the specified
percentage of Policy Account Value, then (a) if the Owner increases premium
payments from the current level, the amount of insurance protection will
increase and (b) if the Owner reduces the premium payments from the current
level, the amount of insurance protection will decrease.
A partial withdrawal of Net Cash Surrender Value will reduce the Death
Benefit. If Death Benefit Option A is in effect, the withdrawal will decrease
the Policy's Face Amount by the amount withdrawn plus the partial withdrawal
expense charge. If Death Benefit Option B is in effect, it will not reduce the
amount of insurance protection unless the Death Benefit is based on the
specified percentage of Policy Account Value. In this event, however, the
decrease in the Death Benefit will be greater than the amount of a withdrawal.
PAYMENT AND ALLOCATION OF PREMIUMS
Issuance of a Policy. In order to purchase a Policy, an individual must
make application to PMLIC through a licensed PMLIC agent who is also a
registered representative of 1717 Capital Management Company ("1717") or a
broker/dealer having a Selling Agreement with 1717 or a broker/dealer having a
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<PAGE> 28
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 is $100,000.
PMLIC reserves the right to revise its rules from time to time to specify a
different Minimum Face Amount for subsequently issued policies. The maximum Face
Amount for a Policy in New York State is $2,500,000. A Policy will be issued
only with respect to Insureds who have an Issue Age of 80 or less and who
provide PMLIC with satisfactory evidence of insurability. Acceptance is subject
to PMLIC's underwriting rules. PMLIC reserves the right to reject an application
for any reason permitted by law. (See "Distribution of Policies.")
At the time the application for a Policy is signed, an applicant can,
subject to PMLIC's underwriting rules, obtain temporary insurance protection,
pending issuance of the Policy, by answering "no" to the Health Questions of the
Temporary Agreement and submitting payment of the Minimum Initial Premium with
the Application.
The amount of coverage under the agreement is the lesser of the Face Amount
applied for or $500,000. Coverage under the agreement will end on the earliest
of: (a) the 90th day from the date of the agreement; (b) the date that insurance
takes effect under the Policy; (c) the date a policy, other than as applied for,
is offered to the Applicant; or (d) five days from the date PMLIC mails a notice
of termination of coverage.
Amount and Timing of Premiums. The Minimum Initial Premium is due on or
before the date the Policy is delivered. No insurance will take effect until the
Minimum Initial Premium is paid while the health and other conditions of the
Insured stay the same as described in the application. Prior to the Final Policy
Date and while the Policy is in force, an Owner may make additional premium
payments at any time and in any amount, subject to the limitation set forth
below. Each premium payment must be for at least $25. Subject to certain
limitations described below, an Owner has considerable flexibility in
determining the amount and frequency of premium payments.
At the time of application, each Owner will select a Planned Periodic
Premium schedule, based on a periodic billing mode of annual, semi-annual, or
quarterly payment. The Owner is entitled to receive a premium reminder notice
from PMLIC at the specified interval. The Owner may change the Planned Periodic
Premium frequency and amount. Also, under the Automatic Payment Plan, the Owner
can select a monthly payment schedule pursuant to which premium payments will be
automatically deducted from a bank account or other source, rather than being
"billed".
Any payments made while there is an outstanding Policy loan are considered
loan repayments, unless PMLIC is notified in writing that the amount is to be
applied as a premium payment. The Owner is not required to pay the Planned
Periodic Premiums in accordance with the specified schedule. The Owner has the
flexibility to alter the amount and frequency of premium payments. However,
payment of the Planned Periodic Premiums does not guarantee that the Policy will
remain in force. Instead, the duration of the Policy depends upon the Policy's
Net Cash Surrender Value. Thus, even if Planned Periodic Premiums are paid, the
Policy may lapse whenever the Net Cash Surrender Value is insufficient to pay
the Monthly Deductions and any other charges and if a Grace Period expires
without an adequate payment by the Owner.
Premium Limitations. The Code provides for exclusion of the Death Benefit
from a Beneficiary's gross income if total premium payments do not exceed
certain stated limits. In no event can the total of all premiums paid under a
Policy exceed such limits. PMLIC has established procedures to monitor whether
aggregate premiums paid under a Policy exceed those limits. If a premium is paid
which would result in total premiums exceeding such limits, PMLIC will only
accept that portion of the premium which would make total premiums equal the
maximum amount which may be paid under the Policy. The excess will be refunded.
If total premiums do exceed the maximum premium limitations established by the
Code, however, the excess of a Policy's Death Benefit over the Policy's Cash
Surrender Value should still be excludable from gross income.
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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 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 Subaccounts are allocated to the Money Market Subaccount. At
the end of the 15-day period, Policy Account Value in the Money Market
Subaccount is allocated among the Subaccounts based on the proportion that the
allocation percentage for such Subaccount bears to the sum of the Subaccounts
premium allocation percentages. All other Net Premiums are allocated based on
the allocation percentages then in effect. The allocation schedules may be
changed at any time by providing PMLIC with written notice.
The values of the 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 Subaccounts,
the Guaranteed Account and the Loan Account. The Policy Account Value minus any
applicable Surrender Charge or Additional Surrender Charge is the Cash Surrender
Value.
The Policy Account Value and Cash Surrender Value will reflect the
investment performance of the chosen Subaccounts, the crediting of interest in
excess of 4% (the guaranteed minimum) 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 Subaccount, determined by multiplying
the number of units of the Subaccount by the 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 Subaccount are used to purchase units of that
Subaccount; units are redeemed when amounts are deducted, transferred or
withdrawn. The number of units of a Subaccount at any time equals the number of
units purchased minus the number of units redeemed up to such time. For each
Subaccount, the
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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 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 Subaccount on that
Valuation Day.
Net Investment Factor. The Net Investment Factor for each Subaccount
measures the investment performance of that 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 Subaccount 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 has been paid.
The Policy provides for a 61-day Grace Period that is measured from the
date on which notice is sent by PMLIC indicating that the Grace Period has
begun. Thus, the Policy does not lapse, and the insurance coverage continues,
until the expiration of this Grace Period. To prevent lapse, the Owner must,
during the Grace Period, make a premium payment equal to three Monthly
Deductions. The notice sent by PMLIC will specify the payment required to keep
the Policy in force.
Reinstatement. A Policy that lapses may be reinstated at any time within
three years (or longer period required in a particular state) after the
expiration of the Grace Period and before the Final Policy Date by submitting
evidence of the Insured's insurability satisfactory to PMLIC and payment of an
amount sufficient to keep the Policy in force for at least three months
following the date that the reinstatement application is approved. Upon
reinstatement, the Policy Account Value is based upon the premium paid to
reinstate the Policy. A reinstated Policy has the same Policy Date as it had
prior to the lapse.
TRANSFERS OF POLICY ACCOUNT VALUE
Transfers. The Owner may transfer the Policy Account Value between and
among the Subaccounts and the Guaranteed Account by making a written transfer
request to PMLIC. The amount transferred must be at least $1,000, unless the
total value in an account is less than $1,000, in which case the entire amount
may be transferred.
After 12 transfers have been made in any Policy Year, a $25 transfer charge
will be deducted from each transfer during the remainder of such Policy Year.
All transfers included in a single written request are treated as one transfer.
Transfers are made as of the date PMLIC receives a written request at its
Service Center. Transfers resulting from Policy loans, Automatic Asset
Rebalancing, Dollar-Cost Averaging, the exercise of exchange privileges, and the
reallocation from the Money Market Subaccount following the 15-day period after
the Issue Date, are not subject to a transfer charge and do not count as one of
the 12 "free" transfers in any Policy Year. Under present law, transfers are not
taxable transactions.
Special Transfer Right. During the first two years following the Issue
Date, the Owner may, on one occasion, transfer the entire Policy Account Value
in the Subaccounts to the Guaranteed Account without
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a transfer charge and without such transfer counting toward the 12 transfers
permitted without charge during a Policy Year.
Conversion Privilege for Increase in Face Amount. During the first two
years following an increase in Face Amount, the Owner may, on one occasion,
without evidence of insurability, exchange the amount of the increase in Face
Amount for a fixed-benefit permanent life insurance policy. Such an exchange
may, however, have federal income tax consequences. (See "Tax Treatment of
Policy Benefits.") Premiums under this new policy will be based on the Sex,
Attained Age and Premium Class of the Insured on the effective date of the
increase in the Face Amount of the Policy. The new policy will have the same
Face Amount and Issue Date as the amount and effective date of the increase.
PMLIC will refund the monthly deductions for the increase made on each Policy
Processing Day between the effective date of the increase to the date of
conversion and the expense charge for such increase.
Transfer Right for Change in Investment Policy of a Subaccount. If the
investment policy of a Subaccount is materially changed, the Owner may transfer
the portion of the Policy Account Value in such Subaccount to another Subaccount
or to the Guaranteed Account without a transfer charge and without having such
transfer count toward the 12 transfers permitted without charge during a Policy
Year.
Telephone Transfers. Transfers will be made upon instructions given by
telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to PMLIC. PMLIC reserves the
right to suspend telephone transfer privileges at any time for any class of
policies, for any reason. PMLIC will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine and if it follows such
procedures it will not be liable for any losses due to authorized or fraudulent
instructions. PMLIC, however, may be liable for such losses if it does not
follow those reasonable procedures. The procedures PMLIC will follow for
telephone transfers include requiring some form of personal identification prior
to acting on instructions received by telephone, providing written confirmation
of the transaction and making a tape-recording of the instructions given by
telephone.
Automatic Asset Rebalancing. Automatic Asset Rebalancing is a feature
which, if elected, authorizes periodic transfers of Policy Account Values among
the 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 Subaccounts is less
than $1,000. PMLIC reserves the right to suspend Automatic Asset Rebalancing at
any time, for any class of Policies, for any reason.
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 Subaccount to any
other Subaccount 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 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 Subaccount each month. The amount required to be allocated to the Subaccount
can be made from an initial or subsequent investment or by transferring amounts
into the Subaccount from the other Subaccounts or from the Guaranteed Account
(See "Transfers from Guaranteed Account."). Each monthly transfer is split among
the Subaccounts or the Guaranteed Account based upon the percentages elected.
Dollar-Cost Averaging may not be elected if Automatic Asset Rebalancing has been
elected or if a policy loan is outstanding.
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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 Subaccount in certain
states; and (c) when the Subaccount value equals or exceeds the greater of the
minimum amount stated above and the amount of the first monthly transfer.
Once 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 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 12 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 the 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 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 account; (iv)
any mortality and expense risk charges deducted from the value of the net assets
of the Separate Account; and (v) any advisory fees and any other fees and
expenses of the Funds. A refund of all premiums paid is made for Policy's
delivered in states that require such a refund.
Free-Look for Increase in Face Amount. Any requested increase in Face
Amount is also subject to a Free-Look privilege. The Owner may cancel a
requested increase in Face Amount until the latest of: (a) 45 days after the
application for the increase is signed, (b) 10 days after the Owner receives the
new Policy Schedule pages reflecting the increase; and (c) 10 days after PLMIC
mails a Notice of Withdrawal Right to the Owner. Upon requesting cancellation of
the increase, an amount equal to all cost of insurance charges attributable to
the increase plus the Face Amount Increase Charge will be credited to the
accounts in the same proportion as they were deducted, unless the Owner requests
a refund of such amount.
LOAN PRIVILEGES
General. The Owner may at any time after the Issue Date borrow money from
PMLIC using the Policy Account Value as the security for the loan. The Owner may
obtain Policy loans in a minimum amount of $500 (or such lesser minimum required
in a particular state) but not exceeding the Policy's Net Cash Surrender Value
on the date of the loan. While the Insured is living, the Owner may repay all or
a portion of a loan and accrued interest.
Interest Rate Charged. Interest is charged on Policy loans at an effective
annual rate of 6%. Interest is due at the end of each Policy Year. If interest
is not paid when due, it is added to the loan balance and bear interest at the
same rate. Unpaid interest is allocated based on the Owner's written
instructions. If there are no written instructions or the Policy Account Value
in the specified Subaccounts is insufficient to allow the collateral for the
unpaid interest to be transferred, the interest is allocated based on the
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<PAGE> 33
proportion that the Guaranteed Account value and the value of the Subaccounts
under a Policy bear to the total unloaned Policy Account Value.
Allocation of Loans and Collateral. PMLIC will allocate the amount of a
Policy loan among the Subaccounts and/or the Guaranteed Account based upon the
proportion that the value of the 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. PMLIC currently credits 4.5% interest
annually to the amount in the Loan Account until the policy's 10th anniversary
or until Attained Age 65, whichever is later, and 5.5% annually thereafter. The
tax consequences of a Policy loan after the later of a Policy's 10th anniversary
or Attained Age 65 are less clear. Owners should consult a tax adviser with
respect to such consequences.
