<PAGE> 1
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE
INSURANCE POLICY
Issued by
PROVIDENT MUTUAL VARIABLE LIFE SEPARATE ACCOUNT
and
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
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<S> <C>
SERVICE CENTER MAIN ADMINISTRATIVE OFFICE
300 CONTINENTAL DRIVE 1000 CHESTERBROOK BLVD.
NEWARK, DELAWARE 19713 BERWYN, PENNSYLVANIA 19312
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TELEPHONE: (800) 688-5177
PROSPECTUS
May 1, 2000
This prospectus describes a flexible premium adjustable variable life insurance
policy ("Policy") issued by Provident Mutual Life Insurance Company (the
"Company"). The Policy is a long-term investment designed to provide significant
life insurance benefits for the insured. This prospectus provides information
that a prospective owner should know before investing in the Policy. You should
consider the Policy in conjunction with other insurance you own. It may not be
advantageous to replace existing insurance with the Policy.
You can allocate your Policy's values to:
-- Provident Mutual Variable Life Separate Account (the "Separate
Account"), which invests in the portfolios listed on this page; or
-- the Guaranteed Account, which credits a specified rate of interest.
A prospectus for each of the portfolios available through the Separate Account
must accompany this prospectus. Please read these documents before investing and
save them for future reference.
PLEASE NOTE THAT THE POLICIES AND THE PORTFOLIOS:
-- ARE NOT GUARANTEED TO ACHIEVE THEIR GOALS;
-- ARE NOT FEDERALLY INSURED;
-- ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY; AND
-- ARE SUBJECT TO RISKS, INCLUDING LOSS OF THE AMOUNT INVESTED.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
POLICY OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The following portfolios are available:
-- THE MARKET STREET FUND, INC.
All Pro Large Cap Growth Portfolio
All Pro Large Cap Value Portfolio
All Pro Small Cap Growth Portfolio
All Pro Small Cap Value Portfolio
International Portfolio
Equity 500 Index Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Managed Portfolio
Bond Portfolio
Money Market Portfolio
-- THE ALGER AMERICAN FUND
Small Capitalization Portfolio
-- NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond Portfolio
Partners Portfolio
-- STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II
-- STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II
-- VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Portfolio
Worldwide Emerging Markets Portfolio
Worldwide Hard Assets Portfolio
Worldwide Real Estate Portfolio
-- VARIABLE INSURANCE PRODUCTS FUND
Equity-Income Portfolio
Growth Portfolio
High Income Portfolio
Overseas Portfolio
-- VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio
Contrafund(R) Portfolio
Investment Grade Bond Portfolio
<PAGE> 2
TABLE OF CONTENTS
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GLOSSARY.............................. 1
POLICY SUMMARY........................ 4
Premiums............................ 4
Investment Options.................. 4
Policy Account Value................ 5
Charges and Deductions.............. 5
Annual Portfolio Operating Expenses
Table............................ 7
Surrenders and Partial
Withdrawals...................... 8
Death Benefit....................... 9
Transfers........................... 9
Loans............................... 10
Illustrations....................... 10
Other Policies...................... 10
RISK SUMMARY.......................... 11
THE COMPANY AND THE GUARANTEED
ACCOUNT............................. 12
Provident Mutual Life Insurance
Company.......................... 12
The Guaranteed Account.............. 12
THE SEPARATE ACCOUNT AND THE
PORTFOLIOS.......................... 13
The Separate Account................ 13
The Portfolios...................... 14
THE POLICY............................ 18
Purchasing a Policy................. 18
When Insurance Coverage Takes
Effect........................... 19
Canceling a Policy (Free Look
Right)........................... 19
Ownership Rights.................... 20
PREMIUMS.............................. 21
Allocating Premiums................. 22
POLICY ACCOUNT VALUES................. 23
Policy Account Value................ 23
Net Cash Surrender Value............ 23
Subaccount Value.................... 23
Unit Value.......................... 24
Guaranteed Account Value............ 24
Special Policy Account Value
Credit........................... 24
CHARGES AND DEDUCTIONS................ 25
Premium Expense Charge.............. 25
Monthly Deduction................... 25
Mortality and Expense Risk Charge... 27
Surrender Charges and Additional
Surrender Charges................ 27
Face Amount Increase Charge......... 30
Partial Withdrawal Charge........... 30
Transfer Charge..................... 30
Portfolio Expenses.................. 30
DEATH BENEFIT......................... 31
Insurance Proceeds.................. 31
Death Benefit Options............... 31
Changing Death Benefit Options...... 32
Changing the Face Amount............ 32
Settlement Options.................. 34
Accelerated Death Benefit........... 34
SURRENDERS AND PARTIAL WITHDRAWALS.... 34
Surrenders.......................... 34
Partial Withdrawals................. 35
TRANSFERS............................. 35
Dollar Cost Averaging............... 36
Automatic Asset Rebalancing......... 37
LOANS................................. 38
Effect of Policy Loans.............. 39
POLICY LAPSE AND REINSTATEMENT........ 39
Lapse............................... 39
Reinstatement....................... 40
FEDERAL TAX CONSIDERATIONS............ 40
Tax Treatment of Policy Benefits.... 41
OTHER POLICY INFORMATION.............. 42
Payment of Policy Benefits.......... 42
The Policy.......................... 43
Telephone Requests.................. 43
Our Right to Contest the Policy..... 44
Split Dollar Arrangements........... 44
Suicide Exclusion................... 44
Misstatement of Age or Sex.......... 45
Modifying the Policy................ 45
Payments We Make.................... 45
Additional Transfer Rights.......... 45
Reports to Owners................... 46
Records............................. 46
Policy Termination.................. 47
Supplemental Benefits and Riders.... 47
PERFORMANCE DATA...................... 51
ADDITIONAL INFORMATION................ 51
Sale of the Policies................ 51
Potential Conflicts of Interest..... 51
Changes to the Separate Account..... 52
Standard & Poor's................... 52
Policies Issued in Conjunction with
Employee Benefit Plans........... 53
Legal Developments Regarding Unisex
Actuarial Tables................. 53
Voting Portfolio Shares............. 53
Legal Matters....................... 54
Legal Proceedings................... 54
Experts............................. 54
Financial Statements................ 54
Additional Information about the
Company.......................... 54
PMLIC's Executive Officers and
Directors........................ 55
FINANCIAL STATEMENTS.................. F-1
APPENDIX A -- ILLUSTRATIONS........... A-1
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GLOSSARY
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APPLICATION
The application you must complete to purchase a Policy plus all forms required
by us or applicable law.
ATTAINED AGE
The issue age of the insured plus the number of full policy years since the
policy date.
BENEFICIARY
The person(s) you select to receive the insurance proceeds from the Policy.
CODE
The Internal Revenue Code of 1986, as amended.
COMPANY (WE, US, OUR, PMLIC)
Provident Mutual Life Insurance Company of America, Service Center: 300
Continental Drive, Newark, Delaware 19713, Main Administrative Office: 1000
Chesterbrook Boulevard, Berwyn, Pennsylvania 19312, telephone: (800) 688-5177.
FACE AMOUNT
The dollar amount of insurance selected by the owner. The face amount may be
increased or decreased after issue, subject to certain conditions. The face
amount is a factor in determining the death benefit, surrender charges, and
additional surrender charges.
FINAL POLICY DATE
The policy anniversary nearest the insured's attained age 100, at which time the
Policy will end and you will be paid the policy account value less any
indebtedness and any unpaid monthly deductions. Subject to state availability,
you may elect to continue the Policy beyond the insured's attained age 100 under
the Final Policy Date Extension rider.
FREE LOOK PERIOD
The period shown on your Policy's cover page during which you may examine and
return the Policy to us at our Service Center and receive a refund. The length
of the free look period varies by state.
FUND
An investment company that is registered with the Securities and Exchange
Commission. The Policy allows you to invest in certain portfolios of the funds
that are listed on the front page of this prospectus.
GRACE PERIOD
A 61-day period after which a Policy will lapse if you do not make a sufficient
payment.
GUARANTEED ACCOUNT
Part of our general account. Amounts allocated to the Guaranteed Account earn at
least 4% annual interest.
GUIDELINE ANNUAL PREMIUM
The "guideline annual premium" as defined in regulations under the Investment
Company Act of 1940, and used in connection with the calculation of surrender
charges. 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.
INDEBTEDNESS
The total amount of all outstanding policy loans, including both principal and
interest due.
INITIAL FACE AMOUNT
The face amount on the policy issue date.
INSURANCE PROCEEDS
The amount we pay to the beneficiary when we receive due proof of the insured's
death. We deduct any indebtedness and unpaid monthly deductions before making
any payment.
INSURED
The person whose life is insured by the Policy.
ISSUE AGE
The insured's age on the insured's birthday nearest the policy date.
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LAPSE
When your Policy terminates without value after a grace period. You may
reinstate a lapsed Policy, subject to certain conditions.
LOAN ACCOUNT
The account to which we transfer collateral for a policy loan from the
Subaccounts and/or the Guaranteed Account.
MEC
A modified endowment contract, as defined under the Code.
MINIMUM GUARANTEE PREMIUM
The amount necessary to guarantee the Policy will not lapse during the first 5
policy years. It is equal to the minimum annual premium (as set forth in your
Policy) MULTIPLIED by the number of months since the policy date (including the
current month) DIVIDED by 12.
MINIMUM INITIAL PREMIUM
An amount equal to the minimum annual premium (as set forth in your Policy)
MULTIPLIED by the following factor for your premium billing mode: annual 1.000;
semi-annual 0.500; quarterly 0.250; monthly 0.167.
MONTHLY DEDUCTION
This is the monthly amount we deduct from the policy account value on each
policy processing day. The monthly deduction includes the cost of insurance
charge, the monthly administrative charge, the initial administrative charge
(during the first policy year), and charges for any riders.
NET CASH SURRENDER VALUE
The amount we pay when you surrender your Policy. It is equal to: (1) the policy
account value as of the date of surrender; MINUS (2) any surrender charge or
additional surrender charge; MINUS (3) any indebtedness.
NET PREMIUMS
Premiums less the premium expense charge.
OWNER (YOU, YOUR)
The person entitled to exercise all rights as owner under the Policy.
POLICY ACCOUNT VALUE
The sum of your Policy's values in the Subaccounts, the Guaranteed Account, and
the Loan Account.
POLICY ANNIVERSARY
The same day and month as the policy date in each year following the first
policy year.
POLICY DATE
The date set forth in the Policy that is used to determine policy anniversaries,
policy processing days, and policy years. The policy date is generally the same
as the policy issue date but, subject to state approval, may be another date
agreed upon by us and the proposed insured. The policy date may not be more than
6 months prior to the policy issue date.
POLICY ISSUE DATE
The date on which the Policy is issued. It is used to measure suicide and
contestable periods.
POLICY PROCESSING DAY
This is the same day as the policy date in each successive month. If there is no
day in a calendar month that coincides with the policy date, or if that day
falls on a day that is not a valuation day, then the policy processing day is
the next valuation day. On each policy processing day, we determine Policy
charges and deduct them from the policy account value.
POLICY YEAR
A year that starts on the policy date or on a policy anniversary.
PORTFOLIO
A separate investment portfolio of a fund. Each Subaccount invests exclusively
in one portfolio of a fund.
PREMIUM CLASS
The classification of the insured for cost of insurance purposes. The classes
are: standard, standard with extra rating; nonsmoker; nonsmoker with extra
rating; and preferred.
PREMIUMS
All payments you make under the Policy other than repayments of indebtedness.
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RIDER
An amendment, addition, or endorsement to the Policy that changes the terms of
the Policy by: (1) expanding Policy benefits; (2) restricting Policy benefits;
or (3) excluding certain conditions from the Policy's coverage. A rider that is
added to the Policy becomes part of the Policy.
SEPARATE ACCOUNT
Provident Mutual Variable Life Separate Account. It is a separate investment
account that is divided into Subaccounts, each of which invests in a
corresponding portfolio.
SERVICE CENTER
The Technology and Service Center located at 300 Continental Drive, Newark,
Delaware 19713.
SUBACCOUNT
A subdivision of Provident Mutual Variable Life Separate Account. We invest each
Subaccount's assets exclusively in shares of one portfolio.
SURRENDER
To cancel the Policy by signed request from the owner and return of the Policy
to us at our Service Center.
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. As of
the date of this prospectus, the Company is open whenever the New York Stock
Exchange is open.
VALUATION PERIOD
The period beginning at the close of business on one valuation day (usually 4:00
p.m., Eastern time) and continuing to the close of business on the next
valuation day.
WRITTEN NOTICE OR REQUEST
The written notice or request you must complete, sign, and send to us at our
Service Center to request or exercise your rights as owner under the Policy. To
be complete, each written notice or request must: (1) be in a form we accept;
(2) contain the information and documentation that we determine in our sole
discretion is necessary for us to take the action you request or for you to
exercise the right specified; and (3) be received at our Service Center. You may
obtain the necessary form by calling us at (800) 688-5177.
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POLICY SUMMARY
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This summary describes the Policy's important features and corresponds to
prospectus sections that discuss the topics in more detail. THE GLOSSARY DEFINES
CERTAIN WORDS AND PHRASES USED IN THIS PROSPECTUS.
PREMIUMS
- - You must pay the minimum initial premium before we deliver the Policy.
- - After you pay the initial premium, you can pay subsequent premiums at any time
(prior to the final policy date) and in any amount (but not less than $20).
You select a premium payment plan to pay planned periodic premiums quarterly,
semiannually, or annually. You are not required to pay premiums according to
the plan. However, you may greatly increase your risk of lapse if you do not
regularly pay premiums. You may also choose to have premiums automatically
deducted monthly from your bank account or other source under our automatic
payment plan.
- - We will not accept any premiums after the final policy date.
- - PAYING YOUR PLANNED PERIODIC PREMIUMS WILL NOT NECESSARILY KEEP YOUR POLICY IN
FORCE. Even if you make premium payments according to your payment plan, your
Policy will lapse if the net cash surrender value is not enough to pay the
monthly deduction and other charges.
- - There will be a 61-day grace period before your Policy lapses. Your Policy
will not lapse:
-- during the first 5 policy years, if you pay premiums (less any
indebtedness and partial withdrawals) in excess of the minimum guarantee
premium;
-- if you purchase a Guaranteed Minimum Death Benefit rider and meet
certain conditions; or
-- if you make a payment equal to 3 monthly deductions before the end of
the grace period.
You may reinstate a lapsed Policy if you meet certain requirements.
- - When you receive your Policy, the free look period begins. You may return your
Policy during this period and receive a refund. A free look period also begins
if you request an increase in face amount.
- - We deduct a premium expense charge from each premium you pay. Generally, we
allocate the resulting amount (the net premium) to the Subaccounts and the
Guaranteed Account in accordance with your allocation instructions.
- - Some states require us to refund all premiums (less any partial withdrawals
and indebtedness) if you return your Policy during the free look period. In
those states, for the first 15 days following the later of the policy issue
date or the date we receive the minimum initial premium, we direct your
premiums into the Money Market Subaccount. After the 15 days, we allocate that
value to the Subaccounts you selected.
INVESTMENT OPTIONS
GUARANTEED ACCOUNT:
- - You may place money in the Guaranteed Account where it earns at least 4%
annual interest. We may declare higher rates of interest, but are not
obligated to do so.
SEPARATE ACCOUNT:
- - You may direct the money in your Policy to any of the Subaccounts of the
Separate Account. WE DO NOT GUARANTEE ANY MONEY YOU PLACE IN THE SUBACCOUNTS.
THE VALUE OF EACH SUBACCOUNT WILL INCREASE OR
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DECREASE, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE CORRESPONDING
PORTFOLIO. YOU COULD LOSE SOME OR ALL OF YOUR MONEY.
- - Each Subaccount invests exclusively in one of the following portfolios:
<TABLE>
<S> <C>
- - THE MARKET STREET FUND, INC.
("MARKET STREET")
All Pro Large Cap Growth
Portfolio
All Pro Large Cap Value Portfolio
All Pro Small Cap Growth
Portfolio
All Pro Small Cap Value Portfolio
International Portfolio
Equity 500 Index Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Managed Portfolio
Bond Portfolio
Money Market Portfolio
- - THE ALGER AMERICAN FUND
("ALGER AMERICAN")
Small Capitalization Portfolio
- - NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
("NEUBERGER BERMAN")
Limited Maturity Bond Portfolio
Partners Portfolio
- - STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II
- - STRONG VARIABLE INSURANCE FUNDS,
INC.
Strong Mid Cap Growth
Fund II
- - VAN ECK WORLDWIDE INSURANCE TRUST
("VAN ECK")
Worldwide Bond Portfolio
Worldwide Emerging Markets
Portfolio
Worldwide Hard Assets Portfolio
Worldwide Real Estate Portfolio
- - VARIABLE INSURANCE PRODUCTS FUND
("VIP")
Equity-Income Portfolio
Growth Portfolio
High Income Portfolio
Overseas Portfolio
- - VARIABLE INSURANCE PRODUCTS FUND
II ("VIP II")
Asset Manager Portfolio
Contrafund(R) Portfolio
Investment Grade Bond Portfolio
</TABLE>
POLICY ACCOUNT VALUE
- - Policy account value is the sum of your amounts in the Subaccounts, the
Guaranteed Account, and the Loan Account. Policy account value is the starting
point for calculating important values under the Policy, such as the net cash
surrender value and the death benefit.
- - Policy account value varies from day to day, depending on the investment
performance of the Subaccounts you choose, interest we credit to the
Guaranteed Account, charges we deduct, and any other transactions (e.g.,
transfers, partial withdrawals, and loans). WE DO NOT GUARANTEE A MINIMUM
POLICY ACCOUNT VALUE.
CHARGES AND DEDUCTIONS
$ PREMIUM EXPENSE CHARGE: We deduct a premium expense charge from each premium
and credit the remaining amount (the net premium) according to your allocation
instructions. The premium expense 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. Premium
taxes vary from state to state but range from 0% to 4%. No premium tax
charge is deducted in jurisdictions that impose no premium tax.
2. Percent of Premium Charge: equal to 1.5% of each premium payment. We may
increase this charge to a maximum of 3% of each premium payment.
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$ MONTHLY DEDUCTION: On the policy date and on each policy processing day
thereafter, we deduct from the policy account value:
-- the cost of insurance charge (which depends on a number of variables,
such as issue age, sex, premium class, policy year, and face amount,
that cause this charge to vary from Policy to Policy and from policy
processing day to policy processing day)
-- the $7.50 monthly administrative charge (we may increase this charge
to a maximum of $12)
-- the $5.00 initial administrative charge (only deducted on the first
12 policy processing days)
-- charges for any riders.
$ SURRENDER CHARGES AND ADDITIONAL SURRENDER CHARGES:
-- Surrender Charge: During the first 12 policy years, we deduct a
surrender charge if you surrender the Policy or it lapses. The surrender
charge consists of:
1. Deferred Administrative Charge: the charge described in the table
below less any deferred administrative charge previously paid at
the time of a decrease in face amount.
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR(S) OF FACE AMOUNT
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1-6............................................... $4.90
7................................................. $4.20
8................................................. $3.50
9................................................. $2.80
10................................................ $2.10
11................................................ $1.40
12................................................ $0.70
13+............................................... $ -0-
</TABLE>
2. Deferred Sales Charge: this charge equals the lesser of A or B (less
any deferred sales charge previously paid at the time of a prior
decrease in face amount), where:
a = 35% of all premiums paid to the date of surrender or lapse; or
b = the following percentage of target premium:
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<CAPTION>
% OF TARGET PREMIUM FOR
POLICY YEAR(S) THE INITIAL FACE AMOUNT
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1-6............................................... 70%
7................................................. 60%
8................................................. 50%
9................................................. 40%
10................................................ 30%
11................................................ 20%
12................................................ 10%
13+............................................... 0%
</TABLE>
THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU MAY HAVE NO NET CASH SURRENDER
VALUE IF YOU SURRENDER YOUR POLICY DURING THE FIRST 12 YEARS.
-- Additional Surrender Charge: Within 12 years after the effective date of
an increase in face amount, we deduct an additional surrender charge if
you surrender the Policy or it lapses. The additional surrender charge
consists of an additional deferred administrative charge and an
additional deferred sales charge. The additional surrender charge is
calculated in the same manner as the surrender charge, as set forth
above.
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-- Decrease in Face Amount: In the event of a decrease in face amount
before the end of the 12th policy year or within 12 years after an
increase in face amount, we deduct a charge that is a portion of the
surrender charge and/or additional surrender charge.
- -- PARTIAL WITHDRAWAL CHARGES: For each partial withdrawal, we deduct a $25 fee
from the remaining policy account value.
- -- FACE AMOUNT INCREASE CHARGE: On the effective date of an increase in face
amount, we deduct a charge of $60 plus $0.50 per $1,000 face amount increase
(but not greater than $750) from the policy account value. We may increase
this charge to a maximum of $60 plus $3.00 per $1,000 face amount increase.
- -- MORTALITY AND EXPENSE RISK CHARGE: We deduct a daily charge equal to an
annual rate of 0.75% of the average daily net assets of the Separate Account.
We may increase this charge to a maximum annual rate of 0.90%
- -- TRANSFER CHARGE: We assess a $25 fee (from the amount transferred) for the
13th and each additional transfer among the Subaccounts or the Guaranteed
Account in a policy year.
- -- PORTFOLIO EXPENSES: The portfolios deduct management fees and other expenses
from their assets. These fees and expenses (shown in the following table)
vary by portfolio and currently range from 0.40% to 1.44% per year of the
average portfolio assets.
The following table shows the fees and expenses charged by the portfolios for
the fiscal year ended December 31, 1999. The purpose of the table is to assist
you in understanding the various costs and expenses that you will bear
directly and indirectly. Expenses of the portfolios may be higher or lower in
the future. Please refer to the portfolios' prospectuses for more information.
ANNUAL PORTFOLIO OPERATING EXPENSES (as a percentage of average portfolio
assets after fee waivers and expense reimbursements)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
--------- ---------- -------- --------
<S> <C> <C> <C>
MARKET STREET FUND, INC. (1)
All Pro Large Cap Growth Portfolio 0.70% 0.19% 0.89%
All Pro Large Cap Value Portfolio 0.70% 0.21% 0.91%
All Pro Small Cap Growth Portfolio 0.90% 0.21% 1.11%
All Pro Small Cap Value Portfolio 0.90% 0.30% 1.20%
International Portfolio 0.75% 0.23% 0.98%
Equity 500 Index Portfolio (2) 0.24% 0.04% 0.28%
Growth Portfolio 0.32% 0.16% 0.48%
Aggressive Growth Portfolio 0.41% 0.16% 0.57%
Managed Portfolio 0.40% 0.17% 0.57%
Bond Portfolio 0.35% 0.17% 0.52%
Money Market Portfolio 0.25% 0.15% 0.40%
THE ALGER AMERICAN FUND (1)
Small Capitalization Portfolio 0.85% 0.05% 0.90%
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST (1)
Limited Maturity Bond Portfolio 0.65% 0.11% 0.76%
Partners Portfolio 0.80% 0.07% 0.87%
STRONG OPPORTUNITY FUND II, INC. (1)
Strong Opportunity Fund II 1.00% 0.14% 1.14%
STRONG VARIABLE INSURANCE FUNDS, INC. (1)
Strong Mid Cap Growth Fund II 1.00% 0.15% 1.15%
</TABLE>
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<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
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<S> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE TRUST (1)
Worldwide Bond Portfolio 1.00% 0.22% 1.22%
Worldwide Emerging Markets Portfolio 1.00% 0.34% 1.34%
Worldwide Hard Assets Portfolio 1.00% 0.26% 1.26%
Worldwide Real Estate Portfolio 1.00% 0.44% 1.44%
VARIABLE INSURANCE PRODUCTS FUND (1)
Equity-Income Portfolio (Initial Class) 0.48% 0.08% 0.56%
Growth Portfolio (Initial Class) 0.58% 0.07% 0.65%
High Income Portfolio (Initial Class) 0.58% 0.11% 0.69%
Overseas Portfolio (Initial Class) 0.73% 0.14% 0.87%
VARIABLE INSURANCE PRODUCTS FUND II (1)
Asset Manager Portfolio (Initial Class) 0.53% 0.09% 0.62%
Contrafund(R) Portfolio (Initial Class) 0.58% 0.07% 0.65%
Investment Grade Bond Portfolio (Initial Class) 0.43% 0.11% 0.54%
</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 for the current year. Absent the expense
reimbursement, the 1999 Total Annual Expenses would have been 1.21% for
the Market Street Fund All Pro Small Cap Value Portfolio, 0.57% for the
VIP Fund Equity-Income Portfolio, 0.66% for the VIP Fund Growth Portfolio,
0.91% for the VIP II Fund Overseas Portfolio, 0.63% for the VIP II Fund
Asset Manager Portfolio, 1.17% for the Strong Mid Cap Growth Fund II,
0.67% for the VIP II Fund Contrafund(R) Portfolio, and 3.23% 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 these 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) Since the Equity 500 Index Portfolio has recently commenced operations,
"Other Expenses" is based on estimated amounts for 2000. This estimate
anticipates an expense reimbursement or fee waiver arrangement for 2000.
Absent this arrangement, estimated Total Fund Annual Expenses would be
0.39%.
The fee and expense information regarding the portfolios was provided by those
portfolios. The Alger American Fund, Neuberger Berman Advisers Management
Trust, Strong Opportunity Fund II, Inc., Strong Variable Insurance Funds,
Inc., Van Eck Worldwide Insurance Trust, Variable Insurance Products Fund, and
Variable Insurance Products Fund II are not affiliated with PMLIC.
SURRENDERS AND PARTIAL WITHDRAWALS
-- SURRENDER: At any time while the Policy is in force, you may make a request
to surrender your Policy and receive the net cash surrender value. A
surrender may have tax consequences.
-- PARTIAL WITHDRAWALS: After the first policy year, you may make a written
request to withdraw part of the net cash surrender value, subject to the
following rules. Partial withdrawals may have tax consequences.
-- You must request at least $1,500.
-- For each partial withdrawal, we deduct a $25 fee from the remaining policy
account value.
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<PAGE> 11
-- If Death Benefit Option A is in effect, we will reduce the face amount by
the amount of the partial withdrawal.
-- Unless you specify otherwise, we will deduct the requested partial
withdrawal and partial withdrawal charge from the Subaccounts and the
Guaranteed Account in proportion to the value in each account.
DEATH BENEFIT
-- INSURANCE PROCEEDS. We pay insurance proceeds to the beneficiary upon due
proof of death of the insured. The insurance proceeds equal the death
benefit and any additional insurance provided by rider less any
indebtedness and unpaid monthly deductions.
-- DEATH BENEFIT OPTION A AND OPTION B. You may choose between two death
benefit options under the Policy. After the first policy year and at least
12 months after any increase in face amount, you may change death benefit
options while the Policy is in force. We calculate the amount available
under each death benefit option as of the insured's date of death.
-- DEATH BENEFIT OPTION A is equal to the greater of:
-- the face amount (which is the amount of insurance you select); OR
-- the policy account value multiplied by the applicable percentage listed
in the table below.
-- DEATH BENEFIT OPTION B is equal to the greater of:
-- the face amount PLUS the policy account value; or
-- the policy account value multiplied by the applicable percentage listed
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 decrease pro rata for each full
year.
-- ACCELERATED DEATH BENEFIT. Under the Accelerated Death Benefit rider, you
may receive accelerated payment of part of your death benefit if the
insured develops a terminal illness or is permanently confined to a nursing
care facility.
TRANSFERS
-- You may make transfers among the Subaccounts and the Guaranteed Account.
-- We charge $25 for the 13th and each additional transfer during a policy
year.
-- Transfers out of the Guaranteed Account may be made only within 30 days of
a policy anniversary.
-- The minimum amount you may transfer from a Subaccount or the Guaranteed
Account is the lesser of $1,000 or the total value in the Subaccount or
Guaranteed Account.
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<PAGE> 12
LOANS
-- You may take a loan (minimum $500) from your Policy at any time. The
maximum loan amount you may take is the net cash surrender value. You may
increase your risk of lapse if you take a loan. Loans may have tax
consequences.
-- We charge you a maximum annual interest rate of 6% ("charged interest
rate") on your loan. Charged interest is due and payable at the end of each
policy year. Unpaid interest becomes part of the outstanding loan and
accrues interest if it is not paid by the end of the policy year.
-- We credit interest on amounts in the Loan Account ("earned interest rate")
and we guarantee that the annual earned interest rate will not be lower
than 4%. We currently credit an earned interest rate of 4% to amounts in
the Loan Account until the 10th policy anniversary or attained age 60,
whichever is later, and 5.75% annually thereafter.
-- As collateral for the loan, we transfer an amount equal to the loan
(adjusted by the earned interest rate and the charged interest rate to the
next policy anniversary) from the Separate Account and Guaranteed Account
to the Loan Account.
-- You may repay all or part of your indebtedness at any time while the
insured is alive and the Policy is in force.
-- We deduct any indebtedness from the policy account value upon surrender,
and from the insurance proceeds payable on the insured's death.
ILLUSTRATIONS
The illustrations provided in Appendix A at the end of this prospectus
illustrate death benefits, policy account values, and net cash surrender values.
These illustrations are based on hypothetical rates of return that are not
guaranteed. The illustrations also assume costs of insurance for a hypothetical
person. Your rates of return and insurance charges may be higher or lower than
these illustrations. You should obtain a personalized illustration before
purchasing a Policy.
OTHER POLICIES
We offer other variable life insurance policies that have different death
benefits, policy features, and optional programs. However, these other policies
also have different charges that would affect your Subaccount performance and
policy account value. To obtain more information about these other policies,
contact our Service Center or your agent.
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<PAGE> 13
RISK SUMMARY
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The following are some of the risks associated with the Policy.
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INVESTMENT RISK If you invest your policy account value in one or
more Subaccounts, then you will be subject to the
risk that investment performance will be
unfavorable and that the policy account value will
decrease. You COULD lose everything you invest. If
you allocate net premiums to the Guaranteed
Account, then we credit your policy account value
(in the Guaranteed Account) with a declared rate of
interest, but you assume the risk that the rate may
decrease, although it will never be lower than a
guaranteed minimum annual effective rate of 4%.
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RISK OF LAPSE If your net cash surrender value is not enough to
pay the monthly deduction and other charges, your
Policy may enter a 61-day grace period. We will
notify you that the Policy will lapse unless you
make a sufficient payment during the grace period.
Your Policy may also lapse if your indebtedness
reduces the net cash surrender value to zero. Your
Policy generally will not lapse: (1) during the
first 5 policy years, if you pay premiums (less any
indebtedness and partial withdrawals) in excess of
the minimum guarantee premium; (2) if you purchase
a Guaranteed Minimum Death Benefit rider and meet
certain conditions; or (3) if you make a payment
equal to 3 monthly deductions before the end of the
grace period. You may reinstate a lapsed Policy,
subject to certain conditions.
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TAX RISKS We anticipate that the Policy should generally be
deemed a life insurance contract under Federal tax
law. However, due to limited guidance under the
Federal tax law, there is some uncertainty about
the application of the Federal tax law to the
Policy, particularly if you pay the full amount of
premiums permitted under the Policy. Assuming that
a Policy qualifies as a life insurance contract for
Federal income tax purposes, you 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.
Depending on the total amount of premiums you pay,
the Policy may be treated as a modified endowment
contract ("MEC") under Federal tax laws. If a
Policy is treated as a MEC, then surrenders,
partial withdrawals, and loans under the Policy
will be taxable as ordinary income to the extent
there are earnings in the Policy. In addition, a
10% penalty tax may be imposed on surrenders,
partial withdrawals, and loans taken before you
reach age 59 1/2. If the Policy is not a MEC,
distributions generally will be treated first as a
return of basis or investment in the contract and
then as taxable income. Moreover, loans will not be
treated as distributions. Finally, neither
distributions
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<PAGE> 14
nor loans from a Policy that is not a MEC are
subject to the 10% penalty tax.
See "Federal Tax Considerations." You should
consult a qualified tax adviser for assistance in
all Policy-related tax matters.
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SURRENDER RISKS The surrender charge under the Policy applies for
12 policy years after the policy date. An
additional surrender charge will be applicable for
12 years from the date of any increase in the face
amount. It is possible that you will receive no net
cash surrender value if you surrender your Policy
in the first few policy years. You should purchase
the Policy only if you have the financial ability
to keep it in force for a substantial period of
time.
Even if you do not ask to surrender your Policy,
surrender charges and additional surrender charges
may play a role in determining whether your Policy
will lapse, because surrender charges and
additional surrender charges affect the net cash
surrender value which is a measure we use to
determine whether your Policy will enter a grace
period (and possibly lapse). See "Risk of Lapse,"
above.
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LOAN RISKS A policy loan, whether or not repaid, will affect
policy account value over time because we subtract
the amount of the loan from the Subaccounts and/or
Guaranteed Account as collateral, and this loan
collateral does not participate in the investment
performance of the Subaccounts or receive any
higher current interest rate credited to the
Guaranteed Account.
We reduce the amount we pay on the insured's death
by the amount of any indebtedness. Your Policy may
lapse if your indebtedness reduces the net cash
surrender value to zero.
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THE COMPANY AND THE GUARANTEED ACCOUNT
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PROVIDENT MUTUAL LIFE INSURANCE COMPANY
We are a mutual life insurance company. We were originally incorporated under
Pennsylvania law in 1865. We are subject to regulation by the Insurance
Department of the Commonwealth of Pennsylvania, as well as by the insurance
departments of all other states and jurisdictions in which we do business. We
established the Separate Account to support the investment options under the
Policy and under other variable life insurance policies we may issue. Our
general account supports the Guaranteed Account option under the Policy. As of
December 31, 1999, we had consolidated assets of approximately $9.2 billion.
IMSA. We are a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA members subscribe to a set of ethical standards involving the
sales and service of individually sold life insurance and annuities. As a member
of IMSA, we may use the IMSA logo and language in advertisements.
THE GUARANTEED ACCOUNT
The Guaranteed Account is part of our general account. We own the assets in the
general account, and we use these assets to support our insurance and annuity
obligations other than those funded by our separate
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<PAGE> 15
investment accounts. These assets are subject to our general liabilities from
business operations. Subject to applicable law, we have sole discretion over
investment of the Guaranteed Account's assets. We bear the full investment risk
for all amounts allocated or transferred to the Guaranteed Account. We guarantee
that the amounts allocated to the Guaranteed Account will be credited interest
daily at a net effective annual interest rate of at least 4%. The principal,
after charges and deductions, is also guaranteed. We will determine any interest
rate credited in excess of the guaranteed rate at our sole discretion.
The Guaranteed Account value will not share in the investment performance of our
general account. Because we, in our sole discretion, anticipate changing the
current interest rate from time to time, different allocations you make to the
Guaranteed Account will be credited with different current interest rates. For
each amount allocated or transferred to the Guaranteed Account, we apply the
current interest rate to the end of the calendar year. At the end of that
calendar year, we reserve the right to declare a new current interest rate on
this amount and accrued interest thereon (which may be a different rate than the
rate that applies to new allocations to the Guaranteed Account on that date). We
guarantee the rate declared on this amount and accrued interest thereon at the
end of each calendar year for the following calendar year. You assume the risk
that interest credited to amounts in the Guaranteed Account may not exceed the
minimum 4% guaranteed rate.
We allocate amounts from the Guaranteed Account for partial withdrawals,
transfers to the Subaccounts, or charges for the monthly deduction on a last in,
first out (i.e., LIFO) basis for the purpose of crediting interest.
WE HAVE NOT REGISTERED THE GUARANTEED ACCOUNT WITH THE SECURITIES AND EXCHANGE
COMMISSION, AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE GUARANTEED ACCOUNT.
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
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THE SEPARATE ACCOUNT
The Separate Account is a separate investment account established under
Pennsylvania law. We own the assets in the Separate Account and we are obligated
to pay all benefits under the Policies. We may use the Separate Account to
support other variable life insurance policies we issue. The Separate Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the Investment Company Act of 1940 and qualifies as a "separate
account" within the meaning of the Federal securities laws. This registration
does not involve supervision of the management or investment practices or
policies of the Separate Account by the Securities and Exchange Commission.
We have divided the Separate Account into Subaccounts, each of which invests in
shares of one portfolio of the following funds:
-- The Market Street Fund, Inc.
-- The Alger American Fund
-- Neuberger Berman Advisers Management Trust
-- Strong Opportunity Fund II, Inc.
-- Strong Variable Insurance Funds, Inc.
-- Van Eck Worldwide Insurance Trust
-- Variable Insurance Products Fund
-- Variable Insurance Products Fund II
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<PAGE> 16
The Subaccounts buy and sell portfolio shares at net asset value. Any dividends
and distributions from a portfolio are reinvested at net asset value in shares
of that portfolio.
Income, gains, and losses, whether or not realized, from assets allocated to the
Separate Account will be credited to or charged against the Separate Account
without regard to our other income, gains, or losses. Income, gains, and losses
credited to, or charged against, a Subaccount reflect the Subaccount's own
investment performance and not the investment performance of our other assets.
The Separate Account assets are held separate from our other assets and are not
part of our general account. We may not use the Separate Account's assets to pay
any of our liabilities other than those arising from the Policies. If the
Separate Account's assets exceed the required reserves and other liabilities, we
may transfer the excess to our general account. The Separate Account may include
other Subaccounts that are not available under the Policies and are not
discussed in this prospectus.
The International, Growth, Aggressive Growth, Managed, Bond, and Money Market
Subaccounts were originally established as separate investment accounts under
the provisions of Pennsylvania Insurance Law. On April 30, 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 May 1, 2000,
the assets of the Provident Mutual Variable International Separate Account,
Provident Mutual Variable Growth Separate Account, Provident Mutual Variable
Aggressive Growth Separate Account, Provident Mutual Variable Bond Separate
Account, and Provident Mutual Variable Money Market Separate Account were
transferred to corresponding new subaccounts of the Separate Account, as shown
in the table below. These separate investment accounts then ceased to exist and
the Separate Account then changed its name from Provident Mutual Variable
Separate Account to Provident Mutual Variable Life Separate Account.
<TABLE>
<CAPTION>
NEW SUBACCOUNT FORMER SEPARATE ACCOUNT
-------------- -----------------------
<S> <C>
International Subaccount Provident Mutual Variable International Separate Account
Growth Subaccount Provident Mutual Variable Growth Separate Account
Aggressive Growth Subaccount Provident Mutual Variable Aggressive Growth Separate Account
Bond Subaccount Provident Mutual Variable Bond Separate Account
Money Market Subaccount Provident Mutual Variable Money Market Separate Account
</TABLE>
If investment in the funds or a particular portfolio is no longer possible, in
our judgment becomes inappropriate for the purposes of the Policy, or for any
other reason in our sole discretion, we may substitute another fund or portfolio
without your consent. The substituted fund or portfolio may have different fees
and expenses. Substitution may be made with respect to existing investments or
the investment of future premiums, or both. However, no such substitution will
be made without any necessary approval of the Securities and Exchange
Commission. Furthermore, we may close Subaccounts to allocations of premiums or
policy account value, or both, at any time in our sole discretion. The funds,
which sell their shares to the Subaccounts pursuant to participation agreements,
also may terminate these agreements and discontinue offering their shares to the
Subaccounts.
In addition, we reserve the right to make other structural and operational
changes affecting the Separate Account. See "Additional Information -- Changes
to the Separate Account."
THE PORTFOLIOS
The Separate Account invests in shares of certain portfolios. Each portfolio is
part of a mutual fund that is registered with the Securities and Exchange
Commission as an open-end management investment company. This registration does
not involve supervision of the management or investment practices or policies of
the portfolios or mutual funds by the Securities and Exchange Commission.
Each portfolio's assets are held separate from the assets of the other
portfolios, and each portfolio has investment objectives and policies that are
different from those of the other portfolios. Thus, each portfolio
14
<PAGE> 17
operates as a separate investment fund, and the income or losses of one
portfolio generally have no effect on the investment performance of any other
portfolio.
The following table summarizes each portfolio's investment objective(s) and
identifies its investment adviser (and subadviser, if applicable). THERE IS NO
ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED OBJECTIVE(S). You
can find more detailed information about the portfolios, including a description
of risks and expenses, in the prospectuses for the portfolios that accompany
this prospectus. You should read these prospectuses carefully.
PORTFOLIO INVESTMENT OBJECTIVE AND INVESTMENT ADVISER
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 subadvisers believe
show potential for growth in future earnings.
Investment adviser is Market Street Investment
Management Company; subadvisers are Cohen,
Klingenstein & Marks, Inc. and Geewax, Terker & Co.
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 subadvisers believe offer above-average
potential for growth in future earnings. Investment
adviser is Market Street Investment Management
Company; subadvisers are Equinox Capital
Management, Inc., Harris Associates, Inc., and
Mellon Equity Associates.
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
included in the Wilshire 5000 Equity Index at the
time of purchase, which the subadvisers believe
show potential for growth in future earnings.
Investment adviser is Market Street Investment
Management Company; subadvisers are Standish, Ayer
& Wood and Husic Capital Management.
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 included in the Wilshire 5000 Equity
Index at the time of purchase, which the
subadvisers believe offer above-average potential
for growth in future earnings. Investment adviser
is Market Street Investment Management Company;
subadvisers are Reams Asset Management Company, LLC
and Sterling Capital Management Company.
INTERNATIONAL PORTFOLIO -- Seeks long-term growth of capital principally
through investments in a diversified portfolio of
marketable equity securities of established foreign
issuer companies. Investment adviser is Market
Street Investment Management Company; subadviser is
The Boston Company Asset Management, Inc.
EQUITY 500 INDEX PORTFOLIO -- Seeks to provide long-term capital appreciation
by investing primarily in common stocks included in
the Standard & Poor's 500(R) Composite Stock Price
Index.* Investment adviser is Market Street
Investment Management Company; subadviser is State
Street Global Advisors.
- ---------------
* "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 its affiliates and subsidiaries. The Policy is not
sponsored, endorsed, sold or promoted by Standard & Poor's and Standard &
Poor's makes no representation regarding the advisability of investing in the
Policy. See "Additional Information -- Standard & Poor's" below which sets
forth certain additional disclaimers and limitations of liabilities on behalf
of S&P.
15
<PAGE> 18
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.
Investment adviser is Sentinel Advisors Company.
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.
Investment adviser is Sentinel Advisors Company.
MANAGED PORTFOLIO -- Seeks to realize as 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.
Investment adviser is Sentinel Advisors Company.
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. Investment adviser is Sentinel
Advisors Company.
MONEY MARKET PORTFOLIO -- Seeks to provide maximum current income
consistent with capital preservation and liquidity
by investing in high-quality money market
instruments. Investment adviser is Sentinel
Advisors Company.
ALGER AMERICAN SMALL
CAPITALIZATION PORTFOLIO -- Seeks long-term capital appreciation. It focuses
on small, fast-growing companies that offer
innovative products, services or technologies to a
rapidly expanding marketplace. Under normal
circumstances, the portfolio invests primarily in
the equity securities of small capitalization
companies. A small capitalization company is one
that has a market capitalization within the range
of the Russell 2000 Growth Index(R) or the S&P
SmallCap 600 Index(R). Investment adviser is Fred
Alger Management, Inc.
NEUBERGER BERMAN LIMITED
MATURITY BOND PORTFOLIO -- Seeks the highest available current income
consistent with low risk to principal and liquidity
and secondarily, total return, through investment
mainly in investment grade bonds. Investment
adviser is Neuberger Berman Management
Incorporated.
NEUBERGER BERMAN PARTNERS
PORTFOLIO -- Seeks capital growth through investment mainly
in common stocks of medium- to large-capitalization
companies. Investment adviser is Neuberger Berman
Management Incorporated.
STRONG OPPORTUNITY FUND II -- Seeks capital growth by investing primarily in
stocks of medium-capitalization companies that the
portfolio's manager believes are underpriced, yet
have attractive growth prospects. Investment
adviser is Strong Capital Management, Inc.
STRONG MID CAP GROWTH FUND
II -- Seeks capital growth by investing at least 65%
of its assets in stocks of medium-capitalization
companies that the portfolio's managers believe
have favorable prospects for accelerating growth of
earnings, but are selling at reasonable valuations
based on earnings, cash flow, or asset value.
Investment adviser is Strong Capital Management,
Inc.
VAN ECK WORLDWIDE BOND
PORTFOLIO -- Seeks high total return through a flexible
policy of investing globally, primarily in debt
securities. Investment adviser is Van Eck
Associates Corporation.
VAN ECK WORLDWIDE EMERGING
MARKETS PORTFOLIO -- Seeks long-term capital appreciation by
investing primarily in equity securities in
emerging markets around the world. Investment
adviser is Van Eck Global Asset Management (Asia)
Limited.
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<PAGE> 19
VAN ECK WORLDWIDE HARD
ASSETS 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"):
(a) precious metals; (b) ferrous and non-ferrous
metals; (c) gas, petroleum, petrochemicals, or
other hydrocarbons; (d) forest products; (e) real
estate; and (f) other basic non-agricultural
commodities. Income is a secondary consideration.
Investment adviser is Van Eck Associates
Corporation.
VAN ECK WORLDWIDE REAL
ESTATE 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. Investment adviser is Van Eck
Associates Corporation.
VIP EQUITY-INCOME 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. Investment adviser is Fidelity
Management & Research Company.
VIP GROWTH 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. Investment adviser is
Fidelity Management & Research Company.
VIP HIGH INCOME 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. Investment adviser
is Fidelity Management & Research Company.
VIP OVERSEAS 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. Investment
adviser is Fidelity Management & Research Company;
subadvisers are Fidelity Management & Research
(U.K.) Inc., Fidelity Management & Research (Far
East) Inc., Fidelity International Investment
Advisors, and Fidelity International Investment
Advisors (U.K.) Limited.
VIP II ASSET MANAGER
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. Investment adviser is Fidelity
Management & Research Company; subadvisers are
Fidelity Management & Research (U.K.) Inc. and
Fidelity Management & Research (Far East) Inc.
VIP II CONTRAFUND(R)
PORTFOLIO -- Seeks capital appreciation by investing in
securities of companies where value is not fully
recognized by the public. Investment adviser is
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<PAGE> 20
Fidelity Management & Research Company; subadvisers
are Fidelity Management & Research (U.K.) Inc. and
Fidelity Management & Research (Far East) Inc.
VIP II INVESTMENT GRADE
BOND PORTFOLIO -- Seeks high current income by investing in
investment-grade debt securities. Investment
adviser is Fidelity Management & Research Company.
In addition to the Separate Account, the portfolios may sell shares to other
separate investment accounts established by other insurance companies to support
variable annuity contracts and variable life insurance policies or qualified
retirement plans, or to certain pension and retirement plans qualifying under
Section 401 of the Code. It is possible that, in the future, material conflicts
could arise as a result of such "mixed and shared" investing. See "Additional
Information -- Potential Conflicts of Interest."
THESE PORTFOLIOS ARE NOT AVAILABLE FOR PURCHASE DIRECTLY BY THE GENERAL PUBLIC,
AND ARE NOT THE SAME AS OTHER MUTUAL FUND PORTFOLIOS WITH VERY SIMILAR OR NEARLY
IDENTICAL NAMES THAT ARE SOLD DIRECTLY TO THE PUBLIC. However, the investment
objectives and policies of certain portfolios available under the Policy are
very similar to the investment objectives and policies of other portfolios that
are or may be managed by the same investment adviser or manager. Nevertheless,
the investment performance of the portfolios available under the Policy may be
lower or higher than the investment performance of these other (publicly
available) portfolios. THERE CAN BE NO ASSURANCE, AND WE MAKE NO REPRESENTATION,
THAT THE INVESTMENT PERFORMANCE OF ANY OF THE PORTFOLIOS AVAILABLE UNDER THE
POLICY WILL BE COMPARABLE TO THE INVESTMENT PERFORMANCE OF ANY OTHER PORTFOLIO,
EVEN IF THE OTHER PORTFOLIO HAS THE SAME INVESTMENT ADVISER OR MANAGER, THE SAME
INVESTMENT OBJECTIVES AND POLICIES, AND A VERY SIMILAR NAME.
PMLIC may receive compensation from the investment adviser of a fund (or
affiliates thereof) in connection with administration, distribution, or other
services provided with respect to the funds and their availability through the
Policies. The amount of this compensation is based upon a percentage of the
assets of the fund attributable to the Policies and other policies issued by
PMLIC. These percentages differ, and some advisers (or affiliates) may pay us
more than others.
PLEASE READ THE PORTFOLIO PROSPECTUSES TO OBTAIN MORE COMPLETE INFORMATION
REGARDING THE PORTFOLIOS. KEEP THESE PROSPECTUSES FOR FUTURE REFERENCE.
THE POLICY
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PURCHASING A POLICY
To purchase a Policy, you must submit a completed application and an initial
premium to us at our Service Center. You may also send the application and
initial premium to us through any licensed life insurance agent who is appointed
by PMLIC and who is also a registered representative of 1717 Capital Management
Company ("1717"), the principal underwriter for the Policy (as well as for other
variable life policies), or a registered representative of a broker-dealer
having a selling agreement with 1717, or a registered representative of a
broker-dealer having a selling agreement with these broker-dealers.
The minimum initial face amount is $50,000 for all premium classes except
preferred, and $100,000 for the preferred premium class.
Generally, the Policy is available for insureds between issue ages 1-85. We can
provide you with details as to our underwriting standards when you apply for a
Policy. We reserve the right to modify our minimum face amount and underwriting
requirements at any time. We must receive evidence of insurability that
satisfies our underwriting standards before we will issue a Policy. We reserve
the right to reject an application for any reason permitted by law.
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<PAGE> 21
WHEN INSURANCE COVERAGE TAKES EFFECT
Full insurance coverage under the Policy will take effect only if the proposed
insured is alive and in the same condition of health as described in the
application when we deliver the Policy to you, and if the minimum initial
premium has been paid.
TEMPORARY INSURANCE COVERAGE. Before full insurance coverage takes effect, you
may receive temporary insurance coverage, subject to our underwriting rules and
Policy conditions, if:
1. You answer "no" to the health questions in the temporary insurance
agreement; and
2. You pay the minimum initial premium when the application is signed.
Temporary insurance coverage shall not exceed the lesser of:
1. The face amount applied for, including term insurance riders; or
2. $500,000.
If we do not approve your application, we will make a full refund of the initial
premium paid with the application.
If insurance does not take effect under these conditions, then no insurance
shall take effect unless a Policy is delivered to and accepted by the applicant,
and the minimum initial premium is paid before any change in the insurability of
any proposed insured since the date of application.
Temporary life insurance coverage is void if the application contains any
material misrepresentation. Benefits will also be denied if any proposed insured
commits suicide.
Temporary life insurance coverage terminates automatically, and without notice,
on the earliest of:
-- 5 days from the date we mail you notification of termination of
coverage; or
-- the date that full insurance coverage takes effect under the Policy; or
-- the date a policy, other than the Policy applied for, is offered to you;
or
-- the 90th day from the date of the temporary agreement.
FULL INSURANCE COVERAGE. Once we determine that the insured meets our
underwriting requirements, full insurance coverage begins, we issue the Policy,
and we begin to deduct monthly charges from your policy account value. This date
is the policy issue date.
CANCELING A POLICY (FREE LOOK RIGHT)
INITIAL FREE LOOK. You may cancel a Policy during the free look period by
providing written notice of cancellation and returning the Policy to us or to
the agent who sold it. The free look period begins when you receive the Policy
and generally expires upon the later of: (1) 10 days after you receive the
Policy; or (2) 45 days after you signed Part I of the application. This period
will be longer if required by state law. If you decide to cancel the Policy
during the free look period, we will treat the Policy as if we never issued it.
Within 7 days after we receive the returned Policy, we will refund an amount
equal to the sum of:
1. The policy account value as of the date we receive the returned Policy,
plus
2. Any premium expense charges deducted from premiums paid, plus
3. Any monthly deductions charged against the policy account value, plus
4. An amount reflecting other charges deducted (directly or indirectly)
under the Policy.
The free look period may be longer in some states and, where state law requires,
the refund will equal all payments you made (less any partial withdrawals and
indebtedness).
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<PAGE> 22
FREE LOOK FOR INCREASE IN FACE AMOUNT. A free look period also begins if you
request an increase in face amount. You may cancel an increase in face amount
until the later of: (1) 10 days after you receive the new Policy Schedule pages
reflecting the increase; or (2) 45 days after you signed the application for the
increase. If you exercise this right, all monthly deductions attributable to the
increase plus the face amount increase charge will be credited to the
Subaccounts and the Guaranteed Account in the same proportion as they were
deducted, unless you request a refund of this amount.
OWNERSHIP RIGHTS
The Policy belongs to the owner named in the application. While the insured is
living, the owner may exercise all of the rights and options described in the
Policy. The owner is the insured unless the application specifies a different
person as the insured or the owner is changed thereafter. If the owner is not
the insured and dies before the insured, ownership of the Policy will pass to
the owner's estate, unless a contingent owner has been designated. To the extent
permitted by law, Policy benefits are not subject to any legal process for the
payment of any claim against the payee, and no right or benefit will be subject
to claims of creditors (except as may be provided by assignment).
The owner may exercise certain rights described below.
SELECTING AND CHANGING THE
BENEFICIARY -- You designate the beneficiary (the person to
receive the insurance proceeds when the
insured dies) in the application.
-- You may designate more than one beneficiary.
If you designate more than one beneficiary,
then each beneficiary that survives the
insured shares equally in any insurance
proceeds unless the beneficiary designation
states otherwise.
-- If there is not a designated beneficiary
surviving at the insured's death, we will pay
the insurance proceeds in a lump sum to the
insured's estate.
-- You can change the beneficiary by providing us
with written notice while the insured is
living.
-- The change is effective as of the date you
complete and sign the written notice,
regardless of whether the insured is living
when we receive the notice.
-- We are not liable for any payment or other
actions we take before we receive your written
notice.
-- A beneficiary generally may not pledge,
commute, or otherwise encumber or alienate
payments under the Policy before they are due.
- --------------------------------------------------------------------------------
CHANGING THE OWNER -- You may change the owner by providing a
written notice to us at any time while the
insured is alive.
-- The change is effective as of the date you
complete and sign the written notice,
regardless of whether the insured is living
when we receive the request.
-- We are not liable for any payment or other
actions we take before we receive your written
notice.
-- Changing the owner does not automatically
change the beneficiary or the insured.
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<PAGE> 23
-- Changing the owner may have tax consequences.
You should consult a tax adviser before
changing the owner.
- --------------------------------------------------------------------------------
ASSIGNING THE POLICY -- You may assign Policy rights while the insured
is alive by submitting written notice to us.
-- Your interests and the interests of any
beneficiary or other person will be subject to
any assignment.
-- You retain any ownership rights that are not
assigned.
-- Assignments are subject to any policy loan.
-- We are not:
- bound by any assignment unless we receive a
written notice of the assignment;
- responsible for the validity of any
assignment or determining the extent of an
assignee's interest; or
- liable for any payment we make before we
receive written notice of the assignment.
-- Assigning the Policy may have tax
consequences. See "Federal Tax
Considerations -- Tax Treatment of Policy
Benefits."
PREMIUMS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MINIMUM INITIAL PREMIUM. 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, and the health and other conditions of the insured
described in the application must not have changed.
PREMIUM FLEXIBILITY. When you apply for a Policy, you will elect to pay
premiums on a quarterly, semiannual, or annual basis (planned periodic
premiums). We will then send you a premium reminder notice as each payment
becomes "due." However, you do not have to pay premiums according to any
schedule. You have flexibility to determine the frequency and the amount of the
premiums you pay, and you can change the planned periodic premium schedule at
any time. If you are submitting a premium payment pursuant to a premium reminder
notice, the address for payment will be enclosed with the notice. You may also
send your premium payments to our Service Center. If you have an outstanding
policy loan, we will credit all payments you send to us as loan repayments
unless you provide written notice for the payments to be applied as premium
payments. (For New York residents, we will credit all payments you send to us as
premium payments unless you provide written notice for the payments to be
applied as loan repayments.) You may also choose to have premium payments
automatically deducted monthly from your bank account or other source under the
automatic payment plan. Payment of the planned periodic premiums does not
guarantee that the Policy will remain in force. See "Policy Lapse and
Reinstatement."
You may not pay any premiums after the Policy's final policy date. You may not
pay premiums less than $20, and we reserve the right to increase this minimum to
an amount not exceeding $500 upon 90 days written notice to you. We have the
right to limit or refund any premium or portion of a premium if:
1. The premium would disqualify the Policy as a life insurance contract
under the Code;
2. The amount you pay is less than the minimum dollar amount allowed
(currently $20); or
3. The premium would increase the net amount at risk (unless you provide
us with satisfactory evidence of insurability).
21
<PAGE> 24
You can stop paying premiums at any time and your Policy will continue in force
until the earlier of the final policy date, or the date when either: (1) the
insured dies; (2) the grace period ends without a sufficient payment (see
"Policy Lapse and Reinstatement"); or (3) we receive your written notice
requesting a surrender of the Policy.
MINIMUM GUARANTEE PREMIUM. The minimum guarantee premium is the monthly premium
amount necessary to guarantee insurance coverage during the first 5 policy
years. Your Policy's specifications page will show a minimum guarantee premium
amount for your Policy, which is based on the insured's issue age, sex, premium
class, face amount, and riders. The minimum guarantee premium will increase if
you increase the face amount or add supplemental benefits to your Policy. The
minimum guarantee premium will decrease for any supplemental benefit you
decrease or discontinue. The minimum guarantee premium will not decrease if you
decrease the face amount. See "Death Benefit -- Changing the Face Amount."
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 these limits. We have 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 these limits, we will accept only that
portion of the premium which would make total premiums equal the maximum amount
which may be paid under the Policy. We will notify you of available options with
regard to the excess premium. If a satisfactory arrangement is not made, we will
refund this excess to you. 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 (i.e., the policy account value
less any surrender charges or additional surrender charges) should still be
excludable from gross income.
The maximum premium limitations set forth in the Code depend in part upon the
amount of the death benefit at any time. As a result, any Policy changes which
affect the amount of the death benefit may affect whether cumulative premiums
paid under the Policy exceed the maximum premium limitations.
TAX-FREE EXCHANGES (1035 EXCHANGES). We may accept as part of your initial
premium, money from another life insurance contract that qualified for a
tax-free exchange under Section 1035 of the Code, contingent upon receipt of the
cash from that contract. If you contemplate such an exchange, you should consult
a tax adviser to discuss the potential tax effects of such a transaction.
ALLOCATING PREMIUMS
When you apply for a Policy, you must instruct us in the application to allocate
your net premium to one or more Subaccounts of the Separate Account and/or to
the Guaranteed Account according to the following rules:
-- Allocation percentages must be in whole numbers and the sum of the
percentages must equal 100%.
-- We will allocate the net premium as of the date we receive it at our
Service Center according to your current premium allocation
instructions.
-- You can change the allocation instructions for additional net premiums
without charge by providing us with written notice. Any change in
allocation instructions will be effective on the date we record the
change.
Investment returns from amounts allocated to the Subaccounts will vary with the
investment performance of these Subaccounts and will be reduced by Policy
charges. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE
SUBACCOUNTS. You should periodically review your allocation schedule in light of
market conditions and your overall financial objectives.
Certain states require us to refund all payments (less any partial withdrawals
and indebtedness) in the event you cancel the Policy during the free look
period. See "Canceling a Policy (Free Look Right)." In
22
<PAGE> 25
those states, we will allocate to the Money Market Subaccount any premiums you
request be allocated to Subaccount(s) which are received at our Service Center
within 15 days from the later of: (1) the policy issue date; or (2) the date we
receive the minimum initial premium. After this 15-day period ends, the value in
the Money Market Subaccount is allocated among the Subaccounts as indicated in
the application. We invest all net premiums paid thereafter based on the
allocation percentages then in effect.
POLICY ACCOUNT VALUES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POLICY ACCOUNT VALUE
The policy account value serves as the starting point for calculating values
under a Policy.
POLICY ACCOUNT VALUE: -- equals the sum of all values in the Guaranteed
Account, the Loan Account, and in each
Subaccount;
-- is determined first on the policy date and
then on each valuation day; and
-- has no guaranteed minimum amount and may be
more or less than premiums paid.
NET CASH SURRENDER VALUE
The net cash surrender value is the amount we pay to you when you surrender your
Policy. We determine the net cash surrender value at the end of the valuation
period when we receive your written surrender request.
NET CASH SURRENDER VALUE AT
THE END OF ANY VALUATION
DAY EQUALS: -- the policy account value as of such date;
MINUS
-- any surrender charge or additional surrender
charge as of such date; MINUS
-- any outstanding indebtedness.
SUBACCOUNT VALUE
At the end of any valuation period, the Subaccount value is equal to the number
of units in the Subaccount multiplied by the unit value of that Subaccount.
THE NUMBER OF UNITS IN ANY
SUBACCOUNT AT THE END OF
ANY VALUATION DAY EQUALS: -- the initial units purchased at the unit value
on the policy issue date; PLUS
-- units purchased with additional net premiums;
PLUS
-- units purchased with special policy account
value credit (see "Policy Account
Values -- Special Policy Account Value
Credit"); PLUS
-- units purchased via transfers from another
Subaccount, the Guaranteed Account, or the
Loan Account; MINUS
-- units redeemed to pay for monthly deductions;
MINUS
-- units redeemed to pay for partial withdrawals;
MINUS
-- units redeemed as part of a transfer to
another Subaccount, the Guaranteed Account, or
the Loan Account.
Every time you allocate or transfer money to or from a Subaccount, we convert
that dollar amount into units. We determine the number of units we credit to, or
subtract from, your Policy by dividing the dollar amount of the transaction by
the unit value for that Subaccount at the end of the valuation period.
23
<PAGE> 26
UNIT VALUE
We determine a unit value for each Subaccount to reflect how investment
performance affects the policy account value. Unit values will vary among
Subaccounts. The unit value may increase or decrease from one valuation period
to the next.
THE UNIT VALUE OF ANY
SUBACCOUNT AT THE END OF
ANY VALUATION DAY EQUALS: -- the unit value of the Subaccount on the
immediately preceding valuation day;
MULTIPLIED BY
-- the net investment factor for that Subaccount
on that valuation day.
THE NET INVESTMENT FACTOR: -- measures the investment performance of a
Subaccount from one valuation period to the
next;
-- increases to reflect investment income and
capital gains (realized and unrealized) for
the shares of the underlying portfolio; and
-- decreases to reflect any capital losses
(realized and unrealized) for the shares of
the underlying portfolio, as well as the
mortality and expense risk charge.
GUARANTEED ACCOUNT VALUE
On the policy issue date, the Guaranteed Account value is equal to the net
premiums allocated to the Guaranteed Account, less the portion of the first
monthly deduction taken from the Guaranteed Account.
THE GUARANTEED ACCOUNT
VALUE AT THE END OF ANY
VALUATION DAY IS EQUAL TO: -- the net premium(s) allocated to the Guaranteed
Account; PLUS
-- any amounts transferred to the Guaranteed
Account (including amounts transferred from
the Loan Account); PLUS
-- interest credited to the Guaranteed Account;
MINUS
-- amounts deducted to pay for monthly
deductions; MINUS
-- amounts withdrawn from the Guaranteed Account;
MINUS
-- amounts transferred from the Guaranteed
Account to a Subaccount or to the Loan
Account.
Interest will be credited to the Guaranteed Account on each policy processing
day as follows:
-- for amounts in the Guaranteed Account for the entire policy month --
interest will be credited from the beginning to the end of the policy
month
-- for amounts allocated to the Guaranteed Account during the prior policy
month -- interest will be credited from the date the net premium or loan
repayment is allocated to the end of the policy month
-- for amounts transferred to the Guaranteed Account during the prior
policy month -- interest will be credited from the date of the transfer
to the end of the policy month
-- for amounts deducted or withdrawn from the Guaranteed Account during the
prior policy month - - interest will be credited from the beginning of
the prior policy month to the date of deduction or withdrawal
SPECIAL POLICY ACCOUNT VALUE CREDIT
The special policy account value credit is an amount added to the policy account
value in the Subaccounts on each policy processing day, either: (1) after the
Policy has been in force for at least 15 years; or (2) when the policy account
value less the Loan Account value equals or exceeds $100,000.
<TABLE>
<S> <C>
SPECIAL POLICY ACCOUNT VALUE CREDIT -- 0.03% MULTIPLIED BY
IS EQUAL TO: -- the policy account value in the Subaccounts.
</TABLE>
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<PAGE> 27
The special policy account value credit is intended to offset a portion of the
mortality and expense risk charge.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We make certain charges and deductions under the Policy. These charges and
deductions compensate us for: (1) services and benefits we provide; (2) costs
and expenses we incur; and (3) risks we assume.
<TABLE>
<S> <C>
SERVICES AND BENEFITS WE PROVIDE: -- the death benefit, cash, and loan benefits under the Policy
-- investment options, including premium allocations
-- administration of elective options
-- the distribution of reports to owners
COSTS AND EXPENSES WE INCUR: -- costs associated with processing and underwriting
applications, and with issuing and administering the Policy
(including any riders)
-- overhead and other expenses for providing services and
benefits
-- sales and marketing expenses
-- other costs of doing business, such as collecting
premiums, maintaining records, processing claims, effecting
transactions, and paying Federal, state, and local
premium and other taxes and fees
RISK WE ASSUME: -- that the cost of insurance charges we may deduct are
insufficient to meet our actual claims because insureds die
sooner than we estimate
-- that the costs of providing the services and benefits
under the Policies exceed the charges we deduct
</TABLE>
PREMIUM EXPENSE CHARGE
Prior to allocation of net premium, we deduct a premium expense charge from each
premium to compensate us for distribution expenses and certain taxes. We credit
the remaining amount (the net premium) to your policy account value according to
your allocation instructions. The premium expense 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. Premium
taxes vary from state to state but range from 0% to 4%. No premium tax
charge is deducted in jurisdictions that impose no premium tax.
2. Percent of Premium Charge: equal to 1.5% of each premium payment to
compensate us partially for Federal taxes and the cost of selling the
Policy. We may increase this charge to a maximum of 3% of each premium
payment.
MONTHLY DEDUCTION
We deduct a monthly deduction from the policy account value on the policy date
and on each policy processing day to compensate us for administrative expenses
and for the Policy's insurance coverage. We will make deductions from each
Subaccount and the Guaranteed Account in accordance with the allocation
percentage for monthly deductions you chose at the time of application, or as
later changed by written notice. If we cannot make a monthly deduction on this
basis, we will make deductions on a pro rata basis (i.e., in the same proportion
that the value in each Subaccount and the Guaranteed Account bears to the
unloaned policy account value on the policy processing day). Because portions of
the monthly deduction (such as the cost of insurance) can vary from
month-to-month, the monthly deduction will also vary.
If the policy date is set prior to the policy issue date, a monthly deduction
will accrue on the policy date and on each policy processing day until the
policy issue date. On the policy issue date, these accrued monthly deductions
will be deducted from the policy account value. The maximum amount deducted on
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<PAGE> 28
the policy issue date will equal the sum of 6 monthly deductions. We will then
deduct a monthly deduction from the policy account value on each policy
processing day thereafter as described above.
The monthly deduction has 4 components:
-- the cost of insurance charge
-- the monthly administrative charge
-- the initial administrative charge (for the first 12 policy processing
days)
-- charges for any riders (as specified in the applicable rider(s))
COST OF INSURANCE. We assess a monthly cost of insurance charge to compensate
us for underwriting the death benefit. The charge depends on a number of
variables (issue age, sex, premium class, policy year, and face amount) that
would cause it to vary from Policy to Policy and from policy processing day to
policy processing day. Your Policy's specifications page indicates the
guaranteed cost of insurance charge applicable to your Policy.
<TABLE>
<S> <C>
COST OF The cost of insurance charge is equal to:
INSURANCE -- the monthly cost of insurance rate; MULTIPLIED BY
CHARGE -- the net amount at risk for your Policy on the policy
processing day.
</TABLE>
The net amount at risk is equal to:
<TABLE>
<S> <C>
-- the death benefit on the policy processing day; MINUS
-- the policy account value on the policy processing day.
</TABLE>
We calculate the cost of insurance charge separately for the initial face amount
and for any increase in face amount. If we approve an increase in your Policy's
face amount, then a different premium class (and a different cost of insurance
charge) may apply to the increase, based on the insured's circumstances at the
time of the increase. If, however, the death benefit is the policy account value
times the specified percentage, the rate for the premium class for the initial
face amount will be used for the amount of the death benefit in excess of the
total face amount.
The cost of insurance charge is determined in a similar manner for any
Additional Insurance Benefit rider coverage amount and for any increase in rider
coverage amount. Generally, the current cost of insurance rates for this rider
are lower than the current cost of insurance rates on the Policy's net amount at
risk. The guaranteed cost of insurance rates under the rider are substantially
the same as the guaranteed cost of insurance rates on the Policy's net amount at
risk. See "Other Policy Information -- Supplemental Benefits and Riders."
Net Amount at Risk. We also calculate the net amount at risk separately for the
initial face amount and for any increase 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 then considered as part of any increases
in face amount in the order these increases took effect.
Cost of insurance rates. We base the cost of insurance rates on the insured's
attained age, sex, premium class, number of full years the insurance has been in
force, and the face amount. The actual monthly cost of insurance rates are based
on our expectations as to future mortality and expense experience. The rates
will never be greater than the guaranteed cost of insurance rates stated in your
Policy. These guaranteed rates are based on the 1980 Commissioner's Standard
Ordinary Smoker and Nonsmoker Mortality Table and the insured's attained age,
sex, and premium class. For Policies issued in states which require "unisex"
policies or in conjunction with employee benefit plans, the maximum cost of
insurance charge depends only on the insured's attained age, premium class, and
the 1980 Commissioner's 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, premium class, and number of full years insurance has been in force.
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<PAGE> 29
Premium class. The premium class of the insured will affect the cost of
insurance rates. We currently place 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 3 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. The nonsmoker designation is not available for
insureds under attained age 21, but shortly before an insured
attains age 21, we 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.
- Preferred insureds will generally incur lower cost of insurance
rates than insureds who are classified as nonsmokers.
MONTHLY ADMINISTRATIVE CHARGE. Each month we deduct a $7.50 monthly
administrative charge to compensate us for ordinary administrative expenses such
as record keeping, processing death benefit claims and Policy changes, preparing
and mailing reports, and overhead costs. This charge may be increased but will
not exceed $12 per month.
INITIAL ADMINISTRATIVE CHARGE. On the first 12 policy processing days, we
deduct a $5.00 initial administrative charge for policy issue costs.
CHARGES FOR RIDERS. The monthly deduction includes charges for any supplemental
insurance benefits you add to your Policy by rider. See "Other Policy
Information -- Supplemental Benefits and Riders."
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge from each Subaccount (but not the Guaranteed Account)
to compensate us for certain mortality and expense risks we assume. The
mortality risk is that an insured will live for a shorter time than we project.
The expense risk is that the expenses that we incur will exceed the
administrative charge limits we set in the Policy.
This charge is equal to:
-- the assets in each Subaccount, MULTIPLIED BY
-- 0.002055%, which is the daily portion of the annual mortality and
expense risk charge rate of 0.75% during all policy years.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our surplus.
We may increase this charge to a maximum annual rate of 0.90%. We expect to
profit from this charge and may use these profits for any lawful purpose
including covering distribution expenses.
In certain situations, a portion of the mortality and expense risk charge may be
offset by the special policy account value credit. See "Policy Account
Value -- Special Policy Account Value Credit."
SURRENDER CHARGES AND ADDITIONAL SURRENDER CHARGES
Surrender charges and additional surrender charges are deducted to compensate us
partially 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,
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<PAGE> 30
processing of the applications, establishing policy records, and Policy issue.
We do not expect surrender charges and additional surrender charges to cover all
of these costs. To the extent that they do not, we will cover the short-fall
from our general account assets, which may include profits from the mortality
and expense risk charge and cost of insurance charge.
SURRENDER CHARGE. If your Policy lapses or you fully surrender your Policy
during the first 12 policy years, we deduct a surrender charge from your policy
account value and pay the remaining amount (less any outstanding indebtedness)
to you. The payment you receive is called the net cash surrender value. This
surrender charge does not apply to partial withdrawals.
The surrender charge consists of:
1. Deferred Administrative Charge: the charge described in the table below
less any deferred administrative charge previously paid at the time of a
decrease in face amount.
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR(S) OF FACE AMOUNT
- -------------- -----------------
<S> <C>
1-6......................................................... $4.90
7........................................................... $4.20
8........................................................... $3.50
9........................................................... $2.80
10.......................................................... $2.10
11.......................................................... $1.40
12.......................................................... $0.70
13+......................................................... $ -0-
</TABLE>
2. Deferred Sales Charge: this charge equals the lesser of a or b (less any
deferred sales charge previously paid at the time of a prior decrease in
face amount), where:
a = 35% of all premiums paid to the date of surrender or lapse; or
b = the following percentage of target premium:
<TABLE>
<CAPTION>
% OF TARGET
PREMIUM FOR THE
POLICY YEAR(S) INITIAL FACE AMOUNT
- -------------- -------------------
<S> <C>
1-6......................................................... 70%
7........................................................... 60%
8........................................................... 50%
9........................................................... 40%
10.......................................................... 30%
11.......................................................... 20%
12.......................................................... 10%
13+......................................................... 0%
</TABLE>
ADDITIONAL SURRENDER CHARGE. Within 12 years after the effective date of an
increase in face amount, we deduct an additional surrender charge if you
surrender the Policy or it lapses.
The additional surrender charge consists of:
1. Additional Deferred Administrative Charge: the charge described in the
table below less any additional deferred administrative charge
previously paid at the time of a decrease in face amount.
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<PAGE> 31
<TABLE>
<CAPTION>
CHARGE PER $1,000
12-MONTH PERIOD BEGINNING WITH FOR EACH INCREASE
THE EFFECTIVE DATE OF EACH INCREASE IN FACE AMOUNT
- ----------------------------------- -----------------
<S> <C>
1-6......................................................... $4.90
7........................................................... $4.20
8........................................................... $3.50
9........................................................... $2.80
10.......................................................... $2.10
11.......................................................... $1.40
12.......................................................... $0.70
13+......................................................... $ -0-
</TABLE>
2. Additional Deferred Sales Charge: this charge equals the lesser of A or
B (less any additional deferred sales charge for this increase
previously paid at the time of a decrease in face amount), where:
a = 35% of premiums allocated to the increase in face amount; or
b = the following percentage of target premium:
<TABLE>
<CAPTION>
% OF TARGET PREMIUM
FOR EACH INCREASE
NUMBER OF YEARS FOLLOWING THE EFFECTIVE DATE OF THE INCREASE IN FACE AMOUNT IN FACE AMOUNT
- --------------------------------------------------------------------------- -------------------
<S> <C>
1-6................................................................ 70%
7.................................................................. 60%
8.................................................................. 50%
9.................................................................. 40%
10................................................................. 30%
11................................................................. 20%
12................................................................. 10%
13+................................................................ 0%
</TABLE>
DECREASE IN FACE AMOUNT. In the event of a decrease in face amount before the
end of the 12th policy year or within 12 years after an increase in face amount,
we deduct a charge that is a portion of the surrender charge and/or additional
surrender charge.