Effect of Policy Loan. Policy loans, whether or not repaid, will have a
permanent effect on the Policy Account Value, the Cash Surrender Value, and Net
Cash Surrender Value and may permanently affect the Death Benefit under the
Policy. The effect on the Policy Account Value and Death Benefit could be
favorable or unfavorable, depending on whether the investment performance of the
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 Subaccounts and interest
credited to the Guaranteed Account. The longer a loan is outstanding, the
greater the effect of a Policy loan is likely to be. The Death Proceeds will be
reduced by the amount of any outstanding Policy loan.
Loan Repayments. An Owner may repay all or part of a Policy loan at any
time while the Insured is alive and the Policy is in force. Unless prohibited by
a particular state, PMLIC will assume that any payments made while there is an
outstanding loan is a loan repayment, unless it receives written instructions
that the payment is a premium payment. Repayments up to the amount of the
outstanding loan is allocated to the accounts based on the amount of the
outstanding loan allocated to each account as of the date of repayment; any
repayment in excess of the amount of the outstanding loan will be allocated to
the accounts based on the amount of interest due on the portion of the
outstanding loan allocated to each account. For this purpose, the amount of the
interest due is determined as of the next Policy Anniversary. Failure to repay a
loan or to pay loan interest will not cause the Policy to lapse unless the Net
Cash Surrender Value on the Policy Processing Day is less than the monthly
deduction due. (See "Policy Duration.")
Tax Considerations. Any loans taken from a Modified Endowment Contract
will be treated as a taxable distribution. In addition, with certain exceptions,
a 10% additional income tax penalty will be imposed on the portion of any loan
that is included in income. (See "Distributions from Policies Classified as
Modified Endowment Contracts.") Depending upon the investment performance of the
Subaccounts and the amounts borrowed, loans may cause the Policy to lapse. If
the Policy is not a Modified
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Endowment Contract, lapse of the Policy with outstanding loans may result in
adverse tax consequences. (See "Distributions from Policies Not Classified as
Modified Endowment Contracts.")
SURRENDER PRIVILEGE
At any time before the earlier of the death of the Insured and the Final
Policy Date, the Owner may surrender the Policy for its Net Cash Surrender
Value. The Net Cash Surrender Value is determined by PMLIC as of the date it
receives, at its Service Center, a surrender request signed by the Owner.
Coverage under the Policy will end on the day the Owner mails or otherwise sends
the written surrender request to PMLIC at its Service Center. A surrender may
have adverse federal income tax consequences. (See "Tax Treatment of Policy
Benefits.")
PARTIAL WITHDRAWAL PRIVILEGE
After the first Policy Year, at any time before the earlier of the death of
the Insured and the Final Policy Date, the Owner may withdraw a portion of the
Policy's Net Cash Surrender Value. The minimum amount which may be withdrawn is
$1,500. A withdrawal charge will be deducted from the Policy Account Value. A
partial withdrawal will not result in the imposition of surrender charges.
The withdrawn amount and withdrawal charge will be allocated based on the
proportion that the Policy Account Value in any Subaccount and the Guaranteed
Account 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 Insured is
under 40 and there is no indebtedness. The applicable percentage is 250%
for an Insured with an Attained Age under 40.
Under Option A, a contract with a Face Amount of $300,000 and a Policy
Account Value of $30,000 will have a Death Benefit of $300,000. Assume that
the policyowner takes a partial withdrawal of $10,000. The partial
withdrawal will reduce the Policy Account Value to $19,975
($30,000 - $10,000 - $25) and the Death Benefit and Face Amount to $290,000
($300,000 - $10,000).
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, the Face Amount
will be reduced by an amount equal to the amount of the partial withdrawal.
The Death Benefit will be reduced to equal the greater of (a) the Face
Amount after the partial withdrawal, and (b) the applicable percentage of
the Policy Account Value after deducting the amount of the partial
withdrawal and 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.
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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.
Any decrease in Face Amount due to a partial withdrawal will first reduce
the most recent increase in Face Amount, then the most recent increases,
successively, and lastly, the Initial Face Amount.
Because a partial withdrawal can affect the Face Amount and the Death
Benefit as described above, a partial withdrawal may also affect the Net Amount
at Risk which is used to calculate the cost of insurance charge under the
Policy. (See "Cost of Insurance.") 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.")
ACCELERATED DEATH BENEFIT
Applicants residing in states that have approved the Accelerated Death
Benefit rider (the "ADB rider") may elect to add it to their Policy at issue,
subject to PMLIC receiving satisfactory additional evidence of insurability. The
ADB rider is not yet available in all states and the terms under which it is
available may vary from state-to-state. There is no assurance that the ADB rider
will be approved in all states or that it will be approved under the terms
described herein.
The ADB rider permits the Owner to receive, at his or her request and upon
approval by PMLIC, an accelerated payment of part of the Policy's Death Benefit
when one of the following two events occurs:
1. Terminal Illness. The Insured develops a non-correctable medical
condition which is expected to result in his or her death within 12 months;
or
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2. Permanent Confinement to a Nursing Care Facility. The Insured has
been confined to a Nursing Care Facility for 180 days and is expected to
remain in such a facility for the remainder of his or her life.
There is no charge for adding the ADB rider to a Policy. However, an
administrative charge, currently $100 and not to exceed $250, will be deducted
from the accelerated death benefit at the time it is paid.
Tax Consequences of the ADB Rider. The federal income tax consequences
associated with adding the ADB rider or receiving the accelerated death benefit
are uncertain. Accordingly, Owners should consult a tax adviser before adding
the ADB rider to a Policy or requesting an accelerated death benefit.
Amount of the Accelerated Death Benefit. The ADB rider provides for a
minimum accelerated death benefit payment of $10,000 and a maximum benefit
payment equal to 75% of the Eligible Death Benefit less 25% of any outstanding
policy loans and accrued interest. The ADB rider also restricts the total of the
accelerated death benefits paid from all life insurance policies issued to an
Owner by PMLIC and its subsidiaries to $250,000. This $250,000 maximum may be
increased, as provided in the ADB rider, to reflect inflation. The term Eligible
Death Benefit under the ADB rider means:
The Insurance Proceeds payable under a Policy if the Insured died at the
time a claim for an accelerated death benefit is approved by PMLIC, minus:
1. any dividend accumulations;
2. any dividends due and not paid;
3. any dividend payable at death if the Insured died at such time;
4. any Premium Refund payable at death if the Insured died at such
time; and
5. any insurance payable under the terms of any other rider attached
to a Policy.
An Owner may request only one accelerated death benefit payment (except to
pay premiums and policy loan interest) and there are no restrictions on the
Owner's use of the benefit. An Owner may elect to receive the accelerated death
benefit payment in a lump sum or in 12 or 24 equal monthly installments. If
installments are elected and the Insured dies before all of the payments have
been made, the present value (at the time of the Insured's death) of the
remaining payments and the remaining Insurance Proceeds at Death under the
Policy will be paid to the Beneficiary in a lump sum.
Conditions for Receipt of the Accelerated Death Benefit. In order to
receive an accelerated death benefit payment, a Policy must be in force other
than as Extended Term Insurance and an Owner must submit due proof of
eligibility and a completed claim form to PMLIC at its Home Office. Due proof of
eligibility means a written certification (described more fully in the ADB
rider) in a form acceptable to PMLIC, from a treating physician stating that the
Insured has a Terminal Illness or is expected to be permanently confined in a
Nursing Care Facility.
PMLIC may request additional medical information from an Owner's physician
and/or may require an independent physical examination (at its expense) before
approving the claim for payment of the accelerated death benefit. PMLIC will not
approve a claim for an accelerated death benefit payment if a Policy is assigned
in whole or in part, if the Terminal Illness or Permanent Confinement is the
result of intentionally self-inflicted injury or if the Owner is required to
elect it in order to meet the claims of creditors or to obtain a government
benefit.
Operation of the ADB Rider. The ADB rider provides that the accelerated
death benefit be made in the form of a policy loan up to the amount of the
maximum loan available under a Policy at the time the claim is approved.
Therefore, a request for an accelerated death benefit payment in an amount less
than or equal to the maximum loan available at that time will result in a policy
loan being made in the amount of the requested benefit. This policy loan
operates as would any loan under the Policy.
To the extent that the amount of a requested accelerated death benefit
payment exceeds the maximum available loan amount, the benefit will be advanced
to the Owner and a lien will be placed on
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<PAGE> 37
the Death Benefit payable under the Policy (the "death benefit lien") in the
amount of this advance. Under the ADB rider, interest will accrue daily, at a
rate determined as described in the ADB rider, on the amount of this advance and
upon the death of the Insured the amount of the advance and accrued interest
thereon will be subtracted from the amount of Insurance Proceeds at Death.
Effect on Existing Policy. The Insurance Proceeds at Death otherwise
payable under a Policy at the time of an Insured's death will be reduced by the
amount of any death benefit lien and accrued interest thereon. If the Owner
makes a request for a surrender, a policy loan or a withdrawal, the Policy's Net
Cash Surrender Value and Loan Value will be reduced by the amount of any
outstanding death benefit lien plus accrued interest. Therefore, depending upon
the size of the death benefit lien, this may result in the Net Cash Surrender
Value and the Loan Value being reduced to zero.
Premiums and policy loan interest must be paid when due. However, if
requested with the accelerated death benefit claim, future premiums and policy
loan interest may be paid through additional accelerated death benefits. If
future premiums and policy loan interest are to be paid through additional
accelerated death benefits, Periodic Planned Premiums and policy loan interest
will be paid in this manner automatically.
In addition to lapse under the applicable provisions of the Policy, a
Policy will also terminate on any Policy Anniversary when the death benefit lien
exceeds the Insurance Proceeds at Death.
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<PAGE> 38
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 Insured's residence.
Percent of Premium Sales Charge. A percent of premium charge not to exceed
3% is deducted from each premium payment to partially compensate PMLIC for
federal taxes and the cost of selling the Policy. Currently, PMLIC deducts 1.5%
percent from each premium payment.
SURRENDER CHARGES
A Surrender Charge, which consists of a Deferred Administrative Charge and
a Deferred Sales Charge, is imposed if the Policy is surrendered or lapses at
any time before the end of the tenth Policy Year. A portion of this Surrender
Charge will be deducted if the Owner decreases the Initial Face Amount before
the end of the tenth Policy Year. An Additional Surrender Charge, which is an
Additional Deferred Administrative Charge and an Additional Deferred Sales
Charge, is imposed if the Policy is surrendered or lapses at any time within ten
years after the effective date of an increase in Face Amount. A portion of an
Additional Surrender Charge also is deducted if the related increment of Face
Amount is decreased within ten years after such increase took effect.
These surrender charges are designed partially to compensate PMLIC for the
cost of administering, issuing and selling the Policy, including agent sales
commissions, the cost of printing the prospectuses and sales literature, any
advertising costs, medical exams, review of applications for insurance,
processing of the applications, establishing policy records and Policy issue.
PMLIC does not expect the surrender charges to cover all of these costs. To the
extent that they do not, PMLIC will cover the short-fall from its general
account assets, which may include profits from the mortality and expense risk
charge.
Deferred Administrative Charge. The Deferred Administrative Charge is as
follows:
<TABLE>
<CAPTION>
CHARGE PER $1,000 FACE AMOUNT
------------------------------
ISSUE AGES
------------------------------
POLICY YEAR 1-5 15 25 35-80
----------- --- ------ ------ ------
<S> <C> <C> <C> <C>
1-6..................................... 0 $1.00 $2.00 $3.00
7....................................... 0 0.80 1.60 2.40
8....................................... 0 0.60 1.20 1.80
9....................................... 0 0.40 0.80 1.20
10...................................... 0 0.20 0.40 0.60
11...................................... 0 0 0 0
</TABLE>
For Issue ages not shown, the charge will increase by a ratable portion for
each full year.
The actual Deferred Administrative Charge is the charge described above
less the amount of any Deferred Administrative Charge previously paid at the
time of a decrease in Face Amount.
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<PAGE> 39
Deferred Sales Charge. The Deferred Sales Charge will not exceed the
Maximum Deferred Sales Charge specified in the Policy. During Policy Years 1
through 6, this maximum equals 50% of the Target Premium for the Initial Face
Amount. It equals 40% of that premium during Policy Year 7, 30% during Policy
Year 8, 20% during Policy Year 9, and 0% during Policy Years 10 and later. The
Deferred Sales Charge actually imposed will equal the lesser of this maximum and
an amount equal to 27% of all premiums received during the first Policy Year up
to one Target Premium plus 6% of all other premiums paid to the date of
surrender or lapse, less any Deferred Sales Charge previously paid at the time
of a prior decrease in Face Amount.