-- If there have been no increases in face amount, we determine this
portion by dividing the amount of the decrease by the current face
amount and multiplying the result by the surrender charge and/or
additional surrender charge.
-- If more than one surrender charge and/or additional surrender charge is
in effect because of one or more increases in face amount, we apply the
surrender charge and/or additional surrender charge in the following
order: (1) the most recent increase, followed by (2) the next most
recent increases in succession, and (3) the initial face amount.
-- Where a decrease causes a partial reduction in an increase or in the
initial face amount, we will deduct a proportionate share of the
surrender charge or additional surrender charge for that increase or for
the initial face amount.
-- We will deduct the surrender charge and/or additional surrender charge
applicable to the decrease from the policy account value and the
remaining surrender charge and/or additional surrender charge will be
reduced by the amount deducted.
-- We will deduct the surrender charge and/or additional surrender charge
from the Subaccounts and the Guaranteed Account based on the proportion
that the values in the Subaccounts and the Guaranteed Account bear to
the total unloaned policy account value.
29
<PAGE> 32
The surrender charge, additional surrender charge, and target premium vary based
on the insured's attained age, sex, premium class, and initial face amount. The
maximum target premium for any Policy is $54 per $1,000 of face amount. Your
Policy's specifications page indicates the surrender charges, additional
surrender charges, and target premium applicable to your Policy.
THE SURRENDER CHARGE AND ADDITIONAL SURRENDER CHARGE MAY BE SIGNIFICANT. YOU
SHOULD CAREFULLY CALCULATE THESE CHARGES BEFORE YOU REQUEST A SURRENDER OR
DECREASE IN FACE AMOUNT. Under some circumstances the level of surrender charges
and additional surrender charges might result in no net cash surrender value
available.
FACE AMOUNT INCREASE CHARGE
If you increase the face amount, we will deduct a charge of $60 plus $0.50 per
$1,000 face amount increase (but not greater than $750) from the policy account
value on the effective date of this increase. This charge will be deducted from
the Subaccounts and the Guaranteed Account based on the allocation schedule for
monthly deductions in effect at the time of the increase. We deduct this charge
to compensate us for administrative expenses incurred in connection with the
increase, including medical exams, review of the application for the increase,
underwriting decisions, application processing, and changing Policy records and
the Policy. We may increase this charge to a maximum of $60 plus $3.00 per
$1,000 face amount increase. We do not guarantee a $750 limit if we increase
this charge.
PARTIAL WITHDRAWAL CHARGE
After the first policy year, you may request a partial withdrawal from your
policy account value. For each partial withdrawal, we will deduct a $25 fee from
the remaining policy account value. This charge is to compensate us for
administrative costs in generating the withdrawn payment and in making all
calculations which may be required because of the partial withdrawal.
TRANSFER CHARGE
We currently allow you to make 12 transfers among the Subaccounts or the
Guaranteed Account each policy year with no additional charge.
-- We deduct $25 for the 13th and each additional transfer made during a
policy year to compensate us for the costs of processing these
transfers.
-- For purposes of assessing the transfer charge, we consider each
telephone or written request to be one transfer, regardless of the
number of Subaccounts (or Guaranteed Account) affected by the
transfer.
-- We deduct the transfer charge from the amount being transferred.
-- Transfers due to dollar cost averaging, automatic asset rebalancing,
loans, the exchange privilege, the special transfer right, change in
Subaccount investment policy, or the initial reallocation of account
values from the Money Market Subaccount do NOT count as transfers for
the purpose of assessing this charge.
PORTFOLIO EXPENSES
The value of the net assets of each Subaccount reflects the management fees and
other expenses incurred by the corresponding portfolio in which the Subaccount
invests. For further information, consult the portfolios' prospectuses and the
Annual Portfolio Operating Expenses table included in the summary of this
prospectus.
30
<PAGE> 33
DEATH BENEFIT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INSURANCE PROCEEDS
As long as the Policy is in force, we will pay the insurance proceeds to the
beneficiary once we receive satisfactory proof of the insured's death. We may
require you to return the Policy. We will pay the insurance proceeds in a lump
sum or under a settlement option. If the beneficiary dies before the insured, we
will pay the insurance proceeds in a lump sum to the insured's estate. See
"Death Benefit -- Settlement Options" and "Other Policy Information -- Payment
of Policy Benefits."
<TABLE>
<S> <C>
INSURANCE PROCEEDS EQUAL: -- the death benefit (described below); PLUS
-- any additional insurance provided by rider; MINUS
-- any unpaid monthly deductions; MINUS
-- any outstanding indebtedness.
</TABLE>
If all or part of the insurance proceeds are paid in one sum, we will pay
interest on this sum at the annual rate of 3% or any higher rate as required by
applicable state law from the date of the insured's death to the date we make
payment.
An increase in the face amount will increase the death benefit, and a decrease
in the face amount will decrease the death benefit.
We may further adjust the amount of the insurance proceeds under certain
circumstances. See "Other Policy Information -- Our Right to Contest the
Policy," and "Other Policy Information -- Misstatement of Age or Sex."
DEATH BENEFIT OPTIONS
The Policy provides two death benefit options: Option A and Option B. We
calculate the amount available under each death benefit option as of the date of
the insured's death. Under either option, the length of the death benefit
coverage depends upon the Policy's net cash surrender value. See "Policy Lapse
and Reinstatement."
<TABLE>
<S> <C> <C>
The Death Benefit -- the face amount; OR
under OPTION A is the greater of: -- the policy account value (determined on the valuation day on
or next following the date of the insured's death)
multiplied by the applicable percentage listed in the table
below.
The Death Benefit under OPTION B is -- the face amount PLUS the policy account value (determined on
the greater of: the valuation day on or next following the date of the
insured's death); OR
-- the policy account value (determined on the valuation day on
or next following the date of the insured's death)
multiplied by the applicable percentage listed in the table
below.
</TABLE>
<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 decrease pro rata for each full
year.
WHICH DEATH BENEFIT OPTION TO CHOOSE. If you prefer to have premium payments
and favorable investment performance reflected partly in the form of an
increasing death benefit, you should choose
31
<PAGE> 34
Option B. If you are satisfied with the amount of the insured's existing
insurance coverage and prefer to have premium payments and favorable investment
performance reflected to the maximum extent in the policy account value, you
should choose Option A.
The amount of the death benefit may vary with the policy account value.
-- Under Option A, the death benefit will vary with the policy account
value whenever the policy account value multiplied by the applicable
percentage is greater than the face amount.
-- Under Option B, the death benefit will always vary with the policy
account value.
CHANGING DEATH BENEFIT OPTIONS
After the first policy year or 12 months after a face amount increase, you may
change death benefit options without evidence of insurability and with no
additional charge while the Policy is in force. Changing the death benefit
option may have tax consequences and may affect the net amount at risk over time
(which would affect the monthly cost of insurance charge). However, we will not
permit any change that would result in your Policy being disqualified as a life
insurance contract under Section 7702 of the Code. You should consult a tax
adviser before changing death benefit options.
-- You must submit a written request for any change in death benefit
options.
-- We may require you to return your Policy to make a change.
-- The effective date of the change in death benefit option will be the
policy processing day on or following the date when we approve your
request for a change.
If you change from OPTION A TO OPTION B:
-- We will first decrease the face amount (beginning with the most recent
increase, then the next most recent increases in succession, and then
the initial face amount) and then any applicable rider coverage amounts
by the policy account value on the effective date of the change.
-- The death benefit will NOT change on the effective date of the change.
-- The net amount at risk will generally remain level. This means there
will be a relative increase in the cost of insurance charges over time
because the net amount at risk will remain level rather than decrease as
the policy account value increases (unless the death benefit is based on
the applicable percentage of policy account value).
-- If the face amount or applicable rider coverage amount would be reduced
to less than the minimum initial face amount or minimum amount in which
the Policy or applicable rider could be issued, then we will not allow
the change in death benefit option.
If you change from OPTION B TO OPTION A:
-- The face amount will be increased by the policy account value on the
effective date of the change.
-- The death benefit will NOT change on the effective date of the change.
-- Unless the death benefit is based on the applicable percentage of policy
account value, if the policy account value increases, the net amount at
risk will decrease over time, thereby reducing the cost of insurance
charge.
CHANGING THE FACE AMOUNT
You select the face amount when you apply for the Policy. After the first policy
year, you may change the face amount subject to the conditions described below.
We may require you to return your Policy to make a change. We will not permit
any change that would result in your Policy being disqualified as a life
insurance contract under Section 7702 of the Code. However, changing the face
amount may have tax consequences and you should consult a tax adviser before
doing so.
32
<PAGE> 35
INCREASING THE FACE AMOUNT
-- You may increase the face amount by submitting a written
application and providing evidence of insurability satisfactory to
us at our Service Center.
-- 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 charge for the increase. If not, the
increase will not occur until you pay sufficient additional premium
to increase the net cash surrender value.
-- An increase will be effective on the policy processing day on or
next following the date we approve your application, provided we
have received any premium necessary to make the change.
-- We apply a face amount increase charge.
-- The minimum increase is $25,000.
-- You 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.
-- Increasing the face amount during the first 5 policy years or
purchasing the Guaranteed Minimum Death Benefit rider will increase
your minimum guarantee premium.
-- Each increase in face amount will begin a 12-year period during
which an additional surrender charges will apply if you surrender
the Policy.
-- The total net amount at risk will be affected, which will increase
the monthly cost of insurance charges.
-- A different cost of insurance charge may apply to the increase in
face amount, based on the insured's circumstances at the time of
the increase.
We use a special method 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. We allocate the policy account
value 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). We
allocate premium payments made on or after the effective date of the increase
between the initial face amount and the increase using the same ratio as is used
to allocate the policy account value. In the event that 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 subsequent premium
payments among the various increments of face amounts.
DECREASING THE FACE AMOUNT
-- You must submit a written request to decrease the face amount, but
you may not decrease the face amount below the minimum initial face
amount. The decrease must be for at least $25,000.
-- A decrease is not allowed for 12 months following an increase in
face amount.
-- Any decrease will be effective on the policy processing day on or
next following the date we approve your request.
-- Decreasing the face amount may result in a surrender charge and/or
additional surrender charge, which will reduce policy account
value.
-- A decrease in face amount generally will decrease the net amount at
risk, which will decrease the cost of insurance charges. For
purposes of determining the cost of insurance charge and any
surrender charge, any decrease will first be used to reduce the
most recent increase, then the next most recent increases in
succession, and then the initial face amount.
33
<PAGE> 36
-- We will not allow a decrease in face amount if this decrease would
cause the Policy to no longer qualify as life insurance under the
Code.
-- Decreasing the face amount will not affect the minimum guarantee
premium, unless you have elected the Guaranteed Minimum Death
Benefit rider.
SETTLEMENT OPTIONS
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. None of these
options vary with the investment performance of the Separate Account. More
detailed information concerning these settlement options is available on request
from our Service Center. See "Other Policy Information -- Payment of Policy
Benefits."
ACCELERATED DEATH BENEFIT
Under the Accelerated Death Benefit rider, you may receive an accelerated
payment of part of the Policy's death benefit when one of the following two
events occurs:
1. TERMINAL ILLNESS. The insured develops a non-correctable medical
condition which is expected to result in his or her death within 12
months; OR
2. PERMANENT CONFINEMENT TO A NURSING CARE FACILITY. The insured has been
confined to a nursing care facility for 180 days and is expected to
remain in such a facility for the remainder of his or her life.
There is no additional charge for this rider. 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. See "Other Policy
Information -- Supplemental Benefits and Riders."
SURRENDERS AND PARTIAL WITHDRAWALS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SURRENDERS
You may request to surrender your Policy for its net cash surrender value as
calculated at the end of the valuation day when we receive your request, subject
to the following conditions:
-- You must complete and sign our surrender form and send it to us at our
Service Center. You may obtain the surrender form by calling us at
(800) 688-5177.
-- The insured must be alive and the Policy must be in force when you
make your request, and the request must be made before the final
policy date. We may require that you return the Policy.
-- If you surrender your Policy during the first 12 policy years (or
during the first 12 years after an increase in the face amount), you
will incur a surrender charge. See "Charges and Deductions --
Surrender Charges and Additional Surrender Charges."
-- Once you surrender your Policy, all coverage and other benefits under
it cease and cannot be reinstated.
-- We will pay the net cash surrender value to you in a lump sum within 7
days after we receive your completed, signed surrender form unless you
request other arrangements.
-- A surrender may have tax consequences. See "Federal Tax
Considerations -- Tax Treatment of Policy Benefits."
34
<PAGE> 37
PARTIAL WITHDRAWALS
After the first policy year, you may make a written request to withdraw part of
the net cash surrender value subject to the following conditions:
-- You must request at least $1,500.
-- For each partial withdrawal, we deduct a $25 fee from the remaining
policy account value. See "Charges and Deductions -- Partial Withdrawal
Charge."
-- The insured must be alive and the Policy must be in force when you make
your request, and this request must be made before the final policy
date.
-- You can specify the Subaccount(s) and Guaranteed Account from which to
make the partial withdrawal. Otherwise, we will deduct the amount
(including any fee) from the Subaccounts and the Guaranteed Account on a
pro-rata basis (that is, based on the proportion that each Subaccount
value and the Guaranteed Account value bears to the unloaned policy
account value).
-- You may not make a partial withdrawal if, or to the extent that, the
partial withdrawal would reduce the face amount below the minimum face
amount.
-- If Death Benefit Option A is in effect, we will reduce the face amount
by the amount of the partial withdrawal (including the partial
withdrawal fee). Any decrease in face amount due to a partial withdrawal
will first reduce the most recent increase in face amount, then the next
most recent increases in succession, and lastly, the initial face
amount.
-- If you purchased an Additional Insurance Benefit rider, partial
withdrawals first decrease the Policy's face amount (beginning with the
most recent increase, then the next most recent increases in succession,
and then the initial face amount) and then the rider coverage amount.
-- We will process the partial withdrawal at the unit values next
determined after we receive your request.
-- We generally will pay a partial withdrawal request within 7 days after
the valuation day when we receive the request.
-- A partial withdrawal can affect the face amount, death benefit, and net
amount at risk (which is used to calculate the cost of insurance charge
(see "Charges and Deductions -- Monthly Deduction")).
-- If a partial withdrawal would cause the Policy to fail to qualify as
life insurance under the Code, we will not allow the partial withdrawal.
-- Partial withdrawals may have tax consequences. See "Federal Tax
Considerations -- Tax Treatment of Policy Benefits."
TRANSFERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You may make transfers between and among the Subaccounts and the Guaranteed
Account. We determine the amount you have available for transfers at the end of
the valuation period when we receive your written request. The following
features apply to transfers under the Policy:
-- You must transfer at least $1,000, or the total value in the Subaccount
or Guaranteed Account, if less.
-- We deduct a $25 charge from the amount transferred for the 13th and each
additional transfer in a policy year. Transfers due to dollar cost
averaging, automatic asset rebalancing, loans, the exchange privilege,
the special transfer right, change in Subaccount investment policy, or
the initial reallocation of account values from the Money Market
Subaccount do NOT count as transfers for
35
<PAGE> 38
the purpose of assessing the transfer charge. See "Transfers -- Dollar
Cost Averaging," "Transfers -- Automatic Asset Rebalancing," and "Other
Policy Information -- Additional Transfer Rights."
-- We consider each telephone or written request to be a single transfer,
regardless of the number of Subaccounts (or Guaranteed Account)
involved.
-- We process transfers based on unit values determined at the end of the
valuation day when we receive your transfer request. The corresponding
portfolio of any Subaccount determines its net asset value per each
share once daily, as of the close of the regular business session of the
New York Stock Exchange (usually 4:00 p.m., Eastern time), which
coincides with the end of each valuation period. Therefore, we will
process any transfer request we receive after the close of the regular
business session of the New York Stock Exchange, using the net asset
value for each share of the applicable portfolio determined as of the
close of the next regular business session of the New York Stock
Exchange.
TRANSFERS FROM THE GUARANTEED ACCOUNT. You may make one transfer out of the
Guaranteed Account within 30 days prior to or following each policy anniversary.
The amount transferred may not exceed 25% of the Guaranteed Account value.
However, if the Guaranteed Account value is less than $1,000, the entire
Guaranteed Account value may be transferred. If we receive your written request
for this transfer prior to the policy anniversary, the transfer will be made as
of the policy anniversary. If this request is received after the policy
anniversary, the transfer will be made as of the date we receive the written
request.
DOLLAR COST AVERAGING
You may elect to participate in a dollar cost averaging program in the
application or by completing an election form that we receive by the beginning
of the month. Dollar cost averaging is an investment strategy designed to reduce
the investment risks associated with market fluctuations. The strategy spreads
the allocation of your premium into the Subaccounts or Guaranteed Account over a
period of time by systematically and automatically transferring, on a monthly
basis, specified dollar amounts from any selected Subaccount to any other
Subaccount(s) or the Guaranteed Account. This allows you to potentially reduce
the risk of investing most of your premium into the Subaccounts at a time when
prices are high. We do not assure the success of this strategy, and success
depends on market trends. We cannot guarantee that dollar cost averaging will
result in a profit or protect against loss. You should carefully consider your
financial ability to continue the program over a long enough period of time to
purchase units when their value is low as well as when it is high.
Each month on the policy processing day, we will automatically transfer equal
amounts (minimum $500) from the chosen Subaccount to your designated "target
accounts" in the percentages selected. You may have multiple target accounts.
To participate in dollar cost averaging, you must elect a period of time and
place the following minimum amount in any one Subaccount (not the Guaranteed
Account):
<TABLE>
<CAPTION>
DOLLAR COST AVERAGING PERIOD MINIMUM AMOUNT
- ---------------------------- --------------
<C> <S> <C>
6 months $ 3,000
12 months $ 6,000
18 months $ 9,000
24 months $12,000
30 months $15,000
36 months $18,000
</TABLE>
36
<PAGE> 39
If you have elected dollar cost averaging, the program will start on the first
policy processing day after the later of:
1. The policy date;
2. The end of the 15-day period when premiums have been allocated to the
Money Market Subaccount; or
3. When the value of the chosen Subaccount equals or exceeds the greater
of: (a) the minimum amount stated above; or (b) the amount of the first
monthly transfer.
<TABLE>
<S> <C>
DOLLAR COST AVERAGING WILL END IF: -- we receive your written request to cancel your
participation;
-- the value in the chosen Subaccount is insufficient to
make the transfer;
-- the specified number of transfers has been completed; or
-- the Policy enters the grace period.
</TABLE>
You will receive written notice confirming each transfer and when the program
has ended. You are responsible for reviewing the confirmation to verify that the
transfers are being made as requested. There is no additional charge for dollar
cost averaging. A transfer under this program is NOT considered a transfer for
purposes of assessing the transfer fee. We may modify, suspend, or discontinue
the dollar cost averaging program at any time upon 30 days' written notice to
you. You cannot choose dollar cost averaging if you are participating in the
automatic asset rebalancing program or if a policy loan is outstanding.
AUTOMATIC ASSET REBALANCING
We also offer an automatic asset rebalancing program under which we will
automatically transfer amounts quarterly or annually to maintain a particular
percentage allocation among the Subaccounts. Policy account value allocated to
each Subaccount will grow or decline in value at different rates. The automatic
asset rebalancing program automatically reallocates the policy account value in
the Subaccounts at the end of each quarterly or annual period to match your
Policy's currently effective premium allocation schedule. The automatic asset
rebalancing program will transfer policy account value from those Subaccounts
that have increased in value to those Subaccounts that have declined in value
(or not increased as much). Over time, this method of investing may help you buy
low and sell high. The automatic asset rebalancing program does not guarantee
gains, nor does it assure that you will not have losses. Policy account value in
the Guaranteed Account is not available for this program.
<TABLE>
<S> <C>
TO PARTICIPATE IN THE AUTOMATIC ASSET -- you must elect this feature in the application or after
REBALANCING PROGRAM: issue by submitting an automatic asset rebalancing request
form to our Service Center; and
-- you must have a minimum policy account value of $1,000.
</TABLE>
There is no additional charge for the automatic asset rebalancing program. Any
reallocation which occurs under the automatic asset rebalancing program will NOT
be counted towards the 12 "free" transfers allowed during each policy year. You
can end this program at any time.
<TABLE>
<S> <C>
AUTOMATIC ASSET REBALANCING WILL END -- the total value in the Subaccounts is less than $1,000; or
IF: -- we receive your written request to terminate the program.
</TABLE>
We may modify, suspend, or discontinue the automatic asset rebalancing program
at any time. You cannot choose automatic asset rebalancing if you are
participating in the dollar cost averaging program.
37
<PAGE> 40
LOANS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
While the Policy is in force, you may submit a written request to borrow money
from us using the Policy as the only collateral for the loan. You may increase
your risk of lapse if you take a loan. A loan that is taken from, or secured by,
a Policy may have tax consequences.
LOAN CONDITIONS:
-- The MINIMUM LOAN you may take is $500.
-- The MAXIMUM LOAN you may take is the net cash surrender value on the
date of the loan.
-- To secure the loan, we transfer an amount as collateral to the Loan
Account. This amount is equal to the amount of the loan (adjusted by
the earned interest rate and the charged interest rate to the next
policy anniversary). You may request that we transfer this amount
from specific Subaccounts, but may not request that we transfer this
amount from the Guaranteed Account. However, if you do not specify
any specific Subaccounts, we will transfer the loan from the
Subaccounts and the Guaranteed Account on a pro-rata basis based on
the proportion that the values in the Subaccounts and Guaranteed
Account bear to the unloaned policy account value.
-- We charge you 6% interest per year (charged interest rate) on your
loan. Interest is due and payable at the end of each policy year.
Unpaid interest becomes part of the outstanding loan and accrues
interest. Unpaid interest is allocated based on your written
instructions. If there are no such 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 proportion that the Guaranteed Account value
and the value in the Subaccounts bear to the total unloaned policy
account value.
-- Amounts in the Loan Account earn interest at an annual rate
guaranteed not to be lower than 4.0% (earned interest rate). We may
credit the Loan Account with an interest rate different than the rate
credited to net premiums allocated to the Guaranteed Account. We
currently credit 4% to amounts in the Loan Account until the 10th
policy anniversary or attained age 60, whichever is later, and 5.75%
annually thereafter. The tax consequences associated with loans taken
from or secured by a Policy that is not a MEC are unclear when the
interest earned on the loan is increased to 5.75%.
-- We transfer earned loan interest to the Subaccounts and/or the
Guaranteed Account and recalculate collateral: (a) when loan interest
is paid or added to the loaned amount; (b) when a new loan is made;
and (c) when a loan repayment is made. We also recalculate collateral
under these situations. 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 charged interest added to the loan
balance) minus any loan repayments.
-- You may repay all or part of your indebtedness at any time while the
insured is alive and the Policy is in force. Upon each loan
repayment, we will allocate an amount equal to the loan repayment
(but not more than the amount of the outstanding loan) from the Loan
Account back to the Subaccounts and/or Guaranteed Account according
to the pro rata basis upon which we originally transferred the loan
collateral from the Subaccounts and/or Guaranteed Account as
described above. We will allocate any repayment in excess of the
amount of the outstanding loan to the Subaccounts and/or the
Guaranteed Account based on the amount of interest due on the portion
of the outstanding loan allocated to each such account.
-- While your loan is outstanding, we will credit all payments you send
to us as loan repayments unless you provide written notice for the
payments to be applied as premium payments. (For New
38
<PAGE> 41
York residents, we will credit all payments you send to us as premium
payments unless you provide written notice for the payments to be
applied as loan repayments.)
-- We deduct any indebtedness from the policy account value upon
surrender, and from the insurance proceeds payable on the insured's
death.
-- If your indebtedness causes the net cash surrender value on a policy
processing day to be less than the monthly deduction due, your Policy
will enter a grace period. See "Policy Lapse and Reinstatement."
-- We normally pay the amount of the loan within 7 days after we receive
a proper loan request. We may postpone payment of loans under certain
conditions. See "Other Policy Information -- Payments We Make."
EFFECT OF POLICY LOANS
A loan, whether or not repaid, affects the Policy, the policy account value, the
net cash surrender value, and the death benefit. The insurance proceeds and net
cash surrender value include reductions for the amount of any indebtedness.
Repaying a loan causes the death benefit and net cash surrender value to
increase by the amount of the repayment. As long as a loan is outstanding, we
hold an amount as collateral for the loan in the Loan Account. This amount is
not affected by the investment performance of the Subaccounts and may not be
credited with the interest rates accruing on the Guaranteed Account. Amounts
transferred from the Separate Account to the Loan Account will affect the policy
account value, even if the loan is repaid, because we credit these amounts with
an interest rate we declare rather than with a rate of return that reflects the
investment performance of the Separate Account.
Accordingly, 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 with an outstanding loan will be lower when the earned
interest rate is less than the investment performance 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.
There are risks involved in taking a loan, including the potential for a Policy
to lapse if projected earnings, taking into account outstanding loans, are not
achieved. If the Policy is a MEC, then a loan will be treated as a partial
withdrawal for Federal income tax purposes. A loan may also have possible
adverse tax consequences that could occur if a Policy lapses with loans
outstanding. See "Policy Lapse and Reinstatement." In addition, if a loan is
taken from a Policy that is part of a plan subject to the Employee Retirement
Income Security Act of 1974 ("ERISA"), the loan will be treated as a "prohibited
transaction" subject to certain penalties unless additional ERISA requirements
are satisfied. The owner of such a Policy should seek competent advice before
requesting a policy loan.
POLICY LAPSE AND REINSTATEMENT
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LAPSE
Your Policy may enter a 61-day grace period and possibly lapse (terminate
without value) if the net cash surrender value is not enough to pay the monthly
deduction and other charges. If you have taken a loan, then your Policy also
will enter a grace period (and possibly lapse) whenever your indebtedness
reduces the net cash surrender value to zero.
Your Policy will NOT lapse:
1. During the first 5 policy years, if you pay premiums (less any
indebtedness and partial withdrawals) in excess of the minimum
guarantee premium;
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2. If you purchase a Guaranteed Minimum Death Benefit rider and meet
certain conditions (see "Other Policy Information -- Supplemental
Benefits and Riders"); or
3. If you make a payment equal to 3 monthly deductions before the end of
the grace period.
If your Policy enters a grace period, we will mail a notice to your last known
address and to any assignee of record. The 61-day grace period begins on the
date of the notice. The notice will indicate that the payment amount of 3
monthly deductions is required and will also indicate the final date by which we
must receive the payment to keep the Policy from lapsing. If we do not receive
the specified minimum payment by the end of the grace period, all coverage under
the Policy will terminate and you will receive no benefits. You may reinstate a
lapsed Policy if you meet certain requirements. If the insured dies during the
grace period, we will pay the insurance proceeds.
REINSTATEMENT
Unless you have surrendered your Policy, you may reinstate a lapsed Policy at
any time while the insured is alive and within 3 years after the end of the
grace period (and prior to the final policy date) by submitting all of the
following items to us at our Service Center:
1. A written notice requesting reinstatement;
2. Evidence of insurability we deem satisfactory; and
3. Payment of sufficient premium to keep the Policy in force for at least
3 months.
The effective date of reinstatement will be the first policy processing day on
or next following the date we approve your application for reinstatement. The
reinstated Policy will have the same policy date as it had prior to the lapse.
Upon reinstatement, the policy account value will be based upon the premium paid
to reinstate the Policy.
FEDERAL TAX CONSIDERATIONS
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The following summarizes some of the basic Federal income tax considerations
associated with a Policy and does not purport to be complete or to cover all
situations. THIS DISCUSSION IS NOT INTENDED AS TAX ADVICE. PLEASE CONSULT
COUNSEL OR OTHER QUALIFIED TAX ADVISERS FOR MORE COMPLETE INFORMATION. We base
this discussion on our understanding of the present Federal income tax laws as
they are currently interpreted by the Internal Revenue Service (the "IRS").
Federal income tax laws and the current interpretations by the IRS may change.
TAX STATUS OF THE POLICY. A Policy must satisfy certain requirements set forth
in the Code 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. The manner in which these requirements are to be applied to certain
features of the Policy are not directly addressed by the Code, and there is
limited guidance as to how these requirements are to be applied. Nevertheless,
we believe that a Policy should satisfy the applicable Code requirements.
Because of the absence of pertinent interpretations of the Code requirements,
there is, however, some uncertainty about the application of these requirements
to the Policy, particularly if you pay 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 these 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 to allocate premiums and
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policy account values, have not been explicitly addressed in published rulings.
While we believe that the Policy does not give you investment control over
Separate Account assets, we reserve the right to modify the Policy as necessary
to prevent you 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 to treat the Policy as a life insurance
contract for Federal income tax purposes. We intend 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. We believe that the death benefit under a Policy should be
excludible from the beneficiary's gross income. Federal, state, and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on your circumstances and the beneficiary's circumstances. You should
consult a tax adviser on these consequences.
Generally, you will not be deemed to be in constructive receipt of the policy
account value until there is a distribution. In addition, if you elect the
accelerated death benefit, the tax consequences associated with continuing the
Policy after a distribution is made are unclear. Please consult a tax adviser on
these consequences. When distributions from a Policy occur, or when loans are
taken out from or secured by a Policy (e.g., by assignment), the tax
consequences depend on whether the Policy is classified as a MEC. Moreover, if a
loan from a Policy that is not a MEC is outstanding when the Policy is canceled
or lapses, the amount of the outstanding indebtedness will be added to the
amount distributed and will be taxed accordingly.
MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance contracts
are classified as MECs and receive less favorable tax treatment than other life
insurance contracts. The rules are too complex to be summarized here, but
generally depend on the amount of premiums paid during the first 7 policy years.
Certain changes in a Policy after it is issued could also cause it to be
classified as a MEC. Due to the Policy's flexibility, each Policy's
circumstances will determine whether the Policy is classified as a MEC. A
reduction in the death benefit at any time below the lowest level of death
benefit payable during the first seven Policy years could cause the Policy to
become a MEC. If you do not want your Policy to be classified as a MEC, you
should consult a tax adviser to determine the circumstances, if any, under which
your Policy would or would not be classified as a MEC.
DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as MECs
are subject to the following tax rules:
-- All distributions other than death benefits from a MEC, including
distributions upon surrender and partial withdrawals, will be treated
as ordinary income subject to tax up to an amount equal to the excess
(if any) of the unloaned policy account value immediately before the
distribution plus prior distributions over the owner's total
investment in the Policy at that time. They will be treated as
tax-free recovery of the owner's investment in the Policy only after
all such excess has been distributed. "Total investment in the Policy"
means the aggregate amount of any premiums or other considerations
paid for a Policy, plus any previously taxed distributions.
-- Loans taken from such a Policy (or secured by such a Policy, e.g., by
assignment) are treated as distributions and taxed accordingly.
-- A 10% additional income tax penalty is imposed on the amount included
in income except where the distribution or loan is made when you have
attained age 59 1/2 or are disabled, or where the distribution is part
of a series of substantially equal periodic payments for your life (or
life expectancy) or the joint lives (or joint life expectancies) of
you and the beneficiary.
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If a Policy becomes a MEC, distributions that occur during the policy year will
be taxed as distributions from a MEC. In addition, distributions from a Policy
within 2 years before it becomes a MEC will be taxed in this manner. This means
that a distribution from a Policy that is not a MEC at the time when the
distribution is made could later become taxable as a distribution from a MEC.
DISTRIBUTIONS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT
CONTRACTS. Distributions from a Policy that is not a MEC are generally treated
first as a recovery of your investment in the Policy, and as taxable income
after the recovery of all investment in the Policy. 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 MEC are generally not treated as
distributions. However, there is some uncertainty as to the tax treatment of
amounts in the Loan Account after the later of the 10th policy anniversary or
attained age 60 under a Policy that is not a MEC. You should consult a tax
adviser on this point.
Finally, neither distributions from nor loans from (or secured by) a Policy that
is not a MEC are subject to the 10% additional tax.
DEDUCTIBILITY OF POLICY LOAN INTEREST. In general, interest you pay on a loan
from a Policy will not be deductible. Before taking out a policy loan, you
should consult a tax adviser as to the tax consequences.
MULTIPLE POLICIES. All MECs that we issue (and that our affiliates issue) to
the same owner during any calendar year are treated as one MEC for purposes of
determining the amount includible in the owner's income when a taxable
distribution occurs.
BUSINESS USES OF THE POLICY. The Policy may be used in various arrangements,
including nonqualified deferred compensation or salary continuance plans, split
dollar insurance plans, executive bonus plans, retiree medical benefit plans,
and others. The tax consequences of these plans and business uses of the Policy
may vary depending on the particular facts and circumstances of each individual
arrangement and business uses of the Policy. Therefore, if you are contemplating
using the Policy in any arrangement the value of which depends in part on its
tax consequences, you should be sure to consult a tax adviser as to tax
attributes of the arrangement.
OTHER POLICY OWNER TAX MATTERS. Federal and state estate, inheritance,
transfer, and other tax consequences depend on the individual circumstances of
each Policy owner or beneficiary. The tax consequences of continuing the Policy
beyond the insured's attained age 100 are unclear. You should consult a tax
adviser if you intend to keep the Policy in force beyond the insured's attained
age 100.
POSSIBLE TAX LAW CHANGES. While the likelihood of legislative or other changes
is uncertain, there is always a possibility that the tax treatment of the Policy
could change by legislation or otherwise. It is even possible that any
legislative change could be retroactive (effective prior to the date of the
change). You should consult a tax adviser with respect to legislative
developments and their effect on the Policy.
OTHER POLICY INFORMATION
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PAYMENT OF POLICY BENEFITS
BENEFIT PAYABLE ON FINAL POLICY DATE. If the insured is living on the final
policy date (at insured's attained age 100), we will pay you the policy account
value less any indebtedness and any unpaid monthly deductions. Insurance
coverage under the Policy will then end. Payment will generally be made within 7
days of the final policy date. You may elect to continue the Policy beyond
insured's attained age 100 under the Final Policy Date Extension rider.
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INSURANCE PROCEEDS. Insurance proceeds will ordinarily be paid to the
beneficiary within 7 days after we receive proof of the insured's death and all
other requirements are satisfied, including receipt by us at our Service Center
of all required documents. Generally, we determine the amount of a payment from
the Separate Account as of the date of death. We pay insurance proceeds in a
single sum unless you have selected an alternative settlement option. If
insurance proceeds are paid in a single sum, we pay interest at an annual rate
of 3% (unless we declare a higher rate) on the insurance proceeds from the date
of death until payment is made.
SETTLEMENT OPTIONS. In lieu of a single sum payment on death, surrender, or
maturity, you may elect one of the following settlement options. Payment under
these settlement options will not be affected by the investment performance of
any Subaccounts after proceeds are applied.
-- Proceeds at Interest Option. Proceeds are left on deposit to accumulate
with us with interest payable at 12, 6, 3, or 1 month intervals.
-- Installments of a Specified Amount Option. Proceeds are payable in
equal installments of the amount elected at 12, 6, 3, or l month
intervals, until proceeds applied under the option and interest on the
unpaid balance and any additional interest are exhausted.
-- Installments for a Specified Period Option. Proceeds are payable in a
number of equal monthly installments. Alternatively, the installments
may be paid at 12, 6, or 3 month intervals. Payments may be increased by
additional interest which would increase the installments certain.
-- Life Income Option. Proceeds are payable in equal monthly installments
during the payee's life. Payments will be made either with or without a
guaranteed minimum number. If there is to be a minimum number of
payments, they will be for either 120 or 240 months or until the
proceeds applied under the option are exhausted.
-- Joint and Survivor Life Income Option. Proceeds are payable in equal
monthly installments, with a number of installments certain, during the
joint lives of the payee and one other person and during the life of the
survivor. The minimum number of payments will be for either 120 or 240
months.
A guaranteed interest rate of 3% per year applies to all settlement options. We
may declare additional rates of interest in our sole discretion. See "Death
Benefit -- Insurance Proceeds" and the Policy for more details.
THE POLICY
The Policy, application(s), policy schedule pages, and any riders are the entire
contract. Only statements made in the applications can be used to void the
Policy or to deny a claim. We assume 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. We rely on those statements when we issue or change a
Policy. As a result of differences in applicable state laws, certain provisions
of the Policy may vary from state to state.
TELEPHONE REQUESTS
We may accept telephone instructions from you or an authorized third party
regarding transfers, dollar cost averaging, automatic asset rebalancing, loans,
and exercise of the special transfer right, subject to the following conditions:
-- You must complete and sign our telephone request form and send it to us.
You also may authorize us in the application or by written notice to act
upon transfer instructions given by telephone.
-- You may designate in the telephone request form a third party to act on
your behalf in making telephone requests.
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-- We will employ reasonable procedures to confirm that telephone
instructions are genuine.
-- If we follow these procedures, we are not liable for any loss, damage,
cost, or expense from complying with telephone instructions we
reasonably believe to be authentic. You bear the risk of any such loss.
If we do not employ reasonable confirmation procedures, we may be liable
for losses due to unauthorized or fraudulent instructions.
-- These procedures may include requiring forms of personal identification
prior to acting upon telephone instructions, providing written
confirmation of transactions to you, and/or tape recording telephone
instructions received from you.
-- We reserve the right to suspend telephone instructions at any time for
any class of policies for any reason.
OUR RIGHT TO CONTEST THE POLICY
In issuing the Policy, we rely on all statements made by or for you and/or the
insured in the application or in a supplemental application. Therefore, we may
contest the validity of the Policy based on material misstatements made in the
application (or any supplemental application).