Additional Surrender Charge. An Additional Deferred Sales Charge is
associated with each increase in Face Amount. Each Additional Deferred Sales
Charge is calculated in a manner similar to the Deferred Sales Charge associated
with the Initial Face Amount. The Maximum Additional Deferred Sales Charge for
an increase in Face Amount is 50% of the Target Premium for that increase. This
maximum remains level for six years following the effective date of an increase.
It equals 40% of that premium during the seventh year, and declines by 10% per
year to 0% by the beginning of the eleventh year after the effective date of the
increase. The Additional Deferred Sales Charge actually deducted is the lesser
of this maximum and 27% of premiums received for that increase, up to the first
Target Premium for that increase, during the first twelve policy months after an
increase and 6% of all premiums thereafter. less any Additional Deferred Sales
Charge for such increase previously paid at the time of a decrease in Face
Amount.
Allocation of Policy Account Value and Subsequent Premium Payments. A
special method is used to allocate a portion of the existing Policy Account
Value to an increase in Face Amount and to allocate subsequent premium payments
between the Initial Face Amount and the increase. The Policy Account Value is
allocated according to the ratio between the Guideline Annual Premium for the
Initial Face Amount and the Guideline Annual Premium for the total Face Amount
on the effective date of the increase before any deductions are made. For
example, if the Guideline Annual Premium is equal to $4,500 before an increase
and is equal to $6,000 after an increase, the Policy Account Value on the
effective date of the increase would be allocated 75% ($4,500/$6,000) to the
Initial Face Amount and 25% to the increase. Premium payments made on or after
the effective date of the increase are allocated between the Initial Face Amount
and the increase using the same ratio as is used to allocate the Policy Account
Value. In the event there is more than one increase in Face Amount, Guideline
Annual Premiums for each increment of Face Amount are used to allocate Policy
Account Values and premium payments among the various increments of Face
Amounts.
Surrender Charge Upon Decrease in Face Amount. A surrender charge may be
deducted on a decrease in Face Amount. In the event of a decrease, the surrender
charge deducted is a fraction of the charge that would apply to a full surrender
of the Policy. If there have been no increases in Face Amount, the fraction will
be determined by dividing the amount of the decrease by the current Face Amount
and multiplying the result by the Surrender Charge. If more than one Surrender
Charge is in effect (i.e., pursuant to one or more increases in Face Amount),
the surrender charge will be applied in the following order: (1) the most recent
increase followed by (2) the next most recent increases, successively, and (3)
the Initial Face Amount. Where a decrease causes a partial reduction in an
increase or in the Initial Face Amount, a proportionate share of the Surrender
Charge for that increase or for the Initial Face Amount will be deducted.
Allocation of Surrender Charges. The Surrender Charge and any Additional
Surrender Charge will be deducted from the Policy Account Value. For surrender
charges resulting from Face Amount decreases, that part of any such surrender
charge will reduce the Policy Account Value and will be allocated among the
accounts based on the proportion that the value in each of the Subaccounts and
the Guaranteed Account bear to the total unloaned Policy Account Value.
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<PAGE> 40
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)
administrative charges, (c) insurance underwriting and expenses in connection
with issuing the Policy, 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 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 Subaccounts bear to the total unloaned Policy
Account Value.
Cost of Insurance. Because the cost of insurance depends upon several
variables, the cost for each Policy Month can vary. PMLIC will determine the
monthly Cost of Insurance Charge by multiplying the applicable cost of insurance
rate or rates by the Net Amount at Risk for each Policy Month.
The Net Amount at Risk on any Policy Processing Day is the amount by which
the Death Benefit exceeds the Policy Account Value. The Net Amount at Risk is
determined separately for the Initial Face Amount and any increases in Face
Amount. In determining the Net Amount at Risk for each increment of Face Amount,
the Policy Account Value is first considered part of the Initial Face Amount. If
the Policy Account Value exceeds the Initial Face Amount, it is considered as
part of any increases in Face Amount in the order such increases took effect.
A cost of insurance is also determined separately for the Initial Face
Amount and any increases in Face Amount. In calculating the Cost of Insurance
Charge, the rate for the Premium Class on the Policy Date is applied to the Net
Amount at Risk for the Initial Face Amount. For each increase in Face Amount,
the rate for the Premium Class applicable to the increase is used. If, however,
the Death Benefit is calculated as the Policy Account Value times the specified
percentage, the rate for the Premium Class for the most recent Face Amount
Increase will be used for the amount of the Death Benefit in excess of the total
Face Amount.
Any change in the Net Amount at Risk will affect the total Cost of
Insurance Charges paid by the Owner.
Cost of Insurance Rate. The cost of insurance rate is based on the
Attained Age, Sex, Premium Class of the Insured and Duration. The actual monthly
cost on insurance rates will be based on PMLIC's expectations as to future
mortality and expense experience. They will not, however, be greater than the
guaranteed maximum cost of insurance rates set forth in the Policy. These
guaranteed maximum rates are based on the Insured's Attained Age, Sex, Premium
Class, and the 1980 Commissioners Standard Ordinary Smoker and Nonsmoker
Mortality Table. For Policies issued in states which require "unisex" policies
(currently Montana) or in conjunction with employee benefit plans, the maximum
Cost of Insurance Charge depends only on the Insured's Age, Premium Class and
the 1980 Commissioners Standard Ordinary Mortality Table NB and SB. Any change
in the cost of insurance rates will apply to all persons of the same Attained
Age, Sex, and Premium Class and Duration.
Premium Class. The Premium Class of the Insured will affect the cost of
insurance rates. PMLIC currently places Insureds into standard classes and
classes with extra ratings, which reflect higher mortality risks. In an
otherwise identical Policy, an Insured in the standard class will have a lower
cost of insurance than an Insured in a class with extra ratings. The standard
Premium Class is divided into three categories: smoker, nonsmoker and preferred.
The preferred Premium Class is only available if the Face Amount equals or
exceeds $100,000. Nonsmoking insureds will generally incur lower cost of
insurance rates than Insureds who are classified as smokers in the same Premium
Class. Preferred Insureds will generally incur lower cost of insurance rates
than Insureds who are classified as nonsmokers.
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<PAGE> 41
Since the nonsmoker designation is not available for Insureds under
Attained Age 21, shortly before an Insured attains age 21, PMLIC will notify the
Insured about possible classification as a nonsmoker and will send the Insured
an Application for Change in Premium Class. If the Insured does not qualify as a
nonsmoker or does not return the application, cost of insurance rates will
remain as shown in the Policy. However, if the insured returns the application
and qualifies as a nonsmoker, the cost of insurance rates will be changed to
reflect the nonsmoker classification.
Initial Administrative Charge. An Initial Administrative Charge of $17.50
is deducted from Policy Account Value on the Policy Date and on each of the next
eleven Policy Processing Days.
Monthly Administrative Charges. A Monthly Administrative Charge (presently
$7.50) is deducted from the Policy Account Value on the Policy Date and each
Policy Processing Day as part of the Monthly Deduction. This charge may be
increased, but in no event will it be greater than $12 per month. This charge is
intended to reimburse PMLIC for ordinary administrative expenses expected to be
incurred, including record keeping, processing claims and certain Policy
changes, preparing and mailing reports, and overhead costs.
Additional Benefit Charges. The Monthly Deduction will include charges for
any additional benefits added to the Policy. The monthly charges will be
specified in the applicable rider.
FACE AMOUNT INCREASE CHARGE
If the Face Amount is increased, an increase charge will be deducted from
the Policy Account Value on the effective date of such increase. This charge,
equal to $50 plus $1.00 per $1,000 of Face Amount increase will be deducted from
the accounts based on the allocation schedule for Monthly Deductions in effect
at such time. This charge may be increased, but in no event will it be greater
than $50 plus $3.00 per $1,000 Face Amount increase. This charge is intended to
reimburse PMLIC for administrative expenses in connection with the Face Amount
increase, including medical exams, review of the application for the increase,
underwriting decisions and processing of the application, and changing Policy
records and the Policy.
PARTIAL WITHDRAWAL CHARGE
A charge of $25 will be deducted from the Policy Account Value for each
partial withdrawal of Net Cash Surrender Value. This charge is intended to
compensate PMLIC for the administrative costs in effecting the requested payment
and in making all calculations which may be required by reason of the partial
withdrawal.
TRANSFER CHARGE
After 12 transfers have been made in any Policy Year, a transfer charge of
$25 will be deducted for each transfer during the remainder of such Policy Year
to compensate PMLIC for the costs of processing such transfers.
The transfer charge will be deducted from the amount being transferred. The
transfer charge will not apply to transfers resulting from Policy loans,
Automatic Asset Rebalancing, Dollar-Cost Averaging, the exercise of special
transfer rights and the initial reallocation of account values from the Money
Market Subaccount to other Subaccounts. These transfers will not count against
the 12 free transfers in any Policy Year.
MORTALITY AND EXPENSE RISK CHARGE
A daily charge will be deducted from the value of the net assets of the
Subaccounts to compensate PMLIC for mortality and expense risks assumed in
connection with the Policy. This charge will be deducted at an annual rate of
0.75% (or a daily rate of .002055%) of the average daily net assets of each
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 Subaccount.
The mortality risk assumed by PMLIC is that Insureds
38
<PAGE> 42
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 Subaccount. PMLIC makes a daily
asset charge against the assets of the Zero Coupon Bond Subaccount. 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 Subaccount. PMLIC pays these amounts from General Account assets.
The amount of the asset charge currently is equivalent to an annual rate of
0.25% (.000685% per day) of the average daily net assets of the Zero Coupon Bond
Subaccount. This amount may be increased in the future, but in no event will it
exceed an annual rate of 0.50%. The charge will be cost-based (taking into
account a loss of interest) with no anticipated element of profit for PMLIC.
OTHER CHARGES
The Separate Account purchases 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.
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<PAGE> 43
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 Subaccounts, Monthly Deductions or other changes
are currently, for the purpose of crediting interest, accounted for on a last
in, first out ("LIFO") method.
PMLIC reserves the right to change the method of crediting interest from
time to time, provided that such changes do not have the effect of reducing the
guaranteed rate of interest below 4% per annum or shorten the period for which
the interest rate applies to less than a calendar year (except for the year in
which such amount is received or transferred).
Calculation of Guaranteed Account Value. The Guaranteed Account Value at
any time is equal to amounts allocated and transferred to it plus interest
credited to it, minus amounts deducted, transferred or withdrawn from it.
Interest will be credited to the Guaranteed Account on each Policy
Processing Day as follows: for amounts in the account for the entire Policy
Month, from the beginning to the end of the month; for amounts allocated to the
account during the prior Policy Month, from the date the Net Premium or loan
repayment is allocated to the end of the month; for amounts transferred to the
account during the Policy Month, from the date of transfer to the end of the
month; and for amounts deducted or withdrawn from
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<PAGE> 44
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 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.
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<PAGE> 45
OTHER POLICY PROVISIONS
BENEFIT PAYABLE ON FINAL POLICY DATE
If the Insured is living on the Final Policy Date (at Insured's Attained
Age 100), PMLIC will pay the Owner the Policy Account Value less any outstanding
Policy loan and accrued interest and any unpaid Monthly Deductions. Insurance
coverage under the Policy will then end. Payment will generally be made within
seven days of the Final Policy Date.
PAYMENT OF POLICY BENEFITS
Insurance Proceeds under a Policy will ordinarily be paid to the
Beneficiary within seven days after PMLIC receives proof of the Insured's death
at its Service Center and all other requirements are satisfied. Insurance
Proceeds will be paid in a single sum unless an alternative settlement option
has been selected.
If Insurance Proceeds are payable in a single sum, interest at the annual
rate of 3% or any higher rate declared by PMLIC or required by law is paid on
the Insurance Proceeds from the date of death until payment is made.
Any amounts payable as a result of surrender, partial withdrawal, or Policy
loan will ordinarily be paid within seven days of receipt of written request at
PMLIC's Service Center in a form satisfactory to PMLIC.
Generally, the amount of a payment from the 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 Subaccount's assets is not reasonably practicable because the New York
Stock Exchange is closed or conditions are such that, under the SEC's rules and
regulations, trading is restricted or an emergency is deemed to exist; or (2)
the SEC by order permits postponement of such actions for the protection of
PMLIC policyholders. As to amounts allocated to the Guaranteed Account, PMLIC
may defer payment of any withdrawal or surrender of Net Cash Surrender Value and
the making of a loan for up to six months after PMLIC receives a written request
at its Service Center. PMLIC will allow interest, at a rate of 3% a year, on any
payment PMLIC defers for 30 days or more as described above.
The Owner may decide the form in which proceeds will be paid. During the
Insured's lifetime, the Owner may arrange for the Insurance Proceeds to be paid
in a lump sum or under a Settlement Option. These choices are also available
upon surrender of the Policy for its Net Cash Surrender Value and for payment of
the Policy Account Value on the Final Policy Date. If no election is made,
payment will be made in a lump sum. The Beneficiary may also arrange for payment
of the Insurance Proceeds in a lump sum or under a Settlement Option. If the
Beneficiary is changed, any prior arrangements with respect to the Payment
Option will be canceled.
THE POLICY
The Policy and the application(s) attached thereto are the entire contract.
Only statements made in the applications can be used to void the Policy or deny
a claim. PMLIC assumes that all statements in an application are made to the
best of the knowledge and belief of the person(s) who made them, and, in the
absence of fraud, those statements are considered representations and not
warranties. PMLIC relies on those statements when it issues or changes a Policy.
Only the President or a Vice President of PMLIC can agree to change or waive any
provisions of the Policy and only in writing. As a result of differences in
applicable state laws, certain provisions of the Policy may vary from state to
state.
OWNERSHIP
The Owner is the Insured unless a different Owner is named in the
application or thereafter changed. While the Insured is living, the Owner is
entitled to exercise any of the rights stated in the Policy or
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<PAGE> 46
otherwise granted by PMLIC. If the Insured and Owner are not the same, and the
Owner dies before the Insured, these rights will vest in the estate of the
Owner, unless otherwise provided.
BENEFICIARY
The Beneficiary is designated in the application for the Policy, unless
thereafter changed by the Owner during the Insured's lifetime by written notice
to PMLIC. Any Insurance Proceeds for which there is not a designated Beneficiary
surviving at the Insured's death are payable in a single sum to the Insured's
executors or administrators.
CHANGE OF OWNER OR BENEFICIARY
As long as the Policy is in force, the Owner or Beneficiary may be changed
by written request in a form acceptable to PMLIC. If two or more persons are
named as Beneficiaries, those surviving the Insured will share the Insurance
Proceeds equally, unless otherwise stated. The change will take effect as of the
date it is signed, whether or not the Insured is living when the request is
received by PMLIC. PMLIC will not be responsible for any payment made or action
taken before it receives the written request. A change in the Policy's ownership
may have federal income tax consequences. (see "Tax Treatment of Policy
Benefits.")
SPLIT DOLLAR ARRANGEMENTS
The Owner or Owners may enter into a Split Dollar Arrangement between each
other or another person or persons whereby the payment of premiums and the right
to receive the benefits under the Policy (i.e., Net Cash Surrender Value or
Policy Proceeds) are split between the parties. There are different ways of
allocating such rights.
For example, an employer and employee might agree that under a Policy on
the life of the employee, the employer will pay the premiums and will have the
right to receive the Net Cash Surrender Value. The employee may designate the
Beneficiary to receive any Death Proceeds in excess of the Net Cash Surrender
Value. If the employee dies while such an arrangement is in effect, the employer
would receive from the Death Proceeds the amount which he would have been
entitled to receive upon surrender of the policy and the employee's Beneficiary
would receive the balance of the proceeds.
No transfer of Policy rights pursuant to a Split Dollar Arrangement will be
binding on PMLIC unless in writing and received by PMLIC.
The parties who elect to enter into a Split Dollar Arrangement should
consult their own tax advisers regarding the tax consequences of such an
arrangement.
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.
MISSTATEMENT OF AGE AND SEX
If the Insured's age or sex has been misstated in the application, the
Death Benefit and any benefits provided by riders will be such as the most
recent Monthly Deductions would have provided at the correct age and sex. No
adjustment will be made to the Policy Account Value.
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<PAGE> 47
SUICIDE
In the event of the Insured's suicide within two years from the Issue Date
of the Policy (except where state law requires a shorter period) PMLIC's
liability is limited to the payment to the Beneficiary of a sum equal to the
premiums paid less any Policy loan and accrued interest and any partial
withdrawals.
If the Insured commits suicide within two years (or shorter period required
by state law) from the effective date of any Policy change which increases the
Death Benefit, the amount which PMLIC will pay with respect to the increase will
be the Monthly Deductions for the cost of insurance attributable to such
increase and the expense charge for the increase.
CONTESTABILITY
PMLIC has the right to contest the validity of a Policy based on material
misstatements made in the application for the Policy or a change. However, PMLIC
will not contest the Policy (or any change) after it (or the change) has been in
force during the Insured's lifetime for two years.
DIVIDENDS
The Policy is participating; however, no dividends are expected to be paid
on the Policy. If dividends are ever declared, they will be paid under one of
the following options:
(a) Paid in cash; or
(b) Applied as a Net Premium.
The Owner must choose an option at the time the application for the Policy
is signed. If no option is chosen, any dividend will be applied as a Net Premium
payment. The Owner may change the option by giving written notice to PMLIC.
SETTLEMENT OPTIONS
In lieu of a single sum payment on death or surrender, an election may be
made to apply the proceeds under any one of the fixed-benefit Settlement Options
provided in the Policy. The options are briefly described below. Please refer to
the Policy for more details.
Proceeds at Interest Option. Left on deposit to accumulate with PMLIC with
interest payable at a rate of at least 3% per year.
Installments of a Specified Amount Option. Payable in equal installments
of the amount elected with PMLIC's consent at 12, 6, 3, or 1 month intervals, as
elected until proceeds applied under the Option and interest on the unpaid
balance at 3% per year and any additional interest are exhausted.
Installments for a Specified Period Option. Payable in the number of equal
monthly installments set forth in the election. Payments may be increased by
additional interest which would increase the instalments certain. The guaranteed
interest rate is 3% per year.
Life Income Option. Payable in equal monthly instalments during the
payee's life. Payments will be made either with or without a guaranteed minimum
number. If there is to be a minimum number of payments, they will be for either
120 or 240 months or until the proceeds applied under the Option are exhausted,
as elected.
Joint and Survivor Life Income. Payable in equal monthly instalments, with
a number of instalments certain, during the joint lives of the payee and one
other person and during the life of the survivor. The minimum number of payments
will be for either 120 or 240 months, as elected.
SUPPLEMENTARY BENEFITS
In addition to the ADB rider, the following riders offer other
supplementary benefits. Most are subject to various age and underwriting
requirements and, unless otherwise indicated, must be purchased when the Policy
is issued. The cost of each rider is included in the monthly deduction.
Disability Waiver Benefit. A Disability Waiver Benefit rider provides that
in the event of the Insured's total disability before Attained Age 60 and
continuing for at least six months, PMLIC will apply
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<PAGE> 48
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.
Disability Waiver of Premium Benefit. A Policy may include the Disability
Waiver of Premium Benefit rider that provides that, in the event of the
Insured's total disability before Attained Age 60 and continuing for at least
180 days, PMLIC will apply a premium payment to the Policy on each Policy
Processing Day prior to Insured's Attained Age 65 and while the Insured remains
totally disabled.
At the time of application, a monthly benefit amount is selected by the
Owner. This amount is generally intended to reflect the amount of the premiums
expected to be paid monthly. In the event of Insured's total disability the
amount of the premium payment applied on each Policy Processing Day will be the
lesser of: (a) the monthly benefit amount; or (b) the monthly average of the
premium payments less partial withdrawals for the Policy since its Policy Date.
An Owner cannot elect this rider and another disability waiver benefit rider
with the same Policy.
This supplementary benefit must be selected at the time of application and
cannot be added after issue. However, for Policies issued prior to the date the
Disability Waiver of Premium Benefit Rider is approved in a particular state,
the Rider can be added as a supplementary benefit to the Policy within 6 months
after state approval. PMLIC reserves the right to require evidence of
insurability to add this rider to an existing Policy.
Change of Insured. A Change of Insured rider permits the Owner to change
the Insured, subject to certain conditions and evidence of insurability. The
Monthly Deduction for the cost of insurance is adjusted to that for the New
Insured as of the effective date of the change.
Children's Term Rider. A Children's Term Insurance rider provides level
term insurance on each insured child until the earlier of age 25 of the child or
the Policy Anniversary nearest the Insured's 65th birthday. When the term
insurance expires on the life of an insured child, it may be converted without
evidence of insurability to a whole life policy providing a level face amount of
insurance and a level premium. The new policy may be up to five times the amount
of the term insurance.
The rider is issued to provide between $5,000 and $15,000 of term insurance
on each insured child. Each insured child under a rider will have the same
amount of insurance. This rider must be selected at the time of application for
the Policy or an increase in Face Amount.
Other Insured Convertible Term Life Insurance. An Other Insured
Convertible Term Life Insurance rider provides additional term insurance on an
insured other than the Insured, on whom the Insured has an insurable interest.
This rider will terminate at the earlier of attained age 100 (80 in New York) of
the Other Insured or at the termination or maturity of the Policy. If the Policy
is extended by the Final Policy Date Extension rider, the Convertible Term Life
Insurance rider will terminate on the original maturity date.
Final Policy Date Extension. A Final Policy Date Extension rider extends
the Final Policy Date of a Policy 20 years from the original Final Policy Date.
It may only be added on or after the anniversary nearest the younger insured's
90th birthday. There is no charge for adding this rider. The death benefit after
the original Final Policy Date will be the Policy Account Value. All other
riders attached and in effect on the original Final Policy Date will terminate
on the original Final Policy Date.
The tax consequences of (1) adding a Final Policy Date Extension rider to
the Policy, and (2) the Policy continuing in force after the Insured's 100th
birthday are uncertain. Prospective Owners and Owners considering the addition
of a Final Policy Date Extension to a Policy should consult their own legal or
other advisors as to such consequences.
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<PAGE> 49
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 Account
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 Account, through the Portfolios, will satisfy these diversification
requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
In General. PMLIC believes that the death benefit under a Policy should be
excludible from the gross income of the beneficiary.
Federal, state and local transfer, estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner or beneficiary. A tax adviser should be consulted on
these consequences.
Generally, the Owner will not be deemed to be in constructive receipt of
the Policy Account Value until there is a distribution. When distributions from
a Policy occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "Modified Endowment
Contract."
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<PAGE> 50
Modified Endowment Contracts. Under the Internal Revenue Code, certain
life insurance contracts are classified as "Modified Endowment Contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
circumstances of each Policy will determine whether it is classified as a
Modified Endowment Contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
Policy years or seven years following a material change to the Policy. Certain
changes in a Policy after it is issued could also cause it to be classified as a
Modified Endowment Contract. A current or prospective Owner should consult with
a competent adviser to determine whether a Policy transaction will cause the
Policy to be classified as a Modified Endowment Contract.
Distributions Other Than Death Benefits from Modified Endowment
Contracts. Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
- All distributions other than death benefits from a Modified Endowment
Contract, including distributions upon surrender and withdrawals, are
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the Owner's investment in the Policy only after all
gain has been distributed.
- Loans taken from or secured by a Policy classified as a Modified
Endowment Contract are treated as distributions and taxed in same manner
as surrenders and withdrawals.
- A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Owner has
attained age 59 1/2 or is disabled, or where the distribution is part of
a series of substantially equal periodic payments for the life (or life
expectancy) of the Owner or the joint lives (or joint life expectancies)
of the Owner and the Owner's beneficiary or designated beneficiary.
Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a Policy that
is not classified as a Modified Endowment Contract are generally treated first
as a recovery of the Owner's investment in the Policy and only after the
recovery of all investment in the Policy as taxable income. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for Federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole or
in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a Modified Endowment Contract
are generally not treated as distributions. However, the tax consequences
associated with Policy loans after the later of the Policy's 10th anniversary or
Attained Age 65 is less clear and a tax adviser should be consulted about such
loans.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a Modified Endowment Contract are subject to the 10 percent
additional income tax.
Investment in the Policy. The Owner's investment in the Policy is
generally the aggregate premium payments. When a distribution is taken from the
Policy, the Owner's investment in the Policy is reduced by the amount of the
distribution that is tax-free.
Policy Loans. In general, interest on a Policy loan will not be
deductible. Before taking out a Policy loan, an Owner should consult a tax
adviser as to the tax consequences.
Multiple Policies. All Modified Endowment Contracts that are issued by
PMLIC (or its affiliates) to the same Owner during any calendar year are treated
as one Modified Endowment Contract for purposes of determining the amount
includible in the Owner's income when a taxable distribution occurs.