However, we will not contest the Policy after the Policy has been in force
during the insured's lifetime for 2 years, except for nonpayment of the minimum
initial premium. Likewise, we will not contest any Policy change that requires
evidence of insurability, or any reinstatement of the Policy, after such change
or reinstatement has been in effect during the insured's lifetime for 2 years.
SPLIT DOLLAR ARRANGEMENTS
You may enter into a split dollar arrangement with another owner or another
person(s) whereby the payment of premiums and the right to receive the benefits
under the Policy (i.e., net cash surrender value or insurance proceeds) are
split between the parties. There are different ways of allocating these rights.
For example, an employer and employee might agree that under a Policy on the
life of the employee, the employer will pay the premiums and will have the right
to receive the net cash surrender value. The employee may designate the
beneficiary to receive any insurance proceeds in excess of the net cash
surrender value. If the employee dies while such an arrangement is in effect,
the employer would receive from the insurance proceeds the amount which he would
have been entitled to receive upon surrender of the policy and the employee's
beneficiary would receive the balance of the proceeds.
No transfer of Policy rights pursuant to a split dollar arrangement will be
binding on us unless in writing and received by us at our Service Center. 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.
SUICIDE EXCLUSION
If the insured commits suicide, while sane or insane, within 2 years of the
policy issue date, the Policy will terminate and our liability will be limited
to an amount equal to the premiums paid, less any indebtedness, and less any
partial withdrawals previously paid.
If the insured commits suicide, while sane or insane, within 2 years from the
effective date of any change which increases the death benefit, the Policy will
terminate and our liability with respect to the amount of increase will be
limited to the sum of the monthly deductions for the cost of insurance
attributable to the increase and the expense charge for the increase in face
amount previously deducted from policy account value.
Certain states may require suicide exclusion provisions that differ from those
stated here.
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MISSTATEMENT OF AGE OR SEX
If the insured's age or sex was stated incorrectly in the application, we will
adjust the death benefit and any benefits provided by riders to the amount that
would have been payable at the correct age and sex based on the most recent
monthly deduction. No adjustment will be made to the policy account value.
MODIFYING THE POLICY
Any modification or waiver of our rights or requirements under the Policy must
be in writing and signed by our president or a vice president. No agent may bind
us by making any promise not contained in the Policy.
Upon notice to you, we may modify the Policy:
-- to conform the Policy, our operations, or the Separate Account's
operations to the requirements of any law (or regulation issued by a
government agency) to which the Policy, our Company, or the Separate
Account is subject;
-- to assure continued qualification of the Policy as a life insurance
contract under the Federal tax laws; or
-- to reflect a change in the Separate Account's operation.
If we modify the Policy, we will make appropriate endorsements to the Policy. If
any provision of the Policy conflicts with the laws of a jurisdiction that
govern the Policy, we reserve the right to amend the provision to conform with
these laws.
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, partial withdrawal, insurance
proceeds, loan, or settlement options within 7 days after we receive all
applicable written notices, permitted telephone requests, and/or due proofs of
death. However, we can postpone these payments if:
-- the New York Stock Exchange is closed, other than customary weekend and
holiday closing, or trading on the New York Stock Exchange is restricted
as determined by the Securities and Exchange Commission; OR
-- the Securities and Exchange Commission permits, by an order, the
postponement of any payment for the protection of owners; OR
-- the Securities and Exchange Commission determines that an emergency
exists that would make the disposal of securities held in the Separate
Account or the determination of their value not reasonably practicable.
We have the right to defer payment of amounts from the Guaranteed Account for up
to 6 months after receipt of the written notice. We will pay interest on any
payment deferred for 30 days or more at an annual rate of 3%.
If you have submitted a check or draft to our Service Center, we have the right
to defer payment of surrenders, partial withdrawals, insurance proceeds, or
payments under a settlement option until the check or draft has been honored.
ADDITIONAL TRANSFER RIGHTS
SPECIAL TRANSFER RIGHT
At any one time during the first 2 years following the policy issue date, you
may submit written notice requesting a transfer of the entire amount in the
Separate Account to the Guaranteed Account, and the allocation of all future net
premiums to the Guaranteed Account. This serves as an exchange of the Policy for
the equivalent of a flexible premium fixed benefit life insurance policy. We
will not assess any transfer
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or other charges in connection with the special transfer right, and this
transfer will not count toward the 12 "free" transfers permitted each policy
year.
CONVERSION PRIVILEGE FOR INCREASE IN FACE AMOUNT
At any one time during the first 2 years following an increase in the Policy's
face amount, you may exchange the amount of the increase for a fixed benefit
permanent life insurance policy without evidence of insurability. Such an
exchange may have tax consequences. Premiums under this new policy will be based
on our rates in effect for the same sex, attained age, and premium class of the
insured on the effective date of the increase in the face amount. The new policy
will have the same face amount and policy issue date as the amount and effective
date of the increase. We will refund the expense charge for the increase and the
monthly deductions for the increase made on each policy processing day between
the effective date of the increase to the date of conversion. We will not assess
any transfer charges in connection with this conversion privilege, and this
transfer will not count toward the 12 "free" transfers permitted each policy
year.
CHANGE IN SUBACCOUNT INVESTMENT POLICY
If the investment policy of a Subaccount is materially changed, you may transfer
the portion of the policy account value in that Subaccount to another Subaccount
or to the Guaranteed Account without a transfer charge and without having the
transfer count toward the 12 transfers permitted without charge during a Policy
Year.
REPORTS TO OWNERS
At least once each year, we will send you a report showing the following
information as of the end of the report period:
-- the current policy account value, Guaranteed Account value, Subaccount
values, and Loan Account value
-- the current net cash surrender value
-- the current death benefit
-- the current amount of any indebtedness
-- any activity since the last report (e.g., premiums paid, partial
withdrawals, charges and deductions)
-- any other information required by law
We currently send these reports quarterly. In addition, we will send you a
statement showing the status of the Policy following the transfer of amounts
from one Subaccount to another (excluding automatic rebalancing), the taking of
a loan, the 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).
We can prepare a similar report for you at other times for a reasonable fee. We
may limit the scope and frequency of these requested reports.
We will send you a semi-annual report containing the financial statements of
each portfolio in which you are invested.
RECORDS
We will maintain all records relating to the Separate Account and the Guaranteed
Account at our Service Center.
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POLICY TERMINATION
Your Policy will terminate on the earliest of:
-- the final policy date;
-- the end of the grace period without a sufficient payment;
-- the date the insured dies; or
-- the date you surrender the Policy.
SUPPLEMENTAL BENEFITS AND RIDERS
ACCELERATED DEATH BENEFIT RIDER
If your state of residence has approved the Accelerated Death Benefit rider (the
"ADB rider") and we have received satisfactory additional evidence of
insurability, you may choose to add it to your Policy at issue. The terms of the
ADB rider may vary from state-to-state.
Generally, the ADB rider allows you to receive an accelerated payment of part of
the Policy's death benefit when one of the following two events occurs:
1. TERMINAL ILLNESS. The insured develops a non-correctable medical
condition which is expected to result in his or her death within 12
months; OR
2. PERMANENT CONFINEMENT TO A NURSING CARE FACILITY. The insured has been
confined to a nursing care facility (as defined in the ADB rider) for
at least 180 consecutive days and is expected to remain in such a
facility for the remainder of his or her life.
There is no additional charge for this rider. However, an administrative charge,
currently $100 and not to exceed $250, will be deducted from the accelerated
death benefit amount.
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. You should consult a tax adviser before adding the ADB rider to
your 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 (as defined below) less 25% of any
indebtedness. The ADB rider also restricts the total of the accelerated death
benefits paid from all life insurance policies issued to you by us and our
affiliates to $250,000. We may increase this $250,000 maximum to reflect
inflation.
<TABLE>
<S> <C>
ELIGIBLE DEATH BENEFIT MEANS: the insurance proceeds payable under the Policy if the
insured died at the time we approve a claim for an
accelerated death benefit, MINUS
1. Any premium refund payable at death if the insured died
at that time; and
2. Any insurance payable under the terms of any other
rider.
</TABLE>
You may submit written notice to request only one accelerated death benefit
payment (except to pay premiums and policy loan interest). There are no
restrictions on your use of the benefit. You 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. To receive an
accelerated death benefit payment, the Policy must be in force and you must
submit written notice, "due proof of eligibility," and a completed claim form to
us. Due proof of eligibility means a written certification (described more fully
in the ADB rider) in a form acceptable to us from a treating physician (as
defined in the ADB rider) stating that the insured has a terminal illness or is
expected to be permanently confined to a nursing care facility.
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We may request additional medical information from the insured's physician
and/or may require an independent physical examination (at our expense) before
approving the claim for payment of the accelerated death benefit. We will not
approve a claim for an accelerated death benefit payment if:
1. The Policy is assigned in whole or in part;
2. If the terminal illness or permanent confinement to a nursing care
facility is the result of intentionally self-inflicted injury; or
3. If you are required to elect the payment 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 the 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. See "Loans."
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 you
and a lien will be placed on the death benefit payable under the Policy (the
"death benefit lien") in the amount of this excess. Under the ADB rider,
interest will accrue daily, at a rate determined as described in the ADB rider,
on the amount of this lien, and upon the death of the insured the amount of the
lien and accrued interest thereon will be subtracted from the amount of
insurance proceeds payable at death.
EFFECT ON EXISTING POLICY. The insurance proceeds otherwise payable at the time
of an insured's death will be reduced by the amount of any death benefit lien
and accrued interest thereon. If you make a request for a surrender, a policy
loan, or a partial withdrawal, the net cash surrender value and Loan Account
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 Account 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 a lapse under the applicable provisions of the Policy, the Policy
will also terminate on any policy anniversary when the death benefit lien
exceeds the insurance proceeds at death.
TERMINATION OF THE ADB RIDER. The ADB rider will terminate on the earliest of:
(1) our receipt of your written notice requesting termination of the rider; (2)
surrender or other termination of the Policy; or (3) the policy anniversary when
the insurance proceeds payable at death on such policy anniversary is less than
or equal to zero.
ADDITIONAL INSURANCE BENEFIT RIDER
The Additional Insurance Benefit rider ("AIB rider") provides an additional
death benefit payable on the death of the insured without increasing the
Policy's face amount. The AIB rider may not be available in all states.
The additional death benefit under the AIB rider is:
a. the face amount plus the rider coverage amount less the Policy's death
benefit (if Death Benefit Option A is in effect); or
b. the face amount plus the rider coverage amount plus the policy account
value less the death benefit (if Death Benefit Option B is in effect).
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Please note the following about the AIB rider:
-- The AIB rider may be canceled separately from the Policy (i.e., it can
be canceled without causing the Policy to be canceled or to lapse). The
AIB rider will terminate on the earliest of: (1) our receipt of your
written notice requesting termination of the rider; (2) surrender or
other termination of the Policy; or (3) the policy anniversary nearest
the insured's attained age 100 (80 in New York).
-- The AIB rider has a cost of insurance charge that is deducted from the
policy account value as part of the monthly deduction.
-- If you change from Death Benefit Option A to Death Benefit Option B, we
will first decrease the Policy's face amount and then the rider coverage
amount by the policy account value. See "Death Benefit -- Changing Death
Benefit Options."
-- If Death Benefit Option A is in effect and you make a partial
withdrawal, we will first decrease the Policy's face amount and then the
rider coverage amount by the amount withdrawn (including the partial
withdrawal fee). See "Surrenders and Partial Withdrawals -- Partial
Withdrawals."
-- The AIB rider has no cash or loan value.
-- The AIB rider has no surrender charge, additional surrender charge, or
premium expense charge.
-- Since there is no surrender charge for decreasing the rider coverage
amount, such a decrease may be less expensive than a decrease of the
same size in the face amount of the Policy (if the face amount
decrease would be subject to a surrender charge). But, continuing
coverage on such an increment of Policy face amount may have a cost
of insurance charge that is higher than the same increment of
coverage amount under the rider. You should consult your agent before
buying an AIB rider, and before deciding whether to decrease Policy
face amount or AIB rider coverage amount.
-- After the first policy year and subject to certain conditions, you may
increase or decrease the rider coverage amount separately from the
Policy's face amount (and the Policy's face amount may be increased or
decreased without affecting the rider coverage amount).
-- To comply with the maximum premium limitations under the Code, insurance
coverage provided by an AIB rider is treated as part of the Policy's
face amount (for discussion of the tax status of the Policy, see
"Federal Tax Considerations").
OTHER RIDERS
In addition to the Accelerated Death Benefit rider and Additional Insurance
Benefit rider, the following riders offering supplemental benefits are available
under the Policy. Most of these riders are subject to age and underwriting
requirements and, unless otherwise indicated, must be purchased when the Policy
is issued. We deduct any monthly charges for these riders from policy account
value as part of the monthly deduction. These riders (which are summarized
below) provide fixed benefits that do not vary with the investment performance
of the Separate Account. Your agent can help you determine whether certain of
the riders are suitable for you. These riders may not be available in all
states. Please contact us for further details.
-- CHANGE OF INSURED: This rider permits you to change the insured,
subject to certain conditions and evidence of insurability. The Policy's
face amount will remain the same, and the monthly deduction for the cost
of insurance and any other benefits provided by rider will be adjusted
for the attained age and premium class of the new insured as of the
effective date of the change. As the change of an insured is generally a
taxable event, you should consult a tax advisor before making such a
change.
-- CHILDREN'S TERM INSURANCE: This rider provides level term insurance on
each of the insured's dependent children, until the earliest of: (1) the
first policy processing day after our receipt of your written notice
requesting termination of the rider; (2) surrender or other termination
of the Policy; (3) the child's 25th birthday; or (4) the policy
anniversary nearest the insured's 65th birthday. Upon expiration of the
term insurance on the life of a child and subject to certain conditions,
it
49
<PAGE> 52
may be converted without evidence of insurability to a whole life policy
providing a level face amount of insurance and a level premium. The face
amount of the new policy may be up to 5 times the amount of the term
insurance in force on the expiration date. The rider is issued to
provide between $5,000 and $15,000 of term insurance on each insured
child. Each insured child under this rider will have the same amount of
insurance. This rider must be selected at the time of application for
the Policy or upon an increase in face amount.
-- CONVERTIBLE TERM LIFE INSURANCE: This rider provides term insurance on
an additional insured ("other insured"). This rider will terminate on
the earliest of: (1) our receipt of your written notice requesting
termination of the rider; (2) surrender or other termination of the
Policy; (3) the policy anniversary nearest the other insured's attained
age 100 (80 in New York); or (4) exercise of the Policy Split Option
Rider (if applicable). If the Policy is extended by the Final Policy
Date Extension rider, this rider will terminate on the original final
policy date. This rider and the Guaranteed Minimum Death Benefit rider
may not be issued on the same Policy.
-- DISABILITY WAIVER BENEFIT: This rider provides that in the event of the
insured's total disability (as defined in the rider), which begins while
the rider is in effect and which continues for at least 6 'months, we
will apply a premium payment to the Policy on each policy processing day
during the first 5 policy years while the insured is totally disabled
(the amount of the payment will be based on the minimum annual premium).
We will also waive all monthly deductions due after the commencement of
and during the continuance of the total disability after the first 5
policy years. This rider terminates on the earliest of: (1) the first
policy processing day after our receipt of your written notice
requesting termination of the rider; (2) surrender or other termination
of the Policy; or (3) the policy anniversary nearest the insured's
attained age 60 (except for benefits for a disability which began before
that policy anniversary).
-- DISABILITY WAIVER OF PREMIUM BENEFIT: This rider provides that, in the
event of the insured's total disability before attained age 60 and
continuing for at least 180 days, we 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 you. 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. You cannot elect this rider and another disability waiver
benefit rider with the same Policy.
-- FINAL POLICY DATE EXTENSION: This rider extends the final policy date
20 years past the original final policy date. This benefit may be added
only on or after the anniversary nearest the insured's 90th birthday.
There is no additional charge for this benefit. The death benefit after
the original final policy date will be the policy account value. All
other riders in effect on the original final policy date will terminate
on the original final policy date. Adding this benefit and/or continuing
the Policy beyond the insured's attained age 100 may have tax
consequences and you should consult a tax adviser before doing so.
-- GUARANTEED MINIMUM DEATH BENEFIT: This rider provides a guarantee that,
if the net cash surrender value is not sufficient to cover the monthly
deductions, and the minimum guarantee premium has been paid, the Policy
will not lapse prior to the end of the death benefit guarantee period
(as defined in the rider). If this rider is added, the monthly deduction
will be increased by $0.01 per every $1,000 of face amount in force
under the Policy. The rider and the additional monthly deduction
terminate on the earliest of: (1) our receipt of your written notice
requesting termination of the rider; (2) surrender or other termination
of the Policy; or (3) expiration of the death benefit guarantee period.
This rider and the Convertible Term Life Insurance rider may not be
issued on the same Policy.
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<PAGE> 53
PERFORMANCE DATA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In order to demonstrate how the actual investment performance of the portfolios
could have affected the death benefit, policy account value, and net cash
surrender value of the Policy, we may provide hypothetical illustrations using
the actual investment performance of each portfolio since its inception. THESE
HYPOTHETICAL ILLUSTRATIONS ARE DESIGNED TO SHOW THE PERFORMANCE THAT COULD HAVE
RESULTED IF THE POLICY HAD BEEN IN EXISTENCE DURING THE PERIOD ILLUSTRATED AND
ARE NOT INDICATIVE OF FUTURE PERFORMANCE.
The values we illustrate for death benefit, policy account value, and net cash
surrender value take into account all applicable charges and deductions from the
Policy (current and guaranteed), the Separate Account and the portfolios. We
have not deducted premium taxes or charges for any riders. These charges would
lower the performance figures significantly if reflected.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALE OF THE POLICIES
The Policy will be sold by individuals who are licensed as our life insurance
agents and appointed by us and who are also registered representatives of 1717,
or registered representatives of a broker-dealer having a selling agreement with
1717, or registered representatives of a broker-dealer having a selling
agreement with these broker-dealers. 1717 is located at Christiana Executive
Campus, P.O. Box 15626, Wilmington, Delaware 19850, is registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 as
a broker-dealer, and is a member of the National Association of Securities
Dealers, Inc. 1717 was organized under the laws of Pennsylvania on January 22,
1969 as an indirect wholly owned subsidiary of PMLIC. 1717 retains no
compensation as principal underwriter of the Policies. We decide the insurance
underwriting, the determination of premium class, and whether to accept or
reject an application. 1717 also may reject an application if the Policy applied
for is unsuitable.
During the first policy year, the maximum sales commission payable to our agents
or other registered representatives will be approximately 50% of premiums paid
up to a specified amount, and 2% of premiums paid in excess of that amount.
During policy years 2 through 10, the maximum sales commission will not be more
than 5% of premiums paid, and after policy year 10, the maximum sales commission
will be 2% of premiums paid. Further, for each premium received within 10 years
following an increase in face amount, a commission on that premium will be paid
up to the specified amount for the increase in each year; the commission will be
calculated using the commission rates for the corresponding policy year. Expense
allowances and bonuses may also be paid, and agents may receive annual renewal
compensation of up to 0.25% of the unloaned policy account value. Compensation
may be paid in the form of non-cash compensation, subject to applicable
regulatory requirements. In some circumstances and to the extent permitted by
applicable regulatory requirements, 1717 may reimburse certain sales and
marketing expenses or pay other forms of special compensation to selling
broker-dealers. Agents may be required to return first year commission (less the
deferred sales charge) if the Policy is not continued through the first policy
year.
POTENTIAL CONFLICTS OF INTEREST
In addition to the Separate Account, the portfolios may sell shares to other
separate investment accounts established by other insurance companies to support
variable annuity contracts and variable life insurance policies or qualified
retirement plans. It is possible that, in the future, it may become
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the portfolios simultaneously. Although
neither we nor the portfolios currently foresee any such disadvantages, either
to variable life insurance policy owners or to variable annuity contract owners,
each portfolio's Board of Directors (Trustees) will monitor events in order to
identify any material conflicts between the interests of
51
<PAGE> 54
these variable life insurance policy owners and variable annuity contract
owners, and will determine what action, if any, it should take. This action
could include the sale of portfolio shares by one or more of the separate
accounts, which could have adverse consequences. Material conflicts could result
from, for example: (1) changes in state insurance laws; (2) changes in Federal
income tax laws; or (3) differences in voting instructions between those given
by variable life insurance policy owners and those given by variable annuity
contract owners.
If a portfolio's Board of Directors (Trustees) were to conclude that separate
portfolios should be established for variable life insurance and variable
annuity separate accounts, we will bear the attendant expenses, but variable
life insurance policy owners and variable annuity contract owners would no
longer have the economies of scale resulting from a larger combined portfolio.
The portfolios may also sell shares 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
of this Policy or 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, we will consider what action
may be appropriate, including removing the portfolio as an investment option
under the Policies or replacing the portfolio with another portfolio.
CHANGES TO THE SEPARATE ACCOUNT
Where permitted by applicable law, we reserve the right to make certain changes
to the structure and operation of the Separate Account, including, among others,
the right to:
1. Remove, combine, or add Subaccounts and make the new Subaccounts
available to you at our discretion;
2. Transfer assets supporting the Policies from one Subaccount to another
or from the Separate Account to another separate account;
3. Combine the Separate Account with other separate accounts, and/or
create new separate accounts;
4. Deregister the Separate Account under the Investment Company Act of
1940, or operate the Separate Account as a management investment
company under the Investment Company Act of 1940, or as any other form
permitted by law; and
5. Modify the provisions of the Policy to comply with applicable law.
We will not make any such changes without receiving any necessary approval of
the Securities and Exchange Commission and applicable state insurance
departments. We will notify you of any changes.
STANDARD & POOR'S
"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. ("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
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<PAGE> 55
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.
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 "Charges and
Deductions -- Monthly Deduction." Illustrations reflecting the premiums and
charges for EBS Policies will be provided upon request to purchasers of these
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 "Death
Benefit -- 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 Supreme 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 the 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 PORTFOLIO SHARES
Even though we are the legal owner of the portfolio shares held in the
Subaccounts, and have the right to vote on all matters submitted to shareholders
of the portfolios, we will vote our shares only as owners instruct, so long as
such action is required by law.
Before a vote of a portfolio's shareholders occurs, you will receive voting
materials. We will ask you to instruct us on how to vote and to return your
proxy to us in a timely manner. You will have the right to instruct us on the
number of portfolio shares that corresponds to the amount of policy account
value you have in that portfolio (as of a date set by the portfolio).
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<PAGE> 56
If we do not receive voting instructions on time from some owners, we will vote
those shares in the same proportion as the timely voting instructions we
receive. Should Federal securities laws, regulations, or interpretations change,
we may elect to vote portfolio shares in our own right. If required by state
insurance officials, or if permitted under Federal regulation, under certain
circumstances we may disregard certain owner voting instructions. If we ever
disregard voting instructions, we will send you a summary in the next annual
report to owners advising you of the action and the reasons we took this action.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain legal matters relating to the Policy under the Federal securities laws.
James G. Potter, Jr., General Counsel of PMLIC, has provided advice on certain
matters relating to the laws of Pennsylvania regarding the Policies and our
issuance of the Policies.
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 will
have a materially adverse impact on them or the Separate Account.
EXPERTS
The Financial Statements 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.
FINANCIAL STATEMENTS
Our financial statements and the financial statements of the Separate Account
appear at the end of this prospectus. Our financial statements should be
distinguished from the Separate Account's financial statements and you should
consider our financial statements only as bearing upon our ability to meet our
obligations under the Policies.
ADDITIONAL INFORMATION ABOUT THE COMPANY
We are a mutual life insurance company chartered by the Commonwealth of
Pennsylvania in 1865. We are subject to regulation by the Insurance Department
of the Commonwealth of Pennsylvania, as well as by the insurance departments of
all other states and jurisdictions in which we do business. We are engaged in
the business of issuing life insurance policies and annuity contracts, and we
are currently licensed to do business in 50 states and the District of Columbia.
Our Service Center is located at 300 Continental Drive, Newark, Delaware 19713.
We submit annual statements on our operations and finances to insurance
officials in all states and jurisdictions in which we do business. We have filed
the Policy described in this prospectus with insurance officials in those
jurisdictions in which the Policy is sold.
We intend to reinsure a portion of the risks assumed under the Policies.
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<PAGE> 57
PMLIC'S EXECUTIVE OFFICERS AND DIRECTORS
We are governed by a board of directors. The following tables set forth the
name, address, and principal occupation during the past 5 years of each of our
executive officers and directors. Unless otherwise noted, each person's address
is Provident Mutual Life Insurance Company, 1000 Chesterbrook Boulevard, Berwyn,
Pennsylvania 19312.
OFFICERS AND DIRECTORS OF PMLIC
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
----------------- -----------------------------------------------
<S> <C>
Robert W. Kloss 1996 to present -- President and Chief Executive Officer
Director, Chairman, President and of PMLIC; 1994-1996 -- President and Chief Operating
Chief Executive Officer.............. Officer of PMLIC.
Edward R. Book
Director............................. 1995 to present -- Past-President and Consultant of Travel
305 Windmere Drive, #221 Industry Association of America; 1996-1997 -- President of
State College, PA 16801 USA National Tourism Organization, Inc.
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.
Robert J. Casale
Director............................. 1997 to present -- Executive Consultant of Automatic Data
Brokerage Ins. Svcs. Group Processing, Inc.; 1988-1997 -- Group President/Brokerage
2 Journal Square Information Services Group of Automatic Data Processing
Jersey City, NJ 07306 Inc.
Nicholas DeBenedictis
Director............................. 1993 to present -- Chairman of Philadelphia Suburban
231 Golf View Road Corporation.
Ardmore, PA 19003
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.
4747 Willow Road
Pleasonton, CA 94588
</TABLE>
55
<PAGE> 58
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
----------------- -----------------------------------------------
<S> <C>
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>
* The address is 300 Continental Drive, Newark, Delaware 19713.
We hold the Separate Account's assets physically segregated and apart from the
general account. We maintain records of all purchases and sale of portfolio
shares by each of the Subaccounts. A fidelity bond in the amount of $10 million
per occurrence and $20 million in the aggregate covering our officers and
employees has been issued by Reliance Insurance Company.
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<PAGE> 59
FINANCIAL STATEMENTS
The financial statements of PMLIC included herein should be distinguished from
the financial statements of the Separate Accounts and should be considered only
as bearing upon the ability of PMLIC to meet its obligations under the Policies.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Provident Mutual Variable Growth Separate Account, Provident
Mutual Variable Money Market Separate Account, Provident
Mutual Variable Bond Separate Account, Provident Mutual
Variable Zero Coupon Bond Separate Account, Provident
Mutual Variable Aggressive Growth Separate Account,
Provident Mutual Variable International Separate Account
and Provident Mutual Variable Separate Account.
Report of Independent Accountants...................... F-2
Statements of Assets and Liabilities, December 31,
1999.................................................. F-3
Statements of Operations for the Years Ended December
31, 1999, 1998 and 1997............................... F-9
Statements of Changes in Net Assets for the Years Ended
December 31, 1999, 1998, and 1997..................... F-26
Notes to Financial Statements.......................... F-43
Provident Mutual Life Insurance Company and Subsidiaries
Report of Independent Accountants...................... F-66
Consolidated Statements of Financial Condition,
December 31, 1999 and 1998............................ F-67
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997................ F-68
Consolidated Statements of Equity for the Years Ended
December 31, 1999, 1998 and 1997...................... F-69
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997................ F-70
Notes to Consolidated Financial Statements............. F-71
</TABLE>
F-1
<PAGE> 60
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Policyholders and
Board of Directors of
Provident Mutual Life Insurance
Company:
In our opinion, the accompanying statements of assets and liabilities of the
Provident Mutual Variable Separate Accounts (Growth, Money Market, Bond,
Aggressive Growth, International, Zero Coupon Bond and Variable, comprising
twenty-nine subaccounts, hereafter collectively referred to as the "Separate
Accounts") and the related statements of operations and of changes in net assets
present fairly, in all material respects, the financial position of the Separate
Accounts at December 31, 1999, and the results of their operations and changes
in their net assets for each of the three years in the period then ended, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the management of the
Separate Accounts; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1999 by
correspondence with the transfer agents, provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 23, 2000
F-2
<PAGE> 61
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc., at
market value:
Growth Portfolio.................................. $221,115,498
Money Market Portfolio............................ $41,858,860
Bond Portfolio.................................... $14,883,721
Aggressive Growth Portfolio....................... $42,072,805
International Portfolio........................... $54,503,747
Dividends receivable................................ 190,756
Receivable from Provident Mutual Life Insurance
Company........................................... 409,666
------------ ----------- ----------- ----------- -----------
Total Assets........................................ 221,115,498 42,459,282 14,883,721 42,072,805 54,503,747
------------ ----------- ----------- ----------- -----------
LIABILITIES
Payable to Provident Mutual Life Insurance
Company........................................... 129,912 12,524
------------ ----------- ----------- ----------- -----------
NET ASSETS.......................................... $220,985,586 $42,459,282 $14,871,197 $42,072,805 $54,503,747
============ =========== =========== =========== ===========
Held for the benefit of policyholders............... $220,885,023 $42,386,715 $14,836,405 $41,966,719 $54,405,179
Attributable to Provident Mutual Life Insurance
Company........................................... 100,563 72,567 34,792 106,086 98,568
------------ ----------- ----------- ----------- -----------
$220,985,586 $42,459,282 $14,871,197 $42,072,805 $54,503,747
============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 62
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MANAGED GROWTH VALUE GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc., at market
value:
Managed Portfolio...................................... $45,194,957
All Pro Large Cap Growth Portfolio..................... $23,637,213
All Pro Large Cap Value Portfolio...................... $8,881,983
All Pro Small Cap Growth Portfolio..................... $24,017,996
All Pro Small Cap Value Portfolio...................... $4,358,929
Receivable from Provident Mutual Life Insurance
Company................................................ 30,000
----------- ----------- ---------- ----------- ----------
Total Assets............................................. 45,194,957 23,637,213 8,881,983 24,047,996 4,358,929
----------- ----------- ---------- ----------- ----------
LIABILITIES
Payable to Provident Mutual Life Insurance Company....... 22,998
----------- ----------- ---------- ----------- ----------
NET ASSETS............................................... $45,171,959 $23,637,213 $8,881,983 $24,047,996 $4,358,929
=========== =========== ========== =========== ==========
Held for the benefit of policyholders.................... $44,973,169 $23,426,582 $8,852,507 $24,033,392 $4,314,220
Attributable to Provident Mutual Life Insurance
Company................................................ 198,790 210,631 29,476 14,604 44,709
----------- ----------- ---------- ----------- ----------
$45,171,959 $23,637,213 $8,881,983 $24,047,996 $4,358,929
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 63
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
ASSETS
Investment in the Stripped ("Zero") U.S. Treasury Securities
Fund, Provident Mutual Series A, at market value:
2006 Series............................................... $12,679,934
Receivable from Provident Mutual Life Insurance Company..... 177,781
-----------
NET ASSETS.................................................. $12,857,715
===========
Held for the benefit of policyholders....................... $12,824,111
Attributable to Provident Mutual Life Insurance Company..... 33,604
-----------
$12,857,715
===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 64
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance
Products Fund, at market value:
Equity-Income Portfolio................. $135,091,899
Growth Portfolio........................ $265,591,852
High Income Portfolio................... $19,236,941
Overseas Portfolio...................... $55,439,486
Investment in the Variable Insurance
Products Fund II, at market value:
Asset Manager Portfolio................. $56,956,582
Index 500 Portfolio..................... $200,805,099
------------ ------------ ----------- ----------- ----------- ------------
NET ASSETS................................ $135,091,899 $265,591,852 $19,236,941 $55,439,486 $56,956,582 $200,805,099
============ ============ =========== =========== =========== ============
Held for the benefit of policyholders..... $135,047,402 $265,485,822 $19,195,323 $55,345,164 $56,877,767 $200,739,568
Attributable to Provident Mutual Life
Insurance Company....................... 44,497 106,030 41,618 94,322 78,815 65,531
------------ ------------ ----------- ----------- ----------- ------------
$135,091,899 $265,591,852 $19,236,941 $55,439,486 $56,956,582 $200,805,099
============ ============ =========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 65
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
FIDELITY NEUBERGER NEUBERGER
INVESTMENT FIDELITY BERMAN LIMITED BERMAN
GRADE BOND CONTRAFUND(R) MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance Products Fund II, at
market value:
Investment Grade Bond Portfolio........................... $18,753,042
Contrafund(R) Portfolio................................... $83,146,606
Investment in the Neuberger Berman Advisers Management
Trust, at market value:
Limited Maturity Bond Portfolio........................... $8,796,337
Partners Portfolio........................................ $29,822,548
----------- ----------- ---------- -----------
NET ASSETS.................................................. $18,753,042 $83,146,606 $8,796,337 $29,822,548
=========== =========== ========== ===========
Held for the benefit of policyholders....................... $18,738,813 $83,106,574 $8,762,170 $29,607,435
Attributable to Provident Mutual Life Insurance Company..... 14,229 40,032 34,167 215,113
----------- ----------- ---------- -----------
$18,753,042 $83,146,606 $8,796,337 $29,822,548
=========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 66
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
VAN ECK VAN ECK ALGER
VAN ECK VAN ECK WORLDWIDE WORLDWIDE AMERICAN
WORLDWIDE WORLDWIDE EMERGING REAL SMALL
BOND HARD ASSETS MARKETS ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Van Eck Worldwide Insurance Trust,
at market value:
Van Eck Worldwide Bond Portfolio..................... $5,843,922
Van Eck Worldwide Hard Assets Portfolio.............. $2,743,655
Van Eck Worldwide Emerging Markets Portfolio......... $19,043,358
Van Eck Worldwide Real Estate Portfolio.............. $713,583
Investment in the Alger American Fund, at market value:
Alger American Small Capitalization Portfolio........ $41,231,423
---------- ---------- ----------- -------- -----------
NET ASSETS............................................. $5,843,922 $2,743,655 $19,043,358 $713,583 $41,231,423
========== ========== =========== ======== ===========
Held for the benefit of policyholders.................. $5,820,097 $2,709,048 $18,972,402 $682,421 $41,152,888
Attributable to Provident Mutual Life Insurance
Company.............................................. 23,825 34,607 70,956 31,162 78,535
---------- ---------- ----------- -------- -----------
$5,843,922 $2,743,655 $19,043,358 $713,583 $41,231,423
========== ========== =========== ======== ===========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 67
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................ $ 778,682 $1,756,713 $ 211,268 $ 202,553 $ 501,072
EXPENSES
Mortality and expense risks.............................. 1,443,038 256,368 96,941 255,677 317,732
Operating expense reimbursement.......................... (8,226) (1,010)
----------- ---------- --------- ---------- -----------
Total expenses........................................... 1,434,812 256,368 95,931 255,677 317,732
----------- ---------- --------- ---------- -----------
Net investment (loss) income............................. (656,130) 1,500,345 115,337 (53,124) 183,340
----------- ---------- --------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain distributions reinvested................... 4,548,806 165,995 5,023,061 2,570,840
Net realized gain from redemption of investment shares... 8,675,587 79,237 1,321,430 872,905
----------- ---------- --------- ---------- -----------
Net realized gain on investments......................... 13,224,393 245,232 6,344,491 3,443,745
----------- ---------- --------- ---------- -----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year...................................... 43,642,825 888,223 7,593,499 3,974,294
End of year............................................ 36,701,349 (64,965) 6,812,200 12,279,992
----------- ---------- --------- ---------- -----------
Net unrealized (depreciation) appreciation of investments
during the year........................................ (6,941,476) (953,188) (781,299) 8,305,698
----------- ---------- --------- ---------- -----------
Net realized and unrealized gain (loss) on investments... 6,282,917 (707,956) 5,563,192 11,749,443
----------- ---------- --------- ---------- -----------
Net increase (decrease) in net assets resulting from
operations............................................. $ 5,626,787 $1,500,345 $(592,619) $5,510,068 $11,932,783
=========== ========== ========= ========== ===========
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 68
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MANAGED GROWTH VALUE GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................................. $ 302,530 $ 925 $ 23,532 $ 6,660
EXPENSES
Mortality and expense risks............................ 286,127 106,933 47,263 $ 74,986 26,977
----------- ---------- --------- ---------- ---------
Total expenses......................................... 286,127 106,933 47,263 74,986 26,977
----------- ---------- --------- ---------- ---------
Net investment income (loss)........................... 16,403 (106,008) (23,731) (74,986) (20,317)
----------- ---------- --------- ---------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain distributions reinvested................. 2,063,055
Net realized gain (loss) from redemption of investment
shares............................................... 1,222,115 937,158 141,631 1,098,185 (295,056)
----------- ---------- --------- ---------- ---------
Net realized gain (loss) on investments................ 3,285,170 937,158 141,631 1,098,185 (295,056)
----------- ---------- --------- ---------- ---------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year.................................... 8,871,564 511,417 139,747 403,798 13,283
End of year.......................................... 5,401,466 3,039,361 (180,205) 8,930,477 12,537
----------- ---------- --------- ---------- ---------
Net unrealized (depreciation) appreciation of
investments during the year.......................... (3,470,098) 2,527,944 (319,952) 8,526,679 (746)
----------- ---------- --------- ---------- ---------
Net realized and unrealized (loss) gain on
investments.......................................... (184,928) 3,465,102 (178,321) 9,624,864 (295,802)
----------- ---------- --------- ---------- ---------
Net (decrease) increase in net assets resulting from
operations........................................... $ (168,525) $3,359,094 $(202,052) $9,549,878 $(316,119)
=========== ========== ========= ========== =========
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 69
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statement of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
EXPENSES
Mortality and expense risks................................. $ 86,998
Asset charge................................................ 31,129
-----------
Net investment loss......................................... (118,127)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from redemption of investment shares...... 504,592
-----------
Net realized gain on investments............................ 504,592
-----------
Net unrealized appreciation (depreciation) of investments:
Beginning of year......................................... 2,163,181
End of year............................................... 892,107
-----------
Net unrealized depreciation of investments during the
year...................................................... (1,271,074)
-----------
Net realized and unrealized loss on investments............. (766,482)
-----------
Net decrease in net assets resulting from operations........ $ (884,609)
===========
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 70
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................. $ 1,814,813 $ 305,785 $ 1,730,285 $ 553,518 $1,677,436 $ 1,349,680
EXPENSES
Mortality and expense risks................ 910,936 1,425,114 132,829 286,833 365,980 1,156,047
----------- ----------- ----------- ----------- ---------- -----------
Net investment income (loss)............... 903,877 (1,119,329) 1,597,456 266,685 1,311,456 193,633
----------- ----------- ----------- ----------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested..... 4,011,692 19,226,224 64,683 892,772 2,124,752 915,854
Net realized gain (loss) from redemption of
investment shares........................ 4,627,304 5,621,556 (530,612) 1,306,076 968,771 3,885,258
----------- ----------- ----------- ----------- ---------- -----------
Net realized gain (loss) on investments.... 8,638,996 24,847,780 (465,929) 2,198,848 3,093,523 4,801,112
----------- ----------- ----------- ----------- ---------- -----------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year........................ 23,637,997 52,781,625 (1,380,446) 1,662,167 7,302,249 35,771,600
End of year.............................. 20,802,103 96,649,271 (1,079,956) 15,070,694 8,174,749 61,065,199
----------- ----------- ----------- ----------- ---------- -----------
Net unrealized (depreciation) appreciation
of investments during the year........... (2,835,894) 43,867,646 300,490 13,408,527 872,500 25,293,599
----------- ----------- ----------- ----------- ---------- -----------
Net realized and unrealized gain (loss) on
investments.............................. 5,803,102 68,715,426 (165,439) 15,607,375 3,966,023 30,094,711
----------- ----------- ----------- ----------- ---------- -----------
Net increase in net assets resulting from
operations............................... $ 6,706,979 $67,596,097 $ 1,432,017 $15,874,060 $5,277,479 $30,288,344
=========== =========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 71
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
FIDELITY NEUBERGER NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY BERMAN BERMAN BERMAN LIMITED BERMAN
GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................. $ 528,797 $ 237,081 $ 122,080 $ 391,039 $ 23,039
EXPENSES
Mortality and expense risks................ 115,042 441,651 16,908 $ 66,971 54,078 142,567
----------- ----------- --------- ----------- --------- ---------
Net investment income (loss)............... 413,755 (204,570) 105,172 (66,971) 336,961 (119,528)
----------- ----------- --------- ----------- --------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested..... 165,897 1,738,597 180,860 1,572,930 40,068
Net realized gain (loss) from redemption of
investment shares........................ 188,073 940,747 (89,916) (1,300,114) (50,951) 140,214
----------- ----------- --------- ----------- --------- ---------
Net realized gain (loss) on investments.... 353,970 2,679,344 90,944 272,816 (50,951) 180,282
----------- ----------- --------- ----------- --------- ---------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year........................ 688,242 8,740,185 277,919 829,761 56,889 62,679
End of year.............................. (344,879) 20,480,366 (167,931) (361,993)
----------- ----------- --------- ----------- --------- ---------
Net unrealized (depreciation) appreciation
of investments during the year........... (1,033,121) 11,740,181 (277,919) (829,761) (224,820) (424,672)
----------- ----------- --------- ----------- --------- ---------
Net realized and unrealized (loss) gain on
investments.............................. (679,151) 14,419,525 (186,975) (556,945) (275,771) (244,390)
----------- ----------- --------- ----------- --------- ---------
Net (decrease) increase in net assets
resulting from operations................ $ (265,396) $14,214,955 $ (81,803) $ (623,916) $ 61,190 $(363,918)
=========== =========== ========= =========== ========= =========
</TABLE>
See accompanying notes to financial statements
F-13
<PAGE> 72
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................. $ 221,562 $ 32,546 $ 8,422
EXPENSES
Mortality and expense risks................ $ 17,307 39,696 17,883 $ 69,910 3,504 $ 213,671
--------- --------- ----------- ----------- -------- -----------
Net investment (loss) income............... (17,307) 181,866 14,663 (69,910) 4,918 (213,671)
--------- --------- ----------- ----------- -------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested..... 98,996 3,576,725
Net realized (loss) gain from redemption of
investment shares........................ (302,618) (6,791) (325,178) (1,010,030) (17,087) 1,130,238
--------- --------- ----------- ----------- -------- -----------
Net realized (loss) gain on investments.... (302,618) 92,205 (325,178) (1,010,030) (17,087) 4,706,963
--------- --------- ----------- ----------- -------- -----------
Net unrealized (depreciation) appreciation
of investments:
Beginning of year........................ (901,802) 590,559 (1,136,100) (3,646,142) (12,422) 1,898,815
End of year.............................. (184,365) (383,792) 5,968,786 (18,916) 9,761,610
--------- --------- ----------- ----------- -------- -----------
Net unrealized appreciation (depreciation)
of investments during the year........... 901,802 (774,924) 752,308 9,614,928 (6,494) 7,862,795
--------- --------- ----------- ----------- -------- -----------
Net realized and unrealized gain (loss) on
investments.............................. 599,184 (682,719) 427,130 8,604,898 (23,581) 12,569,758
--------- --------- ----------- ----------- -------- -----------
Net increase (decrease) in net assets
resulting from operations................ $ 581,877 $(500,853) $ 441,793 $ 8,534,988 $(18,663) $12,356,087
========= ========= =========== =========== ======== ===========
</TABLE>
See accompanying notes to financial statements
F-14
<PAGE> 73
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................... $ 3,379,864 $1,332,049 $ 820,143 $1,224,452 $ 281,744 $ 296,331
EXPENSES
Mortality and expense risks................. 1,369,021 176,853 95,234 243,226 251,275 296,668
Operating expense reimbursement............. (4,864) (1,300)
----------- ---------- ---------- ---------- ----------- ----------
Total expenses.............................. 1,364,157 176,853 93,934 243,226 251,275 296,668
----------- ---------- ---------- ---------- ----------- ----------
Net investment income....................... 2,015,707 1,155,196 726,209 981,226 30,469 (337)
----------- ---------- ---------- ---------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested...... 27,569,753 2,080 1,742,752 2,689,649 2,692,126
Net realized gain (loss) from redemption of
investment shares......................... 3,562,099 (13,248) 807,777 1,378,531 557,059
----------- ---------- ---------- ---------- ----------- ----------
Net realized gain (loss) on investments..... 31,131,852 (11,168) 2,550,529 4,068,180 3,249,185
----------- ---------- ---------- ---------- ----------- ----------
Net unrealized appreciation of investments:
Beginning of year......................... 49,936,122 545,131 8,084,445 9,124,521 3,573,814
End of year............................... 43,642,825 888,223 8,871,564 7,593,499 3,974,294
----------- ---------- ---------- ---------- ----------- ----------
Net unrealized appreciation (depreciation)
of investments during the year............ (6,293,297) 343,092 787,119 (1,531,022) 400,480
----------- ---------- ---------- ---------- ----------- ----------
Net realized and unrealized gain on
investments............................... 24,838,555 331,924 3,337,648 2,537,158 3,649,665
----------- ---------- ---------- ---------- ----------- ----------
Net increase in net assets resulting from
operations................................ $26,854,262 $1,155,196 $1,058,133 $4,318,874 $ 2,567,627 $3,649,328
=========== ========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-15
<PAGE> 74
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends...................................................