Accelerated Death Benefit Rider. The Federal income tax consequences
associated with the Accelerated Death Benefit rider are uncertain. Owners should
consult a qualified tax adviser about the consequences of requesting payment
under this rider.
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SPECIAL RULES FOR PENSION AND PROFIT-SHARING PLANS
If a Policy is purchased by a pension or profit-sharing plan, or similar
deferred compensation arrangement, the Federal, state and estate tax
consequences could differ. A competent tax adviser should be consulted in
connection with such a purchase.
The amounts of life insurance that may be purchased on behalf of a
participant in a pension or profit-sharing plan are limited. The current cost of
insurance for the net amount at risk is treated as a "current fringe benefit"
and must be included annually in the plan participant's gross income. PMLIC
reports this cost (generally referred to as the "P.S. 58" cost) to the
participant annually. If the plan participant dies while covered by the plan and
the Policy proceeds are paid to the participant's beneficiary, then the excess
of the death benefit over the Policy Account Value is not taxable. However, the
cash value will generally be taxable to the extent it exceeds the participant's
cost basis in the Policy. Policies owned under these types of plans may be
subject to restrictions under the Employee Retirement Income Security Act of
1974 ("ERISA"). You should consult a qualified adviser regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as nontaxable. Plan loan requirements and provisions
may differ from Policy loan provisions. Failure of plan loans to comply with the
requirements and provisions of the DOL regulations and of tax law may result in
adverse tax consequences and/or adverse consequences under ERISA. Plan
fiduciaries and participants should consult a qualified adviser before
requesting a loan under a Policy held in connection with a retirement plan.
SPECIAL RULES FOR 403(b) ARRANGEMENTS
If a Policy is purchased in connection with a Section 403(b) tax-sheltered
annuity program, the "Special Rules for Pension and Profit-Sharing Plans"
discussed above may be applicable. In addition, premiums, distributions and
other transactions with respect to the Policy must be administered, in
coordination with Section 403(b) annuity, to comply with the requirements of
Section 403(b) of the Code. A competent tax adviser should be consulted.
BUSINESS USES OF THE POLICY
Businesses can use the Policy in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances. If an Owner
is purchasing the Policy for any arrangement the value of which depends in part
on its tax consequences, he or she should consult a qualified tax adviser. In
recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
Policy or a change in an existing Policy should consult a tax adviser.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Policy could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Policy.
PMLIC'S TAXES
Under current Federal income tax law, PMLIC is not taxed on the Separate
Account's operations. Thus, currently PMLIC does not deduct charges from the
Separate Account for its Federal income taxes. PMLIC reserves the right to
charge the Separate Account for any future Federal income taxes that it may
incur.
Under current laws in several states, PMLIC may incur state and local taxes
(in addition to premium taxes). These taxes are not now significant and we are
not currently charging for them. If they increase, PMLIC may deduct charges for
such taxes.
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POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS
Policies may be acquired in conjunction with employee benefit plans ("EBS
Policies"), including the funding of qualified pension plans meeting the
requirements of Section 401 of the Code. For EBS Policies, the maximum mortality
rates used to determine the monthly Cost of Insurance Charge are based on the
Commissioners' 1980 Standard Ordinary Mortality Tables NB and SB. Under these
Tables, mortality rates are the same for male and female Insureds of a
particular Attained Age and Premium Class. (See "Monthly Deductions.")
Illustrations reflecting the premiums and charges for EBS Policies will be
provided upon request to purchasers of such Policies. There is no provision for
misstatement of sex in the EBS Policies. Also, the rates used to determine the
amount payable under a particular Settlement Option will be the same for male
and female Insureds. (See "Settlement Options.")
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under an employee's
deferred compensation plan could not, under Title VII of the Civil Rights Act of
1964, vary between men and women on the basis of sex. In that case, the Court
applied its decision only to benefits derived from contributions made on or
after August 1, 1983. Subsequent decisions of lower federal courts indicate that
in other factual circumstances the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory, or
decisional authority of some states may prohibit use of sex-distinct mortality
tables under certain circumstances. The Policies offered by this Prospectus
(other than Policies issued in states which require "unisex" policies (currently
Montana) and EBS Policies are based upon actuarial tables which distinguish
between men and women and, thus, the Policy provides different benefits to men
and women of the same age. Accordingly, employers and employee organizations
should consider, in consultation with legal counsel, the impact of these
authorities on any employment-related insurance or benefits program before
purchasing the Policy and in determining whether an EBS Policy is appropriate.
VOTING RIGHTS
All of the assets held in the Subaccounts of the Separate Account will be
invested in shares of corresponding portfolios of the Funds. (The organizational
documents governing the Trust do not contemplate meetings of holders of Trust
units nor any action taken by vote of such holders.) The Funds do not hold
routine annual shareholders' meetings. Shareholders' meetings will be called
whenever each Fund believes that it is necessary to vote to elect the Board of
Directors of the Fund and to vote upon certain other matters that are required
by the 1940 Act to be approved or ratified by the shareholders of a mutual fund.
PMLIC is the legal owner of Fund shares and as such has the right to vote upon
any matter that may be voted upon at a shareholders' meeting. However, in
accordance with its view of present applicable law, PMLIC will vote the shares
of the Funds at meetings of the shareholders of the appropriate Fund or
Portfolio in accordance with instructions received from Owners. Fund shares held
in each Subaccount for which no timely instructions from policyowners are
received will be voted by PMLIC in the same proportion as those shares in that
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 Subaccounts in which their Policy
values are allocated. The number of shares held in each Subaccount attributable
to a Policy for which the Owner may provide voting instructions will be
determined by dividing the Policy's value in that account by the net asset value
of one share of the corresponding Portfolio as of the record date for the
shareholder meeting. Fractional shares will be counted. For each share of a
Portfolio for which Owners have no interest, PMLIC will cast votes, for or
against any matter, in the same proportion as Owners vote.
If required by state insurance officials, PMLIC may disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the investment objectives or policies of one or more of the
Portfolios, or to approve or disapprove an investment policy or investment
adviser of one or more of the Portfolios. In addition, PMLIC may disregard
voting instructions in favor of changes initiated
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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.
STANDARD & POOR'S
Standard & Poor's(R), S&P 500(R), Standard & Poor's 500 and 500 are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
PMLIC and the Market Street Fund, Inc. ("Market Street"). Neither the Policy nor
the Equity 500 Index Portfolio is sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P").
S&P makes no representation or warranty, express or implied, to the owners
of the Policy and the Equity 500 Index Portfolio or any member of the public
regarding the advisability of investing in securities generally or in the Policy
and the Equity 500 Index Portfolio particularly or the ability of the S&P 500
Index to track general stock market performance. S&P's only relationship to
PMLIC and Market Street is the licensing of certain trademarks and trade names
of S&P and of the S&P 500 Index which is determined, composed and calculated by
S&P without regard to PMLIC, Market Street, the Policy, or the Equity 500 Index
Portfolio. S&P has no obligation to take the needs of PMLIC, Market Street, or
the owners of the Policy or the Equity 500 Index Portfolio into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not responsible
for and has not participated in the determination of the prices and amount of
the Policy or the Equity 500 Index Portfolio or the timing of the issuance or
sale of the Policy or the Equity 500 Index Portfolio or in the determination or
calculation of the equation by which the Policy or the Equity 500 Index
Portfolio are to be converted into cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the Policy or the
Equity 500 Index Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY PMLIC, MARKET STREET, OWNERS OF THE
POLICY AND THE EQUITY 500 INDEX PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
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CHANGES TO THE SEPARATE ACCOUNT 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 subaccount or from the Separate
Account to another separate account, (2) to create additional separate accounts
or Subaccounts, or combine or remove Subaccounts from the Separate Account, (3)
to operate the Separate Account and/or one or more of the Subaccounts as a
management investment company under the 1940 Act, or in any other form permitted
by law; (4) to deregister the unit investment trust under the 1940 Act; and (5)
to modify the provisions of the Policies to comply with applicable laws.
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
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 Separate 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 Separate 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 Separate 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 Separate Account contain varying provisions regarding
termination. The following summarizes those provisions:
The Alger American Fund. The Agreement with The Alger American Fund
provides for termination: 1) by either party on 60 days written notice to
the other; 2) by Alger if the Policies cease to qualify as annuity
contracts or life insurance policies under the Code or the Policies are not
registered, issued or sold in accordance with applicable laws; 3) by any
party in the event of a material irreconcilable conflict; 4) by PMLIC in
the event that formal proceedings are initiated against Alger or the
distributor by the SEC or another regulator; 5) by PMLIC in the event the
Portfolio or trust fails to meet the diversification requirements; 6) by
PMLIC if shares are not reasonably available; 7) by PMLIC if shares of the
Portfolio are not registered, issued or sold in accordance with applicable
laws or applicable law precludes the use of such shares; 8) by PMLIC if
Alger fails to qualify as a regulated investment company under Subchapter M
of the Code; or 9) by Alger's principal underwriter if it determines that
PMLIC has suffered a material adverse change in its business, operation,
financial condition or prospects.
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Variable Insurance Products Fund and Variable Insurance Products Fund
II. The Agreements provide for termination 1) upon six months' advance
notice by either party, 2) at PMLIC's option if shares of the Fund are not
reasonably available to meet requirements of the policies, 3) at PMLIC's
option if shares of the Fund are not registered, issued, or sold in
accordance with applicable laws, if the Fund ceases to qualify as a
regulated investment company under the Code or for a Portfolio of the Fund
in the event such Portfolio fails to meet diversification requirements
under the Code, 4) at the option of the Fund or its principal underwriter
if it determines that PMLIC has suffered material adverse changes in its
business or financial condition or is subject to material adverse
publicity, 5) at the option of PMLIC if the Fund has suffered material
adverse changes in its business or financial condition or is a subject of
material adverse publicity, or 6) at the option of the Fund or its
principal underwriter if PMLIC decides to make another mutual fund
available as a funding vehicle for its policies.
Neuberger Berman Advisers Management Trust. This Agreement may be
terminated by either party on six months' written notice to the other.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Trust
provides for termination 1) by PMLIC, Van Eck Trust or Van Eck Trust's
Distributor upon six months prior written notice or in the event that
formal proceedings are initiated against the other party by the SEC or
another regulator, 2) by PMLIC or Van Eck Trust in the event that shares of
Van Eck Trust subject to the agreement are not registered, offered or sold
in conformity with applicable law or such law precludes the use of Trust
shares, 3) by PMLIC upon reasonable notice if shares of one of the then
available Portfolios of Van Eck Trust are not longer available or upon
sixty days notice if PMLIC should substitute shares of another fund or Fund
for those of Van Eck Trust, 4) by PMLIC if a Portfolio fails to meet the
diversification and other requirements of the Internal Revenue Code, or
PMLIC reasonably believes it may fail to do so, 5) upon assignment of the
agreement unless both parties agree to the assignment in writing.
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OFFICERS AND DIRECTORS OF PMLIC
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
Robert W. Kloss
President, Chief Executive
Officer and Director................. 1996 to present -- President and Chief Executive Officer
of PMLIC; 1994-1996 -- President and Chief Operating
Officer of PMLIC; 1986-1994 -- President and Chief
Executive Officer of Covenant Life Insurance Company.
Edward R. Book
Director............................. 1995 to present -- Past-President and Consultant of Travel
342 Lake Meade Drive Industry Association of America; 1996-1997 -- President of
Berlin, PA 17316 USA National Tourism Organization, Inc.;
1989-1994 -- President of Travel Industry Association of
America.
Dorothy M. Brown
Director............................. 1999 to present -- Educational Consultant of The Kaludis
16 Meredith Road Consulting Group; 1998-1999 -- Interim President of
Wynnewood, PA 19096 Allegheny University; 1994-1998 -- Educational Consultant
of The Kaludis Consulting Group; 1992-1994 -- Interim
President of the Pennsylvania Academy of the Fine Arts.
Robert J. Casale
Director............................. 1997 to present -- Executive Consultant of Automatic Data
2 Journal Square Processing, Inc.; 1988-1997 -- Group President/Brokerage
Jersey City, NJ 07306 Information Services Group of Automatic Data Processing
Inc.
Nicholas DeBenedictis
Director............................. 1993 to present -- Chairman of Philadelphia Suburban
Philadelphia Suburban Corp. Corporation.
762 Lancaster Avenue
Bryn Mawr, PA 19010
Philip C. Herr, II
Director............................. 1961 to present -- Partner of Herr, Potts & Herr.
Herr, Potts & Herr
Strafford Office Building,
Building #4
175 Strafford Avenue, Suite 314
Wayne, PA 19087
J. Richard Jones
Director............................. 1998 to present -- Executive Managing Director
1800 JFK Boulevard Insignia/ESG Jackson-Cross; 1981-1998 -- President and
10th Floor Chief Executive Officer of Jackson-Cross Company.
Philadelphia, PA 19103
John P. Neafsey
Director............................. 1993 to present -- President of JN Associates.
13 Valley Road
So. Norwalk, CT 06854
Charles L. Orr
Director............................. 1993 to present -- President and Chief Executive Officer
Shaklee Corporation of Shaklee Corporation.
Shaklee Terraces
444 Market Street
San Francisco, CA 94111
Donald A. Scott
Director............................. 1998 to present -- Counsel, Morgan, Lewis and Bockius,
714 West Mt. Airy Avenue LLP; 1964-1998 -- Partner of Morgan, Lewis and Bockius,
Philadelphia, PA 19119 LLP.
</TABLE>
53
<PAGE> 57
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
John J. F. Sherrerd
Director............................. 1996 to present -- Corporate Director and Private
One Tower Bridge Investor, Sherrerd & Company; 1969-1995 -- Partner of
West Conshohocken, PA 19428 Miller, Anderson & Sherrerd.
Harold A. Sorgenti
Director............................. 1997 to present -- General Partner at Sorgenti, Investment
Mellon Center, Suite 1313 Partners; 1998 to present -- Chairman & CEO, SpecChem
1735 Market Street International Holdings, LLC 1991-1997 -- Partner of The
Philadelphia, PA 19103 Freedom Group Partnership.
Alan F. Hinkle
Executive Vice President
and Chief Actuary.................... 1996 to present -- Executive Vice President and Chief
Actuary of PMLIC; 1974-1996 -- Vice President and
Individual Actuary.
James G. Potter, Jr.
Executive Vice President,
General Counsel and Secretary........ 1997 to present -- Executive Vice President, General
Counsel & Secretary of PMLIC; 1989-1997 -- Chief Legal
Officer of Prudential Banks.
Joan C. Tucker
Executive Vice President,
Corporate Operations................. 1996 to present -- Executive Vice President, Corporate
Operations at PMLIC; 1996-Senior Vice President, Insurance
Operations of PMLIC; 1993-1996 -- Vice President
Individual Insurance Operations at PMLIC.
Mary Lynn Finelli
Executive Vice President
and Chief Financial Officer.......... 1996 to present -- Executive Vice President and Chief
Financial Officer of PMLIC; 1986-1996 -- Vice President
and Controller of PMLIC.
Mehran Assadi
Executive Vice President
and Chief Information Officer........ 1998 to present -- Executive Vice President and Chief
Information Officer of PMLIC; 1982-1998 -- Vice President,
Technology and Business Development at St. Paul Company.
Linda M. Springer
Vice President and Controller........ 1996 to present -- Vice President and controller of PMLIC;
1995-1996 -- Assistant Vice President and Actuary of
PMLIC; 1992-1995 -- Actuary of PMLIC.
Rosanne Gatta
Vice President and Treasurer......... 1994 to present -- Vice President and Treasurer of PMLIC;
1985-1994 -- Assistant Vice President and Treasurer of
PMLIC.
</TABLE>
- ---------------
* Unless otherwise indicated, the address is 1000 Chesterbrook Boulevard,
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.
54
<PAGE> 58
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 Separate Account, 1717 and PMLIC are
parties. 1717 retains no compensation as principal underwriter of the Policies.
1717 is also the principal underwriter of variable annuity contracts issued by
PMLIC and variable life and annuity contracts issued by PMLIC.
The insurance underwriting and the determination of a proposed Insured's
Premium Class and whether to accept or reject an application for a Policy is
done by PMLIC. PMLIC will refund any premiums paid if a Policy ultimately is not
issued or will refund the applicable amount if the Policy is returned under the
Free-Look provision.
Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. During the first Policy
Year, agent commissions will not be more than 50% of the premiums paid up to a
target amount (used only to determine commission payments) and 2% of the
premiums paid in excess of that amount. For Policy Year 2 the agent commissions
will not be more than 5 1/2% of the premiums paid; for Policy Years 3 through
10, 6 1/2%; for Policy years 11 through 15, 4 5/6%; and for years 16 and later,
2% of the premiums paid. However, for each premium received within 10 years
following an increase in Face Amount, agent commissions on the premium paid up
to the target amount for the increase in each year will be calculated using the
commission rates for the corresponding Policy Year. Agents may also receive
expense allowances and annual renewal compensation based on the unloaned Policy
Account Value depending upon the circumstances. The agent may be required to
return the first year commission less the deferred sales charge imposed if a
Policy is not continued through the second Policy Year.
POLICY REPORTS
At least once each Policy Year a statement will be sent to the Owner
describing the status of the Policy, including setting forth the Face Amount,
the current Death Benefit, any Policy loans and accrued interest, the current
Policy Account Value, the Guaranteed Account Value, the Loan Account Value, the
value in each Subaccount, 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 Subaccount 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.
55
<PAGE> 59
STATE REGULATION
PMLIC is subject to regulation and supervision by the Insurance Department
of the State of Pennsylvania which periodically examines its affairs. It is also
subject to the insurance laws and regulations of all jurisdictions where it is
authorized to do business. A copy of the Policy form has been filed with, and
where required approved by, insurance officials in each jurisdiction where the
Policies are sold. PMLIC is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
LEGAL PROCEEDINGS
PMLIC and its subsidiaries, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PMLIC believes that as of the
date of this Prospectus there are no pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Separate Account or
PMLIC.
EXPERTS
The Financial Statements listed on Page F-1, have been included in this
Prospectus, in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
Actuarial matters included in the Prospectus have been examined by Scott V.
Carney, FSA, MAAA, Vice President and Actuary of PMLIC, as stated in his opinion
filed as an exhibit to the Registration Statement.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice
relating to certain aspects of federal securities law applicable to the issue
and sale of the Policies. James G. Potter, Jr., Esq., General Counsel of
Provident Mutual Life Insurance Company, has provided advice on certain matters
relating to the laws of Pennsylvania regarding the Policies and PMLIC's issuance
of the Policies.
56
<PAGE> 60
DEFINITIONS
ADDITIONAL SURRENDER CHARGE... The separately determined deferred
administrative charge and deferred sales charge
deducted from the Policy Account Value upon
surrender or lapse of the Policy within 10
years of the effective date of an increase in
Face Amount. A pro-rata Additional Surrender
Charge will be deducted for a reduction in Face
Amount within 10 years of the effective date of
a Face Amount increase. The Maximum Additional
Surrender Charge will be shown in the Policy
Schedule Pages reflecting the Face Amount
increase.
ATTAINED AGE.................. The Issue Age of the Insured plus the number of
full Policy Years since the Policy Date.
BENEFICIARY................... The person(s) or entity(ies) designated to
receive all or some of the Insurance Proceeds
when the Insured dies. The Beneficiary is
designated in the application or if
subsequently changed, as shown in the latest
change filed with PMLIC. If no Beneficiary
survives and unless otherwise provided, the
Insured's estate will be the Beneficiary.
CASH SURRENDER VALUE.......... The Policy Account Value minus any applicable
Surrender Charge or Additional Surrender
Charge.
DEATH BENEFIT................. Under Option A, the greater of the Face Amount
or a percentage of the Policy Account Value on
the date of death; under Option B, the greater
of the Face Amount plus the Policy Account
Value on the date of death, or a percentage of
the Policy Account Value on the date of death.
DURATION...................... The number of full years the insurance has been
in force -- for the Initial Face Amount,
measured from the Policy Date; for any increase
in Face Amount, measured from the effective
date of such increase.
FACE AMOUNT................... The Initial Face Amount plus any increases in
Face Amount and minus any decreases in Face
Amount.
FINAL POLICY DATE............. The Policy Anniversary nearest Insured's
Attained Age 100 at which time the Policy
Account Value, if any, (less any outstanding
Policy loan and accrued interest) will be paid
to the Owner if the Insured is living. The
Policy will end on the Final Policy Date.
GRACE PERIOD.................. The 61-day period allowed for payment of a
premium following the date PMLIC mails notice
of the amount required to keep the Policy in
force.
GUIDELINE ANNUAL PREMIUM...... The "guideline annual premium" as defined in
applicable regulations under the 1940 Act. It
is approximately equal to the amount of premium
that would be required on an annual basis to
keep the Policy in force if the Policy had a
mandatory fixed premium schedule assuming
(among other things) a 5% net investment
return.
INITIAL FACE AMOUNT........... The Face Amount of the Policy on the Issue
Date. The Face Amount may be increased or
decreased after issue.
57
<PAGE> 61
INSURANCE PROCEEDS............ The net amount to be paid to the Beneficiary
when the Insured dies.
INSURED....................... The person upon whose life the Policy is
issued.
ISSUE AGE..................... The age of the Insured at his or her birthday
nearest the Policy Date. The Issue Age is
stated in the Policy.
LOAN ACCOUNT.................. The account to which the collateral for the
amount of any Policy loan is transferred from
the Subaccounts and/or the Guaranteed Account.
MINIMUM ANNUAL PREMIUM........ The annual amount which is used to determine
the Minimum Guarantee Premium. This amount is
stated in each Policy.
MINIMUM FACE AMOUNT........... The Minimum Face Amount is $50,000 for all
Premium Classes except preferred. For the
preferred Premium Class, the Minimum Face
Amount is $100,000.
MINIMUM GUARANTEE PREMIUM..... The Minimum Annual Premium multiplied by the
number of months since the Policy Date
(including the current month) divided by 12.
MINIMUM INITIAL PREMIUM....... Equal to the Minimum Annual Premium multiplied
by the following factor for the specified
premium mode at issue: Annual -- 1.0;
Semi-annual -- 0.5; Quarterly -- 0.25;
Monthly -- 0.167.
MONTHLY DEDUCTIONS............ The amount deducted from the Policy Account
Value on each Policy Processing Day. It
includes the Monthly Administrative Charge, the
Initial Administrative Charge, the Monthly Cost
of Insurance Charge, and the monthly cost of
any benefits provided by riders.
NET AMOUNT AT RISK............ The amount by which the Death Benefit exceeds
the Policy Account Value.
NET CASH SURRENDER VALUE...... The Cash Surrender Value minus any outstanding
Policy loans and accrued interest.
NET PREMIUMS.................. The remainder of a premium after the deduction
of the Premium Expense Charge.
OWNER......................... The person(s) or entity(ies) entitled to
exercise the rights granted in the Policy.
PLANNED PERIODIC PREMIUM...... The premium amount which the Owner plans to pay
at the frequency selected. The Owner is
entitled to receive a reminder notice and
change the amount of the Planned Periodic
Premium. The Owner is not required to pay the
Planned Periodic Premium.
POLICY ACCOUNT VALUE.......... The sum of the Policy's values in the Separate
Account, 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.
58
<PAGE> 62
POLICY ISSUE DATE............. The date on which the Policy is issued. It is
used to measure suicide and contestable
periods.
POLICY PROCESSING DAY......... The day in each calendar month which is the
same day of the month as the Policy Date. The
first Policy Processing Day is the Policy Date.
POLICY YEAR................... A year that starts on the Policy Date or on a
Policy Anniversary.
PREMIUM CLASS................. The classification of the Insured for cost of
insurance purposes. The classes are: standard;
with extra rating, non-smoker; nonsmoker with
extra rating, and preferred.
PREMIUM EXPENSE CHARGE........ The amount deducted from a premium payment
which consists of the Premium Tax Charge and
the Percent of Premium Sales Charge.
SEPARATE ACCOUNT.............. The Provident Mutual Variable Separate Account.
SURRENDER CHARGE.............. The amount deducted from the Policy Account
Value upon lapse or surrender of the Policy
during the first 12 Policy Years. A pro-rata
Surrender Charge will be deducted upon a
decrease in the Initial Face Amount during the
first 12 Policy Years. The Maximum Surrender
Charge is shown in the Policy. The Surrender
Charge is determined separately from the
Additional Surrender Charge.
TARGET PREMIUM................ An amount of premium payments, computed
separately for each increment of Face Amount,
used to compute Surrender Charges and
Additional Surrender Charges.
VALUATION DAY................. Each day that the New York Stock Exchange is
open for business and any other day on which
there is a sufficient degree of trading with
respect to a Subaccount's portfolio of
securities to materially affect the value of
that Subaccount.
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.