EXPENSES
Mortality and expense risks................................. $ 10,444 $ 7,828 $ 8,535 $ 6,110
-------- -------- -------- --------
Total expenses.............................................. 10,444 7,828 8,535 6,110
-------- -------- -------- --------
Net investment loss......................................... (10,444) (7,828) (8,535) (6,110)
-------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain distributions reinvested......................
Net realized gain (loss) from redemption of investment
shares.................................................... 114,538 1,976 (75,896) (65,921)
-------- -------- -------- --------
Net realized gain (loss) on investments..................... 114,538 1,976 (75,896) (65,921)
-------- -------- -------- --------
Net unrealized appreciation of investments:
Beginning of year.........................................
End of year............................................... 511,417 139,747 403,798 13,283
-------- -------- -------- --------
Net unrealized appreciation of investments during the
year...................................................... 511,417 139,747 403,798 13,283
-------- -------- -------- --------
Net realized and unrealized gain (loss) on investments...... 625,955 141,723 327,902 (52,638)
-------- -------- -------- --------
Net increase (decrease) in net assets resulting from
operations................................................ $615,511 $133,895 $319,367 $(58,748)
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-16
<PAGE> 75
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statement of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
EXPENSES
Mortality and expense risks................................. $ 73,516
Asset charge................................................ 26,330
----------
Net investment loss......................................... (99,846)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from redemption of investment shares...... 570,514
----------
Net realized gain on investments............................ 570,514
----------
Net unrealized appreciation of investments:
Beginning of year......................................... 1,354,882
End of year............................................... 2,163,181
----------
Net unrealized appreciation of investments during the
year...................................................... 808,299
----------
Net realized and unrealized gain on investments............. 1,378,813
----------
Net increase in net assets resulting from operations........ $1,278,967
==========
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE> 76
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................. $ 1,342,651 $ 570,939 $ 1,128,406 $ 501,316 $1,342,461 $ 902,884
EXPENSES
Mortality and expense risks................ 750,572 927,027 129,187 208,755 318,489 693,688
----------- ----------- ----------- ---------- ---------- -----------
Net investment income (loss)............... 592,079 (356,088) 999,219 292,561 1,023,972 209,196
----------- ----------- ----------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested..... 4,778,257 14,934,573 717,008 1,477,561 4,027,382 2,091,239
Net realized gain from redemption of
investment shares........................ 2,849,171 5,521,995 132,632 1,720,249 834,620 1,946,503
----------- ----------- ----------- ---------- ---------- -----------
Net realized gain on investments........... 7,627,428 20,456,568 849,640 3,197,810 4,862,002 4,037,742
----------- ----------- ----------- ---------- ---------- -----------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year........................ 20,932,815 27,530,683 1,485,682 2,054,866 7,028,980 15,712,282
End of year.............................. 23,637,997 52,781,625 (1,380,446) 1,662,167 7,302,249 35,771,600
----------- ----------- ----------- ---------- ---------- -----------
Net unrealized appreciation (depreciation)
of investments during the year........... 2,705,182 25,250,942 (2,866,128) (392,699) 273,269 20,059,318
----------- ----------- ----------- ---------- ---------- -----------
Net realized and unrealized gain (loss) on
investments.............................. 10,332,610 45,707,510 (2,016,488) 2,805,111 5,135,271 24,097,060
----------- ----------- ----------- ---------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations................ $10,924,689 $45,351,422 $(1,017,269) $3,097,672 $6,159,243 $24,306,256
=========== =========== =========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE> 77
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
FIDELITY NEUBERGER & NEUBERGER & NEUBERGER & NEUBERGER &
INVESTMENT FIDELITY BERMAN BERMAN BERMAN LIMITED BERMAN
GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................. $399,467 $ 185,502 $ 156,692 $277,191
EXPENSES
Mortality and expense risks............ 73,292 238,056 48,283 $ 192,792 36,204 $ 3,466
-------- ---------- ---------- ----------- -------- -------
Net investment income (loss)........... 326,175 (52,554) 108,409 (192,792) 240,987 (3,466)
-------- ---------- ---------- ----------- -------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions
reinvested........................... 47,394 1,364,768 1,100,579 7,126,749
Net realized gain (loss) from
redemption of investment shares...... 133,347 2,635,800 (109,169) 268,551 (32,935) (5,901)
-------- ---------- ---------- ----------- -------- -------
Net realized gain (loss) on
investments.......................... 180,741 4,000,568 991,410 7,395,300 (32,935) (5,901)
-------- ---------- ---------- ----------- -------- -------
Net unrealized appreciation of
investments:
Beginning of year.................... 401,371 3,332,605 595,317 4,238,015 86,785
End of year.......................... 688,242 8,740,185 277,919 829,761 56,889 62,679
-------- ---------- ---------- ----------- -------- -------
Net unrealized appreciation
(depreciation) of investments during
the year............................. 286,871 5,407,580 (317,398) (3,408,254) (29,896) 62,679
-------- ---------- ---------- ----------- -------- -------
Net realized and unrealized gain (loss)
on investments....................... 467,612 9,408,148 674,012 3,987,046 (62,831) 56,778
-------- ---------- ---------- ----------- -------- -------
Net increase in net assets resulting
from operations...................... $793,787 $9,355,594 $ 782,421 $3,794,254 $178,156 $53,312
======== ========== ========== =========== ======== =======
</TABLE>
See accompanying notes to financial statements
F-19
<PAGE> 78
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................. $ 40,647 $ 16,113 $ 54,397
EXPENSES
Mortality and expense risks................ $ 53,235 34,811 16,990 43,590 $ 1,150 $ 159,984
----------- -------- ----------- ----------- -------- ----------
Net investment income (loss)............... (53,235) 5,836 (877) 10,807 (1,150) (159,984)
----------- -------- ----------- ----------- -------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested..... 422,956 395,670 48,353 2,950,817
Net realized gain (loss) from redemption of
investment shares........................ (698,102) 38,421 (213,306) (421,210) (8,482) 199,222
----------- -------- ----------- ----------- -------- ----------
Net realized gain (loss) on investments.... (275,146) 38,421 182,364 (372,857) (8,482) 3,150,039
----------- -------- ----------- ----------- -------- ----------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year........................ (1,024,766) 61,527 (31,204) (1,437,453) 1,324,974
End of year.............................. (901,802) 590,559 (1,136,100) (3,646,142) (12,423) 1,898,815
----------- -------- ----------- ----------- -------- ----------
Net unrealized appreciation (depreciation)
of investments during the year........... 122,964 529,032 (1,104,896) (2,208,689) (12,423) 573,841
----------- -------- ----------- ----------- -------- ----------
Net realized and unrealized gain (loss) on
investments.............................. (152,182) 567,453 (922,532) (2,581,546) (20,905) 3,723,880
----------- -------- ----------- ----------- -------- ----------
Net increase (decrease) in net assets
resulting from operations................ $ (205,417) $573,289 $ (923,409) $(2,570,739) $(22,055) $3,563,896
=========== ======== =========== =========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE> 79
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................... $ 3,927,765 $1,265,663 $ 727,891 $1,112,725 $ 248,042 $ 268,402
EXPENSES
Mortality and expense risks.................. 1,171,607 170,118 78,010 208,655 202,951 251,580
Operating expense reimbursement.............. (3,041) (40) (1,390)
----------- ---------- ---------- ---------- ---------- ----------
Total expenses............................... 1,168,566 170,078 76,620 208,655 202,951 251,580
----------- ---------- ---------- ---------- ---------- ----------
Net investment income........................ 2,759,199 1,095,585 651,271 904,070 45,091 16,822
----------- ---------- ---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested....... 19,579,907 242,281 49,195 2,101,304
Net realized gain (loss) from redemption of
investment shares.......................... 4,127,983 (7,292) 956,474 577,435 504,035
----------- ---------- ---------- ---------- ---------- ----------
Net realized gain (loss) on investments...... 23,707,890 (7,292) 1,198,755 626,630 2,605,339
----------- ---------- ---------- ---------- ---------- ----------
Net unrealized appreciation of investments:
Beginning of year.......................... 36,782,658 143,144 4,034,365 4,227,761 3,295,188
End of year................................ 49,936,122 545,131 8,084,445 9,124,521 3,573,814
----------- ---------- ---------- ---------- ---------- ----------
Net unrealized appreciation of investments
during the year............................ 13,153,464 401,987 4,050,080 4,896,760 278,626
----------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain on
investments................................ 36,861,354 394,695 5,248,835 5,523,390 2,883,965
----------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets resulting from
operations................................. $39,620,553 $1,095,585 $1,045,966 $6,152,905 $5,568,481 $2,900,787
=========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE> 80
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statement of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
EXPENSES
Mortality and expense risks................................. $ 47,810
Asset charge................................................ 17,446
----------
Net investment loss......................................... (65,256)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from redemption of investment shares...... 240,323
----------
Net realized gain on investments............................ 240,323
----------
Net unrealized appreciation of investments:
Beginning of year......................................... 744,136
End of year............................................... 1,354,882
----------
Net unrealized appreciation of investments during the
year...................................................... 610,746
----------
Net realized and unrealized gain on investments............. 851,069
----------
Net increase in net assets resulting from operations........ $ 785,813
==========
</TABLE>
See accompanying notes to financial statements
F-22
<PAGE> 81
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........................................ $ 1,044,885 $ 527,324 $ 626,782 $ 290,204 $1,122,466 $ 358,610
EXPENSES
Mortality and expense risks...................... 533,228 649,048 80,380 144,312 255,690 355,997
----------- ----------- ---------- ---------- ---------- -----------
Net investment income (loss)..................... 511,657 (121,724) 546,402 145,892 866,776 2,613
----------- ----------- ---------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Realized gain distributions reinvested........... 5,253,449 2,887,725 77,467 1,152,021 2,815,676 727,665
Net realized gain from redemption of investment
shares......................................... 965,614 1,224,507 123,771 156,064 391,666 814,167
----------- ----------- ---------- ---------- ---------- -----------
Net realized gain on investments................. 6,219,063 4,112,232 201,238 1,308,085 3,207,342 1,541,832
----------- ----------- ---------- ---------- ---------- -----------
Net unrealized appreciation of investments:
Beginning of year.............................. 9,654,194 12,974,029 471,856 1,745,917 4,535,884 4,431,677
End of year.................................... 20,932,815 27,530,683 1,485,682 2,054,866 7,028,980 15,712,282
----------- ----------- ---------- ---------- ---------- -----------
Net unrealized appreciation of investments during
the year....................................... 11,278,621 14,556,654 1,013,826 308,949 2,493,096 11,280,605
----------- ----------- ---------- ---------- ---------- -----------
Net realized and unrealized gain on
investments.................................... 17,497,684 18,668,886 1,215,064 1,617,034 5,700,438 12,822,437
----------- ----------- ---------- ---------- ---------- -----------
Net increase in net assets resulting from
operations..................................... $18,009,341 $18,547,162 $1,761,466 $1,762,926 $6,567,214 $12,825,050
=========== =========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-23
<PAGE> 82
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
FIDELITY NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.......................................... $307,980 $ 64,609 $ 77,242 $153,994
EXPENSES
Mortality and expense risks........................ 43,496 116,135 36,171 $ 146,708 23,036
-------- ---------- -------- ---------- --------
Net investment income (loss)....................... 264,484 (51,526) 41,071 (146,708) 130,958
-------- ---------- -------- ---------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested............. 170,752 198,255 1,531,297
Net realized gain (loss) from redemption of
investment shares................................ 2,841 199,925 106,220 611,229 (6,752)
-------- ---------- -------- ---------- --------
Net realized gain (loss) on investments............ 2,841 370,677 304,475 2,142,526 (6,752)
-------- ---------- -------- ---------- --------
Net unrealized appreciation of investments:
Beginning of year................................ 155,266 477,324 71,201 1,243,267 19,157
End of year...................................... 401,371 3,332,605 595,317 4,238,015 86,785
-------- ---------- -------- ---------- --------
Net unrealized appreciation of investments during
the year......................................... 246,105 2,855,281 524,116 2,994,748 67,628
-------- ---------- -------- ---------- --------
Net realized and unrealized gain on investments.... 248,946 3,225,958 828,591 5,137,274 60,876
-------- ---------- -------- ---------- --------
Net increase in net assets resulting from
operations....................................... $513,430 $3,174,432 $869,662 $4,990,566 $191,834
======== ========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-24
<PAGE> 83
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING SMALL
APPRECIATION BOND HARD ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................................. $105,223 $ 45,568 $ 9,541
EXPENSES
Mortality and expense risks............................ $ 56,416 25,359 12,555 31,122 $ 90,562
----------- -------- --------- ----------- ----------
Net investment income (loss)........................... (56,416) 79,864 33,013 (21,581) (90,562)
----------- -------- --------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain distributions reinvested................. 171,163 33,634 449,342
Net realized gain (loss) from redemption of investment
shares............................................... (90,120) 12,516 61,163 82,065 11,202
----------- -------- --------- ----------- ----------
Net realized gain on investments....................... 81,043 12,516 94,797 82,065 460,544
----------- -------- --------- ----------- ----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year.................................... (633,726) 70,532 187,278 90,708 173,011
End of year.......................................... (1,024,766) 61,527 (31,204) (1,437,453) 1,324,974
----------- -------- --------- ----------- ----------
Net unrealized appreciation (depreciation) of
investments during the year.......................... (391,040) (9,005) (218,482) (1,528,161) 1,151,963
----------- -------- --------- ----------- ----------
Net realized and unrealized gain (loss) on
investments.......................................... (309,997) 3,511 (123,685) (1,446,096) 1,612,507
----------- -------- --------- ----------- ----------
Net increase (decrease) in net assets resulting from
operations........................................... $ (366,413) $ 83,375 $ (90,672) $(1,467,677) $1,521,945
=========== ======== ========= =========== ==========
</TABLE>
See accompanying notes to financial statements
F-25
<PAGE> 84
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss) income.......................... $ (656,130) $ 1,500,345 $ 115,337 $ (53,124) $ 183,340
Net realized gain on investments...................... 13,224,393 245,232 6,344,491 3,443,745
Net unrealized (depreciation) appreciation of
investments during the year......................... (6,941,476) (953,188) (781,299) 8,305,698
------------ ------------ ----------- ----------- -----------
Net increase (decrease) in net assets from
operations.......................................... 5,626,787 1,500,345 (592,619) 5,510,068 11,932,783
------------ ------------ ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums........................... 25,559,470 45,254,470 2,928,215 6,725,432 7,926,796
Cost of insurance and administrative charges.......... (11,000,645) (4,882,943) (1,170,041) (2,733,161) (3,081,714)
Surrenders and forfeitures............................ (13,471,793) (2,245,501) (1,146,196) (2,039,064) (1,675,257)
Transfers between investment portfolios............... (15,622,188) (29,928,701) (784,382) (4,058,353) (4,171,437)
Net (withdrawals) repayments due to policy loans...... (1,509,720) (55,132) 333,554 (257,031) (333,439)
Withdrawals due to death benefits..................... (328,808) (105,788) (39,302) (28,015) (49,046)
------------ ------------ ----------- ----------- -----------
Net increase (decrease) in net assets derived from
policy transactions................................. (16,373,684) 8,036,405 121,848 (2,390,192) (1,384,097)
------------ ------------ ----------- ----------- -----------
Total (decrease) increase in net assets............... (10,746,897) 9,536,750 (470,771) 3,119,876 10,548,686
NET ASSETS
Beginning of year................................... 231,732,483 32,922,532 15,341,968 38,952,929 43,955,061
------------ ------------ ----------- ----------- -----------
End of year......................................... $220,985,586 $ 42,459,282 $14,871,197 $42,072,805 $54,503,747
============ ============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-26
<PAGE> 85
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
VARIABLE SEPARATE ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MANAGED GROWTH VALUE GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............................. $ 16,403 $ (106,008) $ (23,731) $ (74,986) $ (20,317)
Net realized gain (loss) on investments.................. 3,285,170 937,158 141,631 1,098,185 (295,056)
Net unrealized (depreciation) appreciation of investments
during the year........................................ (3,470,098) 2,527,944 (319,952) 8,526,679 (746)
----------- ----------- ---------- ----------- ----------
Net (decrease) increase in net assets from operations.... (168,525) 3,359,094 (202,052) 9,549,878 (316,119)
----------- ----------- ---------- ----------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.............................. 5,336,853 3,974,650 1,765,693 2,424,562 1,267,496
Cost of insurance and administrative charges............. (2,630,602) (1,316,182) (580,616) (697,076) (343,372)
Surrenders and forfeitures............................... (1,794,972) (510,138) (118,076) (263,663) (53,089)
Transfers between investment portfolios.................. 3,744,142 14,042,452 4,604,631 8,628,255 670,018
Net withdrawals due to policy loans...................... (237,231) (169,856) (83,273) (180,314) (19,891)
Withdrawals due to death benefits........................ (110,679) (12,140) (6,005)
----------- ----------- ---------- ----------- ----------
Net increase in net assets derived from policy
transactions........................................... 4,307,511 16,008,786 5,588,359 9,905,759 1,521,162
----------- ----------- ---------- ----------- ----------
Capital contribution from Provident Mutual Life Insurance
Company................................................ 25,000
----------- ----------- ---------- ----------- ----------
Total increase in net assets............................. 4,138,986 19,367,880 5,386,307 19,480,637 1,205,043
NET ASSETS
Beginning of year...................................... 41,032,973 4,269,333 3,495,676 4,567,359 3,153,886
----------- ----------- ---------- ----------- ----------
End of year............................................ $45,171,959 $23,637,213 $8,881,983 $24,047,996 $4,358,929
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-27
<PAGE> 86
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statement of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
FROM OPERATIONS
Net investment loss......................................... $ (118,127)
Net realized gain on investments............................ 504,592
Net unrealized depreciation of investments during the
year...................................................... (1,271,074)
-----------
Net decrease in net assets from operations.................. (884,609)
-----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................................. 2,272,109
Cost of insurance and administrative charges................ (1,094,364)
Surrenders and forfeitures.................................. (276,872)
Transfers between investment portfolios..................... 288,024
Net repayments due to policy loans.......................... 10,863
Withdrawals due to death benefits........................... (16,728)
-----------
Net increase in net assets derived from policy
transactions.............................................. 1,183,032
-----------
Return of capital to Provident Mutual Life Insurance
Company................................................... (30,000)
-----------
Total increase in net assets................................ 268,423
NET ASSETS
Beginning of year......................................... 12,589,292
-----------
End of year............................................... $12,857,715
===========
</TABLE>
See accompanying notes to financial statements
F-28
<PAGE> 87
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............... $ 903,877 $ (1,119,329) $ 1,597,456 $ 266,685 $ 1,311,456 $ 193,633
Net realized gain (loss) on investments.... 8,638,996 24,847,780 (465,929) 2,198,848 3,093,523 4,801,112
Net unrealized (depreciation) appreciation
of investments during the year........... (2,835,894) 43,867,646 300,490 13,408,527 872,500 25,293,599
------------ ------------ ----------- ----------- ----------- ------------
Net increase in net assets from
operations............................... 6,706,979 67,596,097 1,432,017 15,874,060 5,277,479 30,288,344
------------ ------------ ----------- ----------- ----------- ------------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................ 26,300,878 36,742,390 4,187,437 8,759,380 8,961,592 42,870,989
Cost of insurance and administrative
charges.................................. (10,154,078) (13,681,370) (1,605,749) (2,892,929) (3,769,280) (14,259,424)
Surrenders and forfeitures................. (3,592,990) (7,044,356) (516,102) (1,126,817) (2,114,552) (4,999,798)
Transfers between investment portfolios.... (3,881,832) 15,811,209 (3,043,663) 498,950 (1,063,797) 19,021,170
Net withdrawals due to policy loans........ (1,209,316) (2,498,144) (118,715) (314,727) (322,758) (2,757,490)
Withdrawals due to death benefits.......... (127,564) (73,911) (7,992) (54,224) (183,435) (144,419)
------------ ------------ ----------- ----------- ----------- ------------
Net increase in net assets derived from
policy transactions...................... 7,335,098 29,255,818 (1,104,784) 4,869,633 1,507,770 39,731,028
------------ ------------ ----------- ----------- ----------- ------------
Total increase in net assets............... 14,042,077 96,851,915 327,233 20,743,693 6,785,249 70,019,372
NET ASSETS
Beginning of year........................ 121,049,822 168,739,937 18,909,708 34,695,793 50,171,333 130,785,727
------------ ------------ ----------- ----------- ----------- ------------
End of year.............................. $135,091,899 $265,591,852 $19,236,941 $55,439,486 $56,956,582 $200,805,099
============ ============ =========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements
F-29
<PAGE> 88
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
FIDELITY NEUBERGER NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY BERMAN BERMAN BERMAN LIMITED BERMAN
GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............. $ 413,755 $ (204,570) $ 105,172 $ (66,971) $ 336,961 $ (119,528)
Net realized gain (loss) on
investments............................ 353,970 2,679,344 90,944 272,816 (50,951) 180,282
Net unrealized (depreciation)
appreciation of investments during the
year................................... (1,033,121) 11,740,181 (277,919) (829,761) (224,820) (424,672)
----------- ----------- ---------- ----------- ---------- -----------
Net (decrease) increase in net assets
from operations........................ (265,396) 14,214,955 (81,803) (623,916) 61,190 (363,918)
----------- ----------- ---------- ----------- ---------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.............. 4,032,775 17,802,373 565,791 1,959,156 2,091,724 4,323,983
Cost of insurance and administrative
charges................................ (1,422,000) (5,378,405) (246,888) (781,892) (584,928) (1,732,241)
Surrenders and forfeitures............... (363,847) (1,262,113) (99,384) (382,062) (81,946) (835,368)
Transfers between investment
portfolios............................. 2,875,172 12,332,491 (7,607,944) (30,210,653) 734,126 26,875,968
Net withdrawals due to policy loans...... (91,716) (729,208) (26,232) (119,608) (7,993) (145,504)
Withdrawals due to death benefits........ (2,577) (10,570) (275) (18,835) (21,808)
----------- ----------- ---------- ----------- ---------- -----------
Net increase (decrease) in net assets
derived from policy transactions....... 5,027,807 22,754,568 (7,414,932) (29,553,894) 2,150,983 28,465,030
----------- ----------- ---------- ----------- ---------- -----------
Total increase (decrease) in net
assets................................. 4,762,411 36,969,523 (7,496,735) (30,177,810) 2,212,173 28,101,112
NET ASSETS
Beginning of year...................... 13,990,631 46,177,083 7,496,735 30,177,810 6,584,164 1,721,436
----------- ----------- ---------- ----------- ---------- -----------
End of year............................ $18,753,042 $83,146,606 -- -- $8,796,337 $29,822,548
=========== =========== ========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-30
<PAGE> 89
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
AMERICAN VAN ECK VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING REAL SMALL
APPRECIATION BOND HARD ASSETS MARKETS ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss) income.......... $ (17,307) $ 181,866 $ 14,663 $ (69,910) $ 4,918 $ (213,671)
Net realized (loss) gain on
investments......................... (302,618) 92,205 (325,178) (1,010,030) (17,087) 4,706,963
Net unrealized appreciation
(depreciation) of investments during
the year............................ 901,802 (774,924) 752,308 9,614,928 (6,494) 7,862,795
----------- ---------- ---------- ----------- -------- -----------
Net increase (decrease) in net assets
from operations..................... 581,877 (500,853) 441,793 8,534,988 (18,663) 12,356,087
----------- ---------- ---------- ----------- -------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums........... 726,731 1,312,452 714,639 2,966,545 242,709 7,735,292
Cost of insurance and administrative
charges............................. (275,934) (477,757) (245,907) (949,758) (59,562) (2,568,433)
Surrenders and forfeitures............ (114,281) (230,911) (400,502) (468,935) (2,705) (748,345)
Transfers between investment
portfolios.......................... (8,445,347) 59,808 175,667 2,993,928 122,944 (4,251,852)
Net withdrawals due to policy loans... (33,028) (22,317) (10,258) (256,405) (13,070) (271,486)
Withdrawals due to death benefits..... (19,365) (3,213) (65) (10,061) (14,375)
----------- ---------- ---------- ----------- -------- -----------
Net (decrease) increase in net assets
derived from policy transactions.... (8,161,224) 638,062 233,574 4,275,314 290,316 (119,199)
----------- ---------- ---------- ----------- -------- -----------
Total (decrease) increase in net
assets.............................. (7,579,347) 137,209 675,367 12,810,302 271,653 12,236,888
NET ASSETS
Beginning of year................... 7,579,347 5,706,713 2,068,288 6,233,056 441,930 28,994,535
----------- ---------- ---------- ----------- -------- -----------
End of year......................... -- $5,843,922 $2,743,655 $19,043,358 $713,583 $41,231,423
=========== ========== ========== =========== ======== ===========
</TABLE>
See accompanying notes to financial statements
F-31
<PAGE> 90
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).............. $ 2,015,707 $ 1,155,196 $ 726,209 $ 981,226 $ 30,469 $ (337)
Net realized gain (loss) on investments... 31,131,852 (11,168) 2,550,529 4,068,180 3,249,185
Net unrealized appreciation (depreciation)
of investments during the year.......... (6,293,297) 343,092 787,119 (1,531,022) 400,480
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets from
operations.............................. 26,854,262 1,155,196 1,058,133 4,318,874 2,567,627 3,649,328
------------ ------------ ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............... 28,487,988 42,570,677 3,219,583 5,309,169 8,253,971 9,038,100
Cost of insurance and administrative
charges................................. (11,790,141) (4,378,001) (1,242,032) (2,278,565) (2,885,869) (3,272,446)
Surrenders and forfeitures................ (10,126,139) (1,249,337) (749,106) (1,714,811) (1,487,419) (1,684,922)
Transfers between investment portfolios... (4,250,025) (27,362,632) (267,299) 85,860 (1,510,108) (1,968,516)
Net withdrawals due to policy loans....... (3,633,955) (704,376) (54,451) (593,757) (764,231) (536,465)
Withdrawals due to death benefits......... (366,282) (11,907) (13,393) (116,767) (3,286) (32,142)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
derived from policy transactions........ (1,678,554) 8,864,424 893,302 691,129 1,603,058 1,543,609
------------ ------------ ----------- ----------- ----------- -----------
Return of capital to Provident Mutual Life
Insurance Company....................... (225,000) (90,000) (90,000) (150,000) (145,000)
------------ ------------ ----------- ----------- ----------- -----------
Total increase in net assets.............. 24,950,708 9,929,620 1,861,435 4,860,003 4,025,685 5,192,937
NET ASSETS
Beginning of year....................... 206,781,775 22,992,912 13,480,533 36,172,970 34,927,244 38,762,124
------------ ------------ ----------- ----------- ----------- -----------
End of year............................. $231,732,483 $ 32,922,532 $15,341,968 $41,032,973 $38,952,929 $43,955,061
============ ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-32
<PAGE> 91
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment loss......................................... $ (10,444) $ (7,828) $ (8,535) $ (6,110)
Net realized gain (loss) on investments..................... 114,538 1,976 (75,896) (65,921)
Net unrealized appreciation of investments during the
year...................................................... 511,417 139,747 403,798 13,283
---------- ---------- ---------- ----------
Net increase (decrease) in net assets from operations....... 615,511 133,895 319,367 (58,748)
---------- ---------- ---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................................. 725,893 525,241 411,183 435,729
Cost of insurance and administrative charges................ (130,570) (104,161) (102,177) (82,507)
Surrenders and forfeitures.................................. (25,602) (12,569) (16,057) (10,719)
Transfers between investment portfolios..................... 3,077,201 2,946,905 3,944,529 2,851,353
Net withdrawals due to policy loans......................... (18,029) (13,665) (11,262) (6,094)
Withdrawals due to death benefits........................... (71) (4,970) (3,224) (128)
---------- ---------- ---------- ----------
Net increase in net assets derived from policy
transactions.............................................. 3,628,822 3,336,781 4,222,992 3,187,634
---------- ---------- ---------- ----------
Capital contribution from Provident Mutual Life Insurance
Company................................................... 25,000 25,000 25,000 25,000
---------- ---------- ---------- ----------
Total increase in net assets................................ 4,269,333 3,495,676 4,567,359 3,153,886
NET ASSETS
Beginning of year......................................... -- -- -- --
---------- ---------- ---------- ----------
End of year............................................... $4,269,333 $3,495,676 $4,567,359 $3,153,886
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-33
<PAGE> 92
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statement of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
FROM OPERATIONS
Net investment loss......................................... $ (99,846)
Net realized gain on investments............................ 570,514
Net unrealized appreciation of investments during the
year...................................................... 808,299
-----------
Net increase in net assets from operations.................. 1,278,967
-----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................................. 2,832,198
Cost of insurance and administrative charges................ (969,558)
Surrenders and forfeitures.................................. (429,018)
Transfers between investment portfolios..................... 1,324,943
Net repayments due to policy loans.......................... 34,044
Withdrawals due to death benefits........................... (19,270)
-----------
Net increase in net assets derived from policy
transactions.............................................. 2,773,339
-----------
Return of capital to Provident Mutual Life Insurance
Company................................................... (105,000)
-----------
Total increase in net assets................................ 3,947,306
NET ASSETS
Beginning of year......................................... 8,641,986
-----------
End of year............................................... $12,589,292
===========
</TABLE>
See accompanying notes to financial statements
F-34
<PAGE> 93
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............... $ 592,079 $ (356,088) $ 999,219 $ 292,561 $ 1,023,972 $ 209,196
Net realized gain on investments........... 7,627,428 20,456,568 849,640 3,197,810 4,862,002 4,037,742
Net unrealized appreciation (depreciation)
of investments during the year........... 2,705,182 25,250,942 (2,866,128) (392,699) 273,269 20,059,318
------------ ------------ ----------- ----------- ----------- ------------
Net increase (decrease) in net assets from
operations............................... 10,924,689 45,351,422 (1,017,269) 3,097,672 6,159,243 24,306,256
------------ ------------ ----------- ----------- ----------- ------------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................ 27,977,450 31,856,978 5,041,566 8,709,088 8,574,753 36,145,166
Cost of insurance and administrative
charges.................................. (9,325,323) (10,947,922) (1,559,923) (2,449,969) (3,512,324) (9,903,927)
Surrenders and forfeitures................. (3,383,688) (3,590,928) (374,107) (760,286) (1,937,981) (2,610,441)
Transfers between investment portfolios.... 2,645,244 (1,393,335) 1,625,735 2,091,205 293,923 11,705,877
Net withdrawals due to policy loans........ (1,328,279) (2,014,498) (101,389) (371,567) (1,412,127) (876,423)
Withdrawals due to death benefits.......... (260,037) (10,155) (7,237) (20,317) (69,814) (10,632)
------------ ------------ ----------- ----------- ----------- ------------
Net increase in net assets derived from
policy transactions...................... 16,325,367 13,900,140 4,624,645 7,198,154 1,936,430 34,449,620
------------ ------------ ----------- ----------- ----------- ------------
Return of capital to Provident Mutual Life
Insurance Company........................ (165,000) (85,000) (35,000)
------------ ------------ ----------- ----------- ----------- ------------
Total increase in net assets............... 27,250,056 59,086,562 3,607,376 10,295,826 8,010,673 58,720,876
NET ASSETS
Beginning of year........................ 93,799,766 109,653,375 15,302,332 24,399,967 42,160,660 72,064,851
------------ ------------ ----------- ----------- ----------- ------------
End of year.............................. $121,049,822 $168,739,937 $18,909,708 $34,695,793 $50,171,333 $130,785,727
============ ============ =========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements
F-35
<PAGE> 94
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
FIDELITY NEUBERGER NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED & BERMAN
GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........... $ 326,175 $ (52,554) $ 108,409 $ (192,792) $ 240,987 $ (3,466)
Net realized gain (loss) on
investments.......................... 180,741 4,000,568 991,410 7,395,300 (32,935) (5,901)
Net unrealized appreciation
(depreciation) of investments during
the year............................. 286,871 5,407,580 (317,398) (3,408,254) (29,896) 62,679
----------- ----------- ---------- ----------- ---------- ----------
Net increase in net assets from
operations........................... 793,787 9,355,594 782,421 3,794,254 178,156 53,312
----------- ----------- ---------- ----------- ---------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............ 3,706,491 13,012,021 1,808,394 7,614,497 1,892,852 512,666
Cost of insurance and administrative
charges.............................. (970,841) (3,458,508) (816,326) (2,663,861) (385,317) (75,140)
Surrenders and forfeitures............. (204,537) (761,006) (300,676) (903,644) (118,480) (15,003)
Transfers between investment
portfolios........................... 2,902,448 2,904,831 (196,593) (2,357,815) 821,901 1,220,644
Net withdrawals due to policy loans.... (130,121) (302,099) (108,962) (393,122) (27,411)
Withdrawals due to death benefits...... (4,526) (5,234) (17,898) (28,362) (520) (43)
----------- ----------- ---------- ----------- ---------- ----------