59
<PAGE> 63
FINANCIAL STATEMENTS
The financial statements of PMLIC included herein should be distinguished
from the financial statements of the Separate Account 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 Separate Account
Report of Independent Accountants...................... F-
Statements of Assets and Liabilities, December 31,
1999.................................................. F-
Statements of Operations for the Years Ended December
31, 1999, 1998 and 1997............................... F-
Statements of Changes in Net Assets for the Years Ended
December 31, 1999, 1998, and 1997..................... F-
Notes to Financial Statements.......................... F-
Provident Mutual Life Insurance Company and Subsidiaries
Report of Independent Accountants...................... F-
Consolidated Statements of Financial Condition,
December 31, 1999 and 1998............................ F-
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997................ F-
Consolidated Statements of Equity for the Years Ended
December 31, 1999, 1998 and 1997...................... F-
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997................ F-
Notes to Consolidated Financial Statements............. F-
</TABLE>
F-1
<PAGE> 64
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 Subaccounts. The tables show how the Death Benefits, Policy
Account Values and Net Cash Surrender Values of a Policy issued to an Insured of
a given age and sex would vary over time if the investment return on the assets
held in each Portfolio were a uniform, gross, annual rate of 0%, 6% and 12%.
The tables on pages A-3 to A-8 illustrate a Policy issued to a male
Insured, Age 40 in the Preferred Premium Class with a Face Amount of $250,000
and a Planned Periodic Premium of $3,000 paid at the beginning of each Policy
Year. The Death Benefits, Policy Account Values and Net Cash Surrender Values
would be lower if the Insured was in a nonsmoker or smoker class or a class with
extra ratings since the cost of insurance charges would increase. Also, the
values would be different from those shown if the gross annual investment
returns averaged 0%, 6% and 12% over a period of years, but fluctuated above and
below those averages for individual Policy Years.
The second column of the tables show the amount to which the premiums would
accumulate if an amount equal to those premiums were invested to earn interest,
after taxes, at 5% compounded annually. The columns shown under the heading
"Guaranteed" assume that throughout the life of the policy, the monthly charge
for cost of insurance is based on the maximum level permitted under the Policy
(based on the 1980 CSO Smoker/Nonsmoker Table), a Premium Expense Charge of 5%,
maximum Monthly Administrative Fee of $12, an Initial Administrative Charge of
$17.50, 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 3.5%,
current Monthly Administrative Fee of $7.50, an Initial Administrative Charge of
$17.50 and a daily charge for mortality and expense risks equivalent to an
annual rate of 0.75%.
The amounts shown in all tables reflect an averaging of certain other asset
charges described below that may be assessed under the Policy, depending upon
how premiums are allocated. The total of the asset charges reflected in the
Current and Guaranteed illustrations, including the Mortality and Expense Risk
Charge listed above, is 1.56% and 1.72%, respectively. This total charge is
based on an assumption that an Owner allocates the Policy values equally among
each available Subaccount.
These asset charges reflect an investment advisory fee of % which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of % 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
1999. It is anticipated that expense reimbursement and fee waiver arrangements
will continue past the current year. Absent the expense reimbursement, the 1999
Total Annual Expenses would have been %, for the Market Street Fund All-
Pro Small Cap Value Portfolio, %, for the VIP Fund Equity-Income Portfolio,
%, for the VIP Fund Growth Portfolio, %, for the VIP Fund Overseas
Portfolio, %, for the VIP II Fund Asset Manager Portfolio, %, for the
VIP II Fund Index 500 Portfolio, %, for the VIP II Fund Contrafund
Portfolio, %, for the Van Eck Worldwide Hard Assets Portfolio, %, for
the Van Eck Worldwide Emerging Markets Portfolio and %, 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 1999 for these Portfolios because the
level of actual expenses and fees never exceeded the thresholds at which the
reimbursement and waiver arrangements would have become
A-1
<PAGE> 65
operative. In the event that reimbursements or fee waivers do not continue for
any Portfolio in future years, the Portfolio's actual expenses would increase
and this would likely increase the average expense figure on which the
illustrations are based. See "Table of Fund Fees and Expenses" for more
information about such reimbursements.
The tables also reflect the fact that no charges for federal or state
income taxes are currently made against the Subaccounts. If such a charge is
made in the future, it would take a higher gross annual rate of return to
produce the same Policy values.
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid and allocated as
indicated, no amounts are allocated to the Guaranteed Account, and no Policy
loans are made. The tables are also based on the assumption that the Owner has
not requested an increase or decrease in the Face Amount, that no partial
withdrawals have been made and no transfers have been made in any Policy Year.
Upon request, PMLIC will provide a comparable illustration of future
benefits under the Policy based upon the proposed Insured's Age and Premium
Class, the Death Benefit Option, Face Amount, Planned Periodic Premiums and
riders requested. PMLIC reserves the right to charge a reasonable fee for this
service to persons who request more than one policy illustration during a Policy
year.
A-2
<PAGE> 66
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $3,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 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 3,150 1,889 329 250,000 2,066 506 250,000
2 6,458 3,913 2,173 250,000 4,269 2,529 250,000
3 9,930 5,865 3,945 250,000 6,399 4,479 250,000
4 13,577 7,737 5,637 250,000 8,448 6,348 250,000
5 17,406 9,533 7,253 250,000 10,418 8,138 250,000
6 21,426 11,244 8,931 250,000 12,301 9,988 250,000
7 25,647 12,868 11,018 250,000 14,114 12,264 250,000
8 30,080 14,402 13,014 250,000 15,853 14,465 250,000
9 34,734 15,844 14,919 250,000 17,518 16,593 250,000
10 39,620 17,186 16,723 250,000 19,104 18,641 250,000
11 44,751 18,426 18,426 250,000 20,829 20,829 250,000
12 50,139 19,551 19,551 250,000 22,477 22,477 250,000
13 55,796 20,547 20,547 250,000 24,042 24,042 250,000
14 61,736 21,403 21,403 250,000 25,520 25,520 250,000
15 67,972 22,100 22,100 250,000 26,901 26,901 250,000
16 74,521 22,626 22,626 250,000 28,179 28,179 250,000
17 81,397 22,966 22,966 250,000 29,369 29,369 250,000
18 88,617 23,110 23,110 250,000 30,474 30,474 250,000
19 96,198 23,044 23,044 250,000 31,493 31,493 250,000
20 104,158 22,743 22,743 250,000 32,421 32,421 250,000
25 150,340 16,559 16,559 250,000 35,537 35,537 250,000
30 209,282 0 0 0 34,860 34,860 250,000
</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 Subaccount.
** 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 Subaccount.
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 Subaccounts and the different rates of return of the Subaccounts if the
actual rates of investment return applicable to the Policy averaged 0%, 6% or
12%, but varied above or below that average for particular 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> 67
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $3,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 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 3,150 2,027 467 250,000 2,212 652 250,000
2 6,458 4,314 2,574 250,000 4,696 2,956 250,000
3 9,930 6,658 4,738 250,000 7,247 5,327 250,000
4 13,577 9,054 6,954 250,000 9,862 7,762 250,000
5 17,406 11,506 9,226 250,000 12,545 10,265 250,000
6 21,426 14,007 11,695 250,000 15,289 12,976 250,000
7 25,647 16,558 14,708 250,000 18,113 16,263 250,000
8 30,080 19,156 17,768 250,000 21,018 19,631 250,000
9 34,734 21,801 20,876 250,000 24,007 23,082 250,000
10 39,620 24,487 24,024 250,000 27,077 26,615 250,000
11 44,751 27,213 27,213 250,000 30,451 30,451 250,000
12 50,139 29,968 29,968 250,000 33,928 33,928 250,000
13 55,796 32,740 32,740 250,000 37,507 37,507 250,000
14 61,736 35,519 35,519 250,000 41,190 41,190 250,000
15 67,972 38,290 38,290 250,000 44,972 44,972 250,000
16 74,521 41,041 41,041 250,000 48,854 48,854 250,000
17 81,397 43,757 43,757 250,000 52,856 52,856 250,000
18 88,617 46,432 46,432 250,000 56,986 56,986 250,000
19 96,198 49,054 49,054 250,000 61,253 61,253 250,000
20 104,158 51,599 51,599 250,000 65,660 65,660 250,000
25 150,340 62,201 62,201 250,000 90,010 90,010 250,000
30 209,282 65,258 65,258 250,000 118,465 118,465 250,000
</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 Subaccount.
** 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 Subaccount.
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 Subaccounts and the different rates of return of the Subaccounts if the
actual rates of investment return applicable to the Policy averaged 0%, 6% or
12%, but varied above or below that average for particular 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> 68
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $3,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 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 3,150 2,167 607 250,000 2,359 799 250,000
2 6,458 4,733 2,993 250,000 5,140 3,400 250,000
3 9,930 7,518 5,598 250,000 8,167 6,247 250,000
4 13,577 10,538 8,438 250,000 11,456 9,356 250,000
5 17,406 13,820 11,540 250,000 15,038 12,758 250,000
6 21,426 17,383 15,070 250,000 18,934 16,621 250,000
7 25,647 21,251 19,401 250,000 23,194 21,344 250,000
8 30,080 25,456 24,069 250,000 27,855 26,467 250,000
9 34,734 30,031 29,106 250,000 32,958 32,033 250,000
10 39,620 35,007 34,544 250,000 38,547 38,084 250,000
11 44,751 40,427 40,427 250,000 44,886 44,886 250,000
12 50,139 46,327 46,327 250,000 51,844 51,844 250,000
13 55,796 52,748 52,748 250,000 59,486 59,486 250,000
14 61,736 59,743 59,743 250,000 67,882 67,882 250,000
15 67,972 67,362 67,362 250,000 77,110 77,110 250,000
16 74,521 75,671 75,671 250,000 87,259 87,259 250,000
17 81,397 84,745 84,745 250,000 98,448 98,448 250,000
18 88,617 94,674 94,674 250,000 110,796 110,796 250,000
19 96,198 105,561 105,561 250,000 124,438 124,438 250,000
20 104,158 117,517 117,517 250,000 139,521 139,521 250,000
25 150,340 198,839 198,839 250,000 242,851 242,851 296,278
30 209,282 331,854 331,854 384,950 410,620 410,620 476,319
</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 Subaccount.
** 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 Subaccount.
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 Subaccounts and the different rates of return of the Subaccounts if the
actual rates of investment return applicable to the Policy averaged 0%, 6% or
12%, but varied above or below that average for particular 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> 69
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $3,000
</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 3,150 1,883 323 251,883 2,062 502 252,062
2 6,458 3,897 2,157 253,897 4,255 2,515 254,255
3 9,930 5,832 3,912 255,832 6,369 4,449 256,369
4 13,577 7,682 5,582 257,682 8,395 6,295 258,395
5 17,406 9,448 7,168 259,448 10,336 8,056 260,336
6 21,426 11,121 8,809 261,121 12,182 9,869 262,182
7 25,647 12,699 10,849 262,699 13,949 12,099 263,949
8 30,080 14,178 12,791 264,178 15,635 14,247 265,635
9 34,734 15,555 14,630 265,555 17,237 16,312 267,237
10 39,620 16,821 16,359 266,821 18,749 18,287 268,749
11 44,751 17,974 17,974 267,974 20,411 20,411 270,411
12 50,139 18,999 18,999 268,999 21,985 21,985 271,985
13 55,796 19,879 19,879 269,879 23,465 23,465 273,465
14 61,736 20,603 20,603 270,603 24,845 24,845 274,845
15 67,972 21,151 21,151 271,151 26,114 26,114 276,114
16 74,521 21,509 21,509 271,509 27,265 27,265 277,265
17 81,397 21,660 21,660 271,660 28,313 28,313 278,313
18 88,617 21,595 21,595 271,595 29,262 29,262 279,262
19 96,198 21,301 21,301 271,301 30,111 30,111 280,111
20 104,158 20,753 20,753 270,753 30,854 30,854 280,854
25 150,340 13,108 13,108 263,108 32,781 32,781 282,781
30 209,282 0 0 0 30,327 30,327 280,327
</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 Subaccount.