Net increase in net assets derived from
policy transactions.................. 5,298,914 11,390,005 367,939 1,267,693 2,183,025 1,643,124
----------- ----------- ---------- ----------- ---------- ----------
(Return of capital to) capital
contribution from Provident Mutual
Life Insurance Company............... (35,000) (25,000) 25,000
----------- ----------- ---------- ----------- ---------- ----------
Total increase in net assets........... 6,092,701 20,745,599 1,115,360 5,036,947 2,361,181 1,721,436
NET ASSETS
Beginning of year.................... 7,897,930 25,431,484 6,381,375 25,140,863 4,222,983
----------- ----------- ---------- ----------- ---------- ----------
End of year.......................... $13,990,631 $46,177,083 $7,496,735 $30,177,810 $6,584,164 $1,721,436
=========== =========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-36
<PAGE> 95
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
AMERICAN VAN ECK VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING REAL SMALL
APPRECIATION BOND HARD ASSETS MARKETS ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).......... $ (53,235) $ 5,836 $ (877) $ 10,807 $ (1,150) $ (159,984)
Net realized gain (loss) on
investments......................... (275,146) 38,421 182,364 (372,857) (8,482) 3,150,039
Net unrealized appreciation
(depreciation) of investments during
the year............................ 122,964 529,032 (1,104,896) (2,208,689) (12,423) 573,841
----------- ---------- ----------- ----------- -------- -----------
Net increase (decrease) in net assets
from operations..................... (205,417) 573,289 (923,409) (2,570,739) (22,055) 3,563,896
----------- ---------- ----------- ----------- -------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums........... 2,677,232 1,463,635 869,978 3,517,907 66,543 8,859,577
Cost of insurance and administrative
charges............................. (949,325) (466,749) (243,816) (930,984) (14,501) (2,479,481)
Surrenders and forfeitures............ (250,766) (222,795) (75,816) (104,943) (2,855) (543,395)
Transfers between investment
portfolios.......................... (2,037,281) 54,538 (330,819) 10,460 379,923 1,167,869
Net withdrawals due to policy loans... (97,850) (68,651) (18,815) (86,630) (82) (292,596)
Withdrawals due to death benefits..... (1,650) (3,689) (183) (924) (43) (14,148)
----------- ---------- ----------- ----------- -------- -----------
Net increase (decrease) in net assets
derived from policy transactions.... (659,640) 756,289 200,529 2,404,886 428,985 6,697,826
----------- ---------- ----------- ----------- -------- -----------
Capital contribution from Provident
Mutual Life Insurance Company....... 10,000 10,000 35,000 35,000
----------- ---------- ----------- ----------- -------- -----------
Total increase (decrease) in net
assets.............................. (855,057) 1,329,578 (712,880) (130,853) 441,930 10,261,722
NET ASSETS
Beginning of year................... 8,434,404 4,377,135 2,781,168 6,363,909 18,732,813
----------- ---------- ----------- ----------- -------- -----------
End of year......................... $ 7,579,347 $5,706,713 $2,068,288 $ 6,233,056 $441,930 $28,994,535
=========== ========== =========== =========== ======== ===========
</TABLE>
See accompanying notes to financial statements
F-37
<PAGE> 96
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income..................... $ 2,759,199 $ 1,095,585 $ 651,271 $ 904,070 $ 45,091 $ 16,822
Net realized gain (loss) on investments... 23,707,890 (7,292) 1,198,755 626,630 2,605,339
Net unrealized appreciation of investments
during the year......................... 13,153,464 401,987 4,050,080 4,896,760 278,626
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets from
operations.............................. 39,620,553 1,095,585 1,045,966 6,152,905 5,568,481 2,900,787
------------ ------------ ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums............... 28,779,076 41,392,009 2,883,256 5,061,216 7,652,795 9,275,052
Cost of insurance and administrative
charges................................. (11,378,551) (4,214,952) (1,049,368) (2,164,675) (2,627,095) (3,135,940)
Surrenders and forfeitures................ (10,450,206) (893,804) (421,877) (1,834,332) (1,314,144) (1,656,263)
Transfers between investment portfolios... (4,245,851) (38,647,233) 25,947 (1,015,633) 327,609 (19,790)
Net withdrawals due to policy loans....... (3,880,476) (348,424) (150,015) (428,805) (565,546) (566,895)
Withdrawals due to death benefits......... (453,320) (10,985) (23,685) (113,392) (12,782) (25,012)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
derived from policy transactions........ (1,629,328) (2,723,389) 1,264,258 (495,621) 3,460,837 3,871,152
------------ ------------ ----------- ----------- ----------- -----------
Total increase (decrease) in net assets... 37,991,225 (1,627,804) 2,310,224 5,657,284 9,029,318 6,771,939
NET ASSETS
Beginning of year....................... 168,790,550 24,620,716 11,170,309 30,515,686 25,897,926 31,990,185
------------ ------------ ----------- ----------- ----------- -----------
End of year............................. $206,781,775 $ 22,992,912 $13,480,533 $36,172,970 $34,927,244 $38,762,124
============ ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-38
<PAGE> 97
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statement of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ZERO COUPON BOND
SEPARATE ACCOUNT
- ------------------------------------------------------------------------------
2006 SERIES
SUBACCOUNT
- ------------------------------------------------------------------------------
<S> <C>
FROM OPERATIONS
Net investment loss......................................... $ (65,256)
Net realized gain on investments............................ 240,323
Net unrealized appreciation of investments during the
year...................................................... 610,746
----------
Net increase in net assets from operations.................. 785,813
----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums................................. 2,330,310
Cost of insurance and administrative charges................ (788,189)
Surrenders and forfeitures.................................. (153,867)
Transfers between investment portfolios..................... 143,804
Net withdrawals due to policy loans......................... (88,482)
----------
Net increase in net assets derived from policy
transactions.............................................. 1,443,576
----------
Total increase in net assets................................ 2,229,389
NET ASSETS
Beginning of year......................................... 6,412,597
----------
End of year............................................... $8,641,986
==========
</TABLE>
See accompanying notes to financial statements
F-39
<PAGE> 98
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY
EQUITY- FIDELITY HIGH FIDELITY ASSET FIDELITY
INCOME GROWTH INCOME OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................. $ 511,657 $ (121,724) $ 546,402 $ 145,892 $ 866,776 $ 2,613
Net realized gain on investments............. 6,219,063 4,112,232 201,238 1,308,085 3,207,342 1,541,832
Net unrealized appreciation of investments
during the year............................ 11,278,621 14,556,654 1,013,826 308,949 2,493,096 11,280,605
----------- ------------ ----------- ----------- ----------- -----------
Net increase in net assets from operations... 18,009,341 18,547,162 1,761,466 1,762,926 6,567,214 12,825,050
----------- ------------ ----------- ----------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums.................. 23,646,606 29,144,250 3,594,929 6,932,947 8,034,994 23,023,710
Cost of insurance and administrative
charges.................................... (7,387,112) (9,463,481) (1,076,133) (1,901,779) (3,249,362) (5,704,702)
Surrenders and forfeitures................... (2,364,387) (3,547,931) (171,214) (612,736) (1,661,468) (997,451)
Transfers between investment portfolios...... 4,047,525 (416,903) 2,763,974 2,738,393 1,079,135 15,621,648
Net withdrawals due to policy loans.......... (1,015,473) (1,502,812) (45,505) (320,179) (309,555) (1,042,356)
Withdrawals due to death benefits............ (74,532) (11,969) (5,636) (7,293) (14,147) (95,105)
----------- ------------ ----------- ----------- ----------- -----------
Net increase in net assets derived from
policy transactions........................ 16,852,627 14,201,154 5,060,415 6,829,353 3,879,597 30,805,744
----------- ------------ ----------- ----------- ----------- -----------
Total increase in net assets................. 34,861,968 32,748,316 6,821,881 8,592,279 10,446,811 43,630,794
NET ASSETS
Beginning of year.......................... 58,937,798 76,905,059 8,480,451 15,807,688 31,713,849 28,434,057
----------- ------------ ----------- ----------- ----------- -----------
End of year................................ $93,799,766 $109,653,375 $15,302,332 $24,399,967 $42,160,660 $72,064,851
=========== ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-40
<PAGE> 99
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
FIDELITY NEUBERGER NEUBERGER NEUBERGER
INVESTMENT FIDELITY & BERMAN & BERMAN & BERMAN LIMITED
GRADE BOND CONTRAFUND(R) BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....................... $ 264,484 $ (51,526) $ 41,071 $ (146,708) $ 130,958
Net realized gain (loss) on investments............ 2,841 370,677 304,475 2,142,526 (6,752)
Net unrealized appreciation of investments during
the year......................................... 246,105 2,855,281 524,116 2,994,748 67,628
---------- ----------- ---------- ----------- ----------
Net increase in net assets from operations......... 513,430 3,174,432 869,662 4,990,566 191,834
---------- ----------- ---------- ----------- ----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums........................ 2,548,565 8,274,186 1,807,306 7,165,598 1,348,185
Cost of insurance and administrative charges....... (747,877) (1,798,797) (639,602) (2,369,791) (271,833)
Surrenders and forfeitures......................... (206,163) (425,566) (137,713) (676,292) (29,867)
Transfers between investment portfolios............ 816,573 10,232,231 (79,543) (721,651) 482,396
Net withdrawals due to policy loans................ (22,522) (201,694) (66,441) (286,901) (15,620)
Withdrawals due to death benefits.................. (1,057) (6,670) (13,455)
---------- ----------- ---------- ----------- ----------
Net increase in net assets derived from policy
transactions..................................... 2,387,519 16,073,690 884,007 3,097,508 1,513,261
---------- ----------- ---------- ----------- ----------
Total increase in net assets....................... 2,900,949 19,248,122 1,753,669 8,088,074 1,705,095
NET ASSETS
Beginning of year................................ 4,996,981 6,183,362 4,627,706 17,052,789 2,517,888
---------- ----------- ---------- ----------- ----------
End of year...................................... $7,897,930 $25,431,484 $6,381,375 $25,140,863 $4,222,983
========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-41
<PAGE> 100
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING SMALL
APPRECIATION BOND HARD ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)...................... $ (56,416) $ 79,864 $ 33,013 $ (21,581) $ (90,562)
Net realized gain on investments.................. 81,043 12,516 94,797 82,065 460,544
Net unrealized appreciation (depreciation) of
investments during the year..................... (391,040) (9,005) (218,482) (1,528,161) 1,151,963
----------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets from
operations...................................... (366,413) 83,375 (90,672) (1,467,677) 1,521,945
----------- ---------- ---------- ----------- -----------
FROM VARIABLE LIFE POLICY TRANSACTIONS
Policyholders' net premiums....................... 3,692,178 1,320,768 883,387 3,474,642 6,837,744
Cost of insurance and administrative charges...... (1,145,513) (371,619) (246,420) (677,362) (1,662,591)
Surrenders and forfeitures........................ (268,757) (100,365) (28,046) (58,433) (334,781)
Transfers between investment portfolios........... (1,462,705) 321,170 539,670 2,962,129 4,643,633
Net withdrawals due to policy loans............... (101,019) (20,808) (32,784) (81,551) (221,848)
Withdrawals due to death benefits................. (5,826) (2,563) (19) (4,220) (15,361)
----------- ---------- ---------- ----------- -----------
Net increase in net assets derived from policy
transactions.................................... 708,358 1,146,583 1,115,788 5,615,205 9,246,796
----------- ---------- ---------- ----------- -----------
Total increase in net assets...................... 341,945 1,229,958 1,025,116 4,147,528 10,768,741
NET ASSETS
Beginning of year............................... 8,092,459 3,147,177 1,756,052 2,216,381 7,964,072
----------- ---------- ---------- ----------- -----------
End of year..................................... $ 8,434,404 $4,377,135 $2,781,168 $ 6,363,909 $18,732,813
=========== ========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-42
<PAGE> 101
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Growth, Money Market, Bond, Aggressive Growth, International, Zero Coupon
Bond and Variable Separate Accounts (Separate Accounts) were established by
Provident Mutual Life Insurance Company (Provident Mutual) under the provisions
of the Pennsylvania Insurance Law. Each Separate Account is a separate
investment account to which assets are allocated to support the benefits payable
under single premium, modified premium, scheduled premium and flexible premium
adjustable variable life insurance policies (the Policies). The Aggressive
Growth, International, and Variable Separate Accounts are not available with
single premium and scheduled premium policies. The Zero Coupon Bond Separate
Account is not available with scheduled premium policies.
The Policies are distributed principally through career agents and brokers.
Provident Mutual has structured the Separate Accounts as unit investment trusts
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended.
The Growth, Money Market, Bond, Aggressive Growth and International Separate
Accounts invest in the corresponding portfolios of the Market Street Fund, Inc.
The Zero Coupon Bond Separate Account is comprised of the 2006 Series
Subaccount. Funds are transferred to Merrill Lynch, Pierce, Fenner & Smith
(MLPFS), who serves as sponsor of The Stripped ("Zero") U.S. Treasury Securities
Fund, Provident Mutual Series A (Zero Coupon Trust). The 2006 Series Subaccount
invests in the 2006 Series Portfolio of the Zero Coupon Trust.
The Variable Separate Account is comprised of twenty Subaccounts: Managed
(formerly the Managed Separate Account) the All Pro Large Cap Growth, All Pro
Large Cap Value, All Pro Small Cap Growth and the All Pro Small Cap Value
Subaccounts invest in the corresponding portfolios of the Market Street Fund,
Inc.; the Fidelity Equity-Income, Fidelity Growth, Fidelity High Income and
Fidelity Overseas Subaccounts invest in the corresponding portfolios of the
Variable Insurance Products Fund; the Fidelity Asset Manager, Fidelity Index
500, Fidelity Investment Grade Bond and Fidelity Contrafund(R) Subaccounts
invest in the corresponding portfolios of the Variable Insurance Products Fund
II; Neuberger Berman Limited Maturity Bond and Neuberger Berman Partners
Subaccounts invest in the corresponding portfolios of the Neuberger Berman
Advisers Management Trust; the Van Eck Worldwide Bond, Van Eck Worldwide Hard
Assets, Van Eck Worldwide Emerging Markets and Van Eck Worldwide Real Estate
Subaccounts invest in the corresponding portfolios of the Van Eck Worldwide
Insurance Trust; and the Alger American Small Capitalization Subaccount invests
in the corresponding portfolio of the Alger American Fund.
At the close of business on April 30, 1999, the Neuberger Berman Growth
Subaccount, Neuberger Berman Balanced Subaccount and American Century VP Capital
Appreciation Subaccount were terminated and the investments were transferred to
the Neuberger Berman Partners Subaccount, the Managed Subaccount and the All Pro
Large Cap Growth Subaccount, respectively. In addition, the assets of the
Provident Mutual Managed Separate Account were transferred to a newly
established subaccount (the "Managed Subaccount") of the Variable Separate
Account, and the Provident Mutual Managed Separate Account ceased to exist.
Net premiums from in-force Policies are allocated to the Separate Accounts in
accordance with policyholder instructions and are recorded as variable life
policy transactions in the statements of changes in net assets. Such amounts are
used to provide money to pay benefits under the Policies (Note 4). Each Separate
Account's assets are the property of Provident Mutual.
F-43
<PAGE> 102
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. ORGANIZATION, CONTINUED
Transfers between investment portfolios include transfers between the Separate
Accounts and the Guaranteed Account (not shown), which is part of Provident
Mutual's General Account.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Separate Accounts included in the financial statements.
Investment Valuation:
Investment shares are valued at the net asset values of the respective
Portfolios. Transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date.
Realized Gains and Losses:
Realized gains and losses on sales of investment shares are determined using the
specific identification basis for financial reporting and income tax purposes.
Federal Income Taxes:
The operations of the Separate Accounts are included in the Federal income tax
return of Provident Mutual. Under the provisions of the Policies, Provident
Mutual has the right to charge the Separate Accounts for Federal income tax
attributable to the Separate Accounts. No charge is currently being made against
the Separate Accounts for such tax.
Estimates:
The preparation of the accompanying financial statements required management to
make estimates and assumptions that affect the reported values of assets and
liabilities and the reported amounts from operations and policy transactions
during the period. Actual results could differ from those estimates.
F-44
<PAGE> 103
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1999, the investments of the respective Separate
Accounts/Subaccounts are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SHARES COST MARKET VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market Street Fund, Inc.:
Growth Portfolio.......................................... 11,674,525 $184,414,149 $221,115,498
Money Market Portfolio.................................... 41,858,860 $41,858,860 $41,858,860
Bond Portfolio............................................ 1,406,779 $14,948,686 $14,883,721
Aggressive Growth Portfolio............................... 1,915,011 $35,260,605 $42,072,805
International Portfolio................................... 3,267,611 $42,223,755 $54,503,747
Managed Portfolio......................................... 2,691,778 $39,793,491 $45,194,957
All Pro Large Cap Growth Portfolio........................ 1,600,353 $20,597,852 $23,637,213
All Pro Large Cap Value Portfolio......................... 889,978 $9,062,188 $8,881,983
All Pro Small Cap Growth Portfolio........................ 1,275,518 $15,087,519 $24,017,996
All Pro Small Cap Value Portfolio......................... 575,816 $4,346,392 $4,358,929
The Stripped ("Zero") U.S. Treasury Securities Fund,
Provident Mutual Series A:
2006 Series............................................... 18,645,042 $11,787,827 $12,679,934
Variable Insurance Products Fund:
Equity-Income Portfolio................................... 5,254,450 $114,289,796 $135,091,899
Growth Portfolio.......................................... 4,835,096 $168,942,581 $265,591,852
High Income Portfolio..................................... 1,700,879 $20,316,897 $19,236,941
Overseas Portfolio........................................ 2,020,389 $40,368,792 $55,439,486
Variable Insurance Products Fund II:
Asset Manager Portfolio................................... 3,050,701 $48,781,833 $56,956,582
Index 500 Portfolio....................................... 1,199,481 $139,739,900 $200,805,099
Investment Grade Bond Portfolio........................... 1,542,190 $19,097,921 $18,753,042
Contrafund(R) Portfolio................................... 2,852,371 $62,666,240 $83,146,606
Neuberger Berman Advisers Management Trust:
Limited Maturity Bond Portfolio........................... 664,376 $8,964,268 $8,796,337
Partners Portfolio........................................ 1,518,460 $30,184,541 $29,822,548
Van Eck Worldwide InsuranceTrust:
Van Eck Worldwide Bond Portfolio.......................... 546,672 $6,028,287 $5,843,922
Van Eck Worldwide Hard Assets Portfolio................... 250,334 $3,127,447 $2,743,655
Van Eck Worldwide Emerging Markets Portfolio.............. 1,335,439 $13,074,572 $19,043,358
Van Eck Worldwide Real Estate Portfolio................... 77,987 $732,499 $713,583
Alger American Fund:
Alger American Small Capitalization Portfolio............. 747,623 $31,469,813 $41,231,423
</TABLE>
F-45
<PAGE> 104
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the years ended December 31, 1999, 1998 and 1997, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased....................... 583,435 768,646 803,570 53,950,916 44,184,953 23,511,707
Shares received from reinvestment of:
Dividends............................ 42,000 151,409 228,102 1,691,216 1,311,070 1,161,384
Capital gain distributions........... 245,351 1,670,894 1,229,894
----------- ----------- ----------- ------------ ------------ ------------
Total shares acquired.................. 870,786 2,590,949 2,261,566 55,642,132 45,496,023 24,673,091
Total shares redeemed.................. (1,515,691) (903,255) (960,812) (44,726,560) (37,178,305) (25,932,218)
----------- ----------- ----------- ------------ ------------ ------------
Net (decrease) increase in shares
owned................................ (644,905) 1,687,694 1,300,754 10,915,572 8,317,718 (1,259,127)
Shares owned, beginning of year........ 12,319,430 10,631,736 9,330,982 30,943,288 22,625,570 23,884,697
----------- ----------- ----------- ------------ ------------ ------------
Shares owned, end of year.............. 11,674,525 12,319,430 10,631,736 41,858,860 30,943,288 22,625,570
=========== =========== =========== ============ ============ ============
Cost of shares acquired................ $16,420,199 $43,749,139 $37,696,907 $ 55,642,132 $ 45,496,023 $ 24,673,091
=========== =========== =========== ============ ============ ============
Cost of shares redeemed................ $20,214,904 $12,497,747 $12,847,552 $ 44,726,560 $ 37,178,305 $ 25,932,218
=========== =========== =========== ============ ============ ============
</TABLE>
F-46
<PAGE> 105
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO AGGRESSIVE GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 219,210 268,032 199,386 185,830 255,330 257,235
Shares received from reinvestment of:
Dividends..................................... 19,418 74,249 69,359 10,780 13,983 13,532
Capital gain distributions.................... 15,257 190 267,326 133,481 2,684
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 253,885 342,471 268,745 463,936 402,794 273,451
Total shares redeemed........................... (215,948) (202,735) (87,869) (326,786) (198,941) (97,819)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 37,937 139,736 180,876 137,150 203,853 175,632
Shares owned, beginning of year................. 1,368,842 1,229,106 1,048,230 1,777,861 1,574,008 1,398,376
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 1,406,779 1,368,842 1,229,106 1,915,011 1,777,861 1,574,008
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $2,715,463 $3,781,286 $2,847,336 $8,790,532 $8,305,625 $5,541,378
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $2,236,958 $2,261,555 $ 938,352 $4,889,357 $2,748,918 $1,408,820
========== ========== ========== ========== ========== ==========
</TABLE>
F-47
<PAGE> 106
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO MANAGED PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................... 319,053 420,358 542,095 539,252 196,652 179,042
Shares received from reinvestment of:
Dividends.................................... 38,250 22,086 21,751 18,094 73,921 72,155
Capital gain distributions................... 196,247 212,313 170,284 123,388 108,786 16,767
---------- ---------- ---------- ----------- ---------- ----------
Total shares acquired.......................... 553,550 654,757 734,130 680,734 379,359 267,964
Total shares redeemed.......................... (459,590) (329,168) (271,615) (311,045) (178,725) (226,374)
---------- ---------- ---------- ----------- ---------- ----------
Net increase in shares owned................... 93,960 325,589 462,515 369,689 200,634 41,590
Shares owned, beginning of year................ 3,173,651 2,848,062 2,385,547 2,322,089 2,121,455 2,079,865
---------- ---------- ---------- ----------- ---------- ----------
Shares owned, end of year...................... 3,267,611 3,173,651 2,848,062 2,691,778 2,322,089 2,121,455
========== ========== ========== =========== ========== ==========
Cost of shares acquired........................ $7,718,908 $8,702,058 $9,578,029 $11,647,117 $6,279,404 $4,189,158
========== ========== ========== =========== ========== ==========
Cost of shares redeemed........................ $5,475,920 $3,909,601 $3,084,716 $ 4,036,595 $2,204,017 $2,579,637
========== ========== ========== =========== ========== ==========
</TABLE>
F-48
<PAGE> 107
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ----------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO
LARGE CAP LARGE CAP
GROWTH VALUE
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 1,590,971 469,970 798,762 403,231
Shares received from reinvestment of:
Dividends................................................. 77 2,375
Capital gain distributions................................
----------- ---------- ---------- ----------
Total shares acquired....................................... 1,591,048 469,970 801,137 403,231
Total shares redeemed....................................... (353,425) (107,240) (264,257) (50,133)
----------- ---------- ---------- ----------
Net increase in shares owned................................ 1,237,623 362,730 536,880 353,098
Shares owned, beginning of year............................. 362,730 353,098
----------- ---------- ---------- ----------
Shares owned, end of year................................... 1,600,353 362,730 889,978 353,098
=========== ========== ========== ==========
Cost of shares acquired..................................... $20,489,418 $4,811,412 $8,205,291 $3,850,929
=========== ========== ========== ==========
Cost of shares redeemed..................................... $ 3,649,482 $1,053,496 $2,499,032 $ 495,000
=========== ========== ========== ==========
</TABLE>
F-49
<PAGE> 108
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ----------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO
SMALL CAP SMALL CAP
GROWTH VALUE
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 1,022,760 524,912 625,357 461,634
Shares received from reinvestment of:
Dividends................................................. 815
Capital gain distributions................................
----------- ---------- ---------- ----------
Total shares acquired....................................... 1,022,760 524,912 626,172 461,634
Total shares redeemed....................................... (210,238) (61,916) (432,645) (79,345)
----------- ---------- ---------- ----------
Net increase in shares owned................................ 812,522 462,996 193,527 382,289
Shares owned, beginning of year............................. 462,996 382,289
----------- ---------- ---------- ----------
Shares owned, end of year................................... 1,275,518 462,996 575,816 382,289
=========== ========== ========== ==========
Cost of shares acquired..................................... $12,843,503 $4,739,070 $4,753,608 $3,913,949
=========== ========== ========== ==========
Cost of shares redeemed..................................... $ 1,889,545 $ 605,509 $3,547,819 $ 773,346
=========== ========== ========== ==========
</TABLE>
F-50
<PAGE> 109
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE STRIPPED ("ZERO") U.S.
TREASURY SECURITIES FUND
PROVIDENT MUTUAL SERIES A
- -----------------------------------------------------------------------------------------------------
2006 SERIES
- -----------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 4,327,831 5,778,688 4,580,927
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................
----------- ----------- -----------
Total shares acquired....................................... 4,327,831 5,778,688 4,580,927
Total shares redeemed....................................... (2,887,477) (2,207,327) (2,294,572)
----------- ----------- -----------
Net increase in shares owned................................ 1,440,354 3,571,361 2,286,355
Shares owned, beginning of year............................. 17,204,688 13,633,327 11,346,972
----------- ----------- -----------
Shares owned, end of year................................... 18,645,042 17,204,688 13,633,327
=========== =========== ===========
Cost of shares acquired..................................... $ 2,991,373 $ 3,919,504 $ 2,702,211
=========== =========== ===========
Cost of shares redeemed..................................... $ 1,489,161 $ 936,170 $ 1,068,989
=========== =========== ===========
</TABLE>
F-51
<PAGE> 110
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 719,492 941,021 879,873 827,868 671,544 555,971
Shares received from reinvestment of:
Dividends............................... 76,317 57,354 52,772 7,340 16,967 16,709
Capital gain distributions.............. 168,701 204,112 265,326 461,503 443,821 74,791
----------- ----------- ----------- ----------- ----------- -----------
Total shares acquired..................... 964,510 1,202,487 1,197,971 1,296,711 1,132,332 647,471
Total shares redeemed..................... (472,051) (303,748) (137,286) (222,256) (327,308) (161,509)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in shares owned.............. 492,459 898,739 1,060,685 1,074,455 805,024 485,962
Shares owned, beginning of year........... 4,761,991 3,863,252 2,802,567 3,760,641 2,955,617 2,469,655
----------- ----------- ----------- ----------- ----------- -----------
Shares owned, end of year................. 5,254,450 4,761,991 3,863,252 4,835,096 3,760,641 2,955,617
=========== =========== =========== =========== =========== ===========
Cost of shares acquired................... $24,176,018 $29,069,658 $25,703,423 $57,528,953 $40,900,308 $21,882,557
=========== =========== =========== =========== =========== ===========
Cost of shares redeemed................... $ 7,298,047 $ 4,524,784 $ 2,120,256 $ 4,544,684 $ 7,064,688 $ 3,690,895
=========== =========== =========== =========== =========== ===========
</TABLE>
F-52
<PAGE> 111
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- -----------------------------------------------------------------------------------------------------------------------------
HIGH INCOME PORTFOLIO OVERSEAS PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................ 432,957 761,346 529,057 994,457 948,639 406,870
Shares received from reinvestment of:
Dividends................................. 159,916 91,147 53,162 28,799 26,637 16,746
Capital gain distributions................ 5,978 57,917 6,571 46,450 78,510 66,476
---------- ----------- ----------- ----------- ----------- ----------
Total shares acquired....................... 598,851 910,410 588,790 1,069,706 1,053,786 490,092
Total shares redeemed....................... (538,016) (397,195) (139,313) (779,780) (594,155) (58,309)
---------- ----------- ----------- ----------- ----------- ----------
Net increase in shares owned................ 60,835 513,215 449,477 289,926 459,631 431,783
Shares owned, beginning of year............. 1,640,044 1,126,829 677,352 1,730,463 1,270,832 839,049
---------- ----------- ----------- ----------- ----------- ----------
Shares owned, end of year................... 1,700,879 1,640,044 1,126,829 2,020,389 1,730,463 1,270,832
========== =========== =========== =========== =========== ==========
Cost of shares acquired..................... $6,614,866 $11,127,019 $ 7,427,218 $21,885,640 $20,460,713 $9,229,879
========== =========== =========== =========== =========== ==========
Cost of shares redeemed..................... $6,588,123 $ 4,653,515 $ 1,619,163 $14,550,474 $ 9,772,188 $ 946,549
========== =========== =========== =========== =========== ==========
</TABLE>
F-53
<PAGE> 112
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- -----------------------------------------------------------------------------------------------------------------------------
ASSET MANAGER PORTFOLIO INDEX 500 PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................... 351,224 373,976 380,899 302,321 299,337 318,609
Shares received from reinvestment of:
Dividends................................ 99,374 83,022 72,745 9,640 7,854 3,902
Capital gain distributions............... 125,874 249,065 182,481 6,542 18,191 7,916
---------- ----------- ----------- ----------- ----------- -----------
Total shares acquired...................... 576,472 706,063 636,125 318,503 325,382 330,427
Total shares redeemed...................... (288,510) (284,282) (168,401) (44,939) (29,458) (19,452)
---------- ----------- ----------- ----------- ----------- -----------
Net increase in shares owned............... 287,962 421,781 467,724 273,564 295,924 310,975
Shares owned, beginning of year............ 2,762,739 2,340,958 1,873,234 925,917 629,993 319,018
---------- ----------- ----------- ----------- ----------- -----------
Shares owned, end of year.................. 3,050,701 2,762,739 2,340,958 1,199,481 925,917 629,993
========== =========== =========== =========== =========== ===========
Cost of shares acquired.................... $9,992,859 $11,719,512 $10,391,586 $47,794,724 $40,378,866 $33,442,553
========== =========== =========== =========== =========== ===========
Cost of shares redeemed.................... $4,080,110 $ 3,982,108 $ 2,437,871 $ 3,068,951 $ 1,717,308 $ 1,092,364
========== =========== =========== =========== =========== ===========
</TABLE>
F-54
<PAGE> 113
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE BOND PORTFOLIO CONTRAFUND(R) PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................. 675,996 606,534 322,755 986,112 989,278 947,917
Shares received from reinvestment of:
Dividends.................................. 43,097 33,206 26,504 9,903 9,587 3,925
Capital gain distributions................. 13,520 3,939 72,623 70,531 10,374
---------- ---------- ---------- ----------- ----------- -----------
Total shares acquired........................ 732,613 643,679 349,259 1,068,638 1,069,396 962,216
Total shares redeemed........................ (269,947) (192,971) (128,693) (105,673) (455,390) (60,207)
---------- ---------- ---------- ----------- ----------- -----------
Net increase in shares owned................. 462,666 450,708 220,566 962,965 614,006 902,009
Shares owned, beginning of year.............. 1,079,524 628,816 408,250 1,889,406 1,275,400 373,391
---------- ---------- ---------- ----------- ----------- -----------
Shares owned, end of year.................... 1,542,190 1,079,524 628,816 2,852,371 1,889,406 1,275,400
========== ========== ========== =========== =========== ===========
Cost of shares acquired...................... $8,987,181 $8,081,053 $4,160,380 $26,975,993 $22,565,565 $17,279,465
========== ========== ========== =========== =========== ===========
Cost of shares redeemed...................... $3,191,649 $2,275,223 $1,505,536 $ 1,746,651 $ 7,227,546 $ 886,624
========== ========== ========== =========== =========== ===========
</TABLE>
F-55
<PAGE> 114
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- -----------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.............................. 17,829 106,914 110,201 26,947 183,659 184,992
Shares received from reinvestment of:
Dividends................................... 8,150 10,322 4,936
Capital gain distributions.................. 12,073 72,502 12,668 67,916 294,737 60,028
---------- ---------- ---------- ----------- ----------- ----------
Total shares acquired......................... 38,052 189,738 127,805 94,863 478,396 245,020
Total shares redeemed......................... (496,849) (89,445) (59,986) (1,242,745) (153,725) (83,282)
---------- ---------- ---------- ----------- ----------- ----------
Net (decrease) increase in shares owned....... (458,797) 100,293 67,819 (1,147,882) 324,671 161,738
Shares owned, beginning of year............... 458,797 358,504 290,685 1,147,882 823,211 661,473
---------- ---------- ---------- ----------- ----------- ----------
Shares owned, end of year..................... -- 458,797 358,504 -- 1,147,882 823,211
========== ========== ========== =========== =========== ==========
Cost of shares acquired....................... $ 583,945 $2,887,584 $2,121,797 $ 2,239,647 $11,825,496 $6,796,267
========== ========== ========== =========== =========== ==========
Cost of shares redeemed....................... $7,802,761 $1,454,826 $ 892,244 $31,587,696 $ 3,380,295 $1,702,941
========== ========== ========== =========== =========== ==========
</TABLE>
F-56
<PAGE> 115
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
- ---------------------------------------------------------------------------------------------------------------------------
LIMITED MATURITY BOND PORTFOLIO PARTNERS PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased.......................................... 251,277 196,637 132,180 1,583,081 93,527
Shares received from reinvestment of:
Dividends............................................... 30,080 20,732 11,526 1,276
Capital gain distributions.............................. 2,219
---------- ---------- ---------- ----------- ----------
Total shares acquired..................................... 281,357 217,369 143,706 1,586,576 93,527
Total shares redeemed..................................... (93,404) (40,024) (23,837) (159,053) (2,590)
---------- ---------- ---------- ----------- ----------
Net increase in shares owned.............................. 187,953 177,345 119,869 1,427,523 90,937
Shares owned, beginning of year........................... 476,423 299,078 179,209 90,937
---------- ---------- ---------- ----------- ----------
Shares owned, end of year................................. 664,376 476,423 299,078 1,518,460 90,937
========== ========== ========== =========== ==========
Cost of shares acquired................................... $3,715,187 $2,970,710 $1,969,915 $31,490,739 $1,710,978
========== ========== ========== =========== ==========
Cost of shares redeemed................................... $1,278,194 $ 579,633 $ 332,448 $ 2,964,955 $ 52,221
========== ========== ========== =========== ==========
</TABLE>
F-57
<PAGE> 116
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN CENTURY
VARIABLE PORTFOLIOS, INC.
- --------------------------------------------------------------------------------------------------
AMERICAN CENTURY VP
CAPITAL APPRECIATION PORTFOLIO
- --------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 31,966 160,212 251,935
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................ 43,966 19,341
---------- ---------- ----------
Total shares acquired....................................... 31,966 204,178 271,276
Total shares redeemed....................................... (872,248) (235,219) (190,232)
---------- ---------- ----------
Net (decrease) increase in shares owned..................... (840,282) (31,041) 81,044
Shares owned, beginning of year............................. 840,282 871,323 790,279
---------- ---------- ----------
Shares owned, end of year................................... -- 840,282 871,323
========== ========== ==========
Cost of shares acquired..................................... $ 292,072 $1,849,729 $2,680,991
========== ========== ==========
Cost of shares redeemed..................................... $8,773,221 $2,827,750 $1,948,006
========== ========== ==========
</TABLE>
F-58
<PAGE> 117
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE BOND VAN ECK WORLDWIDE
PORTFOLIO HARD ASSETS PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................................. 121,129 114,810 127,829 79,012 72,525 87,194
Shares received from reinvestment of:
Dividends....................................... 19,183 3,695 9,965 3,644 1,263 2,862
Capital gain distributions...................... 8,571 31,009 2,113
---------- ---------- ---------- -------- ---------- ----------
Total shares acquired............................. 148,883 118,505 137,794 82,656 104,797 92,169
Total shares redeemed............................. (66,927) (52,072) (23,040) (57,136) (56,902) (20,277)
---------- ---------- ---------- -------- ---------- ----------
Net increase in shares owned...................... 81,956 66,433 114,754 25,520 47,895 71,892
Shares owned, beginning of year................... 464,716 398,283 283,529 224,814 176,919 105,027
---------- ---------- ---------- -------- ---------- ----------
Shares owned, end of year......................... 546,672 464,716 398,283 250,334 224,814 176,919
========== ========== ========== ======== ========== ==========
Cost of shares acquired........................... $1,652,349 $1,366,886 $1,474,137 $835,618 $1,248,274 $1,503,036
========== ========== ========== ======== ========== ==========
Cost of shares redeemed........................... $ 740,216 $ 566,340 $ 235,174 $912,559 $ 856,258 $ 259,438
========== ========== ========== ======== ========== ==========
</TABLE>
F-59
<PAGE> 118
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK WORLDWIDE INSURANCE TRUST
- ------------------------------------------------------------------------------------------------------------------------
VAN ECK
WORLDWIDE
VAN ECK WORLDWIDE REAL ESTATE
EMERGING MARKETS PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased............................................ 733,811 398,543 465,094 59,682 51,119
Shares received from reinvestment of:
Dividends................................................. 5,568 702 911
Capital gain distributions................................ 4,949
---------- ---------- ---------- -------- --------
Total shares acquired....................................... 733,811 409,060 465,796 60,593 51,119
Total shares redeemed....................................... (273,801) (112,168) (64,711) (28,930) (4,795)
---------- ---------- ---------- -------- --------
Net increase in shares owned................................ 460,010 296,892 401,085 31,663 46,324
Shares owned, beginning of year............................. 875,429 578,537 177,452 46,324
---------- ---------- ---------- -------- --------
Shares owned, end of year................................... 1,335,439 875,429 578,537 77,987 46,324
========== ========== ========== ======== ========
Cost of shares acquired..................................... $7,071,940 $3,443,133 $6,428,901 $575,134 $507,425
========== ========== ========== ======== ========
Cost of shares redeemed..................................... $3,876,567 $1,365,296 $ 753,212 $296,987 $ 53,073
========== ========== ========== ======== ========
</TABLE>
F-60
<PAGE> 119
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER AMERICAN FUND
- -----------------------------------------------------------------------------------------------------
ALGER AMERICAN SMALL
CAPITALIZATION PORTFOLIO
- -----------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 222,683 259,859 241,101
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................ 90,321 72,842 12,008
----------- ----------- -----------
Total shares acquired....................................... 313,004 332,701 253,109
Total shares redeemed....................................... (224,797) (101,464) (19,603)
----------- ----------- -----------
Net increase in shares owned................................ 88,207 231,237 233,506
Shares owned, beginning of year............................. 659,416 428,179 194,673
----------- ----------- -----------
Shares owned, end of year................................... 747,623 659,416 428,179
=========== =========== ===========
Cost of shares acquired..................................... $13,302,764 $13,629,293 $10,432,636
=========== =========== ===========
Cost of shares redeemed..................................... $ 8,928,671 $ 3,941,412 $ 815,858
=========== =========== ===========
</TABLE>
F-61
<PAGE> 120
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
Provident Mutual makes certain deductions from premiums before amounts are
allocated to each Separate Account selected by the policyholder. The deductions
may include (1) administrative charges, (2) state premium taxes, (3) premium
processing charges, (4) premiums for supplementary benefits, (5) premiums for
extra mortality risks, (6) sales charges, (7) premiums for optional benefits,
(8) a risk charge for the guaranteed minimum death benefit, and (9) Federal tax
charges. Premiums adjusted for these deductions are recorded as net premiums in
the statement of changes in net assets. See original policy documents for
specific charges assessed.
In addition to the aforementioned charges, each Separate Account is charged for
mortality and expense risks assumed by Provident Mutual. The annual rates
charged to cover these risks range from 0.35% to 0.75% of the net assets held
for the benefit of policyholders. For some policyholders, this may be increased
on a prospective basis, but cannot exceed 0.90%.
Each Separate Account is also charged by Provident Mutual for the cost of
insurance protection. For single premium policies, the charge is accrued daily
and deducted annually from the amount invested. For scheduled premium, modified
premium and flexible premium adjustable policies, the charge is deducted
monthly. The amount of the charge is computed based upon the amount of insurance
provided during the year and the insured's attained age. Depending upon the type
of policy, additional monthly deductions may be made for (1) administrative
charges, (2) minimum death benefit charges, (3) first year policy charges and
(4) supplementary charges. See original policy documents for additional monthly
charges. These charges are included in the statements of changes in net assets.
During any given policy year, the first four or twelve transfers (depending on
the policy) by a policyholder of amounts in the Subaccounts are free of charge.
A fee of $25 is assessed for each additional transfer. No transfer fees were
incurred during the years ended December 31, 1999, 1998 and 1997.
The Policies provide for an initial free-look period. If a policy is cancelled
within certain time constraints, the policyholder will receive a refund equal to
the policy account value plus reimbursements of certain deductions previously
made under the policy. Where state law requires a minimum refund equal to gross
premiums paid, the refund will instead equal the gross premiums paid on the
policy and will not reflect investment experience.
If a policy is surrendered within the first 9-15 policy years (depending on the
policy), a contingent deferred sales load charge and/or contingent deferred
administrative charge are assessed. These charges are recorded as administrative
charges in the statements of changes in net assets.
For scheduled premium and single premium policies, Provident Mutual has agreed
to make a daily adjustment to the net rate of return of the Growth, Money Market
and Bond Separate Accounts to offset completely all Market Street Fund, Inc.
expenses charged to the portfolios in which the Separate Accounts invest, except
for (1) all brokers' commissions, (2) transfer taxes, investment advisory fees
and other fees and expenses for services relating to purchases and sales of
portfolio investments, and (3) income tax
F-62
<PAGE> 121
- --------------------------------------------------------------------------------
The Variable Separate Accounts
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS, CONTINUED
liabilities. The total amounts reimbursed for the Growth, Money Market and Bond
Separate Accounts for the years ended December 31, 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
MONEY
GROWTH MARKET BOND
SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT
-------- -------- --------
<S> <C> <C> <C>
Year ending December 31,
1999................................................... $8,226 -- $1,010
1998................................................... $4,864 -- $1,300
1997................................................... $3,041 $40 $1,390
</TABLE>
These amounts are shown as an operating expense reimbursement reducing total
expenses in the statements of operations.
Provident Mutual makes a daily asset charge against the assets of the Zero
Coupon Bond Separate Account. The charge is to reimburse Provident Mutual for
the transaction charge paid directly by Provident Mutual to MLPFS on the sale of
the Zero Coupon Trust units to the Zero Coupon Bond Separate Account. Provident
Mutual pays these amounts from General Account assets. The amount of the asset
charge currently is equivalent to an effective annual rate of .25% of the
average daily net assets of each Subaccount. This amount may be increased in the
future, but in no event will it exceed an effective annual rate of .50%. The
charge will be cost based (taking into account the loss of interest) with no
anticipated element of profit for Provident Mutual.
F-63
<PAGE> 122
[This Page Intentionally Left Blank]
<PAGE> 123
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
AND SUBSIDIARIES
REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997
<PAGE> 124
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Provident Mutual Life Insurance Company:
In our opinion, the accompanying consolidated statements of financial condition
and related consolidated statements of operations, of equity and of cash flows
present fairly, in all material respects, the financial position of Provident
Mutual Life Insurance Company and Subsidiaries at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 7, 2000
F-66
<PAGE> 125
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost:
1999 -- $2,904,087; 1998 -- $2,924,713)............... $2,765,156 $3,030,942
Held to maturity, at amortized cost (market:
1999 -- $323,318; 1998 -- $405,108)................... 323,753 379,184
Equity securities, at market (cost: 1999 -- $19,050;
1998 -- $30,317)....................................... 20,326 29,420
Mortgage loans............................................ 559,818 641,568
Real estate............................................... 26,982 39,468
Policy loans and premium notes............................ 366,046 362,381
Other invested assets..................................... 22,850 9,428
---------- ----------
Total investments................................. 4,084,931 4,492,391
Cash and cash equivalents................................... 60,253 81,405
Premiums due................................................ 11,477 11,754
Investment income due and accrued........................... 74,629 75,729
Deferred policy acquisition costs........................... 850,689 705,183
Reinsurance recoverable..................................... 155,871 152,831
Separate account assets..................................... 3,891,828 3,115,352
Other assets................................................ 92,266 73,716
---------- ----------
Total assets...................................... $9,221,944 $8,708,361
========== ==========
LIABILITIES
Policy liabilities:
Future policyholder benefits.............................. $4,028,813 $4,243,117
Policyholder funds........................................ 146,685 146,948
Policyholder dividends payable............................ 34,738 33,428
Other policy obligations.................................. 20,259 18,321
---------- ----------
Total policy liabilities.......................... 4,230,495 4,441,814
Expenses payable............................................ 28,763 29,670
Taxes payable............................................... 6,497 6,308
Federal income taxes payable:
Current................................................... 32,239 30,721
Deferred.................................................. 26,679 57,790
Separate account liabilities................................ 3,861,305 3,088,933
Other liabilities........................................... 85,022 118,002
---------- ----------
Total liabilities................................. 8,271,000 7,773,238
---------- ----------
COMMITMENTS AND CONTINGENCIES -- NOTE 10
EQUITY
Retained earnings........................................... 995,150 901,158
Accumulated other comprehensive income:
Net unrealized (depreciation) appreciation on
securities............................................. (44,206) 33,965
---------- ----------
Total equity...................................... 950,944 935,123
---------- ----------
Total liabilities and equity...................... $9,221,944 $8,708,361
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-67
<PAGE> 126
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums................................................... $197,454 $206,376 $220,952
Policy and contract charges................................ 156,463 126,282 106,449
Net investment income...................................... 332,576 352,690 331,524
Other income............................................... 62,611 55,596 47,520
Net realized (losses) gains on investments................. (2,037) 6,780 2,360
-------- -------- --------
Total revenues................................... 747,067 747,724 708,805
-------- -------- --------
BENEFITS AND EXPENSES
Policy and contract benefits............................... 224,797 226,802 234,117
Change in future policyholder benefits..................... 112,118 138,001 122,463
Operating expenses......................................... 75,567 82,290 82,310
Amortization of deferred policy acquisition costs.......... 80,420 72,926 73,582
Policyholder dividends..................................... 67,595 65,648 65,736
Noninsurance commissions and expenses...................... 44,951 35,649 24,962
-------- -------- --------
Total benefits and expenses...................... 605,448 621,316 603,170
-------- -------- --------
Income before income taxes....................... 141,619 126,408 105,635
-------- -------- --------
Income tax expense (benefit):
Current.................................................. 36,646 46,953 35,971
Deferred................................................. 10,981 (8,085) 2,613
-------- -------- --------
Total income tax expense......................... 47,627 38,868 38,584
-------- -------- --------
Net income....................................... $ 93,992 $ 87,540 $ 67,051
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-68
<PAGE> 127
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
APPRECIATION
RETAINED (DEPRECIATION) TOTAL
EARNINGS ON SECURITIES EQUITY
-------- -------------- --------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1997.............................. $746,567 $ 10,710 $757,277
--------
Comprehensive income
Net income............................................ 67,051 -- 67,051
Other comprehensive income, net of tax:
Change in unrealized appreciation (depreciation) on
securities....................................... -- 19,954 19,954
--------
Total comprehensive income.............................. 87,005
-------- -------- --------
BALANCE AT DECEMBER 31, 1997............................ 813,618 30,664 844,282
--------
Comprehensive income
Net income............................................ 87,540 -- 87,540
Other comprehensive income, net of tax:
Change in unrealized appreciation (depreciation) on
securities....................................... -- 3,301 3,301
--------
Total comprehensive income.............................. 90,841
-------- -------- --------
BALANCE AT DECEMBER 31, 1998............................ 901,158 33,965 935,123
--------
Comprehensive income
Net income............................................ 93,992 -- 93,992
Other comprehensive income, net of tax:
Change in unrealized appreciation (depreciation) on
securities....................................... -- (78,171) (78,171)
--------
Total comprehensive income.............................. 15,821
-------- -------- --------
BALANCE AT DECEMBER 31, 1999............................ $995,150 $(44,206) $950,944
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-69
<PAGE> 128
PROVIDENT MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 93,992 $ 87,540 $ 67,051
Adjustments to reconcile net income to net cash provided by
operating activities:
Interest credited to variable universal life and
investment products..................................... 105,104 124,693 108,773
Amortization of deferred policy acquisition costs......... 80,420 72,926 73,582
Capitalization of deferred policy acquisition costs....... (124,056) (140,052) (127,593)
Deferred Federal income taxes............................. 10,981 (8,085) 2,613
Depreciation, amortization and accretion.................. (1,672) (701) 4,309
Net realized losses (gains) on investments................ 2,037 (6,780) (2,360)
Change in investment income due and accrued............... 1,100 (1,732) 215
Change in premiums due.................................... 277 1,206 146
Change in reinsurance recoverable......................... (3,040) 346,657 30,838
Change in policy liabilities and other policyholders'
funds of traditional life products...................... (57,179) (342,412) (44,638)
Change in other liabilities............................... (32,980) 20,595 17,172
Change in current Federal income taxes payable............ 1,518 (8,393) 3,786
Other, net................................................ (15,852) 4,262 (21,206)
----------- ----------- ---------
Net cash provided by operating activities............... 60,650 149,724 112,688
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities............................. 190,688 290,037 370,224
Held to maturity securities............................... -- 4,806 --
Equity securities......................................... 12,860 27,543 8,288
Real estate............................................... 17,988 27,740 17,347
Other invested assets..................................... 6,052 25,080 7,424
Proceeds from maturities of investments:
Available for sale securities............................. 332,182 348,101 207,455
Held to maturity securities............................... 58,716 76,483 96,045
Mortgage loans............................................ 154,440 121,076 99,673
Purchases of investments:
Available for sale securities............................. (510,808) (922,201) (705,348)
Held to maturity securities............................... (1,083) (23,624) (21,721)
Equity securities......................................... (74) (32,339) (7,052)
Mortgage loans............................................ (78,572) (107,728) (54,659)
Real estate............................................... (1,730) (856) (1,823)
Other invested assets..................................... (18,633) (11,342) (1,807)
Contributions of separate account seed money................ (1,774) (20,826) --
Withdrawals of separate account seed money.................. -- 1,954 29
Policy loans and premium notes, net......................... (3,665) (3,711) (148)
----------- ----------- ---------
Net cash provided by (used in) investing activities..... 156,587 (199,807) 13,927
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits..... 827,800 1,228,552 836,694
Variable universal life and investment product
withdrawals............................................... (1,066,189) (1,107,827) (994,120)
----------- ----------- ---------
Net cash (used in) provided by financing activities..... (238,389) 120,725 (157,426)
----------- ----------- ---------
Net change in cash and cash equivalents................. (21,152) 70,642 (30,811)
Cash and cash equivalents, beginning of year................ 81,405 10,763 41,574
----------- ----------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 60,253 $ 81,405 $ 10,763
=========== =========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes................ $ 38,821 $ 54,863 $ 31,805
=========== =========== =========
Foreclosure of mortgage loans............................. $ 5,394 $ 8,848 $ 1,744
=========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-70
<PAGE> 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Provident Mutual Life Insurance Company (Provident Mutual) is organized as a
mutual life insurance company.
Provident Mutual's wholly-owned subsidiaries are Providentmutual Life and
Annuity Company of America (PLACA), Provident Mutual International Life
Insurance Company (PMILIC) and Providentmutual Holding Company (PHC) and, in
aggregate, are defined as the "Company."
On October 13, 1998, the Board of Directors of Provident Mutual unanimously
approved and adopted a Plan of Conversion (Plan) to reorganize Provident Mutual
Life Insurance Company, utilizing a mutual holding company structure.
The Insurance Department of the Commonwealth of Pennsylvania reviewed the Plan
and rendered its Decision and Order approving the Plan, subject to certain
conditions, on November 6, 1998.
A Special Meeting of policyholders to consider and vote upon the Plan was held
on February 9, 1999. Approximately 90% of the voting policyholders approved the
Plan.
Subsequent to the Special Meeting, a group of dissident policyholders filed a
lawsuit to block the Plan. On February 11, 1999, a Philadelphia Common Pleas
Court judge issued an order granting a preliminary injunction blocking the Plan
until the Court conducted a hearing. The Company continued to provide
information to the Court at hearings held on March 16, 1999 and June 22, 1999.
On September 16, 1999, the judge issued a permanent injunction blocking the Plan
until certain additional disclosures were made.
On October 29, 1999, the Company announced that it was abandoning the Plan due
to practical barriers to completing all of the required steps before the
December 31, 1999 deadline mandated in the Pennsylvania Insurance Department's
order approving the Plan.
The Company sells individual variable and traditional life insurance products
and a variety of individual and group annuity products and maintains a block of
direct response-marketed life and health insurance products. The Company
distributes its products through a variety of distribution channels, principally
career agents, personal producing general agents and brokers. The Company is
licensed to operate in 50 states, Puerto Rico and the District of Columbia, each
of which has regulatory oversight. Sales in 15 states accounted for 81% of the
Company's sales for the year ended December 31, 1999. For many of the life and
annuity products, the insurance departments of the states in which the Company
conducts business must approve products and policy forms in advance of sales. In
addition, selected benefit elements and policy provisions are determined by
statutes and regulations in each of these states.
PLACA specializes primarily in the development and sale of various annuity
products and sells certain variable and traditional life products, also sold by
Provident Mutual, through a personal producing general agency sales force.
PMILIC's business consists of life insurance assumed from Provident Mutual.
PHC is a downstream holding company with two major subsidiaries: Sigma American
Corporation (Sigma) and 1717 Capital Management Company (1717CMC). Sigma is a
general partner in a joint venture that provides investment advisory, mutual
fund distribution, trust and administrative services to a group of mutual funds
and other parties. 1717CMC is a full-service broker/dealer, operating on a fully
disclosed basis, engaged in the distribution of investment company shares,
general securities, and other securities and services. 1717CMC is the principal
distributor of variable life insurance policies and variable annuity contracts
issued by both Provident Mutual and PLACA.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Provident Mutual
and its wholly-owned subsidiaries. Intercompany transactions have been
eliminated. The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States (GAAP). Certain prior year amounts have been reclassified to
conform with the current year presentation, including short-term investments
reclassified as cash and cash equivalents.
F-71
<PAGE> 130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Various entities within the Company prepare financial statements for filing with
regulatory authorities in conformity with the accounting practices prescribed or
permitted by the Insurance Departments of the Commonwealth of Pennsylvania and
the State of Delaware (SAP). Practices under SAP vary from GAAP primarily with
respect to the deferral and subsequent amortization of policy acquisition costs,
the valuation of policy reserves, the accounting for deferred taxes, the accrual
of postretirement benefits, the inclusion of statutory asset valuation and
interest maintenance reserves and the establishment of investment valuation
allowances.
Statutory net income was $82.1 million, $70.8 million and $58.4 million for the
years ended December 31, 1999, 1998 and 1997, respectively. Statutory surplus
was $434.2 million and $382.4 million as of December 31, 1999 and 1998,
respectively. During 1998, the Company adopted the accounting requirements of
the National Association of Insurance Commissioners' codification of statutory
accounting principles. The effect of this reduced surplus by $46.8 million.
The preparation of the accompanying consolidated financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
The Company is subject to interest rate risk to the extent its investment
portfolio cash flows are not matched to its insurance liabilities. Management
believes it manages this risk through modeling of the cash flows under
reasonable scenarios.
INVESTED ASSETS
Fixed maturity securities (bonds) which may be sold are designated as "available
for sale" and are reported at market value. Unrealized appreciation/depreciation
on these securities is recorded directly in equity, net of related Federal
income taxes and amortization of deferred policy acquisition costs. Fixed
maturity securities that the Company has the intent and ability to hold to
maturity are designated as "held to maturity" and are reported at amortized
cost.
Equity securities (common and preferred stocks) are reported at market value.
Unrealized appreciation/depreciation on these securities is recorded directly in
equity, net of related Federal income taxes and amortization of deferred policy
acquisition costs.
Fixed maturity and equity securities that have experienced an other than
temporary decline in value are written down to fair value by a charge to
realized losses. This fair value becomes the new cost basis of the particular
security.
Mortgage loans are carried at unpaid principal balances, less impairment
reserves. For mortgage loans considered impaired, a specific reserve is
established. A general reserve is also established for probable losses arising
from the portfolio but not attributable to specific loans. Mortgage loans are
considered impaired when it is probable that the Company will be unable to
collect amounts due according to the contractual terms of the loan agreement.
Upon impairment, a reserve is established for the difference between the unpaid
principal of the mortgage loan and its fair value. Fair value is based on either
the present value of expected future cash flows discounted at the mortgage
loan's effective interest rate or the fair value of the underlying collateral.
Changes in the reserve are credited (charged) to operations. Reserves totaled
$11.2 million and $10.7 million at December 31, 1999 and 1998, respectively.
Policy loans are reported at unpaid principal balances.
Real estate occupied by the Company is carried at cost less accumulated
depreciation. Foreclosed real estate is carried at the lower of cost or fair
market value, less encumbrances. The straight line method of depreciation is
used for real estate occupied by the Company.
Other invested assets consist primarily of real estate joint ventures carried on
the equity basis and limited partnerships carried at the lower of cost or fair
market value. The Company receives preferred returns and interest on
loans/capital advances made to the real estate joint ventures.
Cash and cash equivalents include cash and all highly liquid investments with a
maturity of three months or less when purchased, reduced by the amount of
outstanding checks.
F-72
<PAGE> 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
It is the Company's policy to use derivatives (exchange-traded or
over-the-counter financial instruments whose value is based upon or derived from
a specific underlying index or commodity) for the purpose of reducing exposure
to interest rate fluctuations, but not for income generation or speculative
purposes. Derivatives utilized by the Company are long and short positions on
United States Treasury notes and bond futures and certain interest rate swaps.
The net interest effect of futures transactions is settled on a daily basis.
Cash paid or received is recorded daily, along with a receivable/payable, to
settle the futures contract prior to the contract termination. The
receivable/payable is carried until the contract is terminated and the remaining
balance is included in either net investment income or realized gain or loss.
Upon termination of a futures contract that is identified to a specific
security, any gain or loss is deferred and amortized to net investment income
over the expected remaining life of the hedged security. If the futures contract
is not identified to a specific security, any gain or loss on termination is
reported as a realized gain or loss.
Interest rate swaps are settled on the contract date. Cash paid or received is
reported as an adjustment to net investment income.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement requires that all
derivatives be recorded at fair value in the statement of financial condition as
either assets or liabilities. The accounting for changes in the fair value of a
derivative depends on its intended use and its resulting designation. This
Statement is effective for fiscal years beginning after June 15, 1999. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of SFAS No. 133", which
changed the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. The Company plans to adopt the provisions of SFAS No. 133 effective
January 1, 2001. The Company is currently reviewing SFAS No. 133 and has not yet
determined its impact on the consolidated financial statements.
Effective January 1, 1999, the Company adopted Statement of Position (SOP) No.
97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments". SOP 97-3 provides guidance for determining measurement and
recognition of a liability or an asset for insurance-related assessments. The
adoption of SOP 97-3 did not have a material effect on the results of operations
or the financial position of the Company.
BENEFIT RESERVES AND POLICYHOLDER CONTRACT DEPOSITS
Traditional Life Insurance Products
Traditional life insurance products include those contracts with fixed and
guaranteed premiums and benefits, and consist principally of whole life and term
insurance policies, limited-payment life insurance policies and certain
annuities with life contingencies. Most traditional life insurance policies are
participating. In addition to guaranteeing benefits, they pay dividends, as
declared annually by the Company based on experience.
Reserves on traditional life insurance products are calculated by using the net
level premium method. For participating traditional life insurance policies,
reserve assumptions are based on mortality rates consistent with those
underlying the cash values and investment rates consistent with the Company's
dividend practices. For most such policies, reserves are based on the 1958 or
1980 Commissioners' Standard Ordinary (CSO) mortality tables at interest rates
ranging from 3.5% to 4.5%.
Variable Life and Investment-Type Products
Variable life products include fixed premium variable life and flexible premium
variable universal life. Investment-type products consist primarily of
guaranteed investment contracts (GICs) and single premium and flexible premium
annuity contracts.
Benefit reserves and policyholder contract deposits on these products are
determined following the retrospective deposit method and consist of policy
values that accrue to the benefit of the policyholder, before deduction of
surrender charges.
F-73
<PAGE> 132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREMIUMS, CHARGES AND BENEFITS
Traditional Life Insurance and Accident and Health Insurance Products
Premiums for individual life policies are recognized when due; premiums for
accident and health and all other policies are reported as earned
proportionately over their policy terms.
Benefit claims (including an estimated provision for claims incurred but not
reported), benefit reserve changes, and expenses (except those deferred) are
charged to income as incurred.
Variable Life and Investment-Type Products
Revenues for variable life and investment-type products consist of policy
charges for the cost of insurance, policy initiation, administration and
surrenders during the period. Premiums received and the accumulated value
portion of benefits paid are excluded from the amounts reported in the
consolidated statements of operations. Expenses include interest credited to
policy account balances and benefit payments made in excess of policy account
balances. Many of these policies are variable life or variable annuity policies,
in which investment performance credited to the account balance is based on the
investment performance of separate accounts chosen by the policyholder. For
other policies, the account balances were credited at interest rates which
ranged from 4.5% to 8.23%, in 1999.
Deferred Policy Acquisition Costs
The costs that vary with and are directly related to the production of new
business have been deferred to the extent deemed recoverable. Such costs include
commissions and certain costs of underwriting, policy issue and marketing.
Deferred policy acquisition costs on traditional participating life insurance
policies are amortized in proportion to the present value of expected gross
margins. Gross margins include margins from mortality, investments and expenses,
net of policyholder dividends. Expected gross margins are redetermined
regularly, based on actual experience and current assumptions of mortality,
persistency, expenses, and investment experience. The average investment yields,
before realized capital gains and losses, in the calculation of expected gross
margins were 8.0% for 1999, 8.25% for 1998 and 8.0% for 1997.
Deferred policy acquisition costs for variable life and investment-type products
are amortized in relation to the incidence of expected gross profits, including
realized investment gains and losses, over the expected lives of the policies.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issuance and loss recognition testing at the end of each
accounting period. The effect on the amortization of deferred policy acquisition
costs of revisions in estimated experience is reflected in earnings in the
period such estimates are revised. In addition, the effect on the deferred
acquisition cost asset that would result from the realization of unrealized
gains (losses) is recognized through an offset to Other Comprehensive Income as
of the balance sheet date.
CAPITAL GAINS AND LOSSES
Realized capital gains and losses on sales of investments are based upon
specific identification of the investments sold. A realized capital loss is
recorded at the time a decline in the value of an investment is determined to be
other than temporary.
POLICYHOLDER DIVIDENDS
Annually, the Board of Directors declares the amount of dividends to be paid to
participating policyholders in the following calendar year. Dividends are earned
by the policyholders ratably over the policy year. Dividends are included in the
accompanying consolidated financial statements as a liability and as a charge to
operations.
REINSURANCE
Premiums, benefits and expenses are recorded net of experience refunds, reserve
adjustments and amounts assumed from or ceded to reinsurers, including
commission and expense allowances.
SEPARATE ACCOUNTS
Separate account assets and liabilities reflect segregated funds administered
and invested by the Company for the benefit of variable life insurance
F-74
<PAGE> 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
policyholders, variable annuity contractholders and several of the Company's
retirement plans.
The contractholders/policyholders bear the investment risk on separate account
assets except in instances where the Company guarantees a fixed return and on
the Company's seed money. The separate account assets are carried at fair value.
For guaranteed contracts, the separate account assets and liabilities are
carried at historical cost. The guaranteed contracts are maintained in a
separate account for statutory purposes. Due to the guaranteed return, this
separate account is included in the general account assets and liabilities for
GAAP purposes.
FEDERAL INCOME TAXES
Deferred income tax assets and liabilities have been recorded for temporary
differences between the reported amounts of assets and liabilities in the
accompanying consolidated financial statements and those in the Company's income
tax returns.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the fair values and carrying values of the
Company's financial instruments at December 31, 1999 and 1998 (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------- --------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale...................... $2,765.2 $2,765.2 $3,030.9 $3,030.9
Held to maturity........................ $ 323.3 $ 323.8 $ 405.1 $ 379.2
Equity securities......................... $ 20.3 $ 20.3 $ 29.4 $ 29.4
Mortgage loans............................ $ 557.3 $ 559.8 $ 697.2 $ 641.6
LIABILITIES FOR INVESTMENT-TYPE INSURANCE
CONTRACTS
Guaranteed interest contracts............. $ 100.5 $ 100.6 $ 178.6 $ 172.3
Group annuities........................... $1,718.8 $1,740.9 $1,596.4 $1,595.9
Supplementary contracts without life
contingencies........................... $ 28.3 $ 28.6 $ 30.4 $ 29.8
Individual annuities...................... $2,028.9 $2,085.1 $1,907.1 $1,961.8
</TABLE>
The underlying investment risk of the Company's variable life and variable
annuity contracts is assumed by the policyholder. These reserve liabilities are
primarily reported in the separate accounts. The liabilities in the separate
accounts are recorded at amounts equal to the related assets at fair value.
Fair values for the Company's insurance contracts other than investment-type
contracts are not required to be disclosed under SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments." However, the estimated fair value
and future cash flows of liabilities under all insurance contracts are taken
into consideration in the Company's overall management of interest rate risk,
which minimizes exposure to changing interest rates through the matching of
investment maturities with amounts due under insurance contracts. The estimated
fair value of all assets without a corresponding revaluation of all liabilities
associated with insurance contracts can be misinterpreted.
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments:
INVESTMENT SECURITIES
Bonds, common stocks and preferred stocks are valued based upon quoted market
prices, where available. If quoted market prices are not available, as in the
case of private placements, fair
F-75
<PAGE> 134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
values are based on quoted market prices of comparable instruments (see Note 3).
MORTGAGE LOANS
Mortgage loans are valued using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. For mortgage loans classified as nonperforming, the fair
value was set equal to the lesser of the unpaid principal balance or the market
value of the underlying property.
POLICY LOANS
Policy loans are issued with either fixed or variable interest rates, depending
upon the terms of the policies. For those loans with fixed rates, the interest
rates range from 5% to 8%. For loans with variable interest rates, the interest
rates are primarily adjusted quarterly based upon changes in a corporate bond
index. Future cash flows of policy loans are uncertain and difficult to predict.
As a result, management deems it impractical to calculate the fair value of
policy loans.
GUARANTEED INTEREST CONTRACTS
The fair value of GIC liabilities is based upon discounted future cash flows.
Contract account balances are accumulated to the maturity dates at the
guaranteed rate of interest. Accumulated values are discounted using interest
rates for which liabilities with similar durations could be sold. The statement
value and fair value of the assets backing up the guaranteed interest contract
liabilities were $102.0 million and $101.9 million, respectively, at December
31, 1999 and $172.5 million and $175.9 million, respectively, at December 31,
1998.
GROUP ANNUITIES
The fair value of group annuities is primarily based upon termination value,
which is calculated by applying contractual market value adjustments to the
account balances. For those contracts not subject to market value adjustments at
termination, book value represents fair value.
INDIVIDUAL ANNUITIES AND SUPPLEMENTARY CONTRACTS
The fair value of individual annuities and supplementary contracts without life
contingencies is based primarily on surrender values. For those individual
annuities and supplementary contracts that are not surrenderable, discounted
future cash flows are used for calculating fair value.
POLICYHOLDER DIVIDENDS AND ACCUMULATIONS
The policyholders' dividend and accumulation liabilities will ultimately be
settled in cash, applied toward the payment of premiums, or left on deposit with
the Company at interest. Management deems it impractical to calculate the fair
value of these liabilities due to valuation difficulties involving the
uncertainties of final settlement.
F-76
<PAGE> 135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. MARKETABLE SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair value
of investments in fixed maturity securities and equity securities as of December
31, 1999 and 1998 are as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies........... $ 46.9 $ .4 $ .7 $ 46.6
Obligations of states and political
subdivisions................................... 41.6 .6 .5 41.7
Debt securities issued by foreign governments.... 1.0 -- -- 1.0
Corporate securities............................. 2,556.7 20.8 151.4 2,426.1
Mortgage-backed securities....................... 257.9 2.1 10.2 249.8
-------- ------ ------ --------
Subtotal -- fixed maturities..................... 2,904.1 23.9 162.8 2,765.2
Equity securities................................ 19.0 2.6 1.3 20.3
-------- ------ ------ --------
Total....................................... $2,923.1 $ 26.5 $164.1 $2,785.5
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- ---------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies........... $ 13.4 $ 3 $ -- $ 13.7
Obligations of states and political
subdivisions................................... 6.4 .2 .2 6.4
Debt securities issued by foreign governments.... 6.0 .2 -- 6.2
Corporate securities............................. 294.5 5.3 6.3 293.5
Mortgage-backed securities....................... 3.5 -- -- 3.5
-------- ------ ------ --------
Total....................................... $ 323.8 $ 6.0 $ 6.5 $ 323.3
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies........... $ 41.7 $ 1.7 $ -- $ 43.4
Obligations of states and political
subdivisions................................... 57.8 2.9 -- 60.7
Debt securities issued by foreign governments.... 1.0 .1 -- 1.1
Corporate securities............................. 2,537.1 124.4 33.3 2,628.2
Mortgage-backed securities....................... 287.1 11.0 .6 297.5
-------- ------ ------ --------
Subtotal -- fixed maturities..................... 2,924.7 140.1 33.9 3,030.9
Equity securities................................ 30.3 1.8 2.7 29.4
-------- ------ ------ --------
Total....................................... $2,955.0 $141.9 $ 36.6 $3,060.3
======== ====== ====== ========
</TABLE>
F-77
<PAGE> 136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- ---------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies........... $ 16.7 $ 1.5 $ -- $ 18.2
Obligations of states and political
subdivisions................................... 7.9 .7 .1 8.5
Debt securities issued by foreign governments.... 6.2 1.0 -- 7.2
Corporate securities............................. 339.6 22.4 .2 361.8
Mortgage-backed securities....................... 8.8 .6 -- 9.4
-------- ------ ------ --------
Total....................................... $ 379.2 $ 26.2 $ .3 $ 405.1
======== ====== ====== ========
</TABLE>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1999, by contractual maturity, are as follows (in millions):
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE
- ------------------ --------- ----------
<S> <C> <C>
Due in one year or less... $ 146.5 $ 146.8
Due after one year through
five years.............. 766.8 759.0
Due after five years
through ten years....... 687.2 660.2
Due after ten years 1,303.6 1,199.2
-------- --------
Total................ $2,904.1 $2,765.2
======== ========
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE
- ---------------- --------- ----------
<S> <C> <C>
Due in one year or less... $ 24.7 $ 24.8
Due after one year through
five years.............. 109.2 109.4
Due after five years
through ten years....... 110.8 112.7
Due after ten years....... 79.1 76.4
------ ------
Total................ $323.8 $323.3
====== ======
</TABLE>
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Mortgage-backed securities are included based on their contractual
maturity.
Realized gains (losses) on investments for the years ended December 31, 1999,
1998 and 1997 are summarized as follows (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Fixed maturities......... $(9.0) $(9.2) $ 7.9
Equity securities........ 1.5 2.8 (3.8)
Mortgage loans........... -- .7 1.1
Real estate.............. (.6) 6.6 (2.2)
Other invested assets.... 6.1 8.9 (.6)
Other assets............. -- (3.0) --
----- ----- -----
Total............... $(2.0) $ 6.8 $ 2.4
===== ===== =====
</TABLE>
During 1998, the Company sold held to maturity securities with an amortized cost
of $5.6 million, resulting in a realized loss of $.8 million. The securities
were sold in response to significant deterioration in the creditworthiness of
the issuers.