** 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 Subaccount.
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 Subaccounts and the different rates of return of the Subaccounts if the
actual rates of investment return applicable to the Policy averaged 0%, 6% or
12%, but varied above or below that average for particular 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> 70
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $3,000
</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 3,150 2,022 462 252,022 2,207 647 252,207
2 6,458 4,297 2,557 254,297 4,679 2,939 254,679
3 9,930 6,620 4,700 256,620 7,213 5,293 257,213
4 13,577 8,988 6,888 258,988 9,800 7,700 259,800
5 17,406 11,400 9,120 261,400 12,443 10,163 262,443
6 21,426 13,849 11,537 263,849 15,135 12,823 265,135
7 25,647 16,332 14,482 266,332 17,893 16,043 267,893
8 30,080 18,844 17,457 268,844 20,714 19,326 270,714
9 34,734 21,382 20,457 271,382 23,599 22,674 273,599
10 39,620 23,936 23,474 273,936 26,543 26,080 276,543
11 44,751 26,503 26,503 276,503 29,793 29,793 279,793
12 50,139 29,064 29,064 279,064 33,121 33,121 283,121
13 55,796 31,602 31,602 281,602 36,521 36,521 286,521
14 61,736 34,100 34,100 284,100 39,990 39,990 289,990
15 67,972 36,534 36,534 286,534 43,517 43,517 293,517
16 74,521 38,883 38,883 288,883 47,096 47,096 297,096
17 81,397 41,122 41,122 291,122 50,744 50,744 300,744
18 88,617 43,236 43,236 293,236 54,464 54,464 304,464
19 96,198 45,200 45,200 295,200 58,258 58,258 308,258
20 104,158 46,978 46,978 296,978 62,121 62,121 312,121
25 150,340 51,451 51,451 301,451 82,307 82,307 332,307
30 209,282 42,560 42,560 292,560 102,442 102,442 352,442
</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 Subaccount.
** 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 Subaccount.
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 Subaccounts and the different rates of return of the Subaccounts if the
actual rates of investment return applicable to the Policy averaged 0%, 6% or
12%, but varied above or below that average for particular 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> 71
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $3,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 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 3,150 2,161 601 252,161 2,353 793 252,353
2 6,458 4,713 2,973 254,713 5,122 3,382 255,122
3 9,930 7,475 5,555 257,475 8,127 6,207 258,127
4 13,577 10,460 8,360 260,460 11,382 9,282 261,382
5 17,406 13,690 11,410 263,690 14,913 12,633 264,913
6 21,426 17,180 14,868 267,180 18,737 16,425 268,737
7 25,647 20,951 19,101 270,951 22,901 21,051 272,901
8 30,080 25,024 23,637 275,024 27,434 26,046 277,434
9 34,734 29,427 28,502 279,427 32,370 31,445 282,370
10 39,620 34,180 33,718 284,180 37,744 37,282 287,744
11 44,751 39,315 39,315 289,315 43,854 43,854 293,854
12 50,139 44,852 44,852 294,852 50,523 50,523 300,523
13 55,796 50,811 50,811 300,811 57,803 57,803 307,803
14 61,736 57,221 57,221 307,221 65,747 65,747 315,747
15 67,972 64,103 64,103 314,103 74,410 74,410 324,410
16 74,521 71,486 71,486 321,486 83,857 83,857 333,857
17 81,397 79,399 79,399 329,399 94,183 94,183 344,183
18 88,617 87,883 87,883 337,883 105,479 105,479 355,479
19 96,198 96,976 96,976 346,976 117,842 117,842 367,842
20 104,158 106,709 106,709 356,709 131,375 131,375 381,375
25 150,340 166,003 166,003 416,003 220,921 220,921 470,921
30 209,282 245,320 245,320 495,320 361,285 361,285 611,285
</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 Subaccount.
** 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 Subaccount.
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 Subaccounts and the different rates of return of the Subaccounts if the
actual rates of investment return applicable to the Policy averaged 0%, 6% or
12%, but varied above or below that average for particular 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> 72
APPENDIX B
LONG TERM MARKET TRENDS
The information below is a record of the compound annual returns of common
stocks, high-grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The compound annual returns assume the reinvestment of
dividends, capital gains and interest. This is an historical record and is not
intended as a projection of future performance. Charges associated with a
variable life policy are not reflected.
The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high-grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods of
time. To the extent that cash value is allocated to separate accounts which
invest in common stocks, these trends indicate the potential advantages of
holding a variable life insurance policy for a long period of time.
The following chart illustrates the compound annual returns of the S&P 500
Composite Stock Price Index for each of the 20-year periods shown. These returns
are compared to the compound annual returns of high-grade corporate bonds and
U.S. Treasury bills for the same periods. (The 20-year periods selected for the
chart begin in 1939 and have ending periods at five year intervals.)
[COMPOUND ANNUAL RETURNS GRAPH]
<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> 73
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
SUBACCOUNT. 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> 74
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> 75
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
Subaccount, and, although a Policy's value in the Subaccounts 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 Subaccounts which
invest in common stocks in relatively constant amounts.
B-4
<PAGE> 76
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article VIII of PMLIC's By-Laws provides, in part:
To the fullest extent permitted by law, the Company shall indemnify
any present, former or future Director, officer, or employee of the Company
or any person who may serve or has served at its request as officer or
Director of another corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including attorney's fees,
necessarily incurred in connection with the defense of any action, suit or
other proceeding to which any of them is made a party because of service as
Director, officer or employee of the Company or such other corporation, or
in connection with any appeal therein, and against any amounts paid by such
Director, officer or employee in settlement of, or in satisfaction of a
judgement or fine in, any such action or proceeding, except expenses
incurred in defense of or amounts paid in connection with any action, suit
or other proceeding in which such director, officer or employee shall be
adjudged to be liable for negligence or misconduct in the performance of
his duty.
Insofar as indemnification or liability arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REPRESENTATION OF REASONABLENESS
Provident Mutual Life Insurance Company hereby represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by Provident Mutual Life Insurance Company.
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CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of pages.
The undertaking to file reports.
Rule 484 undertaking.
Representations pursuant to Rule 6e-3(T)
The signatures.
The following exhibits:
EXHIBIT INDEX
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EXHIBITS PAGE
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<S> <C> <C>
1.A.1.a. Resolution adopted by the Board of Directors of Provident
Mutual Life Insurance Company authorizing establishment of
the Provident Mutual Variable Growth Separate Account,
Provident Mutual Variable Money Market Separate Account,
Provident Mutual Variable Bond Separate Account, Provident
Mutual Variable Managed Separate Account, and Provident
Mutual Variable Zero Coupon Bond Separate Account(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.1.g. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company Approving Creation of additional
Subaccounts of Provident Mutual Variable Separate Account(3)
1.A.1.h. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company Approving Reorganization of the
Provident Mutual Variable Managed Separate Account(3)
1.A.1.i. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company Approving Reorganization of the
Provident Mutual Variable Growth Separate Account, Provident
Mutual Variable Money Market Separate Account, Provident
Mutual Variable Bond Separate Account, Provident Mutual
Variable Zero Coupon Bond Separate Account, Provident Mutual
Variable Aggressive Growth Separate Account, Provident
Mutual Variable International Separate Account, Provident
Mutual Variable Separate Account(3)
1.A.2. None
1.A.3.a.i. Underwriting Agreement(1)
1.A.3.a.ii. Amendment to Underwriting Agreement(1)
1.A.3.a.iii. Amendment to Underwriting Agreement(1)
1.A.3.a.iv. Amendment to Underwriting Agreement(1)
1.A.3.a.vi. Amendment to Underwriting Agreement(1)
1.A.3.b.i. PPGA's Agreement and Supplements(1)
1.A.3.b.ii. PPA's Agreement and Supplements(1)
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EXHIBITS PAGE
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<S> <C> <C>
1.A.3.b.iii. PGA's Agreement and Supplements(1)
1.A.3.b.iv. Special Agent's Career Agreement and Supplement(1)
1.A.3.b.v. Special Agent's Agreement(1)
1.A.3.b.vi. Corporate Agent's Agreement and Supplement(1)
1.A.3.c.i. PPGA Commission Schedules(1)
1.A.3.c.ii. PPA Commission Schedules(1)
1.A.3.c.iii. PGA Commission Schedules(1)
1.A.3.c.iv. Commission Schedules for Variable Life Insurance Products
for Agents under Special Career Agent's Career Agreement(1)
1.A.3.c.v. Commission Schedules for Variable Life Insurance Products
for Agents under Special Agent's Agreement(1)
1.A.3.c.vi. Commission Schedules for Variable Life Insurance Products
for Corporate Agents with Special Agent's Career
Agreement(1)
1.A.3.d. Form of Selling Agreement between 1717 Capital Management
Company and Broker/Dealers(1)
1.A.4. None
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy Forms (C126, C126A, C127, C127A & C128)(2)
1.A.5.a. Children's Term Rider (C306)(2)
1.A.5.b. Convertible Term Life Rider (C308)(2)
1.A.5.c. Extension of Final Policy Date Rider (C822)(2)
1.A.5.d. Qualify as part of Section 403(b) Rider (C827)(2)
1.A.5.e. Change of Insured Rider (C901)(2)
1.A.5.f. Disability Waiver Benefit Rider (C902)(2)
1.A.5.g. Disability Waiver of Premium Rider (C903)(2)
1.A.5.h. Accelerated Death Benefit Rider (C/D904)(1)
1.A.6.a. Charter of Provident Mutual Life Insurance Company(1)
1.A.6.b. By-Laws of Provident Mutual Life Insurance Company(1)
1.A.7. None
1.A.8. Sponsorship Agreement between Provident Mutual Life
Insurance Company and MLPFS for Zero Coupon Trust(1)
1.A.9. None
1.A.10. Form of Application(1)
1.A.10.a. Application for Flexible Premium(2)
1.A.10.b. Initial Allocation Selection(1)
2. See Exhibit 1.A.5.
3.A. Consent of James G. Potter, Jr., Esquire(3)
3.B. Consent of Sutherland Asbill & Brennan LLP(3)
4. None
5. Inapplicable
6. Consent of Scott V. Carney, FSA, MAAA(3)
7. Consent of PricewaterhouseCoopers LLP(3)
8. Description of Provident Mutual Life Insurance Company's
Issuance, Transfer and Redemption Procedures for Policies(1)
9. None
10.a. Participation Agreement by and among Market Street Fund,
Inc., Provident Mutual Life Insurance Company and PML
Securities, Inc.(1)
10.b. Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Provident Mutual
Life Insurance Company(1)
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EXHIBITS PAGE
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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
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- ---------------
(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) To be filed by amendment.
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<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Provident Mutual Variable Growth Separate Account, Provident Mutual Variable
Money Market Separate Account, Provident Mutual Variable Bond Separate Account,
Provident Mutual Variable Zero Coupon Bond Separate Account, Provident Mutual
Variable Aggressive Growth Separate Account, and Provident Mutual Variable
International Separate Account, has duly caused this Post-Effective Amendment
No. 13 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Berwyn and Commonwealth of Pennsylvania, on the
16th day of February, 2000.
PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MONEY MARKET SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE ZERO COUPON BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE AGGRESSIVE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE INTERNATIONAL SEPARATE ACCOUNT
(Registrant)
By: PROVIDENT MUTUAL LIFE INSURANCE
COMPANY
(Depositor)
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<S> <C>
Attest: /s/ JAMES G. POTTER By: /s/ ROBERT W. KLOSS
----------------------------------------------- ---------------------------------------------------
JAMES G. POTTER ROBERT W. KLOSS
Chief Executive Officer
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ JAMES G. POTTER By: /s/ ROBERT W. KLOSS
----------------------------------------------- ---------------------------------------------------
JAMES G. POTTER ROBERT W. KLOSS
Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 13 to the Registration Statement has been signed
below by the following persons in the capacities indicated on February 16, 2000.
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<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ ROBERT W. KLOSS Chief Executive Officer (Principal Executive Officer)
- -----------------------------------------------------
ROBERT W. KLOSS
/s/ MARY LYNN FINELLI Executive Vice President and Chief Financial Officer
- ----------------------------------------------------- (Principal Financial Officer)
MARY LYNN FINELLI
</TABLE>
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<PAGE> 81
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<CAPTION>
SIGNATURES TITLE
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<C> <S>
/s/ LINDA M. SPRINGER Vice President and Controller (Principal Accounting
- ----------------------------------------------------- Officer)
LINDA M. SPRINGER
* Director
- -----------------------------------------------------
EDWARD R. BOOK
* Director
- -----------------------------------------------------
DOROTHY M. BROWN
* Director
- -----------------------------------------------------
ROBERT J. CASALE
* Director
- -----------------------------------------------------
NICHOLAS DEBENEDICTUS
* Director
- -----------------------------------------------------
PHILIP C. HERR, II
* Director
- -----------------------------------------------------
J. RICHARD JONES
* Director
- -----------------------------------------------------
JOHN P. NEAFSEY
* Director
- -----------------------------------------------------
CHARLES L. ORR
* Director
- -----------------------------------------------------
DONALD A. SCOTT
* Director
- -----------------------------------------------------
JOHN J. F. SCHERRERD
* Director
- -----------------------------------------------------
HAROLD A. SORGENTI
* By: /s/ JAMES G. POTTER
-------------------------------------------------
JAMES G. POTTER, JR.
Attorney-in-fact
pursuant to Power of Attorney
</TABLE>
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