Net unrealized (depreciation) appreciation on available for sale securities as
of December 31, 1999 and 1998 is summarized as follows (in millions):
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Net unrealized (depreciation)
appreciation before
adjustments for the
following:................. $(137.6) $105.3
Amortization of deferred
policy acquisition
costs................... 69.6 (53.0)
Deferred Federal income
taxes................... 23.8 (18.3)
------- ------
Net unrealized (depreciation)
appreciation............... $ (44.2) $ 34.0
======= ======
</TABLE>
F-78
<PAGE> 137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net investment income, by type of investment, is as follows for the years ending
December 31, 1999, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Gross investment
income:
Fixed maturities:
Available for
sale............. $222.9 $225.2 $201.2
Held to maturity.... 30.6 34.4 39.6
Equity securities..... .2 .5 .8
Mortgage loans........ 53.9 59.1 62.9
Real estate........... 5.3 6.6 10.7
Policy loans and
premium notes....... 23.9 24.2 23.4
Other invested
assets.............. 7.3 15.3 8.0
Cash and cash
equivalents......... 2.3 3.3 2.5
Other, net............ .1 -- (.2)
------ ------ ------
346.5 368.6 348.9
Less investment
expenses............ (13.9) (15.9) (17.4)
------ ------ ------
Net investment
income.............. $332.6 $352.7 $331.5
====== ====== ======
</TABLE>
On May 13, 1998, the Company purchased two structured notes at par value
totaling $55 million for settlement on June 2, 1998. The notes were acquired
from separate unaffiliated issuers and were categorized as available for sale.
The notes carried opposite interest rate characteristics and were reset on June
29, 1998 as a result of the 10-year USD swap rate being less than the trigger
rate of 6.14%. The notes were accounted for as separate notes in accordance with
the provisions of FASB Emerging Issues Task Force (EITF) Issue No. 96-12,
"Recognition of Interest Income and Balance Sheet Classification of Structured
Notes".
The note with a par value of $32 million and a stated coupon rate of 5.777% was
reset to a coupon rate of 11.554%. Interest earned on this note during 1998 was
$.1 million for 27 days at 5.777% and $1.9 million for 185 days at 11.554%.
A note with a par value of $23 million and a stated coupon rate of 5.878% was
reset to a coupon rate of 0% and was sold on June 29, 1998 at a loss of $10.6
million. Interest earned on this note during 1998 was $.1 million for 27 days at
5.878%.
The unrealized gain on the remaining note is $5.5 million at December 31, 1999.
Interest earned on this note during 1999 was $3.7 million.
In November 1998, the EITF released Issue No. 98-15, "Structured Notes Acquired
for a Specified Investment Strategy", which requires that structured notes
transactions entered into after September 24, 1998 be accounted for as a unit.
If the Company had accounted for the notes as a unit, the realized loss of $10.6
million would have been reversed and applied as an adjustment to the cost of the
remaining note. Interest earned for 1998 on both notes would have totaled $1.5
million. Interest earned over the lives of the notes would be $8.7 million less
had the notes been accounted for as a unit.
4. MORTGAGE LOANS
The carrying value of impaired loans was $14.2 million and $33.9 million, which
are net of reserves of $3.2 million and $4.3 million as of December 31, 1999 and
1998, respectively.
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1999 and 1998 is as follows (in millions):
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
BALANCE AT JANUARY 1......... $10.7 $13.1
Provision, net of
recoveries................. .5 (.6)
Releases due to
foreclosure................ -- (1.8)
----- -----
BALANCE AT DECEMBER 31....... $11.2 $10.7
===== =====
</TABLE>
The average recorded investment in impaired loans was $27.8 million and $46.3
million during 1999 and 1998, respectively. Interest income recognized on
impaired loans during 1999, 1998 and 1997 was $1.7 million, $3.9 million and
$4.9 million, respectively. All interest income on impaired loans was recognized
on the cash basis.
F-79
<PAGE> 138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. REAL ESTATE
Real estate holdings are as follows at December 31, 1999 and 1998 (in millions):
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Occupied by the Company...... $19.2 $31.1
Foreclosed................... 7.8 8.2
Investment................... -- .2
----- -----
Total................... $27.0 $39.5
===== =====
</TABLE>
Depreciation expense was $1.0 million, $1.8 million and $3.0 million for the
years ended December 31, 1999, 1998 and 1997, respectively. Accumulated
depreciation for real estate totaled $4.5 million and $6.9 million at December
31, 1999 and 1998, respectively. Permanent impairment writedowns were $.9
million, $.5 million and $6.1 million for the years ended December 31, 1999,
1998 and 1997, respectively.
In December 1999, a real estate property occupied by the Company with a carrying
value of $12.3 million was sold, resulting in a gain of $.3 million.
6. DEFERRED POLICY ACQUISITION COSTS
A reconciliation of the deferred policy acquisition cost (DAC) asset for 1999,
1998 and 1997 is as follows (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
BALANCE AT JANUARY
1................... $705.2 $629.6 $602.6
Expenses deferred..... 124.1 140.1 127.6
Amortization of DAC... (80.4) (72.9) (73.6)
Effect on DAC from
unrealized losses
(gains)............. 101.8 8.4 (27.0)
------ ------ ------
BALANCE AT DECEMBER
31.................. $850.7 $705.2 $629.6
====== ====== ======
</TABLE>
7. BENEFIT PLANS
The Company maintains a qualified defined benefit pension plan and several
nonqualified defined benefit, supplemental executive retirement, excess benefit
and deferred compensation plans. In addition, the Company maintains other
postretirement benefit plans which include medical benefits for retirees and
their spouses (and Medicare part B reimbursement for certain retirees) and
retiree life insurance.
The following tables present a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ended December 31,
1999 and 1998, as well as, the funded status as of December 31, 1999 and 1998
(in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Net benefit obligation at beginning of year..... $116.7 $116.6 $ 28.4 $ 29.8
Service cost.................................... 3.7 4.5 .3 .5
Interest cost................................... 7.7 7.8 1.9 1.9
Plan participants' contributions................ -- -- .4 .1
Plan amendments................................. 1.4 .4 -- --
Actuarial (gain) loss........................... 4.0 (3.2) (4.2) (1.9)
Settlements..................................... (13.4) -- -- --
Gross benefits paid............................. (21.7) (9.4) (2.3) (2.1)
------ ------ ------ ------
Net benefit obligation at end of year........... 98.4 116.7 24.5 28.3
------ ------ ------ ------
</TABLE>
F-80
<PAGE> 139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year.......................................... 182.4 165.8 -- --
Actual return on plan assets.................... 26.6 26.8 -- --
Employer contributions.......................... -- -- 1.4 1.7
401(h) transfer................................. (1.4) (1.7) -- --
Gross benefits paid............................. (16.6) (8.5) (1.4) (1.7)
------ ------ ------ ------
Fair value of plan assets at end of year........ 191.0 182.4 -- --
------ ------ ------ ------
Funded status................................... 92.6 65.7 (24.5) (28.3)
Unrecognized actuarial gain..................... (53.9) (41.2) (20.0) (17.0)
Unrecognized prior service cost................. 4.9 3.9 6.1 6.5
Unrecognized net transition asset............... (11.7) (15.7) -- --
------ ------ ------ ------
Net amount recognized........................... $ 31.9 $ 12.7 $(38.4) $(38.8)
====== ====== ====== ======
</TABLE>
The following table presents the amounts recognized in the consolidated
statements of financial condition as of December 31, 1999 and 1998 (in
millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Prepaid benefit cost............................ $ 42.6 $ 24.0 $ -- $ --
Accrued benefit liability....................... (10.7) (11.3) (38.4) (38.8)
Additional minimum liability.................... (.8) (1.8) -- --
Intangible asset................................ .8 1.8 -- --
------ ------ ------ ------
Net amount recognized........................... $ 31.9 $ 12.7 $(38.4) $(38.8)
====== ====== ====== ======
</TABLE>
The components of net periodic benefit (income) cost for the years ended
December 31, 1999, 1998 and 1997 are as follows (in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------------- ---------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost...................... $ 4.3 $ 4.5 $ 4.3 $ .3 $ .5 $ .5
Interest cost..................... 7.6 7.8 8.3 1.9 1.9 2.0
Expected return on assets......... (16.1) (14.6) (13.0) -- -- --
Amortization of:
Transition asset................ (1.9) (1.9) (1.9) -- -- --
Prior service cost.............. .3 .3 .3 .4 .4 .4
Actuarial (gain) loss........... (3.3) (.9) (.1) (1.1) (.9) (.8)
Settlement credit............... (5.8) -- -- -- -- --
------ ------ ------ ----- ---- ----
Net periodic benefit (income)
cost............................ $(14.9) $ (4.8) $ (2.1) $ 1.5 $1.9 $2.1
====== ====== ====== ===== ==== ====
</TABLE>
During 1999, in certain of the Company's defined benefit plans, lump-sum cash
payments elected by employees exceeded the sum of the periodic service cost and
interest cost of the related plans. The lump-sum amounts are reflected as
"settlements" in the change in benefit obligation table above. Because of this
circumstance, the Company amortized additional amounts of the unrecognized
actuarial gains and the unamortized transition asset, in accordance with SFAS
88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits." Pretax income of $5.8
F-81
<PAGE> 140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million resulted from additional amortization and is reflected as a "settlement
credit" in the pension benefits table above.
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were $14.3 million, $10.4 million, and $0, respectively, at
December 31, 1999, and were $15.9 million, $13.1 million, and $0, respectively,
at December 31, 1998.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the medical plan. A 1% change in assumed health care cost trend
rates would have the following effects (in millions):
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest cost components of
net periodic postretirement benefit cost.................. $ .1 $ (.1)
Effect on the health care component of the accumulated
postretirement benefit obligation......................... $1.3 $(1.2)
</TABLE>
The following weighted-average assumptions were used in the measurement of the
Company's benefit obligations as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
PENSION
BENEFITS OTHER BENEFITS
------------ --------------
1999 1998 1999 1998
---- ---- ----- -----
<S> <C> <C> <C> <C>
Discount rate........................................... 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets.......................... 9.0% 9.0% N/A N/A
Rate of compensation increase........................... 4.75% 4.75% 4.75% 4.75%
</TABLE>
Effective July 1, 1999, the Company increased its discount rate to 7.5% from
6.75% at January 1, 1999. Effective December 31, 1999, the Company increased its
discount rate to 7.75%.
A 5.5% annual rate of increase in the cost of covered health care benefits was
assumed for 1999, decreasing to an ultimate trend of 5.1% in 2001.
In January 1991, the Company established a retiree health account under the
provisions of Section 401(h) of the Internal Revenue Code. In 1999, 1998 and
1997, the Company transferred $1.4 million, $1.7 million and $1.6 million of
excess assets from the defined benefit pension plan to pay for 1999, 1998 and
1997 qualified retiree health benefits, respectively.
The Company also provides a funded noncontributory defined contribution plan
that covers substantially all of its agents and a contributory defined
contribution plan qualified under section 401(k) of the Internal Revenue Code.
The pension cost of the defined contribution plans was $3.5 million, $3.4
million, and $3.4 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-82
<PAGE> 141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. FEDERAL INCOME TAXES
The Company files a consolidated Federal income tax return with its life
insurance and non-insurance subsidiaries. The life companies' tax provisions
include an equity tax.
The provision for Federal income taxes from operations differs from the normal
relationship of Federal income tax to pretax income as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Federal income tax at
statutory rate..... $ 49.6 $44.2 $37.0
Current year equity
tax............. 9.0 6.3 8.8
True down of prior
years' equity
tax............. (10.0) (7.0) (8.0)
Tax settlement..... -- (4.7) --
Other.............. (1.0) .1 .8
------ ----- -----
Provision for Federal
income tax from
operations......... $ 47.6 $38.9 $38.6
====== ===== =====
</TABLE>
In 1998, the Company settled certain open tax years with the IRS, which resulted
in the reduction of income tax expense by $4.7 million.
Deferred income tax assets and liabilities reflect the income tax effects of
cumulative temporary differences between the reported values of assets and
liabilities for financial statement purposes and income tax return purposes.
Components of the Company's net deferred income tax liability are as follows at
December 31, 1999 and 1998 (in millions):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
DEFERRED TAX LIABILITY
Deferred policy acquisition
costs...................... $223.7 $214.2
Prepaid pension asset........ 15.3 8.4
Net unrealized gain on
available for sale
securities................. -- 18.3
------ ------
Total deferred tax
liability............. 239.0 240.9
------ ------
</TABLE>
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
DEFERRED TAX ASSET
Reserves..................... 145.1 145.8
Net unrealized loss on
available for sale
securities................. 23.8 --
Employee benefit accruals.... 19.0 18.2
Invested assets.............. 7.4 6.4
Policyholder dividends....... 8.7 8.2
Other........................ 8.3 4.5
------ ------
Total deferred tax
asset................. 212.3 183.1
------ ------
Net deferred tax liability... $ 26.7 $ 57.8
====== ======
</TABLE>
The Company's Federal income tax returns have been audited through 1995. All
years through 1985 are closed. Years 1986 through 1995 have been audited and are
closed with the exception of several issues for which claims for refund have
been filed. Years 1996 and subsequent remain open. In the opinion of management,
adequate provision has been made for the possible effect of potential
assessments related to prior years' taxes.
9. REINSURANCE
In the normal course of business, the Company assumes risks from and cedes
certain parts of its risks to other insurance companies. The primary purpose of
ceded reinsurance is to limit losses from large exposures. For life insurance,
the Company retains no more than $1.5 million on any single life.
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company would be liable for these
obligations. The Company evaluates the financial condition of its reinsurers and
limits its exposure to any one reinsurer.
On January 1, 1998, the Company terminated its reinsurance agreement with
Metropolitan Life Insurance Company (Metropolitan). Prior to 1998, the Company
had ceded 65 percent of the premiums and reserves related to its single premium
deferred annuity (SPDA) product to Metropolitan. The Company recaptured $352.7
million in reserves and received cash totaling $343.7 million.
F-83
<PAGE> 142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tables below highlight the amounts shown in the accompanying consolidated
financial statements which are net of reinsurance activity (in millions):
<TABLE>
<CAPTION>
CEDED TO ASSUMED
GROSS OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999:
Life insurance in force............... $42,853.8 $9,866.6 $137.5 $33,124.7
========= ======== ====== =========
Premiums.............................. $ 209.5 $ 12.7 $ .7 $ 197.5
========= ======== ====== =========
Future policyholder benefits.......... $ 4,028.8 $ 155.9 $ 2.7 $ 3,875.6
========= ======== ====== =========
DECEMBER 31, 1998:
Life insurance in force............... $40,139.8 $8,550.4 $167.4 $31,756.8
========= ======== ====== =========
Premiums.............................. $ 217.1 $ 14.2 $ 3.5 $ 206.4
========= ======== ====== =========
Future policyholder benefits.......... $ 4,243.1 $ 152.8 $ 3.1 $ 4,093.4
========= ======== ====== =========
DECEMBER 31, 1997:
Life insurance in force............... $36,961.7 $7,549.1 $238.6 $29,651.2
========= ======== ====== =========
Premiums.............................. $ 232.7 $ 15.0 $ 3.2 $ 220.9
========= ======== ====== =========
Future policyholder benefits.......... $ 4,344.6 $ 499.5 $ 3.9 $ 3,849.0
========= ======== ====== =========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space, data processing equipment and certain other
furniture and equipment under operating leases expiring on various dates between
2000 and 2009. Most of the leases contain renewal and purchase options based on
prevailing fair market values.
Future minimum rental payments required and related sublease rentals receivable
under non-cancelable operating leases in effect at December 31, 1999, and which
have initial or remaining terms of one year or more, are summarized as follows
(in millions):
<TABLE>
<CAPTION>
SUBLEASE
RENTAL RENTALS
PAYMENTS RECEIVABLE
YEAR ENDING DECEMBER 31: -------- ----------
<S> <C> <C>
2000.................... $13.5 $ .5
2001.................... 11.3 .2
2002.................... 9.8 .1
2003.................... 7.5 --
2004.................... 5.4 --
Thereafter.............. 16.8 --
----- ----
Total.............. $64.3 $ .8
===== ====
</TABLE>
Total related rent expense was $11.2 million, $13.6 million and $12.7 million in
1999, 1998 and 1997, respectively, which was net of sublease income of $.5
million, $2.6 million and $1.9 million in 1999, 1998 and 1997, respectively.
During 1998, the Company recorded a charge to income for the amount of $3.0
million for the termination of a lease obligation for furniture and equipment.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its borrowers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include investment commitments related to its interests in real
estate and mortgage loans, financial guarantees of indebtedness, marketable
securities lending and interest rate futures contracts. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated statements of financial condition.
F-84
<PAGE> 143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, the Company had outstanding mortgage loan, real estate and
limited partnership commitments of approximately $27.6 million. The mortgage
loan commitments, which expire through December 2000, totaled $23.0 million and
were issued during 1999 at interest rates consistent with rates applicable on
December 31, 1999. As a result, the fair value of these commitments approximates
the face amount.
Derivatives are used for hedging existing bonds (including cash reserves)
against adverse price or interest rate movements and for fixing liability costs
at the time of product sales. The Company had no hedge activity in 1999. The
Company closed out hedge positions consisting of 939 treasury futures contracts
with a dollar value of $108.8 million in 1998 and 239 treasury futures contracts
with a dollar value of $25.2 million in 1997. There were no gains (losses)
generated from the hedge positions for the year ended December 31, 1999. The
approximate net gains (losses) generated from the hedge positions were $.1
million for the year ended December 31, 1998 and $(.1) million for the year
ended December 31, 1997. There were no open hedge positions at December 31, 1999
or 1998.
The Company uses interest rate swaps to synthetically convert a floating rate
bond into a fixed rate bond and thereby match fixed rate liabilities. The
Company had no swaps outstanding as of December 31, 1999 or 1998.
Periodically, the Company enters securities lending agreements to earn
additional investment income on its securities. The borrower must provide cash
collateral prior to or at the inception of the loan. For bonds, cash collateral
totaling 105% of market value plus accrued interest is required. For equities,
cash collateral totaling 105% of market value is required. There were no
securities lending positions at December 31, 1999.
INVESTMENT PORTFOLIO CREDIT RISK
Bonds
The Company's bond investment portfolio is predominately comprised of investment
grade securities. At December 31, 1999 and 1998, approximately $266.6 million
and $210.4 million, respectively, in debt security investments (8.3% and 6.4%,
respectively, of the total debt security portfolio) were considered "below
investment grade." During 1999, the Company increased its allocation of assets
to "below investment grade" securities. Securities are classified as "below
investment grade" primarily by utilizing rating criteria established by
independent bond rating agencies.
Debt security investments with a carrying value at December 31, 1999 of $3.6
million were non-income producing for the year ended December 31, 1999.
The Company had debt security investments in the financial services industry at
both December 31, 1999 and 1998 that exceeded 5% of total assets.
Mortgage Loans
The Company originates mortgage loans either directly or through mortgage
correspondents and brokers throughout the country. Loans are primarily related
to underlying real property investments in office and apartment buildings and
retail/commercial and industrial facilities. Mortgage loans are collateralized
by the related properties and such collateral generally approximates a minimum
133% of the original loan value at the time the loan is made.
There was one mortgage loan totaling $.1 million and two mortgage loans totaling
$3.7 million in which payments on principal and/or interest were over 90 days
past due as of December 31, 1999 and 1998, respectively.
The Company had no loans outstanding in any state where principal balances in
the aggregate exceeded 20% of the Company's equity.
Lines of Credit
The Company has approximately $50 million of available and unused lines of
credit at December 31, 1999.
Litigation and Unasserted Claims
The Company is involved in various litigation, as both plaintiff and defendant,
which has arisen in the ordinary course of business, with respect to sales
practices, and as a result of the merger with
F-85
<PAGE> 144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Covenant Life Insurance Company in 1994, which, in the opinion of management and
legal counsel, will not have a material adverse effect on the Company's
financial position or its results of operations.
In June 1999, the Company settled litigation involving the 1994 merger with
Covenant Life Insurance Company. The net settlement of $5.8 million had no
impact on current period operating results as the Company had previously
established reserves for such litigation.
Insurance companies are subject to assessments, up to statutory limits, by state
guaranty funds for losses of policyholders of insolvent insurance companies. In
the opinion of management, the outcome of the proceedings and assessments will
not have a material adverse effect on the consolidated financial statements.
Guaranty fund assessments totaled $.1 million, $2.2 million and $1.1 million in
1999, 1998 and 1997, respectively. Of those amounts, $.1 million, $1.6 million
and $.8 million in 1999, 1998 and 1997, respectively, are creditable against
future years' premium taxes.
11. COMPREHENSIVE INCOME
The components of other comprehensive income are as follows (in millions):
<TABLE>
<CAPTION>
TAX
BEFORE TAX (EXPENSE) NET OF TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Unrealized appreciation (depreciation) on
securities....................................... $(122.3) $ 42.8 $(79.5)
Less: reclassification adjustment for losses
realized in net income........................... 2.0 (.7) 1.3
------- ------ ------
Net change in unrealized appreciation
(depreciation) on securities..................... $(120.3) $ 42.1 $(78.2)
======= ====== ======
YEAR ENDED DECEMBER 31, 1998:
Unrealized appreciation (depreciation) on
securities....................................... $ 11.9 $ (4.2) $ 7.7
Less: reclassification adjustment for gains
realized in net income........................... (6.8) 2.4 (4.4)
------- ------ ------
Net change in unrealized appreciation
(depreciation) on securities..................... $ 5.1 $ (1.8) $ 3.3
======= ====== ======
YEAR ENDED DECEMBER 31, 1997:
Unrealized appreciation (depreciation) on
securities....................................... $ 33.1 $(11.6) $ 21.5
Less: reclassification adjustment for gains
realized in net income........................... (2.4) .9 (1.5)
------- ------ ------
Net change in unrealized appreciation
(depreciation) on securities..................... $ 30.7 $(10.7) $ 20.0
======= ====== ======
</TABLE>
F-86
<PAGE> 145
APPENDIX A -- ILLUSTRATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The following illustrations have been prepared to help show how certain values
under the Policy change with different rates of investment performance over an
extended period of time. THE HYPOTHETICAL INVESTMENT RETURNS ARE PROVIDED ONLY
TO ILLUSTRATE THE MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST
OR FUTURE PERFORMANCE. Actual rates of return for a particular Policy may be
more or less than the hypothetical investment rates of return. The actual return
on your policy account value will depend on factors such as the amounts you
allocate to particular portfolios, the amounts deducted for the Policy's monthly
charges, the portfolios' expense ratios, and your policy loan and partial
withdrawal history.
The following illustrations show how certain values under a sample Policy would
change with different rates of fictional investment performance over an extended
period of time. In particular, the illustrations show how the death benefit,
policy account value, and net cash surrender value under a Policy covering a
male insured of Age 40 on the policy date in the preferred premium class with a
face amount of $100,000, would change over time if the planned premiums were
paid and the return on the assets in the Subaccounts were a uniform gross annual
rate (before any expenses) of 0%, 6%, or 12%. The tables also show how the
Policy would operate if premiums accumulated at 5% interest. The tables
illustrate policy account values that would result based on assumptions that you
pay the premiums indicated, you do not increase your face amount, and you do not
make any partial withdrawals or take any policy loans. 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. The values under the Policy will
be different from those shown even if the returns averaged 0%, 6% or 12%, but
fluctuated over and under those averages throughout the years shown.
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, a premium expense charge of 5%, maximum
monthly administrative fee of $12, an initial administrative charge of $5, and a
daily charge for mortality and expense risks equivalent to an annual rate of
0.90%, with the additional Subaccount credit of 0.03% per month after the Policy
is in force for 15 years or the sum of the values in the Subaccount and
Guaranteed Account equal or exceed $100,000. The guaranteed premium expense
charge assumes a 2% premium tax charge. However, certain states may impose
higher premium taxes. For those Policies, the death benefit, policy account
value, and net cash surrender value would be lower since the guaranteed premium
expense charge would be higher. The columns under the heading "Current" assume
that throughout the life of the policy, the monthly charge for cost of insurance
is based on the current cost of insurance rate, a premium expense charge of
3.5%, current monthly administrative fee of $7.50, and a daily charge for
mortality and expense risks equivalent to an annual rate of 0.75%, with the
additional Subaccount credit of 0.03% per month after the Policy is in force for
15 years or the sum of the values in the Subaccount and Guaranteed Account equal
or exceed $100,000. The illustrations assume no charges for Federal or state
taxes or charges for supplemental benefits.
The amounts shown in all tables reflect an averaging of certain other asset
charges described below that may be assessed under the Policy, depending upon
how premiums are allocated. The total of the asset charges reflected in the
Current and Guaranteed illustrations, including the mortality and expense risk
charge listed above, is 1.58% and 1.73%, respectively. This total charge is
based on an assumption that an owner allocates the Policy values equally among
each Subaccount of the Separate Account.
The illustrations assume that the assets in the portfolios are subject to an
annual expense ratio of 0.83% of the average daily net assets. This annual
expense ratio is based on the average of the expense ratios of each of the
portfolios for the last fiscal year and takes into account current expense
reimbursement arrangements. Values illustrated would be lower if expense
reimbursement arrangements were not reflected. For information on portfolio
expenses, consult the Annual Portfolio Operating Expenses table in the Summary
of this prospectus, and the respective expense and fee tables set forth in the
portfolios' prospectuses.
A-1
<PAGE> 146
After deducting portfolio expenses and mortality and expense risk charges, the
illustrated gross annual investment rates of return of 0%, 6%, and 12% would
correspond to approximate net annual rates of (1.73)%, 4.17%, and 10.06%,
respectively, assuming guaranteed charges, and net annual rates of (1.58)%,
4.33%, and 10.23%, respectively, assuming current charges.
Upon request, we will provide illustrations 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. We reserve
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> 147
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF -1.73%) CURRENT** (NET RATE OF -1.58%)
PREMIUMS -------------------------------- --------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 506 0 100,000 621 0 100,000
2 2,153 1,047 0 100,000 1,275 85 100,000
3 3,310 1,562 197 100,000 1,903 538 100,000
4 4,526 2,049 684 100,000 2,501 1,136 100,000
5 5,802 2,509 1,144 100,000 3,070 1,705 100,000
6 7,142 2,938 1,573 100,000 3,606 2,241 100,000
7 8,549 3,335 2,165 100,000 4,117 2,947 100,000
8 10,027 3,699 2,724 100,000 4,600 3,625 100,000
9 11,578 4,029 3,249 100,000 5,056 4,276 100,000
10 13,207 4,322 3,737 100,000 5,481 4,896 100,000
11 14,917 4,576 4,186 100,000 5,878 5,488 100,000
12 16,713 4,785 4,590 100,000 6,239 6,044 100,000
13 18,599 4,944 4,944 100,000 6,564 6,564 100,000
14 20,579 5,047 5,047 100,000 6,848 6,848 100,000
15 22,657 5,087 5,087 100,000 7,086 7,086 100,000
16 24,840 5,079 5,079 100,000 7,419 7,419 100,000
17 27,132 4,994 4,994 100,000 7,718 7,718 100,000
18 29,539 4,828 4,828 100,000 7,984 7,984 100,000
19 32,066 4,575 4,575 100,000 8,217 8,217 100,000
20 34,719 4,224 4,224 100,000 8,414 8,414 100,000
25 50,113 466 466 100,000 8,787 8,787 100,000
30 69,761 0 0 0 7,568 7,568 100,000
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative only
and should not be deemed a representation of past or future investment results.
Actual investment results may be more or less than those shown. The death
benefit, policy account value and net cash surrender value for a policy would be
different from those shown if actual rates of investment return applicable to
the policy averaged 0%, 6% or 12% over a period of years, but also fluctuated
above or below that average for individual policy years. The death benefit,
policy account value and net cash surrender value for a policy would also be
different from those shown, depending on the investment allocations made to the
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> 148
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF -1.73%) CURRENT** (NET RATE OF -1.58%)
PREMIUMS -------------------------------- --------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 505 0 100,505 620 0 100,620
2 2,153 1,042 0 101,042 1,271 81 101,271
3 3,310 1,553 188 101,553 1,894 529 101,894
4 4,526 2,033 668 102,033 2,486 1,121 102,486
5 5,802 2,485 1,120 102,485 3,047 1,682 103,047
6 7,142 2,904 1,539 102,904 3,572 2,207 103,572
7 8,549 3,289 2,119 103,289 4,070 2,900 104,070
8 10,027 3,639 2,664 103,639 4,538 3,563 104,538
9 11,578 3,952 3,172 103,952 4,976 4,196 104,976
10 13,207 4,224 3,639 104,224 5,381 4,796 105,381
11 14,917 4,456 4,066 104,456 5,754 5,364 105,754
12 16,713 4,640 4,445 104,640 6,090 5,895 106,090
13 18,599 4,770 4,770 104,770 6,384 6,384 106,384
14 20,579 4,841 4,841 104,841 6,634 6,634 106,634
15 22,657 4,846 4,846 104,846 6,835 6,835 106,835
16 24,840 4,797 4,797 104,797 7,133 7,133 107,133
17 27,132 4,669 4,669 104,669 7,394 7,394 107,394
18 29,539 4,457 4,457 104,457 7,618 7,618 107,618
19 32,066 4,155 4,155 104,155 7,805 7,805 107,805
20 34,719 3,754 3,754 103,754 7,953 7,953 107,953
25 50,113 0 0 0 8,015 8,015 108,015
30 69,761 0 0 0 6,366 6,366 106,366
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative only
and should not be deemed a representation of past or future investment results.
Actual investment results may be more or less than those shown. The death
benefit, policy account value and net cash surrender value for a policy would be
different from those shown if actual rates of investment return applicable to
the policy averaged 0%, 6% or 12% over a period of years, but also fluctuated
above or below that average for individual policy years. The death benefit,
policy account value and net cash surrender value for a policy would also be
different from those shown, depending on the investment allocations made to the
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> 149
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF 4.17%) CURRENT** (NET RATE OF 4.33%)
PREMIUMS -------------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 549 0 100,000 668 0 100,000
2 2,153 1,165 0 100,000 1,408 218 100,000
3 3,310 1,790 425 100,000 2,165 800 100,000
4 4,526 2,422 1,057 100,000 2,934 1,569 100,000
5 5,802 3,061 1,696 100,000 3,717 2,352 100,000
6 7,142 3,705 2,340 100,000 4,510 3,145 100,000
7 8,549 4,351 3,181 100,000 5,321 4,151 100,000
8 10,027 4,999 4,024 100,000 6,148 5,173 100,000
9 11,578 5,646 4,866 100,000 6,992 6,212 100,000
10 13,207 6,289 5,704 100,000 7,851 7,266 100,000
11 14,917 6,927 6,537 100,000 8,726 8,336 100,000
12 16,713 7,553 7,358 100,000 9,613 9,418 100,000
13 18,599 8,161 8,161 100,000 10,509 10,509 100,000
14 20,579 8,744 8,744 100,000 11,413 11,413 100,000
15 22,657 9,295 9,295 100,000 12,319 12,319 100,000
16 24,840 9,842 9,842 100,000 13,385 13,385 100,000
17 27,132 10,344 10,344 100,000 14,476 14,476 100,000
18 29,539 10,795 10,795 100,000 15,596 15,596 100,000
19 32,066 11,186 11,186 100,000 16,745 16,745 100,000
20 34,719 11,503 11,503 100,000 17,924 17,924 100,000
25 50,113 11,370 11,370 100,000 24,267 24,267 100,000
30 69,761 5,734 5,734 100,000 31,133 31,133 100,000
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative only
and should not be deemed a representation of past or future investment results.
Actual investment results may be more or less than those shown. The death
benefit, policy account value and net cash surrender value for a policy would be
different from those shown if actual rates of investment return applicable to
the policy averaged 0%, 6% or 12% over a period of years, but also fluctuated
above or below that average for individual policy years. The death benefit,
policy account value and net cash surrender value for a policy would also be
different from those shown, depending on the investment allocations made to the
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> 150
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF 4.17%) CURRENT** (NET RATE OF 4.33%)
PREMIUMS -------------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 547 0 100,547 666 0 100,666
2 2,153 1,159 0 101,159 1,404 214 101,404
3 3,310 1,779 414 101,779 2,155 790 102,155
4 4,526 2,403 1,038 102,403 2,916 1,551 102,916
5 5,802 3,032 1,667 103,032 3,688 2,323 103,688
6 7,142 3,661 2,296 103,661 4,466 3,101 104,466
7 8,549 4,289 3,119 104,289 5,258 4,088 105,258
8 10,027 4,913 3,938 104,913 6,061 5,086 106,061
9 11,578 5,532 4,752 105,532 6,876 6,096 106,876
10 13,207 6,140 5,556 106,140 7,699 7,114 107,699
11 14,917 6,737 6,347 106,737 8,531 8,141 108,531
12 16,713 7,313 7,118 107,313 9,367 9,172 109,367
13 18,599 7,861 7,861 107,861 10,201 10,201 110,201
14 20,579 8,373 8,373 108,373 11,031 11,031 111,031
15 22,657 8,839 8,839 108,839 11,850 11,850 111,850
16 24,840 9,285 9,285 109,285 12,828 12,828 112,828
17 27,132 9,668 9,668 109,668 13,817 13,817 113,817
18 29,539 9,981 9,981 109,981 14,817 14,817 114,817
19 32,066 10,212 10,212 110,212 15,830 15,830 115,830
20 34,719 10,346 10,346 110,346 16,852 16,852 116,852
25 50,113 8,863 8,863 108,863 22,004 22,004 122,004
30 69,761 1,210 1,210 101,210 26,536 26,536 126,536
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative only
and should not be deemed a representation of past or future investment results.
Actual investment results may be more or less than those shown. The death
benefit, policy account value and net cash surrender value for a policy would be
different from those shown if actual rates of investment return applicable to
the policy averaged 0%, 6% or 12% over a period of years, but also fluctuated
above or below that average for individual policy years. The death benefit,
policy account value and net cash surrender value for a policy would also be
different from those shown, depending on the investment allocations made to the
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> 151
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF 10.06%) CURRENT** (NET RATE OF 10.23%)
PREMIUMS -------------------------------- --------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 591 0 100,000 714 0 100,000
2 2,153 1,288 98 100,000 1,547 357 100,000
3 3,310 2,038 673 100,000 2,449 1,084 100,000
4 4,526 2,845 1,480 100,000 3,423 2,058 100,000
5 5,802 3,713 2,348 100,000 4,477 3,112 100,000
6 7,142 4,647 3,282 100,000 5,616 4,251 100,000
7 8,549 5,652 4,482 100,000 6,855 5,685 100,000
8 10,027 6,733 5,758 100,000 8,204 7,229 100,000
9 11,578 7,897 7,117 100,000 9,674 8,894 100,000
10 13,207 9,150 8,565 100,000 11,276 10,691 100,000
11 14,917 10,500 10,110 100,000 13,024 12,634 100,000
12 16,713 11,952 11,757 100,000 14,930 14,735 100,000
13 18,599 13,513 13,513 100,000 17,008 17,008 100,000
14 20,579 15,189 15,189 100,000 19,275 19,275 100,000
15 22,657 16,987 16,987 100,000 21,748 21,748 100,000
16 24,840 18,987 18,987 100,000 24,640 24,640 100,000
17 27,132 21,145 21,145 100,000 27,827 27,827 100,000
18 29,539 23,478 23,478 100,000 31,347 31,347 100,000
19 32,066 26,007 26,007 100,000 35,238 35,238 100,000
20 34,719 28,748 28,748 100,000 39,543 39,543 100,000
25 50,113 46,557 46,557 100,000 69,224 69,224 100,000
30 69,761 75,414 75,414 100,000 119,317 119,317 138,408
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative only
and should not be deemed a representation of past or future investment results.
Actual investment results may be more or less than those shown. The death
benefit, policy account value and net cash surrender value for a policy would be
different from those shown if actual rates of investment return applicable to
the policy averaged 0%, 6% or 12% over a period of years, but also fluctuated
above or below that average for individual policy years. The death benefit,
policy account value and net cash surrender value for a policy would also be
different from those shown, depending on the investment allocations made to the
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> 152
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
GUARANTEED* (NET RATE OF 10.06%) CURRENT** (NET RATE OF 10.23%)
PREMIUMS -------------------------------- --------------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- -------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 589 0 100,589 713 0 100,713
2 2,153 1,282 92 101,282 1,542 352 101,542
3 3,310 2,026 661 102,026 2,438 1,073 102,438
4 4,526 2,822 1,457 102,822 3,402 2,037 103,402
5 5,802 3,677 2,312 103,677 4,441 3,076 104,441
6 7,142 4,591 3,226 104,591 5,560 4,195 105,560
7 8,549 5,568 4,398 105,568 6,772 5,602 106,772
8 10,027 6,613 5,638 106,613 8,084 7,109 108,084
9 11,578 7,731 6,951 107,731 9,507 8,727 109,507
10 13,207 8,925 8,340 108,925 11,047 10,462 111,047
11 14,917 10,199 9,809 110,199 12,718 12,328 112,718
12 16,713 11,556 11,361 111,556 14,526 14,331 114,526
13 18,599 12,995 12,995 112,995 16,481 16,481 116,481
14 20,579 14,519 14,519 114,519 18,594 18,594 118,594
15 22,657 16,126 16,126 116,126 20,874 20,874 120,874
16 24,840 17,884 17,884 117,884 23,552 23,552 123,552
17 27,132 19,740 19,740 119,740 26,478 26,478 126,478
18 29,539 21,700 21,700 121,700 29,680 29,680 129,680
19 32,066 23,766 23,766 123,766 33,185 33,185 133,185
20 34,719 25,937 25,937 125,937 37,024 37,024 137,024
25 50,113 38,214 38,214 138,214 62,466 62,466 162,466
30 69,761 51,741 51,741 151,741 102,393 102,393 202,393
</TABLE>
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* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
It is emphasized that the hypothetical investment results are illustrative only
and should not be deemed a representation of past or future investment results.
Actual investment results may be more or less than those shown. The death
benefit, policy account value and net cash surrender value for a policy would be
different from those shown if actual rates of investment return applicable to
the policy averaged 0%, 6% or 12% over a period of years, but also fluctuated
above or below that average for individual policy years. The death benefit,
policy account value and net cash surrender value for a policy would also be
different from those shown, depending on the investment allocations made to the
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
